-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G62Ub0v9vwDZpZ25ps62pJRd8oZ2LmwKf2LqLug/vYjYm4Uq45sh6ZofdGguJiq9 uGzc2aIg2+0AJkswDjW/Fg== 0000950142-02-000754.txt : 20020807 0000950142-02-000754.hdr.sgml : 20020807 20020807172843 ACCESSION NUMBER: 0000950142-02-000754 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20020802 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERSTATE HOTELS & RESORTS INC CENTRAL INDEX KEY: 0001059341 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 510379982 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14331 FILM NUMBER: 02722149 BUSINESS ADDRESS: STREET 1: 1010 WISCONSIN AVE NW CITY: WASHINGTON STATE: DC ZIP: 20007 BUSINESS PHONE: 2029654455 MAIL ADDRESS: STREET 1: 1010 WISCONSIN AVE N W CITY: WASHINGTON STATE: DC ZIP: 20007 FORMER COMPANY: FORMER CONFORMED NAME: MERISTAR HOTELS & RESORTS INC DATE OF NAME CHANGE: 19980407 8-K 1 form8k-80202.txt FORM 8-K CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT FILED PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): July 31, 2002 INTERSTATE HOTELS & RESORTS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 1-14331 52-2101815 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) Identification Number) 1010 Wisconsin Avenue, N.W. Washington, D.C. 20007 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (202) 965-4455 -------------- FORMER NAME: MERISTAR HOTELS & RESORTS, INC. - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) 2 FORM 8-K ITEM 1. CHANGES IN CONTROL OF THE REGISTRANT Interstate Hotels & Resorts, Inc., a Delaware corporation (formerly known as "MeriStar Hotels & Resorts, Inc.") (the "Registrant"), and Interstate Hotels Corporation, a Maryland corporation ("Interstate"), entered into an Agreement and Plan of Merger, dated May 1, 2002 and as amended on June 3, 2002 (the "Merger Agreement") pursuant to which Interstate merged with and into Interstate Hotels & Resorts (the "Merger"). On July 31, 2002, after receiving the required stockholder approvals, pursuant to the Merger Agreement, Interstate Hotels & Resorts and Interstate, completed the Merger. Upon consummation of the Merger, pursuant to the Merger Agreement, each outstanding share of Interstate common stock, par value $0.01 per share, was converted into 4.6 shares of Interstate Hotels & Resorts' common stock, $0.01 par value per share (the "Common Stock") and MeriStar Hotels & Resorts, Inc.'s name was changed to "Interstate Hotels & Resorts, Inc." A copy of the Merger Agreement and the agreements ancillary thereto are filed as Exhibits 2.1 through 2.3.1 to this report. The Registrant also issued a press release on July 31, 2002 relating to the completion of the merger. A copy of the press release is filed as Exhibit 99.1 to this report and is incorporated herein by reference. Immediately after the effective time of the Merger, Interstate Hotels & Resorts also effected a one-for-five reverse split of the Common Stock (the "Reverse Stock Split"). Following the Merger and the Reverse Stock Split, two affiliated investment funds, CGLH Partners I, LP and CGLH Partners II, LP (together, the "Investor Group"), collectively beneficially owned 6,900,000 shares of Common Stock, which represented approximately 34.2% of the outstanding Common Stock as of July 31, 2002. In addition, five of the 13 directors of the Registrant (Messrs. Karim J. Alibhai, Joseph J. Flannery, Mahmood J. Khimji, Raymond C. Mikulich and Sherwood M. Weiser) were nominated by the Investor Group. In connection with the Merger: (i) the Registrant filed a Certificate of Merger, dated July 31, 2002 (the "Certificate of Merger"), and thereby amended its Certificate of Incorporation: o changing the name of the Registrant to "Interstate Hotels & Resorts, Inc.", o fixing the size of the board of directors of the Registrant at 13 for the next 18 months, o insuring the nomination of the initial slate of the Registrant's directors during the next 18 months, and o increasing the authorized number of shares of capital stock to 255 million, of which 250 million shares will be Common Stock and 5 million shares will be preferred stock; (ii) the Registrant amended its by-laws (the "Bylaw Amendments") which amendments provided for fixing the size of the board of directors of the Registrant at 13 for the next 18 months and insuring the nomination of the initial slate of the Registrant's directors during the first 18 months after the Merger; (iii) the Registrant and certain of its stockholders, including the Investor Group, entered into a Stockholder and Board Composition Agreement, dated as of July 31, 2002 (the "Board Composition Agreement") pursuant to which procedures for the replacement of directors of the Registrant who resign, retire or are no longer able to serve as directors of the Registrant during the first 18 months after the Merger were established; (iv) the Registrant and the Investor Group entered into a Registration Rights Agreement, dated as of July 31, 2002 (the "Registration Rights Agreement"), pursuant to which the Investor Group was given demand and piggyback registration rights for their shares of Common Stock; (v) Interstate and Thomas F. Hewitt entered into a Second Amended and Restated Employment Agreement, dated as of July, 30, 2002 (the "Hewitt Employment Agreement Amendment"), pursuant to which the terms of Mr. Hewitt's financial arrangements with the Registrant were established; and (vi) the Registrant filed a Certificate of Amendment, dated July 31, 2002 (the "Certificate of Amendment"), in order to effect the Reverse Split. 3 Immediately after the Merger, the Registrant, its principal operating subsidiary, Meristar H & R Operating Company, L.P. (the "OP"), Societe Generale, SG Cowen Securities Corporation, Salomon Smith Barney Inc., Lehman Brothers, Inc., Credit Lyonnais New York Branch and various other lenders entered into a $113 million Senior Secured Credit Agreement, dated as of July 31, 2002 (the "Senior Credit Agreement"), pursuant to which the existing senior credit agreements of the Registrant and Interstate were refinanced. The Senior Credit Agreement consists of a $65 million term loan due on July 31, 2005 and a $48 million revolving credit facility due on July 31, 2005 (with a one-year renewal at the Registant's option). The interest rate on the Senior Credit Facility will be LIBOR plus 3.00% to 4.50%, based on the fulfillment of various financial tests by the Registrant. As of July 31, 2001, approximately $65 million was outstanding under the Senior Credit Agreement and $5 million was outstanding under the revolving credit facility, bearing interest at a rate of 5.8125% per annum, and approximately $43 million was available under the revolving credit facility. A copy of the Senior Credit Agreement is filed as Exhibit 10.3 to this report. The OP and MeriStar Hospitality Operating Partnership, L.P. ("MHOP") were parties to a Revolving Credit Agreement, dated as of August 3, 1998 and amended on February 29, 2000 and January 28, 2002 (as amended, the "MHOP Loan"), pursuant to which MHOP provided a $50 million revolving credit facility to the OP. Immediately after the merger, the OP and MHOP entered into the Third Amendment to Revolving Credit Agreement, dated as of July 31, 2002 (the "MHOP Loan Agreement Amendment"), pursuant to which: o an existing $13.1 million term note issued by the OP and MHOP was retired, with the balance added to the MHOP Loan; o the MHOP Loan became a term loan due July 31, 2007; and o $3.0 million of the outstanding principal amount under the MHOP Loan was repaid. As of July 31, 2002, after the amendment, approximately $56.1 million was outstanding under the MHOP Loan, bearing interest at a rate of 8.31% per annum. A copy of the MHOP Loan Agreement Amendment is filed as Exhibit 10.4 to this report. A copy of the Certificate of Merger is filed as Exhibit 3.1 to this report. A copy of the Certificate of Amendment is filed as Exhibit 3.2 to this report. A copy of the Bylaw Amendments is being filed as Exhibit 3.3 to this report. A copy of the Form of Interstate Hotels & Resorts Common Stock Certificate is being filed as Exhibit 4.1 to this report. A copy of the Board Composition Agreement is being filed as Exhibit 9.1 to this report. A copy of the Registration Rights Agreement is being filed as Exhibit 10.1 to this report. A copy of the Hewitt Employment Agreement Amendment is filed as Exhibit 10.2 to this report. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS In the Merger, which closed on July 31, 2002, the Registrant acquired all of the business and assets of Interstate, then the second-largest hotel management company in the United States. The Registrant intends to continue to operate Interstate's business. A total of 63,803,104 shares of Common Stock were issued pursuant to the Merger Agreement to the holders of Interstate securities. Another 540,000 shares of Common Stock are reserved for issuance pursuant to an Interstate stock option plan assumed by the Registrant. The amount of consideration was determined by the Registrant's board of directors through arms-length bargaining between Interstate and the Registrant, based, in part, on valuations and a fairness opinion provided by the Registrant's financial advisor. The financing for the Registrant following the Merger is as described in Item 1, above. ITEM 5. OTHER EVENTS At the Registrant's 2002 Annual Meeting, the Registrant's stockholders approved an amended and restated Incentive Plan, a copy of which is filed with this report as Exhibit 10.5. The Registrant's stockholders also approved amendments to the Registrant's Employee Stock Purchase Plan and the Registrant's Non-Employee Directors' Stock Option Plan, copies of which are filed with this report as Exhibits 10.6 and 10.7, respectively. 4 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial statements of businesses acquired. The financial statements required by this Item will be filed not later than 60 days after the date that this initial report was required to be filed. (c) Exhibits: EXHIBIT DESCRIPTION ------- ----------- 2.1 Agreement and Plan of Merger, dated May 1, 2002, by and between Interstate Hotels Corporation and Interstate Hotels & Resorts, Inc., dated May 1, 2002 (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.1.1 Amendment No. 1 to Agreement and Plan of Merger, dated June 3, 2002, by and between Interstate Hotels Corporation and Interstate Hotels & Resorts, Inc. (incorporated by reference to Exhibit 2.1.1 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.2 Interstate Hotels Corporation Stockholder Voting and Conversion Agreement, dated as of May 1, 2002, among Interstate Hotels & Resorts, Inc., Interstate Hotels Corporation and certain stockholders named therein (incorporated by reference to Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.2.1 Amendment No. 1 to the Interstate Hotels Corporation Stockholder Voting and Conversion Agreement, dated June 3, 2002, among Interstate Hotels & Resorts, Inc., Interstate Hotels Corporation and certain stockholders named therein (incorporated by reference to Exhibit 2.2.1 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.3 Conversion Incentive Agreement, dated as of May 1, 2002, among Interstate Hotels Corporation and holders of Interstate Hotels Corporation's Series B Preferred Stock and 8.75% Convertible Subordinated Notes (incorporated by reference to Exhibit 2.3 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.3.1 Letter Agreement among Interstate Hotels Corporation, Interstate Hotels & Resorts, Inc. and holders of Interstate Hotel Corporation's convertible securities, dated June 3, 2002, amending and clarifying the Conversion Incentive Agreement (incorporated by reference to Exhibit 2.3.1 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 3.1 Certificate of Merger, dated July 31, 2002 (incorporated by reference to Exhibit 3.1.2 to the Registrant's Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002). 3.2 Certificate of Amendment of Restated Certificate of Incorporation of Interstate Hotels & Resorts, Inc., dated July 31, 2002 (incorporated by reference to Exhibit 3.1.3 to the Registrant's Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002). 3.3 Amendment to the By-laws of Interstate Hotels & Resorts, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002). 4.1 Form of Interstate Hotels & Resorts Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002). 5 9.1 Board Composition Agreement, dated as of July 31, 2002, among the Registrant and certain stockholders of the Registrant specified therein. 10.1 Registration Rights Agreement, dated as of July 31, 2002, among the Registrant, CGLH Partners I, LP and CGLH Partners II, LP. 10.2 Second Amended and Restated Employment Agreement, dated as of July 30, 2002, between the Registrant and Thomas F. Hewitt. 10.3 Senior Credit Agreement, dated as of July 31, 2002, among the Registrant, MeriStar H & R Operating Company, L.P., Societe Generale, SG Cowen Securities Corporation, Salomon Smith Barney Inc., Lehman Brothers, Inc., Credit Lyonnais New York Branch and various other lenders. 10.4 Third Amendment to Revolving Credit Agreement, dated as of July 31, 2002, by and between MeriStar H&R Operating Company, L.P. and MeriStar Hospitality Operating Partnership, L.P. 10.5 Amended and Restated Incentive Plan. 10.6 Amendment to the Registrant's Employee Stock Purchase Plan. 10.7 Amendment to the Registrant's Non-Employee Directors' Incentive Plan. 99.1 Press Release, dated as of July 31, 2002. 6 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: August 7, 2002 INTERSTATE HOTELS & RESORTS, INC By: /s/ Christopher L. Bennett --------------------------------------- Christopher L. Bennett Senior Vice President and General Counsel 7 EXHIBIT INDEX EXHIBIT DESCRIPTION ------- ----------- 2.1 Agreement and Plan of Merger, dated May 1, 2002, by and between Interstate Hotels Corporation and Interstate Hotels & Resorts, Inc., dated May 1, 2002 (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.1.1 Amendment No. 1 to Agreement and Plan of Merger, dated June 3, 2002, by and between Interstate Hotels Corporation and Interstate Hotels & Resorts, Inc. (incorporated by reference to Exhibit 2.1.1 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.2 Interstate Hotels Corporation Stockholder Voting and Conversion Agreement, dated as of May 1, 2002, among Interstate Hotels & Resorts, Inc., Interstate Hotels Corporation and certain stockholders named therein (incorporated by reference to Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.2.1 Amendment No. 1 to the Interstate Hotels Corporation Stockholder Voting and Conversion Agreement, dated June 3, 2002, among Interstate Hotels & Resorts, Inc., Interstate Hotels Corporation and certain stockholders named therein (incorporated by reference to Exhibit 2.2.1 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.3 Conversion Incentive Agreement, dated as of May 1, 2002, among Interstate Hotels Corporation and holders of Interstate Hotels Corporation's Series B Preferred Stock and 8.75% Convertible Subordinated Notes (incorporated by reference to Exhibit 2.3 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 2.3.1 Letter Agreement among Interstate Hotels Corporation, Interstate Hotels & Resorts, Inc. and holders of Interstate Hotel Corporation's convertible securities, dated June 3, 2002, amending and clarifying the Conversion Incentive Agreement (incorporated by reference to Exhibit 2.3.1 to the Registrant's Registration Statement on Form S-4 filed on June 4, 2002 (Registration No. 333-89740)). 3.1 Certificate of Merger, dated July 31, 2002 (incorporated by reference to Exhibit 3.1.2 to the Registrant's Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002). 3.2 Certificate of Amendment of Restated Certificate of Incorporation of Interstate Hotels & Resorts, Inc., dated July 31, 2002 (incorporated by reference to Exhibit 3.1.3 to the Registrant's Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002). 3.3 Amendment to the By-laws of Interstate Hotels & Resorts, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002). 4.1 Form of Interstate Hotels & Resorts Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on August 2, 2002). 8 9.1 Board Composition Agreement, dated as of July 31, 2002, among the Registrant and certain stockholders of the Registrant specified therein. 10.1 Registration Rights Agreement, dated as of July 31, 2002, among the Registrant, CGLH Partners I, LP and CGLH Partners II, LP. 10.2 Second Amended and Restated Employment Agreement, dated as of July 30, 2002, between the Registrant and Thomas F. Hewitt. 10.3 Senior Credit Agreement, dated as of July 31, 2002, among the Registrant, MeriStar H & R Operating Company, L.P., Societe Generale, SG Cowen Securities Corporation, Salomon Smith Barney Inc., Lehman Brothers, Inc., Credit Lyonnais New York Branch and various other lenders. 10.4 Third Amendment to Revolving Credit Agreement, dated as of July 31, 2002, by and between MeriStar H&R Operating Company, L.P. and MeriStar Hospitality Operating Partnership, L.P. 10.5 Amended and Restated Incentive Plan. 10.6 Amendment to the Registrant's Employee Stock Purchase Plan. 10.7 Amendment to the Registrant's Non-Employee Directors' Incentive Plan. 99.1 Press Release, dated as of July 31, 2002. EX-9 3 ex9-1form8k80202.txt EXHIBIT 9.1 EXHIBIT 9.1 ----------- EXECUTION COPY STOCKHOLDER AND BOARD COMPOSITION AGREEMENT BY AND AMONG MERISTAR HOTELS & RESORTS, INC., AND THE STOCKHOLDERS LISTED HEREIN DATED AS OF JULY 31, 2002 STOCKHOLDER AND BOARD COMPOSITION AGREEMENT STOCKHOLDER AND BOARD COMPOSITION AGREEMENT (this "AGREEMENT"), dated as of July 31, 2002, by and among MERISTAR HOTELS & RESORTS, INC., a Delaware corporation ( "MERISTAR") and each of the persons set forth on Schedule A hereto (each, a "STOCKHOLDER" and, collectively, the "STOCKHOLDERS"). RECITALS A. The Agreement and Plan of Merger dated as of May 1, 2002 and as amended on June 3, 2002, by and between Interstate Hotels Corporation, a Maryland corporation ("INTERSTATE"), and MeriStar (as amended, the "MERGER AGREEMENT"), provides for, among other things, the merger (the "Merger") of Interstate with and into MeriStar on the terms and subject to the conditions set forth in the Merger Agreement, with MeriStar as the surviving corporation (the "COMBINED COMPANY"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement. B. It is a condition precedent to the obligation of each of MeriStar and Interstate to consummate the Merger under the Merger Agreement, that the parties hereto enter into this Agreement. C. At the time the Merger is completed, each Stockholder will beneficially own and be entitled to dispose of (or to direct the disposition of) and to vote (or to direct the voting of) the number of shares of the Combined Company's common stock, par value $0.01 per share (the "COMBINED COMPANY COMMON STOCK"), set forth opposite such Stockholder's name on Schedule A hereto (such shares, together with any other shares of Combined Company Common Stock, the beneficial ownership of which is acquired by such Stockholder during the period from and including the date hereof through and including the date on which this Agreement is terminated, excluding those that are beneficially owned (a) in the form of MeriStar Stock Options and (b) by such Stockholder solely because such Combined Company Common Stock is held by an affiliate of such Stockholder, are collectively referred to herein as such Stockholder's "SUBJECT SHARES"). D. The Stockholders wish to provide for, among other things, procedures for the replacement of certain directors of the Combined Company who resign, retire or are no longer able to serve as directors of the Combined Company. NOW, THEREFORE, in consideration of the mutual representations, warranties and agreements contained herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement, intending to be legally bound by this Agreement, agree as follows: ARTICLE I BOARD COMPOSITION Section 1.1 BOARD COMPOSITION. During the 18 months after the Effective Time of the Merger: (a) if any of Ms. Leslie R. Doggett or Messrs. Steven D. Jorns, James B. McCurry, John Emery or J. Taylor Crandall or any replacement as director of the Combined Company for any of them resigns, retires or is no longer able to serve as a director of the Combined Company by reason of death, disqualification, removal from office or any other cause, then Mr. Paul W. Whetsell or his replacement as director of the Combined Company, if any, shall have the right to designate a person for nomination to be a successor to the director of the Combined Company no longer serving; if Mr. Whetsell or any replacement for him as director of the Combined Company resigns, retires or is no longer able to serve as a director of the Combined Company by reason of death, disqualification, removal from office or any other cause, then Mr. Emery or his replacement as director of the Combined Company, if any, shall have the right to designate a person for nomination to be a successor to Mr. Whetsell or his replacement; (b) if any of Messrs. Joseph J. Flannery, Mahmood J. Khimji, Raymond C. Mikulich, Karim J. Alibhai or Sherwood M. Weiser or any replacement as director of the Combined Company for any of them resigns, retires or is no longer able to serve as a director of the Combined Company by reason of death, disqualification, removal from office or any other cause, then the majority of that group of individuals, including any of their replacements, if any, shall have the right to designate a person for nomination to be a successor to the director of the Combined Company no longer serving; (c) if all of Messrs. Flannery, Khimji, Mikulich, Alibhai and Weiser and any replacement as director of the Combined Company for any of them resigns, retires or is no longer able to serve as a director of the Combined Company by reason of death, disqualification, removal from office or any other cause, then Mr. Thomas F. Hewitt or his replacement as director of the Combined Company, if any, shall have the right to designate a person for nomination to be a successor to the director of the Combined Company no longer serving; (d) if John J. Russell, Jr. or any replacement as director of the Combined Company for him resigns, retires or is no longer able to serve as a director of the Combined Company by reason of death, disqualification, removal from office or any other cause, then Mr. Hewitt or his replacement as director of the Combined Company, if any, shall have the right to designate a person for nomination to be a successor to Mr. Russell or his replacement; if Mr. Hewitt or any replacement for him as director of the Combined Company resigns, retires or is no longer able to serve as a director of the Combined Company by reason of death, disqualification, removal from office or any other cause, then Mr. Russell or his replacement as director of the Combined Company, if any, shall have the right to designate a person for nomination to be a successor to Mr. Hewitt or his replacement; (e) the Combined Company shall use its best efforts, subject to the fiduciary duties of its board of directors under applicable law, to have any such successor that is designated for nomination under this Agreement to be nominated and elected; and (f) each Stockholder shall, if the matter is put to a vote of stockholders, vote all of their Subject Shares that are still beneficially owned by such Stockholder on the record date for vote or execute and deliver a written consent (if permitted) in a manner to cause the election of any such successor that is nominated under this Agreement. Section 1.2 FURTHER ASSURANCES. Each of the parties hereto agrees to execute and deliver such other documents and instruments and take such further actions as may be necessary or appropriate in order to effectuate the intent of this Agreement. ARTICLE II MISCELLANEOUS Section 2.1 COUNTERPARTS. This Agreement and any amendments hereto may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. Section 2.2 GOVERNING LAW; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREUNDER THAT WOULD INDICATE THE APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION. (b) Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement, or the transactions contemplated by this Agreement. Each party certifies and acknowledges that (i) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each such party understands and has considered the implications of this waiver, (iii) each such party makes this waiver voluntarily, and (iv) each such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 2.2(b). Section 2.3 NOTICES. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: If to the Combined Company, Messrs. Whetsell, Emery, Jorns or Kilkeary: Interstate Hotels & Resorts, Inc. 1010 Wisconsin Avenue Suite 500 Washington, D.C. 20007 Attention: Christopher L. Bennett, Esq. Telecopy: (207) 295-1026 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Richard S. Borisoff, Esq. Facsimile: (212) 757-3990 If to CGLH Partners I LP or CGLH Partners II LP: Lehman Brothers Inc. 399 Park Avenue 8th Floor New York, NY 10022 Attention: Joseph Flannery Facsimile: (212) 526-7006 with a copy to: Continental Gencom Holdings c/o Mr. K. Alibhai and Mr. S. Weiser 3250 Mary Street Suite 500 Miami, Florida 33133 Facsimile: (305) 445-4255 with a copy to: Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. 150 West Flagler Street Suite 2200 Miami, Florida 33130 Attention: Richard E. Schatz, Esq. Facsimile: (305) 789-3395 with a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Jonathan Mechanic, Esq. Facsimile: (212) 859-8582 If to Oak Hill Capital Partners, L.P., Oak Hill Capital Management Partners, L.P., FW Hospitality, L.P., Arbor Reit, L.P. or MHX Investors, L.P.: c/o Oak Hill Capital Management Partners, L.P. 201 Main Street, Suite 2600 Fort Worth, Texas 76102 Attention: Kevin G. Levy, Esq. Facsimile: (817) 338-2067 If to Mr. Hewitt: 1055 St. Mellion Drive Nevillewood, Pennsylvania 15142 Facsimile: (412) 276-6026 with a copy to: Jones, Day, Reavis & Pogue 222 East 41st Street New York, New York 10017 Attention: Jere R. Thomson, Esq. Facsimile: (212) 755-7306 If to Mr. Richardson: 3323 Ponoka Road Pittsburgh, Pennsylvania 15209 Facsimile: (412) 833-6005 with a copy to: Jones, Day, Reavis & Pogue 222 East 41st Street New York, New York 10017 Attention: Jere R. Thomson, Esq. Facsimile: (212) 755-7306 or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. Section 2.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, among the parties to this Agreement, with respect to the subject matter of this Agreement. Section 2.5 BINDING EFFECT UPON SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and permitted assigns. This Agreement is not intended to confer upon any person other than the parties to this Agreement or their respective successors or permitted assigns any rights or remedies under this Agreement. Section 2.6 AMENDMENT AND WAIVER. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. Section 2.7 SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability or the other provisions of this Agreement. If any provision of this Agreement, or the application of that provision to any person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted for that provision in order to carry out, so far as may be valid and enforceable, the intent and purpose of the invalid or unenforceable provision and (b) the remainder of this Agreement and the application of the provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of the provision, or the application of that provision, in any other jurisdiction. Section 2.8 INTERPRETATION. The headings in this Agreement are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions of this Agreement. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. Section 2.9 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assignable, in whole or in part, by operation of Law or otherwise, by any of the parties hereto without the prior written consent of the other parties; PROVIDED, HOWEVER, that no such assignment will relieve the assigning party of its obligations hereunder. Section 2.10 SPECIFIC PERFORMANCE. The parties to this Agreement agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at Law or in equity. Section 2.11 JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Chancery or other courts of the State of Delaware (a "DELAWARE COURT"), and any appellate court from any such court, in any suit, action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment resulting from any suit, action or proceeding, and each party hereby irrevocably and unconditionally agrees that all claims in respect of any such suit, action or proceeding may be heard and determined in a Delaware Court. (a) It will be a condition precedent to each party's right to bring any such suit, action or proceeding that such suit, action or proceeding, in the first instance, be brought in a Delaware Court (unless such suit, action or proceeding is brought solely to obtain discovery or to enforce a judgment), and if each such court refuses to accept jurisdiction with respect thereto, such suit, action or proceeding may be brought in any other court with jurisdiction. (b) No party may move to (i) transfer any such suit, action or proceeding from a Delaware Court to another jurisdiction, (ii) consolidate any such suit, action or proceeding brought in a Delaware Court with a suit, action or proceeding in another jurisdiction, or (iii) dismiss any such suit, action or proceeding brought in a Delaware Court for the purpose of bringing the same in another jurisdiction. (c) Each party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, (i) any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in a Delaware Court, (ii) the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court, and (iii) the right to object, with respect to such suit, action or proceeding, that such court does not have jurisdiction over such party. Each party irrevocably consents to service of process in any manner permitted by law. Section 2.12 FIDUCIARY DUTIES. Each Stockholder is signing this Agreement solely in such Stockholder's capacity as the beneficial owner of Subject Shares and, notwithstanding anything herein to the contrary, nothing contained herein shall limit or affect any actions taken by such Stockholder or any designee of such Stockholder in his or her capacity, if any, as an officer or director of the Combined Company or any of its subsidiaries and none of such actions in any such capacity shall be deemed to constitute a breach of this Agreement. Section 2.13 BENEFICIAL OWNERSHIP. For purposes of this Agreement, the term "BENEFICIAL OWNER" shall have the meaning ascribed to such term under Rule 13d-3 under the Securities Exchange Act of 1934, and the terms "BENEFICIALLY OWN" and "BENEFICIAL OWNERSHIP" shall have correlative meanings therewith. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties to this Agreement as of the date first written above. MERISTAR HOTELS & RESORTS, INC. By: /s/ Christopher L. Bennett ----------------------------------------- Name: Christopher L. Bennett Title: Senior Vice President and General Counsel OAK HILL CAPITAL PARTNERS, L.P. By: OHCP GenPar, L.P., its general partner By: OHCP MGP, LLC, its general partner By: /s/ Kevin G. Levy ---------------------------------- Name: Kevin G. Levy Title: Vice President OAK HILL CAPITAL MANAGEMENT PARTNERS, L.P. By: OHCP GenPar, L.P., its general partner By: OHCP MGP, LLC, its general partner By: /s/ Kevin G. Levy ---------------------------------- Name: Kevin G. Levy Title: Vice President FW HOSPITALITY, L.P. By: Group III 31, L.L.C., its general partner By: /s/ Kevin G. Levy -------------------------------------- Name: Kevin G. Levy Title: Vice President ARBOR REIT, L.P. By: Group Investors, L.L.C., its general partner By: /s/ Kevin G. Levy -------------------------------------- Name: Kevin G. Levy Title: Vice President MHX INVESTORS, L.P. By: FW Group Genpar, Inc., its general partner By: /s/ Kevin G. Levy -------------------------------------- Name: Kevin G. Levy Title: Vice President CGLH PARTNERS I LP By: MK/CG-GP LLC, its general partner By: CG Interstate Associates, LLC, a managing member By: Continental Gencom Holdings, LLC, its sole member By: /s/ Karim Alibhai --------------------------- Name: Karim Alibhai Title: Member By: /s/ Sherwood M. Weiser --------------------------- Name: Sherwood M. Weiser Title: Member By: KFP Interstate Associates, LLC, its general partner By: KFP Interstate, LLC, a managing member By: KFP Holdings, Ltd., its sole member By: Grosvenor, L.C., its general partner By: /s/ Jaffer Khimji ----------------------- Name: Jaffer Khimji Title:Authorized Signatory By: LB INTERSTATE GP LLC, its general partner By: PAMI LLC, its sole member By: /s/ Joseph J. Flannery --------------------------------- Name: Joseph J. Flannery Title: Authorized Signatory CGLH PARTNERS II LP By: MK/CG-GP LLC, its general partner By: CG Interstate Associates, LLC, a managing member By: Continental Gencom Holdings, LLC, its sole member By: /s/ Karim Alibhai --------------------------- Name: Karim Alibhai Title: Member By: /s/ Sherwood M. Weiser --------------------------- Name: Sherwood M. Weiser Title: Member By: KFP Interstate Associates, LLC, its general partner By: KFP Interstate, LLC, a managing member By: KFP Holdings, Ltd., its sole member By: Grosvenor, L.C., its general partner By: /s/ Jaffer Khimji ------------------------ Name: Jaffer Khimji Title: Authorized Signatory By: LB INTERSTATE GP LLC, its general partner By: PAMI LLC, its sole member By: /s/ Joseph J. Flannery ----------------------------- Name: Joseph J. Flannery Title: Authorized Signatory /s/ Paul W. Whetsell ---------------------------------- PAUL W. WHETSELL /s/ John Emery ---------------------------------- JOHN EMERY /s/ Steven D. Jorns ---------------------------------- STEVEN D. JORNS /s/ Thomas F. Hewitt ---------------------------------- THOMAS F. HEWITT /s/ J. William Richardson ---------------------------------- J. WILLIAM RICHARDSON /s/ Kevin P. Kilkeary ---------------------------------- KEVIN P. KILKEARY SCHEDULE A COMBINED COMPANY STOCKHOLDER COMMON STOCK ----------- ------------ John Emery 281,667(1) Thomas F. Hewitt 2,030,596 Steven D. Jorns 1,328,931(2) Kevin P. Kilkeary 782,764 J. William Richardson 1,571,972 Paul W. Whetsell 866,652(3) Arbor REIT, L.P 764,067 CGLH Partners I LP and CGLH Partners II LP 34,500,000 FW Hospitality, L.P. 764,067 MHX Investors, L.P. 764,066 Oak Hill Capital Partners, L.P. 3,545,455 Oak Hill Capital Management Partners, L.P. 90,909 (1) Of these shares of Combined Company Common Stock, 191,667 shares are subject to MeriStar Stock Options. (2) Of these shares of Combined Company Common Stock, 255,001 shares are subject to MeriStar Stock Options. (3) Of these shares of Combined Company Common Stock, 333,333 shares are subject to MeriStar Stock Options. EX-10 4 ex10-1form8k80202.txt EXHIBIT 10.1 EXHIBIT 10.1 ------------ EXECUTION COPY REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement, dated as of July 31, 2002 (this "AGREEMENT"), by and between MERISTAR HOTELS & RESORTS, INC., a Delaware corporation (the "COMPANY"), on the one hand, and CGLH PARTNERS I LP, a Delaware limited partnership and CGLH PARTNERS II LP, a Delaware limited partnership (CGLH Partners I LP and CGLH Partners II LP, together, the "SHAREHOLDER"), on the other hand. W I T N E S S E T H: WHEREAS, pursuant to an Agreement and Plan of Merger dated as of May 1, 2002 as amended on June 3, 2002 (the "MERGER AGREEMENT") between the Company and Interstate Hotels Corporation, a Maryland Corporation ("INTERSTATE"), Interstate will be merged with and into the Company, with the Company surviving (the "MERGER"); WHEREAS, Shareholder owns certain convertible securities of Interstate and has agreed, pursuant to an Interstate Stockholder Voting and Conversion Agreement between Shareholder and the Company dated as of May 1, 2002 as amended on June 3, 2002 (the VOTING AGREEMENT"), to convert such convertible securities in connection with the Merger such that after the Effective Time (as defined in the Merger Agreement) Shareholder will be the owner of shares of common stock, par value $.01 per share, of the Company (the "COMMON STOCK"); WHEREAS, following the Merger, Shareholder may be deemed an Affiliate of the Company and may therefore, following the Merger, be restricted in its ability to resell such shares of Common Stock pursuant to applicable securities laws; WHEREAS, it is a condition to the obligations of Interstate to close the Merger that the Company shall have entered into this Agreement with Shareholder. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained in this Agreement, the Voting Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows, effective at the Effective Time: ARTICLE I Definitions 1.1. CERTAIN DEFINITIONS. In this Agreement: "AGREEMENT" has the meaning given to it in the preamble. "COMMON STOCK" has the meaning given to it in the recitals of this Agreement "DESIGNATED JURISDICTIONS" has the meaning given to it in Section 2.2(a) of this Agreement. "ELECTED JURISDICTIONS" has the meaning given to it in Section 2.1(a) of this Agreement. "EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated under such Act. "INSPECTORS" has the meaning given to it in Section 2.4(h) of this Agreement. "OTHER SECURITIES" has the meaning given to it in Section 2.2(b) of this Agreement. "REGISTRABLE SECURITIES" means the shares of Common Stock held by Shareholder immediately following the consummation of the transactions contemplated by the Merger Agreement and the Voting Agreement, and any additional shares of Common Stock thereafter acquired by Shareholder whether in connection with any stock dividend on, or any stock split, reclassification or reorganization of any of such shares or such additional shares, or otherwise, in each case, until such Common Stock may be sold by Shareholder without restriction under Rule 144(k) under the Securities Act. "SEC" means the United States Securities and Exchange Commission or any successor agency. "SECURITIES ACT" means the United States Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated under such Act. "SHAREHOLDER" has the meaning given to it in the preamble of this Agreement. "SPECIFIED SECURITIES" has the meaning given to it in Section 2.1(a) of this Agreement. "SUBJECT SECURITIES" means shares of Common Stock or other debt or equity securities of the Company convertible into or exchangeable for shares of Common Stock. "VOTING AGREEMENT" has the meaning given to it in the recitals of this Agreement. ARTICLE II REGISTRATION RIGHTS 2.1. INCIDENTAL RIGHTS. (a) If at any time or from time to time the Company proposes to file with the SEC a registration statement (whether on Form S-1, S-2, or S-3, or any equivalent form then in effect) for the registration under the Securities Act of any Subject -2- Securities for sale, for cash consideration, to the public by the Company or on behalf of one or more securityholders of the Company (excluding any sale of securities upon conversion into or exchange or exercise for shares of Common Stock, and any shares of Common Stock issuable by the Company upon the exercise of employee stock options, or to any employee stock ownership plan, or in connection with any acquisition made by the Company, any securities exchange offer, any registration of securities originally placed pursuant to Rule 144A under the Securities Act, dividend reinvestment plan, employee benefit plan, corporate reorganization, or in connection with any amalgamation, merger or consolidation of the Company or any direct or indirect subsidiary of the Company with one or more other corporations if the Company is the surviving corporation), the Company shall give Shareholder at least 20 days' prior written notice of the proposed filing (or if 20 days' notice is not practicable, a reasonable shorter period to be not less than 7 days), which notice shall outline the nature of the proposed distribution and the jurisdictions in the United States in which the Company proposes to qualify and offer such securities (the "ELECTED JURISDICTIONS"). On the written request of Shareholder received by the Company within 15 days after the date of the Company's delivery to Shareholder of the notice of intended registration (which request shall specify the Registrable Securities sought to be disposed by Shareholder and the intended method or methods by which dispositions are intended to be made), the Company shall, under the terms and subject to the conditions of this ARTICLE II, at its own expense as provided in SECTION 4.1, include in the ----------- ------------ coverage of such registration statement (or in a separate registration statement concurrently filed) and qualify for sale under the blue sky or securities laws of the various states in the Elected Jurisdictions the number of Registrable Securities of the kind being registered (the "SPECIFIED SECURITIES") held by Shareholder or into which the Registrable Securities are convertible, as the case may be, and which Shareholder has so requested to be registered or qualified for distribution, to the extent required to permit the distribution (in accordance with the intended method or methods thereof as aforesaid) in the Elected Jurisdictions requested by Shareholder of such Registrable Securities. (b) If the distribution proposed to be effected by the Company involves an underwritten offering of the securities being so distributed by or through one or more underwriters, and if the managing underwriter of such underwritten offering indicates in writing its opinion that including all or part of the Specified Securities in the coverage of such registration statement or in the distribution to be effected by such prospectus will materially and adversely affect the sale of securities proposed to be sold (which opinion of the managing underwriter shall also state the maximum number of shares, if any, which can be sold by Shareholder requesting registration under this SECTION 2.1 without materially adversely affecting the sale of the securities proposed to be sold), then the number of Specified Securities which Shareholder shall have the right to include in such registration statement shall be reduced to the maximum number of shares or principal amount, in the case of debt, specified by the managing underwriter. First priority, after the absolute priority afforded to the Company, shall be afforded to the Specified Securities held by Shareholder and no securities proposed to be sold by Shareholder shall -3- be so reduced until all securities proposed to be sold by all other parties (other than the Company) have been entirely eliminated. (c) The Company shall have the sole right to select any underwriters, including the managing underwriter, of any public offering of securities made other than as a result of the rights granted in SECTION 2.2. Nothing in this SECTION 2.1 shall create any liability on the part of the Company to Shareholder if the Company for any reason decides not to file or to delay or withdraw a registration statement (which the Company may do in its sole discretion). (d) Shareholder shall have the right to withdraw its request for inclusion of its Specified Securities in any registration statement pursuant to this SECTION 2.1 by giving written notice to the Company of its request to withdraw; PROVIDED, HOWEVER, that (i) such request must be made in writing prior to the execution of the underwriting agreement (or such other similar agreement) with respect to such registration and (ii) such withdrawal shall be irrevocable and, after making such withdrawal, Shareholder shall no longer have any right to include Registrable Securities in the registration as to which such withdrawal was made. (e) Shareholder may request to have Registrable Securities included in an unlimited number of registrations under this SECTION 2.1. 2.2. DEMAND RIGHTS. (a) Upon written request of Shareholder made at any time, the Company shall, under the terms and subject to the conditions set forth in this SECTION 2.2, and SECTIONS 2.3 and 2.4, file (and use its reasonable efforts to cause to become effective) a registration statement covering, and use its reasonable efforts to qualify for sale under the blue sky or securities laws of the various states of the United States as may be requested by Shareholder (except any such state in which, in the opinion of the managing underwriter of the offering, the failure to so qualify would not materially and adversely affect the proposed offering or in which the Company would be required to submit to general jurisdiction to effect such registration), in accordance with the intended method or methods of disposition set forth in that notice, of such number of Registrable Securities, as may be designated by Shareholder in its request, or that portion thereof designated in said request for registration in each of the Designated Jurisdictions (as defined below). A request for registration under this SECTION 2.2 shall specify the number of Registrable Securities to be registered, the jurisdictions in the United States in which such registration is to be effected (the "DESIGNATED JURISDICTIONS") and the proposed manner of sale, including the name and address of any proposed underwriter. The principal underwriter or underwriters for any such offering shall be selected by Shareholder, subject to the Company's approval, which may not be unreasonably withheld or delayed. Notwithstanding any other provision in this Section, Shareholder shall not be permitted to make a demand for registration pursuant to this Section unless the number of Registrable Securities covered by such demand is at least 2,500,000 shares of Common Stock (or securities convertible into such number of shares of Common Stock) (as such number -4- may be appropriately adjusted to reflect stock splits, reverse stock splits, dividends and any other recapitalization or reorganization of the Company including, without limitation, an adjustment to take account of the five-for-one reverse stock split proposed for approval at the Company's 2002 annual meeting of stockholders) or such lesser number of shares as would yield gross proceeds of not less than $2 million based on the average closing price of the Common Stock over the ten trading day period immediately preceding the date of the written request hereunder. (b) If the distribution proposed to be effected pursuant to this SECTION 2.2 involves an underwritten offering of Registrable Securities and securities of the Company other than Registrable Securities ("OTHER SECURITIES"), and if the managing underwriter of such underwritten offering indicates in writing its opinion that including all or part of such securities in the coverage of such registration statement will materially and adversely affect the sale of the securities proposed to be sold, then the number of securities proposed to be sold shall be reduced to the maximum number of securities (or principal amount) specified by the managing underwriter. In such a case, first priority shall be afforded to Registrable Securities in accordance with SECTION 2.1(B) AND (C). (c) The Company may delay the filing of any registration statement requested under this SECTION 2.2, or delay its effectiveness, for a reasonable period (but not longer than 90 days) if, in the sole judgment of the Company's Board of Directors, (i) a delay is necessary in light of pending financing transactions, corporate reorganizations or other major events involving the Company, or (ii) filing at the time requested would materially and adversely affect the business or prospects of the Company in view of disclosures that may be thereby required. Once the cause of the delay is eliminated, the Company shall promptly notify Shareholder and, promptly after Shareholder notifies the Company to proceed, the Company shall file a registration statement and begin performance of its remaining obligations under this SECTION 2.2. (d) The Shareholder shall be entitled to request not more than seven registrations under this SECTION 2.2 (PROVIDED that the filing of a registration statement in more than one Designated Jurisdiction in connection with a concurrent or substantially concurrent distribution shall be deemed for the purposes of this Agreement to be a single registration). However, if Shareholder requests a registration under this SECTION 2.2, but no registration statement becomes effective with respect to the Registrable Securities covered by such request, or any registration statement is withdrawn or prematurely terminated (whether pursuant to this SECTION 2.2 or as a result of any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court), then such request shall not count as a request for purposes of determining the number of requests for registration Shareholder may make under this SECTION 2.2. (e) If there is an effective registration statement requested by Shareholder pursuant to this SECTION 2.2, Shareholder may require the Company to delay the filing of any registration statement relating to convertible securities or shares of Common Stock or delay its effectiveness, for a reasonable period (but not longer than 90 days) if, in the sole judgment of Shareholder, a delay is necessary in order to avoid -5- materially and adversely affecting the disposition of Registrable Securities pursuant to the offering by Shareholder; PROVIDED that the foregoing shall not limit the Company's right to file and have declared effective registration statements for any other offering. 2.3. REGISTRATION CONDITIONS. Notwithstanding any other provision of this Agreement, the Company shall not be required to effect a registration of any securities under this ARTICLE II, or file any post-effective amendment to such a registration statement relating to such a qualification: (a) unless Shareholder agrees to (x) sell and distribute a portion or all of their Registrable Securities in accordance with the plan or plans of distribution adopted by and through underwriters, if any, acting for the Company or any such other sellers of Common Stock and (y) bear a pro rata share of underwriter's discounts and commissions; (b) if, in the case of a request for registration under SECTION 2.2, the Company has given notice under SECTION 2.1 of its intention to file a registration statement under the Securities Act and has not completed or abandoned the proposed offering (for so long as the Company continues in good faith to pursue the proposed offering); and (c) unless the Company has received from Shareholder all information the Company has reasonably requested concerning Shareholder and its method of distribution of Registrable Securities, so as to enable the Company to include in the registration statement all facts required to be disclosed in it. 2.4. COVENANTS AND PROCEDURES. If the Company becomes obligated under this ARTICLE II to effect a registration of Registrable Securities on behalf of Shareholder, then (as applicable to the jurisdictions for which such registration is to be made): (a) The Company, at its expense as provided in SECTION 4.2, shall prepare and file with the SEC a registration statement covering such securities and such other related documents as may be necessary or appropriate relating to the proposed distribution, and shall use reasonable efforts to cause the registration statement to become effective. The Company will also, with respect to any registration statement, file such post-effective amendments to the registration statement (and use reasonable efforts to cause them to become effective) and such supplements as are necessary so that current prospectuses are at all times available for a period of at least 180 days after the effective date of the registration statement or for such longer period, not to exceed 360 days, as may be required under the plan or plans of distribution set forth in the registration statement. Shareholder shall promptly provide the Company with such information with respect to Shareholder' Registrable Securities to be so registered and, if applicable, the proposed terms of their offering, as is required for the registration. If the Registrable Securities to be covered by the registration statement are not to be sold to or through underwriters acting for the Company, the Company shall: -6- (i) deliver to Shareholder, as promptly as practicable, as many copies of preliminary prospectuses as Shareholder may reasonably request (in which case Shareholder shall keep a written record of the distribution of the preliminary prospectuses and shall refrain from delivery of the preliminary prospectuses in any manner or under any circumstances which would violate the Securities Act or the securities laws of any other jurisdiction, including the various states of the United States); (ii) deliver to Shareholder, as soon as practicable after the effective date of the registration statement, and from time to time thereafter during the applicable period described in SECTION 2.4, as many copies of the relevant prospectus as Shareholder may reasonably request; and (iii) in case of the happening, after the effective date of the registration statement and during the applicable 180 or 360-day period described in the second sentence of SECTION 2.4(A), of any event or occurrence as a result of which the prospectus, as then in effect, would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make any statement therein not misleading in the light of the circumstances in which it was made, give Shareholder written notice of the event or occurrence and prepare and furnish to Shareholder, in such quantities as it may reasonably request, copies of an amendment of or a supplement to such prospectus as may be necessary so that the prospectus, as so amended or supplemented and thereafter delivered to purchasers of the Registrable Securities covered by such prospectus, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which it was made, not misleading. (b) The Company will notify Shareholder of any action by the SEC or any Commission to suspend the effectiveness of any registration statement filed pursuant hereto or the initiation or threatened initiation of any proceeding for such purpose or the receipt by the Company of any notification with respect to the suspension of the qualification of the securities for sale in any jurisdiction. Immediately upon receipt of any such notice, Shareholder shall cease to offer or sell any Registrable Securities pursuant to the registration statement or prospectus in the jurisdiction to which such order or suspension relates. The Company will also notify Shareholder promptly of the occurrence of any event or the existence of any state of facts that, in the judgment of the Company, should be set forth in such registration statement or prospectus. Immediately upon receipt of such notice, Shareholder shall cease to offer or sell any Registrable Securities pursuant to such registration statement or prospectus, cease to deliver or use such registration statement or prospectus and, if so requested by the Company, return to the Company at the Company's expense all copies of such registration statement or prospectus. The Company will as promptly as practicable take such action as may be necessary to amend or supplement such registration statement or prospectus in order to set forth or reflect such event or state of facts and provide copies of such proposed amendment or supplement to Shareholder. -7- (c) On or before the date on which the registration statement is declared effective, the Company shall use its reasonable efforts to: (i) register or qualify (and cooperate with Shareholder, the underwriter or underwriters, if any, and their counsel, in connection with the registration or qualification of) the securities covered by the registration statement for offer and sale under the securities or blue sky laws of each state and other jurisdiction as Shareholder or any underwriter reasonably requests; (ii) keep each such registration or qualification effective, including through new filings, or amendments or renewals, during the period the registration statement or prospectus is required to be kept effective; and (iii) do any and all other acts or things necessary or advisable to enable the disposition in all such jurisdictions of the Registrable Securities covered by the applicable registration statement, provided that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified. (d) The Company shall use its reasonable efforts to cause all Registrable Securities of Shareholder included in the registration statement to be listed, by the date of the first sale of such shares pursuant to such registration statement, on the New York Stock Exchange or such other securities exchange or exchanges on which the Common Stock is then listed or proposed to be listed, if any, as directed by Shareholder (subject to the Company's consent, which consent shall not be unreasonably withheld or delayed). (e) The Company shall make available to Shareholder and any underwriter participating in the offering conducted pursuant to the registration statement an earnings statement satisfying Section 11(a) of the Securities Act no later than 45 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of the registration statement. The earnings statement shall cover such 12-month period. This requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K, and 8-K under the Exchange Act, and otherwise complies with Rule 158 under the Securities Act as soon as feasible. (f) The Company shall cooperate with Shareholder and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be sold under the registration statement, and to enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Shareholder, may request, subject to the underwriters' obligation to return any certificates representing unsold securities. -8- (g) The Company shall use its reasonable efforts to cause Registrable Securities covered by the registration statement to be registered with or approved by such other governmental agencies or authorities in the United States (including the registration of Registrable Securities under the Exchange Act) as may be necessary to enable Shareholder or the underwriter or underwriters, if any, to consummate the disposition of such securities. (h) The Company shall, during normal business hours and upon reasonable notice, make available for inspection by Shareholder, any underwriter participating in any offering pursuant to the registration statement, and any attorney, accountant or other agent retained by Shareholder or any such underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents, and properties of the Company (including non-public information), as shall be reasonably necessary to enable the Inspectors to exercise their due diligence responsibilities; PROVIDED that any Inspector receiving non-public information shall have previously entered into an appropriate confidentiality agreement in mutually satisfactory form and substance. The Company shall also cause its officers, directors, and employees to supply all information reasonably requested by any Inspector in connection with the registration statement. (i) The Company shall use its reasonable efforts to obtain a "cold comfort" letter and, as applicable, a "long-form comfort letter" from the Company's independent public accountants, and an opinion of counsel for the Company, each in customary form and covering such matters of the type customarily covered by cold comfort letters and long form comfort letters and legal opinions in connection with public offerings of securities, as Shareholder reasonably request. (j) The Company shall enter into such customary agreements (including an underwriting agreement containing such representations and warranties by the Company and such other terms and provisions, as are customarily contained in underwriting agreements for comparable offerings and are reasonably satisfactory to the Company) and take all such other actions as Shareholder or the underwriters participating in such offering and sale may reasonably request in order to expedite or facilitate such offering and sale (other than such actions which are disruptive to the Company or require significant management availability), including providing reasonable availability of appropriate members of senior management of the Company to provide customary due diligence assistance in connection with any offering and to participate in customary "road show" presentations in connection with any underwritten offerings in substantially the same manner as they would in an underwritten primary registered public offering by the Company of its Common Stock, after taking into account the reasonable business requirements of the Company in determining the scheduling and duration of any road show. -9- ARTICLE III INDEMNIFICATION 3.1. INDEMNIFICATION BY THE COMPANY. In the event of any registration under the Securities Act by any registration statement pursuant to rights granted in this Agreement of Registrable Securities held by Shareholder, the Company will hold harmless Shareholder and each underwriter of such securities and each other person, if any, who controls any Shareholder or such underwriter within the meaning of the Securities Act, against any losses, claims, damages, or liabilities (including legal fees and costs of court), joint or several, to which Shareholder or such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, or liabilities (or any actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact (i) contained, on its effective date, in any registration statement under which such securities were registered under the Securities Act or any amendment or supplement to any of the foregoing, or which arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) contained in any preliminary prospectus, if used prior to the effective date of such registration statement, or in the final prospectus (as amended or supplemented if the Company shall have filed with the SEC any amendment or supplement to the final prospectus) if used within the period which the Company is required to keep the registration to which such registration statement or prospectus relates current under SECTION 2.4, or which arise out of or are based upon the omission or alleged omission (if so used) to state a material fact required to be stated in such prospectus or necessary to make the statements in such prospectus not misleading; and will reimburse Shareholder and each such underwriter and each such controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, or liability; PROVIDED, HOWEVER, that the Company shall not be liable to any Shareholder or its underwriters or controlling persons in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or such amendment or supplement, in reliance upon and in conformity with information furnished to the Company through a written instrument duly executed by Shareholder or such underwriter specifically for use in the preparation thereof; PROVIDED FURTHER that the Company shall not be liable to any Shareholder or its underwriters or controlling persons in any such case with respect to losses, claims, damages or liabilities (including legal fees and costs of court) that arise out of or are based on an untrue statement or alleged untrue statement or omission or alleged omission made in any prospectus used in connection with any request for registration under Section 2.2, to the extent that such untrue statement or alleged untrue statement or omission or alleged omission is corrected in any amendment or supplement to such prospectus if both (y) the person asserting such loss, claim, damage or liability purchased securities in reliance on such prospectus but was not given such amendment or supplement thereto on or prior to the confirmation of the sale of such securities and such amendment or supplement was required by law to be delivered on or prior to the confirmation of such sale and (z) the Company had delivered to such Shareholder or its underwriters such amendment or supplement thereto pursuant to Section 2.4(a)(iii) in the requisite quantity and on a timely basis -10- to permit proper delivery to such person on or prior to the date of confirmation of the sale of such securities. 