STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into
effective as of October 26, 2004, by and between INTERSTATE HOTELS & RESORTS,
INC., a Delaware corporation (“Interstate”) and SUNSTONE HOTEL INVESTORS, INC.,
a Maryland corporation (“Sunstone, Inc.”), SUNSTONE HOTEL PARTNERSHIP, LLC, a
Delaware limited liability company (“Sunstone OP”), SUNSTONE HOTEL INVESTORS,
LLC, a Delaware limited liability company (“Seller”), SUNSTONE HOTEL TRS LESSEE,
INC., a Delaware Corporation (“Sunstone TRS” and, together with Sunstone Inc.,
Sunstone OP and Seller, the “Sunstone Parties”) and SUNSTONE HOTEL PROPERTIES,
INC., a Colorado corporation (“SHP”).

Interstate, the Sunstone Parties, and SHP are together referred to herein as the
“Parties.” Capitalized terms used in this Agreement are defined in Article I.

R E C I T A L S:

WHEREAS, on August 18, 2004, the Parties entered into a Confidential Binding
Letter of Intent (the “Letter of Intent”) with respect to the sale of the stock
of SHP;

WHEREAS, prior to the Closing, SHP will terminate or assign all hotel management
agreements, leases and existing franchise agreements to which SHP, as of the
date of this Agreement, is a party or is otherwise bound;

WHEREAS, simultaneously with the Closing, SHP and certain direct or indirect
wholly-owned subsidiaries of Sunstone TRS will enter into the Master Agreement;

WHEREAS, simultaneously with the Closing, SHP and certain direct or indirect
wholly-owned subsidiaries of Sunstone TRS will enter into the Management
Agreements;

WHEREAS, the Seller will cause the owners of the Four Hotels to enter into hotel
management agreements on the same terms and conditions, except as provided
herein, as set forth in the Management Agreements;

WHEREAS, as of the date hereof, the Seller owns 100% of the issued and
outstanding shares of common stock of SHP (the “SHP Common Stock”);

WHEREAS, prior to the Closing, SHP will distribute to Seller all of SHP’s right,
title and interest in the capital stock of each of its Subsidiaries, consisting
of SHP Lessee Corp., a Delaware corporation, SHP Lessee II Corp., a Delaware
corporation, SHP Lessee III Corp., a Delaware corporation, and SHP DT Bevflow,
Inc., a Delaware corporation (collectively, the “Distributed Subsidiaries”);

WHEREAS, subject to such terms and conditions as are specified herein, and in
connection with the entry into the Master Agreement and the Management
Agreements, the Seller desires to sell to Interstate the SHP Common Stock held
by the Seller;

WHEREAS, subject to such terms and conditions as are specified herein, and in
connection with the entry into the Master Agreement and the Management
Agreements, Interstate desires to purchase from the Seller such SHP Common
Stock; and

WHEREAS, the transactions contemplated by this Agreement will occur
simultaneously with the closing of the initial public offering of shares of
capital stock of Sunstone, Inc. (the “Sunstone IPO”);

NOW, THEREFORE, in consideration of the premises and the mutual agreements and
covenants hereinafter set forth, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Certain Defined Terms. As used in this Agreement, the following
defined terms shall have the following meanings (such meanings to be equally
applicable to the singular and plural forms of the terms defined):

“Affiliate” of any Person means another Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first Person.

“Assignment and Assumption Agreements ” means (i) an Assignment and Assumption
of Lease and License Agreements, Service Contracts, Warranties and Guaranties,
Licenses and Permits and other Intangible Property between SHP and certain
direct or indirect wholly-owned subsidiaries of Sunstone OP, substantially in
the form of Exhibit C-1 and (ii) an Assignment and Assumption of Lease and
License Agreements, Service Contracts, Warranties and Guaranties, Licenses and
Permits and other Intangible Property between SHP and Sunstone TRS,
substantially in the form of Exhibit C-2.

“Books and Records” means all books, documents, records, lists, ledgers, files,
deeds, reports, plans, data, drawings and operating and ownership records of any
kind (including records, files and data stored on computer disks or tapes or any
other storage medium, including any offline or archived data), or portions
thereof, pertaining to SHP or the Business, or the assets or liabilities related
thereto including all corporate and tax Books and Records of SHP.

“Business” means the business of managing hotels currently conducted by SHP
(excluding the Distributed Subsidiaries).

“Business Day” means any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by law to be closed in New York, New York
or Los Angeles, California.

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

“Contract” means any formal or informal written, oral or other agreement,
contract, subcontract, lease, binding understanding, promise, instrument, note,
option, warranty, purchase order, license, sublicense, insurance policy, benefit
plan, commitment or undertaking of any nature, as of the date hereof or as may
hereafter be in effect.

“Encumbrance” means any security interest, pledge, mortgage, deed of trust,
easement, right-of-way, right to occupy, encroachment, building or use
restriction, lien (including environmental and tax liens), charge, encumbrance,
adverse claim, option, right of first refusal, restriction on transfer or
voting, conditional sales agreement, preferential arrangement or restriction of
any kind.

“Equity Securities” of any Person means (i) shares of capital stock, limited
liability company interests, partnership interests or other equity securities of
such Person, including, with respect to SHP, the SHP Common Stock,
(ii) subscriptions, calls, warrants, options or commitments of any kind or
character relating to, or entitling any Person to purchase or otherwise acquire,
any capital stock, limited liability company interests, partnership interests or
other equity securities of such Person, (iii) securities convertible into or
exercisable or exchangeable for shares of capital stock, limited liability
company interests, partnership interests or other equity securities of such
Person, and (iv) equity equivalents, interests in the ownership or earnings of,
or equity appreciation, phantom stock or other similar rights of, or with
respect to, such Person.

“Four Hotels” means the hotels set forth in Schedule 1.1 attached hereto.
“Four Hotel Management Terms” means the terms and conditions set forth in the
Management Agreements, provided, however, that an incentive fee for 2005 equal
to ten percent (10%) of the amount by which Net Operating Income for such hotel
exceeds the amount of projected Net Operating Income set forth in the Operating
Budget for such hotel (the “Initial Threshold”) and the Initial Threshold for
each hotel shall increase each subsequent Fiscal Year by the greater of
(i) three percent (3%) or (ii) the actual percentage change in REVPAR for such
hotel over the previous year multiplied by 1.5. In addition, the owners of the
Four Hotels may terminate with no termination fee or similar compensation to
Operator (a) two of the management agreements for the Four Hotels during the
time period January 1, 2006 and ending on December 31, 2006, (b) one of the
management agreements for the Four Hotels during the time period beginning
January 1, 2007 and ending on December 31, 2007 and (c) one of the management
agreements for the Four Hotels after January 1, 2008 so long as (1) all amounts
due the Operator under the terminated management agreement have been paid in
full and (2) Operator is given at least thirty (30) days prior written notice by
the owner of the terminated hotel (“Special Termination Right”). If and to the
extent a Special Termination Right is not exercised during any applicable
period, such Special Termination Right shall carryover and be exercisable in any
subsequent period on the same terms and conditions as if exercised during the
applicable period. In addition, the management agreements for any or all of the
Four Hotels may be terminated at any time upon the sale of such hotels(s) to
unaffiliated third parties with no termination fee or similar compensation to
Operator so long as (1) all amounts due the Operator under the terminated
management agreement have been paid in full and (2) Operator is given at least
thirty (30) days prior written notice by the owner of the terminated hotel;
provided, however, the termination of a management agreement for any of the Four
Hotels as a result of a sale to an unaffiliated third party shall exhaust the
next available Special Termination Rights. For purposes of this Agreement, the
terms “Net Operating Income,” “Operating Budget,” “Fiscal Year,” “REVPAR,” and
“Operator” shall have the meanings given to them in the Management Agreements.

“GAAP” means United States generally accepted accounting principles consistently
applied.

“Guarantee” means the guarantee, substantially in the form of Exhibit D hereto,
by Interstate of the obligations of SHP under the Promissory Note.

"Headquarters Sublease” means the sublease, substantially in the form of
Exhibit E hereto, by and between Sunstone TRS and SHP.

“Hotel Employees” has the meaning set forth in the Management Agreements and the
similar agreements with the Four Hotels.

“Indebtedness” means (i) indebtedness of SHP for borrowed money (including the
aggregate principal amount thereof, the aggregate amount of any accrued but
unpaid interest thereon and any prepayment penalties or other similar amounts
payable in connection with the repayment thereof on or prior to the Closing
Date), (ii) obligations of SHP evidenced by bonds, notes, debentures, letters of
credit or similar instruments, (iii) obligations of SHP under or in respect of
capitalized leases, (iv) obligations of SHP under conditional sale, title
retention or similar agreements or arrangements creating an obligation of SHP
with respect to the deferred purchase price of property (other than customary
trade credit), (v) interest rate and currency obligation swaps, hedges or
similar arrangements, (vi) all obligations of any of SHP to guarantee any of the
foregoing types of obligations on behalf of any Person other than SHP and
(vii) all accrued and unpaid interest and all fees, penalties, premiums or other
costs or expenses that have been incurred or would be required to be incurred,
in order to cancel or repay all Indebtedness at Closing.

“Interstate Board” means the Interstate Board of Directors.

“Inter-Company Payable” means inter-company indebtedness relating to various
loans and advances made by Seller and its affiliates to SHP prior to the date
hereof, represented by the Promissory Note, in the amount of $8,000,000, to
remain owing after the Closing from SHP to Seller.

“Interstate Common Stock” means shares of the common stock, $0.01 par value per
share, of Interstate.

“Interstate Indemnified Parties” means Interstate and (without duplication) its
Affiliates (including, after the Closing, SHP), successors and assigns, and each
of the foregoing’s respective officers, directors, employees, agents and
representatives.

“Losses” of a Person means any and all losses, obligations, deficiencies,
liabilities (including liabilities for Taxes), damages, claims, claims of third
parties (including government agencies) awards, judgments, fines, payments,
settlements, costs and expenses (including reasonable costs of investigation,
remediation and reasonable attorneys’ fees) actually suffered or incurred by
such Person (exclusive, however, of losses or damages in the nature of lost
profits or diminution in value; inclusive, however, of reasonable attorneys’
fees and costs of suit incurred by an indemnified party in enforcing the
obligations hereunder).

“Material Adverse Effect” means, with respect to Interstate or SHP, any change,
event, circumstance, occurrence or effect that, individually or in the aggregate
with such other changes and effects, (i) has a materially adverse effect on the
business, assets, properties, results of operations or financial condition of
Interstate and its Subsidiaries, taken as a whole, on the one hand, or SHP or
the Business, on the other hand, as applicable, or (ii) materially impedes or
delays the ability of Interstate or the Seller, as applicable, to consummate the
Transactions or otherwise perform their obligations under the Transaction
Documents; provided, however, that in no event shall any change, event,
circumstances or occurrence resulting from any of the following be taken into
account in determining whether there has been or is reasonably expected to be a
Material Adverse Effect: (A) any change in the market price of Interstate Common
Stock, (B) events or market conditions generally affecting the lodging industry,
or (C) the Transactions or any action required or expressly contemplated to be
taken or prohibited from being taken pursuant to the Transaction Documents.

“Permitted Encumbrance” means (a) liens for Taxes or governmental charges or
claims (i) not yet due and payable or (ii) being contested in good faith, if a
reserve or other appropriate provision, if any, as shall be required by GAAP
applied in a manner consistent with the preparation of the Third Quarter Balance
Sheet shall have been made therefor, (b) statutory liens of landlords, liens of
carriers, warehouse persons, mechanics and material persons and other liens
imposed by law incurred in the ordinary course of business for sums (i) not yet
due and payable or (ii) being contested in good faith, if a reserve or other
appropriate provision, if any, as shall be required by GAAP applied in a manner
consistent with the preparation of the Third Quarter Balance Sheet shall have
been made therefor, (c) liens incurred or deposits made in connection with
workers’ compensation, unemployment insurance and other similar types of social
security programs or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return of money bonds and similar obligations, in each case in
the ordinary course of business, consistent with past practice, (d) easements,
rights-of-way, restrictions and other similar charges or other Encumbrances on
any SHP Property, in each case which do not materially interfere with the
ordinary conduct of business of SHP and do not materially detract from the value
of the property to which such Encumbrance relates and (e) Encumbrances described
on Schedule 3.15.

“Person” means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.

“Post-Closing Tax Period” means any Tax Period beginning after the Closing Date
and that portion of any Straddle Period beginning after the Closing Date.

“Post-Closing Liabilities” means, other than any Pre-Closing Liability, any
liability of any kind or nature, liquidated or unliquidated, known or unknown,
to the extent arising out of, resulting from or related to the ownership of SHP
or its assets, liabilities and operations (including the assets, liabilities and
operations of its Subsidiaries) on or after the Closing.

“Pre-Closing Liabilities” means any liability of any kind or nature, liquidated
or unliquidated, known or unknown, including for the avoidance of doubt any
liability that may be incurred by or asserted against such party and that arises
in connection with the self-insured, retention or deductible amount of any claim
under, or underfunded portion of, any health or welfare insurance plan, workers
compensation insurance plan, general liability insurance policy, any employee
benefit, pension or profit sharing plan or any other similar plan, policy or
program, or any liability that may arise pursuant to Title IV of ERISA, to the
extent arising out of, resulting from or related to the ownership of SHP or its
assets, liabilities and operations (including the assets, liabilities and
operations of the Distributed Subsidiaries), prior to the Closing, regardless of
whether or not any such liability is disclosed in any Schedule provided
hereunder or would be required under GAAP to be reflected on a balance sheet of
SHP as of the Closing Date; provided, however, that all Losses arising out of,
resulting from or relating to any of the following shall be deemed to be
Pre-Closing Liabilities: (i) any Person other than a Continuing Employee or
Hotel Employee who, as of the Closing Date, is a current or former employee of
SHP or any of its Affiliates, including the Distributed Subsidiaries; (ii) any
asset, Permit or Contract held by SHP, or by which SHP is otherwise bound, at
Closing other than the Retained Assets; (iii) any termination on or prior to the
January 31, 2005 of any Continuing Employee disclosed on Schedule 1.1, whether
such termination is initiated by SHP or such Continuing Employee, and regardless
of the reason for such termination and (iv) a fraction of any bonus payments to
any Continuing Employee with respect to service in 2004, the numerator of which
is the number of days in 2004 on or prior to the Closing Date during which such
Continuing Employee was an employee of SHP or any of its Affiliates and the
denominator of which is the number of days in 2004 during which such Continuing
Employee was an employee of SHP or any of its Affiliates.

“Pre-Closing Tax Period” means any Tax Period ending on or before the Closing
Date and that portion of any Straddle Period ending on the Closing Date.

“Promissory Note” means a promissory note, substantially in the form of
Exhibit F, issued by SHP to Seller, evidencing the Inter-Company Payable.

“SEC” means the United States Securities and Exchange Commission.

“Signing Date” means the date first written above.

“Straddle Period” means any taxable period that includes (but does not end on)
the Closing Date.

“Subsidiary” means any corporation, association, business entity, partnership,
limited liability company or other Person of which the Person, either alone or
together with one or more Subsidiaries or by one or more other Subsidiaries
(i) directly or indirectly owns or controls securities or other interests
representing more than 50% of the voting power of such Person, or (ii) is
entitled, by Contract or otherwise, to elect, appoint or designate directors
constituting a majority of the members of such Person’s board of directors or
other governing body.

“Sunstone Indemnified Parties” means the Sunstone Parties and each of their
respective Affiliates, successors and assigns, and each of the foregoing’s
respective officers, directors, employees, agents and representatives.

“Tax Authority” means a Governmental Authority or any subdivision, agency,
commission or authority thereof, or any quasi-governmental or private body
having jurisdiction over the assessment, determination, collection or imposition
of any Tax .

“Trademark License Agreement ” means a Trademark License Agreement substantially
in the form of Exhibit G.

“Transaction Documents” means this Agreement, the Master Agreement, the
Management Agreements, the Promissory Note, the Guarantee and each agreement,
instrument and certificate delivered pursuant to the terms hereof and thereof
after the Signing Date.

“Transactions” means the transactions contemplated hereunder and under the other
Transaction Documents.

“Treasury Regulations” means any proposed, temporary, and/or final federal
income tax regulation promulgated by the United States Department of the
Treasury as heretofore and hereafter amended from time to time (and/or any
corresponding provisions of any superseding revenue law and/or regulation).

