Document:

Exhibit 4.1

                             SONIC AUTOMOTIVE, INC.

                          EMPLOYEE STOCK PURCHASE PLAN

                              AMENDED AND RESTATED

                                      AS OF

                                  JUNE 5, 2000
<PAGE>

                             SONIC AUTOMOTIVE, INC.
                          EMPLOYEE STOCK PURCHASE PLAN

                              AMENDED AND RESTATED
                                      AS OF
                                  JUNE 5, 2000

                                TABLE OF CONTENTS
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ARTICLE I.  PURPOSE; EFFECTIVE DATE; DEFINITIONS; CONSTRUCTION..................1
         1.1      Purpose of Plan; Effective Date...............................1
         1.2      Definitions...................................................1
                  (a)      "Account"............................................1
                  (b)      "Base Pay"...........................................1
                  (c)      "Board of Directors".................................1
                  (d)      "Business Day".......................................1
                  (e)      "Cause"..............................................1
                  (f)      "Code"...............................................2
                  (g)      "Committee"..........................................2
                  (h)      "Company"............................................2
                  (i)      "Company Stock"......................................2
                  (j)      "Contributions"......................................2
                  (k)      "Employee"...........................................2
                  (l)      "Employer"...........................................2
                  (m)      "Exercise Date"......................................2
                  (n)      "Grant Date".........................................2
                  (o)      "Option".............................................2
                  (p)      "Participant"........................................2
                  (q)      "Plan"...............................................2
         1.3      Construction..................................................2

ARTICLE II.  ADMINISTRATION.....................................................3
         2.1      Appointment and Procedures of Committee.......................3
         2.2      Authority of Committee........................................3

ARTICLE III.  PARTICIPATION.....................................................3
         3.1      Eligibility to Participate....................................3
         3.2      Restrictions on Participation.................................3
         3.3      Leave of Absence..............................................4

ARTICLE IV.  CONTRIBUTIONS......................................................4
         4.1      Payroll Deductions............................................4
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         <S>                                                                   <C>
         4.2      Direct Payment................................................4
         4.3      Leave of Absence..............................................4
         4.4      Contributions to Accounts.....................................5
         4.5      Withdrawal of Contributions from Plan.........................5
         4.6      Termination of Employment.....................................5

ARTICLE V.  OPTIONS.............................................................5
         5.1      Company Stock Available for Options...........................5
         5.2      Granting of Options...........................................5
         5.3      Option Price..................................................6
         5.4      Option Period.................................................6
         5.5      Exercise of Options...........................................6
                  (a)      Automatic Exercise...................................6
                  (b)      Nontransferability of Options........................7
                  (c)      Effect of Termination of Employment..................7
                           (i)      Termination of Employment Related to Cause..7
                           (ii)     Termination of Employment Due to Death......7
                           (iii)    Other Termination of Employment.............7
                  (d)      Leave of Absence.....................................8
                  (e)      Delivery of Stock....................................8
                  (f)      Acceleration of Exercisability of Options Upon
                           Occurrence of Certain Events.........................8
                  (g)      Registration, Listing and Qualification of Shares of
                           Stock................................................8

ARTICLE VI.  MISCELLANEOUS......................................................9
         6.1      Adjustments Upon Changes in Capitalization....................9
         6.2      Approval of Shareholders......................................9
         6.3      Amendment, Suspension and Termination.........................9
         6.4      Intent to Comply With Code Section 423........................9
         6.5      Equal Rights and Privileges...................................9
         6.6      Use of Funds.................................................10
         6.7      Withholding..................................................10
         6.8      Effect of Plan...............................................10
         6.9      No Employment Rights.........................................10
         6.10     Governing Law................................................10
         6.11     Other Actions................................................10

                                       ii
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                             SONIC AUTOMOTIVE, INC.
                          EMPLOYEE STOCK PURCHASE PLAN

                              AMENDED AND RESTATED
                                      AS OF
                                  JUNE 5, 2000

          ARTICLE I. PURPOSE; EFFECTIVE DATE; DEFINITIONS; CONSTRUCTION

       1.1 Purpose of Plan; Effective Date. The purpose of the Plan, which
shall be known as the Sonic Automotive, Inc. Employee Stock Purchase Plan (the
"Plan"), is to provide employees of Sonic Automotive, Inc. (the "Company") and
its participating subsidiaries, within the meaning of Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code") (which hereinafter shall
be referred to collectively with the Company as the "Employer"), an opportunity
to acquire a proprietary interest in the Company through the purchase of the
Class A Common Stock, $.01 par value per share, of the Company. This Plan is
intended to qualify as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.

         The Plan became effective when it was adopted and approved by the Board
of Directors and the shareholders of the Company on October 9, 1997. The Plan
was subsequently amended and restated as of December 3, 1998 and again amended
and restated as of June 8, 1999. The Company hereby amends and restates the Plan
as of June 5, 2000 as set forth herein.

       1.2 Definitions. Throughout this Plan, the following terms shall have
the meanings indicated:

              (a) "Account" shall mean a memorandum account maintained to record
each Participant's Contributions pending purchase of Company Stock.

              (b) "Base Pay" shall mean the Participant's regular cash
compensation (excluding overtime pay, bonuses, shift premiums, commissions,
fringe benefits, other special payments and imputed income) determined without
reduction for Contributions made under this Plan or contributions to any Code
Section 401(k) or Section 125 Plan.

              (c) "Board of Directors" shall mean the Board of Directors of
the Company.

              (d) "Business Day" shall mean any day other than a Saturday,
Sunday or holiday.

              (e) "Cause" shall mean any act, action or series of acts or
actions or any omission, omissions or series of omissions which, in the opinion
of the Committee, result in, or which have the effect of resulting in, (i) the
commission of a crime by the Participant involving moral turpitude, which crime
has a material adverse impact on the Employer, (ii) gross negligence or willful
misconduct which is continuous and results in material damage to the Employer,
or (iii) the continuous, willful failure of the person in question to follow the
reasonable directives of the Employer.
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              (f) "Code" shall mean the Internal Revenue Code of 1986, as
amended, any successor revenue laws of the United States, and the rules and
regulations promulgated thereunder.

              (g) "Committee" shall mean the committee of directors of the
Company appointed by the Board of Directors in accordance with Section 2.1 to
administer this Plan, or in the event that no such committee exists or is
appointed, "Committee" shall mean the Board of Directors.

              (h) "Company"  shall mean Sonic  Automotive,  Inc., a
corporation organized and existing under the laws of the State of Delaware.

              (i) "Company Stock" shall mean the Class A Common Stock, $.01
par value per share, of the Company.

              (j) "Contributions" shall mean the after-tax payroll deductions or
other permissible contributions made by Participants to the Plan pursuant to
Article IV.

              (k) "Employee" shall mean any person who (i) is employed on a
full-time or part-time basis by a participating Employer, (ii) is regularly
scheduled to work more than twenty hours per week for a participating Employer,
and (iii) is customarily employed more than five months in any calendar year by
a participating Employer. Independent contractors and outside directors shall
not be included in the definition of Employee for purposes of this Plan.

              (l) "Employer" shall mean the Company and any of its present or
future subsidiaries (within the meaning of Section 424(f) of the Code) which the
Committee may designate from time to time as participating Employers under this
Plan.

              (m) "Exercise Date" shall mean the last Business Day of March,
June, September and December on which the principal trading market for Company
Stock is open for trading, plus any other interim dates during the year which
the Committee designates as Exercise Dates.

              (n) "Grant Date" shall mean (i) initially, January 1, 1998, and
(ii) each January 1 thereafter during the term of the Plan.

              (o) "Option" shall mean an option to purchase shares of Company
Stock granted by the Committee to a Participant pursuant to this Plan.

              (p) "Participant" shall mean an Employee participating in this
Plan in accordance with Article III.

              (q) "Plan" shall mean this Sonic Automotive, Inc. Employee
Stock Purchase Plan, as amended from time to time.

                                       2
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    1.3 Construction. The masculine gender, where appearing in the Plan, shall
be deemed to include the feminine gender, unless the context clearly indicates
to the contrary. The words "hereof," "herein," "hereunder" and other similar
compounds of the word "here" shall mean and refer to the entire Plan and not to
any particular provision or Section.

                           ARTICLE II. ADMINISTRATION

    2.1 Appointment and Procedures of Committee. The Plan shall be administered
by the Board of Directors or a Committee appointed from time to time by the
Board of Directors. The Committee shall consist of not fewer than two members of
the Board of Directors. No member of the Board of Directors who serves on the
Committee shall be eligible to participate in the Plan. The Committee shall hold
its meetings at such times and places as it may determine. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. Any decision or determination reduced to
writing and signed by all members shall be as effective as if it had been made
by a majority vote at a meeting duly called and held. The Committee may appoint
a secretary (who need not be a member of the Committee).

    2.2 Authority of Committee. The Committee, subject to the terms of the Plan,
shall have plenary authority in its discretion to interpret and construe the
Plan (including, without limitation, any of its terms which are uncertain,
doubtful or disputed); to decide all questions of Employee eligibility
hereunder; to determine the amount, manner and timing of all Options and
purchases of Company Stock hereunder (unless otherwise determined by the Board
of Directors); to establish, amend and rescind rules and regulations pertaining
to the administration of the Plan; and to make determinations and
interpretations and take such other administrative actions as it deems necessary
or advisable for the administration of this Plan. The express grant in the Plan
of any specific power to the Committee shall not be construed as limiting any
power or authority of the Committee. No member of the Committee shall be liable
for any act, determination or omission with respect to his service on the
Committee, if he acts in good faith and in a manner he reasonably believes to be
in or not opposed to the best interests of the Employer. All expenses of
administering this Plan shall be borne by the Employer.

                           ARTICLE III. PARTICIPATION

    3.1 Eligibility to Participate. Subject to the restrictions of Section 3.2
below, any Employee employed on the date of the closing of the Company's initial
public offering shall be eligible to participate in this Plan as of the initial
Grant Date under the Plan (provided that the Employee is still employed on such
Grant Date). Each other Employee shall be eligible to participate in the Plan
with respect to a Grant Date if, as of such Grant Date, the Employee has
completed a year of service with the Employer (provided that the Employee is
still employed on such Grant Date). For purposes of eligibility to participate
in this Plan, the following service shall be recognized: (a) service with an
entity prior to the acquisition by the Company, or one of its subsidiaries, of a
controlling interest in or substantially all of the assets of such entity, and
(b) service with an affiliate of the Company which directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the Company.

                                       3
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    3.2 Restrictions on Participation. Notwithstanding the foregoing Section
3.1, no Employee shall be eligible to participate in the Plan if such Employee
owns or holds options to purchase (or upon participation in this Plan would own
or hold options to purchase) stock possessing an aggregate of 5% or more of the
total combined voting power or value of all classes of stock of the Company or
any other Employer (as determined in accordance with the rules of Section 424(d)
of the Code relating to attribution of stock ownership).

    3.3 Leave of Absence. For purposes of participation in the Plan, an Employee
on a leave of absence shall be deemed to continue to be an Employee for the
first ninety days of such leave of absence and such Employee's employment shall
be deemed to have terminated at the close of business on the ninetieth day of
such leave of absence unless such Employee shall have returned to regular
full-time or part-time employment prior to the close of business on such
ninetieth day (or unless the Employee's reemployment is guaranteed by statute or
contract). Termination by the Company of any Employee's leave of absence, other
than termination of such leave of absence on return to regular full-time or
part-time employment, shall terminate an Employee's employment for all purposes
of the Plan.

                            ARTICLE IV. CONTRIBUTIONS

    4.1 Payroll Deductions. By written election, made and filed with the
Committee pursuant to the Committee's rules and procedures, a Participant may
elect to designate a whole percentage between one percent and ten percent (or
such higher or lower percentage as may be allowed by the Committee's rules and
procedures) of his Base Pay to be deferred by payroll deduction as a
Contribution to the Plan. Payroll deductions shall commence as soon as
administratively practicable following the filing of such written election with
the Committee. The Committee in its discretion may develop additional rules and
procedures regarding payroll deduction elections.

           A Participant may change or revoke his payroll deduction amount by
filing, on such forms and in accordance with such rules and procedures as the
Committee in its discretion may prescribe, a revised written election with the
Committee. Such modification or revocation shall take effect as soon as
administratively practicable after the Committee's receipt of such revised
election. Notwithstanding the foregoing, a Participant may change his payroll
deduction election only once each calendar quarter, or as otherwise specifically
allowed by the Committee's rules and procedures. If payroll deductions are
discontinued, payroll deductions may not be resumed by the Participant until the
payroll period which begins on or after the next Exercise Date, or as otherwise
specifically allowed by the Committee's rules and procedures. Under no
circumstances may a Participant's payroll deduction election be made, modified
or revoked retroactively.

