Exhibit 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, effective as of February 17, 2005, by and
between INTERSTATE HOTELS & RESORTS, INC., a Delaware corporation (the
“Company”), INTERSTATE MANAGEMENT COMPANY, L.L.C., a Delaware limited liability
company (the “LLC”) and any successor employer, and THOMAS F. HEWITT (the
“Executive”), an individual residing at ***********************************.
     The Company and the LLC desire to employ the Executive in the capacity of
Chief Executive Officer, and the Executive desires to be so employed, on the
terms and subject to the conditions set forth in this agreement (the
“Agreement”);
     Now, Therefore, in consideration of the mutual covenants set forth herein
and other good and valuable consideration the parties hereto hereby agree as
follows:
     1. Employment; Term. The Company and the LLC each hereby employ the
Executive, and the Executive agrees to be employed by the Company and the LLC,
upon the terms and subject to the conditions set forth herein, for a term of
three (3) years, commencing on February 17, 2005 (the “Commencement Date”), and
ending on February 17, 2008, unless terminated earlier in accordance with
Section 5 of this Agreement; provided that such term shall automatically be
extended from time to time for additional periods of one calendar year from the
date on which it would otherwise expire unless the Executive, on the one hand,
or the Company and the LLC, on the other, give notice to the other party at
least 120 calendar days prior to such date that it elects to permit the term of
this Agreement to expire without extension on such date. (The initial term of
this Agreement as the same may be extended in accordance with the terms of this
Agreement is hereinafter referred to as the “Term”).
     2. Positions; Conduct.
          (a) During the Term, the Executive will hold the title and office of,
and serve in the position of Chief Executive Officer of the Company and the LLC.
The Executive shall undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons situated in a similar
executive capacity, and shall perform such other specific duties and services
(including service as an officer, director or equivalent position of any direct
or indirect subsidiary without additional compensation) as they shall reasonably
request consistent with the Executive’s positions.
          (b) During the Term, the Executive agrees to devote his full business
time and attention to the business and affairs of the Company and the LLC and to
faithfully and diligently perform, to the best of his ability, all of his duties
and responsibilities hereunder. Nothing in this Agreement shall preclude the
Executive from devoting reasonable time and attention to (i) serving, with the
approval of the Board, as a director, trustee or member of any committee of any
organization, (ii) engaging in charitable and community activities and
(iii) managing his personal investments and affairs; provided that such
activities do not involve any material conflict of interest with the interests
of the Company or, individually or collectively, interfere materially with the
performance by the Executive of his duties and responsibilities under this
Agreement.

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Notwithstanding the foregoing and except as expressly provided herein, during
the Term, the Executive may not accept employment with any other individual or
entity, or engage in any other venture which is directly or indirectly in
conflict or competition with the business of the Company or the LLC.
          (c) The Executive’s office and place of rendering his services under
this Agreement shall be in the principal executive offices of the Company which
shall be in the Washington, D.C. metropolitan area. During the Term, the Company
shall provide the Executive with executive office space, and administrative and
secretarial assistance and other support services consistent with his position
as Chief Executive Officer and with his duties and responsibilities hereunder.
     3. Board of Directors. While it is understood that the right to elect
directors of the Company is by law vested in the stockholders and directors of
the Company, it is nevertheless mutually contemplated that, subject to such
rights, during the Term the Executive will serve as a member of the Company’s
Board of Directors. Executive will not receive any additional compensation or
receive any stock options in the Company as a result of his position as a
director of the Company.
     4. Salary; Additional Compensation; Perquisites and Benefits.
          (a) During the Term, the Company and the LLC will pay the Executive a
base salary at an aggregate annual rate of not less than $400,000 per annum,
subject to annual review by the Compensation Committee of the Board (the
“Compensation Committee”), and in the discretion of such Committee, increased
from time to time. Once increased, such base salary may not be decreased. Such
salary shall be paid in periodic installments in accordance with the Company’s
standard practice, but not less frequently than semi-monthly.
          (b) For each fiscal year during the Term, the Executive will be
eligible to receive a bonus from the Company. The award and amount of such bonus
shall be based upon the achievement of predefined operating or performance goals
and other criteria established by the Compensation Committee, which goals shall
give the Executive the opportunity to earn a cash bonus equal to an amount
between 0% and 150% of base salary.
          (c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company or the LLC for their management
employees or the general benefit of their employees, such as any pension,
profit-sharing, deferred compensation plans, bonuses, stock option or other
incentive compensation plans, life and health insurance plans, or other
insurance plans and benefits on the same basis and subject to the same
qualifications as other senior executive officers. Notwithstanding the
foregoing, the Company and the LLC may, in their sole discretion, discontinue or
eliminate any such plans.
          (d) The Executive shall be eligible for stock option and restricted
stock award grants from time to time pursuant to the Company’s Incentive Plan in
accordance with the terms thereof. Except as noted below, all such grants shall
be at the sole discretion of the Board. Executive shall receive a separate
option agreement

