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EXHIBIT 10.3 SEPARATION AGREEMENT This Separation Agreement (Agreement) is made and entered into as of
April 1, 2004 (Effective Date), by and between Interstate Hotels & Resorts,
Inc., a Delaware corporation (successor in interest to MeriStar Hotels &
Resorts, Inc.) (IHR), Interstate Management Company L.L.C., a Delaware
limited liability company (successor in interest to MeriStar Management Company
L.L.C.) (IMC) (collectively, the Company), and Paul W. Whetsell
(Executive). WHEREAS,the Company and the Executive are parties to an Executive
Employment Agreement dated November 1, 2001 (the Employment Agreement); and WHEREAS,the Company and the Executive have twice amended that Employment
Agreement, once on July 31, 2002 and once on December 13, 2002; and WHEREAS,the Company and the Executive have agreed to terminate their
employment relationship and end the Term of the Employment Agreement on the
basis of the terms set forth in this Agreement. NOW THEREFORE, AND IN CONSIDERATIONof the mutual promises of the parties
to this Agreement, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows: 1. Termination.The Employment Agreement and Executives employment shall
be terminated effective at midnight on March 31, 2004 (Termination Date).
Executives termination is agreed by the parties to be without Cause pursuant
to Section 5(b) of the Employment Agreement. The termination of Executives
employment will not affect his role as Chairman of the Board of Directors of
IHR (the Board of Directors). The parties shall, contemporaneously with
their execution of this Agreement, execute a side letter governing certain
terms and conditions of Executives service as Chairman of the Board of
Directors. 2. Benefits.Except as provided for in this Agreement, immediately
following the Termination Date the Company shall cease providing and/or sharing
the cost of all benefits that had been provided to the Executive in connection
with his employment, including but not limited to health and dental insurance;
life insurance; stock option and other incentive compensation plans (except as
provided for in this Agreement); other insurance; pension, profit-sharing and
bonus plans; expense reimbursement; and car allowances; provided however, that
Executive shall continue to be eligible to participate in all benefit plans
available to members of the Board of Directors for as long as Executive serves
as a Director, including, but not limited to, the Companys deferred
compensation plan. 3. Severance and Other Obligations Upon Termination.Provided the
Revocation Period set forth below has expired without revocation, the Company
shall provide




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Executive the following severance benefits in lieu of the benefits
contemplated in Executives employment agreement: (a) Executive shall be granted restricted stock with a face value
equivalent to one million five hundred and sixty-two thousand five hundred
dollars ($1,562,500) pursuant to the Restricted Stock Agreement attached as
Exhibit A to this Agreement. The restricted stock granted pursuant to this
Section 3(a) shall be valued at the average ten-day trailing closing price on
the New York Stock Exchange of IHRs publicly traded common stock (the
Valuation Price), measured from the Effective Date of this Agreement. In the
event that use of the aforementioned average ten-day trailing closing price
would result in a grant in excess of 250,000 shares of restricted stock, the
grant shall be limited to 250,000 shares and the difference in value between
the grant of 250,000 shares and $1,562,500 shall be paid to Executive in cash
(the Cash Payment). At the Executives direction, the Company will reimburse
the Executive the amount the Executive owes for federal and state taxes,
assuming that Mr. Whetsell is paying at the then highest marginal tax rate for
federal and state income tax purposes, for the vesting of the 250,000 shares
and the Cash Payment of the whether paid through withholdings or directly by
the Executive in one or more payments no later than 10 days prior to such tax
amount being due. The Company anticipates that the grant of restricted stock pursuant to
this Section 3(a) will not trigger the applicable provisions of Section 280G of
the Internal Revenue Code. The Company will indemnify Executive, as currently
provided for in the Employment Agreement, if the Internal Revenue Service takes
the position at anytime in the future that Section 280G was triggered by the
payments and/or grants made pursuant to this Agreement. (b) All unvested stock options Executive currently holds in IHR shall vest
immediately upon expiration of the Revocation Period, provided there has been