Section 1.2 Additional Defined Terms. As used in this Agreement, the following
defined terms shall have the meanings ascribed thereto, respectively, in the
Section of this Agreement referenced with respect to each such defined term
(such meanings to be equally applicable to the singular and plural forms of the
terms defined):

     
“Additional Asset”
  Section 6.4
 
   
“Agreement”
  Preamble
 
   
“Claim”
  Section 8.2
 
   
“Claim Notice”
  Section 8.2
 
   
“Closing”
  Section 2.5
 
   
“Closing Date”
  Section 2.5
 
   
“Confidentiality Agreement”
  Section 6.2
 
   
“Continuing Employees”
  Section 3.14
 
   
“Distributed Subsidiaries”
  Preamble
 
   
“Environmental Law”
  Section 3.18
 
   
“Environmental Permit”
  Section 3.18
 
   
“ERISA”
  Section 3.14
 
   
“Exchange Act”
  Section 3.8
 
   
“E&Y”
  Section 5.2
 
   
“Governmental Authority”
  Section 3.7
 
   
“Hazardous Substance”
  Section 3.18
 
   
“Improvements”
  Section 3.15
 
   
“Intended Assignees”
  Section 2.8
 
   
“Interstate”
  Preamble
 
   
“Intellectual Property Rights”
  Section 3.17
 
   
“IRS”
  Section 3.14
 
   
“KPMG”
  Section 5.2
 
   
“Law”
  Section 3.19
 
   
“Leased Real Property”
  Section 3.15
 
   
“Letter of Intent”
  Preamble
 
   
“Management Agreements”
  Section 7.3
 
   
“Master Agreement”
  Section 7.3
 
   
“Material SHP Contracts”
  Section 3.16
 
   
“New York Courts”
  Section 10.8
 
   
“Parties”
  Preamble
 
   
“Per Diem Taxes”
  Section 8.3
 
   
“Permits”
  Section 3.19
 
   
“Reimbursement Obligation”
  Section 2.7
 
   
“Related Persons”
  Section 8.2
 
   
“Representatives”
  Section 6.2
 
   
“Retained Assets”
  Section 2.4
 
   
“SAS 100”
  Section 5.2
 
   
“Seller Disclosure Schedules”
  Section 3.25
 
   
“Seller”
  Preamble
 
   
“Seller’s Knowledge”
  Section 3.25
 
   
“SHP”
  Preamble
 
   
“SHP Benefit Plans”
  Section 3.14
 
   
“SHP Common Stock”
  Preamble
 
   
“SHP Employees”
  Section 3.14
 
   
“SHP Regulatory Agreement”
  Section 3.13
 
   
“Subsidiary Equity Securities”
  Section 3.6
 
   
“Sunstone Knowledge Party”
  Section 3.25
 
   
“Sunstone, Inc.
  Preamble
 
   
“Sunstone IPO”
  Preamble
 
   
“Sunstone OP”
  Preamble
 
   
“Sunstone Parties”
  Preamble
 
   
“Sunstone TRS”
  Preamble
 
   
“Tax Claim”
  Section 8.3
 
   
“Taxes”
  Section 3.11
 
   
“Tax Return”
  Section 3.11
 
   
“Termination Date”
  Section 9.1
 
   
“Third Party Notice”
  Section 8.2
 
   
“Third Quarter Balance Sheet”
  Section 3.8
 
   
“Unaudited Third Quarter Financial
Statements”
 
Section 3.8
 
   
“Unaudited Historical Financial Statements”
  Section 3.8
 
   
“Untransferred Interest”
  Section 2.8
 
   
“Year-End Financial Statements”
  Section 3.8

ARTICLE II

PURCHASE AND SALE

Section 2.1 Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, Seller agrees to sell to Interstate, and Interstate
agrees to purchase from Seller, all of the issued and outstanding SHP Common
Stock, free and clear of all Encumbrances.

Section 2.2 Purchase Price. In consideration for the sale by the Seller of the
SHP Common Stock to Interstate, Interstate shall deliver to Seller cash in the
amount of One Dollar ($1.00).

Section 2.3 Tax Structure.

(a) The Parties acknowledge and agree that no Party shall make an election under
Section 338 of the Code.

Section 2.4 Pre-Closing Transactions. Prior to the Closing, the Seller shall
effect, or cause its respective Affiliates to effect, the following transactions
and shall certify to Interstate that the following transactions have been
consummated in full:

(a) Effective immediately prior to Closing, the Sunstone Parties and their
Affiliates and SHP shall terminate or assign (in each case with no further
liability to SHP) all hotel management agreements, leases and existing franchise
agreements and certain other Contracts and Permits to which SHP is a party or by
which it is otherwise bound, and certain other assets relating to the hotel
properties managed by SHP; provided, however that in no event at or prior to
Closing shall SHP be entitled to assign the Master Agreement, the Management
Agreements and the similar agreements entered into with respect to the Four
Hotels, any tangible personal property, the SHP Benefits Plans, the collective
bargaining agreements disclosed on Schedule 3.16, any employment agreements with
Continuing Employees, or any of the following insurance policies disclosed on
Schedule 3.20: (i) the general liability insurance policy with Continental
Casualty; (ii) the workers’ compensation policy with Old Republic Insurance and
(iii) the stop-loss policy with Cigna HealthCare (collectively, the “Retained
Assets”).

(b) The Sunstone Parties and SHP shall cause all inter-company accounts payable
and accounts receivable among any of the Sunstone Parties or any of their
Affiliates, on the one hand, and SHP, on the other hand, other than the
Inter-Company Payable, to be satisfied in full.

(c) SHP shall enter into Assignment and Assumption Agreements with respect to
the Contracts, Permits and other property relating to the hotel properties
managed by SHP.

(d) SHP shall distribute to Seller all of its right, title and interest in the
capital stock of each of the Distributed Subsidiaries.

Section 2.5 Closing. Subject to the terms and conditions of this Agreement,
closing of the Transactions (the “Closing”) shall be held at the offices of
Sullivan & Cromwell LLP, 1888 Century Park East, Los Angeles, CA 90067 at
10:00 a.m. (local time) on the closing date of the Sunstone IPO, or such other
place or date as may be fixed by mutual agreement of Interstate and Seller. The
date on which the Closing is actually held hereunder is sometimes referred to
herein as the “Closing Date.”

Section 2.6 Closing Transactions. Subject to the terms and conditions set forth
in this Agreement, at the Closing:

(a) Seller shall deliver or cause to be delivered to Interstate (i) one or more
stock certificates representing the shares of SHP Common Stock held of record by
it, together with a stock power duly endorsed in blank and (ii) the certificates
and other documents required to be delivered pursuant to Section 7.3, in each
case in form and substance reasonably satisfactory to Interstate.

(b) Interstate shall deliver or cause to be delivered to the Seller
(x) immediately available cash in the amount of One Dollar ($1.00) and (y) the
certificates and other documents required to be delivered pursuant to
Section 7.2, in each case in form and substance reasonably satisfactory to
Seller.

(c) SHP shall execute and deliver to Seller the Promissory Note.

(d) Interstate shall execute and deliver to Seller the Guarantee.

(e) Sunstone TRS and SHP shall execute and deliver to each other the
Headquarters Sublease.

(f) Sunstone, Inc. and SHP shall execute and deliver to each other the Trademark
License Agreement.

(g) Sunstone, Inc. shall deliver or cause to be delivered to Interstate
immediately available cash in the amount of Two Hundred Thousand Dollars
($200,000.00) as a reimbursement for certain expenses of Interstate incurred in
connection with the Transactions.

Section 2.7 Reimbursement Obligation. From and after the Closing, the Sunstone
Parties shall reimburse Interstate and SHP on a timely basis for any and all
ordinary course liabilities incurred by Interstate or SHP arising from SHP’s and
the Distributed Subsidiaries’ business and operations prior to Closing,
including employee-related liabilities, worker’s compensation, payroll and
payroll taxes, employee benefits, pension and retirement obligations, accrued
vacation and termination costs (the “Reimbursement Obligation”).

Section 2.8 Pre-Closing Receivables. From and after the Closing, Interstate and
SHP shall each promptly forward and pay to Seller any and all amounts that
Interstate or SHP receives arising from or related to SHP’s and the Distributed
Subsidiaries’ business and operations prior to Closing, together with a
statement regarding the source and date of receipt of all such amounts. In
furtherance thereof, SHP hereby transfers and assigns to Seller, effective as of
the Closing Date, all rights and interests SHP has with respect to each of the
accounts listed in Schedule 2.8, including all funds held in such accounts, and
acknowledges and agrees that from and after the Closing Date Seller shall be
entitled to withdraw from such accounts all funds deposited in or credited to
such accounts.

Section 2.9 Non-Assignment. (a) Notwithstanding anything else in this Agreement
to the contrary, this Agreement shall not constitute an agreement to assign,
license, sublicense, lease, sublease, convey or transfer any asset, Contract,
Permit, or any claim or right or any benefit arising thereunder or resulting
therefrom which was contemplated by this Agreement to be assigned by SHP on or
prior to Closing, but as to which consent or approval to assignment, license,
sublicense, lease, sublease, conveyance or transfer thereof or amendment thereof
(including consents and approvals of Governmental Authorities) is required but
has not been obtained as of the Closing Date (an “Untransferred Interest”),
unless and until such consent approval or amendment is no longer required or has
been obtained. The Sunstone Parties, SHP and Interstate agree that they will use
their reasonable commercial efforts to obtain any such consent, approval or
amendment.

(b) In the event and to the extent that SHP, Interstate or the Sunstone Parties
is unable to obtain any such required consent, approval or amendment required to
transfer, license, sublicense, lease, sublease, convey or assign the
Untransferred Interests to one or more Sunstone Parties or one or more of their
designated Affiliates (collectively, the “Intended Assignees”), SHP shall
continue to hold the Untransferred Interest, and to be bound thereby in the case
of Contracts and Permits, and unless not permitted by Law, the Sunstone Parties
shall, and shall cause the Intended Assignees to, pay, perform and discharge
fully, promptly when due, all the obligations of Interstate or SHP thereunder
from and after the Closing Date, and the Sunstone Parties shall, and shall cause
the Intended Assignees to, indemnify the Interstate Indemnified Parties for all
Losses arising out of such performance or failure to perform by the Sunstone
Parties or any of the Intended Assignees. In furtherance of the forgoing,
Interstate shall, or shall cause SHP to, use reasonable commercial efforts to
cooperate in any arrangement, reasonable and lawful as to Interstate, SHP, the
Sunstone Parties and the Intended Assignees, designed to provide to the Intended
Assignee the benefits arising under any such Untransferred Interests, including
accepting such reasonable direction as Seller shall request of Interstate.
Interstate shall, and shall cause SHP to, without further consideration
therefor, pay and remit to the Intended Assignees promptly all monies, rights
and other considerations received in respect of such performance. The Sunstone
Parties shall indemnify the Interstate Indemnified Parties for all Losses
arising out of any actions (or omissions to act) of Interstate or SHP or any of
their Affiliates (i) taken at the direction of the Sunstone Parties or the
Intended Assignees or (ii) absent willful misconduct or bad faith, taken at the
initiative of Interstate or SHP or any of their Affiliates with respect to any
Untransferred Interests. Interstate shall indemnify the Sunstone Indemnified
Parties for all Losses arising out of any actions by Interstate or SHP which
would constitute willful misconduct or bad faith, unless such activities were
taken at the direction of any Sunstone Party, Intended Assignee or any of their
respective Affiliates.

(c) Notwithstanding anything else set forth in this Section 2.8, neither
Interstate nor any other of its Affiliates shall be required to take any action
that may, in the reasonable judgment of Interstate or such Affiliate, (i) result
in a violation of any obligation which Interstate or any such Affiliate has to
any third party or (ii) otherwise violate applicable Law.

Section 2.10 Time of the Essence. The parties hereto acknowledge and agree that,
subject only to satisfaction or waiver of the conditions to Closing set forth
hereunder and under the other Transaction Documents, time is of the essence in
consummating the Transactions.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SUNSTONE

PARTIES

As a material inducement to Interstate to enter into the Transaction Documents
to which it is party and to consummate the Transactions to which it is party,
the Sunstone Parties hereby represent and warrant to Interstate as follows:

Section 3.1 Organization of the Sunstone Parties. Each Sunstone Party is a duly
organized, validly existing corporation or limited liability company and is in
good standing under the laws of its jurisdiction of organization and has all the
requisite corporate or company power and authority and all necessary
governmental approvals to own, lease and operate the properties currently owned,
operated and leased by it and to carry on its business as it is now being
conducted. Each Sunstone Party is duly licensed or qualified to do business, and
is in good standing, in each jurisdiction in which the nature of its business or
properties requires it to be so licensed, qualified, or in good standing except
to the extent such failure would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on SHP.

Section 3.2 Organization of SHP. SHP is duly incorporated, validly existing and
in good standing under the laws of Colorado and has all the requisite corporate
power and authority and all necessary governmental approvals to carry on its
business as now being conducted and to own, operate and lease the properties
currently owned, operated and leased by it. Schedule 3.2 contains a complete and
accurate list of the jurisdictions in which SHP is authorized to do business.
SHP is duly licensed or qualified to do business, and is in good standing, in
each jurisdiction in which the nature of its business or properties requires it
to be so licensed or qualified, except to the extent such failure would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on SHP. The Sunstone Parties have delivered to Interstate
complete and correct copies of the certificates of incorporation and bylaws of
SHP, which are in full force and effect as of the date hereof. SHP is not in
violation of any of the provisions of such certificates or bylaws. Schedule 3.2
lists all appointed and acting officers and directors of SHP each of whom shall
resign their positions at SHP immediately prior to the Closing.

Section 3.3 Authority. Each of SHP and the Sunstone Parties has full authority,
right, power and capacity to enter into each Transaction Document to which it is
party and to carry out the Transactions. The execution, delivery and performance
by each of SHP and the Sunstone Parties of this Agreement and the other
Transaction Documents to which it is a party, and the consummation of the
Transactions, have been duly authorized by all necessary action of SHP and the
Sunstone Parties, and no other action on the part of SHP or the Sunstone Parties
is required in connection therewith. This Agreement has been, and prior to the
Closing each other Transaction Document will be, duly executed and delivered by
each of SHP and the Sunstone Parties party thereto. Assuming due authorization,
execution and delivery by Interstate, each Transaction Document constitutes, or
when executed and delivered will constitute, valid and binding obligations of
each of SHP and the Sunstone Parties party thereto, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the rights of creditors
generally and subject to the rules of law governing (and all limitations on)
specific performance, injunctive relief and other equitable remedies.

Section 3.4 Non-Contravention. Except as provided in Schedule 3.4, and assuming
that all consents, approvals, authorizations and other actions set forth on
Schedule 3.7 have been obtained and all filings and notifications set forth on
Schedule 3.7 have been made, the execution, delivery and performance by SHP and
the Sunstone Parties of the Transaction Documents, and the consummation of the
Transactions:

(i) do not and will not violate the terms of any organizational documents of any
of SHP or the Sunstone Parties;

(ii) do not and will not violate in any material respect any Laws of any
Governmental Authority applicable to any of SHP or the Sunstone Parties, or by
which any property or asset of SHP or the Sunstone Parties is bound or affected;
and

(iii) will not (with notice or lapse of time or both) require any consent or
approval under, result in a material breach of or loss of benefit under,
constitute a material default under, accelerate any material obligation under or
give rise to a right of termination of, any indenture or loan or credit
agreement or any other material agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which SHP or the Sunstone Parties is a
party as of the Closing Date or by which the property of SHP or the Sunstone
Parties is bound or affected as of the Closing Date, or result in the creation
or imposition of any material Encumbrance on any of the assets or properties of
SHP or the Sunstone Parties as of the Closing Date.

Section 3.5 Capitalization of SHP. The authorized capital stock of SHP consists
solely of 100,000 shares of SHP Common Stock, including 50,000 shares of Class A
common stock and 50,000 shares of Class B common stock, of which 1,000 shares of
Class A common stock and 1,040 shares of Class B common stock are issued and
outstanding. All of the issued and outstanding shares of SHP Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable, are
not subject to any preemptive rights and were not issued in violation of the
Securities Act or any other applicable Laws (including state “Blue Sky” laws).
Seller owns of record and beneficially all of the issued and outstanding shares
of SHP Common Stock, free and clear of all Encumbrances, and such shares of SHP
Common Stock constitute all of the issued and outstanding Equity Securities of
SHP. SHP has not issued or granted any outstanding options, warrants, rights or
other securities convertible into or exchangeable or exercisable for shares of
SHP Common Stock or any other Equity Securities of SHP. There are no agreements
or circumstances of any kind which may obligate SHP to issue, purchase, register
for sale, redeem or otherwise acquire any of its SHP Common Stock or any other
Equity Securities of SHP. There are no declared or accrued and unpaid dividends
or distributions, or any other obligations owing by SHP, with respect to the SHP
Common Stock or any other Equity Securities of SHP. There are no voting trusts,
stockholder agreements, proxies or other agreements in effect to which SHP or
any Seller is a party or by which any of them may be bound with respect to the
voting or transfer of the shares of SHP Common Stock. At the Closing, Interstate
will acquire good title to the SHP Common Stock.