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governing any such grants. Notwithstanding the foregoing, the Executive shall be
granted annually no later than March 31 of each year (beginning in 2005) at
least 50,000 restricted shares in the Company, as determined by the Board,
depending on the performance of the Company. The shares will vest equally on the
first, second and third anniversary of the date of grant.
          (e) The Company and the LLC will reimburse the Executive, in
accordance with its standard policies from time to time in effect, for all
out-of-pocket business expenses as may be incurred by the Executive in the
performance of his duties under this Agreement. Until April 21, 2005, the
Company shall provide at the Company’s cost an apartment for the Executive in
Arlington, Virginia and shall reimburse the Executive for all travel to and from
Arlington, Virginia relating to his relocation to the Washington, D.C.
metropolitan area.
          (f) The Executive shall be entitled to vacation time to be credited
and taken in accordance with the Company’s policy from time to time in effect
for senior executives, which in any event shall not be less than a total of four
weeks per calendar year. Such vacation time shall not be carried over year to
year, and shall not be paid out upon termination of employment, or upon
expiration of this Agreement.
          (g) The Company, at its sole cost, shall pay (i) up to $10,000
annually toward the premium of a life insurance policy with a death benefit
payable to a beneficiary designated by the Executive and (ii) up to $15,000
annually toward the premium of a disability insurance policy with a disability
benefit payable to the executive in accordance with the terms and conditions of
such disability insurance policy. The Company makes no representations or
warranties that the insurance benefits contained in the insurance policies
supplied pursuant to this section will be paid under any particular conditions,
and the Company shall not be deemed a guarantor of such benefits. Such benefits
shall be payable in accordance with the terms of the respective insurance
policy.
          (h) The Executive shall be granted a car allowance of up to $1,000 per
month.
          (i) The Company shall reimburse Executive for all relocation expenses
incurred by Executive in moving he and his family to the Washington, D.C.
metropolitan area (including but not limited to brokerage commissions on selling
his current home) up to a maximum of $125,000 .
          (j) In addition to any bonus payable for calendar year 2005 pursuant
to paragraph 4(b) above, the Executive shall be eligible for a one-time bonus
for calendar year 2005 which shall have a maximum potential of $500,000 and
shall be based on criteria, including the Company’s financial performance for
the year, established by the Board. The bonus will be paid within 30 days of the
Company’s filing of its Form 10-K for 2005 with the Securities and Exchange
Commission.
          (k) To the fullest extent permitted by applicable law, the Executive
shall be indemnified and held harmless by the Company and the LLC against any
and all judgments, penalties, fines, amounts paid in settlement, and other
reasonable expenses (including, without limitation, reasonable attorneys’ fees
and disbursements)

