10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year Ended December 31, 2006

Commission File Number 1-14331

Interstate Hotels & Resorts, Inc.

Delaware	52-2101815
(State of Incorporation)	(IRS Employer Identification No.)

4501 North Fairfax Drive

Arlington, VA 22203

703-387-3100

www.ihrco.com

This Form 10-K can be accessed at no charge through above Web site.

Securities registered pursuant to Section 12(b) of the Act:

Common Stock par value $0.01 per share and purchase rights

for Series A Junior Participating Preferred Stock, par value $0.01 per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  o Yes  þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes  þ No

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.  þ

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 Securities Exchange Act of 1934).  o Yes  þ No

The aggregate market value of common stock held by non-affiliates of the registrant was $188,859,810 (based on the closing sale price of $9.29 on June 30, 2006 as reported by the New York Stock Exchange). For this computation, the registrant has excluded the market value of all shares of its common stock reported as beneficially owned by executive officers and directors of the registrant; such exclusion shall not be deemed to constitute an admission that such person is an “affiliate” of the registrant. The number of shares of common stock outstanding at March 1, 2007 was 31,577,277.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to the Registrant’s 2006 Annual Meeting of Stockholders are incorporated by reference into Part III. We expect to file our proxy statement on or about April 28, 2007.

INTERSTATE HOTELS & RESORTS, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2006

INDEX

			Page
PART I
	Item 1.	Business		2
	Item 1A.	Risk Factors		14
	Item 1B.	Unresolved Staff Comments		24
	Item 2.	Properties		24
	Item 3.	Legal Proceedings		25
	Item 4.	Submission of Matters to a Vote of Security Holders		25
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		25
	Item 6.	Selected Financial Data		26
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		47
	Item 8.	Financial Statements and Supplementary Data		48
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		83
	Item 9A.	Controls and Procedures		83
	Item 9B.	Other Information		84
PART IV
	Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		85
Signatures				88

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PART I

ITEM 1.   BUSINESS

Overview

We are one of the largest independent U.S. hotel management companies not affiliated with a hotel brand, measured by number of rooms under management. We have two reportable operating segments: hotel management and hotel ownership (through whole-ownership and joint ventures). A third reportable segment, corporate housing, was disposed of on January 26, 2007, with the sale of BridgeStreet Corporate Housing Worldwide, Inc. and its affiliated subsidiaries, which we refer to as “BridgeStreet.” Each segment is managed separately because of its distinct products and services. For financial information about each segment, see Note 10 to our consolidated financial statements.

In our hotel management segment, we generate revenues from fees we receive for managing a portfolio of upscale, full-service and premium, select-service hospitality properties. We also generate revenues by providing ancillary services in the hotel, resort, conference center and golf markets. The ancillary services we provide include insurance and risk management services, purchasing and project management services, information technology and telecommunications services, and centralized accounting services. Our hotel ownership segment includes our whole ownership hotel properties as well as our minority interest joint venture investments in hotel properties, which allow us to participate in the appreciation of the hotels we manage.

Our portfolio of managed properties is diversified by brand, franchise and ownership group. We manage hotels represented by more than 30 franchise and brand affiliations in addition to managing 16 independent hotels. Our managed hotels are owned by more than 50 different ownership groups, including individual investors, institutional investors, investment funds, such as Cornerstone Real Estate, private equity firms, such as The Blackstone Group, and public real estate investment trusts, or “REITs”, such as Equity Inns, Inc. and Sunstone Hotel Investors, Inc.

As of December 31, 2006, we managed 223 hotel properties and four ancillary service centers (which consist of a conference center, spa facility and two laundry centers), with 50,199 rooms in 39 states, the District of Columbia, Canada and Russia. We owned four hotel properties (and acquired a fifth on February 8, 2007) and held non-controlling equity interests in 11 joint ventures, which own or hold ownership interests in 17 of our managed properties. We also had 2,910 apartments under lease and 307 units under management in the United States, France and the United Kingdom through our BridgeStreet corporate housing division, which was sold on January 26, 2007 and is presented as part of discontinued operations in this report.

In this report, we use the terms “we”, “our”, “us”, “Interstate” and the “Company” to refer to Interstate Hotels & Resorts, Inc. We were formed on August 3, 1998, as MeriStar Hotels & Resorts, Inc., when we were spun off by CapStar Hotel Company, which then changed its name to MeriStar Hospitality Corporation, which we refer to as “MeriStar”. We then became the lessee and primary manager of all of MeriStar’s hotels at the time of the spin-off. On January 1, 2001, in connection with the implementation of new REIT tax laws that permit subsidiaries of a REIT to lease the real estate it owns, we assigned the leases on each of the properties we were leasing from MeriStar to taxable REIT subsidiaries of MeriStar and entered into management contracts with those subsidiaries for each of the hotels owned by MeriStar.

On July 31, 2002, we merged with Interstate Hotels Corporation, which we refer to as “Old Interstate,” and were renamed Interstate Hotels & Resorts, Inc. The transaction was a stock-for-stock merger of Old Interstate into us, in which Old Interstate stockholders received 4.6 shares of our common stock for each equivalent share of Old Interstate. Our stockholders continued to own the same number of shares in new Interstate following the merger. Immediately after the merger, we effected a one-for-five reverse split of our common stock. The merger was accounted for as a reverse acquisition, with Old Interstate as the accounting acquirer, and us as the surviving company for legal purposes under our new name of Interstate Hotels & Resorts, Inc.

Hotel Management

The hotels we manage are primarily located throughout the United States, including most major metropolitan areas and rapidly growing secondary cities. We also currently manage three hotels in Moscow, Russia and one hotel in Canada. Our managed hotels include hotels operated under more than 30 nationally and internationally recognized

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brand names including Marriott, Hilton, Sheraton, Westin, Radisson, Doubletree, Embassy Suites, Wyndham, and Hampton Inn.

We manage properties primarily within the upscale, full-service and premium, select-service sectors, and provide related management services for the owners of both sectors. We believe the combination of these two sectors provides us with a balanced mix of managed assets. The two sectors attract a wide variety of potential customers, including both business and leisure travelers. Our size, as one of the largest independent managers of hotels, allows us to provide systems and services to owners on a broad scale, capitalizing on the extensive experience of our corporate operations, sales and support personnel. We believe our independence from any one brand affiliation provides us the opportunity to be more flexible operationally and to have our interests more closely aligned with those of the hotel owners for which we manage.

Hotel Ownership

We believe investments in hotels through joint ventures and selective whole-ownership is a key component to our strategic growth. As of March 1, 2007, we owned four full-service hotels and one select-service hotel, as well as equity interests in 17 hotels located throughout the United States through 11 joint ventures. Our joint venture investments in hotels, which range from 5% to 50%, enable us to secure longer term management contracts, further align our interests in the hotels that we manage with owners, as well as provide us the opportunity to participate in the potential asset appreciation of these properties. We pursue whole-ownership opportunities when we believe our knowledge of the hotel, or the market in which it operates, will allow us to significantly increase the current value of the hotel. We accomplish this by making prudent capital improvements to the hotel and implementing our management strategies.

Corporate Housing

We provided short and long-term corporate housing leases and apartment management within 15 major markets in the United States, as well as internationally in London and Paris, through the BridgeStreet^®brand name in the extended corporate stay industry. In most cases, we obtained apartment leases within these markets and then sub-leased to our customers on a short-term basis. We provided high quality, fully furnished accommodations to individual and corporate customers.

On January 26, 2007, we sold BridgeStreet to an affiliate of Sorrento Asset Management, an Ireland-based company, for approximately $40.5 million in cash. For a period of one year following the sale, we have agreed to indemnify the purchaser and its affiliates from, and against, any and all losses asserted against or incurred as a result of our breach of any representation, warranty, covenant, or agreement made in connection with the sale; any transaction expenses incurred by BridgeStreet in connection with the sale; any legal or government action with respect to actions or inactions concerning employment matters of BridgeStreet prior to the sale and any withdrawal liability with respect to a “multiemployer plan” (as defined in Section 3(37) of ERISA) arising under Title IV of ERISA solely as a result of any of the BridgeStreet companies having been our ERISA affiliate. The purchase price is subject to a post-closing adjustment based on the calculation of the difference between actual values for working capital, indebtedness and transaction expenses of BridgeStreet on the one hand, and estimates for such values made prior to the closing date of the sale, on the other hand. Such a calculation is to be made within 90 days of the closing date of the sale. We expect to redeploy the proceeds from this sale into investments in hotel real estate through wholly-owned acquisitions and joint ventures.

Financial information by reportable segment as of December 31, 2006, and for the three fiscal years then ended appears in our Consolidated Financial Statements included in Item 8 of this report.

Business Strategy

In 2007, we re-defined our business strategy. Through the disposition of our corporate housing business segment, management can now focus solely on the hotel industry. We believe this strategic focus will enhance our overall long-term growth by allowing us to deploy all of our resources and expertise to our core area of operations. Our overall strategy to grow our core business in the hotel industry is to recruit and maintain a high quality management team, follow a disciplined investment philosophy, and provide “best in class” service to our customers and owner groups. We believe this strategy will, in turn, provide strong long-term growth opportunities for our stockholders.

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Hotel Management

Our principal operating objectives in our hotel management segment are to generate higher revenue per available room, or RevPAR, control costs and increase the net operating income of the hotels we manage, while providing our guests with high-quality service and value. We believe that skilled management is the most critical element in maximizing revenue and cash flow in properties. Our senior hotel management team has successfully managed hotels in all sectors of the lodging industry. We attribute our management success to our ability to analyze each hotel as a unique property and to identify specific opportunities for RevPAR growth, as well as cash flow growth, available at each hotel. The challenging operating cycles that the hospitality industry encounters make our breadth and depth of experience and application of sound strategies even more valuable to the owners of the hotels we manage.

Our corporate office associates implement financing and investment activities and provide services to support and monitor our on-site hotel operations and executives. Each of our disciplines, including hotel operations, sales and marketing, human resources, food and beverage, technical services, information technology, development, risk management, legal and corporate finance, is staffed by an experienced team with significant expertise in their respective area. These departments support the hotel executives and their day-to-day activities by providing online, real-time financial reporting and review; accounting and budgeting services; sales and revenue management; cost controls; property management tools and other resources that we create, maintain and deliver efficiently and effectively using our centralized corporate office resources.

Key elements of our management programs include the following:

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

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

•  Strategic Capital Improvements — We, and the owners of the properties we manage, plan renovations primarily to enhance a property’s appeal to targeted market segments. These improvements are designed to attract new customers and generate increased revenue and cash flow as well as ensure compliance with brand standards imposed by the hotel brands associated with our managed hotels. For example, in many of our properties, the banquet and meeting spaces have been renovated, and guest rooms have been upgraded with high speed internet access and comfortable work spaces to better accommodate the needs of business travelers so we can increase average daily rates, or ADR. We base recommendations on capital spending decisions on both strategic needs and potential rate of return on a given capital investment. While we provide project management services for many capital improvement projects through our purchasing, construction and design subsidiary, the owners of the properties are responsible for funding capital expenditures.

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•  Strategic Use of Brand Names — We believe the selection of an appropriate franchise brand is essential in positioning a hotel property optimally within its local market. We select for the properties we own, or work with the owner to select for the properties we manage, brands based on local market factors such as local presence of the franchisor, brand recognition, target demographics and efficiencies offered by franchisors. We believe our solid relationships with all of the major hotel franchisors place us in a favorable position when dealing with those franchisors and allow us to assist our owners in negotiating favorable franchise agreements with franchisors. We believe our ability to acquire additional management contracts will further strengthen our relationship with franchisors. While we provide market analysis and other strategic support data, the owners of the properties are responsible for deciding upon and implementing a specific brand.

The following chart summarizes information on the national franchise affiliations of the properties we managed as of December 31, 2006:

	Guest				% of
Franchise	Rooms		Hotels		Rooms
Marriott®		6,471		21		12.9	%
Sheraton®		5,295		17		10.6	%
Hilton®		4,957		17		9.9	%
Hampton Inn®		4,044		31		8.1	%
Residence Inn by Marriott®		3,673		24		7.3	%
Crowne Plaza®		2,421		7		4.8	%
Courtyard by Marriott®		2,369		14		4.7	%
Holiday Inn®		2,348		11		4.7	%
Westin®		2,049		3		4.1	%
Doubletree®		1,795		5		3.6	%
Radisson®		1,763		6		3.5	%
Wyndham®		1,384		4		2.8	%
Embassy Suites®		1,274		5		2.5	%
Hilton Garden Inn®		1,015		7		2.0	%
Homewood Suites®		736		5		1.5	%
Doral®		571		2		1.1	%
Four Points by Sheraton®		570		3		1.1	%
Renaissance®		548		1		1.1	%
Holiday Inn Express®		450		4		0.9	%
Comfort Inn®		357		3		0.7	%
Country Inn and Suites®		312		2		0.6	%
Amerisuites®		279		2		0.6	%
Economy Inn and Suites®		271		1		0.5	%
Hawthorne Suites®		270		1		0.5	%
Ramada Inn®		266		2		0.5	%
Best Western®		250		3		0.5	%
Holiday Inn Select®		189		1		0.4	%
La Quinta Inn and Suites®		148		1		0.3	%
Comfort Suites®		119		1		0.2	%
Staybridge Suites®		108		1		0.2	%
Quality Inn®		91		1		0.2	%
Fairfield Inn by Marriott®		90		1		0.2	%
Total — Franchise Affiliations		46,483		207		92.6	%
Independent		3,716		16		7.4	%
Total		50,199		223		100.0	%

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•  Emphasis on Food and Beverage — We believe popular food and beverage concepts are a critical component in the overall success of a full-service hospitality property. We utilize the corporate resources of our food and beverage operations to create programs which generate local awareness of our hotel facilities, to improve the profitability of our hotel operations, and to enhance customer satisfaction. We are committed to competing for patrons with restaurants and catering establishments by offering high-quality restaurants that garner positive reviews and strong local and/or national reputations. We have developed several proprietary restaurant concepts such as “The Oakroom,” a locally renowned restaurant at The Seelbach Hilton, located in Louisville, KY. We have also successfully placed national food franchises such as the Regatta Restaurant & Bar^®, Pizza Hut^®, Starbuck’s Coffee^® and “TCBY”^® in several of our hotels. We believe popular food concepts will strengthen our ability to attract business travelers and group meetings and improve the name recognition of our properties.

•  Commitment to Service and Value — We are dedicated to providing consistent, exceptional service and value to our customers. We place significant corporate attention on maintaining guest satisfaction scores in accordance with the standards of the various brands, so our scores are consistently above relevant standards. We conduct employee training programs to ensure high-quality, personalized service. We have created and implemented programs to ensure the effectiveness and uniformity of our employee training through our centralized human resources department at our corporate office. Our practice of tracking customer comments through guest comment cards, and the direct solicitation of guest opinions regarding specific items, allows us to target investments in services and amenities at each hotel across our portfolio. Our focus on these areas has enabled us to attract business.

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

•  Business Intelligence — We employ real-time, web-based reporting systems at each of our properties and at our corporate office to monitor the daily financial and operating performance of each of the properties. We have integrated information technology services through networks at many of the properties. We utilize information systems that track each property’s daily occupancy, average daily rates, and revenue from rooms, food and beverage, as well as quality improvement initiatives and brand standard assurance programs. By having current property operating information available on a timely basis, we are better able to respond quickly and efficiently to changes in the market of each property.

Hotel Ownership

In 2005, we purchased the 329-room Hilton Concord located in the East Bay area of San Francisco, California and the 195-room Hilton Durham near Duke University, both of which are full-service hotels. In 2006, we purchased the 131-room Hilton Garden Inn Baton Rouge Airport, a select-service hotel in Louisiana and the 308-room Hilton Arlington, a full-service hotel in Texas. In February 2007, we purchased the 297-room Hilton Houston Westchase, a full-service hotel in Texas.

The following table provides information relating to our real estate investments as of December 31, 2006.

	Number		Our Equity
Name	of Rooms		Participation
Wholly-Owned Hotels:
Hilton Concord		329		100.0	%
Hilton Durham		195		100.0	%
Hilton Garden Inn Baton Rouge		131		100.0	%
Hilton Arlington		308		100.0	%
Total Hotel Rooms — Owned Hotels		963

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	Number		Our Equity
Name	of Rooms		Participation
Joint Venture Investments:
CNL IHC Partners, L.P.				15.0	%
Courtyard Hartford/Manchester		90
Hampton Inn Houston Galleria		176
Residence Inn Hartford/Manchester		96
RQB Resort/Development Investors, LLC				10.0	%
Sawgrass Marriott Resort and Spa		508
CapStar Hallmark Company LLC				50.0	%
Crowne Plaza St. Louis Riverfront		440
Orchard Park Associates, L.P.				5.0	%
Comfort Suites Norwich		119
Campus Associates, L.P.				12.5	%
Nathan Hale Inn & Conference Center		99
Amitel Holdings, LLC				15.0	%
Residence Inn Beachwood		174
Residence Inn Cleveland Airport		158
Residence Inn Cleveland Downtown		175
Residence Inn Independence		118
Residence Inn Mentor		96
Residence Inn Westlake		104
True North Tesoro Property Partners, L.P.				15.9	%
Doral Tesoro Hotel & Golf Club		286
Cameron S-Sixteen Hospitality, LLC				10.9	%
Hotel 43 (formerly the Statehouse Inn)		112
Cameron S-Sixteen Broadway, LLC				15.7	%
Boise Courtyard by Marriott		162
Middletown Hotel Associates, L.P.				12.5	%
Inn at Middletown		100
IHR Greenbuck Hotel Venture, LLC(1)		—		15.0	%
Total Hotel Rooms — Joint Venture Investments		3,013

(1) Room number is not listed since this joint venture is in the process of developing hotels.

Our plan is to continue to expand our portfolio of owned hotels, resorts and conference centers through investments in joint ventures and selective whole-ownership opportunities. Our joint venture investment strategy is designed, in part, to secure additional full-service and select-service management contracts. We attempt to identify properties that are promising acquisition candidates located in markets with economic, demographic and supply dynamics favorable to hotel owners. Through our vast network of industry contacts, coupled with our due diligence process, we seek to select those acquisition targets where we believe that selected capital improvements and focused management will increase the property’s ability to attract key demand segments, demonstrate better financial performance, and increase long-term value. In order to evaluate the relative merits of each investment opportunity, senior management and individual operations teams create detailed plans covering all areas of renovation and planned operation. These plans serve as the basis for our expansion decisions and guide subsequent renovation and operating plans.

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We seek to invest in properties that meet the following market and hotel criteria:

General Market Criteria

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

•  Supply Constraints — We seek lodging markets with favorable supply dynamics for property owners. These dynamics include an absence of significant new hotel development and barriers to future development such as zoning constraints, the need to undergo lengthy local development approval processes, and a limited number of suitable sites.

•  Geographic Diversification — We seek to maintain a geographically diverse portfolio of properties to offset the effects of regional economic cycles. We will look to expand into international markets as opportunities arise that meet our investment criteria.

Specific Hotel Criteria

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

•  Size and Facilities — We seek to invest in additional select-service hotels with 100 to 200 guest rooms and full-service hotels with 200 to 500 guest rooms, which include accommodations and facilities that are, or can be made, attractive to key demand segments such as business, group and leisure travelers. These facilities typically include upscale guest rooms, food and beverage facilities, extensive meeting and banquet space, and amenities such as health clubs and swimming pools.

•  Potential Performance Improvements — We target under-performing hotels where intensive management and selective capital improvements can increase revenue and cash flow. These hotels represent opportunities to improve property performance by implementing our systematic management approach and targeted renovations.

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

Asset Management

We believe we can maximize the value of our hotel portfolio through aggressive asset management. We continue to evaluate key performance indicators against established benchmarks and historical performance to ensure that an appropriate level of assistance is provided to our managers to maximize opportunities at each asset/property. Areas of focus include enhancing revenue management for rooms, food and beverage and other services, reducing operating and overhead expenses and identifying operating efficiencies through the benchmarking process, all of which improve the long-term profitability of the hotel. We also continuously focus on the guest satisfaction measurement process to ensure that we maintain a balance of profitability and guest satisfaction, further enhancing the long-term asset value of our portfolio.

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Our asset management and development departments work closely with our managers in overseeing capital expenditure budgets to ensure that our hotels are in good physical condition, highly competitive in the market and compliant with brand standards. We also work with our managers to ensure that renewal and replacement expenditures are efficiently spent to maximize the profitability of the hotel. In addition, we pursue opportunities to enhance asset value by completing selective capital improvements outside the scope of the typical renewal and replacement capital expenditures. These capital improvements may include converting under-utilized space to alternative uses, building additional guest rooms, recreational facilities, meeting space or exhibit halls, and installing energy management systems and increasing energy efficiency wherever possible. When appropriate, we also consider the complete repositioning of a hotel in a given market, which often includes a complete renovation of guest rooms, meeting rooms and public space modifications, and can also include a change in brand and name.

Corporate Housing

We acquired BridgeStreet in May 2000. Through BridgeStreet, we provided corporate housing services in metropolitan markets located in the United States, the United Kingdom and France. As of December 31, 2006, our BridgeStreet corporate housing division had 2,544 apartments under direct leases and 366 corporate housing units rented through other network partners. We also had apartment management agreements covering 307 apartments in the United Kingdom. Through our BridgeStreet brand, we offered high-quality, fully furnished one-, two- and three-bedroom accommodations.

On January 26, 2007, we sold BridgeStreet to an affiliate of Sorrento Asset Management, an Ireland-based company, for approximately $40.5 million in cash. We expect to redeploy the proceeds from this sale into investments in hotel real estate through wholly-owned acquisitions and joint ventures. The operations of our corporate housing segment are reported as discontinued operations in our consolidated statement of operations for all periods presented, and the assets and liabilities are presented as held for sale on our consolidated balance sheet as of December 31, 2006.

Relationship with MeriStar/Blackstone

On February 21, 2006, MeriStar announced that it had entered into a definitive agreement to be acquired by The Blackstone Group. The acquisition closed in May 2006. Our management agreements for the 44 hotels Blackstone acquired as a result of the transaction were not affected by the transaction, and the Blackstone entities have and will have the same rights and duties (including with respect to budget setting, asset management and termination) as MeriStar did under those contracts. Throughout the remainder of 2006, Blackstone took over management or sold seven properties, one of which was the Hilton Arlington, which we acquired in October 2006, and one of which we continue to manage under a long-term management contract with the new owner. The total management fees for all MeriStar/Blackstone properties (including $3.2 million of business interruption proceeds) accounted for $20.3 million, or 27.0%, of management fees in 2006. At December 31, 2006, we managed 37 properties for Blackstone. As of March 1, 2007, Blackstone has disposed of four additional hotels, one of which was the Hilton Houston Westchase, which we acquired in February 2007, and another of which we continue to manage with the new owner. Based on our discussions with Blackstone and its dispositions to date, we believe that Blackstone’s intention is to sell most of the remaining 33 properties within five years. Due to this information, we have revised the amortization period of our management contract intangible assets for these properties to approximately four years, which corresponds to the end of the initial management contracts.

During August 2006, we entered into an amendment to our master fee agreement with Blackstone. The amendment allowed Blackstone to transition three properties from management by us without the sale of the property. In exchange, we received the right to preclude Blackstone from substituting any future management agreements given to us to reduce or offset its currently payable termination fees for hotels that had been sold as of August 2006. The amendment removed all contingencies related to the receipt of the agreed upon termination fee payments due from Blackstone. As a result, we recognized, on a present value basis, the $15.1 million of termination fees due to us as of the date of the amendment. During 2006, we recorded a total of $24.3 million in termination fees related to hotels sold by either Blackstone or by MeriStar during their period of ownership.

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The total base management fee for each of the hotels we manage for Blackstone is 2.5% of total hotel revenue. However, with incentive fees, we have the potential to earn up to 4% of total revenues. The total base and incentive fee revenue in 2006 was 2.65% of total hotel revenue. The management agreements have initial terms of 10 years (to expire in December 2010), with three renewal periods of five years each. A renewal will go into effect unless we elect not to renew the agreement. Blackstone may terminate a management agreement for a hotel upon sale or if the hotel is destroyed and not rebuilt after a casualty. In the event of termination, Blackstone will be required to pay us termination fees (as described in the bullet points below).

Blackstone also has the right to terminate a management agreement if certain performance standards at the hotel are not met in consecutive calendar years. If a management agreement is terminated for this reason, Blackstone is not required to pay a termination fee. In addition, as described below, Blackstone has additional termination rights in connection with the termination of our intercompany agreement in 2004. We do not have the right to assign a management agreement without the prior written consent of the relevant taxable subsidiary of Blackstone. A change in control of our Company would require Blackstone’s consent.

Termination of Intercompany Agreement

We and MeriStar historically had a close operating relationship under the terms of our intercompany agreement signed at the time of our spin-off from CapStar. Effective July 1, 2004, we and MeriStar agreed to terminate the intercompany agreement. We believe the termination of the intercompany agreement was an important step in our efforts to pursue our strategy of increasing our investment in hotels and resorts as we were able to pursue real estate investment opportunities without first having to offer the opportunity to MeriStar/Blackstone. In connection with the termination of the intercompany agreement, we agreed to modify the management agreements under which we managed the MeriStar hotels. The modifications also apply to our agreements that were formerly with MeriStar, which have been taken over by Blackstone. The modifications were as follows:

•  MeriStar/Blackstone may terminate management agreements each year representing up to 600 rooms with the payment of a one-time termination fee equal to 18 months of management fees and, if all 600 rooms are not terminated in a given year, the remaining portion of the 600 rooms may be carried over to the subsequent year;

•  MeriStar/Blackstone may terminate a management agreement if we make an investment in a hotel that is in the competitive set of any MeriStar/Blackstone hotel (provided that the termination request occurs between 12 and 18 months following the date of our investment); and

•  We will calculate the termination fees based upon an average of the present value of remaining estimated management fees due to us under the remaining life of the contract: (a) discounted as annual payments and (b) discounted based on a lump sum payment at the end of the contract term. The remaining life under the current contract is approximately four years. Upon renewal, termination fees will calculate from the remaining life of the renewal period. The period during which termination fees are paid (other than as described in the first bullet point above) is extended from 30 months to 48 months and MeriStar/Blackstone may reduce the termination fee by providing a new hotel for us to manage to replace the terminated hotel within 30 months. We also agreed to provide MeriStar/Blackstone with a $2.5 million credit against termination fees owed for hotels to be sold, all of which had been utilized as of December 31, 2005.

See “Risk Factors — Risk Factors Related to Our Business — Our management agreements may be terminated or not renewed under various circumstances, including if the properties to which they relate are sold or otherwise disposed of by their owners, potentially impacting our results of operations materially” and “— A large percentage of our managed properties are owned by a small group of owners, which could result in the loss of multiple management agreements in a short period.”

Relationships with Other Significant Owners

In October 2004, we entered into a Stock Purchase Agreement with Sunstone Hotel Investors, which we refer to as “Sunstone REIT,” to acquire Sunstone Hotel Properties, which we refer to as “Sunstone,” a hotel management company. In connection with the acquisition, Sunstone entered into new management contracts with respect to 52 hotels and two ancillary service centers previously managed by Sunstone, 50 of which were owned by Sunstone REIT and its affiliates. The management agreements have an initial term of 20 years, with two extensions of five years each. As of December 31, 2006, our Sunstone subsidiary managed 37 hotels and two ancillary service centers,

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which accounted for 9,650 rooms, or 19.2% of our total managed rooms. The Sunstone properties accounted for $10.0 million, or 13.3% of total management fees in 2006.

As of December 31, 2006, Sunstone REIT was allowed to terminate management agreements each year representing up to 300 rooms, which can be carried over if not used in the current year, up to a maximum carryover of 1,600 rooms. Aside from this room credit, Sunstone REIT would be required to pay us 150% of annual management fees as a termination fee if a contract is terminated prior to the end of its initial term. If all of the remaining 37 contracts were terminated as of December 31, 2006, Sunstone REIT would owe us between $10 million and $12 million in termination fees.

As of December 31, 2006, we managed three hotels in Moscow for a single owner. The management agreements expire between 2022 and 2024. If these contracts were terminated prior to the end of their initial term, we would be due termination fees. These hotels accounted for 12.7% of total management fees in 2006. We have signed a management contract to manage an additional hotel for this owner, which is expected to commence in late 2007.

Intellectual Property and Franchises

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

Generally, the third-party owners of our hotels, rather than us, are parties to the franchise agreements permitting the use of the trade names under which the hotels are operated. We are a party, however, to certain franchise agreements with Marriott and with Hilton for the hotels we wholly-own. In the case where we are not the owner of the hotels, the hotel owners are required to reimburse us for all costs incurred in connection with these franchise agreements. Our franchise agreements to use these trade names expire at varying times, generally ranging from 2007 to 2021. We have registered with the United States Patent and Trademark Office the trademarks “BridgeStreet^®”, “Colony^®” and “Doral^®”, used in our business. We utilize these trademarks in connection with managing hotels and our corporate housing business. We do not believe that the loss or expiration of any or all of our trademarks would have a material adverse effect on our business. The registrations for our marks expire at varying times, generally ranging from 2007 to 2015. Our “BridgeStreet^®” trademark was transferred with the disposition of our corporate housing segment in January 2007.

Governmental Regulation

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

We currently manage four properties internationally and have signed management contracts for an additional four international properties, which will commence in 2007 and 2008. There are risks inherent in conducting business internationally. These include employment laws and practices in foreign countries; tax laws in foreign countries, which may provide for tax rates that exceed those of the U.S. and which may provide that our foreign earnings are subject to withholding requirements or other restrictions; unexpected changes in regulatory requirements or monetary policy; and other potentially adverse tax consequences.

Americans with Disabilities Act

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

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of complying with the Americans with Disabilities Act. Those costs, however, are not expected to have a material adverse effect on our results of operations or financial condition.

Environmental Law

Under various federal, state and local and foreign environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for noncompliance with applicable environmental, health and safety requirements and for the costs of investigation, monitoring, removal or remediation of hazardous or toxic substances. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of those hazardous or toxic substances on a property could also result in personal injury or property damage or similar claims by private parties. In addition, the presence of contamination, or the failure to report, investigate or properly remediate contaminated property, may adversely affect the operation of the property or the owner’s ability to sell or rent the property or to borrow using the property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of those substances at the disposal or treatment facility, whether or not that facility is or ever was owned or operated by that person. The operation and removal of underground storage tanks are also regulated by federal and state laws. In connection with the ownership and operation of hotels, the operators, such as us, or the owners of those properties, could be held liable for the costs of remedial action for regulated substances and storage tanks and related claims. Environmental laws and common law principles could also be used to impose liability for releases of hazardous materials, including asbestos-containing materials, into the environment, and third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to released asbestos-containing materials or other hazardous materials. We are not currently aware of any potential material exposure as a result of any environmental claims.

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

In addition, a significant number of the hotels that we own or manage have been inspected to determine the presence of asbestos. Federal, state and local environmental laws, ordinances and regulations require containment, abatement or removal of asbestos-containing materials and govern emissions of and exposure to asbestos fibers in the air. Asbestos-containing materials are present in various building materials such as sprayed-on ceiling treatments, roofing materials or floor tiles at some of the hotels. Operations and maintenance programs for maintaining asbestos-containing materials have been or are in the process of being designed and implemented, or the asbestos-containing materials have been scheduled to be or have been abated at these hotels at which we are aware that asbestos-containing materials are present. We are not currently aware of any potential material exposure as a result of any asbestos-related claims.

We have also detected the presence of mold at one of our owned hotels and generally, we remediate the conditions as part of on-going routine maintenance. Many of the costs associated with remediation of mold may be excluded from coverage under our property and general liability policies, in which event we would be required to use our own funds to remediate. Further, in the event moisture infiltration and resulting mold is pervasive, we may not be able to rent rooms at that hotel, which could result in a loss of revenue. We can make no assurance that liabilities resulting from moisture infiltration and the presence of or exposure to mold will not have a future material adverse effect on our business, financial condition, results of operations and ability to make distributions to our stockholders.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination or exposure to hazardous substances such as asbestos, lead paint or black mold. In recent years, concern about indoor exposure to mold has been increasing as such exposure has been alleged to have a variety of adverse effects on health. As a result, there has been an increasing number of lawsuits against owners and managers of real property relating to the presence of mold. Damages related to the presence of mold are generally

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excluded from our insurance coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, which could have an adverse impact on our results of operations or financial condition.

Other Regulatory Issues Related to Corporate Housing

As a lessee of accommodations through our corporate housing segment, we believed our employees were either outside the purview of, exempted from or in compliance with laws in the jurisdictions in which we operated requiring real estate brokers to hold licenses. However, there can be no assurance that our position in any jurisdiction would be upheld if challenged or that any such jurisdiction will not amend its laws to require us and/or one or more of our employees to be licensed brokers.

In some of the jurisdictions in which BridgeStreet operated, we believed that we were not required to charge guests the sales and “bed” taxes that are applicable to establishments furnishing rooms to transient guests. We cannot provide assurance, however, that the tax laws in particular jurisdictions will not change or that a tax collection agency will not successfully challenge our position regarding the applicability of tax laws. We believe that we have substantially complied with the laws governing the collection and remission of such taxes in all jurisdictions where we were required to do so.

Although we sold BridgeStreet in January 2007, we may be required to indemnify the purchaser to the extent our policies during the time we owned it were found to not be in compliance with these regulations.

Competition

We compete primarily in the following segments of the lodging industry: the upscale and mid-priced sectors of the full-service segment and the select-service segment and resorts. Other full and select-service hotels and resorts compete with our properties in each geographic market in which our properties are located. Competition in the United States lodging industry is based on a number of factors, most notably convenience of location, brand affiliation, price, range of services and guest amenities or accommodations offered and quality of customer service and overall product.

In addition, we compete for hotel management contracts against numerous competitors, many of which have more financial resources than us. These competitors include the management arms of some of the major hotel brands as well as independent, non-brand-affiliated hotel managers. See “Risk Factors — Risk Factors Related to Our Business — We face significant competition in the lodging industry and in the acquisition of real estate properties.”

Employees

As of December 31, 2006, we employed approximately 25,500 associates, of whom approximately 22,200 were compensated on an hourly basis. We are reimbursed for wages of hotel employees by the hotel owners. Some of the employees at 22 of our hotels are represented by labor unions. We believe that labor relations with our employees are generally good.

Seasonality

Generally, hotel revenues are greater in the second and third calendar quarters than in the first and fourth calendar quarters. This may not be true, however, for hotels in tourist destinations as revenues for hotels in tourist areas generally are substantially greater during tourist season than other times of the year. Seasonal variations in revenue at the hotels we own or manage will cause quarterly fluctuations in revenues.

Website Access to Reports

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

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ITEM 1A.   RISK FACTORS

You should carefully consider the risk factors set forth below as well as the other information contained in this Annual Report on Form 10-K in connection with evaluating us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, results of operations or financial condition. Certain statements in “Risk Factors” are forward-looking statements. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward Looking Statements” for additional information about our business, results of operations and financial condition.

Risk Factors Related to Our Business

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

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

•  changes in national, regional and local economic conditions;

•  cyclical overbuilding in the lodging industry;

•  varying levels of demand for rooms and related services;

•  competition from other hotels, resorts and recreational properties, some of which may have greater marketing and financial resources than we or the owners of the properties we manage have;

•  the creditworthiness of the owners of the hotels that we manage and the risk of bankruptcy by hotel owners;

•  uninsured property, casualty and other losses;

•  disruptions due to weather conditions and other calamities, such as hurricanes;

•  labor disturbances or shortages of labor;

•  the ability of any joint ventures in which we invest to service any debt they incur and the risk of foreclosure associated with that debt;

•  our ability to service debt;

•  present or future environmental laws and regulations;

•  dependence on business and commercial travelers and tourism, which may fluctuate and be seasonal;

•  decreases in air travel;

•  fluctuations in operating costs;

•  the effects of owners not funding recurring costs of operations, necessary renovations, refurbishment and improvements of hotel properties;

•  changes in technology which may lead to changes in business, commercial and leisure travel frequency and/or patterns;

•  fluctuations in demand resulting from threatened or actual acts of terrorism or hostilities;

•  changes in governmental regulations that influence or determine wages, prices and construction and maintenance costs;

•  changes in interest rates and the availability of credit to us and owners of the hotels we manage; and

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•  demographic, geographic or other changes in one or more markets could impact the convenience or desirability of the sites of some hotels, which would, in turn, affect the operations of those hotels.

We encounter industry-related risks related to our investments in and ownership of hotels and other real estate that could adversely impact its value to us.

In addition to the operating risks described above, with respect to hotels and real estate where we hold an ownership interest, we have the following additional risks:

•  changes in local real estate market conditions;

•  changes in the markets for particular types of assets;

•  present or future environmental legislation;

•  the recurring costs of necessary renovations, refurbishment and improvements of hotel properties;

•  adverse changes in zoning and other laws;

•  adverse changes in real estate tax assessments;

•  construction or renovation delays and cost overruns; and

•  limitations on our ability to quickly dispose of investments and respond to changes in the economic or competitive environment due to the relative illiquidity of real estate assets.

Most of these factors will be beyond our control. As we expand through acquisition or development of real estate, the magnitude of these risks may increase. Any of these factors could have a material and adverse impact on the value of our assets or on the revenues that can be generated from those assets. In addition, due to the level of fixed costs required to operate upscale and select-service hotels, significant expenditures necessary for the operation of these properties generally cannot be reduced when circumstances cause a reduction in revenue.

The economy could adversely affect the performance of hotels and the retention of our existing hotel management agreements.

As the economy has continued to grow since 2004, increased hotel values have resulted in an increased rate of disposition by the owners of hotels we manage, which has led to the loss of management contracts. The loss of associated management contracts could have an adverse effect on our revenues to the extent we do not replace lost management contracts with new ones. If the economy again deteriorates, the economic slowdown may lead to an increased risk of bankruptcy by owners of hotels and/or foreclosures on the hotel properties, which may inhibit our ability to collect fees under our management agreements or may lead to their termination.

A large percentage of our managed properties are owned by a small group of owners, which could result in the loss of multiple management agreements in a short period.

A significant portion of our managed properties and management fees are derived from five owners. This group of owners represents 61.9% of our managed properties as of December 31, 2006 and 62.5% of our base and incentive management fees (including $3.2 million of business interruption proceeds) for the year ended December 31, 2006. Our portfolio of managed properties could be adversely impacted if any of these owners were acquired by another entity, sold their portfolio or entered into a property disposition plan. Due to the significant number of hotel purchase and sale transactions in the current market, the likelihood of one of these events occurring is more likely than in prior years. As of March 1, 2007, Blackstone owns 33 hotels that we manage, and it has stated that it intends to dispose of most of these properties within the next five years, which could result in the termination of those management agreements. In addition to lost revenues, the termination of management agreements could result in the impairment of intangible assets and goodwill. See “— Our management agreements may be terminated or not renewed under various circumstances, including if the properties to which they relate are sold or otherwise disposed of by their owners, potentially impacting our results of operations materially.”

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If our revenues are negatively affected by one or more particular risks, our owned hotels operating margins could suffer.

We report operating revenues and expenses from our owned hotels; therefore, we are susceptible to changes in operating revenues and are subject to the risk of fluctuating hotel operating margins at those hotels. Hotel operating expenses include, but are not limited to, wage and benefit costs, energy costs, supplies, repair and maintenance expenses, utilities, insurance and other operating expenses. These operating expenses can be difficult to predict, resulting in unpredictability in our operating margins. Also, due to the level of fixed costs required to operate full-service hotels, we generally cannot reduce significant expenditures necessary for the operation of hotels when circumstances cause a reduction in revenue.

Our management agreements may be terminated or not renewed under various circumstances, including if the properties to which they relate are sold or otherwise disposed of by their owners, potentially impacting our results of operations materially.

If the owner of a property we manage disposes of the property or under certain management agreements, if specified performance standards at the hotel are not met, our management agreement may be terminated. Similarly, if an owner of properties we manage is acquired, the subsequent owner may terminate our management agreements. Although the management agreements with two of our most significant owners (Blackstone and Sunstone REIT) contain termination fee provisions, our management agreements with other owners generally have limited or no termination fees payable to us if a hotel is sold and the agreement is terminated. The termination of management contracts as a result of hotel dispositions or otherwise could therefore have an adverse effect on our revenues. As of December 31, 2006, approximately 82 of our management agreements had current terms scheduled to expire within two years. In addition, for certain of our owners, including Blackstone, we do not have the right to assign a management contract to an unrelated third party without prior written consent of the relevant hotel owner. A change in control of our Company would require the consent of these owners.

We are currently in discussions with Blackstone as to its plans for its 33 remaining hotels as of March 1, 2007. Although the termination of the relevant management agreements by Blackstone or by the new owners of those hotels would likely result in the payment of termination fees, it is expected that Blackstone will dispose of most of those hotels within the next five years. The termination of these management contracts would most likely result in the write-off of management contract intangible assets of approximately $16.7 million (assuming they were all terminated on January 1, 2007) and require an evaluation for potential impairment of our goodwill. These 33 hotels account for approximately 10,200 rooms and $11.1 million of management fees in 2006, or 20.3% of total rooms under management and 14.8% of total management fees in 2006. Therefore, the termination of the management agreements with respect to those hotels could have a material adverse effect on our hotel management revenues and our profitability.

A high percentage of the hotels we manage are upscale hotels so we may be particularly susceptible to an economic downturn, which could have a material adverse effect on our results of operation and financial condition.

Approximately 77.1% of the rooms our hotel management division manages are in hotels that are classified as upscale or upper-upscale hotels. These hotels generally command higher room rates. However, in an economic downturn, these hotels may be more susceptible to a decrease in revenues, as compared to hotels in other categories that have lower room rates. This characteristic results from hotels in this segment generally targeting business and high-end leisure travelers. In periods of economic difficulties, business and leisure travelers may seek to reduce travel costs by limiting trips or seeking to reduce costs on their trips. Adverse changes in economic conditions could have a material adverse effect on our results of operations and financial condition.

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

The threat of terrorism could have a negative impact on hotel operations, causing lower than expected performance, particularly in weak economic cycles. The threat of terrorism could cause a significant decrease in hotel occupancy

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and average daily rates and result in disruptions in business and leisure travel patterns due to concerns about travel safety. Future outbreaks of hostilities could have a material negative effect on air travel and on our business. In addition, increased security measures at airports or in major metropolitan areas may also cause disruptions to our operations.

During the past three years, we have experienced significant improvements in operating levels compared to periods more proximate to the September 11, 2001 terrorist attacks. However, the uncertainty associated with subsequent incidents and threats and the possibility of future attacks may continue to hamper business and leisure travel patterns. In addition, potential future outbreaks of Severe Acute Respiratory Syndrome, Avian Influenza or other contagious diseases and similar disruptive events could have a material adverse effect on our revenues and results of operations due to decreased travel and occupancy, especially in areas affected by the events.

We are dependent on the owners of the hotel properties we manage to fund operational expenditures related to those properties, and if such funds are untimely or not paid, we are required to bear the cost.

We incur significant expenditures related to the management of hotel properties, including salary and other benefit related costs and business and employee related insurance costs for which we are reimbursed by the hotel owners. In the normal course of business, we make every effort to pay these costs only after receiving payment from an owner for such costs. However, to the extent an owner would not be able to reimburse these costs, due to a sudden and unexpected insolvency situation or otherwise, we would be required to pay these costs directly until such time as we could make other arrangements. Although we would make every effort to eliminate these costs prior to the point at which an owner could not reimburse us and we would continue to pursue payment through all available legal means, our results of operations could be adversely affected if we were forced to bear those costs.

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

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

An important part of our growth strategy will be the investment in, and acquisition of, hotels. Continued industry consolidation and competition for acquisitions could adversely affect our growth prospects going forward. We will compete for hotel and other investment opportunities with other companies, some of which may have greater financial or other resources than we have. Competitors may have a lower cost of capital and may be able to pay higher prices or assume greater risks than would be prudent for us to pay or assume. If we are unable to make real estate investments and acquisitions, our continued growth could be impaired.

A significant factor in our strategic plan is the creation of joint ventures to acquire hospitality properties. The creation of joint ventures is a complicated process and the identification of suitable partners requires considerable effort. Should we be unsuccessful in creating joint ventures, our continued growth could be impaired.

We face significant competition in the lodging industry and in the acquisition of real estate properties.

There is no single competitor or small number of competitors that are dominant either in the hotel management or lodging business. We operate in areas that attract numerous competitors, some of which may have substantially greater resources than we or the owners of the properties that we manage have, including Marriott International, Inc., Starwood Hotel & Resorts Worldwide, Inc. and Hilton Hotels Corporation, among others. Competition in the lodging industry is based generally on location, availability, room rates, range and quality of services and guest amenities offered. New or existing competitors could lower rates; offer greater conveniences, services or amenities; or significantly expand, improve or introduce new facilities in markets in which we compete. Any of these factors could adversely affect operations and the number of suitable business opportunities. In addition, we compete for

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hotel management contracts against numerous other companies, many of which may have greater financial resources than we have. These competitors include the management divisions of the major hotel brands as well as independent, non-brand affiliated hotel managers.

We expect to acquire additional hotel properties from time to time. The acquisition of properties involves risks, including the risk that the acquired property will not perform as anticipated and the risk that any actual costs for rehabilitating, repositioning, renovating and improving identified in the pre-acquisition process will exceed estimates. There is, and it is expected that there will continue to be, significant competition for acquisitions that meet our investment criteria as well as risks associated with obtaining financing for acquisition activities. The continuing consolidation in the hotel industry may also reduce the availability of opportunities for us to acquire hotels. Our failure to make such acquisitions could have a material adverse effect on our ability to carry out our growth strategy.

Investing through partnerships or joint ventures decreases our ability to manage risk.

In addition to acquiring hotels and resorts directly, we have invested and expect to continue to invest in joint ventures. Joint ventures often have shared control over the operation of the joint venture assets. Therefore, joint venture investments may involve risks such as the possibility that the co-venturer in an investment might become bankrupt or not have the financial resources to meet its obligations, or have economic or business interests or goals that are inconsistent with our business interests or goals, or be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. Consequently, actions by a co-venturer might subject hotels and resorts owned by the joint venture to additional risk. As we generally maintain a minority ownership interest in our joint ventures, we are usually unable to take action without the approval of our joint venture partners. Alternatively, our joint venture partners could take actions binding on the joint venture without our consent.

The illiquidity of real estate investments and the lack of alternative uses of hotel properties could significantly limit our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Because real estate investments are relatively illiquid, the ability to promptly sell one or more properties in response to changing economic, financial and investment conditions is limited. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. In addition, hotel properties may not readily be converted to alternative uses if they were to become unprofitable due to competition, age of improvements, decreased demand or other factors. The conversion of a hotel to alternative uses would also generally require substantial capital expenditures. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We may not have funds available to correct those defects or to make those improvements and as a result our ability to sell the property would be limited. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could significantly harm our financial condition and results of operations.

Uninsured and underinsured losses could adversely affect our financial condition, results of operations and our ability to make distributions to our stockholders.

Various types of catastrophic losses, such as losses due to wars, terrorist acts, earthquakes, floods, hurricanes, pollution, contagious diseases, such as the avian flu and Sever Acute Respiratory Syndrome (SARS), or environmental matters, generally are either uninsurable or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments. In the event of a catastrophic loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. In the event of a significant loss that is covered by insurance, our deductible may be high and, as a consequence, it could materially adversely affect our financial condition. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a

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hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position in the damaged or destroyed property.

The insurance market has been adversely affected.

Large scale terrorist attacks and recent hurricanes have resulted in an increase in premiums and reductions in insurance coverage, especially for terrorism and catastrophic risks such as wind, flood and earthquakes. If we are unable to maintain insurance that meets the requirements of our lenders and franchisors, or if we are unable to amend or obtain waivers of those requirements, it could have a material adverse effect on our business.

We invest in a single industry and are therefore very susceptible to economic fluctuations in that industry.

Our current strategy is to acquire interests only in hospitality and lodging. As a result, we are subject to the risks inherent in investing in a single industry. The effects on cash available for distribution resulting from a downturn in the hotel industry may be more pronounced than if we had diversified our investments.

Our international operations expose us to additional risks, which, if we fail to manage them adequately, may adversely impact our results of operations.

Our management fees earned from hotels located outside of the United States were 13.4%, 11.5% and 12.0% of total management fees for 2006, 2005 and 2004, respectively. All of these management fees were paid in U.S. dollars. We are planning for our international presence to grow in 2007 as we have signed management agreements in place for the management of our fourth and fifth hotels in Moscow, as well as a hotel in Ireland and a hotel in Belgium. We expect to begin management of these properties in 2007 and 2008.

As we continue to grow our international presence, we are subject to various risks which include exposure to currency fluctuations, managing potential difficulties in enforcing contractual obligations and intellectual property rights, the burden of complying with a wide variety of laws and regulations, maintaining key personnel and the effects of potential and actual international terrorism and hostilities. We are particularly sensitive to any factors that may influence international travel. In addition, we cannot be certain of the effect that changing political and economic conditions could have on our international hotel operations and on our ability to collect on loans to third-party owners overseas. Furthermore, the success of our international operations depends on our ability to attract and retain qualified management personnel who are familiar not only with our business and industry but also with the local commercial practices and economic environment.

Third-party hotel owners are not required to use the ancillary services we provide, which reduces the revenue we would otherwise receive from them.

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

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

We are the brand franchisee of record for the hotels we own and for some of the hotels we have interests in or manage. In addition, with respect to hotels for which we are not the franchisee, we may sign a manager acknowledgment agreement with the franchisor that details some of our rights and obligations with respect to the hotel and references the hotel’s franchise agreement. The franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of a hotel in order to maintain uniformity within the franchisor’s system. Those limitations may conflict with our philosophy of creating specific business plans tailored to each hotel and to each market. Standards are often subject to change over time, at the discretion of the franchisor, and may restrict a franchisee’s ability to make improvements or modifications to a hotel without the consent of the franchisor. In addition, compliance with standards could require a hotel owner to incur significant expenses or capital expenditures. Action or inaction by us or by the owner of a hotel we manage could

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result in a breach of standards or other terms and conditions of the franchise agreements and could result in the loss or cancellation of a franchise license.

Loss of franchise licenses without replacement would likely have an adverse effect on hotel revenues which could result in adverse affects to our overall revenues. In connection with terminating or changing the franchise affiliation of a hotel, the owner of the hotel may be required to incur significant expenses or capital expenditures. Moreover, the loss of a franchise license could have a material adverse effect upon the operation or the underlying value of the hotel covered by the franchise due to the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. Franchise agreements covering the hotels we manage expire or terminate, without specified renewal rights, at various times and have differing remaining terms. As a condition to renewal, these franchise agreements frequently contemplate a renewal application process. This process may require an owner to make substantial capital improvements to a hotel. Although the management agreements generally require owners to make capital improvements to maintain the quality of a property, we are not able to directly control the timing or amount of those expenditures.

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

Costs of compliance with employment laws and regulations could adversely affect operating results.

Union contracts for hotel employees in several major markets will be up for renewal in 2007. Although under the terms of the management contracts the employees at our managed hotels are paid by the hotel owners, they are our employees in most cases. In addition, we have a significant number of employees working at our owned hotels. The failure to timely renegotiate the contracts that are expiring could result in labor disruptions, which could adversely affect our revenues and profitability. Labor costs could also escalate beyond our expectations and could have a material adverse effect on our operating margins.

In addition, for those hotels which we manage which are not currently unionized, there are ongoing attempts to unionize these properties. To the extent any of our non-unionized properties become unionized, our labor costs would most likely increase and have an adverse effect on our operating margins at our owned hotels.

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

Under various federal, state, local and foreign environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for noncompliance with applicable environmental and health and safety requirements for the costs of investigation, monitoring, removal or remediation of hazardous or toxic substances. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. The presence of these hazardous or toxic substances on a property could also result in personal injury or property damage or similar claims by private parties. In addition, the presence of contamination or the failure to report, investigate or properly remediate contaminated property, may adversely affect the operation of the property or the owner’s ability to sell or rent the property or to borrow using the property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of those substances at the disposal or treatment facility, whether or not that facility is or ever was owned or operated by that person. The operation and removal of underground storage tanks are also regulated by federal and state laws. In connection with the ownership and operation of hotels, the operators, such as us or the owners of those properties could be held liable for the costs of remedial action for regulated substances and storage tanks and related claims.

All of the hotels that we own and the majority of the hotels we manage have undergone Phase I environmental site assessments, which generally provide a non-intrusive physical inspection and database search, but not soil or groundwater analyses, by a qualified independent environmental consultant. The purpose of a Phase I assessment is to identify potential sources of contamination for which the hotel owner may be responsible. The Phase I assessments have not revealed, nor are we aware of, any environmental liability or compliance concerns that we believe would have a material adverse effect on our results of operations or financial condition. Nevertheless, it

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is possible that these environmental site assessments did not reveal all environmental liabilities or compliance concerns or that material environmental liabilities or compliance concerns exist of which we are currently unaware.

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

We have also detected the presence of mold at one of our owned hotels and generally, we remediate the conditions as part of on-going routine maintenance. Many of the costs associated with remediation of mold may be excluded from coverage under our property and general liability policies, in which event we would be required to use our own funds to remediate. Further, in the event moisture infiltration and resulting mold is pervasive, we may not be able to rent rooms at that hotel, which could result in a loss of revenue. We can make no assurance that liabilities resulting from moisture infiltration and the presence of or exposure to mold will not have a future material adverse effect on our business, financial condition, results of operations and ability to make distributions to our stockholders.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination or exposure to hazardous substances such as asbestos, lead paint or black mold. In recent years, concern about indoor exposure to mold has been increasing as such exposure has been alleged to have a variety of adverse effects on health. As a result, there has been an increasing number of lawsuits against owners and managers of real property relating to the presence of mold. Damages related to the presence of mold are generally excluded from our insurance coverage. Should an uninsured loss arise against us at one of our owned hotels, we would be required to use our own funds to resolve the issue, which could have an adverse impact on our results of operations or financial condition.

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

A number of states regulate various aspects of hotels, resorts, conference centers and restaurants, including liquor licensing, by requiring registration, disclosure statements and compliance with specific standards of conduct. Managers of hotels are also subject to employment laws, including minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could reduce the revenue and profitability of hotels and could otherwise adversely affect our results of operations or financial condition.

Under the Americans with Disabilities Act, or ADA, all public accommodations in the U.S. are required to meet federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A determination that the hotels we own are not in compliance with the ADA could result in a judicial order requiring compliance, imposition of fines or an award of damages to private litigants.

The lodging business is seasonal.

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

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

Our ability to maintain our competitive position will depend, to a significant extent, on the efforts and ability of our senior management. Our ability to attract and retain highly qualified personnel is critical to our operations. Competition for personnel is intense, and we may not be successful in attracting and retaining our personnel. Our inability to attract and retain highly qualified personnel may adversely affect our results of operations and financial condition.

Risk Factors Related to Our Capital Structure

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

Our amended and restated senior secured credit facility, which we entered into in January 2005 (as amended from time to time, which we refer to as the “Credit Facility”), our new credit facility, which we entered into in March 2007 and our mortgages contain restrictive covenants. These restrictions include requirements to maintain financial ratios, which may significantly limit our ability to, among other things:

•  borrow additional money;

•  make capital expenditures and other investments;

•  pay dividends;

•  merge, consolidate or dispose of assets;

•  acquire assets; and

•  incur additional liens.

A significant decline in our operations could reduce our cash from operations and cause us to be in default under other covenants in our debt agreements. A default would leave us unable to access our Credit Facility, and we depend on our Credit Facility to supply the necessary liquidity to continue or to implement new operations and to make required payments under our debt agreements.

We will, in the future, be required to repay, refinance or negotiate an extension of the maturity of our debt agreements. Our ability to complete the necessary repayments, refinancings or extensions is subject to a number of conditions, many of which are beyond our control. For example, if there were a disruption in the lodging or financial markets as a result of the occurrence of one of the risks identified above under “Risk Factors Related to Our Business” or any other event, we might be unable to access the financial markets. Failure to complete the necessary repayments, refinancings or extensions of our agreements would have a material adverse effect on us.

Our leverage could have a material adverse effect on our ability to satisfy our obligations under our indebtedness and place other limitations on the conduct of our business.

As of December 31, 2006, we had total indebtedness of approximately $84.2 million. In connection with the acquisition of the Hilton Houston Westchase in February 2007, we incurred an additional $32.8 million in non-recourse debt. Our level of indebtedness has important consequences. It currently requires us to dedicate a portion of our cash flow from operations to payments of principal and interest on our indebtedness, which reduces the availability of our cash flow to fund working capital, capital expenditures and our business strategy. Additionally, it could:

•  increase our vulnerability to general adverse economic and industry conditions;

•  make it more difficult for us to satisfy our obligations with respect to our indebtedness;

•  limit our ability in the future to refinance of our debt or obtain financing for expenditures, acquisitions, development or other general business purposes on terms and conditions acceptable to us, if at all; or

•  place us at a competitive disadvantage compared to our competitors that have less debt.

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In addition, despite our current indebtedness levels, we may still be able to incur substantially more debt. This could further exacerbate the risks associated with our leverage.

Declines in our corporate credit ratings could have an adverse effect on us.

Credit rating services assign a rating to us based on their perception of our ability to service debt. Our current ratings were B1 Stable and B Stable from Moody’s and S&P, respectively. Fluctuations in our operating performance or changes in the amount of our debt may result in a change to our rating. A negative change in our ratings could increase the cost of our future financing.

Impairments of assets or goodwill may increase the risk of default under our debt obligations and have an adverse effect on our stock price.

We are required to evaluate our assets, including goodwill, annually or upon certain trigger events in order to ascertain that the historical carrying value is not less than the fair market value of the asset. Should we determine that an asset’s carrying value is less than its fair market value, the asset would be considered impaired, and we would record a write-down of the asset to its current fair value.

Our current debt covenants require us to maintain certain ratios, including a minimum net worth. To the extent a write down would reduce our asset base, we could fall below that net worth and fail that test. If we are unable to obtain a waiver or amendment to the covenant, the resulting default could adversely affect our liquidity.

In addition, because the write-down of long-lived assets or goodwill would be recorded as an operating expense, such a write-down would negatively affect our net income and earnings per share, which could have a negative impact on our stock price.

Our stockholder rights plan and the anti-takeover defense provisions of our charter documents may deter potential acquirers and depress our stock price.

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

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

•  we are able to issue preferred shares with rights senior to our common stock;

•  our certificate of incorporation prohibits action by written consent of our stockholders, and our stockholders are not able to call special meetings;

•  our certificate of incorporation and bylaws provide for a classified Board of Directors;

•  our directors are subject to removal only for cause and upon the vote of two-thirds of the outstanding shares of our common stock;

•  our bylaws require advance notice for the nomination of directors and for stockholder proposals;

•  we are subject to Section 203 of the Delaware General Corporation Law, which limits our ability to enter into business combination transactions with interested stockholders; and

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

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ITEM 1B.   UNRESOLVED STAFF COMMENTS

There are currently no unresolved staff comments.

ITEM 2.   PROPERTIES

We maintain our corporate headquarters in Arlington, Virginia. We maintain offices in Dallas, Texas for centralized accounting services and in San Clemente, California for operations of one of our subsidiaries. In addition, our corporate housing segment leased administrative offices in most of the markets in which it operates in the United States, the United Kingdom and France.

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

As of December 31, 2006, we owned and/or managed hotels in 39 states, the District of Columbia, Canada and Russia. The following table sets forth operating information with respect to the properties we owned and managed as of December 31.

Year	Properties		Guest Rooms
2006		223		50,199
2005		286		65,293
2004		306		68,242

As of December 31, 2006 we wholly-owned four hotels and acquired a fifth, the 297-room Hilton Houston Westchase, in February 2007 from Blackstone. The following table details our four wholly-owned hotels as of December 31, 2006. These properties have been included in the summary table above.

Wholly-Owned Properties	Acquisition Date	Guest Rooms
Hilton Concord, East Bay area near San Francisco, CA	February 2005		329
Hilton Durham, Durham, NC	November 2005		195
Hilton Garden Inn Baton Rouge, Baton Rouge, LA	June 2006		131
Hilton Arlington, Arlington, TX	October 2006		308

The Hilton Concord, Hilton Durham and Hilton Arlington are all full-service hotels. The Hilton Garden Inn Baton Rouge is a select-service hotel offering modern guest rooms with in-room kitchenette amenities as well as meeting, fitness, aquatic, and restaurant facilities designed to attract small to medium groups and associations, business, and vacation travelers.

Through our BridgeStreet corporate housing division, which we disposed of in January 2007, we leased or managed apartments throughout the United States, France and the United Kingdom. The following table sets forth operating information with respect to our corporate housing division for the years ended December 31:

	Number		Average
	of		Number
Year	Markets		of Units
2006		17		3,182
2005		17		3,129
2004		17		3,257

For information on our properties held through joint ventures, see “Business — Hotel Ownership.”

ITEM 3.   LEGAL PROCEEDINGS

In the normal course of business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against us. Based on currently available facts, we believe that the disposition of matters pending or

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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

We did not submit any matters to a vote of security holders during the fourth quarter of 2006.

PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the NYSE under the symbol “IHR.” As of March 1, 2007, 31,577,277 shares of our common stock were listed and outstanding, held by approximately 2,713 record holders.

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

	Stock Price
	High		Low
Fiscal 2006:
Fourth Quarter	$	10.62	$	7.04
Third Quarter		11.19		8.56
Second Quarter		9.29		5.19
First Quarter		5.35		3.95
Fiscal 2005:
Fourth Quarter	$	4.73	$	4.15
Third Quarter		5.13		4.47
Second Quarter		4.91		4.43
First Quarter		5.38		4.39

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

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ITEM 6.   SELECTED FINANCIAL DATA

Set forth in the following tables are summary historical consolidated financial and other data as of and for each of the last five fiscal years.

Selected Financial and Other Data

(Dollars in Thousands, Except Per Share Data)

	Year Ended December 31,
	2006		2005		2004			2003			2002
Statement of Operations Data(1):
Revenue:
Lodging(2)	$	27,927	$	12,638	$	—		$	—		$	—
Management fees		75,305		70,674		59,651			64,183			39,888
Termination fees		25,881		7,199		4,294			177			—
Other		11,568		11,140		14,146			15,136			17,313
		140,681		101,651		78,091			79,496			57,201
Other revenue from managed properties(3)		834,484		893,760		751,892			776,484			490,666
Total revenue	$	975,165	$	995,411	$	829,983		$	855,980		$	547,867
Income (loss) from continuing operations	$	26,716	$	8,786	$	(1,584	)	$	(125	)	$	(36,206	)
Income (loss) from discontinued operations(4)		3,063		4,091		(4,079	)		(4,326	)		35
Net income (loss)		29,779		12,877		(5,663	)		(4,451	)		(36,171	)
Mandatory redeemable preferred stock:
Dividends		—		—		—			—			(307	)
Accretion		—		—		—			—			(356	)
Conversion incentive payments		—		—		—			—			(1,943	)
Net income (loss) available to common stockholders	$	29,779	$	12,877	$	(5,663	)	$	(4,451	)	$	(38,777	)
Weighted average number of basic shares outstanding (in thousands):		31,122		30,522		30,328			21,474			13,563
Basic earnings (loss) per share from continuing operations	$	0.86	$	0.29	$	(0.05	)	$	(0.01	)	$	(2.86	)
Basic earnings (loss) per share from discontinued operations		0.10		0.13		(0.14	)		(0.20	)		—
Basic earnings (loss) per share	$	0.96	$	0.42	$	(0.19	)	$	(0.21	)	$	(2.86	)
Weighted average number of diluted shares outstanding (in thousands)		31,559		30,825		30,328			21,474			13,563
Diluted earnings (loss) per share from continuing operations	$	0.85	$	0.29	$	(0.05	)	$	(0.01	)	$	(2.86	)
Diluted earnings (loss) per share from discontinued operations		0.09		0.13		(0.14	)		(0.20	)		—
Diluted earnings (loss) per share	$	0.94	$	0.42	$	(0.19	)	$	(0.21	)	$	(2.86	)
Balance Sheet Data (At End of Period):
Cash and cash equivalents	$	25,308	$	12,929	$	16,481		$	7,450		$	7,054
Total assets		333,690		293,080		275,822			277,219			280,681
Debt		84,226		85,052		89,197			86,321			134,239
Total equity		166,696		130,640		117,335			118,008			76,524
Total Hotel Data (unaudited):
Number of managed properties		223		286		306			295			393
Number of managed rooms		50,199		65,293		68,242			65,250			83,053

(1)	The merger between MeriStar Hotels & Resorts, Inc. and Old Interstate on July 31, 2002 was accounted for as a reverse acquisition with Old Interstate as the accounting acquirer and MeriStar Hotels and Resorts, Inc. as the surviving company for legal purposes. As a result, the historical financial information we present in the table above represents the financial data for the combined company following the merger.
(2)	Lodging revenues relate to the operations of the Hilton Concord and Hilton Durham hotels, which were purchased in 2005 and the Hilton Garden Inn Baton Rouge Airport and the Hilton Arlington, which were purchased in 2006. The operations of the Residence Inn by Marriott Pittsburgh Airport, which was sold in 2005, have been included in discontinued operations for all years presented.
(3)	Other revenue from managed properties includes payroll and related costs of the hotels’ employees which is contractually reimbursed to us by the hotel owners. Our statements of operations includes an equal and offsetting amount — “other expense from managed properties.”
(4)	Discontinued operations reflect the operations of (i) BridgeStreet Canada, Inc., which was disposed of in June 2004, (ii) the Residence Inn by Marriott Pittsburgh Airport, which was sold in September 2005 and (iii) BridgeStreet Corporate Housing Worldwide, Inc. and affiliated subsidiaries, which was sold in January 2007.

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ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 financial statements and the accompanying notes. MD&A is organized into the following sections:

•  Overview and Outlook — A general description of our business and the hospitality industry; our strategic initiatives; the significant challenges, risks and opportunities of our business; and a summary of financial highlights and significant events.

•  Critical Accounting Policies and Estimates — A discussion of accounting policies that require critical judgments and estimates.

•  Results of Operations — An analysis of our consolidated results of operations for the three years presented in our consolidated financial statements.

•  Liquidity, Capital Resources and Financial Position — An analysis of cash flow, sources and uses of cash, contractual obligations and an overview of financial position.

Overview and Outlook

Our Business

We are one of the largest independent U.S. hotel management companies not affiliated with a hotel brand, measured by number of rooms under management. We have two reportable operating segments: hotel management and hotel ownership (through whole-ownership and joint ventures). A third reportable segment, corporate housing, was disposed of on January 26, 2007 with the sale of BridgeStreet, our corporate housing subsidiary, and the results of this segment are reported as discontinued operations in our consolidated financial statements for all periods presented. Our portfolio of managed properties is diversified by brand, franchise and ownership group. We manage hotels representing more than 30 franchise and brand affiliations and also operate 16 independent hotels. Our managed hotels are owned by more than 50 different ownership groups. As of December 31, 2006, we managed 223 properties, with 50,199 rooms in 39 states, the District of Columbia, Canada and Russia. We also owned four hotels with 963 rooms and held non-controlling joint venture equity interests in 11 joint ventures, which hold ownership interests in 17 of our managed properties. In February 2007, we acquired the 297-room Hilton Houston Westchase.

Our revenues consist primarily of the following (percentages do not include “other revenue from managed properties”):

•  Management fee revenue — This consists of fees received by our hotel management segment under our management agreements as they are earned and accounted for approximately 54% of total revenue for the year ended December 31, 2006.

•  Termination fee revenue — This consists of fees received by our hotel management segment under our management agreements for management contracts terminated by the owner without cause and accounted for approximately 18% of total revenue for the year ended December 31, 2006.

•  Lodging revenue — This consists of rooms, food and beverage and other department revenues from our wholly-owned hotels and accounted for approximately 20% of total revenue for the year ended December 31, 2006.

•  Other revenue — This consists of purchasing revenue, accounting fees, technical services revenue, information technology support fees, insurance revenue and other fees and accounted for approximately 8% of total revenue for the year ended December 31, 2006.

•  Other revenue from managed properties — We employ the staff at our managed properties. Under our management agreements, the hotel owners reimburse us for payroll, benefits, and certain other costs related to the operations of the managed properties. This revenue is completely offset by a corresponding expense, “other expenses from managed properties”, in our consolidated statements of operations.

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Our operating expenses consist primarily of the following (percentages do not include “other expenses from managed properties”):

•  Lodging expenses — These include costs associated with rooms, food and beverage and other department expenses and property operating costs related to our four wholly-owned hotels and accounted for approximately 21% of total operating expenses for the year ended December 31, 2006.

•  Administrative and general expenses — These costs are associated with the management and ownership of hotels and consist primarily of expenses such as corporate payroll and related benefits, operations management, sales and marketing, finance, legal, information technology support, human resources and other support services, as well as general corporate and public company expenses. These costs accounted for approximately 59% of total operating expenses for the year ended December 31, 2006.

•  Depreciation and amortization expenses — These costs relate to the depreciation of property and equipment and amortization of intangible assets and accounted for approximately 7% of total operating expenses for the year ended December 31, 2006.

•  Other expenses — This includes asset impairment and write-off costs and restructuring and severance expenses. These accounted for approximately 13% of operating expenses for the year ended December 31, 2006.

•  Other expenses from managed properties — We employ the staff at our managed properties. Under our management agreements, the hotel owners reimburse us for payroll, benefits, and certain other costs related to the operations of the managed properties. This is offset with corresponding revenue, “other revenue from managed properties”, in our consolidated statements of operations.

Financial Highlights and Significant Events

Financial Highlights — Our strong operating results in 2006 were driven by excellent performance in each of the three reportable operating segments we had in 2006; hotel management, hotel ownership and corporate housing.

Although the number of hotel properties we manage decreased at the end of 2006 compared to the end of 2005, the operating performance of our managed properties continued to improve year over year. RevPAR increased $7.54, or 9.6%, in the year ended December 31, 2006 compared to the year ended December 31, 2005. Incentive fees, which are tied directly to the operating performance of the hotels, increased by $3.1 million, or 21.7%, for the year ended December 31, 2006, compared to the prior year. The increase in incentive fees is primarily due to market conditions that exceeded our expectations and improved operating performance at our managed properties. Termination fees also increased by $18.7 million, or 260%, which is primarily the result of the recognition of one-time termination fees from Blackstone of $15.1 million for management contracts terminated on or before October 1, 2006 as a result of a transaction that removed a contingency related to those fees. Although these termination fees are non-recurring, they will help us to continue to fund our acquisition strategy of investing in hotel real estate through wholly-owned acquisitions and joint ventures.

In the hotel ownership segment, we began to see tangible results of the acquisition and growth strategy that we implemented in 2005. The two hotels that we owned for the entire year, the Hilton Concord and Hilton Durham, contributed revenues of $23.2 million and operating income of $4.0 million in 2006. The Hilton Garden Inn Baton Rouge and the Hilton Arlington, the two hotels acquired in June 2006 and October 2006, respectively, contributed revenues of $4.8 million and operating income of $0.7 million. These four properties also generated an increase in RevPAR of 19.5% in 2006 compared to 2005. In addition, we sold our investments in two joint ventures, which resulted in cash distributions of approximately $21.7 million and gains of approximately $10 million. In February 2007, we acquired the Hilton Houston Westchase, which we expect will also contribute significantly to lodging revenue and operating income.

Our corporate housing operations, in addition to an increase in revenues of nearly $13.5 million, or 11.2%, also improved gross margins from 19.6% in 2005 to 20.2% in 2006. As our unit inventory was more closely aligned with the current demand of our markets, we were able to increase our ADR by 9.6% while maintaining occupancy in excess of 92%. As a result of the operating performance of this segment in 2006 and the overall turnaround over the past two years, we were able to sell this segment in January 2007 for approximately $40.5 million in cash. We expect to use these proceeds to continue to implement our strategy of investing in hotel real estate.

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Significant Events — There have been numerous events in 2006 and recently in 2007 which will have an impact on our operations in 2007 and beyond. These items are primarily related to investments in and acquisitions of real estate, turnover of management contracts and the sale of our BridgeStreet corporate housing division.

Investments in and Acquisitions of Real Estate

Throughout 2006 and into 2007, we have been able to make substantial progress in our growth strategy of selectively investing in joint ventures and acquiring properties in growing markets that we believe have favorable economic, demographic and supply dynamics. Beginning 2006 with two owned hotels, we acquired two additional hotel properties in 2006 and another in early 2007. 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.

In October 2006, we acquired the 308-room Hilton Arlington, from affiliates of Blackstone. The purchase price was $37.0 million, including normal and customary closing costs. On the date of the acquisition, Blackstone owed us $14.6 million, on a present value basis, for unpaid termination fees from the termination of the management contract for the Hilton Arlington and 48 other hotels. We received credit for these unpaid termination fees at closing and recognized them in the 2006 fiscal year. We financed the remainder of the purchase through a non-recourse mortgage loan of $24.7 million. We expect to invest approximately $2.3 million in capital improvements in the hotel, which will complete a comprehensive renovation program that was already in progress at the time we purchased the hotel.

In February 2007, we acquired the 297-room Hilton Houston Westchase, from affiliates of Blackstone. The purchase price was $50.5 million. We financed the acquisition through a non-recourse mortgage loan of $32.8 million and the remainder with a combination of cash on hand. During 2007, we expect to invest approximately $2 million to $3 million in capital improvements in the hotel, which will complete a comprehensive $11 million renovation program that was already in progress at the time we purchased the hotel.

We continued to grow our portfolio of joint venture ownership interests by entering into four new joint ventures with a total investment of $7.0 million for interests in nine hotels with nearly 1,400 rooms. These investments include 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, a $0.5 million investment to acquire a 10.9% interest in the Hotel 43 in Boise, Idaho, a $1.5 million investment to acquire a 15.9% interest in the Doral Tesoro Hotel & Golf Club near Dallas/Ft. Worth, Texas and a $1.1 million investment to acquire a 15.7% interest in the Boise Courtyard by Marriott^® in Boise, Idaho. These investments were all funded with available cash on hand.

We also invested $0.4 million to acquire a 15.0% interest in a joint venture to develop and build as many as five to ten aloft^® hotels over the next several years. Based on similar characteristics of the W Hotel^® brand, aloft^® is the new premium select-service hotel brand introduced by Starwood Hotels & Resorts Worldwide, Inc. Our joint venture partner will be responsible for site selection, construction and development management, while we will operate the hotels. The joint venture has signed long-term franchise agreements for the first two properties, located in Rancho Cucamonga, CA and Cool Springs, TN, and expects to commence construction on both properties in 2007.

In July 2006, we, along with our joint venture partners, sold the Sawgrass Marriott Resort & Spa. Our portion of the proceeds from the sale were approximately $16.5 million. We reinvested $9.3 million for a 10% preferred equity interest in the new joint venture, RQB Development/Resort Investors, LLC, which purchased the hotel. As our cost basis in the original joint venture was $2.7 million, we recognized a gain of $4.5 million, based on the amount of proceeds received which were not re-invested in the new joint venture.

In December 2006, MIP Lessee, L.P., or MIP, in which we have a 10% equity interest, completed the sale of its portfolio of seven properties. We received proceeds of approximately $6.4 million and recorded a gain of approximately $5.4 million. As of March 1, 2007, we continued to manage two of these properties.

Turnover of Management Contracts

Due to the strength of the current hotel real estate market, there have been a significant number of hotel purchase and sale transactions throughout 2006. These transactions, which are a significant factor influencing our business, have led to increased turnover and a reduction in the number of properties we manage. Nevertheless, in this

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environment, we have continued to grow our RevPAR and management fee revenue, resulting in increased net income in 2006, compared to 2005.

During 2006, Sunstone Hotel Investors which we refer to as “Sunstone REIT” sold 15 hotels, terminating our management contracts for these properties. These hotels accounted for $1.0 million in management fees during the twelve months ended December 31, 2006. We recognized an impairment loss of $0.7 million on the intangible assets related to the management contracts from these properties and received approximately $0.4 million in termination fees.

In May 2006, Blackstone acquired MeriStar. Our management agreements for the 44 hotels that Blackstone acquired as a result of the transaction were not affected by the transaction, as the rights, responsibilities and duties (including with respect to budget setting, asset management and termination) under those contracts were assumed by Blackstone. As of December 31, 2006, Blackstone took over management of or sold seven properties, one of which was the Hilton Arlington, which we acquired in October 2006, and one of which we continue to manage under a long-term management contract, leaving 37 hotels under our management as of December 31, 2006. Through March 1, 2007, Blackstone sold an additional four properties, one of which was the Hilton Houston Westchase, which we acquired in February 2007, and one of which we continue to manage. We are in discussions with Blackstone as to its disposition plans for the 33 remaining hotels and underlying management contracts, which account for 10,200 rooms and $11.1 million in base management fees for the year ended December 31, 2006. We expect Blackstone to sell most of the remaining 33 properties within five years. Due to this information, we have reduced the amortization period of our management contract intangible assets for these properties to approximately four years, which corresponds to the end of the initial management contracts.

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. At the end of July, we no longer managed any of these properties. In connection with these dispositions, we recorded termination fees of approximately $9.5 million during the twelve months ended December 31, 2006. Approximately $4.4 million of these termination fees were recorded upon the amendment to our master fee agreement with Blackstone in August 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 14 properties at the end of 2005, was terminating all but one of our management contracts and turning the management of these properties over to Highgate Holdings. The 13 properties which we have ceased to manage accounted for approximately $0.8 million in management fees during the twelve months ended December 31, 2006. There were no management contract intangible assets or termination fees associated with these 13 properties.

As previously discussed, in December 2006, the MIP joint venture sold its portfolio of seven properties. The five properties which we have ceased to manage accounted for approximately $1.4 million in management fees during the twelve months ended December 31, 2006. There were no management contract intangible assets or termination fees associated with these five properties.

In addition, CNL sold a portfolio of 16 properties and terminated us as the manager of those properties in February 2007. These properties represented 7.2% of our managed properties and $1.8 million in management fees for the year ended December 31, 2006. We continue to manage six properties for CNL. We recognized termination fees of $0.3 million in 2007 related to the termination of these properties.

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In summary, the impact on our financial results for the 80 properties where management agreements have been terminated in 2006 is as follows:

Termination Fees

Management Fees

Management Fees

Number of

Number of

Twelve Months

Twelve Months

Twelve Months

Owner Group

Properties

Rooms

Ended 12/31/2006

Ended 12/31/2006

Ended 12/31/2005

MeriStar/Blackstone

24

(1)

5,337

$

24.3 million

(2)

$

2.9 million

(3)

$

4.3 million

(3)

Sunstone REIT

15

2,815

0.4 million

1.0 million

1.1 million

Goldman Sachs

13

3,381

N/A

1.0 million

2.2 million

MIP

5

1,447

N/A

1.4 million

1.5 million

Others

23

4,691

1.2 million

2.1 million

4.9 million

Total

80

17,671

$

25.9 million

$

8.4 million

$

14.0 million

(1)	As we will no longer be recording management fees for the Hilton Arlington, which we purchased in 2006, it has been included in this analysis. In 2006, there were 23 Meristar/Blackstone properties which were transitioned out of our system.
(2)	These are the termination fees recorded related to all MeriStar/Blackstone properties for the twelve months ended December 31, 2006, including the 37 properties terminated prior to 2006. The termination fees recorded for the twelve months ended December 31, 2006 for the 24 properties terminated in 2006 totaled $13.6 million.
(3)	Incentive fees for Meristar/Blackstone properties are calculated based on the performance of the entire portfolio, not on an individual hotel basis. These incentive fees were $0.9 million and $0.8 million for the years ended December 31, 2006 and 2005. They are not included in these management fees as presented.

We have partially offset the loss of these management contracts by obtaining management contracts for 16 new properties during 2006. Our new management contracts such as for the Hilton Times Square in New York City (began management in March 2006) and for a portfolio of six Residence Inn properties in the Cleveland, Ohio area (also began management in March 2006), added approximately 2,300 rooms to our portfolio. We have recorded management fees of $1.4 million through December 31, 2006 related to these 16 properties.

Although we lost of net of 63 management contracts during 2006, our impairment analyses of goodwill during 2006, related to our hotel management reporting unit, continued to indicate that the carrying value of goodwill was not impaired. This result is primarily due to the increase in our operating income from our portfolio of managed hotels as we, and the hotel industry as a whole, continue to have strong year-over-year results. Although the number of hotels we manage has decreased over the past several years, we have generated higher management fee revenue in each of the past two years. In addition, our carrying value related to intangible assets decreased by $14.5 million from December 31, 2005 to December 31, 2006, primarily due to the $13.2 million of asset impairments related to management contracts. The decrease in intangible assets lowered the overall carrying value of our hotel management reporting unit, and we compare the estimated fair value of the reporting unit to that overall carrying value in order to determine if there is a potential impairment of goodwill. Our goodwill analysis was based on future cash flow projections. These projections were based on assumptions made by management, which we believe to be reasonable.

Sale of BridgeStreet Corporate Housing

On January 26, 2007, we sold BridgeStreet to an affiliate of Sorrento Asset Management, an Ireland-based company, for approximately $40.5 million in cash. For a period of one year following the sale, we have agreed to indemnify the purchaser and its affiliates from and against any and all losses asserted against or incurred as a result of our breach of any representation, warranty, covenant or agreement made in connection with the sale; any transaction expenses incurred by BridgeStreet in connection with the sale; any legal or government action with respect to actions or inactions concerning employment matters of BridgeStreet prior to the sale and any withdrawal liability with respect to a “multiemployer plan” (as defined in Section 3(37) of ERISA) arising under Title IV of ERISA solely as a result of any of the BridgeStreet companies having been our ERISA affiliate. The purchase price is subject to a post-closing adjustment based on the calculation of the difference between actual values for working capital, indebtedness and transaction expenses of BridgeStreet on the one hand, and estimates for such values made prior to the closing date of the sale, on the other hand. Such a calculation is to be made within 90 days of the closing date of the sale. We expect to redeploy the proceeds from this sale into investments in hotel real estate through wholly-owned acquisitions and joint ventures.