3.2. INDEMNIFICATION BY SHAREHOLDER. It shall be a condition precedent to the obligation of the Company to include in any registration statement any Registrable Securities of Shareholder that the Company shall have received from Shareholder an undertaking, reasonably satisfactory to the Company and its counsel, to indemnify and hold harmless (in the same manner and to the same extent as set forth in SECTION 3.1) the Company, each director of the Company, each officer of the Company who shall sign the registration statement, and any person who controls the Company within the meaning of the Securities Act, (i) with respect to any statement or omission from such registration statement, or any amendment or supplement to it, if such statement or omission was made in reliance upon and in conformity with information furnished to the Company through a written instrument duly executed by Shareholder specifically for use in the preparation of such registration statement or amendment or supplement, and (ii) with respect to compliance by Shareholder with applicable laws in effecting the sale or other disposition of the securities covered by such registration statement. 3.3 INDEMNIFICATION PROCEDURES. Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding Sections of this ARTICLE III, the indemnified party will, if a resulting claim is to be made or may be made against an indemnifying party, give written notice to the indemnifying party of the commencement of the action. If any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense of the action with counsel reasonably satisfactory to the indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume defense of the action, the indemnifying party will not be liable to such indemnified party for any legal or other expenses incurred by the latter in connection with the action's defense. An indemnified party shall have the right to employ separate counsel in any action or proceeding and participate in the defense thereof, but the fees and expenses of such counsel shall be at such indemnified party's expense unless (a) the employment of such counsel has been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party has not assumed the defense and employed counsel reasonably satisfactory to the indemnified party within 30 days after notice of any such action or proceeding, or (iii) the named parties to any such action or proceeding (including any impleaded parties) include the indemnified party and the indemnifying party and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to the indemnified party that are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action or proceeding on behalf of the indemnified party), it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to all local counsel which is necessary, in the good faith opinion of both counsel for the indemnifying party and counsel for the indemnified party in order to adequately represent the indemnified parties) for the indemnified party and that all such fees and expenses shall be reimbursed as they are incurred upon written request and presentation of invoices. Whether or not a defense is assumed by the indemnifying party, the indemnifying party will not -11- be subject to any liability for any settlement made without its consent. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term the giving by the claimant or plaintiff, to the indemnified party, of a release from all liability in respect of such claim or litigation. 3.4. CONTRIBUTION. If the indemnification required by this ARTICLE III from the indemnifying party is unavailable to or insufficient to hold harmless an indemnified party in respect of any indemnifiable losses, claims, damages, liabilities, or expenses, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities, or expenses in such proportion as is appropriate to reflect (i) the relative benefit of the indemnifying and indemnified parties and (ii) if the allocation in clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect the relative benefit referred to in clause (i) and also the relative fault of the indemnified and indemnifying parties, in connection with the actions which resulted in such losses, claims, damages, liabilities, or expenses, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact, has been made by, or relates to information supplied by, such indemnifying party or parties, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damage, liabilities, and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The Company and Shareholder agree that it would not be just and equitable if contribution pursuant to this SECTION 3.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the prior provisions of this SECTION 3.4. Notwithstanding the provisions of this SECTION 3.4, no indemnifying party shall be required to contribute any amount in excess of the amount by which the total price at which the securities were offered to the public by the indemnifying party exceeds the amount of any damages which the indemnifying party has otherwise been required to pay by reason of an untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such a fraudulent misrepresentation. ARTICLE IV OTHER AGREEMENTS 4.1. OTHER REGISTRATION RIGHTS. The Company agrees that it will not grant to any party registration rights which would allow such party to limit Shareholder' priority for the sale or distribution of Registrable Securities upon the exercise of a demand registration right pursuant to SECTION 2.2 or incidental registration rights pursuant to Section 2.1. 4.2. EXPENSES. All expenses incurred by the Company in connection with any registration statement covering Registrable Securities offered by Shareholder, including, without -12- limitation, all registration and filing fees (including all expenses incident to filing with the New York Stock Exchange), printing expenses, reasonable fees and disbursements of counsel (except for the fees and disbursements of counsel for Shareholder) and of the independent certified public accountants, underwriter's reasonable legal, accounting and out-of-pocket expenses, and the expense of qualifying such securities under state blue sky laws, shall be borne by the Company, including such expenses of any registration delayed by the Company under the fourth paragraph of SECTION 2.2; PROVIDED, HOWEVER, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to SECTION 2.2 if the registration request is subsequently withdrawn at the request of Shareholder (in which case Shareholder shall bear such expenses, each such Shareholder to bear its pro rata share of the expense based on the number of Registrable Securities such Shareholder intended to include in such registration compared to the total number of Registrable Securities all of such Shareholder intended to include in such registration), unless Shareholder agrees to forfeit its right to one demand registration under SECTION 2.2; PROVIDED FURTHER, however, that if at the time of such withdrawal, Shareholder have learned of a material adverse change in the condition, business, or prospects of the Company from that known at the time of its request, then Shareholder shall not be required to pay any of such expenses and shall retain their rights pursuant to SECTION 2.2. The Company's obligations under this SECTION 4.2 shall apply to each registration under the Securities Act or state blue sky legislation pursuant to SECTION 2.2. However, all underwriter's discounts and commissions covering Registrable Securities offered by Shareholder shall be borne by Shareholder. 4.3. DISPOSITIONS DURING REGISTRATION. Each Shareholder agrees that, without the consent of the managing underwriter(s) in an underwritten offering in respect of Common Stock or other Subject Securities, it will not effect any sale or distribution of Common Stock or other Subject Securities (other than Registrable Securities included in such offering), during the ten (10) day period prior to, and during the ninety (90) day period beginning on, the effective date of the registration statement filed by the Company in respect of such underwritten offering, or any shorter period as may apply to the Company and its affiliates. 4.4. TRANSFER OF RIGHTS. All rights of Shareholder under this Agreement shall be transferable by Shareholder to any party who acquires Registrable Securities from Shareholder and who executes an instrument in form and substance satisfactory to the Company in which it agrees to be bound by the terms of this Agreement as if an original signatory hereto, in which case such transferee shall thereafter be a "Shareholder" for all purposes of this Agreement. In the case of any assignment, the party or parties who have the rights and benefits of Shareholder under this Agreement shall become parties to and be subject to this Agreement, and shall not, as a group, have the right to request any greater number of registrations than Shareholder would have had if no assignment had occurred. Upon any transfer of the registration rights or benefits of this Agreement, Shareholder shall give the Company written notice prior to or promptly following such transfer stating the name and address of the transferee and identifying the securities with respect to which such rights are being assigned. Such notice shall include or be accompanied by a written undertaking by the transferee to comply with the obligations imposed hereunder. Unless otherwise agreed by Shareholder and the parties to whom registration rights have been transferred, in the event any registration rights are transferred in accordance with the terms of this Agreement, any actions required to be taken by Shareholder will be taken with the -13- approval of the holders of such registration rights who hold a majority of the Registrable Securities, whose actions shall bind all such holders of such registration rights. 4.5. BEST REGISTRATION RIGHTS. If the Company grants to any Person with respect to any security issued by the Company or any of its Affiliates registration rights (other than as to the number of demand registrations) that provide for terms that are in any manner more favorable to the holder of such registration rights than the terms granted to Shareholder (or if the Company amends or waives any provision of any agreement providing registration rights of others or takes any other action whatsoever to provide for terms that are more favorable to other holders than the terms provided to Shareholder other than the number of demand registrations or the minimum amount of shares required to exercise demand registration rights), then this Agreement shall immediately be deemed amended to provide Shareholder with any (or all) of such more favorable terms as Shareholder shall elect to include herein. The Company shall promptly give notice to Shareholder of the granting of any such registration rights to another Person. ARTICLE V MISCELLANEOUS 5.1. NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, fax or air courier guaranteeing delivery: (a) If to the Company, to: MeriStar Hotels & Resorts, Inc. 1010 Wisconsin Avenue Suite 500 Washington, D.C. 20007 Attention: Christopher L. Bennett, Esq. Telecopy: (207) 295-1026 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attention: Richard S. Borisoff, Esq. Facsimile: (212) 757-3990 or to such other person or address as the Company shall furnish to Shareholder in writing; -14- (b) If to Shareholder, to: CGLH Partners I LP and CGLH Partners II LP c/o Lehman Brothers Holdings Inc. 399 Park Avenue, 8th Floor New York, NY 10022 Attention: Joseph Flannery Fax: (646) 758-1938 with a copy to: Continental Gencom Holdings c/o Mr. K. Alibhai and Mr. S. Weiser 3250 Mary Street Suite 500 Miami, Florida 33133 Facsimile: (305) 445-4255 with a copy to: Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. 150 West Flagler Street Suite 2200 Miami, Florida 33130 Attn: Richard E. Schatz, Esq. Fax: (305) 789-3395 with a copy to: Fried, Frank, Harris, Shriver & Jacobson 1 New York Plaza New York, New York 10004 Attn: Jonathan Mechanic, Esq. Fax: (212) 859-8582 or to such other person or address as Shareholder shall furnish to the Company in writing. All such notices, requests, demands and other communications shall be deemed to have been duly given: at the time of delivery by hand, if personally delivered; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed domestically in the United States (and seven (7) Business Days if mailed internationally); when answered back, if telexed; when receipt acknowledged, if telecopied; and on the Business Day for which delivery is guaranteed, if timely delivered to an air courier guaranteeing such delivery. 5.2. SECTION HEADINGS. The article and section headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. -15- References in this Agreement to a designated "Article" or "Section" refer to an Article or Section of this Agreement unless otherwise specifically indicated. 5.3. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with and governed by the law of New York, without regard to its conflict of laws principles that would indicate the applicability of the laws of any other jurisdiction. 5.4. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Any legal action or proceeding with respect to this Agreement or any matters arising out of or in connection with this Agreement (other than the Investor Agreement, which shall be governed solely by the analogous provisions thereof), and any action for enforcement of any judgment in respect thereof shall be brought exclusively in the state or federal courts located in the State of New York, and, by execution and delivery of this Agreement, the Company and Shareholder each irrevocably consent to service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, or by recognized international express carrier or delivery service, to the Company or Shareholder at their respective addresses referred to in this Agreement. The Company and Shareholder each hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the courts referred to above and each hereby further irrevocably waives and agrees, to the extent permitted by applicable law, not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing in this Agreement shall affect the right of any party hereto to serve process in any other manner permitted by law. 5.5. AMENDMENTS. This Agreement may be amended only by an instrument in writing executed by all of its parties. 5.6. ENTIRE AGREEMENT. This Agreement, and the Voting Agreement constitute the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and thereby. This Agreement may be amended only by a written instrument duly executed by the parties or their respective successors or assigns; PROVIDED, HOWEVER, that any amendment or waiver by the Company shall be made only with the prior approval of a majority of the entire Board of Directors of the Company. 5.7. SEVERABILITY. The invalidity or unenforceability of any specific provision of this Agreement shall not invalidate or render unenforceable any of its other provisions. Any provision of this Agreement held invalid or unenforceable shall be deemed reformed, if practicable, to the extent necessary to render it valid and enforceable and to the extent permitted by law and consistent with the intent of the parties to this Agreement. 5.8. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument. -16- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MERISTAR HOTELS & RESORTS INC. By: /s/ Christopher L. Bennett ------------------------------ Name: Christopher L. Bennett Title: Senior Vice President & General Counsel CGLH PARTNERS I LP By: MK/CG-GP LLC General Partner By: CG Interstate Associates, LLC a Managing Member By: Continental Gencom Holdings, LLC its Sole Member By: /s/ Karim Alibhai ------------------------------ Name: Karim Alibhai Title: Member By: /s/ Sherwood M. Weiser ------------------------------ Name: Sherwood M. Weiser Title: Member By: KFP Interstate, LLC, a Managing Member By: KFP Holdings, Ltd., its Sole Member By: Grosvenor, L.C., its General Partner By: /s/ Jaffer Khimji ------------------------------ Name: Jaffer Khimji Title: Authorized Signatory By: LB INTERSTATE GP LLC General Partner By: PAMI LLC its Sole Member By: /s/ Joseph J. Flannery ------------------------------ Name: Joseph J. Flannery Title: Authorized Signatory CGLH PARTNERS II LP By: MK/CG-GP LLC General Partner By: CG Interstate Associates, LLC a Managing Member By: Continental Gencom Holdings, LLC its Sole Member By: /s/ Karim Alibhai ------------------------------ Name: Karim Alibhai Title: Member By: /s/ Sherwood M. Weiser ------------------------------ Name: Sherwood M. Weiser Title: Member By: KFP Interstate, LLC, a Managing Member By: KFP Holdings, Ltd., its Sole Member By: Grosvenor, L.C., its General Partner By: /s/ Jaffer Khimji ------------------------------ Name: Jaffer Khimji Title: Authorized Signatory By: LB INTERSTATE GP LLC General Partner By: PAMI LLC its Sole Member By: /s/ Joseph J. Flannery ------------------------------ Name: Joseph J. Flannery Title: Authorized Signatory EX-10 5 ex10-2form8k80202.txt EXHIBIT 10.2 EXHIBIT 10.2 ------------ SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement"), dated as of July 30, 2002, made and entered into by and between Interstate Hotels Corporation, a Maryland corporation (the "Company") and THOMAS F. HEWITT (the "Executive"), hereby amends and restates the employment agreement between the Company and the Executive, dated as of February 12, 2002 (the "Old Agreement"), effective as of the date hereof (the "Effective Date"). RECITALS WHEREAS, the Company and the Executive entered into that certain Employment Agreement, dated as of August 31, 2000 and effective as of October 20, 2000 (the "Closing Date"), which was the closing date of the transactions (the "Transactions") contemplated by the Securities Purchase Agreement by and among the Company, CGLH Partners I LP, a Delaware limited partnership ("CGLH I") and CGLH Partners II LP, a Delaware limited Partnership, ("CGLH II") dated as of August 31, 2001 (the "Purchase Agreement"), and thereafter amended and restated such agreement in its entirety pursuant to the Old Agreement; WHEREAS, the Executive is currently serving as the Chairman and Chief Executive Officer of the Company pursuant to the Old Agreement; and WHEREAS, the Company has entered into an Agreement and Plan of Merger with MeriStar Hotels & Resorts, Inc., a Delaware Corporation ("MeriStar"), dated as of May 1, 2002 and amended on June 3, 2002 (as amended, the "Merger Agreement") whereby, following the receipt of the requisite approvals of the MeriStar stockholders and the Company's stockholders and the satisfaction or waiver of the conditions set forth in the Merger Agreement, the Company will be merged with and into MeriStar (the "Merger"). In connection with the Merger, the Company and the Executive, with the consent of MeriStar, wish to amend and restate the Old Agreement as provided herein. 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 5(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 and material wrongful damage to property of the Company or any Subsidiary; (iii) intentional and material Unauthorized Disclosure, Use or Solicitation; or (iv) intentional and material 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 judgement 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 7(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, 2 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) "GOOD REASON" means that Executive has complied with the "Good Reason Process" (hereinafter defined) following the occurrence of any of the following events: (i) a substantial diminution or other substantive adverse change, not consented to by Executive in advance and in writing, in the nature or scope of Executive's responsibilities, authorities, powers, functions, duties or reporting relationship as in effect on the Effective Date and taking into account the occurrence of the Transactions; (ii) except in connection with a termination of Executive's employment, any removal, during the Term of Employment, of Executive from or, any failure by management to nominate, or, if nominated, any failure by the Board to re-elect, Executive to any of the positions indicated in Section 4 as in effect on the Closing Date; (iii) a reduction in Executive's Base Pay or Minimum Bonus; (iv) a breach by the Company of any of its other material obligations under this Agreement and the failure of the Company to cure such breach within 30 days after written notice thereof by Executive; (v) the involuntary relocation of the Company's offices at which Executive is principally employed or the involuntary relocation of the offices of Executive's primary workgroup to a location more than 30 miles from such offices, or the requirement by the Company for Executive to be based anywhere other than the Company's offices at such location on an extended basis, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations; or (vi) the Company chooses not to extend the Term of Employment under Section 2. "Good Reason Process" shall mean that (A) the Executive reasonably determines in good faith that a "Good Reason" event has occurred; (B) Executive notifies the Company in writing of the occurrence of the Good Reason event; and (C) the Company does not cure Executive's objections within a reasonable time not to exceed 60 days. (h) "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. (i) "TERM OF EMPLOYMENT" means the period specified in Section 2. (j) "UNAUTHORIZED DISCLOSURE, USE OR SOLICITATION" means any violation or breach by the Executive of any provision of Section 9. 2. TERM OF EMPLOYMENT. The Company hereby employs the Executive and the Executive hereby accepts such employment pursuant to the terms and conditions contained herein, effective as of the Effective Date and ending at the close of business on the fourth anniversary of the Effective Date. On the second anniversary of the Effective Date and every even-numbered anniversary date thereafter, the Term of Employment will automatically be extended for an additional two years unless either party gives written notice to the other, not less than 90 calendar days prior to the second anniversary or even-numbered anniversary thereafter, that it or he does not want the Term of Employment so to extend. 3 3. WAIVER OF RIGHTS. As of the Effective Date, the Old Agreement shall be deemed of no further force or effect and superceded in its entirety by this Agreement. In consideration for the compensation, benefits and other terms provided by this Agreement, the Executive expressly waives any rights to payments and benefits to which he may have been entitled pursuant the terms of the Old Agreement, including, without limitation, stock options to purchase shares of Company Common Stock (as hereinafter defined), cash severance payments, continuation of Employee Benefits, forgiveness of outstanding loan balances and/or accelerated vesting of outstanding options and restricted stock of the Company 4. DUTIES AND RESPONSIBILITIES. During the Term of Employment, the Executive shall serve as the Chairman of the Board and Chief Executive Officer of the Company, reporting to the Board, shall have supervision and control over and responsibility for the day-to-day business and affairs of the Company, and shall have such other powers and duties as may from time to time be prescribed by the Board, provided that such duties are consistent with Executive's position or other positions that he may hold from time to time. Executive shall devote his full working time and efforts to the business and affairs of the Company. Notwithstanding the foregoing, (i) Executive may serve on other boards of directors or engage in religious, charitable or other community activities as long as such services and activities are disclosed to the Board and do not materially interfere with Executive's performance of his duties to the Company as provided in this Agreement; and (ii) Executive may perform services under the Consulting Agreement by and among Wyndham International, Inc., CSMC Management Services, Inc. and Executive dated June 30, 1999 (the "Consulting Agreement") so long as the provision of such services pursuant to the Consulting Agreement does not conflict with the interests of the Company (the determination of whether a conflict of interest exists in respect of the Executive's provision of services under the Consulting Agreement shall be determined by the Board in good faith. 5. COMPENSATION AND BENEFITS. (a) BASE PAY. During the Term of Employment, the Executive will receive Base Pay of not less than $400,000 per year; subject to review by the Board for increase (but not decrease) at the end of each fiscal year during the Term of Employment. Such Base Pay will be payable by the Company in accordance with its regular compensation practices and policies applicable to senior executives of the Company. (b) ANNUAL PERFORMANCE BONUS. For each fiscal year of the Company during the Term of Employment, the Executive will be eligible for an annual performance bonus that can vary from a minimum of 100% to a maximum of 200% of the Executive's Base Pay. The bonus will be subject to the rules issued each year by the Board. In no event shall the bonus (the "Minimum Bonus") for any fiscal year payable to the Executive be less than 100% of his Base Pay for such fiscal year; provided, however, that the Minimum Bonus shall be pro-rated for any partial year employment. (c) EMPLOYEE BENEFITS. During the Term of Employment, the Executive will be entitled to (i) participate in all employee benefit plans, programs, 4 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. Notwithstanding the foregoing, the health and dental plans offered to Executive pursuant to the preceding sentence shall be at least as generous as the health and dental plans made available to executives of CHC Holdings, Inc. at March 1,1999. Executive shall also be entitled to a car allowance of $750 per month, plus maintenance, insurance and gas. (d) EXPENSES. During the Term of Employment, the Executive will be entitled to reimbursement of all documented reasonable first class 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. In addition, the Company shall pay all expenses associated with membership in an executive eating club selected by Executive. (e) 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. (f) RESTRICTED STOCK. On or around June 18, 1999, the Executive received from the Company a grant of restricted Stock ("Restricted Stock Grant") in an amount equal to 3% of the outstanding shares of Common Stock of the Company. Any unvested portion of the Restricted Stock Grant shall fully vest on the Closing Date; provided, however, that the Company and the Executive may mutually agree to defer vesting until a specified date or dates after the Closing Date on a mutually agreeable schedule. Because the Executive filed an election pursuant to Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company provided Executive a personal recourse loan in an amount sufficient to enable Executive to satisfy his income and employment tax liabilities associated with the Restricted Stock Grant. Such loan is due on June 17, 2003 or 30 days after Executive's termination of employment, whichever is earlier, and will accrue interest at the applicable federal rate under Section 1274(d) of the Code, payable at the maturity date. (Such loan, together with accrued interest, shall hereinafter be referred to as the "Tax Loan"). If, on the earlier of June 17, 2003 or the date of the Executive's termination of employment for any reason other than Cause (the "Determination Date"), the Market Value of the Common Stock underlying the Restricted Stock Grant is less than $1.5 million, the Company shall forgive a portion of the Tax Loan determined by multiplying the outstanding amount of the Tax Loan by a fraction, 6 the numerator of which shall be the Market Value on the Determination Date and the denominator of which shall be $1.5 million. For purposes of this Section 5(f) only, the Market Value of the Common Stock will be determined using the average quoted closing price per share on a national securities exchange for the 20 business days ending on the Determination Date. (g) LOAN. The Company has provided to the Executive a loan of $400,000 which shall be due on June 18, 2005 or 30 days after Executive's termination of employment, whichever is earlier. The loan will accrue interest at the applicable federal rate under Section 1274(d) of the Code, payable at the maturity date. Upon termination of employment of the Executive for any reason other than the Merger or Cause, this $400,000 loan, plus accrued interest (the "Loan") shall be forgiven. Upon termination of employment of the Executive by reason of the Merger, the Loan shall be forgiven on June 30, 2005. (h) INTEREST IN COMPANY'S JOINT VENTURE. (i) As of the Closing Date, and subject to the terms and conditions of the "JV Agreement" (as defined below), the Executive was granted a 3.00% "Percentage Interest" (as defined in the JV Agreement) as a limited partner in CGLH-IHC Fund I, L.P. (the JV Interest") pursuant to, and subject to the terms and conditions of, the JV Agreement. Subject to Section 6 hereof, the Executive's JV Interest fully vested as of the Closing Date. For purposes of this Agreement the "JV Agreement" shall mean the Agreement of Limited Partnership of CGLH-IHC Fund I, L.P. by and between CGLH Partners III LP, a Delaware limited partnership, Interstate Investment Corporation, a Delaware corporation, CGLH Partners IV LP, a Delaware limited partnership, Interstate Property Partnership, L.P. a Delaware limited partnership, J. William Richardson, and the Executive, which is attached as Exhibit E to the Purchase Agreement, entered into at the Closing Date. (ii) To the extent that any additional joint venture funds or arrangements (similar to the joint venture established pursuant to the JV Agreement) are established or entered into by the Company and the other parties to the JV Agreement following the Closing Date and during the Term of Employment, the parties hereto agree to negotiate in good faith to determine whether the Executive will participate in such additional joint venture and the terms and conditions of any such participation. (i) PREFERRED STOCK. As of the Closing Date, and subject to the last sentence of this Section 5(i), the Company granted to the Executive 100,000 shares of Series B Preferred Stock of the Company (the "Series B Shares"). Subject to Section 6 hereof, the Series B Shares fully vested as of the Closing Date. The grant of Series B Shares pursuant to this Section 5(i) shall be subject to the stockholders agreement by and among the Executive, Kevin P. Kilkeary, J. William Richardson, CGLH I and CGLH II entered into on the date hereof which provides for certain rights and restrictions in connection with the Executive's ownership of the Series B Shares. 6 6. TERMINATION OF EMPLOYMENT. (a) TERMINATION UPON EXPIRATION OF THE TERM OF EMPLOYMENT. Subject to the provisions of Section 2 and this Section 6, the Executive's employment hereunder will be for the Term of Employment specified in Section 2. (b) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION WITHOUT GOOD REASON. Upon notice of the Board's determination of Cause, the Company may terminate the Executive's employment hereunder for Cause. Except as otherwise provided in this Section 6, if the Executive's employment is terminated during the Term of Employment by the Company for Cause, or by the Executive without Good Reason, the Executive will not be entitled to any compensation or benefits provided herein, and nothing herein will limit the Company's rights against the Executive or the rights and obligations of the parties under Sections 7 and 8. Notwithstanding the foregoing, in the case of a termination by the Executive during the Term of Employment without Good Reason, the Executive shall be entitled to receive his Minimum Bonus for the year of termination, pro-rated for partial year employment. Notwithstanding anything in this Agreement to the contrary, (i) if the Executive's employment is terminated hereunder prior to the first anniversary of the Closing Date, the Series B Shares and the JV Interest shall immediately be forfeited and the Executive shall have no further rights with respect to the forfeited Series B Shares or JV Interest as of such date of termination; (ii) if the Executive's employment is terminated hereunder on or after the first anniversary of the Closing Date, but prior to the second anniversary of the Closing Date, two-thirds (2/3) of each of the Series B Shares and the JV Interest shall immediately be forfeited as of such date of termination and the Executive shall have no further rights with respect to the forfeited Series B Shares or JV Interest; and (iii) if the Executive's employment is terminated on or after the second anniversary of the Closing Date, but prior to the third anniversary of the Closing Date, one-third (1/3) of each of the Series B Shares and the JV Interest shall immediately be forfeited as of such date of termination and the Executive shall have no further rights with respect to the forfeited Series B Shares or JV Interest. (c) TERMINATION FOR ANY REASON OTHER THAN THE MERGER, CAUSE, DISABILITY OR DEATH; AND VOLUNTARY TERMINATION FOR GOOD REASON. If the Executive's employment is terminated during the Term of Employment by the Company for any reason other than the Merger, Cause, Disability or death, or by the Executive for Good Reason: (i) The Executive will be entitled to receive his Minimum Bonus for the year of termination, pro-rated for partial year employment; and (ii) The Executive will be entitled to receive in a lump sum in cash the greater of (A) an amount equal to two times the sum of his Base Pay (at the rate in effect on the effective date of his termination of employment) and the average of each of the annual performance bonuses received by the Executive during the Term of this Agreement (but in no event less than the Minimum Bonus), and (B) his Base Pay (at the rate in effect on the effective date of his termination of employment) and the average of each of the annual performance 7 bonuses received by the Executive during the Term of this Agreement (but in no event less than the Minimum Bonus) for the remainder of the Term of Employment; and (iii) For 24 months following the effective date of the Executive's termination 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 (other than health and dental 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 6(c)(iii) 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, and (iv) The portion of each of the Series B Shares and/or the JV Interest held by the Executive, which are unvested or subject to restrictions as of the date of such termination of employment, shall vest and become immediately nonforfeitable and unrestricted as of such date of termination. (d) TERMINATION BY VIRTUE OF THE MERGER. In the event that the Merger is consummated, then as of the effective time of the Merger (the "Effective Time"): (i) The Executive's employment shall be terminated and his status as an officer shall cease; (ii) The Executive shall serve as a member of the Board pursuant to the Stockholder and Board Composition Agreement dated as of July 31, 2002; (iii) The Executive will be entitled to receive monthly payments from the Company in the amount of $75,000 (of which $7,500 per month shall be deemed consideration for the obligations set forth in Section 7), payable in cash within seven business days after the end of each such monthly period, during the period commencing at the Effective Time and ceasing at the end of the monthly period ending in January 2006 (the "Payment Period"), such payments to be reduced by applicable federal and state tax withholdings as determined by the Company; and 8 (iv) From the Effective Time through the Payment 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 ("Comparable Benefits"); except that the level of any such Employee Benefits to be provided to the Executive and such dependants may be reduced in the event of a corresponding reduction generally applicable to all senior executives. If and to the extent that any specific category of Comparable Benefit 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 upon submission of an expense report by Executive to the Company relating to an out-of-pocket expense incurred by Executive because the level of such Employee Benefits are lower than Comparable Benefits, the Company will reimburse Executive, his dependents and his beneficiaries in the amount set forth in the expense report; (v) The Company shall pay the Executive a monthly car allowance of $750 per month, plus maintenance, insurance and gas during the Payment Period; (vi) During the Payment Period, the Company shall pay all membership fees associated with membership in an executive eating club substantially comparable to those selected by Executive while employed by the Company; and (vii) The portion of the JV Interest held by the Executive, which is unvested or subject to restrictions as of the Effective Time, shall vest and become immediately nonforfeitable and unrestricted as of the Effective Time. (e) DEATH OR DISABILITY. If the Executive's employment is terminated prior to the Effective Date of the Merger 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 Minimum Bonus for the year of termination. pro-rated for partial year employment. 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 effective date of his termination of employment) and Minimum Bonus 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. The portion of each of the Series B Shares and the JV Interest held by the Executive which are unvested or subject to restrictions as of the date of such termination shall vest and become immediately nonforfeitable and unrestricted as of the date of such termination. 9 (f) EXCISE TAXES. (i) If Executive incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code") on "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code, the Company will pay to Executive an amount (the "Gross Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the excess parachute payment and any federal, state and local taxes (together with penalties and interest) and Excise Tax upon the payment provided for by this Section 6(f)(i), and any federal, state and local taxes (together with penalties and interest thereon) will be equal to the payments made to the Executive that constitute a parachute payment pursuant to Prop. Treas. Reg. Section 1.280G-1 (including any such payments made pursuant to this Section 6(f)(i)) minus the Gross Up Payment. (ii) For purposes of determining the amount of the Gross Up Payment, Executive will be deemed to pay federal income taxes at the highest marginal rate of federal taxation in the calendar year in which the Gross Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of Executive's residence on the date of Executive's termination, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. The determination of whether the Excise Tax is payable and the amount thereof will be determined by a firm of independent certified public accountants jointly selected by the Company and the Executive. (iii) The Company will pay the estimated amount of the Gross Up Payment to the Federal tax authorities as withholding taxes. The Executive and the Company agree to reasonably cooperate in the determination of the actual amount of the Gross Up Payment. Further, Executive and the Company agree to make such adjustments to the estimated amount of the Gross Up Payment as may be necessary to equal the actual amount of the Gross Up Payment, which in the case of Executive will refer to refunds of prior overpayments and in the case of the Company will refer to makeup of prior underpayments. (g) COMPENSATION AND BENEFITS ON TERMINATION. Except as otherwise provided in Section 6(b), (c), (d) or (e); (i) All compensation and benefits payable to the Executive pursuant to Section 5 (other than compensation and benefits previously earned and, if applicable, vested under the terms of this Agreement or any other applicable employee benefit plan, program, policy, arrangement or agreement) will terminate as of the termination of Executive's employment; (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, vested under the terms of this Agreement or any other applicable employee benefit plan, program, policy, arrangement or agreement) payable after the end of the Term of Employment Date and for 10 damages arising in connection with his termination of employment pursuant to this Agreement; and (iii) The portion of the JV Interest held by the Executive on the date of such termination which is unvested or subject to restrictions as of such date, shall vest and become nonforfeitable and unrestricted as of such termination. (h) 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 of Executive's Employment. 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. (i) PURCHASE OF SERIES B SHARES UPON TERMINATION OF EMPLOYMENT.(i) At any time after the termination of the Executive's employment with the Company, the Company shall have the right (but not the obligation) to acquire all of the Executive's Series B Shares (the "PURCHASE INTEREST"), for an amount equal to the fair market value of such Purchase Interest as of the Purchase Interest Closing Date (as defined below). The following procedure shall apply to such proposed acquisition: (ii) The Company shall give notice (the "Purchase Notice") to the Executive specifying the fair market value for the Executive's Purchase Interest as of the date of such Purchase Notice, determined by the Company in good faith. For a period of 10 days after the Purchase Notice has been given, the Company and the Executive shall negotiate in good faith to mutually agree on such fair market value (the "Purchase Price"). (iii) On a date mutually agreed by the Company and the Executive, but in no event later than 20 days after the Purchase Notice has been given (such date, the "Purchase Closing Date"), the Company shall pay to the Executive the Purchase Price against the delivery of certificates or other instruments evidencing such Series B Shares duly endorsed for transfer. (iv) Any dispute as to the fair market value of the Purchase Interest shall be submitted for final determination to a mutually acceptable investment banking firm of national reputation familiar with the valuation of companies in the hospitality and lodging industry (an "Investment Banking Firm"). In the event that the Company and the Executive cannot agree on a mutually acceptable Investment Banking Firm within 10 business days, the Company, on the one hand, and the Executive, on the other hand, shall each select one Investment Banking Firm, which two Investment Banking Firms shall jointly 11 make such determination within 20 business days after the date of the Purchase Notice, or, if such two Investment Banking Firms are unable to agree on such determination, the two Investment Banking Firms shall, by the end of the 20th business day after the date of the Purchase Notice, select a third Investment Banking Firm and notify such third Investment Banking Firm in writing (with a copy to the Company and the Executive) of their respective determinations of the fair market value of the Purchase Interest following which such third Investment Banking Finn shall, within 15 business days after the date of its selection, notify the Company and the Executive in writing of its selection of one or the other of the two original determinations of the fair market value of the Purchase Interest, which determination shall be final and binding on the Company and the Executive. (v) The costs of the Investment Banking Firms shall be borne by the Company. 7. COMPETITIVE ACTIVITY. During the period ending one year following the Effective Date of the Merger, the Executive will not: (a) enter into or engage in any business which competes with the Company's business or 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; or (b) 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 (c) 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. Notwithstanding the foregoing, the Executive's activities under the Consulting Agreement will not be deemed to be a violation of this Section 7. 8. 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 13 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 Management, 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 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 or the Termination of the Term of Employment, 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. 9. SUCCESSORS AND BINDING AGREEMENT. 13 (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, including specifically MeriStar in the event of the consummation of the Merger. 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 9(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 9(c), the Company will have no liability to pay any amount so attempted to be assigned, transferred or delegated. 10. 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 the 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. 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 in 14 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 reasonable attorneys' and reasonable related fees and expenses incurred by the Executive in connection with any of the foregoing. 11. 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 7 or 8, 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 the city in which the EXECUTIVE'S PRINCIPAL OFFICE IS LOCATED (or in any other location mutually agreed upon by the parties) in accordance with the Employment Dispute Resolution 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 reasonable costs and expenses of the Executive in connection with any such dispute or procedure. 12. REPRESENTATION. Each party represents and warrants that it is fully authorized and empowered to enter into this Agreement, including Board approval in the case of the Company, and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person or entity. 13. 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. 14. LITIGATION AND REGULATORY COOPERATION. During and after Executive's employment, Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while Executive was employed by the Company; provided, however, that such cooperation shall not materially and adversely affect Executive or expose Executive to an increased probability of civil or criminal litigation. Executive's cooperation in 16 connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Executive's employment, Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by the Company. The Company shall also provide Executive with compensation on an hourly basis calculated as his final Base Pay for requested litigation and regulatory cooperation that occurs after his termination of employment, and reimburse Executive for all costs and expenses incurred in connection with his performance under this Section 14; including, but not limited to, reasonable attorney's fees and costs. 15. INDEMNIFICATION. The Executive shall receive the maximum indemnification from the Company as permitted by the Company's by-laws in effect at any time during the Term of this Agreement and applicable law. This Section shall survive the termination of this Agreement. 16. 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 [David Kenin, Greenberg Traurig, P.A.. 1221 Brickell Avenue, Miami, FL 33131]), 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. 17. MODIFICATIONS AND WAIVERS. No provision of this Agreement may be modified or discharged unless such modification or discharge is authorized by the Board and is agreed to in writing, signed by the Executive and by an officer of the Company duly authorized by the Board. 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. Prior to the Effective Time, no amendment or waiver may be made without the prior written consent of MeriStar, which is hereby expressly acknowledged by the parties hereto to be an intended third-party beneficiary of this Agreement with respect to this sentence. 18. 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. Without limiting the generality of the foregoing sentence, as of the Commencement Date, 16 the Old Agreement shall cease to be of any force or effect. 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. 19. 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 Pennsylvania, without giving effect to the principles of conflict of laws of such Commonwealth. 20. 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. 21. 