no revocation. If at any time executive ceases his service as Chairman, for
whatever reason and whether voluntary or involuntary, all unexercised vested
stock options shall remain exercisable until the earlier of (i) one year after
the last day that Executive held the position of Chairman, or (ii) the
expiration date of the option. (c) Executive currently holds 156,542 unvested restricted shares which
will vest in accordance with the Restricted Stock Agreement attached as Exhibit
B to this Agreement. At the Executives direction, the Company will reimburse
the Executive the amount the Executive owes for federal and state taxes,
assuming that Mr. Whetsell is paying at the then highest marginal tax rate for
federal and state income tax purposes, for the vesting of the 156,542 shares
whether paid through withholdings or directly by the Executive in one or more
payments no later than 10 days prior to such tax amount being due. (d) In all respects except as provided for expressly in this Agreement,
all restricted stock granted pursuant to this Agreement or otherwise shall be
governed by the applicable Restricted Stock Agreement. (e) All payments set forth above will be subject to applicable taxes and
withholding. 2




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4. At the time of the disposition of any asset held by MeriStar Investment
Partners, L.P. (the MIP Portfolio), the Company shall pay Executive a bonus
payment in an amount equal to the lesser of (i) an amount equal to any portion
of Executives initial investment in the portfolio ($142,500) (the Executive
Investment) that he has not yet received; or (ii) an amount equal to a pro
rata portion of Executives initial investment in the MIP portfolio (less
amounts previously received by Executive) calculated on the basis of IHRs
cumulative return of its initial investment in the MIP portfolio. By way of
illustration, the parties agree that if one asset in the MIP Portfolio is sold
(prior to any other assets in the MIP Portfolio being sold) and there is a
return to IHR of 10% of IHRs initial capital investment, then the Executive
will receive a payment pursuant to the Section equal to 10% of the Executive
Investment. If subsequently, the remainder of the MIP portfolio is disposed of
for an amount equal to ninety five percent (95%) of the IHRs initial capital
investment therein, then the Executive will receive an additional payment equal
to ninety percent (90%) of the amount of Executives Investment. In the event
that IHR receives a sum greater than its initial investment upon disposition of
the MIP portfolio, the Company may, in its sole discretion increase Executives
bonus payment under this Section 4 by an amount deemed appropriate by the
Company. 5. Acknowledgments. (a) Executive acknowledges that the payments and other benefits set forth
in this Agreement fully satisfy any and all obligations the Company has under
the Employment Agreement and that the Company has no obligation to make any
other payments or provide any other benefits to the Executive except (i) as set
forth in this Agreement and (ii) for any unreimbursed expenses Mr. Whetsell has
or will incur in connection with his activities on behalf of the Company.
Executive waives any rights to any other payments or benefits from the Company
not provided for in this Agreement. (b) Executive agrees to comply with all ongoing obligations set forth in
the Employment Agreement. Without limiting the foregoing, Executive
acknowledges and agrees that he shall comply with the restrictions related to
the preservation of confidential information, the restrictions that prohibit
Executive from soliciting Company employees for employment, as set forth in and
according to the terms of Sections 7 and 8 of the Employment Agreement. The
Company agrees that it shall indemnify Executive as provided for in the
Employment Agreement, including but not limited to the provisions of Section
4(i) of the Employment Agreement, and shall provide Executive all excise tax
payments as required by Section 5(k) of the Employment Agreement, should such
indemnification or excise tax payments be required according to the terms of
Sections 4(i) and 5(k), respectively. Nothing in this Section 5(b) shall be
construed as imposing on Executive or Company any obligations that are not
imposed by the Employment Agreement. (c) The Company acknowledges that it has no present knowledge of any
conduct by Executive as of the Effective Date that would constitute a violation
of the Employment Agreement or otherwise provide the Company grounds to
terminate Executives employment for Cause as defined therein. 3




