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                                                                    EXHIBIT 10.2





                                      HOTEL

                              MANAGEMENT AGREEMENT

                                 By and Between



                                 --------------



                                       and



                      FLAGSTONE HOSPITALITY MANAGEMENT LLC





                                      Dated

                                January ___, 2001

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                                TABLE OF CONTENTS

<TABLE>
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                                                                                                                   Page
                                                                                                                   ----
<S>               <C>                                                                                              <C>
ARTICLE I         DEFINITIONS....................................................................................     1
         Section 1.01.  Definitions..............................................................................     1

ARTICLE II        TERM OF AGREEMENT..............................................................................     7
         Section 2.01.  Term.....................................................................................     7

ARTICLE III       OPERATION OF THE HOTEL.........................................................................     7
         Section 3.01.  Representations by Operator; Engagement of Operator......................................     7
         Section 3.02.  Standards of Operation...................................................................     7
         Section 3.03.  Reservations Services....................................................................     8
         Section 3.04.  Marketing................................................................................     8
         Section 3.05.  Consultations Between Lessee and Operator................................................     9
         Section 3.06.  Activities of MeriStar...................................................................     9

ARTICLE IV        INDEPENDENT CONTRACTOR.........................................................................     9
         Section 4.01.  Operator Status..........................................................................     9
         Section 4.02.  Employees................................................................................     9
         Section 4.03.  Reimbursement of Employee Expenses.......................................................    10
         Section 4.04.  Employee Benefit Plans...................................................................    10
         Section 4.05.  Execution of Agreements..................................................................    11

ARTICLE V         INDEMNIFICATION................................................................................    11
         Section 5.01.  Indemnification by Operator..............................................................    11
         Section 5.02.  Limitations on Indemnification...........................................................    12
         Section 5.03.  Indemnification by Lessee................................................................    12
         Section 5.04.  Survival of Indemnity....................................................................    12
         Section 5.05.  Employment Claim.........................................................................    12
         Section 5.06.  Environmental Matters....................................................................    13
         Section 5.07.  Lessee Net Worth.........................................................................    14

ARTICLE VI        BUDGETS AND POLICY MEETINGS....................................................................    14
         Section 6.01.  Budgets..................................................................................    14
         Section 6.02.  Budget Meetings..........................................................................    15
         Section 6.03.  Approval by Lessee Required..............................................................    15

ARTICLE VII       OPERATING EXPENSES.............................................................................    15
         Section 7.01.  Payment of Operating Expenses............................................................    15
         Section 7.02.  Operating Expenses Not an Obligation of Operator.........................................    16
</TABLE>

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<TABLE>
<S>                <C>                                                                                               <C>
ARTICLE VIII       BANK ACCOUNTS.................................................................................    16
         Section 8.01.  Bank Accounts............................................................................    16
         Section 8.02.  Authorized Signatures....................................................................    17
         Section 8.03.  Investment of Hotel Cash.................................................................    17
         Section 8.04.  Payroll..................................................................................    17
         Section 8.05.  Security Deposits........................................................................    18

ARTICLE IX        BOOKS, RECORDS AND STATEMENTS..................................................................    18
         Section 9.01.  Books and Records........................................................................    18
         Section 9.02.  Statements...............................................................................    18

ARTICLE X         OPERATOR'S FEE AND TRANSFERS TO LESSEE.........................................................    19
         Section 10.01.  Payment of Operator's Basic Fee.........................................................    19
         Section 10.02.  Payment of Operator's Incentive Fee.....................................................    19
         Section 10.03.  Distribution of Cash....................................................................    20
         Section 10.04.  Adjustments to Allocations..............................................................    20
         Section 10.05.  Arbitration.............................................................................    20
         Section 10.06.  Other Fees..............................................................................    21

ARTICLE XI        REPAIRS AND MAINTENANCE.........................................................................   21

ARTICLE XII       INSURANCE.......................................................................................   21
         Section 12.01.  General..................................................................................   21
         Section 12.02.  Employment Insurance.....................................................................   21
         Section 12.03.  Approval of Companies and Cost by Owner and Lessee.......................................   22
         Section 12.04.  Maintenance of Coverages.................................................................   22
         Section 12.05.  Waiver of Subrogation....................................................................   22
         Section 12.06.  Blanket Coverage and Self-Insurance......................................................   22
         Section 12.07.  Adequacy of Insurance....................................................................   22
         Section 12.08.  Exclusions...............................................................................   23

ARTICLE XIII      PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS.......................................   23
         Section 13.01.  Property Taxes...........................................................................   23
         Section 13.02.  Lessee's Right to Contest................................................................   23

ARTICLE XIV       DAMAGE OR DESTRUCTION - CONDEMNATION............................................................   23
         Section 14.01.  Damage...................................................................................   23
         Section 14.02.  Condemnation.............................................................................   24

ARTICLE XV        USE OF NAME.....................................................................................   24

ARTICLE XVI       OWNER'S RIGHT TO SELL...........................................................................   24
</TABLE>


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<TABLE>
<S>                <C>                                                                                               <C>
ARTICLE XVII      DEFAULT AND REMEDIES............................................................................   24
         Section 17.01.  Events of Default- Remedies..............................................................   24
         Section 17.02.  Rights Not Exclusive.....................................................................   25

ARTICLE XVIII     NOTICES.........................................................................................   26
         Section 18.01.  Notices..................................................................................   26

ARTICLE XIX       ASSIGNMENT......................................................................................   27
         Section 19.01.  No Assignment by Operator................................................................   27
         Section 19.02.  Assignment by Lessee.....................................................................   27

ARTICLE XX        SUBORDINATION...................................................................................   29
         Section 20.01.  Subordination To First Mortgage..........................................................   29
         Section 20.02.  Foreclosure..............................................................................   29

ARTICLE XXI       MISCELLANEOUS...................................................................................   29
         Section 21.01.  Further Documentation....................................................................   29
         Section 21.02.  Captions.................................................................................   30
         Section 21.03.  Successors and Assigns...................................................................   30
         Section 21.04.  Competitive Market Area..................................................................   30
         Section 21.05.  Assumption of Post Termination Obligations...............................................   30
         Section 21.06.  Entire Agreement.........................................................................   30
         Section 21.07.  Governing Law............................................................................   30
         Section 21.08.  No Political Contributions...............................................................   30
         Section 21.09.  Lessee Reimbursement Upon Certain Terminations...........................................   31
         Section 21.10.  Management of Other Hotels...............................................................   32
         Section 21.11.  Eligible Independent Contractor..........................................................   32
         Section 21.12.  Affiliated Transactions..................................................................   33
         Section 21.13.  Non-Recourse to MeriStar.................................................................   33
         Section 21.14.  No Third Party Beneficiaries.............................................................   33
         Section 21.15.  Purchase of Furniture, Fixtures and Equipment............................................   33
</TABLE>


EXHIBIT A -- Hotels and Owners

EXHIBIT B -- Franchise Agreements

EXHIBIT C -- Severance Amounts Reimbursable Pursuant to Section 21.09

EXHIBIT D -- REIT Hotels

EXHIBIT E -- Form of Guaranty


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                           HOTEL MANAGEMENT AGREEMENT

         This HOTEL MANAGEMENT AGREEMENT is made and entered into as of
________, 2001, by and among __________________, a Tennessee corporation
("Lessee"), and Flagstone Hospitality Management LLC, a Tennessee limited
liability company ("Operator"), with reference to the following facts:

         A.       Lessee leases from RFS Partnership, L.P. and its affiliates
described on Exhibit A (each, an "Owner" and collectively, the "Owners") the
hotel properties described in Exhibit A (each, a "Hotel" and collectively, the
"Hotels") pursuant to one or more Lease Agreements dated ________, 2001 (each, a
"Lease");

         B.       Lessee desires to engage Operator to operate and manage the
Hotels in accordance with the terms of this Agreement;

         C.       Operator desires to supply the services and to operate the
Hotels in accordance with the terms of this Agreement;

         D.       The parties desire that this Agreement represent an individual
hotel management agreement for each Hotel described in Exhibit A, as it may be
amended from time.

         NOW, THEREFORE, for and in consideration of the mutual covenants,
conditions, stipulations, agreements and obligations hereinafter set forth and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties hereto, Lessee and Operator covenant and
agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

Section 1.01.00   Definitions.

         (a)      As used herein, the following terms shall have the indicated
meanings:

         (1)      "Accounting Period" shall mean a period of time used by
Operator in accounting for the operations of the Hotels, which period of time
shall be a full calendar month.

         (2)      "Affiliate" shall mean (a) any person that, directly or
indirectly, controls or is controlled by or is under common control with such
person, (b) any person that owns, beneficially, directly or indirectly, five
percent or more of the outstanding capital stock, shares or equity interests of
such person, or (c) any officer, director, employee, partner or trustee of such
person or any person controlling, controlled by, or under common control with
such person.

         (3)      "Agency Account" shall have the meaning set forth in
Section 8.01(c).

         (4)      "Agreement" shall mean this Hotel Management Agreement and all
amendments, modifications, supplements, consolidations, extensions and revisions
to this Hotel Management Agreement approved by Lessee and Operator.


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         (5)      "Approved Budget" shall mean the Hotel Operating Budget
prepared by Operator, and pursuant to Section 6.01 of this Agreement, approved
in writing by Lessee.

         (6)      "CPI" shall mean the Consumer Price Index, all items for All
Urban Consumers published by the Bureau of Labor Statistics of the United States
Department of Labor as reported in The Wall Street Journal.

         (7)      "Deposit Account" shall have the meaning set forth in Section
8.01(a).

         (8)      "Employment Claim" shall mean set forth in Section 5.05.

         (9)      "Employment Laws" shall have the meaning set forth in Section
4.02(c).

         (10)     "Environmental Activity" shall have the meaning set forth in
Section 5.06(a).

         (11)     "Environmental Laws" shall have the meaning set forth in
Section 5.06(a).

         (12)     "Event(s) of Default" shall mean one or more of the events or
occurrences listed in Section 17.01 of this Agreement.

         (13)     "First Mortgage" shall mean collectively any mortgage or deed
of trust hereafter, from time to time, encumbering in a first lien position all
or any portion of a Property, together with all other instruments evidencing or
securing payment of the indebtedness secured by such mortgage or deed of trust
and all amendments, modifications, supplements, extensions, and revisions of
such mortgage, deed of trust and other instruments.

         (14)     "Fiscal Year" shall mean the twelve (12) month calendar year
ending December 31, except that the first Fiscal Year and the last Fiscal Year
of the term of this Agreement may not be full calendar years. (It is understood
and agreed that Lessee, in its discretion, shall have the right to change the
Fiscal Year ending date at any time.)

         (15)     "Franchisors" shall mean the franchisors under the Franchise
Agreements.

         (16)     "Franchisor Agreements" shall mean the franchise license
agreements held by Lessee with respect to each of the Hotels as set forth in
Exhibit B as it may be amended from time to time.

         (17)     "Gross Hotel Income" shall mean all income and proceeds of
sales of every kind (whether in cash or on credit and computed on an accrual
basis) received by Operator for the use, occupancy or enjoyment of the Hotel or
for the sale of any goods, services or other items sold on or provided from the
Hotel in the ordinary course of the Hotel operation including, without
limitation, all income received from tenants, transient guests, lessees (other
than communications equipment lessees or service providers), licensees and
concessionaires and other services to the Hotel guests, and the proceeds from
business interruption insurance, but excluding the following: (i) any excise,
sales or use taxes or similar government charges collected directly from patrons
or guests, or as a part of the sales price of any goods, services or displays,
such as gross receipts, admission, cabaret or similar or equivalent taxes; (ii)
receipts from condemnation awards or sales in lieu of or under threat of
condemnation; (iii) proceeds of insurance; (iv) other allowances and deductions
as provided by the Uniform System in determining the sum contemplated by this
definition, by whatever name, it may be called; (v) adjustments made pursuant to
Section 10.04; (vi) proceeds of sales whether dispositions of capital assets,
furniture and equipment or operating equipment (other than sales of inventory in
the ordinary course of business); (vii) gross receipts


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received by lessees, licensees or concessionaires of the Hotel; (viii)
consideration received at the Hotel for hotel accommodations, goods and services
to be provided at other hotels although arranged by, for or on behalf of,
Operator; (ix) gratuities collected for the benefit of employees; (x) proceeds
of any financing; (xi) working capital provided by Lessee; (xii) any funds
provided by Lessee to Operator whether for Operating Expenses or otherwise; and
(xiii) other income or proceeds resulting other than from the use or occupancy
of the Hotel, or any part thereof, or other than from the sale of goods,
services or other items sold on or provided from the Hotel in the ordinary
course of business.

         (18)     "Gross Operating Loss" shall mean for any Accounting Period
the amount by which Operating Expenses exceed Gross Hotel Income.

         (19)     "Hazardous Substance" shall have the meaning set forth in
Section 5.06(a).

         (20)     "Holder" shall mean the holder of any First Mortgage and the
indebtedness secured thereby, and such holder's successors and assigns.

         (21)     "Hotel Capital Budget" shall mean the budget relating to
capital expenditures at a Hotel which shall be prepared and administered by
Owner as described in Section 6.01.

         (22)     "Hotel FF&E" shall mean the furniture, furnishings, wall
coverings, fixtures and hotel equipment for a Hotel and which includes equipment
required for operation of the kitchens, restaurants and laundry, office
equipment, material handling equipment, cleaning and engineering equipment and
vehicles.