Section 3.6 Subsidiaries. Schedule 3.6 sets forth the name of each Distributed
Subsidiary, the jurisdiction of incorporation or organization of each such
Distributed Subsidiary, the number, type and class of its authorized Equity
Securities, the number of shares each class of Equity Securities of each
Distributed Subsidiary that are issued and outstanding (collectively, the
“Subsidiary Equity Securities”), the current ownership by SHP of such Subsidiary
Equity Securities and the identity of any other record or beneficial holder of
Subsidiary Equity Securities. The Subsidiary Equity Securities described in
Schedule 3.6 constitute all the issued and outstanding Equity Securities of the
respective Subsidiaries. The Subsidiary Equity Securities have been duly
authorized and validly issued, are fully paid and nonassessable and are not
subject to any pre-emptive rights and were not issued in violation of the
Securities Act or any other applicable Laws (including state “Blue Sky” laws).
There are no voting trusts, stockholder agreements, proxies or other agreements
in effect with respect to the voting or transfer of the Subsidiary Equity
Securities held by SHP or any of the Distributed Subsidiaries or, to the
Seller’s Knowledge, the Subsidiary Equity Securities held by any other Person.
Except for the Subsidiary Equity Securities described on Schedule 3.6, neither
SHP nor any of the Distributed Subsidiaries owns of record or beneficially any
Equity Securities of any Person or any right (contingent or otherwise) to
acquire the same.

Section 3.7 Consents and Approvals. Except as set forth on Schedule 3.7, the
execution, delivery and performance of the Transaction Documents by SHP and the
Sunstone Parties, and the consummation of the Transactions, will not require any
consent, approval, authorization or other action by, or filing with or
notification to, any federal, state, local, or any foreign government,
governmental, regulatory or administrative authority, agency or commission or
any court, tribunal, or judicial or arbitral body (each, a “Governmental
Authority”), except (i) where the failure to obtain such consent, approval,
authorization or action, or to make such filing or notification, would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on SHP, and (ii) as may be necessary as a result of any facts or
circumstances relating solely to Interstate or its Affiliates.

Section 3.8 Financial Statements; Undisclosed Liabilities.

(a) Attached hereto as Schedule 3.8 are (i) an unaudited pro forma balance sheet
of SHP (excluding the Distributed Subsidiaries) as at December 31, 2003, and
statement of income of SHP (excluding the Distributed Subsidiaries) for the year
ended December 31, 2003 (collectively, the “Year-End Financial Statements”) and
(ii) an unaudited pro forma balance sheet of SHP (excluding the Distributed
Subsidiaries) as at September 30, 2004 (the “Third Quarter Balance Sheet”), and
the unaudited pro forma statement of income of SHP (excluding the Distributed
Subsidiaries), for the nine (9) month period ended September 30, 2004 (the
“Unaudited Third Quarter Financial Statements”). The Unaudited Third Quarter
Financial Statements, together with the Year-End Financial Statements, are
hereinafter referred to as the “Unaudited Historical Financial Statements.”

(b) The Unaudited Historical Financial Statements (including the notes thereto)
(i) have been prepared in accordance with (x) GAAP consistent with the
accounting principles and practices applied in preparation of the financial
statements of Sunstone and its Affiliates, applied on a consistent basis for the
periods involved, except for the exclusion of the assets, liabilities, results
of operations and cash flows of the Distributed Subsidiaries and except for the
absence of footnotes, and (ii) fairly presents in all material respects the
financial position, and results of operations of SHP, as of the dates and for
the periods presented therein and subject to, in the case of the Unaudited Third
Quarter Financial Statements, normal recurring year-end adjustments (the effect
of which will not be, individually or in the aggregate, material in amount or
nature). The Unaudited Historical Financial Statements (including the notes
thereto) have been prepared from, and in accordance with, the books and records
relating thereto, which books and records have been regularly kept and
maintained in accordance with Sunstone’s normal and customary practices and have
been the basis for historical financial statements of Sunstone and its
Affiliates.

(c) Except as set forth on Schedule 3.8, SHP has no liabilities (whether known
or unknown, whether absolute or contingent, whether liquidated or unliquidated
and whether due or to become due), except for (i) liabilities reflected or
reserved against on the Third Quarter Balance Sheet or in the notes thereto;
(ii) liabilities that arose in the ordinary course of business after the date of
the Third Quarter Balance Sheet substantially consistent with past practice; and
(iii) Pre-Closing Liabilities incurred in connection with or arising out of the
Transactions.

(d) As of the Closing Date there will not be any loans or advances by SHP or any
of the Sunstone Parties to any of their respective officers or directors that
would be in violation of Section 402 of the Sarbanes Oxley Act of 2002 if SHP
were an issuer of securities registered under the Securities Exchange Act of
1934, as amended (the “Exchange Act”).

(e) Except as set forth on Schedule 3.8 and Indebtedness under the Promissory
Note or which will be paid or discharged on or prior to the Closing Date, SHP
has no Indebtedness for borrowed money, including any Indebtedness of the type
described in clause (i) or (ii) in the definition of “Indebtedness” herein, or
Liabilities under any guarantees of Indebtedness of third Persons. Except for
obligations and liabilities reflected in the Third Quarter Balance Sheet, SHP
has no material off-balance sheet obligation or liability of any nature (matured
or unmatured, fixed or contingent) to, or any financial interest in, any third
person, the purpose or effect of which is to defer, postpone, reduce or
otherwise avoid or adjust the recording of debt expenses incurred by SHP,
including in connection with any “off-balance sheet arrangements” (as defined in
Item 303(a)(4) of Regulation S-K promulgated under the Exchange Act) effected by
SHP.

Section 3.9 Absence of Certain Changes. Except as expressly contemplated or
required hereby (including under Section 2.4) or as set forth in Schedule 3.9,
since December 31, 2003, (A) SHP has conducted its business only in the ordinary
course and in a manner consistent with past practice, (B) there has not been any
change, event, occurrence, development or effect that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on SHP
and (C) there has not been:

(i) any damage, destruction or other casualty loss with respect to any asset or
property owned or leased by SHP, whether or not covered by insurance, which
damage, destruction or loss, individually or in the aggregate, has resulted or
would reasonably be expected to result in a material impairment to the
operations at, or value of, any hotel or other material property owned, leased
or managed by SHP;

(ii) any declaration, setting aside or payment of any dividend or distribution
in respect of SHP Common Stock or any redemption, purchase or other acquisition
of any of SHP’s securities or any grant, or commitment to grant, any Equity
Securities of SHP to the extent such dividend, distribution, redemption,
purchase or other acquisition has not been completed (with no further obligation
of SHP) prior to the date of this Agreement;

(iii) (A) any increase in, or commitment to increase, grant of additional, or
commitment to grant additional, compensation or benefits provided or to be
provided to any current or former SHP Employees, except in the ordinary course
of business consistent with past practice or as required by any SHP Benefit Plan
or applicable Law or (B) any establishment or termination of any bonus,
insurance, welfare, employment, consulting, personal services, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including the granting of stock options, stock appreciation rights, performance
awards or restricted stock awards), stock purchase or other employee benefit
plan, program or arrangement except in the ordinary course of business
consistent with past practice or as required by applicable Law;

(iv) (A) any incurrence or assumption by SHP of any Indebtedness for borrowed
money other than the Inter-Company Payable and amounts that will be satisfied
prior to Closing or (B) any guarantee, endorsement or other incurrence or
assumption of material liability (whether directly, contingent or otherwise) by
SHP for the obligations of any other person, other than in the ordinary course
of business consistent with past practice and individually not in excess of
$100,000;

(v) any creation or assumption by SHP of any Encumbrance on any material asset
of SHP, other than Permitted Encumbrances and Encumbrances on assets terminated
or assigned pursuant to Section 2.4;

(vi) any making of any loan, advance or capital contribution to or investment in
any Person (including an employee or director of SHP) by SHP except in the
ordinary course of business consistent with past practice and except for loans,
advances or capital contributions to or investments in Affiliates of SHP;

(vii) any material acquisition or disposition by SHP of any business or, except
in the ordinary course of business consistent with past practice, assets;

(viii) any modification, amendment, assignment or termination of or
relinquishment by SHP of any rights under any Contract (including any insurance
policy naming it as a beneficiary or a loss payable payee) that has resulted or
would reasonably be expected to result in, individually or in the aggregate, a
material impairment to the operations at, or value of, any hotel or other
material property owned, leased or managed by SHP after the Closing Date; or

(ix) any Contract entered into by SHP that contains (A) any “change of control”
provision that would be triggered by, (B) any provision that would cause the
termination or adverse modification of such Contract as a result of or (C) any
prohibition on transfer that would be violated or breached by, in each case, the
execution and delivery of any Transaction Document or the consummation of the
Transactions that has resulted or would reasonably be expected to result,
individually or in the aggregate, in a Material Adverse Effect on SHP;

(x) any material Contract entered into regarding any SHP Benefit Plan (including
any settlement agreement with any Governmental Authority) or any collective
bargaining agreement;

(xi) revaluation by SHP of any of its assets or properties, including writing
off of notes or accounts receivable or revaluing inventory;

(xii) any charitable contribution made or pledged by SHP;

(xiii) any tax election, or change in any tax election, made by SHP;

(xiv) settlement, compromise or concession of any claim or assessment for Taxes,
or the surrender of any right to claim a refund of Taxes or otherwise offset any
Tax liability; or

(xv) any agreement or commitment by SHP to do any of the foregoing.

Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is no, and
in the last three years there has not been any, material action, suit or
proceeding, claim, arbitration or investigation against SHP pending or, to the
Seller’s Knowledge, threatened and (b) neither SHP nor, with respect to the
Business, any Seller is subject to any material outstanding order, writ,
injunction, decree or arbitration ruling, award or other finding.

Section 3.11 Taxes. Except as set forth in Schedule 3.11:

(a) The Seller, its respective Affiliates and SHP has timely filed or caused to
be filed all material Tax Returns required to be filed by or with respect to it,
its operations and assets, and has paid or caused to be paid all Taxes shown
thereon as owing. All Tax Returns filed by the Seller, its respective Affiliates
or SHP were prepared in compliance with all applicable Laws and regulations and
are in all material respects true, complete, and correct. Complete copies of
federal, state, local, and foreign Tax Returns of the Seller, its respective
Affiliates and SHP for any Tax Periods that are still subject to audit by a Tax
Authority have heretofore been delivered or made available to Interstate. Prior
to the date hereof, the Seller has provided to Interstate copies of all revenue
agents’ reports and other written assertions of deficiencies or other
liabilities for Taxes of the Seller, its respective Affiliates and SHP with
respect to past periods for which the applicable statute of limitations has not
expired. As used in this Agreement, (i) “Tax” or “Taxes” shall mean with respect
to any Person, all taxes of any kind, charges, fees, customs, duties, imposts,
levies or other assessments, including all income, gross receipts, ad valorem,
value added, transfer, gains, franchise, profits, inventory, federal, state,
local or foreign worth, capital stock, asset, sales, use, license, estimated
withholding, payroll, transaction, capital, employment, social security, workers
compensation, unemployment, excise, environmental (including taxes under
Section 59A of the Code), customs, disability, registration, alternative or
add-on minimum, superannuation guarantee charge, corporation (including ACT),
import, export, registration, production, frankings, fringe benefits, occupancy,
real property, personal property, business and occupation, mercantile, stamp, or
other tax of any kind whatsoever, including any interest and any penalties,
additions to tax or additional amounts, imposed by any Tax Authority whether
disputed or not, for which such Person may be liable (including any such Tax
related to any other Person for which such Person is liable, by contract, as
transferee or successor, by Law (including as a result of the application of
Treasury Regulation Section 1.1502 6) or otherwise); and (ii) “Tax Returns”
shall mean all returns, notices, forms elections, reports, or similar statements
or other documents required to be filed with respect to any Tax (including any
attached schedules and any amendments thereof), including information returns,
claims for refund, amended returns, or declarations of estimated Tax.

(b) The Seller, its respective Affiliates and SHP has timely paid or caused to
be paid all Taxes for which a notice of, or assessment or demand for, payment
has been received or which are otherwise due and payable with respect to the
Seller, its respective Affiliates or SHP, or their respective operations and
assets, except for Taxes that are being contested in good faith by appropriate
proceedings (all of which are disclosed on Schedule 3.11(b)).

(c) The Seller, its respective Affiliates and SHP has complied with all
applicable Laws, rules, and regulations relating to the withholding of Taxes
(including sales and use taxes) and has timely collected or withheld and paid
over to the proper governmental authorities all amounts shown to be owing or
withheld on its Tax Returns and paid over for all prior periods under all
applicable Laws. SHP has properly requested, received and retained all necessary
exemption certificates and other documentation supporting any claimed exemption
or waiver of Taxes on sales or other transactions as to which SHP would have
been obligated to collect or withhold Taxes.

(d) There are no outstanding agreements, waivers, or arrangements extending the
statutory period of limitations for the assessment or collection of Taxes with
respect to any Tax Return that relates to the Seller, its respective Affiliates
or SHP, which waivers or extensions currently are in effect, and no request for
any such waiver or extension is currently pending. Set forth in Schedule 3.11(d)
for SHP are the jurisdictions in which SHP has filed Tax Returns within the last
three tax years. No claim has been made within the last three years by a Tax
Authority in a jurisdiction where SHP does not file Tax Returns that SHP may be
subject to taxation in that jurisdiction.

(e) There are no Tax rulings, request for rulings, or closing agreements or any
other binding agreement with a Tax Authority relating specifically to the
Seller, its respective Affiliates or SHP which could affect any liability of any
of them for Taxes for any period after the Closing Date.

(f) There are currently no deficiencies for Taxes that have been claimed,
proposed or assessed by any Tax Authority against the Seller, its respective
Affiliates or any of its Subsidiaries. No action, suit, proceeding,
investigation, audit, claim, or assessment is presently pending or to the
Seller’s Knowledge, proposed with regard to any Taxes that relate to the Seller,
its respective Affiliates or SHP for which the Seller, its respective Affiliates
or SHP would or could be liable. Neither the Seller, its respective Affiliates
or SHP has received a request from any taxing authority for information with
respect to Taxes of the Seller, its respective Affiliates or SHP. Neither the
Seller, its respective Affiliates nor SHP has any knowledge of any fact or
condition that, if known to any taxing authority having jurisdiction, would
likely result in the issuance of a notice of proposed deficiency or similar
notice of intention to assess Taxes against the Seller, its respective
Affiliates or SHP, and no issue has arisen in any examination of the Seller,
their respective Affiliates or SHP by any taxing authority that if raised with
respect to any other period not so examined would result in a material
deficiency for any other period not so examined, if upheld. Schedule 3.11(f)
sets forth for SHP and its Affiliates the Tax Returns which have been audited
within the last six years by the relevant Tax Authorities for each period set
forth on Schedule 3.11(f). No power of attorney has been executed by or on
behalf of the Seller, its respective Affiliates or SHP with respect to any
matters relating to Taxes that are currently in force.

(g) Neither the Seller, its respective Affiliates nor SHP (i) has agreed to or
is required to make any adjustment pursuant to Section 481 of the Code (or any
predecessor or similar provision of other Laws or regulations) by reason of a
change in accounting method or otherwise; (ii) has knowledge that any taxing
authority has proposed any such adjustment or change which proposal is currently
pending; or (iii) has an application pending with any taxing authority
requesting permission for any change in accounting methods that relates to its
business and operations. SHP will not be required to recognize for Tax purposes
in a Post-Closing Tax Period any income or gain which would otherwise have been
required to be recognized under the accrual method of accounting in a
Pre-Closing Tax Period as a result of any Seller, any of its Affiliates or SHP
making a change in method of accounting or otherwise deferring the recognition
of income or gain to a Post-Closing Tax Period as a result of the accounting
method used in a Pre-Closing Tax Period.

(h) Neither the Seller, its respective Affiliates nor SHP (i) is a party to, is
bound by, or has any obligation under, any Tax sharing agreement or similar
contract, (ii) has any current or potential contractual obligation to indemnify
any other person with respect to Taxes, or (iii) has any obligation to make
distributions in respect of Taxes.

(i) No Taxes are delinquent or constitute a lien (other than with respect to
Taxes which are not yet due and payable) against any Seller, their respective
Affiliates or SHP, except with respect to Taxes being contested in good faith by
appropriate proceedings (all of which are disclosed on Schedule 3.11(b)) and for
payment of which Taxes adequate reserves have been established.

(j) To the Knowledge of the Seller, no property of the Seller or SHP is
“tax-exempt use property” within the meaning of Section 168 of the Code.

(k) SHP has never been a member of any affiliated group of corporations which
has filed a combined, consolidated, or unitary return for federal, state, local,
or foreign tax purposes, other than such a group of which SHP is the common
parent..

(l) The Transactions are not subject to the tax withholding provisions of
Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of any
other provision of Law.

Section 3.12 Non-Competition Agreements.

(a) Schedule 3.12 sets forth a complete and accurate list of each Contract to
which SHP or any of its Affiliates will be a party or will otherwise be bound as
of the Closing Date which purports to restrict or prohibit SHP from, directly or
indirectly, engaging in any portions of the Business after the Closing Date.
Except as set forth in Schedule 3.12, no such Contract will exist as of the
Closing Date except any such Contract that has not had and would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on SHP.

Section 3.13 Agreements with Regulatory Agencies. SHP is not subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter from,
or has adopted any board resolutions at the request of (each a “SHP Regulatory
Agreement”), any Governmental Authority that restricts the conduct of its
business. SHP has not been advised by any Governmental Authority that such
Governmental Authority is considering issuing or requesting any SHP Regulatory
Agreement.