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. INTERSTATE HOTELS CORPORATION By: /s/ Timothy Q. Hudak ---------------------------------- Name: Timothy Q. Hudak Title: Senior Vice President and General Counsel /s/ Thomas F. Hewitt ------------------------------------- THOMAS F. HEWITT ACKNOWLEDGED: MERISTAR HOTELS AND RESORTS, INC. By: /s/ Christopher L. Bennett ------------------------------------------- Christopher L. Bennett Senior Vice President and General Counsel EX-10 6 ex10-3form8k80202.txt EXHIBIT 10.3 EXHIBIT 10.3 ------------ U.S. $113,000,000 SENIOR SECURED CREDIT AGREEMENT DATED AS OF JULY 31, 2002 AMONG MERISTAR H & R OPERATING COMPANY, L.P. AS THE BORROWER, ---------------- SOCIETE GENERALE AS ADMINISTRATIVE AGENT, ------------------------ SG COWEN SECURITIES CORPORATION AS JOINT LEAD ARRANGER AND BOOK RUNNER, --------------------------------------- SALOMON SMITH BARNEY INC. AS JOINT LEAD ARRANGER, BOOK RUNNER, AND CO-SYNDICATION AGENT, -------------------------------------------------------------- LEHMAN BROTHERS, INC. AS JOINT LEAD ARRANGER, BOOK RUNNER, AND CO-SYNDICATION AGENT, -------------------------------------------------------------- CREDIT LYONNAIS NEW YORK BRANCH AS DOCUMENTATION AGENT, ----------------------- AND VARIOUS 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.............................37 Section 1.03 Accounting Terms; Changes in GAAP.......................37 Section 1.04 Classes and Types of Advances...........................38 Section 1.05 Miscellaneous...........................................38 ARTICLE II THE ADVANCES AND THE LETTERS OF CREDIT........................38 Section 2.01 The Advances............................................38 Section 2.02 Method of Borrowing.....................................42 Section 2.03 Fees....................................................47 Section 2.04 Reduction of the Revolving Commitments..................47 Section 2.05 Repayment of Advances on Maturity Date; Extension.......48 Section 2.06 Interest, Late Payment Fee..............................49 Section 2.07 Prepayments.............................................50 Section 2.08 Breakage Costs..........................................52 Section 2.09 Increased Costs.........................................53 Section 2.10 Payments and Computations...............................55 Section 2.11 Taxes...................................................57 Section 2.12 Illegality..............................................59 Section 2.13 Letters of Credit.......................................60 Section 2.14 Determination of Leverage Ratio and Senior Leverage Ratio..........................................62 Section 2.15 Lender Replacement......................................63 Section 2.16 Sharing of Payments, Etc................................64 ARTICLE III CONDITIONS OF LENDING.........................................64 Section 3.01 Conditions Precedent to the Initial Advance.............64 Section 3.02 Conditions Precedent for Each Borrowing or Letter of Credit........................................67 Section 3.03 Conditions as Covenants.................................68 ARTICLE IV REPRESENTATIONS AND WARRANTIES................................68 Section 4.01 Existence; Qualification; Partners; Subsidiaries........68 Section 4.02 Partnership and Corporate Power.........................69 -i- TABLE OF CONTENTS (continued) PAGE Section 4.03 Authorization and Approvals.............................70 Section 4.04 Enforceable Obligations.................................70 Section 4.05 Financial Statements....................................70 Section 4.06 True and Complete Disclosure............................70 Section 4.07 Litigation..............................................71 Section 4.08 Use of Proceeds and Letters of Credit...................71 Section 4.09 Investment Company Act..................................72 Section 4.10 Taxes...................................................72 Section 4.11 Pension Plans...........................................72 Section 4.12 Insurance...............................................73 Section 4.13 No Burdensome Restrictions; No Defaults.................73 Section 4.14 Environmental Condition.................................73 Section 4.15 Legal Requirements, Zoning..............................74 Section 4.16 Existing Indebtedness and Interest Rate Agreements; Solvency....................................74 Section 4.17 Leasing Arrangements....................................75 Section 4.18 Management Agreements...................................75 Section 4.19 Intercompany Agreement..................................75 Section 4.20 Franchise Agreements....................................75 Section 4.21 Owned Hospitality Properties............................76 Section 4.22 Approved Inter-Company Indebtedness.....................76 Section 4.23 Insurance Business......................................76 Section 4.24 Permitted Housing Business Leasing......................79 ARTICLE V AFFIRMATIVE COVENANTS.........................................79 Section 5.01 Compliance with Laws....................................79 Section 5.02 Preservation of Existence; Separateness, Etc............79 Section 5.03 Payment of Taxes, Etc...................................80 Section 5.04 Visitation Rights; Lender Meeting.......................81 Section 5.05 Reporting Requirements..................................81 Section 5.06 Maintenance of Property.................................84 Section 5.07 Insurance...............................................85 -ii- TABLE OF CONTENTS (continued) PAGE Section 5.08 Use of Proceeds and Letters of Credit...................85 Section 5.09 Collateral; Releases....................................85 Section 5.10 New Subsidiaries........................................86 Section 5.11 Insurance Business......................................86 Section 5.12 Interest Rate Agreements................................87 ARTICLE VI NEGATIVE COVENANTS............................................87 Section 6.01 Liens, Etc..............................................87 Section 6.02 Indebtedness............................................88 Section 6.03 Agreements Restricting Distributions From Subsidiaries..89 Section 6.04 Restricted Payments.....................................89 Section 6.05 Fundamental Changes; Asset Dispositions.................90 Section 6.06 Investments and other Property..........................91 Section 6.07 Affiliate Transactions..................................92 Section 6.08 Sale or Discount of Receivables.........................92 Section 6.09 Material Documents......................................92 Section 6.10 No Further Negative Pledges.............................92 ARTICLE VII FINANCIAL COVENANTS...........................................94 Section 7.01 Interest Coverage Ratio.................................94 Section 7.02 Senior Interest Coverage Ratio..........................94 Section 7.03 Leverage Ratio..........................................95 Section 7.04 Senior Leverage Ratio...................................96 Section 7.05 Maintenance of Net Worth................................96 ARTICLE VIII EVENTS OF DEFAULT; REMEDIES.................................. 96 Section 8.01 Events of Default...................................... 96 Section 8.02 Optional Acceleration of Maturity; Other Actions.......100 Section 8.03 Automatic Acceleration of Maturity.....................100 Section 8.04 Cash Collateral Account................................100 Section 8.05 Non-exclusivity of Remedies. ..........................101 Section 8.06 Right of Set-off.......................................101 -iii- TABLE OF CONTENTS (continued) PAGE ARTICLE IX AGENCY AND ISSUING BANK PROVISIONS...........................102 Section 9.01 Authorization and Action...............................102 Section 9.02 Administrative Agent's Reliance, Etc...................102 Section 9.03 Each Agent and Its Affiliates..........................103 Section 9.04 Lender Credit Decision.................................103 Section 9.05 Indemnification........................................103 Section 9.06 Successor Agent, the Alternate Currency Swing Line Lender and Issuing Banks..........................104 Section 9.07 Joint Lead Arrangers, Book Runners, Co-Syndication Agents and Documentation Agent.........................105 ARTICLE X MISCELLANEOUS................................................105 Section 10.01 Amendments, Etc........................................105 Section 10.02 Notices, Etc...........................................107 Section 10.03 No Waiver; Remedies....................................107 Section 10.04 Costs and Expenses.....................................107 Section 10.05 Binding Effect.........................................108 Section 10.06 Lender Assignments and Participations..................108 Section 10.07 Indemnification........................................112 Section 10.08 Execution in Counterparts..............................112 Section 10.09 Survival of Representations, Indemnifications, etc.....112 Section 10.10 Severability...........................................112 Section 10.11 Usury Not Intended.....................................112 Section 10.12 GOVERNING LAW..........................................113 Section 10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.............................................113 Section 10.14 Knowledge of Borrower..................................115 Section 10.15 Lenders Not in Control.................................115 Section 10.16 Headings Descriptive...................................115 Section 10.17 Time is of the Essence.................................115 Section 10.18 Lender Interest Rate Agreements........................116 Section 10.19 Judgment Currency......................................116 -iv- TABLE OF CONTENTS (continued) PAGE Section 10.20 No Consequential Damages...............................116 -v- EXHIBITS: Exhibit A-1 - Form of Dollar Revolving Note Exhibit A-2 - Form of Term Note Exhibit A-3 - Form of Euro Note Exhibit A-4 - Form of Pound Note Exhibit B - Form of Adjustment Report Exhibit C - Form of Assignment and Acceptance 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 SCHEDULES: Schedule 1.01(a) - Commitments Schedule 1.01(b) - Approved Inter-Company Indebtedness Schedule 1.01(c) - Non-Pledged Ownership Interests Schedule 1.01(d) - Existing Owned Hospitality Property Investments Schedule 1.01(e) - Existing Management Agreements Schedule 1.01(f) - Existing Participating Leases Schedule 1.01(g) - Guarantors Schedule 1.01(h) - Pre-Existing Designated Senior Indebtedness Schedule 1.01(i) - Specified Acquirer Schedule 4.01 - Subsidiaries Schedule 4.07 - Litigation Schedule 4.14 - Environmental Condition Schedule 4.15 - Legal Requirements; Zoning; Utilities; Access Schedule 4.16 - Existing Indebtedness and Interest Rate Agreements 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 4.24 - Permitted Housing Business Leasing Schedule 5.07 - Required Insurance Coverage -vi- SENIOR SECURED CREDIT AGREEMENT THIS SENIOR SECURED CREDIT AGREEMENT (this "AGREEMENT"), dated as of July 31, 2002 (the "CLOSING DATE"), is among MERISTAR H & R OPERATING COMPANY, L.P., a Delaware limited partnership, as the Borrower; SOCIETE GENERALE, as the Administrative Agent, the Issuing Bank and the Alternate Currency Swing Line Lender; SG COWEN SECURITIES CORPORATION, as Joint Lead Arranger and Book Runner; SALOMON SMITH BARNEY INC., as Joint Lead Arranger, Book Runner and Co-Syndication Agent; LEHMAN BROTHERS, INC., as Joint Lead Arranger, Book Runner and Co-Syndication Agent; CREDIT LYONNAIS NEW YORK BRANCH, as Documentation Agent; and the Lenders (as defined below). PRELIMINARY STATEMENTS: WHEREAS, the Borrower desires that the Lenders extend certain credit facilities, the proceeds of which will be used for the purposes set forth in Section 4.08; WHEREAS, the Lenders have agreed to extend such credit facilities as more specifically described in this Agreement; NOW, THEREFORE, in consideration of the foregoing recitals and the provisions contained in this Agreement, the parties hereto do hereby agree as follows: 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 and the Alternate Currency Swing Line Lender, (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. "ADDITIONAL DESIGNATED SENIOR INDEBTEDNESS" means, for the Parent and its Subsidiaries, Senior Indebtedness of the Parent and its Subsidiaries (a) which is set forth in clause (c) of the definition of Permitted Other Indebtedness and is otherwise permitted by the provisions of this -1 Agreement, (b) which is incurred after the Closing Date, (c) for which the gross proceeds are equal to or greater than $90,000,000 but do not exceed $175,000,000, (d) which is not subject to financial covenants or non-financial covenants or terms which are materially more onerous than the terms of the Credit Documents, (e) which does not have a maturity date before the Maturity Date, as the Revolving Maturity Date may be extended, (f) which does not prohibit the Parent or any of the Parent's Subsidiaries from granting Liens on any of such Person's assets to secure the Obligations or any other Senior Indebtedness except as may be expressly permitted by the provisions of Section 6.10, and (g) for which the Net Cash Proceeds are used to repay the Obligations to the extent required by and in accordance with the terms of this Agreement. "ADJUSTED BASE RATE" means, for any day, the fluctuating rate per annum of interest 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 one-half of one percent (.50%). "ADJUSTED BASE RATE ADVANCE" means an Advance which bears interest as provided in Section 2.06(a). -2- "ADJUSTED EBITDA" means, for any Person or Hospitality Property, as applicable, for any Rolling Period, the EBITDA of such Person or Hospitality Property, as applicable, for such Rolling Period PLUS non-cash employee compensation up to $2,000,000 per Fiscal Year in the aggregate commencing with the 2002 Fiscal Year, and other non-cash items of such Person or Hospitality Property, as applicable, for such Rolling Period; PROVIDED that for any Hospitality Property the aggregate FF&E Reserves for such Rolling Period in respect of such Hospitality Property shall be subtracted from such Hospitality Property's EBITDA in determining such Hospitality Property's Adjusted EBITDA; PROVIDED FURTHER that if the Parent or any of its Subsidiaries during such Rolling Period or in the period from the end of such Rolling Period to the Status Reset Date which occurs in the Fiscal Quarter following such Rolling Period either (a) sells, disposes of or terminates any Permitted Property Agreements or (b) sells or disposes of any Investments or Non-Replaced Property with an Investment Amount in excess of $1,000,000, the EBITDA arising from such Permitted Property Agreement, Investment, or Non-Replaced Property, as applicable, for the applicable Rolling Period shall be excluded from the calculation of Adjusted EBITDA; and PROVIDED FURTHER if the Parent or any of its Subsidiaries during such Rolling Period or in the period from the end of such Rolling Period to the Status Reset Date which occurs in the Fiscal Quarter following such Rolling Period either (a) purchases or acquires any Permitted Property Agreements or (b) purchases or acquires any Investments or Non-Replaced Property with an Investment Amount in excess of $1,000,000, the EBITDA arising from such Permitted Property Agreement, Investment, or Non-Replaced Property, as applicable, for the applicable Rolling Period on a pro forma basis shall be included in the calculation of Adjusted EBITDA; and PROVIDED FURTHER that the Adjusted EBITDA for the Parent and its Subsidiaries for the Rolling Periods ending on the dates set forth in the following chart will for purposes of the financial covenants contained in Article VII be increased by the applicable amount set forth next to the ending date of each such Rolling Period: ENDING DATE OF ROLLING PERIOD ADJUSTED EBITDA ADJUSTMENT ------------------------------ -------------------------- June 30, 2002 $5,000,000 September 30, 2002 $5,000,000 December 31, 2002 $3,750,000 March 31, 2003 $2,500,000 June 30, 2003 $1,250,000 "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. -3- "ADMINISTRATIVE AGENT" means Societe Generale in its capacity as Administrative Agent for the Lenders pursuant to Article IX and any successor Administrative Agent appointed pursuant to Section 9.06. "ADMINISTRATIVE AGENT FEE LETTER" means the letter agreement dated as of May 1, 2002, among the Borrower, the Parent, IHC and Societe Generale, Southwest Agency, as amended. "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. "AGREEMENT" has the meaning given such term in the initial paragraph of this agreement. "ALTERNATE CURRENCY" shall mean each of Euros and Pounds. "ALTERNATE CURRENCY SWING LINE ADVANCE" means any advance by the Alternate Currency Swing Line Lender to the Borrower pursuant to the Alternate Currency Swing Line Lender's Alternate Currency Swing Line Commitment, and refers to a Eurocurrency Rate Advance or a Pound Rate Advance. "ALTERNATE CURRENCY SWING LINE COMMITMENT" means the obligation of the Alternate Currency Swing Line Lender to make Alternate Currency Swing Line Advances up to a maximum principal amount of $5,000,000 Dollar Equivalent at any time outstanding. "ALTERNATE CURRENCY SWING LINE LENDER" means Societe Generale or any other Lender as a successor Alternate Currency Swing Line Lender. "APPLICABLE CURRENCY" shall mean (a) with respect to any Alternate Currency Swing Line Advances, the respective Alternate Currency in which the respective Advances or related amounts are denominated and (b) with respect to any other Obligations, Dollars. "APPLICABLE FIXED RATE" means, (a) with respect to Eurocurrency Rate Advances, the Eurocurrency Rate, (b) with respect to Eurodollar Rate Advances, the Eurodollar Rate, and (c) with respect to Pound Rate Advances, the Pound Rate. "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, (c) in the case of all Alternate Currency Swing Line Advances, the Alternate Currency Swing Line Lender's office as such Lender may from time to time specify to the Borrower and the Administrative Agent for -4- each type of Alternate Currency Swing Line Advance, and (d) 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 MANDATORY COST" means (a) for any Lender lending from an Applicable Lending Office in a Participating Member State the percentage notified by that Lender to the Administrative Agent as the cost of complying with the minimum reserve requirements of the European Central Bank, (b) for any Lender lending from an Applicable Lending Office in the United Kingdom the percentage calculated by the Administrative Agent as follows: A X 0.01 per cent. per annum -------- 300 Where: "A" is the rate of charge payable by such Lender to the Financial Services Authority pursuant to the Fees Regulations (but, for this purpose, ignoring any minimum fee required pursuant to the Fees Regulations) and expressed in pounds per (pound)1,000,000 of the Fee Base of such Lender. "APPLICABLE MARGIN" means, (a) with respect to any Class of Advance at any date, the applicable percentage per annum set forth below based upon the Status then in effect under the column for such Type of Advance, (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 Fixed Rate Advances, and (c) with respect to the commitment fee payable under Section 2.03(a) at any date, .50% percent per annum. Adjusted Base Rate Fixed Rate ADVANCES ADVANCES -------- -------- Level I 1.00% 3.00% Status Level II 1.50% 3.50% Status Level III 2.00% 4.00% Status Level IV 2.50% 4.50% Status "APPRAISAL" means an appraisal prepared by an M.A.I. appraiser approved by the Administrative Agent which appraisal is acceptable to the Administrative Agent and done in -5- conformity with the following standards: Uniform Standards of Professional Appraisal Practice, the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute, the appraisal guidelines set forth by the office of the Comptroller of the Currency and the Federal Reserve Board. "APPROVED FUND" means any fund that invests in commercial loans which is advised or managed by an investment advisor which has total assets under management in excess of $250,000,000. "APPROVED INTER-COMPANY INDEBTEDNESS" means the Indebtedness described on Schedule 1.01(b), which Indebtedness (a) may not exceed $50,000,000 without the approval of the Administrative Agent and may not exceed $52,500,000 without the approval of the Required Lenders, (b) is unsecured, (c) is subordinated to the Obligations in a manner acceptable to the Administrative Agent, and (d) is Collateral. "APPROVED INTER-COMPANY INDEBTEDNESS LOAN DOCUMENTS" means the documents described on Schedule 1.01(b), together with any additional promissory notes evidencing Approved Inter-Company Indebtedness. "APPROVED MANAGEMENT AGREEMENT" means a management agreement by and between a Person, as owner, and Borrower or Borrower's Subsidiary or Unconsolidated Entity, as manager, in substantially the form of an Existing Management Agreement, a form which does not include materially adverse provisions which are not customary for management agreements of Hospitality Properties or such other form as is approved by the Administrative Agent in writing (which approval shall not be unreasonably withheld). "APPROVED PARTICIPATING LEASE" means a lease (except for a Ground Lease) by and between a Person, as lessor, and Borrower or Borrower's Subsidiary, as lessee, in substantially the form of an Existing Participating Lease, a form which does not include materially adverse provisions which are not customary for participating leases of Hospitality Properties or such other form as is approved by the Administrative Agent in writing (which approval shall not be unreasonably withheld). "ASSET DISPOSITION" means any conveyance, exchange, transfer, or assignment of any Investment or Non-Replaced Property by the Borrower or a Guarantor to a Person other than the Borrower or a Guarantor. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of the attached Exhibit C. "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. -6- "BEVERAGE ENTITY" means any Subsidiary or Unconsolidated Entity of the Parent for which substantially all of such Person's Property is directly related to the sale of beverages at a Hospitality Property, and "BEVERAGE ENTITIES" means all such Persons. "BORROWER" means MeriStar H & R Operating Company, L.P., a Delaware limited partnership. "BORROWING" means 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), (b) made by the Alternate Currency Swing Line Lender pursuant to Section 2.01(d), or (c) Converted by each Lender or the Alternate Currency Swing Line Lender, as applicable, 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 Dallas, Texas or New York, New York, and (b) with respect to Eurodollar Rate Advances or Pound Rate Advances, a day of the year on which banks are not required or authorized to close in Dallas, Texas , New York, New York, or London, England, and (c) with respect to Eurocurrency Rate Advances, a day of the year on which banks are not required or authorized to close in Paris, France and which is also a TARGET Day. "CAPITAL EXPENDITURE" means any payment made directly or indirectly for the purpose of acquiring or constructing fixed assets, real property, improvements, equipment, or other personal property, or for replacements or substitutions therefore or additions thereto, which in accordance with GAAP would be capitalized in the fixed asset accounts of such Person making such expenditure, including, without limitation, amounts paid or payable for such purpose under any conditional sale or other title retention agreement or under any Capital Lease, but excluding repairs or maintenance of any Hospitality Property in the normal and ordinary course of business in keeping with the past practices of the Borrower, IHC or the Parent. "CAPITAL LEASE" means, for any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "CAPITALIZATION EVENT" means any sale or issuance by the Parent or any of its Subsidiaries of equity securities except for the issuance of the Borrower's limited partnership interests in accordance with the provisions of Section 6.05. "CAPITALIZED LEASE OBLIGATIONS" means, as to any Person, the capitalized amount of all obligations of such Person or any of its Subsidiaries under Capitalized Leases, as determined on a consolidated basis in conformity with GAAP. "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. -7- "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, all rules and regulations and requirements thereunder in each case as now or hereafter in effect. "CHANGE IN CONTROL" means for any Person a change in ownership or control of such Person effected through either of the following transactions: (a) any Person or related group of Persons (other than such Person or an Affiliate of such Person) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of (i) securities possessing more than fifty percent (50%) of the total combined voting power of such Person's outstanding securities, or (ii) with respect to the Parent or the Borrower after the date which is 18 months following the Closing Date, securities (excluding securities held by CGLH Partners I LP and CGLH Partners II LP as of the Closing Date and any transferee of such securities) possessing more than thirty five percent (35%) of the total combined voting power of such Person's outstanding securities; or (b) excluding with respect to the Parent those changes to the Parent's Board of Directors that occur as part of the consummation of the Merger, there is a change in the composition of such Person's Board of Directors over a period of thirty-six (36) consecutive months (or less) such that a majority of Board members (rounded up to the nearest whole number) ceases, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board. "CLASS" has the meaning set forth in Section 1.04. "CLOSING DATE" has the meaning given such term in the initial paragraph of this agreement. "CODE" means the Internal Revenue Code of 1986, as amended, and any successor statute. "CO-LEAD ARRANGER FEE LETTER" means the letter agreement dated as of May 1, 2002, among the Borrower, the Parent, IHC, SG Cowen, and Citibank, as amended. "COLLATERAL" means all of the Parent's and its Subsidiaries' interests in the following, whether owned on or acquired after the Closing 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, including without limitation those Permitted Property Agreements to which -8- Interstate Hotels, LLC and its Subsidiaries are a party, (c) Owned Hospitality Properties, (d) the Approved Inter-Company Indebtedness and the Approved Inter-Company Indebtedness Loan Documents, (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 Closing 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. The Ownership Interests which cannot be pledged as of the date of this Agreement are those certain Ownership Interests designated in Schedule 1.01(c) as Non-Pledgable. "COMMITMENT" means, (a) as to any Lender, its Revolving Commitment and its Term Commitment, and (b) as to the Alternate Currency Swing Line Lender, its Alternate Currency Swing Line Commitment. "COMPLIANCE CERTIFICATE" means a certificate of the Borrower in substantially the form of the attached Exhibit D. "CONSOLIDATED" refers, with respect to any Person, to the consolidation of the accounts of such Person with such Person's Subsidiaries in accordance with GAAP. "CONTROL PERCENTAGE" means, with respect to any Person, the percentage of the outstanding capital stock of such Person having ordinary voting power which gives the direct or indirect holder of such stock the power to elect a majority of the Board of Directors of such Person. "CONTROLLED GROUP" means all members of the controlled group of corporations and all trades (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "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, the Co-Lead Arranger Fee Letter, the Administrative Agent Fee Letter, and each other agreement, instrument or document executed by the Borrower or any of its Subsidiaries at any time in connection with this Agreement. "DEFAULT" means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DEFAULTING LENDER" means any Lender which has wrongfully refused or failed to make available its portion of any Borrowing or to fund its portion of any unreimbursed payment under -9- Section 9.05, or notified in writing the Borrower or the Administrative Agent that such Lender does not intend to comply with its obligations under this Agreement. "DESIGNATED LENDERS" means the Administrative Agent, Citibank and Lehman. "DESIGNATED REDEMPTION INDEBTEDNESS" means Indebtedness in the amount of approximately $1,310,000 in the form of Mandatorily Redeemable Stock consisting of 392,157 Preferred Units in the Borrower held by CapStar Management Company, LLC which are redeemable at the option of the Unit holder pursuant to the partnership agreement of Borrower on or after April 1, 2004 for, at the option of the holder, cash in the amount of $3.34 per unit or the equivalent in common stock of the Parent; PROVIDED that without the written consent of the Required Lenders the Parent and the Borrower will not modify the documentation creating or evidencing the "Designated Redemption Indebtedness" in any manner which would increase the amount of such Indebtedness or accelerate the time at which such Person is obligated to repay such Indebtedness. "DISSOLVING SUBSIDIARY" means a direct or indirect non-Material Subsidiary of the Parent and/or the Borrower which the Parent or the Borrower intends to dissolve within thirty (30) days of the Closing Date and which is in fact dissolved within thirty (30) days of the Closing Date. "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 Societe Generale 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; PROVIDED that the Dollar Equivalent of any amounts outstanding in a currency other than Dollars shall (a) for purposes of Sections 2.01(d)(ii) and (iii), be the amount of Dollars that the Administrative Agent determines, based upon the actual exchange rates which the Administrative Agent believes can be obtained on the date of conversion pursuant to Section 2.01(d)(ii) and (iii), would be required to be paid in Dollars to purchase such amount of other currency and (b) for purposes of determining compliance with Sections 2.01(b), 2.01(d)(i), 2.07 and 2.13(a), with respect to any Alternate Currency Swing Line Advance be revalued based upon the then current rate of exchange as provided above at the end of any Interest Period applicable to such Advance, PROVIDED that, at any time during a calendar quarter, if the exchange rate for an Alternate Currency has changed by 10% or more from the exchange rate on the last Business Day of the preceding quarter, then at the discretion of the Administrative Agent or at the request of the Required Lenders, the Dollar Equivalent shall be reset based upon the then current exchange rates as determined by Societe Generale as provided above, which rates shall remain in effect until the last Business Day of such calendar quarter or such earlier date, if any, as the rate is reset pursuant to this proviso. Notwithstanding anything to the contrary contained in this definition, at any time that a Default or an Event of Default then exists, the Administrative Agent may revalue the Dollar Equivalent of any Alternate Currency Swing Line Advances in its sole discretion. "DOLLAR 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 Dollar Revolving Advance, and refers to an Adjusted Base Rate Advance or a Eurodollar Rate Advance. -10- "DOLLAR 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 Dollar Revolving Advances from such Lender, and "DOLLAR REVOLVING NOTES" means all of such promissory notes. "DOLLARS" and "$" means lawful money of the United States of America. "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 Income for such Person or Hospitality Property, as applicable, for such period PLUS (b) to the extent deducted in determining Net Income, Interest Expense, income taxes, depreciation, and amortization, as determined on a Consolidated basis in accordance with GAAP PLUS (c) to the extent deducted in determining Net Income, deductions for minority interest attributable to the Ownership Interests in the Borrower not owned (directly or indirectly) by the Parent. "EFFECTIVE DATE" means the date all of the conditions precedent set forth in Section 3.01 have been satisfied. "ELIGIBLE ASSIGNEE" means any of the following approved by those Persons who have approval rights pursuant to the provisions of Section 10.06, which approval will not be unreasonably withheld: (a) a commercial bank organized under the laws of the United States, or any State thereof, and having primary capital of not less than $250,000,000 (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development and having primary capital (or its equivalent) of not less than $250,000,000 (or its Dollar Equivalent), (c) an investment bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000, (d) an insurance company, finance company or financial institution (whether a corporation, partnership, trust or other Person) organized under the laws of the United States, or any state thereof, and having total assets in excess of $5,000,000,000, (e) with respect to Term Advances only, any Approved Fund, (f) with respect to Term Advances only, any "accredited investor" (as defined in Regulation D of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder) which has total assets in excess of $100,000,000, (g) a Lender, and (h) an Affiliate of the respective assigning Lender, without approval of any Person except as set forth in Section 10.06, but otherwise meeting the eligibility requirements of (a), (b), (c), (d), (e) or (f) above. "ENGINEERING REPORT" means with respect to any Owned Hospitality Property, an engineering report which (a) is prepared 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 -11- 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. "ENVIRONMENT" or "ENVIRONMENTAL" shall have the respective meanings set forth in 42 U.S.C.ss. 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. "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 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. "EQUITY INNS" means Equity Inns, Inc. -12- "EQUITY INNS LETTER" means a comfort letter and estoppel certificate executed by Equity Inns for the benefit of the Administrative Agent and the Lenders, and acknowledged by the Borrower, pertaining to the Permitted Property Agreements entered into between Equity Inns and Equity Inns' Subsidiaries and the Parent and the Parent's Subsidiaries, in form and substance acceptable to the Administrative Agent. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "EURO" and/or "?" means the euro referred to in Council Regulation (EC) No. 1103/97 dated June 17, 1997 passed by the Council of the European Union, or, if different, the then lawful currency of the member states of the European Union that participate in the third stage of Economic and Monetary Union. "EURO NOTE" means a promissory note of the Borrower payable to the order of the Alternate Currency Swing Line Lender, in substantially the form of the attached Exhibit A-3, evidencing indebtedness of the Borrower to the Alternate Currency Swing Line Lender resulting from Eurocurrency Rate Advances. "EUROCURRENCY LIABILITIES" has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time. "EUROCURRENCY RATE" means, for the Interest Period for each Eurocurrency Rate Advance comprising part of the same Borrowing, the interest rate per annum set forth on Telerate Page 248 as the Euro Interbank Offered Rate, or such other page or pages as may replace such pages on Telerate for purposes of displaying such rate, at or about 11:00 a.m. (Brussels time) two Business Days before the first day of such Interest Period in an amount substantially equal to Societe Generale's Eurocurrency Rate Advance comprising part of such Borrowing, and for a period equal to such Interest Period; provided, however, that if such rate is not available on Telerate then such offered rate shall be otherwise independently determined by Administrative Agent from an alternate, substantially similar source available to Administrative Agent or shall be calculated by Administrative Agent by a substantially similar methodology as that theretofore used to determine such offered rate in Telerate. "EUROCURRENCY RATE ADVANCE" shall have the meaning provided in Section 2.01(d). "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 Fixed 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 Fixed Rate Advance. "EURODOLLAR RATE" means, for the Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum) equal to the rate per annum at which deposits in Dollars are offered to prime banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period as shown on the display -13- designated "British Banker's Association Interest Settlement Rates" on Telerate at Page 3750 or Page 3740, or such other page or pages as may replace such pages on Telerate for purposes of displaying such rate, in an amount substantially equal to Societe Generale's Eurodollar Rate Advance comprising part of such Borrowing and for a period equal to such Interest Period; PROVIDED, however, that if such rate is not available on Telerate then such offered rate shall be otherwise independently determined by Administrative Agent from an alternate, substantially similar source available to Administrative Agent or shall be calculated by Administrative Agent by a substantially similar methodology as that theretofore used to determine such offered rate in Telerate. "EURODOLLAR RATE ADVANCE" means an Advance which bears interest as provided in Section 2.06(b). "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. "EXISTING MANAGEMENT AGREEMENTS" means the management agreements listed on Schedule 1.01(e). "EXISTING OWNED HOSPITALITY PROPERTY INVESTMENTS" means the Owned Hospitality Property Investments set forth on Schedule 1.01(d) and other Owned Hospitality Property Investments in which the Borrower's direct or indirect ownership in such Owned Hospitality Property Investment is equal to or less than twenty percent (20%) of the total ownership in such Owned Hospitality Property Investment. "EXISTING PARTICIPATING LEASES" means the participating leases set forth on Schedule 1.01(f). "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 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 May 1, 2002, among the Borrower, the Parent, IHC, and the Lenders, as amended. -14- "FEES REGULATIONS" means the Banking Supervision (Fees) Regulations 1999 of the United Kingdom or such other law or regulation as may be in force from time to time in respect of the payment of fees for banking supervision. "FEE BASE" has the meaning given to it in, and will be calculated in accordance with, the Fees Regulations. "FELCOR" means FelCor Lodging Limited Partnership. "FF&E RESERVE" means, for any Hospitality Property for any period, a reserve equal to four percent (4%) of gross revenues from such Hospitality Property for such period, excluding, however, from such calculation for such Hospitality Property the gross revenues generated by the office, retail and garage portions of such Hospitality Property. "FINANCIAL STATEMENTS" means the respective financial statements of MHRI and its Subsidiaries and IHC and its Subsidiaries dated as of March 31, 2002. "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. "FIXED RATE ADVANCE" means any Eurodollar Rate Advance or Alternate Currency Swing Line Advance. "FIXED RATE RESERVE PERCENTAGE" shall mean, on any day, that percentage (expressed as a decimal fraction) which is in effect on such date, as provided by the Federal Reserve System for determining the maximum reserve requirements generally applicable to financial institutions regulated by the Federal Reserve Board comparable in size and type to the Administrative Agent (including, without limitation, basic, supplemental, marginal and emergency reserves) under Regulation D with respect to Eurocurrency Liabilities, or under any similar or successor regulation with respect to Eurocurrency Liabilities or Eurocurrency funding (or other category of liabilities which includes deposits by reference to which the interest rate on a Fixed Rate Advance is determined or any category or extensions of credit which includes loans by a non-United States office of the Administrative Agent to United States residents). Each determination by the Administrative Agent of the Fixed Rate Reserve Percentage, shall, in the absence of manifest error, be conclusive and binding upon the Borrower. "FUND," "TRUST FUND," or "SUPERFUND" means the Hazardous Substance Response Trust Fund, established pursuant to 42 U.S.C. ss. 9631 (1988) and the Post-closure Liability Trust Fund, established pursuant to 42 U.S.C. ss. 9641 (1988), which statutory provisions have been amended -15- 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. ss. 9507. "FUNDING DATE" shall have the meaning provided in Section 2.01(c)(ii). "GAAP" means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.03. "GOVERNMENTAL AUTHORITY" means any foreign governmental authority, the United States of America, any state of the United States of America and any subdivision of any of the foregoing, and any agency, department, commission, board, authority or instrumentality, bureau or court having jurisdiction over any Lender, the Parent, the Borrower, any Subsidiaries of the Borrower or the Parent or any of their respective Properties. "GOVERNMENTAL PROCEEDINGS" means any action or proceedings by or before any Governmental Authority, including, without limitation, the promulgation, enactment or entry of any Legal Requirement. "GROUND LEASE" means a lease by and between a Person, as lessor, and Borrower or Borrower's Subsidiary, as lessee, where the term of such lease is in excess of twenty (20) years. "GUARANTOR" means each of the Parent, each Subsidiary of the Parent (except the Permitted Other Subsidiaries, the Beverage Entities, the Dissolving Subsidiaries, Flagstone Hospitality Management LLC, and certain other non-Material Subsidiaries which are prohibited from acting as a Guarantor because of joint venture agreements, organizational documents and other contractual arrangements to which such non-Material Subsidiary is a party and which are in effect on the Closing Date, in each case as approved by the Administrative Agent) existing as of the Closing Date, and any future Material Subsidiary, and "GUARANTORS" means all of such Persons. The Guarantors on the Closing Date are identified on Schedule 1.01(g). "GUARANTY" means one or more Guaranty and Contribution Agreements in substantially the form of the attached Exhibit F executed by the Guarantors, evidencing the joint and several guaranty by the signatories thereto of the obligations of Borrower in respect of the Credit Documents, and any future guaranty and contribution agreement executed to secure 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, and medical and infectious waste. "HAZARDOUS WASTE" means the substances regulated as such pursuant to any Environmental Law. -16- "HOSPITALITY MANAGEMENT BUSINESS" shall mean the management, operation or leasing as lessee of any Hospitality Property, including timeshare sales and brokerage, and the operation of any Permitted Housing Business. "HOSPITALITY PROPERTY" shall mean a full service or limited service hotel or resort, a condominium or timeshare resort, an extended stay property, or a conference center, and other facilities incidental to, or in support of such property, including without limitation, restaurants and other food-service facilities, golf facilities or other entertainment facilities or club, conference or meeting facilities and Intellectual Property related thereto; PROVIDED that such property shall NOT include any casino or other gaming property (even if only a part of a Hospitality Property) or senior living property. "IHC" means Interstate Hotels Corporation, as such corporation existed pre-Merger. "IMPROVEMENTS" for any Owned Hospitality Property means all buildings, structures, fixtures, tenant improvements and other improvements of every kind and description now or hereafter located in or on or attached to the Land for such Owned Hospitality Property; and all additions and betterments thereto and all renewals, substitutions and replacements thereof. "INDEBTEDNESS" means (without duplication), at any time and with respect to any Person, (a) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services purchased (other than amounts constituting trade payables or bank drafts arising in the ordinary course of business); (b) indebtedness of others in the amount which such Person has directly or indirectly assumed or guaranteed or otherwise provided credit support therefor or for which such Person is liable as a partner of such Person; (c) indebtedness of others in the amount secured by a Lien on assets of such Person, whether or not such Person shall have assumed such indebtedness unless the validity of such Lien is being contested in good faith and with due diligence by appropriate proceedings, PROVIDED that such Lien is subordinate to the Liens created by the 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) obligations of such Person under Capital Leases; (f) all obligations, contingent or otherwise, of such Person under any synthetic lease, tax retention operating lease, off balance sheet loan or similar off balance sheet financing arrangement if the transaction giving rise to such obligation (1) is considered indebtedness for borrowed money for U.S. federal income tax purposes but is classified as an operating lease under GAAP and (2) does not (and is not required pursuant to GAAP to) appear as a liability on the balance sheet of such Person; (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Mandatorily Redeemable Stock issued by such Person or any other Person, valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (h) all obligations of such Person in respect of any take-out commitment or forward equity commitment (excluding, in the case of the Borrower and its Subsidiaries, any such obligation that can be satisfied solely by the issuance of Ownership Interests (other than Mandatorily Redeemable Stock)); and (i) to the extent treated as -17- a liability under GAAP, obligations under interest rate swap agreements, interest rate cap agreements, interest rate collar agreements or other similar agreements or arrangements designed to protect against fluctuations in interest rates; PROVIDED that "Indebtedness" shall not include (i) any Indebtedness related to the Parent's or the Parent's Subsidiary's Investment with respect to the St. Louis Radisson Hotel which is non-recourse to the Parent, the Borrower and their respective Subsidiaries except for the Ownership Interests in the Unconsolidated Entity which owns such hotel and (ii) any Designated Redemption Indebtedness. "INSURANCE ANNUAL STATEMENT" means the annual statutory financial statements of each Insurance Company required to be filed with the insurance commissioner (or similar Governmental Authority) of its jurisdiction of incorporation, which statement shall be in the form required by the jurisdiction of incorporation of such Insurance Company or, if no specific form is so required, in the form of financial statements permitted by such insurance commissioner (or such similar Governmental Authority) to be used for filing annual statutory financial statements and shall contain the type of information permitted by such insurance commissioner (or such similar Governmental Authority) to be disclosed therein, together with all exhibits or schedules filed therewith. "INSURANCE CONTRACT" means each outstanding insurance contract of each Insurance Company. "INSURANCE COMPANY" means each of the Borrower, the Parent or their respective Subsidiaries that is or acts as an insurance company or provides a guaranty for a Person acting as an insurance company. "INSURANCE LICENSE" means any license, certificate of authority, permit or other authorization which is required to be obtained from any Governmental Authority in connection with the operation, ownership or transaction of insurance business. "INSURANCE RESERVE LIABILITIES" means all reserves and other liabilities with respect to insurance and for claims and benefits incurred but not reported. "INSURANCE SURPLUS" means an estimate of the amount by which an insurance plan's assets exceed its expected current and future liabilities, including the amount expected to be needed to fund future benefit payments. "INTELLECTUAL PROPERTY" shall have the meaning given such term in the Security Agreement. "INTERCOMPANY AGREEMENT" means the Intercompany Agreement dated as of August 3, 1998, by and among the Parent, the Borrower, MHC, and MHC OP, as amended by Amendment to Intercompany Agreement dated as of January 1, 2001, and as may be further amended in accordance with the provisions of this Agreement. "INTEREST COVERAGE RATIO" means, as of the end of any Rolling Period, a ratio of (a) the Parent's Adjusted EBITDA to (b) the Parent's Interest Expense, for such Rolling Period. -18- "INTEREST EXPENSE" means, for any Person for any period for which such amount is being determined, the total interest expense (including that properly attributable to Capital Leases in accordance with GAAP) and all charges incurred with respect to letters of credit determined on a Consolidated basis in conformity with GAAP, PLUS capitalized interest of such Person and its Subsidiaries, MINUS, for such periods for which all or a portion of such period occurred prior to the date of the Merger, all interest income earned for such period by such Person and its Subsidiaries prior to the date of the Merger determined on a Consolidated basis in conformity with GAAP. "INTEREST PERIOD" means, for each Fixed 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 Fixed Rate Advance, the duration of each such Interest Period shall be (i) one, two or three months with respect to Alternate Currency Swing Line Advances and (ii) one, two, three or six months for all other Fixed Rate Advances, in each case as the Borrower may select, upon notice received by the Administrative Agent not later than 11:00 a.m. (Dallas, Texas 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 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. -19- "INVESTMENT" means, with respect to any Person, (a) any loan or advance to any other Person, (b) the ownership, purchase or other acquisition of any Ownership Interests or Ownership Interest Equivalents in any other Person, (c) any joint venture or partnership with, or any capital contribution to, or other investment in, any other Person, (d) any Capital Expenditure, and (e) any payment, whether capitalized or not, to acquire a management agreement or lease (including, without limitation, any Permitted Property Agreement or Permitted Housing Agreement). "INVESTMENT AMOUNT" means (a) for any Owned Hospitality Property the sum of (i) the aggregate purchase price paid by the Borrower or its Subsidiary for such Owned Hospitality Property, and (ii) the actual cost of any Capital Expenditures for such Owned Hospitality Property made by the Borrower or its Subsidiaries after the acquisition of such Owned Hospitality Property, and (b) for any other Investment or Property the aggregate purchase price paid by the Borrower or its Subsidiary for such other Investment or Property. The Investment Amount shall include any Ownership Interests or Ownership Interest Equivalents used to purchase such Investment at their fair market value at the time of purchase; PROVIDED that any such Ownership Interests or Ownership Interest Equivalents which are convertible into the Parent's common stock shall be valued at the price at which they could be exchanged into the Parent's common stock assuming such exchange occurred on the date of acquiring such Investment. "ISSUING BANK" means Societe Generale 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. "LEHMAN" means Lehman Commercial Paper Inc. "LENDERS" means the lenders listed on Schedule 1.01(a) and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 10.06, and "LENDER" means any such Person. Unless the context otherwise requires, each reference in this Agreement to a Lender -20- includes the Alternate Currency Swing Line Lender or any Affiliate of the Alternate Currency Swing Line Lender which is acting as the Alternate Currency Swing Line. "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. "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. "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 Parent's Total Indebtedness on such date to (b) the Parent's Adjusted EBITDA for the Rolling Period immediately preceding such date. "LIEN" means any mortgage, deed of trust, lien, pledge, charge, security interest, encumbrance or other type of preferential arrangement to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement). "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; -21- (c) repurchase agreements relating to investments described in clauses (a) and (b) above with a market value at least equal to the consideration paid in connection therewith, with any Person who regularly engages in the business of entering into repurchase agreements and has a combined capital surplus and undivided profit of not less than $250,000,000 or the Dollar Equivalent thereof, if at the time of entering into such agreement the debt securities of such Person are rated not less than "A" (or the then equivalent) by the rating service of S&P or of Moody's; and (d) such other instruments (within the meaning of New York's Uniform Commercial Code) as the Borrower may request and the Administrative Agent may approve in writing, which approval will not be unreasonably withheld. "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 Revolving Maturity Date, as such date may be extended pursuant to the terms of Section 2.05(b). "MANDATORY BORROWING" means a Borrowing comprised of Adjusted Base Rate Advances made to repay an Alternate Currency Swing Line Advance as contemplated by Section 2.01(d). "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 March 31, 2002, or (b) in the validity or enforceability of this Agreement or any of the other Credit Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "MATERIAL SUBSIDIARY" means any Subsidiary of the Parent having assets or annual revenues in excess of $1,000,000. "MATERIAL UNCONSOLIDATED ENTITY" means any Unconsolidated Entity of the Parent for which the Investment Amount is in excess of $1,000,000. "MATURITY DATE" means, (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. -22- "MERGER" means the merger of IHC with and into MHRI, and the other related transactions contemplated by the Merger Agreement. "MERGER AGREEMENT" means the Agreement and Plan of Merger among IHC and MHRI, dated May 1, 2002, as amended by Amendment No. 1 to Agreement and Plan of Merger dated as of June 3, 2002. "MHC" means MeriStar Hospitality Corporation, a Maryland corporation. "MHC INDEBTEDNESS" means Subordinate Indebtedness owed by the Borrower and the Borrower's Subsidiaries to MHC or MHC's Subsidiary (a) which cannot exceed $57,000,000, (b) which does not have any scheduled principal repayments or a maturity date prior to the fifth (5th) anniversary of the Closing Date, and (c) the proceeds of which are used for the purposes set forth in Section 4.08(a). "MHC LETTER" means a comfort letter and estoppel certificate executed by MHC and MHC OP for the benefit of the Administrative Agent and the Lenders, and acknowledged by the Borrower, pertaining to the Intercompany Agreement and the Permitted Property Agreements entered into between MHC and MHC's Subsidiaries and the Parent and the Parent's Subsidiaries, in form and substance acceptable to the Administrative Agent. "MHC OP" means MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership. "MHRI" means MeriStar Hotels & Resorts, Inc., a Delaware corporation prior to the Merger with IHC. "MINIMUM NET WORTH" means, with respect to the Parent, at any time, the sum of $75,000,000 PLUS (a) 75% of the aggregate net proceeds or value received by the Parent or any of its Subsidiaries after the date of this Agreement in connection with any Capitalization Events taken as a whole, including without limitation in connection with the acquisition of any Investment or other Property, PLUS (b) to the extent a positive number, 75% of the aggregate Net Income of the Parent and the Parent's Subsidiaries for the period from and including July 1, 2002 to the date of testing, on a Consolidated basis, MINUS (c) an amount equal to the lesser of (i) $25,000,000 or (ii) the sum of (A) the Parent's write-off under GAAP of the Parent's or the Parent's Subsidiary's Investment with respect to the St. Louis Radisson Hotel up to a maximum write-off of $11,500,000 and (B) the aggregate amount of all of the Parent's write-offs under GAAP of intangible assets that occur after March 31, 2002. "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 -23- 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 accruing an obligation to make contributions. "NET CASH PROCEEDS" means (a) the aggregate cash proceeds (including, without limitation, insurance proceeds) received by the Parent, the Borrower or any of their respective Subsidiaries (as applicable) in connection with any Indebtedness incurrence on or after the Closing Date (excluding the Obligations and the incurrence of other Indebtedness which does not trigger a Repayment Event), Asset Disposition or Capitalization Event, MINUS (b) the reasonable expenses of such Person in connection with such Indebtedness incurrence, Asset Disposition or Capitalization Event, MINUS (c) to the extent that assets disposed of in connection with an Asset Disposition secure Indebtedness permitted pursuant to the provisions of Section 6.02(a), the amount of such Indebtedness which is required to be repaid pursuant to the terms of such Indebtedness in connection with such Asset Disposition, as reasonably evidenced by the Borrower to the 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 determined on a Consolidated basis in accordance with GAAP, excluding, however, (a) non-recurring expenses incurred in connection with the Merger and (b) extraordinary items, including but not limited to (i) any net gain or loss during such period arising from the sale, exchange, or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business, and (ii) any write-up or write-down of assets. "NET WORTH" means, for any Person, stockholders equity of such Person determined in accordance with GAAP. "NON-DEFAULTING LENDER" shall mean and include each Lender other than a Defaulting Lender. "NON-REPLACED PROPERTY" means any Property owned by the Borrower or any of the Guarantors which (a) was used in the ownership, operation or management of any Hospitality Property, (b) has been conveyed, exchanged, transferred, or assigned by the Borrower or a Guarantor to a Person other than the Borrower or a Guarantor, (c) has not been replaced in the ordinary course of business by Property of equal or better quality, and (d) was not included within the definition of "Investments". "NOTE" means any of the Dollar Revolving Notes, the Term Notes, the Euro Note or the Pound Note, 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. -24- "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 to the Administrative Agent or the Lenders under the Credit Documents. "OWNED HOSPITALITY PROPERTY" means a Hospitality Property owned by the Parent or one of the Parent's Subsidiaries or leased by the Parent or one of the Parent's Subsidiaries pursuant to a Ground Lease. "OWNED HOSPITALITY PROPERTY INVESTMENTS" shall mean Investments in Owned Hospitality Properties or in Persons for which Hospitality Properties are substantially all of such Person's Property. "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 Agents 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 non-voting, 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. (fka MeriStar Hotels & Resorts, Inc.), a Delaware corporation, the surviving entity of the merger of IHC into MHRI pursuant to the Merger. "PARTICIPATING MEMBER STATE" means each state so described in any legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency (whether known as the Euro or otherwise), being in part the implementation of the third stage of Economic and Monetary Union as contemplated in the Treaty of Rome of 25 March 1957, as amended by the Single European Act 1986 and the Maastricht Treaty (which was signed at Maastricht on 7 February 1992 and came into force on 1 November 1993). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. -25- "PERMITTED ASSET DISPOSITION" means an Asset Disposition which (a) occurs at a time in which no Default has occurred and is continuing, and (b) would not cause a Default to occur upon the consummation of such Asset Disposition. "PERMITTED ENCUMBRANCES" means the Liens permitted to exist pursuant to Section 6.01. "PERMITTED HAZARDOUS SUBSTANCES" means (a) Hazardous Substances, petroleum and petroleum products which are (i) used in the ordinary course of business and in typical quantities for a Hospitality Property and (ii) generated, used and disposed of in accordance with all Legal Requirements and good industry practice, and (b) non-friable asbestos to the extent (i) that no applicable Legal Requirements require removal of such asbestos from the Hospitality Property and (ii) such asbestos is encapsulated in accordance with all applicable Legal Requirements and such reasonable operations and maintenance program as may be required by the Administrative Agent. "PERMITTED HOUSING AGREEMENTS" means leases of Units as part of the Permitted Housing Business (a) by the Borrower and its Subsidiaries to third parties and (b) by third parties to the Borrower and its Subsidiaries. "PERMITTED HOUSING BUSINESS" means the business of leasing Units, subleasing such Units to another Person and providing ancillary services to such Person in connection with such Units; PROVIDED that without the written consent of the Required Lenders the Borrower and the Borrower's Subsidiaries shall not enter into new leases of Units or extend the term of existing leases of Units where the leases cause the Borrower to violate any of the Permitted Housing Business Leasing Guidelines. "PERMITTED HOUSING BUSINESS LEASING GUIDELINES" means the requirement that the Borrower and the Borrower's Subsidiaries not lease Units or renew the lease of Units if, upon consummation of such lease or renewal, (a) the aggregate number of Units which have a term which exceeds 1 year is equal to or greater than 700, (b) the aggregate number of Units which have a term which exceeds 5 years is equal to or greater than 400, and (c) the Borrower's and the Borrower's Subsidiaries' aggregate lease obligations for the leases of Units outside the United States, Canada and Western Europe exceeds 15% of the Borrower's and the Borrower's Subsidiaries' aggregate lease obligations for Units. "PERMITTED HOUSING COMPANY" means a Person which is primarily in the Permitted Housing Business and which is approved by the Required Lenders. "PERMITTED NEW INVESTMENTS" means the following Investments made after the Closing Date: (a) (i) to acquire Permitted Property Agreements and (ii) in Persons for which Permitted Property Agreements are substantially all of such Person's Property, which Persons become Subsidiaries of the Borrower; (b) (i) in Persons for which Permitted Property Agreements are substantially all of such Person's Property, which Persons do not become Subsidiaries of the -26- Borrower, (ii) to acquire Permitted Housing Agreements, and (iii) in Persons which are primarily in the Permitted Housing Business; PROVIDED that the aggregate amount of such Investments, excluding any such Investments existing as of the Effective Date, shall not exceed $15,000,000; (c) in Owned Hospitality Property Investments; PROVIDED that (i) the aggregate Investment Amount in Owned Hospitality Property Investments, excluding the Investment Amount in Existing Owned Hospitality Property Investments, shall not at any time exceed $50,000,000, (ii) at least five (5) Business Days prior to acquiring an Owned Hospitality Property the Borrower shall have delivered to the Administrative Agent the Property Information for such Owned Hospitality Property (except that for the Pittsburgh Property the Borrower need only provide (A) current Property Information for those items set forth in paragraphs (b), (c), (e) and (g) of the definition of "Property Information" and (B) the most recent, but not current Property Information for those items set forth in paragraphs (a), (d), and (f) of the definition of "Property Information"), (iii) any Ground Lease for an Owned Hospitality Property must be financable in the reasonable opinion of the Administrative Agent and (iv) no more than twenty percent (20%) of the hotel rooms in the applicable Hospitality Property may be subject to a timeshare regime; (d) Investments in Persons who provide services to, among other Hospitality Properties, Hospitality Properties for which Borrower or one of Borrower's Subsidiaries has or will enter into a Permitted Property Agreement and/or Owned Hospitality Property Investments; PROVIDED that the aggregate amount of all such Investments in Persons which provide such services shall not exceed $10,000,000; and (e) Investments which (i) are not otherwise covered by one of the preceding clauses (a)-(d) and (ii) are in Persons whose primary business is not the Hospitality Management Business; PROVIDED that the aggregate amount of the Investments in such Persons shall not exceed $5,000,000. For purposes of this definition, if in connection with the acquisition of Permitted Property Agreements an Owned Hospitality Property Investment is also made or acquired and the Borrower's direct or indirect ownership in such Owned Hospitality Property Investment exceeds twenty percent (20%) of the total ownership in such Owned Hospitality Property Investment, then a reasonable portion of the Investment Amount for such Investment shall be attributed to such Owned Hospitality Property Investment and counted toward the $50,000,000 limitation set forth in the foregoing clause (c). If such ownership percentage is equal to or less than twenty percent (20%), then such Investment shall be deemed to have been made under the foregoing clause (a) or (b), as applicable. Notwithstanding anything in this definition to the contrary, Permitted New Investments shall not include any Capital Expenditures made pursuant to the provisions of Section 6.06(e) or Restricted Payments. Notwithstanding anything in this Agreement to the contrary, (a) the Borrower shall have until the date thirty (30) days following the Closing Date to deliver the Environmental Report for the Pittsburgh Property, and (b) if such Environmental Report discloses any material Release, Environmental Claim, or violation of Environmental Law, then the Borrower shall cause such Release, Environmental Claim, or -27- violation of Environmental Law to be remediated in accordance with the provisions of the Environmental Indemnity within thirty (30) days of delivery of such Environmental Report. "PERMITTED NON-RECOURSE UNCONSOLIDATED ENTITY INDEBTEDNESS" means Indebtedness of an Unconsolidated Entity which (i) is incurred by an Unconsolidated Entity to acquire a Hospitality Property or Hospitality Management Business or refinance such acquisition Indebtedness, and (ii) is non-recourse to the Parent, the Borrower and their respective Subsidiaries except for the Ownership Interests in such Unconsolidated Entity. "PERMITTED OTHER INDEBTEDNESS" means: (a) MHC Indebtedness or Permitted Subordinate Refinancing Indebtedness; (b) Indebtedness which (i) is incurred by a Permitted Other Subsidiary to (A) acquire an Owned Hospitality Property Investment which qualifies as a Permitted New Investment, (B) refinance Indebtedness (including Permitted Owned Hospitality Property Obligations) incurred to acquire a Permitted New Investment, or (C) finance the Pittsburgh Property, where the Indebtedness incurred does not exceed 70% of the Investment Amount for such Permitted New Investment or Pittsburgh Property, as applicable, and (ii) is non-recourse to the Parent, the Borrower and their respective subsidiaries except for the Property of or the Ownership Interests in such Permitted Other Subsidiary and customary recourse "carve-outs"; (c) Senior Indebtedness (excluding the Obligations and any other Indebtedness separately listed in this definition of "Permitted Other Indebtedness") which (i) in the aggregate does not exceed the sum of (A) the Net Cash Proceeds from any such Indebtedness used to repay Obligations in accordance with the provisions of this Agreement PLUS (B) $50,000,000, and (ii) is not secured by any of the Parent's, the Borrower's or their respective Subsidiaries Investments or other Property except as expressly permitted by the provisions of Section 6.01(h); (d) Pre-Existing Designated Senior Indebtedness, PROVIDED that the Borrower will use a portion of the first Advance under this Agreement to repay such Indebtedness; (e) Indebtedness of Interstate/Dallas GP, LLC and Interstate/Dallas Partnership, LP (the "Dallas Pledgors") to FelCor in the amount of approximately $4,170,000, secured by the interests of the Dallas Pledgors in FCH/IHC Hotels, LP.; (f) Permitted Non-Recourse Unconsolidated Entity Indebtedness; (g) Approved Inter-Company Indebtedness; and (h) Minority Ownership Interests reflected on the Parent's financial statements as Indebtedness. "PERMITTED OTHER SUBSIDIARY" means a Subsidiary of the Parent which (a) is a single-purpose Person, (b) has never been a Guarantor, nor owned any Collateral, and (c) only owns -28- Permitted New Investments acquired in whole or in part with the proceeds of Indebtedness excluding the proceeds of Advances and other Property ancillary to such Permitted New Investments. "PERMITTED OWNED HOSPITALITY PROPERTY OBLIGATIONS" means Obligations incurred in making an Investment in an Owned Hospitality Property or the Ownership Interests in a Subsidiary which owns an Owned Hospitality Property which pursuant to the terms of this Agreement is required to be Collateral; PROVIDED that with respect to the Pittsburgh Property the "Permitted Owned Hospitality Property Obligations" shall be deemed to be the greater of (a) $5,000,000 and (b) the Net Cash Proceeds from the incurrence of the Permitted Other Indebtedness to be secured by the Pittsburgh Property. "PERMITTED PROPERTY AGREEMENTS" means (a) Existing Management Agreements and Existing Participating Leases and (b) Approved Management Agreements or Approved Participating Leases related to Hospitality Properties entered into after the Closing Date. "PERMITTED SUBORDINATE REFINANCING INDEBTEDNESS" means Subordinate Indebtedness of the Parent or any of its Subsidiaries which satisfies the following requirements: (a) The Net Cash Proceeds of such Subordinate Indebtedness are used (i) first, to repay the MHC Indebtedness in its entirety, (ii) second, to repay the Obligations in accordance with the provisions of Section 2.07(c), and (iii) third, for the purposes set forth in Section 4.08(a). (b) Such Subordinate Indebtedness does not exceed $150,000,000. (c) The interest rate on such Subordinate Indebtedness may not exceed the Eurodollar Rate plus eight and one half percent (8.5%), if interest is calculated on a floating basis, or twelve percent (12%) if interest is calculated on a fixed basis. (d) At least ten (10) days prior to the issuance of such Subordinate Indebtedness, Borrower shall deliver to the Lenders a pro forma Compliance Certificate and projections through the Maturity Date (assuming the exercise of the extension option for the Revolving Advances) demonstrating that, upon giving effect to the issuance of such Subordinate Indebtedness on a pro forma basis, the Borrower will be in compliance with all financial covenants contained in this Agreement for the Rolling Period ending in the quarter in which such Subordinate Indebtedness is incurred and all subsequent Rolling Periods. (e) Such Subordinated Indebtedness shall be subordinated to the Obligations pursuant to provisions at least as favorable to the Lenders as the provisions subordinating the MHC Indebtedness to the Obligations. (f) The financial covenants for such Subordinated Indebtedness shall be no more restrictive to the Borrower than the existing financial covenants for the MHC Indebtedness, and shall in no case be more restrictive to the Borrower than those contained in this Agreement. -29- "PERSON" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, limited liability company, joint venture or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official. "PITTSBURGH PROPERTY" means the Pittsburgh, Pennsylvania Airport Residence Inn (Park Lane). "PLAN" means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Parent, the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code. "POUND NOTE" means a promissory note of the Borrower payable to the order of the Alternate Currency Swing Line Lender, in substantially the form of the attached Exhibit A-4, evidencing indebtedness of the Borrower to the Alternate Currency Swing Line Lender resulting from Pound Rate Advances. "POUND RATE" means, for the Interest Period for each Pound Rate Advance comprising part of the same Borrowing, an interest rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum) equal to the rate per annum at which deposits in Pounds are offered to prime banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period as shown on the display designated "British Banker's Association Interest Settlement Rates" on Telerate at Page 3750 or Page 3740, or such other page or pages as may replace such pages on Telerate for purposes of displaying such rate, in an amount substantially equal to Societe Generale's Pound Rate Advance comprising part of such Borrowing and for a period equal to such Interest Period; PROVIDED, however, that if such rate is not available on Telerate then such offered rate shall be otherwise independently determined by Administrative Agent from an alternate, substantially similar source available to Administrative Agent or shall be calculated by Administrative Agent by a substantially similar methodology as that theretofore used to determine such offered rate in Telerate. "POUND RATE ADVANCE" shall have the meaning provided in Section 2.01(d). "POUNDS" shall mean freely and transferable lawful money of the United Kingdom. "PRE-EXISTING DESIGNATED SENIOR INDEBTEDNESS" means that certain Senior Indebtedness of MHRI, IHC and their respective Subsidiaries existing immediately prior to the Merger set forth on Schedule 1.01(h). "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 -30- (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). "PRIME RATE" means a fluctuating interest rate per annum as shall be in effect from time to time equal to the rate of interest publicly announced by the Administrative Agent as its prime commercial lending rate (which may not be the lowest rate offered to its customers), whether or not the Borrower has notice thereof. "PROPERTY" of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person, including without limitation, the Permitted Property Agreements, the Permitted Housing Agreements, and all Owned Hospitality Properties. "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; and (g) all financial statements reasonably required by the Administrative Agent. "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). "REGISTER" has the meaning set forth in paragraph (c) of Section 10.06. "REGISTRATION STATEMENTS" means MHRI's S-4 filed with the Securities and Exchange Commission on June 4, 2002, as amended by S-4a filed on June 25, 2002. "REGULATION U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. -31- "REINSURANCE CONTRACT" means each outstanding reinsurance, coinsurance and other similar contract of each Insurance Company. "RELATED FUND" means, with respect to any Approved Fund, any other Approved Fund that invests in commercial loans which is advised or managed by the same investment advisor as such Approved Fund. "RELEASE" shall have the meaning set forth in CERCLA or under any other Environmental Law. "REPAYMENT EVENT" means the incurrence of any Indebtedness on or after the Closing Date by the Parent, the Borrower or one of their respective Subsidiaries (excluding (a) the Obligations, (b) Indebtedness incurred under clause (b) of the definition of "Permitted Other Indebtedness" which is not incurred to refinance Permitted Owned Hospitality Property Obligations, and (c) the portion of the Net Cash Proceeds from the incurrence of any Permitted Subordinate Refinancing Indebtedness used to repay MHC Indebtedness and any refinancing of any Permitted Subordinate Refinancing Indebtedness), a Capitalization Event, or an Asset Disposition or the payment to the Borrower or one of the Borrower's Subsidiaries of a termination payment under a Permitted Property Agreement or a Permitted Housing Agreement after the Closing Date, except for Asset Dispositions or any such termination payments for which the aggregate Net Cash Proceeds do not exceed $1,000,000 in any calendar year. "REPORTABLE EVENT" means any of the events set forth in Section 4043(b) of ERISA. "REQUIRED LENDERS" means Non-Defaulting Lenders the sum of whose outstanding Term Advances (and, prior to the termination thereof, Term Commitments) and Revolving Commitments (or after the termination thereof, outstanding Dollar 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 Dollar 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 Chief Executive Officer, President, Executive Vice President, Chief Financial Officer or Treasurer of any Person, or, with respect to a partnership, the general partner of such Person. "RESTRICTED PAYMENT" means (a) any direct or indirect payment, prepayment, redemption, purchase, or deposit of funds or Property for the payment (including any sinking fund or defeasance), prepayment, redemption or purchase of any Indebtedness not permitted by this Agreement or any Subordinate Indebtedness, and (b) the making by any Person of any dividends -32- 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 Alternate Currency Swing Line Advance or any Dollar Revolving Advance. "REVOLVING COMMITMENT" means, for each Lender, the amount set opposite such Lender's name on Schedule 1.01(a) as its Revolving Commitment or, if such Lender has entered into any Assignment and Acceptance after the Effective Date, set forth for such Lender as its Revolving Commitment in the Register maintained by the Administrative Agent pursuant to Section 10.06(c). "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 July 28, 2005, as such date may be extended pursuant to the provisions of Section 2.05. "REVOLVING REQUIRED LENDERS" means Non-Defaulting Lenders the sum of whose Revolving Commitments (or after the termination thereof, outstanding Dollar 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 Dollar 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. -33- "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 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 Total Indebtedness minus Subordinate Indebtedness. "SENIOR LEVERAGE RATIO" means the ratio on any date of (a) the Parent's Senior Indebtedness on such date to (b) the Parent's Adjusted EBITDA for the Rolling Period immediately preceding such date. "SENIOR INTEREST COVERAGE RATIO" means, as of the end of any Rolling Period, a ratio of (a) the Parent's Adjusted EBITDA to (b) the Parent's Interest Expense pertaining to Senior Indebtedness, for such Rolling Period. "SG COWEN " means SG Cowen Securities Corporation. "SHARING EVENT" shall mean (a) the occurrence of any Event of Default with respect to the Borrower pursuant to Section 8.01(f), (b) the declaration of the Lenders' obligation to make Advances terminated, or the acceleration of the maturity of any Advances, in each case pursuant Section 8.02 or 8.03, or (c) the failure of the Borrower to pay any principal of, or interest on, Advances or any Letter of Credit Obligations either (i) on the Maturity Date or (ii) on any other date on which such failure has existed for ninety (90) days or longer. "SPECIFIED ACQUIRER" means the Person listed on Schedule 1.01(i). "SPECIFIED CHANGE OF CONTROL EVENT" means that Specified Acquirer or a Subsidiary or parent of Specified Acquirer either (a) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of MHC's outstanding securities or (b) otherwise merges with MHC. "SSB" means Salomon Smith Barney Inc. -34- "STATUS" means the existence of Level I Status, Level II Status, Level III Status, or Level IV 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 3.0; "LEVEL II STATUS" exists at any date if, at such date, the Leverage Ratio at the end of the preceding Rolling Period is equal to or greater than 3.0 but less than 4.0; "LEVEL III STATUS" exists at any date if, at such date, the Leverage Ratio at the end of the preceding Rolling Period is equal to or greater than 4.0 but less than 5.25; "LEVEL IV STATUS" exists at any date if, at such date, the Leverage Ratio at the end of the preceding Rolling Period is equal to or greater than 5.25. 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 the Status one level higher than the Status existing immediately prior to such Status reset until such time as the Borrower provides such financial statements or draft Compliance Certificate, as applicable; PROVIDED FURTHER that at the Closing Date the Status under the Credit Agreement will be reset to Level III Status and such Status shall not be reduced until the next Status Reset Date following the Closing 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 5 days following the delivery of the reports and other documents required by (i) the provisions of Section 5.05(a) for such Fiscal Quarter (except for the Fiscal Quarter which ends on the date the Fiscal Year ends) or (ii) the provisions of Section 5.05(b) for the Fiscal Quarter which ends on the date the Fiscal Year ends; PROVIDED that the documents contemplated by the preceding clause (ii) shall never be deemed delivered prior to the 40th day following the end of the Fiscal Year. "SUBORDINATE INDEBTEDNESS" means Indebtedness of the Borrower, the Parent and their respective Subsidiaries which (a) shall not mature, become payable or require the payment of any principal amount thereof (or any amount in lieu thereof) or be mandatorily redeemable, pursuant to a sinking fund or otherwise redeemable at the option of the holder thereof, in any case in whole or in part, before the date that is 91 days after the Maturity Date and (b) shall be junior and subordinate to the Obligations and subject to an intercreditor agreement or subordination provisions which is acceptable to the Administrative Agent. -35- "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. "TARGET" means Trans-European Automated Real-time Gross settlement Express Transfer system. "TARGET DAY" means a day on which payments in Euros are settled in the TARGET system. "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 amount set opposite such Lender's name on Schedule 1.01(a) as its Term Commitment or, if such Lender has entered into any Assignment and Acceptance after the Effective Date, set forth for such Lender as its Term Commitment in the Register maintained by the Administrative Agent pursuant to Section 9.06(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. "TERM MATURITY DATE" means July 28, 2005. "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 SHARE" means, at any time with respect to any Lender with an outstanding Term Advance, the ratio (expressed as a percentage) of such Lender's outstanding Term Advances at such time to the aggregate outstanding Term Advances at such time. "TERMINATION EVENT" means (a) the occurrence of a Reportable Event with respect to a Plan, as described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of the Controlled Group from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the giving of a notice of intent to terminate a Plan under Section 4041(c) of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "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 -36- 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" of any Person means the sum of the following (without duplication): (a) all Indebtedness of such Person and its Subsidiaries on a Consolidated basis, PLUS (b) such Person's and such Person's Subsidiaries' Unconsolidated Entity Percentage of Indebtedness of such Person's and such Person's Subsidiaries' Unconsolidated Entities, PLUS (c) to the extent not already included in the calculation of either of the preceding clauses (a) or (b), the aggregate amount of letters of credit for which such Person or any of its Subsidiaries would have a direct or contingent obligation to reimburse the issuers of such letters of credit upon a drawing under such letters of credit, MINUS (d) to the extent included in the calculation of either of the preceding clauses (a), (b), or (c), the amount of any minority interests. "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. "UNCONSOLIDATED ENTITY PERCENTAGE" means, for any Person, with respect to a Person's Unconsolidated Entity, the percentage of such Unconsolidated Entity's Indebtedness for which recourse may be made against such Person. "UNITS" means apartment or condominium units. "WYNDHAM" means Wyndham International, Inc. 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". 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 -37- based upon the Consolidated accounts of the Borrower, the Parent and their respective Subsidiaries (as applicable) in accordance with GAAP. (c) If any changes in accounting principles after March 31, 2002 required by GAAP or the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or similar agencies results in a change in the method of calculation of, or affects the results of such calculation of, any of the financial covenants, standards or terms found in this Agreement, then the parties shall enter into and diligently pursue negotiations in order to amend such financial covenants, standards or terms so as to equitably reflect such change, with the desired result that the criteria for evaluating the financial condition of Borrower and its Subsidiaries (determined on a Consolidated basis) shall be the same after such change as if such change had not been made. Section 1.04 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, a Eurocurrency Rate Advance, a Pound 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 Closing Date, in an aggregate amount equal to such Lender's Term Commitment. No amount of any Term Advance that has been repaid may be reborrowed. (b) DOLLAR 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, as the same may be extended, to make Dollar Revolving Advances; PROVIDED that Dollar 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 Dollar Revolving Advances pursuant to the provisions of Section 2.07 and reborrow Dollar Revolving Advances under this Section 2.01(b). (c) REVOLVING COMMITMENTS INCREASE. -38- (i) The Borrower shall be entitled to request that the aggregate Revolving Commitments be increased to an amount not exceeding Sixty Million Dollars ($60,000,000); PROVIDED that (A) no Default then exists, (B) the Borrower gives the Lenders thirty (30) days prior written notice of such election, (C) no Lender shall be obligated to increase such Lender's Revolving Commitment without such Lender's written consent which may be withheld in such Lender's sole discretion, (D) the Borrower, not the Lenders or the Administrative Agent, is responsible for arranging for Persons to provide the additional Revolving Commitment amounts, (E) any Person providing any additional Commitment amount must qualify as an Eligible Assignee and be reasonably acceptable to the Borrower, the Administrative Agent, the Issuing Bank, and the Alternate Currency Swing Line Lender if such Person is not already a Lender, (F) such increase in the Revolving Commitments shall not increase the Alternate Currency Swing Line Commitment, and (G) such increase in the Revolving Commitments shall not cause the sum of (1) the Revolving Commitments and (2) the Term Advances (and, prior to the termination thereof, Term Commitments) to exceed $125,000,000. In connection with any such increase in the Revolving Commitments the parties shall execute any documents reasonably requested in connection with or to evidence such increase, including without limitation an amendment to this Agreement. (ii) On the date (the "FUNDING DATE") designated by the Administrative Agent, the Lenders whose Revolving Commitments have increased in connection with such future increase in the Total Commitments, as applicable, shall fund to the Administrative Agent such amounts as may be required to cause each of them to hold its Revolving Share of Dollar Revolving Advances based upon the Commitments as of such Funding Date, and the Administrative Agent shall distribute the funds so received to the other Lenders in such amounts as may be required to cause each of them to hold its Revolving Share of Dollar Revolving Advances as of such Funding Date. The Lenders receiving such amounts to be applied to Eurodollar Rate Advances may demand payment of the breakage costs under Section 2.08 as though Borrower had elected to prepay such Eurodollar Rate Advances on such date and the Borrower shall pay the amount so demanded as provided in Section 2.08. The first payment of interest and letter of credit fees received by the Administrative Agent after such Funding Date shall be paid to the Lenders in amounts adjusted to reflect the adjustments of their respective Revolving Shares of the Dollar Revolving Advances as of the Funding Date. On the Funding Date each Lender shall be deemed to have either sold or purchased, as applicable, participations in (A) the Letter of Credit Exposure sold to the Lenders pursuant to Section 2.13(b) so that upon consummation of all such sales and purchases each Lender holds participations in the Letter of Credit Exposure equal to such Lender's Revolving Share of the total Letter of Credit Exposure as of such Funding Date and (B) the Alternate Currency Swing Line Advances sold to the Lenders pursuant to Section 2.01(d)(iii) so that upon consummation of all such sales and purchases each Lender holds participations in the Alternate -39- Currency Swing Line Advances equal to such Lender's Revolving Share of the total Alternate Currency Swing Line Advances as of such Funding Date. (d) ALTERNATE CURRENCY SWING LINE ADVANCES. (i) Subject to the terms and conditions set forth in this Agreement, the Alternate Currency Swing Line Lender agrees at any time and from time to time on any Business Day up to twenty five (25) days prior to the Revolving Maturity Date, as the same may be extended, to make revolving advances to the Borrower in Euros (each a "EUROCURRENCY RATE ADVANCE") and/or Pounds (each a "POUND RATE ADVANCE"); PROVIDED that Alternate Currency Swing Line Advances shall not be made (or be required to be made) by the Alternate Currency Swing Line Lender on any date if, after giving effect thereto, (A) any Lender's Revolving Share of the Revolving Exposure would exceed such Lender's Revolving Commitment at such time, (B) the Revolving Exposure would exceed the aggregate Revolving Commitments of the Lenders at such time, or (iii) the Dollar Equivalent of the Alternate Currency Swing Line Advances exceeds the Alternate Currency Swing Line Commitment. Within the limits of the Alternate Currency Swing Line Commitment, the Borrower may from time to time prepay Alternate Currency Swing Line Advances pursuant to the provisions of Section 2.07 and reborrow Alternate Currency Swing Line Advances under this Section 2.01(d). (ii) The Borrower and the Lenders agree that upon written demand by the Alternate Currency Swing Line Lender to the Administrative Agent (which may be given at any time by the Alternate Currency Swing Line Lender without the consent of the Borrower and shall be deemed given if any Sharing Event occurs), the Administrative Agent shall give each Lender a notice of a Mandatory Borrowing. Upon receipt of such notice, each Lender having a Revolving Commitment shall pay to the Administrative Agent its Revolving Share of the Dollar Equivalent of such Alternate Currency Swing Line Advance, and such payment shall be an Adjusted Base Rate Advance made pursuant to such Lender's Revolving Commitment, whether made before or after termination of the Revolving Commitments, acceleration of the Revolving Advances, or otherwise, and whether or not the conditions precedent in Section 3.02 have been satisfied at the time of such Mandatory Borrowing. The Administrative Agent shall give each Lender notice of such Mandatory Borrowing by 11:00 a.m. (Dallas, Texas time) on the date the Mandatory Borrowing is to be made. Each Lender having a Revolving Commitment shall, regardless of whether the conditions in Section 3.02 have been met at the time of such Mandatory Borrowing and regardless of whether there exists any Default or Event of Default, make its Dollar Revolving Advance available to the Administrative Agent for the account of the Alternate Currency Swing Line Lender in immediately available funds by 3:00 p.m. (Dallas, Texas time) on the date requested, and the Borrower hereby irrevocably instructs the Alternate Currency Swing Line Lender to apply the proceeds of such Mandatory Borrowing to the payment of the outstanding Alternate Currency Swing Line Advances. Until the Mandatory Borrowing is actually applied to the -40- repayment of Alternate Currency Swing Line Advances, interest shall continue to accrue thereon. (iii) In the event that any Mandatory Borrowing cannot be made upon the day required in the preceding clause (ii), upon written demand by the Alternate Currency Swing Line Lender to each Lender, with a copy of such demand to the Administrative Agent, each other Lender shall purchase from the Alternate Currency Swing Line Lender, a participating interest in each Alternate Currency Swing Line Advance in an amount equal to such other Lender's Revolving Share of each Alternate Currency Swing Line Advance as of the date of such purchase. Each Lender agrees to purchase its Revolving Share of each Alternate Currency Swing Line Advance on (A) the Business Day on which demand therefore is made by the Alternate Currency Swing Line Lender, provided notice of such demand is given not later than 11:00 A.M. (Dallas, Texas time) on such Business Day or (B) the first Business Day next succeeding such demand if notice of such demand is given after such time, by making available to the Administrative Agent for the account of the Alternate Currency Swing Line Lender in immediately available funds by 3:00 p.m. (Dallas, Texas time) on such date, an amount equal to such Lender's Revolving Share of the outstanding principal amount of and interest on the Alternate Currency Swing Line Advances to be purchased by such other Lender. The Borrower hereby agrees to each such purchase. Promptly after receipt of such funds from the purchasing Lenders, the Administrative Agent shall transfer such funds to the Alternate Currency Swing Line Lender. Upon any sale by the Alternate Currency Swing Line Lender to any other Lender of a participating interest in any Alternate Currency Swing Line Advance pursuant to this Section 2.01(d), the Alternate Currency Swing Line Lender represents and warrants to such other Lender that the Alternate Currency Swing Line Lender is the legal and beneficial owner of such interest being sold by it, free and clear of any liens, but makes no other representation or warranty. Except for such representation and warranty, the Alternate Currency Swing Line Lender shall have no responsibility or liability to any other Lender with respect to the Alternate Currency Swing Line Advances, any participation sold, this Agreement or any party hereto, and no Lender shall have any recourse against the Alternate Currency Swing Line Lender with respect to the Alternate Currency Swing Line Advances, any participation sold, this Agreement or any party hereto, except that the Alternate Currency Swing Line Lender shall pay to each Lender that purchases a participation in a Alternate Currency Swing Line Advance pursuant to this Section 2.01(d)(iii) such Lender's ratable share of the payments, if any, actually received by the Alternate Currency Swing Line Lender on such Alternate Currency Swing Line Advance. Any sale of a participating interest pursuant to this Section 2.01(d)(iii) may, at the Alternate Currency Swing Line Lender's option, be evidenced by a participation agreement or other document in substantially the same form as any participation agreement or other document customarily used by the Alternate Currency Swing Line Lender to evidence its sale of a participating interest in a loan. If and to the extent that any Lender shall not have so made the amount required by this Section 2.01(d)(iii) available to the -41- Administrative Agent, such Lender agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date such amount was originally due until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate for the account of the Alternate Currency Swing Line Lender. If in connection with a Lender's purchase of a participating interest pursuant to this Section 2.01(d)(iii) a Lender cannot pay such Lender's purchase price in the applicable Alternate Currency because such Lender is legally prohibited from doing so or because such Lender does not make advances in such Alternate Currency, then such Lender may purchase such Lender's participating interest by paying in Dollars the Dollar Equivalent of such Lender's participating interest. Upon any subsequent repayment of an Alternate Currency Swing Line Advance for which any Lender bought a participation in Dollars, the portion of the Alternate Currency Swing Line Advance repaid in which such Lender participated shall be converted by the Alternate Currency Swing Line Lender into Dollars and such Dollars paid to such Lender. To the extent that the amount of Dollars so repaid to any such Lender is less than the applicable amount of Dollars originally paid by such Lender for such Lender's participation in the Alternate Currency Swing Line Advance repaid, then within one (1) Business Day of the payment of such Dollars to such Lender the Borrower shall pay such difference to such Lender in Dollars. (iv) All Alternate Currency Swing Line Advances shall mature, and the principal amount thereof and the unpaid accrued interest thereon shall be due and payable on the last day of the Interest Period therefore, on any date on which such Alternate Currency Swing Line Advances are prepaid, whether due to acceleration or otherwise, and on the date twenty (20) days prior to the Revolving Maturity Date. Section 2.02 METHOD OF BORROWING. (a) NOTICE. (i) Each Borrowing shall be made pursuant to a Notice of Borrowing, given not later than 11:00 a.m. (Dallas, Texas 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, (B) on the fourth Business Day before the date of the proposed Borrowing, in the case of a Borrowing consisting of Alternate Currency Swingline Advances, or (C) 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 (and, if applicable, the Alternate Currency Swing Line 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 -42- Advances or Alternate Currency Swingline 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 excluding Alternate Currency Swing Line Advances, each Lender shall, before 11:00 a.m. (Dallas, Texas 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. With respect to Alternate Currency Swing Line Advances, the Alternate Currency Swing Line Lender shall, before 11:00 a.m. (Dallas, Texas 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 Alternate Currency Swing Line Lender, in same day funds, the Alternate Currency Swing Line Advances. 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 Closing Date only 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 8:00 a.m. (Dallas, Texas time) on the Closing Date. If such Notice of Borrowing on the Closing 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 11:00 a.m. (Dallas, Texas time) on the Closing Date and (B) each Lender shall, before 2:00 p.m. (Dallas, Texas time) on the Closing 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 11:00 a.m. (Dallas, Texas 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, (ii) on the date which is at least four (4) 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 Alternate Currency Swing Line Advances and (iii) on the Business Day prior to the proposed conversion date in the -43- 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 or Alternate Currency Swing Line 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 or Alternate Currency Swing Line Advance including the continuation of a Eurodollar Rate Advance or Alternate Currency Swing Line Advances, 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 and Alternate Currency Swing Line Advances each Borrowing shall be in an aggregate amount of not less than $1,000,000 or greater multiples of $100,000; (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 three (3) days in any calendar month; (iv) at no time shall there be more than five (5) Interest Periods applicable to outstanding Eurodollar Rate AdvanceS or two (2) Interest Periods applicable to outstanding Alternate Currency Swing Line Advances; (v) the Borrower may not select Fixed 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 Fixed 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 Fixed Rate Advances or to fund or maintain Fixed Rate Advances, then -44- 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 Fixed 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 Fixed Rate for Fixed Rate Advances comprising any requested Borrowing, the right of the Borrower to select Fixed 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 Agent that the Applicable Fixed Rate for Fixed Rate Advances comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Fixed Rate Advances, as the case may be, for such Borrowing, the right of the Borrower to select Fixed 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; and (ix) if the Borrower shall fail to select the duration or continuation of any Interest Period for any Fixed 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. (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 Fixed 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 -45- 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 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 indebtedness of the Borrower to each Lender resulting from Dollar Revolving Advances owing to such Lender shall be evidenced by a Dollar Revolving Note of the Borrower payable to the order of such Lender in substantially the form of Exhibit A-1. The indebtedness of the Borrower to each Lender resulting from Term Advances owing to such Lender shall be evidenced by a Term Note of the Borrower payable to the order of such Lender in substantially the form of Exhibit A-2. The indebtedness of the Borrower to the Alternate Currency Swing Line Lender resulting from Eurocurrency Rate Advances shall be evidenced by a Euro Note of the Borrower payable to the order of the Alternate Currency Swing Line Lender in substantially the form of Exhibit A-3. The indebtedness of the Borrower to the Alternate Currency Swing Line Lender resulting from Pound Rate Advances shall be evidenced by a Pound Note of the Borrower payable to the order of the Alternate Currency Swing Line Lender in substantially the form of Exhibit A-4. -46- Section 2.03 FEES. (a) COMMITMENT FEES. For the period from the Closing 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 Applicable Margin (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 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 (computed on the actual number of days elapsed, including the first day and excluding the last, based upon a 360-day 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 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 average daily amount of the aggregate undrawn maximum face amount of each Letter of Credit issued by such Issuing Bank at a rate per annum equal to one-quarter of one percent (.25%), such fees due and payable quarterly in arrears (i) on the date which is 30 days following the last Business Day of each March, June, September and December and (ii) on the Maturity Date. (c) ADMINISTRATIVE AGENT'S FEES. The Borrower agrees to pay to the Administrative Agent for its benefit the fees set forth in the Administrative Agent Fee Letter as and when the same are due and payable pursuant to the terms of the Administrative Agent Fee Letter. Section 2.04 REDUCTION OF THE REVOLVING COMMITMENTS. (a) VOLUNTARY. 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 (i) 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, (ii) no such reduction shall result in an overdraft status as provided in Section 2.07(c)(ii), and (iii) no such reduction shall result in the total aggregate Revolving Commitments of the Lenders being less than $25,000,000. (b) MANDATORY. At the time of any mandatory repayments of Revolving Advances pursuant to the provisions of Section 2.07(c) (except for any mandatory repayments in connection with the repayment of any Permitted Owned Hospitality Property Obligations within one hundred eighty (180) days of the incurrence thereof -47- excluding the repayment of the Permitted Owned Hospitality Property Obligations related to the Pittsburgh Property which shall in all cases require the Revolving Commitment reduction contemplated by this Section 2.04(b)), the Revolving Commitments of the Lenders shall be permanently reduced ratably by an amount equal to (i) the amount of any Dollar Revolving Advances so repaid and (ii) the Dollar Equivalent of any Alternate Currency Swing Line Advances; PROVIDED that the aggregate Revolving Commitments of the Lenders shall never be reduced pursuant to the provisions of this Section 2.04(b) to an amount of less than $25,000,000. Section 2.05 REPAYMENT OF ADVANCES ON MATURITY DATE; EXTENSION. (a) The Borrower shall repay the outstanding principal amount of each Advance on the Maturity Date. (b) The Borrower shall have one option, exercisable as hereinafter provided, to extend the original Revolving Maturity Date for an additional one-year period to the first anniversary of the original Revolving Maturity Date upon the completion by the Borrower of the following conditions (unless waived or modified in writing by the Revolving Required Lenders) prior to or as of the original Revolving Maturity Date to the satisfaction of the Administrative Agent: (i) No Event of Default or Default under any of the covenants of Article VII shall have occurred which has not been cured or waived in writing by the Administrative Agent as set forth in Section 9.01. (ii) The Administrative Agent shall have received no later than ninety (90) days prior to the original Revolving Maturity Date written notice from the Borrower that it intends to exercise its option to extend the Maturity Date. (iii) The Borrower shall have paid to the Administrative Agent for the account of each Lender on or prior to the Revolving Maturity Date an extension fee equal to the product of (A) one-quarter of one percent (1/4%) times (B) the aggregate amount of such Lender's Revolving Commitment as of the original Revolving Maturity Date. (iv) The Borrower shall have repaid all Term Advances and, if the Borrower is obligated to repay any Revolving Advances at or prior to the original Revolving Maturity Date, the Borrower shall have repaid such Revolving Advances. (v) The representations and warranties of the Borrower, the Parent and the Guarantors in the Credit Documents remain true and correct in all material respects as of the Revolving Maturity Date, as changed based upon events or activities permitted by the Credit Documents. Under no circumstances may the Revolving Maturity Date be extended beyond the fourth anniversary of the Closing Date. -48- (c) The Borrower shall not have any option to extend the Term Maturity Date. 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 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 three percent (3%) and (ii) the Maximum Rate. (b) FIXED RATE ADVANCES. If such Advance is a Fixed 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 Fixed 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 Fixed Rate Advance shall be paid in full, and, with respect to Fixed Rate Advances having an Interest Period in excess of 30 days, the first Business Day of each calendar month during such Interest Period excluding the month in which such Fixed Rate Advance shall be paid in full; PROVIDED that during the continuance of an Event of Default, Fixed 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 three percent (3%) and (ii) the Maximum Rate. Until the Lenders purchase participations in the Alternate Currency Swing Line Advances as provided in Section 2.01(a), all interest paid on Alternate Currency Swing Line Advances shall be solely for the benefit of the Alternate Currency Swing Line Lender. (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 -49- Rate had, at all times, been in effect and (B) the amount of interest which would have accrued on the Notes if the rates of interest set forth in this Agreement had at all times been in effect and (ii) the amount of interest actually paid or accrued under this Agreement on the Notes. In the event the Lenders ever receive, collect or apply as interest any sum in excess of the Maximum Rate, such excess amount shall, to the extent permitted by law, be applied to the reduction of the principal balance of the Notes, and if no such principal is then outstanding, such excess or part thereof remaining shall be paid to the Borrower. (d) OTHER AMOUNTS OVERDUE. If any amount payable under this Agreement other than the Advances is not paid when due and payable, including without limitation, accrued interest and fees, then such overdue amount shall accrue interest hereon due and payable on demand at a rate per annum equal to the Adjusted Base Rate PLUS three percent (3%), from the date such amount became due until the date such amount is paid in full. (e) LATE PAYMENT FEE. Subject to the provisions of Section 10.11, if any interest payable under this Agreement is not paid when due and payable (after taking into account any applicable grace period), then the Borrower will pay to the Lenders contemporaneously with the payment of such past due interest a late payment fee equal to an amount equal to the product of (i) such overdue interest TIMES (ii) four percent (4%). 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 11:00 a.m. (Dallas, Texas time) (i) in the case of Eurodollar Rate Advances, at least three (3) Business Days', (ii) in the case of Alternate Currency Swing Line Advances, at least four (4) Business Days', or (iii) 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 Section 2.08 as a result of such prepayment being made on such date; PROVIDED, HOWEVER, that each partial prepayment shall be in an aggregate principal amount not less than $500,000 and in integral multiples of $100,000. (c) MANDATORY PREPAYMENTS. (i) REPAYMENT EVENT. Upon the occurrence of any Repayment Event, the Borrower shall prepay Advances on the Business Day the Net Cash Proceeds -50- from such Repayment Event are received by the Borrower or the Parent, as applicable, in an amount equal to the lesser of (A) the amount of the outstanding Advances on such Business Day and (B) 100% of the Net Cash Proceeds of such Repayment Event. Such prepayments shall be applied (A) first, to interest as provided in Section 2.07(c)(iv), (B) second, to Term Advances in the reverse order of maturity, and (C) third, to Revolving Advances; PROVIDED that the first $57,000,000 of Net Cash Proceeds raised from a Permitted Subordinate Refinancing Indebtedness may be used by the Borrower to refinance in its entirety the MHC Indebtedness; PROVIDED FURTHER that to the extent any Permitted Owned Hospitality Property Obligations are repaid within one hundred eighty (180) days of the incurrence thereof, such repayments shall be applied (A) first, to interest as provided in Section 2.07(c)(iv), (B) second, to Revolving Advances, and (C) third, to Term Advances in the reverse order of maturity. (ii) TERM ADVANCES. Commencing on January 1, 2003 and on each April 1, July 1, October 1 and January 1 thereafter, the Borrower shall repay the Term Advances by an amount equal to $406,250. (iii) OVERDRAFT. On any date on which the outstanding principal amount of the Revolving Advances plus the Letter of Credit 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. (iv) ACCRUED INTEREST. Each prepayment pursuant to this Section 2.07(c) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.08 as a result of such prepayment being made on such date. (v) 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 Fixed 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 -51- 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 11:00 am (Dallas, Texas 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. (vi) 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 (1) first, to all Alternate Currency Swing Line Advances pro rata based upon the amount of outstanding Alternate Currency Swing Line Advances and (2) second, to all Dollar Revolving Advances pro rata based upon the amount of outstanding Dollar 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. (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 Fixed 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 Fixed Rate Advance is made other than on the last day of the Interest Period for such Advance pursuant to Section 2.12 or otherwise; or (c) the Borrower fails to make a principal or interest payment with respect to any Fixed Rate Advance on the date such payment is due and payable, the Borrower shall, within 10 days of any written demand sent by any Lender to the Borrower through the Administrative Agent, pay to the -52- 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) FIXED 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 Fixed Rate Advances (including, without limitation, (A) additional interest to compensate such Lender for reserve costs actually incurred by such Lender associated with Eurocurrency Liabilities, such additional interest to be calculated by subtracting (1) the Applicable Fixed Rate for the relevant Advance from (2) the rate obtained by dividing such applicable interest rate for such Advance (excluding the Applicable Margin) by a percentage equal to one minus the applicable Fixed Rate Reserve Percentage of such Lender for such Interest Period and (B) any Applicable Mandatory Costs), then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), immediately pay to the Administrative Agent for the account of such Lender additional amounts (without duplication of any other amounts payable in respect of increased costs) sufficient to compensate such Lender for such increased cost; PROVIDED, HOWEVER, that, before making any such demand, each Lender agrees to use commercially reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender (except that no Lender shall be required to redesignate its Applicable Lending Office to avoid the incurrence of increased costs associated with additional interest required to be paid by the Borrowers to any Lender in connection with reserve costs attributable to Eurocurrency Liabilities). A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Administrative Agent by such Lender at the time such Lender demands payment under this Section shall be conclusive and binding for all purposes, absent manifest error. (b) CAPITAL ADEQUACY. If any Lender 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 -53- Credit or any Lender's commitment to risk participate in Letters of Credit and other commitments of this type, then, upon 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 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. -54- (d) SPECIAL PROVISIONS REGARDING APPLICABLE MANDATORY COSTS. Each Lender shall supply any information required by the Administrative Agent for the purpose of calculating its Applicable Mandatory Cost. In particular, but without limitation, each Lender shall supply the following information in writing on or prior to the date on which it becomes a Lender: (a) its jurisdiction of incorporation and the jurisdiction of its Applicable Lending Offices; and (b) any other information that the Administrative Agent may reasonably require for such purpose. Each Lender shall promptly notify the Administrative Agent in writing of any change to the information provided by it pursuant to this paragraph. The percentages or rates of charge of each Lender for the purpose of determining "A" in the definition of "Applicable Mandatory Cost" shall be determined by the Administrative Agent based upon the information supplied to it pursuant hereto and on the assumption that, unless a Lender notifies the Administrative Agent to the contrary, each Lender's obligations in relation to the Fees Regulations are the same as those of a typical bank from its jurisdiction of incorporation with an Applicable Lending Office in the same jurisdiction as its Applicable Lending Office. The Administrative Agent shall have no liability to any person if such determination results in an Applicable Mandatory Cost which over or under compensates any Lender and shall be entitled to assume that the information provided by any Lender pursuant hereto is true and correct in all respects. The Administrative Agent shall distribute the additional amounts received as a result of the Applicable Mandatory Cost to the Lenders on the basis of the Applicable Mandatory Cost for each Lender based on the information provided by each Lender pursuant hereto. Any determination by the Administrative Agent pursuant to this Agreement in relation to a formula, an Applicable Mandatory Cost or any amount payable to a Lender shall, in the absence of manifest error, be conclusive and binding. The Administrative Agent may from time to time, after consultation with the Borrower and the Lenders, determine and notify to all parties hereto any amendments which are required to be made to this Agreement in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other Governmental Authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties. 