         (23)     "Hotel Operating Account" shall mean the bank account opened
and maintained in Lessee's name, or in a name designated by Lessee, with a
banking institution selected by Lessee, into which all income, receipts and
proceeds included in the definition of Gross Hotel Income (without exclusion of
any of the items excluded from the definition of such term) shall be deposited
and from which disbursements shall be made pursuant to the terms of Section 8.01
of this Agreement.

         (24)     "Hotel Operating Budget" shall mean the operating budget
relating to the operation of a Hotel for each Fiscal Year prepared by Operator
and submitted to Lessee for approval pursuant to Section 6.01.

         (25)     "Hotel Operating Equipment" shall mean linens, chinaware,
glassware, uniforms, utensils and other items of similar nature as Operator
shall reasonably determine to be appropriate.

         (26)     "Hotel Operating Supplies" shall mean the initial inventories
of paper supplies, cleaning materials and similar consumable items.

         (27)     "Hotel Standards" shall mean the standards established by the
respective Franchisors of the Hotels from time to time.

         (28)     "Hotels" shall mean the hotel properties described in Exhibit
A hereto, as it may be amended from time to time by mutual agreement of Lessee
and Operator to add hotel properties or to delete hotel properties as a result
of termination of this Agreement with respect to one or more hotel properties
pursuant to the termination provisions set forth in Section 2.01 of this
Agreement. "Hotel" shall mean any hotel set forth on Exhibit A as it may be
amended from time to time.


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         (29)     "Independent CPA" shall mean the firm of independent public
accountants having hotel experience which is selected by Lessee from time to
time.

         (30)     "Land" shall mean the real property described in Exhibit A to
the Lease.

         (31)     "Lease" shall mean the Master Lease Agreement dated
____________, 2001, between Lessee and Owner.

         (32)     "Lessee" shall mean __________, a Tennessee corporation and
its successors and assigns.

         (33)     "Marketing Plan" shall mean the marketing plan prepared by
Operator and approved by Lessee for each Hotel for each Fiscal Year pursuant to
Section 3.04(b).

         (34)     "Operating Expenses" shall mean all reasonable costs and
expenses of maintaining, conducting and supervising the operation of the
Property, subject to the limitations set forth in an Approved Budget, incurred
pursuant to this Agreement or as otherwise specifically provided herein which
are properly attributable to the period under consideration under Lessee's
system of accounting, including without limitation:

                  (i)      the cost of all food and beverages sold or consumed
         and of all Hotel Operating Equipment and Hotel Operating Supplies;

                  (ii)     salaries and wages of Hotel personnel, including
         costs of payroll taxes and employee benefits and all other expenses not
         otherwise specifically referred to in this Section which are referred
         to as "Administrative and General Expenses" in the Uniform System.
         Except as herein otherwise expressly provided with respect to employees
         regularly employed at the Hotel, the salaries or wages of other
         employees or executives of Operator, or any Affiliate shall in no event
         be Operating Expenses;

                  (iii)    the cost of all other goods and services obtained by
         Operator in connection with its operation of the Property including,
         without limitation, heat and utilities, office supplies and all
         services performed by third parties, including leasing expenses in
         connection with telephone and data processing equipment and such other
         equipment as Owner shall designate;

                  (iv)     the cost of repairs to and maintenance of the
         Property to keep the Property in good condition;

                  (v)      insurance premiums for all insurance maintained by
         Lessee or Operator as provided in Article XII with respect to the
         Property, including without limitation, property damage insurance,
         public liability insurance; workers' compensation insurance or
         insurance required by similar employee benefits acts and such business
         interruption or other insurance as may be provided for protection
         against claim, liabilities and losses arising from the use and
         operation of the Hotel and losses incurred with respect to deductibles
         applicable to the foregoing types of insurance;

                  (vi)     all taxes, assessments and other charges (other than
         federal, state or local income taxes and franchise taxes or the
         equivalent) payable by or assessed against Operator or Lessee with
         respect to the operation of the Hotel and water and sewer charges;


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                  (vii)    legal fees;

                  (viii)   the costs and expenses of technical consultants and
         specialized operational experts for specialized services in connection
         with non-recurring work on operational, functional, decorating, design
         or construction problems and activities, including the reasonable fees
         of Operator or any Affiliate in connection therewith, provided that
         such employment of Operator or such Affiliate is approved in advance by
         Lessee;

                  (ix)     all expenses for marketing the Hotel, including all
         expenses of advertising, sales promotion and public relations
         activities;

                  (x)      the Operator's Expenses;

                  (xi)     the Operator's Basic Fee;

                  (xii)    ad valorem taxes, personal property taxes, utility
         taxes and other taxes (as those terms are defined in the Uniform
         System) and municipal, county and state license and permit fees;

                  (xiii)   all fees, assessments and charges due and payable
         under the franchise license agreement for the Hotel;

                  (xiv)    reasonable reserves for uncollectible accounts
         receivable;

                  (xv)     credit card fees, travel agent commissions and other
         third party reservation fees and charges;

                  (xvi)    all parking charges and other expenses associated
         with revenues received by the Hotels related to parking operations,
         including valet services; and

                  (xvii)   common expenses charges.

         Operating Expenses shall not include (a) depreciation and amortization
except as otherwise provided in this Agreement; (b) the cost of any other things
specified herein to be done or provided at Lessee's or Operator's sole expense;
(c) debt service on any Mortgage; (d) any Operator's Incentive Fee; (e) capital
repairs and other expenditures which are normally treated as capital
expenditures under the Uniform System or generally accepted accounting
principles; (f) other recurring or non-recurring ownership costs such as
partnership administration and costs of changes to business and liquor licenses.

         (35)     "Operating Term" shall mean, with respect to any Hotel, the
term of this Agreement as set forth in Section 2.01.

         (36)     "Operator" shall mean Flagstone Hospitality Management LLC, a
Tennessee limited liability company.

         (37)     "Operator Centralized Services" shall have the meaning set
forth in Section 21.12.

         (38)     "Operator's Basic Fee" shall mean a fee to equal to two and
one-half percent (2.5%) of Gross Hotel Income for each Fiscal Year of the
Operating Term, which is payable as set forth in Section 10.01.


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<PAGE>   10

         (39)     "Operator's Expenses" shall mean the out-of-pocket expenses
and disbursements which are reasonably and necessarily incurred by Operator in
the performance of its obligations under this Agreement, all of which expenses
shall have been set forth in the Approved Budget. Operator's Expenses may
include reasonable travel, business entertainment, telephone, telegram, postage,
air express and other incidental expenses, but shall not include, except as
herein otherwise expressly provided, the salaries and wages of employees or
executives of Operator or of any Affiliate performing services or work in
connection with the operation of a Hotel; provided that traveling and other
direct expenses incurred by them in connection with the management of a Hotel,
including living expenses incurred during travel, shall be considered Operator's
Expenses to the extent that they have been identified by category and included
in the Approved Budget.

         (40)     "Operator's Incentive Fee" shall mean a fee to be established
by agreement between Operator and Lessee pursuant to Section 10.02.

         (41)     "Operator Paid Amounts" shall have the meaning set forth in
Section 8.01(c).

         (42)     "Owners" shall mean the entities described on Exhibit A as it
may be amended from time to time as the owners of the Hotels. "Owner" shall mean
any entity described on Exhibit A as it may be amended from time to time.

         (43)     "Owner Account" shall have the meaning set forth in Section
8.01(b).

         (44)     "Property" shall mean the Land, the Hotel, all real and
personal property now or hereafter situated upon the Land and all appurtenant
rights and easements thereto.

         (45)     "Rebates" shall have the meaning set forth in Section 21.12.

         (46)     "REIT" shall mean RFS Hotel Investors, Inc.

         (47)     "REIT Hotels" shall mean, initially, the 49 hotels owned by
Affiliates of the REIT which will be managed by Operator effective on or about
January 1, 2001, as set forth on Exhibit D and any additional hotels owned by
the REIT or its Affiliates and managed by Operator from time to time in the
future.

         (48)     "Sale of a Hotel" shall have the meaning set forth in Article
XVI.

         (49)     "Uniform System" shall mean the "Uniform System of Accounts
for Hotels" (9th Revised Edition, 1996), as published by the American Hotel and
Motel Association, as it may be amended from time to time, with such exceptions
as may be required by the provisions of this Agreement (including without
limitation the definitions of Gross Hotel Income, Gross Operating Profit and
Operating Expenses).

         (50)     "Unrelated Person" shall have the meaning set forth in Section
21.11.

         (b)      Terms with initial capital letters which appear within the
foregoing definitions are defined in this Article I or as indicated in this
Agreement.


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                                   ARTICLE II

                                TERM OF AGREEMENT

Section 2.01.00   Term.

         (a)      The term of this Agreement (the "Operating Term") shall
commence on the date set forth at the beginning of this Agreement and shall
terminate at midnight on December 31, 2010, subject to earlier termination as to
one or more Hotels at any time as set forth below.

         (b)      This Agreement may be terminated by Lessee or Operator as to
one or more Hotels at any time and from time to time by delivery of written
notice to the other party not less than ninety (90) days prior to the effective
date of termination which notice shall set forth (i) the effective date of
termination, and (ii) the Hotel or Hotels with respect to which this Agreement
is being terminated. Termination by Lessee pursuant to this Section 2.01(b)
shall be subject to the provisions of Section 21.09 of this Agreement.

                                   ARTICLE III

                             OPERATION OF THE HOTEL

Section 3.01.00   Representations by Operator; Engagement of Operator.

         Operator hereby represents that Operator (i) is experienced and capable
and will remain experienced and capable in the management and operation of
hotels throughout the United States and (ii) has reviewed and understands the
terms and provisions of the Lease and the Franchise Agreements and the Hotel
Standards. In reliance on the foregoing representations, Lessee hereby engages
Operator to manage and operate the Hotels during the Operating Term and Operator
agrees to manage and operate the Hotels during the Operating Term, in accordance
with this Agreement. Lessee and Operator acknowledge that it is the intention of
the parties that the Hotels be operated in a profitable manner in accordance
with the Hotel Operating Budget and the Hotel Capital Budget.

Section 3.02.00   Standards of Operation.

         Operator agrees to diligently and efficiently operate each Hotel and
all of its facilities and activities (i) at all times in accordance with the
Hotel Standards; (ii) consistent with the terms of the Lease and Lessee's
obligations thereunder; (iii) in the same manner as is customary and usual in
the operation of first-class hotels in its market; (iv) in compliance with this
Agreement, all easements, covenants and restrictions affecting the Property and
all applicable governmental laws rules, regulations, ordinances, orders and
requirements; (v) in accordance with the terms and conditions of any financing;
and (vi) in accordance with the requirements of any carrier having insurance on
the Hotel or any part thereof. Operator shall also obtain and keep in force any
and all licenses or permits necessary for the operation of the Hotel (provided
that liquor licenses shall be obtained and held by Lessee in Lessee's name). The
cost of obtaining and keeping in force any such licenses or permits (including
the liquor license, if any) and in complying with governmental laws, rules,
regulations, ordinances, orders and requirements shall be Operating Expenses to
the extent set forth in the Approved Budget. Notwithstanding any other provision
of this Agreement to the contrary, Operator's obligations with respect to the
Lease (and any amendments thereto), any ground lease, any franchise agreement
with respect to which Operator is expected to comply and the Hotel Standards
mandated thereunder, and to any such financing (collectively, "Major


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<PAGE>   12

Agreements") shall be conditioned upon (i) true and complete copies of the
relevant provisions thereof have been delivered to Operator sufficiently in
advance to allow Operator to perform such obligations and (ii) the provisions
thereof and/or compliance with such provisions by Operator (1) being applicable
to the day-to-day operation, maintenance and non-capital repair and replacement
of the Hotel or any portion thereof, (2) not requiring contribution of capital
or payments of Operator's own funds, (3) not materially increasing Operator's
obligations hereunder or materially decreasing Operator's other rights
hereunder, (4) not limiting or purporting to limit any corporate activity or
transaction with respect to Operator or its Affiliates or any other activity,
transfer, transaction, property or other matter involving Operator or its
Affiliates other than at the site of the Hotel, and (5) otherwise being within
the scope of Operator's duties under this Agreement. Lessee acknowledges and
agrees, without limiting the foregoing, that any failure of Operator or the
Hotel to comply with the provisions of Major Agreements arising out of (A)
construction activities at the Hotel, (B) inherent limitations in the design
and/or construction of, location of and/or parking at the Hotel and/or (C)
Lessee's written instructions to Operator, shall not be deemed a breach by
Operator of its obligations under this Agreement. Notwithstanding anything to
the contrary set forth in this Agreement, Operator shall not be in breach of any
obligation which it may otherwise have under this Agreement so long as Operator
is acting in accordance with the Approved Budget and Operator's failure to
perform such obligation results from Lessee's failure to provide adequate
funding in accordance with the terms of this Agreement.

Section 3.03.00   Reservations Services.

         Operator shall sell, represent and promote the Hotel through the
respective Franchisors' sales and reservations systems and will encourage the
use of the Hotel by all recognized sources of hotel business.

Section 3.04.00   Marketing.