Section 3.14 Employee Benefit Plans; Labor Matters. (a) Each employee benefit
plan (within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”)), and any other agreement, policy,
program or arrangement, and each employment, personal services consulting,
termination, severance or other employee benefit contract, agreement, plan,
program or arrangement (collectively, the “SHP Benefit Plans”), with respect to
which SHP or any of its Subsidiaries has any obligation or which are maintained,
contributed to or sponsored by SHP or any of its Subsidiaries for the benefit of
any current or former employee, independent contractor, consultant, officer,
agent or director of SHP or any of its Subsidiaries (the “SHP Employees”) is
listed on Schedule 3.14.

(i) Each SHP Benefit Plan and any related trust intended to be qualified under
Sections 401(a) and 501(a) of the Code has received a favorable determination
letter from the Internal Revenue Service (the “IRS”) that it is so qualified,
and nothing has occurred since the date of such letter that could reasonably be
expected to adversely affect the qualified status of such SHP Benefit Plan or
related trust;

(ii) Each SHP Benefit Plan has been operated in all material respects in
accordance with its terms and the requirements of ERISA, the Code and other
applicable Law, and all reporting, filing and disclosure obligations imposed
under ERISA, the Code and other applicable Law have been satisfied with respect
to each SHP Benefit Plan;

(iii) Neither SHP nor any of its Subsidiaries has incurred, or would reasonably
be expected to incur, any direct or indirect liability arising out of a
violation of Title I of ERISA or comparable provisions of the Code, or arising
out of or by operation of Title IV of ERISA or comparable provisions of the
Code, in connection with any SHP Benefit Plan, and no fact or event exists that
could reasonably be expected to give rise to any such liability;

(iv) All contributions and/or insurance premium payments due and payable within
the six years immediately preceding the date hereof in respect of each SHP
Benefit Plan have been made in full and in proper form;

(v) Neither SHP nor any of its Subsidiaries is currently sponsoring or is
obligated to contribute to, or has ever sponsored or been obligated to
contribute to any “multiemployer plan” (as defined in Sections 3(37) and
4001(a)(3) of ERISA), “multiple employer plan” (as defined in Section 210 of
ERISA and Section 413 of the Code) or “defined benefit plan” (as defined in
Section 3(35) of ERISA);

(vi) Neither SHP nor any of its Subsidiaries (A) would incur any withdrawal
liability (within the meaning of Part 1 of Subtitle E of Title I of ERISA) if it
withdrew (within the meaning of Part 1 of Subtitle E of Title I of ERISA) from
each SHP Benefit Plan that is a “multiemployer plan” (as defined in
Sections 3(37) and 4001(a)(3) of ERISA) or (B) has incurred any such withdrawal
liability that has not been satisfied in full;

(vii) No SHP Benefit Plan currently has, or has within the six years immediately
preceding the date hereof incurred, any accumulated funding deficiency within
the meaning of Section 302 of ERISA and Section 412 of the Code, nor has any
waiver of the minimum funding standards of Section 302 of ERISA and Section 412
of the Code been requested of or granted by the IRS with respect to any SHP
Benefit Plan, nor has any lien in favor of any SHP Benefit Plan arisen under
Section 412(n) of the Code or Section 302(f) of ERISA been so requested or
granted;

(viii) Except as otherwise required under ERISA, the Code and other applicable
Law, no SHP Benefit Plan currently or previously maintained by SHP or any of its
Subsidiaries provides or is obligated to provide any post-retirement health,
life or other welfare benefits nor or in the future;

(ix) No SHP Benefit Plan is or at any time was funded through a “welfare benefit
fund” (as defined in Section 419(e) of the Code), and no benefits under any SHP
Benefit Plan are or at any time have been provided through a voluntary
employees’ beneficiary association (within the meaning of Section 501(c)(9) of
the Code) or a supplemental unemployment benefit plan (within the meaning of
Section 501(c)(17) of the Code);

(x) With respect to any insurance policy providing funding for benefits under
any SHP Benefit Plan, there is no liability of SHP or any of its Subsidiaries in
the nature of a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability, nor would there be any such liability if such
insurance policy was terminated on the date hereof;

(xi) There is no pending or, to the Seller’s Knowledge, threatened litigation,
assessment, complaint, proceeding audit, or investigation of any kind in any
court or from any Governmental Authority or other person with respect to any SHP
Benefit Plan (other than routine claims for benefits), nor is there, to the
Seller’s Knowledge, any basis for one;

(xii) The disallowance of a deduction under Section 162(m) of the Code for
employee remuneration will not apply to any amount paid or payable by SHP or any
of its Subsidiaries under any SHP Benefit Plan;

(xiii) Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby (whether alone or in combination with a
subsequent event) will (A) result in the provision of benefits or the payment of
separation, severance, termination, “golden parachute” or similar-type benefits
to any Person, (B) increase any benefits otherwise payable under any SHP Benefit
Plan or otherwise, (C) result in any acceleration of the time of payment or
vesting of any benefits, (D) trigger a requirement for funding or the
acceleration of funding of any benefits or (E) commence a period during which a
subsequent termination of employment by an employee of SHP or any of its
Subsidiaries will entitle such employee to benefits in excess of what would
otherwise have been required in the absence of the transactions contemplated
hereby; and

(xiv) SHP has no commitment or obligation to establish any material arrangement
which, if in effect as of the date hereof, would constitute a SHP Benefit Plan.

(b) SHP and the Seller have made available to Interstate a complete and accurate
copy of each SHP Benefit Plan (or a written summary in the case of any unwritten
SHP Benefit Plan) and a complete and accurate copy of each material document
prepared in connection with each such SHP Benefit Plan, including a copy of
(i) each trust or other funding arrangement, if any, (ii) each summary plan
description and summary of material modifications, if any, (iii) the most
recently filed IRS Form 5500, if any, (iv) the most recently received IRS
determination letter, if any, (v) the most recently prepared actuarial report
and financial statement, if any, (vi) any related insurance policy in effect,
and (vii) the most recent discrimination testing reports for each qualified
retirement plan.

(c) Except as set forth in Schedule 3.14(c)(1), (i) there are no “leased
employees” within the meaning of Section 414(n) of the Code who perform services
for SHP or any of its Subsidiaries and (ii) neither SHP nor any of its
Subsidiaries is a party to, or is bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or other labor
union organization. The Sunstone Parties and SHP have made available true,
correct and complete copies of all such agreements to Interstate. Except as set
forth in Schedule 3.14(c)(2): (A) currently there are, and within the three
years immediately preceding the date hereof there have been, no organizational
campaigns, petitions or other unionization activities seeking recognition of a
collective bargaining unit which could affect SHP or any of its Subsidiaries;
(B) there are no controversies, strikes, slowdowns or work stoppages pending or,
to the Seller’s Knowledge, after due inquiry, threatened between SHP or any of
its Subsidiaries and any of their respective employees, and neither SHP nor any
of its Subsidiaries has experienced any such controversy, strike, slowdown or
work stoppage within the past three years; (C) neither SHP nor any of its
Subsidiaries has breached or otherwise failed to comply with the provisions of
any collective bargaining or union contract and there are no grievances
outstanding against SHP or any of its Subsidiaries under any such agreement or
contract; and (D) there are no unfair labor practice complaints pending against
SHP or any of its Subsidiaries before the National Labor Relations Board or any
other Governmental Authority or any current union representation questions
involving employees of SHP or any of its Subsidiaries.

(d) There is no contract, agreement, plan, or arrangement covering any employee
of SHP or any of its Subsidiaries that, individually or collectively, could
reasonably be expected to give rise to the payment of any amount that would not
be deductible by SHP by reason of Section 280G of the Code.

(e) Set forth on Schedule 3.14(e) is a complete and correct list of each Person
other than the Hotel Employees who is an employee of SHP as of the Closing (the
“Continuing Employees”) and each Continuing Employee’s salary and bonus
compensation as of the date of this Agreement. Immediately prior to the Closing,
there will be no employees of SHP other than the Continuing Employees and the
Hotel Employees.

Section 3.15 Properties.

(a) SHP does not own any real property.

(b) Schedule 3.15 describes all real property leased or licensed for use by SHP
(the “Leased Real Property”). The Leased Real Property is all of the real
property used or held for use in the Business.

Section 3.16 Contracts and Commitments.

(a) Except as set forth on Schedule 3.16 or pursuant to the Transactions,
immediately prior to the Closing neither SHP nor, with respect to the Business,
any of the Sunstone Parties will be a party to, and neither any of such Persons
nor their respective assets will be bound by any:

(i) management contracts and franchise agreement in effect with respect to the
hotels owned, leased or operated in the Business;

(ii) documents evidencing or creating Indebtedness for borrowed money, or giving
rise to a guarantee of such Indebtedness, of SHP with a remaining principal
balance;

(iii) partnership agreements, limited liability company agreements, joint
venture agreements, joint marketing contracts or alliance contracts;

(iv) leases relating to any material real or personal property leased by SHP;

(v) employment agreements with the SHP Employees, any change in control,
retention or severance agreement or arrangement with any SHP Employee, and all
agreements pursuant to which consulting services are rendered to SHP, in each
case that are likely to involve payments in excess of $50,000 per year;

(vi) Contracts granting any party a first-refusal, first-offer or other right to
purchase or acquire any equity interest in SHP;

(vii) Contracts between SHP and any Affiliate of SHP that would reasonably be
expected to result in the aggregate, in payments of more than $50,000 per year;

(viii) Contracts pursuant to which SHP has an obligation (contingent or
otherwise) to pay any amounts in respect of indemnification obligations,
purchase price adjustment or otherwise in connection with (A) any acquisition or
disposition of assets, (B) merger, consolidation or other business combination,
or (C) series or group of related transactions or events of a type specified in
(A) or (B);

(ix) other Contracts with respect to any merger, or sale or acquisition of
material assets or equity interests, that has not yet closed;

(x) collective bargaining agreements;

(xi) “requirements” or “take or pay” Contracts;

(xii) any material license agreements or other Contracts relating to
Intellectual Property Rights (other than standard end-user object code internal
use software license agreements);

(xiii) Contracts with respect to credit card programs; or

(xiv) other Contracts that are entered into outside the ordinary course of
business and are material to the Business;

(b) True and complete copies of the Contracts disclosed or required to be
disclosed on Schedule 3.16 (the “Material SHP Contracts”) have been delivered to
Interstate. Except as set forth on Schedule 3.16 (i) each Material SHP Contract
is valid, binding and enforceable in all material respects on SHP and, to the
Seller’s Knowledge, on the other party or other parties thereto, and is in full
force and effect in accordance with its respective terms, (ii) SHP is not in
material breach of, or material default under, any such Contract, and no event
or condition exists that, but for the giving of notice or passage of time, would
result in such a breach or default by SHP, and (iv) to the Seller’s Knowledge,
no other party to any such Contract is in material breach thereof or material
default thereunder, and no event or condition exists that, but for the giving of
notice or passage or time, would result in such a breach or default by the other
party thereto.

Section 3.17 Intellectual Property. SHP does not own or hold any patent,
registered and unregistered trademark, service mark, trade dress, logo,
copyright, mask work or registration or application for any of the foregoing.
Except as set forth on Schedule 3.17, SHP owns or has the adequate right to use,
free and clear of all Encumbrances (except for Encumbrances under license
agreements), all trademarks, trade names, trade dress, product names, domain
names, service marks, logos, patents, patent applications, trade secrets,
know-how, software, computer programs, databases, industrial designs and
copyrights and other intellectual property rights (including domestic and
foreign registrations and applications therefore) (collectively, “Intellectual
Property Rights”), as are used or held for use in connection with the Business.
Except as set forth on Schedule 3.17, to the Seller’s Knowledge, (a) use of such
Intellectual Property Rights by SHP does not infringe any rights of any third
party, (b) SHP has not received any written notice from any Person claiming that
use of, or the rights of SHP in or to, such Intellectual Property Rights
conflict with or infringe on the rights of any other Person, (c) neither SHP nor
the Sunstone Parties has received written notice from any Person claiming, or
has any Knowledge, that any of such Intellectual Property Rights is invalid, and
(d) none of such Intellectual Property Rights is being infringed by any other
Person.

Section 3.18 Environmental Matters. Except (i) as has not, individually or in
the aggregate, resulted and would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on SHP, or (ii) as
set forth in Schedule 3.18:

(a) SHP (i) is in compliance with all applicable Environmental Laws, (ii) holds
all necessary Environmental Permits under those Environmental Laws for the
conduct of the Business as now being conducted and all such permits are in good
standing and (iii) is in compliance with its Environmental Permits;

(b) neither SHP nor its predecessors has received any request for information or
been notified in writing that it is a potentially responsible party, under
CERCLA or any similar law of any state, locality, or any other jurisdiction;

(c) there is not now and has not been any Hazardous Substance used, generated,
treated, stored, transported, disposed of, released, handled or otherwise
existing on, under, about, or emanating from or to, any owned, leased or
operated property associated with SHP, except in substantial compliance with all
applicable Environmental Laws;

(d) neither SHP nor its predecessors has entered into or agreed to any consent
decree or order or is subject to any outstanding judgment, decree or judicial
order relating to compliance with Environmental Laws, Environmental Permits or
the investigation, sampling, monitoring, treatment, remediation, removal or
cleanup of Hazardous Substances with any Governmental Authority and, to the
Seller’s Knowledge, no investigation, litigation or other proceeding is pending
or threatened with respect thereto; and, to the Seller’s Knowledge, no condition
exists on any property currently or formerly owned, leased or operated by SHP
that is reasonably likely to lead to such investigation, litigation or
proceeding;

(e) none of the real property currently or formerly owned or leased by SHP is
listed or, to the Seller’s Knowledge, proposed for listing on the “National
Priorities List” under CERCLA or CERCLIS (as defined in CERCLA), as updated
through the date of this Agreement, or any similar list of sites in the United
States or any other jurisdiction requiring investigation or cleanup;

(f) there is no site to which any of the Seller or its respective Affiliates or
SHP has transported or arranged for the transport of Hazardous Substances with
respect to which, to the Seller’s Knowledge, SHP is or may become the subject of
any environmental action; and

(g) Interstate has been provided access to all reports in possession or control
of any of the Sunstone Parties, their Affiliates or SHP assessing the
environmental condition of any Leased Real Property, which reports are listed in
Schedule 3.18(g).

(h) For purposes of this Agreement:

(i) “Environmental Law” shall mean any environmental or health and
safety-related law, regulation, rule, ordinance, by-law, order, or determination
of any Governmental Authority or judicial authority at the federal, state, or
local level, whether existing as of the date hereof, previously enforced, or
subsequently enacted;

(ii) “Environmental Permit” shall mean any permit, license, approval, consent,
or authorization issued by a federal, state, or local Governmental Authority
pursuant to an Environmental Law;

(iii) “Hazardous Substance” means any element, compound, substance or material
of any nature whatsoever (including any product) that is listed, classified or
regulated pursuant to any Environmental Law or the subject of regulatory action
by any Governmental Authority pursuant to any Environmental Law, including any
petroleum product, by-product or additive, asbestos-containing material,
polychlorinated biphenyl, radioactive materials, volatile organic compound, or
hazardous air pollutant.

Section 3.19 Compliance with Laws; Permits.

(a) Except as set forth on Schedule 3.19(a), SHP is, and since January 1, 2001,
has been, in compliance in all material respects with each, and neither any of
the Sunstone Parties nor SHP has received written notice, and neither any of the
Sunstone Parties otherwise has any Knowledge, that SHP or any Leased Real
Property is in material violation of any, applicable federal, state, local or
foreign judgment, order, decree, or any statute, law, ordinance, rule,
regulation, code and any judicial or administrative interpretation thereof, or
any other government or rule of law (“Law”) in connection with SHP or the
operation of the Business.

(b) SHP is in possession of all material authorizations, licenses, permits,
variances, registrations, certificates, approvals and clearances of any
Governmental Authority, and has taken all other actions, required for the
ownership and operation, as applicable, of the Business (the “Permits”), and all
of the Permits are valid, and in full force and effect. SHP is not in conflict
with, or in default or violation of any Permits, and neither any Sunstone Party
nor SHP is in default (or with the giving of notice or lapse of time or both,
would be in default) under any such Permit or (ii) has received any written
notice, or otherwise has Knowledge, that any suspension, modification or
revocation of any Permits is pending or threatened. Set forth on Schedule
3.19(b) is a complete and accurate list of the Permits. All required filings
with respect to the Permits have been timely made and all required applications
for renewal thereof have been timely filed.

Section 3.20 Insurance. Schedule 3.20 sets forth a true and correct summary of
the insurance policies held by, or for the benefit of, SHP as of the Closing
Date including the holder beneficiary, and underwriter of such policies and the
amount of coverage thereunder. SHP has paid, or caused to be paid, all premiums
due under such policies and is not in default with respect to any monetary
obligations under such policies in any material respect. To the Seller’s
Knowledge, SHP maintains insurance with financially responsible insurers in such
amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of SHP (taking
into account the cost and availability of such insurance), except where the
failure to maintain such insurance would not reasonably be expected to have a
Material Adverse Effect on SHP. Except as set forth on Schedule 3.20, neither
any Sunstone Party nor SHP has received any written notice of cancellation or
termination with respect to any existing material insurance policy that is held
by, or for the benefit of, SHP or that relates to SHP’s business or assets.