    4.2 Direct Payment. In accordance with such rules and procedures as the
Committee may prescribe in its discretion and in lieu of payroll deductions
pursuant to Section 4.1, a Participant may elect to make Contributions by direct
cash payment (including by check, subject to the Committee's rules and
procedures) to the Plan rather than by payroll deduction. Such direct payments
must be received by the Plan at least ten Business Days prior to an Exercise
Date in order for such payments to be applied in the exercise of an Option for
the purchase of Company Stock on such Exercise Date.

                                       4
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    4.3 Leave of Absence. If a Participant is on a leave of absence, such
Participant shall have the right to elect to (a) withdraw from the Plan and
receive a distribution of the balance in his Account pursuant to Section 4.5,
(b) discontinue Contributions to the Plan but remain a Participant in the Plan,
or (c) subject to Section 3.3(c), remain a Participant in the Plan during such
leave of absence, authorizing deductions to be made from payments by the Company
to the Participant during such leave of absence, or making direct cash payments
to the Plan pursuant to Section 4.2.

    4.4 Contributions to Accounts. A memorandum Account shall for each
Participant for the purpose of accounting for Contributions credited to Accounts
as soon as administratively practicable following of other permissible direct
cash payment. Amounts credited to.

    4.5 Withdrawal of Contributions from Plan. Prior to the end of may elect to
withdraw the Contributions credited to his Account for notice thereof with the
Committee on such forms and in accordance Committee may prescribe. The
Participant's Contributions shall be administratively practicable after the
Committee's receipt of his notice no further payroll deductions shall be made
from his Base Pay.

    4.6 Termination of Employment. Upon termination of a Participant's
employment for any reason, such Participant may no longer make Contributions to
the Plan or be granted Options under the Plan. A Participant's right, if any, to
exercise any unexpired Option he holds as of his termination of employment shall
be determined in accordance with Section 5.5(c).

                               ARTICLE V. OPTIONS

    5.1 Company Stock Available for Options. There shall be available for
Options under the Plan an aggregate maximum of 1,800,000 shares of Company
Stock, subject to any adjustments which may be made pursuant to Section 6.1 of
the Plan in connection with changes in capitalization of the Company. Shares of
Company Stock used for purposes of the Plan may be either authorized and
unissued shares, or previously issued shares held in the treasury of the
Company, or both. Shares of Company Stock covered by Options which have expired
prior to exercise shall be available for further Options granted hereunder.

    5.2 Granting of Options. The Plan shall be implemented by annual offerings
of approximately twelve months duration (except as otherwise provided in Section
5.4). As of each Grant Date, all eligible Employees shall be granted an Option
to purchase shares of Company Stock. The Board of Directors or the Committee
shall determine the number of shares of Company Stock available for purchase
under each Option to be granted as of such Grant Date; provided that, the same
number of shares must be available under each Option granted as of such Grant
Date. No Participant may be granted an Option which permits his rights to
purchase stock under this Plan and all other employee stock purchase plans of
the Company or Employer to accrue at a rate which exceeds $25,000 of the fair
market value of such stock (determined at the time such Option is granted) for
each calendar year in which such Option is outstanding at any time.

                                       5
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    5.3 Option Price. The purchase price per share of Company Stock which may be
acquired pursuant to the exercise of all or any portion of an Option granted
under this Plan shall be eighty-five percent of the lesser of (i) the fair
market value per share of Company Stock on the applicable Grant Date, and (ii)
the fair market value per share of Company Stock on the applicable Exercise
Date. For purposes of this Section 5.3, the fair market value per share of
Company Stock shall be the closing price on the last Business Day prior to the
date of reference, or in the event that no sales take placesuch date, the
average of the closing high bid and national securities exchange on which the
Company Company Stock is not listed or admitted to trading on price reported on
the National Market System of the Automated Quotation system ("NASDAQ") on such
asked prices of the Company Stock in the over-such date, as furnished to the
Committee by any New to time by the Committee for such purposes. If on such
date, the average of the closing high bid and low asked prices, in either case
on the principal national securities exchange on which the Company Stock is
listed or admitted to trading, or if the Company Stock is not listed or admitted
to trading on any national securities exchange, the last sale price reported on
the National Market System of the National Association of Securities Dealers
Automated Quotation system ("NASDAQ") on such date, or the average of the
closing high bid and low asked prices of the Company Stock in the
over-the-counter market reported on NASDAQ on such date, as furnished to the
Committee by any New York Stock Exchange member selected from time to time by
the Committee for such purposes. If there is no bid or asked price reported on
any such date, the fair market value shall be determined by the Committee in
accordance with the regulations promulgated under Section 2031 of the Code, or
by any other appropriate method selected by the Committee.

    5.4 Option Period. Each Option granted to a Participant under the Plan shall
expire on the earliest of (a) the last Exercise Date of the calendar year in
which the Option was granted, (b) the Participant's voluntary withdrawal from
the Plan following termination of employment, and (c) the date of the
Participant's termination of employment related to Cause, or the Exercise Date
immediately following the Participant's termination of employment for any reason
unrelated to Cause. In no event will the duration of an Option period exceed
twenty-seven months (or such other applicable period permitted under Section
423(b)(7) of the Code) from the date on which such Option is granted.

    5.5 Exercise of Options.

           (a) Automatic Exercise. Any Option granted to a Participant shall be
exercised automatically on each Exercise Date during the calendar year of the
Option's Grant Date in whole or in part such that the Participant's accumulated
Contributions as of such Exercise Date shall be applied to the purchase of the
maximum number of whole shares of Company Stock that his Contributions will
allow at the applicable Option price (determined in accordance with Section
5.3), limited to the number of shares subject to such Option. In the event that
the number of shares of Company Stock that may be purchased by all Participants
in the Plan exceeds the number of shares then available for issuance under the
Plan, the Committee shall make a pro rata allocation of the available shares in
as uniform a manner as it determines to be practicable and equitable. Any
remaining Contributions in the Participant's Account amounting to less than the
Option price of a whole share of Company Stock shall be carried forward and
applied on the next Exercise Date; provided that, Contributions remaining after
the last Exercise Date of the calendar year may be distributed to the
Participant at his election.

                                       6
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           (b) Nontransferability of Options. During a Participant's lifetime,
Options held by such Participant shall be exercisable only by that Participant.
No Option shall be transferable other than by will or the laws of descent and
distribution.

           (c) Effect of Termination of Employment.

              (i) Termination of Employment Related to Cause. Upon termination
of a Participant's employment related to Cause, the Participant's participation
in the Plan also shall terminate. Any unexpired Option he holds will expire as
of the date of his termination of employment. Remaining contributions credited
to his Account shall be distributed to the Participant as soon as
administratively practicable following termination of employment.

              (ii) Termination of Employment Due to Death. In the event of the
death of the Participant while employed, or during the period following his
termination of employment for any reason unrelated to Cause but prior to the
next Exercise Date, the Participant's estate shall have the right to elect by
written notice to the Committee prior to the earlier of the expiration of sixty
days commencing with the date of the Participant's death and the Exercise Date
next following the date of the Participant's death:

                      (A) To withdraw all of the Contributions then credited to
the Participant's Account under the Plan, or

                      (B) To allow any unexercised Option held by the
Participant as of the date of his death to be exercised for the purchase of
Company Stock on the Exercise Date next following the date of the Participant's
death in accordance with Section 5.5(a), but only to the extent such Option was
exercisable on the date of the Participant's death, with any remaining
Contributions credited to the Participant's Account being distributed to the
Participant's estate as soon as administratively practicable after such Exercise
Date.

In the event that no such written election is timely and properly received by
the Committee, all Contributions credited to the Participant's Account shall be
distributed to the Participant's estate. In no event shall any Option be
exercisable beyond the applicable exercise period specified in Section 5.4 of
the Plan.

            (iii) Other Termination of Employment. Upon termination of a
Participant's employment for any reason unrelated to Cause or death, the
Participant may at his election:

                      (A) Withdraw from the Plan pursuant to Section 4.5 and
request the return of the remaining Contributions then credited to his Account,
or

                      (B) Continue participation in the Plan, subject to the
provisions of Section 4.6, until the Exercise Date next following his date of
termination of employment for the limited purpose of allowing any unexpired
Option he holds as of his termination of employment to be exercised
automatically in accordance with Section 5.5(a) on the Exercise Date next
following his termination of employment, but only to the extent such Option was
exercisable on the date of the Participant's termination of

                                       7
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employment, with any remaining Contributions credited to the Participant's
Account being distributed to the Participant as soon as administratively
practicable after such Exercise Date.

        (d) Leave of Absence. A Participant on a leave of absence shall, subject
to the election made by such Participant pursuant to Section 4.3 and subject to
this Section 5.5(d), continue to be a Participant in the Plan so long as such
Participant is on continuous leave of absence. A Participant who has been on
leave of absence for more than ninety days and who therefore is not an Employee
for purposes of the Plan (unless the right to reemployment is guaranteed by
statute or contract) shall not be entitled to participate in any offering
commencing on any Grant Date following the ninetieth day of such leave of
absence. Notwithstanding any other provisions of the Plan, unless a Participant
on a leave of absence returns to eligible regular full-time or part-time
employment with the Employer at the earlier of (i) the termination of such leave
of absence, or (ii) the day after the ninetieth day of such leave of absence,
such Participant's employment shall be deemed to have terminated for purposes of
the Plan on whichever of such dates first occurs (unless the Participant's right
to reemployment is guaranteed by statute or contract).

        (e) Delivery of Stock. As soon as administratively practicable after
each Exercise Date, the Company or the Committee will deliver to each
Participant, as applicable, certificates evidencing shares of Company Stock
purchased under this Plan.

        (f) Acceleration of Exercisability of Options Upon Occurrence of Certain
Events. In connection with any merger or consolidation in which the Company is
not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then-outstanding voting securities of the Company, all outstanding
Options under the Plan shall become exercisable in full, notwithstanding any
other provision of the Plan or of any outstanding Options granted thereunder, on
and after (i) the fifteenth day prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of commencement of
such tender offer or exchange offer, as the case may be. Notwithstanding the
foregoing, in no event shall any Option be exercisable after the date of
termination of the exercise period of such Option specified in Section 5.4.

        (g) Registration, Listing and Qualification of Shares of Stock. Each
Option shall be subject to the requirement that if at any time the Board of
Directors shall determine that the registration, listing or qualification of
shares of Company Stock covered thereby upon any securities exchange or under
any federal or state law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such option or the purchase of shares of Company Stock
thereunder, no such Option may be exercised unless and until such registration,
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board of Directors. The Employer
may require that any person exercising an Option shall make such

                                       8
<PAGE>

representations and agreements and furnish such information as it deems
appropriate to assure compliance with the foregoing or any other applicable
legal requirement.

                            ARTICLE VI. MISCELLANEOUS

    6.1 Adjustments Upon Changes in Capitalization. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering or any other change in the
corporate structure or shares of the Company, unless the Committee should
determine otherwise, corresponding adjustments automatically shall be made to
the number and kind of shares of Company Stock available for issuance under this
Plan, the number and kind of shares of Company Stock covered by outstanding
Options under this Plan, and the exercise price per share for outstanding
Options. In addition, the Committee may make such other adjustments as it
determines to be equitable. Any adjustments made pursuant to this Section 6.1
remain subject to the limitations of Section 423 of the Code (including its
$25,000 annual limitations).

    6.2 Approval of Shareholders. The original adoption of the Plan was subject
to the approval, within twelve months before or after the adoption of the Plan
by the Board of Directors, by a majority of the votes cast thereon by the
stockholders of the Company at a meeting of stockholders duly called and held
for such purpose or by unanimous written consent of such stockholders, and no
Option granted hereunder was exercisable prior to such approval. Such approval
was obtained on October 9, 1997.

    6.3 Amendment, Suspension and Termination. The Board of Directors may at any
time amend, suspend or terminate this Plan; provided, however, that the Board of
Directors shall not increase the maximum number of shares of Company Stock for
which Options may be granted under the Plan except as provided in Section 6.1
without obtaining approval of the stockholders in the manner described in
Section 6.2. The Plan will continue until terminated by the Board of Directors
or until all of the shares of Company Stock reserved for issuance under the Plan
have been issued, whichever first occurs. No amendment, suspension or
termination of the Plan may, without the consent of the Participants then
holding Options to purchase Company Stock, adversely affect the rights of such
Participants under such Options.

    6.4 Intent to Comply With Code Section 423. It is intended that this Plan
qualify as an "employee stock purchase plan" under Section 423 of the Code. The
provisions of this Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that Section of
the Code. In the event of an inconsistency between the Plan and Section 423 of
the Code, the Plan shall be interpreted in a manner which complies with the
requirements of Section 423 of the Code and the regulations thereunder, without
further act or amendment by the Company or the Board of Directors unless
otherwise required pursuant to Section 6.3 of this Plan.

    6.5 Equal Rights and Privileges. All Participants granted Options under this
Plan shall have equal rights and privileges within the meaning of Section
423(b)(5) of the Code and the regulations thereunder. The provisions applying to
one Option granted on a Grant Date must apply in the same manner to all other
Options granted on such Grant Date.