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actually incurred by the Executive in connection with any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative,
investigative or other) for any action or omission in his capacity as a
director, officer or employee of the Company or the LLC.
          Indemnification under this Section 4(i) shall be in addition to, and
not in substitution of, any other indemnification by the Company or the LLC of
its officers and directors. Expenses incurred by the Executive in defending an
action, suit or proceeding for which he claims the right to be indemnified
pursuant to this Section 4(k) shall be paid by the Company or the LLC, as the
case may be, in advance of the final disposition of such action, suit or
proceeding upon the Company’s or the LLC’s receipt of (x) a written affirmation
by the Executive of his good faith belief that the standard of conduct necessary
for his indemnification hereunder and under the provisions of applicable law has
been met and (y) a written undertaking by or on behalf of the Executive to repay
the amount advanced if it shall ultimately be determined by a court that the
Executive engaged in conduct, including fraud, theft, misfeasance, or
malfeasance against the Company or the LLC, which precludes indemnification
under the provisions of such applicable law. Such written undertaking in clause
(y) shall be accepted by the Company or the LLC, as the case may be, without
security therefor and without reference to the financial ability of the
Executive to make repayment thereunder. The Company and the LLC shall use
commercially reasonable efforts to maintain in effect for the Term of this
Agreement a directors’ and officers’ liability insurance policy, with a policy
limit of at least $25,000,000, subject to customary exclusions, with respect to
claims made against officers and directors of the Company or the LLC; provided,
however, the Company or the LLC, as the case may be, shall be relieved of this
obligation to maintain directors’ and officers’ liability insurance if, in the
good faith judgment of the Company or the LLC, it cannot be obtained at a
reasonable cost.
     5. Termination.
          (a) The Term will terminate immediately upon the Executive’s death,
Disability, or, upon thirty (30) days’ prior written notice by the Company, in
the case of a Determination of Disability. As used herein the term “Disability”
means the Executive’s inability to perform his duties and responsibilities under
this Agreement for a period of more than 120 consecutive days, or for more than
180 days, whether or not continuous, during any 365-day period, due to physical
or mental incapacity or impairment. A “Determination of Disability” shall occur
when a physician, reasonably satisfactory to both the Executive and the Company
and paid for by the Company or the LLC, finds that the Executive will likely be
unable to perform his duties and responsibilities under this Agreement for the
above-specified period due to a physical or mental incapacity or impairment.
Such decision shall be final and binding on the Executive and the Company;
provided that if they cannot agree as to a physician, then each shall select and
pay for a physician and these two together shall select a third physician whose
fee shall be borne equally by the Executive and either the Company or the LLC
and whose Determination of Disability shall be binding on the Executive and the
Company. Should the Executive become incapacitated, his employment shall
continue and all base and other compensation due the Executive hereunder shall
continue to be paid through the date upon which the Executive’s employment is
terminated for Disability or Determination of Disability in accordance with this
section.

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          (b) The Term may be terminated by the Company upon notice to the
Executive and with or without “Cause” as defined herein.
          (c) The Term may be terminated by the Executive upon notice to the
Company and with or without “Good Reason” as defined herein.
     6. Severance.
          (a) If the Term is terminated by the Company for Cause,

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

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

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

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

  (i)   the Company and the LLC will pay to the Executive’s estate or the
Executive, as the case may be, a lump sum payment equal to the Executive’s base
salary through the termination date, plus a pro rata portion of the Executive’s
bonus for the fiscal year in which the termination occurred;

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  (ii)   the Company will make payments for one (1) year of all compensation
otherwise payable to the Executive pursuant to this Agreement, including, but
not limited to, base salary, bonus and welfare benefits;     (iii)   all of the
Executive’s unvested stock options will immediately vest and such options, along
with those previously vested and unexercised, will become exercisable for a
period of one (1) year thereafter; and     (iv)   all of the Executive’s
unvested restricted stock will immediately vest and all of the restricted stock
of the Company held by the Executive shall become free from all contractual
restrictions.

          (d) Subject to Section 6(e) hereof, if the Term is terminated by the
Company without Cause or other than by reason of Executive’s death or
Disability, in addition to any other remedies available, or if the Executive
terminates the Term for Good Reason,

  (i)   the Company and the LLC shall pay the Executive a lump sum equal to two
(2) times the product of (x) the sum of (A) the Executive’s then annual base
salary and (B) the amount of the Executive’s bonus for the preceding calendar
year; provided that, if Executive separates from employment pursuant to this
Section 6(d) prior to his first anniversary with the Company, then Executive’s
bonus amount for purposes of this Section 6(d)(i) will be 112.5% of Executive’s
base salary;     (ii)   all of the Executive’s unvested stock options will
immediately vest and such options, along with those previously vested and
unexercised, will become exercisable for a period of one (1) year thereafter;  
  (iii)   all of the Executive’s unvested restricted stock will immediately vest
and all of the restricted stock of the Company held by the Executive shall
become free from all contractual restrictions; and     (iv)   the Company shall
also continue in effect the Executive’s health and dental benefits (or similar
health and dental benefits paid to senior executives) noted in Section 3(c) as
follows: Upon Executive’s termination of employment, Executive shall be eligible
for continued health insurance benefits under the federal law known as COBRA.
Executive

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      is required to timely elect COBRA in order to receive continued health
insurance coverage under this Agreement. Upon Executive’s election of COBRA
coverage and timely payment of applicable monthly COBRA premiums, Executive will
receive health insurance coverage under COBRA up to the maximum period provided
by law. The Company will reimburse Executive of the cost of such COBRA coverage
until the earlier of (x) eighteen (18) months from the termination date or
(y) the date on which the Executive obtains health insurance coverage from a
subsequent employer. Executive acknowledges that if he does not timely elect
COBRA coverage he will not receive continued health insurance benefits from the
Company. Executive also acknowledges that he is responsible for any taxes due on
payments from the Company in reimbursement for COBRA premium amounts.