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 11:00 a.m. (Dallas, Texas time) on the day when due in the Applicable Currency 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 (i) amounts payable solely to the Administrative Agent, the Issuing Banks, the Alternate Currency Swing Line Lender, or a specific Lender pursuant to Section 2.03(b), 2.03(c), 2.06(b), 2.08, 2.09, 2.11, 2.12, or 2.13(c) but after taking into account payments effected pursuant to Section 10.04, and (ii) payments with respect to the Alternate Currency Swing Line Advances, which will be solely for the benefit of the Alternate Currency Swing Line Lender unless Lenders have purchased participations in the Alternate Currency Swing Line Advances as provided in -55- Section 2.01(d)(iii), 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 Fixed 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 (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 under and in connection with this Agreement or any other Credit Document; SECOND, to the payment of all -56- expenses due and payable under Section 2.11(c), ratably among the Lenders in accordance with the aggregate amount of such payments owed to each such Lender; THIRD, to the payment of fees due and payable to the Issuing Bank pursuant to Section 2.03(b); FOURTH, to the payment of all other fees due and payable under Section 2.03; FIFTH, to the payment of the interest accrued on and the principal amount of the Euro Note and the Pound Note pro rata based on the respective Alternate Currency Swing Line Advances outstanding; and SIXTH, to the payment of the interest accrued on and the principal amount of all of the other Notes and the interest accrued on 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 plus the aggregate principal amount owed to such Lender. (f) REGISTER. The Administrative Agent shall record in the Register the Commitment and the Advances from time to time of each Lender and each repayment or prepayment in respect to the principal amount of such Advances of each Lender. Any such recordation shall be conclusive and binding on the Borrower and each Lender, absent manifest error; PROVIDED HOWEVER, that failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's obligations hereunder in respect of such Advances. 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, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11), such Lender, 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 -57- or if such Lender, Issuing Bank, or the Administrative Agent (as the case may be) fails to comply with Section 2.11(g), no such increase shall be required; (ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Legal Requirements. (b) OTHER TAXES. In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes, or the other Credit Documents (hereinafter referred to as "OTHER TAXES"). (c) INDEMNIFICATION. The Borrower will indemnify each Lender, 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 30 days from the date the Borrower receives written demand detailing the calculation of such amounts therefor from the Administrative Agent on behalf of itself as Administrative Agent, Issuing Bank, or any such Lender. If any Lender, the Administrative Agent, or Issuing Bank receives a refund, offset, credit or deduction in respect of any Taxes or Other Taxes paid by the Borrower under this paragraph (c), such Lender, the Administrative Agent, or Issuing Bank, as the case may be, shall promptly pay to the Borrower the Borrower's share of such refund, offset, credit or deduction, received by or credited to the Lender, the Administrative Agent, or Issuing Bank, as the case may be, (reduced by any Taxes imposed on the Lender, the Administrative Agent, or Issuing Bank, as the case may be, by reason of the receipt, accrual or payment of such refund, offset, credit or deduction). (d) EVIDENCE OF TAX PAYMENTS. The Borrower will pay prior to delinquency all Taxes and Other Taxes payable in respect of any payment. Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 10.02, the original or a certified copy of a receipt evidencing payment of such Taxes or Other Taxes. (e) FOREIGN LENDER WITHHOLDING EXEMPTION. Each Lender and Issuing Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Administrative Agent on the date of this Agreement or upon the effectiveness of any Assignment and Acceptance two duly completed copies of the Prescribed Forms, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes. Each -58- 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, the Alternate Currency Swing Line 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 be otherwise disadvantageous to such Issuing Bank or Lender. Section 2.12 ILLEGALITY. If any Lender shall notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any Legal Requirement makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its Applicable Lending Office to perform its obligations under this Agreement to maintain any Fixed 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 11:00 a.m. (Dallas, Texas time), (a) if not prohibited by Legal Requirement to maintain such Fixed Rate Advances for the duration of the Interest Period, on the last day of the Interest Period for each outstanding Fixed Rate Advance of such Lender or (b) if prohibited by Legal Requirement to maintain such Fixed 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 Fixed 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 -59- 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 any of its Subsidiaries). No Letter of Credit will be issued, increased, or extended (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) one day 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 supporting the repayment of indebtedness for borrowed money of any Person; (v) unless the Borrower has delivered to the Issuing Bank 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; (vi) unless such Letter of Credit is governed by the International Standby Practices (1998) ("ISP") or any successor to the ISP; and (vii) 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, Issuing Bank shall be deemed to have sold to each other Lender and each other Lender 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. Issuing Bank 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 -60- circumstance, happening or event whatsoever, whether or not similar to any of the foregoing, except for any such circumstance, happening or event constituting or arising from 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 receipt of such notice, the Administrative Agent shall give notice of such payment to the Lenders, and each Lender shall promptly reimburse such Issuing Bank 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 -61- any statement therein being untrue or inaccurate in any respect to the extent the Issuing Bank would not be liable therefor 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 (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 which the Borrower proves were caused by (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 LEVERAGE RATIO AND SENIOR LEVERAGE RATIO. In addition to the determination of the Leverage Ratio and the Senior Leverage Ratio in a Compliance Certificate, the Leverage Ratio and the Senior Leverage Ratio shall be determined by the Administrative Agent, as follows: -62- (a) ADJUSTMENTS. Following each making, acquisition or disposition by the Parent or its Subsidiary of an Investment or any Non-Replaced Property with an Investment Amount in excess of $5,000,000 or the incurrence by the Parent or its Subsidiary of additional Indebtedness (excluding any Obligations) in excess of $5,000,000 (an "ADJUSTMENT EVENT"), and the Administrative Agent's receipt of an Adjustment Report with respect thereto, the Administrative Agent shall adjust the Leverage Ratio and the Senior Leverage Ratio accordingly. (b) NOTICE OF LEVERAGE RATIO AND SENIOR LEVERAGE RATIO CHANGE. Promptly following any date the Leverage Ratio and the Senior Leverage Ratio is determined in accordance with the preceding paragraph, the Administrative Agent shall give notice to the Lenders and the Borrower of the new Leverage Ratio and Senior Leverage Ratio. Section 2.15 LENDER REPLACEMENT. (a) RIGHT TO REPLACE. The Borrower shall have the right to replace each Lender either (i) affected by a condition under Section 2.02(c)(vi), 2.09, 2.11, or 2.12 for more than 60 days or (ii) that refuses to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by 51% or more of the Non-Defaulting Lenders entitled to vote on such proposed change, waiver, discharge or termination, as (and to the extent) provided in Section 10.01 (each such affected or non-consenting Lender, an "AFFECTED LENDER") in accordance with the procedures in this Section 2.15 and provided that no reduction of the total Commitments occurs as a result thereof. (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 30 days after the date such condition occurs. (ii) If the aggregate amount of the reallocated Commitments is less than the Commitments of the Affected Lenders, (A) the respective Commitments of the Lenders which have received such reallocated Commitments shall be increased by the respective amounts of their proposed reallocations, and (B) the Borrower shall have the right to add additional Lenders which are Eligible Assignees to this Agreement to replace such Affected Lenders, which additional Lenders would have aggregate Commitments no greater than those of the Affected Lenders MINUS the amounts of the Commitments already reallocated. (iii) Notwithstanding any provision in this Section 2.15 to the contrary, no Lender except for an Affected Lender may have such Lender's Commitment -63- increased or decreased pursuant to the provisions of this Section 2.15 without such Lender's written consent. (c) PROCEDURE. Any assumptions of Commitments pursuant to this Section 2.15 shall be (i) made by the purchasing Lender or Eligible Assignee and the selling Lender entering into an Assignment and Assumption and by following the procedures in Section 10.06 for adding a Lender. In connection with the reallocation of the Commitments of any Lender pursuant to the foregoing paragraph (b), each Lender with a reallocated Commitment shall purchase from the Affected Lenders at par such Lender's 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 and obligations with respect to Alternate Currency Swing Line Advances. 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 (excluding Alternate Currency Swing Line 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 any Advance hereunder and of the Issuing Bank to issue any Letter of Credit are subject to the following conditions precedent being satisfied on or prior to September 15, 2002: -64- (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 Notes, the Guaranties and the Environmental Indemnities; (ii) the Security Documents 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, PROVIDED that in the Administrative Agent's discretion certain Security Documents necessary for the granting to the Administrative Agent for the benefit of the Lenders of an Acceptable Lien in Ownership Interests in Persons which are domiciled outside the United States may be executed and delivered within ten (10) Business Days of the Closing; (iii) a certificate from a Responsible Officer of the Parent on behalf of the Borrower dated as of the Closing Date stating that as of the Closing Date (A) all representations and warranties of the Borrower set forth in this Agreement and the Credit Documents are true and correct in all material respects; (B) no Default has occurred and is continuing; (C) the conditions in this Section 3.01 have been met or waived in writing; and (D) to the best of the Borrower's knowledge there are no claims, defenses, counterclaims or offsets against the Lenders under the Credit Documents; (iv) a certificate of the Secretary or an Assistant Secretary of the Parent on behalf of the Borrower and each corporation that is either a Guarantor or a general partner or manager of a Guarantor dated as of the date of this Agreement certifying as of the Closing Date (A) the names and true signatures of officers or authorized representatives of the Parent and such other Persons authorized to sign the Credit Documents to which such Person is a party in the capacity therein indicated, (B) resolutions of the Board of Directors or the members of the Parent and such other Persons with respect to the transactions herein contemplated, (C) either (x) the copies of the organizational documents of the Parent 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 or any such other Persons made since such date, (D) a true and correct copy of the partnership agreement for the Borrower and each Guarantor which is a partnership, (E) a true and correct copy of all partnership, corporate or limited liability company authorizations necessary or desirable in connection with the transactions herein contemplated, and (F) a true and correct copy of the Intercompany Agreement, the -65- Merger Agreement and the other principal documents being executed in consummation of the Merger, and the documents which evidence the MHC Indebtedness; (v) a certificate of the Secretary or an Assistant Secretary of MHRI certifying the current (A) resolutions of the Board of Directors of such Person and the shareholders' vote with respect to the transactions contemplated in the Merger Agreement and the Registration Statements, and (B) charter and bylaws of MHRI and any modification or amendment to the articles or certificate of incorporation or bylaws of MHRI; (vi) a certificate of the Secretary or an Assistant Secretary of IHC certifying the current (A) resolutions of the Board of Directors of such Person and the shareholders' vote with respect to the transactions contemplated in the Merger Agreement and the Registration Statements, and (B) charter and bylaws of IHC and any modification or amendment to the articles or certificate of incorporation or bylaws of IHC; (vii) (A) one or more favorable written opinions of DeCampo, Diamond & Ash, special counsel for the Borrower, the Parent, and their Subsidiaries, in a form reasonably acceptable to the Administrative Agent, in each case dated as of the Closing Date and with such changes as the Administrative Agent may approve, and (B) such other legal opinions as either of the Administrative Agent shall reasonably request, in each case dated as of the Closing Date and with such changes as the Administrative Agent may approve, PROVIDED that in the Administrative Agent's discretion certain legal opinions related to Persons which are domiciled outside the United States may be executed and delivered within ten (10) Business Days of the Closing; (viii) a Compliance Certificate dated as of the Closing Date reflecting for the financial tests covered therein the financial performance for the Borrower for the Rolling Period ended June 30, 2002, together with a certificated pro forma balance sheet of the Parent as of the Closing Date assuming the Merger was consummated and the Pre-Existing Designated Senior Indebtedness had been repaid, duly completed and executed by the Chief Financial Officer or Treasurer of the Parent; (ix) evidence reasonable satisfactory to the Administrative Agent that the Merger and the other transactions contemplated by the Merger Agreement and the Registration Statements have been consummated in accordance with the terms of the Merger Agreement, all Legal Requirements and all corporate and partnership governance requirements; (x) the Equity Inns Letter and the MHC Letter; and -66- (xi) such other documents, governmental certificates, agreements, lien searches as the Administrative Agent may reasonably request. (b) MERGER. The Merger and the other transactions contemplated by the Merger Agreement and the Registration Statements shall have been consummated in accordance with the terms of the Merger Agreement, all Legal Requirements and all corporate and partnership governance requirements. (c) 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. (d) CERTAIN PAYMENTS. The Borrower shall have paid or repaid, as applicable, (i) the fees required to be paid as of the execution of this Credit Agreement pursuant to the Fee Letter and the Co-Lead Arranger Fee Letter and (ii) the Pre-Existing Designated Senior Indebtedness. (e) SECURITY DOCUMENTS. Except as expressly contemplated by the provisions of Section 3.01(a)(ii) above, 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. 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 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 -67- 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 a Compliance Certificate executed and delivered by the Borrower to the Administrative Agent dated as of the date of the Notice of Borrowing; PROVIDED that the financial tests in such Compliance Certificate do not need to be updated from the last Compliance Certificate delivered by the Borrower except for an update of the Leverage Ratio and the Senior Leverage Ratio if an Adjustment Event has occurred since the date of such Compliance Certificate and the Borrower has not yet delivered the Adjustment Report in connection with such Adjustment Event; 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. Section 3.03 CONDITIONS AS COVENANTS. If the Lenders make any Advances, or the Issuing Bank issues a Letter of Credit, prior to the satisfaction of all conditions precedent set forth in Sections 3.01 and 3.02., the Borrower shall nevertheless cause such condition or conditions to be satisfied within two (2) Business Days (ten (10) Business Days for those items for which the Borrower is permitted such time period pursuant to the provisions of Section 3.01) after the date of the making of such Advances or the issuance of such Letter of Credit. 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. The Parent is the survivor by merger of IHC into MHRI, as more particularly described in the Registration Statements, and has had its name legally changed to "Interstate Hotels & Resorts, Inc.". The Merger and the other transactions contemplated by the Merger Agreement have been consummated in -68- accordance with the terms of the Merger Agreement, all Legal Requirements and all corporate and partnership governance requirements. (c) The Parent is duly listed on the New York Stock Exchange, Inc. and the Parent has timely filed all reports required to be filed by it with the New York Stock Exchange, Inc. and the Securities and Exchange Commission. (d) The Parent owns approximately 97% of the partnership interest in the Borrower and is the sole general partner of the Borrower. The only Material Subsidiaries of the Parent are the Borrower and Subsidiaries of the Borrower. The Parent has no first tier Subsidiaries except for the Borrower. (e) Upon completion of the reverse stock split contemplated by the Registration Statements, the entire authorized capital stock of the Parent consists of (i) 50,000,000 shares of Parent common stock of which approximately 20,127,000 shares of Parent common stock are duly and validly issued and outstanding, fully paid and nonassessable as of July 31, 2002 and (ii) 1,000,000 shares of Parent preferred stock of which no shares are issued or outstanding. (f) Each Subsidiary of the Borrower is a limited partnership, general partnership or limited liability company duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation and in good standing and qualified to do business in each jurisdiction where conduct of its business requires such qualification, except where the failure to so qualify would not cause a Material Adverse Change to such Subsidiary. Except for the Beverage Entities and the Dissolving Subsidiaries, the Parent has no Subsidiaries on the date of this Agreement other than the Borrower and the Subsidiaries listed on the attached Schedule 4.01, and Schedule 4.01 lists the jurisdiction of formation, and the address of the principal office of each such Subsidiary existing on the date of this Agreement. As of the date of this Agreement, the Parent or the Borrower owns, directly or indirectly, at least the percentage interests in each such Subsidiary listed on the attached Schedule 4.01. (g) Except for those Material Subsidiaries domiciled in a jurisdiction outside the United States, each of the Borrower, the Parent and each of the Material Subsidiaries is domiciled in the State of Delaware. Section 4.02 PARTNERSHIP AND CORPORATE POWER. The execution, delivery, and performance by the Borrower and each Guarantor of the Credit Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby (a) are within such Persons' partnership, limited liability company and corporate powers, as applicable, (b) have been duly authorized by all necessary corporate, limited liability company and partnership action, as applicable, (c) do not contravene (i) such Person's certificate or articles, as the case may be, of incorporation or by-laws, operating agreement or partnership agreement, as applicable, or (ii) any law or any contractual restriction binding on or affecting any such Person, the contravention of which could reasonably be expected to cause a Material Adverse Change, and (d) will not result in or require the creation or imposition of any Lien prohibited by this -69- 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 is required for the due execution, delivery and performance by the Borrower or any Guarantor of the Credit Documents to which it is a party or the consummation of the transactions contemplated thereby. At the time of each Borrowing, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or the use of the proceeds of such Borrowing the absence of which could reasonably be expected to cause a Material Adverse Change. Section 4.04 ENFORCEABLE OBLIGATIONS. This Agreement, the Notes, and the other Credit Documents to which the Borrower is a party have been duly executed and delivered by the Borrower; each Guaranty and the other Credit Documents to which each Guarantor and the Parent is a party have been duly executed and delivered by such Guarantor; 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 MHRI and its Subsidiaries and IHC and its Subsidiaries contained in their respective Financial Statements and Registration 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 Registration Statements and the respective results of the operations for the periods indicated, and such balance sheets and statements were prepared in accordance with GAAP, subject to year-end adjustments. Since the date of such statements, no Material Adverse Change has occurred. Section 4.06 TRUE AND COMPLETE DISCLOSURE. No representation, warranty, or other statement made by the Borrower (or on behalf of the Borrower) in this Agreement or any other Credit Document contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made as of the date of this Agreement. There is no fact known to any Responsible Officer of the Borrower or the Parent on the date of this Agreement that has -70- 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 MHRI's or IHC's latest 10K, 10Q or annual report or the Registration Statements contains any untrue statement of material fact or omits to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made as of the date same were made. Borrower and/or Parent has made all filings required by the Exchange Act. Section 4.07 LITIGATION. Except as set forth in the attached Schedule 4.07, there is no pending or, to the best knowledge of the Borrower, threatened investigation, action or proceeding affecting the Borrower or the Parent or any of their respective Subsidiaries by or before any court, Governmental Authority or arbitrator either (a) in which in Borrower's good faith judgment the anticipated loss is over $500,000 (PROVIDED that with respect to the giving of this representation after the date of this Agreement, the representation shall only be deemed to apply to those matters for which Administrative Agent would have been entitled to notice under Section 5.05(k)) or (b) which in Borrower's good faith judgment would result in criminal penalties against the Parent, the Borrower or their respective Subsidiaries which could reasonably be expected to cause a Material Adverse Change. 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 MHC Indebtedness within 3 days of the Closing Date in an amount of up to $3,000,000 in the aggregate, (iv) the repayment of Pre-Existing Designated Senior Indebtedness, and (v) for costs incurred in connection with the Merger and with the Parent's or any of its Subsidiary's sale or issuance of equity securities or incurrence of Indebtedness issued or 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 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. -710 Section 4.09 INVESTMENT COMPANY ACT. Neither the Borrower, the Parent nor any of their respective Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section 4.10 TAXES. All federal, state, local and foreign tax returns, reports and statements required to be filed (after giving effect to any extension granted in the time for filing) by the Parent, the Borrower, their respective Subsidiaries, or any member of a Controlled Group have been filed with the appropriate governmental agencies in all jurisdictions in which such returns, reports and statements are required to be filed, and where the failure to file could reasonably be expected to cause a Material Adverse Change, except where contested in good faith and by appropriate proceedings; and all taxes and other impositions due and payable (which are material in amount) have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss (which are material in amount) may be added thereto for non-payment thereof except where contested in good faith and by appropriate proceedings. As of the date of this Agreement, neither the Parent, the Borrower, any of their respective Subsidiaries nor any member of a Controlled Group has given, or been requested to give, a waiver of the statute of limitations relating to the payment of any federal, state, local or foreign taxes or other impositions. None of the Property owned by the Parent, the Borrower, any of their respective Subsidiaries or any other member of a Controlled Group is Property which the Parent, the Borrower, any of their respective Subsidiaries or any member of a Controlled Group is required to be treated as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Code. Proper and accurate amounts have been withheld by the Parent, the Borrower, their respective Subsidiaries and all members of each Controlled Group from their employees for all periods to comply in all material respects with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law. Timely payment of all material sales and use taxes required by applicable law have been made by the Parent, the Borrower, their respective Subsidiaries and all other members of each Controlled Group, the failure to timely pay of which could reasonably be expected to cause a Material Adverse Change. The amounts shown on all tax returns to be due and payable have been paid in full or adequate provision therefor is included on the books of the appropriate members of the applicable Controlled Group. Section 4.11 PENSION PLANS. All Plans are in compliance in all material respects with all applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. No "accumulated funding deficiency" (as defined in Section 302 of ERISA) has occurred and there has been no excise tax imposed under Section 4971 of the Code. No Reportable Event has occurred with respect to any Multiemployer Plan, and to the Borrower's actual knowledge each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code. Neither the Borrower, nor any member of a Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any material withdrawal liability. As of the most recent valuation date applicable thereto, neither the Borrower nor any member of a Controlled Group has received notice that any Multiemployer Plan is insolvent or in reorganization. -72- 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 and the Permitted Housing Agreements) (i) prohibiting the creation or assumption of any Lien upon the Properties of the Parent, the Borrower or any of their respective Subsidiaries (except for Properties of and Ownership Interests in the Permitted Other Subsidiaries), whether now owned or hereafter acquired, or (ii) requiring an obligation to be secured if some other obligation is or becomes secured. (b) Neither the Borrower, the Parent nor any of their Subsidiaries is in default under or with respect to any contract or agreement which could reasonably be expected to cause a Material Adverse Change. Neither the Borrower, the Parent nor any of their Subsidiaries has received any notice of default under any material contract or agreement which is continuing and which, if not cured, could reasonably be expected to cause a Material Adverse Change. (c) No Default has occurred and is continuing (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given). 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. -73- (b) Except as disclosed in Schedule 4.14, to the knowledge of Borrower, no Property which is presently or previously owned or operated by the Borrower, the Parent or of any of their respective present or former Subsidiaries, wherever located, (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws which could reasonably be expected to cause a Material Adverse Change; (ii) is subject to a Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property operated by the Borrower, the Parent or any of their respective Subsidiaries, wherever located; (iii) has been the site of any Release, use or storage of Hazardous Substances or Hazardous Wastes from present or past operations except for Permitted Hazardous Substances, which Permitted Hazardous Substances have not caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response or (iv) none of the Improvements are constructed on land designated by any Governmental Authority having land use jurisdiction as wetlands. Section 4.15 LEGAL REQUIREMENTS, ZONING. Except as set forth on Schedule 4.15 attached hereto, the current use and operation of each Property which is presently owned or operated by the Borrower, the Parent or of any of their respective Subsidiaries, wherever located, (a) constitutes a legal use under applicable zoning regulations (as the same may be modified by special use permits or the granting of variances) and (b) complies in all material respects with all Legal Requirements, and does not violate in any material respect any material approvals, material restrictions of record or any material agreement affecting any such Property (or any portion thereof) except for non-legal use or non-compliance which in the aggregate would not cause a Material Adverse Change. The Borrower, the Parent and their respective Subsidiaries possess all certificates of public convenience, authorizations, permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names rights and copyrights (collectively "PERMITS") required by Governmental Authority to own or operate Properties, as applicable, the Properties they own or operate, except for those Permits that if not obtained would not cause a Material Adverse Change. The Borrower, the Parent and their respective Subsidiaries own and operate their business in material compliance with all applicable Legal Requirements except for non-compliance which in the aggregate would not cause a Material Adverse Change. Section 4.16 EXISTING INDEBTEDNESS AND INTEREST RATE AGREEMENTS; SOLVENCY. (a) Except for the Obligations, the only Indebtedness or Interest Rate Agreements of the Borrower or any of its Subsidiaries existing as of the Effective Date are set forth on Schedule 4.16 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). -74- (b) To the best of the Borrower's knowledge, after giving effect to the consummation of the Merger, (i) the fair value and present fair saleable value on a going concern basis of the Property of the Parent, the Borrower and their respective Subsidiaries, on a Consolidated basis, exceeds the amount that will be required to pay the probable liabilities of such Persons, on a Consolidated basis, on their Indebtedness, as such Indebtedness becomes absolute and matured, (ii) the Parent, the Borrower and their respective Subsidiaries, on a Consolidated basis, will have sufficient cash flow to enable them to pay their debts as they mature, and (iii) the Parent, the Borrower and their respective Subsidiaries, on a Consolidated basis, are able to pay their Indebtedness as it matures in the normal course of business. Section 4.17 LEASING ARRANGEMENTS. The only material leases for which either the Borrower or a Guarantor is a lessee are the Existing Participating Leases and office leases. The Existing Participating Leases are in full force and effect; no monetary defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder; and no other defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder which could reasonably be expected to cause a Material Adverse Change (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given). Section 4.18 MANAGEMENT AGREEMENTS. The only management agreements for which either the Borrower or a Guarantor is a manager are the Existing Management Agreements. The Existing Management Agreements are in full force and effect; no monetary defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder; and no other defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder which could reasonably be expected to cause a Material Adverse Change (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given). The Existing Management Agreements with MHC and MHC's Subsidiaries do not provide for any performance standards for the years 2001 or 2002. Section 4.19 INTERCOMPANY AGREEMENT. The Intercompany Agreement is in full force and effect and no material defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given). Section 4.20 FRANCHISE AGREEMENTS. The only franchise agreements or license agreements to which the Borrower or a Guarantor are a party are those certain agreements disclosed to the Administrative Agent in writing. Any such franchise and license agreements are in full force and effect and no material defaults by the Borrower or any Subsidiary exist thereunder (or with respect to the giving of this representation after the date of this Agreement, -75- as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given). Section 4.21 OWNED HOSPITALITY PROPERTIES. Except as set forth on Schedule 4.21 attached hereto, neither the Borrower, the Parent nor of any of their respective Subsidiaries owns any Owned Hospitality Properties; PROVIDED that such Persons do own Ownership Interests in Unconsolidated Entities which own Owned Hospitality Properties. None of the Owned Hospitality Properties have been or are subject to a condemnation proceeding or a casualty which individually or in the aggregate could cause a Material Adverse Change. Section 4.22 APPROVED INTER-COMPANY INDEBTEDNESS. The only inter-company Indebtedness between the Parent, the Borrower and any of their respective Subsidiaries is the Approved Inter-Company Indebtedness. The Approved Inter-Company Indebtedness Loan Documents listed on Schedule 1.01(b) are all of the documents evidencing or securing the Approved Inter-Company Indebtedness or executed by the applicable parties in connection with the Approved Inter-Company Indebtedness. The Borrower has provided the Administrative Agent with a true, correct and complete copy of the Approved Inter-Company Indebtedness Loan Documents and such documents have not been amended or modified except as set forth in Schedule 1.01(b). The outstanding amount of the Approved Inter-Company Indebtedness as of the date hereof is set forth on Schedule 1.01(b). 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 Closing Date and the line or lines of insurance in which each Insurance Company is engaged. No Insurance License held by any Insurance Company, the loss of which could reasonably be expected to cause a Material Adverse Change, is the subject of a proceeding for suspension or revocation. To the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, there is not a sustainable basis for such suspension or revocation, and no such suspension or revocation has been threatened by any Governmental Authority. Each of the Insurance Companies has filed all reports, statements, documents, registrations, filings or submissions required to be filed by it with any applicable Governmental Authority, which filings conform in all material respects to any applicable Legal Requirements, except where the failure to so file or conform could not, individually or in the aggregate, be reasonably expected to cause a Material Adverse Change. Schedule 4.23(a) sets forth a true, correct and complete listing of all securities deposited with state insurance departments and other Governmental Authority, which deposits have been completed in accordance with the schedule of deposits set forth in each Insurance Company's December 31, 2001 Insurance Annual Statement. (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 -76- domiciliary state insurance departments of each Insurance Company as of and for the years ended December 31, 2001, 2000 and 1999, prepared in compliance with GAAP. Each of the SAP Financial Statements fairly presents in all material respects the results of operations of the applicable Insurance Company for the period therein set forth, in each case in accordance with SAP. The schedules included in the SAP Financial Statements, when considered in relation to the basic statutory financial statements included therein, present fairly in all material respects the information shown therein. Each of the SAP Financial Statements was correct in all material respects when filed and did not omit to state any material facts required to be stated or necessary in order to make the SAP Financial Statements not misleading. 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, 2001 relating to the Insurance Companies. The loss runs for the years ended December 31, 2001, 2000 and 1999, 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, 2001 of all assets held in the investment portfolios of the Insurance Companies. None of the investments included in such investment portfolios is in default with respect to the payment of principal, interest or dividends thereon or is materially impaired. All such investments comply with all applicable Legal Requirements except for non-compliance which in the aggregate would not cause a Material Adverse Change. Each Insurance Company owns assets which qualify as admitted assets under applicable state insurance Legal Requirements in an amount at least equal to the sum of all of its Insurance Reserve Liabilities and minimum statutory capital and Insurance Surplus reflected on the latest SAP Financial Statements. (d) INSURANCE RESERVE LIABILITIES AND ADEQUATE PROVISIONS. All Insurance Reserve Liabilities as established or reflected in the SAP Financial Statements (i) were determined in accordance with generally accepted actuarial standards consistently applied, (ii) are fairly stated in accordance with sound actuarial principles, (iii) are based on actuarial assumptions that are in accordance with those called for by the relevant Insurance Contract and the related Reinsurance Contract and (iv) meet in all material respects the requirements of all applicable insurance Legal Requirements. Adequate provision for such Insurance Reserve Liabilities has been made (under generally accepted actuarial principles consistently applied) to cover the total amount of all reasonably anticipated matured and unmatured benefits, dividends, claims and other liabilities of the Insurance Companies under all Insurance Contracts and Reinsurance Contracts on the date of such SAP Financial Statement based on then current information that forms a reasonable basis for such determination. Each of the Insurance Companies owns assets that qualify as legal reserve assets under applicable insurance Legal Requirements in an amount at least equal to all of such Insurance Company's Insurance Reserve Liabilities. Adequate provision has been made for all estimated losses, settlements, costs and -77- 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 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. -78- Section 4.24 PERMITTED HOUSING BUSINESS LEASING. Schedule 4.24 sets forth a true and accurate summary of the Units currently leased by the Parent and the Parent's Subsidiaries', together with (a) a description of the market for such Units, (b) the breakdown of whether the term of the applicable lease of such Units is less than or equal to 1 year, greater than 1 year but less than 5 years, or equal to or greater than 5 years, and (c) the occupancy level by market for such Units as of the Effective Date. 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 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, 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, -79- including, without limitation, (i) the taking of action under the direction of the Board of Directors, members or partners, as applicable, of such Permitted Other Subsidiaries and, if so required by the Certificate of Incorporation or the Bylaws, operating agreement or partnership agreement, as applicable, of such Permitted Other Subsidiaries or by any Legal Requirement, the approval or consent of the stockholders, members or partners, as applicable, of such Permitted Other Subsidiaries, (ii) the preparation of corporate, partnership or limited liability company minutes for or other appropriate evidence of each significant transaction engaged in by such Permitted Other Subsidiaries, (iii) the observance of separate approval procedures for the adoption of resolutions by the Board of Directors or consents by the partners, as applicable, of such Permitted Other Subsidiaries, on the one hand, and of the Borrower and the Borrower's other Subsidiaries, on the other hand, and (iv) preventing the cash, cash equivalents, credit card receipts or other revenues of the Hospitality Properties owned by such Permitted Other Subsidiaries or any other assets of such Permitted Other Subsidiaries from being commingled with the cash, cash equivalents, credit card receipts or other revenues collected by the Borrower or the Borrower's other Subsidiaries. (e) The Borrower shall take all steps reasonably necessary to avoid (i) misleading any other Person as to the identity of the entity with which such Person is transacting business or (ii) implying that the Borrower is, directly or indirectly, absolutely or contingently, responsible for the Indebtedness or other obligations of the Permitted Other Subsidiaries or any other Person. (f) The Borrower shall cause all the transactions contemplated by the Merger Agreement and the Registration Statements that have not been consummated prior to the initial Borrowing under this Agreement to be promptly consummated in accordance with the terms of the Merger Agreement, all Legal Requirements and all corporate and partnership governance requirements, including without limitation the conversion of Indebtedness of and preferred stock in IHC or IHC's Subsidiaries into Ownership Interests of the Parent or the Borrower, all as evidenced to the reasonable satisfaction of the Administrative Agent. Section 5.03 PAYMENT OF TAXES, ETC. The Borrower will pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or Property that are material in amount, prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, might by Legal Requirement become a Lien upon its Property; PROVIDED, HOWEVER, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim (a) which is being contested in good faith and by appropriate proceedings, (b) with respect to which reserves in conformity with GAAP have been provided, (c) such charge or claim does not constitute and is not secured by any choate Lien on any portion of any Owned Hospitality Property and no portion of any Owned Hospitality Property is in jeopardy of being sold, forfeited or lost during or as a result of such contest, (d) neither the Administrative Agent nor any Lender could become subject to any civil fine or penalty or criminal fine or penalty, in -80- each case as a result of non-payment of such charge or claim and (e) such contest does not, and could not reasonably be expected to, result in a Material Adverse Change. Section 5.04 VISITATION RIGHTS; LENDER MEETING. Subject to the rights of the owners of the Hospitality Properties for which there are Permitted Property Agreements, at any reasonable time and from time to time and so long as any visit or inspection will not unreasonably interfere with the Borrower's or any of its Subsidiary's operations, upon reasonable notice, the Borrower will permit the Administrative Agent and any Lender or any of its agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit and inspect at its reasonable discretion the Properties owned or operated by the Borrower and any of its Subsidiaries, to discuss the affairs, finances and accounts of such Persons with any of their respective officers or directors. Without in any way limiting the foregoing, the Borrower will, upon the request of the Administrative Agent, participate in a meeting with the Administrative Agent and the Lenders once during each calendar year to be held at the Borrower's office in the District of Columbia or Dallas, Texas (or such other location as may be agreed to by the Borrower and the Administrative Agent) at such time as may be agreed to by the Borrower and the Administrative Agent. Section 5.05 REPORTING REQUIREMENTS. The Borrower will furnish to the Administrative Agent, with respect to those items set forth in clauses (a)-(c) and (i), and each Lender: (a) QUARTERLY FINANCIALS. As soon as available and in any event not later than 50 days after the end of each Fiscal Quarter of the Parent (except for the Fiscal Quarter which ends on the date the Fiscal Year ends), the unaudited Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and the related unaudited statements of income, shareholders' equity and cash flows of the Parent and its Subsidiaries for such Fiscal Quarter and the period commencing at the end of the previous year and ending with the end of such Fiscal Quarter, and the corresponding figures as at the end of, and for, the corresponding periods in the preceding Fiscal Year, all duly certified with respect to such statements (subject to year-end audit adjustments) by a Responsible Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a Compliance Certificate duly executed by a Responsible Officer of the Parent; PROVIDED that the Parent's Total Indebtedness used to calculate the Leverage Ratio and the Senior Leverage Ratio in such Compliance Certificate shall be the Parent's Total Indebtedness as of the Status Reset Date during the Fiscal Quarter in which such Compliance Certificate was delivered, and (ii) a report certified by a Responsible Officer of the Parent setting forth for each Hospitality Property owned or operated by the Parent or any of its Subsidiaries as of the end of such Fiscal Quarter the Adjusted EBITDA for such Hospitality Property for the Rolling Period then ended, both in total and by Fiscal Quarter for such Rolling Period; PROVIDED that for those Hospitality Properties for which the Parent or any of its Subsidiaries is only a manager, the Borrower shall only be obligated to use the Borrower's commercially reasonable efforts to provide the information required by this clause (ii) and shall not be obligated to disclose any confidential information. -81- (b) ANNUAL FINANCIALS. As soon as available and in any event not later than 95 days after the end of each Fiscal Year of the Parent, a copy of the Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such Fiscal Year and the related Consolidated statements of income, shareholders' equity and cash flows of the Parent and its Subsidiaries for such Fiscal Year, and the corresponding figures as at the end of, and for, the preceding Fiscal Year, and audited and certified by KPMG, L.L.P. or other independent certified public accountants of nationally recognized standing reasonably acceptable to the Administrative Agent in an opinion, without qualification as to the scope, and including, if requested by the Administrative Agent, any management letters delivered by such accountants to the Parent in connection with such audit, together with (i) the documents required in clauses (i) and (ii) of the preceding Section 5.05(a) and (ii) a certificate duly executed by a Responsible Officer of the Parent which reflects in detail reasonably acceptable to the Administrative Agent the financial performance of the applicable Person related to the financial covenants contained in the documentation for any Permitted Other Indebtedness. As soon as available and in any event not later than 50 days after the end of each Fiscal Year of the Parent, the Borrower will furnish to the Administrative Agent a draft Compliance Certificate duly executed by a Responsible Officer of the Parent for such end of Fiscal Year financial statements. 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 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 15 days after the sending or filing thereof, copies of all proxy material, reports and other information which the Borrower, the Parent or any of their respective Subsidiaries sends to or files with the United States Securities and Exchange Commission or sends to all of the shareholders of the Parent or partners of the Borrower. (d) DEFAULTS. As soon as possible and in any event within five days after the occurrence of each Default known to a Responsible Officer of the Parent, the Borrower or any of their respective Subsidiaries, a statement of an authorized financial officer or Responsible Officer of the Borrower setting forth the details of such Default and the actions which the Borrower has taken and proposes to take with respect thereto. (e) ERISA NOTICES. As soon as possible and in any event (i) within 30 days after the Parent, the Borrower or any of a Controlled Group knows to know that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, (ii) within 10 days after the Parent, the Borrower or any of a Controlled Group knows that any other Termination Event with respect to any Plan -83- has occurred, a statement of the Chief Financial Officer of the Parent describing such Termination Event and the action, if any, which the Parent, the Borrower or such member of such Controlled Group proposes to take with respect thereto; (iii) within 10 days after receipt thereof by the Parent, the Borrower or any of a Controlled Group from the PBGC, copies of each notice received by the Parent, the Borrower or any such member of such Controlled Group of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan; and (iv) within 10 days after receipt thereof by the Parent, the Borrower or any member of a Controlled Group from a Multiemployer Plan sponsor, a copy of each notice received by the Parent, the Borrower or any member of such Controlled Group concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA. (f) ENVIRONMENTAL NOTICES. Promptly upon the knowledge of any Responsible Officer of the Borrower of receipt thereof by the Borrower or any of its Subsidiaries, a copy of any form of notice, summons or citation received from the United States Environmental Protection Agency, or any other Governmental Authority concerning (i) violations or alleged violations of Environmental Laws, which seeks to impose liability therefor, (ii) any action or omission on the part of the Parent or the Borrower or any of their present or former Subsidiaries in connection with Hazardous Waste or Hazardous Substances which, based upon information reasonably available to the Borrower, could reasonably be expected to cause a Material Adverse Change or an Environmental Claim in excess of $1,000,000, (iii) any notice of potential responsibility under CERCLA, or (iv) concerning the filing of a Lien upon, against or in connection with the Parent, Borrower, their present or former Subsidiaries, or any of their leased, owned or operated Property, wherever located. (g) OTHER GOVERNMENTAL NOTICES OR ACTIONS. Promptly and in any event within five Business Days after receipt thereof by the Parent, Borrower or any of their respective Subsidiaries, (i) a copy of any notice, summons, citation, or proceeding seeking to adversely modify in any material respect, revoke, or suspend any license, permit, or other authorization from any Governmental Authority, which action could reasonably be expected to cause a Material Adverse Change, and (ii) any revocation or involuntary termination of any license, permit or other authorization from any Governmental Authority, which revocation or termination could reasonably be expected to cause a Material Adverse Change. (h) REPORTS AFFECTING THE LEVERAGE RATIO AND THE SENIOR LEVERAGE RATIO. On or prior to the 15th day following any Adjustment Event, an Adjustment Report with respect to such Adjustment Event. (i) PRESS RELEASES. Promptly and in any event within 5 days after the sending or releasing thereof, copies of all press releases or other releases of information to the public by the Borrower, the Parent or any of their respective Subsidiaries or releases of information to the Parent's shareholders. -83- (j) CORPORATE ACTIVITY. Promptly following any merger or dissolution of any Subsidiary of the Borrower which is permitted hereunder or event which would make any of the representations in Section 4.01-4.04 untrue, notice thereof. (k) MATERIAL LITIGATION. As soon as possible and in any event within five days of any Responsible Officer of the Borrower, the Parent or any of their respective Subsidiaries having knowledge thereof, notice of any litigation, claim or any other event which could reasonably be expected to cause a Material Adverse Change. (l) OPERATING INFORMATION. As soon as available and in any event not later than 50 days after the end of each Fiscal Quarter of the Parent, the Borrower shall provide the Administrative Agent (for distribution to the Lenders) liquidity, cash flow and summary operating information for such fiscal month and detailed information related to the Borrower's Permitted Housing Business and Permitted Property Agreements, with all such information prepared by the Borrower in a form reasonably satisfactory to the Required Lenders. (m) INSURANCE INFORMATION. As soon as available and in any event not later than 95 days after the end of each Fiscal Year of the Parent, the Borrower shall provide the Administrative Agent copies of the unaudited Insurance Annual Statement of each Insurance Company, certified by a Responsible Officer of the Parent as fairly presenting the financial condition and results of operations of such Insurance Company in accordance with SAP consistently applied throughout the periods reflected therein. As soon as available and in any event not later than 50 days after the end of each Fiscal Quarter of the Parent, the Borrower shall provide the Administrative Agent with a schedule of the Insurance Contracts and Reinsurance Contracts existing as of the last day of such Fiscal Quarter, together with the maximum amount payable by the Insurance Company thereunder. Within 10 days of request by the Administrative Agent, the most recent examination reports and loss run sheets of the Insurance Companies. (n) BUDGET. On or prior to January 31st of each Fiscal Year, the Borrower shall provide the Administrative Agent (for distribution to the Lenders) an operating budget for the Parent and its Subsidiaries on a Consolidated basis for such Fiscal Year, including without limitation pro forma balance sheet, income statement, cash flow and financial covenant compliance. (o) OTHER INFORMATION. Such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Borrower, the Parent or any of their respective Subsidiaries, as any Lender through the Administrative Agent may from time to time reasonably request. Section 5.06 MAINTENANCE OF PROPERTY. The Borrower will, and will cause each of the Parent and its Subsidiaries to (a) maintain their Owned Hospitality Properties in a manner consistent for Hospitality Properties and related property of the same quality and character and shall keep or cause to be kept every part thereof and its other properties in good condition and repair, reasonable wear and tear excepted, and make all reasonably necessary repairs, renewals or -84- replacements thereto as may be reasonably necessary to conduct the business of the Borrower and its Subsidiaries, (b) not knowingly or willfully permit the commission of waste or other injury, or the occurrence of pollution, contamination or any other condition in, on or about any of their Owned Hospitality Properties, (c) substantially maintain and repair each of their Owned Hospitality Properties as required by any franchise agreement, license agreement, management agreement or ground lease for such Owned Hospitality Property, and (d) perform such Person's obligations under the Permitted Property Agreements and the Permitted Housing Agreements to which such Person is a party except where the non-performance thereof in the aggregate would not reasonably be expected to cause a Material Adverse Change. Section 5.07 INSURANCE. The Borrower will maintain, and cause each of its Subsidiaries to maintain, the insurance required pursuant to Schedule 5.07. Section 5.08 USE OF PROCEEDS 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. 