                                       9
<PAGE>

    6.6 Use of Funds. All Contributions received and held by the Employer under
this Plan may be used by the Employer for any corporate purpose and the Employer
shall not be obligated to segregate such Contributions.

    6.7 Withholding. An Employee granted Options under this Plan shall be
conclusively deemed to have authorized the Company and his Employer to withhold
from the salary, commissions or other compensation of such Employee funds in
amounts or property (including Company Stock) in value equal to any federal,
state and local income, employment or other withholding taxes applicable to the
income recognized by such Employee and attributable to the Options as, when and
to the extent, if any, required by law; provided; however, that, in lieu of the
withholding of federal, state and local taxes as herein provided, the Company
may require the Participant (or his estate pursuant to Section 5.5(c)(ii)) to
pay to the Company, upon its demand, such amount as may be requested by the
Company for the purpose of satisfying taxes, including taxes that may be the
Participant due to the disposition of Company Stock by the Participant prior to
the the holding periods described in Section 423(a) of the Code. If the amount
requested is not Company may refuse to issue the shares of Company Stock
attributable to the Option's

    6.8 Effect of Plan. This Plan shall be binding upon each Participant and his
including, without limitation, such Participant's estate and the executors,
administrators or thereof, heirs and legatees, and any receiver, trustee in
bankruptcy or representative of such Participant.

    6.9 No Employment Rights. Nothing in this Plan or in any Option granted the
Plan shall be construed as a contract of employment between the Employer and any
or as a right of any employee to continue in the employ of the Employer, or as a
limitation of of the Employer to discharge any of its employees, with or without
cause.

    6.10 Governing Law. This Plan and all rights and obligations hereunder shall
be in accordance with and governed by the laws of the State of North Carolina,
except to the laws are preempted by the laws of the United States.

    6.11 Other Actions. Nothing contained in the Plan shall be construed to
limit the of the Company to exercise its corporate rights and powers, including,
but not by way of the right of the Company to grant or assume options for proper
corporate purposes other than the Plan with respect to any employee or other
person, firm, corporation or association.

                                       10
<PAGE>

requested by the Company for the purpose of satisfying taxes, including taxes
that may be owed by the Participant due to the disposition of Company Stock by
the Participant prior to the expiration of the holding periods described in
Section 423(a) of the Code. If the amount requested is not paid, the Company may
refuse to issue the shares of Company Stock attributable to the Option's
exercise.
                                       11EXHIBIT 4.52

                   AMENDED AND RESTATED HOTEL LEASE AGREEMENT

                          DATED AS OF NOVEMBER 24, 1999

                                     BETWEEN

                            APPLE SUITES SPE I, INC.,
                             A VIRGINIA CORPORATION

                                    AS LESSOR

                                       AND

                          APPLE SUITES MANAGEMENT, INC.
                             A VIRGINIA CORPORATION

                                    AS LESSEE

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                 PAGE
                                                                                                                 ----
<S>                                                                                                                <C>
ARTICLE 1 LEASED PROPERTY; OTHER DEFINITIONS........................................................................1
   1.1.  Leased Property............................................................................................1
   1.2.  Definitions................................................................................................2
ARTICLE 2 TERM; TERMINATION........................................................................................14
   2.1.  Term......................................................................................................14
   2.2.  Lessor's Option to Terminate Lease........................................................................15
   2.3.  Transition Procedures.....................................................................................16
   2.4.  Holding Over..............................................................................................17
ARTICLE 3 RENT; RENT ADJUSTMENTS...................................................................................17
   3.1.  Rent......................................................................................................17
   3.2.  Confirmation of Percentage Rent and Sundry Rent...........................................................21
   3.3.  Additional Charges........................................................................................22
   3.4.  Net Lease; No Termination, Abatement, Etc.................................................................23
   3.5.  Material Changes in Economic Climate......................................................................23
   3.6.  Rent Adjustment:  Basic Assumptions Incorrect.............................................................24
ARTICLE 4 ANNUAL BUDGETS; BOOKS AND RECORDS........................................................................25
   4.1.  Annual Budget.............................................................................................25
   4.2.  Books and Records.........................................................................................26
ARTICLE 5 IMPOSITIONS; HOTEL COSTS.................................................................................26
   5.1.  Payment of Impositions....................................................................................26
   5.2.  Notice of Impositions.....................................................................................27
   5.3.  Adjustment of Impositions.................................................................................27
   5.4.  Utility Charges...........................................................................................27
   5.5.  Insurance Premiums........................................................................................27
   5.6.  Franchise Fees............................................................................................27
   5.7.  Ground Rent...............................................................................................28
ARTICLE 6 LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY..............................................................28
   6.1.  Ownership of the Leased Property..........................................................................28
   6.2.  Lessee's Personal Property................................................................................28
   6.3.  Lessor's Lien.............................................................................................28
   6.4.  Lessor's Option to Purchase Assets of Lessee..............................................................29
ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY.....................................................................29
   7.1.  Condition of the Leased Property..........................................................................29
   7.2.  Use of the Leased Property................................................................................29
   7.3.  Lessor to Grant Easements, Etc............................................................................30
ARTICLE 8 LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS....................................................31
   8.1.  Compliance with Legal and Insurance Requirements, Etc.....................................................31
   8.2.  Legal Requirement Covenants...............................................................................31
   8.3.  Environmental Covenants...................................................................................32
ARTICLE 9 MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS..................................................34
   9.1.  Maintenance and Repairs...................................................................................34
   9.2.  Encroachments, Restrictions, Etc..........................................................................36

                                        i

<PAGE>

ARTICLE 10 ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE..............................................................36
   10.1.    Alterations............................................................................................36
   10.2.    Salvage................................................................................................36
   10.3.    Joint Use Agreements...................................................................................37
   10.4.    Initial Upgrade of Leased Improvements.................................................................37
   10.5.    Furniture, Fixture and Equipment Allowance.............................................................37
ARTICLE 11 COMPLIANCE WITH FRANCHISE...............................................................................37
   11.1.    Compliance with Franchise Agreement and Management Agreement...........................................37
ARTICLE 12 PERMITTED LIENS AND CONTESTS............................................................................38
   12.1.    Liens..................................................................................................38
   12.2.    Permitted Contests.....................................................................................38
ARTICLE 13 INSURANCE REQUIREMENTS..................................................................................39
   13.1.    General Insurance Requirements.........................................................................39
   13.2.    Replacement Cost.......................................................................................41
   13.3.    Waiver of Subrogation..................................................................................41
   13.4.    Form Satisfactory, Etc.................................................................................41
   13.5.    Increase in Limits.....................................................................................42
   13.6.    Blanket Policy.........................................................................................42
   13.7.    No Separate Insurance..................................................................................42
   13.8.    Reports On Insurance Claims............................................................................42
ARTICLE 14 CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION.............................................................42
   14.1.    Insurance Proceeds.....................................................................................42
   14.2.    Reconstruction in the Event of Damage or Destruction Covered by Insurance..............................43
   14.3.    Reconstruction in the Event of Damage or Destruction Not Covered by Insurance..........................44
   14.4.    Lessee's Property......................................................................................44
   14.5.    Abatement of Rent......................................................................................44
   14.6.    Damage Near End of Term................................................................................44
   14.7.    Waiver.................................................................................................45
ARTICLE 15 CONDEMNATION; AWARD ALLOCATION..........................................................................45
   15.1.    Definitions............................................................................................45
   15.2.    Parties' Rights and Obligations........................................................................45
   15.3.    Total Taking...........................................................................................45
   15.4.    Allocation of Award....................................................................................45
   15.5.    Partial Taking.........................................................................................46
   15.6.    Temporary Taking.......................................................................................46
ARTICLE 16 DEFAULT BY LESSEE; LESSOR'S REMEDIES....................................................................46
   16.1.    Events of Default......................................................................................46
   16.2.    Surrender..............................................................................................48
   16.3.    Damages................................................................................................48
   16.4.    Waiver.................................................................................................49
   16.5.    Application of Funds...................................................................................49
   16.6.    Lessor's Right to Cure Lessee's Default................................................................49
ARTICLE 17 DEFAULT BY LESSOR; LESSEE'S REMEDIES....................................................................50
   17.1.    Breach by Lessor.......................................................................................50
   17.2.    Lessee's Right to Cure.................................................................................50
   17.3.    Provisions Relating to Purchase of the Leased Property by Lessee.......................................51

                                        ii

<PAGE>

ARTICLE 18 INDEMNIFICATION.........................................................................................51
   18.1.    Indemnification........................................................................................51
ARTICLE 19 REIT REQUIREMENTS AND RESTRICTIONS......................................................................52
   19.1.    Personal Property Limitation...........................................................................52
   19.2.    Sublease Rent Limitation...............................................................................52
   19.3.    Sublease Tenant Limitation.............................................................................53
   19.4.    Lessee Ownership Limitations...........................................................................53
   19.5.    Lessee Officer and Employee Limitation.................................................................53
   19.6.    Payments to Affiliates of Lessee.......................................................................53
ARTICLE 20 SUBLETTING AND ASSIGNMENT...............................................................................53
   20.1.    Subletting and Assignment..............................................................................53
   20.2.    Attornment.............................................................................................54
   20.3.    Conveyance by Lessor...................................................................................54
ARTICLE 21 QUIET ENJOYMENT; RISK OF LOSS...........................................................................54
   21.1.    Quiet Enjoyment........................................................................................54
   21.2.    Risk of Loss...........................................................................................55
ARTICLE 22 LESSOR MORTGAGES; SUBORDINATION OF LEASE................................................................55
   22.1.    Lessor May Grant Liens.................................................................................55
   22.2.    Subordination of Lease.................................................................................55
ARTICLE 23 ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS..........................................56
   23.1.    Estoppel Certificates; Financial Statements............................................................56
   23.2.    Lessor's Right to Inspect..............................................................................57
ARTICLE 24 APPRAISERS..............................................................................................57
   24.1.    Appraisers.............................................................................................57
ARTICLE 25 ARBITRATION AND DISPUTE RESOLUTION PROCEDURES...........................................................58
   25.1.    Arbitration............................................................................................58
   25.2.    Alternative Arbitration................................................................................58
   25.3.    Arbitration Procedure..................................................................................58
ARTICLE 26 NOTICES.................................................................................................59
   26.1.    Notices................................................................................................59
ARTICLE 27 MISCELLANEOUS...........................................................................................59
   27.1.    No Waiver..............................................................................................59
   27.2.    Remedies Cumulative....................................................................................59
   27.3.    Waiver of Trial by Jury................................................................................60
   27.4.    Acceptance of Surrender................................................................................60
   27.5.    No Merger of Title.....................................................................................60
   27.6.    Waiver of Presentment, Etc.............................................................................60
   27.7.    Action for Damages.....................................................................................60
   27.8.    Lease Assumption in Bankruptcy Proceeding..............................................................60
   27.9.    Enforceability.........................................................................................60
   27.10.   Memorandum of Lease....................................................................................61
</TABLE>

                                        iii

<PAGE>

Exhibit A - Legal Description
Exhibit B - Work Letter
Schedule 3.1(b) - Suite Revenue Breakpoint

<PAGE>

                   AMENDED AND RESTATED HOTEL LEASE AGREEMENT

         THIS AMENDED AND RESTATED  HOTEL LEASE  AGREEMENT  (hereinafter  called
"Lease"), made as of the 24th day of November, 1999, by and between Apple Suites
SPE I, Inc., a Virginia  corporation  (hereinafter  called "Lessor"),  and Apple
Suites Management,  Inc., a Virginia corporation  (hereinafter called "Lessee"),
provides as follows:

         WHEREAS Apple Suites,  Inc., a Virginia  corporation  ("Apple Suites"),
and Apple Suites Management,  Inc., a Virginia corporation entered into a Master
Hotel Lease  Agreement  dated as of  September  20, 1999,  whereby  Apple Suites
agreed to rent and lease to Lessee the Leased Property;

         WHEREAS  Lessor  entered into a loan with First Union  National Bank, a
national banking association (the "Bank") as of September 8, 2000, whereby Apple
Suites refinanced existing debt with respect to the Leased Property;

         WHEREAS in connection with such refinancing the Bank has required Apple
Suites to transfer its  interest in the Leased  Property to Lessor and Lessor to
enter into this Lease with Lessee;

         NOW THEREFORE, Lessor and Lessee have agreed as follows:

                                   AGREEMENT:

         Lessor,  for and in  consideration  of the payment of rent by Lessee to
Lessor,  the  covenants and  agreements to be performed by Lessee,  and upon the
terms and conditions hereinafter stated, does hereby rent and lease unto Lessee,
and Lessee does hereby rent and lease from Lessor, the Leased Property.