         (a)      Ninety (90) days prior to the beginning of each Fiscal Year
and in conjunction with preparation of the Hotel Operating Budget for the
forthcoming Fiscal Year, Operator shall deliver to Lessee a proposed marketing
plan for each Hotel for such Fiscal Year which shall be consistent with the
Hotel Operating Budget. Operator shall review the marketing plan with Lessee and
upon Lessee's written approval it shall represent the approved marketing plan
(the "Marketing Plan") for the succeeding Fiscal Year and shall be implemented
by Operator. The sums expended for advertising and marketing each Fiscal Year
shall be an Operating Expense to the extent they are (i) set forth in the
Approved Budget and the Marketing Plan for such Fiscal Year and (ii) actually
expended for advertising or marketing the Hotel either exclusively or in
conjunction with the advertising or marketing of the Franchisor.

         (b)      Operator shall arrange, contract for and carry out such
advertising and promotion of the Hotel, as Operator shall deem advisable and
consistent with the Approved Budget. Funds for advertising and promotion of the
Hotel may be expended exclusively for or with respect to the Hotel or in
conjunction with the advertising or promotion of other properties managed by
Operator, and in either case may be administered at or through Operator's
regional or home office. Operator will make every effort to ensure that the
Hotel shall receive an equitable share of the benefit of the cooperative
advertising and promotion reasonably commensurate with its contribution to the
costs thereof. The costs thereof shall be equitably allocated by Operator
between the Hotel and other participating hotels. Upon Lessee's request,
Operator shall provide reasonable documentation to support such allocations.

         (c)      Operator, in its discretion, may cause the Hotel to
participate in sales and promotional campaigns and activities involving
complimentary rooms, food and beverages where such is customary in the travel
industry or in the Operator's practice and policy.


                                       8
<PAGE>   13

Section 3.05.00   Consultations Between Lessee and Operator.

         When requested by Lessee, Operator shall, from time to time, render
advice and assistance to Lessee and Owner in the negotiation and prosecution of
all claims for the reduction of real estate or other taxes or assessments
affecting the Hotel and for any award for taking by condemnation or eminent
domain affecting the Hotel.

Section 3.06.00   Activities of MeriStar.

         Lessee acknowledges that (i) a member of Operator is a subsidiary of
MeriStar Hotels & Resorts, Inc. ("MHR") and is related to MeriStar Hospitality
Corporation ("MHC"; MHR, MHC and their respective Affiliates other than Operator
being hereinafter collectively referred to as "MeriStar"), and (ii) Lessee is
fully aware that MeriStar owns, leases or operates a substantial number of hotel
and other properties and intends to own, lease or operate a substantial number
of additional such properties, many of which existing or future properties are
or may be within the market areas of the Hotels. Notwithstanding anything to the
contrary contained in this Agreement, Lessee hereby agrees that nothing in this
Agreement restricts or shall be deemed to restrict any activity or opportunity
of MeriStar (including, without limitation, the ownership, leasing and/or
operation of any such other hotels or properties), whether such activity or
opportunity is or may be in competition with the Hotels or any other property
leased by Lessee, or to impose on MeriStar any duty to act, or refrain from
acting, in the interests of Lessee or Owner, and Lessee hereby irrevocably
waives any claim or cause of action it may now or hereafter have against
MeriStar arising out of any such activity or opportunity or any such duty or
purported duty, whether arising out of this Agreement or otherwise.

                                   ARTICLE IV

                             INDEPENDENT CONTRACTOR

Section 4.01.00   Operator Status.

         In the performance of its duties in the administration, management and
operation of the Hotel, Operator shall act solely as an independent contractor.
Nothing herein shall constitute or be construed to be or create a partnership or
joint venture between Lessee and Operator, or be construed to appoint or
constitute Operator as an agent of Lessee or Owner for any purpose, or be
construed to create a lease by Operator of the Hotel or its facilities. It is
expressly covenanted that this Agreement is no more than an agreement for the
rendering of services by Operator on behalf of Lessee in the operation and
management of the Hotel only.

Section 4.02.00   Employees.

         (a)      Each Hotel employee shall be the employee of Operator and not
of Lessee, and every person performing services in connection with this
Agreement shall be acting as the employee of Operator. All such personnel shall
be on the payroll of Operator, but their salaries and other related expenses, in
amounts not to exceed those sums allocated to such salaries and expenses in the
Approved Budget shall be an Operating Expense.

         (b)      Operator shall provide evidence to Lessee of statutory
Worker's Compensation Insurance and Employer's Liability Insurance, with waiver
of subrogation endorsements in favor of Lessee and Owner, for each such
employee. The insurance coverages (including, without limitation, the carrier,


                                       9
<PAGE>   14

policy limits of each and waiver of subrogation endorsements) must be in form,
substance and amount satisfactory to Lessee in all respects.

         (c)      The general hiring policies and the discharge of employees at
the Hotel shall in all respects comply with all "Equal Employment Opportunity"
laws and regulations, and Operator agrees that all laws, regulations and
ordinances regarding the employment and payment of persons engaged in the
operation of each Hotel (the "Employment Laws") will be complied with.

         (d)      Lessee shall have the right to participate in any negotiations
with labor unions representing such employees at the Hotel, and Operator shall
not sign any union contracts covering such employees at the Hotel which have not
been previously approved in writing by Lessee.

         (e)      Operator shall submit to Lessee the resumes of any person
proposed to serve as the General Manager, Director of Marketing, Director of
Sales, Resident Manager or Controller of any Hotel. Lessee shall have the right
to approve each of the persons proposed for such positions prior to such persons
being assigned to any Hotel by Operator which approval shall not be unreasonably
withheld or delayed.

Section 4.03.00   Reimbursement of Employee Expenses.

         (a)      All costs of every nature pertaining to all employees at the
Hotel arising out of the employer-employee relationship, including, without
limitation, salaries, benefits, bonuses, relocation costs, employment-related
legal costs, costs incurred in connection with governmental laws and
regulations, insurance rules, and such other expenses as Operator, in its
reasonable discretion, may deem appropriate shall be an Operating Cost of the
Hotel to the extent set forth in the Approved Budget and Owner shall reimburse,
indemnify and hold harmless Operator from all costs, expenses, liabilities and
claims incurred in connection therewith.

         (b)      Subject to the prior written approval of Lessee, Operator may
use employees of Operator who are not assigned to the Hotel to perform special
services for the Hotel, and the cost of their salaries, payroll taxes and
employee benefits shall be reimbursed to Operator as an Operating Expense to the
extent such costs are set forth in the Approved Budget or otherwise approved by
Lessee.

         (c)      Within limits set forth in the Approved Budget, employees of
Operator other than those regularly employed at the Hotel shall be entitled to
free room and board and the free use of all hotel facilities at such times as
they visit the Hotel in connection with the management of the Hotel or are
assigned temporarily to the Hotel to perform services for the Hotel. Likewise,
employees regularly employed at the Hotel shall be entitled to free room and
board and the free use of all hotel facilities in all other Hotels at such times
as they visit other Hotels in connection with the management of such other
Hotels or are assigned temporarily to such other Hotels to perform services for
such other Hotels.

         (d)      Owner and Lessee shall be entitled to free room and board and
the free use of all hotel facilities for their employees and other persons
designated by Owner and Lessee.

Section 4.04.00   Employee Benefit Plans.

         Operator may enroll the Operator's employees at the Hotels in pension,
medical and health, life insurance and employee benefit plans which are joint
plans for the benefit of employees at more than one of the Hotels. Employer
contributions to such plans, reasonable administrative fees, at cost, which may
be expended in connection therewith, and reasonable expenses for such plans will
all be an Operating


                                       10
<PAGE>   15

Expense to the extent such costs are provided for in the Approved Budget. The
administration expenses of any joint plans will be equitably apportioned among
the various Hotels and any other hotels operated by Operator or its affiliates.
In addition, Operator may provide lodging, food and beverage privileges to
employees of Operator in accordance with the employee benefit operating policy
applicable to all Hotels. All costs for the benefits, services and privileges
referenced in Section 4.03(c) and this Section 4.04 will be Operating Expenses
only to the extent the same are provided for in the Approved Budget, otherwise
all such costs shall be borne solely by Operator without reimbursement by
Lessee.

Section 4.05.00   Execution of Agreements.

         (a)      Except as provided in Section 4.05(b), Operator shall execute
as agent of Lessee all leases and other agreements relating to equipment and/or
services provided to each Hotel, all of which, unless otherwise approved in
writing in advance by Lessee, shall be cancelable upon not more than one hundred
eighty (180) days' written notice by Operator or Lessee without the payment of a
penalty or fee. Notwithstanding the foregoing, without the prior written
approval of Lessee, Operator shall not enter into any agreement (i) which
provides for the payment of sums not authorized by Lessee in an Approved Budget,
(ii) which would give rise to a lien upon all or any part of the Property, (iii)
which would result in liability to Lessee for sums other than as set forth in
the applicable Approved Budget, (iv) to lease any retail space in the Hotel, (v)
relating to alterations to the exterior, interior or structural design of the
Hotel, (vi) which requires the payment of more than $50,000 for the term of the
agreement, or (vii) which is not cancelable by Lessee upon 180 days' notice or
less.

         (b)      Subject to Lessee's prior approval of the same, Operator shall
execute, as agent for Lessee, (i) all leases, as sub-lessor, of retail space in
the Hotel, and (ii) equipment rental and/or lease agreements which cannot be
terminated upon one hundred eighty (180) days notice or less without the payment
of a penalty or fee. Operator shall exercise its best efforts to obtain in each
equipment agreement a right on the part of the lessee of such equipment to
terminate the same on one hundred eighty (180) days notice or less without the
payment of a penalty fee. Notwithstanding anything in this Section 4.05 to the
contrary, Lessee reserves the right, exercisable at Lessee's option, to execute
any lease or other agreement relating to equipment and/or services being
provided to the Hotel.

                                    ARTICLE V

                                 INDEMNIFICATION

Section 5.01.00   Indemnification by Operator.

         Operator shall indemnify and hold Lessee (and Lessee's agents,
principals, shareholders, partners, members, officers, directors and employees)
harmless from and against all liabilities, losses, claims, damages, costs and
expenses (including, but not limited to, reasonable attorneys' fees and
expenses) that may be incurred by or asserted against any such party and that
arise from (a) the fraud, willful misconduct or negligence of the employees of
Operator at or above the level of general manager, (b) the breach by Operator of
any provision of this Agreement or (c) any action taken by Operator which is
beyond the scope of Operator's authority under this Agreement. Lessee shall
promptly provide Operator with written notice of any claim or suit brought
against it by a third party which might result in such indemnification and
Operator shall have the option of defending any claim or suit brought against
the Lessee with counsel selected by Operator and reasonably approved by Lessee.
Lessee shall cooperate with the Operator or its counsel in the preparation and
conduct of any defense to any such claim or suit and shall have the right to
reasonably participate in such defense.


                                       11
<PAGE>   16

Section 5.02.00   Limitations on Indemnification.

         None of the indemnifications set forth in Section 5.01 shall be
applicable to (1) liability resulting from the design or construction of the
Hotel, (2) liability to Lessee resulting from Lessee's fraud or willful
misconduct, or (3) that portion of a liability which is covered and paid for by
insurance maintained for the Hotel (it being understood and agreed that if
Lessee is self-insuring against any perils and/or liabilities against which the
Lessee is otherwise required to maintain insurance under the terms of this
Agreement, then Lessee shall be deemed to be maintaining insurance against such
perils and/or liabilities in the same amounts of insurance which Lessee is
required to maintain under this Agreement, and that such part of the liability
which would have been covered and paid for by such required insurance shall not
be covered by the foregoing indemnities). The standard of performance of which
Operator is to be responsible under this Agreement shall be that, reasonably and
diligently exercised, of a professional hotel operator having the knowledge,
experience and expertise which Operator represents to Lessee that Operator has.
Notwithstanding any other provision of this Agreement, Operator shall not be
obligated to indemnify or hold Lessee harmless against the amount of claims or
liabilities which are payable as Operating Expenses (i) as a deductible under
applicable insurance which exceeds the lesser of the amount of the claim or five
thousand dollars ($5,000) (adjusted each Fiscal Year by the percentage increase
in the CPI over the twelve (12) month period immediately preceding the start of
the Fiscal Year in question) or (ii) as amounts due under contracts for
performance thereof excluding payments for breach thereof, or, which are covered
and paid for by insurance which Lessee is required to provide and maintain under
this Agreement, whether or not such insurance is actually in place (unless the
failure of such insurance to be in place is the result of a breach by Operator
of its obligations under this Agreement).

Section 5.03.00   Indemnification by Lessee.

           Except as provided in Section 5.01, Lessee shall indemnify and hold
Operator (and Operator's agents, principals, shareholders, partners, members,
officers, directors and employees) harmless from and against all liabilities,
losses, claims, damages, costs and expenses (including, but not limited to,
reasonable attorneys' fees and expenses) that may be incurred by or asserted
against such party and that arise from or in connection with (a) the performance
of Operator's services under this Agreement, (b) any act or omission (whether or
not willful, tortious, or negligent) of Lessee or any third party or (c) any
other occurrence related to the Hotel which arising before, during or after the
Operating Term. Operator shall promptly provide Lessee with written notice of
any claim or suit brought against it by a third party which might result in such
indemnification and Lessee shall have the option of defending any claim or suit
brought against Operator with counsel selected by Lessee and reasonably
satisfactory to Operator. Operator shall cooperate with the Lessee or its
counsel in the preparation and conduct of any defense to any such claim or suit
and shall have the right to reasonably participate in such defense.

Section 5.04.00   Survival of Indemnity.

         The provisions of this Article V shall survive the expiration or sooner
termination of this Agreement with respect to matters arising out of facts or
circumstances occurring during the period prior to such expiration or
termination.