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6. Non-Disclosure. (a) Executive agrees to keep the terms of this Agreement and the
discussions leading to the Agreement confidential and not to disclose the terms
to any person (other than his immediate family, his legal counsel, and his
financial and tax advisors or as required by law or court order) without
express prior written consent from the Company. Notwithstanding the foregoing,
however, Executive and the Company agree that the terms of Executives
Employment Agreement are already public knowledge and therefore are not subject
to non-disclosure. (b) Notwithstanding any other provisions of this Agreement, any party to
this Agreement (and each employee, representative, or other agent of such
party) may disclose to any and all persons, without limitation of any kind, the
tax treatment and tax structure of the transaction and all materials of any
kind (including opinions and other tax analyses) that are provided to the party
relating to such tax treatment and tax structure, provided that in connection
with any such disclosure all references to the settlement amount paid pursuant
to this Agreement, and other figures from which the settlement amount may be
estimated or calculated, shall be redacted. (c) No provision of this Agreement shall be construed as prohibiting
Executive from providing truthful and accurate information in response to a
valid subpoena issued by a court of competent jurisdiction or other duly
authorized entity. However, Executive agrees to notify the Company by
contacting a Company officer promptly before complying with such a subpoena, so
that the Company may protect its interests, including moving to quash the
subpoena if necessary. (d) Except as provided in Paragraph 6(c) above, and as necessary to
enforce the terms of this Agreement, each party agrees that no part of this
Agreement is to be construed as used as, or admitted into evidence in any
proceeding of any character, judicial, administrative or otherwise. 7. Non-Disparagement.Executive shall make no statements disparaging the
Company, any of its affiliates, any of its officers, directors, or employees,
or any of its business practices. The Companys directors and officers shall
make no statements disparaging the Executive. 8. Waiver and Release. (a) In consideration of the severance payments and other benefits outlined
in this Agreement, Executive, for himself, his attorneys, heirs, executors,
administrators, successors, and assigns, does hereby fully and forever release
and discharge Interstate Hotels & Resorts, Inc., Interstate Management Co.,
LLC, their parent, subsidiary, and affiliate corporations, and all related
companies, as well as all predecessors, successors, assigns, directors,
officers, partners, agents, employees, former employees, heirs, executors,
attorneys, and administrators (hereinafter Releasees) from all suits, causes
of action, and/or claims, demands or entitlements of any nature whatsoever,
whether known, unknown, or unforeseen, 4




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which he has or may have against the Releasees arising out of or in connection
with his employment by the Company (other than the obligations imposed on the
Company pursuant to this Agreement), the termination of his employment, or any
event, transaction, or matter occurring or existing on or before the date on
which he executes this Agreement. Executive agrees, without limiting the
generality of this Waiver and Release, not to file or otherwise institute any
claim or lawsuit seeking damages or other relief and not to otherwise assert
any claims that are lawfully released herein. Executive further hereby
irrevocably and unconditionally waives any and all rights to recover any relief
or damages concerning the claims that are lawfully released herein. Executive
represents and warrants that he has not previously filed or joined in any such
claims, demands or entitlements against the Releasees and that he will
indemnify and hold harmless the Releasees from all liabilities, claims,
demands, costs, expenses and/or attorneys fees incurred as a result of any
such claims. EXECUTIVE HEREBY ACKNOWLEDGES AND AGREES
THAT THIS RELEASE IS A GENERAL RELEASE. (b) This Release specifically includes, but is not limited to, all claims
relating to Executives employment and the termination of that employment, all
claims of breach of contract, employment discrimination (including, but not
limited to, discrimination on the basis of race, sex, religion, national
origin, age, pregnancy, disability or any other protected status, and coming
within the scope of Title VII of the Civil Rights Act, the Age Discrimination
in Employment Act, the Older Workers Benefit Protection Act, the Americans with