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Other Events

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 consolidated statement of operations.

Industry Overview, Strategic Initiatives and Challenges and Risks

Industry Overview — We and the lodging industry are subject to international and national events. We have been impacted by several events over the previous several years, including the ongoing threat of terrorism and other hostilities, the potential outbreak of infectious disease and natural disasters, such as Hurricane Katrina, the worst natural disaster to ever affect the continental United States. As we conduct our business on a national and international level, our activities are also affected by changes in the performance of regional and global economies.

In 2004 and 2005, the lodging industry experienced significant growth. While the industry continued to grow in 2006, its rate of growth began to slow in the second half of the year. RevPAR growth was 7.9% and 8.5% in 2004 and 2005, respectively, the highest growth rates in over 20 years. In 2006, even with the slowdown in the second half of the year, RevPAR managed to grow at a rate of 7.4%. Room demand increased by only 1.0% in 2006 (against a room supply increase of 0.6%), down from the robust 3.1% room demand increase in 2005 (against a room supply increase of 0.2%). The growth in the industry is forecasted to continue in future years, albeit at a slower pace than recently experienced. Overall industry RevPAR is projected to grow an additional 5.8% in both 2007 and 2008. As occupancy is projected to remain flat in those years, nearly all of the growth will be driven by an increase in ADR. Overall industry room demand and room supply are both projected to grow by 1.6% in 2007, while in 2008, they are projected to grow by 2.0% and 2.2%, respectively.

Financial Targets, Growth Strategy and Operating Strategy — In 2006, our operating results were positively impacted by various transactions which resulted in significant one-time revenues and gains. These transactions, which included the receipt of $3.2 million of business interruption proceeds, the recognition of $25.9 million in termination fees and the gain of $9.9 million related to the sale of two joint ventures, contributed to our highest net income ever. Although we were pleased with the operating results for 2006, we realize that there will most likely not be similar transactions in 2007 that will have the same impact on our operating results. In 2007, we hope to continue to see the benefits of our focused growth strategy that was implemented throughout 2005 and 2006, with the acquisition of additional wholly-owned hotels and investments in joint ventures. By continuing to execute on our focused growth and operating strategies, we anticipate that we can continue to achieve solid operating results related to revenues, net income and earnings per dilutive share in 2007 while building a more consistent and long-term stream of income.

Our focused growth strategy contemplates expansion through three diverse, yet interrelated avenues of our business. First, to continue as a leader in the hotel management industry, it is imperative that we continue to build our core business by securing additional management contracts for quality properties. The addition of these new contracts is designed to allow us to implement our operating approach at additional hotels and secure additional stable revenue streams. We will seek to achieve part of this growth through a focus on the management of international hotel properties. As of December 31, 2006, we managed four international properties, one in Canada and three in Moscow. We have signed management agreements for four additional international properties; two in Moscow, one in Ireland and one in Belgium. We expect to begin managing three of these properties in 2007 and one in 2008.

We are also focused on additional investments in joint ventures, which will typically consist of an ownership interest between 5% and 50%. Through these investments, which are also another vehicle to gain long-term management contracts, we are able to share in the earnings and the potential asset appreciation of these properties while continuing to earn management fees. We will seek to acquire these interests in upscale, full-service hotels, select-service hotels, and conference centers and resorts where we believe an opportunity exists to increase value through our operating expertise, market recovery and repositioning. In addition, we will identify properties that are promising whole-ownership acquisition candidates located in markets with economic, demographic and supply dynamics favorable to hotel owners. We will select these acquisition opportunities where we believe selected capital improvements and focused management will increase the property’s ability to attract key demand segments, demonstrate better financial performance, and increase long-term value.

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In addition to the growth strategy discussed above, we will continue to focus on implementing our operating strategy, which was a major factor of our successes in 2005 and 2006. Most importantly, at our hotel properties, we have continued to emphasize our dedication to service, through a commitment to guest satisfaction surveys, improved training of hotel employees and specialists who focus on improving the operations of designated brands under our management. Based on the operating results and feedback received at our managed properties, we have seen tangible evidence that this service commitment has produced positive results. We will also continue to rely on our ability to analyze each hotel as a unique property and identify specific opportunities for cash flow growth at each hotel in order to generate higher RevPAR and net operating income. In all of our business segments, we will continue to rely on the experience of our senior management teams, which have successfully managed hotels in all sectors of the lodging industry.

Challenges and Risks — A significant portion of our managed properties and management fees are derived from five owners: Blackstone, Sunstone REIT, CNL, Equity Inns and the owner of our three Russian properties. This group of owners represented 61.9% of our managed properties as of December 31, 2006 and 62.5% of our base and incentive management fees (including $3.2 million of business interruption proceeds) for the year ended December 31, 2006. As discussed above under “— Significant Events — Turnover of Management Contracts,” due to the significant number of hotel purchase and sale transactions in the current market, our portfolio of managed properties could be adversely impacted. If other owners sell their hotels, enter into a property disposition plan, or are acquired, as we have seen with CNL, we may be at risk of losing a large percentage of our management contracts. We have underlying termination fees in place for Blackstone, which comprised 27.0% of our management fees (including business interruption proceeds) for the year ended December 31, 2006. We would be entitled to receive approximately $35 million in termination fees assuming the 33 remaining Blackstone properties terminated on January 1, 2007. If the remaining 37 management contracts with Sunstone REIT were terminated as of January 1, 2007, we would be entitled to between $10 million and $12 million in termination fees. For the majority of our other owners, termination fees would not be significant.

Our ability to implement our growth and operating strategies and as a result, achieve our expected financial results, could also be affected by various challenges and risks. These include overall industry-related factors and other factors which are more specific to us, all of which are discussed in more detail in the “Risk Factors” section. Our growth strategy, specifically the investment in, and acquisition of hotels, could be affected by continued industry consolidation and competition, which would limit the amount and nature of opportunities for us to consider. This growth could also be limited by our capital structure, as our debt agreements include restrictions which could prevent us from raising additional capital needed to take advantage of desired acquisition and investment opportunities. In addition, the market value of our common stock could make financing through an equity offering a less attractive option.

Critical Accounting Polices and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 on an ongoing basis. We base our estimates on experience, industry data and various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies are disclosed in the notes to our consolidated financial statements. We have discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee of our Board of Directors. The following represent certain critical accounting policies that require us to exercise our business judgment or make significant estimates.

Revenue Recognition

We earn revenue from hotel management contracts and related services and operations of our wholly-owned hotels. Generally, revenues are recognized when services have been rendered. Given the nature of our business, revenue recognition practices do not contain estimates that materially affect results of operations. Revenues related to our

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corporate housing segment, which was sold in January 2007, are included as part of discontinued operations. The following is a description of the composition of our revenues:

•  Hotel Management — Our management and other fees consist of base and incentive management fees received from third-party owners of hotel properties and fees for other related services we provide. Management fees are comprised of a base fee, which is generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the property’s profitability. We record the incentive management fees in the period that it is certain the incentive management fees will be earned, which for annual incentive fee measurements is typically in the last month of the annual contract period. These revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotel management companies. Termination fees are also included in these amounts. These amounts are typically generated as a result of the sale of the hotel to a third party or if the hotel is destroyed and not rebuilt after a casualty or if we are removed as manager of the property. Termination fees are recorded as revenue in the period they are earned. Typically, this is upon loss of the contract unless a contingency such as the right of replacement of the management contract by the owner exists.

•  Hotel Ownership — Lodging revenue consists of amounts primarily derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary amenities. Revenue is recognized when rooms are occupied and services have been rendered. As with management fees discussed above, these revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotels and businesses in similar markets.

Impairment or Disposal of Long-Lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” whenever events or changes in circumstances indicate that the carrying values of long-lived assets (which consist of our hotels and intangible assets for our management contracts with determinable useful lives) may be impaired, we perform separate analyses for our wholly-owned hotels and intangible assets to determine the recoverability of the related assets’ carrying value. These events or circumstances may include, but are not limited to; projected cash flows which are significantly less than the most recent historical cash flows; a significant loss of management contracts without the realistic expectation of a replacement; and economic events which could cause significant adverse changes and uncertainty in business and leisure travel patterns. In our analysis to determine the recoverability of the asset’s carrying value, we make estimates of the undiscounted cash flows from the expected future operations of the asset. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to estimated fair value and an impairment loss is recognized.

Impairment of Goodwill

We evaluate the fair value of goodwill to assess potential impairments on an annual basis, or more frequently if events or other circumstances indicate that we may not be able to recover the carrying amount of the asset. We evaluate the fair value of goodwill at the reporting unit level and make that determination based upon future cash flow projections. Assumptions used in these projections, such as forecasted growth rates, cost of capital and multiples to determine the terminal value of the reporting units, are consistent with internal projections and operating plans. We record an impairment loss when the implied fair value of the goodwill assigned to the reporting unit is less than the carrying value of one reporting unit, including goodwill.

Income Taxes

We use our judgment in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities. The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year in which the differences are expected to reverse. Realization of certain deferred tax assets is dependent upon generating sufficient taxable income prior to the expiration of the carryforward periods. A valuation allowance is required to be established against deferred tax assets unless we determine that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset.

At December 31, 2006, we have a valuation allowance of $28.7 million to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. This is an allowance against some, but not all, of our recorded

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deferred tax assets. The valuation allowance we recorded includes the effect of the limitations on our deferred tax assets arising from net operating loss carryforwards. The utilization of our net operating loss carryforwards will be limited by the provisions of the Internal Revenue Code. We have considered estimated future taxable income and prudent and feasible ongoing tax planning strategies in assessing the need for a valuation allowance. Our estimates of taxable income require us to make assumptions about various factors that affect our operating results, such as economic conditions, consumer demand, competition and other factors. Our actual results will differ from these estimates. Based on actual results or a revision in future estimates, we might determine that we would not be able to realize additional portions of our net deferred tax assets in the future; if that occurred, we would record a charge to the income tax provision in that period.

Depreciation and Amortization Expense

Depreciation expense is based on the estimated useful life of our assets. Amortization expense for our intangible assets is the estimated useful life of the future benefit of the intangible assets. The life of our intangible assets is based on the length of the related management contracts. These lives are determined at the onset of the management contract. However, as certain circumstances arise, such as a disposition plan by the owner, they could change the future benefit of the contract. While management believes its estimates are reasonable, a change in the estimated lives could affect depreciation and amortization expense and net income or the gain or loss on the sale of any of the assets. Based on our discussions with Blackstone, the owner of 33 of the properties we manage as of March 1, 2007, we expect Blackstone to sell most of the remaining 33 properties within five years. Due to this information, we have reduced the amortization period of our management contract intangible assets for these properties to approximately four years, which corresponds to the end of the initial management contracts.

Consolidation Policies Related to Joint Venture Investments

Judgment is required with respect to the consolidation of our joint venture investments in the evaluation of financial interests and control, including the assessment of the adequacy of the equity invested in the joint venture, the proportionality of financial interests and voting interests, as well as the importance of rights and privileges of the joint venture partners based on voting rights. Currently, we have investments in joint ventures that own or develop hotel properties, which we record using the equity or cost method of accounting. We are not the primary beneficiary in any variable interest entities. The debt held by the joint ventures is non-recourse to us. While we do not believe we are required to consolidate any of our current joint ventures, if we were required to do so, then all of the results of operations and the assets and liabilities would be included in our financial statements.

Results of Operations

Operating Statistics

Statistics related to our managed hotel properties and wholly-owned properties include:

	As of December 31,						Percent Change
	2006		2005		2004		’06 vs. ’05			’05 vs. ’04
Hotel Management(1)
Properties managed		223		286		306		(22.0	)%		(6.5	)%
Number of rooms		50,199		65,293		68,242		(23.1	)%		(4.3	)%
Hotel Ownership
Number of properties		4		2		1		100.0	%		100.0	%
Number of rooms		963		524		156		83.8	%		235.9	%

(1) Statistics related to hotels in which we hold a partial ownership interest through a joint venture or wholly own have been included in hotel management.

Hotels under management decreased by a net of 63 properties as of December 31, 2006 compared to December 31, 2005, due to the following:

•  We acquired 16 additional management contracts from various owners.

•  Blackstone/MeriStar transitioned 23 properties out of our system.

•  We transitioned 28 properties out of our system from various other owners.

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•  Sunstone sold 15 properties which we no longer manage.

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

Hotels under management decreased by a net of 20 properties as of December 31, 2005 compared to December 31, 2004 due to the following:

•  We acquired 11 additional management contracts from various owners.

•  We acquired 22 management contracts from Goldman Sachs and Highgate Holdings, 16 of which we managed as of December 31, 2005.

•  MeriStar transitioned eight properties out of our system.

•  We transitioned 35 properties out of our system from various other owners.

•  Sunstone transitioned four properties out of our system.

The operating statistics related to our managed hotels on a same store basis⁽²⁾ were as follows:

	As of December 31,						Percent Change
	2006			2005			’06 vs. ’05
Hotel Management
RevPar	$	86.33		$	78.79			9.6	%
ADR	$	119.37		$	110.87			7.7	%
Occupancy		72.3	%		71.1	%		1.7	%

	As of December 31,						Percent Change
	2005			2004			’05 vs. ’04
Hotel Management
RevPar	$	78.07		$	70.52			10.7	%
ADR	$	110.27		$	101.70			8.4	%
Occupancy		70.8	%		69.3	%		2.2	%

(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 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 reporting periods being reported. In addition, the operating results of hotels for which we no longer managed as of December 31, 2006 are also not included in same-store hotel results for the periods presented herein. Of the 223 properties that we managed as of December 31, 2006, 208 hotels have been classified as same-store hotels.

Revenues

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

	As of December 31,						Percent Change
	2006		2005		2004		’06 vs. ’05			’05 vs. ’04
Lodging	$	27,927	$	12,638	$	—		>100	%		100	%
Management fees		75,305		70,674		59,651		6.6	%		18.5	%
Termination fees		25,881		7,199		4,294		>100	%		67.7	%
Other		11,568		11,140		14,146		3.8	%		(21.2	)%
Other revenue from managed properties		834,484		893,760		751,892		(6.6	)%		18.9	%
Total revenue	$	975,165	$	995,411	$	829,983		(2.0	)%		19.9	%

  Lodging

•  Lodging revenues increased in 2006 from 2005 primarily due to the inclusion of revenues of $6.8 million for Hilton Durham, which was purchased in November 2005, $2.3 million for the Hilton Garden Inn Baton Rouge, which was purchased in 2006 and $2.5 million for the Hilton Arlington, which was purchased in October 2006. Revenues from the Hilton Concord, which was purchased in February 2005 and recently

36

completed property physical improvement programs, increased by 34.5% for the year ended December 31, 2006, compared to the year ended December 31, 2005. This was due to an increase in occupancy of 19.6%, driven by additional group sales, which resulted in increased food & beverage revenue of 26.1 and an increase in RevPAR of 21.2%.

•  Lodging revenue increased in 2005 from 2004 related to the operations of the Hilton Concord and Hilton Durham hotels, which were both purchased in 2005. The operations of the Residence Inn Pittsburgh, which was sold in September 2005, have been included in discontinued operations for 2005 and 2004. Revenues from the Residence Inn Pittsburgh were $2.3 million and $3.3 million for 2005 and 2004, respectively.

  Management Fees

•  Management fee revenue increased in 2006 compared to 2005. Overall, we managed fewer properties for the year ended December 31, 2006 compared to December 31, 2005. Nevertheless, due to the strength of the U.S. economy and our improved operating efficiencies at our properties, we were able to significantly increase RevPAR by 9.6%, ADR by 7.7% and occupancy by 1.7% during the year. This led to an increase in our incentive fees of $3.1 million, or 21.7%, compared to the previous year which are tied directly to the operating performance of the hotels in which we manage. This increase is evidence of improved operating performance and positive results related to our renewed commitment to improving service at all of our hotels. In addition, in March 2006, we received business interruption proceeds of $3.2 million associated with eight MeriStar properties that were damaged or closed due to hurricanes in 2004.

•  Management fee revenue increased in 2005 compared to 2004, partially due to improvements in our RevPAR, ADR, and occupancy. The increase in these statistics was driven by our improved operating performance and continued growth in the hotel industry. Incentive fees increased $4.1 million for the year ended 2005 compared to the previous year as a result of continuous improvement in our operations. In addition, properties managed under our Sunstone subsidiary, which was acquired in October 2004, accounted for an increase in management fees of $7.1 million, as there was a full year of operations for 2005.

  Termination fees

•  Termination fee revenue increased in 2006 compared to 2005, primarily for properties terminated by Blackstone/MeriStar. The majority of the termination fees were due to the recognition of $15.1 million of termination fees from Blackstone for management contracts terminated on or before October 1, 2006.

•  Termination fee revenue increased in 2005 compared to 2004, due to an increase in termination fees from MeriStar of $1.5 million, or 3.5%, and termination fees from various owners of $1.4 million.

  Other

•  Other revenues increased in 2006 compared to 2005, primarily due to an increase in our purchasing and capital project management services provided resulting in approximately $0.6 million in revenues. In addition, we realized an increase in revenues from our captive insurance subsidiary of $0.3 million related to our reinsurance programs. These increases were offset by a reduction of $0.4 million in fees generated for accounting services we provide as a result of managing less properties to which we provided this ancillary service in 2006.

•  Other revenues decreased in 2005 compared to 2004, primarily due to a reduction in insurance revenue of $1.2 million from our captive insurance company due to the decrease in the number of properties participating in those programs. In addition, our construction management and purchasing division generated lower revenues of $1.0 million, the majority of which was due to reduced project management fees from MeriStar. Fees generated for accounting services we provide decreased approximately $1.0 million as a result of managing fewer properties to which we provided this ancillary service in 2005.

  Other Revenue from Managed Properties

•  Reimbursable expenses, which we record as other revenue and other expense from managed properties decreased in 2006 compared to 2005, due to the decline in the number of managed hotels and a corresponding reduction in the number of hotel employees and related reimbursable salaries, benefits and other expenses. The decreases were offset by the increase in payroll and insurance costs from 2005 to 2006. These

37

amounts represent the payroll and related costs of the hotels’ employees which is contractually reimbursed to us by the hotel owners.

•  Reimbursable expenses, which we record as other revenue and other expense from managed properties, increased in 2005 compared to 2004, due to an increase in the average number of properties under management. Although we had a lower number of properties under management at the end of 2005, the majority of those properties did not leave until late in the year. Consequently, the amount of reimbursed hotel employee salaries, benefits and other expenses increased. These amounts represent the payroll and related costs of the hotels’ employees which is contractually reimbursed to us by the hotel owners.

Operating Expenses

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

	As of December 31,						Percent Change
	2006		2005		2004		’06 vs. ’05			’05 vs. ’04
Lodging	$	20,768	$	10,009	$	—		>100	%		100	%
Administrative and general		59,327		59,972		51,261		(1.1	)%		17.0	%
Depreciation and amortization		6,721		8,040		7,747		(16.4	)%		3.8	%
Restructuring and severance expenses		—		1,952		3,885		(100	)%		(49.8	)%
Asset impairments and write-offs		13,214		5,583		8,922		>100	%		(37.4	)%
Other expenses from managed properties		834,484		893,760		751,892		(6.6	)%		18.9	%
Total undistributed operating expenses	$	934,514	$	979,316	$	823,707		(4.6	)%		18.9	%

  Lodging

•  Lodging expenses increased $10.8 million or 107.5% primarily due to the inclusion of the operations of the Hilton Concord and the Hilton Durham for the entire period in 2006. Gross margins related to the hotels increased 4.8% for the year ended December 31, 2006. In addition, in June 2006, we acquired the Hilton Garden Inn Baton Rouge, which incurred approximately $1.5 million in lodging expenses and in October 2006 we acquired the Hilton Arlington, which incurred approximately $2.0 million in lodging expenses. Based on the information presented on the consolidated statement of operations, the owned hotels had a gross margin of 25.6% in 2006.

•  Lodging expenses relate to the operations of the hotels purchased in 2005, the Hilton Concord and the Hilton Durham. These hotels had a combined gross margin of 21% in 2005. The lodging expenses related to the Residence Inn Pittsburgh are included within discontinued operations for 2005 and 2004.

  Administrative and General

•  Administrative and general expenses showed a slight decrease of $0.6 million in 2006 compared to 2005. The decrease is primarily due to the reduction in payroll and related benefits for employees and other expenses.

•  Administrative and general expenses increased $8.7 million in 2005 compared to 2004. The majority of this increase was due to a $6.5 million increase in general and administrative costs from the addition of our Sunstone operations, as they were included for a full year in 2005 versus two months in 2004. In addition, approximately $3.4 million related to an increase in payroll and incentive compensation as a result of improved operations, meeting budgeted goals and commissions paid on management and incentive fees. These increases were offset primarily by a decrease of approximately $0.6 million in expenses incurred in the first quarter of 2004 following the closing of one of our management subsidiaries in late 2003, in connection with the termination of the certain management contracts.

  Depreciation and Amortization

•  Although we purchased two hotels in 2006 and our net fixed assets increased more than $52.9 million, our depreciation and amortization expense decreased in 2006 compared to 2005. Various software assets and furniture and equipment became fully depreciated in December 2005 and throughout 2006, resulting in a $1.5 million reduction in depreciation expense. In addition, the significant impairment of management

38

contract costs related to sale of MeriStar/Blackstone properties reduced scheduled amortization expense by approximately $0.9 million. These changes were offset by additional depreciation expense in 2006 of $1.3 million related to the four owned hotels. We recorded a full year of depreciation for two hotels purchased in 2005 and additional depreciation for two hotels that were purchased in 2006.

•  Although we purchased two hotels in 2005 and our net fixed assets increased more than $32 million, our depreciation and amortization expense increased only $0.3 million in 2005 compared to 2004. The two hotels purchased in 2005 resulted in an additional $1.2 million in depreciation and amortization expense. We also incurred an additional $0.3 million of amortization expense in 2005 related to the management contracts with Sunstone, as the contracts were included for a full year in 2005 versus two months in 2004. Offsetting these increases, throughout 2005, we wrote off $4.7 million of intangible assets with respect to management contracts that were terminated, resulting in lower amortization expense of $1.2 million.

  Restructuring and Severance Expenses

•  Restructuring and severance expenses decreased $1.9 million in 2005 compared to 2004. The decrease was primarily due to severance costs of approximately $1.8 million paid to our former CEO, Steve Jorns, in 2005, compared to approximately $3.3 million in severance costs for our former CEO, Paul Whetsell, in 2004. In addition, during 2004, we incurred additional severance charges of $0.6 million related to former personnel, exclusive of our former CEO.

  Asset Impairment and Write-offs

•  Asset impairment and write-offs increased $7.6 million in 2006 compared to 2005 primarily due to an increase in management contract terminations. 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 year ended 2006, $8.3 million of asset impairments were recorded related to the sale of 18 MeriStar properties, $3.9 million in connection with eight Blackstone terminated management contracts, $0.7 million associated with 15 properties sold by Sunstone REIT and $0.3 million associated with eight properties from various owners.

•  Asset impairment and write-offs decreased $3.3 million in 2005 compared to 2004, primarily due to a reduction in management contract terminations. We wrote off $4.7 million and $7.3 million in asset impairment and write-offs for the year ended December 31, 2005 and 2004, respectively. We also recorded impairments of approximately $1.1 million in 2004 related to two of our joint venture investments, based on purchase offers and a default on a bank loan that indicated the fair value of our investment was less than the current carrying value. The remaining asset impairments and write-offs for 2004 relate primarily to legal fees and due diligence costs of a potential merger that were expensed when we determined it would not be consummated. The remaining expense for 2005 is $0.9 million related to the formation of proposed real estate investment fund which was never finalized.

Other Income and Expenses

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

	As of December 31,							Percent Change
	2006		2005		2004			’06 vs. ’05			’05 vs. ’04
Interest expense, net	$	6,461	$	8,971	$	7,441			(28.0	)%		20.6	%
Equity in earnings (losses) of affiliates		9,858		3,492		(1,056	)		>100	%		>100	%
Gain on sale of investments and extinguishment of debt		162		4,658		—			>(96.5	)%		100	%
Income tax expense (benefit)		17,271		6,315		(592	)		>100	%		>100	%
Minority interest expense (benefit)		223		173		(45	)		28.9	%		>100	%
Income (loss) from discontinued operations, net of tax		3,063		4,091		(4,079	)		(25.1	)%		>100	%

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  Net Interest Expense

•  Net interest expense decreased $2.5 million in 2006 compared to 2005. The majority of this decrease was primarily due to the non-recurrence in 2006 of the expensing of $1.8 million of unamortized deferred financing fees in connection with the January 2005 extinguishment and refinancing of our Credit Facility. The remainder of the decrease was due to our average debt balance decreasing between periods partially offset by rising interest rates as well as gains realized on our interest rate caps entered into in connection with our debt.

•  Net interest expense increased $1.5 million in 2005 compared to 2004. The increase was due to $1.8 million of additional amortization of deferred financing fees related to the extinguishment and refinancing of our Credit Facility in January 2005. Our average long-term debt balance throughout 2004 and 2005 did not significantly change, while our average interest rate slightly decreased due to a lower interest rate on our mortgage debt compared to our Credit Facility.

  Equity in Earnings (Loss) of Affiliates

•  Equity in earnings of affiliates increased by $6.4 million in 2006 compared to 2005. The majority of this increase was due to a gain of $5.4 million resulting from the sale of our MIP joint venture. In addition we recorded a $4.5 million gain on the sale of Sawgrass Marriott Resort & Spa. We incurred a reduction of $0.3 million of losses in our CapStar Hallmark joint venture and $0.5 million related to our other joint ventures. These amounts were offset by a gain of approximately $4.3 million recorded on the sale of the Hilton San Diego Gaslamp hotel in January 2005 and the related retail space in June 2005.

•  Equity in earnings of affiliates increased $4.5 million in 2005 compared to 2004. The majority of this increase was attributable to the recognition of our share of the gains on the sales of the Hilton San Diego Gaslamp Hotel and Residence Inn Houston Astrodome Medical Center of $4.3 million and $1.1 million, respectively. These increases were partially offset by losses in our MIP joint venture, which increased approximately $0.6 million in 2005.

  Gain on Sale of Investments and Extinguishment of Debt

•  In December 2006, we recognized a gain of $0.2 million primarily from the exchange of stock warrants for stock and subsequent sale of that stock in an unaffiliated company, which we held as an investment.

•  The gain recognized in 2005 consisted of $4.3 million related to the extinguishment of debt of a non-recourse promissory note and a gain of $0.3 million from the exercise of stock warrants and the subsequent sale of this investment in an unaffiliated company. In 2001, we entered into a non-recourse promissory note to fund the acquisition of an interest in a joint venture which owned eight hotels. The note provided for repayments only to be made to the extent the joint venture made distributions to us. In March 2005, the mortgage lenders, with the joint venture’s acquiescence, initiated foreclosure proceedings on the eight hotels, which were completed in September 2005. We have confirmed with the holder of the non-recourse promissory note that it does not intend to foreclose on the collateral of this note as it is now worthless, and that it does not expect payment of this note, except to the extent that the joint venture would make any future distributions to us. We have no expectations of receiving any future distributions from this joint venture as all of the hotels were foreclosed upon by the lender and the joint venture has no other assets or cash generating activities. Accordingly, we derecognized the liability of $4.3 million in 2005.

  Income Tax Expense (Benefit)

•  The change in income tax expense is driven by the increase in our income from continuing operations. This increase was partially offset by a reduction in the effective tax rate from 40% in 2005 to 39% in 2006. The change in our effective tax rate for 2006 was primarily due to our relieving the partial valuation allowance previously placed on the employment related tax credits utilized in 2006.

•  The change in income tax expense for 2005 compared to 2004 was driven by change in the effective tax rate from 29% to 40%. The change in our rate was primarily due to our change from a loss to an income position. While we produced losses in 2004, we continue to recognize expense related to permanent book-tax differences and our foreign operations.

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  Income (Loss) from Discontinued Operations, Net of Tax

•  Income from discontinued operations decreased $1.0 million in 2006 compared to 2005. Discontinued operations includes the operations of our corporate housing subsidiary (disposed of in January 2007) which was held for sale as of December 31, 2006, and the Pittsburgh Airport Residence Inn by Marriott (disposed of in September 2005).

•  Income from discontinued operations increased $8.2 million in 2005 compared to 2004. Discontinued operations includes the operations of our corporate housing subsidiary (disposed of in January 2007) the Pittsburgh Airport Residence Inn by Marriott (disposed of in September 2005) and the Toronto market of our corporate housing segment (disposed of in June 2004).

Liquidity, Capital Resources and Financial Position

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

	As of December 31,									Percent Change
	2006			2005			2004			’06 vs. ’05			’05 vs. ’04
Cash provided by operating activities	$	67,949		$	34,421		$	16,210			97.4	%		>100	%
Cash used in investing activities		(58,946	)		(33,184	)		(9,571	)		77.6	%		>100	%
Cash provided by (used in) financing activities		3,062			(4,279	)		2,069			>100	%		>(100	)%
Working capital		11,287			(6,278	)		(1,088	)		>100	%		>(100	)%
Cash interest expense		(7,718	)		(7,139	)		(6,968	)		8.1	%		2.5	%
Debt balance		84,226			85,052			89,197			(1.0	)%		(4.6	)%

Operating Activities

The increase in cash provided by operating activities from 2005 to 2006 of $33.5 million was primarily driven by the significant increases in income from operations of $24.6 million from $16.1 million in 2005. This increase was primarily from the increase in termination fees of $18.7 million and business interruption proceeds of $3.2 million and stronger operating results at the hotels with an increase in incentive fees of $3.1 million.

The increase in cash provided by operating activities from 2004 to 2005 of $18.2 million was primarily driven by the significant increase in income from operations of $18.5 million.

Investing Activities

The major components of the increase in cash used in investing activities from 2005 to 2006 were:

•  The purchase of two hotels in 2006; the purchase prices of the Hilton Garden Inn Baton Rouge for $14.5 million and the Hilton Arlington for $37.0 million exceeded the $44.1 million net purchase price acquisitions of the Hilton Concord and Hilton Durham, which were acquired in 2005.

•  In addition, during 2006, we entered into six new joint ventures for $16.3 million and contributed $0.2 million of additional equity to our investments compared to contributions of $0.6 million in 2005. The contributions in 2006 were offset by the distributions received from the sale of the Sawgrass Marriot of $15.3 million ($9.3 million of which was reinvested) and the sale of the seven hotels owned by our MIP joint venture in December 2006 for $6.4 million in proceeds.

The major components of the increase in cash used in investing activities from 2004 to 2005 were:

•  The purchase of two hotels in 2005, the Hilton Concord and Hilton Durham, for a total net purchase price of approximately $44.1 million. These purchases were offset by the sale of the Residence Inn Pittsburgh for $10.5 million. There were no hotel acquisitions or dispositions in 2004.

•  There were additional contributions to the restricted cash balance of $5.1 million in 2005. 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. In addition, we had an additional $0.7 million of restricted cash related to improvements to be made at the Hilton Concord.

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•  The above was offset by the receipt of cash distributions in 2005 of approximately $6.7 million related to our share of the sale of three hotels in which we held a partial joint venture ownership interest. In 2004, we made cash contributions of approximately $2.2 million related to various investments in joint ventures.

•  In 2004, we purchased Sunstone, a hotel management company, for $8.0 million.

Financing Activities

In 2006 and 2005, we borrowed approximately the same amount of total long-term debt that we repaid, resulting in no substantial net effect on cash from financing activities. The revolving loan under our Credit Facility had a balance of $20.1 million at December 31, 2005 and was repaid in full as of December 31, 2006 as cash from operations increased in 2006. As a result of the purchase of the Hilton Arlington, we incurred mortgage debt of $24.7 million. The change in financing activities was due to additional financing fees of approximately $4.0 million incurred in 2005 in connection with the refinancing of our long-term debt. These cash outflows were offset by the $2.8 million in proceeds from the issuance of common stock during 2006 from the exercise of stock options.

The increase in cash used in financing activities in 2005 was primarily due to additional financing fees of $3.7 million incurred in connection with the refinancing of our long-term debt in 2005. Our borrowings and repayment on long-term debt were approximately the same in 2005, while in 2004, we borrowed $2.9 million more than we repaid. In addition, we paid $1.3 million in 2004 related to the redemption of preferred operating partnership units.

Liquidity

Liquidity Requirements — Our known short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures, including: corporate related expenses such as payroll and related benefits, legal costs, and other costs associated with the management of hotels, interest expense and scheduled principal payments on our outstanding indebtedness and capital expenditures, which include renovations and maintenance at our owned hotels.

Our long-term liquidity requirements consist primarily of funds necessary to pay for scheduled debt maturities and costs associated with potential acquisitions. Our Credit Facility was scheduled to mature in January 2008. In March 2007, we entered into a new, senior secured credit facility, which we refer to as the “New Credit Facility,” which replaced our Credit Facility. The New Credit Facility matures in March 2010. Our three non-recourse mortgage loans mature in March 2008, November 2009 and February 2010. We will continue to implement our growth strategy by seeking acquisitions of wholly-owned and joint venture interests in hotel properties. We are also interested in investment opportunities to acquire hotel management businesses and management contracts which may require cash.

We have historically satisfied our short-term liquidity requirements through cash provided by our operations and borrowings from our Credit Facility. We believe that amounts available under our New Credit Facility and cash provided by operations will continue to be sufficient to meet our short-term liquidity requirements for at least the next 12 months. As of March 15, 2007, we had $59.2 million available for borrowing under our New Credit Facility. Our borrowing under our New Credit Facility is subject to certain restrictions and covenants under New the Credit Facility agreement. Additionally, we must maintain compliance with our financial covenants, including a debt coverage ratio and interest coverage ratios and a minimum net worth in order to continue to have funds available to borrow under our Credit Facility. We continually monitor our operating and cash flow models in order to forecast our compliance with the financial covenants. As of December 31, 2006 we were in compliance with all financial covenants.

Nevertheless, our short-term liquidity could be influenced by various factors. In today’s market, in which there is a large volume of hotel purchase and sale transactions, we have a greater risk of management contract attrition. We believe that our risk related to this turnover is partially mitigated due to our size and diversity across owners and brand affiliations. In addition, some of our contracts are structured such that we earn a termination fee if the contract is terminated early due to a change of control. These contractual terms are designed to allow us to use the additional cash flow from terminated management contracts either to pay down debt or attempt to replace that earnings stream through investments pursuant to our growth strategy. The overall economy is also a factor in the uncertainty and

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variability of our cash flows. To the extent business and leisure travel is declining, we will see a decrease in our earnings and therefore our cash flow.

We have historically satisfied our long-term liquidity requirements through various sources of capital, including cash provided by operations, bank credit facilities, long-term mortgage indebtedness and the issuance of equity. We believe that these sources of capital will continue to be available to us in the future to fund our long-term liquidity requirements. Nevertheless, there are certain factors that may have a material adverse effect on our access to these capital sources. 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.

Our ability to raise funds through the issuance of equity securities is dependent upon, among other things, general market conditions and market perceptions about our Company. We will continue to analyze which sources of capital are most advantageous to us at any particular point in time, but equity and debt financing may not be consistently available to us on terms that are attractive or at all.

Expectations for 2007 — We expect to use additional cash flows from operations, including the proceeds from the sale of our corporate housing subsidiary and amounts available under the New Credit Facility, to pay required debt service, income taxes and make planned capital purchases for our wholly-owned hotels. These capital expenditures include renovations and regular capital expenditures for maintenance, which we estimate will be approximately $8 million in 2007. Any additional cash available will continue to be used in investments, such as whole-ownership or joint venture ownership of hotels, which meet the focus of our investment strategy. If none of these investments become available, we will pay down debt and/or invest in short-term securities with excess cash flow until those investments become available. Joint venture investments will most likely be financed through our current working capital, cash flows from operations and our New Credit Facility. Any acquisitions of wholly-owned hotels will likely be financed through a combination of our cash flows from operations, our New Credit Facility and non-recourse mortgage debt.

Long-Term Debt

Senior Credit Facility — In January 2005, we entered into an amended and restated senior secured credit facility, with various lenders. The Credit Facility provided aggregate loan commitments for a $53.0 million term loan and a $55.0 million revolving loan. The Credit Facility was scheduled to mature on January 14, 2008.

The actual interest rates on both the revolving loan and term loan depend on the results of certain financial tests. As of December 31, 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 8.6% per annum) and borrowings under the term loan bore interest at the 30-day LIBOR plus 450 basis points (a rate of 9.9% per annum). We incurred interest expense of $5.8 million, $6.1 million and $2.4 million on the senior credit facilities for the twelve months ended December 31, 2006, 2005 and 2004, respectively. At December 31, 2006, we were in compliance with the loan covenants of the New Credit Facility.

In March 2007, we closed on a new senior secured credit facility. The new credit facility will consist of a $65.0 million term loan and a $60.0 million revolving loan. The interest rate on both the term loan and the revolving loan will be the 30-day LIBOR plus 275 basis points. In addition, we will be required to make quarterly payments of approximately $0.2 million. The debt under the New 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 New Credit Facility contains covenants that include maintenance of certain financial ratios at the end of each quarter, compliance reporting requirements and other customary restrictions.

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Mortgage Debt — The following table summarizes our mortgage debt as of March 1, 2007:

	Principal		Maturity		Spread over		Interest Rate as of
	Amount		Date(1)		30-Day LIBOR		March 1, 2007
Hilton Houston Westchase	$	32.8 million		February 2010		135 bps		6.7	%
Hilton Arlington	$	24.7 million		November 2009		135 bps		6.7	%
Hilton Concord(2)	$	19.0 million		March 2008		225 bps		7.6	%

(1)	We are required to make interest-only payments until these loans mature, with two optional one-year extensions.
(2)	In March 2007, we notified the lender of our intention to repay this entire mortgage loan in April 2007.

We incurred interest expense on these mortgage loans of $1.8 million and $1.0 million for the twelve months ended December 31, 2006 and 2005, respectively. Based on the terms of these mortgage loans, a prepayment cannot be made during the first year after it has been entered. After one year, a penalty of 1% is assessed on any prepayments. The penalty is reduced ratably over the course of the second year. There is no penalty for prepayments made in the third year.

Shelf Registration Statement — In August 2004, we filed a Form S-3 shelf registration statement registering up to $150.0 million of debt securities, preferred stock, common stock and warrants. The registration statement also registered approximately 6.2 million shares of our common stock held by CGLH Partners I, LP and CGLH Partners II, LP, which are beneficially owned by certain of our directors. Of these shares, at least 4.3 million shares have already been sold by affiliates of the CGLH partnership in the open market. The CGLH Partnerships have the right to include their remaining 1.9 million shares in the shelf registration statement pursuant to a registration rights agreement they executed with us at the time of our July 2002 merger with Interstate Hotels Corporation.

Contractual Obligations and Off-Balance Sheet Arrangements — The following table summarizes our contractual obligations at December 31, 2006 and the effect that those obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

			Less than		Payment terms				More than
	Total		1 year		1-3 years		3-5 years		5 year
Senior credit facility — term loan(a)	$	40,526	$	3,750	$	36,776	$	—	$	—
Senior credit facility — revolving loan(a)		—		—		—		—		—
Mortgage debt(a)		76,525		—		43,700		32,825		—
Estimated interest payments on long-term debt(b)		17,272		9,125		7,964		183		—
Non-cancelable office leases(c)		21,149		3,553		5,990		6,187		5,419
Total(d)	$	155,472	$	16,428	$	94,430	$	39,195	$	5,419

(a)	For principal repayment obligations with respect to our long-term debt, see Note 8 to our consolidated financial statements. We expect to settle such long-term debt by several options, including cash flows from operations and borrowing of refinancing long-term debt. Included is the mortgage debt incurred with the purchase of the Hilton Houston Westchase in February 2007.
(b)	To estimate interest payments on our long-term debt, which is variable-rate debt, we estimated interest rates and payment dates based on our determination of the most likely scenarios for each relevant debt instrument. We expect to settle such interest payments with cash flows from operations or short-term borrowings.
(c)	The office lease obligations shown in the table above have not been reduced by minimum payments to be received related to a non-cancelable sublease at our corporate offices. These offsetting payments aggregate to approximately $8.2 million through August 2013. The Company remains secondarily liable under this sublease in the event that the sub-lessee defaults under the sublease terms. We do not believe that material payments will required as a result of the secondary liability provisions of the primary lease agreement.
(d)	Contractual obligations and off-balance sheet arrangements relating to BridgeStreet, which primarily consisted of non-cancellable apartment leases, have historically been included as part of this table. Due to the sale of BridgeStreet in January 2007, which included the release of our obligations under those leases, we have not included any obligations of BridgeStreet as of December 31, 2006.

We also have the following commitments and off-balance sheet arrangements currently outstanding:

•  Management Agreement Commitments — Under the provisions of management agreements with certain hotel owners, we have outstanding commitments to provide an aggregate of $4.0 million to these hotel owners in the

44

form of investments or loans, if requested. As the timing of these future investments or working capital loans to hotel owners is currently unknown as it is at the hotel owner’s discretion, they are not included in the above table.

•  Letters of Credit — As of March 1, 2007, we have a $0.9 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 their losses in the event we default on payments to the carrier. Accordingly, the issuing bank has required us to restrict a portion of our cash equal to the amount of the letter of credit. We also have a $0.8 million letter of credit outstanding 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 their risk in the event the properties default on their required payments related to the surety bonds.

•  Equity Investment Funding — In connection with our equity investments in hotel real estate, we are partners or members of various unconsolidated partnerships or limited liability companies. The terms of such partnership or limited liability company agreements provide that we contribute capital as specified. The timing and amount of such contributions of capital, if any, is currently unknown and is therefore not reflected in the chart set forth above. We have minority interests in eleven hotel real estate limited partnerships and limited liability companies. We do not guarantee the debt or other obligations of any of these investments other than certain environmental and “bad boy” guarantees as may be required under a particular joint venture.

•  Insurance Matters — As part of our management agreement services to a hotel owner, we generally obtain casualty (workers compensation and liability) insurance coverage for the hotel. 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 are working with the prior carrier to facilitate a timely and efficient settlement of the claims outstanding under the prior carrier’s casualty policies. The prior carrier has primary responsibility for settling those claims from its assets. As of December 31, 2006, only 57 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 available to us, 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 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 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.

•  Sunstone Liabilities — We purchased Sunstone on October 26, 2004. As part of the purchase we assumed the liabilities of that company which included certain employee related liabilities such as workers’ compensation and liabilities under a defined benefit pension plan. We are indemnified by Sunstone REIT for these liabilities. We recorded the liabilities for workers’ compensation and the pension plan on our balance sheet and recorded a receivable for the same amount from the owner, Sunstone REIT, at the time of the purchase. At December 31, 2005, we had a $5.0 million letter of credit outstanding from Sunstone REIT, for these and other assumed

45

liabilities. On June 1, 2006 we conditionally released Sunstone REIT from the requirement for the letter of credit. Sunstone continues to remain liable for the employee related liabilities. To the extent Sunstone REIT would be unable to reimburse us for these liabilities, we would be primarily liable.

•  Property Improvement Plans — In connection with our owned hotels, we have committed to provide certain funds for property improvements as required by the respective brand franchise agreements. As of December 31, 2006, the Hilton Concord, Hilton Durham, and Hilton Arlington had plans in effect with remaining expected costs to complete of approximately $0.6 million, $0.2 million, and $2.3 million, respectively. In conjunction with our purchase of the Hilton Houston Westchase in February 2007, we undertook a property improvement plan with remaining costs of $1.7 million, which will complete an extensive $11 million plan which was initiated by the previous owner.

•  Commitments Under Development Agreements — We are also required to fund up to $0.6 million in the event of cost overruns in excess of 110% of the projected budgeted costs, as defined in the relevant management agreement, for the development of certain hotels related to our joint venture IHR Greenbuck Hotel Venture, LLC.

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 Annual Report on Form 10-K 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, particularly statements anticipating future growth in revenues, net income and cash flow. Any statements in this document about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “will likely result,” “expect,” “will continue,” “anticipate,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook” and other similar terms and phrases. Accordingly, these statements involve estimates, assumptions and uncertainties that are not yet determinable and could cause actual results to differ materially from those expressed in the statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Annual Report on Form 10-K and the documents incorporated by reference herein. In addition to the risks related to our business, the factors that could cause actual results to differ materially from those described in the forward-looking statements include, among others, the following:

•  economic conditions generally and the real estate market specifically;

•  the impact of actual or threatened future terrorist incidents or hostilities;

•  the war in Iraq, continuing conflicts in that geographic region and related ongoing U.S. involvement;

•  international geo-political difficulties or health concerns;

•  uncertainties associated with obtaining additional financing for future real estate projects and to undertake future capital improvements;

•  demand for, and costs associated with, real estate development and hotel rooms, market conditions affecting the real estate industry, seasonality of resort and hotel revenues and fluctuations in operating results;

•  changes in laws and regulations applicable to us, including federal, state or local hotel, resort, restaurant or land use regulations, employment, labor or disability laws and regulations and laws governing the taxation of real estate investment trusts;

•  the impact of weather-related events or other calamities;

•  legislative/regulatory changes, including changes to laws governing the taxation of REITs;

•  failure to renew essential management contracts or business leases;

•  competition from other hospitality companies, pricing pressures;

•  variations in lease and room rental rates;

•  litigation involving antitrust, consumer and other issues;

46

•  loss of any executive officer or failure to hire and retain highly qualified employees; and

•  other factors discussed under the heading “Risk Factors” and in other filings with the Securities and Exchange Commission.

These factors and the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made or incorporated by reference in this Annual Report on Form 10-K. 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.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to market risk from changes in interest rates on our credit facilities. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. As of December 31, 2006, all of our debt is at variable rates based on current LIBOR rates. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity, Capital Resources and Financial Position — Long-Term Debt” for more information regarding our long-term debt.

In an effort to manage interest rate risk covering our outstanding debt, we have entered into various interest rate cap agreements. 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. The interest rate agreement caps the 30-day LIBOR at 6.65% 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. The interest rate agreement caps the 30-day LIBOR at 5.75% and is scheduled to mature on January 14, 2008. In October 2006, we entered into a $24.7 million, three-year interest rate cap agreement in conjunction with our mortgage loan associated with the purchase of the Hilton Arlington. The interest rate agreement caps the 30-day LIBOR at 7.25% and is scheduled to mature on November 19, 2009. At December 31, 2006, the total fair value of these interest rate cap agreements was approximately $17,000. The change in fair value for these interest rate cap agreements is recognized in the consolidated statement of operations.

The 30-day LIBOR rate, upon which our debt and interest rate cap agreements are based, increased from 4.4% per annum as of December 31, 2005 to 5.4% per annum as of December 31, 2006. Giving effect to our interest rate hedging activities, a 1.0% change in the 30-day LIBOR would have changed our interest expense by approximately $0.9 million, $0.9 million and $0.6 million for the years ended December 31, 2006, 2005 and 2004, respectively.

Exchange Rate Risk

Our international operations are subject to foreign exchange rate fluctuations. To date, most of our foreign operations have been largely self-contained or dollar-denominated and as such, we have not been exposed to material foreign exchange risk. Therefore, we have not entered into any foreign currency exchange contracts or other derivative financial instruments to hedge the related effects of adverse fluctuations in foreign currency exchange rates. It is currently expected that our management fees for our Russian hotels will be paid in Rubles beginning in 2007. We have a process in place to immediately convert those fees into US dollars. In the event that we have large transactions, such as this, requiring currency conversion, we will continue to evaluate whether we should engage in hedging activities.

We derived approximately 7.2%, 8.8% and 9.8% of our revenues, excluding reimbursed expenses, from services performed in Canada and Russia for the years ended December 31, 2006, 2005 and 2004, respectively. Our foreign currency translation gains and (losses) of approximately $1.1 million, $(0.5) million and $(0.03) million for the years ended December 31, 2006, 2005 and 2004, respectively, are included in accumulated other comprehensive income (loss) in our statement of operations. As our revenues earned in Canada and Russia have been paid to us in US dollars, there has been no exposure related to those revenues. All of our foreign currency gains and losses are related to our now disposed of London and Paris operations.

47

ITEM 8.   TOTAL FINANCIAL STATEMENTS

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

INTERSTATE HOTELS & RESORTS, INC.

Reports of Independent Registered Public Accounting Firm	49
Consolidated Balance Sheets as of December 31, 2006 and 2005	51
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2006, 2005 and 2004	52
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004	53
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004	54
Notes to the Consolidated Financial Statements	55

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

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Interstate Hotels & Resorts, Inc.:

We have audited the accompanying consolidated balance sheets of Interstate Hotels & Resorts, Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interstate Hotels & Resorts, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2007, expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP

McLean, Virginia

March 16, 2007

49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Interstate Hotels & Resorts, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, included in Item 9A of the Annual Report on Form 10-K, that Interstate Hotels & Resorts, Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Interstate Hotels & Resorts, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated March 16, 2007 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

McLean, Virginia

March 16, 2007

50

INTERSTATE HOTELS & RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

	December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	25,308		$	12,929
Restricted cash		6,485			3,209
Accounts receivable, net of allowance for doubtful accounts of $1,232 in 2006 and $1,873 in 2005		31,186			41,594
Due from related parties, net of allowance for doubtful accounts of $785 in 2006 and $1,800 in 2005		1,794			6,001
Prepaid expenses and other current assets		2,592			8,594
Assets held for sale		28,383			—
Total current assets		95,748			72,327
Marketable securities		1,610			1,503
Property and equipment, net		103,895			52,070
Investments in affiliates		11,144			7,686
Notes receivable		4,962			6,052
Deferred income taxes		12,451			11,925
Goodwill		73,672			96,809
Intangible assets, net		30,208			44,708
Total assets	$	333,690		$	293,080
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,053		$	4,508
Accrued expenses		68,395			70,347
Liabilities related to assets held for sale		10,263			—
Current portion of long-term debt		3,750			3,750
Total current liabilities		84,461			78,605
Deferred compensation		1,541			1,474
Long-term debt		80,476			81,302
Total liabilities		166,478			161,381
Minority interests		516			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; 31,540,926 and 30,609,935 shares issued and outstanding at December 31, 2006 and 2005, respectively		316			306
Treasury stock		(69	)		(69	)
Paid-in capital		194,460			189,330
Accumulated other comprehensive income		1,201			64
Accumulated deficit		(29,212	)		(58,991	)
Total stockholders’ equity		166,696			130,640
Total liabilities, minority interests and stockholders’ equity	$	333,690		$	293,080

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

51

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

	Year Ended December 31,
	2006			2005			2004
Revenue:
Lodging	$	27,927		$	12,638		$	—
Management fees		61,972			48,379			32,765
Management fees-related parties		13,333			22,295			26,886
Termination fees		19,764			1,392			—
Termination fees-related parties		6,117			5,807			4,294
Other		11,568			11,140			14,146
		140,681			101,651			78,091
Other revenue from managed properties		834,484			893,760			751,892
Total revenue		975,165			995,411			829,983
Expenses:
Lodging		20,768			10,009			—
Administrative and general		59,327			59,972			51,261
Depreciation and amortization		6,721			8,040			7,747
Restructuring and severance		—			1,952			3,885
Asset impairments and write-offs		13,214			5,583			8,922
		100,030			85,556			71,815
Other expenses from managed properties		834,484			893,760			751,892
Total operating expenses		934,514			979,316			823,707
OPERATING INCOME		40,651			16,095			6,276
Interest income		2,020			1,292			1,164
Interest expense		(8,481	)		(10,263	)		(8,605	)
Equity in earnings (losses) of affiliates		9,858			3,492			(1,056	)
Gain on sale of investments and extinguishment of debt		162			4,658			—
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST		44,210			15,274			(2,221	)
Income tax (expense) benefit		(17,271	)		(6,315	)		592
Minority interest (expense) benefit		(223	)		(173	)		45
INCOME (LOSS) FROM CONTINUING OPERATIONS		26,716			8,786			(1,584	)
Income (loss) from discontinued operations, net of tax		3,063			4,091			(4,079	)
NET INCOME (LOSS)		29,779			12,877			(5,663	)
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)		1,129			(521	)		(34	)
Unrealized gain (loss) on investments		8			(307	)		89
COMPREHENSIVE INCOME (LOSS)	$	30,916		$	12,049		$	(5,608	)
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations	$	0.86		$	0.29		$	(0.05	)
Discontinued operations		0.10			0.13			(0.14	)
Basic earnings (loss) per share	$	0.96		$	0.42		$	(0.19	)
DILUTIVE EARNINGS (LOSS) PER SHARE:
Continuing operations	$	0.85		$	0.29		$	(0.05	)
Discontinued operations		0.09			0.13			(0.14	)
Dilutive earnings (loss) per share	$	0.94		$	0.42		$	(0.19	)

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

52

INTERSTATE HOTELS & RESORTS,
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)

												Accumulated
												Other
	Common		Treasury			Paid-in-			Accumulated			Comprehensive
	Stock		Stock			Capital			Deficit			Income			Total
Balance at December 31, 2003	$	300	$	(69	)	$	183,145		$	(66,205	)	$	837		$	118,008
Options exercised		1		—			816			—			—			817
Options expense		—		—			319			—			—			319
Restricted stock award transactions, net		2		—			2,770			—			—			2,772
Additional costs of equity offering		—		—			(69	)		—			—			(69	)
Conversion of operating partnership units		1		—			1,095			—			—			1,096
Net loss		—		—			—			(5,663	)		—			(5,663	)
Other comprehensive income, net of tax		—		—			—			—			55			55
Balance at December 31, 2004		304		(69	)		188,076			(71,868	)		892			117,335
Options exercised		—		—			137			—			—			137
Options expense		—		—			260			—			—			260
Restricted stock award transactions, net		2		—			857			—			—			859
Net income		—		—			—			12,877			—			12,877
Other comprehensive loss, net of tax		—		—			—			—			(828	)		(828	)
Balance at December 31, 2005		306		(69	)		189,330			(58,991	)		64			130,640
Options exercised, including tax benefit		7		—			3,881			—			—			3,888
Options expense		—		—			91			—			—			91
Restricted stock award transactions, net		1		—			394			—			—			395
Conversion of operating partnership units		2		—			764			—			—			766
Net income		—		—			—			29,779			—			29,779
Other comprehensive income, net of tax		—		—			—			—			1,137			1,137
Balance at December 31, 2006	$	316	$	(69	)	$	194,460		$	(29,212	)	$	1,201		$	166,696

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

53

INTERSTATE HOTELS & RESORTS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Year Ended December 31,
	2006			2005			2004
OPERATING ACTIVITIES:
Net income (loss)	$	29,779		$	12,877		$	(5,663	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		6,721			8,040			7,747
Amortization of deferred financing fees		777			2,697			631
Stock compensation expense		990			1,451			3,091
Bad debt expense		616			862			1,301
Asset impairments and write-offs		13,214			5,583			8,922
Equity in (earnings) losses of affiliates		(9,858	)		(3,492	)		1,056
Gain on sale of investment and forgiveness of debt		—			(4,658	)		—
Operating distributions from unconsolidated entities		350			375			713
Minority interest		223			173			(45	)
Deferred income taxes		13,672			6,334			(2,005	)
Excess tax benefits from share-based payment arrangements		(919	)		—			—
Discontinued operations:
Depreciation and amortization		1,533			1,256			1,938
Asset impairment and write-offs		—			—			2,885
(Gain) loss on sale		—			(2,545	)		376
Changes in operating assets and liabilities:
Accounts receivable, net		1			(10,279	)		(18,769	)
Due from related parties, net		4,220			6,367			3,347
Prepaid expenses and other assets		(306	)		1,045			(179	)
Accounts payable and accrued expenses		5,989			8,958			10,296
Other changes in asset and liability accounts		947			(623	)		568
Cash provided by operating activities		67,949			34,421			16,210
INVESTING ACTIVITIES:
Proceeds from the sale of investments		—			483			522
Proceeds from the sale of discontinued operations		—			10,488			—
Change in restricted cash		(3,276	)		(2,511	)		2,560
Acquisition of subsidiaries		—			—			(8,000	)
Acquisition of hotels		(51,551	)		(44,040	)		—
Purchases related to discontinued operations		(2,055	)		(442	)		(628	)
Purchases of property and equipment		(5,871	)		(2,731	)		(1,609	)
Additions to intangible assets		(1,964	)		(1,534	)		(2,775	)
Contributions to unconsolidated entities		(16,549	)		(594	)		(2,237	)
Distributions from unconsolidated entities		21,724			7,717			—
Change in notes receivable		596			(20	)		2,596
Cash used in investing activities		(58,946	)		(33,184	)		(9,571	)
FINANCING ACTIVITIES:
Proceeds from borrowings		33,700			120,200			42,000
Repayments of borrowings		(34,526	)		(120,622	)		(39,125	)
Proceeds from the exercise of stock options		2,969			137			751
Excess tax benefits from share-based payment arrangements		919			—			—
Cash paid for redemption of preferred operating partnership units		—			—			(1,310	)
Financing fees paid		—			(3,994	)		(247	)
Cash provided by (used in) financing activities		3,062			(4,279	)		2,069
Effect of exchange rate changes on cash		314			(510	)		323
Net increase (decrease) in cash and cash equivalents		12,379			(3,552	)		9,031
CASH AND CASH EQUIVALENTS, beginning of period		12,929			16,481			7,450
CASH AND CASH EQUIVALENTS, end of period	$	25,308		$	12,929		$	16,481
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes:
Interest	$	7,718		$	7,139		$	6,968
Income taxes	$	6,277		$	1,412		$	2,426

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

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INTERSTATE HOTELS & RESORTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

1.  BUSINESS SUMMARY

We are one of the largest independent U.S. hotel management companies not affiliated with a hotel brand, measured by number of rooms under management. We have two reportable operating segments: hotel management and hotel ownership (through whole-ownership and joint ventures). A third reportable operating segment, corporate housing, was disposed of on January 26, 2007 with the sale of BridgeStreet.

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 December 31, 2006, we managed 223 hotel properties and four ancillary service centers (which consist of laundry centers, a conference center, and a spa facility), with 50,199 rooms in 39 states, the District of Columbia, Canada, and Russia. We also wholly-owned four hotel properties (a fifth was acquired in February 2007) and held non-controlling joint venture equity interests in 11 joint ventures, which own or hold ownership interests in 17 of our managed properties.

Our corporate housing division provided 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 December 31, 2006, we had 2,910 apartments under lease and 307 units under management in the United States, France and the United Kingdom. The assets and liabilities of our corporate housing division are presented as held for sale in our consolidated balance sheets as of December 31, 2006 and as discontinued operations in our consolidated statement of operations and cash flows for all periods presented in this report.

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

Basis of Presentation and Consolidation

Our consolidated financial statements are prepared in accordance with U.S. GAAP. These statements include our accounts and the accounts of all of our majority owned subsidiaries. Additionally, if we determine that we hold an interest in a variable interest entity within the meaning of Financial Accounting Standards Board, or FASB, Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”) and that our variable interest will absorb a majority of the entities expected losses, or receive a majority of the expected returns, or both, to the extent they occur, then we will consolidate the entity. If the joint venture is not considered to meet the definition of a variable interest entity or we are not considered to be the primary beneficiary, then our investment in the joint venture, over which we exert significant influence, but do not control the financial and operating decisions of the joint venture, is accounted for as an equity or cost method investment. Consolidated net income includes our share of the net earnings of these joint ventures. We consolidate entities when we own over 50% of the voting shares of a company or the majority of the general partner interest of a partnership, assuming the absence of other factors determining control. Other control factors we consider include the ability of minority owners to participate in or block management decisions. 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”) addresses the issue of what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would otherwise consolidate the limited partnership in accordance with GAAP. 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. We own 100% of the Hilton Concord, located near the East Bay area of San Francisco, the Hilton Durham, located in Durham, NC,

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the Hilton Garden Inn Baton Rouge, located in Baton Rouge, LA and the Hilton Arlington, located in Arlington, TX. The operations of these properties are consolidated in our financial statements. We eliminate all significant inter-company balances and transactions. Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the current-year presentation.

Use of Estimates

Preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on our best knowledge of current events and actions we may undertake in the future. Actual results may ultimately differ from estimates, although management does not believe such estimates would materially affect the financial statements in any individual year. Estimates are used in accounting for, among other things, the impairment of long-lived assets, the impairment of goodwill, income taxes and useful lives for depreciation and amortization.

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash primarily consists of cash reserves statutorily required to be held by our captive insurance subsidiary for insurance we provide to our managed hotels; escrows required related to property improvement plans at wholly-owned hotels; and working capital from our owners to purchase goods for renovation projects that our purchasing subsidiary oversees.

Allowance for Doubtful Accounts

We provide an allowance for doubtful accounts receivable when we determine it is more likely than not a specific account will not be collected and provide a general reserve for the population of our accounts that we believe may become uncollectible based on current business conditions. We incurred bad debt expense on accounts receivable of $0.2 million, $0.9 million, and $1.3 million in 2006, 2005, and 2004, respectively. We had write-offs of accounts receivable of $1.0 million, $1.0 million and $0.9 million in 2006, 2005 and 2004, respectively. This includes amounts related to our corporate housing subsidiary, which is classified as discontinued operations on the consolidated statement of operations for all periods presented and as assets and liabilities held for sale on the consolidated balance sheet as of December 31, 2006.

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 do not include any amounts associated with Blackstone at December 31, 2006 and for the period from May 2, 2006 through December 31, 2006, although fees received from Meristar prior to May 2, 2006 continue to be included in “management fees — related parties.” Our managed properties for which we also hold a joint venture ownership interest continue to be presented as related parties. See Note 3, “Investments and Advances to Affiliates” for further information on these related party amounts.

Marketable Securities

We provide the benefit of a deferred compensation plan for certain employees, allowing them to make deferrals upon which we will match up to certain thresholds defined in the plan. The investments in the plan, which consist primarily of mutual funds, are classified as available for sale. They are recorded at fair value with corresponding unrealized gains or losses reported as accumulated other comprehensive income, which is a separate component of stockholders’ equity. These unrealized gains and losses serve to increase or decrease the corresponding deferred compensation obligation, which is paid to the employees when they terminate employment with us or reach the required age for distribution.

We have classified all short-term investments and marketable securities as available-for-sale. Available-for-sale securities are carried at fair value, based on specific identification. Unrealized gains and losses on these securities, if any, are reported as accumulated other comprehensive income, which is a separate component of stockholders’ equity.

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Property and Equipment

Property and equipment is recorded at cost reduced by accumulated depreciation. Costs directly related to an acquisition are capitalized in accordance with SFAS 141. All internal costs related to the pursuit of an acquisition are expensed as incurred. All third-party costs capitalized in connection with the pursuit of an unsuccessful acquisition are expensed at the time the pursuit is abandoned. Repairs and maintenance costs that do not improve service potential or extend economic life are expensed as incurred.

Depreciation expense is recorded using the straight-line method over the assets’ estimated useful lives, which generally have the following ranges: buildings and improvements, 40 years or less; furniture and fixtures, five to seven years; computer equipment, three years; and software, five years. Leasehold improvements are depreciated over the shorter of the lease terms or the estimated useful lives of the improvements.

Whenever events or changes in circumstances indicate that the carrying values of property and equipment may be impaired, we perform an analysis to determine the recoverability of the asset’s carrying value. We make estimates of the undiscounted cash flows from the expected future operations of the asset. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to estimated fair value and an impairment loss is recognized.

Investments in Affiliates

We account for the majority of our joint venture investments in limited partnerships and limited liability companies using the equity method of accounting when we own more than a minimal investment. We currently employ the cost method on one of our joint venture ownership interests. At December 31, 2006, our ownership interest in these joint ventures ranged from 5% to 50%. We periodically assess the recoverability of our equity method and cost method investments. If an identified event or change in circumstances requires an impairment evaluation, we assess the fair value based on valuation methodologies, including discounted cash flows, estimates of sales proceeds and external appraisals, as appropriate. If an investment is considered to be impaired and the decline is other than temporary, we record an impairment of the investment to its fair value. We present a cash distribution from a joint venture investment as an operating activity on our statement of cash flows when it is a return on investment and as an investing activity on our statement of cash flows when it is a return of investment.

Notes Receivable

We have notes receivable, which are generally issued in connection with obtaining a management contract, due from various hotel owners. As of December 31, 2006, the total receivable from our six notes was $5.0 million. One of the notes, for $2.6 million, is due from the owner of a property in which we hold a joint venture ownership interest. There is no allowance for losses on any of the notes receivable as of December 31, 2006.

Goodwill

Goodwill represents the excess of the cost to acquire a business over the estimated fair value of the net identifiable assets of that business. We estimate the fair value of goodwill to assess potential impairments on an annual basis, or during the year if an event or other circumstances indicate that we may not be able to recover the carrying value amount of the asset. We evaluate the fair value of goodwill at the reporting unit level and make that determination based upon internal projections of expected future cash flows and operating plans. We record an impairment loss when the implied fair value of the goodwill assigned to the reporting unit is less than the carrying value of that reporting unit, including goodwill.

Intangible Assets

Our intangible assets consist of costs incurred to obtain management contracts, franchise agreements, and deferred financing fees. The cost of intangible assets is amortized to reflect the pattern of economic benefits consumed, principally on a straight-line basis over the estimated periods benefited. Management contract and franchise agreement costs are amortized over the life of the related management contract, unless circumstances indicate that the useful life is a shorter period. We currently amortize these costs over periods ranging from one to 20 years. Deferred financing fees consist of costs incurred in connection with obtaining various loans and are amortized to interest expense over the life of the underlying loan using a method which approximates the effective interest method.

Costs incurred to obtain a management contract may include payments to an owner as an incentive. These amounts are also capitalized as an intangible asset; however, they are amortized against management fee revenue over the life of the management contract using the straight-line method.

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We test intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying values may not be recoverable. For intangible assets related to management contracts, this may occur when we are notified by an owner that we will no longer be managing a specific property. We make estimates of the undiscounted cash flows from the expected future operations related to the asset. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to estimated fair value and an impairment loss is recognized.

Assets/Liabilities Held for Sale and Discontinued Operations

Assets and liabilities are classified as held for sale when they meet the criteria of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We believe this criteria includes reclassifying an asset or business segment to held for sale when management, having the authority to do so, has initiated an effort to dispose of the asset or business segment. Assets and liabilities held for sale consist of the assets and liabilities that will be disposed of with the sale of our corporate housing subsidiary in January 2007. Included as assets held for sale are net accounts receivable, prepaid expenses, net fixed assets and goodwill. Included as liabilities held for sale are accounts payable and accrued expenses.

We present the results of operations of an entity as discontinued operations when the operations and cash flows of the entity have been, or will be, eliminated from the ongoing operations of the Company and the entity will not have any significant continuing involvement in the operations of the Company. Discontinued operations include the operating results of our corporate housing subsidiary for the years ended December 31, 2006, 2005 and 2004 and include the operating results of the Residence Inn Pittsburgh, which was sold in September 2005, for the years ended December 31, 2005 and 2004.

Minority Interest

Minority interest represents the percentage of our subsidiary operating partnership, Interstate Operating Company, L.P., which is owned by third parties. Net income (loss) is allocated to minority interests based on their weighted average ownership percentages during the period.

Revenue Recognition

We earn revenue from our owned hotels, hotel management and related sources, and corporate housing operations. We recognize revenue from our owned hotels from rooms, food and beverage, and other operating departments as earned at the close of each business day. Our management and other fees consist of base and incentive management fees, as well as termination fees, receivable from third-party owners of hotel properties and fees for other related services we provide, primarily centralized accounting and purchasing. We recognize base fees and fees for other services as revenue when earned in accordance with the individual management contracts. Base management fees are calculated based on a percentage of the total revenue at the property. We record incentive fees in the period in which they are earned. As most of our contracts have annual incentive fee targets, we typically record incentive fees on these contracts in the last month of the annual contract period. We record termination fees as revenue when all contingencies related to the termination fees have been removed.

Other Revenue and Other Expenses From Managed Properties

These amounts represent expenses incurred in managing the hotel properties for which we are contractually reimbursed by the hotel owner and generally include salary and employee benefits for our employees working in the properties and certain other insurance costs.

Insurance Receivables and Reserves

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

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Contingencies

We are involved in various legal proceedings and tax matters. Due to their nature, such legal proceedings and tax matters involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected parties and governmental actions. We assess the probability of loss for such contingencies and accrue a liability and/or disclose the relevant circumstances, as appropriate. See Note 16, “Commitments and Contingencies” for additional information.

Accounting for Income Taxes

We have accounted for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The realization of total deferred tax assets is contingent upon the generation of future taxable income. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be ultimately realized.

Stock-Based Compensation

On January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share Based Payment” (“SFAS 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 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 had previously been accounted for under the fair value method of accounting. See Note 15, “Stock-Based Compensation,” for additional information.

Foreign Currency Translation

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

Derivative Instruments

We have entered into three interest rate cap agreements, which are considered derivative instruments, in order to manage our interest rate exposure. Our interest rate risk management objective is to limit the impact of interest rate changes on our earnings and cash flows. We record these agreements at fair value as either assets or liabilities. Amounts paid or received under these agreements are recognized over the life of the agreements as adjustments to interest expense. If the requirements for hedge accounting are met, gains and losses from changes in the fair value of the agreements are recorded as a component of accumulated other comprehensive income (loss), net of tax. Otherwise, we recognize changes in the fair value of the agreements in the consolidated statement of operations. We do not enter into derivative financial instruments for trading or speculative purposes and monitor the financial stability and credit standing of our counterparties.

Fair Value of Financial Instruments

The Company considers the recorded cost of its financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, marketable securities, notes receivable, and accounts payable, to approximate fair values of the respective assets and liabilities as of December 31, 2006 and 2005 as they are primarily short-term in nature. Our long-term debt is primarily variable rate, which is adjusted quarterly, and therefore, approximated fair value as of December 31, 2006 and 2005.

Earnings Per Share

We compute basic earnings per share by dividing net income by the weighted-average number of shares outstanding. Dilutive earnings per share includes the dilutive effect of stock-based compensation awards and minority interests that have the option to convert their limited partnership interests to common stock. No effect is shown for any securities that are anti-dilutive.

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Recently Issued Accounting Pronouncements

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 SFAS 109. 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. 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 impact that FIN 48 will have on our consolidated financial statements.

In September 2006, Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” was issued. SAB 108 expresses the staff’s view regarding the process of quantifying financial statement misstatements. The interpretation provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The cumulative effects of the initial application should be reported in the carrying amounts of assets and liabilities as of the beginning of that fiscal year, and the offsetting adjustment should be made to the opening balance of the retained earnings for that year. The disclosures should include the nature and amount of each individual error being corrected in the cumulative adjustment, when and how each error being corrected arose and the fact that the errors had previously been considered immaterial. The guidance of SAB 108 is effective for fiscal years ending after November 15, 2006. Our adoption of SAB 108 as of December 31, 2006 did not have an impact on our consolidated financial statements as we did not identify any current year or prior year misstatements.

In September 2006, FASB Statement No. 157, “Fair Value Measurements” (“SFAS 157”) was issued. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of the adoption of this statement.

3.  INVESTMENTS IN AFFILIATES

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

	Number of		Our Equity		December 31,		December 31,
Joint Venture	Hotels		Participation		2006		2005
MIP Lessee, L.P.		7		10.0%	$	503	$	2,022
CNL/IHC Partners, L.P.		3		15.0%		2,625		2,566
RQB Resort/Development Investors, LLC(1)		1		10.0%		447		2,670
True North Tesoro Property Partners, L.P.		1		15.9%		1,381		—
Amitel Holdings, LLC		6		15.0%		3,903		—
Cameron S-Sixteen Hospitality, LLC		1		10.9%		487		—
Cameron S-Sixteen Broadway, LLC		1		15.7%		1,136		—
Other		4		5.0%-50.0%		662		428
Total		24			$	11,144	$	7,686

(1) The December 31, 2005 balance relates to our joint venture with Interconn Ponte Vedra Company, L.P., which held the Sawgrass Marriott Resort & Spa until July 2006.

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MIP Lessee, L.P., or “MIP”

In December 2006, MIP completed the sale of its portfolio to Ashford Hospitality Inc. (“Ashford”) for $267.2 million. Upon the sale, we received distributions of approximately $6.4 million and recognized our portion of the gain on sale of approximately $5.4 million, which is recorded as part of equity in earnings (losses) of affiliates on our consolidated statement of operations. As of December 31, 2006, the joint venture continues to manage the wind-down of the operations and upon settlement of all remaining liabilities, a distribution of any remaining proceeds will be made. It is the intention of the partnership to distribute any remaining partnership capital and dissolve the partnership. At December 31, 2006, we continued to manage two of the properties on a short-term basis for the new owner.

RQB Resort/Development Investors, LLC

In July 2006, Interconn Ponte Vedra Company, L.P. (“Interconn”), of which we held a 10.0% interest, sold the Sawgrass Marriott Resort & Spa (“Sawgrass”) to RQB Resort Investors, LLC and RQB Resort Development, LLC (together, “the RQB Joint Venture”). We invested a total of $9.3 million in the RQB Joint Venture. Of this amount, $7.0 million was invested on the date of sale and the remaining $2.3 million was invested in October 2006. We are not required to contribute any additional capital or other funding to the RQB Joint Venture and will receive a preferred return of 10% per annum on our unrecovered capital. We will not otherwise participate in the profits and losses of the RQB Joint Venture. We will receive total proceeds from Interconn for our 10% interest from the disposition of Sawgrass totaling $16.5 million. As of December 31, 2006, we have received distributions of $15.3 million. We expect to receive the remaining distribution of $1.2 million in 2007. We have recognized a gain of $4.5 million on the sale which is equal to the excess of our proceeds over the carrying value of our investment in Interconn of $2.7 million and the $9.3 million investment in the RQB Joint Venture. This gain is presented in equity in earnings (losses) of affiliates on our statement of operations. The initial carrying value of our investment in the RQB Joint Venture was zero. We will employ the cost method to account for this investment. Our preferred return will be recognized as income when earned. Future operating distributions of unrecovered capital will be recorded as income when received.

Other

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 included a $2.0 million investment to acquire a 21% interest in the True North Tesoro Partners, L.P., owner of the Doral Tesoro Hotel & Golf Club near Dallas/Ft. Worth, Texas, a $0.5 million investment to acquire a 10.9% interest in Cameron S-Sixteen Hospitality, LLC, owner of Hotel 43 (formerly The Statehouse Inn) in Boise, Idaho, and a $3.9 million investment to acquire a 15.0% interest in Amitel Holdings, LLC, owner of a portfolio of six Residence Inn by Marriott properties in and around Cleveland, Ohio. In September 2006, we received a return of our investment in True North Tesoro Property Partners, L.P. of $0.5 million as part of the planned syndication of joint venture interests. This reduced our equity investment in the joint venture to $1.4 million or 15.9%. In December 2006, we invested $1.1 million for a 15.7% interest in Cameron S-Sixteen Broadway, LLC, owner of the Courtyard by Marriott Boise.

We had related party accounts receivable from our joint venture ownership interests of $1.8 million and $1.5 million as of December 31, 2006 and 2005, respectively. We recorded related party management fees from these joint ventures of $4.8 million, $4.5 million and $7.4 million for the years ended December 31, 2006, 2005 and 2004, respectively. Our equity in earnings (losses) of affiliates related to these joint ventures amounted to $9.9 million, $3.5 million and $(1.1) million for the years ended December 31, 2006, 2005 and 2004, respectively, and is included in our consolidated statements of operations.

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 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.

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4.  PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	December 31,			December 31,
	2006			2005
Land	$	10,269		$	5,610
Furniture and fixtures		17,437			7,867
Building and improvements		75,566			33,161
Leasehold improvements		5,889			5,198
Computer equipment		4,978			9,038
Software		12,244			12,298
Total	$	126,383		$	73,172
Less accumulated depreciation		(22,488	)		(21,102	)
Property and equipment, net	$	103,895		$	52,070
Wholly-owned hotel properties		4			2
Wholly-owned hotel rooms		963			524

5.  GOODWILL

As part of the purchase accounting for the MeriStar-Interstate merger in 2002, we recorded $92.1 million of goodwill. In October, 2004, we purchased Sunstone Hotel Properties, Inc, or “Sunstone.” The purchase price was $8.0 million, of which $4.7 million was allocated to goodwill. In 2006, we decreased goodwill by $13.3 million when we reduced the valuation allowance on our deferred tax assets for net operating losses that existed at the date of our merger with Old Interstate. The relief of the valuation was charged against goodwill in accordance with SFAS No. 109, “Accounting for Income Taxes.” See Note 20, “Income Taxes” for a full discussion of our income taxes. We have reclassified $9.9 million of goodwill associated with our corporate housing subsidiary to assets held for sale in our consolidated balance sheets as of December 31, 2006, as we concluded on our intent to sell the subsidiary in December 2006. The carrying amount of goodwill was $73.7 million and $96.8 million as of December 31, 2006 and 2005, respectively.

We evaluate goodwill annually during the fourth quarter for impairment. However, when circumstances warrant, we will assess the valuation of our goodwill more frequently. Due to the significant loss of management contracts during 2006, we also evaluated goodwill for impairment in the first and third quarters, in addition to our annual test. We concluded for each evaluation of goodwill that there was no impairment. This was primarily due to the increase in our operating income from our portfolio of managed hotels as we, and the hotel industry as a whole, continued to have strong year-over-year results. Although the number of hotels we manage has decreased over the past several years, we have generated higher management fee revenue in each of the past two years. In addition, our carrying value related to intangible assets decreased by $14.5 million from December 31, 2005 to December 31, 2006, primarily due to the $13.2 million of asset impairments related to management contracts. The decrease in intangible assets lowered the overall carrying value of our hotel management reporting unit, which the estimated fair value of the reporting unit is compared to in order to determine if there is a potential impairment of goodwill. Our goodwill analysis was based on future cash flow projections. These projections were based on assumptions made by management, which we believe to be reasonable.

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6.  INTANGIBLE ASSETS

Intangible assets consist of the following:

	December 31,
	2006			2005
Management contracts	$	35,940		$	49,902
Franchise fees		1,620			1,226
Deferred financing fees		2,538			2,339
Total		40,098			53,467
Less accumulated amortization		(9,890	)		(8,759	)
Intangible assets, net	$	30,208		$	44,708

The majority of our management contract costs were identified as intangible assets at the time of the merger in 2002 and through the purchase of Sunstone in 2004, as part of the purchase accounting for each transaction. We also capitalize direct costs, such as legal fees and other external costs, which are incurred to acquire new management contracts. We amortize the value of our intangible assets, except goodwill, which all have definite useful lives, over their estimated useful lives, which generally correspond with the expected terms of the associated management, franchise, or financing agreements. During the year ended December 31, 2006, we recognized impairment losses of $8.3 million related to management contract costs for 18 properties sold by MeriStar during the first quarter, $3.9 million for eight Blackstone properties terminated in 2006, $0.7 million for 15 Sunstone REIT properties sold during 2006 and $0.3 million for various other properties. We also capitalized an additional $1.9 million in management contract costs in 2006.

We incurred scheduled amortization expense on our remaining management contracts and franchise fees of $2.5 million, $3.1 million and $3.4 million for the years ended December 31, 2006, 2005 and 2004, respectively. We also incurred amortization expense related to deferred financing fees of $0.8 million, $0.8 million and $0.6 million for the years ended December 31, 2006, 2005 and 2004, respectively. In the first quarter of 2005, $1.8 million of deferred financing fees was amortized in connection with the refinancing of our Credit Facility and repayment of our subordinated term loan. Amortization of deferred financing fees is included in interest expense.

We evaluate our capitalized management contracts for impairment when circumstances warrant. When we receive notification that a management contract will be terminated prematurely, we evaluate when or if amortization should be accelerated or if any remaining management contract costs should be impaired. In May 2006, Blackstone acquired MeriStar. As of December 31, 2006, we do not believe the carrying value of $18.8 million associated with the remaining Blackstone management contracts is impaired, as the obligations and duties under those contracts, including the payment of termination fees, were assumed by Blackstone. We have also reviewed the current estimated economic and depreciable lives for all intangible management contracts. We have determined that as of December 31, 2006, the current remaining estimated economic lives of the underlying management contracts for the remaining Blackstone properties should be revised from 25 years to approximately four years. We determined the effective life was different under Blackstone as, although the contracts were transferred with all rights and responsibilities in place when they purchased MeriStar, Blackstone has initiated plans to sell most of the portfolio of hotels within five years and has taken over management or executed sales of seven hotels as of December 31, 2006. Based on these facts, we believe it is unlikely Blackstone will own any of the hotels beyond the term of the original management contracts, which expire in December 2010. This change in estimate occurred in December 2006 and is being applied prospectively. We will continue to assess the recorded value of those management contracts and their related amortization periods as circumstances warrant.

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

2007	$	5,942
2008	$	5,212
2009	$	4,944
2010	$	4,901
2011	$	1,984

7.  ACCRUED EXPENSES

Accrued expenses consist of the following:

	December 31,
	2006		2005
Salaries and employee related benefits	$	24,895	$	34,234
Other		43,500		36,113
	$	68,395	$	70,347

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

8.  LONG-TERM DEBT

Our long-term debt consists of the following:

	December 31,
	2006			2005
Senior credit facility — term loan	$	40,526		$	45,526
Senior credit facility — revolving loan		—			20,526
Mortgage debt		43,700			19,000
Total long-term debt		84,226			85,052
Less current portion		(3,750	)		(3,750	)
Long-term debt, net of current portion	$	80,476		$	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 December 31, 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 8.6% per annum) and borrowings under the term loan bore interest at the 30-day LIBOR plus 450 basis points (a rate of 9.9% per annum). We incurred interest expense of $5.8 million, $6.1 million and $2.4 million on the senior credit facilities for the twelve months ended December 31, 2006, 2005 and 2004, 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 require the maintenance of certain 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

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that we would have otherwise failed pursuant to the purchase of the hotel. The acquisition of the Hilton Arlington in October 2006 did not adversely impact our compliance with these loan covenants. At December 31, 2006, we were in compliance with the covenants of the Credit Facility.