Section 5.05.00   Employment Claim.

         Supplementing the provisions of Sections 5.01 and 5.03, if any claim
shall be made against Lessee and/or Operator which is based upon a violation or
alleged violation of the Employment Laws (an "Employment Claim"), the Employment
Claim shall fall within Operator's indemnification obligations


                                       12
<PAGE>   17

under Section 5.01 only if it is based upon (a) the willful misconduct or
negligence of Operator's employees at the level of hotel general manager or
above or (b) Operator's breach of its obligations under Section 4.02(c), and
shall otherwise fall within Lessee's indemnification obligations under Section
5.03.

Section 5.06.00   Environmental Matters.

         (a)      The following terms shall have the respective meanings
ascribed to them as hereinafter set forth:

                  (i)      The term "Environmental Activity" shall mean any
         past, present or future storage, holding, existence, release,
         threatened release, emission, discharge, generation, processing, use,
         abatement, disposition, handling, transportation or reporting of any
         Hazardous Substance (as hereinafter defined) in violation of any
         applicable Environmental Laws (as hereinafter defined) at, from, under,
         into or on the Hotel, or otherwise relating to the Hotel or the current
         or former ownership, use, operation or occupancy thereof, or the threat
         of any such activity.

                  (ii)     The term "Environmental Laws" shall mean any and all
         laws, statutes, ordinances, rules, regulations, judgements, orders,
         decrees, permits, licenses or other governmental restrictions or
         requirements relating to health, the environment, any Hazardous
         Substance or any Environmental Activity now or hereafter or at any time
         prior to the date of this Agreement in effect in the jurisdiction in
         which the Hotel is located, including without limitation the
         Comprehensive Environmental Response, Compensation and Liability Act of
         1986, as amended (42 U.S.C. ss.9601 et seq.), the Resource Conservation
         Recovery Act, as amended by the Hazardous and Solid Waste Amendments of
         1984, as now or hereafter amended (42 U.S.C. ss.6901 et seq.), the
         Hazardous Materials Transportation Act, as amended (49 U.S.C. ss.1801
         et seq.), the Clean Air Act, as amended (42 U.S.C. ss.7401 et seq.),
         the Clean Water Act, as amended (33 U.S.C. ss.1251 et seq.), the Toxic
         Substances and Control Act, as amended (15 U.S.C. ss.2601 et seq.), any
         and all state and local laws similar to, in whole or in part, federal
         toxic waste laws which from time to time are in effect in the
         jurisdiction in which the Hotel is located, and the regulations
         pursuant thereto, any laws or regulations governing "wetlands" and any
         common law theory based on nuisance or strict liability.

                           (iii) The term "Hazardous Substance" shall mean any
         substance, material or waste which is regulated, or governed by any
         Environmental Law, including without limitation (a) any substance,
         material or waste defined, used or listed as "hazardous waste",
         "extremely hazardous waste", "restricted hazardous waste", "hazardous
         substance", "hazardous material", "toxic substance" or similar or
         related term as defined, used or listed in any Environmental Laws, (b)
         any asbestos or asbestos containing materials, (c) any underground
         storage tanks or similar facilities, (d) any petroleum products stored
         in bulk or polychlorinated biphenyl, (e) any additional substances or
         materials which are now or hereafter hazardous or toxic substances
         under any Environmental Laws, and (f) any additional substance or
         material which from and after the date of this Agreement becomes a
         "Hazardous Substance" as defined herein.

         (b)      Operator shall (i) perform its obligations under this
Agreement in compliance with all Environmental Laws in effect from time to time
during the Operating Term, (ii) promptly notify Lessee in writing of (A) any
written notice received by Operator with respect to any Environmental Activity
or (B) any other Environmental Activity of which Operator has actual knowledge
and (iii) cooperate with Lessee, at Lessee's cost (except that Operator shall
bear the cost of such cooperation to the extent that such Environmental Activity
is a result of Operator's failure to comply with its covenants under clauses (i)
or


                                       13
<PAGE>   18

(ii) above), and in all reasonable respects, in connection with any and all
remediation of Environmental Activities undertaken by Lessee in compliance with
applicable Environmental Laws. Notwithstanding the foregoing, Lessee and
Operator acknowledge and agree that Lessee shall be responsible for reporting to
applicable governmental agencies any Environmental Activities subject to
reporting pursuant to applicable Environmental Law and shall undertake any and
all remediation or other work required under any Environmental Law or in
connection with any Environmental Activity pursuant to contracts between Lessee
and a contractor or consultant qualified to perform such work.

         (c)      Except as specifically set forth to the contrary in Sections
5.01, 5.02, 5.03 and 5.06(b) above, Lessee shall (i) be solely responsible for
the compliance of the Hotel with all Environmental Laws and (ii) indemnify and
hold Operator and its Affiliates (and Operator's and Operator's Affiliates'
agents, principals, shareholders, partners, members, officers, directors and
employees) harmless from and against all liabilities, losses, claims, damages,
costs and expenses (including, but not limited to, reasonable attorneys' fees
and expenses) that may be incurred by or asserted against such party and that
arise from or in connection with any past, present or future Environmental
Activity or other non-compliance of the Hotel with any Environmental Law. The
provisions of this Section 5.06(c) shall survive the expiration or earlier
termination of this Agreement."

Section 5.07.00   Lessee Net Worth.

         Lessee agrees to maintain a net worth, determined in accordance with
generally accepted accounting principles, of not less than $1,000,000 during the
Operating Term. Lessee shall deliver to Operator, upon request not more often
than twice each Fiscal Year, a certificate from an authorized officer of Lessee,
certifying as to Lessee's net worth as of the end of the most recent accounting
period. Lessee has executed and delivered to Operator the Guaranty in the form
of Exhibit E.

                                   ARTICLE VI

                           BUDGETS AND POLICY MEETINGS

Section 6.01.00   Budgets.

         (a)      Lessee will cause Owner to prepare an annual capital budget
for each Fiscal Year for each Hotel (the "Hotel Capital Budget") at least one
hundred twenty (120) days prior to commencement of the Fiscal Year and Lessee
will provide Operator with a copy of the Hotel Capital Budget. If requested by
Lessee, Operator will assist Owner in preparation of the Hotel Capital Budget.
The Hotel Capital Budget will set forth all projected capital improvements and
all projected expenditures for replacements, substitutions and additions to
Hotel FF&E for such Fiscal Year, which budget shall also be month-to-month as
well as annual. At least ninety (90) days prior to the commencement of each
Fiscal Year, Operator shall submit to Lessee an annual forecast for the
operation of the Hotel for the forthcoming Fiscal Year containing detailed
revenue projections and budgets of Operating Expenses (the "Hotel Operating
Budget"). The Hotel Operating Budget shall be month-to-month as well as annual
and shall be in the form designated by Lessee. Additionally, before the
commencement of each Fiscal Year, Operator shall submit to Lessee daily budgeted
occupancy, average daily rate and Revenue per Available Room statistics for each
hotel. The Hotel Operating Budget and the daily budgeted hotel operating
statistics shall contain Operator's reasonable good faith estimates of the
amounts set forth therein but Operator shall not be deemed to have made a
guarantee as to any amounts in the Hotel Operating Budget. At the same time,
Operator shall also present the Marketing Plan. Owner shall be responsible for
implementing the


                                       14
<PAGE>   19

Hotel Capital Budget and may, in Owner's sole discretion, increase, decrease,
delete or modify in any respect any capital expenditure in the Hotel Capital
Budget.

         (b)      Operator shall review the Hotel Operating Budget with Lessee,
and upon Lessee's written approval of the Budget it shall constitute the
Approved Budget for the succeeding Fiscal Year and shall be implemented by
Operator.

         (c)      Operator may reallocate all or part of the amount budgeted to
any line item to another line item within the same department.

         (d)      Lessee hereby acknowledges that the Hotel Operating Budget is
intended to be the best estimate at the time of its preparation and merely a
forecast of the Hotel's income and expenses for the ensuing Fiscal Year and that
Operator shall not be deemed to have made a guarantee or warranty to Lessee in
connection with the Hotel Operating Budget.

Section 6.02.00   Budget Meetings.

         At each budget meeting and at any additional meetings during a Fiscal
Year reasonably called by Lessee or Operator, Operator shall consult with Lessee
on matters of policy concerning management, sales, room rates, wage scales,
personnel, general overall operating procedures, economics and operation and
other matters affecting the operation of the Hotel.

Section 6.03.00   Approval by Lessee Required.

         Any request by Operator to make any expenditure or incur any
obligations which causes or likely will cause total annual operating expenses at
a Hotel to exceed 105% of the total annual operating expenses for the Hotel as
set forth in the Approved Budget or which falls into any category of
expenditures which in the opinion of Lessee and its counsel is required by law
to have the prior approval of Lessee, shall be submitted to Lessee in writing
with an explanation of and accompanied by supporting information for the
request. Operator shall not make any such expenditure or incur any such
obligation without Lessee's prior written consent, except (i) as is necessary,
in Operator's reasonable discretion, for the immediate emergency protection of
life or property, or (ii) unless such expenditure or obligation is offset by an
equal or greater amount of related revenue. Lessee shall endeavor to respond to
any such request within fifteen (15) days of the receipt thereof; provided,
however, Lessee shall have no obligation to agree to any such request and no
liability for failing to respond.

                                   ARTICLE VII

                               OPERATING EXPENSES

Section 7.01.00   Payment of Operating Expenses.

         (a)      In performing its authorized duties hereunder, Operator shall
promptly pay all Operating Expenses, except that if requested by Lessee certain
Operating Expenses shall be paid by Operator directly to Lessee for payment by
Lessee to the appropriate lender, taxing authority, insurer or other party so
identified by Lessee to Operator.


                                       15
<PAGE>   20

         (b)      Subject to Article V, all Operating Expenses or other
expenses incurred by Operator in performing its authorized duties shall be
reimbursed or borne by Lessee; provided that such Operating Expenses or other
expenses are incurred pursuant to and within the limits set forth in an Approved
Budget or pursuant to other written authorization by Lessee. To the extent the
funds necessary therefor are not generated by the operation of the Hotel, they
shall be supplied by Lessee to Operator in the manner provided in Article VIII.

Section 7.02.00   Operating Expenses Not an Obligation of Operator.

         Except as may be otherwise specifically provided in this Agreement,
Operator shall in no event be required to advance any of its own funds for
Operating Expenses of the Hotel, nor to incur any liability in connection
therewith unless Lessee shall have furnished Operator with funds as required of
Lessee under the terms of this Agreement. However, if Lessee has provided funds
required of Lessee hereunder, Operator shall advance such funds and all other
funds necessary to pay expenses incurred by Operator in performing its duties
and obligations hereunder.

                                  ARTICLE VIII

                                  BANK ACCOUNTS

Section 8.01.00   Bank Accounts

         The following special accounts shall be established in connection with
the operation of the Hotel:

         (a)      Deposit Account. All cash (other than cash needed to maintain
a petty cash fund at the Hotel not to exceed $1,000) and checks received by
Operator in the operation of the Hotel shall be deposited in a special account
or accounts bearing the name of the Hotel (the "Deposit Account"), in such
federally insured banks, savings and loans or trust companies as may be
designated from time to time by Lessee and reasonably approved by Operator. The
Deposit Account shall be in the name of Operator as agent for Lessee and shall
be under the control of Operator. Amounts in the Deposit Account shall not be
commingled with other funds of Operator or funds from other properties owned,
leased or managed by Operator, other than properties managed by Operator for
Lessee or Affiliates of Lessee designated by Lessee. All amounts deposited into
the Deposit Account shall be paid into the Owner Account (as hereinafter
defined) as set forth in Section 8.01(b).

         (b)      Owner Account. Lessee shall establish, in Lessee's name and
under the sole control of Lessee, a master account or accounts in such federally
insured banks, savings and loans or trust companies as may be designated from
time to time by Lessee (the "Owner Account"). All amounts deposited into the
Deposit Account shall be paid into the Owner Account on a daily basis, or on
such other basis as may be determined by Lessee from time to time upon written
notice to Operator. All credit card receipts shall be deposited directly into
the Owner Account. Amounts in the Owner Account may be commingled with funds
from other properties owned or leased by Lessee, at Lessee's discretion. Lessee
shall be responsible for paying fixed charges and debt service, ground rent and
capital costs with respect to the Hotel from the Owner Account or from other
funds of Lessee, except to the extent Lessee has designated Operator in writing
to pay such amounts from the Agency Account (as hereinafter defined).

         (c)      Agency Account. Operator shall establish, in Operator's name
as agent for Lessee and under the control of Operator as hereinafter set forth,
a special account or accounts in such federally insured banks, savings and loans
or trust companies as may be designated from time to time by Lessee


                                       16
<PAGE>   21

(the "Agency Account"). Lessee shall deposit into the Agency Account sufficient
working capital on an as-needed basis to pay all Operating Expenses and other
amounts which are the responsibility of Operator to pay under this Agreement
(including without limitation any fixed charges and debt service, ground rent
and capital costs with respect to the Hotel which Lessee may have designated
Operator to pay from the Agency Account) (collectively, "Operator Paid
Amounts"). From the Agency Account, Operator shall pay all Operating Expenses
and other Operator Paid Amounts required to be paid by Operator on Lessee's
behalf under this Agreement (to the extent, in each case, such amounts are
permitted or required to be paid under this Agreement). Interest on the Agency
Account shall accrue to the benefit of Lessee but shall be available to pay any
Operator Paid Amounts. Checks or other documents of withdrawal from the Agency
Account shall be signed only by representatives of Operator, provided that such
representatives shall be bonded or otherwise insured in a manner reasonably
satisfactory to Lessee. The identity of such authorized representatives shall be
disclosed to Lessee from time to time. The premiums for bonding or other
insurance shall be an Operating Expense except for premiums for bonding off-site
executive employees of Operator. Upon the expiration or termination of this
Agreement, all remaining amounts in the Agency Account shall be transferred to
Lessee.