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 and subject to the time periods set forth in Section 3.01(a)(ii) with respect to satisfying certain conditions precedent related to Ownership Interests in Persons domiciled outside the United States, the Parent, the Borrower and the Subsidiaries (a) will cause at all times the Administrative Agent to have an Acceptable Lien in the Collateral, (b) 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 (c) 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 Closing Date. Without limiting the foregoing, on the Closing 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. Notwithstanding the foregoing, upon request of the Borrower to the Administrative Agent, the Administrative Agent will release from the Liens of the Security Documents in conjunction with any repayment of Advances required under this Agreement in connection therewith (a) the Property which is the subject of a Permitted Asset Disposition and (b) 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 for which the Net Cash Proceeds are equal to or greater than and are used to repay the Permitted Owned Hospitality Property Obligations for such Collateral. 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 Permitted Other Subsidiary incurring Permitted Other Indebtedness is a Guarantor, then, upon request of the Borrower to the 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. To the extent that a Dissolving Subsidiary is dissolved by the date thirty (30) days following the Closing Date, any Lien of a Security -85- Document on the Ownership Interests in such Dissolving Subsidiary shall be deemed released as of the date of such Dissolving Subsidiaries dissolution without any further action by the Administrative Agent or the Lenders. Section 5.10 NEW SUBSIDIARIES. Except with respect to a Permitted Other Subsidiary that has incurred or issued Permitted Other Indebtedness, within ten (10) Business Days after either (a) the date that any Subsidiary of the Parent that was not a Material Subsidiary becomes a Material Subsidiary, or (b) the purchase by the Parent or any of its Subsidiaries of the Ownership Interests of any Person, which purchase results in such Person becoming a Material Subsidiary the Parent shall, in each case, cause (i) such Material Subsidiary to execute and deliver to the Administrative Agent 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. To the extent that a Dissolving Subsidiary is not dissolved by the date thirty (30) days following the Closing Date, such Subsidiary shall be deemed a new Material Subsidiary for purposes of the provisions of this Section 5.10; PROVIDED that the ten (10) Business Day period referred to above shall be deemed to expire on the date thirty (30) days following the Closing Date. 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. -86- Section 5.12 INTEREST RATE AGREEMENTS. From the date 60 days following the Closing Date until the Maturity Date, the Borrower shall cause the Parent to obtain and thereafter maintain Interest Rate Agreements reasonably satisfactory to the Administrative Agent, sufficient to ensure that 50% of the Parent's Total Indebtedness, measured as of each day during such period, shall be covered by such Interest Rate Agreements or shall have a fixed rate of interest. Any Interest Rate Agreements for the Parent shall be provided by either a 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 Designated Lenders. 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 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 Sections 5.03; (c) imposed by law (such as landlords', carriers', warehousemen's and mechanics' liens or otherwise arising from litigation) (i) which are being contested in good faith and by appropriate proceedings, (ii) with respect to which reserves in conformity with GAAP have been provided, (iii) which have not resulted in any Collateral being in jeopardy of being sold, forfeited or lost during or as a result of such contest, (iv) neither the Administrative Agent nor any Lender could become subject to any civil fine or penalty or criminal fine or penalty, in each case, as a result of non-payment of such charge or claim and (v) such contest does not, and could not reasonably be expected to, result in a Material Adverse Change; (d) on leased personal property to secure solely the lease obligations associated with such property; -87- (e) on the Property of or Ownership Interests in a Permitted Other Subsidiary securing Indebtedness set forth in paragraph (b) of the definition of "Permitted Other Indebtedness" incurred by such Permitted Other Subsidiary to the extent such Indebtedness is permitted pursuant to the provisions of Section 6.02; (f) on the Ownership Interests in an Unconsolidated Entity securing Permitted Non-Recourse Unconsolidated Entity Indebtedness incurred by such Unconsolidated Entity; (g) granted to the owner of a Hospitality Property subject to a Permitted Property Agreement on the accounts receivable, inventory, cash or other property owned by the Borrower or the Borrower's Subsidiary in connection with such Hospitality Property; (h) on the Collateral (or on other assets of the Parent and its Subsidiaries which are approved by the Administrative Agent as additional security for the Obligations) to secure Additional Designated Senior Indebtedness, PROVIDED that such Liens (i) also secure the Obligations on an equal and ratable basis with such Indebtedness, and (ii) if not already granted by the Security Documents, then are granted pursuant to documentation (including documentation granting Liens to secure the Obligations on an equal and ratable basis) reasonably acceptable to the Administrative Agent and the Borrower; and (i) easements, rights of way, covenants, restrictions, zoning and similar restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of the Borrower or its Subsidiaries and which do not detract materially from the value of any of the Owned Hospitality Properties to which they attach or impair materially the use thereof by the Borrower or the Borrower's Subsidiaries. Section 6.02 INDEBTEDNESS. The Borrower, the Parent and their respective Subsidiaries will not incur or permit to exist any Indebtedness other than the Obligations and the following: (a) Permitted Other Indebtedness in an amount that does not cause a breach at any time of the covenants contained in Article VII; (b) Capital Leases for Personal Property; (c) Interest Rate Agreements; PROVIDED that (i) such agreements shall be unsecured except as provided in Section 10.18 and the Security Agreement, (ii) the dollar amount of indebtedness subject to such agreements and the indebtedness subject to Interest Rate Agreements in the aggregate shall not exceed the sum of the amount of the Commitments and the amount of the other Indebtedness of the Borrower or its Affiliates which bears interest at a variable rate, and (iii) the agreements shall be at such interest rates and otherwise in form and substance reasonably acceptable to the Administrative Agent; and (d) Any of the following Indebtedness incurred by the Parent or the Borrower: -88- (i) guaranties in connection with Permitted Other Indebtedness secured by an Owned Hospitality Property or interest in a Person owning a Hospitality Property of (A) if the Hospitality Property is subject to a ground lease, the payment of rent and performance of obligations under such ground lease, (B) real estate taxes relating to such Hospitality Property, and (C) capital reserves required under such Indebtedness; (ii) customary indemnities for acts of malfeasance, misappropriation and misconduct and an environmental indemnity for the lender under Indebtedness permitted under this Agreement; (iii) guaranties of franchise and license agreements in connection with Hospitality Properties; and (iv) guaranties of obligations of the Parent's Subsidiaries or Unconsolidated Entities with respect to Permitted Property Agreements and Permitted Housing Agreements; and (e) extensions, renewals and refinancing of any of the Indebtedness specified in paragraphs (a) - (d) above so long as the principal amount of such Indebtedness is not thereby increased. Section 6.03 AGREEMENTS RESTRICTING DISTRIBUTIONS FROM SUBSIDIARIES. The Borrower will not, nor will it permit any of its Subsidiaries (other than Permitted Other Subsidiaries) to, enter into any agreement (other than a Credit Document) which limits distributions to or any advance by any of the Borrower's Subsidiaries to the Borrower. Section 6.04 RESTRICTED PAYMENTS. Neither the Parent, nor the Borrower, nor any of their respective Subsidiaries, will make any Restricted Payment, except that: (a) provided that no Default has occurred and is continuing or would result therefrom, the Borrower shall be entitled to make cash distributions to its partners, including the Parent, which distributions for partners other than the Parent and the Parent's Subsidiaries do not in the aggregate in any Fiscal Year exceed $100,000; (b) a Subsidiary of the Borrower may make a Restricted Payment to the Borrower; (c) the limited partners of the Borrower shall be entitled to exchange limited partnership interests in the Borrower for the Parent's common stock; (d) the Parent or the Borrower shall be entitled to make a one-time payment to Wyndham of approximately $450,000 to redeem Wyndham's interest in Interstate Hotels, LLC; (e) provided that no Default has occurred and is continuing or would result therefrom, the Parent or the Borrower shall be entitled to make payments to repay the -89- Designated Redemption Indebtedness if such Person is contractually obligated to make such repayment at such time; (f) the Borrower shall be entitled to issue limited partnership interests in the Borrower in exchange for Ownership Interests in Subsidiaries and Unconsolidated Entities to the extent such Investment is permitted pursuant to the provisions of Section 6.06; and (g) provided that no monetary Default or Default in the covenants set forth in Article VII has occurred and is continuing or would result therefrom, then the Borrower shall be entitled to pay (i) interest, but not principal (except only as permitted by clause (ii) of this subsection (g)), of Subordinate Indebtedness permitted pursuant to this Agreement, and (ii) principal of (A) Approved Inter-Company Indebtedness; PROVIDED that any such principal payments (1) are made to a Guarantor, (2) are either retained by such Guarantor or distributed to the Borrower, the Parent or another Guarantor and (3) are used in accordance with the provisions of this Agreement and (B) MHC Indebtedness within 3 days of the Closing Date in an amount of up to $3,000,000 in the aggregate. Section 6.05 FUNDAMENTAL CHANGES; ASSET DISPOSITIONS. Neither the Parent, the Borrower, nor any of their respective Subsidiaries (other than the Permitted Other Subsidiaries), will (a) merge or consolidate with or into any other Person, unless (i) a Guarantor is merged into the Borrower and the Borrower is the surviving Person or a Subsidiary (other than a Permitted Other Subsidiary which has Indebtedness other than the Obligations) is merged into any Subsidiary (other than a Permitted Other Subsidiary which has Indebtedness other than the Obligations), and (ii) immediately after giving effect to any such proposed transaction no Default would exist; (b) sell, transfer, or otherwise dispose of all or any of such Person's material Property except for a Permitted Asset Disposition, or dispositions or replacements of personal property in the ordinary course of business; (c) enter into, as lessor, a lease (other than a lease which qualifies as a Permitted Asset Disposition) of all or substantially all of any Owned Hospitality Property with any Person without the consent of the Administrative Agent; (d) sell or otherwise dispose of any material Ownership Interests of any Subsidiary (except for a Permitted Other Subsidiary or a sale which qualifies as a Permitted Asset Disposition); (e) except for (i) Capitalization Events for which the consideration is principally cash or cash equivalents and for which the Net Cash Proceeds are applied in accordance with the provisions of Section 2.07(c) and (ii) the issuance of limited partnership interests in the Borrower in exchange for Ownership Interests in Subsidiaries and Unconsolidated Entities to the extent permitted pursuant to the provisions of Section 6.04, materially alter the corporate, capital or legal structure of any such Person (except for a Permitted Other Subsidiary); (f) enter into any forward sales of the Parent common stock or Ownership Interests in the Borrower; (g) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution) PROVIDED that nothing herein shall prohibit the Borrower from dissolving any Subsidiary which has no assets on the date of dissolution, (h) enter into any leases of Property or management agreements for any Property except (1) Permitted Property Agreements, (2) Permitted Housing Agreements, (3) leases of office space for the use of the Parent's and the Parent's Subsidiaries' employees, and (4) the leases of personal property permitted by this Agreement or (i) materially alter the character of their respective businesses -90- from that conducted as of the date of this Agreement or otherwise engage in any material business activity outside of the Hospitality Management Business. Section 6.06 INVESTMENTS AND OTHER PROPERTY. Neither the Parent, the Borrower, nor any of their respective Subsidiaries, shall acquire by purchase or otherwise any Investments or other Property, except the following: (a) Investments or Properties owned by such Persons as of the Closing Date; (b) Liquid Investments; (c) trade and customer accounts receivable which are for goods furnished or services rendered in the ordinary course of business and are payable in accordance with customary trade terms, and receivables purchased in connection with the acquisition of an Owned Hospitality Property; (d) Investments in Permitted New Investments or Subsidiaries making Permitted New Investments; PROVIDED that (i) within ten (10) Business Days 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 (ii) within twenty (20) Business Days of the acquisition of an Owned Hospitality Property by the Parent or any of the Parent's Subsidiaries, the Borrower shall deliver to the Administrative Agent a Title Policy for such Owned Hospitality Property; (e) other assets, including Capital Expenditures, acquired or made in the ordinary course of (i) owning the Parent's and the Parent's Subsidiaries' existing Investments and Properties and any Permitted New Investments and (ii) operating a Hospitality Management Business; and (f) loans to employees of the Parent or its Subsidiaries which in the aggregate do not exceed $100,000. Notwithstanding the foregoing, neither the Borrower, nor the Parent, nor their respective Subsidiaries shall make an Investment, acquire any other Property, or enter into any Permitted Property Agreement or Permitted Housing Agreement which would (a) cause a Default, (b) cause or result in the Borrower or the Parent failing to comply with any of the financial covenants contained herein, or (c) cause or result in the aggregate Adjusted EBITDA in any Rolling Period derived from all Permitted Property Agreements, Permitted Housing Agreements or other Investments related to Hospitality Properties which are not full-service or limited service hotels to exceed 35% of the Parent's Adjusted EBITDA for such Rolling Period. In addition, neither the Borrower, nor the Parent, nor their respective Subsidiaries shall enter into any agreements to purchase Investments or other Property, unless with respect to such purchase such Person at all times has available sources of funds equal to pay in full the cost of the purchase of such Investments or other Property (to the extent that the payment of such cost of purchase -91- constitutes a recourse obligation of the Parent, the Borrower or its Subsidiary), which available sources of funds may include Advances to the extent that the Borrower may borrow the same for the purposes required or other Indebtedness permitted by the terms of this Agreement. Section 6.07 AFFILIATE TRANSACTIONS. Except for certain liquor license agreements, the Borrower will not, and will not permit any of its Subsidiaries to, make, directly or indirectly: (a) any transfer, sale, lease, assignment or other disposal of any assets to any Affiliate of the Borrower which is not a Guarantor or any purchase or acquisition of assets from any such Affiliate except for purchases of new personal property (i) which in any calendar year do not exceed $1,000,000 in the aggregate and (ii) for which the sales price is the actual cost to the party selling; or (b) any arrangement or other transaction directly or indirectly with or for the benefit of any such Affiliate (including without limitation, guaranties and assumptions of obligations of an Affiliate), other than in the ordinary course of business and at market rates. Section 6.08 SALE OR DISCOUNT OF RECEIVABLES. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable. Section 6.09 MATERIAL DOCUMENTS. The Borrower will not, nor will it permit any of its Subsidiaries to (a) amend the Borrower's partnership agreement in any material respect, (b) admit a new general partner to the Borrower, (c) enter into any termination or material modification or amendment of Permitted Property Agreements which singly or in the aggregate could reasonably be expected to cause a Material Adverse Change, (d) enter into any modification or amendment of any of the Permitted Property Agreements with MHC or MHC's Subsidiaries which would provide in any such Permitted Property Agreements performance standards for the years 2001 or 2002, (e) increase the interest rate under the agreements executed by the Borrower evidencing the MHC Indebtedness to a rate in excess of the sum of (i) the Eurodollar Rate (as such rate varies) PLUS (ii) six and three-quarters percent (6 3/4%); PROVIDED that a default interest rate for the MHC Indebtedness can be three percent (3%) in excess of such rate, (f) modify the agreements executed by the Borrower evidencing the MHC Indebtedness to accelerate the scheduled repayment date of any principal, or (g) modify the Approved Inter-Company Indebtedness Loan Documents in any way that is materially adverse to the Lenders. Any termination, modification or amendment prohibited under this Section 6.09 without the Required Lender's written consent shall, to the extent permitted by applicable law, be void and of no force and effect. Section 6.10 NO FURTHER NEGATIVE PLEDGES. Neither the Borrower, nor the Parent, nor their respective Subsidiaries shall enter into or suffer to exist any agreement (other than this Agreement and the Credit Documents and as set forth in the Permitted Property Agreements and the Permitted Housing Agreements) (a) prohibiting the creation or assumption of any Lien upon the Properties of the Parent, the Borrower or any of their respective Subsidiaries (except for Properties of and Ownership Interests in the Permitted Other Subsidiaries), whether now owned or hereafter acquired, or (b) requiring an obligation to be secured if some other obligation is or becomes secured; PROVIDED that in connection with the incurrence of Additional Designated Senior Indebtedness, the Parent and its Subsidiaries may enter into such agreements which (y) -92- are in form and substance acceptable to the Administrative Agent in its reasonable discretion, and (z) would require that assets of the Parent and its Subsidiaries which secure the Obligations also secure on an equal and ratable basis such Additional Designated Senior Indebtedness. [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK] -93- 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 INTEREST COVERAGE RATIO. The Parent shall maintain at the end of each Rolling Period (a) for the Rolling Periods ending on June 30, 2002 through September 30, 2002, an Interest Coverage Ratio of not less than 1.75 to 1.00, (b) for the Rolling Periods ending on December 31, 2002 through September, 2003, an Interest Coverage Ratio of not less than 2.25 to 1.00, and (c) for any Rolling Period thereafter, an Interest Coverage Ratio of not less than 2.50 to 1.00. Section 7.02 SENIOR INTEREST COVERAGE RATIO. The Parent shall maintain at the end of each Rolling Period (a) for the Rolling Period ending on June 30, 2002, a Senior Interest Coverage Ratio of not less than 2.75 to 1.00, (b) for the Rolling Period ending on September 30, 2002, a Senior Interest Coverage Ratio of not less than 3.00 to 1.00, and (c) for any Rolling Period thereafter, a Senior Interest Coverage Ratio of not less than 3.50 to 1.00. -94- Section 7.03 LEVERAGE RATIO. The Parent shall not on any date permit the Leverage Ratio to exceed during the applicable period indicated in the following chart the amount set forth in such chart for such period: ----------------------------------------------------------------------- Beginning Date of Ending Date of Applicable Leverage Ratio Applicable Period Period ----------------------------------------------------------------------- ----------------------------------------------------------------------- Closing Date The day immediately prior 5.50 to 1.00 to the Status Reset Date during the Fiscal Quarter commencing October 1, 2002 ----------------------------------------------------------------------- The Status Reset Date The day immediately prior 5.00 to 1.00 during the Fiscal to the Status Reset Date Quarter commencing during the Fiscal Quarter October 1, 2002 commencing January 1, 2003 ----------------------------------------------------------------------- The Status Reset Date The day immediately prior 4.75 to 1.00 during the Fiscal to the Status Reset Date Quarter commencing during the Fiscal Quarter January 1, 2003 commencing July 1, 2003 ----------------------------------------------------------------------- The Status Reset Date The day immediately prior 4.25 to 1.00 during the Fiscal to the Status Reset Date Quarter commencing during the Fiscal Quarter July 1, 2003 commencing October 1, 2003 ----------------------------------------------------------------------- The Status Reset Date The day immediately prior 4.00 to 1.00 during the Fiscal to the Status Reset Date Quarter commencing during the Fiscal Quarter October 1, 2003 commencing January 1, 2004 ----------------------------------------------------------------------- The Status Reset Date No ending date 3.50 to 1.00 during the Fiscal Quarter commencing January 1, 2004 ----------------------------------------------------------------------- -95- Section 7.04 SENIOR LEVERAGE RATIO. The Parent shall not on any date permit the Senior Leverage Ratio to exceed during the applicable period indicated in the following chart the amount set forth in such chart for such period: ----------------------------------------------------------------------- Beginning Date of Ending Date of Applicable Senior Leverage Applicable Period Period Ratio ----------------------------------------------------------------------- ----------------------------------------------------------------------- Closing Date The day immediately prior 4.00 to 1.00 to the Status Reset Date during the Fiscal Quarter commencing January 1, 2003 ----------------------------------------------------------------------- The Status Reset Date The day immediately prior 3.25 to 1.00 during the Fiscal to the Status Reset Date Quarter commencing during the Fiscal Quarter January 1, 2003 commencing January 1, 2004 ----------------------------------------------------------------------- The Status Reset Date No ending date 2.50 to 1.00 during the Fiscal Quarter commencing January 1, 2004 ----------------------------------------------------------------------- Section 7.05 MAINTENANCE OF NET WORTH. The Parent shall at all times maintain an Adjusted Net Worth of not less than the Minimum Net Worth. 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 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 any fee or other amount payable hereunder or under any other Credit Document when the same becomes due and payable as set forth in this Agreement or such other Credit Document, as applicable, PROVIDED however that the Borrower and the Guarantors will have a grace period of five (5) days after the payments covered by this Section 8.01(b) becomes due and payable for the first two defaults of such Persons collectively under this Section 8.01(b) in every calendar year; -96- (c) REPRESENTATIONS AND WARRANTIES. Any representation or warranty made or deemed to be made (i) by the Borrower in this Agreement or in any other Credit Document, (ii) by the Borrower (or any of its officers) in connection with this Agreement or any other Credit Document, or (iii) by any Guarantor in any Credit Document shall prove to have been incorrect in any material respect when made or deemed to be made; (d) COVENANT BREACHES. (i) The Borrower shall fail to perform or observe any covenant contained in Section 5.02, Article VI or Article VII of this Agreement, (ii) the Borrower shall fail to perform or observe, or shall fail to cause any Guarantor to perform or observe any covenant in any Credit Document beyond any notice and/or cure period for such default expressly provided in such Credit Document or (iii) the Borrower or any Guarantor shall fail to perform or observe any term or covenant set forth in any Credit Document which is not covered by clause (i) or (ii) above or any other provision of this Section 8.01, in each case if such failure shall remain unremedied for thirty (30) days after the earlier of the date written notice of such default shall have been given to the Borrower or such Guarantor by the Administrative Agent or any Lender or the date a Responsible Officer of the Borrower or any Guarantor has actual knowledge of such default, unless such default in this clause (iii) cannot be cured in such thirty (30) day period and the Borrower is diligently proceeding to cure such default, in which event the cure period shall be extended to ninety (90) days; PROVIDED that the Borrower shall not be entitled to more than the aforementioned thirty (30) day period to cure a default under Section 5.09 of this Agreement; (e) CROSS-DEFAULTS. With respect to any Indebtedness of the Borrower, the Parent or any of their respective Subsidiaries (but excluding Indebtedness evidenced by the Notes) which is outstanding in a principal amount of at least $5,000,000 individually or when aggregated with all such Indebtedness of the Borrower, the Parent or any of their respective Subsidiaries any of the following: (i) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof, (ii) such Person shall fail to pay any principal of or premium or interest of any of such Indebtedness (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or (iii) any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to permit the holders of such Indebtedness to accelerate the maturity of such Indebtedness; -97- (f) INSOLVENCY. The Borrower, the Parent or any of their respective Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower, the Parent or any of their respective Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against the Borrower, the Parent or any of their respective Material Subsidiaries, either such proceeding shall remain undismissed for a period of 60 days or any of the actions sought in such proceeding shall occur; or the Borrower, the Parent or any of their respective Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this paragraph (f); (g) JUDGMENTS. Any judgment or order for the payment of money in excess of $2,500,000 or the Dollar Equivalent thereof (reduced for purposes of this paragraph for the amount in respect of such judgment or order that a reputable insurer has acknowledged being payable under any valid and enforceable insurance policy) shall be rendered against the Borrower, the Parent or any of their respective Subsidiaries which, within 30 days from the date such judgment is entered, shall not have been discharged or execution thereof stayed pending appeal; (h) ERISA. (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is likely to result in the termination of such Plan for purposes of Title IV of ERISA, unless such Reportable Event, proceedings or appointment are being contested by the Borrower in good faith and by appropriate proceedings, (iv) any Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any member of a Controlled Group shall incur any liability in connection with a withdrawal from a Multiemployer Plan or the insolvency (within the meaning of Section 4245 of ERISA) or reorganization (within the meaning of Section 4241 of ERISA) of a Multiemployer Plan, unless such liability is being contested by the Borrower in good faith and by appropriate proceedings, or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject the Borrower or any Guarantor to any tax, penalty or other liabilities in the aggregate exceeding $10,000,000; (i) GUARANTY. Any provision of any Guaranty shall for any reason cease to be valid and binding on any Guarantor or any Guarantor shall so state in writing; -98- (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; (k) PARENT COMMON STOCK; REPAYMENT EVENT The Parent at any time hereafter fails to (i) cause the Parent common stock to be duly listed on the New York Stock Exchange, Inc. and (ii) file timely all reports required to be filed by the Parent with the New York Stock Exchange, Inc. and the Securities and Exchange Commission and, with respect to a failure under clause (ii), such failure remains uncured on the date which is the earlier of (A) the date 30 days following the initial occurrence of such failure and (B) the date specified by the New York Stock Exchange, Inc. or the Securities and Exchange Commission as the date such failure needs to be cured by. Upon the receipt by the Parent of any Net Cash Proceeds from a Repayment Event, (a) the Parent fails to immediately make a capital contribution or advance to the Borrower or a Subsidiary of the Borrower in the aggregate amount of such Net Cash Proceeds, or otherwise apply the Net Cash Proceeds from such Repayment Event in accordance with the provisions of this Agreement or (b) the Borrower fails to apply such Net Cash Proceeds in accordance with the provisions of this Agreement; (l) CHANGE IN OWNERSHIP OR MANAGEMENT. Any of the following occur without the written consent of the Required Lenders: (i) a Change in Control occurs for either the Parent or the Borrower; (ii) the Parent and any wholly-owned Subsidiary of the Parent collectively owns less than 70% of the legal or beneficial interest in the Borrower; (iii) unless a Specified Change of Control Event shall have occurred, the Parent and MHC shall cease to have at least 4 of the same individuals serving on their respective Boards of Directors; or (iv) unless a Specified Change of Control Event shall have occurred, the Parent and MHC shall cease to have at least 2 of the same individuals serving as a Responsible Officer of the Parent and MHC, and, within 120 days following such occurrence for any reason, another person acceptable to the Required Lenders in their sole discretion is not employed as one of such Responsible Officers by the Parent and MHC; (m) PERMITTED PROPERTY AGREEMENTS. Any of the following occur: (i) sufficient Permitted Property Agreements shall for any reason cease to be valid and binding on MHC, MHC OP or other Person party thereto, or MHC, MHC OP or such other Person party thereto shall so state in writing, that it could reasonably be expected to cause a Material Adverse Change; or (ii) a default by the Parent, the Borrower or any of their respective Subsidiaries shall occur under sufficient Permitted Property Agreements that such default could reasonably be expected to cause a Material Adverse Change; or (n) LETTERS. Any provision of the Equity Inns Letter or the MHC Letter shall for any reason cease to be valid and binding on any Person, or any Person shall so state in writing. -99- 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 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 Notes, 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 Notes, 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 -100- Collateral Account maintained with the Administrative Agent from time to time, and all proceeds thereof, as security for the payment of the 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 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 -101- 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 AGENCY AND ISSUING BANK PROVISIONS Section 9.01 AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under this Agreement and the other Credit Documents as are delegated to the Administrative Agent by the terms hereof and of the other Credit Documents, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Credit Document (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; PROVIDED, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, any other Credit Document, or applicable law. The functions of the Administrative Agent are administerial in nature and in no event shall the Administrative Agent have a fiduciary or trustee relation in respect of any Lender by reason of this Agreement or any other Credit Document. Within five (5) Business Days of the Administrative Agent receiving actual knowledge (without any duty to investigate) of a Default, the Administrative Agent will provide written notice of such Default to the Lenders. Section 9.02 ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken (including such Person's own negligence) by it or them under or in connection with this Agreement or the other Credit Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Administrative Agent; (b) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or the other Credit Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Credit -102- Document on the part of the Borrower, the Parent or their respective Subsidiaries or to inspect the property (including the books and records) of the Borrower, the Parent or their respective Subsidiaries; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Credit Document other than with respect to the Administrative Agent's execution of the documents to which the Administrative Agent is a party; and (f) shall incur no liability under or in respect of this Agreement or any other Credit Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. Section 9.03 EACH AGENT AND ITS AFFILIATES. With respect to its Commitment, the Advances made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not an Agent. The term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include the Administrative Agent in its individual capacity as a Lender. The Administrative Agent, the Lenders and their respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower or any of its Subsidiaries, and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if the Administrative Agent were not an Administrative Agent hereunder or the Lenders were not Lenders hereunder and without any duty to account therefor to the Lenders. Section 9.04 LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to in Section 4.07 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Section 9.05 INDEMNIFICATION. The Lenders severally agree to indemnify the Administrative Agent, the Alternate Currency Swing Line Lender, and Issuing Bank (to the extent not reimbursed by the Borrower), according to their respective Pro Rata Shares from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent, the Alternate Currency Swing Line Lender, or such Issuing Bank in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent, the Alternate Currency Swing Line Lender, or such Issuing Bank under this Agreement or any other Credit Document (including the Administrative Agent's, the Alternate Currency Swing Line Lender's, or such Issuing Bank's own negligence), PROVIDED that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's, the Alternate Currency Swing Line Lender's, or such Issuing Bank's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand -103- for its Pro Rata Share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Credit Document, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower. Section 9.06 SUCCESSOR AGENT, THE ALTERNATE CURRENCY SWING LINE LENDER AND ISSUING BANKS. The Administrative Agent, the Alternate Currency Swing Line Lender or any Issuing Bank may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with cause by the Required Lenders upon receipt of written notice from the Required Lenders to such effect. Upon receipt of notice of any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank. If no successor Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's, Alternate Currency Swing Line Lender's or Issuing Bank's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank, then the retiring Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank, as applicable, may, on behalf of the Lenders and the Borrower, appoint a successor Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank, which shall be a commercial bank meeting the financial requirements of an Eligible Assignee and, in the case of the Alternate Currency Swing Line Lender or an Issuing Bank, a Lender. Upon the acceptance of any appointment as Administrative Agent, the Alternate Currency Swing Line Lender or Issuing Bank by a successor Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank, such successor Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank, as applicable, and the retiring Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank shall be discharged from its duties and obligations under this Agreement and the other Credit Documents, except that the retiring Issuing Bank shall remain an Issuing Bank with respect to any Letters of Credit issued by such Issuing Bank and outstanding on the effective date of its resignation or removal and the provisions affecting such Issuing Bank with respect to such Letters of Credit shall inure to the benefit of the retiring Issuing Bank until the termination of all such Letters of Credit. After any retiring Administrative Agent's, Alternate Currency Swing Line Lender's or Issuing Bank's resignation or removal hereunder as Administrative Agent, Alternate Currency Swing Line Lender or Issuing Bank, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was such Administrative Agent, the Alternate Currency Swing Line Lender or Issuing Bank under this Agreement and the other Credit Documents. At the time of any replacement of the Alternate Currency Swing Line Lender, the replacement Alternate Currency Swing Line Lender shall purchase from the retiring Alternate Currency Swing Line Lender all outstanding Alternate Currency Swing Line Advances, together with the accrued interest thereon. -104- Section 9.07 JOINT LEAD ARRANGERS, BOOK RUNNERS, CO-SYNDICATION AGENTS AND DOCUMENTATION AGENT. Under the Credit Documents SG Cowen shall be named Joint Lead Arranger and Book Runner; SSB shall be named Joint Lead Arranger, Book Runner and Co-Syndication Agent; Lehman Brothers, Inc. shall be named Joint Lead Arranger, Book Runner and Co-Syndication Agent; Credit Lyonnais New York Branch shall be named Documentation Agent, but such Persons in such capacities shall have no right or duty to act as agent on behalf of the Lenders. 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 Administrative Agent, as specified in the particular provisions of the Credit Documents, and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, however, that no amendment shall 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) increase the aggregate Commitments of the Lenders except as permitted by Section 2.01(c), (ii) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder or under any other Credit Document or otherwise release the Borrower from any Obligations, (iii) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (iv) amend this Section 10.01, (v) amend the definition of "Required Lenders", (vi) release the Parent or any Subsidiary of the Parent or the Borrower having Property or annual revenues in excess of $7,500,000 from its obligations under the Guaranty except as contemplated by the provisions of Section 5.09,, (vii) release all or substantially all of the Collateral or (viii) release as Collateral all or substantially all of the Ownership Interests in any Subsidiary of the Parent or the Borrower having Property or annual revenues in excess of $7,500,000 except as contemplated by the provisions of Section 5.09; and PROVIDED, FURTHER, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent, or any Issuing Bank 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, no amendment, waiver or consent shall, unless in writing and signed by the Alternate Currency Swing Line Lender, amend, modify or waive any provision pertaining to the Alternate Currency Swing Line Lender, Alternate Currency Swing Line Commitment or the Alternate Currency Swing Line Advances, or otherwise affect any right or duty of the Alternate Currency Swing Line Lender. -105- (b) In addition, none of the following decisions shall be made without the prior written consent of the Required Lenders: (i) release any Guarantor (except the Parent or any Subsidiary of the Parent or the Borrower having Property or annual revenues in excess of $7,500,000) from its obligations under any of the Guaranties except as contemplated by the provisions of Section 5.09, PROVIDED that the Administrative Agent can, if no Default then exists, release any Subsidiary of the Borrower which no longer is a party to any Permitted Property Agreement or any Permitted Housing Agreement or no longer owns any Investments or other Property; (ii) release any material Collateral from its Lien securing the Obligations except as contemplated by the provisions of Sections 10.01(a)(vii), 10.01(a)(viii) and 5.09; (iii) any determination (A) to make a Borrowing after the occurrence and during the continuance of an Event of Default or (B) to waive or modify a material condition precedent to the funding of an Advance or the issuance of a Letter of Credit; (iv) any (A) determination to send notice to the Borrower of, or otherwise declare, an Event of Default pursuant to Section 8.01 of this Agreement, (B) determination to accelerate the Obligations pursuant to Section 8.02 of this Agreement, (C) exercise of remedies under any Credit Document, (D) material decision regarding the operation, maintenance, sale or other disposition of any Property after the foreclosure upon such Property, PROVIDED that Administrative Agent shall be able to take any action it determines necessary to preserve or maintain any such Property and provided further that if the Required Lenders cannot agree on the sale or disposition of such Property, the Administrative Agent shall not sell or dispose of such Property, but shall continue to hold such Property for the benefit of the Lenders; (v) any waiver or any amendment to the financial covenants contained in Article VII of this Agreement or any definitions used therein; (vi) any amendment of any of the definitions that are used in the definition of "Leverage Ratio" or "Senior Leverage Ratio;" (vii) any other material waiver or modification of the Credit Documents not referred to in this Section 10.01, PROVIDED that if within ten (10) Business Days of the Administrative Agent's approval of a non-material waiver or modification of the Credit Documents the Required Lenders object in writing to such waiver or modification, then such waiver or modification shall then not be effective and shall be subject to the written consent of the Required Lenders; and (viii) any amendment of any other provision of a Credit Document which expressly requires the consent of the Required Lenders. -106- (c) Any amendment to a covenant of the Parent or any of its Subsidiaries or amendment to a definition shall require the Borrower's written consent. (d) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement which requires unanimous consent of the Lenders or of a Class of the Lenders, the consent of 51% or more of the Non-Defaulting Lenders entitled to vote on such proposed change, waiver, discharge or termination is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described below, to replace each such non-consenting Lender or Lenders with one or more Eligible Assignees pursuant to Section 2.15 so long as at the time of such replacement, each such Eligible Assignee consents to the proposed change, waiver, discharge or termination, PROVIDED FURTHER, that in any event the Borrower shall not have the right to replace a Lender solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) to increase any of such Lender's Commitments. (e) Notwithstanding the foregoing, the Administrative Agent and the Borrower (without the consent of any other Lender, the Issuing Bank or the Alternate Currency Swing Line Lender) may enter into amendments of any Credit Document solely with respect to corrections of formal defects not having any economic impact. Section 10.02 NOTICES, ETC. All notices and other communications shall be in writing (including telecopy or telex) and mailed, telecopied, telexed, hand delivered or delivered by a nationally recognized overnight courier, (a) if to the Borrower, at its address at 1010 Wisconsin Avenue, N.W., Washington, D.C. 20007, Attn: Mr. John Emery; (b) if to any Lender, at its Applicable Lending Office; (c) if to the Administrative Agent or the Issuing Bank, at its address at 4900 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention: Thomas K. Day, Managing Director (telecopy: (214) 979-2727; telephone: (214) 979-2774); or, (d) as to each party, at such other address or teletransmission number as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telexed or hand delivered or delivered by overnight courier, be effective three days after deposited in the mails, when telecopy transmission is completed, when confirmed by telex answer-back or when delivered, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or Article IX shall not be effective until received by the Administrative Agent. Section 10.03 NO WAIVER; REMEDIES. No failure on the part of any Lender, 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, -107- 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 Bracewell & Patterson, 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, legal proceedings or otherwise) of this Agreement and the other Credit Documents, and (d) to the extent not included in the foregoing, the costs of any local counsel, travel expenses, 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 LENDER ASSIGNMENTS AND PARTICIPATIONS. (a) ASSIGNMENTS. Any Lender may assign to one or more banks or other entities all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, the Notes held by it, and the participation interest in the Letter of Credit Obligations held by it); PROVIDED, HOWEVER, that: (i) each such assignment shall be of a constant, and not a varying, percentage of all of such Lender's rights and obligations under this Agreement for a particular Class and shall involve a ratable assignment of such Lender's Commitment and Advances for a particular Class, (ii) the amount of the resulting Commitments and Advances of the assigning Lender (unless it is assigning all its Commitments and Advances) and the assignee Lender pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 in total [provided that with respect to assignments of Term Advances by an Approved Fund to a Related Fund only, the amount of the resulting Term Advances for the assigning Approved Fund and the assignee Related Fund may be for less than $5,000,000 if (A) the amount of the resulting Term Advances for the assigning Approved Fund and the assignee Related Fund are not less than $1,000,000, (B) the amount of the aggregate resulting Term -108- Advances for the assigning Approved Fund and its Related Funds are not less than $5,000,000 and (C) such Approved Fund and all of its Related Funds shall only be entitled collectively to one notice for all purposes under the Credit Documents], shall in no event be less than $1,000,000 for each Class assigned and shall be an integral multiple of $1,000,000, (iii) each such assignment shall be to an Eligible Assignee, (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Notes subject to such assignment, (v) the Administrative Agent (and in the case of assignments of all or a portion of a Lender's Revolving Commitments, the Issuing Bank for each Letter of Credit issued after the date of this Agreement and the Alternate Currency Swing Line Lender) shall consent to such assignment, which consent shall not be unreasonably withheld or delayed, and (vi) each Eligible Assignee (other than an Eligible Assignee which is an Affiliate of the assigning Lender) shall pay to the Administrative Agent a $3,500 administrative fee; PROVIDED that, in the case of contemporaneous assignments by a Lender to more than one Related Fund (which Related Funds are not then Lenders hereunder), only a single $3,500 such fee shall be payable for all such contemporaneous assignments. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof or earlier such earlier date as agreed to by the Administrative Agent, (A) the assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) such Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything herein to the contrary, (i) any Lender may assign or pledge, as collateral or otherwise, any of its rights under the Credit Documents to any Federal Reserve Bank and (ii) any Lender that is an Approved Fund or Related Fund may, without the consent of the Administrative Agent or the Borrower, pledge all or any portion of its Advances and Notes to any trustee for, or any other representative of, holders of obligations owed, or securities issued, by such Approved Fund or Related Fund, as security for such obligations or securities; PROVIDED that (A) any foreclosure or similar action by such trustee or representative shall be subject to the provisions of this Section 10.06(a) concerning assignments, including without limitation the requirement that any assignee of such Notes and Advances must qualify as an Eligible Assignee and -109- (B) such Lender shall not require such trustee's or representative's consent to any matter under this Agreement, except (1) for a change in the principal amount of any Note which has been so pledged, reductions in fees or interest, or extending the Maturity Date except as permitted in this Agreement or (2) as otherwise consented to by the Administrative Agent. (b) TERM OF ASSIGNMENTS. By executing and delivering an Assignment and Acceptance, the Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency of value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the Guarantors or the performance or observance by the Borrower or the Guarantors of any of their obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Sections 4.06 and 5.05, if applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (c) THE REGISTER. The Administrative Agent shall maintain at its address referred to in Section 10.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Advances owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent, the Issuing Banks, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) PROCEDURES. Upon its receipt of an Assignment and Acceptance executed by a Lender and an Eligible Assignee, together with the Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been -110- completed and is in substantially the form of the attached Exhibit C, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes, a new Note or Notes payable to the order of such Eligible Assignee in amount equal to, respectively, the Commitments and the outstanding Advances assumed by it pursuant to such Assignment and Acceptance, and if the assigning Lender has retained any Commitments hereunder, a new Note or Notes payable to the order of such Lender in an amount equal to, respectively, the Commitments and the outstanding Advances retained by it hereunder. Such new Notes shall be dated the date of the original Notes executed pursuant to this Agreement and shall otherwise be in substantially the form of the attached Exhibits A-1, A-2, A-3, or A-4, as applicable. (e) PARTICIPATIONS. Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, its participation interest in the Letter of Credit Obligations, and the Notes held by it); PROVIDED, HOWEVER, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Notes for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent, and the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (v) such Lender shall not require the participant's consent to any matter under this Agreement, except for change in the principal amount of any Note in which the participant has an interest, reductions in fees or interest, or extending the Maturity Date except as permitted in this Agreement, and (vi) such Lender shall give prompt notice to the Borrower of each such participation sold by such Lender. The Borrower hereby agrees that participants shall have the same rights under Sections 2.08, 2.09, 2.11(c), and 10.07 hereof as the Lender to the extent of their respective participations. (f) CONFIDENTIALITY. Each Lender agrees to preserve the confidentiality of any confidential information relating to the Parent, the Borrower and their respective Subsidiaries received by Lender; provided that each Lender may furnish any such confidential information in the possession of such Lender from time to time to (i) assignees and participants (including prospective assignees and participants), (ii) its attorneys, accountants, regulators, the National Association of Insurance Commissioners, governmental authorities and any self-governing organization to which is a member, (iii) any direct or indirect contractual counterparty to such Lender in swap agreements or such contractual counterparty's professional advisor and (iv) the Related Funds, Affiliates, directors, partners, officers, employees of such Person or its Affiliates or Related Funds; PROVIDED that, prior to any such disclosure, such Person shall agree in writing to preserve the confidentiality of any confidential information relating to the Borrower and its Subsidiaries received by it from or on behalf of such Lender. -111- Section 10.07 INDEMNIFICATION. The Borrower shall indemnify the Administrative Agent, the Lenders (including any lender which was a Lender hereunder prior to any full assignment of its Commitment), any assignees and participants permitted hereunder, the Issuing Banks, and each affiliate thereof and their respective directors, officers, employees and agents from, and discharge, release, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from (i) any actual or proposed use by the Borrower or any Affiliate of the Borrower of the proceeds of any Advance, (ii) any breach by the Borrower or any Guarantor of any provision of this Agreement or any other Credit Document, (iii) any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing, or (iv) any Environmental Claim or requirement of Environmental Laws concerning or relating to the present or previously-owned or operated properties, or the operations or business, of the Borrower or any of its Subsidiaries, and the Borrower shall reimburse the Administrative Agent, Issuing Bank, and each Lender, and each affiliate thereof and their respective directors, officers, employees and agents, upon demand for any reasonable out-of-pocket expenses (including legal fees) incurred in connection with any such investigation, litigation or other proceeding; and expressly including any such losses, liabilities, claims, damages, or expense incurred by reason of such indemnified Person's own negligence, but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified. Section 10.08 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section 10.09 SURVIVAL OF REPRESENTATIONS, INDEMNIFICATIONS, ETC. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Credit Documents, the making of the Advances and any investigation made by or on behalf of the Lenders, none of which investigations shall diminish any Lender's right to rely on such representations and warranties. All obligations of the Borrower provided for in Sections 2.08, 2.09, 2.11(c), 9.05 and 10.07 shall survive any termination of this Agreement and repayment in full of the Obligations. Section 10.10 SEVERABILITY. In case one or more provisions of this Agreement or the other Credit Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired thereby. Section 10.11 USURY NOT INTENDED. It is the intent of the Borrower and each Lender in the execution and performance of this Agreement and the other Credit Documents to contract in strict compliance with applicable usury laws, including conflicts of law concepts, governing the Advances of each Lender including such applicable laws of the State of New York and the United States of America from time to time in effect. In furtherance thereof, the Lenders and the Borrower stipulate and agree that none of the terms and provisions contained in this Agreement -112- or the other Credit Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Rate and that for purposes hereof "interest" shall include the aggregate of all charges which constitute interest under such laws that are contracted for, charged or received under this Agreement; and in the event that, notwithstanding the foregoing, under any circumstances the aggregate amounts taken, reserved, charged, received or paid on the Advances, include amounts which by applicable law are deemed interest which would exceed the Maximum Rate, then such excess shall be deemed to be a mistake and each Lender receiving same shall credit the same on the principal of its Notes (or if such Notes shall have been paid in full, refund said excess to the Borrower). In the event that the maturity of the Notes is accelerated by reason of any election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the Maximum Rate and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the applicable Notes (or, if the applicable Notes shall have been paid in full, refunded to the Borrower). In determining whether or not the interest paid or payable under any specific contingencies exceeds the Maximum Rate, the Borrower and the Lenders shall to the maximum extent permitted under applicable law amortize, prorate, allocate and spread in equal parts during the period of the full stated term of the Notes all amounts considered to be interest under applicable law at any time contracted for, charged, received or reserved in connection with the Obligations. The provisions of this Section shall control over all other provisions of this Agreement or the other Credit Documents which may be in apparent conflict herewith. Section 10.12 GOVERNING LAW. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED, AND ANY DISPUTE BETWEEN THE BORROWER, THE ADMINISTRATIVE AGENT, ANY LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF NEW YORK; 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, -113- RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT ANY AGENT, ANY LENDER OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B). (C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS, PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY ANY AGENT OR THE LENDERS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY AGENT OR THE LENDERS TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. (D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN -114- RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (E) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT. (F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF THIS SECTION 10.13 AND SECTION 10.20, WITH ITS COUNSEL. Section 10.14 KNOWLEDGE OF BORROWER. For purposes of this Agreement, "knowledge of the Borrower" means the actual knowledge of any of the executive officers and all other Responsible Officers of the Parent. Section 10.15 LENDERS NOT IN CONTROL. None of the covenants or other provisions contained in the Credit Documents shall or shall be deemed to, give the Lenders the rights or power to exercise control over the affairs and/or management of the Borrower, any of its Subsidiaries or any Guarantor, the power of the Lenders being limited to the right to exercise the remedies provided in the Credit Documents; PROVIDED, however, that if any Lender becomes the owner of any Ownership Interests in any Person, whether through foreclosure or otherwise, such Lender shall be entitled (subject to requirements of law) to exercise such legal rights as it may have by being owner of such Ownership Interests in such Person. Section 10.16 HEADINGS DESCRIPTIVE. The headings of the several Sections and paragraphs of the Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 10.17 TIME IS OF THE ESSENCE. Time is of the essence under the Credit Documents. -115- 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, 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 JUDGMENT CURRENCY. The obligations of the Borrowers hereunder and under the Notes to make payments in Dollars, in Euros, or in Pounds (the "OBLIGATION CURRENCY") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency except to the extent to which such tender or recovery shall result in the effective receipt by the Lenders or the Alternate Currency Swing Line Lender, as applicable, of the full amount of the Obligation Currency expressed to be payable hereunder and under the Notes, and accordingly such obligations of the Borrowers shall be enforceable as an alternate or additional cause of action for the purpose of recovery in the Obligation Currency of the amount (if any) by which such effective receipt shall fall short of the full amount of the Obligation Currency expressed to be payable hereunder and under the Notes and shall not be affected by judgment being obtained for any other sums due under this Agreement and the Notes. Section 10.20 NO CONSEQUENTIAL DAMAGES. NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, EACH PERSON PARTY HERETO FOR ITSELF AND ON BEHALF OF ITS AFFILIATES AGREES THAT THE RECOVERY OF ANY DAMAGES SUFFERED OR INCURRED AS A RESULT OF ANY BREACH BY ANY PERSON OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS UNDER THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED OR INCURRED AS A RESULT OF THE BREACH BY THE BREACHING PARTY OF ITS REPRESENTATIONS, WARRANTIES OR OBLGIATIONS 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. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -116- SIGNATURE PAGE OF SENIOR SECURED CREDIT AGREEMENT EXECUTED as of the date first referenced above. BORROWER: MERISTAR H & R OPERATING COMPANY, L.P. By: Interstate Hotels & Resorts, Inc. (fka MeriStar Hotels & Resorts, Inc.), its general partner By: /s/ John Emery ----------------------------------- Name: John Emery ----------------------------------- Title: President & COO ----------------------------------- SIGNATURE PAGE OF SENIOR SECURED CREDIT AGREEMENT SOCIETE GENERALE, individually as a Lender and as Administrative Agent, the Issuing Bank and the Alternate Currency Swing Line Lender By: /s/ Thomas K. Day --------------------------------------- Thomas K. Day Managing Director SIGNATURE PAGE OF SENIOR SECURED CREDIT AGREEMENT CITICORP REAL ESTATE, INC. By: /s/ Michael S. Chlopak --------------------------------------- Name: Michael S. Chlopak --------------------------------------- Title: Vice President --------------------------------------- SIGNATURE PAGE OF SENIOR SECURED CREDIT AGREEMENT LEHMAN COMMERCIAL PAPER INC. By: /s/ Francis X. Gilhool --------------------------------------- Name: Francis X. Gilhool --------------------------------------- Title: Authorized Signatory --------------------------------------- SIGNATURE PAGE OF SENIOR SECURED CREDIT AGREEMENT CREDIT LYONNAIS NEW YORK BRANCH, individually as a Lender and as Documentation Agent By: /s/ David Bowers --------------------------------------- Name: David Bowers --------------------------------------- Title: Vice President --------------------------------------- SIGNATURE PAGE OF SENIOR SECURED CREDIT AGREEMENT THE BANK OF NOVA SCOTIA, ACTING THROUGH ITS NEW YORK AGENCY By: /s/ Bruce Ferguson --------------------------------------- Name: Bruce G. Ferguson --------------------------------------- Title: Managing Director --------------------------------------- EX-10 7 ex10-4form8k80202.txt EXHIBIT 10.4 EXHIBIT 10.4 ------------ THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT Third Amendment to Revolving Credit Agreement (this "Amendment") dated as of July 31, 2002 (the "Amendment Date"), between Meristar H & R Operating Company, L.P. ("Borrower") and Meristar Hospitality Operating Partnership, L.P. ("Lender"). RECITALS A. Lender and Borrower are parties to that certain Revolving Credit Agreement dated as of August 3, 1998, as amended by Amendment to Revolving Credit Agreement dated as of February 29, 2000, as further amended by Second Amendment to Revolving Credit Agreement dated as of January 28, 2002 (as amended, the "Credit Agreement"). Any defined terms used in this Amendment and not otherwise defined herein shall have the meaning given to them in the Credit Agreement. B. Meristar Hotels & Resorts, Inc. and Interstate Hotels Corporation ("IHC") entered into that certain Agreement and Plan of Merger, dated as of May 1, 2002, and that certain Amendment No. 1 to Agreement and Plan of Merger, dated as of June 3, 2002 (as so amended, the "Merger Plan"). C. Contemporaneously with the execution of this Amendment, Borrower; Societe Generale, as Administrative Agent; SG Cowen Securities Corporation, as Joint Lead Arranger and Book Runner; Solomon Smith Barney, Inc. as Joint Lead Arranger, Book Runner and Co-Syndication Agent; Credit Lyonnais New York Branch, as Documentation Agent; Lehman Brothers, Inc., as Joint Lead Arranger, Book Runner and Co-Syndication Agent; and other lenders (collectively, the "Senior Lenders") are entering into that certain Senior Secured Credit Agreement dated as of July 31, 2002 (the "Senior Credit Agreement"). D. Borrower has requested Lender's consent to the Merger Plan and the transactions contemplated thereby and Lender is willing to consent to the Merger Plan and such transactions if Borrower enters into this Amendment. E. Borrower and Lender desire to amend the Credit Agreement in certain respects. F. Borrower and Lender desire to amend, restate and consolidate all outstanding promissory notes by Borrower in favor of Lender pursuant to the Revolving Credit Agreement including, but not limited to, that certain Term Note dated January 1, 2002 in the amount of $13,069,000. NOW, THEREFORE, Borrower and Lender agree as follows: 1. DEFINITIONS. Section 1.01 of the Credit Agreement is hereby amended by (i) amending the definitions of: "Commitment," "Financial Institution Senior Indebtedness," "Guarantor," "Maturity Date," and "Parent," as set forth below and (ii) adding the defined term: "New Term Note". "Financial Institution Senior Indebtedness" means the Indebtedness evidenced by the Senior Credit Agreement and any modification, extension, refinancing, or replacement thereof. "Guarantor" shall mean Parent and each Subsidiary that from time to time guarantees the Senior Credit Facility. "Maturity Date" means the fifth (5th) anniversary of the Amendment Date. "New Term Note" means the Amended and Restated Promissory Note dated as of the date hereof by the Borrower payable to the order of Lender in the amount of $56,069,000, the form of which is attached hereto as EXHIBIT B. Any reference to "Note" or "Term Note" in the Credit Agreement shall be amended to refer to the New Term Note. "Parent" means Interstate Hotels & Resorts, Inc. (fka Meristar Hotels & Resorts, Inc.), a Delaware corporation, the surviving entity of the merger pursuant to the Merger Plan. 2. PRINCIPAL BALANCE. After application of the payment required pursuant to Section 6(a) of this Amendment, the outstanding principle balance under the Credit Agreement is $56,069,000. 3. MATURITY DATE. The Maturity Date is hereby extended to the date which is the fifth (5th) anniversary of the Amendment Date. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby ratifies and confirms that the representations and warranties contained in Article IV of the Credit Agreement are true and correct in all material respects as of the date hereof except as may be disclosed in the filings of Parent with the Securities and Exchange Commission prior to the Amendment Date. 5. AMENDMENT TO ARTICLE VII. Article VII of the Credit Agreement is hereby deleted in its entirety and replaced with the following: ARTICLE VII. FINANCIAL COVENANTS. So long as any Note or any amount under any Credit Document shall remain unpaid, unless the Lender shall otherwise consent in writing, the Borrower agrees to comply and to cause the Parent and the Parent's Subsidiaries to comply with the following covenants: Section 7.01. DEFINED TERMS. All defined terms used in the covenants contained in subsections 7.02 - 7.05 of this Article VII shall have the respective meanings set forth in the Senior Credit Agreement. Section 7.02 INTEREST COVERAGE RATIO. The Parent shall maintain at the end of each Rolling Period (a) for the Rolling Periods ending on June 30, 2002 through September 30, 2002 an Interest Coverage Ratio of not less than 1.75 to 1.00 and (b) for any Rolling Period ending on December 31, 2002 through September 30, 2003, an Interest Coverage Ratio of not less than 2.25 to 1.00, and (c) for any Rolling Period thereafter, an Interest and Coverage Ratio of not less than 2.50 to 1.00. Section 7.03 SENIOR INTEREST COVERAGE RATIO. The Parent shall maintain at the end of each Rolling Period (a) for the Rolling Period ending on June 30, 2002, a Senior Interest Coverage Ratio of not less than 2.75 to 1.00, (b) for any Rolling Period ending on September 30, 2002, a Senior Interest Coverage Ratio of not less than 3.00 to 1.00 and (c) for any Rolling Period thereafter, a Senior Interest Coverage Ratio of not less than 3.50 to 1.00. Section 7.04 LEVERAGE RATIO. The Parent shall not on any date permit the Leverage Ratio to exceed during the applicable period indicated in the following chart the amount set forth in the chart for that period.
- ----------------------------------------------------------------------------------------- BEGINNING DATE OF ENDING DATE OF APPLICABLE LEVERAGE RATIO APPLICABLE PERIOD PERIOD - ----------------------------------------------------------------------------------------- Amendment Date The day immediately prior to the 5.50 to 1.00 Status Reset Date (as defined in the Senior Credit Agreement) during the Fiscal Quarter commencing October 1, 2002 - ----------------------------------------------------------------------------------------- The Status Reset Date during the The day immediately prior to the 5.00 to 1.00 Fiscal Quarter commencing October Status Reset Date during the 1, 2002 Fiscal Quarter commencing January 1, 2003 - ----------------------------------------------------------------------------------------- The Status Reset Date during the The day immediately prior to the 4.75 to 1.00 Fiscal Quarter commencing January Status Reset Date during the 1, 2003 Fiscal Quarter commencing July 1, 2003 - ----------------------------------------------------------------------------------------- The Status Reset Date during the The day immediately prior to the 4.25 to 1.00 Fiscal Quarter commencing July 1, Status Reset Date during the 2003 Fiscal Quarter commencing October 1, 2003 - -----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------- The Status Reset Date during the The day immediately prior to the 4.00 to 1.00 Fiscal Quarter commencing October Status Reset Date during the 1, 2003 Fiscal Quarter commencing January 1, 2004 - ----------------------------------------------------------------------------------------- The Status Reset Date during the No ending date 3.50 to 1.00 Fiscal Quarter commencing January 1, 2004 - -----------------------------------------------------------------------------------------
Section 7.05 SENIOR LEVERAGE RATIO. The Parent shall not on any date permit the Total Senior Ratio to exceed during the applicable period indicated in the following chart the amount set forth in such chart for such period:
- ----------------------------------------------------------------------------------------- BEGINNING DATE OF ENDING DATE OF APPLICABLE SENIOR LEVERAGE APPLICABLE PERIOD PERIOD RATIO - ----------------------------------------------------------------------------------------- Closing Date The day immediately prior to the 4.00 to 1.00 Status Reset Date during the Fiscal Quarter commencing January 1, 2003 - ----------------------------------------------------------------------------------------- The Status Reset Date during the The day immediately prior to the 3.25 to 1.00 Fiscal Quarter commencing January Status Reset Date during the 1, 2003 Fiscal Quarter commencing January 1, 2004 - ----------------------------------------------------------------------------------------- The Status Reset Date during the No ending date 2.50 to 1.00 Fiscal Quarter commencing January 1, 2004 - -----------------------------------------------------------------------------------------
6. CONDITIONS PRECEDENT TO THIS AMENDMENT. This Amendment is subject to fulfillment, on or before the Amendment Date, in each case in form and substance satisfactory to Lender and its legal counsel in their sole and absolute discretion, of the following: (a) Borrower shall make a principal payment to the Lender on the Amendment Date in the amount of Three Million Dollars ($3,000,000); (b) Borrower shall deliver to Lender the duly executed original New Term Note; (c) Guarantor shall deliver to Lender the duly executed Amended and Restated Guaranty dated as of the date hereof and attached hereto as EXHIBIT C executed by Guarantors in favor of Lender securing the obligations of Borrower under the Credit Agreement; (d) Borrower shall deliver or cause to be delivered duly executed complete copies of the Senior Credit Agreement and all documents and instruments being executed in connection with the Senior Credit Agreement; (e) The outstanding principal balance of the indebtedness under the Credit Agreement (after giving effect to the payment required pursuant to Section 6(a) of this Amendment) shall not exceed the "Maximum OPCO Loan Amount" (as such term is defined in the Second Amended and Restated Senior Secured Credit Agreement, dated as of August 3, 1998, among Lender, as borrower, Societe Generale, Southwest Agency, as arranger and administrative agent, and the other lenders named therein, as amended from time) and Borrower's Responsible Officer shall have certified to such effect in writing to Lender; (f) There shall have been no further amendment to the Merger Plan which has not been approved by Lender; (g) IHC shall have delivered to Lender a certificate of no material adverse effect stating that, since May 1, 2002, there has been no change in or effect on the business, assets, properties, results of operations or financial condition of IHC or any subsidiary of IHC that is, or is reasonably likely to be, materially adverse to IHC and its subsidiaries, taken as a whole, or that could reasonably be expected to materially impair the ability of IHC to perform its obligations under the Merger Plan or to consummate the terms of, and other transactions contemplated by, the Merger Plan; and (h) Lender shall have received from counsel to Borrower an opinion as to the due execution, delivery and enforceability of this Amendment and all other Credit Documents executed by Borrower or Parent in connection herewith. Such opinion shall be addressed to Lender, dated as of the Amendment Date and in form and substance reasonably satisfactory to Lender and its counsel. 7. CONSENT TO MERGER. Upon satisfaction of each of the conditions precedent above, Lender hereby consents to the Merger Plan and the transactions contemplated thereby and agrees to waive the applicability of Section 2.06(c) and Section 9.01(j) of the Credit Agreement with respect to the Change In Control and the other transactions contemplated by the Merger Plan. Nothing contained herein shall constitute a consent or waiver with respect to any other Change In Control. 8. NO FURTHER ADVANCES. Notwithstanding anything to the contrary contained in the Credit Agreement (i) the Commitment is reduced to zero, all funds have been advanced under the Credit Agreement and Lender has no obligations to fund any additional Advances, and (ii) any amount repaid or prepaid may not be reborrowed or readvanced under the Credit Agreement, it being the intent of the parties that the loans made pursuant to the Credit Agreement shall be treated as a term loan. 9. FEES. Borrower agrees to pay on demand all out-of-pocket costs and expenses of Lender in connection with the preparation, execution, delivery, due diligence, administration, modification and amendment of this Amendment, including, without limitation, all reasonable out-of-pocket costs and expenses, if any, of Lender in connection with the enforcement (whether through negotiation, legal proceedings or otherwise) of this Amendment, the Credit Agreement and the other Credit Documents. 10. RATIFICATION. As amended hereby, the Credit Agreement is ratified and remains in full force and effect. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. BORROWER: --------- Meristar H & R Operating Company, L.P. By: Interstate Hotels & Resorts, Inc., its general partner By: /s/ James Calder -------------------------------------------- Name: James Calder Title: Chief Financial Officer LENDER: ------- Meristar Hospitality Operating Partnership, L.P. By: Meristar Hospitality Corporation, its general partner By: /s/ Christopher L. Bennett -------------------------------------------- Name: Christopher L. Bennett Title: Senior Vice President and General Counsel EXHIBIT B --------- Form of New Term Note AMENDED AND RESTATED PROMISSORY NOTE Amount: $56,069,000 Date: July 31, 2002 FOR VALUE RECEIVED, MERISTAR H&R OPERATING COMPANY, L.P. ("Maker"), a Delaware limited partnership, hereby promises to pay to MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P. or order ("Payee"), at 1010 Wisconsin Avenue, Washington, D.C. 20007, or at such other place as Payee shall from time to time designate, the principal amount of $56,069,000 together with interest on the unpaid principal balance hereof from time to time at the "Interest Rate" (as hereinafter defined). 1. Definitions. (a) "Revolving Credit Agreement" shall mean that certain Revolving Credit Agreement, dated as of August 3, 1998, as amended by Amendment to Revolving Credit Agreement, dated as of February 29, 2000, Second Amendment to Revolving Credit Agreement dated as of January 28, 2002, and Third Amendment to Revolving Credit Agreement dated July 31, 2002. (b) "Senior Credit Agreement" shall mean that certain Senior Secured Credit Agreement, dated as of July 31, 2002, among Maker, Societe Generale, SG Cowen Securities Corporation, Credit Lyonnais New York Branch, Salomon Smith Barney, Inc., Lehman Brothers, Inc., and the other lenders. (c) "Interest Rate" shall mean a per annum rate equal to the lessor of (a) sum of (i) "LIBOR" (as defined in the Revolving Credit Agreement) determined as of the first day of each month during the term of this Note for a one-month period plus (ii) 6.50% and (b) the "Maximum Rate" (as defined in the Revolving Credit Agreement). (d) "Maturity Date" shall mean the Maturity Date as defined in the Revolving Credit Agreement. 2. Payments. (a) Subject to the provisions of Section 2(c) of this Note, Maker shall pay interest to Payee on the outstanding principal amount hereof at the Interest Rate in arrears on the last day of each calendar quarter commencing September 30, 2002 until the Maturity Date. (b) Maker shall repay the outstanding principal amount of this Note together with all accrued and unpaid interest thereon on the Maturity Date. (c) Maker and Payee acknowledge that if Maker is prevented from paying any interest to Payee by virtue of the provisions of the Senior Credit Agreement such unpaid interest shall accrue and be payable on the Maturity Date or such earlier date on which Maker may be permitted to pay the same pursuant to such provisions. 3. Prepayment. This Note and the indebtedness hereby evidenced may be prepaid, in whole or in part, together with accrued and unpaid interest thereon at the election of Maker without payment or premium or penalty, upon ten (10) days prior written notice to Payee. 4. Default Acceleration. (a) An "Event of Default" shall occur under this Note if (i) Maker shall fail to make any payment of interest when due and such failure continues for a period of ten (10) days; (ii) Maker shall fail to pay the principal amount of this Note when due; or (iii) any "Event of Default" shall occur under the Revolving Credit Agreement, as it may be amended from time to time after the date hereof. (b) Upon the occurrence and during the continuance of any Event of Default, Payee shall have the right upon written notice to the Maker to accelerate the repayment of this Note and the indebtedness hereby evidenced. 5. Default Rate. Upon the occurrence and during the continuance of any Event of Default, the unpaid principal balance of this Note shall bear interest at the lesser of (a) the Interest Rate plus 3% per annum and (b) the Maximum Rate. 6. Nature of Indebtedness. The indebtedness evidenced by this Note amends, restates and consolidates all outstanding promissory notes by Maker in favor of Lender pursuant to the Revolving Credit Agreement including, but not limited to, all Notes issued pursuant to the Revolving Credit Agreement and that certain Term Note dated January 1, 2002 in the amount of $13,069,000. 7. Costs. In addition to, and not in lieu of, any other sums otherwise payable to Payee hereunder, Payee shall be entitled to reimbursement from Maker for all reasonable costs, expenses and fees (including reasonable attorney's fees) incurred by Payee in connection with the collection of this Notes and/or the indebtedness hereby evidenced. 8. Waivers. Maker herby waives presentment, demand, protest, notice of protest ad notice of any other kind except for such notice as is expressly provided for hereunder. 9. Governing Law. This Note shall be governed by the laws of the State of New York. 10. Amendment; Waivers. No waiver or amendment of this Note may be made other than in writing executed by Payee and Maker. 11. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. (A) EXCEPT AS PROVIDED IN SUBSECTION (B), MAKER AGREES THAT ALL DISPUTES AMONG MAKER AND PAYEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS NOTE, OR ANY OF THE OTHER CREDIT DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT MAKER ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. MAKER WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) MAKER AGREES THAT THE LENDER OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST MAKER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (I) OBTAIN PERSONAL JURISDICTION OVER MAKER OR (II) ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. MAKER 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. MAKER 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) MAKER 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 PAYEE BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO MAKER ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF PAYEE TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. MAKER 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 NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. (D) MAKER 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 BETWEEN PAYEE AND MAKER IN CONNECTION WITH THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. MAKER AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF MAKER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. 12. No Usury. This Note is subject to the express condition that at no time shall Maker be obligated to pay any interest on the principal balance of this Note at a rate in excess of the Maximum Rate. If by the terms of this Note, Maker is obligated to pay interest at a rate in excess of the Maximum Rate, then the Interest Rate or Default Rate, as applicable, shall be deemed immediately reduced to the Maximum Rate and all previous payments in excess of the Maximum Rate shall be deemed to have been payments in reduction of principal and not on account of interest. All sums to be paid to Payee under this Note shall, to the extent permitted by law, be amortized, prorated, allocated and spread over the full term of this Note so that the rate of interest does not exceed the Maximum Rate from time to time in effect. IN WITNESS WHEREOF, Maker has executed this Note as of the date first written above. MERISTAR H & R OPERATING COMPANY, L.P. By: Interstate Hotels & Resorts, Inc., its general partner By: ____________________________________________ Name: Title: EXHIBIT C --------- AMENDED AND RESTATED GUARANTY This Amended and Restated Guaranty (this "GUARANTY") is made and entered into effective for all purposes as of the 31ST day of JULY, 2002, by the parties signatory hereto or to an Accession Agreement (as hereinafter defined) (collectively, the "GUARANTOR" whether one or more) to and for the benefit of Meristar Hospitality Operating Partnership, L.P. (the "LENDER") to the Credit Agreement herein described. INTRODUCTION WHEREAS, this Guaranty is given in connection with that certain Revolving Credit Agreement dated as of August 3, 1998, as amended by Amendment to Revolving Credit Agreement dated as of February 29, 2000, as further amended by Second Amendment to revolving Credit Agreement dated as of January 28, 2002 (as amended or modified from time to time, the "CREDIT AGREEMENT"), among MERISTAR H & R OPERATING COMPANY, L.P., a Delaware limited partnership (the "BORROWER"); and Lender. WHEREAS, pursuant to the terms of the Credit Agreement the Lender has made a loan to Borrower. WHEREAS, Borrower has requested that Lender agree to further amend the Credit Agreement by that certain Third Amendment to Revolving Credit Agreement dated as of the date hereof by and between Lender and Borrower (the "Third Amendment to Revolving Credit Agreement"). Guarantor will derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement; WHEREAS, the Lenders have required the execution and delivery of this Guaranty as a condition precedent to the execution of the Third Amendment to Revolving Credit Agreement. This Guaranty amends, restates and consolidates all outstanding guaranties in favor of Lender granted pursuant to the terms of the Credit Agreement. The Lenders would not be willing to execute the Third Amendment to Revolving Credit Agreement in the absence of the execution and delivery by Guarantor of this Guaranty. NOW, THEREFORE, in order to induce the Lender to enter into the Third Amendment to Credit Agreements, each Guarantor hereby agrees as follows: Section 1. DEFINED TERMS. All terms used in this Guaranty, but not defined herein, shall have the meaning given such terms in the Credit Agreement. Section 2. GUARANTY. Each Guarantor hereby unconditionally and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Borrower now or hereafter existing under the Credit Agreement, the Note, and any other Credit Document, whether for principal, interest, fees, expenses, or otherwise (all of such obligations being the "GUARANTEED OBLIGATIONS") and any and all expenses (including reasonable counsel fees and expenses) incurred by the Lender in enforcing any rights under this Guaranty. Each Guarantor agrees that its guaranty obligation under this Guaranty is a guarantee -1- of payment, not of collection and that such Guarantor is primarily liable for the payment of the Guaranteed Obligations. Section 3. LIMIT OF LIABILITY. Each Guarantor that is a Subsidiary of the Borrower shall be liable under this Guaranty with respect to the Guaranteed Obligations only for amounts aggregating up to the largest amount that would not render its guaranty obligation hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any state law. Section 4. GUARANTY ABSOLUTE. Each Guarantor guarantees that the Guaranteed Obligations will be paid and performed strictly in accordance with the terms of the Credit Agreement and the other Credit Documents, as applicable, regardless of any law, regulation, or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto. The liability of each Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Credit Agreement, any other Credit Document, or any other agreement or instrument relating thereto; (b) any change in the time, manner, or place of payment of, or in any other term of, any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the Credit Agreement or any Credit Document, (c) any exchange, release, or nonperfection of any collateral, if applicable, or any release or amendment or waiver of or consent to departure from any other agreement or guaranty, for any of the Guaranteed Obligations; or (d) any other circumstances which might otherwise constitute a defense available to, or a discharge of the Borrower or a Guarantor. Section 5. CONTINUATION AND REINSTATEMENT, ETC. Each Guarantor agrees that, to the extent that the Borrower makes payments to the Lender or Lender receives any proceeds of any property of Borrower or any Guarantor and such payments or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, or otherwise required to be repaid, then to the extent of such repayment the Guaranteed Obligations shall be reinstated and continued in full force and effect as of the date such initial payment or collection of proceeds occurred. The Guarantor shall defend and indemnify the Lender from and against any claim or loss under this Section 5 (including reasonable attorneys' fees and expenses) in the defense of any such action or suit. Section 6. CERTAIN WAIVERS. 6.01 NOTICE. Each Guarantor hereby waives promptness, diligence, notice of acceptance, notice of acceleration, notice of intent to accelerate and any other notice with respect to any of the Guaranteed Obligations and this Guaranty. -2- 6.02 OTHER REMEDIES. Each Guarantor hereby waives any requirement that the Lender protect, secure, perfect, or insure any Lien or any Property subject thereto or exhaust any right or take any action against the Borrower or any other Person or any collateral, if any, including any action required pursuant to a 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. 6.03 WAIVER OF SUBROGATION. (a) Each Guarantor hereby irrevocably waives, until payment in full of all Guaranteed Obligations, any claim or other rights which it may acquire against the Borrower that arise from such Guarantor's obligations under this Guaranty or any other Credit Document, including, without limitation, any right of subrogation (including, without limitation, any statutory rights of subrogation under Section 509 of the Bankruptcy Code, 11 U.S.C. ss. 509, or otherwise), reimbursement, exoneration, contribution, indemnification, or any right to participate in any claim or remedy of the Lender against the Borrower or any collateral which the Lender now has or acquires. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Guaranteed Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of the Lender and shall promptly be paid to the Lender to be applied to the Guaranteed Obligations, whether matured or unmatured, as Lender may elect. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waiver set forth in this Section 6.03(a) is knowingly made in contemplation of such benefits. (b) Each Guarantor further agrees that it will not enter into any agreement providing, directly or indirectly, for any contribution, reimbursement, repayment, or indemnity by the Borrower or any other Person on account of any payment by such Guarantor to the Lender under this Guaranty. 6.04 CALIFORNIA WAIVERS. (a) Guarantor understands and agrees that the waivers contained in this Section 6.04 are waivers of substantive rights and defenses to which Guarantor might otherwise be entitled under state and federal law. The rights and defenses waived include, without limitation, those provided by California laws of suretyship and guaranty, antideficiency laws, and the Uniform Commercial Code. Guarantor acknowledges that Guarantor has provided these waivers of rights and defenses with the intention that they be fully relied upon by the Lender. (b) Guarantor waives Guarantor's rights of subrogation, reimbursement, indemnity and contribution, and any other rights and defenses available to Guarantor by reason of Sections 2787 to 2855, inclusive, of the California Civil Code, as amended or recodified from time to time, including without limitation (i) any defenses Guarantor may have to the Guaranteed Obligations by reason of an election of remedies by the Lender, and (ii) any rights or defenses Guarantor may have by reason of protection afforded to Borrower with respect to the Guaranteed Obligations pursuant to the antideficiency or other laws of the State of California limiting or discharging Borrower's indebtedness, including, without limitation, Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure, as amended or recodified from time to time. -3- (c) If and to the extent such waivers of Guarantor's rights of subrogation, reimbursement, indemnity and contribution, and any other rights and defenses waived by Guarantor hereunder are unenforceable, Guarantor hereby agrees that all such rights shall be junior and subordinate to the rights of the Lender to obtain payment and performance of the Guaranteed Obligations and to all rights of the Lender in and to any property, including the Property, which now or hereafter serves or could serve as collateral security for the Guaranteed Obligations. (d) The above waivers include, but are not limited to, the waiver by Guarantor of: (i) all rights and defenses arising out of an election of remedies by the Lender, even though that election of remedies has destroyed Guarantor's rights or subrogation and/or reimbursement against Borrower by the operation of Section 580d of the California Code of Civil Procedure or otherwise; (ii) all rights and protections of any kind which Guarantor may have for any reason which would affect or limit the amount of any recovery by the Lender from Guarantor including, without limitation, the right to any fair market value hearing pursuant to Section 580a of the California Code of Civil Procedure. (iii) any and all benefits available to sureties and creditors which might otherwise be available to Guarantor under California Civil Code Sections 2809 (reduction of surety's obligation where larger than principal's), 2810 (liability of surety when principal is not liable), 2815 (revocation of continuing guaranty), 2819 (exoneration of surety), 2839 (performance of principal obligation or offer of performance), 2845 (requiring creditor to proceed against principal), 2849 (security for performance of principal obligation), 2850 (hypothecation of surety's property), 2899 (order of resort to property), and 3433 (creditor's entitlement to satisfy claim from several funds), as amended or recodified from time to time; and (e) Guarantor shall not be discharged, released or exonerated, in any way, from its absolute, unconditional and independent liabilities hereunder, even though any rights or defenses which Guarantor may have against Borrower, the Lender or others may be destroyed, diminished or otherwise affected, by: (i) Any declaration by the Lender of a default in respect of any of the Guaranteed Obligations; (ii) The exercise by the Lender of any rights or remedies against Borrower or any other person; (iii) The failure of the Lender to exercise any rights or remedies against Borrower or any other person; or Section 7. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents and warrants as follows: -4- 7.01 CORPORATE AUTHORITY. Such Guarantor is either a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The execution, delivery and performance by such Guarantor of this Guaranty are within such Guarantor's organizational powers, have been duly authorized by all necessary organizational action and do not contravene (a) such Guarantor's organizational authority or (b) any law or material contractual restriction affecting such Guarantor or its Property. 7.02 GOVERNMENT APPROVAL. No authorization or approval or other action by and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by such Guarantor of this Guaranty. 7.03 BINDING OBLIGATIONS. This Guaranty is the legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its terms subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors' rights (whether considered in a proceeding at law or in equity). Section 8. COVENANTS. Each Guarantor will comply with all covenant provisions of Article V and Article VI of the Credit Agreement to the extent such provisions are applicable. 8.01 ADDITIONAL COVENANT. As soon as possible and in any event within five days after the incurrence of any Indebtedness (as defined in the Senior Credit Agreement) by the Parent or any Subsidiary of the Parent other than the Obligations or any other Indebtedness (as defined in the Senior Credit Agreement) permitted under the Credit Agreement, the Parent shall notify the Lender in writing of such incurrence. Section 9. CONTRIBUTION. As a result of the transactions contemplated by the Credit Agreement, each of the Guarantors will benefit, directly and indirectly, from the Guaranteed Obligations and in consideration thereof desire to enter into a contribution agreement among themselves as set forth in this Section 9 to allocate such benefits among themselves and to provide a fair and equitable arrangement to make contributions in the event any payment is made by any Guarantor hereunder to the Lender (such payment being referred to herein as a "CONTRIBUTION," and for purposes of this Guaranty, includes any exercise of recourse by the Lender against any Property of a Guarantor and application of proceeds of such Property in satisfaction of such Guarantor's obligations under this Guaranty). The Guarantors hereby agree as follows: 9.01 CALCULATION OF CONTRIBUTION. In order to provide for just and equitable contribution among the Guarantors in the event any Contribution is made by a Guarantor (a "FUNDING GUARANTOR"), such Funding Guarantor shall be entitled to a contribution from certain other Guarantors for all payments, damages and expenses incurred by that Funding Guarantor in discharging any of the Guaranteed Obligations, in the manner and to the extent set forth in this Section. The amount of any Contribution under this Guaranty shall be equal to the payment made by the Funding Guarantor to the Lender or any other beneficiary pursuant to this Guaranty and shall be determined as of the date on which such payment is made. -5- 9.02 BENEFIT AMOUNT DEFINED. For purposes of this Guaranty, the "BENEFIT AMOUNT" of any Guarantor as of any date of determination shall be the net value of the benefits to such Guarantor and all of its Subsidiaries (including any Subsidiaries which may be Guarantors) from extensions of credit made by the Lender to the Borrower under the Credit Agreement; provided, that in determining the contribution liability of any Guarantor which is a Subsidiary to its direct or indirect parent corporation or of any Guarantor to its direct or indirect Subsidiary, the Benefit Amount of such Subsidiary and its Subsidiaries, if any, shall be subtracted in determining the Benefit Amount of the parent corporation. 9.03 CONTRIBUTION OBLIGATION. Each Guarantor shall be liable to a Funding Guarantor in an amount equal to the greater of (A) the (i) ratio of the Benefit Amount of such Guarantor to the total amount of Guaranteed Obligations, multiplied by (ii) the amount of Guaranteed Obligations paid by such Funding Guarantor and (B) 95% of the excess of the fair saleable value of the property of such Guarantor over the total liabilities of such Guarantor (including the maximum amount reasonably expected to become due in respect of contingent liabilities) determined as of the date on which the payment made by a Funding Guarantor is deemed made for purposes of this Guaranty (giving effect to all payments made by other Funding Guarantors as of such date in a manner to maximize the amount of such contributions). 9.04 ALLOCATION. In the event that at any time there exists more than one Funding Guarantor with respect to any Contribution (in any such case, the "APPLICABLE CONTRIBUTION"), then payment from other Guarantors pursuant to this Guaranty shall be allocated among such Funding Guarantors in proportion to the total amount of the Contribution made for or on account of the Borrower by each such Funding Guarantor pursuant to the Applicable Contribution. In the event that at any time any Guarantor pays an amount under this Guaranty in excess of the amount calculated pursuant to clause (A) of Subsection 9.03 above, that Guarantor shall be deemed to be a Funding Guarantor to the extent of such excess and shall be entitled to contribution from the other Guarantors in accordance with the provisions of this Section. 9.05 SUBSIDIARY PAYMENT. The amount of contribution payable under this Section by any Guarantor shall be reduced by the amount of any contribution paid hereunder by a Subsidiary of such Guarantor. 9.06 EQUITABLE ALLOCATION. If as a result of any reorganization, recapitalization, or other corporate change in the Borrower or any of its Subsidiaries, or as a result of any amendment, waiver or modification of the terms and conditions of other Sections of this Guaranty or the Guaranteed Obligations, or for any other reason, the contributions under this Section become inequitable as among the Guarantors, the Guarantors shall promptly modify and amend this Section to provide for an equitable allocation of contributions. Any of the foregoing modifications and amendments shall be in writing and signed by all Guarantors. 9.07 ASSET OF PARTY TO WHICH CONTRIBUTION IS OWING. The Guarantors acknowledge that the right to contribution hereunder shall constitute an asset in favor of the Guarantor to which such contribution is owing. 9.08 SUBORDINATION. No payments payable by a Guarantor pursuant to the terms of this Section 9 shall be paid until all amounts then due and payable by the Borrower to any Lender, -6- pursuant to the terms of the Credit Documents, are paid in full in cash. In addition, any Indebtedness (as defined in the Senior Credit Agreement) payable by a Guarantor to the Borrower or by the Borrower to a Guarantor shall be subordinate to all amounts then due and payable by the Borrower to any Lender, pursuant to the terms of the Credit Documents. Nothing contained in this Section 9 shall affect the obligations of any Guarantor to any Lender under the Credit Agreement. Section 10. MISCELLANEOUS. 10.01 ADDRESSES FOR NOTICES. All notices and other communications provided for hereunder shall be in writing, including telegraphic communication and delivered or teletransmitted to the Lender, as set forth in the Credit Agreement and to each Guarantor, at the address set forth under such Guarantor's signature hereto or in the Accession Agreement executed by such Guarantor, or to such other address as shall be designated by any Guarantor or the Lender in written notice to the other parties. All such notices and other communications shall be effective when delivered or teletransmitted to the above addresses. 10.02 AMENDMENTS, ETC. No waiver or amendment of any provision of this Guaranty nor consent to any departure by any Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Lender; PROVIDED that any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Notwithstanding the foregoing, in the event that any Subsidiary or Affiliate of the Borrower hereafter is required in a accordance with the terms of the Credit Agreement or otherwise agrees to become a guarantor of the Borrower's obligations under the Credit Documents, then such Subsidiary or Affiliate may become a party to this Guaranty by executing an Accession Agreement ("ACCESSION AGREEMENT") in the form attached hereto as ANNEX 1 and each Guarantor and the Lender hereby agrees that upon such Subsidiary's or Affiliate's execution of such Accession Agreement, this Guaranty shall be deemed to have been amended to make such Person a Guarantor hereunder for all purposes and a party hereto and no signature is required on behalf of the other Guarantors or the to make such an amendment to this Guaranty effective. 10.03 NO WAIVER; REMEDIES. No failure on the part of Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 10.04 RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, the Lender is hereby authorized at any time, to the fullest extent permitted by law, to set off and apply any deposits (general or special, time or demand, provisional or final) and other indebtedness owing by the Lender to the account of any Guarantor against any and all of the obligations of such Guarantor under this Guaranty, irrespective of whether or not the Lender shall have made any demand under this Guaranty and although such obligations may be contingent and unmatured. The Lender agrees promptly to notify each Guarantor affected by any such set-off after any such set-off and application made by the Lender provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights -7- of the Lender under this Section 10.04 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have. 10.05. CONTINUING GUARANTY; TRANSFER OF INTEREST. This Guaranty shall create a continuing guaranty and shall (a) remain in full force and effect until payment in full and termination of the Guaranteed Obligations, (b) be binding upon each Guarantor, its successors and assigns, and (c) inure, together with the rights and remedies of the Lender and its respective successors, transferees and assigns. Without limiting the generality of the foregoing clause, when the Lender assigns or otherwise transfers any interest held by it under the Credit Agreement, or other Credit Document to any other Person pursuant to the terms of the Credit Agreement or other Credit Document, that other Person shall thereupon become vested with all the benefits held by such Lender under this Guaranty. Upon the payment in full and termination of the Guaranteed Obligations, the guaranties granted hereby shall terminate and all rights hereunder shall revert to each Guarantor to the extent such rights have not been applied pursuant to the terms hereof. Upon any such termination, the Lender will, at each Guarantor's expense, execute and deliver to such Guarantor such documents as such Guarantor shall reasonably request and take any other actions reasonably requested to evidence or effect such termination. 10.06. GOVERNING LAW. ANY DISPUTE BETWEEN THE GUARANTOR, THE LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS GUARANTY 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. 10.07. 