Section 3.21 Assets; Operation of the Business. (a) Except as set forth in
Schedule 3.21(a), as of the Closing Date (i) SHP will have good title to or, in
the case of leased or licensed personal property, will possess valid and
subsisting leasehold or licenses interests in, all of its personal property,
free and clear of all Encumbrances other than Permitted Encumbrances.

(b) Except as set forth on Schedule 3.21(b), (i) since January 1, 2004, SHP has
not conducted the Business through any other Person, (ii) since January 1, 2004,
neither any Sunstone Party nor any of their Affiliates provides any services to
SHP other than accounting, finance, tax, executive, administrative, information
technology, design and construction and acquisition services, and (iii) SHP has
no assets or liabilities with respect to any business other than the Business.

(c) Except as set forth on Schedule 3.21(c), the personal property of SHP is in
good repair and operating condition (subject to normal wear and tear) except as
would not otherwise reasonably be expected, individually or in the aggregate, to
materially and adversely affect the Business.

Section 3.22 Guarantees; Letters of Credit. As of the Closing Date none of the
obligations or liabilities of SHP will be guaranteed or subject to a similar
contingent obligation of any other Person, SHP will not have any outstanding
guarantee or be subject to a similar contingent obligation in respect of the
obligations or liabilities of any other Person, and there will not be any
outstanding letters of credit, surety bonds or similar instruments of any
Sunstone Party or any of its Affiliates in connection with the Business or SHP,
other than with respect to worker’s compensation liabilities.

Section 3.23 Representations Complete. None of the representations or warranties
made by any Sunstone Party herein or in any Exhibit or Schedule, including the
Seller Disclosure Schedules, or in any certificate furnished by any Sunstone
Party pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain at the Closing any untrue statement of
a material fact, or omits or will omit at the Closing to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.

Section 3.24 Brokers. No broker, investment banker, financial advisor or other
Person, is entitled to any broker’s, finder’s, financial advisor’s or other
similar fee or commission in connection with the Transactions based on any
arrangements made by any Seller or SHP or any Affiliate or agent of any Seller.

Section 3.25 Seller’s Knowledge; Disclosure; Disclaimer.

(a) Prior to the Closing Date, Interstate will have had the opportunity to make
all inspections and investigations, including a review of the materials made
physically available to Interstate at a mutually agreed location, concerning SHP
which Interstate deems necessary or desirable to protect its interest in
acquiring the SHP Common Stock.

(b) Whenever a representation or warranty made by any Sunstone Party in any
Transaction Document refers to the "Knowledge” of the Seller, or to the
“Seller’s Knowledge” or a similar phrase, the accuracy of such representation
shall be based solely on the actual knowledge after due inquiry of any
individual set forth on Schedule 3.25 (each a “Sunstone Knowledge Party”), and
shall not be construed to refer to the knowledge of any other officer, agent,
partner, member, manager or employee of any Seller or of any Affiliate of any
Seller.

(c) Notwithstanding anything to the contrary contained in the Transaction
Documents or in any of the schedules prepared by the Sunstone Parties and
delivered on the date hereof and attached hereto (such schedules, as so amended,
the “Seller Disclosure Schedules”), any information disclosed on one Schedule
shall be deemed to be disclosed on another Schedule; provided that specific
cross-references are made to such other Schedule. Certain information set forth
on the Seller Disclosure Schedules is included solely for informational purposes
and may not be required to be disclosed pursuant to this Agreement. The
disclosure of any information shall not be deemed to constitute an
acknowledgment that such information is required to be disclosed in connection
with the representations and warranties made by any Sunstone Parties in this
Agreement (or any other Transaction Document) or that it is material, nor shall
such information be deemed to establish a standard of materiality, nor shall it
be deemed an admission of any liability of, or concession as to any defense
available to, any Sunstone Parties or SHP.

(d) None of the Sunstone Parties makes, or has made, any representation or
warranty relating to SHP, the operations or businesses of SHP or the
Transactions, other than those expressly made by the Sunstone Parties in this
Agreement or in another Transaction Document. Other than as expressly set forth
in any Transaction Document, the Sunstone Parties hereby specifically disclaim
any representation, warranty or guaranty, oral or written, past, present or
future, of, as to, or concerning SHP, the operations or businesses of SHP or the
Transactions. It is understood that any estimates, projections or other
predictions, any data, any financial information, document, report, sales
brochure or other literature, maps or sketches, financial information or
statements, or presentations (including without limitation any management
presentation or property or facility tour), or any memoranda or offering
materials thereto, are not and shall not be deemed to be or to include
representations or warranties of any Sunstone Party, except as expressly set
forth in the Transaction Documents. No Person has been authorized by any
Sunstone Party make any representation or warranty relating to SHP, the
operations or businesses of SHP or the Transactions, or otherwise in connection
with the Transactions and, if made, such representation or warranty must not be
relied upon as having been authorized by any Sunstone Party.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF INTERSTATE

As a material inducement to the Seller to enter into the Transaction Documents
to which it is party and to consummate the Transactions to which it is party,
Interstate represents and warrants to the Seller as follows:

Section 4.1 Organization of Interstate. Interstate is a duly incorporated,
validly existing corporation and is in good standing under the laws of the State
of Delaware and has all the requisite corporate power and authority and all
necessary governmental approvals to own, lease and operate the properties
currently owned, operated and leased by it and to carry on its business as it is
now being conducted. Interstate is duly licensed or qualified to do business,
and is in good standing, in each jurisdiction in which the nature of its
business or properties requires it to be so licensed, qualified or in good
standing except to the extent such failure would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Interstate.

Section 4.2 Authority. Interstate has full authority, right, power and capacity
to enter into each Transaction Document to which it is party and to carry out
the Transactions. The execution, delivery and performance by Interstate of this
Agreement and the other Transaction Documents to which it is party have been
duly authorized by all necessary action of Interstate, and no other action on
the part of Interstate is required in connection therewith. This Agreement has
been, and prior to the Closing each other Transaction Document to which
Interstate is a party will be, duly executed and delivered by Interstate.
Assuming due authorization, execution and delivery by the Sunstone Parties,
their Affiliates and SHP to the extent each is party thereto, each Transaction
Document constitutes, or when executed and delivered will constitute, valid and
binding obligations of Interstate, enforceable in accordance with their
respective terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the rights of creditors
generally and subject to the rules of law governing (and all limitations on)
specific performance, injunctive relief and other equitable remedies.

Section 4.3 Non-Contravention. Except as provided in Schedule 4.3, and assuming
that all consents, approvals, authorizations and other actions set forth on
Schedule 4.4 have been obtained and all filings and notifications set forth on
Schedule 4.4 have been made, the execution, delivery and performance by
Interstate of the Transaction Documents, and the consummation of the
Transactions:

(a) do not and will not conflict with or violate the terms of any organizational
documents of Interstate;

(b) do not and will not violate in any material respect any Laws of any
Governmental Authority applicable to Interstate, or by which any property or
asset of Interstate is bound or affected; and

(c) do not and will not (with notice or lapse of time or both) require any
consent or approval under, result in a material breach of or loss of benefit
under, constitute a material default under, accelerate any material obligation
under or give rise to a material right of termination of any indenture or loan
or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which Interstate is a party or by which
the property of Interstate is bound or affected, or result in the creation or
imposition of any material Encumbrance on any of the assets or properties of
Interstate.

Section 4.4 Consents and Approvals. Except as set forth on Schedule 4.4, the
execution, delivery and performance of the Transaction Documents by Interstate,
and the consummation of the Transactions, will not require any consent,
approval, authorization or other action by, or filing with or notification to,
any Governmental Authority, except (i) where the failure to obtain such consent,
approval, authorization or action, or to make such filing or notification, would
not reasonably be expected individually, or in the aggregate, to have a Material
Adverse Effect on Interstate, and (ii) as may be necessary as a result of any
facts or circumstances relating solely to SHP, the Seller or its respective
Affiliates.

Section 4.5 Brokers. No broker, investment banker, financial advisor or other
Person, is entitled to any broker’s, finder’s, financial advisor’s or other
similar fee or commission in connection with the Transactions based on any
arrangements made by Interstate or any Affiliate or agent of Interstate.

Section 4.6 Disclaimer. Interstate does not make, and has not made, any
representation or warranty relating to Interstate or the Transactions other than
those expressly made by Interstate in this Agreement or in another Transaction
Document. Other than as expressly set forth in any Transaction Document,
Interstate hereby specifically disclaims any representation, warranty or
guaranty, oral or written, past, present or future, of, as to, or concerning
Interstate. It is understood that any estimates, projections or other
predictions, any data, any financial information, document, report, sales
brochure or other literature, maps or sketches, financial information or
statements, or presentations (including without limitation any management
presentation or property or facility tour), or any memoranda or offering
materials thereto, are not and shall not be deemed to be or to include
representations or warranties of Interstate. No Person has been authorized by
Interstate to make any representation or warranty relating to Interstate or
otherwise in connection with the Transactions and, if made, such representation
or warranty must not be relied upon as having been authorized by Interstate.

ARTICLE V

CERTAIN COVENANTS AND AGREEMENTS OF SUNSTONE

Section 5.1 Conduct of Business Prior to Closing.

(a) Except as set forth in Schedule 5.1(a) or as otherwise expressly provided in
any Transaction Document, Seller covenants and agrees that, between the Signing
Date and the Closing Date, it shall cause SHP to (i) operate in the ordinary
course of business, consistent with past practice, and in compliance in all
material respects with all applicable Laws, (ii) pay and perform its respective
obligations when due, and (iii) use reasonable best efforts to (A) keep intact
its current business organization, (B) keep available the services of the
current officers and key employees of, and consultants to, SHP, (C) preserve the
current relationships of SHP with suppliers and customers, all with the goal of
preserving unimpaired their goodwill and the ongoing Business at the Closing.
Without limiting the generality of the foregoing, Seller shall cause senior
officers of the Seller and SHP to be available to meet, on a regular basis as
requested, with senior officers of Interstate to review the financial and
operational affairs of SHP, to the extent permitted by applicable Law.

(b) In furtherance and not in limitation of the foregoing, the Seller covenant
and agree that, except as described in Schedule 5.1(b), SHP shall not, and, with
respect to SHP and the Business, neither Seller nor any of its Affiliates, from
the Signing Date to the Closing, except as provided in any Transaction Document
to which Interstate is a party, or with the prior written consent of Interstate,
which consent shall not be unreasonably withheld, take any of the following
actions:

(i) (A) make any purchase, sale or disposition (or trigger any contractual
rights with respect to the purchase, sale or disposition) of any property or
interest therein (other than easements and similar grants in the ordinary course
of business), with a purchase price in excess of $100,000 individually or
$1,000,000 in the aggregate, and provided that all proceeds remain in SHP and
are not distributed, or (B) mortgage, pledge, subject to an Encumbrance or
otherwise Encumber (except for statutory mechanics’, carriers’, suppliers’
workmen’s or repairmen’s liens in the ordinary course of business consistent
with past practice) any material assets, except for any such Encumbrance which,
by its terms, will be terminated or otherwise be extinguished at or prior to the
Closing;

(ii) incur any material contingent liability as a guarantor or otherwise with
respect to the obligations of others, or incur any other material contingent or
fixed obligations, indebtedness (including through the issuance of debt
securities) or liabilities, other than draws on existing commitment facilities;

(iii) make any change or incur any obligation to make a change to any
organizational documents governing SHP;

(iv) (A) make any change or commit to make any increase in the compensation or
any benefits (including any severance or termination benefits) provided or to be
provided to any of the SHP Employees who receive total annual compensation of
$50,000 or more, or enter into or modify any SHP Benefit Plan, other than in
accordance with the existing terms of contracts entered into and disclosed to
Interstate prior to the Signing Date; or (B) make any loan or advance to any
executives, officers or directors of SHP or make any modifications to any such
loans or advances; or (C) hire any executive officer or other employee whose
total annual compensation exceeds $50,000;

(v) (A) amend, modify or terminate any SHP Benefit Plan, any Material SHP
Contract disclosed on Schedule 3.16, or enter into a Contract that would be a
Material SHP Contract if it existed on the Signing Date, except in the ordinary
course of business consistent with past practice or as otherwise contemplated by
this Agreement or as required by applicable Law; or (B) establish any plan,
program or arrangement that would, if in effect as of the Signing Date,
constitute a SHP Benefit Plan; or (C) enter into any collective bargaining or
other union agreement;

(vi) change any accounting principles, policies or practices used by it relating
to SHP, except for any change required by reason of a concurrent change in GAAP
and notice of which is given in writing by the Seller to Interstate;

(vii) merge or consolidate with, purchase all or substantially all of the assets
of, or otherwise acquire, any other party, or cause a dissolution or terminate
the existence of SHP;

(viii) authorize for issuance, issue, sell or deliver any additional Equity
Securities in SHP;

(ix) assign, transfer, convey or grant an Encumbrance on any Equity Security in
SHP;

(x) modify, amend or alter any existing credit facilities of SHP in a manner
materially adverse to SHP;

(xi) cause a material default by SHP under any existing Material SHP Contract;

(xii) fail to take any action, necessary to maintain in all material respects
all material permits, licenses and authorizations required by applicable Law for
the operation of the Business as currently operated;

(xiii) make any new elections with respect to Taxes or change any current
elections with respect to Taxes that affect SHP;

(xiv) settle, compromise or concede any claim or assessment for Taxes, or
surrender any right to claim a refund of Taxes or otherwise offset any Tax
liabilities;

(xv) pay, discharge, compromise or settle any litigation, liability, obligation
or claim involving a liability in excess of $10,000, individually or in the
aggregate;

(xvi) enter into any agreement or understanding that would prohibit, restrict or
interfere with the Transactions;

(xvii) (A) declare or pay dividends or distributions in respect of the Equity
Securities in SHP, or (B) issue, split, combine or reclassify Equity Securities
in SHP;

(xviii) do any other act which would cause (x) any representation or warranty of
any Sunstone Party in this Agreement not qualified by materiality or Material
Adverse Effect or a specified quantitative threshold to become untrue in any
material respect, (y) any representation or warranty of any Sunstone Party in
this Agreement that is qualified by materiality, Material Adverse Effect or a
specified quantitative threshold to become untrue in any respect, or (z) any
condition set forth in Article VII not to be satisfied; and

(xix) agree or make any commitment to take any of the actions prohibited by this
Section 5.1.

Section 5.2 Financial Statement Audit and Interim Financial Statement Review.

(a) As promptly as practicable, and in any event within five Business Days of
the date of this Agreement, the Seller shall engage Ernst & Young LLP (“E&Y”) to
perform an audit of the balance sheet of SHP (excluding the Distributed
Subsidiaries) as at December 31, 2003 and statements of income and cash flows
(excluding the Distributed Subsidiaries) for the year ended December 31, 2003.
In addition, in the event Interstate determines in good faith and in its sole
discretion, after consultation with KPMG and E&Y as described below, that an
audit of SHP’s financial statements are required pursuant to Item 3-05 of
Regulation S-X in connection with any filings required to be made by Interstate
with the SEC, then the Seller shall also engage E&Y to perform any or all of the
following audits and procedures that Interstate so determines are required
pursuant to Item 3-05 of Regulation S-X: (i) an audit of the balance sheet of
SHP (excluding the Distributed Subsidiaries) as at December 31, 2002, and
statements of income and cash flows (excluding the Distributed Subsidiaries) for
the years ended December 31, 2002 and December 31, 2001 and (ii) the procedures
specified by the American Institute of Certified Public Accountants for a review
of interim financial information, as described in SAS No. 100, Interim Financial
Information (“SAS 100”), on the unaudited balance sheet of SHP (excluding the
Distributed Subsidiaries) as at September 30, 2004, and the unaudited statements
of income and cash flows (excluding the Distributed Subsidiaries), for the nine
(9) month period ended September 30, 2004 (the “Unaudited Third Quarter
Financial Statements”). In each case, Seller shall use reasonable best efforts
to cause E&Y to (a) perform such audits and to perform such review as promptly
as practicable and (b) as promptly as practicable after the date of this
Agreement, and in any event within seventy-one days of the date the respective
audits or procedures are requested, to deliver to Interstate, to the extent
requested by Interstate (i) audited balance sheets of SHP (excluding the
Distributed Subsidiaries) as at December 31, 2003 and December 31, 2002, and
statements of income and cash flows (excluding the Distributed Subsidiaries) for
the years ended December 31, 2003, December 31, 2002 and December 31, 2001,
together with a report without qualification or exception of E&Y with respect
thereto and (ii) a review report (without exception or qualification) of E&Y
under SAS 100 with respect to the Unaudited Third Quarter Financial Statements,
without exception or qualification.