Mortgage Debt

The following table summarizes our mortgage debt as of December 31, 2006:

	Principal	Maturity	Spread over	Interest Rate as of
	Amount	Date(1)	30-Day LIBOR	December 31, 2006
Hilton Arlington	$24.7 million	November 2009	135 bps		6.7	%
Hilton Concord(2)	$19.0 million	March 2008	225 bps		7.6	%

(1)	We are required to make interest-only payments until these loans mature, with two optional one-year extensions.
(2)	In March 2007, we notified the lender of our intention to repay this entire mortgage loan in April 2007.

We incurred interest expense on these mortgage loans of $1.8 million and $1.0 million for the twelve months ended December 31, 2006 and 2005, respectively. Based on the terms of these mortgage loans, a prepayment cannot be made during the first year after it has been entered. After one year, a penalty of 1% is assessed on any prepayments. The penalty is reduced ratably over the course of the second year. There is no penalty for prepayments made in the third year.

Interest Rate Caps

We have entered into three interest rate cap agreements in order to provide an economic hedge against the potential effect of future interest rate fluctuations. In October 2006, we entered into a $24.7 million, three-year interest rate cap agreement in conjunction with our mortgage loan associated with the purchase of the Hilton Arlington. The interest rate agreement caps the 30-day LIBOR at 7.25% and is scheduled to mature on November 19, 2009. In March 2005, we entered into a $55.0 million, three-year interest rate cap agreement related to our Credit Facility. The interest rate agreement caps the 30-day LIBOR at 5.75% per annum and is scheduled to mature on January 14, 2008. 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. The interest rate agreement caps the 30-day LIBOR at 6.65% per annum and is scheduled to mature on March 1, 2008.

At December 31, 2006, the total fair value of these interest rate cap agreements was approximately $17,000. The change in fair value for these interest rate cap agreements is recognized in the consolidated statement of operations.

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9.  EARNINGS PER SHARE

We calculate our basic earnings per common share by dividing net income (loss) 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:

	Year-to-date Ended
	December 31, 2006							December 31, 2005						December 31, 2004
	Income/				Per Share			Income/				Per Share		Income/					Per Share
In thousands, except per share amounts	(Loss)		Shares		Amount			(Loss)		Shares		Amount		(Loss)			Shares		Amount
Income (loss) from continuing operations	$	26,716		31,122	$	0.86		$	8,786		30,522	$	0.29	$	(1,584	)		30,328	$	(0.05	)
Income (loss) from discontinued operations, net of tax		3,063		—		0.10			4,091		—		0.13		(4,079	)		—		(0.14	)
Basic net income (loss)	$	29,779		31,122	$	0.96		$	12,877		30,522	$	0.42	$	(5,663	)		30,328	$	(0.19	)
Assuming exercise of all outstanding employee stock options less shares repurchased at average market price		—		266		(0.01	)		—		122		—		—			—		—
Assuming vesting of all outstanding restricted stock		—		171		(0.01	)		—		181		—		—			—		—
Diluted net income (loss)	$	29,779		31,559	$	0.94		$	12,877		30,825	$	0.42	$	(5,663	)		30,328	$	(0.19	)

10.  SEGMENT INFORMATION

We are organized into two reportable segments: hotel management and hotel ownership (through whole-ownership and joint ventures). A third reportable segment, corporate housing, was disposed of on January 26, 2007 with the sale of BridgeStreet and its affiliated subsidiaries. Based on our acquisition of two hotels in 2005, hotel ownership was required to be classified as a separate reportable segment due to its significance. Each segment is managed separately because of its distinctive economic characteristics. 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. 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 consist of “management fees” (which includes $3.2 million of business interruption proceeds for the year ended December 31, 2006), “termination fees” and “other” from our consolidated statement of operations. 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.

Hotel ownership includes our wholly-owned hotels and joint venture investments. For the hotel ownership segment presentation, we have allocated internal management fee expense of $0.8 million and $0.4 million for the years ended December 31, 2006 and 2005, respectively, to wholly-owned hotels. These fees are eliminated in consolidation but are presented as part of the segment to present their operations on a stand-alone basis. Corporate is not actually a reportable segment but rather includes costs that do not specifically relate to any other single segment of our business. Corporate includes expenses related to our public company structure, certain restructuring charges, Board of Directors costs, audit fees, unallocated corporate interest expense and an allocation for rent and legal expenses. Corporate assets include the Company’s cash accounts, deferred tax assets, deferred financing fees and various other corporate assets.

Due to the sale of our third reportable segment, corporate housing, in January 2007, the operations of this segment are included as part of discontinued operations on the consolidated statement of operations for all periods presented. The assets related to this segment have been presented as assets held for sale on the consolidated balance sheet as of

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December 31, 2006. The assets of our corporate housing segment of $28.4 million, $26.7 million and $28.7 million as of December 31, 2006, 2005 and 2004, respectively, are included within the corporate assets in the segment presentation below. As the corporate housing segment was sold, we have not presented it as part of the segment presentation below. See Note 13, “Acquisitions and Dispositions” for more information on the disposition of the segment.

Capital expenditures includes the “acquisition of subsidiary”, “acquisition of hotels” and “purchases of property and equipment” line items from our cash flow statement. All amounts presented are in thousands.

	Hotel		Hotel
	Management		Ownership			Corporate			Consolidated
2006
Revenue	$	112,754	$	27,927		$	—		$	140,681
Depreciation and amortization		3,823		2,441			457			6,721
Operating expense		66,637		21,608			5,064			93,309
Operating income (loss)		42,294		3,878			(5,521	)		40,651
Interest expense, net		—		(1,901	)		(4,560	)		(6,461	)
Equity in earnings of affiliates		—		9,858			—			9,858
Other gains		—		—			162			162
Income before minority interests and income taxes	$	42,294	$	11,835		$	(9,919	)	$	44,210
Total assets	$	148,064	$	115,225		$	70,401		$	333,690
Capital expenditures	$	1,498	$	55,554		$	370		$	57,422
2005
Revenue	$	89,013	$	12,638		$	—		$	101,651
Depreciation and amortization		6,113		1,171			756			8,040
Operating expense		58,000		11,261			8,255			77,516
Operating income (loss)		24,900		206			(9,011	)		16,095
Interest expense, net		—		(1,093	)		(7,878	)		(8,971	)
Equity in losses of affiliates		—		3,492			—			3,492
Other gains		—		4,326			332			4,658
Income before minority interests and income taxes	$	24,900	$	6,931		$	(16,557	)	$	15,274
Total assets	$	181,899	$	54,999		$	56,182		$	293,080
Capital expenditures	$	1,050	$	45,475		$	246		$	46,771
2004
Revenue	$	78,091	$	—		$	—		$	78,091
Depreciation and amortization		6,897		—			850			7,747
Operating expense		51,239		1,101			11,056			63,396
Operating income (loss)		19,955		(1,101	)		(11,906	)		6,948
Interest expense, net		—		—			(7,441	)		(7,441	)
Equity in losses of affiliates		—		(1,056	)		—			(1,056	)
Income before minority interests and income taxes	$	19,955	$	(2,157	)	$	(19,347	)	$	(1,549	)
Total assets	$	184,200	$	22,180		$	69,442		$	275,822
Capital expenditures	$	9,282	$	6		$	321		$	9,609

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Revenues from continuing foreign operations (excluding reimbursable expenses) were as follows (1):

	2006		2005		2004
Canada	$	513	$	780	$	1,062
Russia	$	9,595	$	8,189	$	6,605

(1) BridgeStreet revenues from the United Kingdom and France were $36.7 million and $2.6 million, $29.5 million and $2.0 million and $24.5 million and $1.8 million for the years ended December 31, 2006, 2005 and 2004, respectively. BridgeStreet revenues from Canada were $2.2 million for the year ended 2004. These revenues have been classified as discontinued operations on the consolidated statement of operations for the related periods.

A significant portion of our managed properties and management fees are derived from five owners. This group of owners represents 61.9% of our managed properties as of December 31, 2006 and 62.5% of our base and incentive management fees (including $3.2 million of business interruption proceeds) for the year ended December 31, 2006. As of December 31, 2006, we managed 37 hotels for Blackstone, 37 hotels and two ancillary service centers for Sunstone, and three hotels in Moscow for a single owner. The total management fees for all MeriStar/Blackstone properties (including $3.2 million of business interruption proceeds) accounted for $20.3 million, or 27.0% of management fees in 2006, while the Sunstone properties accounted for $10.0 million, or 13.3% of total management fees in 2006. The total management fees for the three hotels in Moscow accounted for 12.7% of total management fees in 2006.

Included in discontinued operations are the operating results of: (1) BridgeStreet, our corporate housing subsidiary, which was disposed of in January 2007, (2) the Pittsburgh Airport Residence Inn by Marriott, which was disposed of in September 2005, and (3) the Toronto operations of our corporate housing division, which was disposed of in June 2004. See Note 13, “Acquisitions and Dispositions” for information related to the results of these operations.

11.  RESTRUCTURING EXPENSES

Severance to Former CEOs and other Corporate Personnel

Restructuring expenses for the years ended December 31, 2005 and 2004 were $2.0 million and $3.9 million, with no similar expenses in 2006. In 2005, approximately $1.8 million related to our former chief executive officer, Steven D. Jorns. In 2004, we incurred severance costs of approximately $3.3 million, related to our former chief executive officer, Paul Whetsell, as discussed below. In addition during 2004 we incurred of $0.6 million of severance charges for former personnel, exclusive of our former chief executive officer, previously discussed.

Effective March 31, 2004, we and our chairman, Paul W. Whetsell entered into an agreement to conclude his employment as our chief executive officer. Pursuant to the agreement, Mr. Whetsell was granted 250,000 restricted stock awards, with a market value of $5.82 per share and paid $0.1 million in cash. The terms of 157,000 restricted stock awards previously granted and unvested were also modified. In addition, in exchange for Mr. Whetsell’s agreement to accept the payment in stock rather than cash, we agreed to reimburse him for taxes he incurred with respect to the stock as the restrictions on the stock lapse. The total cost of the severance payment, based on the value of the stock on April  2, 2004 and our liability for Mr. Whetsell’s taxes based on the value of the stock as of that date, was approximately $3.3 million. As the shares were granted in lieu of a contractually required cash severance payment, Mr. Whetsell was not required to perform any additional services to earn the stock. Consequently, we recorded the entire severance amount in the second quarter of 2004. Due to time-vesting restrictions on the awards granted, the majority of the shares became fully vested between 2004 and 2006. The remaining 83,000 shares will become fully vested in April 2007.

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12.  ASSET IMPAIRMENTS AND WRITE-OFFS

These charges consist of the following:

	Years Ended December 31,
	2006		2005		2004
Management contract costs	$	13,214	$	4,720	$	7,260
Investment in and advances to affiliates		—		—		1,101
Other		—		863		561
Total	$	13,214	$	5,583	$	8,922

Management Contract Costs

The majority of our management contract intangible assets were recorded at the time of the Interstate-MeriStar merger in 2002 as part of the purchase price allocation. We also capitalize direct costs, such as legal fees and other external costs, which are incurred to acquire new management contracts. These 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. These management contract costs are included as part of the hotel management reporting unit.

In 2006, management contract impairment losses primarily consisted of $8.3 million for the termination of management contracts of 18 MeriStar properties that were sold during the first quarter; $3.9 million for eight Blackstone properties terminated in 2006 and 2007; $0.7 million resulting from the loss of 15 properties sold by Sunstone REIT; and $0.3 million associated with the loss of eight other management contracts. During 2005, we recorded a loss of $3.8 million for ten properties sold by MeriStar; $0.3 million for four hotels sold by Sunstone REIT; and $0.6 million related to other hotels sold by various owners. In 2004, we recorded a loss of $7.2 million related to the 21 properties sold by MeriStar and $0.1 million related to other terminated contracts.

Investment In and Advances to Affiliates

During the first quarter of 2004, we determined our investment in MIP Lessee, L.P. was impaired based on purchase offers the partnership received on two of the joint venture’s hotels and recorded an impairment charge of $0.6 million. In addition, we impaired our remaining investment of $0.5 million in the joint venture that owns the Residence Inn Houston Astrodome Medical Center as the hotel was under-performing and the joint venture was notified that it had defaulted on its bank loan.

Other

In 2005, we had been attempting to form a real estate investment fund with a group of institutional investors. We concluded that other investment vehicles may be more appropriate for the Company. Accordingly, we decided not to proceed with this particular investment fund and expensed $0.9 million of costs related to it.

During 2004, we pursued a merger with a company that owns a portfolio of hotels. We incurred approximately $0.5 million of legal fees and due diligence costs related to this potential merger. These costs were expensed in June 2004 when we determined that the merger would not be consummated.

13.  ACQUISITION AND DISPOSITIONS

Acquisitions

On October 17, 2006, we acquired the 308-room Hilton Arlington located in Texas, from affiliates of Blackstone. The acquisition cost was $37.0 million, including normal and customary closing costs. On the date of the acquisition, Blackstone owed us $14.6 million, on a present value basis, for unpaid termination fees from the termination of this management contract and 48 others. We received credit for these unpaid termination fees at closing. We financed the remainder of the purchase through a non-recourse mortgage loan of $24.7 million. From October 17, 2006 to December 31, 2006, hotel revenues and operating income of $2.5 million and $0.2 million,

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respectively, have been included in our consolidated statement of operations. The acquisition cost of the hotel was allocated as follows:

Land	$	3,284
Buildings and improvements		28,125
Furniture and fixtures		5,929
Intangible assets		354
Working capital		(669	)
Total	$	37,023

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 closing costs. We financed the purchase through borrowings on our Credit Facility and available cash. From June 27, 2006 to December 31, 2006, hotel revenues and operating income of $2.3 million and $0.5 million, respectively, have been included in our consolidated statement of operations. The acquisition cost of the hotel was allocated as follows:

Land	$	1,375
Buildings and improvements		12,087
Furniture and fixtures		1,022
Working capital		44
Total	$	14,528

On November 21, 2005, we acquired the 195-room Hilton Durham hotel near Duke University. The acquisition cost was $14.1 million including normal and customary closing costs. We financed the purchase through borrowings on our Credit Facility and available cash. From November 21, 2005 to December 31, 2005, hotel revenues of $0.5 million and an operating loss of $40,000, respectively, have been included in our statement of operations. The acquisition cost of the hotel was allocated to property and equipment.

On February 11, 2005, we acquired the 329-room Hilton Concord hotel located in the East Bay area near San Francisco, California. The acquisition cost was $30.0 million, including normal and customary closing costs. We financed the purchase through borrowings on our credit facility and a $19.0 million mortgage. From February 11, 2005 to December 31, 2005, hotel revenues and operating income of $12.2 million and $1.6 million, respectively, have been included in our statement of operations. The acquisition cost of the hotel was allocated as follows:

Land	$	4,700
Building and improvements		23,235
Furniture and fixtures		2,000
Working capital		105
Total	$	30,040

On October 26, 2004, we entered into a Stock Purchase Agreement with Sunstone REIT to acquire Sunstone, a hotel management company. In connection with the acquisition, Sunstone entered into new management contracts with respect to 52 hotels and two ancillary service centers previously managed by Sunstone, 50 of which were owned by Sunstone REIT and its affiliates. As of December 31, 2006 our Sunstone subsidiary managed 37 hotels and two ancillary service centers. From the purchase price of $8.0 million, $4.7 million was allocated to goodwill, $4.7 million was allocated to management contracts and we recognized a deferred tax liability of $1.3 million. The purchase price was financed with available cash and a $2.0 million note, which was repaid prior to its maturity date of December 31, 2005.

As the purchase of the Hilton Concord and Sunstone were material acquisitions, we are providing the pro forma financial information set forth below, which presents the combined results as if our acquisitions had occurred on

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January 1, 2004. 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.

	Year Ended		Year Ended
	December 31, 2005		December 31, 2004
Pro forma lodging revenues	$	13,804	$	11,740
Pro forma management and termination fee revenues	$	77,873	$	69,475
Pro forma net income (loss)	$	12,767	$	(4,688	)
Pro forma diluted earnings (loss) per share	$	0.41	$	(0.16	)

Dispositions

On January 26, 2007, we sold our BridgeStreet corporate housing subsidiary for total proceeds of approximately $40.5 million in cash. Our corporate housing business had been classified as its own reportable segment. We classified the assets and liabilities relating to this subsidiary as held for sale in our consolidated balance sheet as detailed in the following table:

	December 31, 2006
Accounts receivable, net	$	8,064
Prepaid expenses and other current assets		8,247
Property and equipment, net		2,214
Goodwill		9,858
Total assets held for sale	$	28,383
Accounts payable		2,498
Accrued expenses		7,765
Total liabilities held for sale	$	10,263

The operations of the corporate housing subsidiary have been classified as discontinued operations in our consolidated statement of operations for all periods presented. The following table summarizes operating results and our segment reporting of our corporate housing subsidiary:

	Year Ended December 31,
	2006			2005			2004
Revenue	$	134,057		$	120,519		$	110,620
Depreciation and amortization		1,533			1,101			1,452
Operating expense		127,927			116,206			110,444
Operating income (loss)	$	4,597		$	3,212		$	(1,276	)
Interest expense		19			—			—
Income (loss) before minority interest and taxes	$	4,578		$	3,212		$	(1,276	)
Income tax (expenses) benefit		(1,515	)		(1,012	)		402
Income (loss) from discontinued operations, net of taxes	$	3,063		$	2,200		$	(874	)

The operating statistics related to our corporate housing division were as follows:

	As of December 31,									Percent Change
	2006			2005			2004			’06 vs. ’05			’05 vs. ’04
Corporate Housing
Number of markets		17			17			17			—			—
Average number of units		3,182			3,129			3,257			1.7	%		(3.9	)%
ADR	$	121.00		$	110.41		$	103.21			9.6	%		7.0	%
Occupancy		92.1	%		92.2	%		89.1	%		(0.1	)%		3.5	%

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On September 7, 2005, we sold the Pittsburgh Airport Residence Inn by Marriott for $11.0 million and recognized a gain on sale of $2.5 million. The following table summarizes the revenues and income before taxes of the hotel and the related gain on the sale of the hotel:

	Year Ended December 31,
	2005		2004
Revenue	$	2,345	$	3,281
Income (loss) before taxes		3,152		(2,248	)
Income (loss) from discontinued operations, net of taxes		1,891		(1,461	)

In June 2004, we completed the disposal of BridgeStreet Canada, Inc., our corporate housing operation in Toronto. The Toronto operation had incurred operating losses, primarily due to long-term lease commitments that did not allow us to adjust our inventory as demand changed. In exchange for the Toronto operation, the buyer assumed our obligations, including the long-term lease commitments. We recorded approximately $0.7 million in costs associated with this disposal, which was primarily comprised of fixed asset write-offs, severance expenses and closing costs. These operations are presented as discontinued operations in our consolidated statements of operations and are comprised of the following:

	Year Ended
	December 31, 2004
Revenue	$	2,233
Loss before taxes		(1,237	)
Loss from discontinued operations, net of taxes		(1,744	)

14.  RELATED-PARTY TRANSACTIONS

Transactions with MeriStar Prior to its Acquisition by Blackstone

On May 2, 2006, an affiliate of The Blackstone Group acquired 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” and “termination fees — related parties” on our consolidated statement of operations do not include any amounts associated with Blackstone at December 31, 2006 and for the period from May 2, 2006 through December 31, 2006, although fees received from Meristar prior to May 2, 2006 continue to be included in “management fees — related parties” and “termination fees — related parties.” Our management agreements for the hotels Blackstone acquired as a result of the transaction are currently in place and were not affected by the transaction, as the rights and duties (including with respect to budget setting, asset management and termination) under those contracts were assumed by Blackstone.

On May 2, 2006, we managed 44 properties owned by MeriStar. We recorded $14.6 million, $23.9 million, and $23.8 million in management and termination fees from MeriStar for the years ended December 31, 2006, 2005, and 2004, respectively.

We incurred day to day operating costs which were shared with and reimbursed by MeriStar. The balance due from MeriStar as of December 31, 2005 and 2004 was $5.1 million and $10.9 million, respectively. These amounts included management fees for each hotel and reimbursements for insurance, employee benefits, sales and marketing expenses, other miscellaneous operating expenses and information technology services for the hotels and corporate office. All amounts have been paid.

Corporate-Level Transactions with Directors

Interstate Operating Company, L.P. (formerly known as MeriStar H&R Operating Company, L.P.), our subsidiary operating partnership, of which we are the general partner, indirectly holds a substantial portion of all of our assets. On July 31, 2002, MeriStar H&R Operating Company, L.P. entered into a Senior Secured Credit Agreement, for a maximum amount of $113 million with Lehman Brothers and various other lenders and other parties. Lehman Brothers, Inc. was the joint lead arranger, book runner and co- syndication agent. At the time of the transaction, two

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of our directors were employed by Lehman Brothers, Inc. (one of whom continues to serve as a director). On January 14, 2005, we entered into our Credit Facility with various lenders. The Credit Facility replaced our prior senior secured credit facility and Lehman Brothers is not affiliated with the new facility.

In January 2003, we entered into a $40 million subordinated term loan with Lehman Commercial Paper, Inc., an affiliate of Lehman Brothers Inc. The two directors mentioned above were also employed at the time of this transaction. On January 14, 2005, we used a portion of the proceeds from our Credit Facility to payoff the subordinated term loan.

We hold a non-controlling 0.5% general partnership interest and a non-controlling 9.5% limited partnership interest in MIP Lessee, L.P., a joint venture between entities related to Oak Hill Capital Partners, L.P. and us. MIP Lessee owned seven full-service hotels. The joint venture had outstanding borrowings of $143.7 million of non-recourse loans from Lehman Brothers Holdings Inc., an entity related to Lehman Brothers Inc., as of December 31, 2004. MeriStar has a $40 million investment in the joint venture. The non-recourse loans from Lehman Brothers Holdings Inc. were refinanced in February 2005 with a new debt facility with which Lehman is not affiliated. In December 2006, the properties in the joint venture were sold. We continue to have an interest in the joint venture during the wind down period, which is expected to end in 2007. We recorded management fees of approximately $1.9 million, $1.8 million and $3.0 million for the years ended December 31, 2006, 2005 and 2004, from the seven hotels managed for this joint venture.

We had 78,431 preferred units outstanding in our subsidiary operating partnership, which were held by an affiliate of Mr. Khimji, one of our directors at the time. On May 3, 2004, we redeemed all 78,431 preferred units for cash consideration at a redemption price of $16.70 per unit, totaling $1.3 million. Mr. Khimji ceased being a director in June 2005.

Property-Level Transactions with Directors

We held a 49.5% non-controlling equity interest in two limited partnerships that owned seven Marriott-branded hotels and one Hampton Inn hotel for which we made a total investment of approximately $8.7 million. FelCor owned the remaining 50.5% of the partnerships. We also entered into a $4.2 million non-recourse promissory note with FelCor. The note was collateralized solely by our equity interest in the JV and provided for repayments only to be made to the extent the it made distributions to us. The partnerships borrowed an aggregate of $52.3 million of non-recourse loans from Lehman Brothers Bank, FSB, an entity related to Lehman Brothers Inc. These borrowings are secured by the partnerships’ hotels.

In March 2005, the lenders, with the JV’s acquiescence, initiated foreclosure proceedings, which were completed in September 2005. We have confirmed with FelCor that they do not intend to foreclose on the collateral of this note as it is now worthless and that they do not expect payment of this note except to the extent that the JV would make any future distributions to us. The JV no longer holds title to any of the hotel assets and has no other operations from which to generate cash. Accordingly, we have derecognized the liability. The derecognition of the remaining principal of $3.7 million and $0.7 million of accrued interest is recorded as an ordinary gain for the extinguishment of debt of $4.3 million in our statement of operations.

We held a 25% non-controlling equity interest in and managed the Houston Astrodome/Medical Center Residence Inn by Marriott in Houston, Texas. Mr. Alibhai, one of our directors, held a 22.5% ownership interest in the hotel. The hotel was sold in December 2005 and we recorded a gain and received proceeds on our portion of the sale of $1.1 million.

In March 2005, we entered into management contracts for 22 hotels owned by a private investment fund managed by affiliates of Goldman Sachs and Highgate Holdings. Highgate Holdings was affiliated with three of our Board of Directors at the time of the transaction and is currently affiliated with one. We were notified in early 2006 that we would be terminated as the manager and Highgate Holdings would begin managing all but one of the properties. The 21 properties which we have ceased to manage accounted for approximately $0.8 million in management fees for the twelve months ended December 31, 2006. During 2005, we earned management fees of $3.1 million related to the properties in this fund.

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For the years ended December 31, 2006, 2005 and 2004, our managed hotels classified as related parties included those owned by MeriStar (until it was purchased by Blackstone on May 2, 2006) and those in our real estate joint ventures. Total management fees from related parties amounted to $13.3 million, $22.3 million and $26.9 million for the years ended December 31, 2006, 2005 and 2004, respectively. Termination fees from related parties amount to $6.1 million, $5.8 million and $4.3 million for the years ended December 31, 2006, 2005 and 2004.

In January 2007, we were selected to manage two Boston-area hotels recently acquired by affiliates of CapStar Hotel Company LLC, which we refer to “CapStar” a newly formed hotel investment company. The two hotels are the 143-room Copley Square Hotel in Boston and the 148-room Hilton Garden Inn in Waltham. We will also oversee a major renovation of the Copley Square property to bring it to four-star status. Paul Whetsell, the Chairman of our Board, is the founder and CEO of CapStar Hotel Company LLC. We sublet space in our corporate office and perform accounting and administrative services for CapStar pursuant to a shared-services agreement.

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 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.

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, which were accounted for under the intrinsic value method, were fully vested as of December 31, 2005. If we had applied the fair value method to all awards granted prior to January 1, 2003, it would have had no impact on diluted earnings per share for the fiscal years ended 2004 and 2005. In addition, 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 year ended December 31, 2006.

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 officer, key employees and non-employee directors options to purchase our common stock and restricted shares of our common stock. The Employee Incentive Plan authorizes us to issue and award stock options and restricted shares for up to 15% of the number of outstanding share of our common stock. We may grant awards under the plan to officers and other key employees. The Director’s Plan authorizes us to issue and award options for up to 500,000 shares of common stock for non-employee directors. These stock-based awards typically vest in three annual installments beginning on the date of grant and on subsequent anniversaries, assuming the continued employment of the recipient. Options granted under the plans are exercisable for ten years from the grant date. Restricted stock awards require no payment from the recipient. At December 31, 2006, approximately 2.3 million and 0.3 million shares of common stock were available for future grants under the Employee Incentive Plan and the Director’s Plan, respectively.

For stock subject to graded vesting, we have utilized the “straight-line” method for allocating compensation cost by period. The stock-based compensation expense for stock option grants was $0.1 million, $0.3 million and $0.3 million for 2006, 2005 and 2004, respectively. The stock-based compensation expense for restricted stock grants was $0.9 million, $1.2 million and $3.8 million for 2006, 2005 and 2004, respectively.

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As of December 31, 2006, there was $1.4 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 second quarter of 2009 with a weighted-average recognition period of two years.

In calculating the compensation expense for options granted, we have estimated the fair value of each grant issued through December 31, 2006 using the Black-Scholes option-pricing model. The fair value of stock options granted 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, which are evaluated and revised, as necessary, to reflect market conditions and experience. These assumptions are the weighted-average of the assumptions used for all grants which occurred during the respective fiscal year.

	2006		2005		2004
Expected volatility		31.1%		31.0%		35.0%
Risk-free interest rate		5.1%		4.1%		2.2%
Expected life of options		6.0 years		3.5 years		3.2 years
Expected dividend yield		0%		0%		0%
Forfeiture rate		2.0%		N/A		N/A

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 expected life of the option 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.

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. A forfeiture rate was not part of the assumptions for 2005 and 2004 as it was not required under SFAS No. 123. During 2006, the majority of our forfeited shares were from fully vested options and as such, had no effect on our forfeiture rate.

A summary of option activity under the equity-based compensation plans as of December 31, 2006, and changes during the twelve 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		72,500		$	6.17
Exercised		(717,958	)	$	4.14
Forfeited		(473,550	)	$	10.64
Options outstanding at December 31, 2006		495,413		$	6.81	$	1,132,000
Options exercisable at December 31, 2006		382,919		$	7.14	$	930,000

The weighted average grant-date fair value of options granted was $2.71, $1.38 and $1.65 per share in 2006, 2005 and 2004, respectively. The total intrinsic value of stock options exercised was $2.4 million, $0.1 million and $0.4 million in 2006, 2005 and 2004, respectively. The weighted average remaining contractual life for all options outstanding and all options exercisable under these plans at December 31, 2006 was 5.3 years.

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Cash received from options exercised was $3.0 million, $0.1 million and $0.8 million in 2006, 2005 and 2004, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $0.9 million in 2006 and was immaterial for both 2005 and 2004 due to limited option exercise activity.

A summary of the restricted stock activity under the equity-based compensation plans as of December 31, 2006, and changes during the twelve months then ended is as follows:

				Weighted
				Average
	Number of			Grant-
	Restricted			Date Fair
	Shares			Value
Unvested at December 31, 2005		228,657		$	4.65
Granted		273,000		$	5.60
Vested		(156,856	)	$	4.72
Forfeited		(18,224	)	$	4.37
Unvested at December 31, 2006		326,577		$	5.40

The total intrinsic value of restricted stock which vested during the twelve months ended December 31, 2006 was approximately $0.8 million.

16.  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 December 31, 2006, only 57 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 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 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.

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Leases

Rent expense under leases for office space amounted to $2.9 million, $3.3 million and $2.6 million for the years ended December 31, 2006, 2005 and 2004. Future minimum lease payments required under these operating leases as of December 31, 2006 were as follows:

2007	$	3,553
2008		3,022
2009		2,968
2010		3,051
2011		3,136
Thereafter		5,419
Total	$	21,149

The operating lease obligations shown in the table above have not been reduced by non-cancelable subleases related to our corporate office space (see below for details). 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 under this sublease as follows:

2007	$	1,090
2008		1,133
2009		1,179
2010		1,226
2011		1,275
Thereafter		2,239
Total	$	8,142

In August 2005, we entered into an agreement to sublease 34,700 square feet of our office space to a third party, effective November 2005. As our remaining office space after the sublease was not adequate for our existing office space needs, we have subleased an additional 16,200 square feet of office space from MeriStar (now Blackstone), also effective November 2005. The subleases end in August 2013, which corresponds to the end of our original lease agreement. They are being accounted for as operating leases. The net annual rent related to the subleases was initially $0.5 million, increasing by 4% per annum. The subleases also include an abatement of the first nine and twelve monthly installments of rent for the MeriStar and third party subleases, respectively. We expect to save approximately $4.3 million in rent payments over the term of the respective lease and subleases as a result of this transaction.

Commitments Related to Management Agreements and Hotel Ownership

Under the provisions of management agreements with certain hotel owners, we are obligated to provide an aggregate of $4.0 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. We are also required to fund up to $0.6 million in the event of cost overruns in excess of 110% of the projected budgeted costs, as defined in the relevant management agreement, for the development of certain hotels related to one of our joint venture interests.

In connection with our owned hotels, we have committed to provide certain funds for property improvements as required by the respective brand franchise agreements. As of December 31, 2006, the Hilton Concord, Hilton Durham, and Hilton Arlington had plans in effect with remaining expected costs to complete of approximately $0.6 million, $0.2 million, and $2.3 million, respectively.

Letters of Credit

As of December 31, 2006, we had 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

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insurance carrier to deliver the letter of credit to cover its losses in the event we default on payments to the carrier. Accordingly, Butterfield Bank has required us to restrict a portion of our cash equal to the amount of the letter of credit, which we present as restricted cash on the consolidated balance sheet. We also have a $0.8 million letter of credit outstanding 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 become unable to pay its obligations, those obligations would become obligations of the general partners. We are not the sole general partner of 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.

17.  STOCKHOLDERS’ EQUITY AND MINORITY INTERESTS

Common Stock

As of December 31, 2005, 30,609,935 common shares were issued and outstanding. During 2006, we issued 717,958 shares of common stock through the exercise of stock options, 67,241 shares of common stock through the vesting of restricted stock (after adjusting for payroll tax net downs) and 145,792 shares of common stock through the redemption of Class A operating partnership units. As a result, at December 31, 2006, 31,540,926 shares of our common stock were issued and outstanding. Each holder of common stock is entitled to one vote per share on all matters submitted to a vote of stockholders.

Operating Partnership Units

Interstate Operating Company, L.P., our subsidiary operating partnership, indirectly holds substantially all of our assets. We are the sole general partner of that partnership. Along with 47 independent third-parties, we are also a limited partner of the partnership. The partnership agreement gives the general partner full control over the business and affairs of the partnership. The agreement also gives us, as general partner, the right, in connection with the contribution of property to the partnership or otherwise, to issue additional partnership interests in the partnership in one or more classes or series. These interests may have such designations, preferences and participating or other special rights and powers, including rights and powers senior to those of the existing partners, as we may determine.

On May 3, 2004, we redeemed 78,431 preferred units, which were held by an affiliate of one of our directors, for cash consideration of $16.70 per unit, totaling $1.3 million. Currently, the partnership has only Class A units of limited partnership interests outstanding. We and our wholly-owned subsidiaries own a number of Class A units equal to the number of outstanding shares of our common stock. The holders of each Class A unit not held by us or one of our subsidiaries may redeem it for cash equal to the value of one share of our common stock or, at our option, one share of our common stock. Throughout 2006, the other limited partners redeemed 145,792 Class A units and as of December 31, 2006, they continue to own 94,552 Class A units.

We did not make any distributions during 2005, 2004 or 2003 to the holders of the Class A units. All net income and capital proceeds received by the partnership, after payment of the annual preferred return and, if applicable, the liquidation preference, will be shared by the holders of the Class A units in proportion to the number of units owned by each holder.

18.  INSURANCE

We make available certain insurance coverage to our managed hotels under the terms of each individual management agreement. This insurance is arranged through third-party carriers. Our insurance subsidiary reinsures certain portions of the coverage from these third-party primary insurers, providing for layers of coverage with minimum deductibles and annual aggregate limits. These policies are for coverage relating to innkeepers’ losses (general/comprehensive liability), garagekeeper’s legal liability and real and personal property insurance.

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All accounts of our insurance subsidiary are classified with assets and liabilities of a similar nature in our consolidated balance sheets. Amounts restricted due to statutory requirements consist of cash and cash equivalents of $1.5 million at December 31, 2006 and 2005. These amounts are classified as restricted cash in our consolidated balance sheet. The consolidated statements of operations include the insurance income earned and related insurance expenses incurred. The insurance income earned is included in other revenues in the consolidated statements of operations.

We are liable for costs of the IHC Employee Health and Welfare Plan, which was closed in March 2004 and provided certain employees with group health insurance benefits. We have recorded a runoff liability of $0.2 million as of December 31, 2005. The liability recorded as of December 31, 2006 was not significant. These amounts are recorded as liabilities on our consolidated balance sheets.

Our Associates Benefits Choices plan provides healthcare benefits for the majority of our employees. The estimated extended liability reserve for this plan was approximately $11.3 million and $10.0 million as of December 31, 2006 and 2005, respectively. Substantially all of this liability is related to property level employees, the cost of which is reimbursed to us by the hotel owners. This plan does not provide any post-employment or post-retirement benefits. Only active employees are eligible for the healthcare benefits. In addition, Sunstone maintains benefit plans for all of its employees at the property level. The estimated extended liability reserve for these plans was $7.2 million and $10.7 million at December 31, 2006 and 2005, respectively. These amounts are reflected as liabilities on our consolidated balance sheet. We have also recorded a corresponding receivable for these amounts as we are indemnified by Sunstone REIT for the payment of these liabilities.

19.  EMPLOYEE BENEFIT PLANS

Defined Contribution Plans

We maintain two defined contribution savings plans for our employees. Eligibility for participation in the plans is based on an employee meeting certain minimum age and service requirements. Employer matching contributions are based on a percentage of employee contributions. Participants may make voluntary, pre-tax contributions through salary deferrals to the plan in which they participate. We incurred expenses related to employees at our corporate offices of approximately $0.5 million, $0.4 million, and $0.1 million for the years ended December 31, 2006, 2005, and 2004, respectively. We incurred reimbursable expenses related to hotel employees of $2.9 million, $3.5 million, and $2.0 million for the years ended December 31, 2006, 2005, and 2004, respectively.

 

Deferred Compensation Plans

Until 2004, we maintained two deferred compensation plans for certain executives and hotel general managers by depositing amounts into trusts for the benefit of the participating employees. In 2004, our IHC General Managers retirement plan was terminated and all participants were paid out. Deposits into the trusts were expensed and amounted to $0.3 million for the year ended December 31, 2004. During 2005, for our remaining plan, participant contributions were frozen during the year due to pending legislation related to such plans being introduced by the IRS in that year. A plan amendment was made in 2006 and participation has begun for our remaining plan. We recorded approximately $0.1 million and $0.4 million for a discretionary match for the 2006 and 2005 plan years, respectively. Amounts in the trusts earn investment income, which serves to increase the corresponding deferred compensation obligation. Investments, which are recorded at market value, are directed by us or the participants, and consist principally of mutual funds. Unrealized gains and losses have not been significant to our consolidated financial statements for any years presented.

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20.   INCOME TAXES

Our effective income tax expense (benefit) rate for the years ended December 31, 2006, 2005, and 2004 differs from the federal statutory income tax rate as follows:

	2006			2005			2004
Statutory tax rate		35.0	%		35.0	%		(35.0	)%
State and local taxes		5.2			5.0			(4.4	)
Foreign subsidiaries rate and losses without benefit		—			—			—
Business meals and entertainment		0.2			0.3			3.3
Employment related tax credits		(3.8	)		(13.7	)		(85.0	)
Valuation allowance		1.4			13.7			85.0
Other		1.3			1.5			8.9
		39.3	%		41.8	%		(27.2	)%

The components of income tax expense (benefit) are as follows:

	2006		2005		2004
Current:
Federal	$	2,356	$	350	$	(250	)
State		1,300		609		300
Foreign		16		43		7
	$	3,672	$	1,002	$	57
Deferred:
Federal	$	11,512	$	4,501	$	(614	)
State		2,087		812		(35	)
Foreign		—		—		—
		13,599		5,313		(649	)
	$	17,271	$	6,315	$	(592	)

Our income taxes payable were $1.3 million and $1.4 million as of December 31, 2006 and 2005, respectively. The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax asset (liability) at December 31, 2006 and 2005 are as follows:

	2006			2005
Deferred tax assets:
Allowance for doubtful accounts	$	1,069		$	1,621
Minority interest temporary difference		2,096			2,053
Net operating loss carryforward		7,999			24,219
Accrued expenses		1,999			1,872
Amortizable intangible assets (management contracts)		12,512			11,784
Employment related tax credits		11,576			10,607
Investments in affiliates		7,410			4,164
Total gross deferred tax assets		44,661			56,320
Less: valuation allowance		(28,742	)		(41,334	)
Net deferred tax assets		15,919			14,986
Deferred tax liabilities:
Depreciation and amortization expense		(673	)		(1,025	)
Prepaid expense		(182	)		(109	)
Other		(2,613	)		(1,927	)
Total gross deferred tax liabilities		(3,468	)		(3,061	)
Net deferred tax asset	$	12,451		$	11,925

Our deferred tax assets primarily consist of net operating loss carryforwards, asset basis differences between GAAP and tax, mainly for investment in affiliates and intangible assets (management contracts), and employment related

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tax credits. Our valuation allowance had been primarily related to these same assets. Of the $41.3 million of valuation allowance at December 31, 2005, approximately $24.4 million was recorded as part of purchase accounting in a merger of MeriStar and Old Interstate and in the acquisition of Sunstone.

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; as well as, current tax 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 2006, we reduced the valuation allowance by $10.6 million in the second quarter and $2.7 million in the fourth quarter for a total of $13.3 million and recorded corresponding reductions in goodwill in accordance with SFAS No. 109, “Accounting for Income Taxes.” There is additional valuation allowance of $11.1 million that, if relieved, would reduce goodwill in the future, as the corresponding deferred tax assets relate to the purchase accounting transactions described above. In addition, during 2006, we relieved valuation allowance of $0.9 million related to employment tax credits that will be utilized in the current year. We also recorded additional valuation of $1.6 million related to employment tax credits earned in the current year that we may not be able to utilize in future years. The combination of these adjustments to the valuation allowance for the employment tax credits resulted in a change in our effective tax rate on continuing operations from December 31, 2005 to 2006 of 41.8% to 39.3%, respectively. We believe that our valuation allowance of $28.7 million as of December 31, 2006, reduces the carrying value of our net deferred tax assets to an amount that is more likely than not to be realized.

As of December 31, 2006, we had net operating loss carryforwards from pre-MeriStar/Old Interstate merger of $13.6 million. These carryforwards begin to expire in 2021. We also had net operating loss carryforwards from post-MeriStar/Old Interstate merger of $6.4 million after considering statutory usage limitations which begin to expire in 2023. Our employment related tax credits begin to expire in 2022.

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21.  QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth certain items included in our consolidated financial statements for each quarter of the years ended December 31, 2006 and 2005. In this footnote, other revenue from managed properties from our consolidated statement of operations is excluded from total revenues.

	First			Second		Third		Fourth
2006:
Total revenues	$	31,611		$	26,519	$	40,903	$	41,648
Net income from continuing operations		1,072			1,980		12,851		10,813
Net income (loss) from discontinued operations		(326	)		1,029		2,347		13
Net income (loss)	$	746		$	3,009	$	15,198	$	10,826
Basic earnings per common share from continuing operations	$	0.03		$	0.07	$	0.41	$	0.34
Basic earnings (loss) per common share from discontinued operations		(0.01	)		0.03		0.07		0.00
Basic earnings per commons share	$	0.02		$	0.10	$	0.48	$	0.34
Diluted earnings per common share from continuing operations	$	0.03		$	0.07	$	0.41	$	0.34
Diluted earnings (loss) per common share from discontinued operations		(0.01	)		0.03		0.07		0.00
Diluted earnings per common share	$	0.02		$	0.10	$	0.48	$	0.34
2005:
Total revenues	$	18,709		$	23,076	$	21,969	$	37,897
Net income (loss) from continuing operations		(777	)		730		2,273		6,560
Net income (loss) from discontinued operations		(647	)		1,013		3,118		607
Net income (loss)	$	(1,424	)	$	1,743	$	5,391	$	7,167
Basic earnings (loss) per common share from continuing operations	$	(0.03	)	$	0.03	$	0.08	$	0.21
Basic earning (loss) per common share from discontinued operations		(0.02	)		0.03		0.10		0.02
Basic earnings (loss) per commons share	$	(0.05	)	$	0.06	$	0.18	$	0.23
Diluted earnings (loss) per common share from continuing operations	$	(0.03	)	$	0.03	$	0.07	$	0.21
Diluted earning (loss) per common share from discontinued operations		(0.02	)		0.03		0.10		0.02
Diluted earnings (loss) per common share	$	(0.05	)	$	0.06	$	0.17	$	0.23

The sum of the basic and diluted earnings (loss) per common share for the four quarters in may differ from the annual earnings per common share due to the required method of computing the weighted average number of shares in the respective periods.

22.  OTHER TRANSACTIONS

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 our statements of operations.

During August 2006, we entered into an amendment to our master fee agreement with Blackstone. The amendment allows them to transition three properties from management by us without the sale of the property. In exchange, we received the right to preclude them from substituting any future management agreements they give us to reduce or offset their currently payable termination fees for hotels they had sold. The amendment removed all contingencies related to the receipt of the agreed upon termination fee payments due from Blackstone. As a result, we recognized, on a present value basis, the $15.1 million of termination fees due to us as of the date of the amendment. Of the $15.1 million, $13.8 million was used as a credit towards the purchase of the Hilton Arlington.

In January 2005, we recognized a gain of $0.4 million from the exchange of stock warrants for stock and subsequent sale of that stock in an unaffiliated company, which we held as an investment. In December 2006, we recognized a gain of $0.2 million from the exchange of additional stock warrants.

In September 2005, we recognized a gain of $4.3 million in connection with the extinguishment of debt on our non-recourse promissory note with FelCor Lodging Trust Incorporated (“FelCor”).

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23.  SUBSEQUENT EVENTS

Loss of Management Contracts

In February 2007, CNL sold a portfolio of 16 properties and as a result, terminated us as the manager of those properties. We continue to manage six properties for CNL. We have recorded $1.8 million, $1.6 million and $1.5 million in management fees related to the 16 properties for the years ended December 31, 2006, 2005 and 2004, respectively. We have recognized $0.3 million of termination fees in 2007 associated with the sale of these properties.

Purchase of Hilton Houston Westchase in Texas

In February 2007, we acquired our fifth wholly-owned property, the 297-room Hilton Houston Westchase hotel in Texas, from affiliates of The Blackstone Group, for a purchase price of $50.5 million. We financed the acquisition through a non-recourse mortgage loan of $32.8 million and the remainder with a combination of cash on hand and borrowings on our Credit Facility. The variable rate loan has an interest rate equal to the 30-day LIBOR plus 135 basis points. We are required to make monthly interest-only payments until the loan matures in February 2010, with the option for two, one-year extensions. We intend to invest approximately $2 million to $3 million in capital improvements, which will complete a comprehensive $11 million renovation program, which is currently in progress.

Amended Credit Facility

In March 2007, we closed on our new senior secured credit facility. The new senior secured credit facility consists of a $65.0 million term loan and a $60.0 million revolving loan. The interest rate on both the term loan and the revolving loan will be the 30-day LIBOR plus 275 basis points. In addition, we will be required to make quarterly payments of approximately $0.2 million. In connection with the amended credit facility, we notified the lender of our $19.0 million non-recourse mortgage loan of our intention to repay the entire loan in April 2007.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.   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)).

Based on the framework in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, 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 the design and operation 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 adequate and effective in ensuring that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this report was being prepared.

Internal control over financial reporting cannot provide absolute assurance for the prevention or detection of misstatements within the Company’s financial reporting because of its inherent limitations. Internal control over financial reporting is a process that involves human judgment and requires diligence and compliance to prevent errors. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on

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a timely basis. However, these inherent limitations are known features of the financial reporting process and it is possible to design safeguards to reduce, though not eliminate, this risk.

Changes in Internal Control over Financial Reporting

There has not been any change in the Company’s internal control over financial reporting during the fourth quarter of 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting in any negative respect.

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.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate and effective internal control over financial reporting for Interstate Hotels and Resorts, Inc. Internal control over financial reporting refers to the process designed by, or under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, and includes those policies and procedures that:

(1)	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2)	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and
(3)	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management has used the framework set forth in the report entitled Internal Control — Integrated Framework published by COSO to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has concluded that, as of December 31, 2006, the Company’s internal control over financial reporting was effective. KPMG LLP has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting herein.

ITEM 9B.   OTHER INFORMATION

None.

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PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:

1.  FINANCIAL STATEMENTS

All financial statements of the registrant are provided under Item 8 of this Report on Form 10-K.

2.  FINANCIAL STATEMENT SCHEDULES

Information relating to schedules for which provision is made in the applicable accounting regulations of the SEC is included in the notes to the financial statements and is incorporated herein by reference.

3.  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 March 8, 2002).
3.1.2	Certificate of Merger of Interstate Hotels Corporation into MeriStar Hotels & Resorts, Inc. (incorporated by reference to Exhibit 3.1.2 to the Company’s Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002).
3.1.3	Certificate of Amendment of the Restated Certificate of Incorporation of the Company dated July 31, 2002 (incorporated by reference to Exhibit 3.1.3 to the Company’s Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002).
3.2	By-laws of the Company, formerly MeriStar Hotels & Resorts, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Form S-1/A filed with the Securities and Exchange Commission on July 23, 1998 (Registration No. 333-49881)).
3.2.1	Amendment to the By-laws of the Company (incorporated by reference to Exhibit 3.3 to the Company’s Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002).
4.1	Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002).
4.2	Preferred Share Purchase Rights Agreement, dated July 23, 1998, between the Company, formerly MeriStar Hotels & Resorts, Inc., and the Rights Agent (incorporated by reference to Exhibit 4.4 to the Company’s Form S-1/A filed with the Securities and Exchange Commission on July 23, 1998 (Registration No. 333-49881)).
4.2.1	Amendment to Rights Agreement, dated December 8, 2000, between the Company, formerly MeriStar Hotels & Resorts, Inc., and the Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 12, 2000).
4.2.2	Second Amendment to Rights Agreement, dated May 1, 2002, between the Company, formerly MeriStar Hotels & Resorts, Inc., and the Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 3, 2002).
4.3	Form of Rights Certificate (incorporated by reference to Exhibit 4.3 to the Company’s Form S-1/A filed with the Securities and Exchange Commission on July 23, 1998 (Registration No. 333-49881)).
10.1	Amended and Restated Agreement of Limited Partnership of MeriStar H&R Operating Company, L.P. dated as of August 3, 1998 (incorporated by reference to Exhibit 10.11 to the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998).
10.2	Amended and Restated Employee Incentive Plan of the Company (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).

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Exhibit
No.	Description of Document
10.3	The Non-Employee Directors’ Incentive Plan of the Company, formerly MeriStar Hotels & Resorts, Inc (incorporated by reference to Exhibit 10.7 to the Company’s Form S-1/A filed with the Securities and Exchange Commission on June 19, 1998(Registration No. 333-49881)).
10.3.1	Amendment to the Non-Employee Directors’ Incentive Plan (incorporated by reference to Exhibit 10.8.1 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 8, 2002).
10.3.2	Second Amendment to the Registrant’s Non-Employee Directors’ Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
10.4	The Employee Stock Purchase Plan of the Company, formerly MeriStar Hotels & Resorts, Inc. (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 8, 2002).
10.4.1	Amendments to the Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
10.5	Employment Agreement, dated as of February 17, 2005, by and between Thomas F. Hewitt and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed with the Securities and Exchange Commission for the three months ended September 30, 2005).
10.5.1*	Amended and Restated Employment Agreement, dated as of January 16, 2007, by and between Thomas F. Hewitt and the Company.
10.6	Employment Agreement, dated as of April 17, 2006, by and between Bruce A. Riggins and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 9, 2006).
10.7*	Employment Agreement, dated as of May 11, 2005, by and between Christopher L. Bennett and the Company.
10.8*	Employment Agreement, dated as of June 8, 2006, by and between Ted Knighton and the Company.
10.9*	Interstate Hotels & Resorts, Inc. Supplemental Deferred Compensation Plan.
10.10	Form of Amended and Restated Senior Secured Credit Agreement, dated as of January 14, 2005, among Interstate Operating Company, L.P., Societe Generale, SG Americas Securities, LLC, and various other lenders (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 21, 2005).
10.11	Form of Amended and Restated Security Agreement, dated as of January 14, 2005, among Interstate Operating Company, L.P., and other Pledgors named therein and Societe Generale, as administrative agent for the senior creditors (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 21, 2005).
10.12	First Amendment to the Amended and Restated Senior Secured Credit Facility, dated February 4, 2005, among the registrant, Interstate Operating Company, LP, Societe Generale, SG Credit Lyonnais New York Branch, Citigroup, Inc and various other vendors (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 16, 2005).
10.13	Second Amendment to the Amended and Restated Senior Secured Credit Facility, dated May 5, 2005, among the registrant, Interstate Operating Company, LP, Societe Generale, SG Americas Securities, LLC, and various other vendors (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 10, 2005).
10.14*	Agreement of Purchase and Sale between Capstar Westchase Partners, L.P., an affiliate of The Blackstone Group, and Interstate Westchase, LP, dated January 4, 2007, for the purchase of the Hilton Houston Westchase.
10.15	Purchase and Sale Agreement by and among Interstate Hotels & Resorts, Inc., Interstate Operating Company, L.P., and Amkadian Holdings, Inc., dated January 26, 2007 for the sale of our BridgeStreet corporate housing subsidiary (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 29, 2007).
10.16*	Employment Agreement, dated as of January 1, 2007, by and between Henry L. Ciaffone and the Company.

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Exhibit
No.	Description of Document
10.17*	Senior Secured Credit Facility, dated March 9, 2007, among Interstate Operating Company, LP, Lehman Brothers Inc. and various others lenders.
10.18*	Employment Agreement, dated as of September 26, 2005 by and between Leslie Ng and the Company.
21*	Subsidiaries of the Company.
23.1*	Consent of KPMG LLP.
24	Power of Attorney (see signature page).
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*	Sarbanes-Oxley Act Section 906 Certifications of Chief Executive Officer and Chief Financial Officer.

* Filed herewith

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SIGNATURES

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

INTERSTATE HOTELS & RESORTS, INC.

By:  /s/  THOMAS F. HEWITT

Thomas F. Hewitt

Chief Executive Officer

Dated: March 16, 2007

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

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

Signature	Title	Date
/s/  THOMAS F. HEWITT Thomas F. Hewitt	Chief Executive Officer (Principal Executive Officer)	March 16, 2007
/s/  PAUL W. WHETSELL Paul W. Whetsell	Chairman of the Board	March 16, 2007
/s/  BRUCE A. RIGGINS Bruce A. Riggins	Chief Financial Officer (Principal Financial and Accounting Officer)	March 16, 2007
Karim J. Alibhai	Director	March 16, 2007
/s/  LESLIE R. DOGGETT Leslie R. Doggett	Director	March 16, 2007
/s/  JOSEPH J. FLANNERY Joseph J. Flannery	Director	March 16, 2007
/s/  JAMES B. MCCURRY James B. McCurry	Director	March 16, 2007

88

Signature	Title	Date
/s/  RONALD W. ALLEN Ronald W. Allen	Director	March 16, 2007
/s/  JOHN J. RUSSELL, JR. John J. Russell, Jr.	Director	March 16, 2007
/s/  JAMES F. DANNHAUSER James F. Dannhauser	Director	March 16, 2007

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EX-10.5.1

EXHIBIT 10.5.1

AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT

     This AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT, dated as of January 16, 2007 (this “Amendment”), 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 THOMAS F. HEWITT (the “Executive”), an individual residing at                    , amends that certain EXECUTIVE EMPLOYMENT AGREEMENT, effective as of February 17, 2005 (the “Agreement”), by and between the Company, the LLC and the Executive.

     WHEREAS, the Company, the LLC and the Executive seek to amend the Agreement pursuant to the terms and conditions of this Amendment.

     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. Term. Paragraph 1 of the Agreement is hereby amended and restated in its entirety 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 commencing on February 17, 2005 (the “Commencement Date”), and ending on February 17, 2010, unless terminated earlier in accordance with Section 5 of this Agreement; provided that such term shall automatically be extended from time to time for additional periods of one calendar year from the date on which it would otherwise expire unless the Executive, on the one hand, or the Company and the LLC, on the other, give notice to the other party at least 120 calendar days 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. Base Salary. Paragraph 4(a) of the Agreement is hereby amended and restated in its entirety as follows:

          “4 (a) Beginning January 1, 2007, the Company and the LLC will pay the Executive a base salary at an aggregate annual rate of not less than $500,000 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.”

     3. Miscellaneous.:

          a. Ratification. Except as amended herein, all other terms, conditions and provisions contained in the Agreement, as previously amended, shall continue to apply and are expressly ratified and confirmed and the parties hereby acknowledge that the Agreement is in full force and effect and neither party is in default or breach thereof.

          b. Facsimile Signatures. This Amendment may be executed by facsimile. Facsimile signatures shall be deemed effective for all purposes.

2

          c. Counterparts. This Amendment may be executed in any number of counterparts and each such counterpart shall be deemed an original, but all of which, when taken together, shall constitute one and the same agreement.

          d. Capitalized Terms. All capitalized terms not otherwise defined in this Amendment shall have the same meanings herein as are given to them in the Agreement.

          e. Governing Law. This Amendment 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.

[Remainder of Page Intentionally Left Blank]

3

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

EXECUTIVE:
	/s/ Thomas F. Hewitt
	Thomas F. Hewitt
COMPANY:
	INTERSTATE HOTELS & RESORTS, INC.
	By:	/s/ Christopher L. Bennett
	Name:	Christopher L. Bennett
	Title:	Executive Vice President and General Counsel
LLC:
	INTERSTATE MANAGEMENT COMPANY, LLC
	By:	Interstate Operating Company, L.P., a member
		By:	Interstate Hotels & Resorts, Inc.,
			its general partner
	By:	/s/ Christopher L. Bennett
	Name:	Christopher L. Bennett
	Title:	Executive Vice President and General Counsel

EX-10.7

EXHIBIT 10.7

EXECUTIVE EMPLOYMENT AGREEMENT

EXECUTIVE EMPLOYMENT AGREEMENT, effective as of May 11, 2005 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 Christopher L. Bennett (the “Executive”), an individual residing at __________________ .

     The Company and the LLC desire to employ the Executive in the capacity of Senior Vice President, General Counsel and Secretary, 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 May 11, 2005 (the “Commencement Date”), and ending on May 11, 2008 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 Senior Vice President, General Counsel and Secretary 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

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administrative and secretarial assistance and other support services consistent with his position as Senior Vice President, General Counsel and Secretary 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 $200,000 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 75% 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, the Interstate Executive Real Estate Fund, 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.

          (e) The Company and the LLC will reimburse the Executive, in accordance with its standard policies from time to time in effect, for all out-of-pocket business expenses as may be incurred by the Executive in the performance of his duties under this Agreement.

          (f) The Executive shall be entitled to vacation time to be credited and taken in accordance with the Company’s policy from time to time in effect for senior executives, which in any event shall not be less than a total of four weeks per calendar year. Such vacation time shall not be carried over year to year, and shall not be paid out upon termination of employment, or upon expiration of this Agreement.

          (g) 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(g) 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(g) 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

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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,

          (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

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          (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 the product of one (1) 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.

          (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

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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;

          (iii) the Executive’s conviction of, or a plea of guilty or nolo contendere to, an offense which is a felony;

          (iv) Executive’s material breach of this Agreement; or

          (v) 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;

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          (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 5h(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; or

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;

          (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

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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 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

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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 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 8 hereof. Therefore, in addition to any other remedies available, the Company shall be entitled to specific enforcement and/or an injunction from any court of competent jurisdiction restraining the Executive from committing or continuing any such violation of this Agreement without proving actual damages or posting a bond or other security. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages.

          (b) If any of the restrictions on activities of the Executive contained in Section 8 hereof shall for any reason be held by a court of competent jurisdiction to be excessively broad, such restrictions shall be construed so as thereafter to be limited or reduced to be enforceable to the maximum extent compatible with the applicable law as it shall then appear; it being understood that by the execution of this Agreement the parties hereto regard such restrictions as reasonable and compatible with their respective rights.

          (c) Notwithstanding anything in this Agreement to the contrary, in the event that the Company fails to make any payment of any amounts or provide any of the benefits to the Executive when due as called for under Section 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.

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     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:

          Christopher L. Bennett

          If to the Company or to the LLC, to:

          Interstate Hotels & Resorts, Inc.

          Attention:                                         

     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. 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/ Christopher L. Bennett
Christopher L. Bennett
COMPANY:
INTERSTATE HOTELS & RESORTS, INC.
By:	/s/ Thomas F. Hewitt
Name:	Thomas F. Hewitt
Title:	CEO
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:	CEO

EX-10.8

EXHIBIT 10.8

EXECUTIVE EMPLOYMENT AGREEMENT

EXECUTIVE EMPLOYMENT AGREEMENT, effective as of June 8, 2006 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 Samuel Knighton (the “Executive”), an individual residing at ___.

     The Company and the LLC desire to employ the Executive in the capacity of President, Hotels Division, 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 June 8, 2006 (the “Commencement Date”), and ending on June 8, 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 President, Hotels Division 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

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administrative and secretarial assistance and other support services consistent with his position as President, Hotels Division 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 $320,000 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 100% 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.

          (e) The Company and the LLC will reimburse the Executive, in accordance with its standard policies from time to time in effect, for all out-of-pocket business expenses as may be incurred by the Executive in the performance of his duties under this Agreement.

          (f) The Executive shall be entitled to vacation time to be credited and taken in accordance with the Company’s policy from time to time in effect for senior executives, which in any event shall not be less than a total of four weeks per calendar year. Such vacation time shall not be carried over year to year, and shall not be paid out upon termination of employment, or upon expiration of this Agreement.

          (g) 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(g) 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(g) 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

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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,

               (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

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               (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 the product of one (1) 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.

               (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

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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;

               (iii) the Executive’s conviction of, or a plea of guilty or nolo contendere to, an offense which is a felony;

               (iv) Executive’s material breach of this Agreement; or

               (v) 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;

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               (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 5h(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;

               (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

7

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 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

8

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 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 8 hereof. Therefore, in addition to any other remedies available, the Company shall be entitled to specific enforcement and/or an injunction from any court of competent jurisdiction restraining the Executive from committing or continuing any such violation of this Agreement without proving actual damages or posting a bond or other security. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages.

          (b) If any of the restrictions on activities of the Executive contained in Section 8 hereof shall for any reason be held by a court of competent jurisdiction to be excessively broad, such restrictions shall be construed so as thereafter to be limited or reduced to be enforceable to the maximum extent compatible with the applicable law as it shall then appear; it being understood that by the execution of this Agreement the parties hereto regard such restrictions as reasonable and compatible with their respective rights.

          (c) Notwithstanding anything in this Agreement to the contrary, in the event that the Company fails to make any payment of any amounts or provide any of the benefits to the Executive when due as called for under Section 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.

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     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:

If to the Company or to the LLC, to:

Interstate Hotels & Resorts, Inc.

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. 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/ Samuel E. Knighton
COMPANY:
INTERSTATE HOTELS & RESORTS, INC.
By:	/s/ Thomas F. Hewitt
Name:   Thomas F. Hewitt
Title:    CEO
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:     CEO

EX-10.9

EXHIBIT 10.9

INTERSTATE SUPPLEMENTAL
DEFERRED COMPENSATION PLAN

Amended and Restated
Effective as of January 1, 2005

INTERSTATE SUPPLEMENTAL
DEFERRED COMPENSATION PLAN

Amended and Restated
Effective as of January 1, 2005

TABLE OF CONTENTS

< /TR>

		Page
ARTICLE I	DEFINITIONS		1
ARTICLE II	ELIGIBILITY AND PARTICIPATION		4
2.1	REQUIREMENTS		4
2.2	RE-EMPLOYMENT/BOARD MEMBERSHIP		4
2.3	CHANGE OF EMPLOYMENT CATEGORY		4
ARTICLE III	CONTRIBUTIONS AND CREDITS		4
3.1	EMPLOYER CONTRIBUTION CREDITS		4
3.2	PARTICIPANT COMPENSATION DEFERRALS		5
ARTICLE IV	ALLOCATION OF FUNDS		5
4.1	ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS		5
4.2	ACCOUNTING FOR DISTRIBUTIONS		6
4.3	SEPARATE BOOKKEEPING ACCOUNTS		6
4.4	DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS		6
4.5	PAYMENT OF TAXES AND EXPENSES		7
ARTICLE V	ENTITLEMENT TO BENEFITS		7
5.1	FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT/BOARD MEMBERSHIP		7
5.2	UNFORESEEABLE EMERGENCY DISTRIBUTIONS		7
5.3	RE-EMPLOYMENT/BOARD MEMBERSHIP OF RECIPIENT		8
5.4	VESTING		8
5.5	GRANDFATHERED SUB-ACCOUNTS		8
ARTICLE VI	DISTRIBUTION OF BENEFITS		8
6.1	AMOUNT		8
6.2	METHOD OF PAYMENT		8
6.3	DEATH OR DISABILITY BENEFITS		9
6.4	CHANGE IN CONTROL		9
6.5	GRANDFATHERED SUB-ACCOUNTS		9
ARTICLE VII	BENEFICIARY & PARTICIPANT DATA		9
7.1	DESIGNATION OF BENEFICIARIES		9
7.2	INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES; INABILITY TO LOCATE		10
	PARTICIPANTS OR BENEFICIARIES		10
ARTICLE VIII	ADMINISTRATION AND RECORDKEEPING		10
8.1	ADMINISTRATIVE AND RECORDKEEPING AUTHORITY		10
8.2	UNIFORMITY OF DISCRETIONARY ACTS		10
8.3	LITIGATION		10
8.4	CLAIMS PROCEDURE		10
ARTICLE IX	AMENDMENT		12
9.1	RIGHT TO AMEND		12

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		Page
9.2	AMENDMENT TO ENSURE PROPER CHARACTERIZATION OF THE PLAN		12
9.3	CHANGES IN LAW AFFECTING TAXABILITY		12
ARTICLE X	TERMINATION		13
10.1	PLAN SPONSOR’S RIGHT TO TERMINATE PLAN		13
10.2	SUCCESSOR TO PLAN SPONSOR		13
ARTICLE XI	MISCELLANEOUS		13
11.1	LIMITATIONS ON LIABILITY OF PLAN SPONSOR AND EMPLOYER		13
11.2	CONSTRUCTION		13
11.3	SPENDTHRIFT PROVISION		13
ARTICLE XII	THE TRUST		14
12.1	ESTABLISHMENT OF TRUST		14

ii

INTERSTATE SUPPLEMENTAL
DEFERRED COMPENSATION PLAN

Amended and Restated
Effective as of January 1, 2005

RECITALS

     This amended and restated Plan, the Interstate Supplemental Deferred Compensation Plan (the “Plan”) is adopted by Interstate Hotels & Resorts, Inc. (the “Plan Sponsor”) for certain of its directors and certain management employees of Interstate Management Company, LLC (the “Employer”). The Plan constitutes an amendment and restatement of the Interstate Hotels and Resorts, Inc. Supplemental Deferred Compensation Plan. The Plan was amended and restated to comply with the requirements of section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the guidance promulgated thereunder.

     The purpose of the Plan is to offer participants deferred compensation benefits pursuant to section 409A of the Code and to supplement such participants’ retirement benefits under the Plan Sponsor’s tax-qualified retirement plan and other retirement programs. The Plan is intended to be a “top-hat plan” (i.e., an unfunded deferred compensation plan maintained for a select group of management or highly compensated employees) pursuant to sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

     Accordingly, the Plan is amended and restated as follows.

ARTICLE I
DEFINITIONS

     The following terms, as used herein, unless a different meaning is implied by the context, have the following meaning:

     1.1 ACCOUNT means the balance credited to a Participant’s Plan accounts, including amounts credited under the Compensation Deferral Account and the Plan Sponsor Contribution Credit Account. Said Account shall be determined as of the date of reference.

     1.2 BASE COMPENSATION means the total base cash compensation of the Participant (including any contributions made on the behalf of the Participant to any qualified plan maintained by the Plan Sponsor or to any cafeteria plan under Code section 125 maintained by the Plan Sponsor) for the Plan Year of reference; provided, that, with respect to Participants working in the Development Group who are eligible to receive commissions, Base Compensation includes commissions paid during the Plan Year of reference.

     1.3 BASE COMPENSATION DEFERRALS is defined in Section 3.1.

     1.4 BENEFICIARY means any person or persons so designated in accordance with the provisions of Article VII.

     1.5 BOARD means the Board of Directors of the Plan Sponsor.

     1.6 CHANGE IN CONTROL means a transaction or series of transactions occurring after the Effective Date, in which (1) any individual, firm, corporation or other entity, or any group (as defined in Section 13(d)(3) or the Securities Exchange Act of 1934 (the “Act”)), becomes, directly or indirectly, the beneficial owner (as defined in the general rules and regulations of the Securities and Exchange Commission with respect to Sections 13(d) and 13(g) of the Act) of more than fifty percent (50%) of the then outstanding shares of the Plan Sponsor’s capital stock entitled to vote generally in the election of directors of the Plan Sponsor; (2) the stockholders of the Plan Sponsor approve a definitive agreement for (A) the merger or other business combination of the Plan Sponsor with or into another corporation pursuant to which the stockholders of the Plan Sponsor do not own, immediately after the transaction, more than fifty percent (50%) of the voting power of the corporation that survives and is a publicly owned corporation and not a

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subsidiary of another corporation, or (B) the sale, exchange or other disposition of all or substantially all of the assets of the Plan Sponsor; or (3) during any period of two (2) years or less, individuals who at the beginning of such period constituted the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the stockholders of the Plan Sponsor, of each new director was approved by a vote of at least seventy-five percent (75%) of the directors then still in office who were directors at the beginning of the period. Notwithstanding the foregoing, a Change in Control shall not be deemed to have taken place if beneficial ownership is acquired by, or a tender exchange offer is commenced by, the Plan Sponsor or any of its subsidiaries, any profit sharing, employee ownership or other employee benefit plan of the Plan Sponsor or any subsidiary of any trustee of or fiduciary with respect to any such plan when acting in such capacity, or any group comprised solely of such entities.

     1.7 CHIEF EXECUTIVE OFFICER means the Chief Executive Officer of the Plan Sponsor.

     1.8 CODE means the Internal Revenue Code of 1986 and the regulations thereunder, as amended from time to time.

     1.9 COMMITTEE means the Compensation Committee of the Board.

     1.10 COMPENSATION means the total current cash remuneration, including Base Compensation, total cash Bonus Compensation, all cash awards or other compensation, director retainers, and meeting fees of the Participant for the Plan Year of reference.

          For purposes of the preceding sentence and for all other purposes under the Plan, Bonus Compensation is performance-based compensation that is: (1) established over a performance period of at least 12 consecutive months and (2) based on organizational or individual performance criteria that are established no later than 90 days after the performance period begins.

     1.11 COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.

     1.12 COMPENSATION DEFERRALS is defined in Section 3.2.

     1.13 DESIGNATION DATE means the date or dates as of which a designation of deemed investment directions by an individual pursuant to Section 4.4 shall become effective. The Designation Dates in any Plan Year include January 1, April 1, July 1 and October 1.

     1.14 DEVELOPMENT GROUP means the group responsible for all of the Employer’s new business. The Employer’s new business includes sourcing new management contracts, executing joint venture partnerships and acquiring wholly owned assets for the Employer. The Development Group also is responsible for any investment activities the Employer may undertake. The Development Group actively participates in owner relations and the overall marketing of the Employer to interested parties, which may include branded franchise companies, public and private investors, lenders and consultants

     1.15 DISABILITY means the Participant has satisfied either of the following definitions of disability: (1) unable to engage in gainful activity due to medical impairment for 12 months continuously or (2) medical impairment is expected to result in death or to last for not less than 12 months and receiving income replacement benefits for not less than 3 months.

     1.16 EFFECTIVE DATE means the effective date of this amendment and restatement of the Plan, which shall be January 1, 2005.

     1.17 ELIGIBLE INDIVIDUAL means, for any Plan Year (or applicable portion thereof), any individual who is not employed by the Employer but is a member of the Board, any individual who is employed by the Employer in the position of a Vice President or a more senior position, or any individual employed by the Employer who is determined by the Employer to be a member of a select group of management or highly compensated employees of the Employer (within the meaning of ERISA), and who is designated by the Chief Executive Officer to be an Eligible Individual under the Plan, and (1) whose benefits under the Qualified Plan are limited due to application of the

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compensation or nondiscrimination contribution limits of the Code, and/or (2) to whom the Plan Sponsor desires to provide supplemental retirement benefits.

          By each December 1, the Plan Sponsor shall notify those individuals, if any, who will be Eligible Individuals for the next Plan Year. If the Plan Sponsor determines that an individual first becomes an Eligible Individual during a Plan Year, the Plan Sponsor shall notify such individual of that determination and of the date during the Plan Year on which the individual shall first become an Eligible Individual.

     1.18 EMPLOYER means Interstate Management Company, LLC and its successors and assigns unless otherwise herein provided, or any other corporation or business organization which, with the consent of the Plan Sponsor or its successors or assigns, assumes the Employer’s obligations hereunder, or any other corporation or business organization which agrees, with the consent of the Plan Sponsor to become a party to the Plan.

     1.19 EMPLOYER CONTRIBUTION CREDIT ACCOUNT is defined in Section 3.1.

     1.20 EMPLOYER CONTRIBUTION CREDITS is defined in Section 3.1.

     1.21 ENTRY DATE with respect to an individual means the first day of a pay period following the date on which the individual becomes an Eligible Individual.

     1.22 GRANDFATHERED SUB-ACCOUNT means that portion of an Account that was earned and vested as of December 31, 2004, including any earnings or losses thereon.

     1.23 KEY EMPLOYEE means an individual within the meaning of Code Section 409A(a)(2)(B).

     1.24 PARTICIPANT means any person so designated in accordance with the provisions of Article II, including, where appropriate according to the context of the Plan, any former employee or director who is or may become (or whose Beneficiaries may become) eligible to receive a benefit under the Plan.

     1.25 PARTICIPANT ENROLLMENT AND ELECTION FORM means the form (or forms) on which a Participant elects to defer Compensation hereunder, on which the Participant makes elections concerning the time and manner of payment of amounts attributable to such election, and on which the Participant makes certain other designations as required thereon.

     1.26 PLAN means this amended and restated Interstate Supplemental Deferred Compensation Plan, an amendment and restatement of the Interstate Hotels & Resorts, Inc. Supplemental Deferred Compensation Plan, as amended from time to time.

     1.27 PLAN SPONSOR means Interstate Hotels & Resorts, Inc. and its successors and assigns.

     1.28 PLAN YEAR means the twelve (12) month period ending on the December 31 of each year during which the Plan is in effect.

     1.29 QUALIFIED PLAN means the Plan Sponsor’s tax-qualified 401(k) plan, as amended from time to time.

     1.30 RETIREMENT means a Participant’s termination from the employ of the Plan Sponsor upon or after attaining age sixty-five (65).

     1.31 TRUST means the trust fund, if any, established pursuant to the Plan.

     1.32 TRUSTEE means the trustee named in the agreement establishing the Trust and such successor and/or additional trustees as may be named pursuant to the terms of the agreement establishing the Trust.

     1.33 VALUATION DATE means each day of each Plan Year.

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ARTICLE II
ELIGIBILITY AND PARTICIPATION

     2.1 REQUIREMENTS. Every Eligible Individual on the Effective Date shall be eligible to become or continue as a Participant on the Effective Date. Every other Eligible Individual shall be eligible to become a Participant on the first Entry Date occurring on or after the date on which he or she becomes an Eligible Individual. No individual shall become a Participant, however, if he or she is not an Eligible Individual on the date his or her participation is to begin.

          Participation in the Compensation Deferral Account portion of the Plan is voluntary. In order to participate in the Compensation Deferral Account portion of the Plan, an otherwise Eligible Individual must make written application in such manner as may be required by Section 3.2 and by the Plan Sponsor and must agree to make Compensation Deferrals as provided in Article III.

          Participation in the Employer Contribution Credit Account portion of the Plan is automatic for all eligible Participants.

     2.2 RE-EMPLOYMENT/BOARD MEMBERSHIP. If a Participant whose employment with the Employer (or Board membership, as applicable) is terminated is subsequently re-employed (or again becomes a Board member), he or she shall become a Participant in accordance with the provisions of Section 2.1.

     2.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a Participant remains in the employ of the Employer (or a member of the Board), but ceases to be an Eligible Individual, he or she shall not be eligible to make Compensation Deferrals or to be credited with Employer Contribution Credits hereunder.

ARTICLE III
CONTRIBUTIONS AND CREDITS

     3.1 EMPLOYER CONTRIBUTION CREDITS. There shall be established and maintained a separate Employer Contribution Credit Account in the name of each Participant. There shall be established the following two (2) sub-accounts under a Participant’s Employer Contribution Credit Account: (a) the Employer Matching Contribution Sub-Account; and (b) the Employer Profit Sharing Contribution Sub-Account. Each such Sub-Account shall be credited or debited, as applicable, with (a) amounts equal to the Employer’s Contribution Credits credited to that Sub-Account; (b) amounts equal to any deemed earnings and losses (to the extent realized, based upon deemed fair market value of the Sub-Account’s deemed assets as determined by the Plan Sponsor, in its discretion) allocated to that Sub-Account; and (c) expenses and taxes charged to that Sub-Account.

          Provided that a Participant remains in the employ of the Employer as an employee on the last day of a Plan Year and that the Participant has elected to defer all or a portion of his or her Base Compensation pursuant to Section 3.2 (referred to herein as “Base Compensation Deferrals”) with respect to such Plan Year, Employer Contribution Credits shall be credited to the Participant’s Employer Matching Contribution Sub-Account for such Plan Year in an amount equal to the excess of (a) one hundred percent (100%) of the Participant’s Base Compensation Deferrals for such Plan Year, but not to exceed such percentage of the Participant’s Base Compensation for such Plan Year as shall be established in the sole discretion of the Chief Executive Officer (until changed by the Chief Executive Officer, a four percent (4%) rate shall apply); over (b) the sum of the matching contributions actually made by the Employer or Plan Sponsor to the Qualified Plan for such Plan Year.

          Provided a Participant remains in the employ of the Employer as an employee on the last day of a Plan Year, Employer Contribution Credits shall be credited to the Participant’s Employer Profit Sharing Contribution Sub-Account for such Plan Year in an amount (if any) equal to a percentage of the Participant’s combined Employer Matching Contribution Sub-Account credits and Qualified Plan matching contributions for such Plan Year, which percentage shall be established in the sole discretion of the Chief Executive Officer and may vary from Participant to Participant (but may in no event exceed one hundred fifty percent (150%)).

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          A Participant shall become vested in amounts credited to his or her Employer Contribution Credit Account as provided in Section 5.4.

     3.2 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules established by the Plan Sponsor, a Participant may elect to defer Compensation which is due to be earned and which would otherwise be paid to the Participant in any percentages designated by the Participant. Amounts so deferred will be considered a Participant’s “Compensation Deferrals.” A Participant shall make such Compensation Deferral elections with respect to a coming twelve (12) month Plan Year during the period beginning on the December 1 and ending on the December 31 of the prior Plan Year, or during such other period as is established by the Plan Sponsor so long as such Plan Sponsor determined period ends on or prior to the December 31 of the prior Plan Year. The Plan Sponsor shall have the discretion to permit special Compensation Deferral election periods for deferral elections relating to Bonus Compensation; provided, however, that any such elections to defer Bonus Compensation must be made at least 6 months prior to the end of the applicable performance period and the applicable performance criteria must not be substantially certain to be met at the time of such deferral.

          If the Plan Sponsor determines that an individual first becomes an Eligible Individual during a Plan Year, such individual will have thirty (30) days from the date he or she becomes eligible to participate in the Plan to make an initial election to apply to Compensation earned after he or she makes such an election. Separate elections must be made for Base Compensation and Bonus Compensation. The amount of Bonus Compensation applicable to the deferral election shall be the Bonus Compensation earned during the Plan Year multiplied by the fraction derived by dividing (a) the number of days remaining in the Plan Year after the date the individual becomes an Eligible Individual by (b) the total number of days in the Plan Year.

          Compensation Deferrals shall be made through regular payroll deductions (including, if applicable, deductions of regular cash retainer payments or payments of meeting fees to a Participant who is a Board member) or through an election by the Participant to defer the payment of a bonus not yet payable to him or her at the time of the election.

          There shall be established and maintained by the Plan Sponsor a separate Compensation Deferral Account in the name of each Participant, to which shall be credited or debited, as applicable: (a) amounts equal to the Participant’s Compensation Deferrals; (b) amounts equal to any deemed earnings and losses (to the extent realized, based upon deemed fair market value of the Account’s deemed assets as determined by the Plan Sponsor in its discretion) attributable or allocable thereto; and (c) expenses and taxes charged to that Account.

          A Participant shall at all times be one hundred percent (100%) vested in amounts credited to his or her Compensation Deferral Account, as provided in Section 5.4.

ARTICLE IV
ALLOCATION OF FUNDS

     4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Pursuant to Section 4.4, each Participant shall have the right to direct the Plan Sponsor as to how amounts in his or her Plan Account shall be deemed to be invested in the deemed investment options made available under the Plan. Subject to such limitations as may from time to time be required by law, imposed by the Plan Sponsor or the Trustee or contained elsewhere in the Plan, and subject to such operating rules and procedures as may be imposed from time to time by the Plan Sponsor, prior to the date on which a direction will become effective, the Participant shall have the right to direct the Plan Sponsor as to how amounts in his or her Account shall be deemed to be invested.

          The value of the Participant’s Account shall be equal to the value of the account maintained under the Trust on behalf of the Participant. As of each valuation date of the Trust, the Participant’s Account will be credited or debited to reflect the Participant’s deemed investments of the Trust. The Participant’s Plan Account will be credited or debited with the increase or decrease in the realizable net asset value or credited interest, as applicable, of the designated deemed investments, as follows. As of each Valuation Date, an amount equal to the net increase or decrease in realizable net asset value or credited interest, as applicable (as determined by the Trustee), of each deemed investment option within the Account since the preceding Valuation Date shall be allocated among all Participants’ Accounts deemed to be

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invested in that investment option in accordance with the ratio which the portion of the Account of each Participant which is deemed to be invested within that investment option, determined as provided herein, bears to the aggregate of all amounts deemed to be invested within that investment option.

     4.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution hereunder, the distribution made hereunder to a Participant or his or her Beneficiary or Beneficiaries shall be charged to such Participant’s Account. Such amounts shall be charged on a pro rata basis against the investment options in which the Participant’s Account is deemed to be invested; provided, however, that such amounts shall be charged first against any money market, fixed income or similar fund in which the Participant’s Account is deemed to be invested.