          (e) Intentionally left blank.
          (f) If at any time the Term is not extended pursuant to the proviso to
Section 1 hereof as a result of the Company giving notice thereunder that it
elects to permit the term of this Agreement to expire without extension, the
Company shall be deemed to have terminated the Executive’s employment without
Cause.
          (g) As used herein, the term “Cause” means:
          (i) the Executive’s willful and intentional failure or refusal to
perform or observe any of his material duties, responsibilities or obligations
set forth in this Agreement; provided, however, that the Company shall not be
deemed to have Cause pursuant to this clause (i) unless the Company gives the
Executive written notice that the specified conduct has occurred and making
specific reference to this Section 6(g)(i) and the Executive fails to cure the
conduct within thirty (30) days after receipt of such notice;
          (ii) any willful and intentional act of the Executive involving
malfeasance, fraud, theft, misappropriation of funds, or embezzlement affecting
the Company or the LLC;
          (iv) the Executive’s conviction of, or a plea of guilty or nolo
contendere to, an offense which is a felony;
          (v) Executive’s material breach of this Agreement; or
          (vi) Gross misconduct by Executive that is of such a serious or
substantial nature that a substantial likelihood exists that such misconduct
would injure the reputation of the Company if the Executive were to remain
employed by the Company or LLC.

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Termination of the Executive for Cause shall be communicated by a Notice of
Termination. For purposes of this Agreement, a “Notice of Termination” shall
mean delivery to the Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Company’s Board at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and reasonable opportunity for the Executive,
together with the Executive’s counsel, to be heard before the Board prior to
such vote) of finding that in the good faith opinion of the Board, the Executive
was guilty of conduct constituting Cause and specifying the particulars thereof
in detail, including, with respect to any termination based upon conduct
described in clause (i) above that the Executive failed to cure such conduct
during the thirty-day period following the date on which the Company gave
written notice of the conduct referred to in such clause (i). For purposes of
this Agreement, no such purported termination of the Executive’s employment
shall be effective without such Notice of Termination;
          (h) As used herein, the term “Good Reason” means the occurrence of any
of the following, without the prior written consent of the Executive:
          (i) assignment to the Executive of duties materially inconsistent with
the Executive’s positions as described in Section 2(a) hereof, or any
significant diminution in the Executive’s duties or responsibilities, other than
in connection with the termination of the Executive’s employment for Cause,
Disability or as a result of the Executive’s death or by the Executive other
than for Good Reason;
          (ii) the change in the location of the Company’s principal executive
offices or of the Executive’s principal place of employment to a location
outside the Washington, D.C. metropolitan area;
          (iii) the failure of the Company to nominate the Executive to the
Board, removal from the Board or the failure of the Executive to be elected to
the Board;
          (iv) any material breach of this Agreement by the Company or the LLC
which is continuing;
          (v) a Change in Control; provided that a Change of Control shall only
constitute Good Reason if (i) the Executive terminates this Agreement within the
twelve month period following a Change of Control, or (ii) the Company
terminates the Executive within two years following a Change of Control
provided, however,
     (x) that the Executive shall not be deemed to have Good Reason pursuant to
clauses (h)(i), (ii), (iii) or (iv) above unless the Executive gives the Company
or the LLC, as the case may be, written notice that the specified conduct or
event has occurred and the Company or the LLC fails to cure such conduct or
event within thirty (30) days of the receipt of such notice; and