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 GUARANTY OR ANY OF THE OTHER CREDIT DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. THE GUARANTOR AGREES THAT THE LENDER OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE GUARANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE GUARANTOR OR (2) -8- ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE GUARANTOR 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 GUARANTOR 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 GUARANTOR 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 THE LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE GUARANTOR ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE LENDER TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW THE GUARANTOR 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 GUARANTY 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 GUARANTY 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 GUARANTY WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (E) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS GUARANTY AND, SPECIFICALLY, THE PROVISIONS OF THIS SECTION 10.07, WITH ITS COUNSEL. -9- SIGNATURE PAGE OF GUARANTY Each Guarantor has caused this Guaranty to be duly executed as of the date first above written. ADDRESS: INTERSTATE HOTELS & RESORTS, INC. a Delaware corporation ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ BRIDGESTREET CORPORATE HOUSING WORLDWIDE, INC. a Delaware corporation ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ MERISTAR MANAGEMENT (CANMORE) LTD. a British Columbia (Canada) corporation ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ MERISTAR MANAGEMENT (VANCOUVER-METRTOWN) LTD. a British Columbia (Canada) corporation ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ BRIDGESTREET CANADA, INC. an Ontario (Canada) corporation ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ -10- SIGNATURE PAGE TO GUARANTY ADDRESS: BRIDGESTREET ACCOMMODATIONS, LTD. Incorporated under the laws of England and Wales ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ BRIDGESTREET ACCOMMODATIONS LONDON LIMITED Incorporated under the laws of England and Wales ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ BRIDGESTREET WARDROBE PLACE LIMITED Incorporated under the laws of England and Wales ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ LORYT(1) LIMITED Incorporated under the laws of England and Wales ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ APALACHEE BAY SAS Incorporated under the laws of France ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ -11- SIGNATURE PAGE TO GUARANTY ADDRESS: MERISTAR MANAGEMENT COMPANY, L.L.C. a Delaware limited liability company ________________________ MERISTAR AGH COMPANY, L.L.C. ________________________ a Delaware limited liability company ________________________ CAPSTAR WINSTON COMPANY, L.L.C. a Delaware limited liability company CAPSTAR BK COMPANY, L.L.C. a Delaware limited liability company CAPSTAR KCII COMPANY, L.L.C. a Delaware limited liability company CAPSTAR WYANDOTTE COMPANY, L.L.C. a Delaware limited liability company CAPSTAR ST. LOUIS COMPANY, L.L.C. a Delaware limited liability company MERISTAR LAUNDRY, L.L.C. a Delaware limited liability company MERISTAR PRESTON CENTER, L.L.C. a Delaware limited liability company MERISTAR HGI COMPANY, L.L.C. a Delaware limited liability company MERISTAR STORRS COMPANY, L.L.C. a Delaware limited liability company MERISTAR VACATIONS, L.L.C. a Delaware limited liability company THE NETEFFECT STRATEGIC ALLIANCE, LLC a Delaware limited liability company MERISTAR FLAGSTONE, LLC a Delaware limited liability company By: MeriStar H & R Operating Company, L.P. a Delaware limited partnership, its managing member By: Interstate Hotels & Resorts, Inc. a Delaware corporation, its general partner By:______________________________ Name:____________________________ Title:___________________________ -12- SIGNATURE PAGE TO GUARANTY ADDRESS: BRIDGESTREET MARYLAND, LLC a Delaware limited liability company ________________________ BRIDGESTREET MINNEAPOLIS, LLC ________________________ a Delaware limited liability company ________________________ BRIDGESTREET MIDWEST, LLC a Delaware limited liability company BRIDGESTREET ARIZONA, LLC a Delaware limited liability company BRIDGESTREET NEVADA, LLC a Delaware limited liability company BRIDGESTREET SOUTHWEST, LLC a Delaware limited liability company BRIDGESTREET OHIO, LLC a Delaware limited liability company BRIDGESTREET CALIFORNIA, LLC a Delaware limited liability company BRIDGESTREET COLORADO, LLC a Delaware limited liability company BRIDGESTREET NORTH CAROLINA, LLC a Delaware limited liability company BRIDGESTREET RALEIGH, LLC a Delaware limited liability company By: MeriStar H & R Operating Company, L.P. a Delaware limited partnership, their sole member By: Interstate Hotels & Resorts, Inc. a Delaware corporation, its general partner By: __________________________ Name: __________________________ Title: __________________________ -13- SIGNATURE PAGE TO GUARANTY ADDRESS: BRIDGESTREET TEXAS, L.P. a Delaware limited partnership ________________________ By: BridgeStreet Nevada, LLC ________________________ a Delaware limited liability company, ________________________ its partner By: MeriStar H & R Operating Company, L.P. a Delaware limited partnership, its member By: Interstate Hotels & Resorts, Inc. a Delaware corporation, its general partner By: __________________________ Name: __________________________ Title: __________________________ By: BridgeStreet Arizona, LLC a Delaware limited liability company, its partner By: MeriStar H & R Operating Company, L.P. a Delaware limited partnership, its member By: Interstate Hotels & Resorts, Inc. a Delaware corporation, its general partner By:__________________ Name:________________ Title:_______________ -14- SIGNATURE PAGE TO GUARANTY ADDRESS: INTERSTATE HOTELS COMPANY a Delaware corporation ________________________ INTERSTATE INVESTMENT CORPORATION ________________________ a Delaware corporation ________________________ INTERSTATE PARTNER CORPORATION a Delaware corporation INTERSTATE PROPERTY CORPORATION a Delaware corporation INTERSTATE/KP HOLDING CORPORATION a Delaware corporation NORTHRIDGE HOLDINGS, INC. a Delaware corporation IHC HOLDINGS, INC. a Delaware corporation INTERSTATE MEMBER INC. a Delaware corporation CROSSROADS HOSPITALITY MANAGEMENT COMPANY a Delaware corporation COLONY HOTELS AND RESORTS COMPANY a Delaware corporation By: ___________________________________ Name: ___________________________________ Title: ___________________________________ NORTHRIDGE INSURANCE COMPANY a corporation organized under the laws of the Cayman Islands ________________________ By: ___________________________________ ________________________ Name: ___________________________________ ________________________ Title: ___________________________________ -15- SIGNATURE PAGE TO GUARANTY INTERSTATE PROPERTY PARTNERSHIP, L.P. a Delaware limited partnership ________________________ By: Interstate Property Corporation ________________________ a Delaware corporation, its general ________________________ partner By: ________________________________ Name: ________________________________ Title: ________________________________ INTERSTATE/DALLAS GP, L.L.C. a Delaware limited liability company ________________________ By: Interstate Property Corporation ________________________ a Delaware corporation, its managing ________________________ member By: ________________________________ Name: ________________________________ Title: ________________________________ INTERSTATE KISSIMMEE PARTNER, L.P. a Delaware limited partnership ________________________ By: Interstate/KP Holding Corporation ________________________ a Delaware corporation, its general ________________________ partner By: ________________________________ Name: ________________________________ Title: ________________________________ -16- SIGNATURE PAGE TO GUARANTY ADDRESS: INTERSTATE PITTSBURGH HOLDINGS, L.L.C. a Delaware limited liability company ________________________ INTERSTATE MANCHESTER COMPANY, L.L.C. ________________________ a Delaware limited liability company ________________________ By: Interstate Property Partnership, L.P. a Delaware limited liability company, their sole member By: Interstate Property Corporation a Delaware corporation, its general partner By: ___________________________ Name: ___________________________ Title: ___________________________ ________________________ INTERSTATE HOUSTON PARTNER, L.P. ________________________ a Delaware limited partnership ________________________ INTERSTATE/DALLAS PARTNERSHIP, L.P. a Delaware limited partnership By: Interstate Property Corporation a Delaware corporation, their general partner By: ________________________________ Name: ________________________________ Title: ________________________________ ________________________ INTERSTATE HOTELS, LLC ________________________ a Delaware limited liability company ________________________ By: Northridge Holdings, Inc. a Delaware corporation, its managing member By: ________________________________ Name: ________________________________ Title: ________________________________ -17- SIGNATURE PAGE TO GUARANTY ADDRESS: CONTINENTAL DESIGN AND SUPPLIES COMPANY, L.L.C. a Delaware limited liability company ________________________ IHC MOSCOW SERVICES, L.L.C. ________________________ a Delaware limited liability company ________________________ PAH-HILLTOP GP, LLC a Delaware limited liability company PAH-CAMBRIDGE HOLDINGS, LLC a Delaware limited liability company CROSSROADS HOSPITALITY COMPANY, L.L.C. a Delaware limited liability company IHC INTERNATIONAL DEVELOPMENT (UK), L.L.C. a Delaware limited liability company IHC SERVICES COMPANY, L.L.C. a Delaware limited liability company CROSSROADS HOSPITALITY TENANT COMPANY, L.L.C. a Delaware limited liability company By: Interstate Hotels, LLC a Delaware limited liability company, their managing member By: Northridge Holdings, Inc. a Delaware corporation, its managing member By: ___________________________ Name: ___________________________ Title: ___________________________ ________________________ HILLTOP EQUIPMENT LEASING COMPANY, L.P. ________________________ a Delaware limited partnership ________________________ By: PAH-Hilltop GP, LLC a Delaware limited liability company, its general partner By: Interstate Hotels, LLC a Delaware limited liability company, its sole member By: Northridge Holdings, Inc. a Delaware corporation, its managing member By: _________________________ Name:________________________ Title:_______________________ -18- ANNEX 1 Amended and Restated Guaranty ACCESSION AGREEMENT _______________________ [NAME OF ENTITY], a [limited partnership/corporation] (the "Company"), hereby agrees with (i) Meristar Hospitality Operating Partnership, L.P. (the "Lender") under the Revolving Credit Agreement dated as of August 3, 1998 (as amended or modified from time to time, the "Credit Agreement") between MERISTAR H & R OPERATING COMPANY, L.P., a Delaware limited partnership, as the Borrower and the Lender, and (ii) the parties to the Amended and Restated Guaranty (the "Guaranty") dated as of July 31, 2002 and executed in connection with the Third Amendment to Credit Agreement by and between Borrower and Lender, as follows: The Company hereby agrees and confirms that, as of the date hereof, it (a) intends to be a party to the Guaranty and undertakes to perform all the obligations expressed therein, respectively, of an Indemnitor and a Guarantor (as defined in the Guaranty), (b) agrees to be bound by all of the provisions of the Guaranty as if it had been an original party to such agreement, (c) confirms that the representations and warranties set forth in the Guaranty with respect to the Company, a party thereto, are true and correct in all material respects as of the date of this Accession Agreement and (d) has received and reviewed copies of each of the Guaranty. For purposes of notices under the Guaranty the address for the Company is as follows: _____________________________________________________ _____________________________________________________ Attention:___________________________________________ Telephone:___________________________________________ Telecopy:____________________________________________ This Accession Agreement shall be governed by and construed in accordance with the laws of the State of New York IN WITNESS WHEREOF this Accession Agreement was executed and delivered as of the ___ day of ___________________, 20__. [NAME OF ENTITY] ____________________________________________ By:_________________________________________ Title:______________________________________ -19- EX-10 8 ex10-5form8k80202.txt EXHIBIT 10.5 EXHIBIT 10.5 ------------ AMENDED AND RESTATED INTERSTATE HOTELS & RESORTS, INC. INCENTIVE PLAN ARTICLE I DEFINITIONS 1.1 "AFFILIATE" means any "subsidiary" or "parent" corporation (within the meaning of Section 424 of the Code) of the Interstate Hotels & Resorts, Inc. 1.2 "AGGREGATE LIMIT" means 15% of the aggregate number of shares of Common Stock issued and outstanding as of the end of the preceding fiscal year; provided, that for the year in which the Merger is consummated, the Aggregate Limit shall mean the number of issued and outstanding shares of Common Stock as of the calendar day after the effective time of the Merger times 15%; and further provided that, notwithstanding the foregoing and subject to Article XI, no more than 1,000,000 shares of Common Stock shall be available for Awards of Options under the Plan which are intended to be qualified as "incentive stock options" within the meaning of Section 422 of the Code. 1.3 "AGGREGATE NUMBER OF AWARD SHARES" means the total of (i) the number of shares of Common Stock covered by outstanding Awards under the Plan; (ii) the number of shares of Common Stock issued pursuant to Awards under the Plan; and (iii) if the Merger is completed, the number of shares of Common Stock covered by outstanding unexercised options granted under the Interstate Hotels Corporation 1999 Equity Incentive Plan. 1.4 "AGREEMENT" means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of a Stock Award, an award of Performance Shares or an Option or Incentive Award granted to such Participant. 1.5 "AWARD" means any of an Incentive Award, an Option, an award of Performance Shares, or a Stock Award. 1.6 "BOARD" means the Board of Directors of the Company. 1.7 "CHANGE IN CONTROL," shall, unless in the case of a particular Award, the applicable Agreement states otherwise or contains a different definition of "Change in Control," be deemed to occur upon: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") other than a Permitted Acquiror of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more (on a fully diluted basis) of either (A) the then outstanding shares of common stock of the Company, taking into account as outstanding for this purpose such common stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such common stock (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this Plan, the following acquisitions shall not constitute a Change of Control: (I) any acquisition by the Company or any Affiliate, (II) any acquisition by any employee benefit plan sponsored or maintained by the Company or any Affiliate, (III) any acquisition which complies with clauses (A), (B) and (C) of subsection (v) of this Section 1.7, or (IV) in respect of an award held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant); (ii) Individuals who, on the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided that (A) any person becoming a director subsequent to the date hereof, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; (B) no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or G-1 threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; and (C) any individual elected to the Board in connection with the Merger shall be an Incumbent Director; (iii) the dissolution or liquidation of the Company; (iv) the sale of all or substantially all of the business or assets of the Company; or (v) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the directors of the Surviving Corporation (the "Parent Corporation"), is represented by the Outstanding Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Company's Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no Person (other than a Permitted Acquiror or any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 30% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Board members at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination. (vi) Notwithstanding any provision of this Section 1.7 to the contrary, any acquisition of the securities of the Company by any Person in connection with the Merger shall not be deemed to be a "Change of Control." 1.8 "CODE" means the Internal Revenue Code of 1986, and any amendments thereto. 1.9 "COMMITTEE" means the Compensation Committee of the Board or a subcommittee thereof comprised of at least two (2) directors each of whom is a non-employee director within the meaning of Securities and Exchange Commission Rule 16b-3 and an outside director within the meaning of Section 162(m) of the Code. 1.10 "COMMON STOCK" means the common stock, $0.01 par value, of the Company. 1.11 "COMPANY" means Interstate Hotels & Resorts, Inc., a Delaware corporation. 1.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended and as in effect on the effective date of this Plan. 1.13 "FAIR MARKET VALUE" means, on any given date, the current fair market value of the shares of Common Stock as determined below: If the Common Stock is not listed on an established stock exchange, the Fair Market Value shall be the average of the final bid and asked quotations on the over-the-counter market in which the Common Stock is traded or, if applicable, the reported "closing" price of a share of Common Stock in the New York over-the-counter market as reported by the National Association of Securities Dealers, Inc. If the Common Stock is listed on one or more established stock exchanges, Fair Market Value shall be deemed to be the highest closing price of a share of Common Stock reported on any such exchange. In any case, if no sale of Common Stock is made on any stock exchange or over-the- G-2 counter market on that date, then Fair Market Value shall be determined as of the next preceding day on which there was a sale. If the Common Stock is not traded, Fair Market Value shall be determined by the Board using any reasonable method in good faith. 1.14 "INCENTIVE AWARD" means an award which, subject to such terms and conditions as may be prescribed by the Committee, entitles the Participant to receive a cash payment from the Company or an Affiliate. 1.15 "MERGER" means the merger transaction contemplated by the Agreement and Plan of Merger, dated as of May 1, 2002, as amended to date, between the Company and Interstate Hotels Corporation. 1.16 "OPTION" means a stock option that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement. 1.17 "PARTICIPANT" means: (i) an employee of the Company or any Affiliate (including an employee who is a member of the Board), or any individual who provides services to the Company or any Affiliate, (ii) who satisfies the requirements of Article IV and (iii) is selected by the Committee to receive an Award under the Plan. 1.18 "PERFORMANCE SHARES" means an award, in the amount determined by the Committee and specified in an Agreement, stated with reference to a specified number of shares of Common Stock, that entitles the holder to receive a payment for each specified share equal to the Fair Market Value of Common Stock on the date of payment. 1.19 "PERMITTED ACQUIROR" means, if the Merger is completed, any Person who has, as of the day after the Merger is completed, beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 30% or more (on a fully diluted basis) of the Outstanding Company Common Stock or the Outstanding Company Voting Securities; provided, however, that no Person shall be deemed to be a Permitted Acquiror if such Person beneficially owns (as defined in Rule 13d-3 under the Exchange Act) 50% or more (on a fully diluted basis) of the Outstanding Company Common Stock or the Outstanding Company Voting Securities. 1.20 "PERMITTED FAMILY MEMBERS" shall have the meaning set forth in Section 6.5 hereof. 1.21 "PLAN" means the Amended and Restated Interstate Hotels & Resorts, Inc. Incentive Plan. 1.22 "STOCK AWARD" means Common Stock awarded to a Participant under Article VIII. 1.23 "TEN PERCENT SHAREHOLDER" means any individual owning more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of an Affiliate. An individual shall be considered to own any voting stock owned (directly or indirectly) by or for his brothers, sisters, spouse, ancestors or lineal descendants and shall be considered to own proportionately any voting stock owned (directly or indirectly) by or for a corporation, partnership, estate or trust of which such individual is a shareholder, partner or beneficiary. ARTICLE II PURPOSES The Plan is intended to assist the Company and its Affiliates in (i) attracting and retaining employees, directors and other service providers with ability and initiative, (ii) providing incentives to those deemed important to the success of the Company, (iii) aligning the interests of those individuals with the interests of the Company and its stockholders through opportunities for increased stock ownership. The Plan is intended to permit the grant of Options that qualify as incentive stock options under Section 422 of the Code and nonqualified stock options, Stock Awards, Performance Shares and Incentive Awards. No Option that is intended to be an incentive stock option shall be invalid for failure to qualify as an incentive stock option. The proceeds received by the Company from the sale of Common Stock pursuant to this Plan shall be used for general corporate purposes. G-3 ARTICLE III ADMINISTRATION The Plan shall be administered by the Committee. The Committee shall have authority to grant Stock Awards, Performance Shares, Incentive Awards and Options upon such terms (not inconsistent with the provisions of this Plan) as the Committee may consider appropriate. Such terms may include conditions (in addition to those contained in this Plan) on the exercisability of all or any part of an Option or on the transferability or forfeitability of a Stock Award, Incentive Award or Performance Shares. Notwithstanding any such conditions, the Committee may, in its discretion, accelerate the time at which any Option may be exercised, or the time at which a Stock Award may become transferable or nonforfeitable or the time at which an Incentive Award or Performance Shares may be settled. In addition, the Committee shall have complete authority to interpret all provisions of this Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the administration of the Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The express grant in the Plan of any specific power to the Committee shall not be construed as limiting any power or authority of the Committee. Any decision made, or action taken, by the Committee or in connection with the administration of this Plan shall be final and conclusive. Neither the Committee nor any member of the Committee shall be liable for any act done in good faith with respect to this Plan or any Agreement, Option, Stock Award, Incentive Award or award of Performance Shares. All expenses of administering this Plan shall be borne by the Company. The Committee, in its discretion, may delegate to one or more officers of the Company all or part of the Committee's authority and duties with respect to grants and awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act; provided, however, the Committee shall not delegate its authority (i) to appoint delegates or its authority to amend or revoke any delegation, (ii) under Articles XI and XII hereof and (iii) to accelerate the exercisability of Options, the transferability of Stock Awards or the time at which Incentive Awards or awards of Performance Shares may be settled. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Committee's delegate or delegates that were consistent with the terms of the Plan. ARTICLE IV ELIGIBILITY Any employee of the Company or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan) or a person whose efforts contribute to the performance or success of the Company or an Affiliate (including a corporation that becomes an Affiliate after the adoption of this Plan) (other than a Board member who is not also an employee of the Company or an Affiliate) is eligible to participate in this Plan if the Committee, in its sole discretion, determines that such person has contributed significantly or can be expected to contribute significantly to the profits or growth of the Company or an Affiliate. Directors of the Company who are employees of the Company or an Affiliate may be selected to participate in this Plan. ARTICLE V STOCK SUBJECT TO PLAN 5.1 SHARES ISSUED. Upon the award of shares of Common Stock pursuant to a Stock Award or the settlement of a Performance Share award, the Company may issue shares of Common Stock from its authorized but unissued Common Stock. Upon the exercise of an Option, the Company may deliver to the Participant (or the Participant's broker if the Participant so directs), shares of Common Stock from its authorized but unissued Common Stock. G-4 5.2 AGGREGATE LIMIT. In no event and at no time may the Aggregate Number of Award Shares exceed the Aggregate Limit, except that a reduction in the number of outstanding shares of Common Stock may cause the Aggregate Limit to be less than the Aggregate Number of Award Shares. If a reduction in the number of issued and outstanding shares of Common Stock causes the Aggregate Limit to be less than the Aggregate Number of Award Shares, (i) no additional Awards may be granted under the Plan until the Aggregate Number of Award Shares does not exceed the Aggregate Limit; and (ii) all Awards already granted prior to the reduction in the Aggregate Limit shall remain in effect in accordance with their terms. The Aggregate Limit and the Aggregate Number of Award Shares shall be subject to adjustment as provided in Article XI. 5.3 REALLOCATION OF SHARES. If an Award is terminated (for any reason other than its exercise), forfeited or expires unexercised, the number of shares of Common Stock allocated to the Award or portion thereof which was terminated, forfeited or expired unexercised may be reallocated to other Awards to be granted under this Plan. ARTICLE VI OPTIONS 6.1 AWARD. In accordance with the provisions of Article IV, the Committee will designate each individual to whom an Option is to be granted and will specify the number of shares of Common Stock covered by the Option; provided, however, that no individual may be granted Options in any calendar year covering more than 1,000,000 shares of Common Stock. 6.2 OPTION PRICE. The price per share for Common Stock purchased on the exercise of an Option shall be determined by the Committee on the date of grant; provided, however, that the price per share for Common Stock purchased on the exercise of any Option shall not be less than the Fair Market Value on the date of grant or, with respect to Options granted in connection with the initial employment of an individual, eighty-five (85%) percent of the Fair Market Value on the date the Option is granted; provided, however, that no more than ten percent (10%) of the shares of Common Stock issued under the Plan may be granted at less than one hundred percent (100%) of Fair Market Value. Notwithstanding the preceding sentence, the price per share for Common Stock purchased on the exercise of any Option that is an incentive stock option shall not be less than the Fair Market Value on the date the Option is granted or, in the case of an incentive stock option granted to an individual who is a Ten Percent Shareholder on the date such option is granted, shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date the Option is granted. 6.3 MAXIMUM OPTION PERIOD. Unless the relevant Agreement provides otherwise, the maximum period in which an Option may be exercised shall be ten years from date on which such Option was granted, except that no Option that is an incentive stock option shall be exercisable after the expiration of ten years from the date such Option was granted. In the case of an incentive stock option that is granted to a Participant who is a Ten Percent Shareholder on the date of grant, such Option shall not be exercisable after the expiration of five years from the date of grant. The terms of any Option that is an incentive stock option may provide that it is exercisable for a period less than such maximum period. 6.4 NONTRANSFERABILITY. Except as provided in Section 6.5 hereof, each Option granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. During the lifetime of the Participant to whom the Option is granted, the Option may be exercised only by the Participant. No right or interest of a Participant in any Option shall be liable for, or subject to, any lien, obligation, or liability of such Participant. 6.5 TRANSFERABLE OPTIONS. Section 6.4 hereof to the contrary notwithstanding, if the applicable Agreement so provides, an Option that is not an incentive stock option may be transferred by a Participant to the Participant's children, grandchildren, spouse, one or more trusts for the benefit of such family members or a partnership in which such family members are the only partners (collectively, "Permitted Family Members"); provided, however, that the Participant may not receive any consideration for the G-5 transfer; and further provided, that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such transfer would comply with the requirements of this Plan and the applicable Agreement. The holder of an Option transferred pursuant to this section shall be bound by the same terms and conditions that governed the Option during the period that it was held by the Participant. 6.6 EMPLOYEE STATUS. For purposes of determining the applicability of Section 422 of the Code (relating to incentive stock options), or in the event that the terms of any Option provide that it may be exercised only during employment or service or within a specified period of time after termination of employment or service, the Committee may decide to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons, shall not be deemed interruptions of continuous employment or service. 6.7 VESTING. Unless the applicable Agreement provides otherwise, one third of the Options subject to an Award shall vest and become exercisable on each anniversary of the date of grant such that the Options subject to such Award will be fully vested on the third anniversary of the date of grant; provided, however, that notwithstanding any vesting dates set forth in the applicable Agreement, the Committee may in its sole discretion accelerate the vesting and exercisability of any Option, which acceleration shall not affect the terms and conditions of any such Option other than with respect to vesting and exercisability. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires in accordance with Section 6.3 hereof. An Option granted under this Plan may be exercised with respect to any number of whole shares less than the full number for which the Option could be exercised. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan and the applicable Agreement with respect to the remaining shares subject to the Option. 6.8 ANNUAL LIMITATION FOR INCENTIVE STOCK OPTIONS. To the extent the aggregate Fair Market Value (determined on the date of grant) of the shares of Common Stock for which an incentive stock options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company) exceeds $100,000, such excess incentive stock options shall be treated as nonqualified stock options. 6.9 PAYMENT. Unless otherwise provided by the Agreement, payment of the Option price shall be made in cash or a cash equivalent acceptable to the Committee. If the applicable Agreement so provides, payment of all or part of the Option price may be made by surrendering shares of Common Stock to the Company; provided, however, that such shares are not subject to any pledge or other security interest and have either been held by the Participant for six months, previously acquired by the Participant on the open market or meet such requirements as the Committee may determine necessary in order to avoid an accounting earnings charge in respect of the Option. If Common stock is used to pay all or part of the Option price, the sum of the cash and cash equivalent and the Fair Market Value (determined as of the day preceding the date of exercise) of the shares surrendered must not be less than the Option price of the shares for which the Option is being exercised. Unless the Committee decides otherwise, a Participant may provide instructions to the Company that upon receipt of the Option price in cash from a broker or dealer acting at the direction of the Participant in payment for any shares of Common Stock pursuant to the exercise of an Option, the Company shall issue such shares of Common Stock directly to the designated broker or dealer. 6.10 SHAREHOLDER RIGHTS. No Participant shall have any rights as a shareholder with respect to shares subject to his Option until the date of exercise of such Option. 6.11 DISPOSITION OF STOCK. A Participant shall notify the Company of any sale or other disposition of Common Stock acquired pursuant to an Option that was an incentive stock option if such sale or disposition occurs: (i) within two years after the grant of an Option or (ii) within one year after the issuance of the Common Stock to the Participant. Such notice shall be in writing and directed to the Secretary of the Company. G-6 6.12 TERMINATION OF EMPLOYMENT OR SERVICE. Unless the applicable Agreement provides otherwise, if a Participant's employment or service with Company and its Affiliates is terminated, each Option shall expire on the earlier of (x) the last day of the option period and (y) the date that is 90 days after the date of the Participant's termination of employment or service. ARTICLE VII STOCK AWARDS 7.1 AWARD. In accordance with the provisions of Article IV, the Committee will designate each individual to whom a Stock Award is to be made and will specify the number of shares of Common Stock covered by such Award; provided, however, that no individual may receive Stock Awards with respect to more than 250,000 shares of Common Stock in any calendar year and no more than thirty (30%) percent of the shares of Common Stock available under the Plan may be issued in the form of Stock Awards. 7.2 VESTING. Unless the applicable Agreement provides otherwise, a Stock Award shall be subject to forfeiture restrictions; provided, however, that such forfeiture restrictions shall lapse with respect to one third of the shares of Common Stock subject to the Stock Award on each anniversary of the date of grant such that the Stock Award will be fully vested on the third anniversary of the date of grant; and further provided, however, that notwithstanding the foregoing, the Committee may, in its sole discretion, accelerate the date or dates on which the forfeiture restrictions shall lapse, which acceleration shall not affect the terms and conditions of any such Stock Award other than with respect to vesting. 7.3 PERFORMANCE OBJECTIVES. In accordance with Section 7.2 hereof, the Committee may prescribe that Stock Awards will be vested immediately upon grant or will become vested or transferable or both based on objectives stated with respect to the Company's, an Affiliate's or an operating unit's return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, funds from operations or Fair Market Value or such other criteria as are determined by Committee. If the Committee, on the date of award, prescribes that a Stock Award shall become nonforfeitable and transferable only upon the attainment of performance objectives stated with respect to one or more of the foregoing criteria, the shares subject to such Stock Award shall become nonforfeitable and transferable only to the extent that the Committee certifies that such objectives have been achieved. 7.4 EMPLOYEE STATUS. In the event that the terms of any Stock Award provide that shares may become transferable and nonforfeitable thereunder only after completion of a specified period of employment or service, the Committee may decide in each case to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment or service. 7.5 SHAREHOLDER RIGHTS. Prior to their forfeiture (in accordance with the applicable Agreement and while the shares of Common Stock granted pursuant to the Stock Award may be forfeited or are nontransferable), a Participant will have all rights of a shareholder with respect to a Stock Award, including the right to receive dividends and vote the shares; provided, however, that during such period (i) a Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of shares of Common Stock granted pursuant to a Stock Award, (ii) the Company shall retain custody of the certificates evidencing shares of Common Stock granted pursuant to a Stock Award, and (iii) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to each Stock Award. The limitations set forth in the preceding sentence shall not apply after the shares of Common Stock granted under the Stock Award are transferable and are no longer forfeitable. 7.6 TERMINATION OF EMPLOYMENT OR SERVICE. Except to the extent provided in the applicable Agreement, in the event a Participant terminates employment or service with the Company and its Affiliates during the period a Stock Award is subject to forfeiture conditions, that portion of the Stock Award with respect to which the forfeiture conditions have not lapsed shall be completely forfeited. G-7 ARTICLE VIII PERFORMANCE SHARE AWARDS 8.1 AWARD. In accordance with the provisions of Article IV, the Committee will designate each individual to whom an award of Performance Shares is to be made and will specify the number of shares of Common Stock covered by such awards; provided, however, that no Participant may receive an award of Performance Shares in any calendar year for more than 50,000 shares of Common Stock. 8.2 EARNING THE AWARD. The Committee, on the date of the grant of an award, may prescribe that the Performance Shares, or portion thereof, will be earned, and the Participant will be entitled to receive payment pursuant to the award of Performance Shares only upon the satisfaction of certain requirements or the attainment of certain objectives. By way of example and not of limitation, the restrictions may provide that Performance Shares will be forfeited without payment if the Participant separates from the service of the Company and its Affiliates before the expiration of a stated term or unless the Company, an Affiliate or an operating unit achieves objectives stated with reference to the Company's, an Affiliate's or an operating unit's return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, funds from operations or Fair Market Value or such other criteria as are determined by Committee. If the Committee, on the date of award, prescribes that no payments will be made with respect to Performance Shares unless performance objectives stated with respect to the foregoing criteria are attained, no such payment will be made unless, and then only to the extent that, the Committee certifies that such objectives have been achieved. 8.3 PAYMENT. In the discretion of the Committee, the amount payable when an award of Performance Shares is earned may be settled in cash, by the issuance of Common Stock or a combination of cash and Common Stock. A fractional share shall not be deliverable when an award of Performance Shares is earned, but a cash payment will be made in lieu thereof. 8.4 SHAREHOLDER RIGHTS. No Participant shall, as a result of receiving an award of Performance Shares, have any rights as a shareholder until and to the extent that the award of Performance Shares is earned and settled by the issuance of Common Stock. After an award of Performance Shares is earned, if settled completely or partially in Common Stock, a Participant will have all the rights of a shareholder with respect to such Common Stock. 8.5 NONTRANSFERABILITY. Except as provided in Section 8.6 hereof, Performance Shares granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. No right or interest of a Participant in any Performance Shares shall be liable for, or subject to, any lien, obligation, or liability of such Participant. 8.6 TRANSFERABLE PERFORMANCE SHARES. Section 8.5 hereof to the contrary notwithstanding, the Committee may grant Performance Shares which are transferable to Permitted Family Members to the extent that, and on such terms and conditions as may be permitted by, Securities Exchange Commission Rule 16b-3 as in effect from time to time; provided, however, that the participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such transfer would comply with the requirements of this Plan and the applicable Agreement. The holder of Performance Shares transferred pursuant to this section shall be bound by the same terms and conditions that governed the Performance Shares during the period that they were held by the Participant. 8.7 EMPLOYEE STATUS. In the event that the terms of any Performance Share award provide that no payment will be made unless the Participant completes a stated period of employment or service, the Committee may decide to what extent leaves of absence for government or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment or service. G-8 ARTICLE IX INCENTIVE AWARDS 9.1 AWARD. In accordance with the provisions of Article IV, the Committee shall designate Participants to whom Incentive Awards are made. All Incentive Awards shall be finally determined exclusively by the Committee under the procedures established by the Committee; provided, however, that no Participant may receive an Incentive Award payment in any calendar year that exceeds the lesser of (i) one hundred (100%) percent of the Participant's base salary (prior to any salary reduction or deferral elections) as of the date of grant of the Incentive Award or (ii) $250,000. 9.2 TERMS AND CONDITIONS. The Committee, at the time an Incentive Award is made, shall specify the terms and conditions which govern the award. Such terms and conditions shall prescribe that the Incentive Award shall be earned only to the extent that the Company, an Affiliate or an operating unit, during a performance period of at least one year, achieves objectives stated with respect to the Company's, an Affiliate's or an operating unit's return on equity, earnings per share, total earnings, earnings growth, return on capital, return on assets, funds from operations or Fair Market Value or such other criteria as are determined by Committee. Such terms and conditions also may include other limitations on the payment of Incentive Awards including, by way of example and not of limitation, requirements that the Participant complete a specified period of employment with the Company or an Affiliate or that the Company, an Affiliate, or the Participant attain stated objectives or goals (in addition to those prescribed in accordance with the preceding sentence) as a prerequisite to payment under an Incentive Award. The Committee, at the time an Incentive Award is made, shall also specify when amounts shall be payable under the Incentive Award and whether amounts shall be payable in the event of the Participant's death, disability, or retirement. No payment shall be made under an Incentive Award except to the extent that the Committee certifies that the objectives governing such award have been achieved. 9.3 NONTRANSFERABILITY. Except as provided in Section 9.4 hereof, Incentive Awards granted under this Plan shall be nontransferable except by will or by the laws of descent and distribution. No right or interest of a Participant in an Incentive Award shall be liable for, or subject to, any lien, obligation, or liability of such Participant. 9.4 TRANSFERABLE INCENTIVE AWARDS. Section 9.3 hereof to the contrary notwithstanding, the Committee may grant Incentive Awards which are transferable to Permitted Family Members to the extent that, and on such terms and conditions as may be permitted by, Securities Exchange Commission Rule 16b-3 as in effect from time to time; provided, however, that the participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such transfer would comply with the requirements of this Plan and the applicable Agreement. The holder of an Incentive Award transferred pursuant to this section shall be bound by the same terms and conditions that governed the Incentive Award during the period that it was held by the Participant. 9.5 EMPLOYEE STATUS. If the terms of an Incentive Award provide that a payment will be made thereunder only if the Participant completes a stated period of employment or service, the Committee may decide to what extent leaves of absence for governmental or military service, illness, temporary disability or other reasons shall not be deemed interruptions of continuous employment or service. 9.6 SHAREHOLDER RIGHTS. No Participant shall, as a result of receiving an Incentive Award, have any rights as a shareholder of the Company or any Affiliate on account of such award. ARTICLE X ACCELERATION UPON CHANGE IN CONTROL In the event of a Change in Control, all outstanding Awards shall become fully vested and/or exercisable, as applicable, and, upon at least 10 days prior written notice by the Committee before the date of the consummation of such Change in Control, the Committee may, in its sole discretion, elect to either G-9 force the exercise of any outstanding Awards within such 10 day period, or cancel any outstanding Awards and pay to the holders thereof, in cash or stock or any combination thereof, the value of such Awards based upon the price per share of Common Stock received or to be received by other shareholders of the Company in the event of a Change in Control. ARTICLE XI ADJUSTMENT UPON CHANGE IN COMMON STOCK The maximum number of shares as to which Options, Stock Awards and Performance Shares may be granted under this Plan, the option price of any outstanding Option, and the terms and conditions of all outstanding Awards shall be adjusted as the Committee shall determine to be equitably required in the event that there is an increase or reduction in the number of shares of Common Stock, or any change (including, but not limited to, a change in value) in the shares of Common Stock or exchange of shares of Common Stock for a different number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split up, subdivision or consolidation of shares, extraordinary dividend, change in corporate structure or otherwise. Any determination made under this Article XI by the Committee shall be final and conclusive. The issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the maximum number of shares as to which Options, Stock Awards and Performance Shares may be granted, the per individual limitations on the number of shares for which Options, Stock Awards and Performance Shares may be granted or the terms of outstanding Stock Awards, Options, Incentive Awards or Performance Shares. The Committee may make Stock Awards and may grant Options, Incentive Awards and Performance Shares in substitution for performance shares, phantom shares, stock awards, stock options, stock appreciation rights, or similar awards held by an individual who becomes an employee of the Company or an Affiliate in connection with a transaction described in the first paragraph of this Article XI. Notwithstanding any provision of the Plan (other than the limitation of Section 5.2 hereof), the terms of such substituted Stock Awards, Options, Incentive Awards or Performance Share grants shall be as the Committee, in its discretion, determines is appropriate. Notwithstanding the foregoing, the numerical limitations on the various types of Awards set forth in Sections 1.2, 6.1, 7.1 and 8.1 shall not be adjusted in respect of a reverse stock split approved by stockholders at the Company's 2002 annual meeting of stockholders. ARTICLE XII COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES; GOVERNING LAW No Option shall be exercisable, no Common Stock shall be issued, no certificates for shares of Common Stock shall be delivered, and no payment shall be made under this Plan except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Company is a party, and the rules of all domestic stock exchanges on which the Company's shares may be listed The Company shall be under no obligation to register for sale under the Securities Act of 1933, as amended, any of the shares of Common Stock to be offered or sold under this Plan. The Company shall have the right to rely on an opinion of its counsel as to such compliance. Any share certificate issued to evidence Common Stock when a Stock Award is granted or for which an Option is exercised or a Performance Share settled may bear such legends and statements as the Committee may deem advisable to assure compliance with federal and state laws and regulations. No Option shall be exercisable, no Stock Award shall be granted, no Common Stock shall be issued, no G-10 certificate for shares shall be delivered, and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Committee may deem advisable from regulatory bodies having jurisdiction over such matters. Except as to matters of federal law, this Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware without giving effect to conflicts of law principles. ARTICLE XIII GENERAL PROVISIONS 13.1 EFFECT ON EMPLOYMENT AND SERVICE. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any individual any right to continue in the employ or service of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate to terminate the employment or service of any individual at any time with or without assigning a reason therefor. 13.2 UNFUNDED PLAN. The Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under this Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company. 13.3 RULES OF CONSTRUCTION. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law. 13.4 TAX WITHHOLDING. (i) A Participant may be required to pay to the Company or any Affiliate and the Company or any Affiliate shall have the right and is hereby authorized to withhold from any shares of Common Stock or other property deliverable under any Option or other Award or from any compensation or other amounts owing to a Participant the amount (in cash, Common Stock or other property) of any required tax withholding and payroll taxes in respect of an Option or other Award, its exercise, or any payment or transfer under an Option or other Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. (ii) Without limiting the generality of clause (i) above, if so provided in an Agreement, a Participant may satisfy, in whole or in part, the foregoing withholding liability (but no more than the minimum required withholding liability) by delivery of shares of Common Stock owned by the Participant (which are not subject to any pledge or other security interest and which have been owned by the Participant for at least 6 months or purchased on the open market) with a Fair Market Value equal to such withholding liability or by having the Company withhold from the number of shares of Common Stock otherwise issuable pursuant to the exercise of the Option or other Award a number of shares with a Fair Market Value equal to such withholding liability. 13.5 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company or any Affiliate except as otherwise specifically provided in such other plan. 13.6 RELIANCE ON REPORTS. Each member of the Committee and each member of the Board shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountant of the Company and Affiliates and upon any other information furnished in connection with the Plan by any person or persons other than himself. G-11 13.7 SEVERABILITY. If any provision of the Plan or any Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or Option or other Award, or would disqualify the Plan or any Option or other Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option or the other Award, such provision shall be stricken as to such jurisdiction, person or Option or other Award and the remainder of the Plan and any such Option or other Award shall remain in full force and effect. ARTICLE XIV AMENDMENT OR TERMINATION The Board may amend or terminate this Plan from time to time; provided, however, that no amendment may become effective until shareholder approval is obtained if the amendment (i) increases the aggregate number of shares of Common Stock that may be issued under the Plan, (ii) changes the class of individuals eligible to become Participants, (iii) increases the benefits that may be provided under the Plan, or (iv) reduces the exercise price of any Option. Without prior shareholder approval, the Committee may not cancel any outstanding Option and replace it with a new Option (with a lower exercise price) in a manner which would either (i) be reportable on the Company's proxy statement as Options which have been "repriced" (as such term is used in Item 402 of Regulation S-K promulgated under the Exchange Act), or (ii) result in any Option being accounted for under the "variable" method for financial statement reporting purposes. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any Award outstanding at the time such amendment is made. Subject to the foregoing, the Committee may, to the extent consistent with the terms of any Award, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award thereafter granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would impair the rights of any Participant in respect of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant. ARTICLE XV DURATION OF PLAN No Award may be granted under this Plan more than ten years after the earlier of the date this Plan was adopted by the Board or the date this Plan was originally approved by stockholders, as reflected in Article XVI. Awards granted before the effective date shall remain valid in accordance with their terms. ARTICLE XVI EFFECTIVE DATE OF PLAN The Plan was originally adopted by the Board on June 14, 2002, and approved by shareholders on July 30, 2002. G-12 EX-10 9 ex10-6form8k80202.txt EXHIBIT 10.6 EXHIBIT 10.6 ------------ As approved by the Registrant's board of directors on June 14, 2002 and by the Registrant's stockholders on July 30, 2002, the Registrant's Employee Stock Purchase Plan was amended as follows: The following paragraph (c) shall be added to Section 12.4 of the employee stock purchase plan: "(c) No adjustment to the maximum number of shares that may be purchased under the Plan shall be made in respect of any reverse stock split approved at the Company's 2002 Annual Meeting of stockholders that is effected by the Company in accordance with such approval." EX-10 10 ex10-7form8k80202.txt EXHIBIT 10.7 EXHIBIT 10.7 ------------ As approved by the Registrant's board of directors on June 14, 2002 and by the Registrant's stockholders on July 30, 2002, the Registrant's Employee Stock Purchase Plan was amended as follows: The following paragraph shall be added to the end of Article VII of the non-employee directors' incentive plan: "Notwithstanding the foregoing, no adjustment to the maximum aggregate number of shares of Common Stock that may be issued under the Plan or the size of the awards to be granted under Article 4.1 hereof shall be made in respect of any reverse stock split approved at the Company's 2002 Annual Meeting of stockholders that is effected by the Company in accordance with such approval." EX-99 11 ex991-form8k80202.txt EXHIBIT 99.1 EXHIBIT 99.1 ------------ FOR IMMEDIATE RELEASE MERISTAR HOTELS & RESORTS CONTACTS: INTERSTATE HOTELS CORPORATION CONTACTS: - ---------------------------------- -------------------------------------- Melissa Thompson Tom Loftus Lisa O'Connor Director of Corporate Communications Media Inquiries Investor Relations (202) 295-2228 (412) 937-3382 (412) 937-3319 Jerry Daly or Carol McCune Daly Gray Public Relations (Media) (703) 435-6293 MERISTAR HOTELS & RESORTS AND INTERSTATE HOTELS CORPORATION COMPLETE MERGER COMBINED COMPANY, INTERSTATE HOTELS & RESORTS, TO BEGIN TRADING ON NYSE AUGUST 1 WASHINGTON and PITTSBURGH, July 31, 2002--MeriStar Hotels & Resorts (NYSE: MMH) and Interstate Hotels Corporation (Nasdaq: IHCO) today completed their previously announced merger. Stockholders of both companies approved the merger at separate stockholder meetings on July 30. At the MeriStar stockholder meeting on July 30, MeriStar stockholders also approved a one-for-five reverse stock split, which was effected after the close of trading on July 31. As a result, the combined company, Interstate Hotels & Resorts, Inc. (NYSE: IHR) will begin trading on August 1 on a post-split basis. "With over 400 hotels and approximately 86,000 rooms under management, our size gives us significant economies of scale advantages and the ability to attract the most talented personnel in the industry," said Paul Whetsell, chairman and chief executive officer. "Our vast operations experience has enabled us to develop superior technology and advanced proprietary management and marketing systems. Interstate Hotels & Resorts' property owners will have the most effective and efficient operations systems at their disposal." Under the merger agreement between MeriStar and Interstate, the exchange ratio between Interstate Hotels & Resorts stock and Interstate stock was 4.6. However, after giving effect to the one-for-five reverse stock split that was effected on July 31, Interstate stockholders are entitled to receive 0.92 of a share of Interstate Hotels & Resorts stock for each share of Interstate stock held by such Interstate stockholder. MeriStar stockholders are entitled to receive one share of Interstate Hotels & Resorts stock for every five of their MeriStar shares. The exchange of MeriStar Hotels & Resorts shares and Interstate Hotels Corporation shares for Interstate Hotels & Resorts shares is tax free, except to the extent stockholders receive cash instead of fractional shares. The combined company will be headquartered in Washington and will maintain an operating presence in Pittsburgh. Paul W. Whetsell, MeriStar chairman and chief executive officer, and John Emery, MeriStar president and chief operating officer, will continue in those roles for the combined company. Thomas F. Hewitt, the previous chairman and chief executive officer of Interstate Hotels Corporation, will serve on the combined company's board of directors. Interstate Hotels & Resorts will comprise hotel management and BridgeStreet Corporate Housing Worldwide. The hotel management business unit will use its expanded resources to provide current and prospective owners with a wide array of improved services and benefits, including Internet-based business information systems providing real-time data for better yield management and cost control; broader electronic and direct sales resources, including more than 2,000 sales professionals; increased cost efficiencies through national purchasing; and capital for co-investments and joint ventures. BridgeStreet's growth strategy involves expansion of its national client base and European operations, as well as its recently established licensing program for North American markets. Interstate Hotels & Resorts is the nation's largest independent hotel management company, operating approximately 86,000 rooms in more than 400 hotels, representing over 30 franchise brands in North America and Europe. For more information about Interstate Hotels & Resorts, visit the company's new Web site, www.ihrco.com. THIS PRESS RELEASE CONTAINS "FORWARD-LOOKING STATEMENTS," WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, ABOUT INTERSTATE HOTELS & RESORTS, INCLUDING THOSE STATEMENTS REGARDING FUTURE OPERATING RESULTS, BUSINESS GROWTH AND THE TIMING AND COMPOSITION OF REVENUES, AMONG OTHERS, AND STATEMENTS CONTAINING WORDS SUCH AS "EXPECTS," "BELIEVES" OR "WILL," WHICH INDICATE THAT THOSE STATEMENTS ARE FORWARD-LOOKING. EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN THIS PRESS RELEASE ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING THE CURRENT SLOWDOWN OF THE NATIONAL ECONOMY, ECONOMIC CONDITIONS GENERALLY AND THE REAL ESTATE MARKET SPECIFICALLY, THE IMPACT OF THE EVENTS OF SEPTEMBER 11, 2001, LEGISLATIVE AND REGULATORY CHANGES, AVAILABILITY OF DEBT AND EQUITY CAPITAL, INTEREST RATES, COMPETITION, SUPPLY AND DEMAND FOR LODGING FACILITIES IN INTERSTATE HOTELS & RESORTS' CURRENT AND PROPOSED MARKET AREAS AND RISKS AND UNCERTAINTIES ASSOCIATED WITH THE INTEGRATION OF THE TWO MERGED COMPANIES. ADDITIONAL RISKS ARE DISCUSSED IN INTERSTATE HOTELS & RESORTS' FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING ITS REGISTRATION STATEMENT ON FORM S-4 RELATING TO THE MERGER. - 30 - -----END PRIVACY-ENHANCED MESSAGE-----