     4.3 SEPARATE BOOKKEEPING ACCOUNTS. A separate bookkeeping account under the Plan shall be established and maintained by the Plan Sponsor to reflect the Account for each Participant, with bookkeeping sub-accounts to show separately the Participant’s Compensation Deferral Account, the Participant’s Employer Contribution Credit Account and the Participant’s Grandfathered Sub-Account. Each sub-account will separately account for the credits and debits described in Article III.

     4.4 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such limitations as may from time to time be required by law, imposed by the Plan Sponsor or the Trustee or contained elsewhere in the Plan, and subject to such operating rules and procedures as may be imposed from time to time by the Plan Sponsor, prior to and effective for each Designation Date, each Participant may communicate to the Plan Sponsor a direction (in accordance with (a), below) as to how his or her Plan Accounts should be deemed to be invested among such categories of deemed investments as may be made available by the Plan Sponsor hereunder. Such direction shall designate the percentage (in any whole percent multiples) or amount (in any whole dollar multiples) or amount (in any whole dollar multiples) of each portion of the Participant’s Plan Accounts which is requested to be deemed to be invested in such categories of deemed investments, and shall be subject to the following rules:

          (a) Any initial or subsequent deemed investment direction shall be in writing, on a form supplied by and filed with the Plan Sponsor, and/or, as required or permitted by the Plan Sponsor, shall be by oral designation and/or electronic transmission designation. A designation shall be effective as of the Designation Date next following the date the direction is received and accepted by the Plan Sponsor on which it would be reasonably practicable for the Plan Sponsor to effect the designation.

          (b) All amounts credited to the Participant’s Account shall be deemed to be invested in accordance with the then effective deemed investment direction, and as of the Designation Date with respect to any new deemed investment direction, all or a portion of the Participant’s Account at that date shall be reallocated among the designated deemed investment options according to the percentages or amounts specified in the new deemed investment direction unless and until a subsequent deemed investment direction shall be filed and become effective. An election concerning deemed investment choices shall continue indefinitely as provided in the Participant’s most recent Participant Enrollment and Election Form, or other form specified by the Plan Sponsor.

          (c) If the Plan Sponsor receives an initial or revised deemed investment direction which it deems to be incomplete, unclear or improper, the Participant’s investment direction then in effect shall remain in effect (or, in the case of a deficiency in an initial deemed investment direction, the Participant shall be deemed to have filed no deemed investment direction) until the next Designation Date, unless the Plan Sponsor provides for, and permits the application of, corrective action prior thereto.

          (d) If the Plan Sponsor possesses (or is deemed to possess as provided in (c), above) at any time directions as to the deemed investment of less than all of a Participant’s Account, the Participant shall be deemed to have directed that the undesignated portion of the Account be deemed to be invested in a money market, fixed income or similar fund made available under the Plan as determined by the Plan Sponsor in its discretion.

          (e) Each Participant hereunder, as a condition to his or her participation hereunder, agrees to indemnify and hold harmless the Plan Sponsor and its agents and representatives from any losses or damages of any kind relating to the deemed investment of the Participant’s Account hereunder.

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          (f) Each reference in this Section to a Participant shall be deemed to include, where applicable, a reference to a Beneficiary.

     4.5 PAYMENT OF TAXES AND EXPENSES. Expenses, including Trustee fees, associated with the administration or operation of the Plan shall be paid by the Plan Sponsor, unless, in the discretion of the Plan Sponsor, the Plan Sponsor elects to charge such expenses against the appropriate Participant’s Account or Participants’ Accounts. Any taxes (or net operating loss reductions) allocable to an Account (or portion thereof) maintained under the Plan which arise prior to the complete distribution of the Account, shall be absorbed by the Plan Sponsor, unless, in the discretion of the Plan Sponsor, the Plan Sponsor elects to charge such taxes against the appropriate Participant’s Account or Participants’ Accounts.

ARTICLE V
ENTITLEMENT TO BENEFITS

     5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT/BOARD MEMBERSHIP. On his or her Participant Enrollment and Election Form, a Participant may elect to receive some or all of each year’s deferrals and related earnings on a specific date (the “In-Service Distribution Date”) prior to his or her separation from service, as such term is defined under Code section 409A. Each specific date is deemed an “In-Service Account,” and a maximum of three (3) In-Service Accounts may be established and maintained by each Participant, which will be payable according to the provisions of Article VI. Such payment dates may be extended to later dates so long as elections to so extend the dates are made by the Participant at least twelve (12) months prior to the date on which the distribution is to be made or commence; provided, however, that such payment dates may not be accelerated and must commence no less than five (5) years after the original distribution was to commence.

          Alternatively, on his or her Participant Enrollment and Election Form, a Participant may select payment or commencement of payment of his or her vested Account (or a sub-account thereof) to be made after his or her separation from service with the Employer or, with respect to any non-employee Participant, upon his or her termination of Board membership. An election to have payment commence after the Participant’s separation from service shall be deemed a “Termination Account,” which will be payable according to the provisions of Article VI. Any Participant who is employed as an employee of the Employer and who also is a director of the Board, and who ceases his or her employment, but retains membership on the Board, shall not be deemed to have separated from service hereunder.

     5.2 UNFORESEEABLE EMERGENCY DISTRIBUTIONS. In the event of an Unforeseeable Emergency of the Participant, as hereinafter defined, the Participant may apply to the Plan Sponsor for the distribution of all or any part of his or her vested Account. The Plan Sponsor shall consider the circumstances of each such case, and the best interests of the Participant and his or her family, and shall have the right, in its sole discretion, if applicable, to allow such distribution, or, if applicable, to direct a distribution of part of the amount requested, or to refuse to allow any distribution. Upon a finding of Unforeseeable Emergency, the Plan Sponsor shall make the appropriate distribution to the Participant from the Participant’s vested Account. In no event shall the aggregate amount of the distribution exceed either the full value of the Participant’s vested Account or the amount necessary to meet the needs of the Participant’s Unforeseeable Emergency (which Unforeseeable Emergency may be considered to include any taxes due because of the distribution occurring because of this Section), and which is not reasonably available from other resources of the Participant, including, but not limited to, reimbursement or compensation from insurance or liquidation of assets if such liquidation itself would not result in severe financial hardship. For purposes of this Section, the value of the Participant’s vested Account shall be determined as of the date of the distribution.

          “Unforeseeable Emergency” means (a) a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant, of the Participant’s spouse or of a dependent (as defined in Code section 152(a)) of the Participant, (b) loss of the Participant’s property due to casualty, or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, each as determined to exist by the Plan Sponsor.

     5.3 RE-EMPLOYMENT/BOARD MEMBERSHIP OF RECIPIENT. If a Participant receiving installment distributions pursuant to Section 6.2 is re-employed by the Employer (or again becomes a Board member), the remaining distributions due to the Participant shall be suspended until such time as the Participant (or his or her Beneficiary) once

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again becomes eligible for benefits under Section 5.1 or 5.2, at which time such distribution shall commence, subject to the limitations and conditions contained in this Plan.

     5.4 VESTING. A Participant shall at all times be one hundred percent (100%) vested in amounts credited to his or her Compensation Deferral Account.

          With respect to amounts credited to a Participant’s Employer Contribution Credit Account, such amounts shall vest according to the following schedule:

Years of Service	Vested Percentage
Less than 1		0	%
1 but less than 2		20	%
2 but less than 3		40	%
3 but less than 4		60	%
4 but less than 5		80	%
5 or more		100	%

          For purposes of this Section 5.4, a “year of service” shall mean (i) any Plan Year during which a Participant is employed by the Employer (i.e., the Participant is on the Employer’s payroll) on a full-time basis for any full six (6) months and remains employed by the Employer as of the last day of that Plan Year; and (ii) any calendar year before the Effective Date during which a Participant was employed by the Employer, Interstate Hotels Corporation, Continental Design & Supplies Company, LLC, Crossroads Hospitality Company, LLC, Colony Hotels and Resorts Company or Interstate Hotels Company on a full-time basis for any full six (6) months and remained employed by that employer as of the last day of that calendar year. Notwithstanding anything above that may suggest otherwise, in no event shall more than one (1) year of service be credited to a Participant with respect to the 2002 calendar year during which the Plan was established.

          Notwithstanding the foregoing, if a Participant separates from service because of death, Disability or Retirement, or if there occurs a Change in Control, the Participant shall become one hundred percent (100%) vested in his or her Employer Contribution Credit Account. If a Participant separates from service for any other reason, he or she shall remain vested in his or her Employer Contribution Credit Account, if at all, under the vesting schedule set forth above.

     5.5 GRANDFATHERED SUB-ACCOUNTS. Notwithstanding anything to the contrary in the Plan, solely with respect to Grandfathered Sub-Accounts, the rules relating to a Participant’s or Beneficiary’s entitlement to benefits shall continue as they were in effect immediately prior to January 1, 2005.

ARTICLE VI
DISTRIBUTION OF BENEFITS

     6.1 AMOUNT. A Participant (or his or her Beneficiary) shall become entitled to receive, on or about the date or dates selected by the Participant on his or her Participant Enrollment and Election Form or, if none, on or about the date of the Participant’s termination of employment (or Board membership, as applicable) (or earlier as provided in Article V or in Section 6.4), a distribution in an aggregate amount equal to the Participant’s vested Account. Any payment due hereunder will be paid by the Plan Sponsor from its general assets or from the Trust, if any.

     6.2 METHOD OF PAYMENT.

          (a) Medium of Payment. Payments under the Plan shall be made in cash.

          (b) Timing and Manner of Payment. In the case of a Participant’s In-Service Account, payment of the vested portion of such Account shall be made in a lump sum in cash as soon as is administratively feasible following the payment fixed date selected for the In-Service Account. Notwithstanding the preceding, a Participant who selects payment under an In-Service Account shall receive payment of the vested portion of the In-Service Account at the

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earlier of such fixed payment date (as extended, if applicable) or his or her separation from service with the Employer or, with respect to non-employee Participants, upon his or her termination of Board membership.

               In the case of a Participant’s Termination Account, payment of the vested portion of such Account shall be made in a lump sum or in five (5) substantially equal annual installments (adjusted for gains, losses and expenses), as selected by the Participant on his or her applicable Participant Enrollment and Election Form.

               If a Participant fails to designate properly the manner of payment of the Participant’s benefit under the Plan, such payment will be in a lump sum as a Termination Account.

               An In-Service Account payable in connection with a participant’s separation from service and any Participant’s Termination Account shall be paid (or, in the case of a Termination Account, paid or commenced) as soon as is administratively feasible following the Participant’s separation from service; provided, however, that in the case of a Key Employee payment shall be made or commenced under the applicable form as soon as is administratively feasible following the six month anniversary of the Participant’s separation from service, unless payment is being made on account of death.

               If the whole or any part of a payment hereunder by the Plan Sponsor is to be in installments, the total to be so paid shall continue to be deemed to be invested pursuant to Sections 4.1 and 4.4 under such procedures as the Plan Sponsor may establish, in which case any deemed income, gain, loss or expense attributable thereto (as determined by the Plan Sponsor, in its discretion) shall be reflected in the installment payments, in such equitable manner as the Plan Sponsor shall determine.

               In all events, to the extent required under Code Section 409A(a)(2)(B)(i), the payment to a Key Employee shall not be distributed earlier than 6 months after the date of the Key Employee’s separation from service.

     6.3 DEATH OR DISABILITY BENEFITS. If a Participant dies or experiences a Disability before separating from service (or Board membership, as applicable) with the Employer, the entire value of the Participant’s Account shall become fully vested and shall be paid, as provided in Section 6.2, to the Participant, or, in the case of the death, to the person or persons designated in accordance with Section 7.1.

          Upon the death of a Participant after payments hereunder have begun but before he or she has received all payments to which he or she is entitled under the Plan, the remaining benefit payments shall be paid to the person or persons designated in accordance with Section 7.1, in the manner in which such benefits were payable to the Participant, unless the Plan Sponsor elects a more rapid form of distribution.

     6.4 CHANGE IN CONTROL. Notwithstanding anything herein to the contrary, upon a Change in Control, each Participant shall become entitled to receive the entire balance of his or her Account in a single lump sum payment on the thirtieth (30^th) day following the Change in Control (or as soon thereafter as is administratively feasible).

     6.5 GRANDFATHERED SUB-ACCOUNTS. Notwithstanding anything to the contrary in the Plan, solely with respect to Grandfathered Sub-Accounts, the rules relating to a Participant’s or Beneficiary’s distribution of benefits shall continue as they were in effect immediately prior to January 1, 2005.

ARTICLE VII
BENEFICIARY & PARTICIPANT DATA

     7.1 DESIGNATION OF BENEFICIARIES. Each Participant from time to time may designate any person or persons (who may be named contingently or successively) to receive such benefits as may be payable under the Plan upon or after the Participant’s death, and such designation may be changed from time to time by the Participant by filing a new designation. Each designation will revoke all prior designations by the same Participant, shall be in the form prescribed by the Plan Sponsor, and will be effective only when filed in writing with the Plan Sponsor during the Participant’s lifetime.

9

          In the absence of a valid Beneficiary designation, or if, at the time any benefit payment is due to a Beneficiary, there is no living Beneficiary validly named by the Participant, the Plan Sponsor shall pay any such benefit payment to the Participant’s spouse, if then living, but otherwise to the Participant’s estate.

     7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES; INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement or notice addressed to a Participant or to a Beneficiary at his or her last post office address as shown on the Plan Sponsor’s records, shall be binding on the Participant or Beneficiary for all purposes of the Plan. Neither the Trustee nor the Plan Sponsor shall be obliged to search for any Participant or Beneficiary beyond the sending of a registered letter to such last known address. If the Plan Sponsor notifies any Participant or Beneficiary that he or she is entitled to an amount under the Plan and the Participant or Beneficiary fails to claim such amount or make his or her location known to the Plan Sponsor within three (3) years thereafter, then, except as otherwise required by law, if the location of one or more of the next of kin of the Participant is known to the Plan Sponsor, the Plan Sponsor may direct distribution of such amount to any one or more or all of such next of kin, and in such proportions as the Plan Sponsor determines. If the location of none of the foregoing persons can be determined, the Plan Sponsor shall have the right to direct that the amount payable shall be deemed to be a forfeiture and paid to the Plan Sponsor, except that the dollar amount of the forfeiture, unadjusted for deemed gains or losses in the interim, shall be paid by the Plan Sponsor if a claim for the benefit subsequently is made by the Participant or the Beneficiary to whom it was payable. If a benefit payable to an unlocated Participant or Beneficiary is subject to escheat pursuant to applicable state law, neither the Trustee nor the Plan Sponsor shall be liable to any person for any payment made in accordance with such law.

ARTICLE VIII
ADMINISTRATION AND RECORDKEEPING

     8.1 ADMINISTRATIVE AND RECORDKEEPING AUTHORITY. Except as otherwise specifically provided herein, the Plan Sponsor shall have the sole responsibility for and the sole control of the operation, administration and recordkeeping of the Plan, and shall have the power and authority to take all action and to make all decisions and interpretations which may be necessary or appropriate in order to administer and operate the Plan, including, without limiting the generality of the foregoing, the power, duty and responsibility to:

          (a) Resolve and determine all disputes or questions arising under the Plan, including the power to determine the rights of Participants and Beneficiaries, and their respective benefits, and to remedy any ambiguities, inconsistencies or omissions, in the Plan.

          (b) Adopt such rules of procedure and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan.

          (c) Implement the Plan in accordance with its terms and the rules and regulations adopted as above.

          (d) Subject to Section 9.1, make determinations concerning the crediting and distribution of Participants’ benefits.

     8.2 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or operation of the Plan discretionary actions by the Employer or the Plan Sponsor are required or permitted, such action shall be consistently and uniformly applied to all persons similarly situated, and no such action shall be taken which shall discriminate in favor of any particular person or group of persons.

     8.3 LITIGATION. In any action or judicial proceeding affecting the Plan, it shall be necessary to join as a party only the Plan Sponsor. Except as may be otherwise required by law, no Participant or Beneficiary shall be entitled to any notice or service of process, and any final judgment entered in such action shall be binding on all persons interested in, or claiming under, the Plan.

     8.4 CLAIMS PROCEDURE. This Section 8.4 is based on final regulations issued by the Department of Labor and published in the Federal Register on November 21, 2000 and codified at section 2560.503-1 of the Department

10

of Labor Regulations. If any provision of this Section 8.4 conflicts with the requirements of those regulations, the requirements of those regulations will prevail.

          (a) Initial Claim. A Participant or Beneficiary (hereinafter referred to as a “Claimant”) who believes he or she is entitled to any Plan benefit under this Plan may file a claim with the Plan Sponsor. The Plan Sponsor shall review the claim itself or appoint an individual or an entity to review the claim.

               The Claimant shall be notified within ninety (90) days after the claim is filed whether the claim is allowed or denied, unless the Claimant receives written notice from the Plan Sponsor or appointee of the Plan Sponsor prior to the end of the ninety (90) day period stating that special circumstances require an extension of the time for decision, such extension not to extend beyond the day which is one hundred eighty (180) days after the day the claim is filed.

               If the Plan Sponsor denies a claim, it must provide to the Claimant, in writing or by electronic communication:

               (i) The specific reasons for the denial;

               (ii) A reference to the Plan provision upon which the denial is based;

               (iii) A description of any additional information or material that the Claimant must provide in order to perfect the claim;

               (iv) An explanation of why such additional material or information is necessary;

               (v) Notice that the Claimant has a right to request a review of the claim denial and information on the steps to be taken if the Claimant wishes to request a review of the claim denial; and

               (vi) A statement of the Claimant’s right to bring a civil action under ERISA section 502(a) following a denial on review of the initial denial.

          (b) Review Procedures. A request for review of a denied claim must be made in writing to the Plan Sponsor within sixty (60) days after receiving notice of denial. The decision upon review will be made within sixty (60) days after the Plan Sponsor’s receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision will be rendered not later than one hundred twenty (120) days after receipt of a request for review. A notice of such an extension must be provided to the Claimant within the initial sixty (60) day period and must explain the special circumstances and provide an expected date of decision.

               The reviewer shall afford the Claimant an opportunity to review and receive, without charge, all relevant documents, information and records and to submit issues and comments in writing to the Plan Sponsor. The reviewer shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim regardless of whether the information was submitted or considered in the initial benefit determination.

               Upon completion of its review of an adverse initial claim determination, the Plan Sponsor will give the Claimant, in writing or by electronic notification, a notice containing:

               (i) its decision;

               (ii) the specific reasons for the decision;

               (iii) the relevant Plan provisions on which its decision is based;

11

               (iv) a statement that the Claimant is entitled to receive, upon request and without charge, reasonable access to, and copies of, all documents, records and other information in the Plan’s files which is relevant to the Claimant’s claim for benefits; and

               (v) a statement describing the Claimant’s right to bring an action for judicial review under ERISA section 502(a).

          (c) Calculation of Time Periods. For purposes of the time periods specified in this Section, the period of time during which a benefit determination is required to be made begins at the time a claim is filed in accordance with the Plan procedures without regard to whether all the information necessary to make a decision accompanies the claim. If a period of time is extended due to a Claimant’s failure to submit all information necessary, the period for making the determination shall be tolled from the date the notification is sent to the Claimant until the date the Claimant responds.

          (d) Failure of Plan to Follow Procedures. If the Plan fails to follow the claims procedures required by this Section, a Claimant shall be deemed to have exhausted the administrative remedies available under the Plan and shall be entitled to pursue any available remedy under ERISA section 502(a) on the basis that the Plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

ARTICLE IX
AMENDMENT

     9.1 RIGHT TO AMEND. The Plan Sponsor, by action of the Committee or other designee of the Board, shall have the right to amend the Plan at any time and with respect to any provisions hereof, and all parties hereto or claiming any interest hereunder shall be bound by such amendment; provided, however, that no such amendment shall deprive any Participant or Beneficiary of a right accrued hereunder prior to the date of the amendment.

     9.2 AMENDMENT TO ENSURE PROPER CHARACTERIZATION OF THE PLAN. Notwithstanding the provisions of Section 9.1, the Plan may be amended at any time, retroactively if required, if found necessary, in the opinion of the Plan Sponsor, in order to ensure that the Plan is characterized as a non-tax-qualified “top hat” plan of deferred compensation maintained for a select group of management or highly compensated employees, as described under ERISA sections 201(2), 301(a)(3) and 401(a)(1) and to conform the Plan and the Trust to the provisions and requirements of any applicable law (including ERISA and the Code).

     9.3 CHANGES IN LAW AFFECTING TAXABILITY. This Section shall become operative upon the enactment of any change in applicable statutory law or the promulgation by the Internal Revenue Service of a final regulation or other pronouncement having the force of law, which statutory law, as changed, or final regulation or pronouncement, as promulgated, would cause any Participant to include in his or her federal gross income amounts accrued by the Participant under the Plan on a date (an “Early Taxation Event”) prior to the date on which such amounts are made available to him or her hereunder.

          (a) Affected Right or Feature Nullified. Notwithstanding any other Section of this Plan to the contrary (but subject to subsection (b), below), as of an Early Taxation Event, the feature or features of this Plan that would cause the Early Taxation Event shall be null and void, to the extent, and only to the extent, required to prevent the Participant from being required to include in his or her federal gross income amounts accrued by the Participant under the Plan prior to the date on which such amounts are made available to him or her hereunder. If only a portion of a Participant’s Account is impacted by the change in the law, then only such portion shall be subject to this Section, with the remainder of the Account not so affected being subject to such rights and features as if the law were not changed. If the law only impacts Participants who have a certain status with respect to the Employer, then only such Participants shall be subject to this Section.

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ARTICLE X
TERMINATION

     10.1 PLAN SPONSOR’S RIGHT TO TERMINATE PLAN. The Plan Sponsor reserves the right, at any time, to terminate the Plan and/or its obligation to make further credits to Plan Accounts by unanimous action of the Committee or other designee of the Board; provided, however, that no such termination shall deprive any Participant or Beneficiary of a right accrued hereunder prior to the date of termination and provided that, upon termination, the full amount of each Participant’s Plan account(s) shall become immediately distributable to him or her.

     10.2 SUCCESSOR TO PLAN SPONSOR. Any corporation or other business organization which is a successor to the Plan Sponsor by reason of a consolidation, merger or purchase of substantially all of the assets of the Plan Sponsor shall have the right to become a party to the Plan by adopting the same by resolution of the entity’s board of directors or other appropriate governing body. If, within thirty (30) days from the effective date of such consolidation, merger or sale of assets, such new entity does not become a party hereto, as above provided, the Plan shall be terminated automatically, and the provisions of the foregoing Sections shall become operative.

ARTICLE XI
MISCELLANEOUS

     11.1 LIMITATIONS ON LIABILITY OF PLAN SPONSOR AND EMPLOYER. Neither the establishment of the Plan nor any modification hereof, nor the creation of any account under the Plan, nor the payment of any benefits under the Plan, shall be construed as giving to any Participant or any other person any legal or equitable right against the Plan Sponsor or the Employer or any officer or employee thereof, except as provided by law or by any Plan provision. The Plan Sponsor and Employer do not in any way guarantee any Participant’s Account from loss or depreciation, whether caused by poor investment performance of a deemed investment or the inability to realize upon an investment due to an insolvency affecting an investment vehicle or any other reason. In no event shall the Plan Sponsor or the Employer, or any successor, employee, officer, director or stockholder of the Plan Sponsor or the Employer, be liable to any person on account of any claim arising by reason of the provisions of the Plan or of any instrument or instruments implementing its provisions, or for the failure of any Participant, Beneficiary or other person to be entitled to any particular tax consequences with respect to the Plan, or any credit or distribution hereunder.

     11.2 CONSTRUCTION. If any provision of the Plan is held to be illegal or void, such illegality or invalidity shall not affect the remaining provisions of the Plan, but shall be fully severable, and the Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. For all purposes of the Plan, where the context permits, the singular shall include the plural, and the plural shall include the singular. Headings of Articles and Sections herein are inserted only for convenience of reference and are not to be considered in the construction of the Plan. The laws of Delaware shall govern, control and determine all questions of law arising with respect to the Plan and the interpretation and validity of its respective provisions, except where those laws are preempted by the laws of the United States. Participation under the Plan will not give a Participant the right to be retained in the service of the Employer nor any right or claim to any benefit under the Plan unless such right or claim has specifically accrued hereunder.

          The Plan is intended to be and at all times shall be interpreted and administered so as to qualify as an unfunded plan of deferred compensation, and no provision of this Plan shall be interpreted so as to give any individual any right in any assets of the Plan Sponsor which right is greater than the rights of any general unsecured creditor of the Plan Sponsor.

     11.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or any Beneficiary under the Plan will, except as otherwise specifically provided by law, be subject in any manner to anticipation, alienation, attachment, garnishment, sale, transfer, assignment (either at law or in equity), levy, execution, pledge, encumbrance, charge or any other legal or equitable process, and any attempt to do so will be void; nor will any benefit hereunder be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled thereto. Further, (a) the withholding of taxes from Plan benefit payments, (b) the recovery under the Plan of overpayments of benefits previously made to a Participant or any Beneficiary, (c) if applicable, the transfer of benefit rights from the Plan to another plan, or

13

     (d) the direct deposit of Plan benefit payments to an account in a banking institution (if not actually part of an arrangement constituting an assignment or alienation) shall not be construed as an assignment or alienation.

          In the event that a Participant’s or any Beneficiary’s benefits hereunder are garnished or attached by order of any court, the Plan Sponsor may bring an action for a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be paid under the Plan. During the pendency of said action, any benefits that become payable shall be held as credits to a Participant’s or Beneficiary’s Account or, if the Plan Sponsor prefers, paid into the court as they become payable, to be distributed by the court to the recipient as it deems proper at the close of said action.

ARTICLE XII
THE TRUST

     12.1 ESTABLISHMENT OF TRUST. The Plan Sponsor may, but need not, establish the Trust with the Trustee pursuant to such terms and conditions as are set forth in the Trust agreement to be entered into between the Plan Sponsor and the Trustee. The Trust is intended to be treated as a “grantor” trust under the Code and the establishment of the Trust is not intended to cause the Participant to realize current income on amounts contributed thereto nor to cause the Plan to be “funded” within the meaning of ERISA, and the Trust shall be so interpreted.

     IN WITNESS WHEREOF, the Plan Sponsor has caused this amended and restated Plan to be executed and its seal to be affixed hereto, effective as of the 1st day of January, 2005.

ATTEST/WITNESS:		INTERSTATE HOTELS & RESORTS, INC.
/s/ Dan O’Neil		By:	/s/ Christopher L. Bennett
Print Name:	Dan O’Neil	Print Name:	Christopher L. Bennett
	Benefits Manager		Executive Vice President &
			General Counsel
		Date:	December 21, 2006

14

EX-10.14

Exhibit 10.14

AGREEMENT OF PURCHASE AND SALE

between

CAPSTAR WESTCHASE PARTNERS, L.P., the SELLER

and

INTERSTATE WESTCHASE, LP, the BUYER

Dated as of January 4, 2007

Hilton Westchase, Houston, Texas

TABLE OF CONTENTS

	Page
ARTICLE I. DEFINITIONS		2
SECTION 1.1 Defined Terms		2
ARTICLE II. SALE, PURCHASE PRICE AND CLOSING		2
SECTION 2.1 Sale of Asset		2
SECTION 2.2 Purchase Price		2
SECTION 2.3 Earnest Money		2
SECTION 2.4 The Closing		2
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER		2
SECTION 3.1 General Seller Representations and Warranties		2
SECTION 3.2 Representations and Warranties of the Seller as to the Asset		2
SECTION 3.3 Limitations on Representations and Warranties of the Seller		2
SECTION 3.4 Covenants of the Seller Prior to Closing		2
SECTION 3.5 Amendment to Schedules		2
ARTICLE IV. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER		2
SECTION 4.1 Representations and Warranties of the Buyer		2
SECTION 4.2 Covenants of the Buyer Prior to Closing		2
SECTION 4.3 Employee Matters		2
SECTION 4.4 Bookings		2
SECTION 4.5 Franchise Agreement		2
SECTION 4.6 Manager Defaults		2
SECTION 4.7 Tax Clearance Certificates; Etc		2
ARTICLE V. CONDITIONS PRECEDENT TO CLOSING		2
SECTION 5.1 Conditions Precedent to the Seller’s Obligations		2
SECTION 5.2 Conditions to the Buyer’s Obligations		2
SECTION 5.3 Waiver of Conditions Precedent		2
ARTICLE VI. CLOSING DELIVERIES		2
SECTION 6.1 The Buyer Closing Deliveries		2
SECTION 6.2 The Seller Closing Deliveries		2
ARTICLE VII. INSPECTIONS; RELEASE		2
SECTION 7.1 Right of Inspection		2
SECTION 7.2 Examination; No Contingencies		2
SECTION 7.3 RELEASE		2
ARTICLE VIII. TITLE AND PERMITTED EXCEPTIONS		2
SECTION 8.1 Title Insurance and Survey		2
SECTION 8.2 Title Commitment; Survey		2
SECTION 8.3 Delivery of Title		2
SECTION 8.4 Cooperation		2

-i-

	Page
ARTICLE IX. TRANSACTION COSTS; RISK OF LOSS		2
SECTION 9.1 Transaction Costs		2
SECTION 9.2 Risk of Loss		2
ARTICLE X. ADJUSTMENTS		2
SECTION 10.1 Adjustments		2
SECTION 10.2 Re-Adjustment		2
SECTION 10.3 Accounts Receivable		2
ARTICLE XI. INDEMNIFICATION		2
SECTION 11.1 Indemnification by the Seller		2
SECTION 11.2 Indemnification by the Buyer		2
SECTION 11.3 Limitations on Indemnification		2
SECTION 11.4 Survival		2
SECTION 11.5 Indemnification as Sole Remedy		2
ARTICLE XII. DEFAULT AND TERMINATION		2
SECTION 12.1 The Seller’s Termination		2
SECTION 12.2 The Buyer’s Termination		2
ARTICLE XIII. TAX CERTIORARI PROCEEDINGS		2
SECTION 13.1 Prosecution and Settlement of Proceedings		2
SECTION 13.2 Application of Refunds or Savings		2
SECTION 13.3 Survival		2
ARTICLE XIV. MISCELLANEOUS		2
SECTION 14.1 Use of Blackstone Name and Address		2
SECTION 14.2 Exculpation of the Seller		2
SECTION 14.3 Brokers		2
SECTION 14.4 Confidentiality; Press Release; IRS Reporting Requirements		2
SECTION 14.5 Escrow Provisions		2
SECTION 14.6 Successors and Assigns; No Third-Party Beneficiaries		2
SECTION 14.7 Assignment		2
SECTION 14.8 Further Assurances		2
SECTION 14.9 Notices		2
SECTION 14.10 Entire Agreement		2
SECTION 14.11 Amendments		2
SECTION 14.12 No Waiver		2
SECTION 14.13 Governing Law		2
SECTION 14.14 Intentionally Omitted		2
SECTION 14.15 Severability		2
SECTION 14.16 Section Headings		2
SECTION 14.17 Counterparts		2
SECTION 14.18 Acceptance of Deed		2
SECTION 14.19 Construction		2
SECTION 14.20 Recordation		2
SECTION 14.21 WAIVER OF JURY TRIAL		2
SECTION 14.22 Time is of the Essence		2
SECTION 14.23 Bulk Sale; Occasional Sale		2
SECTION 14.24 STORAGE TANKS		2

-ii-

Schedules
Schedule A	—	Land
Schedule 1.1	—	Title Commitment
Schedule 3.1(c)	—	Consents
Schedule 3.2(a)	—	Operating Agreements
Schedule 3.2(c)	—	Tenant Leases
Schedule 3.2(d)	—	Brokerage Commissions
Schedule 3.2(f)	—	Litigation
Schedule 3.2(g)	—	Bookings
Schedule 10.4	—	Interstate Payment
Exhibits
Exhibit A	—	Form of Assignment of Leases
Exhibit B	—	Form of Assignment of Contracts
Exhibit C	—	Form of Special Warranty Deed
Exhibit D	—	Form of Bill of Sale
Exhibit E	—	Form of Assignment of Intangibles
Exhibit F	—	Form of FIRPTA Certificate
Exhibit G	—	Form of Title Affidavit
Exhibit H	—	Form of Memorandum of Sale

-iii-

AGREEMENT OF PURCHASE AND SALE

     AGREEMENT OF PURCHASE AND SALE (this “Agreement”), made as of the 4th day of January, 2007 between CAPSTAR WESTCHASE PARTNERS, L.P., a Delaware limited partnership (the “Seller”), and INTERSTATE WESTCHASE, LP, a Delaware limited partnership (the “Buyer”).

Background

     A. The Seller is the owner of the land more particularly described in Schedule A attached hereto (the “Land”). The Seller is also the owner of the hotel facility located on the Land having an address at 9999 Westheimer, Houston, Texas and commonly known as the “Hilton Houston Westchase” (the “Hotel”). The Land and the Hotel shall be referred to herein, collectively, as the “Property”; the Property and the Asset-Related Property (as defined below) shall be referred to herein as the “Asset”.

     B. The Seller desires to sell to the Buyer, and the Buyer desires to purchase from the Seller, the Asset on the terms and conditions hereinafter set forth.

AGREEMENT

     NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

ARTICLE I.

DEFINITIONS

         SECTION 1.1 Defined Terms. The capitalized terms used herein will have the following meanings.

     “Accounts Receivable” means all amounts which the Seller is entitled to receive from the operation of the Hotel, but are not paid as of the Closing, including, without limitation, charges for the use or occupancy of any guest, conference, meeting or banquet rooms or other facilities at the Hotel, or any other goods or services provided by or on behalf of the Seller at the Hotel, but expressly excluding any credit card charges and checks which the Seller has submitted for payment as of the Closing.

     “Agreement” shall mean this Agreement of Purchase and Sale, together with the exhibits and schedules attached hereto, as the same may be amended, restated, supplemented or otherwise modified.

     “Allocation” shall have the meaning assigned thereto in subsection 2.2(c).

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     “Anti-Money Laundering and Anti-Terrorism Laws” shall have the meaning assigned thereto in subsection 3.1(f)(i).

     “Asset” shall have the meaning assigned thereto in “Background” paragraph A.

     “Asset File” shall mean the materials with respect to the Asset previously delivered to the Buyer or its representatives by or on behalf of the Seller or made available to the Buyer at the Property or in Manager’s possession.

     “Asset-Related Property” shall have the meaning assigned thereto in subsection 2.1(b).

     “Assigned Accounts Receivable” shall have the meaning assigned thereto in subsection 10.3(b)(i).

     “Assignment of Contracts” shall have the meaning assigned thereto in subsection 6.1(a)(ii).

     “Assignment of Intangibles” shall have the meaning assigned thereto in subsection 6.2(a)(v).

     “Assignment of Leases” shall have the meaning assigned thereto in subsection 6.1(a)(i).

     “Basket Limitation” shall mean an amount equal to $100,000.

     “Bill of Sale” shall have the meaning assigned thereto in subsection 6.2(a)(ii).

     “Bookings” shall have the meaning assigned thereto in subsection 2.1(b)(viii).

     “Books and Records” shall have the meaning assigned thereto in subsection 2.1(b)(xvi).

     “Broker” shall mean Jones Lang LaSalle Americas, Inc., a Maryland corporation.

     “Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks are authorized or required by law to be closed in New York City, New York.

     “Buyer” shall have the meaning assigned thereto in the Preamble to this Agreement.

     “Buyer-Related Entities” shall have the meaning assigned thereto in Section 11.1.

     “Buyer’s Knowledge” shall mean the actual knowledge of the Buyer based upon the actual knowledge of Leslie Ng, David Lee and Christopher Bennett without any duty on the part of such Person to conduct any independent investigation or make any inquiry of any Person.

     “Buyer Waived Breach” shall have the meaning assigned thereto in 11.3.

5

     “Cap Limitation” shall mean an amount equal to $2,100,000.

     “Claims” shall have the meaning assigned thereto in Section 7.3.

     “Closing” shall have the meaning assigned thereto in subsection 2.4(a).

     “Closing Date” shall have the meaning assigned thereto in subsection 2.4(a).

     “Closing Documents” shall mean any certificate, assignment, instrument or other document delivered pursuant to this Agreement.

     “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code shall mean, where appropriate, the corresponding provision in any successor statute.

     “Condition of the Asset” shall have the meaning assigned thereto in subsection 7.2(b).

     “Cut-Off Time” shall have the meaning assigned thereto in subsection 10.1.

     “Deed” shall have the meaning assigned thereto in subsection 6.2(a)(i).

     “Earnest Money” shall have the meaning assigned thereto in subsection 2.3(a).

     “Employees” shall mean, at any time, all persons who are employed by the Seller or Manager (whether on a full-time or part-time basis) at the Hotel at such time to operate the Hotel.

     “Environmental Laws” shall have the meaning assigned thereto in subsection 3.2(h).

     “Equipment Leases” shall have the meaning assigned thereto in subsection 2.1(b)(vii).

     “Escrow Account” shall have the meaning assigned thereto in subsection 14.5(a).

     “Escrow Agent” shall have the meaning assigned thereto in subsection 2.3(a).

     “Executive Order” shall have the meaning assigned thereto in subsection 3.1(f)(i).

     “Existing Survey” shall mean that certain survey of the Property prepared by Clark Surveying Inc., CSI Job No. 06-09-0168-000, dated October 23, 2006, last revised October 31, 2006.

     “Extension Option” shall have the meaning assigned thereto in subsection 2.4(b).

     “FIRPTA” shall have the meaning assigned thereto in subsection 6.2(a)(vii).

     “Financing Liens” shall have the meaning assigned thereto in subsection 8.3(a).

6

     “FF&E” shall have the meaning assigned thereto in subsection 2.1(b)(ii).

     “Franchise Agreement” shall mean that certain Amended and Restated Franchise License Agreement dated May 2,2006 by and between Franchisor and the Seller.

     “Franchisor” shall mean Hilton Inns, Inc., a Delaware corporation.

     “Governmental Authority” shall mean any federal, state or local government or other political subdivision thereof, including, without limitation, any agency or entity exercising executive, legislative, judicial, regulatory or administrative governmental powers or functions, in each case to the extent the same has jurisdiction over the Person or property in question.

     “Government List” shall mean any of (i) the two lists maintained by the United States Department of Commerce (Denied Persons and Entities), (ii) the list maintained by the United States Department of Treasury (Specially Designated Nationals and Blocked Persons), and (iii) the two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties).

     “Guest Ledger” means any and all charges accrued to the open accounts of any guests or customers at the Hotel as of the Cut-Off Time for the use and occupancy of any guest, conference, meeting or banquet rooms or other facilities at the Hotel, any restaurant, bar or banquet services, or any other goods or services provided by or on behalf of the Seller.

     “Hazardous Materials” shall have the meaning assigned thereto in subsection 7.2(b)(i).

     “Hotel” shall have the meaning assigned thereto in “Background” paragraph A.

     “Intangible Property” shall have the meaning assigned thereto in subsection 2.1 (b)(xiii).

     “Inventories” shall have the meaning assigned thereto in subsection 2.1(b)(xi).

     “IRS” shall mean the Internal Revenue Service.

     “IRS Reporting Requirements” shall have the meaning assigned thereto in subsection 14.4(c).

     “Land” shall have the meaning assigned thereto in “Background” paragraph A.

     “Licenses and Permits” shall have the meaning assigned thereto in subsection 2.1(b)(iii).

     “Liquor Holder” shall have the meaning assigned thereto in subsection 4.2(a)(ii).

     “Liquor Authorities” shall have the meaning assigned thereto in subsection 4.2(a)(iii).

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     “Memorandum of Sale” shall have the meaning assigned thereto in subsection 4.2(a)(ii).

     “Losses” shall have the meaning assigned thereto in Section 11.1.

     “Management Agreement” shall mean that certain Hotel Management Agreement, which is dated as of January 1, 2001 between MeriStar SPE Leasing Corp. and Manager, as assigned to the Seller pursuant to that certain Assignment and Assumption Agreement dated as of May 2, 2006 among MeriStar CMBS 2005 Lessee, LLC, the Seller and MeriStar Hospitality Operating Partnership, L.P., pursuant to which Manager is to provide management and other services with respect to the Property.

     “Manager” shall mean Interstate Management Company L.L.C., successor in interest to MeriStar Management Company, L.L.C.

     “Material Casualty” shall have the meaning assigned thereto in subsection 9.2(b).

     “Material Condemnation” shall have the meaning assigned thereto in subsection 9.2(b).

     “Miscellaneous Personal Property” shall have the meaning assigned thereto in subsection 2.1(b)(xv).

     “Natural Hazard Expert” shall have the meaning assigned thereto in subsection 7.4(b).

     “Operating Agreements” shall mean all maintenance, service and supply contracts, management agreements, credit card service agreements, booking and reservation agreements, and all other contracts and agreements which are held by the Seller in connection with the operation of the Hotel, other than the Franchise Agreement, the Management Agreement, Tenant Leases, Equipment Leases, the Bookings and Licenses and Permits.

     “Outside Closing Date” shall have the meaning assigned thereto in subsection 4.5(b).

     “Permitted Exceptions” shall mean (i) the items set forth in exceptions 1, 2, 3,4, 5 (subject to the Seller’s and the Buyer’s proration obligations under subsection 10.1(a)) and 6 (but (1) as to 6(b) and (q), limited to only those Tenant Leases as contemplated under clause (iii) below), (2) as to 6(c), subject only to such charges not yet due and payable and subject to Seller’s and the Buyer’s proration obligations under subsection 10.1(o), and (3) as to 6(d) and 6(e), limited only to such matters as are shown on the Existing Survey) in the Title Commitment, (ii) the matters shown on the Existing Survey, (iii) the Tenant Leases set forth in Schedule 3.2(c) attached hereto and the Operating Agreements and any Tenant Leases, Operating Agreements or other contracts entered into after the date hereof, and in accordance with the terms of this Agreement, (iv) liens for current real estate taxes which are not yet due and payable, (v) discrepancies, conflicts in boundary lines, shortages in area, encroachments and any other state of facts as disclosed on a new survey of the property that were not shown on the Existing Survey and that do not have a material adverse effect on the use or value of the Property, (vi) subject to

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the adjustments provided for herein, any service, installation, connection or maintenance charge, and charges for sewer, water, electricity, telephone, cable television or gas first due from and after the Cut-Off Time, (vii) rights of tenants to remove trade fixtures at the expiration of the term of the Tenant Leases of such tenants to the extent set forth in the applicable Tenant Lease, (viii) right of tenants as tenants only under the Tenant Leases permitted in clause (m) above, (ix) laws regulations, resolutions or ordinances, including, without limitation, building, zoning and environmental protection, as to the use, occupancy, subdivision, development, conversion or redevelopment of the Property currently or hereinafter imposed by any governmental or quasi governmental body or authority, and (x) any title exception which is waived by the Buyer pursuant to subsection 8.3(b).

     “Person” shall mean a natural person, partnership, limited partnership, limited liability company, corporation, trust, estate, association, unincorporated association or other entity.

     “Post Effective Date Monetary Encumbrance” shall have the meaning assigned thereto in subsection 8.3(c).

     “Post Effective Date Seller Encumbrance” shall have the meaning assigned thereto in subsection 8.3(a).

     “Property” shall have the meaning assigned thereto in “Background” paragraph A.

     “Property and Equipment” shall have the meaning assigned thereto in subsection 2.1(b)(x).

     “Purchase Price” shall have the meaning assigned thereto in subsection 2.2(a).

     “Releasees” shall have the meaning assigned thereto in Section 7.3.

     “Reporting Person” shall have the meaning assigned thereto in subsection 14.4(c).

     “Retail Merchandise” shall have the meaning assigned thereto in subsection 2.1(b)(xii).

     “Retained Accounts Receivable” shall have the meaning assigned thereto in subsection 10.3(b)(ii)

     “Seller” shall have the meaning assigned thereto in the Preamble to this Agreement.

     “Seller-Related Entities” shall have the meaning assigned thereto in Section 11.2.

     “Seller’s Knowledge” shall mean the actual knowledge of the Seller based upon the actual knowledge of Robert Harper, Kenneth Caplan and Bruce Wiles without any duty on the part of such Person to conduct any independent investigation or make any inquiry of any Person.

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     “Survival Period” shall have the meaning assigned thereto in Section 11.4.

     “Tax Clearance Certificates” shall have the meaning assigned thereto in Section 4.7(a).

     “Tax Liens” shall have the meaning assigned thereto in subsection 8.3(a).

     “Tenant Leases” shall have the meaning assigned thereto in subsection 2.1 (b)(vi).

     “Termination Option” shall have the meaning assigned thereto in subsection 4.5(b).

     “Title Company” shall mean First American Title Insurance Company.

     “Title Commitment” shall mean that certain Owner Pro Forma issued by the Title Company and referred to as GF No. or File No. NCS-268683-DC72 and attached hereto as Schedule 1.1.

     “Title Policy” shall mean a standard form TLTAT-1 Owner’s Policy of Title Insurance without endorsements issued by the Title Company pursuant to the Title Commitment insuring the Buyer’s title to the Property subject only to the Permitted Exceptions in an amount equal to the Purchase Price.

     “Trade Payables” shall have the meaning assigned thereto in subsection 10.1(k).

     “Transferred Employees” shall have the meaning assigned thereto in subsection 4.3(b).

     “UCC” shall mean the Uniform Commercial Code.

     “Uniform System of Accounts” shall have the meaning assigned thereto in subsection 2.1(b)(x).

     “WARN Act” means the Worker’s Adjustment and Retraining Notification Act of 1988, 29 U.S.C. § 2101, et seq., and any similar state and local applicable law, as amended from time to time, and any regulations, rules and guidance issued pursuant thereto.

     “Westchase Estoppel” shall have the meaning assigned thereto in Section 4.7(b).

ARTICLE II.

SALE. PURCHASE PRICE AND CLOSING

          SECTION 2.1 Sale of Asset.

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     (a) On the Closing Date and pursuant to the terms and subject to the conditions set forth in this Agreement, the Seller shall sell to the Buyer, and the Buyer shall purchase from the Seller, the Asset.

     (b) The transfer of the Asset to the Buyer shall include the transfer of all Asset-Related Property. For purposes of this Agreement, “Asset-Related Property” shall mean the following:

     (i) all of the Seller’s right, title and interest in and to all easements, covenants and other rights appurtenant to the Land and all right, title and interest of the Seller, if any, in and to any (A) land lying in the bed of any street, road, avenue or alley, open or closed, in front of or adjoining the Land and to the center line thereof, and (B) unpaid award or payment which may hereafter be payable with respect to any taking by condemnation;

     (ii) all furniture, furnishings, fixtures, vehicles, rugs, mats, carpeting, appliances, devices, engines, telephone and other communications equipment, televisions and other video equipment, plumbing fixtures and other equipment, and all other equipment and other personal property which are now, or may hereafter prior to the Closing Date be, placed in or on or attached to the Property and are used in connection with the operation of the Property (but not including items owned or leased by tenants or which are leased under the Equipment Leases by the Seller or Manager) (the “FF&E”);

     (iii) all of the Seller’s right, title and interest in and to and to the extent transferable under applicable law, all licenses, permits and authorizations presently issued in connection with the operation of all or any part of the Property as it is presently being operated, other than the existing Liquor License (the “Licenses and Permits”);

     (iv) all of the Seller’s right, title and interest in and to and to the extent assignable, all warranties, if any, issued to the Seller by any manufacturer or contractor in connection with construction or installation of equipment or any component of the improvements included as part of the Property or FF&E;

     (v) all of the Seller’s right, title and interest in and to and to the extent assignable all Operating Agreements;

     (vi) all of the Seller’s right, title and interest in and to all leases, subleases, licenses, contracts and other agreements, granting a real property interest to any other Person for the use and occupancy of all or any part of the Property, other than the Bookings (the “Tenant Leases”) and all security and escrow deposits or other security held by or for the benefit of, or granted to the Seller in connection with, such Tenant Leases;

     (vii) all of the Seller’s right, title and interest in and to all leases and purchase money security agreements for any equipment, machinery, vehicles, furniture or other personal property located at the Hotel and used in the operation

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of the Hotel which are held by or on behalf of the Seller (the “Equipment Leases”), together with all deposits made thereunder;

     (viii) all of the Seller’s right, title and interest in and to all bookings and reservations for guest, conference, meeting and banquet rooms or other facilities at the Hotel for dates from and after the Closing Date (the “Bookings”), together with all deposits held by the Seller with respect thereto;

     (ix) all of the Seller’s right, title and interest in and to all Assigned Accounts Receivable as set forth in Section 10.3;

     (x) all items included within the definition of “Property and Equipment” under the Uniform System of Accounts for the Lodging Industry, Ninth Revised Edition, as published by the Hotel Association of New York City, Inc. (the “Uniform System of Accounts”) and used in the operation of the Hotel, including, without limitation, linen, china, glassware, tableware, uniforms and similar items (“Property and Equipment”);

     (xi) all “Inventories” as defined in the Uniform System of Accounts and used in the operation of the Hotel, such as provisions in storerooms, refrigerators, pantries, and kitchens, beverages in wine cellars and bars, other merchandise intended for sale or resale, fuel, mechanical supplies, stationery, guest supplies, maintenance and housekeeping supplies and other expensed supplies and similar items and including all food and beverages which are located at the Hotel, or ordered for future use at the Hotel as of the Closing, but expressly excluding any alcoholic beverages to the extent the sale or transfer of the same is not permitted under applicable law (the “Inventories”);

     (xii) all merchandise located at the Hotel and held for sale to guests and customers of the Hotel, or ordered for future sale at the Hotel as of the Cut-Off Time, but not including any such merchandise owned by any tenant at the Property or by Manager (“Retail Merchandise”);

     (xiii) all of the Seller’s right, title and interest in and to and to the extent the Seller’s rights and interests therein are assignable, all names, tradenames, trademarks, service marks, logos, and other similar proprietary rights and all registrations or applications for registration of such rights to the used by the Seller in the operation of the Hotel (the “Intangible Property”);

     (xiv) Intentionally Omitted;

     (xv) all of the Seller’s right, title and interest in and to and to the extent not included in subsection 2.1(b)(ii) above and to the extent owned by the Seller, the Hotel’s telephone numbers, printed marketing materials and any slides, proofs or drawings used by the Seller to produce such materials, to the extent such slides, proofs or drawings are in the Seller’s possession (“Miscellaneous Personal Property”); and

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     (xvi) to the extent in the Seller’s possession or control, all surveys, architectural, consulting and engineering blueprints, plans and specifications and reports, if any, related to the Hotel, all books and records, if any, related to the Hotel (collectively, “Rooks and Records”), and any goodwill of the Seller related to the Hotel; provided, however, that the Seller may retain a copy of all such books and records.

     (c) Excluded Property. Notwithstanding anything to the contrary in Section 2.1(a) and (b), the property, assets, rights and interests set forth in this subsection 2.1(c) are expressly excluded from the Asset:

     (i) Cash. Except for deposits expressly included in subsections 2.1 (a) and (b) and except for any cash on hand or in house banks for which the Seller receives a credit under subsection 10.1(1), all cash on hand or on deposit in any house bank, operating account or other account maintained in connection with the ownership of the Hotel, including, without limitation, any reserves maintained by the Seller or Manager required by the Management Agreement (subject to subsection 10.1(1)); and

     (ii) Third Party Property. Any fixtures, personal property or equipment owned by (A) the lessor under any Equipment Leases, (B) the supplier or vendor under any other Operating Agreements, (C) the tenant under any Tenant Lease, (D) any Employees, (E) Manager or (F) any guests or customers of the Hotel, including, without limitation, those items set forth on Schedule 2.1(c) attached hereto.

          SECTION 2.2 Purchase Price.

     (a) The consideration for the purchase of the Asset shall be $50,500,000 (the “Purchase Price”), which shall be paid by the Buyer to the Seller at the Closing in immediately available funds by wire transfer to such accounts or accounts that the Seller shall designate to the Buyer; provided that such amount shall be reduced by the Earnest Money and adjusted for Closing adjustments and credits provided for in Article X and elsewhere in the Agreement and the Interstate Payment as described in Article X below.

     (b) No adjustment shall be made to the Purchase Price except as explicitly set forth in this Agreement.

     (c) The Seller and the Buyer agree that the Purchase Price shall be allocated among the Assets as determined by agreement of the parties prior to the Closing for federal, state and local tax purposes in accordance with Section 1060 of the Code. The Buyer shall, within 10 days after the date of this Agreement, prepare and deliver to the Seller for its review a schedule allocating the Purchase Price (and any other items that are required for federal income tax purposes to be treated as part of the purchase price) among the Assets (such schedule, the “Allocation”). The Seller shall review such Allocation and provide any objections to the Buyer within 10 days after the receipt thereof. If the Seller raises any objection to the Allocation, the parties hereto will negotiate in good faith to resolve such objection(s). Upon reaching an

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agreement on the Allocation, the Buyer and the Seller shall (i) cooperate in the filing of any forms (including Form 8594 under Section 1060 of the Code) with respect to the Allocation as finally resolved, including any amendments to such forms required pursuant to this Agreement with respect to any adjustment to the Purchase Price and (ii) shall file all federal, state and local tax returns and related tax documents consistent with such allocation, as the same may be adjusted pursuant to Section 9.1 or any other provisions of this Agreement. Notwithstanding the foregoing, if, after negotiating in good faith, the parties hereto are unable to agree on a mutually satisfactory Allocation, each of the Buyer and the Seller shall use its own allocation for purposes of this subsection 2.2(c).

          SECTION 2.3 Earnest Money.

     (a) On the date hereof, the Buyer shall deposit with the Title Company, as escrow agent (in such capacity, “Escrow Agent”), cash in an amount equal to $2,800,000 (together with all accrued interest thereon, the “Earnest Money”) in immediately available funds by wire to such account as Escrow Agent shall designate to the Buyer. The Earnest Money shall be nonrefundable to the Buyer except as otherwise expressly provided in this Agreement. If the Earnest Money is not deposited by the Buyer by 5:00 p.m. (New York Time) on the date of this Agreement, the Seller shall have the right, in the Seller’s sole and absolute discretion, upon written notice to the Buyer delivered prior to the Buyer’s deposit of the Earnest Money with the Title Company, to terminate this Agreement whereupon neither party hereto shall have any further rights or obligations hereunder except for those that expressly survive the termination of this Agreement.

     (b) Upon delivery by the Buyer to Escrow Agent and upon receipt of an executed form W-9, the Earnest Money will be deposited by Escrow Agent in an interest-bearing account acceptable to the Buyer and the Seller and shall be held in escrow in accordance with the provisions of Section 14.5. All interest earned on the Earnest Money while held by Escrow Agent shall be paid to the party to whom the Earnest Money is paid, except that if the Closing occurs, the Buyer shall receive a credit for such interest in accordance with subsection 2.2(a).

          SECTION 2.4 The Closing.

     (a) The closing of the sale and purchase of the Asset (the “Closing”) shall take place on January 31, 2007 (such date, the “Closing Date”), Time Being Of The Essence with respect to the Buyer’s and the Seller’s obligations hereunder on the Closing Date, subject only to the rights to extend and/or adjourn the Closing Date as are expressly permitted in this Agreement.

     (b) The Buyer shall have the right to extend the Closing Date (as it may have otherwise been extended in accordance with Section 4.5) for up to 15 days (the “Extension Option”) in accordance with the terms of this subsection 2.4(b). In order to exercise the Extension Option, the Buyer must deliver written notice to the Seller and Escrow Agent of such extension no later than two Business Days prior to the then scheduled Closing Date. Notwithstanding the provisions of subsection 2.4(b), the parties agree and acknowledge that in no event shall the Buyer have the right to extend the Closing Date under subsection 2.4(b) beyond the Outside Closing Date. If the Closing Date is extended under any other provision of

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this Agreement, the length of the Extension Option shall be reduced accordingly so that the Closing Date shall not be extended under subsection 2.4(b) beyond the Outside Closing Date.

     (c) The Closing shall be held on the Closing Date at 10:00 A.M. at the offices of the Escrow Agent or at such other location agreed upon by the parties hereto.

     (d) Notwithstanding the provisions of subsection 2.4(b), there shall be no requirement that the Seller and the Buyer physically attend the Closing, and all funds and documents to be delivered at the Closing may be delivered to Escrow Agent unless the parties hereto mutually agree otherwise. The Buyer and the Seller hereby authorize their respective attorneys to execute and deliver to Escrow Agent any additional or supplementary instructions as may be necessary or convenient to implement the terms of this Agreement and facilitate the closing of the transactions contemplated hereby, provided that such instructions are consistent with and merely supplement this Agreement and shall not in any way modify, amend or supersede this Agreement.

ARTICLE III.

     REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER

          SECTION 3.1 General Seller Representations and Warranties. The Seller hereby represents and warrants to the Buyer as follows:

     (a) Formation: Existence. It is a limited partnership, duly formed, validly existing and in good standing under the laws of the State of Delaware and the State of Texas.

     (b) Power and Authority. It has all requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, the sale of the Assets and the consummation of the transactions provided for in this Agreement have been duly authorized by all necessary action on its part. This Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights and by general principles of equity (whether applied in a proceeding at law or in equity).

     (c) No Consents. Except as set forth in Schedule 3.1(c), no consent, license, approval, order, permit or authorization of, or registration, filing or declaration with, any court, administrative agency or commission or other Governmental Authority or instrumentality, domestic or foreign, is required to be obtained or made in connection with the execution, delivery and performance of this Agreement or any of the transactions required or contemplated hereby.

     (d) No Conflicts. The execution, delivery and compliance with, and performance of the terms and provisions of, this Agreement, and the sale of the Asset, will not

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(i) conflict with or result in any violation of its organizational documents, (ii) conflict with or result in any violation of any provision of any bond, note or other instrument of indebtedness, contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party in its individual capacity, or (m) violate any existing term or provision of any order, writ, judgment, injunction, decree, statute, law, rule or regulation applicable to it or its assets or properties.

     (e) Foreign Person. It is not a “foreign person” as defined in Internal Revenue Code Section 1445 and the regulations issued thereunder.

     (f) Anti-Terrorism Laws.

     (i) None of the Seller or, to Seller’s Knowledge, its affiliates, is in violation of any laws relating to terrorism, money laundering or the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Action of 2001, Public Law 107-56 and Executive Order No. 13224 (Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) (the “Executive Order”) (collectively, the “Anti-Money Laundering and Anti-Terrorism Laws”).

     (ii) None of the Seller or, to Seller’s Knowledge, its affiliates, is acting, directly or indirectly, on behalf of terrorists, terrorist organizations or narcotics traffickers, including those persons or entities that appear on the Annex to the Executive Order, or are included on any relevant lists maintained by the Office of Foreign Assets Control of U.S. Department of Treasury, U.S. Department of State, or other U.S. government agencies, all as may be amended from time to time.

     (iii) None of the Seller or, to Seller’s Knowledge, its affiliates or, without inquiry, any of its brokers or other agents, in any capacity in connection with the purchase of the Property (A) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person included in the lists set forth in the preceding paragraph; (B) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order; or (C) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Money Laundering and Anti-Terrorism Laws.

     (iv) The Seller understands and acknowledges that the Buyer may become subject to further anti-money laundering regulations, and agrees to execute instruments, provide information, or perform any other acts as may reasonably be requested by the Buyer, for the purpose of: (A) carrying out due diligence as may be required by applicable law to establish the Seller’s identity and source of funds; (B) maintaining records of such identities and sources of funds, or verifications or certifications as to the same; and (C) taking any other

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actions as may be required to comply with and remain in compliance with anti-money laundering regulations applicable to the Seller.

     (v) Neither the Seller, nor any person controlling or controlled by the Seller, is a country, territory, individual or entity named on a Government List, and the monies used in connection with this Agreement and amounts committed with respect thereto, were not and are not derived from any activities that contravene any applicable anti-money laundering or anti-bribery laws and regulations (including funds being derived from any person, entity, country or territory on a Government List or engaged in any unlawful activity defined under Title 18 of the United States Code, Section 1956(c)(7)).

          SECTION 3.2 Representations and Warranties of the Seller as to the Asset. The Seller hereby represents and warrants to the Buyer as follows:

     (a) Operating Agreements. To Seller’s Knowledge, (i) all material Operating Agreements (and any amendments or modification thereof) affecting the Property as of the date hereof are set forth on Schedule 3.2(a) attached hereto, (ii) the same have not been modified or amended, except as shown in such documents, (iii) all material Operating Agreements are in full force and effect, (iv) the Seller has delivered to the Buyer true and complete copies of each material Operating Agreement to the extent in the Seller’s possession and (v) there are no material defaults by any party under any material Operating Agreement.

     (b) Employees. The Seller does not have any employees. The Seller is not a party to any collective bargaining agreement or other contract or agreement with any labor organization. The Seller has not entered into any agreements with any Employees except through Manager.

     (c) Tenant Leases and Equipment Leases. To Seller’s Knowledge, Schedule 3.2(c) sets forth a correct and complete list of the Tenant Leases and all material Equipment Leases for the Hotel as of the date hereof. Except as set forth in Schedule 3.2(c), as of the date hereof, (i) to Seller’s Knowledge, all material Equipment Leases and Tenant Leases are in full force and effect and the Seller has delivered to the Buyer true and complete copies of all material Equipment Leases and Tenant Leases to the extent in the Seller’s possession, and (ii) the Seller has not given or, to Seller’s Knowledge, received any written notice of any breach or default under any of the Tenant Leases or Equipment Leases that has not been cured.

     (d) Brokerage Commissions. To Seller’s Knowledge, there are no unpaid brokerage commissions or finders’ fees payable by the landlord with respect to the current or any renewal term of any of the Tenant Leases other than those set forth on Schedule 3.2(d) attached hereto and the Seller has no agreement with any broker with respect to any renewal term of any Tenant Lease except as set forth in Schedule 3.2(d).

     (e) Condemnation. As of the date hereof, there is no pending condemnation or similar proceedings affecting the Property, and to Seller’s Knowledge, no such action is threatened or contemplated.

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     (f) Litigation. To Seller’s Knowledge and except as disclosed in Schedule 3.2(f) attached hereto, as of the date hereof, there are no actions, suits or proceedings pending against or affecting the Asset or the Seller in any court or before or by an arbitration tribunal or regulatory commission, department or agency and to Seller’s Knowledge, no such actions, suits or proceedings has been threatened or contemplated.

     (g) Bookings. To Seller’s Knowledge, Schedule 3.2(g) sets forth a correct list of all Bookings for the Hotel as of the date hereof.

     (h) Environmental Matters. The Seller has not received any written notice from any governmental or regulatory authority of a violation of any applicable Environmental Laws, which have not been corrected. For the purposes of this subsection 3.2(h), “Environmental Laws” means any and all federal, state, county and local statutes, laws, regulations and rules in effect on the date of this Agreement relating to the protection of the environment or to the use, transportation and disposal of Hazardous Materials.

     (i) Title to Personal Property. Other than FF&E, Property and Equipment, Retail Merchandise and Inventories covered by an Equipment Lease or as it relates to the rights, if any, of Franchisor under the Franchise Agreement therein, the Seller shall own the FF&E, Property and Equipment, Retail Merchandise and Inventories free and clear of all liens and encumbrances as of the Closing Date.

     (j) Franchise Agreement. The Seller has delivered to the Buyer a true and complete copy of the Franchise Agreement. To Seller’s Knowledge, (i) the Franchise Agreement is in full force and effect and (ii) there are no material defaults by any party thereunder as of the date hereof.

     (k) Violation of Law. The Seller has not received any written notice from any governmental or regulatory authority of a violation of any applicable material law within the past two years, which have not been remedied.

     (l) Liquor Holder. All of the issued and outstanding shares of Liquor Holder are held by MeriStar SPE Leasing LLC (f/k/a MeriStar SPE Leasing Corp.) and such interest will not be encumbered as of the Closing.

          SECTION 3.3 Limitations on Representations and Warranties of the Seller. If the representations and warranties relating to the Operating Agreements set forth in Section 3.2 and the status of the contract parties thereunder (other than the Seller or its affiliates) contained herein were true and correct as of the date of this Agreement, no change in circumstances or status of such contract party (e.g., defaults, bankruptcies or other adverse matters relating to such contract party) occurring after the date hereof shall permit the Buyer to terminate this Agreement or constitute grounds for the Buyer’s failure to close.

          SECTION 3.4 Covenants of the Seller Prior to Closing. From the date hereof until Closing or earlier termination of this Agreement, the Seller or the Seller’s agents shall:

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     (a) Insurance. Keep the Property insured against fire and other hazards in coverage, amounts and deductibles not materially less than those in effect as of the date of this Agreement and otherwise under such terms as the Seller deems advisable consistent with past practices.

     (b) New Operating Agreements. Without the prior written consent of the Buyer which consent shall not be unreasonably withheld or delayed, not enter into any Operating Agreements or Equipment Leases, or renew, amend or supplement any such contracts; provided that the Seller may enter into or renew such contracts, or amend or supplement such contracts, without the Buyer’s consent if such contract is entered into (or renewed, amended, or supplemented, as the case may be) in the course of customary maintenance and repairs at the Property or is necessary as a result of an emergency at the Property and in either case, is terminable on 30 days or less notice, without penalty. If the Seller enters into or renews any such contracts, or amends or supplements any such contracts, after the date of this Agreement, then the Seller shall promptly provide written notice and a copy thereof to the Buyer and unless the same required the Buyer’s approval pursuant to this paragraph and such approval was not obtained, the Buyer shall assume such contract at Closing and the schedule of contracts attached to the Assignment of Contracts shall be so modified, and such contract shall be deemed added to Schedule 3.2(a) attached hereto and Schedule 3.2(a) shall be deemed amended at the Closing to include such contracts. If a new contract, or a renewal, amendment or supplement to an existing contract, requires the Buyer’s approval or Seller otherwise requests Buyer’s approval and the Buyer does not object within seven days after receipt of a copy of such contract, then the Buyer shall be deemed to have approved such contract. The Seller shall observe and perform all of its material obligations under the material Operating Agreements and Equipment Leases excluding any such agreements which may be terminated in the ordinary course of the operation of the Hotel or as a result of a default by the other party.

     (c) New Tenant Leases. Without the prior consent of the Buyer, not execute any new lease, or renew, amend or supplement any existing lease (unless required by the terms thereof), for space at the Property. If the Buyer’s approval was obtained on a new lease or the renewal’, amendment or supplement of an existing lease, the Buyer shall assume such lease at Closing and the schedule of leases attached to the Assignment of Leases shall be so modified, and such lease shall be deemed added to Schedule 3.2(c) attached hereto and Schedule 3.2(c) shall be deemed amended at the Closing to include such leases. If the Buyer does not object within seven days after receipt of a copy of a request for approval of a new lease, or to the renewal, amendment or supplement of an existing lease (unless required by the terms thereof), then the Buyer shall be deemed to have approved such new lease, renewal, amendment or supplement, as the case may be.

     (d) Franchise Agreement. Observe and perform all of its material obligations under the Franchise Agreement. Without the prior consent of the Buyer, the Seller shall not amend, supplement or terminate the Franchise Agreement.

     (e) Assets. Shall not sell, exchange, assign, transfer, convey or otherwise dispose of all or any of the Asset or any interest therein except for any FF&E, Inventories, Retail Merchandise, Miscellaneous Personal Property or Property and Equipment that are sold, replaced or consumed in the ordinary course of business and shall, to the extent within the Seller’s control

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under the Management Agreement, maintain levels of Inventory and Property and Equipment in a manner substantially consistent with the Seller’s customary operating practices and historical practice at the Property.

     (f) Operation. Shall, to the extent within the Seller’s control under the Management Agreement, continue to operate and maintain the Hotel in substantially the same manner in which it is being operated and maintained as of the date hereof, provided that, except for emergency repairs, the Seller shall not perform any capital improvements at the Hotel including, without limitation, any capital improvements or expenditures as may be contemplated by the existing capital expenditure budget for the Hotel.

     (g) Management Agreement. At or prior to the Closing, the Seller shall terminate (and the Buyer shall cause the Manager to terminate without payment of any termination fee, termination penalty or termination damages being payable by Seller or its affiliates) the Management Agreement effective as of the Cut-Off Time.

          SECTION 3.5 Amendment to Schedules. Notwithstanding anything to the contrary in this Agreement, the Seller shall have the right to amend and supplement the schedules to this Agreement from time to time prior to the Closing to reflect changes since the date of this Agreement by providing a written copy of such amendment or supplement to the Buyer; provided, however, that any amendment or supplement to the schedules to this Agreement shall have no effect for the purposes of determining whether subsection 5.2(a) has been satisfied if the matter raised in such supplement has a material adverse effect on the Asset, but shall have effect only for the purposes of limiting the defense and indemnification obligations of the Seller for the inaccuracy or untruth of the representation or warranty qualified by such amendment or supplement.

ARTICLE IV.

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER

          SECTION 4.1 Representations and Warranties of the Buyer. The Buyer hereby represents and warrants to the Seller as follows:

     (a) Formation; Existence. It is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware.

     (b) Power; Authority. It has all requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, the purchase of the Asset and the consummation of the transactions provided for herein have been duly authorized by all necessary action on the part of the Buyer. This Agreement has been duly executed and delivered by the Buyer and constitutes the legal, valid and binding obligation of the Buyer enforceable against the Buyer in accordance with its terms, except as such enforceability

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may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights and by general principles of equity (whether applied in a proceeding at law or in equity).

     (c) No Consents. No consent, license, approval, order, permit or authorization of, or registration, filing or declaration with, any court, administrative agency or commission or other Governmental Authority or instrumentality, domestic or foreign, is required to be obtained or made in connection with the execution, delivery and performance of this Agreement or any of the transactions required or contemplated hereby.

     (d) No Conflicts. The execution, delivery and compliance with, and performance of the terms and provisions of, this Agreement, and the purchase of the Asset, will not (i) conflict with or result in any violation of its organizational documents, (ii) conflict with or result in any violation of any provision of any bond, note or other instrument of indebtedness, contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party in its individual capacity, or (iii) violate any existing term or provision of any order, writ, judgment, injunction, decree, statute, law, rule or regulation applicable to it or its assets or properties.

Anti-Terrorism Laws.

     (i) None of the Buyer or, to the Buyer’s Knowledge, its affiliates, is in violation of the Executive Order or any Anti-Money Laundering and Anti-Terrorism Law.

     (ii) None of the Buyer or, to the Buyer’s Knowledge, its affiliates, is acting, directly or indirectly, on behalf of terrorists, terrorist organizations or narcotics traffickers, including those persons or entities that appear on the Annex to the Executive Order, or are included on any relevant lists maintained by the Office of Foreign Assets Control of U.S. Department of Treasury, U.S. Department of State, or other U.S. government agencies, all as may be amended from time to time.

     (iii) None of the Buyer or, to the Buyer’s Knowledge, its affiliates or, without inquiry, any of its brokers or other agents, in any capacity in connection with the purchase of the Property (A) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person included in the lists set forth in the preceding paragraph; (B) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order; or (C) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Money Laundering and Anti-Terrorism Laws.

     (iv) The Buyer understands and acknowledges that the Seller may become subject to further anti-money laundering regulations, and agrees to execute instruments, provide information, or perform any other acts as may

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reasonably be requested by the Seller, for the purpose of: (A) carrying out due diligence as may be required by applicable law to establish the Buyer’s identity and source of funds; (B) maintaining records of such identities and sources of funds, or verifications or certifications as to the same; and (C) taking any other actions as may be required to comply with and remain in compliance with anti-money laundering regulations applicable to the Buyer.

     (v) Neither the Buyer, nor any person controlling or controlled by the Buyer, is a country, territory, individual or entity named on a Government List, and the monies used in connection with this Agreement and amounts committed with respect thereto, were not and are not derived from any activities that contravene any applicable anti-money laundering or anti-bribery laws and regulations (including funds being derived from any person, entity, country or territory on a Government List or engaged in any unlawful activity defined under Title 18 of the United States Code, Section 1956(c)(7)).

          SECTION 4.2 Covenants of the Buyer Prior to Closing.

      (a) Licenses and Permits.

     (i) The Buyer shall use all commercially reasonable and good faith efforts to obtain the transfer of all Licenses and Permits (to the extent transferable) or the issuance of new licenses and permits. The Buyer, at its cost and expense, shall submit all necessary applications and other materials to the appropriate Governmental Authority and take such other actions to effect the transfer of Licenses and Permits or issuance of new licenses and permits, as of the Closing, and the Seller shall use commercially reasonable efforts (at no cost or expense to the Seller) to cooperate with the Buyer to cause the Licenses and Permits to be transferred or new licenses and permits to be issued to the Buyer. It shall not be a condition to the Closing hereunder that the Buyer has obtained any transfer of Licenses or Permits or issuance of any new licenses or permits.

     (ii) The Seller agrees to reasonably cooperate with the Buyer in connection with the transfer of the interest in the entity (the “Liquor Holder”) currently holding the license for the sale and service of alcoholic beverages at the Hotel to the Buyer or its designee without any representations or warranties except as specifically set forth herein or in the Memorandum of Sale in substantially the form of Exhibit H attached hereto (the “Memorandum of Sale”).

     (iii) Promptly after the date hereof, the Buyer shall (and to the extent required by law, the Seller shall cause Liquor Holder to) execute and file with the Texas Alcoholic Beverage Commission and any other Governmental Authority that maintains jurisdiction over liquor-related matters at the Hotel (the “ Liquor Authorities”) and publish any notices as may be required in connection with the acquisition of the Liquor Holder by the Buyer or its designee as of the Closing. Notwithstanding anything to the contrary contained herein, the Seller shall not incur any material cost or expense or any liability in connection with the transfer

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of the Liquor Holder to the Buyer and no representations or warranties shall be made by the Seller or its affiliates as to such conveyance other than that 100% of the issued and outstanding shares of Liquor Holder is held by MeriStar SPE Leasing LLC (f/k/a MeriStar SPE Leasing Corp.) and that such interest will not be encumbered as of the Closing. Without limitation on the foregoing, in no event shall the transfer or assignment of the Liquor Holder be deemed or construed to be a condition to the obligations of either the Seller or the Buyer hereunder.

     (b) Operating Agreements and Equipment Leases. To the extent any Operating Agreement or Equipment Lease requires the consent of the vendor party for the assignment of such agreements from the Seller to the Buyer, the Buyer shall use commercially reasonable good faith efforts to obtain such consent as of the Closing, provided, in any event the Buyer shall assume all Operating Agreements and Equipment Leases as of the Closing even if such consent has not been obtained.

          SECTION 4.3 Employee Matters.

     (a) Employees. The Buyer acknowledges that the Employees are currently employed by an affiliate of the Buyer. At the Closing, the Buyer shall (or shall cause its manager to) offer employment at the Hotel to all of the Employees in accordance with the terms of subsection 4.3(b).

     (b) Continuity of Employees. The parties intend that there will be continuity of employment with respect to all of the Employees. It is agreed that prior to, or in connection with, the Closing, the Buyer shall take no action to cause the Seller or Manager to terminate the employment of any Employee, and neither the Seller nor the Manager shall be under any obligation to terminate any Employee prior to or on the Closing Date. It is further agreed that on or prior to the Closing Date, the Buyer shall offer employment at the Hotel (or cause its manager to continue employment of), commencing on the Closing Date to all Employees, including those on vacation, leave of absence, disability or layoff, on the same terms and conditions (including, without limitation, compensation, salary, employee benefits, job responsibility and descriptions, location, seniority and deemed length of service) as those provided to such employees by Manager on the day immediately preceding the Closing Date. Those Employees who accept the Buyer’s (or its manager’s) offer of employment and commence (or continue) employment with the Buyer (or its manager) on the Closing Date shall hereafter be referred to as “Transferred Employees.”

     (c) Indemnity. The Seller shall pay all wages, payroll taxes and fringe benefits (including accrued vacation pay to the extent actually earned) as well as social security, unemployment compensation, health, life and disability insurance and pension fund contributions, if any, of the Employees through the Closing Date, provided, that, the Seller shall have no liability or obligation to pay for any sick pay or accrued but unearned vacation pay. The Seller shall indemnify, defend and hold the Buyer harmless from and against any and all claims, actions, suits, demands, proceedings, losses, expenses, damages, obligations and liabilities (including costs of collection, attorney’s fees and other costs of defense) made by an Employee to the extent relating to an event occurring prior to or an obligation relating to a period prior to the Closing Date, provided that such indemnity shall not apply with respect to any losses

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incurred by the Buyer with respect to the amount of employee expenses that have been prorated under subsection 10.1(m) or such matters for which Manager would be liable to the Seller under the Management Agreement. The Buyer shall indemnify, defend and hold the Seller harmless from and against any and all claims, actions, suits, demands, proceedings, losses, expenses, damages, obligations and liabilities (including costs of collection, attorney’s fees and other costs of defense) arising out of or otherwise in respect of (i) the termination of any Employees in connection with the transactions contemplated by this Agreement; (ii) failure of the Buyer (or its manager) to continue the employment of any Transferred Employee on the same terms and conditions as said employee enjoys on the day immediately preceding the Closing Date; (iii) a breach by the Buyer of the covenants set forth in subsection 4.3(b); (iv) failure of the Buyer to comply with its obligations including, but not limited to, any statutory obligations with respect to the Transferred Employees; (v) any claim made by any Employee for severance pay; or (vi) any claim made by any Employee arising with respect to acts or omissions at the Property which acts or omissions occurred on or after the Closing Date.

     (d) WARN Act. The Buyer (or its manager) shall not, at any time prior to 90 days after the Closing Date, effectuate a “plant closing” or “mass layoff,” as those terms are defined in the WARN Act, affecting in whole or in part any site of employment, facility, operating unit or Employee, without notifying the Seller in advance and without complying with the notice requirements and other provisions of the WARN Act. In addition, the Buyer shall provide a full defense to, and indemnify the Seller for any Losses which the Seller may incur in connection with any suit or claim of violation brought against or affecting the Seller under the WARN Act for any actions taken by the Buyer (or its manager or any of its and Manager’s affiliates) with regard to the Hotel or any Employee affected by this Agreement subsequent to the Closing Date.

     (e) Survival. The provisions of this Section 4.3 shall survive the Closing.

          SECTION 4.4 Bookings. The Buyer shall honor all existing Bookings and all other Bookings made in accordance with this Agreement for any period on or after the Closing Date. The provisions of this Section 4.4 shall survive the Closing.

          SECTION 4.5 Franchise Agreement.

     (a) The parties acknowledge that the transfer of the franchise rights granted under the Franchise Agreement to the Buyer is subject to the prior written consent of Franchisor under the Franchise Agreement. Immediately following the date of this Agreement, (i) the Seller shall proceed promptly and in good faith to give the notices required under the Franchise Agreement with respect to the transactions contemplated hereby and (ii) the Buyer shall proceed promptly and in good faith to effect the consent of Franchisor to the transfer of such franchise rights to the Buyer, which may require the execution of a new franchise agreement with Franchisor. Accordingly, the Buyer shall promptly submit to Franchisor a complete application to become a franchisee of Franchisor’s franchise system accompanied by payment of the applicable application fee. As part of the application process, the Buyer shall provide any and all information and documentation that Franchisor requires (including, without limitation, financial statements, organizational documents, background information regarding the owners of the Buyer and other documentation supporting its application). Without limiting the foregoing, the

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Buyer shall use commercially reasonable efforts to obtain the consent of the Franchisor to the transfer of the franchise rights and a new franchise agreement in place of the Franchise Agreement, which may entail promptly responding to requests from Franchisor and otherwise promptly complying with all obligations of a transferee under the Franchise Agreement The Seller agrees to reasonably cooperate, at no cost, in good faith with the Buyer and Franchisor in such process. The Buyer shall agree with Franchisor to accept and be bound by any property improvement plan required by Franchisor in connection with obtaining such consent (which may consist of the property improvement plan currently incorporated into the Franchise Agreement, and to complete such property improvement plan within the time periods set forth in such property improvement plan. In connection with the transfer of the franchise rights, the Buyer shall be required to pay any and all fees and charges associated therewith (including, without limitation, any transfer fee mandated under the Franchise Agreement).

     (b) If Franchisor has not agreed to terminate the Franchise Agreement and enter into a new franchise agreement with the Buyer by the then scheduled Closing Date, the Closing Date shall be extended to a date that is the earlier of (i) ten Business Days after receipt of such agreement and (ii) February 28, 2007 (the “Outside Closing Date”). In the event Franchisor has not delivered such new franchise agreement by the Outside Closing Date, the Buyer and the Seller shall each have the option to terminate this Agreement by written notice to the other party (the “Termination Option”). In the event the Termination Option is elected by either the Seller or the Buyer, this Agreement shall terminate and provided the Buyer is not in default of any of its obligations pursuant to subsection 4.5(a) or otherwise, the Earnest Money shall be refunded to the Buyer and neither party shall have any further rights or obligations hereunder except for those that expressly survive the termination of this Agreement.

          SECTION 4.6 Manager Defaults. The Buyer acknowledges that an affiliate of the Buyer is Manager and that the Buyer is knowledgeable about the Asset. Notwithstanding anything to the contrary contained herein, (a) the Buyer agrees that the Seller shall have no liability under this Agreement for a breach hereof, including without limitation, any breach under Sections 3.2 and 3.4, to the extent such breach was caused by an act or omission of Manager (other than such acts taken by Manager at the specific direction of the Seller) and any such act or omission shall not serve as a basis for the Buyer failing to close on the purchase of the Assets in accordance with the terms of this Agreement or any recourse against the Seller and (b) to the extent Manager has actual knowledge of any inaccuracy or breach of any representation or warranty of the Seller contained in this Agreement, such knowledge shall be imputed to the Buyer and the Buyer shall be precluded from asserting a failure of the condition set forth in subsection 5.2(a) related thereto as it relates to the representations and warranties made by the Seller in this Agreement as of the date hereof (but not as the same are re-made as of the Closing pursuant to this Agreement). The provisions of this Section 4.6 shall survive the Closing.