Section 8.02.00   Authorized Signatures.

         The Hotel Operating Account shall be under the control of Operator,
without prejudice, however, to Operator's obligation to account to Lessee as and
when provided for herein. All receipts and income, including, without
limitation, Gross Hotel Income shall be promptly deposited in the Hotel
Operating Account. Checks or other documents of withdrawal shall be signed only
by the individual representatives of Operator approved in writing by Lessee and
duly recognized for such purpose by the bank or banks in which the referenced
accounts are maintained. Operator shall supply Lessee with fidelity bonds or
other insurance insuring the fidelity of authorized signatories to such
accounts, unless said bonds or other insurance shall have been placed by Lessee
and delivered directly by the bonding or insurance company to Lessee. The cost
of such fidelity bonds or other insurance shall be an Operating Expense and
subject to Lessee's approval. Neither Lessee nor Operator shall be responsible
for any losses occasioned by the failure or insolvency of the bank or banks in
which the referenced accounts are maintained. Upon expiration or termination of
this Agreement and the payment to Operator of all amounts due Operator hereunder
upon such expiration or termination, as provided in this Agreement, all
remaining amounts in the referenced accounts shall be transferred forthwith to
Lessee, or made freely available to Lessee.

Section 8.03.00   Investment of Hotel Cash.

         Operator shall invest Hotel Operating Account balances in a cash
management program approved in writing by Lessee and which provides for Lessee
to receive the interest income thereon.

Section 8.04.     Payroll. 00

         If and to the extent that there are insufficient funds in the Agency
Account to pay compensation due to Hotel employees (including all related
payroll and withholding taxes) and if Lessee shall fail to deposit such funds in
the Agency Account within two (2) business days after written notice from
Operator, then Operator may use funds in the Deposit Accounts only to the extent
necessary to pay such compensation (not in any event to exceed the amount of
such compensation accrued or payable with respect to the two calendar weeks
preceding the date of any such draw upon the Deposit Accounts by Operator) and
shall immediately advise Lessee as to the use of such funds.


                                       17
<PAGE>   22

Section 8.05.     Security Deposits.  00

         Any security deposit held under a Space Lease shall be held in a
separate account if required by law or the terms of such Space Lease or if
otherwise required by Lessee.

                                   ARTICLE IX

                          BOOKS, RECORDS AND STATEMENTS

Section 9.01.00  Books and Records.

         (a)      Operator shall keep full and adequate books of account and
other records reflecting the results of operation of the Hotel on an accrual
basis, all in accordance with the Uniform System, with such exceptions as may be
approved in writing by Lessee.

         (b)      Except for the books and records which may be kept in
Operator's home office or other location approved by Lessee the books of account
and all other records relating to or reflecting the operation of the Hotel shall
be kept at the Hotel. All books and records pertaining to the Hotel and of
Operator (including all budgetary records of Operator), wherever kept, shall be
available to Lessee and its representatives at all reasonable times for
examination, audit, inspection and transcription. All such books and records
pertaining to the Hotel, including, without limitation, books of account, guest
records and front office records, at all times shall be the property of Lessee
and, except for the books of account and as herein otherwise provided, shall not
be removed from the Hotel by Operator without Lessee's written approval and
consent. Upon any termination of this Agreement, all of such books and records
pertaining to the Hotel forthwith shall be turned over to Lessee so as to insure
the orderly continuance of the operation of the Hotel, but such books and
records shall be available to Operator for a period of five (5) years at all
reasonable times for inspection, audit, examination, and transcription of
particulars relating to the period in which Operator managed the Hotel, or at
any time after two years Lessee may dispose of the same if Operator fails to
remove the books and records from the Hotel or other premises where the same are
kept upon thirty (30) days' written notice from Lessee.

         (c)      Lessee will cause to be made available to Operator, at no
charge to Operator, the hotel accounting system offered by Lessee's Affiliate,
Centrafuse [Inc.] and Operator shall utilize such accounting system, including
any enhancements or upgrades thereto, in the operation of the Hotels.

         (d)      Lessee acknowledges and agrees that any books and records of
MeriStar or any Affiliate of MeriStar other than Operator shall not be deemed to
be books and records of the Hotel or of the Operator.

Section 9.02.00   Statements.

         (a)      Operator shall deliver to Lessee by the fifteenth (15th) day
of each month, a monthly report of the state of the business and affairs of the
operation of the Hotel for the immediately preceding month and for the Fiscal
Year to date. Such reports shall include at least (i) a balance sheet, (ii) a
profit and loss statement, comparing current month and Fiscal Year-to-date
profit, loss, and operating expenses to the Approved Budget and the prior year
and comparing current month and Fiscal Year-to-date average daily rate and
occupancy to the Approved Budget and the prior year, (iii) a statement which
details the computation of all fees payable to Operator for the month, (iv) the
balance of all bank accounts, (v) an adjusting statement showing the actual cash
position of the Hotel for the month and Fiscal Year-to-date,


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<PAGE>   23

and (vi) sources and uses statements. Additionally, Operator shall deliver to
Lessee for each month by the end of the following month a narrative discussing
any of the aforementioned reports and variances from the Approved Budget;
without thereby implying Lessee's approval of such variance, except for such
variance as may have been specifically approved in writing by Lessee.

         (b)      Such reports and statements (i) shall be in form and in detail
satisfactory to Lessee, (ii) shall be taken from the books and records
maintained by Operator in the manner hereinabove specified, (iii) shall follow
the general form set forth in the Uniform System, and (iv) shall be accompanied
by copies of all paid receipts for the month, if requested by Lessee.

         (c)      Within forty-five (45) days after the end of each Fiscal Year,
Operator shall, if requested by Lessee, deliver to Lessee a draft profit and
loss statement prepared by the Independent CPA, showing the results of
operations of Operator and/or the Hotel during such Fiscal Year including, but
not limited to, the Gross Hotel Income, if any, for such Fiscal Year. Further,
Operator shall, if requested by Lessee pursuant to a legitimate documented
request made to Lessee by a third party not an Affiliate of Lessee (to include,
but not limited to, a request of the U.S. Securities or Exchange Commission,
other federal or state regulatory bodies or agencies, or any court of competent
jurisdiction), provide for an audit of its books and records by the Independent
CPA, with the costs of any such requested audit to be borne by Lessee. Any
disputes as to the contents of any such statement or any accounting matter
hereunder shall be determined by the Independent CPA, whose decisions shall be
final and conclusive on Operator and Lessee.

         (d)      In addition, Operator shall deliver to Lessee, upon receipt by
Operator, copies of (i) each STAR report from Smith Travel Research; (ii) each
Guest Satisfaction report; (iii) each New Competition report; (iv) each
Franchisor inspection report; and (v) such other reports or information in such
form as may be reasonably requested by Lessee.

                                    ARTICLE X

                     OPERATOR'S FEE AND TRANSFERS TO LESSEE

Section 10.01.00  Payment of Operator's Basic Fee.

         (a)      On the first (1st) day of each month during the Operating
Term, Operator shall be paid out of the Hotel Operating Account the Operator's
Basic Fee for that month, based upon Gross Hotel Income for the immediately
prior month, as determined from the books and records referred to in Article IX.
Operator's Expenses, if any, shall be paid as invoiced for services and
materials rendered.

         (b)      Notwithstanding Section 10.01(a), upon commencement of this
Agreement, Lessee agrees to pay to Operator the aggregate Operator's Basic Fee
for the first three (3) months of the Operating Term as estimated from the
initial budgeted revenues for such three-month period previously agreed to by
the parties hereto.

Section 10.02.00  Payment of Operator's Incentive Fee.

         On the 60th day following the end of each Fiscal Year, Lessee shall pay
to Operator, the Operator's Incentive Fee, if any, for such Fiscal Year.
"Operator's Incentive Fee" for any Fiscal Year shall be an amount determined by
Lessee and Operator prior to commencement of the Fiscal Year and shall generally
be based upon the financial performance of all of the Hotels, in the aggregate.
The formula for calculating and determining Operator's Incentive Fee for each
Fiscal Year shall be agreed to by


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<PAGE>   24

Operator and Lessee in connection with the Approved Budget and in any event
prior to commencement of each Fiscal Year. Lessee and Operator agree that in no
event will the Operator's Incentive Fee with respect to the Hotels together with
the incentive management fee for the other initial REIT Hotels described in
Exhibit D exceed $1,000,000 in the aggregate for any Fiscal Year.

Section 10.03.00  Distribution of Cash.

         (a)      On or before the tenth (10th) day of each month during the
Operating Term or as requested at any time by Lessee, Operator shall, after
transferring to the Hotel Operating Account all funds held in other accounts
which Lessee has permitted to be established for the efficient operation of the
Hotels and after distribution of cash pursuant to Sections 10.01 and 10.03(a)
for the preceding month and retention of working capital sufficient, in the sole
judgment of Lessee, to assure the uninterrupted and efficient operation of the
Hotels for the next Accounting Period, remit to Lessee all remaining funds in
the Hotel Operating Account, including but not limited to funds for items which
are excluded from the definition of Gross Hotel Income.

Section 10.04.00  Adjustments to Allocations.

         If at the time calculations are made to determine amounts to be
allocated or distributed in accordance with Sections 10.01, 10.02 and 10.03, or
if at the end of each Fiscal Year and following receipt by Lessee of the annual
audit, if any, it is determined that any amounts have been allocated or
distributed in excess of the amounts properly allocable or distributable
pursuant to Sections 10.01, 10.02 and 10.03, an adjustment will be made based on
said calculations or audit, if necessary, so that the proper allocations and
distributions will have been made. Such calculations or annual audit shall set
forth the proper calculations, allocations and distributions required to
implement such an adjustment. Within thirty (30) days of receipt by Lessee of
such audit and/or of Operator's calculations if agreed to by Lessee relating to
such an adjustment, Lessee or Operator, as the case may be, shall deposit in the
Hotel Operating Account any excess amounts which may have been distributed to
them.

Section 10.05.00  Arbitration.

         (a)      In the event of a dispute, controversy or difference between
Operator and Lessee over the calculation of the amount of the Operator's
Incentive Fee for any Fiscal Year, at the request of either party, the parties
shall submit such dispute, controversy or difference to arbitration by the
American Arbitration Association under its then prevailing rules, except as
modified by this Section 10.05. The arbitration tribunal shall be comprised of
three (3) arbitrators each of whom shall have at least five (5) years'
experience in hotel operation, management or ownership, one to be appointed by
each of Lessee and Operator and the third to be appointed by the American
Arbitration Association.

         (b)      Prior to the commencement of arbitration hearings, the
arbitrator shall provide an oath or undertaking of impartiality. The arbitration
shall be conducted in Memphis, Tennessee in accordance with Title 9 of the U.S.
Code (the Federal Arbitration Act) and the Commercial Arbitration Rules of the
American Arbitration Association and the arbitration session shall be held not
later than twenty (20) days after the final selection of the arbitrator. The
arbitration session shall be limited to a time period of forty-eight (48) hours
from commencement of such session and the costs of arbitration shall be
allocated by the arbitrator. Judgment on the award rendered by the arbitrator in
accordance with this Section 10.05 may be entered in any court having
jurisdiction thereof.


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<PAGE>   25

         (c)      Notwithstanding the foregoing, in no event shall the
arbitrator determine or otherwise designate the formula for calculating the
amount of the Operator's Incentive Fee for any Fiscal Year, which shall be
determined solely by agreement of the parties prior to the commencement of each
Fiscal Year. The sole function of any arbitration under this Section 10.05 shall
be to calculate any disputed amount of Operator's Incentive Fee pursuant to the
formula agreed by the parties.

Section 10.06.00  Other Fees.

         In addition, if requested by Lessee and agreed to by Operator, Operator
will provide management oversight of other hotel management companies engaged by
Lessee or its affiliates or Owner or its affiliates with respect to other hotels
owned by Owner or its affiliates or leased by Lessee or its affiliates. The fee
for such management oversight services shall be established by mutual agreement
of the parties.

                                   ARTICLE XI

                             REPAIRS AND MAINTENANCE

         Subject to the provisions of the Approved Budget, Operator shall from
time to time make such expenditures for repairs and maintenance as are necessary
to keep the Hotel in good operating condition. If any repairs or maintenance
shall be made necessary by any condition against the occurrence of which
Operator, Lessee or Owner has received the guaranty or warranty of any
contractor for the building of the Hotel or of any supplier of labor or
materials for the construction of the Hotel, then Operator shall, on Lessee's or
Owner's request, cooperate with Lessee and Owner in invoking such guarantees or
warranties. Notwithstanding the Approved Budget, Owner or Lessee may from time
to time at its expense make such alterations, additions, or improvements
(including structural changes or repairs) in or to the Hotel as Owner or Lessee,
in its sole discretion, deems to be desirable.

                                   ARTICLE XII

                                    INSURANCE

Section 12.01.00  General.