(b) Immediately after the date hereof, Interstate shall instruct KPMG, and
Seller shall instruct E&Y, to confer with each other in order to determine as
promptly as practicable whether and to what extent such audits and review report
are required pursuant to Item 3-05 of Regulation S-X in connection with any
filings required to be made by Interstate with the SEC. If and to the extent
that KPMG and E&Y jointly determine that such audits and review report are
required by Item 3-05 of Regulation S-X, then Seller shall pay the amount of the
fees of E&Y for performing such audits and review, and if and to the extent that
KPMG and E&Y jointly determine that such audits and review report are not
required by Item 3-05 of Regulation S-X, then Interstate shall pay the amount of
the fees of E&Y for performing such audits and review. If KPMG and E&Y are not
able to reach agreement on whether the audit and review report are so required,
then Seller and Interstate shall arrange a joint meeting with representatives of
KPMG and E&Y to resolve this issue and determine who should pay the amount of
the fees of E&Y for performing such audits and review. If, within thirty
(30) days after Closing, KPMG and E&Y have not determined what audits and review
reports are so required, Seller and Interstate shall engage a mutually agreeable
third accounting firm to determine (for purposes of this Section 5.2(b)) what,
if any, audits and review reports are required under Item 3-05 of
Regulation S-X. Interstate and Seller use commercially reasonable efforts to
cause such accounting firm to reach a determination within 30 days of the
beginning of its engagement. Such accounting firm’s determination shall be final
and binding for purposes of this Section 5.2(b).

Section 5.3 Books and Records.

(a) After the Closing, upon reasonable written notice, the Sunstone Parties
shall furnish or cause to be furnished to Interstate and its Representatives
reasonable access, during normal business hours, to such information and
assistance relating to SHP or the Business as is reasonably necessary for
financial reporting, accounting matters and personnel management, the
preparation and filing of any Tax returns, reports or forms or the defense of
any Tax audit, claim or assessment (as more particularly set forth in
Section 6.9(c)). Interstate shall reimburse the Seller for reasonable
out-of-pocket costs and expenses incurred in complying with this Section 5.3(a).

(b) After the Closing, upon reasonable written notice, Interstate and SHP shall
furnish or cause to be furnished to the Sunstone Parties and their
Representatives reasonable access, during normal business hours, to such
information and assistance relating to SHP or the Business as is reasonably
necessary for financial reporting, accounting and personnel matters, the
preparation and filing of any Tax returns, reports or forms or the defense of
any Tax audit, claim or assessment or any other claim, in any such case,
relating to matters arising prior to the Closing Date. The Sunstone Parties
shall reimburse Interstate and SHP for reasonable out-of-pocket costs and
expenses incurred in complying with this Section 5.3(b).

(c) As soon as reasonably practical on or after the Closing Date, the Sunstone
Parties shall deliver or cause to be delivered to SHP any of the Books and
Records in the possession of the Seller or its respective Affiliates, other than
any Book and Records that SHP already has in its possession or that are on a
shared computer system that SHP will have continued access to. Such Books and
Records shall be delivered in usable electronic or hard copy form as reasonably
requested by Interstate.

Section 5.4 Employee Matters.

(a) Interstate shall provide all persons who were employed by SHP immediately
preceding the Closing Date, including those on vacation, leave of absence or
disability, the opportunity to remain employed in positions comparable to those
held by such persons immediately preceding the Closing Date for such period of
time as determined by SHP in its sole discretion following the Closing, at not
less than the same rate of base pay and annual bonus opportunity.

(b) No provision contained in this Agreement shall create any third party
beneficiary rights in any employee or former employee (including any beneficiary
or dependent thereof) of SHP in respect of continued employment (or resumed
employment) for any specified period of any nature or kind whatsoever.

ARTICLE VI

CERTAIN COVENANTS AND AGREEMENTS OF INTERSTATE AND SUNSTONE

Section 6.1 Access to Information.

(a) From the Signing Date until the Closing Date, upon reasonable advance
notice, the Seller shall, and shall cause each of its Representatives (as
hereinafter defined) to, (i) promptly afford the Representatives of Interstate
reasonable access, during normal business hours, to the books and records,
offices and other facilities and properties of SHP and, to the extent related to
the Business, the Sunstone Parties and their Affiliates and to those
Representatives of SHP and, to the extent related to the Business, the Sunstone
Parties and their Affiliates who have material, relevant knowledge pertaining to
SHP or the Business including access to enter upon and perform physical and
environmental inspections on the Leased Real Property, (ii) provide to
Representatives of Interstate any additional financial statements and other
information that may be required or reasonable requested by Interstate or its
Affiliates to comply with the reporting requirements of the SEC under
Regulations S-K and S-X, and (iii) furnish to the Representatives of Interstate
such additional financial and operating data (which data shall include, subject
to clause (D) of the proviso below, such financial and operating data as is
provided to any Sunstone Party’s management on a monthly basis) and such other
information regarding SHP as Interstate may from time to time reasonably
request; provided, however, that (A) such investigation shall not unreasonably
interfere with any of the businesses or operations of SHP or the Sunstone
Parties, (B) Interstate shall not, prior to the Closing Date, have any contact
whatsoever with respect to SHP or with respect to the Transactions with any
partner, lender, hotel owner, manager or franchisee, vendor or supplier of SHP,
except in consultation with the Sunstone Parties and then only with the express
prior approval of Seller, which shall not be unreasonably withheld, (C) all
requests by Interstate for access or information pursuant to this Section 6.1
shall be submitted or directed exclusively to an individual or individuals to be
designated by Seller, and (D) except as otherwise required by the Transaction
Documents, the Sunstone Parties shall not be required to deliver periodic
financial information other than consistent with past practice.

Section 6.2 Confidentiality. Subject to the requirements of applicable Law and
the requirements of any securities exchange on which a Party’s securities may be
listed, and except as may be disclosed in a press release issued in accordance
with Section 6.5, from the Signing Date until the Closing, the Parties shall,
and shall instruct each of their respective Affiliates, associates, partners,
employees, directors, officers, agents, counsel, auditors, investment bankers,
representatives and advisors (the “Representatives”) to, (a) hold in strict
confidence all such information as is confidential or proprietary subject to and
in accordance with the terms and conditions of that certain Confidential Binding
Letter of Intent dated as of August 18, 2004 or any other agreement of a Party
with respect to the confidentiality of information relating to SHP or the
Business (collectively, the “Confidentiality Agreement”), which Confidentiality
Agreement shall remain in full force and effect in accordance with its terms.

For a period of five (5) years from the Closing Date, the Seller and its
Affiliates shall treat all information regarding SHP, the Business and the
assets and liabilities of SHP received on or before the Closing Date as
confidential, preserve the confidentiality thereof, not duplicate or use or
disclose to any Person such information and instruct its employees who have had
access to such information to keep confidential and not to use any such
information unless such information is (i)(x) now disclosed, (y) hereafter
disclosed through no act or omission of any of the Sunstone Parties or their
Affiliates in either case in a manner making it available to the general public,
(ii) required by Law, legal process, or the rules and regulations of a stock
exchange applicable to Sunstone, Inc., to be disclosed, or (iii) disclosed in
connection with any litigation or arbitration proceeding. Interstate shall be
entitled to injunctive relief to enforce this Section 6.2 in accordance with
Section 10.5 hereof.

Section 6.3 Regulatory and Other Authorizations; Consents.

(a) The Parties shall each use their respective reasonable best efforts to make
all necessary filings and submissions and obtain all necessary authorizations,
consents, waivers, orders and approvals necessary or advisable in connection
with the Transactions and the Parties shall cooperate fully with each other in
promptly seeking to make such filings and submissions and obtain all such
authorizations, consents, orders and approvals.

(b) The Parties shall use their respective reasonable best efforts to assist
each other in obtaining the required consents of third parties, including
providing to such third parties such financial statements and other financial
information as such third parties may reasonably request.

Section 6.4 Further Action. Each of the parties hereto, from and after the
Closing, shall use its respective reasonable best efforts to take or cause to be
taken all appropriate action, do or cause to be done all things necessary,
proper or advisable, and execute and deliver such documents and other papers
under applicable Law and the Transaction Documents, as may be required,
advisable or appropriate to carry out the provisions of each Transaction
Document and consummate and make effective the Transactions, including
(i) making filings and submissions and obtaining authorizations, consents,
waivers, orders and approvals pursuant to Section 6.3, (ii) defending any
lawsuits or proceedings, whether judicial or administrative, challenging the
Transactions, and (iii) using reasonable best efforts to cause the other Party’s
conditions to closing set forth in Section 7.2 or 7.3, as the case may be, to be
satisfied. The Seller and SHP shall take all necessary action to cause the
owners of the Four Hotels to enter into hotel management agreements with SHP on
the Four Hotel Management Terms. From and after the Closing, Interstate, SHP and
the Sunstone Parties shall cooperate to determine whether any Contract, Permit
or asset was held by SHP at Closing other than the Retained Assets and the
Untransferred Interests. If the parties determine that any such Contract, Permit
or asset was held by SHP at Closing, and continues to be held by SHP (an
“Additional Asset”), Interstate and Seller shall cooperate to cause SHP to
assign, and Seller or any of its designated Affiliates to accept, each
Additional Asset for no additional cost to SHP or to Seller. Notwithstanding the
foregoing, Interstate and Seller shall cooperate in good faith to determine
whether, based on the understandings of the parties when entering into the
Transaction Documents, such Additional Asset would more appropriately be
retained by SHP or its Affiliates, in which case Interstate and Seller shall
cooperate in good faith to cause such Additional Asset to be retained by or
assigned to the appropriate party.

Section 6.5 Press Releases. The Parties shall, and shall cause each of their
Affiliates to, subject to and in accordance with the terms and conditions of the
Confidentiality Agreement, maintain the confidentiality of the Transaction
Documents and shall not, and shall cause each of their Affiliates not to, issue
or cause the publication of any press release or other public announcement with
respect to any Transaction Document or the Transactions or without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld; provided, however, that nothing herein will prohibit the
Sunstone Parties, SHP or Interstate from issuing or causing publication of any
such press release or public announcement to the extent that such party
reasonably determines, after consultation with outside legal counsel, such
action to be required by Law or the rules of any applicable self-regulatory
organization, in which event such party shall use its reasonable best efforts to
allow the other party reasonable time to comment on such release or announcement
in advance of its issuance.

Section 6.6 No Solicitation. From the Signing Date until the earlier of the
Closing or one year from the date of this Agreement, each of the Parties shall
not, and shall use its respective reasonable best efforts to ensure that its
Representatives do not, directly or indirectly, (i) solicit for employment or
employ any officer, employee or consultant of any other Party, or its
Subsidiaries (ii) encourage, induce or attempt to induce any officer, employee
or consultant of any other Party or its Subsidiaries to terminate his or her
employment or consulting relationship with any other Party or its Subsidiaries,
as applicable, or (iii) interfere with the business or operations of any other
Party or its Subsidiaries, except that this Section 6.6 shall not prohibit any
Party from (i) advertising employment opportunities in any national newspaper,
trade journal or other publication in a major metropolitan area, or any third
party Internet website posting, or negotiating with, offering employment to or
employing such persons contacted through such medium or (ii) participating in
any third party hiring fair or similar event open to the public or negotiating
with, offering employment to or employing such persons contacted through such
medium.

Section 6.7 Conveyance Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes (including all applicable real estate transfer
or gains Taxes) and related fees (including any penalties, interest and
additions to Tax) incurred in connection with this Agreement and the
transactions contemplated hereby shall be borne by the Seller and the Parties
shall cooperate in preparing and filing all Tax Returns, and other documentation
on a timely basis as may be required to comply with the provisions of such Tax
laws.

Section 6.8 Notice of Certain Developments. From the Signing Date until the
Closing, each Party shall promptly notify and inform the other of (x) an event,
fact, development, circumstance or condition which it believes in good faith is
reasonably likely to result in a failure of a representation in Article III or
IV, as the case may be, to be true or (y) a breach of a covenant under the
Transaction Documents, in any case that such Party in good faith believes would
reasonably be expected to result in the failure of any of the conditions set
forth in Section 7.2, in the case of notice by the Interstate, or Section 7.3,
in the case of notice by the Seller, to be satisfied at Closing.

Section 6.9 Tax Returns.

(a) Seller shall file or cause to be filed when due, consistent with past
practices, all Tax Returns that are required to be filed by or with respect to
SHP for Tax Periods ending on or before the Closing Date that are due prior to
the Closing Date, and shall remit or cause to be remitted any Taxes due in
respect of such Tax Returns. The Seller promptly shall provide Interstate with
copies of all such Tax Returns, and shall not file any Tax Return relating to a
Pre-Closing Tax Period without Interstate’s consent if the filing of such Return
may cause a net increase in the Tax liability of SHP for a Post-Closing Tax
Period. Seller shall prepare or cause to be prepared, consistent with past
practices, all Tax Returns that are to be filed by or with respect to SHP for
Tax Periods ending on or before the Closing Date that are due after the Closing
Date. Seller shall provide drafts of such Tax Returns to Interstate no less than
45 days before such Tax Returns are due and shall incorporate all reasonable
comments received from Interstate. Interstate shall cause SHP to timely file
such Tax Returns and to remit the amount of Taxes shown on such Tax Returns,
subject to the obligations of the Seller to pay its share of such Taxes pursuant
to Section 8.3(a). Interstate shall file or cause to be filed when due,
consistent with past practices of SHP, all other Pre-Closing and Straddle Period
Tax Returns of SHP and shall remit or cause to be remitted the amount of Taxes
shown on such Tax Returns, subject to the Seller’s obligation to pay its share
of such Taxes pursuant to Section 8.3. The Seller and Interstate shall reimburse
the other party for any Taxes which are payable with Tax Returns to be filed by
the other party pursuant to this Section 6.9(a), in each case, within ten
(10) days after such Tax Returns are due. The Sunstone Parties and Interstate
agree to cause SHP to file all Tax Returns for the periods including the Closing
Date on the basis that the relevant Tax Period ended as of the close of business
on the Closing Date unless the relevant Tax Authority will not accept a Tax
Return filed on that basis.

(b) The amount of any refunds or offsets of Taxes of SHP for any Taxable Period
ending on or before the Closing Date shall be for the account of the Seller,
except to the extent that such refund or offset arises as a result of a SHP
carryback of a loss or other tax benefit arising from a period beginning after
the Closing Date. The amount of any refunds or offsets of Taxes of SHP for any
Taxable Period beginning after the Closing Date shall be for the account of
Interstate. The amount or economic benefit of any refunds, credits or offsets of
Taxes of SHP for any Straddle Period shall be equitably apportioned in a manner
consistent with Section 8.3. Provided that the non-requesting Party, acting in
good faith, determines that there is a reasonable basis for filing a claim with
the relevant Tax Authority, each Party shall, if the other Party so requests and
at such other Party’s expense, cause SHP to file for and obtain any refunds,
credits or offsets to Taxes to which the requesting Party is entitled under this
Section 6.9(b). Each Party shall forward, and shall cause its Affiliates to
forward, the amount of such refund or offset to Tax to the Party entitled
pursuant to this Section 6.9(b) to receive such amount, within ten (10) days
after such refund is received or after such credit or offset is allowed or
applied against other Tax liability, as the case may be.

(c) Interstate and the Seller shall cooperate fully, as and to the extent
reasonably requested by the other Party, in connection with the filing of Tax
Returns and any audit, litigation or other proceeding with respect to Taxes,
including any Tax Claim. Such cooperation shall include the retention and (upon
the other Party’s request) the provision of records (or copies thereof) and
information which are reasonably relevant to any such Tax Return, audit,
litigation, Tax Claim or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder or to testify at any proceeding. The Seller and
Interstate agree, and Interstate agrees to cause SHP, (i) to retain all books
and records with respect to Tax matters relating to SHP for any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Interstate or the Seller, any
extensions thereof) for the respective taxable periods, and to abide by all
record retention agreements entered into with any Tax Authority, and (ii) to
give the other Party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other Party so requests,
the Seller and Interstate shall, and Interstate shall cause SHP to, allow the
other Party to take possession of such books and records. Interstate and Seller
further agree, upon request, to use their reasonable best efforts to obtain any
certificate or other document from any Tax Authority or any other Person as may
be necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated by
this Agreement).

(d) The Sunstone Parties shall cause the provisions of any Tax sharing agreement
or similar arrangement between the Sunstone Parties or any of their Affiliates,
on the one hand, and SHP on the other hand, to be terminated on or before the
Closing Date. After the Closing Date, no party shall have any rights or
obligations under any such Tax sharing agreement.

ARTICLE VII

CONDITIONS TO CLOSING

Section 7.1 Conditions to the Obligations of Each Party. The respective
obligations of each Party to consummate the Transactions shall be subject to the
satisfaction or waiver, at or prior to the Closing, of each of the following
conditions, any or all of which may be waived, in whole or in part by the
Parties (but only to the extent that such matter is a precondition to the
obligations of such waiving Party), to the extent permitted by applicable law,
provided, however, that no Party may assert any of the following conditions if
the failure of such condition to be satisfied resulted primarily from such
Party’s failure to comply one or more of its obligations under the Transaction
Documents:

(a) Approvals and Consents.