          SECTION 4.7 Tax Clearance Certificates: Etc.

     (a) The Seller shall promptly after the execution of this Agreement apply for and thereafter use commercially reasonable efforts to obtain and deliver to the Buyer and the Title Company on or prior to the Closing such municipal, state and county tax clearance certificates demonstrating the payment of all tax liabilities which, if unpaid, could impose

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successor liability on the Buyer (“Tax Clearance Certificates”). To the extent the Seller is unable to deliver such Tax Certificates on or prior to the Closing, the Seller shall use commercially reasonable efforts to obtain such certificates as soon as practicable following the Closing. The Seller shall be liable for the payment of all amounts which may be required to be paid to obtain all Tax Clearance Certificates. The Seller shall indemnify, defend and hold the Buyer harmless from and against (x) any and all amounts which may be required to be paid to obtain all Tax Clearance Certificates and (y) any claims or other liabilities arising out of the Seller’s failure to obtain all such Tax Clearance Certificates, each to the extent due with respect to the operation of the Hotel prior to the Closing. Notwithstanding anything to the contrary contained herein, the Seller shall have no liability to the Buyer or obligations hereunder as it relates to any Tax Clearance Certificates with respect to unemployment taxes or mixed beverages taxes. The provisions of this subsection 4.7(a) shall survive the Closing.

     (b) The Seller shall use commercially reasonable efforts to obtain and deliver to the Buyer and the Title Company on or prior to the Closing an estoppel certificate from Westchase Community Association, Inc. (the “Westchase Association”) or its successor or assign or such other party as is vested with the power and authority to deliver such estoppel certificate (the “Westchase Estoppel”) indicating that there are no material defaults with respect to the Property (A) under (i) the Protective Covenants set forth in the Warranty Deed dated December 22,1977 from Tennwest Associates recorded as ###-##-#### through 0251 in the Harris County Records (referenced as Clerk’s File No. F421210 in item 6(a) of Schedule B of the Title Commitment), and/or any covenants, conditions and restrictions applicable to the Property and set forth in Volume 241, Page 143 of the Map Records of Harris County, and (ii) in the Warranty Deed dated September 29, 1978 from Tennwest Associates acting through Westchase One, Inc. recorded as ###-##-#### through 0366 (referenced as Clerk’s File No. F790568 in item 6(a) of Schedule B of the Title Commitment) in the Harris County records, all as modified and supplemented from time to time (collectively, the “Protective Covenants”), if and to the extent such Protective Covenants are applicable to and binding on the Property, and (B) under that certain Roadway Easement Agreement, dated as of April 15,1982, between George C. Ballas, Trustee, and 9999 Westheimer Hotel Joint Venture recorded as ###-##-#### through 0206 in the Harris County Records, as amended by that certain First Amendment to Roadway Easement Agreement and Easement effective as of January 31,1997 between Redstone Group, Ltd. and Westchase Holdings Ltd. recorded as ###-##-#### through 2426 (which documents are the documents referenced in item 6(p) of Schedule B of the Title Commitment), all as modified and supplemented from time to time (such Roadway Easement Agreement, as amended, the “Roadway Easement”), which estoppel certificate may be in the customary form (if any) of Westchase Association or such other party as is vested with the power and authority to deliver such estoppel certificate and limited to the Westchase Association’s or such other party’s knowledge, without investigation.

     (c) The Buyer acknowledges and agrees that the delivery of the Tax Clearance Certificates by the Seller pursuant to this Section 4.7 or any matters disclosed therein shall not be a condition precedent to the obligation of the Buyer to purchase and pay for the Asset in accordance with the terms of this Agreement. Notwithstanding the foregoing, to the extent such matters are raised as exceptions to the Title Policy, the Seller shall deliver such affidavits or indemnities as reasonably required by the Title Company to omit such matters from the Title Policy. The Buyer also acknowledges and agrees that the delivery of the Westchase

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Estoppel shall not be a condition precedent to the obligation of the Buyer to purchase and pay for the Asset in accordance with the terms of this Agreement if Westchase Association or its successor or assign or such other party as is vested with the power and authority to deliver such estoppel certificate does not exist or is not active, if a representative of the Westchase Association or its successor or assign or such other party as is vested with the power and authority to deliver the Westchase Estoppel cannot, with reasonable diligence, be located, or if, and to the extent, the Westchase Association or its successor or assign or such other party as is vested with the power and authority to deliver such estoppel certificate does not provide estoppel certificates with respect to the applicable Protective Covenants and/or Roadway Easement.

ARTICLE V.

CONDITIONS PRECEDENT TO CLOSING

          SECTION 5.1 Conditions Precedent to the Seller’s Obligations. The obligation of the Seller to consummate the transfer of the Asset to the Buyer on the Closing Date is subject to the satisfaction (or waiver by the Seller) as of the Closing of the following conditions:

     (a) Each of the representations and warranties made by the Buyer in this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, subject to any changes permitted pursuant to this Agreement.

     (b) The Buyer shall have performed or complied in all material respects with each obligation and covenant required by this Agreement to be performed or complied with by the Buyer on or before the Closing.

     (c) No order or injunction of any court or administrative agency of competent jurisdiction nor any statute, rule, regulation or executive order promulgated by any Governmental Authority of competent jurisdiction shall be in effect as of the Closing which restrains or prohibits the transfer of the Asset or the consummation of any other transaction contemplated hereby.

     (d) The Seller shall have received all of the documents required to be delivered by the Buyer under subsection 6.1(a).

     (e) The Seller shall have received the Purchase Price in accordance with subsection 2.2(a) and all other amounts due to the Seller from the Buyer hereunder.

     (f) The Seller shall have received evidence that (i) Franchisor has consented to the transfer of the franchise rights associated with the Franchise Agreement in accordance with subsection 4.5(a), and (ii) the Seller and any affiliates thereof have been released by Franchisor pursuant to such release as contemplated by the Franchise Agreement.

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     (g) Manager shall have agreed to the termination of the Management Agreement without any termination fee, penalty or damages being payable by Seller or its affiliates.

          SECTION 5.2 Conditions to the Buyer’s Obligations. The obligation of the Buyer to purchase and pay for the Asset is subject to the satisfaction (or waiver by the Buyer) as of the Closing of the following conditions:

     (a) Each of the representations and warranties made by the Seller in this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date as though such representations and warranties were made on and as of Closing Date subject to (i) the Seller’s right to cure the same prior to the Closing as expressly provided in this Agreement, (ii) any changes permitted pursuant to this Agreement, and (iii) any changes relating to matters arising after the date hereof in connection with the representations and warranties as set forth in subsections 3.2(e) and 3.2(g).

     (b) The Seller shall have performed or complied in all material respects with each obligation and covenant required by this Agreement to be performed or complied with by the Seller on or before the Closing.

     (c) No order or injunction of any court or administrative agency of competent jurisdiction nor any statute, rule, regulation or executive order promulgated by any Governmental Authority of competent jurisdiction shall be in effect as of the Closing which restrains or prohibits the transfer of the Asset or the consummation of any other transaction contemplated hereby.

     (d) Title to the Property shall be delivered to the Buyer in the manner required under Section 8.1.

     (e) The Buyer shall have received all of the documents required to be delivered by the Seller under Section 6.2, and all of the consents set forth on Schedule 3.1(c) shall have been obtained.

     (f) Franchisor shall have issued a new franchise agreement to the Buyer in accordance with Section 4.5(a).

     (g) Subject to the provisions of Section 4.7(b) and (c), the Buyer shall have received the Westchase Estoppel in at least the form contemplated by Section 4.7(b) indicating that there are no material defaults in respect to the Property under the Protective Covenants and the Roadway Easement.

          SECTION 5.3 Waiver of Conditions Precedent. The Closing shall constitute conclusive evidence that the Seller and the Buyer have respectively waived any conditions which are not satisfied as of the Closing.

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ARTICLE VI.

CLOSING DELIVERIES

          SECTION 6.1 The Buyer Closing Deliveries.

     The Buyer shall deliver the following documents at Closing:

     (a) with respect to the Asset:

     (i) an assignment and assumption of the Seller’s interest in the Tenant Leases (an “Assignment of Leases”) duly executed by the Buyer in substantially the form of Exhibit A attached hereto; and

     (ii) an assignment and assumption of the Operating Agreements, Equipment Leases and Bookings (an “Assignment of Contracts”) duly executed by the Buyer in substantially the form of Exhibit B attached hereto.

     (b) with respect to the transactions contemplated hereunder:

     (i) a duly executed and sworn officer’s certificate from the Buyer (or the general partner or managing member of the Buyer, where appropriate) certifying that the Buyer has taken all necessary action to authorize the execution of all documents being delivered hereunder and the consummation of all of the transactions contemplated hereby and that such authorization has not been revoked, modified or amended;

     (ii) an executed and acknowledged incumbency certificate from the Buyer (or the general partner or managing member of the Buyer, where appropriate) certifying the authority of the officers of the Buyer (or the general partner or managing member of the Buyer, where appropriate) to execute this Agreement and the other documents delivered by the Buyer to the Seller at the Closing;

     (iii) all transfer tax returns which are required by law and the regulations issued pursuant thereto in connection with the payment of all state or local real property transfer taxes that are payable or arise as a result of the consummation of the transactions contemplated by this Agreement, in each case, as prepared and approved by the Seller and the Buyer and duly executed by the Buyer;

     (iv) the Memorandum of Sale duly executed by the Buyer or its designee;

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     (v) a closing statement prepared and approved by the Seller and the Buyer, consistent with the terms of this Agreement;

     (vi) a notice letter to each tenant of the Property under a Tenant Lease, if any, in compliance with the notice requirements of §92.105(b) of the Texas Property Code advising the tenant of: (a) the transfer of the Property; (b) the Purchaser’s assumption of any liability for refundable tenant deposits; and (c) the manner in which Rent is to be paid subsequent to the Closing Date; and

     (vii) counterparts of any applicable statutory notices Seller is required to deliver to Buyer, and that Buyer is required to sign pursuant to applicable law, including, any notice pertaining to deed restrictions affecting the Property.

          SECTION 6.2 The Seller Closing Deliveries.

     The Seller shall deliver the following documents at Closing:

     (a) with respect to the Asset:

     (i) a special warranty deed (a “Deed”) in substantially the form of Exhibit C attached hereto and in recordable form in Texas, duly executed and acknowledged by the Seller;

     (ii) a bill of sale (a “Bill of Sale”) duly executed by the Seller in substantially the form of Exhibit D attached hereto, transferring the FF&E, Property and Equipment, Inventories, Retail Merchandise, Books and Records, Miscellaneous Personal Property and Accounts Receivable to the Buyer;

     (iii) the Assignment of Leases duly executed by the Seller, together with a copies, and if available, originals of the Tenant Leases referred to in such assignment;

     (iv) the Assignment of Contracts duly executed by the Seller, together with copies, and if available, originals of all contracts and agreements assigned thereby;

     (v) a general assignment of the Licenses and Permits and Intangible Property (the “Assignment of Intangibles”) duly executed by the Seller in substantially the form of Exhibit E attached hereto;

     (vi) all keys and keycards in the Seller’s possession and security and access codes to the Property;

     (vii) an affidavit that the Seller is not a “foreign person” within the meaning of the Foreign Investment in Real Property Tax Act of 1980, as amended, in substantially the form of Exhibit F attached hereto (the “FIRPTA”);

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     (viii) a closing statement prepared and approved by the Seller and the Buyer, consistent with the terms of this Agreement;

     (ix) all Books and Records and receipts in the Seller’s possession relating to the ownership, operating and management of the Hotel;

     (x) the title affidavits and documents referred to in Section 8.4; and

     (xi) evidence reasonably acceptable to the Title Company, to the extent required, of the termination of the Management Agreement.

     (b) with respect to the transactions contemplated hereunder:

     (i) a duly executed and sworn officer’s certificate from the general partner of the Seller certifying that the Seller has taken all necessary action to authorize the execution of all documents being delivered hereunder and the consummation of all of the transactions contemplated hereby and that such authorization has not been revoked, modified or amended;

     (ii) an executed and acknowledged incumbency certificate from the general partner of the Seller certifying the authority of the officers of the general partner of the Seller to execute this Agreement and the other documents delivered by the Seller to the Buyer at the Closing;

     (iii) the Memorandum of Sale duly executed by MeriStar SPE Leasing LLC;

     (iv) all transfer tax returns which are required by law and the regulations issued pursuant thereto that are required as a result of the consummation of the transactions contemplated by this Agreement, in each case, as prepared and approved by the Seller and the Buyer and duly executed by the Seller; and

     (v) a notice letter to each tenant of the Property under a Tenant Lease, if any, in compliance with the notice requirements of §92.105(b) of the Texas Property Code advising the tenant of: (a) the transfer of the Property; (b) the Purchaser’s assumption of any liability for refundable tenant deposits; and (c) the manner in which Rent is to be paid subsequent to the Closing Date.

     (vi) any applicable statutory notices Seller is required to deliver to Buyer, and that Seller is required to sign pursuant to applicable law, including, any notice pertaining to deed restrictions affecting the Property.

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ARTICLE VII.

INSPECTIONS: RELEASE

          SECTION 7.1 Right of Inspection. Prior to the Closing, the Buyer and its agents shall have the right, upon reasonable prior written notice to the Seller (which shall in any event be at least 24 hours in advance) and at the Buyer’s sole cost, risk and expense, to inspect the Property during business hours, provided that any such inspection shall not unreasonably impede the normal day to day business operation of the Property, and provided further that the Seller shall be entitled to accompany the Buyer and its agents on such inspection. Notwithstanding the foregoing, the Buyer shall not have the right to do any invasive testing of the Property without the prior written consent of the Seller which may be granted or denied in the Seller’s sole and absolute discretion. The Seller shall be entitled to accompany the Buyer and its agents on any such permitted interviews and testing. The Buyer’s right of inspection of the Property shall be subject to the rights of the tenants and Hotel guests and the rights of Manager under the Management Agreement. Prior to any such inspection, the Buyer shall deliver to the Seller certificates reasonably satisfactory to the Seller evidencing that the Buyer’s consultants and agents carry and maintain such general liability insurance policies with such companies and in such scope and amounts as are acceptable to the Seller in its reasonable discretion, in all cases naming the Seller as an additional insured and loss payee thereunder. The Buyer hereby indemnifies and agrees to defend and hold the Seller harmless from and against all loss, cost (including, without limitation, reasonable attorneys’ fees), claim or damage arising out of, resulting from relating to or in connection with or from any such inspection by the Buyer or its agents except to the extent such claim or damage was caused solely by the Seller or the Seller’s agents’ The provisions of this Section 7.1 shall survive the Closing and any termination of this Agreement. Notwithstanding the foregoing rights to inspect, the Buyer acknowledges that there is no “due diligence period” or “due diligence termination right” in this Agreement and the Buyer does not have the right to terminate this Agreement based on the results of such inspections other than pursuant to an express termination right set forth in this Agreement.

          SECTION 7.2 Examination; No Contingencies.

     (a) Before entering into this Agreement, the Buyer has made such examination of the Asset and all other matters affecting or relating to the transactions contemplated hereunder as the Buyer has deemed necessary. In entering into this Agreement, the Buyer has not been induced by and has not relied upon any written or oral representations, warranties or statements, whether express or implied, made by the Seller or any partner of the Seller, or any affiliate, agent, employee, or other representative of any of the foregoing or by any broker or any other person representing or purporting to represent the Seller with respect to the Asset, the Condition of the Asset or any other matter affecting or relating to the transactions contemplated hereby, other than those expressly set forth in this Agreement or in the Closing Documents. The Buyer’s obligations under this Agreement shall not be subject to any contingencies, diligence or conditions except as expressly set forth in this Agreement or in the Closing Documents. The Buyer acknowledges and agrees that, except as expressly set forth

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herein or in the Closing Documents, the Seller makes no representations or warranties whatsoever, whether express or implied or arising by operation of law with respect to the Asset or the Condition of the Asset. THE BUYER AGREES THAT THE ASSET WILL BE SOLD AND CONVEYED TO (AND ACCEPTED BY) THE BUYER AT THE CLOSING IN THE THEN EXISTING CONDITION OF THE ASSET, AS IS, WHERE IS, WITH ALL FAULTS AND WITHOUT ANY WRITTEN OR VERBAL REPRESENTATIONS OR WARRANTIES WHATSOEVER WHETHER EXPRESS OR IMPLIED OR ARISING BY OPERATION OF LAW, OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN THE CLOSING DOCUMENTS. Without limiting the generality of the foregoing, except as set forth in this Agreement or in the Closing Documents, the transactions contemplated by this Agreement are without statutory, express or implied warranty, representation, agreement, statement or expression of opinion of or with respect to the Condition of the Asset or any aspect thereof, including, without limitation, (i) any and all statutory, express or implied representations or warranties related to the suitability for habitation, merchantability, or fitness for a particular purpose, (ii) any statutory, express or implied representations or warranties created by any affirmation of fact or promise, by any description of the Asset or by operation of law and (iii) all other statutory, express or implied representations or warranties by the Seller whatsoever. The Buyer acknowledges that the Buyer has knowledge and expertise in financial and business matters that enable the Buyer to evaluate the merits and risks of the transactions contemplated by this Agreement.

     (b) For purposes of this Agreement, the term “Condition of the Asset” means the following matters:

     (i) Physical Condition of the Property. The quality, nature and adequacy of the physical condition of the Property, including, without limitation, the quality of the design, labor and materials used to construct the improvements included in the Property; the condition of structural elements, foundations, roofs, glass, mechanical, plumbing, electrical, HVAC, sewage, and utility components and systems; the capacity or availability of sewer, water, or other utilities; the geology, flora, fauna, soils, subsurface conditions, groundwater, landscaping, and irrigation of or with respect to the Property, the location of the Property in or near any special taxing district, flood hazard zone, wetlands area, protected habitat, geological fault or subsidence zone, hazardous waste disposal or clean-up site, or other special area, the existence, location, or condition of ingress, egress, access, and parking; the condition of the personal property and any fixtures; and the presence of any asbestos or other Hazardous Materials, dangerous, or toxic substance, material or waste in, on, under or about the Property and the improvements located thereon. “Hazardous Materials” means (A) those substances included within the definitions of any one or more of the terms “hazardous substances,” “toxic pollutants”, “hazardous materials”, “toxic substances”, and “hazardous waste” in the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (as amended), the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sections 1801 et seq., the Resource Conservation and Recovery Act of 1976 as amended, 42 U.S.C. Section 6901 et seq., Section 311 of the Clean Water Act, 15 U.S.C. § 2601 et seq., 33 U.S.C. § 1251 et seq., 42 U.S.C. 7401 et seq. and the

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regulations and publications issued under any such laws, (B) petroleum, radon gas, lead based paint, asbestos or asbestos containing material and polychlorinated biphenyls and (C) mold or water conditions which may exist at the Property or other matters governed by any applicable federal, state or local law or statue.

     (ii) Adequacy of the Asset. The economic feasibility, cash flow and expenses of the Asset, and habitability, merchantability, fitness, suitability and adequacy of the Property for any particular use or purpose.

     (iii) Legal Compliance of the Asset. The compliance or noncompliance of the Seller or the operation of the Property or any part thereof in accordance with, and the contents of, (A) all codes, laws, ordinances, regulations, agreements, licenses, permits, approvals and applications of or with any governmental authorities asserting jurisdiction over the Property, including, without limitation, those relating to zoning, building, public works, parking, fire and police access, handicap access, life safety, subdivision and subdivision sales, and Hazardous Materials, dangerous, and toxic substances, materials, conditions or waste, including, without limitation, the presence of Hazardous Materials in, on, under or about the Property that would cause state or federal agencies to order a clean up of the Property under any applicable legal requirements and (B) all agreements, covenants, conditions, restrictions (public or private), condominium plans, development agreements, site plans, building permits, building rules, and other instruments and documents governing or affecting the use, management, and operation of the Property.

     (iv) Matters Disclosed in the Schedules and the Asset File. Those matters referred to in this Agreement and the documents listed on the Schedules attached hereto and the matters disclosed in the Asset File.

     (v) Insurance. The availability, cost, terms and coverage of liability, hazard, comprehensive and any other insurance of or with respect to the Property.

     (vi) Condition of Title. The condition of title to the Property, including, without limitation, vesting, legal description, matters affecting title, title defects, liens, encumbrances, boundaries, encroachments, mineral rights, options, easements, and access; violations of restrictive covenants, zoning ordinances, setback lines, or development agreements; the availability, cost, and coverage of title insurance; leases, rental agreements, occupancy agreements, rights of parties in possession of, using, or occupying the Property; and standby fees, taxes, bonds and assessments.

          SECTION 7.3 . RELEASE. THE BUYER HEREBY AGREES THAT THE SELLER, AND EACH OF THEIR PARTNERS, MEMBERS, TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, PROPERTY MANAGERS, ASSET MANAGERS, AGENTS, ATTORNEYS, AFFILIATES AND RELATED ENTITIES, HEIRS, SUCCESSORS, AND ASSIGNS (COLLECTIVELY, THE “RELEASEES”) SHALL BE AND ARE HEREBY, FULLY AND FOREVER RELEASED AND DISCHARGED FROM

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ANY AND ALL LIABILITIES, LOSSES, CLAIMS (INCLUDING THIRD PARTY CLAMS), DEMANDS, DAMAGES (OF ANY NATURE WHATSOEVER), CAUSES OF ACTION, COSTS, PENALTIES, FINES, JUDGMENTS, REASONABLE ATTORNEYS’ FEES, CONSULTANTS’ FEES AND COSTS AND EXPERTS’ FEES (COLLECTIVELY, THE “CLAIMS”) WITH RESPECT TO ANY AND ALL CLAIMS, WHETHER DIRECT OR INDIRECT KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THAT MAY ARISE ON ACCOUNT OF OR IN ANY WAY BE CONNECTED WITH THE ASSET OR THE PROPERTY INCLUDING, WITHOUT LIMITATION, THE PHYSICAL, ENVIRONMENTAL AND STRUCTURAL CONDITION OF THE PROPERTY OR ANY LAW OR REGULATION APPLICABLE THERETO, INCLUDING WITHOUT LIMITATION, ANY CLAIM OR MATTER (REGARDLESS OF WHEN IT FIRST APPEARED) RELATING TO OR ARISING FROM (A) THE PRESENCE OF ANY ENVIRONMENTAL PROBLEMS, OR THE USE, PRESENCE STORAGE, RELEASE, DISCHARGE, OR MIGRATION OF HAZARDOUS MATERIALS ON IN UNDER OR AROUND THE PROPERTY REGARDLESS OF WHEN SUCH HAZARDOUS MATERIALS WERE FIRST INTRODUCED IN, ON OR ABOUT THE PROPERTY, (B) ANY PATENT OR LATENT DEFECTS OR DEFICIENCIES WITH RESPECT TO THE PROPERTY, (C) ANY AND ALL MATTERS RELATED TO THE PROPERTY OR ANY PORTION THEREOF, INCLUDING WITHOUT LIMITATION, THE CONDITION AND/OR OPERATION OF THE PROPERTY AND EACH PART THEREOF, AND (D) THE PRESENCE, RELEASE AND/OR REMEDIATION OF ASBESTOS AND ASBESTOS CONTAINING MATERIALS IN, ON OR ABOUT THE PROPERTY REGARDLESS OF WHEN SUCH ASBESTOS AND ASBESTOS CONTAINING MATERIALS WERE FIRST INTRODUCED IN, ON OR ABOUT THE PROPERTY, PROVIDED, HOWEVER, THAT IN NO EVENT SHALL RELEASEES BE RELEASED FROM (X) ANY CLAIMS ARISING PURSUANT TO THE PROVISIONS OF THIS AGREEMENT OR THE SELLER’S OBLIGATIONS, IF ANY, UNDER THE CLOSING DOCUMENTS OR (Y) ANY CLAIMS ARISING FROM ANY FRAUDULENT ACTS COMMITTED BY THE SELLER TO THE BUYER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE BUYER FURTHER AGREES THAT THE WAIVERS AND RELEASES HEREIN HAVE BEEN NEGOTIATED AND AGREED UPON IN LIGHT OF THAT REALIZATION AND THAT THE BUYER NEVERTHELESS HEREBY INTENDS TO RELEASE, DISCHARGE AND ACQUIT THE SELLER FROM ANY SUCH UNKNOWN CLAIMS, DEBTS, AND CONTROVERSIES WHICH MIGHT IN ANY WAY BE INCLUDED AS A MATERIAL PORTION OF THE CONSIDERATION GIVEN TO THE SELLER BY THE BUYER IN EXCHANGE FOR THE SELLER’S PERFORMANCE HEREUNDER. THE SELLER HAS GIVEN THE BUYER MATERIAL CONCESSIONS REGARDING THIS TRANSACTION IN EXCHANGE FOR THE BUYER AGREEING TO THE PROVISIONS OF THIS SECTION 7.3. THE SELLER AND THE BUYER HAVE EACH INITIALED THIS SECTION 7.3 TO FURTHER INDICATE THEIR AWARENESS AND ACCEPTANCE OF EACH AND EVERY PROVISION HEREOF. THE PROVISIONS OF THIS SECTION 7.3 SHALL SURVIVE THE CLOSING AND SHALL NOT BE DEEMED MERGED INTO ANY INSTRUMENT OR CONVEYANCE DELIVERED AT THE CLOSING.

SELLER’S INITIALS:	BUYER’S INITIALS:
/s/ M.C.	/s/ C.B.

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ARTICLE VIII.

TITLE AND PERMITTED EXCEPTIONS

          SECTION 8.1 Title Insurance and Survey.

     The Property shall be sold and is to be conveyed, and the Buyer agrees to purchase the Property, subject only to the Permitted Exceptions.

          SECTION 8.2 Title Commitment: Survey.

     The Buyer has received and reviewed a copy of the Title Commitment and the Existing Survey.

          SECTION 8.3 Delivery of Title.

     (a) At or prior the Closing, the Seller shall obtain releases of (i) all mortgages and/or deed of trust liens and other financing items encumbering the Asset (“Financing Liens”), (ii) tax liens (other than liens for taxes not yet due and payable) encumbering the Property (“Tax Liens”) and (iii) any liens encumbering the Property affirmatively placed on the Property by the Seller on or after November 19,2006 (“Post Effective Date Seller Encumbrance”). Other than as set forth in this Agreement (including without limitation the first sentence of this subsection 8.3(a), and subsection 8.3(c)), the Seller shall not be required to take or bring any action or proceeding or any other steps to remove any title exception or to expend any moneys therefor, nor shall the Buyer have any right of action against the Seller, at law or in equity, for the Seller’s inability to convey title subject only to the Permitted Exceptions.

     (b) Subject to the Seller’s obligations under subsections 8.3(a) and 8.3(c), in the event that the Seller is unable to convey title subject only to the Permitted Exceptions, and the Buyer has not, prior to the Closing Date, given notice to the Seller that the Buyer is willing to waive objection to each title exception which is not a Permitted Exception, the Seller shall have the right, in the Seller’s sole and absolute discretion, to (i) take such action as the Seller shall deem advisable to attempt to discharge each such title exception which is not a Permitted Exception or (ii) terminate this Agreement. In the event that the Seller shall elect to attempt to discharge such title exceptions which are not Permitted Exceptions, the Seller shall proceed to attempt to discharge such title exceptions diligently and in good faith and for so long as it is so attempting to discharge such title objections shall be entitled to one or more adjournments of the Closing Date for a period not to exceed 60 days in the aggregate. If, for any reason whatsoever, the Seller has not discharged such title exceptions which are not Permitted Exceptions prior to the expiration of the last of such adjournments, and if the Buyer is not willing to waive objection to such title exceptions, this Agreement shall be terminated as of the expiration of the last of such adjournments. In the event of a termination of this Agreement pursuant to this subsection 8.3(b), the Earnest Money shall be refunded to the Buyer and neither party shall have any further rights

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or obligations hereunder except for those that expressly survive the termination of this Agreement. Nothing in this clause (b) shall require the Seller, despite any election by the Seller to attempt to discharge any title exceptions, to take or bring any action or proceeding or any other steps to remove any title exception or to expend any moneys therefor, other than with respect to the Post Effective Date Seller Encumbrance, the Post Effective Date Monetary Encumbrance, Financing Liens and Tax Liens.

     (c) Notwithstanding the foregoing, at the Closing, in addition to releasing all Financing Liens, Tax Liens and Post Effective Date Seller Encumbrances which the Buyer does not waive its objection to pursuant to Section 8.3(b), the Seller shall obtain a release of any lien encumbering the Property on or after November 19, 2006 which may be removed by the payment of a sum of money (a “Post Effective Date Monetary Encumbrances”); provided that Seller shall not be obligated to spend more than $250,000 in the aggregate to remove any Post-Effective Date Monetary Encumbrances.

          SECTION 8.4 Cooperation. In connection with obtaining the Title Policy, the Buyer and the Seller, as applicable, and to the extent requested by the Title Company, will deliver to the Title Company (a) evidence sufficient to establish (i) the legal existence of the Buyer and the Seller and (ii) the authority of the respective signatories of the Seller and the Buyer to bind the Seller and the Buyer, as the case may be, (b) certificates of good standing of the Seller in Delaware and, if applicable, Texas; and (c) an affidavit of the Seller in the form attached hereto as Exhibit G.

ARTICLE IX.

TRANSACTION COSTS; RISK OF LOSS

          SECTION 9.1 Transaction Costs.

     (a) The Buyer and the Seller agree to comply with all real estate transfer tax laws applicable to the sale of the Asset. The Seller agrees to pay for the “basic” title insurance premium for a standard form TLTA T 1 Owner’s Policy of Title Insurance issued by Title Company in the State of Texas with coverage in the amount of the Purchase Price. In addition to their respective apportionment obligations hereunder, (i) the Seller and the Buyer shall each be responsible for the payment of the costs of their respective legal counsel, advisors and other professionals employed thereby in connection with the sale of the Asset, and (ii) the Buyer shall be responsible for all costs and expenses associated with (A) the Buyer’s due diligence, (B) the amount by which the title insurance premium for the Owner’s Policy and all endorsements (including limiting the survey exception to shortages in area) exceeds the basic title insurance premium for a standard form TLTA T 1 Owner’s Policy of Title Insurance with coverage in the amount of the Purchase Price, (C) the policy premiums in respect of any mortgage title insurance obtained by the Buyer, (D) all costs for any new survey and search costs with respect to the Property and updates related thereto, (E) payment, at the Closing, of the recording charges and fees (other than deed recordation taxes) for the documents necessary to transfer the Asset,

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(F) obtaining any financing the Buyer may elect to obtain (including any fees, financing costs, transfer taxes, mortgage and recordation taxes and intangible taxes in connection therewith) and (G) all other costs which are the responsibility under applicable law for the Buyer to pay (including, without limitation, all sales and use taxes due as a result of the sale of the Asset). The fees, if any, of the Escrow Agent shall be equally divided between the Seller and the Buyer.

     (b) Each party to this Agreement shall indemnify the other parties and their respective successors and assigns from and against any and all loss, damage, cost, charge, liability or expense (including court costs and reasonable attorneys’ fees) which such other party may sustain or incur as a result of the failure of either party to timely pay any of the aforementioned taxes, fees or other charges for which it has assumed responsibility under this Section. The provisions of this Article IX shall survive the Closing or the termination of this Agreement.

          SECTION 9.2 Risk of Loss.

     (a) If, on or before the Closing Date, (i) the Property or any portion thereof shall be damaged or destroyed by fire or other casualty or (ii) any Governmental Authority or other entity having condemnation authority shall take the property or any portion thereof or institute an eminent domain proceeding by delivering written notice thereof to the Seller and the same is not dismissed prior to the Closing, then the Seller shall promptly notify the Buyer and at Closing, the Seller will credit against the Purchase Price payable by the Buyer at the Closing an amount equal to the net proceeds (other than on account of business or rental interruption relating to the period prior to Closing), if any, received by the Seller on or prior to the Closing as a result of such casualty or condemnation, plus the amount of any deductible, less any amounts spent to restore the Property. If as of the Closing Date, the Seller has not received all or any portion of such insurance or condemnation proceeds, then the parties shall nevertheless consummate on the Closing Date the conveyance of the Asset (without any credit for such as yet unpaid insurance or condemnation proceeds except for a credit for any deductible under such insurance) and the Seller will at Closing assign to the Buyer all rights of the Seller, if any, to the insurance or condemnation proceeds (other than on account of business or rental interruption relating to the period prior to Closing but including all business or rental interruption relating to the period on or after Closing) and to all other rights or claims arising out of or in connection with such casualty or condemnation and the Buyer may notify all appropriate insurance companies of its interest in the insurance proceeds.

     (b) Notwithstanding the provisions of subsection 9.2(a), if, on or before the Closing Date, the Property or any portion thereof shall be (i) damaged or destroyed by a Material Casualty or (ii) taken as a result of a Material Condemnation, the Buyer shall have the right, exercised by notice to the Seller no more than ten Business Days after the Buyer has received notice of such Material Casualty or Material Condemnation, to terminate this Agreement, in which event the Earnest Money shall be refunded to the Buyer and neither party shall have any further rights or obligations hereunder other than those which expressly survive the termination of this Agreement. If the Buyer fails to timely terminate this Agreement in accordance with this subsection 9.2(b), the provisions of subsection 9.2(a) shall apply. As used in this subsection 9.2(b), a “Material Casualty” shall mean any damage to the Property or any portion thereof by fire or other casualty that, in the Seller’s reasonable judgment, may be expected to

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cost in excess of $2,800,000 to repair. As used in this subsection 9.2(b), a “Material Condemnation” shall mean a taking of the Property or any material portion thereof as a result of a condemnation or eminent domain proceeding or the institution of such proceeding pursuant to a written notice thereof to the Seller that, permanently impairs the use and value of the Property, and which can not be restored to substantially the same use and value as before the taking.

     (c) Subject to the provisions of this Section 9.2, the risk of loss or damage to the Property shall remain with the Seller until delivery of the Deed. The parties hereto will have the rights and duties set forth in this Section 9.2 rather than as prescribed by the Uniform Vendor and Purchaser Risk Act (Texas Property Code, Section 5.007).

ARTICLE X.

ADJUSTMENTS

          SECTION 10.1 Adjustments. Except as otherwise specifically provided in subsection 10.1(m), the Seller shall be responsible for and shall pay (or credit the Buyer for) all liabilities, including, without limitation, all real property, personal property and sales and use taxes, which accrue with respect to the Asset with respect to all periods prior to the Closing and the Buyer shall be responsible for and shall pay all liabilities, including without limitation all real property, personal property and sales and use taxes, which accrue with respect to the Asset with respect to all periods from and after the Closing. Unless otherwise provided below, the following are to be adjusted and prorated between the Seller and the Buyer as of 11:59 P.M. on the day preceding the Closing (the “Cut-Off Time”), based upon a 365 day year, and the net amount thereof under Section 10.1 shall be added to (if such net amount is in the Seller’s favor) or deducted from (if such net amount is in the Buyer’s favor) the Purchase Price payable at Closing:

     (a) Taxes and Assessments. All real estate and personal property taxes and assessments (including, without limitation, special assessments and improvement assessments) levied against the Asset shall be prorated as of the Cut-Off Time between the Buyer and the Seller. If the amount of any such taxes is not ascertainable on the Closing Date, the proration for such taxes shall be estimated based on the most recent available bill; provided, however, that after the Closing, the Seller and the Buyer shall reprorate the taxes and pay any deficiency in the original proration to the other party promptly upon receipt of the actual bill for the relevant taxable period. In the event that the Asset or any part thereof shall be or shall have been affected by an assessment or assessments which are payable in installments, the Seller shall, at the Closing, be responsible for any installments due prior to the Closing and the Buyer shall be responsible for any installments due on or after the Closing, provided that such assessments shall in any event be prorated between the Buyer and the Seller as of the Cut-Off Time. The reproration obligation under this subsection 10.1(a) shall survive the Closing.

     (b) Water and Sewer Charges, Utilities. All utility services shall be prorated as of the Cut-Off Time between the Buyer and the Seller. To the extent possible, readings shall

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be obtained for all utilities as of the Cut-Off Time. If not possible, the cost of such utilities shall be prorated between the Seller and the Buyer by estimating such cost on the basis of the most recent bill for such service; provided, however, that after the Closing, the Seller and the Buyer shall reprorate the amount for such utilities and pay any deficiency in the original proration to the other party promptly upon receipt of the actual bill for the relevant billing period. The Seller shall receive a credit for all deposits transferred to the Buyer or which remain on deposit for the benefit of the Buyer with respect to such utility contracts, otherwise such deposits shall be refunded to the Seller. The reproration obligation in this subsection 10.1(b) shall survive the Closing.

     (c) Operating Agreements and Equipment Leases. Charges and payments (including the reimbursement of expenses) under all Operating Agreements and Equipment Leases.

     (d) Miscellaneous Revenues. Revenues, if any, arising out of telephone booths, vending machines, parking, or other income producing agreements, on an if, as and when collected basis.

     (e) Inventory. The Seller shall receive a credit for all Inventory and Retail Merchandise in unopened cases as of the Closing in an amount equal to the Seller’s actual cost (including sales and/or use tax) for such items.

     (f) Tenant Leases. Any rents and other amounts prepaid, accrued or due and payable under the Tenant Leases shall be prorated as of the Cut-Off Time between the Buyer and the Seller. The Buyer shall receive a credit for all cash security deposits held by the Seller under the Tenant Leases and the Buyer thereafter shall be obligated to refund or apply such deposits in accordance with the terms of such Tenant Leases.

     (g) Licenses and Permits. All amounts prepaid, accrued or due and payable under any Permits (other than utilities which are separately prorated under subsection 10.1(b)) transferred to the Buyer shall be prorated as of the Cut-Off Time between the Seller and the Buyer. The Seller shall receive a credit for all deposits made by the Seller under the Licenses and Permits which are transferred to the Buyer or which remain on deposit for the benefit of the Buyer.

     (h) Deposits for Bookings. The Buyer shall receive a credit for all prepaid deposits for Bookings scheduled for accommodations or events on or after the Closing Date, except to the extent such deposits are transferred to the Buyer and for all other amounts prepaid by guests or other customers for accommodations or events on or after the Closing Date.

     (i) Restaurants and Bars, Etc. The Seller shall close out the transactions in the restaurants and bars in the Hotel as of the Cut-Off Time and all revenues with respect thereto and with respect to other services to guests of the Hotel, including without limitation, health club revenues, room service revenues and banquet revenues, if any, shall be prorated between the Seller and the Buyer as of the Cut-Off Time.

     (j) Vending Machines. The Seller shall remove all monies from all vending machines, laundry machines, pay telephones and other coin-operated equipment as of the

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Cut-Off Time and shall retain all monies collected therefrom as of the Cut-Off Time, and the Buyer shall be entitled to any monies collected therefrom after the Cut-Off Time.

     (k) Trade Payables. Except to the extent an adjustment or proration is made under another subsection of this Section 10.1, (i) the Seller shall pay in full prior to the Closing all amounts payable to vendors or other suppliers of goods or services to the Hotel (the “Trade Payables”) which are due and payable as of the Closing Date for which goods or services have been delivered to the Hotel prior to Closing, and (ii) the Buyer shall receive a credit for the amount of such Trade Payables which have accrued, but are not yet due and payable as of the Closing Date, and the Buyer shall pay all such Trade Payables accrued as of the Closing Date when such Trade Payables become due and payable up to the amount of such credit; provided, however, the Seller and the Buyer shall reprorate the amount of credit for any Trade Payables and pay any deficiency in the original proration to the other party promptly upon receipt of the actual bill for such goods or services. The Seller shall receive a credit for all advance payments or deposits made with respect to FF&E, Retail Merchandise, Property and Equipment and Inventories ordered, but not delivered to the Hotel prior to the Closing Date, and the Buyer shall pay the amounts which become due and payable for such FF&E, Retail Merchandise, Property and Equipment and Inventories which were ordered but not delivered prior to Closing. The reproration obligation in this subsection 10.1(k) shall survive the Closing.

     (l) Cash. The Seller shall receive a credit for all cash on hand at the Hotel and all cash on deposit in any house bank at the Hotel as of the Closing and all such cash on hand and cash on deposit in any house bank at the Hotel shall be transferred to and belong to the Buyer from and after the Closing. The Seller shall retain all amounts in any operating accounts of the Hotel in any bank, and there shall be no credit or adjustment hereunder with respect to such cash; provided, however, the Seller shall receive a credit for any reserve fund or account established pursuant to the terms of the Management Agreement which the Seller transfers to the Buyer at Closing, if any.

     (m) Employee Compensation. The Seller shall pay all wages, payroll taxes and fringe benefits (including accrued vacation pay to the extent actually earned) as well as social security, unemployment compensation, health, life and disability insurance and pension fund contributions, if any, of the Employees through the Closing Date, provided, that, the Seller shall have no liability or obligation to pay for any sick pay or accrued but unearned vacation pay. Notwithstanding the foregoing, with respect to accrued bonuses for 2007, the Seller’s pro-rated share shall be based upon the bonus program in place as of the beginning of 2006 in the 2006 approved budget for the Hotel prepared by Manager. The Buyer shall be responsible for all other liabilities relating to or in connection with Employees for the period on or after the Cut-Off Time and any liabilities relating to or in connection with sick pay and accrued but unearned vacation pay whether having accrued prior to, on or after the Cut-Off Time. The Buyer shall be responsible for all severance payments for Transferred Employees arising on or after the Closing and for all Employees not offered employment by the Buyer (or its manager) as of the Closing, or who do not accept employment by the Buyer (or its manager) on the same terms as those provided to such employees by Manager on the day immediately preceding the Closing Date.

     (n) The Buyer and the Seller each acknowledge that certain taxes and assessments accrue and are payable to the various local governments by any business entity

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operating a hotel and its related facilities. Included in those taxes and assessments may be business and occupation taxes, retail sales taxes, gross receipts taxes, and other special lodging or hotel taxes and assessments. For purposes of this Agreement, all of such taxes and assessments (expressly excluding (x) taxes and assessments covered in Section 10.1(a) of this Agreement, which shall be governed by the provisions of Section 10.1(a), and (y) corporate franchise taxes, and federal, state and local income taxes) shall be allocated between the Seller and the Buyer such that those attributable to the period prior to the Cut-Off Time shall be allocable to the Seller and those attributable to the period after the Cut-Off Time shall be allocable to the Buyer (with the attribution of such taxes and assessments hereunder to be done in a manner consistent with the attribution under this Agreement of the applicable revenues on which such taxes and assessments may be based). The Seller shall be obligated to pay all such taxes and assessments which accrue with respect to the period prior to the Cut-Off Time, and the Buyer shall be obligated to pay all such taxes and assessments which accrue with respect to the period after the Cut-Off Time.

     (o) Other. If applicable, the Purchase Price shall be adjusted at Closing to reflect the adjustment of any annual maintenance charges under Section 11 of the Protective Covenants described in Section 4.7(b) hereof applicable to the Property, the charges under the Roadway Easement, if applicable, and any other item which, (i) under the explicit terms of this Agreement, is to be apportioned at Closing, or (ii) is customarily prorated at the closing of similar transactions.

     (p) The provisions of Section 10.1 and the obligations of the Seller and the Buyer hereunder shall survive the Closing.

          SECTION 10.2 Re-Adjustment.

     (a) If any items to be adjusted pursuant to this Article X are not determinable at the Closing, the adjustment shall be made subsequent to the Closing when the charge is determined. The Buyer shall deliver to the Seller no later than 120 days following the Closing Date a schedule of prorations setting forth the Buyer’s determination of all adjustments to the prorations made at Closing that it believes are necessary to complete the prorations as set forth in this Article X. Any errors or omissions in computing adjustments or readjustments at the Closing or thereafter shall be promptly corrected or made, provided that the party seeking to correct such error or omission or to make such readjustment shall have notified the other party of such error or omission or readjustment on or prior to the date that is 180 days following the Closing.

     (b) The provisions of Section 10.2 and the obligations of the Seller and the Buyer hereunder shall survive the Closing.

          SECTION 10.3 Accounts Receivable.

     (a) Guest Ledger. All revenues received or to be received from transient guests on account of room rents for the period prior to and including the Cut-Off Time shall belong to the Seller. At Closing, the Seller shall receive a credit in an amount equal to: (i) all amounts unpaid as of the Cut-Off Time charged to the Guest Ledger for all room nights up to

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(but not including) the night during which the Cut-Off Time occurs, and (ii) one-half of all amounts unpaid as of the Cut-Off Time charged to the Guest Ledger for the room night which includes the Cut-Off Time and the Guest Ledger and all amounts charged thereto and unpaid as of the Cut-Off Time shall become the property of the Buyer. For the period beginning on the day immediately following the Cut-Off Time, such revenues collected from the Guest Ledger shall belong to the Buyer. In the event that an amount less than the total amount due from a guest is collected and guest continued in occupancy after the Cut-Off Time, such amount shall be applied first to any amount owing by such person to the Seller and thereafter to such person’s amounts accruing to the Buyer.

     (b) Accounts Receivable (Other than Guest Ledger).

     (i) On the Closing Date, the Seller shall assign to the Buyer all Accounts Receivable that are 90 days or less past due as of the Closing (the “Assigned Accounts Receivable”), the Buyer shall pay to the Seller an amount equal to 100% of all Accounts Receivable that are 90 days or less past due as of the Closing Date and shall not credit to the Seller any amounts for Accounts Receivable more than 90 days past due as of the Closing Date. The Buyer shall have the sole right to collect and retain all such Assigned Accounts Receivable. If any Assigned Accounts Receivable are paid to the Seller after the Closing, the Seller shall pay to the Buyer the amounts received by the Seller within 10 days after receipt of such amounts without any commission or deduction for the Seller.

     (ii) After the Closing, the Seller shall retain the right to collect all Accounts Receivable other than the Guest Ledger which is addressed in subsection 10.3(a), and the Assigned Accounts Receivable, which is addressed in subsection 10.3(b)(i) (such retained Accounts Receivable, the “Retained Accounts Receivable”). The Seller shall not receive a credit for the Retained Accounts Receivable. The Seller shall have the sole right to collect the Retained Accounts Receivable. If any Retained Accounts Receivable are paid to the Buyer after the Closing, the Buyer shall pay to the Seller the amounts received by the Buyer within 10 days after receipt of such amounts without any commission or deduction for the Buyer.

     (iii) The Accounts Receivable addressed in this subsection 10.3(b) shall not include the Guest Ledger, which is addressed in subsection 10.3(a).

     (iv) The parties’ obligations under this subsection 10.3(b) shall survive the Closing.

     (c) The provisions of Section 10.3 and the obligations of the Seller and the Buyer hereunder shall survive the Closing.

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ARTICLE XI.

INDEMNIFICATION

          SECTION 11.1 Indemnification by the Seller. From and after the Closing and subject to Sections 11.3 and 11.4, the Seller shall indemnify and hold the Buyer, its affiliates, members and partners, and the partners, shareholders, officers, directors, employees, representatives and agents of each of the foregoing (collectively, “Buyer-Related Entities”) harmless from and against any and all costs, fees, expenses, damages, deficiencies, interest and penalties (including, without limitation, reasonable attorneys’ fees and disbursements) suffered or incurred by any such indemnified party in connection with any and all losses, liabilities, claims, damages and expenses (“Losses”), arising out of, or in any way relating to (a) any breach of any representation or warranty of the Seller contained in this Agreement or in any Closing Document and (b) any breach of any covenant of the Seller which survives the Closing contained in this Agreement or in any Closing Document, including, without limitation, any amounts due and owing to the Buyer following the Closing pursuant to Article X. Notwithstanding anything to the contrary contained herein, the Seller shall have no liability or obligation to indemnify and hold the Buyer Related Entities harmless from any Losses to the extent such Losses results from or is related to any acts or omissions of Manager which would otherwise result in an indemnification obligation of Manager in favor of the Seller pursuant to the terms of the Management Agreement or constitute a default by Manager under the Management Agreement.

          SECTION 11.2 Indemnification by the Buyer. From and after the Closing and subject to Sections 11.3 and 11.4, the Buyer shall indemnify and hold the Seller, its affiliates, members and partners, and the partners, shareholders, officers, directors, employees, representatives and agents of each of the foregoing (collectively, “Seller-Related Entities”) harmless from any and all Losses arising out of, or in any way relating to, (a) any breach of any representation or warranty by the Buyer contained in this Agreement or in any Closing Document including, without limitation, any amounts due and owing to the Seller pursuant to Article X and (b) any breach of any covenant of the Buyer which survives the Closing contained in this Agreement or in any Closing Document including, without limitation, any amounts due and owing to the Seller following the Closing pursuant to Article X.

          SECTION 11.3 Limitations on Indemnification. Notwithstanding the foregoing provisions of Section 11.1, (a) the Seller shall not be required to indemnify the Buyer or any Buyer-Related Entities under subsection 11.1(a) unless the aggregate of all amounts for which an indemnity would otherwise be payable by the Seller under subsection 11.1(a) exceeds the Basket Limitation and, in such event, the Seller shall be responsible only for such amount in excess of the Basket Limitation, (b) in no event shall the liability of the Seller with respect to the indemnification provided for in subsection 11.1(a) exceed in the aggregate the Cap Limitation, and (c) if prior to the Closing, the Buyer or Manager obtains or has actual knowledge of any inaccuracy or breach of any representation, warranty or pre-closing covenant of the Seller contained in this Agreement (a “Buyer Waived Breach”) and

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nonetheless proceeds with and consummates the Closing, then the Buyer and any Buyer-Related Entities shall be deemed to have waived and forever renounced any right to assert a claim for indemnification under this Article XI for, or any other claim or cause of action under this Agreement at law or in equity on account of any such Buyer Waived Breach.

          SECTION 11.4 Survival. The (a) representations and warranties contained in this Agreement and the Closing Documents (other than the Deed or FIRPTA) shall survive for a period of six months after the Closing and (b) the covenants contained in the Agreement and the Closing Documents (other than the Deed or FIRPTA) shall survive for a period of one year after the Closing (the period beginning on the date hereof and ending on such applicable date in clause (a) or (b) being herein called the “Survival Period”) unless otherwise provided for in this Agreement. Each party shall have the right to bring an action against the other for the breach of the representations and warranties, covenants, obligations, provisions and liabilities hereunder or under the Closing Documents, but only on the following conditions: the party bringing the action for breach (i) gives a reasonably detailed written notice of such breach to the other party within 91 days after the expiration of the applicable Survival Period, and (ii) files an action for such breach on or before the first day following the second anniversary of the Closing Date, after which time all representations and warranties, covenants, obligations and liabilities (and any cause of action resulting from a breach thereof not then in litigation) herein or the Closing Documents (other than the Deed or FTRPTA) shall terminate. The provisions of this Section 11.4 shall not be applicable to the Deed or FIRPTA, which shall survive the Closing without limitation.

          SECTION 11.5 Indemnification as Sole Remedy. If the Closing has occurred, the sole and exclusive remedy (other than the right to seek specific performance of a covenant to be performed by the Seller or the Buyer after the Closing) available to a party in the event of a breach by the other party to this Agreement of any representation, warranty, covenant or other provision of this Agreement or any Closing Document which survives the Closing shall be the indemnifications provided for under this Article XI or elsewhere in this Agreement, which indemnifications shall survive the Closing as provided in Article XI. The provisions of this Section 11.5 shall not be applicable to the Deed or FIRPTA.

ARTICLE XII.

DEFAULT AND TERMINATION

          SECTION 12.1 The Seller’s Termination.

     (a) This Agreement may be terminated by the Seller prior to the Closing if (i) any of the conditions precedent to the Seller’s obligations set forth in Section 5.1 or elsewhere in this Agreement have not been satisfied or waived by the Seller on or prior to the Closing Date or (ii) there is a material breach or default by the Buyer in the performance of any of its obligations under this Agreement.

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     (b) In the event this Agreement is terminated by the Seller pursuant to subsection 12.1(a), this Agreement shall be null and void and of no further force or effect and neither party shall have any rights or obligations against or to the other except (1) for those provisions hereof which by their terms expressly survive the termination of this Agreement and (ii) as set forth in subsection 12.1(c). Notwithstanding the foregoing, if this Agreement is terminated by the Seller prior to the Closing for a failure of (i) the condition precedent set forth in subsection 5.1(f) and provided the Buyer is not in default of its obligation as set forth in Section 4.5 or (ii) the condition set forth in subsection 5.1(c) and provided any matters arising under such subsection 5.1(c) is not based upon any act or omission by the Buyer or any of its affiliates, the Escrow Agent shall disburse the Earnest Money to the Buyer as the Buyer’s sole and exclusive remedy, and upon such disbursement the Seller and the Buyer shall have no further obligations under this Agreement, except those which expressly survive such termination.

     (c) In the event the Seller terminates this Agreement as a result of a breach or default by the Buyer in any of its obligations under this Agreement, the Escrow Agent shall immediately disburse the Earnest Money to the Seller, and upon such disbursement the Seller and the Buyer shall have no further obligations under this Agreement, except those which expressly survive such termination. The Buyer and the Seller hereby acknowledge and agree that it would be impractical and/or extremely difficult to fix or establish the actual damage sustained by the Seller as a result of such default by the Buyer, and agree that the Earnest Money is a reasonable approximation thereof. Accordingly, in the event that the Buyer breaches this Agreement by defaulting in the completion of the purchase of the Asset, the Earnest Money shall constitute and be deemed to be the agreed and liquidated damages of the Seller, and shall be paid by the Escrow Agent to the Seller as the Seller’s sole and exclusive remedy hereunder; provided, however, the foregoing shall not limit the Buyer’s obligation to pay to the Seller all reasonable attorneys’ fees and costs of the Seller to enforce the provisions of this Section 12.1 or limit the Buyer’s indemnification obligations owed to the Seller pursuant to this Agreement which survive a termination of this Agreement. The payment of the Earnest Money as liquidated damages is not intended to be a forfeiture or penalty, but is intended to constitute liquidated damages to the Seller.

          SECTION 12.2 The Buyer’s Termination.

     (a) This Agreement may be terminated by the Buyer prior to the Closing if (i) any of the conditions precedent to the Buyer’s obligations set forth in Section 5.2 or specifically set forth elsewhere in this Agreement have not been satisfied or waived by the Buyer on or prior to the Closing Date or (ii) there is a material breach or default by the Seller in the performance of its obligations under this Agreement.

     (b) In the event this Agreement is terminated by the Buyer pursuant to subsection 12.1(a), the Escrow Agent shall disburse the Earnest Money to the Buyer as the Buyer’s sole and exclusive remedy, and upon such disbursement the Seller and the Buyer shall have no further obligations under this Agreement, except those which expressly survive such termination.

     (c) If there is a material breach or default by the Seller in the performance of its obligations under this Agreement, the Buyer, at its option and as its sole and exclusive

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remedy, may either (i) terminate this Agreement, direct the Escrow Agent to deliver the Earnest Money to the Buyer and retain the Earnest Money, at which time this Agreement shall be terminated and of no further force and effect except for the provisions which explicitly survive such termination, or (ii) specifically enforce the terms and conditions of this Agreement provided such action seeking specific performance is initiated within 90 days of the scheduled Closing Date. The Buyer and the Seller hereby acknowledge and agree that it would be impractical and/or extremely difficult to fix or establish the actual damage sustained by the Buyer as a result of such default by the Seller, and agree that the remedy set forth in clause (i) above is a reasonable approximation thereof. Accordingly, in the event that the Seller breaches this Agreement by defaulting in the completion of the sale, and the Buyer elects not to exercise the remedy set forth in clause (ii) above but instead elects the remedy set forth in clause (i) above, the delivery of the Earnest Money to the Buyer shall be the Buyer’s sole and exclusive remedy. The Buyer agrees to, and does hereby, waive all other remedies against the Seller which the Buyer might otherwise have at law or in equity by reason of such default by the Seller.

ARTICLE XIII.

TAX CERTIORARI PROCEEDINGS

          SECTION 13.1 Prosecution and Settlement of Proceedings. If any tax reduction proceedings in respect of the Property, relating to any fiscal years ending prior to the fiscal year in which the Closing occurs are pending at the time of the Closing, the Seller reserves and shall have the right to continue to prosecute and/or settle the same. If any tax reduction proceedings in respect of the Property, relating to the fiscal year in which the Closing occurs, are pending at the time of Closing, then the Seller reserves and shall have the right to continue to prosecute and/or settle the same; provided, however, that the Seller shall not settle any such proceeding without the Buyer’s prior written consent, which consent shall not be unreasonably withheld or delayed. The Buyer shall reasonably cooperate with the Seller in connection with the prosecution of any such tax reduction proceedings.

          SECTION 13.2 Application of Refunds or Savings. Any refunds or savings in the payment of taxes resulting from such tax reduction proceedings applicable to taxes payable during the period prior to the date of the Closing shall belong to and be the property of the Seller, and any refunds or savings in the payment of taxes applicable to taxes payable from and after the date of the Closing shall belong to and be the property of the Buyer. All attorneys’ fees and other expenses incurred in obtaining such refunds or savings shall be apportioned between the Seller and the Buyer in proportion to the gross amount of such refunds or savings payable to the Seller and the Buyer, respectively (without regard to any amounts reimbursable to tenants); provided, however, that neither the Seller nor the Buyer shall have any liability for any such fees or expenses in excess of the refund or savings paid to such party unless such party initiated such proceeding.

          SECTION 13.3 Survival. The provisions of this Article XIII shall survive the Closing.

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ARTICLE XIV.

MISCELLANEOUS

          SECTION 14.1 Use of Blackstone Name and Address. The Buyer hereby acknowledges and agrees that neither the Buyer nor any affiliate, successor, assignee or designee of the Buyer shall be entitled to use the name “Blackstone”, “MeriStar”, “CapStar” or “Equistar” in connection with the operation, ownership and use of the Property. The provisions of this Section 14.1 shall survive the Closing and any termination of this Agreement.

          SECTION 14.2 Exculpation of the Seller. Notwithstanding anything to the contrary contained herein, the Seller’s shareholders, limited partners, members, the partners or members of such partners, the shareholders of such partners, members, and the trustees, officers, directors, employees, agents and security holders of the Seller and the partners or members of the Seller assume no personal liability for any obligations entered into in connection with or relating to this Agreement on behalf of the Seller and their respective individual assets shall not be subject to any claims of any person relating to such obligations. The foregoing shall govern any direct and indirect obligations of the Seller under this Agreement. The provisions of this Section 14.2 shall survive the Closing and any termination of this Agreement.

          SECTION 14.3 Brokers.

     (a) The Seller represents and warrants to the Buyer that it has dealt with no broker, finder or similar person with respect to this Agreement or the transactions contemplated hereby other than Broker. The Seller agrees to indemnify, protect, defend and hold the Buyer harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from the Seller’s breach of the foregoing representation in this subsection (a). The Seller shall be responsible for the payment of any amounts due Broker. The provisions of this subsection 14.3(a) shall survive the Closing and any termination of this Agreement.

     (b) The Buyer represents and warrants to the Seller that it has dealt with no broker, finder or similar person with respect to this Agreement or the transactions contemplated hereby other than Broker. The Buyer agrees to indemnify, protect, defend and hold the Seller harmless from and against all claims, losses, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and disbursements) and charges resulting from the Buyer’s breach of the foregoing representations in this subsection (b). The provisions of this subsection 14.3(b) shall survive the Closing and any termination of this Agreement.

          SECTION 14.4 Confidentiality; Press Release; IRS Reporting Requirements.

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     (a) The Buyer and the Seller, and each of their respective affiliates shall hold as confidential all information disclosed in connection with the transaction contemplated hereby and concerning each other, the Asset, this Agreement and the transactions contemplated hereby and shall not release any such information to third parties without the prior written consent of the other parties hereto, except (i) any information which was previously or is hereafter publicly disclosed or was available on a non-confidential basis prior to its disclosure (other than in violation of this Agreement or other confidentiality agreements to which affiliates of the Buyer are parties), (ii) to their partners, advisers, underwriters, analysts, employees, affiliates, officers, directors, consultants, lenders, accountants, legal counsel, title companies or other advisors of any of the foregoing, provided that they are advised as to the confidential nature of such information and are instructed to maintain such confidentiality and (iii) to comply with any law, rule or regulation (including without limitation those of the United States Securities and Exchange Commission) or the requirements of any securities exchange on which such party or its parent company is listed. The foregoing shall constitute a modification of any prior confidentiality agreement that may have been entered into by the parties. The provisions of this Section shall survive the termination of this Agreement for a period of one year.

     (b) The Seller or the Buyer may issue a press release with respect to this Agreement and the transactions contemplated hereby, provided that the content of any such press release shall be subject to the prior written consent of the other party hereto, not to be unreasonably withheld, conditioned or delayed.

     (c) For the purpose of complying with any information reporting requirements or other rules and regulations of the IRS that are or may become applicable as a result of or in connection with the transaction contemplated by this Agreement, including, but not limited to, any requirements set forth in proposed Income Tax Regulation Section 1.6045-4 and any final or successor version thereof (collectively, the “IRS Reporting Requirements”), the Seller and the Buyer hereby designate and appoint the Escrow Agent to act as the “Reporting Person” (as that term is defined in the IRS Reporting Requirements) to be responsible for complying with any IRS Reporting Requirements. The Escrow Agent hereby acknowledges and accepts such designation and appointment and agrees to fully comply with any IRS Reporting Requirements that are or may become applicable as a result of or in connection with the transaction contemplated by this Agreement. Without limiting the responsibility and obligations of the Escrow Agent as the Reporting Person, the Seller and the Buyer hereby agree to comply with any provisions of the IRS Reporting Requirements that are not identified therein as the responsibility of the Reporting Person, including, but not limited to, the requirement that the Seller and the Buyer each retain an original counterpart of this Agreement for at least four years following the calendar year of the Closing.

          SECTION 14.5 Escrow Provisions.

     (a) The Escrow Agent shall hold the Earnest Money in escrow in an interest-bearing bank account at a federally insured banking institution (the “Escrow Account”).

     (b) The Escrow Agent shall hold the Earnest Money in escrow in the Escrow Account until the Closing or sooner termination of this Agreement and shall hold or apply such proceeds in accordance with the terms of this subsection (b). The Seller and the Buyer

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understand that no interest is earned on the Earnest Money during the time it takes to transfer into and out of the Escrow Account. At the Closing, the Earnest Money shall be paid by the Escrow Agent to, or at the direction of, the Seller. If for any reason the Closing does not occur and either party makes a written demand upon the Escrow Agent for payment of such amount, the Escrow Agent shall, within 24 hours give written notice to the other party of such demand. If the Escrow Agent does not receive a written objection within five Business Days after the giving of such notice, the Escrow Agent is hereby authorized to make such payment. If the Escrow Agent does receive such written objection within such five Business Day period or if for any other reason the Escrow Agent in good faith shall elect not to make such payment, the Escrow Agent shall continue to hold such amount until otherwise directed by joint written instructions from the parties to this Agreement or a final judgment of a court of competent jurisdiction. However, the Escrow Agent shall have the right at any time to deposit the Earnest Money with the clerk of the court of New York County. The Escrow Agent shall give written notice of such deposit to the Seller and the Buyer. Upon such deposit the Escrow Agent shall be relieved and discharged of all further obligations and responsibilities hereunder.

     (c) The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and the Escrow Agent shall not be liable to either of the parties for any act or omission on its part, other than for its gross negligence or willful misconduct. The Seller and the Buyer shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including attorneys’ fees and disbursements, incurred in connection with the performance of the Escrow Agent’s duties hereunder.

     (d) The Escrow Agent has acknowledged its agreement to these provisions by signing this Agreement in the place indicated following the signatures of the Seller and the Buyer.

          SECTION 14.6 Successors and Assigns; No Third-Party Beneficiaries. The stipulations, terms, covenants and agreements contained in this Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective permitted successors and assigns (including any successor entity after a public offering of stock, merger, consolidation, purchase or other similar transaction involving a party hereto) and nothing herein expressed or implied shall give or be construed to give to any person or entity, other than the parties hereto and such assigns, any legal or equitable rights hereunder.

          SECTION 14.7 Assignment. This Agreement may not be assigned by the Buyer without the prior written consent of the Seller. The Buyer may designate an affiliate to which the Asset will be assigned at the Closing, provided that the Buyer provides the Seller written notice of such designation at least five days prior to the Closing and the Buyer will continue to remain primarily liable under this Agreement notwithstanding any such designation. Notwithstanding anything to the contrary contained herein, the Buyer may assign its rights and obligations under this Agreement to an affiliate of the Buyer provided that the Buyer provides the Seller with a fully executed assignment of contract at least five days prior to the Closing and the Buyer will continue to remain primarily liable under this Agreement notwithstanding any such assignment.

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          SECTION 14.8 Further Assurances.

     (a) From time to time, as and when requested by any party hereto, the other party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other party may reasonably deem necessary or desirable to consummate the transactions contemplated by this Agreement.

     (b) The Seller shall after the Closing and if requested by the Buyer, based on the Buyer’s obligations under regulatory requirements, reasonably cooperate with the Buyer in the Buyer’s preparation of audited financial statements of the Property for the calendar year in which the Closing occurs and the three preceding calendar years, by providing such information as may be in the possession of the Seller as shall be required to enable an accounting firm of the Buyer’s choosing to prepare such audited financial statements, the cost of which shall be borne by the Buyer. Any information provided by the Seller to the Buyer pursuant to this subsection 14.8(b) shall be without any representations or warranties. The Buyer agrees to reimburse the Seller for the Seller’s actual and reasonable costs in connection with the Seller’s cooperation pursuant to this subsection 14.8(b).

     (c) The provisions of this Section 14.8 shall survive the Closing.

          SECTION 14.9 Notices. All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and shall be (a) personally delivered, (b) delivered by express mail, Federal Express or other comparable overnight courier service, (c) telecopied, with telephone or written confirmation within one Business Day, or (d) mailed to the party to which the notice, demand or request is being made by certified or registered mail, postage prepaid, return receipt requested, as follows:

     To the Seller:

c/o Blackstone Real Estate Acquisitions V L.L.C.
1925 Century Park Estates, Suite 1700
Los Angeles, CA 90067
Attention: Robert Harper
Facsimile: 310-228-6998
Telephone: 310-228-6950

     with copies thereof to:

LQ Management
909 Hidden Ridge, Suite 600
Irving, Texas 75038
Attention: Mark M. Chloupek
Facsimile: 214-492-6500
Telephone: 214-492-6990

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     To the Buyer:

Interstate Hotel & Resorts, Inc.
4501 North Fairfax Drive — Suite 500
Arlington, Virginia 22203
Attention: Christopher L. Bennett, Esq.
Facsimile: 703-542-0965
Telephone: 703-387-3332

     with copies thereof to:

DeCampo, Diamond & Ash
747 Third Avenue — 37th Floor
New York, New York 10017
Attention: William H. Diamond, Esq.
Facsimile: 212-758-1728
Telephone: 212-758-3500

     To the Escrow Agent/Title Company:

First American Title Insurance Company
1801 K Street, NW, Suite 200-K
Washington, DC 20006
Attention: Craig A. Johnson
Facsimile: 202-530-1433
Telephone: 202-530-1200 ext. 456

All notices (i) shall be deemed to have been given on the date that the same shall have been delivered in accordance with the provisions of this Section and (ii) may be given either by a party or by such party’s attorneys. Any party may, from time to time, specify as its address for purposes of this Agreement any other address upon the giving of 10 days’ prior notice thereof to the other parties.

          SECTION 14.10 Entire Agreement. This Agreement, along with the Exhibits and Schedules hereto contains all of the terms agreed upon between the parties hereto with respect to the subject matter hereof, and all understandings and agreements heretofore had or made among the parties hereto are merged in this Agreement which alone fully and completely expresses the agreement of the parties hereto.

          SECTION 14.11 Amendments. This Agreement may not be amended, modified, supplemented or terminated, nor may any of the obligations of the Seller or the Buyer hereunder be waived, except by written agreement executed by the party or parties to be charged.

          SECTION 14.12 No Waiver. No waiver by either party of any failure or refusal by the other party to comply with its obligations hereunder shall be deemed a waiver of any other or subsequent failure or refusal to so comply.

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          SECTION 14.13 Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with, the laws of the State of Texas.

          SECTION 14.14 Intentionally Omitted.

          SECTION 14.15 Severability. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

          SECTION 14.16 Section Headings. The headings of the various Sections of this Agreement have been inserted only for purposes of convenience, are not part of this Agreement and shall not be deemed in any manner to modify, explain, expand or restrict any of the provisions of this Agreement.

          SECTION 14.17 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.

          SECTION 14.18 Acceptance of Deed. The acceptance of the Deed by the Buyer shall be deemed full compliance by the Seller of all of the Seller’s obligations under this Agreement except for those obligations of the Seller which are specifically stated to survive the Closing.

          SECTION 14.19 Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits or amendments hereto.

          SECTION 14.20 Recordation. Neither this Agreement nor any memorandum or notice of this Agreement may be recorded by any party hereto without the prior written consent of the other party hereto. The provisions of this Section shall survive the Closing or any termination of this Agreement. The Buyer also agrees not to file any lis pendens or other instrument against the Asset in connection herewith in bad faith. In furtherance of the foregoing, the Buyer (i) acknowledges that the filing of a lis pendens in bad faith against or encumbering the Asset or the recording of any memorandum or notice of this Agreement could cause significant monetary and other damages to the Seller, and (ii) hereby indemnifies the Seller from and against any and all liabilities, damages, losses, costs or expenses (including without limitation attorneys fees and expenses) arising out of a breach of this Section 14.20. The provisions of this Section 14.20 shall survive the Closing or any termination of this Agreement.

          SECTION 14.21 WAIVER OF JURY TRIAL. THE SELLER AND THE BUYER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,

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PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY AGAINST ANOTHER PARTY ON ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT. THE PROVISIONS OF THIS SECTION 14.21 SHALL SURVIVE THE CLOSING AND ANY TERMINATION OF THIS AGREEMENT.

          SECTION 14.22 Time is of the Essence. The Seller and the Buyer agree that time is of the essence with respect to the obligations of the Buyer and the Seller under this Agreement.

          SECTION 14.23 Bulk Sale; Occasional Sale. The Seller and the Buyer specifically waive compliance with the Uniform Commercial Code of the State of Texas with respect to bulk transfers, with any similar provision under any applicable law of the County of Harris and City of Houston. The Buyer and the Seller acknowledge that the Seller is selling the entire operating assets of a business pursuant to this Agreement, which is intended to qualify as an occasional sale as defined in the Tax Code Section 151.304.

     SECTION 14.24 STORAGE TANKS. THE BUYER (HAVING AN ADDRESS AS SET FORTH IN SECTION 14.9) ACKNOWLEDGES THAT INCLUDED AS PART OF THE ASSET TO BE CONVEYED BY SELLER (HAVING AN ADDRESS AS SET FORTH IN SECTION 14.9) HEREUNDER ARE TWO ABOVEGROUND STORAGE TANKS. ONE STORAGE TANK IS A STEEL, 150 GALLON ABOVEGROUND STORAGE TANK CONTAINING DIESEL FUEL USED AS FUEL FOR THE EMERGENCY GENERATOR. THE OTHER STORAGE TANK IS A STEEL, 6,000 GALLON ABOVEGROUND STORAGE TANK CONTAINING WATER TO BE USED AS A RESERVE FOR THE FIRE SPRINKLER PUMP. THE ABOVEGROUND STORAGE TANKS WHICH ARE INCLUDED IN THIS CONVEYANCE ARE PRESUMED TO BE REGULATED BY THE TEXAS COMMISSION ON ENVIRONMENTAL QUALITY AND MAY BE SUBJECT TO CERTAIN REGISTRATION, DELIVERY PROHIBITION, INSTALLATION NOTIFICATION, AND OTHER REQUIREMENTS FOUND IN TITLE 30 TEXAS ADMINISTRATIVE CODE, CHAPTER 334.

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

SELLER:
CAPSTAR WESTCHASE PARTNERS, L.P., a Delaware limited partnership
By:	WESTCHASE SPE LLC, a Delaware limited partnership, its general partner
	By:	/s/ Mark M. Chloupek
		Name: Mark M. Chloupek
		Title: Vice President

BUYER:
INTERSTATE WESTCHASE, LP, a Delaware limited partnership
By:	Interstate Westchase GP, LLC, a Delaware limited liability company, its general partner
	By:	Interstate Westchase MC, LLC, a Delaware limited liability company, its manager and sole member
		By:
			Name:
			Title:

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

SELLER:
CAPSTAR WESTCHASE PARTNERS, L.P., a Delaware limited partnership
By:	WESTCHASE SPE LLC, a Delaware limited partnership, its general partner
	By:
		Name:
		Title:

BUYER:
INTERSTATE WESTCHASE, LP, a Delaware limited partnership
By:	Interstate Westchase GP, LLC, a Delaware limited liability company, its general partner
	By:	Interstate Westchase MC, LLC, a Delaware limited liability company, its manager and sole member
		By:	/s/ Christopher L. Bennett
			Name:	Christopher L. Bennett
			Title:	Secretary

EX-10.16

EXHIBIT 10.16

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”), dated as of January 1, 2007 (the “Effective Date”), made and entered into by and between Interstate Hotels and Resorts, Inc., a Delaware corporation, and Interstate Management Company, LLC, a Delaware corporation (together the “Company”), and Henry L. Ciaffone (the “Executive”) hereby amends and restates the employment agreement between the Company and the Executive dated as of January 1, 2005 (the “Old Agreement”).

RECITALS

     A. The Executive is currently serving as President, International Operations and Development of the Interstate Hotels and Resorts, Inc. pursuant to the Old Agreement;

     B. The Company and the Executive desire to amend and restate the Old Agreement and to continue the employment relationship with the Executive as President, International Development and Operations on the terms and conditions herein provided.

     NOW, THEREFORE, the parties agree as follows:

     1. Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters:

          (a) “Base Pay” means the salary provided for in Section 4(a), as such amount may be adjusted hereunder.

          (b) “Board” means the Board of Directors of the Company or an authorized committee thereof.

          (c) “Cause” means that the Executive shall have committed:

               (i) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company or any Subsidiary;

               (ii) intentional wrongful damage to property of the Company or any Subsidiary;

               (iii) intentional Unauthorized Disclosure, Use or Solicitation; or

               (iv) intentional wrongful engagement in any Competitive Activity; and any such act shall have been materially harmful to the Company. For purposes of this Agreement, no act or failure to act on the part of the Executive will be deemed “intentional” if it was due primarily to an error in judgment or negligence, but will be deemed “intentional” only if done or omitted to be done by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive will not be deemed to have been terminated for “Cause” hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the full Board of Directors then in office at a meeting of the Board of Directors called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting “Cause” as herein defined and specifying the particulars thereof in detail, provided, however, that nothing herein will limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination and such determination, albeit a condition to any termination for “Cause” as aforesaid, will not create any presumption that “Cause” in fact exists.

          (d) “Competitive Activity” means any act by the Executive that is prohibited under Section 6(a).

          (e) “Disability” means the Executive’s inability, as a result of mental or physical illness, injury or disease, substantially to perform his material duties and responsibilities under this Agreement for a period of 180 consecutive calendar days within any 12-month period.

          (f) “Employee Benefits” means the perquisites, benefits and service credit for benefits as provided under any and all employee welfare benefit policies, plans, programs or arrangements in which Executive is entitled to participate, including without limitation any group or other life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company), disability, salary continuation, expense reimbursement and other employee benefit policies, plans, programs or arrangements that may now exist or any equivalent successor policies, plans, programs or arrangements that may be adopted hereafter by the Company.

          (g) “Subsidiary” means an entity in which the Company directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock or, if a partnership, limited liability company or similar entity, at least 50% of the equity capital interests thereof.

          (h) “Term of Employment” means the period specified in Section 2.

          (i) “Unauthorized Disclosure, Use or Solicitation” means any violation or breach by the Executive of any provision of Section 7.

     2. Term of Employment. The Company hereby employs the Executive and the Executive hereby accepts such employment, effective as of the Effective Date and ending at the close of business on December 31, 2009. The Executive will devote substantially all of his business time to the business and affairs of the Company and its Subsidiaries (excluding reasonable amounts of time devoted to charitable purposes, passive investments and directorships and periods in which he is physically or mentally ill, injured or otherwise disabled).

     3. Duties, Responsibilities and Office Location. During the Term of Employment, the Executive will have and perform the duties and responsibilities set forth in Exhibit A, including the establishment and implementation of a succession plan. While in the United States, the Executive shall utilize his residence as his primary office location.

     4. Compensation and Benefits.

          (a) The Company and the Executive agree that the compensation due upon expiration of the Old Agreement pursuant to Section 5(c) of the Old Agreement totals $1,250,000 (“Old Agreement Compensation”) and such amount shall be paid to the Executive on the first business day of 2008 notwithstanding any other provision of this Agreement. The amount to be paid pursuant to this paragraph 4(a) is in addition to any other amounts to be paid to the Executive under this Agreement.

          (b) Base Pay. During the Term of Employment, the Executive will receive Base Pay of $475,000 per year. Base Pay will be payable by the Company in accordance with its regular compensation practices and policies applicable to senior executives of the Company.

          (c) Annual Special Bonus. The Annual Special Bonus will be payable on the first business day of 2007, 2008 and 2009. For 2007 the Annual Special Bonus will equal $312,500, for 2008 the Annual Special Bonus will equal $303,125 and for 2009 the Annual Special Bonus will equal $300,000. The Annual Special Bonus to be paid in 2007 pursuant to this paragraph 4(c) replaces the Annual Special Bonus payment to be paid in 2007 under the Old Agreement. The Annual Special Bonus shall not be paid to the Executive in the event that the owner of the Moscow hotels terminates the three management agreements without compensation to the Company.

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          (d) Annual Performance Bonus. For each fiscal year of the Company during the Term of Employment or pro-rata portion thereof the Executive shall receive an Annual Performance Bonus that can vary from a minimum of 100% to a maximum of 125% of the Executive’s Base Pay. In the event of termination of this Agreement for any reason other than Cause, the Executive shall receive the pro rata portion of the Annual Performance Bonus for the then current fiscal year.

          (e) Development Fee. Beginning January 1, 2008, the Executive shall also receive quarterly 5% of the gross management fees collected by the Company from each hotel management agreement entered into for hotels located in the former Soviet Union (“New Hotels”) during the Term (“the Development Fee”). (New Hotels include, without limitation, the Holiday Inn Lesnaya, Holiday Inn Suschevsky and 30 Tverskaya.) The Development Fee shall survive this Agreement and be payable to the Executive or his heirs through the earlier of (i) the end of the fiscal quarter which includes the tenth anniversary of the execution of the particular management agreement or (ii) the second fiscal year after the year of the demise of the Executive, as long as the Company has a management agreement with any of the New Hotels.

          (f) Employee Benefits. During the Term of Employment, the Executive will be entitled to (i) participate in all employee benefit plans, programs, policies and arrangements sponsored, maintained or contributed to by the Company, subject to and in accordance with the terms and conditions of such plans, programs, policies and arrangements as they relate to similarly situated senior executives of the Company, (ii) participate in all equity and long-term incentive plans sponsored or maintained by the Company at a level commensurate with his position, subject to and in accordance with the terms and conditions of such plans as they relate to senior executives of the Company, and (iii) receive all other benefits and perquisites provided or made available by the Company to its senior executives, subject to and in accordance with the terms and conditions of such benefits and perquisites as they relate to senior executives of the Company.

          (g) Expenses. During the Term of Employment, the Executive will be entitled to reimbursement of all documented reasonable travel and entertainment expenses incurred by him on behalf of the Company in the course of the performance of his duties hereunder, subject to and in accordance with the terms and conditions of the Company’s expense reimbursement policies as they relate to senior executives of the Company.

          (h) Vacation. During the Term of Employment, the Executive will be entitled to not less than four weeks of vacation, in addition to paid public holidays as observed by the Company from year to year, subject to and in accordance with the terms and conditions of the Company’s regular compensation practices and policies as they relate to senior executives of the Company. In addition, the Executive will receive during 2007 only an additional four (4) weeks paid time off for home leave. This four (4) weeks will consist of one (1) trip that is four (4) weeks long to the Executive’s home in the United States. This trip is considered paid time.

          (i) Cost of Living Adjustments. The Company shall pay to the Executive a cost of living adjustment in the amount of 25% of the Base Pay per fiscal year; provided that such payment shall be pro-rated for any partial fiscal year of employment, and shall terminate March 31, 2008.

          (j) Travel Reimbursement. Each fiscal year during the Term of this Agreement through March 31, 2008, the Company shall reimburse to the Executive the cost of six (6) round trip first class airline tickets between Moscow, Russia and Sarasota, Florida in the United States for the Executive and his spouse provide that the Company shall reimburse the Executive for only two (2) such trips in 2008. (The Executive may apply this allowance or a portion thereof towards the costs of meeting his wife, or having his wife meet the Executive, in another location provided that the total costs do not exceed the costs of the six US/Russia round trip tickets each may utilize as set forth above and that unused amounts in a given year may be carried over to a subsequent year only during the Term of Employment.) This is in addition to any trips by the Executive before or after March 31, 2008 that are required for business purposes and any trips that are required by the Executive’s spouse to accompany the Executive for business purposes. Flights shall be first class when available.

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          (k) Relocation Upon Termination. The Company shall reimburse the Executive for all relocation expenses incurred by Executive in connection with relocating his residence to the United States upon the termination of this Agreement or during its term.

          (l) Tax Equalization Program. As part of the Executive’s compensation and benefits while in Russia, the Company will provide a tax equalization program. The purpose of the tax equalization program is to ensure that the Executive does not incur any additional U.S. Federal income tax or state income tax that the Executive would not have incurred had he been employed in the United States and were not receiving overseas benefits such as housing, schooling allowance, cost of living allowance, foreign service premium, Annual Special Bonus,, and Old Agreement Compensation all of which shall be tax equalized. The Company will reimburse the Executive for all required Russian income taxes.