Disabilities Act, and the Family & Medical Leave Act, all as amended, or any
other applicable state, federal, or local law), claims under the Employee
Retirement Income Security Act, as amended, claims under the Fair Labor
Standards Act, as amended (or any other applicable federal, state or local
statute relating to payment of wages), claims under the Uniformed Services
Employment and Reemployment Rights Act of 1994, and the Veterans Reemployment
Rights Law of 1940, as amended, and claims concerning recruitment, hiring,
discharge, promotions, transfers, right to reemployment, salary rate, severance
pay, stock options, wages or benefits due, sick leave, holiday pay, vacation
pay, life insurance, any other leave, group medical insurance, any other fringe
benefits, workers compensation, termination, employment status, libel,
slander, defamation, intentional or negligent misrepresentation and/or
infliction of emotional distress, together with any and all tort, contract, or
other claims which might have been asserted by Executive or on his behalf in
any suit, charge of discrimination, or claim against the Releasees. (c) Executive acknowledges that he has been given an opportunity of
twenty-one (21) days to consider this Release and that he has been encouraged
by Company to discuss fully the terms of this Release with legal counsel of his
own choosing. Executive may, if he so desires, execute this Agreement prior to
the expiration of the 21-day consideration period. Moreover, for a period of
seven (7) days following his execution of this Release (Revocation Period),
Executive shall have the right to revoke the waiver of claims arising under the
Age Discrimination in Employment Act, a federal statute that prohibits
employers from discriminating against employees who are age 40 or over. If he
elects to revoke this Waiver and Release within this seven-day period, he must
inform Company by delivering a written notice of revocation to Shane Brennan no
later than 5:00 p.m. on the seventh calendar day following his execution of
this Waiver and Release. However, if Executive elects to exercise this
revocation 5




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right, this Agreement shall be voided in its entirety at the election of
Company and Company shall be relieved of all obligations to make any payments
required under this Agreement. If Executive does not revoke this Release, he
understands and agrees that it will become fully enforceable immediately after
the seven day revocation period has expired. 9. General Terms. (a) Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without regard to its conflicts of laws principles. (b) Non-Admissions. This Agreement does not constitute an admission of
liability or wrongdoing on the part of the Company, Executive, or any of the
Releasees. (c) Consideration. Executive affirms that the terms stated herein are the
only consideration for executing this Agreement, that no other representations,
promises, or agreements of any kind have been made to him, by any person or
entity whatsoever to cause him to execute this Agreement. (d) Entire Agreement. This Agreement contains and constitutes the entire
understanding and agreement by and among the parties and supersedes and cancels
all previous negotiations, agreements, commitments, and writings in connection
with the termination of Executives employment. The Employment Agreement shall
continue to bind Executive and Company according to its terms and with regard
to all ongoing obligations and commitments, except that to the extent any
provision of this Agreement is inconsistent with any provision of the
Employment Agreement, the terms of this Agreement shall control. (e) Release and Discharge. This Agreement may not be released,
discharged, modified or supplemented except in a writing signed by the Chief
Executive Officer of the Company and Executive. (f) Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective representatives, successors and
permitted assigns; however, 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. 6




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[SIGNATURE PAGE FOLLOWS] EXECUTIVE STATES THAT HE IS SIGNING THIS AGREEMENT KNOWINGLY AND
VOLUNTARILY AND THAT HE HAS NOT BEEN COERCED INTO SIGNING THIS AGREEMENT. THE UNDERSIGNED STATE THAT THEY HAVE CAREFULLY READ THIS AGREEMENT, THAT
THEY KNOW AND UNDERSTAND ITS TERMS, AND THEY SIGN IT FREELY. IN WITNESS WHEREOF, the parties have duly executed this Agreement: EXECUTIVEPaul W. WhetsellINTERSTATE HOTELS & RESORTS, INC.By:Name:Title:INTERSTATE MANAGEMENT COMPANY, L.L.C.By: Interstate Operating Company, L.P.,
its memberBy: Interstate Hotels & Resorts, Inc.,
its general partnerBy:Name:Title:
 7