                                   ARTICLE 1
                       LEASED PROPERTY; OTHER DEFINITIONS

         1.1.     Leased  Property.  The  Leased  Property  shall  mean  and  is
comprised of Lessor's interest in the following:

                  (a)      the land  described in Exhibit A attached  hereto and
by reference incorporated herein (the "Land");

                  (b)      all buildings,  structures and other  improvements of
every kind  including,  but not limited to,  alleyways and  connecting  tunnels,
sidewalks,  utility  pipes,  conduits and lines  (on-site and offsite),  parking
areas and  roadways  appurtenant  to such  buildings  and  structures  presently
situated upon the Land (collectively, the "Leased Improvements");

                  (c)      all easements,  rights and appurtenances  relating to
the Land and the Leased Improvements;

                  (d)      all equipment,  machinery,  fixtures, and other items
of property required for or incidental to the use of the Leased  Improvements as
a hotel, including all components thereof,

<PAGE>

now and  hereafter  permanently  affixed  to or  incorporated  into  the  Leased
Improvements,  including,  without limitation,  all furnaces,  boilers, heaters,
electrical equipment, heating, plumbing, lighting,  ventilating,  refrigerating,
incineration,  air and water pollution control, waste disposal,  air-cooling and
air-conditioning  systems and  apparatus,  sprinkler  systems and fire and theft
protection  equipment,  all of which to the greatest extent permitted by law are
hereby deemed by the parties hereto to constitute real estate, together with all
replacements,  modifications,  alterations and additions thereto  (collectively,
the "Fixtures");

                  (e)      all furniture and  furnishings and all other items of
personal  property  (excluding  Inventory and personal property owned by Lessee)
located  on,  and  used  in  connection   with,  the  operation  of  the  Leased
Improvements  as  a  hotel,  together  with  all  replacements,   modifications,
alterations and additions thereto; and

                  (f)      all  existing  leases  of  space  within  the  Leased
Property  (including any security deposits or collateral held by Lessor pursuant
thereto).

THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION  WITHOUT  REPRESENTATION
OR  WARRANTY  (EXPRESSED  OR  IMPLIED)  BY LESSOR  AND  SUBJECT TO THE RIGHTS OF
PARTIES  IN  POSSESSION,  AND TO THE  EXISTING  STATE  OF  TITLE  INCLUDING  ALL
COVENANTS,  CONDITIONS,  RESTRICTIONS,  EASEMENTS  AND OTHER  MATTERS  OF RECORD
INCLUDING ALL  APPLICABLE  LEGAL  REQUIREMENTS  AND OTHER MATTERS WHICH WOULD BE
DISCLOSED  BY AN  INSPECTION  OF THE LEASED  PROPERTY OR BY AN  ACCURATE  SURVEY
THEREOF.

         1.2.     Definitions.  For  all  purposes  of  this  Lease,  except  as
otherwise expressly provided or unless the context otherwise  requires,  (a) the
terms defined in this Article have the meanings assigned to them in this Article
and include the plural as well as the  singular,  (b) all  accounting  terms not
otherwise  defined herein have the meanings  assigned to them in accordance with
generally accepted accounting principles as are at the time applicable,  (c) all
references  in  this  Lease  to  designated  "Articles,"  "Sections"  and  other
subdivisions are to the designated Articles,  Sections and other subdivisions of
this Lease and (d) the words "herein,"  "hereof" and "hereunder" and other words
of  similar  import  refer to this  Lease as a whole  and not to any  particular
Article, Section or other subdivision:

                  Additional Charges: As defined in Section 3.3.

                  Affiliate:  As used in this  Lease the term  "Affiliate"  of a
Person shall mean (a) any Person that,  directly or  indirectly,  controls or is
controlled by or is under common control with such Person,  (b) any other Person
that owns,  beneficially,  directly or indirectly,  ten percent (10%) or more of
the outstanding capital stock, shares or equity interests of such Person, or (c)
any officer, director,  employee,  partner, manager or trustee of such Person or
any Person  controlling,  controlled by or under common control with such Person
or any Person that owns, beneficially, directly or indirectly, ten percent (10%)
or more of the  outstanding  capital stock,  shares or equity  interests of such
Person (excluding trustees and Persons serving in similar capacities who are not
otherwise  an Affiliate of such  Person).  For the purposes of this  definition,
"control"  (including the correlative  meanings of the terms "controlled by" and
"under common control with"), as used with respect to

                                       2
<PAGE>

any Person, shall mean the possession,  directly or indirectly,  of the power to
direct or cause the  direction  of the  management  and policies of such Person,
through the  ownership  of voting  securities,  partnership  interests  or other
equity interests.

                  Annual Budget: As used in this Lease, the term "Annual Budget"
shall mean an operating and capital  budget  prepared by Lessee and delivered to
Lessor in accordance with Section 4.1.

                  Award:  As defined in Subsection 15.1(a).

                  Base  Rate:  The  rate  of  interest   announced  publicly  by
Citibank,  N.A., in New York,  New York,  from time to time, as such bank's base
rate.  If no such rate is announced or if such rate becomes  discontinued,  then
such other rate as Lessor may reasonably designate.

                  Base Rent:  As defined in Subsection 3.1(a).

                  Business Day: Each Monday,  Tuesday,  Wednesday,  Thursday and
Friday that is not a day on which  national  banks in the City of New York,  New
York, or in the municipality wherein the Leased Property is located are closed.

                  CERCLA: The Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.

                  Change  of   Control:   The  sale,   conveyance,   assignment,
encumbering, pledging, hypothecation,  granting a security interest in, granting
of options with  respect to, or other  disposition  of (directly or  indirectly,
voluntarily or involuntarily,  by operation of law or otherwise,  and whether or
not for  consideration) of any class stock or other equity interests in a Person
(other  than  among  existing  holders  of  interests  in  such  Person  on  the
Commencement  Date and/or family  members of such holders  and/or trusts for the
benefit of any of the foregoing)  that, upon a transfer of any portion  thereof,
will create in the transferee thereof, directly or indirectly, a majority of any
class of stock or other equity interests of such Person.

                  Claims:  As defined in Section 12.2.

                  COBRA:  As defined in Subsection 8.2(b).

                  Code:  The Internal Revenue Code of 1986, as amended.

                  Commencement Date:  As defined in Section 2.1.

                  Competitive  Set:  As defined in the STR  Reports.  Lessor and
Lessee shall work in good faith to determine  any additions and deletions to the
Hotel's  Competitive  Set, on or before  November  15th of each year,  with such
changes to be applicable for the following  Fiscal Year. In the event Lessor and
Lessee cannot agree to the Hotel's Competitive Set by November 15th of any

                                       3
<PAGE>

year,  such unagreed items shall be determined by Smith Travel  Research (or, if
it refuses or is unable to do so, by arbitration  pursuant to Section 25.2). The
costs of resetting  the Hotel's  Competitive  Set shall be borne  equally by the
parties.

                  Comparison Month:  As defined in Subsection 3.1(d).

                  Condemnation, Condemnor:  As defined in Section 15.1

                  Consolidated   Financials:   For  any  fiscal  year  or  other
accounting  period  for  Lessee  and  its  consolidated  subsidiaries,  if  any,
statements  of  earnings  and  retained  earnings  and of changes  in  financial
position for such period and for the period from the beginning of the respective
fiscal year to the end of such period and the  related  balance  sheet as at the
end of such period,  together with the notes thereto,  all in reasonable  detail
and  setting  forth  in  comparative  form  the  corresponding  figures  for the
corresponding  period in the preceding  fiscal year,  and prepared in accordance
with  generally  accepted  accounting  principles  and  audited  by  independent
certified public accountants acceptable to Lessor in its sole discretion.

                  Consumer  Price  Index:  The "U.S.  City  Average,  All Items"
Consumer  Price Index for All Urban  Consumers  published by the Bureau of Labor
Statistics of the United States  Department of Labor (Base:  1982-1984=100),  or
any successor index thereto.  If the Consumer Price Index is hereafter converted
to a different standard  reference base or otherwise revised,  any determination
hereunder  that uses the Consumer Price Index shall be made with the use of such
conversion  factor,  formula or table for converting the Consumer Price Index as
may be published by the Bureau of Labor  Statistics,  or, if the Bureau shall no
longer publish the same, then with the use of such conversion factor, formula or
table as may be published by Prentice Hall, Inc., or, failing such  publication,
by any other nationally recognized publisher of similar statistical information.

                  Date of Taking:  As defined in Subsection 15.1(d).

                  Encumbrance:  As defined in Section 22.1.

                  Environmental Audit:  As defined in Subsection 8.3(b).

                  Environmental Authority: Any department,  agency or other body
or  component of any  Government  that  exercises  any form of  jurisdiction  or
authority under any Environmental Law.

                  Environmental  Authorization:   Any  license,  permit,  order,
approval, consent, notice,  registration,  filing or other form of permission or
authorization required under any Environmental Law.

                  Environmental Laws: All applicable  federal,  state, local and
foreign laws and regulations relating to pollution of the environment (including
without  limitation,  ambient air, surface water,  ground water, land surface or
subsurface strata),  including without limitation laws and regulations  relating
to emissions, discharges, Releases or threatened Releases of Hazardous

                                       4
<PAGE>

Materials or otherwise  relating to the manufacture,  processing,  distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials.
Environmental Laws include but are not limited to CERCLA,  FIFRA, RCRA, SARA and
TSCA.

                  Environmental Liabilities:  Any and all obligations to pay the
amount of any judgment or settlement, the cost of complying with any settlement,
judgment  or  order  for  injunctive  or  other  equitable  relief,  the cost of
compliance  or  corrective  action in response to any notice,  demand or request
from an  Environmental  Authority,  the amount of any civil  penalty or criminal
fine, and any court costs and reasonable  amounts for attorney's  fees, fees for
witnesses and experts, and costs of investigation and preparation for defense of
any  claim  or  any  Proceeding,   regardless  of  whether  such  Proceeding  is
threatened,  pending or completed,  that may be or have been asserted against or
imposed  upon  Lessor,  Lessee,  any  Predecessor,  the Leased  Property  or any
property used therein and arising out of:

                  (a)      Failure of Lessee,  Lessor,  any  Predecessor  or the
Leased Property to comply at any time with all Environmental Laws;

                  (b)      Presence of any Hazardous Materials on, in, under, at
or in any way affecting the Leased Property;

                  (c)      A Release at any time of any Hazardous  Materials on,
in, at, under or in any way affecting the Leased Property;

                  (d)      Identification  of Lessee,  Lessor or any Predecessor
as a potentially  responsible  party under CERCLA or under any Environmental Law
similar to CERCLA;

                  (e)      Presence  at  any  time  of any  above-ground  and/or
underground storage tanks, as defined in RCRA or in any applicable Environmental
Law on, in, at or under the Leased Property or any adjacent site or facility; or

                  (f)      Any and all claims for injury or damage to Persons or
property arising out of exposure to Hazardous  Materials  originating or located
at the Leased  Property,  or resulting from  operation  thereof or any adjoining
property.

                  Event of Default:  As defined in Section 16.1.

                  Fair  Market  Rental:  The fair  market  rental of the  Leased
Property means the rental which a willing tenant not compelled to rent would pay
a willing  landlord  not  compelled  to lease for the use and  occupancy of such
Leased  Property  pursuant to the Lease for the term in  question,  (a) assuming
that Lessee is not in default  thereunder and (b) determined in accordance  with
the  appraisal  procedures  set forth in Article  24 or in such other  manner as
shall be mutually acceptable to Lessor and Lessee.

                  Fair  Market  Value:  The  fair  market  value  of the  Leased
Property  means an amount equal to the price that a willing  buyer not compelled
to buy  would  pay a  willing  seller  not  compelled  to sell for  such  Leased
Property, (a) assuming the same is unencumbered by this Lease,

                                       5
<PAGE>

(b) determined in accordance with the appraisal  procedures set forth in Article
24 or in such other manner as shall be mutually acceptable to Lessor and Lessee,
(c)  assuming  that  such  seller  must pay  customary  closing  costs and title
premiums,  and (d) taking into  account the  positive or negative  effect on the
value of the Leased  Property  attributable  to the interest rate,  amortization
schedule,  maturity date,  prepayment  penalty and other terms and conditions of
any encumbrance that is assumed by the transferee.  In addition,  in determining
the Fair Market Value with respect to damaged or destroyed  Leased Property such
value shall be determined as if such Leased  Property had not been so damaged or
destroyed.

                  FIFRA:  The Federal  Insecticide,  Fungicide,  and Rodenticide
Act, as amended.

                  Fiscal  Year:  The twelve (12) month  period from January 1 to
December 31, or any shorter period at the beginning or end of the Term.

                  Fixtures:  As defined in Section 1.1.

                  Force Majeure: An Unavoidable Occurrence,  generally affecting
travel and/or the hotel or lodging  business in the market  and/or  submarket in
which the Hotel is located.

                  Franchise  Agreement:   Any  franchise  agreement  or  license
agreement with a franchisor (such as Promus Hotels,  Inc.) under which the Hotel
is operated.