          The accounting firm of PriceWaterhouseCoopers or any independent, certified public accounting firm so designated by the Company will compute the tax equalization payment. The tax equalization payment will cover the year in which the Executive starts his foreign assignment and will conclude when all tax costs related to the overseas assignment have concluded.

          As part of the tax equalization program the Executive will be provided with tax preparation services. These services will be provided for the Executive beginning calendar year 2002 and ending the full calendar year when all tax issues related to the overseas assignment have concluded. The overseas assignment shall be deemed to end March 31, 2008 provided an agreed upon organizational structure is in place acceptable to the owner of the hotels in Moscow.

          Should the Executive’s employment be terminated without cause before the end of a tax year, the Executive will receive tax equalization for the pro-rata time the Executive was located and employed by the Company in Moscow, Russia.

          (m) Foreign Service Premium. The Company shall pay to the Executive a foreign services premium in the amount of 25% of the Base Pay per fiscal year; provided that such payment shall be pro-rated for any partial fiscal year of employment, and shall terminate March 31, 2008.

          (n) Housing Reimbursement. Through March 31, 2008, the Company will reimburse the Executive for up to $240,000 for each fiscal year for rental of his current residence in Moscow, Russia or a residence of comparable quality; provided that such payment will be pro-rated for any partial fiscal year of employment. The Company agrees to reimburse the Executive for any lease termination cost incurred by the Executive in the event that this Agreement is terminated. The Company further agrees to reimburse the Executive for any costs associated with the relocation of his current Moscow residence to another Moscow residence. The Executive agrees not to enter into a lease of his residence with a term extending beyond March 31, 2008, without the Company’s approval.

          (o) Life and Disability Insurance. The Company agrees to reimburse the Executive for up to $20,000 per fiscal year for a life insurance policy and/or a disability policy.

          (p) Annual Medical Examination. The Company agrees to reimburse the Executive for all costs incurred by the Executive for an Annual Medical Examination at a facility such as the Mayo Clinic- Jacksonville for the Executive and his spouse. These costs shall be reduced by any costs reimbursed to the Executive or paid directly under the Company’s medical plan. The total cost to the Company shall not exceed $6,000 per year.

          (q) Indemnification. As part of duties under this Agreement, the Executive currently serves as the Director General of several entities affiliated with or owned by Mospromstroi (as defined in Section 6(b)). The Company shall indemnify, defend and hold harmless the Executive from and against any and all liabilities, actions, damages, costs and expenses (including attorneys’ fees) arising out of, or relating to, the Executive holding such position(s) to the maximum extent permitted by law. Such obligation shall, among other things, require the Company to take all feasible steps at the request of the Executive to enable the Executive to return to the United States promptly in the event that the Executive is detained in Russia against his will or faces the possibility of

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detention. In addition, as brought to the attention of Company by the Executive, the Company shall use its best efforts to explore additional means to afford to the Executive the maximum protections available in connection with holding such positions.

     5. Termination of Employment.

          (a) Termination by Notice. Subject to the provisions of Section 2 and this Section 5, the Executive’s employment hereunder will be for the Term of Employment specified in Section 2.

          (b) Voluntary Termination or Termination for Cause. The Company may, with or without notice, terminate the Executive’s employment hereunder for Cause. If the Executive’s employment is terminated by the Company effective during the Term of Employment for Cause, or is terminated by the Executive, the Executive will not be entitled to the continuation of any compensation or benefits provided herein, and shall retain only the pro rata portion of the Annual Special Bonus for the then current fiscal year. Nothing herein will limit the Company’s rights against the Executive or the rights and obligations of the parties under Sections 6 and 7.

          (c) Termination For Any Reason Other Than Cause or Disability. If the Executive’s employment is terminated by the Company during the Term of Employment for any reason other than Cause or Disability:

          (i) The Executive will be entitled to receive the greater of (A) the sum of his Base Pay, Annual Special Bonus and Annual Performance Bonus for one (1) year immediately preceding the effective date of his termination of employment and (B) his Base Pay (at the rate in effect on the effective date of his termination of employment), and Annual Special Bonus and Annual Performance Bonus payable during the remaining Term of Employment, in either case payable in accordance with the Company’s regular compensation practices and policies applicable to senior executives; provided however, (x) that under no circumstances shall the Executive receive a fourth Annual Special Bonus, (y) that the Executive shall receive only one half of the sums stipulated under this paragraph 5(c)(i) in the event that total fees forecasted to be earned by the Company from hotels under the Executive’s direction are less than $9 million during the fiscal year when termination occurs and (z) the Development Fee will continue following such termination as provided for in paragraph 4(e) of this Agreement and such Development Fee is not subject to being reduced by half as provided for in clause 5(c)(i)(y) above; and

          (ii) For eighteen (18) months following the effective date of the Executive’s termination of employment (or the expiration of the Term of Employment by its own terms) or, if longer, the remainder of the Term of Employment (the “Continuation Period”), the Company will arrange to provide the Executive and his eligible dependents with Employee Benefits (excluding retirement, deferred compensation and stock option, stock purchase, stock appreciation or similar compensatory benefits) that are substantially similar to those that the Executive and such dependents were receiving or entitled to receive immediately prior to the effective date of the Executive’s termination of employment, except that the level of any such Employee Benefits to be provided to the Executive and such dependents may be reduced in the event of a corresponding reduction generally applicable to all senior executives. If and to the extent that any benefit described in this Section 5(c)(ii) is not or cannot be paid or provided under any policy, plan, program or arrangement of the Company or any Subsidiary, as the case may be, then the Company will itself pay or provide for the payment of such Employee Benefits to the Executive, his dependents and his beneficiaries. Employee Benefits otherwise receivable by the Executive pursuant to this Section 5(c)(ii) will be reduced to the extent comparable welfare benefits are actually received by the Executive from another employer or Medicare during the Continuation Period following the effective date of the Executive’s termination of employment, and any such benefits actually received by the Executive must be reported by the Executive to the Company.

          (d) Death or Disability. If the Executive’s employment is terminated effective during the Term of Employment as a result of his death or by the Company as a result of his Disability, the Executive (or, in the event of his death, his designated beneficiary) will be entitled to receive his Base Pay (at the rate in effect on the

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effective date of his termination of employment), the Annual Special Bonus, and the Annual Performance Bonus, if any, for a period of 12 months following such effective date, payable in accordance with the Company’s regular compensation practices and policies applicable to senior executives but less any amounts paid to the Executive under any long-term disability plan, program, policy or arrangement of the Company or any Subsidiary.

          (e) Compensation and Benefits on Termination. Except as otherwise provided in Section 5(c) or (d):

          (i) All compensation and benefits payable to the Executive pursuant to Section 4 (other than compensation and benefits previously earned and, if applicable, provided for under the terms of this Agreement or any other applicable employee benefit plan, program, policy, arrangement or agreement) will terminate as of the effective date of the Executive’s termination of employment; and

          (ii) The Executive will not be entitled to, and hereby waives, any claims for compensation or benefits (other than compensation and benefits previously earned and, if applicable, provided for under the terms of this Agreement or any other applicable employee benefit plan, program, policy, arrangement or agreement) payable after such effective date and for damages arising in connection with his termination of employment pursuant to this Agreement.

          (f) No Mitigation Obligation. The Company hereby acknowledges that it will be difficult and may be impossible for the Executive to find reasonably comparable employment following the Termination Date and that the non-competition covenant contained in Section 6 will further limit the employment opportunities for the Executive. Accordingly, the payment of the compensation by the Company to the Executive in accordance with the terms of this Agreement is hereby acknowledged by the Company to be reasonable, and the Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise, except as expressly provided in the last sentence of Section 5(c)(ii).

     6. Competitive Activity. (a) During the Term of Employment and the period ending eighteen (18) months following the effective date of the Executive’s termination of employment for cause or expiration of this Agreement, the Executive will not:

(i)	enter into or engage in any business which competes or interferes with, or disturbs, the Company’s business; or
(ii)	solicit customers, business patronage or orders for, or sell, any product or products, or service or services, in competition with, or for any business, wherever located, that competes or interferes with, or disturbs, the Company’s business; or
(iii)	divert, entice or otherwise take away any customers, business or patronage or orders of the Company, or attempt to do so; or
(iv)	promote or assist, financially or otherwise, any firm, person, association, partnership, corporation or other entity engaged in any business which competes with the Company’s business.

(b) The Executive hereby expressly acknowledges and agrees that the Company and the Executive intend for this Section 6 to apply to their dealings with Mospromstroi, Inc. or any affiliated companies or persons affiliated therewith (“Mospromstroi”) and any successors or assigns of Mospromstroi or any other owner or lessee of the Moscow Marriott Grand, the Moscow Marriott Tverskaya, the Moscow Marriott Royal or any other customer to which the Company has assigned the Executive for which the Company

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has caused or permitted the Executive to have any direct or indirect relationship or responsibility.

     7. Unauthorized Disclosure, Use or Solicitation. (a) Executive will keep in strict confidence, and will not, directly or indirectly, at any time during or after his employment with the Company, disclose, furnish, disseminate, make available or, except in the course of performing his duties of employment hereunder, use any trade secrets or confidential business and technical information of the Company or its customers, vendors or property owners or managers, without limitation as to when or how Executive may have acquired such information. Such confidential information will include, without limitation, the Company’s unique selling methods and trade techniques, management, training, marketing and selling manuals, promotional materials, training courses and other training and instructional materials, vendor, owner, manager and product information, customer lists, other customer information and other trade information. Executive specifically acknowledges that all such confidential information including, without limitation, customer lists, other customer information and other trade information, whether reduced to writing, maintained on any form of electronic media, or maintained in the mind or memory of Executive and whether compiled by the Company, and/or Executive, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by the Company to maintain the secrecy of such information, that such information is the sole property of the Company and that any retention and use of such information by Executive during his employment with the Company (except in the course of performing his duties and obligations hereunder) or after the termination of his employment will constitute a misappropriation of the Company’s trade secrets.

          (b) Executive agrees that upon termination of Executive’s employment with the Company, for any reason, Executive will return to the Company, in good condition, all property of the Company, including without limitation, the originals and all copies of all management, training, marketing and selling manuals, promotional materials, other training and instructional materials, vendor, owner, manager and product information, customer lists, other customer information and all other selling, service and trade information and equipment. In the event that such items are not so returned, the Company will have the right to charge Executive for all reasonable damages, costs, attorneys’ fees and other expenses incurred in searching for, taking, removing and/or recovering such property.

          (c) Executive acknowledges that to the extent permitted by law, all work papers, reports, documentation, drawing, photographs, negatives, tapes and masters therefor, prototypes and other materials (hereinafter, “items”), including, without limitation, any and all such items generated and maintained on any form of electronic media, generated by Executive during his employment with the Company will be considered a “work made for hire” and that ownership of any and all copyrights in any and all such items will belong to the Company. The item will recognize the Company as the copyright owner, will contain all proper copyright notices (e.g., year of creation, “Interstate Hotels & Resorts, Inc.. All rights reserved,”) and will be in condition to be registered or otherwise placed in compliance with registration or other statutory requirements throughout the world.

          (d) Executive hereby assigns and agrees to assign to the Company, its successors, assigns or nominees, all of his rights to any discoveries, inventions and improvements, whether patentable or note, made, conceived or suggested, either solely or jointly with others, by Executive while in the Company’s employ, whether in the course of his employment with the use of the Company’s time, materials or facilities or in any way within or related to the existing or contemplated scope of the Company’s business. Any discovery, invention or improvement relating to any subject matter with which the Company was concerned during Executive’s employment and made, conceived or suggested by Executive, either solely or jointly with others, within one year following termination of Executive’s employment under this Agreement or any successor agreements will be irrebuttably presumed to have been so made, conceived or suggested in the course of such employment with the use of the Company’s time, materials or facilities. Upon request by the Company with respect to any such discoveries, inventions or improvements, Executive will execute and deliver to the Company, at any time during or after his employment, all appropriate documents for use in applying for, obtaining and maintaining such domestic and foreign patents as the Company may desire, and all proper assignments therefor, when so requested, at the expense of the Company, but without further or additional consideration.

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          (e) Executive may use the Company’s trade names, trademarks and/or service marks in connection with the sale of the Company’s products and services, but only in such manner and for such purposes as may be authorized by the Company. Upon any termination of this Agreement, Executive immediately will cease the use of such trade names, trademarks and/or service marks and eliminate them wherever they have been used or incorporated by Executive.

          (f) During the Term of Employment and the period ending twelve (12) months following the effective date of the Executive’s termination of employment or expiration of this Agreement, the Executive will not directly or indirectly (i) solicit or endeavor to cause any employee of the Company or any Subsidiary to leave his employment or induce or attempt to induce any such employee to breach any employment agreement with the Company or any Subsidiary or otherwise interfere with the employment of any such employee or (ii) solicit, endeavor to cause, induce or attempt to induce any agent who engages in the business of marketing the services of the Company or any Subsidiary to terminate, reduce or modify its agency relationship with the Company or any Subsidiary.

     8. Successors and Binding Agreement.

          (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the “Company” for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company.

          (b) This Agreement will inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees.

          (c) This Agreement is personal in nature and neither of the parties hereto will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 8(a) and (b). Without limiting the generality or effect of the foregoing, the Executive’s right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by Executive’s will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 8(c), the Company will have no liability to pay any amount so attempted to be assigned, transferred or delegated.

     9. Legal Fees and Expenses. It is the intent of the Company that the Executive not be required to incur legal fees and the related expenses associated with the interpretation, enforcement or defense of Executive’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation, arbitration or other action or proceeding designed to deny, or to recover from, the Executive the benefits provided or intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of Executive’s choice, at the expense of the Company as hereafter provided, to advise and represent the Executive in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation, arbitration or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction; provided, however, the provisions of this Section 9 shall not apply to any claim or assertion by the Company that the Executive has violated the terms of Sections 6 or 7 of this Agreement. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive’s entering into an attorney-client relationship with such counsel, and

8

in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. Without respect to whether the Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys’ and related fees and expenses incurred by the Executive in connection with any of the foregoing.

     10. Additional Remedies.

          (a) Notwithstanding any other remedy herein provided for or available, if the Executive should be in breach of any of the provisions of Section 6 or 7, the Executive expressly acknowledges and agrees that the Company will be entitled to injunctive relief or specific performance, without the necessity of proving damages, in addition to any other remedies it may have.

          (b) Notwithstanding any of the foregoing, in the event of any disputes regarding the interpretation or application of any provision of this Agreement, either the Executive or the Company, or both parties, may request in writing that such dispute be resolved through final and binding arbitration. The parties will jointly select the arbitrator who will hear such dispute. If the parties cannot agree on the selection of an arbitrator, the parties will request that one be appointed by the American Arbitration Association. The arbitration will be conducted in Arlington, Virginia (or in any other location mutually agreed upon by the parties) in accordance with the rules of the American Arbitration Association. The parties acknowledge and agree that time will be of the essence throughout such procedure. The decision of the arbitrator may be entered in any court having subject matter and personal jurisdiction over the dispute and the Executive. The Company will pay any costs and expenses in connection with any such dispute or procedure.

     11. Representation. Each party represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person or entity.

     12. Severability. In the event that any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement will be unaffected thereby and will remain in full force and effect to the fullest extent permitted by law.

     13. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally recognized overnight courier service such as Federal Express or UPS, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his principal residence (with a copy to any counsel designated by the Executive), or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.

     14. Disclosure. During the Term of Employment and for one year thereafter, Executive will not communicate the contents of this Agreement to any person, firm, association, partnership, corporation or other entity which he or she intends to be employed by, associated with, or represent and which is engaged in a business that is competitive to the business of the Company.

     15. Modifications and Waivers. No provision of this Agreement may be modified or discharged unless such modification is agreed to in writing, signed by the Executive and the Chief Executive Officer, Chief Financial Officer or General Counsel. No waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time.

9

     16. Entire Agreement. This Agreement constitutes the entire understanding of the parties hereto with respect to its subject matter, except as such parties may otherwise agree in a writing which specifies that it is an exception to the foregoing. This Agreement supersedes all prior agreements between the parties hereto with respect to its subject matter and, notwithstanding any other provision hereof, will become effective upon the execution of this Agreement by the parties. Notwithstanding the foregoing, the Company acknowledges that this Agreement recognizes a continuation of the Executive’s employment which began in or around November, 1989.

     17. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the Commonwealth of Virginia, without giving effect to the principles of conflict of laws of such Commonwealth.

     18. Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument.

     19. Headings, Etc. The section headings contained in this Agreement are for convenience of reference only and will not be deemed to control or affect the meaning or construction of any provision of this Agreement. References to Sections are to Sections in this Agreement.

     [Remainder of page intentionally left blank]

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

INTERSTATE HOTELS AND RESORTS, INC.
By:	/s/ Thomas F. Hewitt Thomas F. Hewitt
	CEO
INTERSTATE MANAGEMENT COMPANY, LLC
By:	/s/ Thomas F. Hewitt Thomas F. Hewitt
	CEO
	/s/ Henry L. Ciaffone Henry L. Ciaffone

11

EXHIBIT A

Executive:	Henry L. Ciaffone
Duties and Responsibilities:	President International Operations and Development
Primary Reporting Relationship:	Chief Executive Officer

12

EX-10.17

Exhibit 10.17

U.S. $125,000,000

SENIOR SECURED CREDIT AGREEMENT

Dated as of March 9, 2007

Among

INTERSTATE OPERATING COMPANY, LP,

as the Borrower,

LEHMAN COMMERCIAL PAPER INC.,

as the Administrative Agent,

LEHMAN BROTHERS INC.

as Sole Lead Arranger and Sole Book Runner,

SOCIÉTÉ GÉNÉRALE,

as the Syndication Agent,

CALYON NEW YORK BRANCH AND

MERRILL LYNCH CAPITAL,
a division of Merrill Lynch Business Financial Services, Inc.

as Co-Documentation Agents,

and

VARIOUS LENDERS

TABLE OF CONTENTS

			Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS				1
	Section 1.01.	Certain Defined Terms		1
	Section 1.02.	Computation of Time Periods		34
	Section 1.03.	Accounting Terms; Changes in GAAP		35
	Section 1.04.	Classes and Types of Advances		35
	Section 1.05.	Miscellaneous		35
ARTICLE II THE ADVANCES AND THE LETTERS OF CREDIT				35
	Section 2.01.	The Advances		35
	Section 2.02.	Method of Borrowing		36
	Section 2.03.	Fees		40
	Section 2.04.	Reduction of the Revolving Commitments		41
	Section 2.05.	Repayment of Advances on Maturity Date		41
	Section 2.06.	Interest, Late Payment Fee		41
	Section 2.07.	Prepayments		43
	Section 2.08.	Breakage Costs		46
	Section 2.09.	Increased Costs		46
	Section 2.10.	Payments and Computations		48
	Section 2.11.	Taxes		50
	Section 2.12.	Illegality		52
	Section 2.13.	Letters of Credit		53
	Section 2.14.	Determination of Certain Financial Covenants		56
	Section 2.15.	Lender Replacement		57
	Section 2.16.	Sharing of Payments, Etc		58
ARTICLE III CONDITIONS OF LENDING				58
	Section 3.01.	Conditions Precedent to the Initial Advance		58
	Section 3.02.	Conditions Precedent for Each Borrowing or Letter of Credit		62
ARTICLE IV REPRESENTATIONS AND WARRANTIES				63
	Section 4.01.	Existence; Qualification; Partners; Subsidiaries		63
	Section 4.02.	Partnership and Corporate Power		63

i

TABLE OF CONTENTS
(continued)

			Page
	Section 4.03.	Authorization and Approvals		64
	Section 4.04.	Enforceable Obligations		64
	Section 4.05.	Financial Statements		64
	Section 4.06.	True and Complete Disclosure		65
	Section 4.07.	Litigation		65
	Section 4.08.	Use of Proceeds and Letters of Credit		65
	Section 4.09.	Investment Company Act		66
	Section 4.10.	Taxes		66
	Section 4.11.	Pension Plans		67
	Section 4.12.	Insurance		67
	Section 4.13.	No Burdensome Restrictions; No Defaults		67
	Section 4.14.	Environmental Condition		68
	Section 4.15.	Legal Requirements, Zoning		69
	Section 4.16.	Existing Indebtedness and Interest Rate Agreements; Solvency		69
	Section 4.17.	Leasing Arrangements		70
	Section 4.18.	Management Agreements		70
	Section 4.19.	[Reserved]		70
	Section 4.20.	Franchise Agreements		70
	Section 4.21.	Title; Liens		71
	Section 4.22.	Approved Inter-Company Indebtedness		71
	Section 4.23.	Insurance Business		71
	Section 4.24.	Owned Hospitality Properties		74
ARTICLE V AFFIRMATIVE COVENANTS				74
	Section 5.01.	Compliance with Laws		74
	Section 5.02.	Preservation of Existence; Separateness, Etc		74
	Section 5.03.	Payment of Taxes, Etc		76
	Section 5.04.	Visitation Rights; Lender Meeting		76
	Section 5.05.	Reporting Requirements		76
	Section 5.06.	Maintenance of Property		80

ii

TABLE OF CONTENTS
(continued)

			Page
	Section 5.07.	Insurance		81
	Section 5.08.	Use of Proceeds and Letters of Credit		81
	Section 5.09.	Collateral; Releases		81
	Section 5.10.	New Subsidiaries		82
	Section 5.11.	Insurance Business		83
	Section 5.12.	Interest Rate Agreements		83
	Section 5.13.	Comfort Letters		83
ARTICLE VI NEGATIVE COVENANTS				84
	Section 6.01.	Liens, Etc		84
	Section 6.02.	Indebtedness		85
	Section 6.03.	Agreements Restricting Distributions From Subsidiaries		86
	Section 6.04.	Restricted Payments		86
	Section 6.05.	Fundamental Changes; Asset Dispositions		87
	Section 6.06.	Investments and other Property		88
	Section 6.07.	Affiliate Transactions		89
	Section 6.08.	Sale or Discount of Receivables		89
	Section 6.09.	Changes in Fiscal Periods		90
	Section 6.10.	Activities of Parent		90
	Section 6.11.	Sales and Leasebacks		90
	Section 6.12.	Material Documents		90
	Section 6.13.	No Further Negative Pledges		91
	Section 6.14.	Limitation on Hedge Agreements		91
ARTICLE VII FINANCIAL COVENANTS				91
	Section 7.01.	Debt Service Coverage Ratio		91
	Section 7.02.	Leverage Ratio		91
	Section 7.03.	Maintenance of Net Worth		91
	Section 7.04.	First Lien Adjusted EBITDA		91
ARTICLE VIII EVENTS OF DEFAULT; REMEDIES				92
	Section 8.01.	Events of Default		92

iii

TABLE OF CONTENTS
(continued)

			Page
	Section 8.02.	Optional Acceleration of Maturity; Other Actions		95
	Section 8.03.	Automatic Acceleration of Maturity		96
	Section 8.04.	Cash Collateral Account		96
	Section 8.05.	Non-exclusivity of Remedies		97
	Section 8.06.	Right of Set-off		97
ARTICLE IX THE ADMINISTRATIVE AGENT				98
	Section 9.01.	Appointment		98
	Section 9.02.	Delegation of Duties		98
	Section 9.03.	Exculpatory Provisions		98
	Section 9.04.	Reliance by the Administrative Agent		99
	Section 9.05.	Notice of Default		99
	Section 9.06.	Non-Reliance on the Administrative Agent and Other Lenders		100
	Section 9.07.	Indemnification		100
	Section 9.08.	The Administrative Agent in Its Individual Capacity		101
	Section 9.09.	Successor Administrative Agent		101
	Section 9.10.	Authorization to Release Liens and Guarantees		101
	Section 9.11.	The Arranger, Syndication Agent and Documentation Agents 101
ARTICLE X MISCELLANEOUS				102
	Section 10.01.	Amendments, Etc		102
	Section 10.02.	Notices, Etc		103
	Section 10.03.	No Waiver; Remedies		103
	Section 10.04.	Costs and Expenses		103
	Section 10.05.	Binding Effect		104
	Section 10.06.	Successors and Assigns; Participations and Assignments		104
	Section 10.07.	Indemnification		108
	Section 10.08.	Execution in Counterparts		110
	Section 10.09.	Survival of Representations, Indemnifications, etc		110

iv

TABLE OF CONTENTS
(continued)

		Page
Section 10.10.	Severability		110
Section 10.11.	Usury Not Intended		110
Section 10.12.	GOVERNING LAW		111
Section 10.13.	CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL		113
Section 10.14.	Knowledge of Borrower		113
Section 10.15.	Lenders Not in Control		113
Section 10.16.	Headings Descriptive		113
Section 10.17.	Time is of the Essence		113
Section 10.18.	Lender Interest Rate Agreements		113
Section 10.19.	NO CONSEQUENTIAL DAMAGES		113
Section 10.20.	USA PATRIOT Act Notice		114
Section 10.21.	Reliance on Professional Advisors		114
Section 10.22.	Delivery of Lender Addenda		114
Section 10.23.	Acknowledgments		114
Section 10.24.	Confidentiality		115

v

EXHIBITS:

Exhibit A-1	-	Form of Revolving Note
Exhibit A-2	-	Form of Term Note
Exhibit B	-	Form of Adjustment Report
Exhibit C	-	Form of Assignment and Assumption
Exhibit D	-	Form of Compliance Certificate
Exhibit E	-	Form of Environmental Indemnity
Exhibit F	-	Form of Guaranty
Exhibit G	-	Form of Notice of Borrowing
Exhibit H	-	Form of Notice of Conversion or Continuation
Exhibit I	-	Form of Security Agreement
Exhibit J	-	Form of Lender Addendum
SCHEDULES:
Schedule 1.01(a)	-	Approved Inter-Company Indebtedness
Schedule 1.01(b)	-	Non-Pledged Ownership Interests
Schedule 1.01(c)	-	Existing Management Agreements
Schedule 1.01(d)	-	Existing Owned Hospitality Property Investments
Schedule 1.01(e)(i)	-	Certain Non-Guarantors
Schedule 1.01(e)(ii)	-	Guarantors
Schedule 4.01	-	Subsidiaries
Schedule 4.07	-	Litigation
Schedule 4.11	-	Pension Plans
Schedule 4.14	-	Environmental Condition
Schedule 4.15	-	Legal Requirements; Zoning; Utilities; Access
Schedule 4.16(a)	-	Existing Indebtedness and Interest Rate Agreements
Schedule 4.16(b)	-	Existing Letters of Credit
Schedule 4.18	-	Existing Projected Termination Payments
Schedule 4.21	-	Owned Hospitality Properties
Schedule 4.23(a)	-	Insurance Companies, Insurance Licenses and Deposited Securities
Schedule 4.23(e)	-	Insurance Contracts and Reinsurance Contracts
Schedule 5.07	-	Required Insurance Coverage
Schedule 6.06	-	Existing Investments

vi

SENIOR SECURED CREDIT AGREEMENT

     THIS SENIOR SECURED CREDIT AGREEMENT (this “Agreement”), dated as of March 9, 2007, is among INTERSTATE OPERATING COMPANY, LP, a Delaware limited partnership (the “Borrower”), LEHMAN COMMERCIAL PAPER INC. (the “Administrative Agent”); LEHMAN BROTHERS INC., as Sole Lead Arranger and Sole Book Runner (the “Arranger”); SOCIÉTÉ GÉNÉRALE, as Syndication Agent (the “Syndication Agent”), CALYON NEW YORK BRANCH and MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services, Inc. as Co-Documentation Agents (collectively, the “Documentation Agents”) and the Lenders (as defined below).

PRELIMINARY STATEMENTS:

          WHEREAS, the Borrower has requested that the Lenders make available for the purposes specified in this Agreement, certain term loan, revolving credit and letter of credit facilities;

          WHEREAS, the Lenders are willing to make such credit facilities available upon and subject to the terms and conditions hereinafter set forth;

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

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

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

     “Acceptable Lien” means a Lien which (a) exists in favor of the Administrative Agent for its benefit and the ratable benefit of the Lenders, (b) secures the Obligations and (c) is perfected and enforceable against all Persons in preference to any rights of any Person in the property encumbered thereby and superior to all other Liens except for Permitted Encumbrances; provided that the Lien on any Ownership Interests in an Unconsolidated Entity may be subordinate to the Liens securing any Indebtedness of such Unconsolidated Entity.

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

     “Act” has the meaning set forth in Section 10.20.

     “ADA” means the Americans with Disabilities Act, 42 U.S.C. §§ 12101, et seq., as amended from time to time, or any successor statute.

     “Adjusted Base Rate” means, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in effect on such day plus ¹/2 of 1%. For purposes hereof: “Prime Rate” shall mean the prime lending rate as set forth on the British Banking Association Telerate page 5 (or such other comparable publicly available pages as may, in the reasonable opinion of the Administrative Agent after notice to the Borrower, replace such page for the purpose of displaying such rate if such rate no longer appears on the British Bankers Association Telerate page 5), as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually available. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Rate, respectively.

     “Adjusted Base Rate Advance” means an Advance which bears interest as provided in Section 2.06(a).

     “Adjusted EBITDA” means, for any Person or Hospitality Property, as applicable, for any Rolling Period, the EBITDA of such Person or Hospitality Property, as applicable, for such Rolling Period; provided that:

     (a) the EBITDA from any Unconsolidated Entity or Minority-Owned Fund (but not the EBITDA from any Permitted Property Agreement with such Person) shall be excluded from the calculation of Adjusted EBITDA;

     (b) if the Parent or any of its Subsidiaries during such Rolling Period or in the period from the end of such Rolling Period to the Status Reset Date which occurs in the Fiscal Quarter following such Rolling Period either (i) sells, disposes of or terminates any Permitted Property Agreements or (ii) sells or disposes of any Investments or Non-Replaced Property with an Investment Amount in excess of $1,000,000, the EBITDA arising from such Permitted Property Agreement, Investment, or Non-Replaced Property, as applicable, for the applicable Rolling Period shall be excluded from the calculation of Adjusted EBITDA, provided, however, that with respect to any termination payments received in connection with the termination of a Permitted Property Agreement originally entered into with MHC or its Subsidiary, the Parent shall include within the calculation of Adjusted EBITDA for the applicable Rolling Periods in which termination payments were received (A) 80% of the termination payments received in the first year following the termination of such Permitted Property Agreement, (B) 60% of the termination payments received in the second year following the termination of such Permitted Property Agreement, (C) 40% of the termination payments received in the third year following the termination of such

2

Permitted Property Agreement and (D) 20% of the termination payments received in the fourth year following the termination of such Permitted Property Agreement;

     (c) if the Parent or any of its Subsidiaries during such Rolling Period or in the period from the end of such Rolling Period to the Status Reset Date which occurs in the Fiscal Quarter following such Rolling Period either (i) purchases or acquires any Permitted Property Agreements or (ii) purchases or acquires any Investments with an Investment Amount in excess of $1,000,000, the EBITDA arising from such Permitted Property Agreement or Investment, as applicable, for the applicable Rolling Period on a pro forma basis shall be included in the calculation of Adjusted EBITDA; and

     (d) non-cash employee compensation up to $2,000,000 per Fiscal Year in the aggregate and other non-cash items of such Person or Hospitality Property, as applicable, for such Rolling Period shall be excluded from the calculation of Adjusted EBITDA.

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

     “Adjustment Event” has the meaning set forth in Section 2.14(a).

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

     “Administrative Agent” means Lehman Commercial Paper Inc. in its capacity as Administrative Agent for the Lenders pursuant to Article IX and any successor Administrative Agent appointed pursuant to Section 9.09.

     “Advance” means a Revolving Advance or a Term Advance.

     “Affected Lender” has the meaning set forth in Section 2.15(a).

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

3

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

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

     “Applicable Margin” means, (a) with respect to any Advance at any date, the applicable percentage per annum set forth below based upon the Status then in effect under the column for such Class and Type of Advance, and (b) with respect to the letter of credit fee payable under Section 2.03(b) at any date, the applicable percentage per annum set forth below based upon the Status then in effect under the column for Revolving Advances which are Eurodollar Rate Advances.

	Revolving Advances						Term Advances
	Adjusted			Eurodollar			Adjusted			Eurodollar
	Base Rate			Rate			Base Rate			Rate
	Advances			Advances			Advances			Advances
Level I Status		1.50	%		2.50	%		1.50	%		2.50	%
Level II Status		1.75	%		2.75	%		1.75	%		2.75	%

     “Appraisal” shall mean an appraisal prepared in accordance with the requirements of FIRREA, prepared by an independent third party appraiser holding an MAI designation, who is State licensed or State certified if required under the laws of the State where the Property is located, who meets the requirements of FIRREA and who is otherwise satisfactory to the Administrative Agent.

     “Approved Inter-Company Indebtedness” means (a) the Indebtedness described on Schedule 1.01(a), which Indebtedness (i) may not exceed $50,000,000 without the approval of the Administrative Agent, (ii) is unsecured, (iii) is subordinated to the Obligations in a manner acceptable to the Administrative Agent, and (iv) is Collateral and (b) any future Indebtedness of the Borrower to the Parent created with the proceeds of a Capitalization Event which satisfies the requirements of the foregoing clauses (ii), (iii) and (iv).

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

     “Arlington Property” means the Arlington Hilton in Arlington, Texas.

4

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

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

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

     “Assignment of Leases” means an assignment of leases, rents and security deposits executed by the Borrower or any Guarantor to secure the Obligations, each in form reasonably approved by the Administrative Agent with such modifications as may be necessary and appropriate in the opinion of counsel to the Administrative Agent to comply with the state law of the filing jurisdiction and as may be reasonably satisfactory to the Administrative Agent, as the same may be amended or terminated in accordance with its terms.

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

     “Borrower” means Interstate Operating Company, LP, a Delaware limited partnership.

     “Borrowing” means a borrowing consisting of simultaneous Advances of the same Type (a) made by each Lender pursuant to Section 2.01(a) or 2.01(b) or (b) Converted by each Lender to Advances of a different Type pursuant to Section 2.02(b).

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

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

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

     “Capitalization Event” means any sale or issuance by the Parent or any of its Subsidiaries of equity securities except for (a) the issuance of the Borrower’s limited partnership interests in accordance with the provisions of Section 6.05(e)(ii), (b) the issuance by the Parent of equity securities within 90 days after the Effective Date and (c) the sale or issuance by the Parent of any of its equity securities pursuant to the exercise of options granted pursuant to the Parent’s stock option plans for employees and directors.

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

     “Cash Collateral Account” means a special cash collateral account containing cash deposited pursuant to the terms of this Agreement to be maintained at the Administrative Agent’s office in accordance with Section 8.04.

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

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

     (a) any Person or related group of Persons (other than such Person or an Affiliate of such Person) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of such Person’s outstanding securities; or

     (b) there is a change in the composition of such Person’s Board of Directors over a period of thirty-six (36) consecutive months (or less) such that a majority of Board members (rounded up to the nearest whole number) ceases, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board.

     “Class” has the meaning set forth in Section 1.04.

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

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     “Collateral” means all of the Parent’s and its Subsidiaries’ interests in the following, whether owned on or acquired after the Effective Date: (a) the Ownership Interests of all existing Subsidiaries and Unconsolidated Entities of the Parent and the Borrower and any future Material Subsidiary or Material Unconsolidated Entity except for the Ownership Interests in Beverage Entities (the Ownership Interests required to be Collateral pursuant to this definition being referred to herein as the “Ownership Interests Collateral”), (b) the rights to receive payments for its account (including the right to receive termination payments) under all Permitted Property Agreements, (c) Owned Hospitality Properties, (d) the Approved Inter-Company Indebtedness and the Approved Inter-Company Indebtedness Loan Documents, and (e) any other collateral described in the Security Agreement or other Security Documents; provided that the pledge of such Property is not prohibited by the terms of (i) Permitted Property Agreements, joint venture agreements, organizational documents and other contractual arrangements to which the Borrower or a Subsidiary is a party and which are in effect on the Effective Date, in each case as approved by the Administrative Agent; (ii) with respect to any Ownership Interests in or Property of a Permitted Other Subsidiary, the loan documentation for any Permitted Other Indebtedness incurred by such Permitted Other Subsidiary; and (iii) with respect to any Ownership Interests in an Unconsolidated Entity, the loan documentation for Indebtedness incurred by such Unconsolidated Entity or joint venture agreements or other contractual arrangements for such Unconsolidated Entity; provided that if at any time such prohibition no longer exists with respect to any Property (including, without limitation, the Concord Property), such Property shall be pledged and/or mortgaged as Collateral pursuant to Section 5.09 and 5.10. The Ownership Interests which cannot be pledged as of the date of this Agreement are those certain Ownership Interests designated in Schedule 1.01(b) as Non-Pledgable.

     “Comfort Letter” shall mean a reliance letter, estoppel certificate, or similar agreement provided by a franchisor in favor of the Administrative Agent setting forth the Administrative Agent’s rights and obligations under a franchise agreement, including, without limitation, Administrative Agent’s rights thereunder following a foreclosure of any Owner Hospitality Property by the Administrative Agent.

     “Commitment” means, as to any Lender, its Revolving Commitment and its Term Commitment.

     “Commitment Fee Rate” means, with respect to the commitment fee payable under Section 2.03(a) at any date, .50% percent per annum.

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

     “Concord Property” means the Hilton Concord in Concord, California.

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

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     “Control Investment Affiliate”: means, with respect to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, “control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

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

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

     “Convert”, “Conversion”, and “Converted” each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.02(b).

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

     “Currency Agreements” means all swaps, caps or collar agreements or similar arrangements providing for protection against fluctuations in currency exchange rates, either generally or under specific contingencies.

     “Customary Management Agreement” means a management agreement for a Hospitality Property by and between a Person, as owner, and Borrower or Parent’s Subsidiary or Unconsolidated Entity, as manager, which (a) has a term and early termination payment provisions, if any, which are reasonable based upon the amount of any Investment made to obtain such management agreement and (b) is in substantially the form of an Existing Management Agreement, a form which does not include materially adverse provisions which are not customary for management agreements of Hospitality Properties or such other form as is approved by the Administrative Agent in writing (which approval shall not be unreasonably withheld).

     “Customary Participating Lease” means a lease (except for a Ground Lease) for a Hospitality Property by and between a Person, as lessor, and Borrower or Parent’s Subsidiary, as lessee, which (a) has expected economics and a term and early termination payment provisions which are reasonable based upon the amount of any Investment made to obtain such lease and (b) are in a form which does not include materially adverse provisions which are not customary for participating leases of Hospitality Properties or

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such other form as is approved by the Administrative Agent in writing (which approval shall not be unreasonably withheld).

     “Customary Property Agreement” means a Customary Management Agreement or a Customary Participating Lease, and “Customary Property Agreements” means all such agreements and leases.

     “Debt Service Coverage Ratio” means, as of the end of any Rolling Period, a ratio of (a) the Parent’s Adjusted EBITDA to (b) the sum of (i) the Parent’s Interest Expense, for such Rolling Period and (ii) scheduled payments made during such period on account of principal of Indebtedness of the Parent and its Subsidiaries other than balloon payments of principal due upon the stated maturity of any such Indebtedness or similar principal payment which repays or discharges such Indebtedness in full; provided, that for purposes of determining the ratio described above for the fiscal quarters of the Parent ending June 30, 2007, September 30, 2007 and December 31, 2007, the scheduled payments in respect of the Existing Credit Facility for each of the Fiscal Quarters of the Parent prior to the Effective Date shall be deemed to equal to $162,500.

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

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

     “Dollar Equivalent” means the equivalent in another currency of an amount in Dollars to be determined by reference to the rate of exchange quoted by Lehman Brothers at 10:00 a.m. (New York City time) on the date of determination, for the spot purchase in the foreign exchange market of such amount of Dollars with such other currency.

     “Dollars” and “$” means lawful money of the United States of America.

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

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

     “EBITDA” means for any Person or Hospitality Property, as applicable, for any period for which such amount is being determined, an amount equal to (a) the Net

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

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

     “Eligible Assignee” means (i) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an “accredited investor” (as defined in Regulation D under the Securities Act of 1933) and which extends credit or buys loans as one of its businesses; provided that no Affiliate of Parent shall be an Eligible Assignee.

     “Engineering Report” means with respect to any Owned Hospitality Property, an engineering report which (a) is prepared for, or is accompanied by a reliance letter for the Lenders and the Administrative Agent by a Person reasonably satisfactory to the Administrative Agent, (b) is prepared in accordance with a scope of services reasonably satisfactory to the Administrative Agent, (c) is prepared within three (3) months of the date of acquisition of such Owned Hospitality Property, and (d) reflects no material concerns pertaining to the physical condition of the Owned Hospitality Property, including without limitation the structural, electrical, plumbing, mechanical and other essential components of the Owned Hospitality Property other than such concerns as may be addressed by a renovation or repair plan reasonably satisfactory to the Administrative Agent.

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

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

     “Environmental Indemnity” means one or more environmental indemnity agreements dated of even date herewith in substantially the form of the attached Exhibit E executed or to be executed by the Borrower, the Parent and all Guarantors, and any future environmental indemnities executed in connection with any Hospitality Property, as any of such environmental indemnities may be amended hereafter in accordance with the terms of such agreements.

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

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

     “Environmental Report” means with respect to any Owned Hospitality Property, an environmental report which (a) is prepared for, or is accompanied by a reliance letter for, the Lenders and the Administrative Agent by a Person reasonably satisfactory to the Administrative Agent, (b) is prepared in accordance with a scope of services reasonably satisfactory to the Administrative Agent, (c) is prepared within three (3) months of the date of acquisition of such Owned Hospitality Property, and (d) certifies to the Administrative Agent and the Lenders that the Owned Hospitality Property and the soil and the groundwater thereunder do not contain Hazardous Substances except for Permitted Hazardous Substances.

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

     “Eurodollar Base Rate”: with respect to each day during each Interest Period, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate screen (or otherwise on such screen), the “Eurodollar Base Rate” for purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent.

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

     “Eurodollar Rate” with respect to each day during each Interest Period, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):

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     Eurodollar Base Rate     
1.00 - Eurodollar Reserve Requirements

     “Eurodollar Rate Advance” means an Advance which bears interest as provided in Section 2.06(b).

     “Eurodollar Reserve Requirement” for any day, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves) under any regulations of the Federal Reserve Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Federal Reserve Board) maintained by a member bank of the Federal Reserve System.

     “Event of Default” has the meaning set forth in Section 8.01.

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

     “Excluded Amount” means $30,000,000.

     “Existing Credit Facility” means the Amended and Restated Senior Credit Agreement dated as of January 14, 2005 among the Borrower, Sociètè Gènèrale, as the Administrative Agent, SG Americas Securities, LLC, as Sole Lead Arranger and Book Runner and various lenders, as amended, supplemented or otherwise modified from time to time prior to the Effective Date.

     “Existing Letter of Credit” and “Existing Letters of Credit” means the Letter of Credit issued by Sociètè Gènèrale, listed on Schedule 4.16(b), to be replaced by the Letter of Credit to be issued by Bank of America, N.A. within five (5) Business Days of the Effective Date.

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

     “Expiration Date” means, with respect to any Letter of Credit, the date on which such Letter of Credit will expire or terminate in accordance with its terms.

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

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quotations for any such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

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

     “Fee Letter” means the letter agreement dated as of January 30, 2007, among the Borrower, the Parent, Commercial Paper Inc., Lehman Brothers Commercial Bank and Lehman Brothers Inc.

     “Financial Covenants” mean the financial covenants set forth Article VII.

     “Financial Statements” means the financial statements of the Parent and its Subsidiaries delivered to the Lenders pursuant to Section 3.01(j).

     “Financing Statement” means any Uniform Commercial Code — Financing Statement — Form UCC-1 to be executed (if necessary or desirable) and delivered by the Parent or any of its Subsidiaries in connection with perfecting the security interest assigned by any Security Document, and any extension, renewal, or amendment thereof.

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

     “Fiscal Year” means the twelve-month period ending on December 31.

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

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

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

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

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     “Guarantor” means each of the Parent, each Subsidiary of the Parent (except (a) the Permitted Other Subsidiaries, (b) the Beverage Entities, (c) certain other non-Material Subsidiaries so long as such Subsidiary is prohibited from acting as a Guarantor because of joint venture agreements, organizational documents and other contractual arrangements to which such non-Material Subsidiary is a party and which are in effect on the Effective Date and set forth on Schedule 1.01(e)(i), in each case as approved by the Administrative Agent and (d) Subsidiaries with assets and revenues less than $100,000) existing as of the Effective Date, and any future Material Subsidiary, and “Guarantors” means all of such Persons. The Guarantors on the Effective Date are identified on Schedule 1.01(e)(ii).

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

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

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

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

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

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

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     “Indebtedness” means (without duplication), at any time and with respect to any Person, (a) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services purchased (other than amounts constituting trade payables or bank drafts arising in the ordinary course of business); (b) indebtedness of others in the amount which such Person has directly or indirectly assumed or guaranteed or otherwise provided credit support therefore or for which such Person is liable as a partner of such Person; (c) indebtedness of others in the amount secured by a Lien on assets of such Person, whether or not such Person shall have assumed such indebtedness unless the validity of such Lien is being contested in good faith and with due diligence by appropriate proceedings, provided that such Lien is subordinate to the Liens created by the Security Documents and such Person shall have delivered a bond or other security acceptable to the Administrative Agent equal to 125% of the contested amount; (d) obligations of such Person in respect of letters of credit, acceptance facilities, or drafts or similar instruments issued or accepted by banks and other financial institutions for the account of such Person (other than trade payables or bank drafts arising in the ordinary course); (e) Capitalized Lease Obligations of such Person; (f) all obligations, contingent or otherwise, of such Person under any synthetic lease, tax retention operating lease, off balance sheet loan or similar off balance sheet financing arrangement if the transaction giving rise to such obligation (1) is considered indebtedness for borrowed money for U.S. federal income tax purposes but is classified as an operating lease under GAAP and (2) does not (and is not required pursuant to GAAP to) appear as a liability on the balance sheet of such Person; (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Mandatorily Redeemable Stock issued by such Person or any other Person, valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (h) all obligations of such Person in respect of any take-out commitment or forward equity commitment (excluding, in the case of the Borrower and its Subsidiaries, any such obligation that can be satisfied solely by the issuance of Ownership Interests (other than Mandatorily Redeemable Stock)); and (i) to the extent treated as a liability under GAAP, obligations under interest rate swap agreements, interest rate cap agreements, interest rate collar agreements or other similar agreements or arrangements designed to protect against fluctuations in interest rates.

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

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

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

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

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

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

     “Intellectual Property” shall have the meaning given such term in the Security Agreement.

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

     “Interest Period” means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Advance or the date of the Conversion of any Adjusted Base Rate Advance into such an Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.02 and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.02. To the extent available for a Eurodollar Rate Advance, the duration of each such Interest Period shall be one, two, three or six months for all other Eurodollar Rate Advances, in each case as the Borrower may select, upon notice received by the Administrative Agent not later than 12:00 noon (New York, New York time) on the third Business Day prior to the first day of such Interest Period, provided, however, that:

     (a) Interest Periods for Advances of the same Borrowing shall be of the same duration;

     (b) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such

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extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the preceding Business Day;

     (c) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month;

     (d) each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; and

     (e) no Interest Period with respect to any portion of any Advance shall extend beyond the Maturity Date.

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

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

     “Investment Amount” means (a) for any Owned Hospitality Property the sum of (i) the aggregate purchase price paid by the Borrower or its Subsidiary for such Owned Hospitality Property, and (ii) the actual cost of any Capital Expenditures for such Owned Hospitality Property made by the Borrower or its Subsidiaries after the acquisition of such Owned Hospitality Property (or, without duplication, the amount of any reserve for such Capital Expenditures established from time to time), and (b) for any other Investment or Property the aggregate purchase price paid by the Borrower or its Subsidiary for such other Investment or Property. The Investment Amount shall include any Ownership Interests or Ownership Interest Equivalents used to purchase such Investment at their fair market value at the time of purchase; provided that any such Ownership Interests or Ownership Interest Equivalents which are convertible into the Parent’s common stock shall be valued at the price at which they could be exchanged into the Parent’s common stock assuming such exchange occurred on the date of acquiring such Investment. Investment Amount shall not include Indebtedness incurred in connection with an Investment, or any refinancing of such Indebtedness, unless such Indebtedness was provided by the Parent, the Borrower or one of their respective Subsidiaries.

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     “Investment Fund” means a fund or funds referred to in clause (c) of the definition of Permitted New Investments.

     “Issuing Bank” means Sociètè Gènèrale, Bank of America, N.A. or any Lender acting as a successor Issuing Bank pursuant to Section 10.06, and “Issuing Banks” means, collectively, all of such Lenders.

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

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

     “Lender Addendum”: means, with respect to any initial Lender, a Lender Addendum, substantially in the form of Exhibit J, to be executed and delivered by such Lender on the Effective Date as provided in Section 10.22.

     “Lenders” means the lenders who have a Revolving Commitment or a Term Commitment as of the Effective Date and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 10.06, and “Lender” means any such Person.

     “Letter of Credit” means, individually, any letter of credit issued by the Issuing Bank in accordance with the provisions of Section 2.13 of this Agreement, including any Existing Letter of Credit, and “Letters of Credit” means all such letters of credit, collectively.

     “Letter of Credit Documents” means, with respect to any Letter of Credit, such Letter of Credit and any reimbursement or other agreements, documents, and instruments entered into in connection with or relating to such Letter of Credit.

     “Letter of Credit Exposure” means, at any time, the sum of (a) the aggregate undrawn maximum face amount of each Letter of Credit and (b) the aggregate unpaid amount of all Letter of Credit Obligations at such time.

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     If the Letter of Credit has an automatic increase schedule, the maximum amount shall be deemed the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

     “Letter of Credit Obligations” means all obligations of the Borrower arising in respect of the Letter of Credit Documents, including without limitation the aggregate drawn amounts of Letters of Credit which have not been reimbursed by the Borrower or converted into an Adjusted Base Rate Advance pursuant to the provisions of Section 2.13(c).

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

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

     “Liquid Investments” means:

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

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

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

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

     (d) such other instruments (within the meaning of New York’s Uniform Commercial Code) as the Borrower may request and the Administrative Agent may approve in writing, which approval will not be unreasonably withheld.

     “Loan Party” means, the Borrower and the Guarantors.

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

     “Margin Stock” shall have the meaning provided in Regulation U.

     “Material Adverse Change” shall mean a material adverse change (a) in the business, property, condition (financial or otherwise), prospects or results of operations of the Borrower, the Parent and the other Guarantors taken as a whole, in each case since December 31, 2005, or (b) in the validity or enforceability of this Agreement or any of the other Credit Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder.

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

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

     “Materials” has the meaning set forth in Section 5.05.

     “Maturity Date” means, (a) with respect to any Revolving Advances, the Revolving Maturity Date, and (b) with respect to any Term Advances, the Term Maturity Date.

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

     “MHC” means MeriStar Hospitality Corporation, a Maryland corporation.

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     “Minimum Net Worth” means, with respect to the Parent, at any time, the sum of $150,000,000 plus (a) 75% of the aggregate net proceeds or value received by the Parent or any of its Subsidiaries after the date of this Agreement in connection with any Capitalization Events taken as a whole, including without limitation in connection with the acquisition of any Investment or other Property, plus (b) to the extent a positive number, 75% of the aggregate Net Income of the Parent and the Parent’s Subsidiaries for the period from and including October 1, 2006 to the date of testing, on a Consolidated basis, minus (c) an amount equal to the lesser of (i) $25,000,000 or (ii) the aggregate amount of all of the Parent’s write-offs under GAAP of intangible assets that occur after September 30, 2006.

     “Minority-Owned Fund” shall be defined as any fund for which the Parent and its Subsidiaries collectively own less than 50% of the Ownership Interests of such fund, but whose financial results are consolidated with the financial results of the Parent and the Parent’s Subsidiaries under GAAP.

     “Moody’s” means Moody’s Investor Service Inc.

     “Mortgages” means, collectively, the deeds of trust and mortgages executed by the Borrower or any Guarantor to secure the Obligations, each in form reasonably acceptable to the Administrative Agent with such modifications as may be necessary and appropriate in the opinion of counsel to the Administrative Agent to comply with the state law of the filing jurisdiction and as may be reasonably satisfactory to the Administrative Agent, as the same may be amended or terminated in accordance with their terms, and “Mortgage” means any of such instruments.

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

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

     “Net Income” means, for any Person or Hospitality Property, as applicable, for any period for which such amount is being determined, the net income or net loss of such Person (on a Consolidated basis) or Hospitality Property, as applicable, after taxes, as

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determined on a Consolidated basis in accordance with GAAP, excluding, however, (a) non-recurring expenses and (b) extraordinary items, including but not limited to (i) any net gain or loss during such period arising from the sale, exchange, or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business, and (ii) any write-up or write-down of assets.

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

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

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

     “Note” means any of the Revolving Notes or the Term Notes, and “Notes” means all of such promissory notes.

     “Notice of Borrowing” means a notice of borrowing in the form of the attached Exhibit G signed by a Responsible Officer of the Borrower.

     “Notice of Conversion or Continuation” means a notice of conversion or continuation in the form of the attached Exhibit H signed by a Responsible Officer of the Borrower.

     “Obligations” means all Advances, Letter of Credit Obligations, and other amounts payable by the Borrower or any Guarantor to the Administrative Agent, an Issuing Bank or the Lenders under the Credit Documents.

     “Other Taxes” has the meaning set forth in Section 2.11(b).

     “Owned Hospitality Property” means a Hospitality Property owned by the Parent or one of the Parent’s Subsidiaries or leased by the Parent or one of the Parent’s Subsidiaries pursuant to a Ground Lease; provided that, for purposes of Section 7.04(i), no more than 40% of the value (determined pursuant to an Appraisal reasonably satisfactory to the Administrative Agent) of Owned Hospitality Properties may be located outside the United States and all of the Mortgages referred to in Section 7.04 shall be reasonably satisfactory to the Administrative Agent in accordance with the definition of Mortgage.

     “Owned Hospitality Property Investments” shall mean Investments in (a) Owned Hospitality Properties or (b) in Persons for which Hospitality Properties are substantially

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all of such Person’s Property which results in the Parent directly or indirectly owning 50% or more of the applicable Hospitality Property.

     “Owned Hospitality Property Security Documents” for any Owned Hospitality Property (other than one owned by a Permitted Other Subsidiary), means collectively (a) a Mortgage, (b) an Assignment of Leases, and (c) such other security agreements, pledge agreements, assignments, mortgages, financing statements, stock powers, and other collateral documentation as the Administrative Agent may reasonably request.

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

     “Ownership Interests Collateral” has the meaning given such term in the definition of “Collateral.”

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

     “Parent” means Interstate Hotels & Resorts, Inc., a Delaware corporation.

     “Parent’s Other Subsidiaries” means the direct Subsidiaries of the Parent on the Effective Date, other than the Borrower.

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

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

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

     “Permitted Hazardous Substances” means (a) Hazardous Substances that are (i) used in the ordinary course of business and in typical quantities for a Hospitality Property and (ii) generated, used and disposed of in accordance with all Legal Requirements (including Environmental Laws) and good industry practice, and (b) non-friable asbestos to the extent (i) that no applicable Legal Requirements require removal of such asbestos from the Hospitality Property and (ii) such asbestos is encapsulated in accordance with all applicable Legal Requirements and maintained pursuant to a reasonable operations and maintenance program as may be required by the Administrative Agent.

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

     (a) Investments (i) to acquire Permitted Property Agreements and (ii) in Persons for which Permitted Property Agreements are substantially all of such Person’s Property, which Persons become majority-owned Subsidiaries of the Borrower, provided that no individual Investment under the foregoing clauses (i) or (ii) shall have an Investment Amount which exceeds $5,000,000;

     (b) Sliver Investments for which (i) the Investment Amount for any individual Investment does not exceed $10,000,000 and (ii) the Investment Amount for all such Investments in the aggregate does not exceed $75,000,000.

     (c) an equity Investment in one fund (or parallel funds investing in the same Investments) (i) whose Investments will be limited to Hospitality Properties for which the Borrower or its wholly-owned subsidiary will have a Customary Property Agreement, (ii) whose Investments will be limited such that the Borrower’s direct or indirect share of any individual Investment does not exceed an Investment Amount of $10,000,000, (iii) for which Borrower’s direct or indirect Investment in such fund(s) does not exceed an Investment Amount of $75,000,000 in the aggregate, and (iv) in which the Borrower or its Subsidiary owns 25% or less of the Ownership Interests in such fund(s), provided that the Borrower and its Subsidiaries and Affiliates cannot invest in more than one fund (or parallel funds) under this paragraph (c), nor treat any Investment that would qualify as the one fund (or parallel funds) under this paragraph (c) as any other type of Permitted Investment;

     (d) Investments in Persons that have Permitted Property Agreements which meet the requirements of the foregoing paragraph (a), but are not majority-owned Subsidiaries of the Borrower; provided that the aggregate Investment Amount of all such Investments can not exceed $10,000,000;

     (e) Owned Hospitality Property Investments, provided that:

     (i) at least five (5) Business Days prior to acquiring an Owned Hospitality Property Investment the Borrower shall have delivered to the Administrative Agent for its review and approval (such approval not to be unreasonably withheld or delayed) the Property Information set forth in clauses (a) through (h) of the definition of Property Information for the applicable Hospitality Property,

     (ii) any Ground Lease for an Owned Hospitality Property must be financable in the reasonable opinion of the Administrative Agent,

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     (iii) no more than twenty percent (20%) of the hotel rooms in the applicable Hospitality Property may be subject to a timeshare regime, and

     (iv) to the extent that such Investment would be included in the definition of Collateral, the provisions of Section 5.09(a) are satisfied.

     (f) Equity Investments in Persons that provide services to current or future Hospitality Properties for which either (i) the Parent or its direct or indirect Subsidiary has a Permitted Property Agreement or (ii) the Parent directly or indirectly owns 50% or more of the applicable Hospitality Property; provided that the aggregate Investment Amount of all such Investments can not exceed $10,000,000; and

     (g) up to $5,000,000 for non-Hospitality Property related Investments.

     If any Investment involves (a) multiple Permitted Property Agreements or an Investment in a Person which has multiple Permitted Property Agreements and (b) is in a class of permitted investment subject to individual Investment Amount limitations, then for purposes of testing such individual Investment Amount limitations only, the total Investment Amount for such Investment shall be divided by the number of Hospitality Properties which would be subject to Permitted Property Agreements with the Borrower or its majority-owned Subsidiary.

     “Permitted Non-Recourse Designated Entity Indebtedness” means Indebtedness of an Unconsolidated Entity or a Minority-Owned Fund which (a) is incurred by an Unconsolidated Entity or a Minority-Owned Fund to acquire or develop a Hospitality Property or Hospitality Management Business or refinance such acquisition Indebtedness, and (b) is non-recourse to the Parent, the Borrower and their respective Subsidiaries except for the Property of or the Ownership Interests in such Unconsolidated Entity or Minority-Owned Fund, as applicable, and customary recourse “carve-outs”.

     “Permitted Other Indebtedness” means:

     (a) Indebtedness which (i) is incurred by a Permitted Other Subsidiary to (A) acquire an Owned Hospitality Property Investment which qualifies as a Permitted New Investment, or (B) refinance Indebtedness incurred to acquire a Permitted New Investment, in the case of clauses (A) and (B), where the Indebtedness incurred does not exceed 65% of the Investment Amount (without regard to the final sentence of such definition) for such Permitted New Investment, and (ii) is non-recourse to the Parent, the Borrower and their respective Subsidiaries except for the Property of or the Ownership Interests in such Permitted Other Subsidiary and customary recourse “carve-outs” (it being agreed that the Indebtedness currently secured by the Arlington Property, the Westchase Property and the Concord Property are Permitted Other Indebtedness within the meaning of this paragraph (a));

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     (b) Unsecured Indebtedness (excluding the Obligations and any other Indebtedness separately listed in this definition of “Permitted Other Indebtedness”) (i) which in the aggregate does not exceed $200,000,000, (ii) for which not more than $100,000,000 may be Senior Indebtedness, (iii) which matures after the Maturity Date, and (iv) which is subject to terms and conditions reasonably acceptable to the Administrative Agent;

     (c) Approved Inter-Company Indebtedness;

     (d) Permitted Non-Recourse Designated Entity Indebtedness;

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

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

     “Permitted Property Agreements” means (a) Existing Management Agreements and (b) Customary Property Agreements related to Hospitality Properties entered into after the Effective Date.

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

     “Plan” means an employee benefit plan (other than a Multiemployer Plan) to which the Parent, the Borrower or any member of the Controlled Group has any obligation or liability (contingent or otherwise) and covered by Title I of ERISA.

     “Platform” has the meaning set forth in Section 5.05.

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

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

     “Property Information” for any Owned Hospitality Property means the following information and documentation for such Owned Hospitality Property:

     (a) an Engineering Report;

     (b) an Environmental Report;

     (c) a commitment for a Title Policy, together with a legible copy of all documents referred to in such commitment;

     (d) a current Appraisal satisfactory to the Administrative Agent;

     (e) a copy of the agreements pursuant to which the Owned Hospitality Property is being acquired;

     (f) a ALTA/ASCM survey reasonably satisfactory to the Administrative Agent;

     (g) all financial statements reasonably required by the Administrative Agent;

     (h) copies of any third party property management and/or franchise agreements or comparable agreements relating to the Owned Hospitality Property; and

     (i) such other information regarding the acquisition, ownership, operation, maintenance and leasing of an Owned Hospitality Property as the Administrative Agent may reasonably request from time-to-time.

     “Pro Rata Share” means, at any time with respect to any Lender, the ratio (expressed as a percentage) of (a) such Lender’s Commitments, plus, to the extent any Class of Commitment has been terminated, such Lender’s outstanding Advances for such Class (and participation interest in the Letter of Credit Exposure if the Revolving Commitments have been terminated) to (b) all Lenders’ aggregate Commitments, plus, to the extent any Class of Commitment has been terminated, all Lenders’ aggregate outstanding Advances for such Class (and participation interest in the Letter of Credit Exposure if the Revolving Commitments have been terminated).

     “Public Lender” has the meaning set forth in Section 5.05.

     “Register” has the meaning set forth in paragraph (d) of Section 10.06.

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     “Regulation U” shall mean Regulation U of the Federal Reserve Board as from time to time in effect and any successor to all or a portion thereof.

     “Reinsurance Contract” means each outstanding reinsurance, coinsurance and other similar contract of each Insurance Company.

     “Related Fund” means, with respect to any Lender, any fund that (a) invests in commercial loans and (b) is managed or advised by the same investment advisor as such Lender, by such Lender or an Affiliate of such Lender or such investment advisor.

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

     “Repayment Amount” means (a) with respect to any Indebtedness incurrence, Asset Disposition or termination payment under a Permitted Property Agreement, the Net Cash Proceeds from such event, and (b) with respect to any Capitalization Event, 50% of the Net Cash Proceeds from such Capitalization Event.

     “Repayment Event” means any of the following events on or after the Effective Date by the Parent, the Borrower or one of their respective Subsidiaries:

     (a) the incurrence of any Indebtedness excluding (i) the Obligations, (ii) Permitted Non-Recourse Designated Entity Indebtedness, and Indebtedness under clause (a) of the definition of “Permitted Other Indebtedness” incurred to make a Permitted New Investment (and not in respect of assets previously owned by the Parent or a Subsidiary), and (iii) the refinancing of Indebtedness previously incurred under clause (b) of the definition of “Permitted Other Indebtedness” up to the amount of the Indebtedness refinanced;

     (b) a Capitalization Event;

     (c) an Asset Disposition or the payment to the Borrower or one of the Borrower’s Subsidiaries of a termination payment under a Permitted Property Agreement after the Effective Date, provided that subject to Section 5.09(c), (i) a Repayment Event shall not be deemed to have occurred for individual Asset Dispositions (but not termination payments) for which the Net Cash Proceeds do not exceed $1,000,000 in any Rolling Period, (ii) the Net Cash Proceeds from termination payments shall not be counted toward the Excluded Amount and may be reinvested in full in accordance with Section 2.07, and (iii) the aggregate Net Cash Proceeds from Asset Dispositions (excluding termination payments) up to the Excluded Amount may be reinvested in accordance with Section 2.07 and such Net Cash Proceeds in excess of the Excluded Amount shall repay the Advances; and

     (d) A casualty to or condemnation of an Owned Hospitality Property other than a casualty or condemnation for which the aggregate Net Cash Proceeds

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either (i) does not exceed $1,000,000 or (ii) are utilized for the restoration of the Owned Hospitality Property affected by such casualty within one year of the date of such casualty.

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

     “Required Lenders” means Non-Defaulting Lenders the sum of whose outstanding Term Advances (and, prior to the termination thereof, Term Commitments) and Revolving Commitments (or after the termination thereof, outstanding Revolving Advances and participations in Letter of Credit Exposure) represent at least 51% of the sum of all outstanding Term Advances (and, if prior to the termination thereof, Term Commitments) of Non-Defaulting Lenders and the sum of all Revolving Commitments of Non-Defaulting Lenders (or after the termination of the Revolving Commitments, the sum of the then total outstanding Revolving Advances of Non-Defaulting Lenders, and the aggregate participations of all Non-Defaulting Lenders of Letter of Credit Exposure at such time); provided that with respect to a vote which only involves a certain Class or Classes, only the Commitments and Advances for the applicable Class or Classes shall be used in the calculation of Required Lenders.

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

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

     “Restricted Payment” means (a) any direct or indirect payment, prepayment, redemption, purchase, or deposit of funds or Property for the payment (including any sinking fund or defeasance), prepayment, redemption or purchase of any Indebtedness not permitted by this Agreement or any Subordinate Indebtedness, and (b) the making by any Person of any dividends or other distributions (in cash, property, or otherwise) on, or payment for the purchase, redemption or other acquisition of, any Ownership Interests of such Person, other than dividends or distributions payable in such Person’s Ownership Interests.

     “Revolving Advance” means any advance by a Lender to the Borrower in Dollars pursuant to such Lender’s Revolving Commitment or a continuation of an existing Revolving Advance, and refers to an Adjusted Base Rate Advance or a Eurodollar Rate Advance.

     “Revolving Commitment” means, for each Lender, the Revolving Commitment set forth for such Lender as its Revolving Commitment in the Register maintained by the Administrative Agent pursuant to Section 10.06(c). As of the Effective Date, the aggregate amount of the Revolving Commitments under this Agreement is $60,000,000.

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     “Revolving Exposure” at any time shall mean the sum of (i) the aggregate principal amount of all Revolving Advances and (ii) the aggregate amount of all Letter of Credit Exposure at such time.

     “Revolving Maturity Date” means March 9, 2010.

     “Revolving Note” means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of the attached Exhibit A-1, evidencing Indebtedness of the Borrower to such Lender resulting from Revolving Advances from such Lender, and “Revolving Notes” means all of such promissory notes.

     “Revolving Required Lenders” means Non-Defaulting Lenders the sum of whose Revolving Commitments (or after the termination thereof, outstanding Revolving Advances and participations in Letter of Credit Exposure) represent at least 51% of the sum of all Revolving Commitments of Non-Defaulting Lenders (or after the termination of the Revolving Commitments, the sum of the then total outstanding Revolving Advances of Non-Defaulting Lenders, and the aggregate participations of all Non-Defaulting Lenders of Letter of Credit Exposure at such time).

     “Revolving Share” means, at any time with respect to any Lender with a Revolving Commitment or outstanding Revolving Advance, the ratio (expressed as a percentage) of such Lender’s Revolving Commitment at such time to the aggregate Revolving Commitments at such time, or, if the Revolving Commitments have been terminated, the ratio (expressed as a percentage) of such Lender’s Revolving Advances at such time to the aggregate Revolving Advances at such time.

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

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

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

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

     “Security Agreement” means the Security Agreement in favor of the Administrative Agent from the Borrower, the Parent and the other Guarantors, granting a

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Lien in all existing and future Collateral of the Borrower and its Subsidiaries in substantially the form of the attached Exhibit I.

     “Security Documents” means the Security Agreement, all Owned Hospitality Property Security Documents, all Financing Statements and each other document, instrument or agreement executed in connection therewith or otherwise executed in order to secure all or a portion of the Obligations; and any “Security Document” means any one of the foregoing.

     “Senior Indebtedness” means the Total Indebtedness minus the Subordinate Indebtedness.

     “Sliver Investments” shall mean debt and equity investments in partnerships, companies or limited liability companies (a) for which the Borrower’s direct or indirect ownership interest is less than 50% and (b) that own hospitality properties for which the Borrower or its wholly-owned subsidiary will have a Customary Property Agreement.

     “Status” means the existence of Level I Status or Level II Status, as the case may be. As used in this definition:

          “Level I Status” exists at any date if, at such date, the Leverage Ratio at the end of the preceding Rolling Period is less than 2.25; or

          “Level II Status” exists at any date if, at such date, the Leverage Ratio at the end of the preceding Rolling Period is greater than or equal to 2.25.

     Status shall be determined and changed as of the Status Reset Date following any Fiscal Quarter; provided that if the Borrower fails to timely provide (a) the financial statements needed to recalculate the Leverage Ratio as required by the provisions of Section 5.05(a) prior to the 50th day following the end of any Fiscal Quarter (except for the Fiscal Quarter which ends on the date the Fiscal Year ends), (b) the draft Compliance Certificate related to the end of the Fiscal Year as required by the provisions of Section 5.05(b) prior to the 50th day following the end of any Fiscal Year or (c) the financial statements needed to recalculate the Leverage Ratio as required by the provisions of Section 5.05(b) prior to the 95th day following the end of any Fiscal Year, then Status shall automatically be reset at Level Status II until such time as the Borrower provides such financial statements or draft Compliance Certificate, as applicable; provided further that at the Effective Date, the Status will be set at Level II Status and such Status shall not be changed until the first Status Reset Date occurring after the completion of two full Fiscal Quarters after the Effective Date.

     “Status Reset Date” means the date following the end of any Fiscal Quarter which is the earlier of (a) the 50th day following the end of such Fiscal Quarter and (b) the date which is five (5) days following the delivery of the reports and other documents required by (i) the provisions of Section 5.05(a) for such Fiscal Quarter (except for the Fiscal Quarter which ends on the date the Fiscal Year ends) or (ii) the provisions of Section

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5.05(b) for the Fiscal Quarter which ends on the date the Fiscal Year ends; provided that the documents contemplated by the preceding clause (ii) shall never be deemed delivered prior to the 40^th day following the end of the Fiscal Year.

     “Subordinate Indebtedness” means Indebtedness of the Borrower, the Parent and their respective Subsidiaries which (a) shall not mature, become payable or require the payment of any principal amount thereof (or any amount in lieu thereof) or be mandatorily redeemable, pursuant to a sinking fund or otherwise redeemable at the option of the holder thereof, in any case in whole or in part, before the date that is 181 days after the Term Maturity Date and (b) shall be junior and subordinate to the Obligations and subject to an intercreditor agreement or subordination provisions and other terms and provisions which are acceptable to the Administrative Agent.

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

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

     “Taxes” has the meaning set forth in Section 2.11(a).

     “Telerate” means the Telerate System.

     “Term Advance” means any advance by a Lender to the Borrower pursuant to such Lender’s Term Commitment or a continuation of an existing Term Advance, and refers to an Adjusted Base Rate Advance or a Eurodollar Rate Advance.

     “Term Commitment” means, for each Lender, the Term Commitment set forth for such Lender as its Term Commitment in the Register maintained by the Administrative Agent pursuant to Section 10.06(b); provided, however, that after the date the initial Term Advance of a Lender is made, the Term Commitment for such Lender shall be zero. As of the Effective Date, the aggregate amount of the Term Commitments under this Agreement is $65,000,000.

     “Term Maturity Date” means March 9, 2010.

     “Term Note” means a promissory note of the Borrower payable to the order of any Lender in substantially the form of the attached Exhibit A-2, evidencing Indebtedness of the Borrower to such Lender resulting from any Term Advance from such Lender, and “Term Notes” means all such Term Notes.

     “Term Required Lenders” means Non-Defaulting Lenders the sum of whose outstanding Term Advances (and, prior to the termination thereof, Term Commitments)

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represent at least 51% of the sum of all outstanding Term Advances (and, if prior to the termination thereof, Term Commitments) of Non-Defaulting Lenders.

     “Term Share” means, at any time with respect to any Lender with a Term Commitment or outstanding Term Advance, the ratio (expressed as a percentage) of such Lender’s Term Commitment at such time to the aggregate Term Commitments at such time, or, if the Term Commitments have been terminated, the ratio (expressed as a percentage) of such Lender’s Term Advances at such time to the aggregate Term Advances at such time.

     “Termination Event” means (a) a reportable event described in Section 4043(b) of ERISA and Section 4043(c) of ERISA with respect to a Title IV Plan, (b) the withdrawal of the Borrower, the Parent or any member of the Controlled Group from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, (c) the complete or partial withdrawal of the Borrower, the Parent or any member of the Controlled Group from any Multiemployer Plan, (d) with respect to any Multiemployer Plan, the filing of a notice of reorganization, insolvency or termination (or treatment of a plan amendment as termination) under Section 4041A of ERISA, (e) the filing of a notice of intent to terminate a Title IV Plan (or treatment of a plan amendment as termination) under Section 4041 of ERISA, (f) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC, (g) the failure to make any required contribution to any Title IV Plan or Multiemployer Plan when due, (h) the imposition of a lien under Section 412 of the Code or Section 302 or 4068 of ERISA on any property (or rights to property, whether real or personal) of the Borrower, the Parent or any member of the Controlled Group, (i) the failure of a Plan or any trust thereunder intended to qualify for tax exempt status under Section 401 or 501 of the Code or other requirements of Law to qualify thereunder and (j) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of any liability upon the Borrower, the Parent or any member of the Controlled Group under Title IV of ERISA other than for PBGC premiums due but not delinquent.

     “Threshold Amount” means (a) with respect to Indebtedness which is either Subordinate Indebtedness or Indebtedness which is non-recourse to the Borrower and the Guarantors (except for customary recourse “carve-outs”) which is outstanding in a principal amount of at least $10,000,000 individually or when aggregated with all such Indebtedness and (b) with respect to any other Indebtedness which is outstanding in a principal amount of at least $5,000,000 individually or when aggregated with all such Indebtedness.

     “Title IV Plan” mean any Plan that is subject to Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

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     “Title Policy” means a Mortgagee Policy of Title Insurance which (a) is in the form of American Land Title Association Standard Loan Policy — 1970 (without modification, revision or amendment) (or such other form as approved by the Administrative Agent) with endorsements reasonably requested by the Administrative Agent, (b) is issued by an underwriter reasonably acceptable to the Administrative Agent, (c) insures that the grantor of the Lien insured by such policy owns the Owned Hospitality Property subject to such Lien in fee simple or pursuant to a leasehold estate and that the Mortgage covering such Owned Hospitality Property is a valid lien on such Owned Hospitality Property in favor of the Administrative Agent for the benefit of the Lenders (subject only to Permitted Encumbrances), (d) does not contain any exceptions for rights of parties in possession, or unpaid delinquent installments of taxes, special assessments or subsequent assessments due to changes in ownership or usage, or any other exceptions to coverage other than Permitted Encumbrances.

     “Total Indebtedness” means all Indebtedness of the Borrower, the Parent and their respective Subsidiaries on a Consolidated basis, provided that “Total Indebtedness”:

     (a) shall not include any Permitted Non-Recourse Designated Entity Indebtedness;

     (b) shall include, without duplication, any Indebtedness of an Unconsolidated Entity or a Minority-Owned Fund which does not qualify under the foregoing clause (a); and

     (c) shall not include the amount of any minority interests.

     “Type” has the meaning set forth in Section 1.04.

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

     “Units” means apartment or condominium units.

     “Unsecured Indebtedness” of any Person means the Indebtedness of such Person for which the obligations thereunder are not secured by a Lien on any assets of such Person or its Subsidiaries.

     “Westchase Property” means Westchase Hilton in Houston, Texas.

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

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     Section 1.03. Accounting Terms; Changes in GAAP.

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

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

     (c) If any changes in accounting principles after December 31, 2005 required by GAAP or the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or similar agencies results in a change in the method of calculation of, or affects the results of such calculation of, any of the financial covenants, standards or terms found in this Agreement, then the parties shall enter into and diligently pursue negotiations in order to amend such financial covenants, standards or terms so as to equitably reflect such change, with the desired result that the criteria for evaluating the financial condition of Borrower and its Subsidiaries (determined on a Consolidated basis) shall be the same after such change as if such change had not been made.

     Section 1.04. Classes and Types of Advances. Advances are distinguished by “Class” and “Type”. The “Class” of an Advance refers to the determination whether such Advance is a Term Advance or a Revolving Advance, each of which constitutes a Class. The “Type” of an Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or an Adjusted Base Rate Advance, each of which constitutes a Type.

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

ARTICLE II

THE ADVANCES AND THE LETTERS OF CREDIT

     Section 2.01. The Advances.

     (a) Term Advances. Subject to the terms and conditions set forth in this Agreement, each Lender severally agrees to make a Term Advance to the Borrower on the Effective Date, in an aggregate amount equal to such Lender’s Term Commitment. No amount of any Term Advance that has been repaid or prepaid may be reborrowed.

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     (b) Revolving Advances. Subject to and upon the terms and conditions set forth herein, each Lender severally agrees at any time and from time to time on any Business Day up to fifteen (15) days prior to the Revolving Maturity Date to make Revolving Advances; provided that Revolving Advances shall not be made (or be required to be made) by any Lender on any date if, after giving effect thereto, (i) such Lender’s Revolving Share of the Revolving Exposure would exceed such Lender’s Revolving Commitment at such time, or (ii) the Revolving Exposure would exceed the aggregate Revolving Commitments of the Lenders at such time. Within the limits of each Lender’s Revolving Commitment, the Borrower may from time to time prepay Revolving Advances pursuant to the provisions of Section 2.07 and reborrow Revolving Advances under this Section 2.01(b).

     Section 2.02. Method of Borrowing.

     (a) Notice.

     (i) Each Borrowing shall be made pursuant to a Notice of Borrowing, given not later than 12:00 noon (New York, New York time) (A) on the third Business Day before the date of the proposed Borrowing, in the case of a Borrowing consisting of Eurodollar Rate Advances, or (B) on the Business Day before the date of the proposed Borrowing, in the case of a Borrowing consisting of Adjusted Base Rate Advances, by the Borrower to the Administrative Agent, which shall give each Lender prompt notice on the day of receipt of such timely Notice of Borrowing of such proposed Borrowing by telecopier. Each Notice of Borrowing shall be in writing or by telecopier specifying the requested (A) date of such Borrowing, (B) Type and Class of Advance comprising such Borrowing, (C) aggregate amount of such Borrowing, and (D) if such Borrowing is to be comprised of Eurodollar Rate Advances, the Interest Period for each such Advance. In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify each Lender of the applicable interest rate under Section 2.06(b). With respect to all Advances, each Lender shall, before 12:00 noon (New York, New York time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 10.02, or such other location as the Administrative Agent may specify by notice to the Lenders, in same day funds, such Lender’s Revolving Share or Term Share, as applicable, of such Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower at its account with the Administrative Agent.

     (ii) Notwithstanding the foregoing, the Borrower may for Adjusted Base Rate Advances requested on the Effective Date only

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request that such Advances be made on the same day as the Notice of Borrowing, provided that such Notice of Borrowing shall be given not later than 9:00 a.m. (New York, New York time) on the Effective Date. If such Notice of Borrowing on the Effective Date is delivered to the Administrative Agent by such time, (A) the Administrative Agent will promptly notify each Lender who is obligated to fund an Advance under such Notice of Borrowing of such Notice of Borrowing not later than 12:00 noon (New York, New York time) on the Effective Date and (B) each Lender shall, before 3:00 p.m. (New York, New York time) on the Effective Date, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 10.02, or such other location as the Administrative Agent may specify by notice to the Lenders, in same day funds, such Lender’s Revolving Share or Term Share, as applicable, of such Borrowing.

     (b) Conversions and Continuations. In order to elect to Convert or continue Advances comprising part of the same Borrowing under this Section, the Borrower shall deliver an irrevocable Notice of Conversion or Continuation to the Administrative Agent at the Administrative Agent’s office no later than 12:00 noon (New York, New York time) (i) on the date which is at least three (3) Business Days in advance of the proposed Conversion or continuation date in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances and (ii) on the Business Day prior to the proposed conversion date in the case of a Conversion to a Borrowing comprised of Adjusted Base Rate Advances. Each such Notice of Conversion or Continuation shall be in writing or by telecopier, specifying (i) the requested Conversion or continuation date (which shall be a Business Day), (ii) the Borrowing amount, Type and Class of the Advances to be Converted or continued, (iii) whether a Conversion or continuation is requested, and if a Conversion, into what Type of Advances, and (iv) in the case of a Conversion to, or a continuation of, Eurodollar Rate Advances, the requested Interest Period. Promptly after receipt of a Notice of Conversion or Continuation under this paragraph, the Administrative Agent shall provide each Lender with a copy thereof and, in the case of a Conversion to or a continuation of Eurodollar Rate Advances, notify each Lender of the applicable interest rate under Section 2.06(b). If the Borrower shall fail to specify an Interest Period for a Eurodollar Rate Advance including the continuation of a Eurodollar Rate Advance, the Borrower shall be deemed to have selected an Adjusted Base Rate Advance.