         Owner and Lessee shall maintain insurance policies with respect to the
Hotels as set forth in the Lease. Operator agrees to cooperate with Lessee and
Owner in obtaining any such insurance.

Section 12.02.00  Employment Insurance.

         Operator shall, as an Operating Expense, provide and maintain (i)
workers' compensation insurance with respect to all Hotel employees in such
amounts as may be required by applicable law, (ii) crime insurance in connection
with all operations, business and affairs arising out of or in connection with
the Hotel, including coverage on persons employed by Operator in an amount
specified by Lessee [and (iii) employment practices liability insurance in
commercially reasonable amounts and deductibles]; provided that the cost of such
insurance shall be reasonable and shall have been included in the Approved
Budget in amounts designated by Lessee.


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<PAGE>   26

Section 12.03.00  Approval of Companies and Cost by Owner and Lessee.

         (a)      All insurance shall be with such insurance company or
companies as may be selected by Owner or Lessee. Comprehensive general liability
insurance and such other liability insurance as may be obtained or afforded
shall be in the name of Owner and Lessee, and shall name Operator as an
additional named insured as respects liability arising from the operation,
maintenance and use of the Hotel and operations incidental thereto.

         (b)      In the event that Operator is able to obtain any or all of the
aforesaid insurance at lower cost than is obtainable by Lessee, Operator will
give written notice thereof to Lessee, which notice shall include the types and
amounts of such insurance, the premiums therefor, and the name or names of the
insurance companies proposed to issue such insurance, and Operator, at Lessee's
option, and as an Operating Expense, shall obtain such insurance.

Section 12.04.00  Maintenance of Coverages.

         Lessee shall hold all insurance policies obtained hereunder, and
certificates of such policies, if any, shall be delivered to Operator. Should
Lessee fail to supply Operator with certificates of any required insurance,
Operator shall notify Lessee in writing of such failure. If Lessee's failure to
supply either (i) such certificates or (ii) a statement to the effect that
Lessee will self-insure as to insurance coverages for which a certificate is
being requested shall continue for a period of fifteen (15) days after Lessee's
receipt of such notice, then Operator shall have the sole remedy of providing
such insurance certificate as an Operating Expense and delivering to Lessee the
original of such certificates.

Section 12.05.00  Waiver of Subrogation.

         Lessee shall, to the extent obtainable from carriers and to the extent
that endorsement forms are approved by the Insurance Commissioner (or comparable
office or department) of the State in which the hotel is located, have all
policies of property insurance provide that the insurance companies will have no
rights to subrogation against Lessee or Operator or the agents or employees
thereof. Lessee shall advise Operator in the event such waivers of subrogation
are not available.

Section 12.06.00  Blanket Coverage and Self-Insurance.

         Owner and Lessee specifically reserve the right to self-insure against
all hazards, perils, risks and liabilities referred to in this Article XII and
reserve the right to provide any insurance referenced in this Article XII by one
or more so-called "blanket" or "umbrella" policies of insurance. Operator
further acknowledges that the insurance coverage of the Hotel may be part of the
general insurance plan of Owner or Lessee or of any of their affiliates. Owner
or Lessee may elect to obtain any of the insurance coverages set forth in this
Article XII with a "deductible loss" clause providing for per occurrence
deductibles. The payment of any deductible losses shall be an Operating Expense.
If Owner or Lessee elects to self-insure against certain perils and/or
liabilities against which it would otherwise be required to maintain insurance
under this Article XII, then Owner or Lessee shall be liable to the same extent
as an insurer would be liable under the policy of insurance providing coverage
for such perils and/or liabilities in the same amounts required to be carried by
this Agreement.

Section 12.07.00  Adequacy of Insurance.

         Except as provided in Article VII, neither Lessee nor Operator assumes
any risks in connection with the inadequacy of any insurance required under this
Article XII. Lessee or Operator, as the case may


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<PAGE>   27

be, shall give the other a copy of each policy of insurance obtained pursuant to
this Article XII and if either believes any policy does not satisfy the
provisions of this Agreement, such party shall so advise the other in writing
and specify the deficiencies, in which event the obtaining party shall attempt
to have such deficiencies remedied. Neither Lessee nor Operator shall have any
obligation to remedy any purported deficiencies if the insurance coverages (or
lack thereof) provided are consistent with the insurance coverages required by
this Agreement to be carried by Lessee or Operator, as the case may be.

Section 12.08.00  Exclusions.

         Except as provided in Article V, all costs and expenses of repairing
any uninsured casualty (and all costs and expenses of repairing an insured
casualty in excess of the available insurance proceeds) and all costs and
expenses of satisfying any uninsured claim (and all costs and expenses of
satisfying any insured claim in excess of available insurance proceeds) shall be
an Operating Expense if the same can be expensed for tax and accounting
purposes, otherwise such costs and expenses shall be capitalized.

                                  ARTICLE XIII

                                 PROPERTY TAXES,
                    LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

Section 13.01.00  Property Taxes.

         At Lessee's request, Operator shall pay from the Hotel Operating
Account prior to the dates the same become delinquent, with the right upon
Lessee's request to pay the same in installments to the extent permitted by law,
all personal property taxes. Owner shall pay all real estate taxes with respect
to the Property and all betterment assessments levied against the Property or
any of its component parts.

Section 13.02.00  Lessee's Right to Contest.

         Notwithstanding the foregoing, Lessee, as an Operating Expense, or
Owner may contest the validity or the amount of any such tax or assessment.
Operator agrees to cooperate with Lessee and Owner and execute any documents or
pleadings required for such purpose, provided that Operator is satisfied that
the facts set forth in such documents or pleadings are accurate and that such
execution or cooperation does not impose any unreasonable obligations on
Operator, and Lessee agrees to reimburse Operator as an Operating Expense for
all expenses occasioned to Operator by any such contest, provided that such
expenses shall be approved in writing by Lessee prior to the time that they are
incurred. Any such expenses so approved shall not be considered an Operating
Expense for purposes of determining Operator's Incentive Fee.

                                   ARTICLE XIV

                      DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01.00  Damage.

         If at any time during the Operating Term any Hotel or any portion
thereof should be damaged or destroyed, Owner and Lessee shall have the
respective rights and obligations set forth in the Lease with respect to damage
or destruction. In the event the Hotel is not repaired, rebuilt or replaced,
Lessee may terminate this Agreement by written notice to Operator, effective as
of the date sent.


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<PAGE>   28

Section 14.02.00  Condemnation.

         If at any time during the Operating Term the whole or any part of the
Property shall be taken or condemned in any eminent domain, condemnation,
compulsory acquisition or like proceeding or sale in lieu thereof by any
competent authority, or if such a portion thereof shall be taken or condemned as
to make it imprudent or unreasonable to use the remaining portion as a hotel of
the type and class immediately preceding such taking or condemnation, then this
Agreement shall terminate as of the date of such taking or condemnation and
Operator shall have no right to the award from the taking or condemning
authority in any such proceeding.

                                   ARTICLE XV

                                   USE OF NAME

         During the term of this Agreement, each Hotel shall at all times be
known by such name as from time to time may be selected by Lessee.

                                   ARTICLE XVI

                              OWNER'S RIGHT TO SELL

         At any time during the Operating Term, Owner may sell or otherwise
dispose of one or more Hotels or lease all or substantially all of the Hotels
(hereinafter collectively referred to as "Sale of a Hotel"), to any other
person, partnership, firm or corporation (hereinafter referred to as the
"Purchaser"). In such event, Lessee may notify Operator in writing no less than
thirty (30) days prior to any such Sale of a Hotel and this Agreement shall
terminate with respect to such Hotels upon the closing of the Sale of the Hotel.

                                 ARTICLE XVII

                              DEFAULT AND REMEDIES

Section 17.01.00  Events of Default- Remedies.

         (a)      The following shall constitute Events of Default:

                  (1)      The failure of Operator to diligently and efficiently
operate a Hotel in accordance with the provisions of this Agreement;

                  (2)      The failure of Operator to pay any amount to Lessee
provided for herein for a period of five (5) days after written notice by Lessee
of failure to pay such sum when payable;

                  (3)      The failure of Lessee to pay any amount to Operator
provided for herein for a period of five (5) days after written notice by
Operator of failure to pay such sum when payable;

                  (4)      The filing of a voluntary petition in suspension of
payments, bankruptcy or insolvency by either Lessee or Operator;


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<PAGE>   29

                  (5)      The consent to an involuntary petition in bankruptcy
or the failure to vacate within sixty (60) days from the date of entry thereof
any order approving an involuntary petition by or against either Lessee or
Operator;

                  (6)      The entering of an order, judgment or decree by any
court of competent jurisdiction, on the application of a creditor, adjudicating
Lessee or Operator a bankrupt or insolvent or appointing a judicial receiver,
trustee or liquidator of all or a substantial part of such party's assets, and
such order, judgment or decree shall continue unstayed and in effect for a
period of one hundred twenty (120) consecutive days;

                  (7)      The failure of either Lessee or Operator to perform,
keep or fulfill any of the other covenants, undertakings, obligations or
conditions set forth in this Agreement, and the continuance of any such default
for a period of thirty (30) days after written notice of such failure; or

                  (8)      Subject to the provisions of Section 3.02, loss of
the franchise license for a Hotel as a result of any action, or failure to act,
on the part of Operator (other than as a result of Lessee's failure to provide
adequate funding in accordance with the terms of this Agreement).

         (b)      If an Event of Default with respect to one or more Hotels
shall occur under Section 17.01(a)(1) or (8), the nondefaulting party may give
to the defaulting party notice of its intention to terminate this Agreement with
respect to such Hotel(s) after the expiration of a period of thirty (30) days
from such date of notice and, upon the expiration of such period, this Agreement
shall expire. If an Event of Default shall occur under Section 17.01(a)(2), (3),
(4), (5), (6) or (7), the nondefaulting party may give to the defaulting party
notice of its intention to terminate this Agreement with respect to any or all
of the Hotels subject to this Agreement. If, however, with respect to the Events
of Default referred to in Section 17.01(a)(1), (4), (5), (6), (7) and (8) above,
unless a specific right of termination is specified elsewhere in this Agreement
for the breach in question, upon receipt of such notice, the defaulting party
shall promptly and with all due diligence cure the default or take and continue
action to cure such default within such ten (10) day period. If such default
shall not be capable of being cured within such ten (10) day period, then
provided the defaulting party diligently pursues the cure of such default, such
party shall have an additional five (5) days to cure any such default unless
otherwise extended by Lessee. The procedure set forth in the preceding two
sentences shall not be available for the curing of any default under Section
17.01(a)(2) or (3).

Section 17.02.00  Rights Not Exclusive.

         (a)      The rights granted under this Article XVII shall not be in
substitution for, but shall be, except as otherwise provided in this Agreement,
in addition to any and all rights and remedies for breach of contract granted by
applicable provisions of law; provided, however, upon any termination of this
Agreement by Operator or Lessee as provided in this Agreement, Operator shall be
entitled to recover only such sums as are owing to Operator under this Agreement
on the date of any such termination and in no event will Operator have any claim
or cause of action for "future profits," damages resulting from termination or
otherwise under this Agreement.

         (b)      No failure of Operator or Lessee to insist upon the strict
performance of any covenant, agreement, term or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof, shall
constitute a waiver of any such breach or any subsequent breach of such
covenant, agreement, term or condition. No covenant, agreement, term or
condition of this Agreement and no breach thereof shall be waived, altered or
modified except by written instrument signed by both Lessee


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<PAGE>   30

and Operator. No waiver of any breach shall affect or alter this Agreement but
each and every covenant, agreement, term and condition of this Agreement shall
continue in full force and effect with respect to any other then existing or
subsequent breach thereof.

         (c)      In the event that Operator shall be in default of this
Agreement under Section 17.01 and such Event of Default remains uncured as
required under Section 17.01(b), Lessee shall not be subject to the requirements
of Section 21.09; however, in the event that Lessee shall be in default of this
Agreement under Section 17.01 and such Event of Default remains uncured as
required under Section 17.01(b), Lessee shall be fully subject to the
requirements of Section 21.09.

         (d)      Notwithstanding anything herein to the contrary, Lessee's
remedy with respect to Operator's breach of the provisions of Section 21.11 or a
breach of the provisions of Section 19.01 shall be limited to termination of
this Agreement; provided, however, that in the event of a breach by Operator of
the provisions of Section 21.11 or a breach of the provisions of Section 19.01,
Lessee may terminate this Agreement immediately upon notice to Operator without
reference to any cure or notice provisions set forth in this Agreement.

                                  ARTICLE XVIII

                                     NOTICES

Section 18.01.00  Notices.

         (a)      Any notice, statement or demand required to be given under
this Agreement shall be in writing and shall be delivered by certified or
registered mail, postage prepaid, return receipt requested, or by overnight
delivery with proof of delivery, or by facsimile with receipt of transmission,
addressed to the parties hereto at their respective addresses listed below:

                  (1)      Notices to Lessee shall be addressed:

                                    -------------------------------
                                    850 Ridge Lake Boulevard, Suite 220
                                    Memphis, TN  38120
                                    Attention: President
                                    Facsimile: (901) 818-5260

                  (2)      Notices to Operator shall be addressed:

                                    Flagstone Hospitality Management LLC
                                    889 Ridge Lake Boulevard, Suite 100
                                    Memphis, TN  38120
                                    Attention: Angie Mock
                                    Facsimile: (901) 767-5156


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<PAGE>   31


                                    With a copy to:

                                    MeriStar Flagstone LLC
                                    c/o MeriStar Hotels and Resorts, Inc.
                                    1010 Wisconsin Avenue, N.W.
                                    Washington, D.C.  20007
                                    Attention: Vice President - Legal
                                    Facsimile: (202) 295-1026

         (b)      All notices, statements, demands and requests shall be
effective three (3) days after being deposited in the United States mail or one
day after being sent by overnight delivery or by facsimile. However, the time
period in which a response to any such notice, statement, demand or request must
be given shall commence to run from date of receipt by the addressee thereof as
shown on the return receipt of the notice, statement, demand or request, but in
all events not later than the tenth (10th) day after it shall have been mailed
as required herein.