                  Furniture and Equipment: For purposes of this Lease, the terms
"furniture and equipment" shall mean  collectively  all furniture,  furnishings,
wall coverings,  fixtures and hotel equipment and systems located at, or used in
connection  with,  the  Hotel,  together  with  all  replacements  therefor  and
additions thereto, including,  without limitation, (i) all equipment and systems
required  for the  operation  of kitchens  and bars,  laundry  and dry  cleaning
facilities,  (ii) office equipment, (iii) material handling equipment,  cleaning
and engineering equipment,  (iv) telephone and computerized  accounting systems,
and (v) vehicles.

                  Government:  The United States of America, any state, district
or territory  thereof,  any foreign  nation,  any state,  district,  department,
territory  or other  political  division  thereof,  or any  agency or  political
subdivision of any of the foregoing.

                  Gross Operating Expenses:  The term "Gross Operating Expenses"
shall include (i) all costs and expenses of operating the Hotel included  within
the  meaning of the term "Total  Costs and  Expenses"  contained  in the Uniform
System and, (ii) without duplication,  the following:  all salaries and employee
expense  and  payroll  taxes  (including  salaries,  wages,  bonuses  and  other
compensation of all employees of the Hotel, and benefits including life, medical
and disability  insurance and retirement  benefits),  expenditures  described in
Section 9.1, operational supplies, utilities, insurance to be provided by Lessee
under the terms of this Lease,  governmental  fees and assessments,  common area
maintenance costs and other common area fees and assessments,  food,  beverages,
laundry service  expense,  the cost of Inventories,  license fees,  advertising,
marketing,  reservation  systems and any and all other operating expenses as are
reasonably necessary for the proper and efficient operation of the Hotel and the
Leased  Property  incurred by Lessee in accordance  with the  provisions  hereof
(excluding,  however,  (i) federal,  state and municipal  excise,

                                       6
<PAGE>

sales and use taxes  collected  directly from patrons and guests or as a part of
the sales price of any goods,  services  or  displays,  such as gross  receipts,
admissions,  cabaret or similar or equivalent taxes paid over to federal,  state
or  municipal  governments,  (ii) the cost of  insurance  to be  provided  under
Article  13,  (iii)  expenditures  by Lessor  pursuant  to  Article  13 and (iv)
payments on any Mortgage or other mortgage or security instrument on the Hotel);
all determined in accordance with generally accepted accounting  principles.  No
part of Lessee's  central office overhead or general or  administrative  expense
(as  opposed  to  that of the  Hotel)  shall  be  deemed  to be a part of  Gross
Operating Expenses,  as herein provided.  Reasonable  out-of-pocket  expenses of
Lessee incurred for the account of or in connection  with the Hotel  operations,
including but not limited to postage,  telephone  charges and reasonable  travel
expenses of employees,  officers and other  representatives  and  consultants of
Lessee  and its  Affiliates,  shall be  deemed  to be a part of Gross  Operating
Expenses and such Persons  shall be afforded  reasonable  accommodations,  food,
beverages,  laundry,  valet and other such  services by and at the Hotel without
charge to such Persons or Lessee.

                  Gross  Operating  Profit:  For any Fiscal Year,  the excess of
Gross  Revenues  for such Fiscal  Year over Gross  Operating  Expenses  for such
Fiscal Year.

                  Gross Revenues: All revenues, receipts, and income of any kind
derived  directly or indirectly  by Lessee from or in connection  with the Hotel
(including  rentals  or other  payments  from  tenants,  lessees,  licensees  or
concessionaires  but not including their gross receipts) whether on a cash basis
or credit,  paid or collected,  determined in accordance with generally accepted
accounting principles,  excluding,  however: (i) funds furnished by Lessor, (ii)
federal,  state and municipal  excise,  sales, and use taxes collected  directly
from  patrons and guests or as a part of the sales price of any goods,  services
or  displays,  such  as  gross  receipts,  admissions,  cabaret  or  similar  or
equivalent taxes and paid over to federal, state or municipal governments, (iii)
the amount of all credits,  rebates or refunds to customers,  guests or patrons,
and all service charges, finance charges, interest and discounts attributable to
charge  accounts and credit cards,  to the extent the same are paid to Lessee by
its  customers,  guests or  patrons,  or to the  extent the same are paid for by
Lessee to, or charged to Lessee by, credit card  companies,  (iv)  gratuities or
service  charges  actually  paid to  employees,  (v) proceeds of  insurance  and
condemnation,  (vi) proceeds from sales other than sales in the ordinary  course
of business, (vii) all loan proceeds from financing or refinancings of the Hotel
or interests therein or components thereof,  (viii) judgments and awards, except
any portion thereof arising from normal  business  operations of the Hotel,  and
(ix) items constituting "allowances" under the Uniform System.

                  Hazardous Materials: All chemicals, pollutants,  contaminants,
wastes and toxic substances, including without limitation:

                  (a)      Solid or hazardous  waste,  as defined in RCRA or any
other Environmental Law;

                  (b)      Hazardous  substances,  as  defined  in CERCLA or any
other Environmental Law;

                  (c)      Toxic  substances,  as  defined  in TSCA or any other
Environmental Law;

                                       7
<PAGE>

                  (d)      Insecticides, fungicides, or rodenticides, as defined
in FIFRA or any other Environmental Law; and

                  (e)      Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyl, asbestos and urea formaldehyde.

                  Hotel:  The hotel and/or other facility  offering  lodging and
other  services or  amenities  being  operated or proposed to be operated on the
Leased Property.

                  Hotel Market Decline: A period of six (6) consecutive calendar
months during which there is (i) a twenty percent (20%) decline in average hotel
occupancy for the Hotel from the average hotel occupancy  levels for same period
during  the prior  calendar  year and (ii) a twenty  percent  (20%)  decline  in
average hotel  occupancy for the Hotel's  Competitive Set from the average hotel
occupancy  levels  for the same  period  during  the  prior  calendar  year,  as
published in the applicable STR Reports.

                  Impositions:   Collectively,  all  taxes  (including,  without
limitation,  all ad valorem,  sales and use,  single  business,  gross receipts,
transaction,  privilege,  rent or  similar  taxes as the same  relate  to or are
imposed  upon  Lessee  or its  business  conducted  upon the  Leased  Property),
assessments   (including,   without  limitation,   all  assessments  for  public
improvements or benefit, whether or not commenced or completed prior to the date
hereof and whether or not to be completed within the Term), ground rents, water,
sewer or other rents and charges,  excises,  tax inspection,  authorization  and
similar fees and all other governmental charges, in each case whether general or
special,  ordinary  or  extraordinary,  or  foreseen  or  unforeseen,  of  every
character in respect of the Leased Property or the business conducted thereon by
Lessee  (including  all interest and penalties  thereon caused by any failure in
payment by Lessee),  which at any time prior to,  during or with  respect to the
Term hereof may be  assessed or imposed on or with  respect to or be a lien upon
(a) Lessor's  interest in the Leased Property,  (b) the Leased Property,  or any
part  thereof or any rent  therefrom  or any  estate,  right,  title or interest
therein, or (c) any occupancy,  operation,  use or possession of, or sales from,
or activity  conducted  on or in  connection  with the Leased  Property,  or the
leasing or use of the Leased  Property  or any part  thereof by Lessee.  Nothing
contained in this definition of Impositions shall be construed to require Lessee
to pay (1) any tax based on net income  (whether  denominated  as a franchise or
capital  stock or other tax) imposed on Lessor or any other  Person,  or (2) any
net  revenue  tax of Lessor or any other  Person,  or (3) any tax  imposed  with
respect  to the sale,  exchange  or other  disposition  by Lessor of any  Leased
Property or the proceeds  thereof,  or (4) any single  business,  gross receipts
(other  than a tax on any rent  received by Lessor  from  Lessee),  transaction,
privilege  or similar  taxes as the same relate to or are imposed  upon  Lessor,
except to the extent that any tax, assessment, tax levy or charge that Lessee is
obligated to pay pursuant to the first  sentence of this  definition and that is
in effect at any time during the Term hereof is totally or  partially  repealed,
and a tax,  assessment,  tax levy or charge  set  forth in clause  (1) or (2) is
levied, assessed or imposed expressly in lieu thereof.

                  Indemnified  Party:  Either of a Lessee Indemnified Party or a
Lessor Indemnified Party.

                                       8
<PAGE>

                  Indemnifying  Party:  Any  party  obligated  to  indemnify  an
Indemnified Party pursuant to Sections 8.3 or 18.1.

                  Insurance  Requirements:  All  terms of any  insurance  policy
required by this Lease and all requirements of the issuer of any such policy.

                  Inventory:  All  "Inventories of Merchandise" and "Inventories
of  Supplies" as defined in the Uniform  System,  including  without  limitation
linens, china, silver,  glassware and other  non-depreciable  personal property,
and including any property of the type described in Section 1221(1) of the Code.

                  Land:  As defined in Section 1.1.

                  Lease:  This Lease.

                  Leased  Improvements;  Leased  Property:  Each as  defined  in
Section 1.1.

                  Legal Requirements:  All federal, state, county, municipal and
other  governmental  statutes,  laws, rules,  orders,  regulations,  ordinances,
judgments,  decrees and injunctions  affecting either the Leased Property or the
maintenance,  construction,  use or  alteration  thereof  (whether  by Lessee or
otherwise),  whether now in force or hereafter  enacted and in force,  including
(a) all laws, rules or regulations  pertaining to the environment,  occupational
health and safety and public health,  safety or welfare, and (b) any laws, rules
or regulations that may (1) require repairs,  modifications or alterations in or
to the Leased Property or (2) in any way adversely  affect the use and enjoyment
thereof;  and all permits,  licenses and authorizations and regulations relating
thereto and all covenants,  agreements,  restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.

                  Lending  Institution:  Any insurance company,  credit company,
federally-insured  commercial or savings  bank,  national  banking  association,
savings and loan association,  employees welfare,  pension or retirement fund or
system,  corporate  profit sharing or pension trust,  college or university,  or
real estate investment trust,  including any corporation qualified to be treated
for federal tax purposes as a real estate  investment trust, such trust having a
net worth of at least $10,000,000.

                  Lessee: The Lessee designated on this Lease and its respective
permitted successors and assigns.

                  Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any
other  Person  against  whom  any  claim  for  indemnification  may be  asserted
hereunder as a result of a direct or indirect  ownership  interest  (including a
stockholder's  or  member's  interest)  in  Lessee,  the  officers,   directors,
stockholders,  members,  managers,  employees,  agents  and  representatives  of
Lessee,  and the  respective  heirs,  personal  representatives,  successors and
assigns of any such officer, director,  stockholder,  member, manager, employee,
agent or representative.

                                       9
<PAGE>

                  Lessee's Personal Property:  As defined in Section 6.2.

                  Lessee's Work:  As defined in Section 10.4.

                  Lessor: The Lessor designated In this Lease and its respective
successors and assigns.

                  Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any
other  Person  against  whom  any  claim  for  indemnification  may be  asserted
hereunder as a result of a direct or indirect  ownership  interest  (including a
stockholder's  or  partnership  interest) in Lessor,  the  officers,  directors,
stockholders,  members, managers,  employees,  agents and representatives of the
general partner of Lessor and any partner,  agent, or  representative of Lessor,
and the respective heirs,  personal  representatives,  successors and assigns of
any such officer,  director,  stockholder,  partner, member, manager,  employee,
agent or representative.

                  Licenses:  As defined in Subsection 2.3(a).

                  Management Agreement:  The agreement pursuant to which Manager
operates the Hotel.

                  Manager:  Promus Hotels, Inc., a Delaware corporation,  or any
successor  manager  that is retained by Lessee to operate the Hotel  pursuant to
this Lease and the Franchise Agreement.

                  Minimum  Price:  The  sum  of (a)  the  equity  in the  Leased
Property at the time of acquisition of the Leased  Property by Lessor,  plus (b)
other  capital  expenditures  on the Leased  Property  by Lessor  after the date
hereof  (less  depreciation  and  amortization  thereof)  plus  (c)  the  unpaid
principal balance of all encumbrances against the Leased Property at the time of
purchase of the Leased  Property by Lessee,  less (x) all  proceeds  received by
Lessor from any financing or refinancing  of the Leased  Property after the date
hereof (after  payment of any debt  refinanced and net of any costs and expenses
incurred in connection  with such financing or refinancing,  including,  without
limitation, loan points, commitment fees and commissions and legal fees) and (y)
the net amount (after deduction of all reasonable legal fees and other costs and
expenses,  including without limitation expert witness fees,  incurred by Lessor
in  connection  with  obtaining  any such  proceeds  or award) of all  insurance
proceeds  received  by Lessor and awards  received  by Lessor  from any  partial
Taking of the Leased Property that are not applied to restoration.

                  Mortgage:  As defined in Section 22.2.

                  National  Economic  Decline:  A period of six (6)  consecutive
calendar  months  during  which there  occurs or  continues a ten percent  (10%)
decline in average hotel occupancy,  from average hotel occupancy levels for the
same period during the prior calendar year, for all open and operating hotels in
the United States as determined  from the  applicable STR Reports or, if the STR
Reports  are not  longer  published,  other  reputable  national  economic  data
regarding the hospitality industry.