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     (y) that if that Executive terminates for Good Reason under paragraph
6(h)(v)(i) above, notwithstanding paragraph 6(d) above, Executive will not
receive any severance payment pursuant to paragraph 6(d)(i) above.
              (i) As used herein, the term “Change in Control” shall have the
following meaning:
                        (i) the acquisition (other than from the Company) by any
“Person” (as the term is used for purposes of Sections 13(d) or 14(d) of the
Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty (30%) percent or more of the
combined voting power of the Company’s then outstanding voting securities;
                        (ii) the individuals who were members of the Board (the
“Incumbent Board”) during the previous twelve (12) month period, cease for any
reason to constitute at least a majority of the Board; provided, however, that
if the election, or nomination for election by the Company’s stockholders, of
any new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be considered as
a member of the Incumbent Board;
                        (iii) approval by the stockholders of the Company of
(a) merger or consolidation involving the Company if the stockholders of the
Company, immediately before such merger or consolidation do not, as a result of
such merger or consolidation, own, directly or indirectly, more than fifty (50%)
percent of the combined voting power of the then outstanding voting securities
of the corporation resulting from such merger or consolidation in substantially
the same proportion as their ownership of the combined voting power of the
voting securities of the Company outstanding immediately before such merger or
consolidation or (b) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all of the
assets of the Company; or
                        (iv) approval by the stockholders of the Company of any
transaction (including without limitation a “going private transaction”)
involving the Company if the stockholders of the Company, immediately before
such transaction, do not as a result of such transaction, own directly or
indirectly, more than fifty (50%) percent of the combined voting power of the
then outstanding voting securities of the corporation resulting from such
transaction in substantially the same proportion as their ownership of the
combined voting power of the voting securities of the Company outstanding
immediately before such transaction.
            Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to clause (i) above solely because thirty (30%) percent
or more of the combined voting power of the Company’s then outstanding
securities is acquired by (a) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained by the Company or any of its
subsidiaries or (b) any corporation which,

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immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their ownership of stock
in the Company immediately prior to such acquisition.
          (j) The amounts required to be paid and the benefits required to be
made available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company under this Section 6.
          (k) Excise Tax Payments.
          (i) Gross-Up Payment. If it shall be determined that any payment or
distribution of any type to or in respect of the Executive, by the Company, the
LLC, or any other person, whether paid or payable or distributed or
distributable pursuant to the terms of the Agreement or otherwise (the “Total
Payments”), is or will be subject to the excise tax imposed by Section 4999 of
the Internal Code of 1986, as amended (the “Code”) or any interest or penalties
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are collectively referred to as the “Excise Tax”), then
the Executive shall be entitled to receive an additional payment (a “Gross-Up
Payment”) in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes) imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Total Payments.
          (ii) Determination by Accountant.
               (A) All computations and determinations relevant to this Section
6(k) shall be made by a national accounting firm selected by the Company from
among the five (5) largest accounting firms in the United States (the
“Accounting Firm”) which firm may be the Company’s accountants. Such
determinations shall include whether any of the Total Payments are “parachute
payments” (within the meaning of Section 280G of the Code). In making the
initial determination hereunder as to whether a Gross-Up Payment is required the
Accounting Firm shall determine that no Gross-Up Payment is required, if the
Accounting Firm is able to conclude that no “Change of Control” has occurred
(within the meaning of Section 280G of the Code) on the basis of “substantial
authority” (within the meaning of Section 6230 of the Code) and shall provide
opinions to that effect to both the Company and the Executive. If the Accounting
Firm determines that a Gross-Up Payment is required, the Accounting Firm shall
provide its determination (the “Determination”), together with detailed
supporting calculations regarding the amount of any Gross-Up Payment and any
other relevant matter both to the Company and the Executive by no later than ten
(10) days following the Termination Date, if applicable, or such earlier time as
is requested by the Company or the Executive (if the Executive reasonably
believes that any of the Total Payments may be subject to the Excise