         (c)      By giving to the other party at least thirty (30) days written
notice thereof, either party shall have the right from time to time and at any
time during the Operating Term to change their respective addresses for notices,
statements, demands and requests, provided such new address shall be within the
United States of America.

                                   ARTICLE XIX

                                   ASSIGNMENT

Section 19.01.00  No Assignment by Operator.

         (a)      Notwithstanding anything to the contrary set forth in this
Agreement, and subject to the provisions of Section 19.01(b) and Section
17.02(d), without the prior written consent of Lessee, Operator shall have no
right to transfer or assign any of its rights or obligations under this
Agreement voluntarily, by operation of law, through a change in control of
Operator, or otherwise.

         (b)      Operator shall give Lessee not less than thirty (30) days
prior written notice of any event which would result in any change in Mock's or
MeriStar's ownership of the equity interests in Operator. If, within thirty (30)
days following receipt of such notice Lessee does not consent to the occurrence
of such event, and such event occurs, Lessee may terminate this Agreement as to
one or more Hotels, effective upon occurrence of the event, without any
liability to Operator pursuant to Section 21.09. Notwithstanding the foregoing,
MeriStar may transfer or assign all or a portion of its equity interests in
Operator to an Affiliate of MeriStar provided that (i) Operator and MeriStar
shall notify Lessee of the proposed transfer or assignment not less than thirty
(30) days prior to the proposed transfer or assignment and (ii) Lessee shall
have determined, in its reasonable discretion, that the proposed transfer or
assignment to such Affiliate of MeriStar shall not cause Operator to fail to
qualify as an "eligible independent contractor" as defined in Section 856(d)(9)
of the Internal Revenue Code of 1986 with respect to the management of the
Hotels.

Section 19.02.00  Assignment by Lessee.

         (a)      Lessee may transfer or assign its rights and obligations under
this Agreement without the consent of Operator but shall deliver to Operator
written notice of such transfer or assignment not less


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<PAGE>   32

than thirty (30) days prior to the effective date thereof; provided however,
that Operator shall have the right, within thirty (30) days following receipt of
such notice to terminate this Agreement as to all of the Hotels and in such
event shall be entitled to reimbursement in accordance with Section 21.09.

         (b)      Any transfer or assignment of this Agreement by Lessee shall
include an express assumption by the transferee or assignee of Lessee's
obligations hereunder, including those set forth in Section 21.09.

         (c)      In the event of a "change in control" of Lessee, Operator
shall have the right, upon not less than thirty (30) days notice to terminate
this Agreement as to all of the Hotels and shall be entitled to reimbursement in
accordance with Section 21.09. For purposes of this Section 19.02(c), a "change
in control" of Lessee shall be deemed to have occurred if, at any time during
the Operating Term, any of the following events occurs:

                  (i)      any "person", as that term is used in Section 13(d)
         and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act"), becomes, is discovered to be, or files a report
         on Schedule 13D or 14D-1 (or any successor schedule, form or report)
         disclosing that such person is, a beneficial owner (as defined in Rule
         13d-3 under the Exchange Act or any successor rule or regulation),
         directly or indirectly, of securities of RFS Hotel Investors, Inc.
         representing 50% or more of the combined voting power of the then
         outstanding securities of RFS Hotel Investors, Inc. entitled to vote
         generally in the election of directors;

                  (ii)     individuals who, as of the date, constitute the Board
         of Directors cease for any reason to constitute at least a majority of
         the Board of Directors of RFS Hotel Investors, Inc., unless any such
         change is approved by the vote of at least 80% of the members of the
         Board of Directors of RFS Hotel Investors, Inc. in office immediately
         prior to such cessation;

                  (iii)    RFS Hotel Investors, Inc. is merged, consolidated or
         reorganized into or with another corporation or other legal person, or
         securities of RFS Hotel Investors, Inc. are exchanged for securities of
         another corporation or other legal person, and immediately after such
         merger, consolidation, reorganization or exchange less than a majority
         of the combined voting power of the then-outstanding securities of such
         corporation or person immediately after such transaction are held,
         directly or indirectly, in the aggregate by the holders of securities
         entitled to vote generally in the election of directors of RFS Hotel
         Investors, Inc. immediately prior to such transaction;

                  (iv)     RFS Hotel Investors, Inc. in any transaction or
         series of related transactions, sells all or substantially all of its
         assets to any other corporation or other legal person and less than a
         majority of the combined voting power of the then-outstanding
         securities of such corporation or person immediately after such sale or
         sales are held, directly or indirectly, in the aggregate by the holders
         of securities entitled to vote generally in the election of directors
         of RFS Hotel Investors, Inc. immediately prior to such sale;

                  (v)      RFS Hotel Investors, Inc. and its affiliates shall
         sell or transfer of (in a single transaction or series of related
         transactions) to a non-affiliate business operations or assets that
         generated at least two-thirds of the consolidated revenues (determined
         on the basis of the four most recently completed fiscal quarters for
         which reports have been filed under the Exchange Act) of RFS Hotel
         Investors, Inc. and its subsidiaries immediately prior thereto;


                                       28
<PAGE>   33

                  (vi)     RFS Hotel Investors, Inc. files a report or proxy
         statement with the Securities and Exchange Commission pursuant to the
         Exchange Act disclosing in response to Form 8-K (or any successor, form
         or report or item therein) that a change in control of RFS Hotel
         Investors, Inc. has occurred; or

                  (vii)    any other transaction or series of related
         transactions occur that have substantially the effect of the
         transactions specified in any of the preceding clauses in this
         sentence.

                                   ARTICLE XX

                                  SUBORDINATION

Section 20.01.00  Subordination To First Mortgage.

         Operator hereby agrees that this Agreement, including, but not limited
to Operator's Basic Fee, Operator's Incentive Fee and amounts payable pursuant
to Section 21.09, shall in all respects be and is hereby expressly made
subordinate and inferior to the liens, security interest and/or terms of any
First Mortgage and to the promissory note and other indebtedness secured or to
be secured thereby and to all other instruments evidencing or securing or to
evidence or secure said indebtedness, and all amendments, modifications,
supplements, consolidations, extensions and revisions of such note and other
instruments. Operator shall execute any and all subordination agreements,
estoppel certificates and other documents requested by Lessee or Owner and/or
the Holder to further evidence the subordination of this Agreement and
Operator's rights hereunder to any such First Mortgage.

Section 20.02.00  Foreclosure.

         Prior to termination of this Agreement by foreclosure under the First
Mortgage or by acquisition of the property to be covered by the First Mortgage
by deed in lieu of foreclosure, Operator shall have the right to enjoy all
rights and privileges conferred upon it pursuant to this Agreement and Operator
shall incur no liability to the Holder for acting pursuant to the terms of this
Agreement; provided, however, Operator shall be required to (and does hereby
agree to) repay to the Holder any Operator's Basic Fee, Operator's Incentive Fee
and amounts payable pursuant to Section 21.09 paid to Operator under this
Agreement from and after the date which is thirty (30) days after the date of
receipt by Operator of a notice of default under the First Mortgage, which
default is not cured and results in the acceleration of the indebtedness secured
by the First Mortgage and the ultimate foreclosure of the liens and/or security
interest under the First Mortgage and/or other acquisition of the property
covered thereby by the Holder in lieu of foreclosure.

                                   ARTICLE XXI

                                  MISCELLANEOUS

Section 21.01.00  Further Documentation.

         Lessee and Operator shall execute and deliver all appropriate
supplemental agreements and other instruments, and take any other action
necessary to make this Agreement fully and legally effective, binding, and
enforceable in accordance with the terms hereof as between them and as against
third parties.


                                       29
<PAGE>   34

Section 21.02.00  Captions.

         The titles to the several articles of this Agreement are inserted for
convenience only and are not intended to affect the meaning of any of the
provisions hereof.

Section 21.03.00  Successors and Assigns.

         This Agreement shall be binding upon and inure to the benefit of
Lessee, its successors and/or assigns, and subject to the provisions of Article
XIX, shall be binding upon and inure to the benefit of Operator, its permitted
successors and assigns.

Section 21.04.00  Competitive Market Area.

         Operator hereby agrees, for the benefit of Lessee, its successors and
assigns, that Operator will not own, operate, lease or otherwise have an
interest in, directly or indirectly, any hotel within a five (5) mile radius of
any Hotel during the Operating Term unless expressly permitted by Lessee. The
foregoing restriction shall apply to Operator and its Affiliates but shall not
apply to MeriStar. Notwithstanding the foregoing, Operator hereby represents and
warrants to Lessee that there are no agreements or other restrictions which
prohibit, limit or otherwise restrict in any manner Operator, its officers,
governors, members or Affiliates from entering into this Agreement or performing
Operator's obligations under this Agreement.

Section 21.05.00  Assumption of Post Termination Obligations.

         In the event of termination of this Agreement, Lessee shall be
responsible for assuming obligations under contracts entered into by Operator in
accordance with the provisions of Section 4.05. Operator hereby agrees to
indemnify and to hold Lessee harmless from and against any liability in
connection with any contracts, agreements or obligations not entered into in
accordance with the provisions of Section 4.05.

Section 21.06.00  Entire Agreement.

         This Agreement constitutes the entire Agreement between the parties
relating to the subject matter hereof, superseding all prior agreements or
undertakings, oral or written. Lessee and Operator hereby represent each to the
other, that in entering into this Agreement neither has relied on any projection
of earnings, statements as to possibility of future success or other similar
matters or the costs or future financial success of any Hotel.

Section 21.07.00  Governing Law.

         This Agreement shall be construed and enforced in accordance with the
laws of the State of Tennessee.

Section 21.08.00  No Political Contributions.

         Any provision hereof to the contrary notwithstanding, no money or
property of the Hotel shall be paid or used or offered, nor shall Lessee or
Operator directly or indirectly pay or use or offer, consent or agree to pay or
use or offer any money or property of the Hotel, for or in aid of any political
party, committee or organization, or for or in aid of, any corporation, joint
stock or other association organized or maintained for political purposes, or
for, or in aid or, any candidate for political office or for


                                       30
<PAGE>   35

nomination for such office, or in connection with any election including
referendum for constitutional amendment, or for any political purpose whatever,
or for lobbying in connection with legislation or regulation thereunder, or for
the reimbursement for indemnification of any person for money or property so
used.

Section 21.09.00  Lessee Reimbursement Upon Certain Terminations.

         (a)      In the event Lessee terminates this Agreement with respect to
a Hotel, other than pursuant to Section 17.01(b) or 17.02(d), and/or Affiliates
of Lessee which own or lease other REIT Hotels terminate management agreements
with Operator with respect to REIT Hotels to the effect that, as a result of
such termination, budgeted annual gross hotel revenues for all the REIT Hotels
then managed by Operator (for the latest available budget period) fall below 50%
of the aggregate budgeted gross hotel revenue for the initial REIT Hotels set
forth on Exhibit D hereto as of the date of this Agreement for the Fiscal Year
ending December 31, 2001, then

                  (i)      if, as a result of such termination, Operator desires
                           to terminate its lease with respect to Operator's
                           office space at 889 Ridge Lake Boulevard, Suite 100,
                           Memphis, Tennessee or leases (if any) for any
                           additional office space of Operator as to which
                           Lessee has previously consented, Lessee will (1)
                           either (a) assume Operator's obligations under such
                           lease or leases or (b) reimburse Operator for its pro
                           rata share of Operator's actual out-of-pocket costs
                           resulting from the termination or continuation of
                           such lease or leases and (2) purchase, or contribute
                           to the purchase by an affiliate of Lessee, from
                           Operator, Operator's office furniture, fixtures and
                           equipment at a price equal to Operator's net book
                           value for such assets;

                  (ii)     Lessee shall reimburse Operator for its pro rata
                           share of the severance amounts owed by Operator to
                           Operator's executive office employees, as described
                           in Exhibit C; and

                  (iii)    Lessee will purchase from Operator, at Operator's net
                           book value, all of the Hotel Operating Equipment for
                           the Hotels for which this Agreement is terminated.

         (b)      In the event Lessee from time to time terminates this
Agreement with respect to any Hotel, other than pursuant to Section 17.01(b) or
17.02(d), and/or Affiliates of Lessee which own or lease other REIT hotels
terminate management agreements with Operator with respect to REIT Hotels to the
effect that, immediately after such termination, budgeted annual gross hotel
revenues for all the REIT Hotels then managed by Operator (for the latest
available budget period) is less than 90% of the aggregate budgeted gross hotel
revenues for the initial REIT Hotels set forth on Exhibit D hereto as of the
date of this Agreement for the Fiscal Year ending December 31, 2001, and
Operator demonstrates to Lessee's reasonable satisfaction that, as a result of
such termination, Operator must terminate the employment of one or more of
Operator's executive office employees described in Exhibit C, Lessee shall
reimburse Operator for its pro rata share of the severance amounts actually paid
by Operator to Operator's executive office employees as set forth in Exhibit C.