                  Notice:  As defined in Article 26.

                                       10
<PAGE>

                  Officer's  Certificate:  A  certificate  of Lessee  reasonably
acceptable to Lessor,  signed by the chief financial  officer or another officer
authorized  so to sign by the  board of  directors  or other  governing  body of
Lessee, or bylaws or limited liability company agreement of Lessee, or any other
Person whose power and  authority to act has been  authorized  by  delegation in
writing by any such officer.

                  Optional Termination Date:  As defined in Section 2.2.

                  Overdue  Rate: On any date, a rate equal to the Base Rate plus
five percent (5%) per annum,  but in no event greater than the maximum rate then
permitted under applicable law.

                  Payment Date: Any due date for the payment of any  installment
of Base Rent.

                  Percentage Rent:  As defined in Subsection 3.1(b).

                  Person: Any Government,  natural person, corporation,  general
or limited partnership, limited liability company, stock company or association,
joint venture,  association,  company,  trust, bank, trust company,  land trust,
business trust, or other entity.

                  Personal  Property Taxes: All personal  property taxes imposed
on the furniture,  furnishings or other items of personal  property  located on,
and used in connection with, the operation of the Leased Improvements as a hotel
(other than  Inventory and other personal  property  owned by Lessee),  together
with all replacement, modifications, alterations and additions thereto.

                  Predecessor:  Any Person whose  liabilities  arising under any
Environmental Law have or may have been retained or assumed by Lessor or Lessee,
either contractually or by operation of law, relating to the Leased Property.

                  Primary Intended Use:  As defined in Subsection 7.2(b).

                  Proceeding:  Any judicial action,  suit or proceeding (whether
civil or criminal), any administrative  proceeding (whether formal or informal),
any  investigation  by a  governmental  authority  or entity  (including a grand
jury), and any arbitration,  mediation or other non-judicial process for dispute
resolution.

                  Quarterly  Revenues  Computation:  As  defined  in  Subsection
3.1(b).

                  RCRA:  The Resource Conservation and Recovery Act, as amended.

                  Real Estate Taxes:  All real estate taxes,  including  general
and  special  assessments,  if any,  which are  imposed  upon the Land,  and any
improvements thereon.

                  Regional  Market  Decline:  A  period  of six (6)  consecutive
calendar  months during which there is a twenty percent (20%) decline in average
hotel occupancy from hotel occupancy

                                       11
<PAGE>

levels for the same period during the then prior calendar year, for all open and
operating  hotels  in the  Smith  Travel  Research  Region in which the Hotel is
located, as determined from applicable STR Reports or, if the STR Reports are no
longer  published,   other  reputable   regional  economic  data  regarding  the
hospitality industry.

                  Rejectable  Offer Price: An amount equal to the greater of (a)
the Fair Market Value, determined as of the applicable purchase date, or (b) the
Minimum Price.

                  Release:   A  "Release"   as  defined  in  CERCLA  or  in  any
Environmental  Law,  unless  such  Release  has  been  properly  authorized  and
permitted in writing by all applicable  Environmental  Authorities or is allowed
by such Environmental Law without authorizations or permits.

                  Rent:  Collectively,  the Base Rent,  Percentage Rent,  Sundry
Rent and Additional Charges.

                  Repositioning:  As defined in Section 3.6.

                  SARA:  The Superfund  Amendments  and  Reauthorization  Act of
1986, as amended.

                  Solvent:  As to any Person,  (a) the sum of the assets of such
Person exceeds its liabilities  and (b) such Person has sufficient  capital with
which to conduct  its  business  as  presently  conducted  and as proposed to be
conducted.

                  State:  The  state  or  commonwealth  in  which  the  Hotel is
located.

                  STR Reports: Reports compiled by Smith Travel Research, or its
successor,  which contain historical supply and demand,  occupancy,  and average
rate  information  for the Hotel and hotels with which it  competes  (or, in the
event  that Smith  Travel  Research  discontinues  providing  such  information,
reports of similar nature compiled by an authority recognized  nationally in the
hospitality industry).

                  Subsidiaries:  Persons  in  which  Lessee  owns,  directly  or
indirectly,  more than fifty  percent  (50%) of the voting stock or control,  as
applicable.

                  Suite Revenue Breakpoint:  As defined in Subsection 3.1(b).

                  Suite Revenues: All revenues, receipts, and income of any kind
derived  directly or indirectly by Lessee from or in connection  with the rental
of guest rooms or suites, whether to individuals,  groups or transients,  at the
Hotel,  whether on a cash  basis or credit,  paid or  collected,  determined  in
accordance  with generally  accepted  accounting  principles,  but excluding the
following:

                  (a)      The  amount of all  credits,  rebates  or  refunds to
customers, guests or patrons, and all service charges, finance charges, interest
and discounts  attributable  to charge  accounts and

                                       12
<PAGE>

credit cards, to the extent the same are paid to Lessee by its customers, guests
or  patrons,  or to the extent the same are paid for by Lessee to, or charged to
Lessee by, credit card companies;

                  (b)      All sales  taxes or any other  taxes  imposed  on the
rental of such guest rooms or suites;

                  (c)      Gratuities  or  service  charges   actually  paid  to
employees;

                  (d)      Proceeds   of   business   interruption   and   other
insurance; and

                  (e)      Sundry Revenues.

                  Sundry Rent:  As defined in Section 3.1(c).

                  Sundry Revenues:  All revenues,  receipts,  and income derived
from the Hotel's meeting rooms,  telephones,  TV and movie rentals,  check room,
washroom,  laundry,  valet,  vending  machines,  and other sources not specified
herein as Suite Revenues.

                  Taking:  A taking  or  voluntary  conveyance  during  the Term
hereof of all or part of the Leased  Property,  or any interest therein or right
accruing  thereto or use  thereof,  as the result of, or in  settlement  of, any
Condemnation  or other eminent domain  Proceeding  affecting the Leased Property
whether or not the same shall have actually been commenced.

                  Term:  As defined in Section 2.1.

                  TSCA:  The Toxic Substances Control Act, as amended.

                  Unavoidable Delays:  Delays due to strikes,  lock-outs,  labor
unrest, inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the control of the party  responsible for performing an obligation
hereunder,  provided  that lack of funds shall not be deemed a cause  beyond the
control  of  either  party  hereto  unless  such  lack of funds is caused by the
failure of the other party hereto to perform any obligations of such party under
this Lease or any guaranty of this Lease.

                  Unavoidable Occurrence.  The occurrence of strikes,  lockouts,
labor unrest, gasoline and other energy shortages, widespread disruption of air,
auto or other travel, inability to procure materials or services, power or other
utility failure, acts of God (such as hurricanes, tornadoes, earthquakes, floods
and mud  slides),  governmental  restrictions,  war or other enemy or  terrorist
action, civil commotion, fire, casualty,  condemnation, the Year 2000 Problem or
other  similar  causes,  in each case,  if such  cause is beyond the  reasonable
control of Lessee;  provided  that (i) lack of funds shall not be deemed a cause
beyond the  reasonable  control of either party hereto unless such lack of funds
is caused by the failure of the other party hereto to perform any obligations of
such party under this Lease or any  guaranty  of this  Lease,  and (ii) any such
occurrence is an  extraordinary,  as opposed to a routine or cyclical,  material
event that was not reasonably foreseeable when the then-applicable Annual Budget
was prepared.

                                       13
<PAGE>

                  Uneconomic for its Primary  Intended Use: A state or condition
of the Hotel  such  that,  in the good  faith  judgment  of  Lessee,  reasonably
exercised  and  evidenced by the  resolution  of the board of directors or other
governing  body of  Lessee,  the Hotel  cannot  be  operated  on a  commercially
practicable basis for its Primary Intended Use, taking into account, among other
relevant factors,  the number of usable rooms and projected revenues,  such that
Lessee  intends to, and shall,  complete the  cessation of  operations  from the
Leased Hotel.

                  Uniform System: The Uniform System of Accounts for Hotels (9th
Revised Edition,  1996) as published by the Hotel  Association of New York City,
Inc., with such later revisions as may be agreed to by both Lessor and Lessee.

                  Unsuitable for its Primary  Intended Use: A state or condition
of the Hotel  such  that,  in the good  faith  judgment  of  Lessee,  reasonably
exercised  and  evidenced by the  resolution  of the board of directors or other
governing body of Lessee,  due to casualty damage or loss through  Condemnation,
the Hotel  cannot  function as an  integrated  hotel  facility  consistent  with
standards applicable to a well maintained and operated hotel.

                  WARN Act:  As defined in Subsection 8.2(b).

                  Work Letter:  As defined in Section 10.4.

                  Working Capital: Funds reasonably necessary for the day-to-day
operation  of the Hotel's  business  for a thirty  (30) day  period,  including,
without  limitation,  amounts sufficient for the maintenance of change and petty
cash funds, operating bank accounts, payrolls, accounts payable, accrued current
liabilities, and funds required to maintain Inventories.

                  Year 2000 Problem: The malfunction of software, hardware or an
embedded technological system due to the failure to properly process any date or
input  which  includes  an  indication  of or  reference  to a  date,  including
specifically  but not limited to dates that  represent  or  reference  different
centuries or more than one century,  if either (i) Lessor had previously refused
to make or approve a capital expenditure  reasonably proposed by Lessee to avoid
such  Year  2000  Problem,  or  (ii)  such  Year  2000  Problem  results  from a
governmental  or other third party failure to be year 2000  compliant and Lessee
has not failed to take  reasonable  steps to seek  assurances  that such parties
will be year 2000 compliant.

                                   ARTICLE 2
                                TERM; TERMINATION

         2.1.     Term.

                  (a)      The term of the Lease  (the  "Term")  shall  commence
November 24, 1999, (the "Commencement  Date"), and shall end on the tenth (10th)
anniversary of the  Commencement  Date,  unless sooner  terminated in accordance
with  the  provisions  hereof  or  extended  to an  anniversary  of the  initial
expiration date pursuant to this Article 2.

                                       14
<PAGE>

         (b)      Lessee is granted  the option to extend the Term of this Lease
for a period of five (5) years (the "First Extension"),  provided that Lessee is
not in default  hereunder either at the time of deemed exercise of the option or
at the end of the  original  Term,  which  option must be  exercised  by written
notice to Lessor at least one hundred  twenty (120) days prior to the expiration
of the  original  Term.  The  First  Extension  shall be upon  the  same  terms,
conditions and rentals as set forth herein for the original Term.

         (c)      Lessee is granted an option to extend the Term for a period of
five  (5)  years   following  the  end  of  the  First  Extension  (the  "Second
Extension"), provided that Lessee is not in default hereunder either at the time
of exercise  of the option or at the end of the First  Extension,  which  option
must be exercised by written  notice to Lessor at least one hundred twenty (120)
days  prior  to the  expiration  of the  First  Extension.  If  such  option  is
exercised,  Lessor and Lessee shall negotiate in good faith modifications to the
Rent  for the  Second  Extension  to  adjust  such  Rent  to  market  rates  for
arms-length  hotel REIT leases  between  unrelated  parties  for  similar  hotel
properties at that time. In the event Lessor and Lessee are unable to agree upon
Rent  terms for the  Second  Extension  at least  ninety  (90) days prior to the
expiration  of the  Term,  the Rent  terms  for the  Second  Extension  shall be
determined  by a panel of  three  (3)  persons  who  have  generally  recognized
expertise in evaluating  hotel REIT leases and who are not  Affiliates of Lessor
or  Lessee.  Lessee and the Lessor  each shall have the right to  designate  one
panel member and the two (2) panel  members so  designated  will  designate  the
third  panel  member.  Rent terms  approved by at least two (2) of the three (3)
panel  members  will be binding  on Lessee and Lessor for the Second  Extension,
which shall be  otherwise  on the terms set forth  herein.  In  determining  the
market rates for the Second Extension,  the panel members shall be instructed to
consider  hotel REIT lease terms with respect to similar hotel  property  types.
The Second  Extension  shall be otherwise  upon the same terms and conditions as
set forth herein for the original Term.