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Tax). If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive and the Company with a written
statement that such Accounting Firm has concluded that no Excise Tax is payable
(including the reasons therefor) and that the Executive has substantial
authority not to report any Excise Tax on his federal income tax return.
               (B) If a Gross-Up Payment is determined to be payable, it shall
be paid to the Executive within twenty (20) days after the later of (i) the
Determination (and all accompanying calculations and other material supporting
the Determination) is delivered to the Company by the Accounting Firm or
(ii) the date of the event which leads to the Gross-up Payment. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive, absent manifest error.
               (C) As a result of uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments not made by the Company should
have been made (“Underpayment”), or that Gross-Up Payments will have been made
by the Company which should not have been made (“Overpayments”). In either such
event, the Accounting Firm shall determine the amount of the Underpayment or
Overpayment that has occurred. In the case of an Underpayment, the amount of
such Underpayment (together with any interest and penalties payable by the
Executive as a result of such Underpayment) shall be promptly paid by the
Company to or for the benefit of the Executive.
               (D) In the case of an Overpayment, the Executive shall, at the
direction and expense of the Company, take such steps as are reasonably
necessary (including the filing of returns and claims for refund), follow
reasonable instructions from, and procedures established by, the Company, and
otherwise reasonably cooperate with the Company to correct such Overpayment,
provided, however, that (i) the Executive shall not in any event be obligated to
return to the Company an amount greater than the net after-tax portion of the
Overpayment that he has retained or has recovered as a refund from the
applicable taxing authorities and (ii) this provision shall be interpreted in a
manner consistent with the intent of Section 6(k)(i), which is to make the
Executive whole, on an after-tax basis, from the application of the Excise
Taxes, it being acknowledged and understood that the correction of an
Overpayment may result in the Executive repaying to the Company an amount which
is less than the Overpayment.
               (E) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service relating to the possible application of
the Excise Tax under Section 4999 of the Code to any of the payments and amounts
referred to herein and shall afford the Company, at its expense, the opportunity
to control the defense of such claim.

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     7. Cooperation with Company. Following the termination of the Executive’s
employment for any reason, Executive shall fully cooperate with the Company in
all matters relating to the winding up of his pending work on behalf of the
Company including, but not limited to, any litigation in which the Company is
involved and the orderly transfer of any such pending work to other employees of
the Company as may be designated by the Company. The Company agrees to reimburse
the Executive for any out-of-pocket expense he incurs in performing any work on
behalf of the Company following the termination of his employment. In addition,
after the six month period following Executive’s termination of employment,
Executive will be paid a per diem at a daily rate equivalent to his base salary
at the time of termination for the time Executive spends on behalf of the
Company pursuant to this paragraph.
     8. Confidential Information.
          (a) The Executive acknowledges that the Company and its subsidiaries
or affiliated ventures (“Company Affiliates”) own and have developed and
compiled, and will in the future own, develop and compile, certain Confidential
Information and that during the course of his rendering services hereunder
Confidential Information will be disclosed to the Executive by the Company
Affiliates. The Executive hereby agrees that, during the Term and for a period
of three years thereafter, he will not use or disclose, furnish or make
accessible to anyone, directly or indirectly, any Confidential Information of
the Company Affiliates. In particular, Executive covenants and agrees that
Executive shall not, directly or indirectly, communicate or divulge, or use for
the benefit of Executive or for any other person, or to the disadvantage of the
Company, the Confidential Information or any information in any way relating to
the Confidential Information, without prior written consent from the Company.
          (b) As used herein, the term “Confidential Information” means any
trade secrets, confidential or proprietary information, or other knowledge,
know-how, information, documents, materials, owned, developed or possessed by a
Company Affiliate pertaining to its businesses, including, but not limited to,
records, memoranda, computer files and disks, audio and video tapes, CD’s, and
property in any form containing information generally not known in the
hospitality industry, including but not limited to trade secrets, techniques,
know-how (including designs, plans, procedures, processes and research records),
operations, market structure, formulas, data, programs, licenses, prices, costs,
software, computer programs, innovations, discoveries, improvements, research,
developments, test results, reports, specifications, data, formats, marketing
data and business plans and strategies, customer lists, client lists and client
contact lists, agreements and other forms of documents, expansion plans,
budgets, projections, and salary, staffing and employment information.
Notwithstanding the foregoing, Confidential Information shall not in any event
include information which (i) was generally known or generally available to the
public prior to its disclosure to the Executive, (ii) becomes generally known or
generally available to the public subsequent to its disclosure to the Executive
through no wrongful act of the Executive, (iii) is or becomes available to the
Executive from sources other than the Company Affiliates which sources are not
known to the Executive to be under any duty of confidentiality with respect
thereto or (iv) the Executive is required to disclose by applicable law or
regulation or by order of any court or federal, state or local regulatory or
administrative