(i) The Parties shall have timely obtained from each Governmental Authority all
approvals, expirations or terminations of waiting periods, waivers and consents
necessary to permit Interstate, the Seller and SHP to perform their respective
obligations under this Agreement and to consummate the Transactions.

(ii) The Sunstone Parties shall have obtained all approvals, waivers and/or
consents set forth on Schedules 3.4 and 3.7 required to be obtained from lenders
to the Sunstone Parties to perform their respective obligations under this
Agreement and to consummate the Transactions.

(b) No Order. No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and has the
effect of making the Transactions or the Closing illegal or otherwise
prohibiting consummation of Transactions. In the event an injunction or other
order shall have been issued, each Party agrees to use its reasonable best
efforts to have such injunction or other order lifted.

Section 7.2 Conditions to Obligations of Seller. The obligations of the Seller
to consummate the Transactions shall be subject to the satisfaction or waiver by
the Seller, at or prior to the Closing, of each of the following conditions:

(a) Representations and Warranties. Each of the representations and warranties
of Interstate contained in any Transaction Document that are qualified as to
materiality, Material Adverse Effect or a specified quantitative threshold shall
be true and correct in all respects and all other representations and warranties
of Interstate contained in any Transaction Document shall be true and correct in
all respects except for such failures to be true and correct that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Interstate, in each case on and as of the Closing Date, with
the same effect as though made on and as of the Closing Date, except to the
extent such representations and warranties are specifically made as of a
particular date (in which case such representations and warranties shall be true
and correct as of such date); and the Sunstone Parties shall have received a
certificate dated as of the Closing Date executed by a duly authorized officer
of Interstate certifying to such effect.

(b) Covenants. All covenants contained in any Transaction Document to be
performed or complied with by Interstate on or before the Closing shall have
been performed or complied with, in all material respects and the Sunstone
Parties shall have received a certificate dated as of the Closing Date executed
by a duly authorized officer of Interstate certifying to such effect.

(c) Sunstone IPO. The initial public offering of the common stock of Sunstone,
Inc. pursuant to an effective registration statement on file with the SEC shall
close simultaneously with the Closing.

(d) Secretary’s Certificate. Seller shall have received a certificate from the
secretary of Interstate, dated as of the Closing Date, certifying as to the
incumbency of its officers or other signatories and the resolutions adopted by
Interstate.

Section 7.3 Conditions to Obligations of Interstate. The obligations of
Interstate to consummate the Transactions shall be subject to the satisfaction
or waiver by Interstate, at or prior to the Closing, of each of the following
conditions:

(a) Representations and Warranties. Each of the representations and warranties
of the Sunstone Parties contained in any Transaction Document that are qualified
as to materiality, Material Adverse Effect or a specified quantitative threshold
shall be true and correct in all respects and all other representations and
warranties of the Sunstone Parties contained in any Transaction Document shall
be true and correct in all respects except for such failures to be true and
correct that would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on SHP, in each case on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date, except
to the extent such representations and warranties are specifically made as of a
particular date (in which case such representations and warranties shall be true
and correct as of such date); and Interstate shall have received a certificate
dated as of the Closing Date duly executed by a duly authorized officer of each
Sunstone Party certifying to such effect.

(b) Covenants. All covenants contained in any Transaction Document to be
performed or complied with by any Sunstone Party or SHP on or before the Closing
shall have been performed or complied with in all material respects and
Interstate shall have received certificates dated as of the Closing Date duly
executed by a duly authorized officer of each Sunstone Party, certifying to such
effect.

(c) Secretary’s Certificate. Interstate shall have received a certificate from
the secretary of Seller, dated as of the Closing Date, certifying as to such
Person’s organization documents, the incumbency of its officers or other
signatories and the resolutions adopted by the managing members of the Seller.

(d) Termination of Agreements. The Sunstone Parties and their Affiliates and SHP
shall have terminated or assigned (with no further liability to SHP) all hotel
management agreements, leases and existing franchise agreements to which SHP is
a party or is otherwise bound, effective immediately prior to Closing.

(e) No MAE. No event, development, change, circumstance or effect shall have
occurred that individually or in the aggregate shall have had or would
reasonably be expected to have a Material Adverse Effect on SHP.

(f) Pre-Closing Transactions. The transactions set forth in Section 2.4 shall
have been consummated in full.

(g) Resignation of Officers and Directors. Each officer of, and each member of
the board of directors of, SHP shall have resigned as elected or appointed
officers or directors, as applicable, of SHP, effective as of the Closing Date.

(h) Statement. A statement, in form and substance reasonably satisfactory to
Interstate, that satisfies Interstate obligations under
Regulation Section 1.445-2(b)(2) of the Code as to the purchase of the SHP
Common Stock.

(i) Master Agreement. Simultaneously with the Closing, SHP and certain direct or
indirect wholly-owned subsidiaries of Sunstone TRS shall have executed and
delivered to each other a Master Agreement, substantially in the form of
Exhibit A attached hereto (the “Master Agreement”).

(j) Management Agreements. Simultaneously with the Closing, SHP and certain
direct or indirect wholly-owned subsidiaries of Sunstone TRS shall have executed
and delivered to each other the Hotel Management Agreements substantially in the
form of Exhibit B attached hereto, with a base fee of (i) no less than one and
three quarter percent (1.75%) of gross revenues through December 31, 2005, and
(ii) no less than two percent (2%) of gross revenues after December 31, 2005
(the “Management Agreements”).

ARTICLE VIII

SURVIVAL; INDEMNIFICATION

Section 8.1 Survival.

(a) Subject to the limitations and other provisions of this Agreement, and the
other Transaction Documents, the representations and warranties of the Parties
hereto contained in this Agreement or any other Transaction Document shall
survive the Closing until the later of four years after the Closing Date or the
expiration of the applicable statute of limitations, except for representations
and warranties of the Seller made pursuant to Section 3.11 (Taxes), which shall
survive until ninety (90) days after the expiration of the applicable statute of
limitations with respect to Taxes, including any extensions thereof (or if such
date is not a Business Day, the next Business Day).

(b) Subject to the limitations and other provisions of this Agreement and the
other Transaction Documents, each covenant and agreement of the parties hereto
contained herein shall survive the Closing and shall remain in full force and
effect (i) indefinitely, or (ii) if specified herein, until the end of the
applicable period specified elsewhere in this Agreement or another Transaction
Document, as the case may be, with respect to such covenant or agreement.

Section 8.2 Indemnification.

(a) Indemnification by the Sunstone Parties.

(i) Subject to the provisions of this Section 8.2, the Sunstone Parties, shall,
jointly and severally, indemnify, defend and hold harmless the Interstate
Indemnified Parties from and against any and all Losses, whether or not
involving any third party claims, arising out of, resulting from or relating to
(i) any breach, inaccuracy or failure to be true of any representation or
warranty of the Sunstone Parties or SHP contained in this Agreement or set forth
in an officer’s certificate delivered by the Sunstone Parties pursuant
Section 7.3, (ii) any breach of any covenant or agreement of the Sunstone
Parties or SHP to be performed before the Closing, and contained in this
Agreement, (iii) any Pre-Closing Liabilities, except for the Inter-Company
Payable. If and to the extent the Sunstone Parties and/or any other Person is
entitled or claims to be entitled to indemnity for Losses under Section 8.2(b),
such Person shall in no event be entitled to offset such Losses against
obligations of the Sunstone Parties and/or their Affiliates under or in relation
to this Section 8.2(a), or under or in relation to the Master Agreement and/or
the Management Agreements, as the same may be amended or superseded from time to
time.

(ii) Amounts, if any, for which the Sunstone Parties shall be required to
indemnify Interstate pursuant to this Section 8.2 shall be due and payable no
later than the earlier of (i) March 31, June 30, September 30 and December 31 of
each year or (ii) the date on which such amounts that are unpaid by the Sunstone
Parties shall exceed Fifty Thousand Dollars ($50,000).

(b) Indemnification by Interstate. Subject to the provisions of this
Section 8.2, Interstate shall indemnify, defend and hold harmless the Sunstone
Indemnified Parties from and against any and all Losses, whether or not
involving any third party claim, arising out of, resulting from or relating to
(i) any breach, inaccuracy or failure to be true of any representation or
warranty of Interstate contained in this Agreement or any officer’s certificate
delivered by Interstate pursuant to Section 7.2, (ii) any breach of any covenant
or agreement of Interstate contained herein and (iii) subject to Section 2.7 and
the obligations of the Sunstone Parties and their Affiliates under the Master
Agreement and the Management Agreements, as the same may be amended or
superseded from time to time, any Post-Closing Liabilities. If and to the extent
Interstate, SHP and/or any other Person is entitled or claims to be entitled to
indemnity for Losses under Section 8.2(a), such Person shall in no event be
entitled to offset such Losses against obligations of Interstate, SHP and/or
their respective Affiliates under or in relation to this Section 8.2(b), or
under or in relation to the Master Agreement and/or the Management Agreements,
as the same may be amended or superseded from time to time.

(c) Claim Procedure. If a claim for Losses (a “Claim”) is to be made by an
indemnified party, such indemnified party shall give written notice (a “Claim
Notice”) to (i) Seller, on behalf of the Sunstone Parties, in the case of
indemnification pursuant to Section 8.2(a) and (ii) Interstate, in the case of
indemnification pursuant to Section 8.2(b) (the recipient of such notice
referred to below as the “indemnifying party”), in either case promptly after
such indemnified party becomes aware of any fact, condition or event which may
give rise to Losses for which indemnification may be sought under this
Section 8.2. Upon the receipt of any Claim Notice, subject to Section 8.2(e),
the indemnifying party shall act promptly and in good faith to remedy any Losses
incurred by the indemnified party and to make advances and payments as may be
necessary to avoid the indemnified party having to incur additional Losses. If
any lawsuit or other action is filed or instituted against any indemnified party
with respect to a matter subject to indemnity hereunder, notice thereof (a
“Third Party Notice”) shall be given to the indemnifying party as promptly as
reasonably practicable. The failure of any indemnified party to give timely
notice hereunder shall not affect such indemnified party’s rights to
indemnification hereunder, except to the extent such delay or failure materially
prejudices the indemnifying party’s ability to defend such Claim or actually
mitigate any Losses resulting therefrom. If the indemnifying party elects to
compromise or defend, the indemnifying party shall have the absolute right after
the receipt of the Third Party Notice, at its option and at its own expense, to
be represented by counsel of its choice reasonably acceptable to the indemnified
party, and to defend against, negotiate, settle or otherwise deal with any such
Claim; provided, however, that the indemnified party may participate in any such
proceeding with counsel of its choice reasonably acceptable to the indemnifying
party and at the indemnified party’s expense and the indemnifying party shall
not settle any such Claim unless the indemnified party is fully released without
any admission of liability. The Parties agree to cooperate fully with each other
in connection with the defense, negotiation or settlement of any such Claim,
including providing access to information and assistance in accordance with
Section 5.3. To the extent the indemnifying party elects not to defend such
Claim, and the indemnified party defends against or otherwise deals with any
such Claim, the indemnified party may retain counsel of its choice, at the
expense of the indemnifying party, and control the defense of such Claim. If the
indemnified party shall settle any such Claim without the consent of the
indemnifying party, the indemnified party shall thereafter have no claim against
the indemnifying party with respect to any loss, liability, claim, obligation,
damage and expense occasioned by such settlement.

(d) Survival. Notwithstanding any provision hereof to the contrary, no Claim may
be asserted for the breach of any representation, warranty, covenant or
agreement contained herein after the expiration of the survival period
applicable to such representation, warranty, covenant or agreement, as specified
in Section 8.1; provided, that neither Section 8.1 nor this Section 8.2(d) shall
limit the ability of any indemnified party to recover for any Claim relating to
the breach of any representation, warranty, covenant or agreement asserted prior
to the expiration of the survival period applicable to such representation,
warranty, covenant and agreement.

(e) Insurance. No indemnification shall be made by an indemnifying party with
respect to any matter to the extent that insurance proceeds have been collected
by the indemnified party with respect to that matter, provided, however, that no
indemnified party shall be obligated to procure insurance covering matters
subject to indemnification hereunder.

(f) Waiver and Release by the Seller. From and after the Closing Date, the
Sunstone Parties shall not have any right of contribution, subrogation or offset
against SHP or any other Interstate Indemnified Party and shall otherwise hold
SHP and the Interstate Indemnified Parties harmless for any amounts paid by any
Sunstone Party to SHP or any other Interstate Indemnified Party as a result of
any Claim arising from or relating to a breach by SHP of any of its
representations, warranties, covenants or other agreements contained herein or
any Pre-Closing Liabilities. Effective as of the Closing, each of the Sunstone
Parties, on behalf of itself and each of its past, present and future
Affiliates, beneficiaries and assigns (“Related Persons”), hereby releases and
forever discharges SHP from any and all claims, demands, proceedings, causes of
action, court orders, obligations, contracts, agreements (express or implied),
debts and liabilities other than the Inter-Company Payable, under or relating to
the SHP Common Stock, SHP, its Subsidiaries or their respective predecessors in
interest whether known or unknown, suspected or unsuspected, both at law and in
equity, which any Sunstone Party or any of its Affiliates now has, has ever had
or hereafter has against SHP and which arose prior to the Closing Date.
Notwithstanding the foregoing, the Sunstone Parties do not release and this
Section 8.2(f) shall not be deemed to affect any claim of the Sunstone Parties
or their Affiliates or any obligation of Interstate pursuant to this Agreement
or any other Transaction Document (including any claim against Interstate for
indemnification pursuant to Section 8.2(b) of this Agreement).

(g) Anything in this Article 8 to the contrary notwithstanding, indemnification
for any and all Tax matters and the procedures with respect thereto shall be
governed exclusively by Section 8.3.

Section 8.3 Tax Indemnification.

(a) Notwithstanding anything to the contrary in this Agreement, from and after
the Closing, the Seller shall, jointly and severally, indemnify, save and hold
harmless the Interstate Indemnified Parties from and against (i) all liability
for Taxes of SHP or its businesses for all Pre-Closing Tax Periods; (ii) any and
all Losses arising out of, resulting from or incident to any breach by the
Seller of any representation or warranty contained in Section 3.11; (iii) any
and all Losses arising out of, resulting from or incident to any breach by the
Seller of any covenant contained in Section 6.9; and (iv) all liability (as a
result of Treasury Regulation Section 1.1502-6(a) or a comparable state or local
Tax provision) for Taxes of any Person which is or has been an Affiliate of SHP
during a Pre-Closing Tax Period.

(b) From and after the Closing, Interstate shall indemnify, save and hold
harmless the Sunstone Indemnified Parties from and against (i) all liability for
Taxes of SHP or of its businesses for any Post-Closing Tax Period and (ii) any
and all Losses arising out of, resulting from or incident to the breach by
Interstate of any covenant contained in Section 6.9.

(c) In the case of any Straddle Period:

(i) real, personal and intangible property Taxes and any other Taxes levied on a
per diem basis (“Per Diem Taxes”) of SHP for a Pre-Closing Tax Period shall be
equal to the amount of such Per Diem Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of days during
the Straddle Period that are in the Pre-Closing Tax Period and the denominator
of which is the total number of days in the Straddle Period; and

(ii) the Taxes of SHP (other than Per Diem Taxes) for any Pre-Closing Tax Period
shall be computed as if such Tax Period ended as of the close of business on the
Closing Date.

(d) The Seller’s indemnity obligations in respect of Taxes for a Pre-Closing Tax
Period, as determined pursuant to Section 8.3(a), shall initially be effected by
the Seller’s payment to Interstate of the excess of (i) any such Taxes for a
Pre-Closing Tax Period (as may be evidenced by any Tax Return prepared by
Interstate in accordance with Section 6.9(a) or as otherwise indicated in a
written notice prepared by Interstate that is satisfactory to Sunstone) over
(ii) (A) the amount of such Taxes with respect to SHP paid by the Seller or any
of its Affiliates (other than SHP) at any time plus (B) the amount of such Taxes
paid by SHP on or prior to the Closing Date. The Seller shall pay such excess to
Interstate within twenty (20) days after written demand thereof is made by
Interstate (but not earlier than five (5) days before the date on which the
Taxes for the relevant Tax Period are required to be paid to the relevant Taxing
Authority). If the amount of any Taxes of SHP paid by the Seller or its
Affiliates (other than SHP) at any time plus the amount of such Taxes paid by
SHP on or prior to the Closing Date exceeds the amount of such Taxes for a
Pre-Closing Tax Period, Interstate shall pay to the Seller the amount of such
excess within twenty (20) days after the Tax Return with respect to the final
liability for such Taxes is required to be filed with the relevant Taxing
Authority. In the case of a Tax that is contested in accordance with the
provisions of Section 8.3(e), payment of the Tax to the appropriate Taxing
Authority shall not be considered to be due earlier than the date a final
determination to such effect is made by the appropriate Taxing Authority or
court.