         2.2.     Lessor's Option to Terminate Lease. In the event Lessor enters
into a bona fide contract to sell the Leased Property to a non-Affiliate,  there
is a Change of Control of Lessor,  or the  provisions of the Code are amended to
permit Lessor to operate  hotels or otherwise  render the structure  embodied by
this Lease to be  obsolete,  Lessor may  terminate  the Lease by giving not less
than thirty (30) days' prior Notice to Lessee of Lessor's  election to terminate
the Lease effective upon, as appropriate,  the closing under such contract,  the
date of such Change of Control,  or the effective  date of such amendment to the
Code (or any other specified date within 30 days after such date) (the "Optional
Termination  Date").  Effective upon the Optional  Termination  Date, this Lease
shall  terminate  and  be of no  further  force  and  effect  except  as to  any
obligations of the parties existing as of such date that survive  termination of
this Lease. As compensation  for the early  termination of its leasehold  estate
under  this  Section  2.2,  Lessor  shall  within  12  months  of  the  Optional
Termination  Date  either (a) pay to Lessee the fair  market  value of  Lessee's
leasehold  estate  hereunder  plus  interest  thereon at the Base Rate as of the
Optional Termination Date or (b) offer to lease to Lessee one or more substitute
hotel  facilities  pursuant to one or more  leases that would  create for Lessee
leasehold  estates that have an aggregate  fair market value of no less than the
fair  market  value of the  original  leasehold  estate,  both  such  values  as
determined as of the Optional Termination Date. Lessor also shall pay to Lessee,
or  reimburse  Lessee  for  any  assignment  fees,  termination  fees  or  other
liabilities arising under the Franchise Agreement or Management Agreement solely
as a result of the  assignment or  termination  of such  Franchise

                                       15
<PAGE>

Agreement or Management  Agreement in connection  with the  termination  of this
Lease under this  Section  2.2. If Lessor  elects and  complies  with the option
described in (b) above,  regardless  of whether  Lessee enters into the lease(s)
described  therein,  Lessor  shall have no further  obligations  to Lessee  with
respect to  compensation  for the early  termination of this Lease. In the event
Lessor and Lessee are unable to agree upon the fair market  value of an original
or replacement  leasehold  estate, it shall be determined by appraisal using the
appraisal procedure set forth in Article 24.

         For the purposes of this  Article,  fair market value of the  leasehold
estate means,  as applicable,  an amount equal to the price that a willing buyer
not  compelled  to buy would  pay a willing  seller  not  compelled  to sell for
Lessee's leasehold estate under this Lease or an offered  replacement  leasehold
estate,  taking into  account that the  leasehold  estate is  encumbered  by the
Franchise Agreement and an arm's-length Management Agreement.

         2.3.     Transition  Procedures.  Upon the expiration or termination of
the Term of this Lease, for whatever reason (other than a purchase of the Leased
Property  by  Lessee),  Lessor  and  Lessee  shall  do the  following  (and  the
provisions of this Section 2.3 shall survive the  expiration or  termination  of
this  Lease  until  they have been  fully  performed)  and,  in  general,  shall
cooperate in good faith to effect an orderly transition of the management and/or
lease of the Hotel:

                  (a)      Transfer of  Licenses.  Lessee  shall use  reasonable
efforts (i) to transfer to Lessor or Lessor's  nominee all  licenses,  operating
permits  and other  governmental  authorizations  and all  contracts,  including
contracts  with  governmental  or  quasi-governmental   entities,  that  may  be
necessary for the operation of the Hotel (collectively,  "Licenses"), or (ii) if
such transfer is prohibited by law or Lessor otherwise elects, to cooperate with
Lessor or  Lessor's  nominee  in  connection  with the  processing  by Lessor or
Lessor's  nominee of any  applications  for, all Licenses;  provided,  in either
case,  that the costs and expenses of any such transfer or the processing of any
such application shall be paid by Lessor or Lessor's nominee.

                  (b)      Leases and Concessions. Lessee shall assign to Lessor
or Lessor's nominee  simultaneously  with the termination of this Lease, and the
assignee  shall  assume,  all leases and  concession  agreements  in effect with
respect to the Hotel then in Lessee's name.

                  (c)      Books and  Records.  All books  and  records  for the
Hotel kept by Lessee  pursuant  to Section  4.2 shall be  delivered  promptly to
Lessor or Lessor's nominee,  simultaneously  with the termination of this Lease,
but such  books and  records  shall  thereafter  be  available  to Lessee at all
reasonable times for inspection,  audit,  examination,  and  transcription for a
period of one (1) year and Lessee may retain (on a confidential basis) copies or
computer records thereof.

                  (d)      Receivables and Payables. Lessee shall be entitled to
retain  all cash,  bank  accounts  and house  banks,  and to  collect  all Gross
Revenues and accounts  receivable  accrued through the termination  date. Lessee
shall be responsible for the payment of Rent, all Gross  Operating  Expenses and
all other  obligations of Lessee accrued under this Lease as of the  termination
date,  and  Lessor  or  Lessor's  nominee  shall be  responsible  for all  Gross
Operating Expenses of the Hotel accruing after the termination date.

                                       16
<PAGE>

                  (e)      Final  Accounting.  Lessee  shall,  within forty five
(45) days after the expiration or  termination of the Term,  prepare and deliver
to Lessor a final accounting  statement,  dated as of the date of the expiration
or  termination,  along with a  statement  of any sums due from Lessee to Lessor
pursuant hereto and payment of such funds.

                  (f)      Inventory.   Lessee  shall  insure  that  the  Leased
Property,  at the date of such  termination  or  expiration,  has Inventory of a
substantially  equivalent  nature and amount as exists at the Leased Property on
the  Commencement  Date, and Lessor or its designee shall acquire such Inventory
from Lessee for a sale price equal to the fair market value of such Inventory.

                  (g)      Surrender.  Lessee will, upon the expiration or prior
termination of the Term,  vacate and surrender the Leased  Property to Lessor in
the condition in which the Leased Property was originally  received from Lessor,
except as  repaired,  rebuilt,  restored,  altered or added to as  permitted  or
required by the  provisions  of this Lease and except for ordinary wear and tear
(subject to the  obligation  of Lessee to maintain  the Leased  Property in good
order and  repair,  as would a prudent  owner,  during  the  entire  Term of the
Lease),  or damage by casualty or  Condemnation  (subject to the  obligations of
Lessee to restore or repair as set forth in the Lease)

         The  provisions  of this Section 2.3 shall  survive the  expiration  or
termination  of this  Lease  until  they  have  been  fully  performed.  Nothing
contained  herein shall limit  Lessor's  rights and remedies under this Lease if
such termination occurs as the result of an Event of Default.

         2.4.     Holding Over.  If Lessee for any reason  remains in possession
of the Leased Property after the expiration or earlier  termination of the Term,
such  possession  shall be as a tenant at  sufferance  during  which time Lessee
shall pay as rental each month 150% of the aggregate of (a)  one-twelfth  of the
aggregate Base Rent and Percentage  Rent payable with respect to the last Fiscal
Year of the Term,  (b) all  Additional  Charges  accruing  during the applicable
month and (c) all other sums,  if any,  payable by Lessee  under this Lease with
respect to the Leased Property. During such period, Lessee shall be obligated to
perform and observe all of the terms,  covenants  and  conditions of this Lease,
but shall have no rights  hereunder other than the right, to the extent given by
law to tenancies at sufferance,  to continue its occupancy and use of the Leased
Property.  Nothing  contained  herein shall  constitute the consent,  express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.

                                   ARTICLE 3
                             RENT; RENT ADJUSTMENTS

         3.1.     Rent.  Lessee will pay to Lessor in lawful money of the United
States of America  which  shall be legal  tender  for the  payment of public and
private debts, in immediately  available funds, at Lessor's address set forth in
Article 26 hereof or at such other place or to such other  Person as Lessor from
time to time may designate in a Notice,  all Base Rent,  Percentage Rent, Sundry
Rent and Additional Charges, during the Term, as follows:

                  (a)      Base  Rent:  The annual  sum of Four  Hundred  Thirty
Eight  Thousand One Hundred Fifty Dollars  ($438,150)  (prorated for fiscal year
1999), as adjusted pursuant to

                                       17
<PAGE>

Subsection  3.1(d)  hereof,  payable in advance  in equal,  consecutive  monthly
installments,  on or before  the tenth  day of each  calendar  month of the Term
("Base Rent");  provided,  however,  that the first monthly payment of Base Rent
shall be  payable  during the second  calendar  month of the Term,  and that the
first  and last  monthly  payments  of Base  Rent  shall be pro  rated as to any
partial  month  (subject to adjustment  as provided in Sections  14.5,  15.3 and
15.5).

                  (b)      Percentage Rent: For each calendar quarter during the
Term commencing with the calendar quarter in which the  Commencement  Date falls
and ending with the calendar quarter in which the Term (including any applicable
extensions) ends, Lessee shall pay percentage rent ("Percentage Rent").

         Percentage Rent for the applicable  quarter shall be an amount equal to
the following formula:

                  The  amount  equal  to  the  applicable   Quarterly   Revenues
         Computation (as defined below) less the sum of

                           (i) an  amount  equal  to the  Base  Rent  paid  with
                  respect to such quarter and all prior calendar quarters of the
                  applicable Fiscal Year and

                           (ii) an  amount  equal to  Percentage  Rent paid with
                  respect  to all  prior  calendar  quarters  of the  applicable
                  Fiscal Year.

For the purpose of the above formula:

         The quarterly revenues computation  ("Quarterly Revenues  Computation")
is equal to the amount obtained by adding, for the applicable  calendar quarter,
an amount equal to the sum of (i) seventeen  percent (17%) of all Fiscal Year to
date Suite Revenues up to the applicable  suite revenue  breakpoint  (the "Suite
Revenue Breakpoint")  described in Schedule 3.1(b),  attached hereto,  (prorated
for the first and last calendar  quarters of the Term  (including any applicable
extensions))  and  fifty-five  percent  (55%) of all  Fiscal  Year to date Suite
Revenues in excess of the applicable Suite Revenue Breakpoint.  At the beginning
of each Fiscal Year, the Suite Revenue Breakpoints shall be adjusted by the same
percentage that the Base Rent is adjusted pursuant to Subsection 3.1(d).

The Percentage Rent shall be payable as follows:

         (i)      with respect to each  calendar  month of the Term,  except for
                  the  calendar  months in the first  partial  and next two full
                  calendar  quarters at the beginning of the Term,  Lessee shall
                  pay on or before the last day of the calendar  month an amount
                  equal to the excess, if any, of (A) seventy-five percent (75%)
                  of the amount of Lessee's  budgeted  Percentage  Rent  payable
                  with  respect  to  the  then  current  calendar  month  (which
                  budgeted  amount  shall  be equal  to  one-third  (1/3) of the
                  quarterly  estimate of Percentage  Rent included in the Annual
                  Budget for the calendar  quarter in which the  calendar  month
                  occurs) over (B) Base Rent for such calendar month; and

                                       18
<PAGE>

         (ii)     with respect to each calendar quarter of the Term,  except for
                  the  calendar  months in the first  partial  and next two full
                  calendar  quarters at the beginning of the Term,  Lessee shall
                  pay  on or  before  the  15th  day  following  the  end of the
                  calendar  quarter an amount  equal to the  amount,  if any, by
                  which the  aggregate  of all  payments in respect of Base Rent
                  and  Percentage  Rent for such calendar  quarter shall be less
                  than the amount determined  pursuant to the Quarterly Revenues
                  Computation for such calendar quarter; and

         (iii)    with respect to the first  partial and next two full  calendar
                  quarters at the beginning of the Term,  Lessee shall pay on or
                  before the 15th day following the end of the calendar  quarter
                  an amount equal to the amount,  if any, by which the aggregate
                  of all  payments  in  respect  of Base Rent for such  calendar
                  quarter shall be less than the amount  determined  pursuant to
                  the Quarterly Revenues Computation of such calendar quarter.

In no event will the amount of Percentage Rent payable for any calendar  quarter
or the result of any Quarterly Revenues Computation be less than zero, and there
shall be no reduction in the Base Rent regardless of the result of any Quarterly
Revenues Computation.

                  (c)      Sundry Rent.  For each  calendar  quarter  during the
Term commencing with the calendar quarter in which the  Commencement  Date falls
and ending with the calendar quarter in which the Term (including any applicable
extensions)  ends,  Lessee shall pay sundry rent  ("Sundry  Rent").  Sundry Rent
shall be an amount equal to fifty-five  percent (55%) of all Fiscal Year to date
Sundry  Revenues  less an amount  equal to Sundry Rent paid with  respect to all
prior  calendar  quarters of the  applicable  Fiscal Year.  Sundry Rent shall be
payable as follows:

         (i)      with respect to each  calendar  month of the Term,  except for
                  the  calendar  months in the first  partial  and next two full
                  calendar  quarters at the  beginning of the Term, on or before
                  the  last  day  of the  calendar  month  an  amount  equal  to
                  seventy-five  percent (75%) of the amount of Lessee's budgeted
                  Sundry Rent payable with respect to the then current  calendar
                  month (which budgeted amount shall be equal to one-third (1/3)
                  of the  quarterly  estimate  of Sundry  Rent  included  in the
                  Annual  Budget for the calendar  quarter in which the calendar
                  month occurs); and

         (ii)     with respect to each calendar quarter of the Term,  except for
                  the  calendar  months in the first  partial  and next two full
                  calendar  quarters at the  beginning of the Term, on or before
                  the 15th day  following  the end of the  calendar  quarter  an
                  amount equal to the amount,  if any, by which the aggregate of
                  all  payments  pursuant  to  Section  3.1(c)(i)  in respect of
                  Sundry  Rent  for such  calendar  quarter  shall be less  than
                  fifty-five  percent (55%) of Sundry Revenues for such calendar
                  quarter; and

         (iii)    with respect to the first  partial and next two full  calendar
                  quarters at the  beginning of the Term,  on or before the 15th
                  day following the end of the calendar quarter.