         (c)      For purposes of this Section 21.09, Lessee's pro rata share of
amounts payable to Operator under this Section 21.09 shall be determined by
dividing (A) budgeted gross hotel revenue for the year 2001 for the Hotels with
respect to which this Agreement is being terminated by (B) budgeted


                                       31
<PAGE>   36

gross hotel revenue for the year 2001 for all the REIT Hotels for which the
management agreement with the Operator is being terminated.

         (d)      Arbitration. In the event a dispute should arise between the
parties with respect to whether termination of an employee described in Exhibit
C gives rise to liability for payment by Lessee to Operator pursuant to Section
21.09, the parties agree that the dispute shall be submitted to arbitration by
the American Arbitration Association under its then prevailing rules, except as
modified by this Section 21.09. The arbitration tribunal shall be comprised of
three (3) arbitrators each of whom shall have at least five (5) years'
experience in hotel operation, management or ownership, one (1) to be appointed
by each of Lessee and Operator, and the third to be appointed by the American
Arbitration Association. The arbitration shall otherwise be conducted in
accordance with Section 10.05(b).

Section 21.10.00  Management of Other Hotels.

         During the Operating Term, unless otherwise approved by the REIT in
writing, Operator and its Affiliates (other than MeriStar) will not manage
hotels other than REIT Hotels, if, as a result of such management, Operator's
revenues for any Fiscal Year would increase by 30% or more over Operator's
budgeted revenues for the Fiscal Year (as reflected in Operator's operating
budget at the beginning of the Fiscal Year).

Section 21.11.00  Eligible Independent Contractor.

         During the Operating Term, Operator shall qualify as an "eligible
independent contractor" as defined in Section 856(d)(9) of the Internal Revenue
Code of 1986, as amended (the "Code"). To that end, during the Operating Term:

                  (a)      Operator shall not permit wagering activities to be
         conducted at or in connection with the Hotels;

                  (b)      Operator shall not own, directly or indirectly
         (within the meaning of Section 856(d)(5) of the Code), more than 35% of
         the shares of RFS Hotel Investors, Inc.;

                  (c)      no more than 35% of the total combined voting power
         of Operator's outstanding stock (or 35% of the total shares of all
         classes of its outstanding stock) shall be owned, directly or
         indirectly, by one or more persons owning 35% or more of the
         outstanding stock of RFS Hotel Investors, Inc.; and

                  (d)      Operator (or a person who is a "related person"
         within the meaning of Section 856(d)(9)(F) of the Code (a "Related
         Person") with respect to the Operator) shall be actively engaged in the
         trade or business of operating "qualified lodging facilities" (defined
         below) for one or more persons who are not Related Persons with respect
         to RFS Hotel Investors, Inc. or Lessee ("Unrelated Persons"). In order
         to meet this requirement, Operator agrees that it (or a Related Person
         with respect to Operator) (i) shall derive at least 10% of both its
         revenue and profit from operating "qualified lodging facilities" for
         Unrelated Persons and (ii) shall comply with any regulations or other
         administrative guidance under Section 856(d)(9) of the Code with
         respect to the amount of hotel management business with Unrelated
         Persons that is necessary to qualify as an "eligible independent
         contractor" with the meaning of such Code Section.

         A "qualified lodging facility" is defined in Section 856(d)(9)(D) of
the Code and means a "lodging facility" (defined below), unless wagering
activities are conducted at or in connection with such


                                       32
<PAGE>   37

facility by any person who is engaged in the business of accepting wagers and
who is legally authorized to engage in such business at or in connection with
such facility. A "lodging facility" is a hotel, motel or other establishment
more than one-half of the dwelling units in which are used on a transient basis,
and includes customary amenities and facilities operated as part of, or
associated with, the lodging facility so long as such amenities and facilities
are customary for other properties of a comparable size and class owned by other
owners unrelated to RFS Hotel Investors, Inc. Operator's breach of the
provisions of this Section 21.11 shall be subject to the provisions of Section
17.02(d).

Section 21.12.00  Affiliated Transactions.

         Subject to the provisions of this Section 21.12, Operator may enter
into multi-property purchasing, maintenance or service contracts with respect to
one or more Hotels pursuant to which Operator or Affiliates of Operator receive
rebates, cash incentives, administration fees, concessions, profit
participations, stock or stock options, investment rights or similar payments or
economic consideration from or in, as applicable, vendors or suppliers of goods
or services (collectively, "Rebates", and such purchasing, maintenance or
service contracts, "Operator Centralized Services"); provided, however, that (i)
prior to entering into any such Operator Centralized Services, Operator shall
promptly disclose to Lessee in writing the fact of and the estimated amount of
such Rebates, (ii) the charges and other amounts incurred in connection with any
such Operator Centralized Services (when taken as a whole for all Hotels to
which such Operator Centralized Services are being provided) shall not exceed
prevailing market rates with respect to such services and (iii) Lessee shall
have approved such Operator Centralized Services in writing in advance (which
approval may be withheld or granted in Lessee's sole discretion). In the event
that Operator enters into any Operator Centralized Services in accordance with
the provisions of this Section 21.12, then any Rebates accruing to Operator or
to any Affiliate of Operator shall accrue to Operator or such Affiliate, and
Lessee shall have no, and hereby waives any, claim thereto, except to the extent
agreed to in writing among Lessee, Operator and such Affiliate, which such
agreement may be, at Lessee's election, a condition precedent to the granting of
its consent under clause (iii) above.

Section 21.13.00  Non-Recourse to MeriStar.

         No officer, director, employee, shareholder, member or partner of
MeriStar or any Affiliate of MeriStar shall have any personal or other liability
hereunder and no assets of MeriStar or any Affiliate of MeriStar other than
Operator shall be subject to levy, attachment, or satisfaction for any claim
arising under or in connection with this Agreement by Lessee or Owner.

Section 21.14.00  No Third Party Beneficiaries.

         The terms and provisions of this Agreement are intended solely for the
benefit of each party hereto and their respective successors and permitted
assigns, and the parties do not intend to confer third-party beneficiary rights
upon any other party.

Section 21.15.00  Purchase of Furniture, Fixtures and Equipment.

         In the event of the liquidation and/or dissolution of Operator, Lessee
or its designee shall have the right, but not the obligation, to purchase from
Operator, all or any part of Operator's office furniture, fixtures and equipment
at a price equal to Operator's net book value for such assets.


                                       33
<PAGE>   38

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

LESSEE:
                                         --------------------------------------

                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------


OPERATOR:                                FLAGSTONE HOSPITALITY
                                         MANAGEMENT LLC

                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------


                                       34
<PAGE>   39

                                    EXHIBIT A


         Hotel                                                      Owner


                                    [TO COME]


                                       35
<PAGE>   40

                                    EXHIBIT B


                              Franchise Agreements


                                    [TO COME]


                                       36
<PAGE>   41

                                    EXHIBIT C


                         Severance Amounts Reimbursable
                            Pursuant to Section 21.09


         1.       The severance amounts for the following officers of Operator
shall be their salary, bonuses and all benefits for the time periods set forth
below if their employment is terminated by Operator as a result of the
termination of the Agreement by Lessee as described in Section 21.09 of the
Agreement:

PERSON                                      DURATION OF TIME AFTER TERMINATION

Chief Executive Officer                               Three (3) years
West Region VP of Operations                          Two (2) years
East Region VP of Operations                          Two (2) years
Vice President of Finance                             Two (2) years
Vice President of Sales                               Two (2) years
Southwest Regional Manager                            One (1) year
Northeast Regional Manager                            One (1) year
Southeast Regional Manager                            One (1) year
Director of Human Resources                           One (1) year


         2.       All other corporate office employees of Operator shall be
entitled to receive two (2) weeks pay for each one (1) year of continuous
service (which shall include prior continuous employment with RFS, Inc.) up to a
maximum of twenty-six (26) weeks' pay.

         3.       Any additional persons to be covered under the provisions of
Section 21.09 of the Agreement must receive the prior written approval of
Lessee.


                                       37
<PAGE>   42

                                    EXHIBIT D


                                   REIT Hotels


ALABAMA

1.       Sheraton Hotel - Birmingham South

ARIZONA

2.       Hampton Inn - Chandler
3.       Homewood Suites - Chandler
4.       Hampton Inn - Sedona

CALIFORNIA

5.       Sheraton - Bakersfield
6.       Sheraton - San Jose / Milpitas
7.       Beverly Heritage Hotel - Milpitas
8.       Four Points Sheraton - Pleasanton
9.       Residence Inn - Sacramento
10.      Hilton, Fisherman's Wharf - San Francisco
11.      Sheraton - Sunnyvale
12.      Residence Inn - Torrance
13.      Doubletree Hotel, Del Mar - San Diego

COLORADO

14.      Hampton Inn, NW/I-70 - Denver
15.      Hampton Inn, SW - Denver

FLORIDA

16.      Hampton Inn - Ft. Lauderdale
17.      Residence Inn - Orlando

GEORGIA

18.      Comfort Inn, Marietta - Atlanta
19.      Residence Inn, Perimeter West - Atlanta

ILLINOIS

20.      Holiday Inn Express - Arlington Heights
21.      Holiday Inn - Crystal Lake
22.      Holiday Inn Express - Downers Grove

INDIANA

23.      Hampton Inn, Airport - Indianapolis

KENTUCKY

24.      Holiday Inn, SW - Louisville


                                       38
<PAGE>   43

LOUISIANA

25.      Holiday Inn, Central - Lafayette

MICHIGAN

26.      Residence Inn - Ann Arbor
27.      Comfort Inn - Farmington Hills
28.      Courtyard by Marriott - Flint
29.      Holiday Inn, Gateway Center - Flint

MINNESOTA

30.      Hampton Inn, Airport - Bloomington
31.      Holiday Inn Express - Bloomington
32.      Hampton Inn - Minnetonka

MISSISSIPPI

33.      Hampton Inn - Hattiesburg

MISSOURI

34.      Sheraton, Clayton Plaza - St. Louis

NEBRASKA

35.      Hampton Inn, Airport I-80 - Lincoln
36.      Hampton Inn, Westroads Mall - Omaha

OKLAHOMA

37.      Hampton Inn, Airport - Oklahoma City
38.      Hampton Inn - Tulsa

SOUTH CAROLINA

39.      Holiday Inn, Coliseum - Columbia
40.      Comfort Inn, Carowinds - Ft. Mill

TENNESSEE

41.      Hampton Inn, Walnut Grove - Memphis


TEXAS

42.      Holiday Inn Express, I-35 Airport - Austin
43.      Residence Inn, River Plaza - Ft. Worth
44.      Towneplace Suites - Ft. Worth
45.      Hampton Inn, Hobby Airport - Houston
46.      Hampton Inn - Laredo
47.      Hampton Inn - Plano
48.      Residence Inn - Tyler

WISCONSIN

49.      Holiday Inn Express, Mayfair Mall - Milwaukee


                                       39
<PAGE>   44

                                    EXHIBIT E

                                    GUARANTY


         Each of the undersigned (each, a "Lessee") is a party to a Management
Agreement of even date herewith (each, a "Management Agreement") with Flagstone
Hospitality Management LLC ("Operator") with respect to certain hotel properties
leased by the undersigned. Each Lessee, jointly and severally, hereby
unconditionally guarantees the indemnification payment obligations of each other
Lessee pursuant to the provisions of Section 5.03, 5.04, 5.05 and 5.06 of each
Management Agreement. The undersigned agree that Flagstone may, at its option,
enforce this guaranty directly against each of the undersigned regardless of the
actual Management Agreement under which the indemnification payment obligation
arises. This guaranty shall be binding on each Lessee and its permitted
successors and assigns and shall inure to the benefit of Flagstone and its
permitted successors and assigns under the Management Agreements.

         This guaranty shall operate as a continuing guaranty but shall expire
when all of the Lessees' indemnification payment obligations pursuant to Article
V of the Management Agreements have expired or been terminated.

         During the terms of the Management Agreements, the Lessees agree to
maintain net worth, in the aggregate for all Lessees, in an amount not less than
$5,000,000, as determined in accordance with generally accepted accounting
principles.

         This guaranty shall be governed by, and construed and enforced in
accordance with, the laws of the State of Tennessee.

                                    Executed this ____ day of January, 2001.

                                             RFS LEASING II, INC.

                                             By:
                                                -------------------------------
                                             Name:
                                                  -----------------------------
                                             Title:
                                                   ----------------------------


                                             RFS LEASING III, INC.

                                             By:
                                                -------------------------------
                                             Name:
                                                  -----------------------------
                                             Title:
                                                   ----------------------------


                                       40
<PAGE>   45

                                             RFS LEASING IV, INC.

                                             By:
                                                -------------------------------
                                             Name:
                                                  -----------------------------
                                             Title:
                                                   ----------------------------


                                             RFS LEASING V, INC.

                                             By:
                                                -------------------------------
                                             Name:
                                                  -----------------------------
                                             Title:
                                                   ----------------------------


                                             RFS LEASING VI, INC.

                                             By:
                                                -------------------------------
                                             Name:
                                                  -----------------------------
                                             Title:
                                                   ----------------------------


                                             RFS LEASING VII, INC.

                                             By:
                                                -------------------------------
                                             Name:
                                                  -----------------------------
                                             Title:
                                                   ----------------------------


                                       41