     (c) Certain Limitations. Notwithstanding anything in paragraphs (a) and (b) above:

     (i) in the case of Eurodollar Rate Advances, each Borrowing shall be in an aggregate amount of not less than $1,000,000 or greater multiples of $100,000;

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     (ii) in the case of Adjusted Base Rate Advances, each Borrowing shall be in an aggregate amount of not less than $500,000 or greater multiples of $100,000;

     (iii) except for Borrowings for the acquisition of Permitted New Investments by the Borrower or its Subsidiary, the Borrower may not request Borrowings on more than four (4) days in any calendar month;

     (iv) at no time shall there be more than five (5) Interest Periods applicable to outstanding Eurodollar Rate Advances;

     (v) the Borrower may not select Eurodollar Rate Advances for any Borrowing to be made, Converted or continued if a Default has occurred and is continuing;

     (vi) if any Lender shall, at any time prior to the making of any requested Borrowing comprised of Eurodollar Rate Advances, notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Applicable Lending Office to perform its obligations under this Agreement to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, then such Lender’s Revolving Share or Term Share, as applicable, of such Borrowing shall be made as an Adjusted Base Rate Advance, provided that such Adjusted Base Rate Advance shall be considered part of the same Borrowing and interest on such Adjusted Base Rate Advance shall be due and payable at the same time that interest on the Eurodollar Rate Advances comprising the remainder of such Borrowing shall be due and payable; and such Lender agrees to use commercially reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid the effect of this paragraph and would not, in the reasonable judgment of such Lender, be otherwise materially disadvantageous to such Lender;

     (vii) if the Administrative Agent is unable to determine the applicable Eurodollar Rate for Eurodollar Rate Advances comprising any requested Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be an Adjusted Base Rate Advance;

     (viii) if the Required Lenders shall, at least one Business Day before the date of any requested Borrowing, notify the Administrative

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Agent that the Applicable Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be an Adjusted Base Rate Advance;

     (ix) if the Borrower shall fail to select the duration or continuation of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01 and paragraph (a) or (b) above, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Advances will be made available to the Borrower on the date of such Borrowing as Adjusted Base Rate Advances or, if an existing Advance, Converted into Adjusted Base Rate Advances; and

     (x) the Borrower may not select Eurodollar Rate Advances prior to the 5^th Business Day following the Effective Date.

     (d) Notices Irrevocable. Each Notice of Borrowing and Notice of Conversion or Continuation shall be irrevocable and binding on the Borrower. In the case of any Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, out-of-pocket cost or expense incurred by such Lender as a result of any condition precedent for Borrowing set forth in Article III not being satisfied for any reason, including, without limitation, any loss, cost or expense actually incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

     (e) Administrative Agent Reliance. Unless the Administrative Agent shall have received notice from a Lender before the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s Revolving Share or Term Share, as applicable, of the Borrowing, the Administrative Agent may assume that such Lender has made its Revolving Share or Term Share, as applicable, of such Borrowing available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made its Revolving Share or Term Share, as applicable, of such Borrowing available to the Administrative Agent, such Lender and the Borrower severally agree to

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immediately repay to the Administrative Agent on demand such corresponding amount, together with interest on such amount, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable on each such day to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for each such day. If such Lender shall repay to the Administrative Agent such corresponding amount and interest as provided above, such corresponding amount so repaid shall constitute such Lender’s Advance as part of such Borrowing for purposes of this Agreement even though not made on the same day as the other Advances comprising such Borrowing.

     (f) Lender Obligations Several. The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, to make its Advance on the date of such Borrowing. No Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

     (g) Notes. The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will promptly execute and deliver to such Lender a promissory note of the Borrower evidencing any Revolving Advances or Term Advances, as the case may be, of such Lender, substantially in the forms of Exhibit A-1, or A-2, as the case may be, with appropriate insertions as to date and principal amount; provided, that delivery of Notes shall not be a condition precedent to the occurrence of the Effective Date or the making of Advances.

     Section 2.03. Fees.

     (a) Commitment Fees. For the period from the Effective Date until the Revolving Maturity Date the Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee on the average daily amount by which such Lender’s Revolving Commitment exceeds the sum of such Lender’s Revolving Share of the Revolving Exposure at a rate per annum equal to the Commitment Fee Rate (computed on the actual number of days elapsed, including the first day and excluding the last, based upon a 360-day year). Such fees shall be due and payable quarterly in arrears (i) on the date which is thirty (30) days following the end of the last Business Day of each March, June, September and December and (ii) on the Revolving Maturity Date.

     (b) Letter of Credit Fees. The Borrower agrees to pay to the Administrative Agent for the benefit of the Lenders, fees in respect of all Letters of Credit outstanding at a rate per annum equal to the Applicable Margin in effect with respect to the Eurodollar Rate Advances (computed on the actual number of days elapsed, including the first day and excluding the last, based upon a 360-day

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year) on the average daily amount of the aggregate undrawn maximum amount of each Letter of Credit outstanding, payable in arrears (i) on the date which is thirty (30) days following the last Business Day of each March, June, September and December and (ii) on the Revolving Maturity Date. In addition, the Borrower agrees to pay to the Issuing Bank for its own account a fee on the daily amount of the aggregate undrawn maximum face amount of each Letter of Credit issued by such Issuing Bank at a rate per annum to be agreed upon by the Borrower and the Issuing Bank, such fees due and payable quarterly in arrears on the date which is thirty (30) days following the last day of each March, June, September and December and (ii) on the Maturity Date. In addition, the Borrower shall pay directly to the Issuing Bank for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Bank relating to letters of credit that from time to time are in effect.

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

     Section 2.04. Reduction of the Revolving Commitments. The Borrower may, upon at least three (3) Business Days’ prior notice to the Administrative Agent, permanently terminate in whole or permanently reduce ratably in part the Revolving Commitments of the Lenders; provided, however, that (a) each partial reduction shall be in the aggregate amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, (b) no such reduction shall result in an overdraft status as provided in Section 2.07(c)(iv), and (c) no such reduction shall result in the total aggregate Revolving Commitments of the Lenders being less than $25,000,000 unless the total aggregate Revolving Commitments are permanently terminated in their entirety.

     Section 2.05. Repayment of Advances on Maturity Date. The Borrower shall repay the outstanding principal amount of each Advance on the applicable Maturity Date for such Class of Advance.

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

     (a) Adjusted Base Rate Advances. If such Advance is an Adjusted Base Rate Advance, a rate per annum (computed on the actual number of days elapsed, including the first day and excluding the last, based on a 365 day year) equal at all times to the lesser of (i) the Adjusted Base Rate in effect from time to time plus the Applicable Margin and (ii) the Maximum Rate, payable in arrears on the first Business Day of each calendar month and on the date such Adjusted Base Rate Advance shall be paid in full, provided that during the continuance of an

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Event of Default, Adjusted Base Rate Advances shall bear interest at a rate per annum equal at all times to the lesser of (i) the rate required to be paid on such Advance had such Event of Default not occurred plus two percent (2%) and (ii) the Maximum Rate.

     (b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum (computed on the actual number of days elapsed, including the first day and excluding the last, based on a 360 day year) equal at all times during the Interest Period for such Advance to the lesser of (i) the applicable Eurodollar Rate for such Advance for such Interest Period plus the Applicable Margin and (ii) the Maximum Rate, payable in arrears on the last day of such Interest Period, and on the date such Eurodollar Rate Advance shall be paid in full, and, with respect to Eurodollar Rate Advances having an Interest Period in excess of thirty (30) days, the first Business Day of each calendar month during such Interest Period excluding the month in which such Eurodollar Rate Advance shall be paid in full; provided that during the continuance of an Event of Default, Eurodollar Rate Advances shall bear interest at a rate per annum equal at all times to the lesser of (i) the rate required to be paid on such Advance had such Event of Default not occurred plus two percent (2%) and (ii) the Maximum Rate.

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

     (d) Other Amounts Overdue. Subject to the provisions of Section 10.11, if any amount payable under this Agreement other than the Advances is not paid when due and payable, including without limitation, accrued interest and fees, then such overdue amount shall accrue interest hereon due and payable on

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demand at a rate per annum equal to the Adjusted Base Rate plus two percent (2%), from the date such amount became due until the date such amount is paid in full.

     (e) Late Payment Fee. Subject to the provisions of Section 10.11, if any interest payable under this Agreement is not paid when due and payable (after taking into account any applicable grace period), then the Borrower will pay to the Lenders contemporaneously with the payment of such past due interest a late payment fee equal to an amount equal to the product of (i) such overdue interest times (ii) two percent (2%).

     Section 2.07. Prepayments.

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

     (b) Optional Prepayments. The Borrower may elect to prepay any of the Advances, after giving by 12:00 noon (New York, New York time) (i) in the case of Eurodollar Rate Advances, at least three (3) Business Days’, or (ii) in case of Adjusted Base Rate Advances, at least one (1) Business Day’s prior written notice to the Administrative Agent, stating the proposed date and aggregate principal amount of such prepayment, and if applicable, the relevant Interest Period for the Advances to be prepaid. If any such notice is given, the Borrower shall prepay Advances comprising part of the same Borrowing in whole or ratably in part in an aggregate principal amount equal to the amount specified in such notice, and shall also pay accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Sections 2.07(c)(iii) or 2.08 as a result of such prepayment being made on such date; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $500,000 and in integral multiples of $100,000.

     (c) Mandatory Prepayments.

     (i) Repayment Event. Upon the occurrence of any Repayment Event, the Borrower shall prepay Advances on the next Business Day after the Net Cash Proceeds from such Repayment Event are received by the Borrower or the Parent or one of their respective Subsidiaries, as applicable, in an amount equal to the lesser of (A) the amount of the outstanding Advances on such Business Day and (B) the Repayment Amount for such Repayment Event. If, in connection with an Asset Disposition which qualifies as a Repayment Event for which the Borrower has not used the Net Cash Proceeds to repay the Obligations, the Borrower has failed to comply with Section 5.09(c) or failed to make a Permitted New Investment or Permitted New Investments with such Net Cash Proceeds by the sixth month period provided in Section 5.09(c) or the end of the Rolling Period commencing after the Fiscal Quarter in which such

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Asset Disposition occurred, as applicable, then the Borrower shall prepay Advances on or prior to the end of such six month period or the Rolling Period, as applicable, in the amount equal to the lesser of (A) the amount of the outstanding Advances on such date and (B) the portion of the Repayment Amount for such Repayment Event which has not been used to acquire an Owned Hospitality Property (as required by Section 5.09(c)) or to make a Permitted New Investment or Permitted New Investments.

     (ii) Allocation of Payments. Prepayments under the foregoing paragraph (i) shall be applied (A) first, to Term Advances in the reverse order of maturity, and (B) second, to Revolving Advances; provided that such prepayment shall be applied to Revolving Advances (and not to Term Advances) if such prepayment is a result of a Repayment Event with the Net Cash Proceeds of Permitted Other Indebtedness secured by an Owned Hospitality Property Investment financed initially in whole or in part with the Revolving Advances. Notwithstanding the foregoing, any holder of Term Advances may, at its sole discretion, so long as any Revolving Advances are then outstanding (after giving effect to the application of the required prepayment to the Term Advances and Revolving Advances under this Section 2.07(c)), elect by written notice provided to the Administrative Agent not to have all or any amount of any such required prepayments applied to such holder’s Term Advances, in which case the aggregate amount so declined shall be applied to Revolving Advances; provided, however, that to the extent that the aggregate amount so declined by the holders of the Term Advances exceeds the aggregate principal amount of the Revolving Advances, the excess shall be allocated between the declining holders of the Term Advances pro rata based on the aggregate amount declined by each such holder.

     (iii) Term Advances. Commencing on July 1, 2007 and on each October 1, January 1, April 1 and July 1 thereafter, the Borrower shall repay the Term Advances by an amount equal to $162,500.

     (iv) Overdraft. On any date on which the Revolving Exposure exceeds the aggregate Revolving Commitments, the Borrower agrees to make a prepayment of the Revolving Advances in the amount of such excess, and if all the Revolving Advances have been then repaid, then to deposit with the Administrative Agent into the Cash Collateral Account an amount equal to the lesser of (A) the Letter of Credit Exposure or (B) the amount of such excess less the amount of Revolving Advances then repaid.

     (v) Accrued Interest. Each prepayment pursuant to this Section 2.07(c) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be

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paid pursuant to Section 2.08 as a result of such prepayment being made on such date.

     (vi) Avoidance of Breakage Costs. In the event that the amount of any mandatory prepayment of Advances under this Section 2.07(c) exceeds the aggregate principal amount of Advances which consist of Adjusted Base Rate Advances (the amount of such excess being the “Excess Amount”), the Borrower shall have the right, in lieu of making such prepayment in full, to prepay such outstanding Advances which are Adjusted Base Rate Advances and to deposit an amount equal to the Excess Amount with the Administrative Agent in the Cash Collateral Account maintained by and in the sole dominion and control of the Administrative Agent for the ratable benefit of the Lenders. Any amount so deposited shall be held by the Administrative Agent as collateral for the Obligations, earn interest on behalf of the Borrower and be applied to the prepayment of Advances which are Eurodollar Rate Advances at the end of the current Interest Period(s) applicable thereto. On any day on which amounts collected in the Cash Collateral Account remain on deposit in or to the credit of the Cash Collateral Account after giving effect to the payment made on such day pursuant to this Section 2.07(c), and the Borrower shall have delivered to the Administrative Agent a written request or a telephonic request (which shall be promptly confirmed in writing) prior to 12:00 noon (New York, New York time) that such remaining collected amounts be invested in cash equivalents specified in such request, the Administrative Agent shall invest such funds, to the extent the Administrative Agent is reasonably able to do so, in such cash equivalents as are acceptable to, and with no risk to, the Administrative Agent on an overnight basis or with maturities such that amounts will be available to pay the Obligations secured thereby as they become due, whether at maturity, by acceleration or otherwise; provided, however, that any loss resulting from such investments shall be charged to and be immediately payable by the Borrower on demand by the Administrative Agent.

     (vii) Repayment of Revolving Advances. Any mandatory repayments of Revolving Advances pursuant to this Section 2.07(c) shall be applied (A) if no Default or Event of Default exists, then to Revolving Advances comprising the same Borrowing or Borrowings, at the Borrower’s option, and (B) if a Default or Event of Default exists, then to all Revolving Advances pro rata based upon the amount of outstanding Revolving Advances.

     (d) Ratable Payments. Each payment of any Advance pursuant to this Section 2.07 or any other provision of this Agreement shall be made in a manner such that all Advances comprising part of the same Borrowing are paid in whole or ratably in part.

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

     (f) Payments with respect to Liens on an Owned Hospitality Property. Notwithstanding anything in this Agreement or any other Credit Document to the contrary, except in connection with the release of Liens on an Owned Hospitality Property contemplated by the provisions of Section 5.09, each payment of any Advance pursuant to this Section 2.07 or any other provision of this Agreement shall be made in a manner such that all Advances secured by a Lien on an Owned Hospitality Property shall be deemed the last Advances repaid.

     Section 2.08. Breakage Costs. If (a) any payment of principal of any Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance as a result of any payment pursuant to Section 2.07 or the acceleration of the maturity of the Notes pursuant to Article VIII or otherwise; (b) any Conversion of a Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance pursuant to Section 2.02(b) or Section 2.12 or otherwise; or (c) the Borrower fails to make a principal or interest payment with respect to any Eurodollar Rate Advance on the date such payment is due and payable, the Borrower shall, within ten (10) days of any written demand sent by any Lender to the Borrower through the Administrative Agent, pay to the Administrative Agent for the account of such Lender any amounts (without duplication of any other amounts payable in respect of breakage costs) required to compensate such Lender for any additional losses, out-of-pocket costs or expenses which it may reasonably incur as a result of such payment or nonpayment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.

     Section 2.09. Increased Costs.

     (a) Eurodollar Rate Advances. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation (except with respect to Taxes or Other Taxes) following the date of this Agreement or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) not complied with prior to the date of this Agreement, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), immediately pay to the Administrative Agent for the account of such Lender additional amounts (without duplication of any other amounts payable in respect of increased costs) sufficient to compensate such Lender for such increased cost; provided, however, that, before making any such demand, each Lender agrees to use commercially reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount

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of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Administrative Agent by such Lender at the time such Lender demands payment under this Section shall be conclusive and binding for all purposes, absent manifest error.

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

     (c) Letters of Credit. If any change in any law or regulation (except with respect to Taxes or Other Taxes) or in the interpretation thereof by any court or administrative or Governmental Authority charged with the administration thereof following the date of this Agreement shall either (i) impose, modify, or deem applicable any reserve, special deposit, or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, Issuing Bank or any Lender or (ii) impose on Issuing Bank or any Lender any other condition regarding the provisions of this Agreement relating to the Letters of Credit or any Letter of Credit Obligations, and the result of any event referred to in the preceding clause (i) or (ii) shall be to increase the cost to Issuing Bank of issuing or maintaining any Letter of Credit, or increase the cost to such Lender of

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its risk participation in any Letter of Credit (which increase in cost shall be determined by Issuing Bank’s or such Lender’s reasonable allocation of the aggregate of such cost increases resulting from such event), then, upon demand by Issuing Bank or such Lender (with a copy sent to the Administrative Agent), as the case may be, the Borrower shall pay to the Administrative Agent for the account of Issuing Bank or Lender, as the case may be, from time to time as specified by Issuing Bank or such Lender, additional amounts which shall be sufficient to compensate such Issuing Bank or such Lender for such increased cost. Issuing Bank and each Lender agrees to use commercially reasonable efforts (consistent with internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office for the booking of its Letters of Credit or risk participations if the making of such designation would avoid the effect of this paragraph and would not, in the reasonable judgment of Issuing Bank or such Lender, be otherwise disadvantageous to Issuing Bank or such Lender, as the case may be. A certificate as to such increased cost incurred by Issuing Bank or such Lender, as the case may be, as a result of any event mentioned in clause (i) or (ii) above, and detailing the calculation of such increased costs submitted by Issuing Bank or such Lender to the Borrower and the Administrative Agent, shall be conclusive and binding for all purposes, absent manifest error.

     Section 2.10. Payments and Computations.

     (a) Payment Procedures. Except if otherwise set forth herein, the Borrower shall make each payment under this Agreement and under the Notes not later than 12:00 noon (New York, New York time) on the day when due in Dollars to the Administrative Agent at the location referred to in the Notes (or such other location as the Administrative Agent shall designate in writing to the Borrower) in same day funds without set-off, deduction or counterclaim. Except for amounts payable solely to the Administrative Agent, the Issuing Banks, or a specific Lender pursuant to Section 2.03(b), 2.03(c), 2.08, 2.09, 2.11, 2.12, or 2.13(c) but after taking into account payments effected pursuant to Section 10.04, the Administrative Agent will on the same day cause to be distributed like funds relating to the payment of principal, interest or fees ratably to the Lenders in accordance with, in the case of a payment made in respect of a Borrowing, each Lender’s Revolving Share or Term Share, as applicable, for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender or Issuing Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.

     (b) Computations. All computations of interest based on the Adjusted Base Rate shall be made by the Administrative Agent on the basis of a year of 365 days and all computations of fees and interest based on the Applicable Eurodollar Rate and the Federal Funds Rate shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days

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(including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate shall be conclusive and binding for all purposes, absent manifest error.

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

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

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

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the aggregate principal amount owed to such Lenders; and fifth, if applicable, to the payment of all amounts due and payable under Interest Rate Agreements provided by a Lender.

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

     Section 2.11. Taxes.

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

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

     (c) Indemnification. The Borrower will indemnify each Lender, Issuing Bank, and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any Governmental Authority on amounts payable under this Section 2.11) paid by such Lender, Issuing Bank, or the Administrative Agent (as the case may be) and any liability (including interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Each payment required to be made by the Borrower in respect of this indemnification shall be made to the Administrative Agent for the benefit of any party claiming such indemnification within thirty (30) days from the date the Borrower receives written demand detailing the calculation of such amounts therefore from the Administrative Agent on behalf of itself as Administrative Agent, Issuing Bank, or any such Lender. If any Lender, the Administrative Agent, or Issuing Bank determines in its sole discretion (exercised in good faith) that is has received a refund or offset in respect of any Taxes or Other Taxes paid by the Borrower under this paragraph (c), such Lender, the Administrative Agent, or Issuing Bank, as the case may be, shall promptly pay to the Borrower the Borrower’s share of such refund or offset as determined in the sole discretion, exercised in good faith, of such Lender, the Administrative Agent, or Issuing Bank, as the case may be (reduced by any reasonable out-of-pocket expenses and any Taxes imposed on the Lender, the Administrative Agent, or Issuing Bank, as the case may be, by reason of the receipt of such refund or offset, provided, however, that the Borrower upon the request of such Lender, the Administrative Agent or Issuing Bank agrees to repay the amount paid over to the Borrower to such Lender, the Administrative Agent or Issuing Bank in the event such Lender, the Administrative Agent, or Issuing Bank is required to repay such refund or offset to a taxing authority). Nothing in this Section 2.11(c) shall obligate any Lender, the Administrative Agent or Issuing Bank to apply for any such refund or offset.

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

     (e) Foreign Lender Withholding Exemption. Each Lender and Issuing Bank that is not incorporated under the laws of the United States of America or a

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

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

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

     (h) If any Governmental Authority asserts that the Administrative Agent did not properly withhold or backup withhold, as the case may be, any tax or other amount from payments made to or for the account of any Lender, that Lender shall indemnify the Administrative Agent therefore, including all penalties and interest, any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, and costs and expenses (including attorney fees) of the Administrative Agent. The obligation of the Lenders under this Section shall survive the termination of the Commitments, repayment of all other Obligations hereunder and the resignation of the Administrative Agent.

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     Section 2.12. Illegality. If any Lender shall notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any Legal Requirement makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its Applicable Lending Office to perform its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Lender then outstanding hereunder, then, notwithstanding anything herein to the contrary, the Borrower shall, if demanded by such Lender by notice to the Borrower and the Administrative Agent no later than 12:00 noon (New York, New York time), (a) if not prohibited by Legal Requirement to maintain such Eurodollar Rate Advances for the duration of the Interest Period, on the last day of the Interest Period for each outstanding Eurodollar Rate Advance of such Lender or (b) if prohibited by Legal Requirement to maintain such Eurodollar Rate Advances for the duration of the Interest Period, on the second Business Day following its receipt of such notice from such Lender, Convert all such affected Eurodollar Rate Advances of such Lender then outstanding to Adjusted Base Rate Advances, and pay accrued interest on the principal amount Converted to the date of such Conversion and amounts, if any, required to be paid pursuant to Section 2.08 as a result of such Conversion being made on such date. Each Lender agrees to use commercially reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid the effect of this paragraph and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.

     Section 2.13. Letters of Credit.

     (a) Issuance. From time to time from the date of this Agreement until three months before the Maturity Date, at the request of the Borrower, the Issuing Bank shall, on any Business Day and on the terms and conditions hereinafter set forth, issue, increase, decrease, amend, or extend the expiration date of Letters of Credit for the account of the Borrower (for its own benefit or for the benefit of the Parent or any of the Borrower’s Subsidiaries). Promptly after issuance by the Issuing Bank of a Letter of Credit, such Issuing Bank shall furnish a copy of such Letter of Credit to the Borrower. Each Issuing Bank shall promptly give notice to the Administrative Agent of the issuance of each Letter of Credit issued by such Issuing Bank (including the amount thereof). Upon the Effective Date, but subject to the limitations contained in the following sentence, each Existing Letter of Credit shall be automatically converted to a Letter of Credit. No Letter of Credit will be issued, increased, or extended and no Existing Letter of Credit will be converted to a Letter of Credit (i) if such issuance, increase, extension or conversion would cause the Letter of Credit Exposure to exceed the lesser of (x) $10,000,000 or (y) an amount equal to (A) the aggregate Revolving Commitments less (B) the sum of the aggregate Revolving Exposure at such time; (ii) unless such Letter of Credit has an Expiration Date not later than the earlier of (A) one year after the date of issuance thereof and (B) ten (10) days prior to the Maturity Date; (iii) unless such Letter of Credit is in form and substance acceptable to the Issuing Bank; (iv) unless such Letter of Credit is a standby letter of credit not

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supporting the repayment of indebtedness for borrowed money of any Person; (v) unless the Borrower has delivered to the Issuing Bank (with a copy to the Administrative Agent) the completed and executed Letter of Credit Documents (other than the Letter of Credit) on such Issuing Bank’s standard form, which shall contain terms no more restrictive than the terms of this Agreement; and (vi) unless no Default has occurred and is continuing or would result from the issuance of such Letter of Credit. If the terms of any of the Letter of Credit Documents referred to in the foregoing clause (v) conflicts with the terms of this Agreement, the terms of this Agreement shall control.

     (b) Participations. On the date of the issuance or increase of any Letter of Credit on or after the Effective Date or the conversion of any Existing Letter of Credit to a Letter of Credit in accordance with provisions of the preceding Section 2.13(a), Issuing Bank shall be deemed to have sold to each other Lender with a Revolving Commitment and each other Lender with a Revolving Commitment shall have been deemed to have purchased from such Issuing Bank a participation in the Letter of Credit Exposure related to the Letters of Credit issued by such Issuing Bank equal to such Lender’s Revolving Share at such date and such sale and purchase shall otherwise be in accordance with the terms of this Agreement. Upon receiving notification from the Issuing Bank, the Administrative Agent shall promptly notify each such participant Lender by telex, telephone, or telecopy of each Letter of Credit of such Issuing Bank issued, increased or decreased, and the actual dollar amount of such Lender’s participation in such Letter of Credit. Each Lender’s obligation to purchase participating interests pursuant to this Section and to reimburse the Issuing Bank for such Lender’s Revolving Share of any payment under a Letter of Credit by such Issuing Bank not reimbursed in full by the Borrower shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any of the circumstances described in paragraph (d) below, (ii) the occurrence and continuance of a Default, (iii) an adverse change in the financial condition of the Borrower or any Guarantor, or (iv) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing, except for any such circumstance, happening or event that is determined by a court of competent jurisdiction by a final and non-appealable judgment to have resulted from the gross negligence or willful misconduct on the part of such Issuing Bank.

     (c) Reimbursement. The Borrower shall have the right (but not the obligation) to pay promptly on demand to Issuing Bank in respect of each Letter of Credit issued by such Issuing Bank an amount equal to any amount paid by such Issuing Bank under or in respect of such Letter of Credit. In the event any Issuing Bank makes a payment pursuant to a request for draw presented under a Letter of Credit and such payment is not promptly reimbursed by the Borrower upon demand, such Issuing Bank shall give notice of such payment to the Administrative Agent, and upon the receipt of such notice, the Administrative

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Agent shall give notice of such payment to the Lenders, and each Lender shall promptly reimburse such Issuing Bank through the Administrative Agent for such Lender’s Revolving Share of such payment, and such reimbursement shall be deemed for all purposes of this Agreement to constitute an Adjusted Base Rate Advance to the Borrower from such Lender. If such reimbursement is not made by any Lender to any Issuing Bank on the same day on which such Issuing Bank shall have made payment on any such draw, such Lender shall pay interest thereon to such Issuing Bank for each such day from the date such payment should have been made until the date repaid at a rate per annum equal to the Federal Funds Rate for each such day. The Borrower hereby unconditionally and irrevocably authorizes, empowers, and directs the Administrative Agent and the Lenders to record and otherwise treat each payment under a Letter of Credit not immediately reimbursed by the Borrower as a Borrowing comprised of Adjusted Base Rate Advances to the Borrower.

     (d) Obligations Unconditional. The obligations of the Borrower under this Agreement in respect of each Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, notwithstanding the following circumstances:

     (i) any lack of validity or enforceability of any Letter of Credit Documents;

     (ii) any amendment or waiver of or any consent to departure from any Letter of Credit Documents;

     (iii) the existence of any claim, set-off, defense or other right which the Borrower or any Lender or any other Person may have at any time against any beneficiary or transferee of such Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person or entity, whether in connection with this Agreement, the transactions contemplated in this Agreement or in any Letter of Credit Documents or any unrelated transaction;

     (iv) any statement or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect to the extent the Issuing Bank would not be liable therefore pursuant to the following paragraph (e);

     (v) payment by the Issuing Bank under such Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; or

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     (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

     (e) Liability of Issuing Banks. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. No Issuing Bank, nor any other Lender, nor any of their respective officers or directors shall be liable or responsible for:

     (i) the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith;

     (ii) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged;

     (iii) payment by such Issuing Bank against presentation of documents which do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; or

     (iv) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit (including such Issuing Bank’s own negligence),

except that the Borrower shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to, and shall promptly pay to, the Borrower, to the extent of any direct, as opposed to consequential, damages suffered by the Borrower that are determined by a court of competent jurisdiction by a final and non-appealable judgment to have resulted from (A) such Issuing Bank’s willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit or (B) such Issuing Bank’s gross negligence in failing to make lawful payment under any Letter of Credit after the presentation to it of a draft and certificate strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing, any Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation.

     Section 2.14. Determination of Certain Financial Covenants. In addition to the determination of the Financial Covenants in a Compliance Certificate, certain Financial Covenants shall be determined by the Administrative Agent, as follows:

     (a) Adjustments. At least five Business Days prior to (i) each making, acquisition or disposition by the Parent or its Subsidiary of an Investment or any Non-Replaced Property with an Investment Amount in excess of $5,000,000, (ii) the date on which any Owned Hospitality Property is mortgaged to secure

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obligations or Indebtedness other than the Obligations, or (iii) the incurrence by the Parent or its Subsidiary of additional Indebtedness (excluding any Obligations) in excess of $5,000,000 (an “Adjustment Event”), and the Administrative Agent’s receipt of an Adjustment Report with respect thereto, the Administrative Agent shall adjust the Financial Covenants in Sections 7.02 and 7.04, accordingly.

     (b) Notice of Financial Covenant Changes. Promptly following any date the Financial Covenants in Sections 7.02 and 7.04 are determined in accordance with the preceding paragraph, the Administrative Agent shall give notice to the Lenders and the Borrower of the new Financial Covenants in Sections 7.02 and 7.04.

     Section 2.15. Lender Replacement.

     (a) Right to Replace. The Borrower shall, at the Borrower’s own expense, have the right to replace each Lender affected by a condition under Section 2.02(c)(vi), 2.09, 2.11, or 2.12 for more than 60 days (each such affected Lender, an “Affected Lender”) in accordance with the procedures in this Section 2.15 and provided that no reduction of the total Commitments occurs as a result thereof.

     (b) Replacement Allocation.

     (i) Upon the occurrence of any condition permitting the replacement of a Lender, the Administrative Agent in its sole discretion shall have the right to reallocate the amount of the Commitments of the Affected Lenders, including without limitation to Persons which are not already party to this Agreement but which qualify as Eligible Assignees, which election shall be made by written notice within thirty (30) days after the date such condition occurs.

     (ii) If the aggregate amount of the reallocated Commitments is less than the Commitments of the Affected Lenders, (A) the respective Commitments of the Lenders which have received such reallocated Commitments shall be increased by the respective amounts of their proposed reallocations, and (B) the Borrower shall have the right to add additional Lenders which are Eligible Assignees to this Agreement to replace such Affected Lenders, which additional Lenders would have aggregate Commitments no greater than those of the Affected Lenders minus the amounts of the Commitments already reallocated.

     (iii) Notwithstanding any provision in this Section 2.15 to the contrary, no Lender may have such Lender’s Commitment increased pursuant to the provisions of this Section 2.15 without such Lender’s written consent.

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     (c) Procedure. Any assumptions of Commitments pursuant to this Section 2.15 shall be (i) made by the purchasing Lender or Eligible Assignee and the selling Lender entering into an Assignment and Assumption and by following the procedures in Section 10.06 for adding a Lender; provided that no processing fee shall be charged by the Administrative Agent in connection with such assignment. In connection with the reallocation of the Commitments of any Lender pursuant to the foregoing paragraph (b), each Lender with a reallocated Commitment shall purchase from the Affected Lenders at par such Lender’s Revolving Share or Term Share, as applicable, of the outstanding Advances of the Affected Lenders and assume such Lender’s Revolving Share of the Affected Lenders’ Letter of Credit Exposure.

     Section 2.16. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off or otherwise) on account of the Advances made by it in excess of its Revolving Share or Term Share, as applicable, of payments or collateral on account of the Advances or Letter of Credit Obligations obtained by all the Lenders, such Lender shall notify the Administrative Agent and forthwith purchase from the other Lenders such participations in the Advances, as applicable, made by them or Letter of Credit Obligations held by them as shall be necessary to cause such purchasing Lender to share the excess payment or benefits of such collateral or proceeds ratably in accordance with the requirements of this Agreement with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender’s ratable share (according to the proportion of (a) the amount of the participation sold by such Lender to the purchasing Lender as a result of such excess payment to (b) the total amount of such excess payment) of such recovery, together with an amount equal to such Lender’s ratable share (according to the proportion of (a) the amount of such Lender’s required repayment to the purchasing Lender to (b) the total amount of all such required repayments to the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.16 may, to the fullest extent permitted by Legal Requirement, unless and until rescinded as provided above, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

ARTICLE III

CONDITIONS OF LENDING

     Section 3.01. Conditions Precedent to the Initial Advance. The obligation of each Lender to make an initial Advance hereunder and of the Issuing Bank to issue an initial Letter of Credit are subject to the following conditions precedent being satisfied:

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     (a) Documentation. The Administrative Agent shall have received counterparts of this Agreement executed by the Borrower and the Lenders, and the following duly executed by all the parties thereto, in form and substance satisfactory to the Administrative Agent, and, with respect to this Agreement, all Guaranties and Environmental Indemnities, in sufficient copies for each Lender:

     (i) the Guaranties and the Environmental Indemnities;

     (ii) the Security Documents (or amendments thereto) to the extent applicable executed by the Borrower, the Parent and the other Guarantors granting to the Administrative Agent for the benefit of the Lenders an Acceptable Lien in the Collateral, together with stock certificates, stock powers executed in blank, UCC-1 financing statements and any other documents, agreements or instruments necessary or desirable to create an Acceptable Lien in the Collateral;

     (iii) a certificate from a Responsible Officer of the Parent on behalf of the Borrower dated as of the Effective Date stating that as of the Effective Date (A) all representations and warranties of the Borrower set forth in this Agreement and the Credit Documents are true and correct in all material respects; (B) no Default has occurred and is continuing; (C) the conditions in this Section 3.01 have been met or waived in writing; and (D) to the best of the Borrower’s knowledge there are no claims, defenses, counterclaims or offsets against the Lenders under the Credit Documents;

     (iv) a certificate of the Secretary or an Assistant Secretary of the Parent on behalf of the Borrower and each corporation and limited liability company that is either a Guarantor or a general partner or manager of a Guarantor dated as of the date of this Agreement certifying as of the Effective Date (A) the names and true signatures of officers or authorized representatives of the Parent and such other Persons authorized to sign the Credit Documents to which such Person is a party in the capacity therein indicated, (B) resolutions of the Board of Directors or the members of the Parent and such other Persons with respect to the transactions herein contemplated, (C) either (x) the copies of the organizational documents of the Parent, the Borrower and such other Persons delivered to the Lenders are still true and correct and have not been amended or modified since such date or (y) copies of any modification or amendment to the organizational documents of the Parent, the Borrower or any such other Persons made since such date, and (D) a true and correct copy of all partnership, corporate or limited liability company authorizations necessary or desirable in connection with the transactions herein contemplated;

     (v) (A) one or more favorable written opinions of DeCampo, Diamond & Ash, special counsel for the Borrower, the Parent, and their

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Subsidiaries, in a form reasonably acceptable to the Administrative Agent, in each case dated as of the Effective Date and with such changes as the Administrative Agent may approve, and (B) such other legal opinions as either of the Administrative Agent shall reasonably request, in each case dated as of the Effective Date and with such changes as the Administrative Agent may approve;

     (vi) a Compliance Certificate dated as of the Effective Date reflecting for the Financial Covenants for the Rolling Period ended September 30, 2006 (on a pro forma basis adjusting for the refinancing and remortgaging to the Lenders of the Concord Property), duly completed and executed by the Chief Financial Officer or Treasurer of the Parent; and

     (vii) such other documents, governmental certificates, agreements, lien searches as the Administrative Agent may reasonably request.

     (b) Representations and Warranties. The representations and warranties contained in Article IV hereof, the Security Agreement, the Guaranties and the Environmental Indemnities shall be true and correct in all material respects.

     (c) Certain Payments. The Borrower shall have paid or repaid, as applicable the fees required to be paid as of the execution of this Credit Agreement pursuant to the Fee Letter.

     (d) Security Documents. The Administrative Agent shall have received all appropriate evidence required by the Administrative Agent in its reasonable discretion necessary to determine that the Administrative Agent has an Acceptable Lien in the Collateral, including, without limitation, lien searches conducted on the Borrower and the Guarantors and lien releases with respect to any Collateral currently subject to a Lien other than Permitted Encumbrances.

     (e) Lien Searches. The Administrative Agent shall have received the results of recent lien searches with respect to the Borrower and the Guarantors and such searches shall not reveal any liens other than liens permitted by the Credit Documents or liens to be discharged substantially concurrently with the closing of the Advances pursuant to documentation satisfactory to the Administrative Agent.

     (f) Solvency Certificate. The Lenders shall have received a customary solvency certificate from the Parent’s chief financial officer as to the solvency of the Parent and its Subsidiaries after giving effect to the transactions contemplated hereby.

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     (g) Due Diligence. The Administrative Agent shall have completed and shall be satisfied with the results of its due diligence investigation of the Borrower and the Guarantors.

     (h) Fees. The Lenders and the Administrative Agent shall have received all fees required to be paid on or before the Effective Date, and the Administrative Agent shall have received reimbursement of all out-of-pocket expenses of the Administrative Agent payable by the Borrower in connection with the Advances.

     (i) Termination of Existing Credit Facility. The Administrative Agent shall have received evidence satisfactory to the Administrative Agent that the Existing Credit Facility shall be simultaneously paid in full and arrangements satisfactory to the Administrative Agent shall have been made for the termination of Liens and security interests granted in connection therewith.

     (j) Financial Statements. The Lenders shall have received (i) audited consolidated financial statements of the Parent for the two most recent fiscal years ended prior to the Effective Date as to which such financial statements are available, in each case satisfactory to the Lenders and (ii) unaudited interim consolidated financial statements of the Parent for each quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) of this paragraph and more than 45 days prior to the Effective Date, in each case satisfactory to the Lenders.

     (k) Balance Sheet. The Lenders shall have received a pro forma consolidated balance sheet of the Parent satisfactory to the Lenders as at the date of the most recent consolidated balance sheet delivered pursuant to paragraph (j) above, adjusted to give effect to the consummation of the transaction and the financings contemplated hereby as if such transactions had occurred on such date.

     (l) Business Plan. The Lenders shall have received a business plan for fiscal years 2007-2010 satisfactory to the Lenders.

     (m) Appraisal. The Lenders shall have received appraisals satisfactory to the Lenders of certain assets to be specified by the Administrative Agent, including without limitation, an appraisal for each of the Owned Hospitality Properties, by appraisers satisfactory to the Administrative Agent.

     (n) Patriot Act. The Administrative Agent and each Lender shall have received all documentation and other information required by bank regulatory authorities under applicable “know your customer” and Anti-Money Laundering rules and regulations, including without limitation, the USA Patriot Act.

     Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 3.01, each Lender

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that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from that Lender prior to the proposed Effective Date specifying its objection thereto.

     Section 3.02. Conditions Precedent for Each Borrowing or Letter of Credit. The obligation of each Lender to fund an Advance on the occasion of each Borrowing (other than the Conversion or continuation of any existing Borrowing) and of any Issuing Bank to issue or increase or extend any Letter of Credit shall be subject to the further conditions precedent that on the date of such Borrowing or the issuance, increase or extension of such Letter of Credit:

     (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing or the issuance or increase or extension of such Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of such Borrowing or the issuance or increase or extension of such Letter of Credit such statements are true):

     (i) the representations and warranties contained in Article IV hereof, the Security Agreement, the Guaranties, the Environmental Indemnities and the other Credit Documents, as such representations and warranties may change based upon events or activities permitted by this Agreement, are correct in all material respects (to the extent not otherwise qualified by materiality) on and as of the date of such Borrowing or the issuance or increase or extension of such Letter of Credit, before and after giving effect to such Borrowing or to the issuance or increase or extension of such Letter of Credit and to the application of the proceeds from such Borrowing, as though made on and as of such date; and

     (ii) no Default has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom, as evidenced by the Notice of Borrowing; provided that the Financial Covenants set forth in Sections 7.02 and 7.04 shown in such Notice of Borrowing do not need to be updated from the last time such Financial Covenants were provided to the Administrative Agent unless an Adjustment Event has occurred since such date; and

     (b) the Administrative Agent shall have received such other approvals, opinions or documents deemed necessary or desirable by any Lender or the Administrative Agent as such party may reasonably request.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

     The Borrower represents and warrants as follows:

     Section 4.01. Existence; Qualification; Partners; Subsidiaries.

     (a) The Borrower is a limited partnership duly organized, validly existing, and in good standing under the laws of Delaware and in good standing and qualified to do business in each jurisdiction where its ownership or lease of property or conduct of its business requires such qualification, except where the failure to so qualify would not cause a Material Adverse Change to the Borrower.

     (b) The Parent is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and in good standing and qualified to do business in each jurisdiction where its ownership or lease of property or conduct of its business requires such qualification, except where the failure to so qualify would not cause a Material Adverse Change to the Parent.

     (c) The Parent is duly listed on the New York Stock Exchange, Inc. and the Parent has timely filed all reports required to be filed by it with the New York Stock Exchange, Inc. and the Securities and Exchange Commission.

     (d) The entire authorized capital stock of the Parent consists of (i) 250,000,000 shares of Parent common stock of which approximately 31,540,926 shares of Parent common stock are duly and validly issued and outstanding, fully paid and nonassessable as of December 31, 2006 and (ii) 5,000,000 shares of Parent preferred stock of which no shares are issued or outstanding.

     (e) Each Subsidiary of the Borrower or the Parent is a limited partnership, general partnership, corporation or limited liability company duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation and in good standing and qualified to do business in each jurisdiction where conduct of its business requires such qualification, except where the failure to so qualify would not cause a Material Adverse Change to such Subsidiary. Except for the Beverage Entities, Schedule 4.01 lists the jurisdiction of formation, and the address of the principal office of each Subsidiary of the Borrower or the Parent existing on the date of this Agreement. As of the date of this Agreement, the Parent or the Borrower owns, directly or indirectly, at least the percentage interests in each such Subsidiary listed on the attached Schedule 4.01.

     Section 4.02. Partnership and Corporate Power. The execution, delivery, and performance by the Borrower and each Guarantor of the Credit Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby (a) are within such Persons’ partnership, limited liability company and corporate powers, as applicable, (b) have been duly authorized by all necessary corporate, limited liability

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company and partnership action, as applicable, (c) do not contravene (i) such Person’s certificate or articles, as the case may be, of incorporation or by-laws, operating agreement or partnership agreement, as applicable, or (ii) any law or any contractual restriction binding on or affecting any such Person, the contravention of which could reasonably be expected to cause a Material Adverse Change, and (d) will not result in or require the creation or imposition of any Lien prohibited by this Agreement. At the time of each Borrowing, such Borrowing and the use of the proceeds of such Borrowing will be within the Borrower’s partnership powers, will have been duly authorized by all necessary partnership action, (a) will not contravene (i) the Borrower’s partnership agreement or (ii) any law or any contractual restriction binding on or affecting the Borrower, the contravention of which could reasonably be expected to cause a Material Adverse Change, and (b) will not result in or require the creation or imposition of any Lien prohibited by this Agreement.

     Section 4.03. Authorization and Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority (other than the filing of the Security Documents in the applicable jurisdictions as required to perfect security interests) is required for the due execution, delivery and performance by the Borrower or any Guarantor of the Credit Documents to which it is a party or the consummation of the transactions contemplated thereby, the absence of which could reasonably be expected to cause a Material Adverse Change. At the time of each Borrowing, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or the use of the proceeds of such Borrowing the absence of which could reasonably be expected to cause a Material Adverse Change.

     Section 4.04. Enforceable Obligations. This Agreement, the Notes, and the other Credit Documents to which the Borrower is a party have been duly executed and delivered by the Borrower; each Guaranty and the other Credit Documents to which each Guarantor and the Parent is a party have been duly executed and delivered by such Guarantor; and the Environmental Indemnity and Security Agreement have been duly executed and delivered by the respective parties thereto. Each Credit Document is the legal, valid, and binding obligation of the Borrower, the Parent, and each Guarantor which is a party to it enforceable against the Borrower, the Parent, and each such Guarantor in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity (whether considered in proceeding at law or in equity).

     Section 4.05. Financial Statements. The respective Consolidated balance sheets, statements of operations, shareholders’ equity and cash flows of the Parent and its Subsidiaries contained in the Financial Statements, and the corresponding pro forma financial statements for the Parent and its Subsidiaries, fairly present the financial condition in all material respects and reflects the Indebtedness of such Person and such Person’s Subsidiaries on a Consolidated basis as of the dates indicated in the Financial Statements and the respective results of the operations for the periods indicated, and such

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balance sheets and statements were prepared in accordance with GAAP, subject to year-end adjustments. Since December 31, 2005, no Material Adverse Change has occurred.

     Section 4.06. True and Complete Disclosure. No representation, warranty, or other statement made by any Loan Party (or on behalf of any Loan Party) in this Agreement or any other Credit Document contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made as of the date of this Agreement. There is no fact known to any Responsible Officer of the Borrower or the Parent on the date of this Agreement that has not been disclosed to the Administrative Agent which could reasonably be expected to cause a Material Adverse Change. All projections, estimates, and pro forma financial information furnished by the Borrower and/or the Parent or on behalf of the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were furnished. No representation, warranty or other statement made in the Parent’s latest 10K, 10Q or annual report contains any untrue statement of material fact or omits to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made as of the date same were made. Borrower and/or Parent has made all filings required by the Exchange Act.

     Section 4.07. Litigation. Except as set forth in the attached Schedule 4.07, there is no pending or, to the best knowledge of the Borrower, threatened investigation, action or proceeding affecting the Borrower or the Parent or any of their respective Subsidiaries by or before any court, Governmental Authority or arbitrator either (a) in which in Borrower’s good faith judgment the anticipated loss (exclusive of amounts covered by insurance) is over $500,000 (provided that with respect to the giving of this representation after the date of this Agreement, the representation shall only be deemed to apply to those matters for which Administrative Agent would have been entitled to notice under Section 5.05(j)) or (b) which in Borrower’s good faith judgment would result in criminal penalties against the Parent, the Borrower or their respective Subsidiaries which could reasonably be expected to cause a Material Adverse Change.

     Section 4.08. Use of Proceeds and Letters of Credit.

     (a) Advances. The proceeds of the Advances shall be used by the Borrower for (i) working capital and general corporate purposes, (ii) the making of Permitted New Investments pursuant to the provisions of Section 6.06, (iii) the repayment of the Existing Credit Facility, and (iv) costs incurred in connection with the incurrence of Indebtedness incurred in compliance with this Agreement.

     (b) Regulations. No proceeds of Advances will be used to purchase or carry any Margin Stock or be used in violation of Regulations T, U or X of the Federal Reserve Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. The Borrower is not engaged in

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the business of extending credit for the purpose of purchasing or carrying Margin Stock.

     (c) Letters of Credit. The Letters of Credit shall be used by the Borrower in connection with (i) the making of Permitted New Investments pursuant to the provisions of Section 6.06 and (ii) the Borrower’s Hospitality Management Business and ancillary activities.

     Section 4.09. Investment Company Act. Neither the Borrower, the Parent nor any of their respective Subsidiaries is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     Section 4.10. Taxes. All federal, state, local and foreign tax returns, reports and statements required to be filed (after giving effect to any extension granted in the time for filing) by the Parent, the Borrower, their respective Subsidiaries, or any member of a Controlled Group have been filed with the appropriate governmental agencies in all jurisdictions in which such returns, reports and statements are required to be filed, and where the failure to file could reasonably be expected to cause a Material Adverse Change, except where contested in good faith and by appropriate proceedings; and all taxes and other impositions due and payable (which are material in amount) have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss (which are material in amount) may be added thereto for nonpayment thereof except where contested in good faith and by appropriate proceedings with respect to which adequate reserves in conformity with GAAP have been provided. As of the date of this Agreement, neither the Parent, the Borrower, any of their respective Subsidiaries nor any member of a Controlled Group has given, or been requested to give, a waiver of the statute of limitations relating to the payment of any federal, state, local or foreign taxes or other impositions. None of the Property owned by the Parent, the Borrower, any of their respective Subsidiaries or any other member of a Controlled Group is Property which the Parent, the Borrower, any of their respective Subsidiaries or any member of a Controlled Group is required to be treated as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Code. Proper and accurate amounts have been withheld by the Parent, the Borrower, their respective Subsidiaries and all members of each Controlled Group from their employees for all periods to comply in all material respects with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law. Timely payment of all material sales and use taxes required by applicable law have been made by the Parent, the Borrower, their respective Subsidiaries and all other members of each Controlled Group, the failure to timely pay of which could reasonably be expected to cause a Material Adverse Change. The amounts shown on all tax returns to be due and payable have been paid in full or adequate provision therefore is included on the books of the appropriate members of the applicable Controlled Group. None of the Parent, Borrower, their respective Subsidiaries and all members of the each Controlled Group has entered into, or otherwise participated (directly or indirectly) in, any “reportable transaction” within the meaning of Treasury

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Regulation section 1.6011-4(b) or has received a written tax opinion from a tax advisor that was intended to provide protection against a tax penalty.

     Section 4.11. Pension Plans. Each Title IV Plan is listed on Schedule 4.11. All Plans are in compliance in all material respects with its terms all applicable provisions of ERISA, the Code and all applicable Laws. No Termination Event has occurred, or is reasonably expected to occur. No “accumulated funding deficiency” (as defined in Section 302 of ERISA) has occurred with respect to a Title IV Plan and there has been no excise tax imposed under Section 4971 of the Code with respect to a Title IV Plan. No Reportable Event has occurred, or is reasonably expected to occur, with respect to a Title IV Plan, and to the Borrower’s actual knowledge no Multiemployer Plan has failed to comply with or to be administered in all material respects with applicable provisions of ERISA and the Code. Neither the Borrower, the Parent nor any member of a Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any material withdrawal liability. As of the most recent valuation date applicable thereto, neither the Borrower nor any member of a Controlled Group has received notice that any Multiemployer Plan is insolvent or in reorganization. Neither the Borrower, any Guarantor nor any member of the Controlled Group would have any liability in excess of $10,000,000 as a result of a complete withdrawal from any Multiemployer Plan on the date this representation is made. The present value of the “benefit liabilities” (within the meaning of Section 4001(a)(16) of ERISA) of each Title IV Plan (using the actuarial assumptions and methods used by the actuary to that Title IV Plan in its most recent valuation of that Title IV Plan) does not exceed the fair market value of the assets of each such Title IV Plan that could reasonably be expected to result in liability to the Borrower or any of its Subsidiaries in excess of $10,000,000.

     Section 4.12. Insurance. The Borrower and each of its Subsidiaries carry the insurance required pursuant to the provisions of Section 5.07.

     Section 4.13. No Burdensome Restrictions; No Defaults.

     (a) Except in connection with Indebtedness which is (i) either permitted pursuant to the provisions of Section 6.02, or (ii) being repaid with the proceeds of the initial Borrowing, neither the Borrower nor any of its Subsidiaries is a party to any indenture, loan or credit agreement. Neither the Borrower, the Parent nor any of their respective Subsidiaries is a party to any agreement or instrument or subject to any charter or corporate restriction or provision of applicable law or governmental regulation which could reasonably be expected to cause a Material Adverse Change. Neither the Borrower, nor the Parent, nor their respective Subsidiaries has entered into or suffered to exist any agreement (other than this Agreement and the Credit Documents and as set forth in the Permitted Property Agreements) (i) prohibiting the creation or assumption of any Lien upon the Properties of the Parent, the Borrower or any of their respective Subsidiaries (except for Properties of and Ownership Interests in the Permitted Other Subsidiaries), whether now owned or hereafter acquired, or (ii) requiring an obligation to be secured if some other obligation is or becomes secured.

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     (b) Neither the Borrower, the Parent nor any of their Subsidiaries is in default under or with respect to any contract or agreement which could reasonably be expected to cause a Material Adverse Change. Neither the Borrower, the Parent nor any of their Subsidiaries has received any notice of default under any material contract or agreement which is continuing and which, if not cured, could reasonably be expected to cause a Material Adverse Change.

     (c) No Default has occurred and is continuing (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given).

     Section 4.14. Environmental Condition.

     (a) Except as disclosed in Schedule 4.14 (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given), to the knowledge of the Borrower, the Borrower, the Parent and their respective Subsidiaries (i) have obtained all Environmental Permits material for the operation of their respective Properties and the conduct of their respective businesses; (ii) have been and are in material compliance with all terms and conditions of such Environmental Permits and with all other requirements of applicable Environmental Laws; (iii) have not received notice of any violation or alleged violation of any Environmental Law or Environmental Permit; and (iv) are not subject to any actual or contingent Environmental Claim.

     (b) Except as disclosed in Schedule 4.14, and to the knowledge of Borrower with respect to any Property other than an Owned Hospitality Property, no Property which is presently owned or leased or was previously owned or leased by the Borrower, the Parent or of any of their respective present or former Subsidiaries, wherever located, (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a Fund or other potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws which could reasonably be expected to cause a Material Adverse Change; (ii) is subject to a Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property operated by the Borrower, the Parent or any of their respective Subsidiaries, wherever located; (iii) has been the site of any Release, use or storage of Hazardous Substances or Hazardous Wastes from present or past operations except for Permitted Hazardous Substances, which Permitted Hazardous Substances have not caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response or (iv) none of the Improvements are constructed on land

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designated by any Governmental Authority having land use jurisdiction as wetlands.

     (c) Except as disclosed on Schedule 4.14, there are no Hazardous Materials located on any property owned or, to the knowledge of the Borrower, operated by the Borrower or Parent other than Permitted Hazardous Materials or Hazardous Materials, the presence of which would not reasonably be expected to result in the Borrower or Parent incurring material liabilities under Environmental Laws.

     Section 4.15. Legal Requirements, Zoning. Except as set forth on Schedule 4.15 attached hereto, the current use and operation of each Property which is presently owned or operated by the Borrower, the Parent or of any of their respective Subsidiaries, wherever located, (a) constitutes a legal use under applicable zoning regulations (as the same may be modified by special use permits or the granting of variances) and (b) complies in all material respects with all Legal Requirements, and does not violate in any material respect any material approvals, material restrictions of record or any material agreement affecting any such Property (or any portion thereof) except for non-legal use or non-compliance which in the aggregate would not cause a Material Adverse Change. The Borrower, the Parent and their respective Subsidiaries possess all certificates of public convenience, authorizations, permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names rights and copyrights (collectively “Permits”) required by Governmental Authority to own or operate Properties, as applicable, the Properties they own or operate, except for those Permits that if not obtained would not cause a Material Adverse Change. The Borrower, the Parent and their respective Subsidiaries own and operate their business in material compliance with all applicable Legal Requirements except for non-compliance which in the aggregate would not cause a Material Adverse Change.

     Section 4.16. Existing Indebtedness and Interest Rate Agreements; Solvency.

     (a) Except for the Obligations, the only Indebtedness (including Existing Letters of Credit) or Interest Rate Agreements of the Borrower or any of its Subsidiaries existing as of the Effective Date are set forth on Schedule 4.16(a) attached hereto. No “default” or “event of default”, however defined, has occurred and is continuing under any such Indebtedness or Interest Rate Agreement (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given).

     (b) The only Existing Letters of Credit as of the Effective Date are set forth on Schedule 4.16(b) attached hereto.

     (c) To the best of the Borrower’s knowledge, (i) the fair value and present fair saleable value on a going concern basis of the Property of the Parent,

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the Borrower and their respective Subsidiaries, on a Consolidated basis, exceeds the amount that will be required to pay the probable liabilities of such Persons, on a Consolidated basis, on their Indebtedness, as such Indebtedness becomes absolute and matured, (ii) the Parent, the Borrower and their respective Subsidiaries, on a Consolidated basis, will have sufficient cash flow to enable them to pay their debts as they mature, and (iii) the Parent, the Borrower and their respective Subsidiaries, on a Consolidated basis, are able to pay their Indebtedness as it matures in the normal course of business.

     Section 4.17. Leasing Arrangements. The only material leases for which either the Borrower or a Guarantor is a lessee are office leases.

     Section 4.18. Management Agreements. The only management agreements for which either the Borrower or a Guarantor is a manager are the Existing Management Agreements. The Existing Management Agreements are in full force and effect; no monetary defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder; and no other defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder which could reasonably be expected to cause a Material Adverse Change (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given). The Existing Management Agreements, if any, for which the counter-party has a current right to terminate such agreement because the Borrower or a Guarantor, as applicable, did not achieve the applicable performance target in such Existing Management Agreement for the calendar years 2005-06 could not reasonably be expected to cause a Material Adverse Change (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given). No notice of termination for any such Existing Management Agreement has been received by the Borrower or any Guarantor other than as disclosed to the Administrative Agent. Schedule 4.18 sets forth a true and correct schedule of the anticipated termination payments to be received by the Parent, the Borrower or their respective Subsidiaries related to terminations of management agreements or participating leases which occurred or were announced prior to the Effective Date.

     Section 4.19. [Reserved.]

     Section 4.20. Franchise Agreements. The only franchise agreements or license agreements to which the Borrower or a Guarantor are a party are those certain agreements disclosed to the Administrative Agent in writing. Any such franchise and license agreements are in full force and effect and no material defaults by the Borrower or any Subsidiary exist thereunder which could reasonably be expected to cause a Material Adverse Change (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given).

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     Section 4.21. Title; Liens. The Owned Hospitality Properties are set forth on Schedule 4.21 attached hereto. None of the Owned Hospitality Properties have been or are subject to a condemnation proceeding or a casualty which individually or in the aggregate could cause a Material Adverse Change. With respect to the Owned Hospitality Properties set forth on Schedule 4.21, the Borrower, the Parent or its Subsidiaries, as applicable, has good and marketable fee simple title to such Owned Hospitality Property, free and clear of all Liens other than the Permitted Encumbrances. None of the Permitted Encumbrances has a Material Adverse Change or otherwise materially interferes with the current or intended use or operation of any Owned Hospitality Property or materially impairs the value of any Owned Hospitality Property.

     Section 4.22. Approved Inter-Company Indebtedness. The only inter-company Indebtedness between the Parent, the Borrower and any of their respective Subsidiaries is the Approved Inter-Company Indebtedness. The Approved Inter-Company Indebtedness Loan Documents listed on Schedule 1.01(a) are all of the documents evidencing or securing the Approved Inter-Company Indebtedness or executed by the applicable parties in connection with the Approved Inter-Company Indebtedness. The Borrower has provided the Administrative Agent with a true, correct and complete copy of the Approved Inter-Company Indebtedness Loan Documents and such documents have not been amended or modified except as set forth in Schedule 1.01(a). The outstanding amount of the Approved Inter-Company Indebtedness as of the date hereof is set forth on Schedule 1.01(a).

     Section 4.23. Insurance Business.

     (a) Insurance Companies, Insurance Licenses and Deposited Securities. Each Insurance Company is listed in Schedule 4.23(a). Schedule 4.23(a) hereto lists all of the jurisdictions in which each Insurance Company holds a Insurance License and is authorized to transact insurance business as of the Effective Date and the line or lines of insurance in which each Insurance Company is engaged. No Insurance License held by any Insurance Company, the loss of which could reasonably be expected to cause a Material Adverse Change, is the subject of a proceeding for suspension or revocation. To the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, there is not a sustainable basis for such suspension or revocation, and no such suspension or revocation has been threatened by any Governmental Authority. Each of the Insurance Companies has filed all reports, statements, documents, registrations, filings or submissions required to be filed by it with any applicable Governmental Authority, which filings conform in all material respects to any applicable Legal Requirements, except where the failure to so file or conform could not, individually or in the aggregate, be reasonably expected to cause a Material Adverse Change. Schedule 4.23(a) sets forth a true, correct and complete listing of all securities deposited with state insurance departments and other Governmental Authority, which deposits have been completed in accordance with the schedule of deposits set forth in each Insurance Company’s December 31, 2005 Insurance Annual Statement.

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     (b) SAP Financial Statements, Examination Reports and Loss Runs. The Borrower has previously delivered to the Administrative Agent for distribution to each of the Lenders true and complete copies of the SAP Financial Statements as filed with the domiciliary state insurance departments of each Insurance Company as of and for the years ended December 31, 2005, 2004 and 2003, prepared in compliance with GAAP. Each of the SAP Financial Statements fairly presents in all material respects the results of operations of the applicable Insurance Company for the period therein set forth, in each case in accordance with SAP. The schedules included in the SAP Financial Statements, when considered in relation to the basic statutory financial statements included therein, present fairly in all material respects the information shown therein. Each of the SAP Financial Statements was correct in all material respects when filed and did not omit to state any material facts required to be stated or necessary in order to make the SAP Financial Statements not misleading. The Borrower has previously delivered to the Administrative Agent for distribution to each of the Lenders true and complete copies of all examination reports of insurance departments and any insurance regulatory agencies since December 31, 2005 relating to the Insurance Companies. The loss runs for the years ended December 31, 2005, 2004 and 2003, which the Borrower has previously delivered to the Administrative Agent for distribution to each of the Lenders in writing, are true, correct and complete in all material respects.

     (c) Investment Portfolios. The Borrower has previously delivered to the Administrative Agent for distribution to each of the Lenders true and complete lists as of December 31, 2005 of all assets held in the investment portfolios of the Insurance Companies. None of the investments included in such investment portfolios is in default with respect to the payment of principal, interest or dividends thereon or is materially impaired. All such investments comply with all applicable Legal Requirements except for non-compliance which in the aggregate would not cause a Material Adverse Change. Each Insurance Company owns assets which qualify as admitted assets under applicable state insurance Legal Requirements in an amount at least equal to the sum of all of its Insurance Reserve Liabilities and minimum statutory capital and Insurance Surplus reflected on the latest SAP Financial Statements.

     (d) Insurance Reserve Liabilities and Adequate Provisions. All Insurance Reserve Liabilities as established or reflected in the SAP Financial Statements (i) were determined in accordance with generally accepted actuarial standards consistently applied, (ii) are fairly stated in accordance with sound actuarial principles, (iii) are based on actuarial assumptions that are in accordance with those called for by the relevant Insurance Contract and the related Reinsurance Contract and (iv) meet in all material respects the requirements of all applicable insurance Legal Requirements. Adequate provision for such Insurance Reserve Liabilities has been made (under generally accepted actuarial principles consistently applied) to cover the total amount of all reasonably anticipated

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matured and unmatured benefits, dividends, claims and other liabilities of the Insurance Companies under all Insurance Contracts and Reinsurance Contracts on the date of such SAP Financial Statement based on then current information that forms a reasonable basis for such determination. Each of the Insurance Companies owns assets that qualify as legal reserve assets under applicable insurance Legal Requirements in an amount at least equal to all of such Insurance Company’s Insurance Reserve Liabilities. Adequate provision has been made for all estimated losses, settlements, costs and expenses from pending suits, actions and proceedings contemplated by the SAP Financial Statements.

     (e) Insurance Contracts and Reinsurance Contracts. Each outstanding Insurance Contract issued, reinsured or underwritten by an Insurance Company is listed in Schedule 4.23(e), together with the maximum amount payable by an Insurance Company thereunder. All outstanding Reinsurance Contracts with respect to such Insurance Contracts are listed in Schedule 4.23(e), together with the maximum amount payable by an Insurance Company thereunder. All Insurance Contracts, Reinsurance Contracts and any and all marketing materials are, to the extent required under applicable Legal Requirements, on forms approved by the insurance regulatory authority of the jurisdiction where issued or filed and have not been objected to by such authority within the period provided for objection and have been filed or registered as required with all other applicable Governmental Authorities. As to premium rates established by each Insurance Company and required to be filed or approved, the premiums charged comply with the applicable Legal Requirements. In addition, there is no pending or, to the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, threatened charge by any insurance regulatory authority that any of the Insurance Companies has violated, nor any pending or, to the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, threatened investigation by any insurance regulatory authority with respect to possible violations of, any applicable Legal Requirements where such violations would, individually or in the aggregate, cause a Material Adverse Change. All Insurance Contracts and Reinsurance Contracts have been marketed, sold and issued in compliance with all applicable Legal Requirements, except as could not reasonably be expected to cause a Material Adverse Change, including, without limitation, in compliance with (i) all applicable prohibitions against “redlining” or withdrawal of business lines, (ii) all applicable requirements relating to the disclosure of the nature of insurance products as policies of insurance and (iii) all applicable requirements relating to insurance product projections and illustrations.

     (f) Payment of Benefits. All benefits payable with respect to each Insurance Contract by a Insurance Company or, to the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, by any other person that is a party to or bound by such Insurance Contract, have in all material respects been paid in accordance with the terms of such Insurance Contract. All

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benefits payable with respect to each Reinsurance Contract, have in all material respects been paid in accordance with the terms of such Reinsurance Contract.

     (g) Notice of Likely Defaults. No Insurance Company has received any written, or to the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, oral information that would cause it to believe that the financial condition of any other party to any Insurance Contract or Reinsurance Contract is so impaired as to be reasonably likely to result in a default by such party under such contract which could reasonably be expected to cause a Material Adverse Change.

     Section 4.24. Owned Hospitality Properties.

     (a) Except as indicated on a Title Policy previously delivered to the Administrative Agent, each of the Owned Hospitality Properties is served by water, electric, sewer, sanitary sewer and storm drain facilities and all other utilities necessary and sufficient for all current and intended uses, and such utilities enter each of the Owned Hospitality Properties directly from a public right-of-way abutting such Owned Hospitality Property, and all such utilities are connected so as to serve each of the Owned Hospitality Properties without passing over other property.

     (b) No condemnation or eminent domain proceeding has been commenced, or, to Borrower’s knowledge, is pending or threatened against any Owned Hospitality Property or any roadways or easements providing access thereto.

ARTICLE V

AFFIRMATIVE COVENANTS

     So long as any Note or any amount under any Credit Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have any Commitment hereunder, the Borrower agrees to comply and cause the Parent and the Parent’s Subsidiaries to comply with the following covenants.

     Section 5.01. Compliance with Laws. The Borrower will comply, and cause the Parent and each of its Subsidiaries to comply, in all material respects with all Legal Requirements.

     Section 5.02. Preservation of Existence; Separateness, Etc.

     (a) The Borrower will preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its partnership, limited liability company or corporate (as applicable) existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified, and cause each such Subsidiary to qualify and remain qualified, as a foreign partnership,

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corporation or limited liability company, as applicable in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its properties, and, in each case, where failure to qualify or preserve and maintain its rights and franchises could reasonably be expected to cause a Material Adverse Change.

     (b) The Parent common stock shall at all times be duly listed on the New York Stock Exchange, Inc. and (ii) the Parent shall timely file all reports required to be filed by it with the New York Stock Exchange, Inc. and the Securities and Exchange Commission.

     (c) The Borrower shall cause the Permitted Other Subsidiaries which have Indebtedness to, (i) maintain financial statements, accounting records and other corporate records and other documents separate from all non-Permitted Other Subsidiaries, (ii) maintain their own bank accounts in their own name, separate from all non-Permitted Other Subsidiaries, (iii) pay their own expenses and other liabilities from their own assets and incur (or endeavor to incur) obligations to other Persons based solely upon their own assets and creditworthiness and not upon the creditworthiness of each other or any other Person, and (iv) file their own tax returns or, if part of a consolidated group, join in the consolidated tax return of such group as a separate member thereof.

     (d) The Borrower shall, and shall cause the Permitted Other Subsidiaries which have Indebtedness to, take all actions necessary to keep such Permitted Other Subsidiaries, separate from the Borrower and the Borrower’s other Subsidiaries, including, without limitation, (i) the taking of action under the direction of the Board of Directors, members or partners, as applicable, of such Permitted Other Subsidiaries and, if so required by the Certificate of Incorporation or the Bylaws, operating agreement or partnership agreement, as applicable, of such Permitted Other Subsidiaries or by any Legal Requirement, the approval or consent of the stockholders, members or partners, as applicable, of such Permitted Other Subsidiaries, (ii) the preparation of corporate, partnership or limited liability company minutes for or other appropriate evidence of each significant transaction engaged in by such Permitted Other Subsidiaries, (iii) the observance of separate approval procedures for the adoption of resolutions by the Board of Directors or consents by the partners, as applicable, of such Permitted Other Subsidiaries, on the one hand, and of the Borrower and the Borrower’s other Subsidiaries, on the other hand, and (iv) preventing the cash, cash equivalents, credit card receipts or other revenues of the Hospitality Properties owned by such Permitted Other Subsidiaries or any other assets of such Permitted Other Subsidiaries from being commingled with the cash, cash equivalents, credit card receipts or other revenues collected by the Borrower or the Borrower’s other Subsidiaries.

     (e) The Borrower shall take all steps reasonably necessary to avoid (i) misleading any other Person as to the identity of the entity with which such

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Person is transacting business or (ii) implying that the Borrower is, directly or indirectly, absolutely or contingently, responsible for the Indebtedness or other obligations of the Permitted Other Subsidiaries or any other Person.

     Section 5.03. Payment of Taxes, Etc. The Borrower will pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent (a) all taxes, assessments and governmental charges or levies imposed upon it, including employee withholding taxes, or upon its income or profits or Property that are material in amount, prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, might by Legal Requirement become a Lien upon its Property; provided, however, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim (i) which is being contested in good faith and by appropriate proceedings, (ii) with respect to which adequate reserves in conformity with GAAP have been provided, (iii) such charge or claim does not constitute and is not secured by any choate Lien on any portion of any Owned Hospitality Property and no portion of any Owned Hospitality Property is in jeopardy of being sold, forfeited or lost during or as a result of such contest, (iv) neither the Administrative Agent nor any Lender could become subject to any civil fine or penalty or criminal fine or penalty, in each case as a result of non-payment of such charge or claim and (iv) such contest does not, and could not reasonably be expected to, result in a Material Adverse Change.

     Section 5.04. Visitation Rights; Lender Meeting. Subject to the rights of the owners of the Hospitality Properties for which there are Permitted Property Agreements, at any reasonable time and from time to time and so long as any visit or inspection will not unreasonably interfere with the Borrower’s or any of its Subsidiary’s operations, upon reasonable notice, the Borrower will permit the Administrative Agent and any Lender or any of its agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit and inspect at its reasonable discretion the Properties owned or operated by the Borrower and any of its Subsidiaries, to discuss the affairs, finances and accounts of such Persons with any of their respective officers or directors. Without in any way limiting the foregoing, the Borrower will, upon the request of the Administrative Agent, participate in a meeting with the Administrative Agent and the Lenders once during each calendar year to be held at the Borrower’s office in the District of Columbia or New York, New York (or such other location as may be agreed to by the Borrower and the Administrative Agent) at such time as may be agreed to by the Borrower and the Administrative Agent.

     Section 5.05. Reporting Requirements. The Borrower will furnish to the Administrative Agent, with respect to those items set forth in clauses (a)-(c) and (i), and each Lender:

     (a) Quarterly Financials. As soon as available and in any event not later than fifty (50) days after the end of each Fiscal Quarter of the Parent (except for the Fiscal Quarter which ends on the date the Fiscal Year ends), the unaudited Consolidated balance sheets of the Parent and its Subsidiaries as of the end of

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such quarter and the related unaudited statements of income, shareholders’ equity and cash flows of the Parent and its Subsidiaries for such Fiscal Quarter and the period commencing at the end of the previous year and ending with the end of such Fiscal Quarter, and the corresponding figures as at the end of, and for, the corresponding periods in the preceding Fiscal Year, all duly certified with respect to such statements (subject to reasonable year-end audit adjustments) by a Responsible Officer of the Parent as having been prepared in accordance with GAAP, together with a Compliance Certificate duly executed by a Responsible Officer of the Parent; provided that the Total Indebtedness used to calculate the Leverage Ratio in such Compliance Certificate shall be the Total Indebtedness as of the Status Reset Date during the Fiscal Quarter in which such Compliance Certificate was delivered; provided further that the Compliance Certificates delivered for the first two Fiscal Quarters following the Effective Date shall be on a pro forma basis adjusted for the refinancing and remortgaging to the Lenders of the Concord Property.

     (b) Annual Financials. As soon as available and in any event not later than ninety-five (95) days after the end of each Fiscal Year of the Parent, a copy of the Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such Fiscal Year and the related Consolidated statements of income, shareholders’ equity and cash flows of the Parent and its Subsidiaries for such Fiscal Year, and the corresponding figures as at the end of, and for, the preceding Fiscal Year, and audited and certified by KPMG, L.L.P. or other independent certified public accountants of nationally recognized standing reasonably acceptable to the Administrative Agent in an opinion, without qualification as to the scope or any other material qualification or exception, and including, if requested by the Administrative Agent, any management letters delivered by such accountants to the Parent in connection with such audit, together with (i) the unaudited consolidating financial statements of the Parent and its Subsidiaries as of such date or for such time period, as applicable, (ii) a Compliance Certificate duly executed by a Responsible Officer of the Parent, provided that the Compliance Certificate delivered for the first Fiscal Year following the Effective Date shall be on a pro forma basis adjusted for the refinancing and remortgaging to the Lenders of the Concord Property, and (iii) a certificate duly executed by a Responsible Officer of the Parent which reflects in detail reasonably acceptable to the Administrative Agent the financial performance of the applicable Person related to the financial covenants contained in the documentation for any Permitted Other Indebtedness. As soon as available and in any event not later than 50 days after the end of each Fiscal Year of the Parent, the Borrower will furnish to the Administrative Agent a draft Compliance Certificate duly executed by a Responsible Officer of the Parent for such end of Fiscal Year financial statements. Such draft Compliance Certificate will be used for purposes of re-determining Status at the Status Reset Date following the end of such Fiscal Year. If the final Compliance Certificate delivered in connection with the financial statements for the end of such Fiscal Year reflects a different Status than that

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reflected in the draft Compliance Certificate, then (a) the Borrower shall be deemed to have been at the Status set forth in the final Compliance Certificate since the Status Reset Date following the end of the Fiscal Year and (b) within five (5) Business Days following delivery of such final Compliance Certificate, either the Borrower will pay to the Lenders or the Lenders will pay to the Borrower, as applicable, the amount of the adjustment of interest and fees payable by the Borrower under this Agreement because of such adjustment in Status.

     (c) Securities Law Filings. Promptly and in any event within fifteen (15) days after the sending or filing thereof, copies of all proxy material, reports and other information which the Borrower, the Parent or any of their respective Subsidiaries sends to or files with the United States Securities and Exchange Commission or sends to all of the shareholders of the Parent or partners of the Borrower.

     (d) Defaults. As soon as possible and in any event within five (5) days after the occurrence of each Default known to a Responsible Officer of the Parent, the Borrower or any of their respective Subsidiaries, a statement of an authorized financial officer or Responsible Officer of the Borrower setting forth the details of such Default and the actions which the Borrower has taken and proposes to take with respect thereto.

     (e) ERISA Notices. As soon as possible and in any event (i) within thirty (30) days after the Parent, the Borrower or any member of a Controlled Group knows or has reason to know that any Termination Event described in clause (a) of the definition of Termination Event herein with respect to any Plan has occurred, a statement of the Chief Financial Officer of the Parent describing such Termination Event and the action, if any, which the Parent, the Borrower or such member of such Controlled Group proposes to take with respect thereto (ii) within ten (10) days after the Parent, the Borrower or any of a Controlled Group knows or has reason to know that any other Termination Event with respect to any Plan or Multiemployer Plan has occurred, a statement of the Chief Financial Officer of the Parent describing such Termination Event and the action, if any, which the Parent, the Borrower or such member of such Controlled Group proposes to take with respect thereto; (iii) within ten (10) days after receipt thereof by the Parent, the Borrower or any of a Controlled Group from the PBGC, copies of each notice received by the Parent, the Borrower or any such member of such Controlled Group of the PBGC’s intention to terminate any Plan or to have a trustee appointed to administer any Plan; and (iv) within ten (10) days after receipt thereof by the Parent, the Borrower or any member of a Controlled Group from a Multiemployer Plan sponsor, a copy of each notice received by the Parent, the Borrower or any member of such Controlled Group concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA.

     (f) Environmental Notices. Promptly upon the knowledge of any Responsible Officer of the Borrower of receipt thereof by the Borrower or any of

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its Subsidiaries, a copy of any form of notice, summons or citation received from the United States Environmental Protection Agency, or any other Governmental Authority concerning (i) violations or alleged violations of Environmental Laws, which seeks to impose liability therefore, (ii) any action or omission on the part of the Parent or the Borrower or any of their present or former Subsidiaries in connection with Hazardous Waste or Hazardous Substances which, based upon information reasonably available to the Borrower, could reasonably be expected to cause a Material Adverse Change or an Environmental Claim in excess of $1,000,000 individually or in the aggregate with all other outstanding Environmental Claims, (iii) any notice of potential responsibility under CERCLA, or (iv) concerning the filing of a Lien upon, against or in connection with the Parent, Borrower, their present or former Subsidiaries, or any of their leased, owned or operated Property, wherever located.

     (g) Other Governmental Notices or Actions. Promptly and in any event within five Business Days after receipt thereof by the Parent, Borrower or any of their respective Subsidiaries, (i) a copy of any notice, summons, citation, or proceeding seeking to adversely modify in any material respect, revoke, or suspend any license, permit, or other authorization from any Governmental Authority, which action could reasonably be expected to cause a Material Adverse Change, and (ii) any revocation or involuntary termination of any license, permit or other authorization from any Governmental Authority, which revocation or termination could reasonably be expected to cause a Material Adverse Change.

     (h) Reports Affecting the Financial Covenants. On or prior to the 15th day following any Adjustment Event, an Adjustment Report with respect to such Adjustment Event.

     (i) Corporate Activity. Promptly following any merger or dissolution of any Subsidiary of the Borrower which is permitted hereunder or event which would make any of the representations in Section 4.01-4.04 untrue, notice thereof.

     (j) Material Litigation. As soon as possible and in any event within five (5) days of any Responsible Officer of the Borrower, the Parent or any of their respective Subsidiaries having knowledge thereof, notice of any litigation, claim or any other event which could reasonably be expected to cause a Material Adverse Change.

     (k) Insurance Information. Within ten (10) days of request by the Administrative Agent, the Borrower shall provide the Administrative Agent copies of the unaudited Insurance Annual Statement of each Insurance Company, certified by a Responsible Officer of the Parent as fairly presenting the financial condition and results of operations of such Insurance Company in accordance with SAP consistently applied throughout the periods reflected therein and the most recent examination reports and loss run sheets of the Insurance Companies.

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     (l) Budget. On or prior to January 31^st of each Fiscal Year, the Borrower shall provide the Administrative Agent (for distribution to the Lenders) an operating budget for the Parent and its Subsidiaries on a Consolidated basis for such Fiscal Year, including without limitation pro forma balance sheet, income statement, cash flow and financial covenant compliance.

     (m) Other Information. Such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Borrower, the Parent or any of their respective Subsidiaries, as any Lender through the Administrative Agent may from time to time reasonably request.

The Borrower hereby acknowledges and agrees that (a) the Administrative Agent and/or its Affiliate will make available to the Lenders and the Issuing Bank materials and/or information provided by or on behalf of the Parent and/or the Borrower hereunder (collectively, “Materials”) by posting the Materials on IntraLinks or another similar electronic system (the “Platform”), (b) neither the Administrative Agent, nor any Affiliate, nor their respective directors, officers, employees and agents shall be liable for any damages arising from the use by unintended recipients of the Materials or other materials distributed through the Platform or other electronic, telecommunications or information transmissions systems, and (c) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities) (each, a “Public Lender”). The Borrower hereby agrees that (w) all Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Materials “PUBLIC”, the Parent and the Borrower shall be deemed to have authorized the Administrative Agent, its Affiliates, the Issuing Bank and the Lenders to treat such Materials as either publicly available information or not material information (although it may be sensitive and proprietary) with respect to the Borrower, the Parent or their respective securities for purposes of United States Federal and state securities laws; (y) all Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and its Affiliates shall be entitled to treat any Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”

     Section 5.06. Maintenance of Property. The Borrower will, and will cause each of the Parent and its Subsidiaries to (a) maintain their Owned Hospitality Properties in a manner consistent for Hospitality Properties and related property of the same quality and character and shall keep or cause to be kept every part thereof and its other properties in good condition and repair, reasonable wear and tear excepted, and make all reasonably necessary repairs, renewals or replacements thereto as may be reasonably necessary to conduct the business of the Borrower and its Subsidiaries, (b) not knowingly or willfully permit the commission of waste or other injury, or the occurrence of pollution, contamination or any other condition in, on or about any of their Owned Hospitality Properties, (c) substantially maintain and repair each of their Owned Hospitality Properties as required by any franchise agreement, license agreement, management

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agreement or ground lease for such Owned Hospitality Property, and (d) perform such Person’s obligations under the Permitted Property Agreements to which such Person is a party except where the non-performance thereof in the aggregate would not reasonably be expected to cause a Material Adverse Change.

     Section 5.07. Insurance. The Borrower will maintain, and cause each of its Subsidiaries to maintain, the insurance required pursuant to Schedule 5.07.

     Section 5.08. Use of Proceeds and Letters of Credit. The Advances and Letters of Credit shall be used by the Borrower for the purposes set forth in Section 4.08.

     Section 5.09. Collateral; Releases.