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body (provided that the Executive provides the Company with prior notice of the
contemplated disclosure and reasonably cooperates with the Company, at the
Company’s sole expense, in seeking a protective order or other appropriate
protection of such information).
          (c) Upon demand by the Company and/or upon termination of employment
with the Company for any reason, Executive shall promptly deliver to the Company
all property and materials, whether written, descriptive, or maintained in some
other form belonging to or relating to the Company, its business affairs and
those of its Affiliates, including all Confidential Information. If Executive
desires to retain copies of any forms or other materials developed by Executive
during his employment with the Company, he may request permission to do so from
the Chairman of the Board of Directors, which permission shall not be
unreasonably withheld.
          (d) The Executive agrees that during his employment hereunder and for
a period of twelve (12) months thereafter he will not solicit or accept the
business of, or assist any other person to solicit or accept the business of,
any persons or entities who were customers of the Company, as of, or within one
(1) year prior to, the Executive’s termination of employment, for the purposes
of providing products or services competitive with the products or services of
the Company or to cause such customers to reduce or end their business with the
Company.
          (e) The Executive agrees that during his employment hereunder and for
a period of twelve (12) months thereafter he will not solicit, raid, entice or
induce any person that then is or at any time during the twelve (12) month
period prior to the Executive’s termination was an employee of the Company
(other than a person whose employment with the Company has been terminated by
the Company), to become employed by any person, firm or corporation.
          (f) Executive shall make no statements disparaging the Company, any of
its affiliates, any of its officers, directors, or employees, or any of its
business practices. The Company’s directors and officers shall make no
statements disparaging the Executive.
     9. Specific Performance.
          (a) The Executive acknowledges that the services to be rendered by him
hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 8 hereof. Therefore, in addition to any
other remedies available, the Company shall be entitled to specific enforcement
and/or an injunction from any court of competent jurisdiction restraining the
Executive from committing or continuing any such violation of this Agreement
without proving actual damages or posting a bond or other security. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages.
          (b) If any of the restrictions on activities of the Executive
contained in Section 8 hereof shall for any reason be held by a court of
competent

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14

jurisdiction to be excessively broad, such restrictions shall be construed so as
thereafter to be limited or reduced to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear; it being understood
that by the execution of this Agreement the parties hereto regard such
restrictions as reasonable and compatible with their respective rights.
          (c) Notwithstanding anything in this Agreement to the contrary, in the
event that the Company fails to make any payment of any amounts or provide any
of the benefits to the Executive when due as called for under Section 6 of this
Agreement and such failure shall continue for twenty (20) days after written
notice thereof from the Executive, all restrictions on the activities of the
Executive under Section 8 hereof shall be immediately and permanently
terminated.
     10. Withholding. The parties agree that all payments to be made to the
Executive by the Company pursuant to the Agreement shall be subject to all
applicable withholding obligations of such company.
     11. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed given and received when delivered personally, four
(4) days after being mailed if sent by registered or certified mail, postage
pre-paid, or by one (1) day after delivery if sent by air courier (for next-day
delivery) with evidence of receipt thereof or by facsimile with receipt
confirmed by the addressee. Such notices shall be addressed respectively:
If to the Executive, to:
Thomas F. Hewitt

********************
********************
If to the Company or to the LLC, to:
Interstate Hotels & Resorts, Inc.
4501 North Fairfax Drive
Arlington, VA 22203
Attention: Legal Department
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
     12. Miscellaneous.
          (a) This Agreement is a personal contract calling for the provision of
unique services by the Executive, and the Executive’s rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company and the LLC hereunder will
be binding upon and run in favor of their respective successors and assigns. The
Company

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15

will not be deemed to have breached this Agreement if any obligations of the
Company to make payments to the Executive are satisfied by the LLC.
          (b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware, without regard to
conflict of laws principles.
          (c) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
          (d) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
          (e) The Company and the LLC shall reimburse the Executive for all
costs incurred by the Executive in any proceeding for the successful enforcement
of the terms of this Agreement, including without limitation all costs of
investigation and reasonable attorneys’ fees and expenses incurred in the
preparation of or in connection with such proceeding.
          (f) This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof, all of which shall be terminated on the
Commencement Date. In addition, the parties hereto hereby waive all rights such
party may have under all other prior agreements and undertakings, both written
and oral, among the parties hereto. Notwithstanding the preceding two sentences,
Sections 6(d)(iii), (iv), (v) and (vi) of the Second Amended and Restated
Employment Agreement between Executive and Interstate Hotels Corporation (a
predecessor of the Company) will remain in full force and effect through
January 31, 2006.

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16

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

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