(e) If a claim shall be made by any Taxing Authority, which, if successful,
might result in an indemnity payment to an indemnified party pursuant to this
Section 8.3, the indemnified party shall promptly and in any event no more than
twenty (20) days following the indemnified party’s receipt of such claim, give
written notice to the indemnifying party of such claim (a “Tax Claim”);
provided, however, the failure of the indemnified party to give such notices
shall only relieve the indemnifying party from its indemnification obligations
hereunder to the extent it is actually prejudiced by such failure. With respect
to any Tax Claim relating to a Tax Period ending on or prior to the Closing
Date, Seller shall, after acknowledging in writing their obligation to indemnify
the Interstate Indemnified Parties, control all proceedings and may make all
decisions taken in connection with such Tax Claim (including selection of
counsel) at its own expense; provided, however, that if the resolution of any
portion of a Tax Claim would increase the Taxes of Interstate or SHP for a Tax
Period after the Closing Date, Sunstone shall give written notice to Interstate,
which shall be entitled to jointly control only the proceedings taken solely in
connection with such portion of such Tax Claim. Seller and Interstate shall
jointly control all proceedings taken in connection with any Tax Claim relating
solely to Taxes of SHP for a Straddle Period. Interstate shall control at its
own expense all proceedings with respect to any Tax Claim relating to a Tax
Period beginning after the Closing Date. A Party shall promptly notify the other
Party if it decides not to control the defense or settlement of any Tax Claim
which it is entitled to control pursuant to this Agreement, and the other Party
shall thereupon be permitted to defend and settle such proceeding without
prejudice. No Tax Claim in which Seller and Interstate are entitled to jointly
control all proceedings may be settled without the written consent of Interstate
and Seller, such consent not to be unreasonably withheld. Interstate, the
Seller, SHP and each of their respective Affiliates shall reasonably cooperate
with each other in contesting any Tax Claim in accordance with Section 6.9(c).

Section 8.4 Tax Treatment of Indemnity Payments. Seller and Interstate agree to
treat any indemnity payment made pursuant to this Article VIII as an adjustment
to the Purchase Price for federal, state, local and foreign income Tax purposes.

ARTICLE IX

TERMINATION AND WAIVER

Section 9.1 Termination. At any time prior to the Closing Date, this Agreement
may be terminated and the Transactions abandoned:

(a) by mutual written consent duly authorized by the Interstate Board and
Seller;

(b) by either Seller or Interstate, if the Closing shall not have occurred on or
before December 31, 2004 or any other date that Seller and Interstate may agree
upon in writing (the “Termination Date”); provided, however, that the right to
terminate this Agreement under this Section 9.1(b) shall not be available to any
party whose breach of this Agreement has resulted in the failure of the Closing
to occur on or before the Termination Date;

(c) by either Seller or Interstate, if a Governmental Authority shall have
issued an order, decree or ruling or taken any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Transactions, which order, decree, ruling or other action is final and
nonappealable;

(d) by Interstate, either (i) upon a breach by the Sunstone Parties, or SHP of
any representation, warranty, covenant or agreement set forth in this Agreement,
or if any representation or warranty of the Sunstone Parties under this
Agreement shall have become untrue, in either case such that the condition set
forth in Section 7.3(a) or 7.3(b), as applicable, would not be satisfied as of
the time of such breach or as of the time such representation or warranty shall
have become untrue, or (ii) there shall have occurred any change, event,
occurrence, development or effect that, individually or in the aggregate, has
had or would reasonably be expected to have a Material Adverse Effect on SHP;
provided that if such inaccuracy in the representations and warranties of the
Sunstone Parties or breach by the Sunstone Parties or SHP, or Material Adverse
Effect on SHP, is curable prior to the Termination Date by the Sunstone Parties
or SHP, then Interstate may not terminate this Agreement under this
Section 9.1(d) for 15 days after delivery of written notice from Interstate to
Seller of such breach or for any longer period during which the Sunstone Parties
and SHP have used their reasonable best efforts to cure such inaccuracy or
breach (it being understood that Interstate may not terminate this Agreement
pursuant to this paragraph (d) if such breach by the Sunstone Parties or SHP, or
Material Adverse Effect on SHP, is cured during such permitted cure period, or
if Interstate shall have materially breached this Agreement, which breach has
not been cured in all material respects);

(e) by Seller, either (i) upon a breach by Interstate of any representation,
warranty, covenant or agreement set forth in this Agreement, or if any
representation or warranty of Interstate under this Agreement shall have become
untrue, in either case such that the condition set forth in Section 7.2(a) or
7.2(b), as applicable would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue, or (ii) if
there shall have occurred any change, event, occurrence, development or effect
that, individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect on the ability of Interstate to perform its
obligations under this Agreement, the Master Agreement or the Management
Agreements; provided that if such inaccuracy in Interstate’s representations and
warranties or breach by Interstate, or such Material Adverse Effect, is curable
prior to the Termination Date by Interstate, then Seller may not terminate this
Agreement under this Section 9.1(e) for 15 days after delivery of written notice
from Seller to Interstate of such breach or for any longer period during which
Interstate has used its reasonable best efforts to cure such inaccuracy or
breach (it being understood that Seller may not terminate this Agreement
pursuant to this paragraph (e) if such breach by Interstate or Material Adverse
Effect on Interstate is cured during such permitted cure period, or if the
Sunstone Parties or SHP shall have materially breached this Agreement, which
breach has not been cured in all material respects); or

(f) by either Seller or Interstate, upon any announcement by Sunstone, Inc. to
withdraw or abandon the Sunstone IPO following the adoption by the Board of
Directors of Sunstone, Inc. of a resolution to so withdraw or abandon the
Sunstone IPO.

Section 9.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of the Sunstone Parties, SHP or
Interstate or their respective officers, directors, stockholders or Affiliates;
provided, however, that (i) the provisions of Section 6.2 (Confidentiality),
this Section 9.2 (Effect of Termination), Sections 9.3 (Expenses) and 9.4
(Waiver) and Article X (General Provisions) shall remain in full force and
effect and survive any termination of this Agreement and (ii) nothing herein
shall relieve any party hereto from liability in connection with any breach of
any of such party’s representations, warranties, covenants or agreements
contained herein.

Section 9.3 Expenses. Subject to Section 2.6(g), Interstate and the Sunstone
Parties (and the Sunstone Parties on behalf of SHP) will each be solely
responsible for and bear all of its own respective expenses, including expenses
of lenders, legal counsel, investment bankers, consultants, accountants and
other advisors, incurred at any time in connection with the Letter of Intent,
this Agreement or pursuing or consummating the Transactions, provided, however,
that in the event that (i) this Agreement is terminated pursuant to
Section 9.1(b), (ii) at the time of such termination the Sunstone IPO shall not
have been consummated and (iii) SHP shall have instructed E&Y to perform, and
E&Y shall have performed or shall be in the process of performing, an audit of
the Initial Year End Financial Statements pursuant to Section 5.2 of this
Agreement, then Interstate shall pay one-half of the amount of the fees of E&Y
for performing such audit.

Section 9.4 Waiver. At any time prior to the Closing, Interstate, on the one
hand, or the Seller or SHP, on the other hand, may (a) extend the time for the
performance of any of the obligations or other acts of the other Party,
(b) waive any inaccuracies in the representations and warranties of the other
Party contained herein or in any Transaction Document or (c) waive compliance
with any of the agreements of such other Party or conditions to its own
obligations contained herein or in any Transaction Document. Any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the Party to be bound thereby. Waiver of any term or condition of this Agreement
or any other Transaction Document by a Party shall not be construed as a waiver
of any subsequent breach or waiver of the same term or condition by such Party,
or a waiver of any other term or condition of any Transaction Document by such
Party. The failure of any Party to assert any of its rights hereunder shall not
constitute a waiver of any such rights.

ARTICLE X

GENERAL PROVISIONS

Section 10.1 Notices. Except as otherwise specifically provided herein, all
notices, requests, claims, demands and other communications under this Agreement
will be in writing and will be deemed given: upon delivery if delivered
personally; when noted on the confirmation report (or if such date is not a
Business Day, on the next Business Day), if sent by facsimile; or one Business
Day after it is sent by overnight courier (providing proof of delivery) to the
parties at the following addresses or facsimile numbers (or at such other
address or facsimile number for a party as specified by like notice):

     
If to any Sunstone Party
(or, prior to Closing, SHP):
  c/o Sunstone Hotel Investors, LLC
903 Calle Amanacer, Suite 100

San Clemente, CA 92613

Facsimile: (949) 369-4230
Attention: Gary A. Stougaard and Jon Kline

With a copy to: Allen Matkins Leck Gamble & Mallory LLP

         
 
  515 South Figueroa Street, Seventh Floor
Los Angeles, California 90071-3398
Facsimile: (213) 620-8816
  Attention: Michael F. Sfregola

If to Interstate:
  c/o Interstate Hotels & Resorts, Inc.
 
  4501 North Fairfax Drive
 
  Arlington, VA 22203

 
  Facsimile: (703) 387-3101

 
  Attention: Steven Jorns, Chief Executive

 
  Officer
With a copy to:
  Interstate Hotels & Resorts, Inc.

 
  4501 North Fairfax Drive
 
  Arlington, VA 22203

 
  Facsimile: (703) 387-3389

 
  Attention: Chris Bennett, Senior Vice

 
  President and General Counsel
And to:
  Latham & Watkins

555 Eleventh Street, N.W., Suite 1000

Washington, DC 20004-1304
Facsimile: (202) 637-2201
Attention: William P. O’Neill

Any party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any party may change the address to which notices,
requests, demands, claims and other communications hereunder are to be delivered
by giving the other parties notice in the manner herein set forth. Copies
delivered to counsel shall not constitute notice.

Section 10.2 Interpretation. When a reference is made in this Agreement to an
Article, Section, Schedule or Exhibit, such reference will be to an Article or
Section of, or a Schedule or Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. Whenever the words “include”, “includes” or
“including” are used in this Agreement, they will be deemed to be followed by
the words “without limitation.” The words “hereof”, “herein” and “hereunder” and
words of similar import when used in this Agreement will refer to this Agreement
as a whole and not to any particular provision of this Agreement. All terms used
herein with initial capital letters have the meanings ascribed to them herein
and all terms defined in this Agreement will have such defined meanings when
used in any certificate, agreement or other document made or delivered pursuant
hereto unless otherwise defined or referenced therein. The definitions contained
in this Agreement are applicable to the singular as well as the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders of
such term. Any agreement, instrument or statute defined or referred to herein or
in any agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns. All
references to obligations of, or representations or warranties by, the Seller
shall be deemed to be joint and several obligations, representations or
warranties, as the case may be, of the Seller. For the avoidance of doubt, any
obligation owed to, and all deliveries and notices required to be provided to,
the Seller or any of their its Subsidiaries (excluding SHP on or after the
Closing), under the Transaction Documents shall be deemed to have been satisfied
and complied with if performed with respect to Seller, which shall be deemed to
be authorized to take actions and receive deliveries and notices on behalf of
any other Seller or Subsidiary thereof. The Seller agrees to cause each of its
Subsidiaries to comply with all of its obligations under the Transaction
Documents, and the Seller hereby guarantees such performance. The Seller agrees
to cause SHP to comply with all of its obligations under the Transaction
Documents prior to the Closing, and the Seller hereby guarantees such
performance on or prior to the Closing Date. Interstate agrees to cause SHP to
comply with all of its obligations under the Transaction Documents after the
Closing, and Interstate hereby guarantees such performance. References to
“dollar” or “$” are to United States Dollars unless otherwise specified.
References to “other Party” mean (i) when first referring to Interstate, the
Seller and SHP and (ii) when first referring to any Seller or SHP, Interstate.
The provisions of this Agreement shall control in each case in which a provision
hereof conflicts with a provision (or provisions) of any other Transaction
Document, except to the extent that a Transaction Document delivered after the
Signing Date expressly states that it governs; provided that, except in any case
in which such conflict is a direct and express conflict, the applicable Parties
shall use good faith efforts to agree on an interpretation of any provisions
herein and in any other Transaction Document that conflict (or purport to
conflict). Such agreed upon interpretation, if reduced to writing and executed
by the applicable parties, shall automatically amend, supplement and modify (as
applicable) the relevant provisions herein and in such other Transaction
Document without any additional action by or on behalf of such parties or any
other party hereto, which amendment, supplement or other modification, as the
case may be, shall be binding upon all parties hereto and thereto.

Section 10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties.

Section 10.4 Entire Agreement; No Third-Party Beneficiaries; Severability. This
Agreement, together with the Confidentiality Agreement and the other Transaction
Documents, constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties hereto any
legal or equitable right, remedy or claim under or with respect to this
Agreement or any other Transaction Document or any provision hereof or thereof.
If any term, condition or other provision of this Agreement is found to be
invalid, illegal or incapable of being enforced by virtue of any rule of law,
public policy or court determination, all other terms, conditions and provisions
of this Agreement shall nevertheless remain in full force and effect.

Section 10.5 Specific Performance. The Seller agree that the SHP Common Stock
represent unique property that cannot be readily obtained on the open market and
that Interstate would be irreparably injured if this Agreement is not
specifically enforced after default. Therefore, Interstate shall have the right
to specifically enforce the Seller’s and the SHP’s performance of their
obligations under this Agreement, and Seller agrees to waive the defense in any
such suit that Interstate has an adequate remedy at law and to interpose no
opposition, legal or otherwise, as to the propriety of specific performance as a
remedy, and that Interstate shall have the right to obtain specific performance
of the terms of this Agreement without being required to prove actual damages,
post bond or furnish other security. In addition, Interstate shall be entitled
to obtain from any Seller or SHP against whom specific performance is granted,
court costs and reasonable attorneys’ fees incurred by Interstate in enforcing
its rights hereunder. As a condition to seeking specific performance, Interstate
shall not be required to have tendered the Purchase Price but shall be ready,
willing and able to do so.

Section 10.6 Amendment. This Agreement may not be amended or modified except by
an instrument in writing signed by, or on behalf of, the Parties.

Section 10.7 Governing Law. This Agreement will be governed by, and construed in
accordance with, the internal laws of the State of New York regardless of the
laws that might otherwise govern under applicable principles of conflict of
laws.

Section 10.8 Consent to Jurisdiction. Each of the Parties hereto hereby
irrevocably and unconditionally consents to submit to the sole and exclusive
jurisdiction of the courts of the State, City and County of New York and of the
United States District Court for the Southern District of New York (the “New
York Courts”) for any litigation arising out of or relating to this Agreement,
or the negotiation, validity or performance of this Agreement, or the
Transactions (and agrees not to commence any litigation relating thereto except
in such courts), waives an objection to the laying of venue of any such
litigation in the New York Courts and agrees not to plead or claim in any New
York Court that such litigation brought therein has been brought in an
inconvenient forum. Each of the Parties hereto agrees, (a) to the extent such
Party is not otherwise subject to service of process in the State of New York,
to appoint and maintain an agent in the State of New York as such Party’s agent
for acceptance of legal process and provide prompt notice to the other Parties
identifying the agent so appointed, and (b) that service of process may also be
made on such Party by prepaid certified mail with a proof of mailing receipt
validated by the United States Postal Service constituting evidence of valid
service. Service made pursuant to (a) or (b) above shall have the same legal
force and effect as if served upon such Party personally within the State of New
York.

Section 10.9 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement may be assigned, in whole or in part, by any
of the parties hereto without the prior written consent of the other party,
except that Interstate may assign this Agreement, and its rights and obligations
hereunder, in whole or in part to any of its Subsidiaries without the consent of
any other Party; provided that Interstate shall remain bound by this Agreement.
Any assignment in violation of the preceding sentence will be void. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors and assigns. Any permitted assignee of any party hereto will be
deemed to have joined this Agreement upon acceptance of such assignment.

Section 10.10 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY LAW EACH PARTY
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed as of
the date first written above.

 
 
INTERSTATE HOTELS & RESORTS, INC.,
A Delaware corporation
 
By: /s/ Christopher L. Bennett
Christopher L. Bennett
SVP, General Counsel and Secretary

Signature Page 1 of 2 to Stock Purchase Agreement

 
 
SUNSTONE HOTEL INVESTORS, INC.,
a Maryland corporation
 
By: /s/ Robert A. Alter
Robet A. Alter
Title:
 
SUNSTONE HOTEL PARTNERSHIP, LLC,
a Delaware limited liability company
 
By:
its sole Member
 
By: /s/ Robert A. Alter
Robert A. Alter
Title:
 
SUNSTONE HOTEL INVESTORS, LLC,
a Delaware limited liability company
 
By:
 
By: /s/ Robert A. Alter
Robert A. Alter
Title:
 
SUNSTONE HOTEL TRS LESSEE, INC.,
a Delaware corporation
 
By: /s/ Robert A. Alter
Robert A. Alter
Title:
 
SUNSTONE HOTEL PROPERTIES, INC.,
a Colorado corporation
 
By: /s/ Robert A. Alter
Robert A. Alter
Title:

Signature Page 2 of 2 to Stock Purchase Agreement

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