     (a) Subject to the time periods set forth in Section 5.10 and Section 6.06(d) for executing Security Documents in connection with the acquisition of Permitted New Investments, the Parent, the Borrower and the Subsidiaries (i) will cause at all times the Administrative Agent to have an Acceptable Lien in the Collateral (including in respect of the Concord Property no later than April 15, 2007), (ii) will cause at all times all material provisions of the Security Documents to be valid and binding on the Persons executing such Security Documents and (iii) shall execute or re-execute such Security Documents and take such other actions as the Administrative Agent shall reasonably request in order for the Administrative Agent to maintain or create an Acceptable Lien in the Collateral, including without limitation any Collateral acquired by the Borrower the Parent, or any of the other Guarantors after the Effective Date. Without limiting the foregoing, on the Effective Date the Parent will grant to the Administrative Agent an Acceptable Lien in the Parent’s Ownership Interests in the Borrower at the time of granting such Acceptable Lien and thereafter maintain such Acceptable Lien.

     (b) Notwithstanding the foregoing, upon request of the Borrower to the Administrative Agent at any time when no Default or Event of Default exists or would result therefrom and any repayment of Advances required under this Agreement in connection therewith, the Administrative Agent will release from the Liens of the Security Documents (i) the Property which is the subject of a Permitted Asset Disposition at the time of such Permitted Asset Disposition and (ii) any Owned Hospitality Property and the Ownership Interests in the Permitted Other Subsidiary which owns such Owned Hospitality Property in connection with the incurrence of Permitted Other Indebtedness to be secured by such Collateral, provided that the Administrative Agent shall not be required to release any such Liens in respect of this clause (ii) to the extent such Owned Hospitality Property is at such time subject to a Mortgage in favor of the Administrative Agent for the benefit of the Lenders to secure the Obligations. If the Property released in connection with any such Permitted Asset Disposition includes all or substantially all of the Ownership Interests in a Guarantor, or if a Guarantor incurs Permitted Other Indebtedness, then, upon request of the Borrower to the

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Administrative Agent, at the time of such Permitted Asset Disposition or the incurrence of such Permitted Other Indebtedness, as applicable, the Administrative Agent shall release such Guarantor from the Guaranty and the other Credit Documents to which such Guaranty is a party. In addition, the Administrative Agent agrees to take, and the Lenders authorize the Administrative Agent to take, such actions as are reasonably requested by the Borrower and at the Borrower’s expense to terminate the Liens and security interests created by the Credit Documents when all the Obligations are paid in full and all Letters of Credit and Commitments are terminated.

     (c) Notwithstanding the other provisions of this Agreement, if the Borrower, or the Parent, or any of their respective Subsidiaries shall sell, transfer, or otherwise dispose of any Owned Hospitality Property that is subject to a Mortgage in favor of the Administrative Agent for the benefit of the Lenders then within six months of such disposition (i) one or more Owned Hospitality Properties of equal or greater value (such determination to be made pursuant to an Appraisal reasonably satisfactory to the Administrative Agent) not subject to a Mortgage at such time shall become subject to a Mortgage in favor of the Administrative Agent for the benefit of the Lenders and (ii) any negative difference in value between the Owned Hospitality Property disposed of as compared to the new Owned Hospitality Properties mortgaged to secure the Obligations pursuant to a Mortgage shall be applied to repayment of the Advances in accordance with Section 2.07.

     Section 5.10. New Subsidiaries. Except with respect to a Permitted Other Subsidiary that has incurred or issued Permitted Other Indebtedness, within ten (10) Business Days (or ninety (90) Business Days in the case of a Material Subsidiary created after the Effective Date in connection with an acquisition of an Owned Hospitality Property) after either (a) the date that any Subsidiary of the Parent that was not a Material Subsidiary becomes a Material Subsidiary or such Subsidiary is no longer prohibited from acting as a Guarantor because of a contractual obligation or any new Material Subsidiary is created after the Effective Date, or (b) the purchase by the Parent or any of its Subsidiaries of the Ownership Interests of any Person, which purchase results in such Person becoming a Material Subsidiary the Parent shall, in each case, cause (i) such Material Subsidiary to execute and deliver to the Administrative Agent either (A) a Guaranty, an Environmental Indemnity and a Security Agreement or (B) an Accession Agreement, (ii) any of the Borrower and any Guarantor who is a direct owner of the Ownership Interests of such Material Subsidiary to execute and deliver to the Administrative Agent a Security Agreement, if necessary, and such other documents as are necessary to create an Acceptable Lien in the Ownership Interests in the Material Subsidiary owned by such Person (and such other Security Documents as the Administrative Agent may reasonably request) and (iii) the Persons who are party to the documents delivered pursuant to the provisions of this Section 5.10 to provide such evidence of authority to enter into such documents as the Administrative Agent may reasonably request.

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     Section 5.11. Insurance Business.

     (a) The Borrower will cause each of the Insurance Companies to (i) carry on and conduct its business only in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted, (ii) only engage in the insurance business or the business of a holding company owning entities engaged in the insurance business or the business of insurance or reasonably incidental activities, (iii) do all things necessary to renew, extend and continue in effect all Insurance Licenses which may at any time and from time to time be necessary for each Insurance Company to conduct business in compliance with all applicable Legal Requirements, including, if applicable, the filing of all appropriate Insurance Annual Statements and SAP Financial Statements; provided, that each Insurance Company may withdraw from one or more states (other than its state of domicile) as an admitted insurer if such withdrawal is determined by the Insurance Company’s Board of Directors to be in the best interest of the Insurance Companies and could not reasonably be expected to cause a Material Adverse Change.

     (b) The Borrower will not permit the Insurance Surplus, as of the last day of each Fiscal Quarter, to be less than that required by applicable Legal Requirements. The Borrower will not permit the maximum amount payable by all Insurance Companies under Insurance Contracts or Reinsurance Contracts, as of the last day of each Fiscal Quarter, to be greater than $10,000,000.

     Section 5.12. Interest Rate Agreements. From the date 60 days following the Effective Date until the Maturity Date, the Borrower shall cause the Parent to obtain and thereafter maintain Interest Rate Agreements reasonably satisfactory to the Administrative Agent, sufficient to ensure that at least 50% of the Total Indebtedness, measured as of each day during such period, shall be covered by such Interest Rate Agreements or shall have a fixed rate of interest. Any Interest Rate Agreements for the Parent shall be provided by either a Lender or a bank or other financial institution whose long-term debt rating is equal to or greater than “A”; provided that the Lenders will have a right of first refusal, but not an obligation, to provide any Interest Rate Agreements for the Parent on substantially such terms as the Parent would be able to obtain from any such non-Lender. To the extent that any Interest Rate Agreement is provided by a Lender, the obligations of the Parent or its Subsidiary under such Interest Rate Agreement may be secured by the Collateral pari passu with the Obligations. However, the pledge of any Collateral to secure any Interest Rate Agreement from any non-Lender shall be subject to the written approval of the Required Lenders. The dollar amount subject to Interest Rate Agreements in the aggregate shall not exceed the sum of the amount of the Advances and the amount of the other Indebtedness of the Borrower or its Affiliates which bears interest at a variable rate.

     Section 5.13. Comfort Letters. Borrower shall use commercially reasonable efforts to provide the Administrative Agent with Comfort Letters for all Owned Hospitality Properties that are subject to a Mortgage in favor of the Administrative Agent

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within twenty (20) Business Days following the Effective Date, provided, however, if Borrower is unable to provide the Administrative Agent with such Comfort Letters for any reason within the time frame set forth hereinabove, at the Administrative Agent’s direction, Borrower shall assist the Administrative Agent in dealing directly with the franchisors in order to obtain such Comfort Letters.

ARTICLE VI

NEGATIVE COVENANTS

     So long as any Note or any amount under any Credit Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have any Commitment, the Borrower agrees to comply and cause the Parent and the Parent’s Subsidiaries to comply with the following covenants.

     Section 6.01. Liens, Etc. The Borrower, the Parent and their respective Subsidiaries will not create, assume, incur or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Borrower and its Subsidiaries may create, incur, assume or suffer to exist Liens:

     (a) securing the Obligations;

     (b) for taxes, assessments or governmental charges or levies on Property of the Borrower or any Guarantor to the extent not required to be paid pursuant to Section 5.03;

     (c) imposed by law (such as landlords’, carriers’, warehousemen’s and mechanics’ liens or otherwise arising from litigation) (i) which are being contested in good faith and by appropriate proceedings, (ii) with respect to which reserves in conformity with GAAP have been provided, (iii) which have not resulted in any Collateral being in jeopardy of being sold, forfeited or lost during or as a result of such contest, (iv) neither the Administrative Agent nor any Lender could become subject to any civil fine or penalty or criminal fine or penalty, in each case, as a result of nonpayment of such charge or claim, and (v) such contest does not, and could not reasonably be expected to, result in a Material Adverse Change;

     (d) on leased personal property to secure solely the lease obligations associated with such property;

     (e) on the Property of or Ownership Interests in a Permitted Other Subsidiary securing Indebtedness set forth in paragraph (a) of the definition of “Permitted Other Indebtedness” incurred by such Permitted Other Subsidiary to

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the extent such Indebtedness is permitted pursuant to the provisions of Section 6.02;

     (f) on the Ownership Interests in an Unconsolidated Entity or Minority-Owned Fund securing Permitted Non-Recourse Unconsolidated Entity Indebtedness incurred by such Unconsolidated Entity or Minority-Owned Fund, as applicable;

     (g) granted to the owner of a Hospitality Property subject to a Permitted Property Agreement on the accounts receivable, inventory, cash or other property owned by the Borrower or the Borrower’s Subsidiary in connection with such Hospitality Property; and

     (h) easements, rights of way, covenants, restrictions, zoning and similar restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of the Borrower or its Subsidiaries and which do not detract materially from the value of any of the Owned Hospitality Properties to which they attach or impair materially the use thereof by the Borrower or the Borrower’s Subsidiaries.

     Section 6.02. Indebtedness. The Borrower, the Parent and their respective Subsidiaries will not incur or permit to exist any Indebtedness other than the Obligations and the following:

     (a) Permitted Other Indebtedness in an amount that does not cause a breach at any time of the covenants contained in Article VII;

     (b) Capital Leases for personal property;

     (c) Interest Rate Agreements permitted under this Agreement; and

     (d) Any of the following Indebtedness incurred by the Parent or the Borrower:

     (i) guaranties in connection with Permitted Other Indebtedness secured by an Owned Hospitality Property or interest in a Person owning a Hospitality Property of (A) if the Hospitality Property is subject to a ground lease, the payment of rent and performance of obligations under such ground lease, (B) real estate taxes relating to such Hospitality Property, and (C) capital reserves required under such Indebtedness, provided that such guaranties do not include guaranties of the Permitted Other Indebtedness itself;

     (ii) guaranties of the payment of rent and performance of obligations under a ground lease for an Owned Hospitality Property which is Collateral;

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     (iii) customary recourse “carve-outs” for Indebtedness permitted under this Agreement which is otherwise non-recourse to the Parent, the Borrower and their respective Subsidiaries;

     (iv) guaranties of franchise and license agreements in connection with Hospitality Properties; and

     (v) guaranties of obligations of the Parent’s Subsidiaries or Unconsolidated Entities with respect to Permitted Property Agreements.

     (e) extensions, renewals and refinancing of any of the Indebtedness specified in paragraphs (a) — (d) above so long as the principal amount of such Indebtedness is not thereby increased.

     Section 6.03. Agreements Restricting Distributions From Subsidiaries. The Borrower will not, nor will it permit any of its Subsidiaries (other than Permitted Other Subsidiaries) to, enter into any agreement (other than a Credit Document) which limits distributions to or any advance (including by way of the making of and repayment of Intercompany loans and advances) by any of the Borrower’s Subsidiaries to the Borrower.

     Section 6.04. Restricted Payments. Neither the Parent, nor the Borrower, nor any of their respective Subsidiaries, will make any Restricted Payment, except that:

     (a) provided that no Default has occurred and is continuing or would result therefrom, the Borrower shall be entitled to make cash distributions to its partners, including the Parent, which distributions for partners other than the Parent and the Parent’s Subsidiaries do not in the aggregate in any Fiscal Year exceed $100,000;

     (b) a Subsidiary of the Borrower may make a Restricted Payment to the Borrower;

     (c) the limited partners of the Borrower shall be entitled to exchange limited partnership interests in the Borrower for the Parent’s common stock;

     (d) the Borrower shall be entitled to issue limited partnership interests in the Borrower in exchange for Ownership Interests in Subsidiaries and Unconsolidated Entities to the extent such Investment is permitted pursuant to the provisions of Section 6.06 and such Ownership Interests are pledged to secure the Obligations pursuant to the Security Documents;

     (e) provided that no Default pursuant to Section 8.01(a), (b) or (f) or Default in the covenants set forth in Article VII has occurred and is continuing or would result therefrom, then the Borrower shall be entitled to pay (i) interest, but not principal (except only as permitted by clause (ii) of this subsection (e)), of

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Subordinate Indebtedness permitted pursuant to this Agreement, and (ii) principal of Approved Inter-Company Indebtedness; provided that any such principal payments (A) are made to a Guarantor, (B) are either retained by such Guarantor or distributed to the Borrower, the Parent or another Guarantor and (C) are used in accordance with the provisions of this Agreement; and

     (f) provided that (i) no Default pursuant to Section 8.01(a), (b) or (f) or Default in the covenants set forth in Article VII has occurred and is continuing or would result therefrom, and (ii) no Material Adverse Change has occurred or would result therefrom, the Parent shall be entitled to repurchase up to $5,000,000 in the aggregate of the Parent’s currently outstanding common stock after the Effective Date. Within ten (10) Business Days of any such Restricted Payments in the aggregate reaching increments of $250,000 (i.e., $250,000, $500,000, $750,000) the Borrower shall execute and deliver to the Administrative Agent an Adjustment Report dated as of the date of reaching such Restricted Payment increment which takes into account such Restricted Payments. To the extent that the Parent reaches multiple $250,000 increments over any ten (10) Business Day period, then an Adjustment Report need only be provided as of the date of the reaching the last such $250,000 increment in such ten (10) Business Day period. In addition, any Compliance Certificate delivered by the Borrower shall state the dollar amount of such Restricted Payments made in the Rolling Period covered by such Compliance Certificate and the amount of all such Restricted Payments in the aggregate.

     Section 6.05. Fundamental Changes; Asset Dispositions. Neither the Parent, the Borrower, nor any of their respective Subsidiaries (other than the Permitted Other Subsidiaries), will (a) merge or consolidate with or into any other Person, unless (i) either (A) a Guarantor is merged into the Borrower and the Borrower is the surviving Person, (B) a Subsidiary (other than a Permitted Other Subsidiary which has Indebtedness other than the Obligations) is merged into any Subsidiary (other than a Permitted Other Subsidiary which has Indebtedness other than the Obligations) or (C) a Guarantor other than the Parent is merged into another Person (other than a Permitted Other Subsidiary which has Indebtedness other than the Obligations) and the surviving Person is or promptly becomes a Guarantor, and (ii) immediately prior to and after giving effect to any such proposed transaction, (X) no Default exists or would exist, (Y) on a pro forma basis the financial covenants set forth in Article VII would be satisfied and (Z) to the extent a Person who was not a Subsidiary of the Parent or the Borrower is merged with or into a Guarantor, then the Administrative Agent shall in its reasonable discretion be entitled to determine the Investment Amount applicable to such merger; (b) sell, transfer, or otherwise dispose of all or any of such Person’s material Property except for a Permitted Asset Disposition, or dispositions or replacements of personal property in the ordinary course of business; (c) enter into, as lessor, a lease (other than a lease which qualifies as a Permitted Asset Disposition) of all or substantially all of any Owned Hospitality Property with any Person without the consent of the Administrative Agent; (d) sell or otherwise dispose of any material Ownership Interests of any Subsidiary

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(except for a Permitted Other Subsidiary or a sale which qualifies as a Permitted Asset Disposition); (e) except for (i) Capitalization Events for which the consideration is principally cash or cash equivalents and for which the Repayment Amount is applied in accordance with the provisions of Section 2.07(c), (ii) the issuance of limited partnership interests in the Borrower in exchange for Ownership Interests in Subsidiaries and Unconsolidated Entities to the extent permitted pursuant to the provisions of Section 6.04, and (iii) transactions permitted under the preceding clause (a), materially alter the corporate, capital or legal structure of any such Person (except for a Permitted Other Subsidiary); (f) enter into any forward sales of the Parent common stock or Ownership Interests in the Borrower; (g) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution) provided that nothing herein shall prohibit the Borrower from dissolving any Subsidiary which has no assets on the date of dissolution, (h) enter into any leases of Property or management agreements for any Property except (1) Permitted Property Agreements, (2) leases of office space for the use of the Parent’s and the Parent’s Subsidiaries’ employees, and (3) the leases of personal property permitted by this Agreement, (i) materially alter the character of their respective businesses from that conducted as of the date of this Agreement or otherwise engage in any material business activity outside of the Hospitality Management Business or the ownership and operation of Hospitality Properties, or (j) join in, acquiesce in, or consent to any change in any public or private restrictive covenant, easement, zoning law or any other public or private restriction, limiting, conditioning, changing, qualifying or defining the uses which may be made of any Property that would have a material adverse effect on the Property.

     Section 6.06. Investments and other Property. Neither the Parent, the Borrower, nor any of their respective Subsidiaries, shall acquire by purchase or otherwise any Investments or other Property, except the following:

     (a) Investments or Properties owned by such Persons as of the Effective Date and set forth of Schedule 6.06;

     (b) Liquid Investments;

     (c) trade and customer accounts receivable which are for goods furnished or services rendered in the ordinary course of business and are payable in accordance with customary trade terms, and receivables purchased in connection with the acquisition of an Owned Hospitality Property;

     (d) Investments in Permitted New Investments or Subsidiaries making Permitted New Investments; provided that (i) within ten (10) Business Days (and within ninety (90) Business Days in the case of Security Documents in connection with the acquisition of an Owned Hospitality Property) of the acquisition by the Parent or any of the Parent’s Subsidiaries of any Collateral for which the Administrative Agent on behalf of the Lenders does not already have an Acceptable Lien, the Borrower, the Parent and the other Guarantors will execute such Security Documents as are necessary or desirable for the Administrative Agent on behalf of the Lenders to have an Acceptable Lien in such Collateral and

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(ii) within ninety (90) Business Days of the acquisition of an Owned Hospitality Property by the Parent or any of the Parent’s Subsidiaries which is required by the terms of this Agreement to be Collateral, the Borrower shall deliver to the Administrative Agent a Title Policy for such Owned Hospitality Property;

     (e) Capital Expenditures, acquired or made in the ordinary course of (i) owning the Parent’s and the Parent’s Subsidiaries’ existing Investments and Properties and any Permitted New Investments and (ii) operating a Hospitality Management Business (including, without limitation, information systems and computers); and

     (f) loans to employees of the Parent or its Subsidiaries which in the aggregate do not exceed $1,000,000.

Notwithstanding the foregoing, neither the Borrower, nor the Parent, nor their respective Subsidiaries shall make an Investment, acquire any other Property, or enter into any Permitted Property Agreement which would (a) cause a Default, (b) cause or result in the Borrower or the Parent failing to comply with any of the financial covenants contained herein, or (c) cause or result in the aggregate Adjusted EBITDA in any Rolling Period derived from all Permitted Property Agreements, or other Investments related to Hospitality Properties which are not full-service or limited service hotels or resorts or conference centers to exceed 35% of the Parent’s Adjusted EBITDA for such Rolling Period. In addition, neither the Borrower, nor the Parent, nor their respective Subsidiaries shall enter into any agreements to purchase Investments or other Property, unless with respect to such purchase such Person at all times has available sources of funds equal to pay in full the cost of the purchase of such Investments or other Property (to the extent that the payment of such cost of purchase constitutes a recourse obligation of the Parent, the Borrower or its Subsidiary), which available sources of funds may include Advances to the extent that the Borrower may borrow the same for the purposes required or other Indebtedness permitted by the terms of this Agreement.

     Section 6.07. Affiliate Transactions. Except for certain liquor license agreements, the Borrower will not, and will not permit any of its Subsidiaries to, make, directly or indirectly: (a) any transfer, sale, lease, assignment or other disposal of any assets to any Affiliate of the Borrower which is not a Guarantor or any purchase or acquisition of assets from any such Affiliate except for purchases of new personal property (i) which in any calendar year do not exceed $1,000,000 in the aggregate and (ii) for which the sales price is the actual cost to the party selling; or (b) any arrangement or other transaction directly or indirectly with or for the benefit of any such Affiliate (including without limitation, guaranties and assumptions of obligations of an Affiliate), other than in the ordinary course of business and at market rates.

     Section 6.08. Sale or Discount of Receivables. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable except in connection with sale of an Owned Hospitality Property.

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     Section 6.09. Changes in Fiscal Periods. Permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower’s method of determining fiscal quarters provided that the Borrower may make one election after the Effective Date to change its fiscal year end, if the Borrower enters into such amendments to this Agreement as the Administrative Agent shall request to reflect such change, including modifications to Section 7, such that the covenants affected by such change shall have the same effect (or, in any case, be substantively no less favorable to the Lenders, in the determination of the Administrative Agent) after giving effect thereto as if such change were not made. The Lenders hereby authorize the Administrative Agent to enter into such amendments to effect such modifications, if any, in accordance with the provisions of this Section.

     Section 6.10. Activities of Parent. In the case of the Parent, notwithstanding anything to the contrary in this Agreement or any other Credit Document, other than indirectly through Subsidiaries, (a) conduct, transact or otherwise engage in, or commit to conduct, transact or otherwise engage in, any business or operations other than those incidental to its ownership of the Capital Stock of the Borrower and Parent’s Other Subsidiaries, (b) incur, create, assume or suffer to exist any Indebtedness or other liabilities or financial obligations, except (i) nonconsensual obligations imposed by operation of law, (ii) pursuant to the Credit Documents to which it is a party, (iii) obligations with respect to its Capital Stock, and (iv) incur Indebtedness pursuant to (A) Section 6.02(d) or (B) Permitted Other Indebtedness pursuant to clause (b) of the definition thereof so long as such Permitted Other Indebtedness is permitted by Section 6.02 and the Net Cash Proceeds are applied as a Repayment Event to prepay the Advances pursuant to Section 2.07, or (c) own, lease, manage or otherwise operate any properties or assets (including cash and cash equivalents) other than the ownership of shares of Capital Stock of the Borrower and Parent’s Other Subsidiaries.

     Section 6.11. Sales and Leasebacks. Neither the Parent, the Borrower or any Subsidiary will enter into any arrangement with any Person providing for the leasing by Parent, the Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Parent, the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Parent, the Borrower or such Subsidiary.

     Section 6.12. Material Documents. The Borrower will not, nor will it permit any of its Subsidiaries to (a) amend the Borrower’s partnership agreement in any material respect, (b) admit a new general partner to the Borrower, (c) enter into any termination or material modification or amendment of Permitted Property Agreements which singly or in the aggregate could reasonably be expected to cause a Material Adverse Change, or (d) modify the Approved Inter-Company Indebtedness Loan Documents in any way that is materially adverse to the Lenders.

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     Any termination, modification or amendment prohibited under this Section 6.09 without the Required Lender’s written consent shall, to the extent permitted by applicable law, be void and of no force and effect.

     Section 6.13. No Further Negative Pledges. Neither the Borrower, nor the Parent, nor their respective Subsidiaries shall enter into or suffer to exist any agreement (other than this Agreement and the Credit Documents and as set forth in the Permitted Property Agreements) (a) prohibiting the creation or assumption of any Lien upon the Properties of the Parent, the Borrower or any of their respective Subsidiaries (except for Properties of and Ownership Interests in the Permitted Other Subsidiaries), whether now owned or hereafter acquired, or (b) requiring an obligation to be secured if some other obligation is or becomes secured; provided that in connection with the incurrence of Unsecured Indebtedness which is permitted by this Agreement, the Parent and its Subsidiaries may enter into such agreements which would require that assets of the Parent and its Subsidiaries which secure any Indebtedness (other than the Obligations, any refinancing or increase in the Obligations, or the Indebtedness described in clause (a) of the definition of Permitted Other Indebtedness) also secure on an equal and ratable basis such Unsecured Indebtedness and which agreements must be in form and substance reasonably acceptable to the Administrative Agent.

     Section 6.14. Limitation on Hedge Agreements. Neither the Borrower, the Parent, nor any of their respective Affiliates shall enter into any Interest Rate Agreement or any Currency Agreement other than the Interest Rate Agreements permitted by the terms of this Agreement and non-speculative Currency Agreements which are reasonably necessary or desirable in connection with such Persons’ foreign operations.

ARTICLE VII

FINANCIAL COVENANTS

     So long as any Note or any amount under any Credit Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have any Commitment hereunder, unless the Required Lenders shall otherwise consent in writing, the Borrower agrees to comply and cause the Parent and the Parent’s Subsidiaries to comply with the following covenants:

     Section 7.01. Debt Service Coverage Ratio. The Parent shall maintain at the end of each Rolling Period a Debt Service Coverage Ratio of not less than 2.75 to 1.00.

     Section 7.02. Leverage Ratio. The Parent shall not on any date permit the Leverage Ratio to exceed 4.50 to 1.00.

     Section 7.03. Maintenance of Net Worth. The Parent shall at all times maintain an Adjusted Net Worth of not less than the Minimum Net Worth.

     Section 7.04. First Lien Adjusted EBITDA. The Parent shall not at the end of each Rolling Period permit (i) the total Adjusted EBITDA for such Rolling Period of the

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Owned Hospitality Properties that are subject to a Mortgage in favor of the Administrative Agent for the benefit of the Lenders as of the end of such Rolling Period to be less than 45% of (ii) the total Adjusted EBITDA for such Rolling Period of all the Owned Hospitality Properties as of the end of such Rolling Period.

ARTICLE VIII

EVENTS OF DEFAULT; REMEDIES

     Section 8.01. Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” under any Credit Document:

     (a) Principal Payment or Letter of Credit Obligation Payment. The Borrower or any Guarantor shall fail to pay any principal of any Note or this Agreement or any Letter of Credit Obligation when the same becomes due and payable as set forth in this Agreement;

     (b) Interest or Other Obligation Payment. The Borrower or any Guarantor shall fail to pay any interest on any Note or this Agreement or any fee or other amount payable hereunder or under any other Credit Document when the same becomes due and payable as set forth in this Agreement or such other Credit Document, as applicable, provided however that the Borrower and the Guarantors will have a grace period of three (3) days after the payments covered by this Section 8.01(b) becomes due and payable for the first two defaults of such Persons collectively under this Section 8.01(b) in every calendar year;

     (c) Representations and Warranties. Any representation or warranty made or deemed to be made (i) by the Parent in this Agreement or in any other Credit Document, (ii) by the Borrower (or any of its officers) in connection with this Agreement or any other Credit Document, or (iii) by any Guarantor in any Credit Document shall prove to have been incorrect in any material respect when made or deemed to be made;

     (d) Covenant Breaches. (i) The Borrower shall fail to perform or observe any covenant contained in Section 5.02, Article VI or Article VII of this Agreement, (ii) the Borrower shall fail to perform or observe, or shall fail to cause any Guarantor to perform or observe any covenant in any Credit Document beyond any notice and/or cure period for such default expressly provided in such Credit Document or (iii) the Borrower or any Guarantor shall fail to perform or observe any term or covenant set forth in any Credit Document which is not covered by clause (i) or (ii) above or any other provision of this Section 8.01, in each case if such failure shall remain unremedied for thirty (30) days after the earlier of the date written notice of such default shall have been given to the Borrower or such Guarantor by the Administrative Agent or any Lender or the date a Responsible Officer of the Borrower or any Guarantor has actual

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knowledge of such default, unless such default in this clause (iii) cannot be cured in such thirty (30) day period and the Borrower is diligently proceeding to cure such default, in which event the cure period shall be extended to ninety (90) days; provided that the Borrower shall not be entitled to more than the aforementioned thirty (30) day period to cure a default under Section 5.09 of this Agreement;

     (e) Cross-Defaults. With respect to any Indebtedness of the Borrower, the Parent or any of their respective Subsidiaries (but excluding Indebtedness evidenced by the Notes or hereunder) which exceeds the Threshold Amount, any of the following:

     (i) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof,

     (ii) such Person shall fail to pay any principal of or premium or interest of any of such Indebtedness (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or

     (iii) any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to permit the holders of such Indebtedness to accelerate the maturity of such Indebtedness;

     (f) Insolvency. The Borrower, the Parent or any of their respective Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower, the Parent or any of their respective Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against the Borrower, the Parent or any of their respective Material Subsidiaries, either such proceeding shall remain undismissed for a period of 60 days or any of the actions sought in such proceeding shall occur; or the Borrower, the Parent or any of their respective Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this paragraph (f);

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     (g) Judgments. Any judgment or order for the payment of money in excess of $5,000,000 or the Dollar Equivalent thereof (reduced for purposes of this paragraph for the amount in respect of such judgment or order that a reputable insurer has acknowledged being payable under any valid and enforceable insurance policy) shall be rendered against the Borrower, the Parent or any of their respective Subsidiaries which, within thirty (30) days from the date such judgment is entered, shall not have been discharged or execution thereof stayed pending appeal;

     (h) ERISA. (i) Any Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is likely to result in the termination of such Plan for purposes of Title IV of ERISA, unless such Reportable Event, proceedings or appointment are being contested by the Borrower in good faith and by appropriate proceedings, (iv) any Plan or Multiemployer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower, the Parent or any member of a Controlled Group shall incur any liability in connection with a withdrawal from a Multiemployer Plan or the insolvency (within the meaning of Section 4245 of ERISA) or reorganization (within the meaning of Section 4241 of ERISA) of a Multiemployer Plan, unless such liability is being contested by the Borrower, the Parent or any member of the Controlled Group in good faith and by appropriate proceedings, (vi) the fair market value of the assets of any Title IV Plan is not at least equal to the present value of the “benefit liabilities” (within the meaning of Section 4001(a)(16) of ERISA) under that Title IV Plan using the actuarial assumptions and methods used by the actuary to that Title IV Plan in its most recent valuation of that Title IV Plan, (vii) any Termination Event or any other event or condition shall occur or exist, with respect to a Plan or Multiemployer Plan; and in each case in clauses (i) through (vii) above, such event or condition, together with all other such events or conditions, if any, could subject the Borrower or any Guarantor to any tax, penalty or other liabilities in the aggregate exceeding $10,000,000;

     (i) Guaranty. Any provision of any Guaranty shall for any reason cease to be valid and binding on any Guarantor or any Guarantor shall so state in writing;

     (j) Environmental Indemnity. Any Environmental Indemnity shall for any reason cease to be valid and binding on any Person party thereto or any such Person shall so state in writing;

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     (k) Security Document. The Borrower or any Guarantor shall cause any material Security Document to be invalid or non-binding on any Person party thereto or any such Person shall so state in writing;

     (l) Collateral. A Material Adverse Change occurs because all or a portion of the Collateral shall for any reason cease to be subject to an Acceptable Lien except as expressly permitted by this Agreement;

     (m) Parent Common Stock; Repayment Event. The Parent at any time hereafter fails to (i) cause the Parent common stock to be duly listed on the New York Stock Exchange, Inc. and (ii) file timely all reports required to be filed by the Parent with the New York Stock Exchange, Inc. and the Securities and Exchange Commission and, with respect to a failure under clause (ii), such failure remains uncured on the date which is the earlier of (A) the date thirty (30) days following the initial occurrence of such failure and (B) the date specified by the New York Stock Exchange, Inc. or the Securities and Exchange Commission as the date such failure needs to be cured by. Upon the receipt by the Parent of any Net Cash Proceeds from a Repayment Event, (i) the Parent fails to immediately make a capital contribution or advance to the Borrower or a Subsidiary of the Borrower of the Repayment Amount for such Repayment Event, or otherwise apply the Repayment Amount for such Repayment Event in accordance with the provisions of this Agreement or (ii) the Borrower fails to apply such Repayment Amount in accordance with the provisions of this Agreement;

     (n) Change in Ownership or Control. Any of the following occur without the written consent of the Required Lenders: (i) a Change in Control occurs for either the Parent or the Borrower; (ii) the Parent owns less than 99% of the legal or beneficial interest in the Borrower directly; provided that such percentage may be reduced to 85% to the extent limited partnership interest in the Borrower are exchanged for assets which are then pledged to secure the Obligations pursuant to the Security Documents; or (iii) the Parent is no longer the general partner of the Borrower; or

     (o) Permitted Property Agreements. A default by the Parent, the Borrower or any of their respective Subsidiaries shall occur under sufficient Permitted Property Agreements that such default could reasonably be expected to cause a Material Adverse Change.

     Section 8.02. Optional Acceleration of Maturity; Other Actions. If any Event of Default (other than an Event of Default pursuant to paragraph (f) of Section 8.01) shall have occurred and be continuing, then, and in any such event,

     (a) the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances and the obligation of Issuing Bank to issue, increase, or extend Letters of Credit to be terminated, whereupon the

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same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Notes, all interest thereon, the Letter of Credit Obligations, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the principal due under the Notes and this Agreement, all such interest, all such Letter of Credit Obligations and all such amounts shall become and be forthwith due and payable in full, without presentment, demand, protest or further notice of any kind (including, without limitation, any notice of intent to accelerate or notice of acceleration), all of which are hereby expressly waived by the Borrower,

     (b) the Borrower shall, on demand of the Administrative Agent at the request or with the consent of the Required Lenders, deposit into the Cash Collateral Account an amount of cash equal to the Letter of Credit Exposure as security for the Obligations to the extent the Letter of Credit Obligations are not otherwise paid at such time, and

     (c) the Administrative Agent shall at the request of, or may with the consent of, the Required Lenders proceed to enforce its rights and remedies under the Credit Documents for the ratable benefit of the Lenders by appropriate proceedings.

     Section 8.03. Automatic Acceleration of Maturity. If any Event of Default pursuant to paragraph (f) of Section 8.01 shall occur,

     (a) the obligation of each Lender to make Advances and the obligation of Issuing Bank to issue, increase, or extend Letters of Credit shall immediately and automatically be terminated and the principal due under the Notes and this Agreement, all interest on the Notes, all Letter of Credit Obligations, and all other amounts payable under this Agreement shall immediately and automatically become and be due and payable in full, without presentment, demand, protest or any notice of any kind (including, without limitation, any notice of intent to accelerate or notice of acceleration), all of which are hereby expressly waived by the Borrower and

     (b) to the extent permitted by law or court order, the Borrower shall deposit with the Administrative Agent into the Cash Collateral Account an amount of cash equal to the outstanding Letter of Credit Exposure as security for the Obligations to the extent the Letter of Credit Obligations are not otherwise paid at such time.

     Section 8.04. Cash Collateral Account.

     (a) Pledge. The Borrower hereby pledges, and grants to the Administrative Agent for the benefit of the Lenders, a security interest in all funds held in the Cash Collateral Account maintained with the Administrative Agent from time to time, and all proceeds thereof, as security for the payment of the

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Obligations, including without limitation all Letter of Credit Obligations owing to any Issuing Bank or any other Lender due and to become due from the Borrower to any Issuing Bank or any other Lender under this Agreement in connection with the Letters of Credit and the Borrower agrees to execute all cash management or cash collateral agreements and UCC-1 Financing Statements requested by the Administrative Agent as needed or desirable for the Administrative Agent to have an Acceptable Lien in the Cash Collateral Account.

     (b) Application Against Letter of Credit Obligations. The Administrative Agent may, at any time or from time to time, apply funds then held in the Cash Collateral Account to the payment of any Letter of Credit Obligations owing to any Issuing Bank, in such order as the Administrative Agent may elect, as shall have become or shall become due and payable by the Borrower to any Issuing Bank under this Agreement in connection with the Letters of Credit.

     (c) Duty of Care. The Administrative Agent shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account and the Administrative Agent shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Administrative Agent accords its own property, it being understood that the Administrative Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds.

     Section 8.05. Non-exclusivity of Remedies. No remedy conferred upon the Administrative Agent or the Lenders is intended to be exclusive of any other remedy, and each remedy shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or otherwise.

     Section 8.06. Right of Set-off.

     (a) Upon (i) the occurrence and during the continuance of any Event of Default pursuant to paragraph (f) of Section 8.01 or (ii) the making of the request or the granting of the consent, if any, specified by Section 8.02 to authorize the Administrative Agent to declare the Notes and any other amount payable hereunder due and payable pursuant to the provisions of Section 8.02 or the automatic acceleration of the Notes and all amounts payable under this Agreement pursuant to Section 8.03, each Lender and Affiliate thereof is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or any Affiliate thereof to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Note held by such Lender, and the other Credit Documents, irrespective of whether or not such Lender shall have made any demand under this Agreement, such Note, or such other Credit Documents, and

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although such obligations may be unmatured. Each Lender agrees to promptly notify the Borrower after any such set-off and application made by such Lender or its Affiliate, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to any other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have.

     (b) The Borrower waives any right of set-off, defense or counterclaim the Borrower has or may have against any Lender to apply any amounts owed the Borrower by such Lender or any Affiliate thereof against the Obligations hereunder.

ARTICLE IX

THE ADMINISTRATIVE AGENT

     Section 9.01. Appointment. Each Lender hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Credit Documents, and each Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall have no duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Credit Document or otherwise exist against the Administrative Agent.

     Section 9.02. Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement and the other Credit Documents by or through agents or attorneys-in-fact and shall be entitled to the advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

     Section 9.03. Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Credit Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person’s own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any Guarantor or any officer thereof contained in this Agreement or any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or

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received by the Administrative Agents under or in connection with, this Agreement or any other Credit Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document or for any failure of the Borrower or any Guarantor to perform its obligations hereunder or thereunder. The Administrative shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Credit Document, or to inspect the properties, books or records of any Loan Party.

     Section 9.04. Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with Section 10.06 and all actions required by such Section in connection with such transfer shall have been taken. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.

     Section 9.05. Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent shall have received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”. In the event that the Administrative Agent shall receive such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.

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     Section 9.06. Non-Reliance on the Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of the Borrower or any Guarantor or any affiliate of the Borrower or a Guarantor, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower or any Guarantor and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower or any Guarantor or any affiliate of the Borrower or any Guarantor that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.

     Section 9.07. Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Pro Rata Share in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Pro Rata Share immediately prior to such date), for, and to save the Administrative Agent harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs,

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expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the Administrative Agent’s gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

     Section 9.08. The Administrative Agent in Its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower or any Guarantor as though the Administrative Agent were not the Administrative Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Credit Documents as any Lender and may exercise the same as though it were not the Administrative, and the terms “Lender” and “Lenders” shall include the Administrative in its individual capacity.

     Section 9.09. Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days’ notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Credit Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 8.01(a) or Section 8.01(f) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After the Administrative Agent’s resignation as the Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement and the other Credit Documents.

     Section 9.10. Authorization to Release Liens and Guarantees. The Administrative Agent is hereby irrevocably authorized by each of the Lenders to effect any release of Liens or guarantee obligations contemplated by Section 5.09.

     Section 9.11. The Arranger, Syndication Agent and Documentation Agents. The Arranger, Syndication Agent and Documentation Agents shall have no duties or

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responsibilities, and shall incur no liability, under this Agreement and the other Credit Documents.

ARTICLE X

MISCELLANEOUS

     Section 10.01. Amendments, Etc.

     (a) No amendment or waiver of any provision of this Agreement, the Notes, or any other Credit Document, nor consent to any departure by the Borrower or any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders (or by the Administrative Agent with the consent of such Required Lenders), as specified in the particular provisions of the Credit Documents, and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment shall increase the Commitment of any Lender without the prior written consent of such Lender, and no amendment, waiver or consent shall, unless in writing and signed by all the Lenders whose Commitments or Advances are directly modified thereby, do any of the following: (i) to increase the aggregate Commitments of the Lenders, (ii) reduce or forgive the principal of, or interest on, the Notes or any fees or other amounts payable hereunder or under any other Credit Document or otherwise release the Borrower from any Obligations, (iii) postpone any date fixed for any payment of principal of (including any Maturity Date), or interest on, the Notes or any fees or other amounts payable hereunder, (iv) amend this Section 10.01, (v) amend the definition of “Required Lenders” or “Pro Rata Share”, (vi) release the Parent from its obligations under the Guaranty or release any other Guarantor which owns or leases an Owned Hospitality Property from its obligations under any of the Guaranties except as contemplated by the provisions of Section 5.09, (vii) release all or substantially all of the Collateral except in accordance with Section 5.09, (viii) release as Collateral all or substantially all of the Ownership Interests in the Borrower except in accordance with Section 5.09 or (ix) extend the Interest Period beyond six (6) months; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent or any Issuing Bank, as applicable, in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent or such Issuing Bank, as the case may be, under this Agreement or any other Credit Document. In addition, the definition of “Revolving Required Lenders” cannot be amended without the unanimous written consent of all Lenders holding Revolving Commitments. In addition, the definition of “Term Required Lenders” cannot be amended without the unanimous written consent of all Lenders holding Term Commitments and Term Advances.

     (b) In addition, without the consent of each of the Revolving Required Lenders and the Term Required Lenders voting as separate Classes no

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amendment or waiver shall (i) amend or waive the provisions in Sections 2.07(c) and (b), 2.10(a) and (e) or 2.16 regarding the pro rata treatment, the order of application of proceeds and the sharing of payments or (ii) permit other Indebtedness (other than under this Agreement) to have a Lien on any Collateral.

     (c) Any amendment to a covenant of the Parent or any of its Subsidiaries or amendment to a definition shall require the Borrower’s written consent.

     (d) Notwithstanding the foregoing, the Administrative Agent and the Borrower (without the consent of any other Lender or the Issuing Bank) may enter into amendments of any Credit Document solely with respect to corrections of formal defects not having any economic impact.

     Section 10.02. Notices, Etc. All notices and other communications shall be in writing (including telecopy or telex) and mailed, telecopied, telexed, hand delivered or delivered by a nationally recognized overnight courier, (a) if to the Borrower, at its address at 4501 N. Fairfax Drive, Arlington, Virginia 22203, Attn: Chief Financial Officer; (b) if to any Lender, at its Applicable Lending Office; (c) if to the Administrative Agent, at its address at 745 Seventh Avenue, New York, New York 10019, Attention: Thomas Buffa; (d) as to each party, at such other address or teletransmission number as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telexed or hand delivered or delivered by overnight courier, be effective three days after deposited in the mails, when telecopy transmission is completed, when confirmed by telex answer-back or when delivered, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or Article IX shall not be effective until received by the Administrative Agent.

     Section 10.03. No Waiver; Remedies. No failure on the part of any Lender, any Agent, or any Issuing Bank to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in this Agreement and the other Credit Documents are cumulative and not exclusive of any remedies provided by law.

     Section 10.04. Costs and Expenses. The Borrower agrees to pay on demand all out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery, due diligence, administration, modification and amendment of this Agreement, the Notes and the other Credit Documents and syndication of the Obligations including, without limitation, (a) the reasonable fees and out-of-pocket expenses of Weil, Gotshal & Manges, L.L.P., counsel for the Administrative Agent, and (b) all reasonable out-of-pocket costs and expenses, if any, of the Administrative Agent, Issuing Bank, and each Lender (including, without limitation, reasonable counsel fees and expenses of the Administrative Agent, such Issuing Bank, and each Lender) in connection with the enforcement (whether through negotiations,

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legal proceedings or otherwise) of this Agreement and the other Credit Documents, and (c) to the extent not included in the foregoing, the costs of any local counsel, travel expenses, Appraisals, Engineering Reports, Environmental Reports, Title Policies, mortgage and intangible taxes (if any), and any title or Uniform Commercial Code search costs, any flood plain search costs, insurance consultant costs and other costs usual and customary in connection with a credit facility of this type.

     Section 10.05. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent, and when the Administrative Agent shall have, as to each Lender, either received a counterpart hereof executed by such Lender or been notified by such Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent, Issuing Bank, and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or delegate its duties under this Agreement or any interest in this Agreement without the prior written consent of each Lender.

     Section 10.06. Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of Parent, the Borrower, the Lenders, the Administrative Agent, all future holders of the Advances and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Lender.

          (b) Any Lender may, without the consent of the Borrower or any other Person, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a “Participant”) participating interests in any Advance owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Credit Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender’s obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Advance for all purposes under this Agreement and the other Credit Documents, and the Borrower, the Arranger and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the other Credit Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Credit Document, or any consent to any departure by any Advance Party therefrom, except to the extent that such amendment, waiver or consent would require the consent of each “directly modified” Lender pursuant to Section 10.01(a). The Borrower agrees that if amounts outstanding under this Agreement and the Advances are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a

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Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 8.06(a) as fully as if such Participant were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.08, 2.09, 2.11 and 10.07 with respect to its participation in the Commitments and the Advances outstanding from time to time as if such Participant were a Lender; provided that, in the case of Section 2.11, such Participant shall have complied with the requirements of said Section, and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. In addition, each transferor Lender selling a participation to a Participant under this Section 10.06(b): (i) shall keep a register, meeting the requirements of Treasury Regulation section 5f.103-1(c), of each such Participant, specifying such Participant’s entitlement to payments of principal and interest with respect to such participation, and (ii) shall collect from each such Participant the appropriate forms, certificates and statements described in Section 2.11 (and updated as required by Section 2.11) as if such Participant were a Lender under Section 2.11.

          (c) Any Lender (an “Assignor”) may, in accordance with applicable law and upon written notice to the Administrative Agent, at any time and from time to time assign to any Lender or any affiliate, Related Fund or Control Investment Affiliate thereof or, with the consent of the Borrower and the Administrative Agent and, in the case of any assignment of Revolving Commitments, the written consent of the Issuing Bank (which, in each case, shall not be unreasonably withheld or delayed) (provided (y) that no such consent need be obtained by the Administrative Agent or its affiliates and (z) the consent of neither the Administrative Agent nor the Borrower need be obtained with respect to any assignment of funded Term Advances), to an additional Eligible Assignee all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Assumption, substantially in the form of Exhibit C, executed by such Eligible Assignee and such Assignor (and, where the consent of the Borrower, the Administrative Agent or the Issuing Bank is required pursuant to the foregoing provisions, by the Borrower and such other Persons) and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that (A) no such assignment to an Eligible Assignee (other than, in each case, any Lender or any affiliate thereof) shall be in an aggregate principal amount of less than $1,000,000 (in the case of the Term Loan Facility) or $5,000,000 (in the case of the Revolving Credit Facility), unless (1) otherwise agreed by the Borrower and the Administrative Agent or (2) such assignment represents an assignment of all of a Lender’s interests under this Agreement and (B) if the Assignor shall retain any Advances or Commitments after giving effect to such assignment such Advances and Commitments shall, unless otherwise agreed by the Borrower and the Administrative Agent, be in an aggregate principal amount of not less than $1,000,000 (in the case of the Term Loan Facility) and $5,000,000 (in the case of the Revolving Credit Facility). Any such assignment need not be ratable as among the Revolving Credit Facility and Term Loan Facility. Upon such execution, delivery,

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acceptance and recording in the Register, from and after the effective date determined pursuant to such Assignment and Assumption, (x) the Eligible Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Assumption, have the rights and obligations of a Lender hereunder with Commitments and/or Advances as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of an Assignor’s rights and obligations under this Agreement, such Assignor shall cease to be a party hereto, except as to Section 2.09, 2.11 and 10.04 and 10.07 in respect of the period prior to such effective date). Notwithstanding any provision of this Section, the consent of the Borrower shall not be required for any assignment that occurs at any time when any Event of Default shall have occurred and be continuing. For purposes of the minimum assignment amounts set forth in this paragraph, multiple assignments by two or more Related Funds shall be aggregated.

          (d) The Administrative Agent shall, on behalf of the Borrower, maintain at its address referred to in Section 10.02 a copy of each Assignment and Assumption delivered to it and a register (the “Register”) for the recordation of the name and address of each Lender and each Issuing Bank, each Lender’s Commitment, each Lender’s and each Issuing Bank’s interest in each Advance, each Letter of Credit and each Letter of Credit Obligation, and in the right to receive any payments hereunder and any assignment of any such interest or rights. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent, the Lenders and the Issuing Banks shall treat each Person whose name is recorded in the Register as the owner of the Advances, any Notes evidencing such Advances and any Reimbursement Obligation recorded therein for all purposes of this Agreement. Any assignment of any Advance, whether or not evidenced by a Note, shall be effective only upon appropriate entries with respect thereto being made in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of an Advance evidenced by a Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note evidencing such Advance, accompanied by a duly executed Assignment and Assumption; thereupon one or more new Notes in the same aggregate principal amount shall be issued to the designated Eligible Assignee, and the old Notes shall be returned by the Administrative Agent to the Borrower marked “canceled”. The Register shall be available for inspection by the Borrower, any Lender (with respect to any entry relating to such Lender’s Advances) or any Issuing Bank (with respect to any entry relating to the Borrower’s Letter of Credit Obligations owed to such Issuing Bank) at any reasonable time and from time to time upon reasonable prior notice.

          (e) Upon its receipt of an Assignment and Assumption executed by an Assignor and an Eligible Assignee (and, in any case where the consent of any other Person is required by Section 10.06(c), by each such other Person) together with payment to the Administrative Agent of a registration and processing fee of $3,500 (if required by the Administrative Agent and, in any case treating multiple, simultaneous assignments by or to two or more Related Funds as a single assignment), the Administrative Agent shall

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(i) promptly accept such Assignment and Assumption and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Borrower. On or prior to such effective date, the Borrower, at its own expense, upon request, shall execute and deliver to the Administrative Agent (in exchange for the Revolving Note and/or applicable Term Notes, as the case may be, of the assigning Lender) a new Revolving Note and/or applicable Term Notes, as the case may be, to the order of such Eligible Assignee and its registered assigns in an amount equal to the Revolving Commitment and/or applicable Term Advances, as the case may be, assumed or acquired by it pursuant to such Assignment and Assumption and, if the Assignor has retained a Revolving Commitment and/or Term Advances, as the case may be, upon request, a new Revolving Note and/or Term Notes, as the case may be, to the order of the Assignor and its registered assigns in an amount equal to the Revolving Commitment and/or applicable Term Advances, as the case may be, retained by it hereunder. Such new Note or Notes shall be dated the Effective Date and shall otherwise be in the form of the Note or Notes replaced thereby.

          (f) For the avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section concerning assignments of Advances and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests in Advances and Notes, including any pledge or assignment by a Lender of any Loan or Note to (i) any Federal Reserve Bank in accordance with applicable law, (ii) any holder of, or trustee for the benefit of, the holders of such Lender’s securities or (iii) any SPC to which such Lender granted an option pursuant to clause (g) below.

          (g) Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle (an “SPC”), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Advance that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Advance and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the Granting Lender shall be obligated to make such Advance pursuant to the terms hereof. The making of a Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Advance were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any state thereof. In addition, notwithstanding anything to the contrary in this Section 10.06(g), any SPC may

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(A) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Advances to the Granting Lender, or with the prior written consent of the Borrower and the Administrative Agent (which consent shall not be unreasonably withheld) to any financial institutions providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Advances, and (B) disclose on a confidential basis any non-public information relating to its Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC; provided that non-public information with respect to the Borrower may be disclosed only with the Borrower’s consent which will not be unreasonably withheld. This paragraph (g) may not be amended without the written consent of any SPC with Advances outstanding at the time of such proposed amendment. In addition, each Granting Lender granting an SPC the option to provide to the Borrower all or any part of any Advance that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement, (i) shall keep a register, meeting the requirements of Treasury Regulation section 5f.103-1(c), of each SPC which has funded all or any part of any Advance that such Lender would have otherwise been obligated to make to the Borrower pursuant to this Agreement, specifying such SPC’s entitlement to payments of principal and interest with respect to such Advance and (ii) shall collect, prior to the time such SPC receives payments with respect to such funded Advance, from each SPC the appropriate forms, certificates and statements described in Section 2.11 (and updated as required by Section 2.11) as if such SPC were a Lender under Section 2.11, and each SPC that assigns all or a portion of its interests in any Advance to any financial institution pursuant to this Section 10.06(g), (i) shall keep a register, meeting the requirements of Treasury Regulation section 5f.103-1(c), of each such financial institution, specifying such financial institution’s entitlement to payments of principal and interest with respect to such Advance and (ii) shall collect, prior to the time such financial institution receives payments with respect to such funded Advance, from each such financial institution the appropriate forms, certificates and statements described in Section 2.11 (and updated as required by Section 2.11) as if such financial institution were a Lender under Section 2.11.

          (h) For purposes of this Section 10.06, if an Issuing Bank transfers its rights with respect to the Borrower’s Reimbursement Obligation with respect to a Letter of Credit, (i) such Issuing Bank shall give the Borrower and the Administrative Agent notice of such transfer for notation in the Register, (ii) each such transfer may only be made upon notation of such transfer in Register, and (iii) no such transfer will be effective for purposes of this Agreement unless it has been recorded in the Register.

     Section 10.07. Indemnification. The Borrower agrees (a) to pay, indemnify, or reimburse each Lender, the Arranger and the Administrative Agent for, and hold each Lender, the Arranger and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be

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payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Commitments, this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions, and (b) to pay, indemnify or reimburse each Lender, the Arranger, the Administrative Agent, their respective affiliates, and their respective officers, directors, trustees, employees, advisors, agents, attorneys-in-fact and controlling persons (each, an “Indemnitee”) for, and hold each Indemnitee harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of the Commitments, this Agreement, any of the other Credit Documents or any documents contemplated by or referred to herein or therein or the transactions, including any of the foregoing relating to the use of proceeds of the Advances or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Parent, the Borrower any of its Subsidiaries or any of the Properties or the use by unauthorized Persons of information or other materials sent through electronic telecommunications or other information transmission systems that are intercepted by such Persons and the fees and disbursements and other charges of legal counsel in connection with claims, actions or proceedings by any Indemnitee against the Borrower hereunder (all the foregoing in this clause (b), collectively, the “Indemnified Liabilities”), provided, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities (i) to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee, (ii) the fees and expenses of legal counsel to the Lenders in respect of the matters covered by Section 10.04(a) or (iii) the loss in value to any Lender of any Advance or other Obligations held by such Lender unrelated to any actions, penalties, judgments, suits, noncompliance or violations of law covered by this Section 10.07. No Indemnitee shall be liable for any damages arising from the use by unauthorized persons of information or other materials sent through electronic, telecommunications or other information transmission systems that are intercepted by such persons or for any special, indirect, consequential or punitive damages in connection with the Revolving Credit Facility or the Term Loan Facility. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries so to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section shall be payable not later than 30 days after written demand therefor. Statements for amounts payable by the Borrower pursuant to this Section shall be submitted to Christopher L. Bennett (Telephone No. 703-387.3332) (Fax No. 703-387-3389), at the address of the Borrower set forth in Section 10.02, or to such other Person or address as may be hereafter designated by the Borrower in a notice to the Administrative Agent.

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The agreements in this Section shall survive repayment of the Advances and all other amounts payable hereunder.

     Section 10.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

     Section 10.09. Survival of Representations, Indemnifications, etc. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Credit Documents, the making of the Advances and any investigation made by or on behalf of the Lenders, none of which investigations shall diminish any Lender’s right to rely on such representations and warranties. All obligations of the Borrower provided for in Sections 2.08, 2.09, 2.11(c), and 10.07 and the obligations of the Lenders under Section 9.05 shall survive any termination of this Agreement and repayment in full of the Obligations.

     Section 10.10. Severability. In case one or more provisions of this Agreement or the other Credit Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired thereby.

     Section 10.11. Usury Not Intended. It is the intent of the Borrower and each Lender in the execution and performance of this Agreement and the other Credit Documents to contract in strict compliance with applicable usury laws, including conflicts of law concepts, governing the Advances of each Lender including such applicable laws of the State of New York and the United States of America from time to time in effect. In furtherance thereof, the Lenders and the Borrower stipulate and agree that none of the terms and provisions contained in this Agreement or the other Credit Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Rate and that for purposes hereof “interest” shall include the aggregate of all charges which constitute interest under such laws that are contracted for, charged or received under this Agreement; and in the event that, notwithstanding the foregoing, under any circumstances the aggregate amounts taken, reserved, charged, received or paid on the Advances, include amounts which by applicable law are deemed interest which would exceed the Maximum Rate, then such excess shall be deemed to be a mistake and each Lender receiving same shall credit the same on the principal of its Advances (or if such Advances shall have been paid in full, refund said excess to the Borrower). In the event that the maturity of the Advances is accelerated by reason of any election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the Maximum Rate and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the

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applicable Advances (or, if the applicable Advances shall have been paid in full, refunded to the Borrower). In determining whether or not the interest paid or payable under any specific contingencies exceeds the Maximum Rate, the Borrower and the Lenders shall to the maximum extent permitted under applicable law amortize, prorate, allocate and spread in equal parts during the period of the full term of the Advances all amounts considered to be interest under applicable law at any time contracted for, charged, received or reserved in connection with the Obligations. The provisions of this Section shall control over all other provisions of this Agreement or the other Credit Documents which may be in apparent conflict herewith.

     Section 10.12. GOVERNING LAW. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED, AND ANY DISPUTE BETWEEN THE BORROWER, THE ADMINISTRATIVE AGENT, ANY LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF NEW YORK; PROVIDED THAT THE PERFECTION OF THE LIENS OF THE ADMINISTRATIVE AGENT ON THE COLLATERAL AND THE EXERCISE OF REMEDIES AGAINST THE COLLATERAL SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE APPLICABLE JURISDICTION.

     Section 10.13. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.

     (A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF NEW YORK, STATE OF NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.

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     (B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT ANY AGENT, ANY LENDER OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).

     (C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS, PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY ANY AGENT OR THE LENDERS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY AGENT OR THE LENDERS TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR

     HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.

     (D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

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     (E) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT.

     (F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF THIS SECTION 10.13 AND SECTION 10.20, WITH ITS COUNSEL.

     Section 10.14. Knowledge of Borrower. For purposes of this Agreement, “knowledge of the Borrower” means the actual knowledge of any of the executive officers and all other Responsible Officers of the Parent.

     Section 10.15. Lenders Not in Control. None of the covenants or other provisions contained in the Credit Documents shall or shall be deemed to, give the Lenders the rights or power to exercise control over the affairs and/or management of the Borrower, any of its Subsidiaries or any Guarantor, the power of the Lenders being limited to the right to exercise the remedies provided in the Credit Documents; provided, however, that if any Lender becomes the owner of any Ownership Interests in any Person, whether through foreclosure or otherwise, such Lender shall be entitled (subject to requirements of law) to exercise such legal rights as it may have by being owner of such Ownership Interests in such Person.

     Section 10.16. Headings Descriptive. The headings of the several Sections and paragraphs of the Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

     Section 10.17. Time is of the Essence. Time is of the essence under the Credit Documents.

     Section 10.18. Lender Interest Rate Agreements. As more fully set forth in the Guaranty and the Security Agreement, if any Lender enters into an Interest Rate Agreement with the Borrower or the Parent which is permitted by the provisions of Section 5.12, the obligations of such Person to such Lender under such Interest Rate Agreement shall (a) be pari passu with the Obligations and (b) be secured by the Collateral pursuant to the Security Agreement.

     Section 10.19. NO CONSEQUENTIAL DAMAGES. NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, EACH PERSON PARTY HERETO FOR ITSELF AND ON BEHALF OF ITS AFFILIATES AGREES THAT THE RECOVERY OF ANY

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DAMAGES SUFFERED OR INCURRED AS A RESULT OF ANY BREACH BY ANY PERSON OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS UNDER THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED OR INCURRED AS A RESULT OF THE BREACH BY THE BREACHING PARTY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT AND IN NO EVENT SHALL THE BREACHING PARTY BE LIABLE TO ANY NON-BREACHING PARTY FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, ANY DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES OR LOST OR DELAYED PRODUCTION) SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF THE BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT.

     Section 10.20. USA PATRIOT Act Notice. Each Lender and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act.

     Section 10.21. Reliance on Professional Advisors. It is expressly understood and agreed that neither the Administrative Agent, nor any Lender, nor any of their respective Affiliates is undertaking to provide the Borrower or any of its Affiliates with any advice relating to legal, regulatory, accounting, or tax matters. In furtherance thereof, the Borrower acknowledges and agree that (a) it and its Affiliates have relied and will continue to rely on the advice of its and their own legal, regulatory, accounting and tax advisors for all matters relating to the Credit Documents, the Obligations and otherwise and (b) neither it, nor any of its Affiliates, has received, or has relied upon, the advice of the Administrative Agent, or any Lender or any of their respective affiliates or advisors regarding matters of law (including securities law), regulation, accounting or taxation.

     Section 10.22. Delivery of Lender Addenda. Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent a Lender Addendum duly executed by such Lender, the Borrower and the Administrative Agent on or prior to the Effective Date.

     Section 10.23. Acknowledgments. Each of the Parent and the Borrower hereby acknowledges that:

          (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Credit Documents;

          (b) neither the Arranger, the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Parent or the Borrower arising out of or in

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connection with this Agreement or any of the other Credit Documents, and the relationship between the Arranger, the Administrative Agent and the Lenders, on one hand, and the Parent and the Borrower, on the other hand, in connection herewith or therewith is solely that of creditor and debtor; and

          (c) no joint venture is created hereby or by the other Credit Documents or otherwise exists by virtue of the transactions contemplated hereby among the Arranger, the Administrative Agent and the Lenders or among the Parent, the Borrower and the Lenders.

     Section 10.24. Confidentiality. Each of the Arranger, the Administrative Agent and the Lenders agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein shall prevent the Arranger, the Administrative Agent or any Lender from disclosing any such information (a) to the Arranger, the Administrative Agent, any other Lender or any affiliate of any thereof, (b) to any Participant or Eligible Assignee (each, a “Transferee”) or prospective Transferee that agrees to comply with the provisions of this Section or substantially equivalent provisions, (c) to any of its employees, directors, trustees, agents, attorneys, accountants and other professional advisors who need to know such information in connection with the performance of their duties and who are advised of the confidential nature thereof, (d) to any financial institution that is a direct or indirect contractual counterparty in swap agreements or such contractual counterparty’s professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section), (e) upon the request or demand of any Governmental Authority having jurisdiction over it, (f) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Legal Requirement, (g) in connection with any litigation or similar proceeding, (h) that has been publicly disclosed other than in breach of this Section, (i) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender or (j) in connection with the exercise of any remedy hereunder or under any other Credit Document.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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SIGNATURE PAGE OF

SENIOR SECURED CREDIT AGREEMENT

EXECUTED as of the date first referenced above.

BORROWER:
INTERSTATE OPERATING COMPANY, LP
By:	Interstate Hotels & Resorts, Inc., its general partner
By:	/s/ Christopher L. Bennett
Name:	Christopher L. Bennett
Title:	Executive VP & General Counsel

SIGNATURE PAGE OF

SENIOR SECURED CREDIT AGREEMENT

LEHMAN COMMERCIAL PAPER INC., as a Lender and as Administrative Agent
By:	/s/ Francis X. Gilhool
Name:	Francis X. Gilhool
Title:	Authorized Signatory
LEHMAN BROTHERS INC., as Sole Lead Arranger and Sole Book Runner
By:	/s/ Francis X. Gilhool
Name:	Francis X. Gilhool
Title:	Authorized Signatory

SIGNATURE PAGE OF

SENIOR SECURED CREDIT AGREEMENT

SOCIÉTÉ GÉNÉRALE, as Syndication Agent
By:	/s/ Jerry Parisi
Name:	Jerry Parisi
Title:	Managing Director

SIGNATURE PAGE OF

SENIOR SECURED CREDIT AGREEMENT

CALYON NEW YORK BRANCH, as Co-Documentation Agent
By:	/s/ Steven Jonassen
Name:	Steven Jonassen
Title:	Director
CALYON NEW YORK BRANCH, as Co-Documentation Agent
By:	/s/ David Bowers
Name:	David Bowers
Title:	Managing Director

SIGNATURE PAGE OF

SENIOR SECURED CREDIT AGREEMENT

MERRILL LYNCH CAPITAL, as Co-Documentation Agent
By:	/s/ Angela M. Farbus
Name:	Angela M. Farbus
Title:	Vice President

EX-10.18

Exhibit 10.18

EXECUTIVE EMPLOYMENT AGREEMENT

EXECUTIVE EMPLOYMENT AGREEMENT, effective as of September 26, 2005 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 Leslie Ng (the “Executive”), an individual residing at       .

          The Company and the LLC desire to employ the Executive in the capacity of Chief Investment 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 September   , 2005 (the “Commencement Date”), and ending on September 26, 2008 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 Investment 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 including, but not limited to, responsibility for the supervision and activities of the development and acquisitions department. The Executive 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

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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, Executive will be present in the principal executives offices of the Company at least two days each week unless it is not practical for a given week as a result of the Executive traveling on Company business outside the Washington, D.C. or New York City metropolitan areas. During the Term, the Company shall provide the Executive with executive office space, and administrative and secretarial assistance and other support services at the Company’s corporate offices consistent with his position as Chief Investment Officer and with his duties and responsibilities hereunder. The Company will also provide office space to the Executive at one of the hotels managed by a subsidiary of the Company in New York City.

          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 $285,000 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 100% of base salary.

               (c) In addition to the bonus referenced in Paragraph 3(b) above, Executive will be eligible to participate in the Company’s Development Incentive Plan on terms agreed to by the Chief Executive Officer.

               (d) As a signing bonus the Executive will be granted on the Commencement Date an amount of restricted stock equal to $225,000 based on the closing price of the shares of the Company’s common stock on the Commencement Date. The shares granted pursuant to this Paragraph 3(c) shall fully vest on March 1, 2006 and shall not subject to Section 5 or any other conditions.

               (e) 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

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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.

               (f) 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. As of the Commencement Date, the Executive will be granted (i) 20,000 shares of restricted stock of the Company which will vest annually on a ratable basis over three years and (ii) 25,000 options in the Company’s stock which will vest annually on a ratable basis over three years. Subject to annual Board approval which shall be solely at the Board’s discretion, it is contemplated that Executive will be eligible for future annual grants of 20,000 shares of restricted stock and 25,000 options in the Company’s stock,

               (g)  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.

               (h) 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,

               (i) To the fullest extent permitted by applicable law, the Executive shall be indemnified and held harmless by the Company and the LLC against any and all judgments, penalties, fines, amounts paid in settlement, and other reasonable expenses (including, without limitation, reasonable attorneys’ fees and disbursements) actually incurred by the Executive in connection with any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative, investigative or other) for any action or omission in his capacity as a director, officer or employee of the Company or the LLC.

               Indemnification under this Section 3(i) shall be in addition to, and not in substitution of, any other indemnification by the Company or the LLC of its officers and directors. Expenses incurred by the Executive in defending an action, suit or proceeding for which he claims the right to be indemnified pursuant to this Section 3(i) shall be paid by the Company or the LLC, as the case may be, in advance of the final disposition of such action, suit or proceeding upon the Company’s or the LLC’s receipt of (x) a written affirmation by the Executive of his good faith belief that the standard of conduct necessary for his indemnification hereunder and under the provisions of applicable law has been met and (y) a written undertaking by or on behalf of the Executive to repay the amount advanced if it shall ultimately be determined by a court that the Executive engaged in conduct, including fraud, theft, misfeasance, or malfeasance against the Company or the LLC, which precludes indemnification under the provisions of such applicable law. Such written undertaking in clause (y) shall be accepted by

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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. While employed by the Company, Executive will be covered by the directors’ and officers’ liability insurance policy on the same terms and conditions as are all other Executives of the Company. If the Company decides to not longer maintain directors’ and officers’ liability insurance policy, the Company will notify Executive.

          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,

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               (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 unvested 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) 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 unvested 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 (i) 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,

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               (i) the Company and the LLC shall pay the Executive a lump sum equal to the product of one and one-half (1 1/2) times the sum of (A) the Executive’s then annual base salary and (B) the amount of the Executive’s bonus referenced in Paragraph 3(b) of this Agreement for the preceding calendar year.

               (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 and one-half (1 1/2 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

7

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;

               (iii) the Executive’s conviction of, or a plea of guilty or nolo contendere to, an offense which is a felony;

               (iv) Executive’s material breach of this Agreement; or

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

               (iii) 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 5h(ii) occurs within eighteen months following a Change of Control and Executive within

8

six months after such change (but not later than eighteen months following the Change of Control) terminates the Term of this Agreement; or

provided, however, that the Executive shall not be deemed to have Good Reason pursuant to clauses (h)(i) or (ii) above unless the Executive gives the Company or the LLC, as the case may be, written notice that the specified conduct or event has occurred and the Company or the LLC fails to cure such conduct or event within thirty (30) days of the receipt of such notice.

          (i) As used herein, the term “Change in Control” shall have the following meaning:

               (i) the acquisition (other than from the Company) by any “Person” (as the term is used for purposes of Sections 13(d) or 14(d) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty (30%) percent or more of the combined voting power of the Company’s then outstanding voting securities;

               (ii) the individuals who were members of the Board (the “Incumbent Board”) during the previous twelve (12) month period, cease for any reason to constitute at least a majority of the Board; provided, however, that if the election, or nomination for election by the Company’s stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board;

               (iii) approval by the stockholders of the Company of (a) merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty (50%) percent of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation or (b) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company; or

               (iv) approval by the stockholders of the Company of any transaction (including without limitation a “going private transaction”) involving the Company if the stockholders of the Company, immediately before such transaction, do not as a result of such transaction, own directly or indirectly, more than fifty (50%) percent of the combined voting power of the then outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such transaction.

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to clause (i)(i) above solely because thirty (30%) percent or more of the combined voting power of

9

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, for a period of 24 months following the terminations of employment, shall fully cooperate with the Company in all matters relating to the winding up of his pending work on behalf of the Company including, but not limited to, any litigation in which the Company is involved and the orderly transfer of any such pending work to other employees of the Company as may be designated by the Company. The Company agrees to reimburse the Executive for any out-of-pocket expense he incurs in performing any work on behalf of the Company following the termination of his employment.

          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,

10

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

11

that then is or 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 8 hereof. Therefore, in addition to any other remedies available, the Company shall be entitled to specific enforcement and/or an injunction from any court of competent jurisdiction restraining the Executive from committing or continuing any such violation of this Agreement without proving actual damages or posting a bond or other security. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages.

               (b) If any of the restrictions on activities of the Executive contained in Section 8 hereof shall for any reason be held by a court of competent jurisdiction to be excessively broad, such restrictions shall be construed so as thereafter to be limited or reduced to be enforceable to the maximum extent compatible with the applicable law as it shall then appear; it being understood that by the execution of this Agreement the parties hereto regard such restrictions as reasonable and compatible with their respective rights.

               (c) Notwithstanding anything in this Agreement to the contrary, in the event that the Company fails to make any payment of any amounts or provide any of the benefits to the Executive when due as called for under Section 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:

12

If to the Executive, to:

If to the Company or to the LLC, to:

Interstate Hotels & Resorts, Inc.

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,

13

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. 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

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

EXECUTIVE:
	/s/ Leslie Ng
	Leslie Ng
COMPANY:
INTERSTATE HOTELS & RESORTS, INC.
By: Name:	/s/ Christopher L. Bennett Christopher L. Bennett
Title:	Senior Vice President and General Counsel
LLC:
INTERSTATE MANAGEMENT COMPANY, LLC
By:	Interstate Operating Company, L.P. a member
By:	Interstate Hotels & Resorts, Inc. its general partner
By: Name:	/s/ Christopher L. Bennett Christopher L. Bennett
Title:	Senior Vice President and General Counsel

EX-21

EXHIBIT 21

INTERSTATE HOTELS & RESORTS, INC.
Subsidiaries

Updated as of: March 13, 2007

Consolidated Subsidiaries

Subsidiary	Jurisdiction	Ownership
AGH Leasing, L.P.	Delaware	99% Interstate Operating Company, L.P.
		1% Interstate Hotels & Resorts, Inc.
CapStar BK Company, L.L.C.	Delaware	99% Interstate Operating Company, L.P.
		1% Interstate Hotels & Resorts, Inc.
CapStar St. Louis Company, L.L.C.	Delaware	99% Interstate Operating Company, L.P.
		1% Interstate Hotels & Resorts Inc
CapStar Winston Company, L.L.C	Delaware	99% Interstate Operating Company, L.P.
		1% Interstate Hotels & Resorts, Inc.
Colony Hotels and Resorts Company	Delaware	100% Interstate Hotels, LLC
Continental Design and Supplies Company, LLC	Delaware	1% Interstate Member, Inc. 99% Interstate Hotels, LLC
Crossroads Hospitality Company, LLC	Delaware	99% Interstate Hotels, LLC 1% Interstate Member, Inc
Crossroads Hospitality Management Company	Delaware	100% Interstate Hotels & Resorts, Inc.
Crossroads Hospitality Tenant Company, LLC	Delaware	99% Interstate Hotels, LLC 1% Interstate Member, Inc.
Crossroads/Memphis Company, LLC	Delaware	99% Crossroads Hospitality Company, LLC 1% Interstate Member, Inc.
Eagle Ridge Management Company, LLC	Delaware	100% Interstate Operating Company, LP
Flagstone Hospitality Management LLC	Delaware	100% MeriStar Flagstone LLC
Hilltop Equipment Leasing Company, LP	Delaware	99% Interstate Hotels, LLC 1% Interstate Member, Inc.
IHC II, LLC	Delaware	100% Interstate Hotels & Resorts, Inc
IHC Holdings, Inc.	Delaware	100% Northridge Holdings, Inc.
IHC International Development (U.K.), LLC	Delaware	100% Interstate Hotels, LLC
IHC Moscow Services, LLC	Delaware	100% Interstate Hotels, LLC

Subsidiary	Jurisdiction	Ownership
IHC Services Company, LLC	Delaware	100% Interstate Member, Inc.
IHC/KP Holding Corporation	Delaware	100% Interstate Partner Corporation
IHC/Moscow Corporation	Delaware	100% Interstate Hotels, LLC
IHR Development Group, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Alberta, ULC	Alberta, Canada	100% Interstate Partner Corporation
Interstate Arlington GP, LLC	Delaware	100% Interstate Arlington MC, LLC
Interstate Arlington LP, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Arlington MC, LLC	Delaware	100% Interstate Property Corporation
Interstate Arlington, LP	Delaware	99% Interstate Arlington LP, LLC 1% Interstate Arlington GP, LLC
Interstate Baton Rouge, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Canada Hotel, Ltd	Ontario	100% Interstate Hotels & Resorts, Inc.
Interstate Cerritos, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Charlotte, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Cleveland, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Concord Holdings, LLC	Delaware	100% Interstate Concord, LLC
Interstate Concord, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Durham, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Hotels Company	Delaware	100% Interstate Hotels & Resorts, Inc
Interstate Hotels Corporation	Delaware	100% Interstate Hotels & Resorts Inc
Interstate Hotels, LLC	Delaware	100% Northridge Holdings, Inc
Interstate Houston Partner, LP	Delaware	99% Interstate Property Corporation L.P. (LP) 1% Interstate Kissimmee Partner, L.P. (GP)
Interstate Investment Corporation	Delaware	100% Interstate Hotels & Resorts, Inc

Subsidiary	Jurisdiction	Ownership
Interstate Investments I, LLC	Delaware	100% Interstate Operating Company, L.P.
Interstate Kissimmee Partner, LP	Delaware	100% Interstate /KP Holding Corporation
Interstate Management Company, L.L.C.	Delaware	99% Interstate Operating Company, L.P 1% Interstate Hotels & Resorts, Inc.
Interstate Management Services, Inc.	Delaware	100% Interstate Hotels & Resorts, Inc.
Interstate Manchester Company, LLC	Delaware	100% Interstate Property Partnership, LP
Interstate Member, Inc	Delaware	100% Interstate Hotels & Resorts, Inc
Interstate MIP Mezzanine, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Myrtle Beach ABC, LLC	South Carolina	100% Interstate Operating Company, LP
Interstate NHF, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Ontario Hotel, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Partner Corporation	Delaware	100% Interstate Hotels & Resorts, Inc
Interstate Pittsburgh Hotel Holdings, LLC	Delaware	100% Interstate Property Partnership, L.P.
Interstate Property Corporation	Delaware	100% Interstate Hotels & Resorts, Inc
Interstate Property Partnership, LP	Delaware	1% Interstate Partner Corporation 99% Interstate Property Corporation
Interstate Receiver Columbia Management, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Receiver, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Sawgrass, LLC	Delaware	100% Interstate Operating Company, L.P.
Interstate Sub. Inc.	Delaware	100% Interstate Operating Company, LP
Interstate Sub., LLC	Delaware	100% Interstate Operating Company, LP
Interstate Tesoro, LLC	Delaware	100% Interstate Operating Company, LP
Interstate Westchase GP, LLC	Delaware	100% Interstate Westchase MC, LLC
Interstate Westchase LP, LLC	Delaware	100% Interstate Operating Company, LP

Subsidiary	Jurisdiction	Ownership
Interstate Westchase MC, LLC	Delaware	100% Interstate Property Corporation
Interstate Westchase, LP	Delaware	99% Interstate Westchase LP, LLC 1% Interstate Westchase GP, LLC
Interstate Westminster Property, LLC	Delaware	100% Interstate Operating Company, LP
Interstate/Dallas GP, LLC	Delaware	100% Interstate Property Corporation
Interstate/Dallas Partnership, LP	Delaware	1% Interstate Property Corporation (as GP) 99% Interstate Property Partnership, LP (as LP)
Interstate/Manchester Company, LLC	Delaware	100% Interstate Property Partnership
MeriStar AGH Company, L.L.C.	Delaware	99% Interstate Operating Company, L.P. 1% Interstate Hotels & Resorts, Inc.
MeriStar Flagstone, LLC	Delaware	100% Interstate Operating Company, L.P
MeriStar HGI Company, L.L.C.	Delaware	100% Interstate Operating Company, L.P.
MeriStar Laundry, LLC	Delaware	99% Interstate Operating Company, L.P. 1% Interstate Hotels & Resorts, Inc
MeriStar LAX Company, LLC	Delaware	100% Interstate Operating Company, L.P.
MeriStar Management (Vancouver-Metrotown) Ltd	British Columbia Canada	100% Interstate Management Company, L.L.C.
Meristar Nordic Hills, LLC	Delaware	100% Interstate Operating Company, L.P.
MeriStar Preston Center, L.L.C.	Delaware	99% Interstate Operating Company, L.P. 1% Interstate Hotels & Resorts, Inc
MeriStar Storrs Company, L.L.C.	Delaware	99% Interstate Operating Company, L.P. 1% Interstate Hotels & Resorts, Inc.
MeriStar Vacations, L.L.C.	Delaware	100% Interstate Operating Company, L.P.
Northridge Holdings, Inc.	Delaware	100% Interstate Hotels & Resorts, Inc.
Northridge Insurance Company	Cayman Islands	100% Interstate Hotels, LLC
Oak Hill Catering Company, Inc.	West Virginia	99% Crossroads Hospitality Company, LLC 1% Northridge Holdings, Inc.
PAH-Cambridge Holdings, LLC	Delaware	100% Interstate Hotels, LLC
PAH-Hilltop GP, LLC	Delaware	100% Interstate Hotels, LLC
Sunstone Hotel Properties, Inc.	Colorado	100% Interstate Hotels & Resorts, Inc.
The NetEffect Strategic Alliance, LLC	Delaware	100% Interstate Operating Company, L.P.
Twin Towers Leasing, L.P.	Delaware	49% Interstate Operating Company, LP 51% AGH Leasing, LP

Joint Venture Subsidiaries

Subsidiary	Jurisdiction	Ownership
Cambridge Hotel Associates Limited Partnership
Campus Associates Limited Partnership	Delaware	5% MeriStar Storrs Company, L.L.C.
CapStar Hallmark Company, L.L.C.		50% CapStar St. Louis Company, L.L.C.
CNL IHC Partners, LP	Delaware	10% Interstate Manchester Company, L.L.C.
CY — CIH Manchester Parent, LLC	Delaware	100% CNL IHC Partners, LP
CY Manchester Hotel Partners, LP	Delaware	.5% CY — CIH Manchester Parent, LLC
		99.5% CNL IHC Partners, L.P. (LP)
CY Manchester Tenant Corporation	Delaware	100% CY Manchester Hotel Partners, LP
HI Galleria Hotel Partnership, LP	Delaware	5% HI CIH Galleria Parent LLC (GP)
		99.5% CNL-IHC Partners L.P. (LL)
Middletown Hotel Associates Limited Partnership	Delaware	12.5% Meristar Storrs Company, LLC
Orchard, Park & Associates	Delaware	5 % Interstate Operating Company, LP
RI — CIH Manchester Parent, LLC	Delaware	100% CNL IHC Partners, LP
RI Manchester Hotel Partners, LP	Delaware	100% Manchester Hotel Partners, LP

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Interstate Hotels & Resorts, Inc.:

We consent to incorporation by reference in the registration statements on Form S-3 (Nos. 333-118561, 333-107660 and 333-84531) and S-8 (Nos. 333-113229, 333-92109, 333-89740, 333-61731, 333-60545 and 333-60539), of our reports dated March 16, 2007 with respect to the consolidated balance sheets of Interstate Hotels & Resorts, Inc. and subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of Interstate Hotels & Resorts, Inc.

McLean, Virginia

March 16, 2007

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 annual report on Form 10-K 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 we 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 the 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.

/s/  THOMAS F. HEWITT

Thomas F. Hewitt

Chief Executive Officer

Dated: March 16, 2007

90

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 annual report on Form 10-K 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 we 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 the 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.

/s/  BRUCE A. RIGGINS

Bruce A. Riggins

Chief Financial Officer

Dated: March 16, 2007

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EX-32

EXHIBIT 32

Section 906 Certification

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. § 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, to such officers’ knowledge, that:

(i) the accompanying Annual Report of Form 10-K of the Company for the period ended December 31, 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.

/s/  THOMAS F. HEWITT

Thomas F. Hewitt

Chief Executive Officer

/s/  BRUCE A. RIGGINS

Bruce A. Riggins

Chief Financial Officer

Dated: March 16, 2007

92