                  (d)      Officer's  Certificates.  Additionally,  an Officer's
Certificate shall be delivered to Lessor quarterly, together with such quarterly
Percentage  Rent payment and quarterly

                                       19
<PAGE>

Sundry Rent payment, setting forth the calculation of such rent payment for such
quarter,  within thirty (30) days after each of the first three quarters of each
Fiscal Year (or part  thereof) in the Term.  Such  quarterly  payments  shall be
based on the formula set forth in Subsection  3.1(b) and 3.1(c),  as applicable.
There shall be no  reduction  in the Base Rent  regardless  of the result of the
Quarterly Revenues Computations.

         In addition,  on or before March 1 of each year,  commencing with March
1, 2000,  Lessee  shall  deliver to Lessor an Officer's  Certificate  reasonably
acceptable to Lessor setting forth the computation of the actual Percentage Rent
and Sundry Rent that  accrued for each  quarter of the Fiscal Year that ended on
the immediately  preceding  December 31 and shall pay to Lessor  Percentage Rent
and Sundry  Rent,  if due and payable,  for the last  quarter of the  applicable
Fiscal Year. Additionally,  if the annual Percentage Rent or Sundry Rent due and
payable for any Fiscal Year (as shown in the applicable  Officer's  Certificate)
exceeds the amount actually paid as Percentage Rent or Sundry Rent by Lessee for
such  year,  Lessee  also  shall  pay such  excess  to  Lessor  at the time such
certificate is delivered. If the Percentage Rent or Sundry Rent actually due and
payable for such Fiscal  Year is shown by such  certificate  to be less than the
amount actually paid as Percentage Rent or Sundry Rent for the applicable Fiscal
Year,  Lessor,  at its option,  shall  reimburse such amount to Lessee or credit
such amount against  subsequent months' Base Rent or Sundry Rent, as applicable,
and with  respect  to  Percentage  Rent,  to the  extent  necessary,  subsequent
quarters'  Percentage  Rent payments.  Any such credit to Base Rent shall not be
applied for purposes of calculating  Percentage  Rent payable for any subsequent
quarter.

         Any difference  between the annual  Percentage  Rent or Sundry Rent due
and  payable  for  any  Fiscal  Year  (as  shown  in  the  applicable  Officer's
Certificate  or as  adjusted  pursuant to Section  3.3) and the total  amount of
quarterly  payments for such Fiscal Year  actually  paid by Lessee as Percentage
Rent or Sundry Rent,  whether in favor of Lessor or Lessee,  shall bear interest
at the Overdue Rate,  which  interest shall accrue from the due date of the last
quarterly  payment for the Fiscal Year until the amount of such difference shall
be paid or otherwise  discharged.  Any such interest  payable to Lessor shall be
deemed to be and shall be payable as Additional Charges.

         The obligation to pay Percentage Rent and Sundry Rent shall survive the
expiration  or  earlier  termination  of the Term,  and a final  reconciliation,
taking into account, among other relevant adjustments, any adjustments which are
accrued  after  such  expiration  or  termination  date  but  which  related  to
Percentage  Rent and Sundry Rent accrued  prior to such  termination  date,  and
Lessee's  good faith best estimate of the amount of any  unresolved  contractual
allowances,  shall be made not later than two (2) years after such expiration or
termination  date,  but Lessee shall advise  Lessor within sixty (60) days after
such  expiration or  termination  date of Lessee's best estimate at that time of
the approximate amount of such adjustments,  which estimate shall not be binding
on Lessee or have any legal effect whatsoever.

                  (e)      CPI Adjustments to Base Rent and Percentage Rent. For
each year of the Term beginning on or after January 1, 2001, the Base Rent shall
be adjusted from time to time as follows:

                           (1) If the most  recently  published  Consumer  Price
                  Index as of the last day of the last  month  (the  "Comparison
                  Month")  of any  Fiscal  Year is  different  than

                                       20
<PAGE>

                  the  average  Consumer  Price  Index for the twelve (12) month
                  period prior  thereto,  the Base Rent for the next Fiscal Year
                  shall be adjusted  by the  percentage  change in the  Consumer
                  Price Index calculated as follows:

                                    (A)      The difference between the Consumer
                  Price  Index  for the most  recent  Comparison  Month  and the
                  average  Consumer Price Index for the twelve (12) month period
                  prior thereto shall be divided by the average  Consumer  Price
                  Index for the twenty four (24) month period prior thereto.

                                    (B)      The Base Rent  shall be  multiplied
                  by the lesser of (i) seven  percent  (7%) or (ii) the quotient
                  obtained in subparagraph (d)(1)(A) above.

                                    (C)      The     product     obtained     in
                  subparagraph (d)(1)(B) above shall be added to the Base Rent.

         Adjustments in the Base Rent shall be effective on the first day of the
first  calendar  month of the  Fiscal  Year to which  such  adjusted  Base  Rent
applies.  The Suite Revenue  Breakpoint then included in the Quarterly  Revenues
Computation pursuant to Subsection 3.1(b) shall be similarly adjusted, effective
with any such adjustment in the Base Rent.

                           (2)      If (i) a  significant  change is made in the
                  number or nature  (or both) of items used in  determining  the
                  Consumer  Price Index,  or (ii) the Consumer Price Index shall
                  be discontinued for any reason, the Bureau of Labor Statistics
                  shall be  requested to furnish a new index  comparable  to the
                  Consumer  Price Index,  together with  information  which will
                  make  possible a conversion  to the new index in computing the
                  adjusted Base Rent hereunder.  If for any reason the Bureau of
                  Labor  Statistics  does not  furnish  such an  index  and such
                  information,  the parties will instead mutually select, accept
                  and use such other index or comparable  statistics on the cost
                  of living in  Washington,  D.C. that is computed and published
                  by an agency of the United States or a  responsible  financial
                  periodical of recognized authority.

                  (f)      Manager  Fund-up Cure Payments.  If and to the extent
that  Manager  pays amounts to Lessee  pursuant to the  Management  Agreement in
order to avoid  termination of the Management  Agreement by Lessee for Manager's
failure to meet certain  performance  hurdles  described  therein,  such amounts
shall be treated as  additional  Suite  Revenues for purposes of the  Percentage
Rent calculation hereunder.

                  (g)      Allocation of Rent.  The parties  hereto  acknowledge
and  agree  that the Base  Rent paid or  payable  by Lessee to Lessor  hereunder
shall, to the extent relevant,  be allocated  between the personal  property and
real property constituting Leased Property hereunder in direct proportion to the
then recognizable fair market value of such personal property and real property.
Percentage  Rent in  excess  of Base  Rent  shall be  allocated  solely  to real
property.

         3.2.  Confirmation  of  Percentage  Rent and Sundry Rent.  Lessee shall
utilize,  or cause to be utilized,  an accounting system for the Leased Property
in accordance  with its usual and customary  practices,  and in accordance  with
generally accepted accounting  principles,  that will accurately record all data
necessary to compute  Percentage  Rent and Sundry Rent, and Lessee shall

                                       21
<PAGE>

retain,  for at least four (4) years  after the  expiration  of each Fiscal Year
(and in any event until the  reconciliation  described in Subsection  3.1(c) for
such Fiscal Year has been made),  reasonably adequate records conforming to such
accounting  system  showing all data  necessary to compute  Percentage  Rent and
Sundry Rent for the applicable  Fiscal Years.  Lessor, at its expense (except as
provided  hereinbelow),  shall  have the  right  from time to time,  upon  prior
written notice to Lessee and Manager,  by its accountants or  representatives to
audit  the  information  that  formed  the  basis  for the data set forth in any
Officer's  Certificate  provided under Subsection 3.1(d) and, in connection with
such audits,  to examine all Lessee's  records  (including  supporting  data and
sales and excise tax returns)  reasonably required to verify Percentage Rent and
Sundry Rent,  subject to any  prohibitions  or  limitations on disclosure of any
such data under  Legal  Requirements;  provided,  however  that  Lessor may only
inspect  or audit  records  in  Manager's  possession  subject  to the  terms of
Lessee's  access  thereto  under the  Management  Agreement.  If any such  audit
discloses a deficiency  in the payment of  Percentage  Rent or Sundry Rent,  and
either  Lessee  agrees with the result of such audit or the matter is  otherwise
determined or  compromised,  Lessee shall  forthwith pay to Lessor the amount of
the deficiency,  as finally agreed or determined,  together with interest at the
Overdue Rate from the date when said  payment  should have been made to the date
of payment thereof;  provided,  however,  that as to any audit that is commenced
more than two (2) years  after the date  Percentage  Rent or Sundry Rent for any
Fiscal  Year is  reported  by Lessee to Lessor,  the  deficiency,  if any,  with
respect  to such  Percentage  Rent or Sundry  Rent shall  bear  interest  at the
Overdue Rate only from the date such  determination of deficiency is made unless
such deficiency is the result of gross  negligence or willful  misconduct on the
part of Lessee,  in which case interest at the Overdue Rate will accrue from the
date such payment should have been made to the date of payment  thereof.  If any
such audit  discloses that the Percentage  Rent or Sundry Rent actually due from
Lessee for any Fiscal  Year exceed  those  reported by Lessee by more than three
percent  (3%),  Lessee  shall pay the cost of such  audit and  examination.  Any
proprietary  information  obtained by Lessor  pursuant to the provisions of this
Section shall be treated as  confidential,  except that such  information may be
used,  subject to  appropriate  confidentiality  safeguards,  in any  litigation
between the parties and except further that Lessor may disclose such information
to prospective  lenders.  The  obligations  of Lessee  contained in this Section
shall survive the expiration or earlier termination of this Lease.

         3.3. Additional Charges. In addition to the Base Rent,  Percentage Rent
and Sundry  Rent,  (a) Lessee  also will pay and  discharge  as and when due and
payable all other amounts, liabilities,  obligations and Impositions that Lessee
assumes or agrees to pay under this  Lease,  and (b) in the event of any failure
on the part of Lessee to pay any of those  items  referred  to in clause  (a) of
this  Section  3.3,  Lessee also will  promptly  pay and  discharge  every fine,
penalty,  interest and cost that may be added for non-payment or late payment of
such items (the items  referred  to in clauses  (a) and (b) of this  Section 3.3
being additional rent hereunder and being referred to herein collectively as the
"Additional   Charges"),   and  Lessor  shall  have  all  legal,  equitable  and
contractual  rights,  powers and  remedies  provided  either in this Lease or by
statute or otherwise in the case of non-payment of the Additional  Charges as in
the case of  non-payment  of the Base  Rent.  If any  installment  of Base Rent,
Percentage  Rent and Sundry  Rent or  Additional  Charges  (but only as to those
Additional Charges that are payable directly to Lessor) shall not be paid on its
due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge
(to the extent  permitted by law)  computed at the Overdue Rate on the amount of
such  installment,  from the due date of such installment to the date of payment
thereof.  To the  extent  that  Lessee  pays any  Additional  Charges

                                       22
<PAGE>

to Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of
its obligation to pay such Additional  Charges to the entity to which they would
otherwise be due and Lessor shall pay same from monies received from Lessee.

         3.4.     Net Lease; No Termination, Abatement, Etc.

                  (a)      The Rent shall be paid  absolutely net to Lessor,  so
that this Lease  shall yield to Lessor the full  amount of the  installments  of
Base Rent,  Percentage Rent, Sundry Rent and Additional  Charges  throughout the
Term,  all as more  fully  set  forth in  Article  5, but  subject  to any other
provisions of this Lease that  expressly  provide for adjustment or abatement of
Rent or other charges or expressly  provide that certain expenses or maintenance
shall be paid or performed by Lessor.

                  (b)      Except as  otherwise  specifically  provided  in this
Lease,  and except for loss of the Franchise  Agreement  solely by reason of any
action or inaction by Lessor,  Lessee,  to the extent  permitted  by law,  shall
remain bound by this Lease in  accordance  with its terms and shall neither take
any  action  without  the  written   consent  of  Lessor  (which  shall  not  be
unreasonably  withheld or delayed) to modify,  surrender or terminate  the same,
nor seek nor be entitled to any abatement,  deduction, deferment or reduction of
the Rent, or setoff  against the Rent,  nor shall the  obligations  of Lessee be
otherwise affected by reason of (a) any damage to, or destruction of, any Leased
Property or any portion  thereof from whatever cause or any Taking of the Leased
Property or any portion thereof,  (b) the lawful or unlawful  prohibition of, or
restriction upon,  Lessee's use of the Leased Property,  or any portion thereof,
or the interference with such use by any Person other than Lessor, (c) any claim
which Lessee has or might have against Lessor by reason of any default or breach
of any warranty by Lessor under this Lease or any other agreement between Lessor
and  Lessee,  or to which  Lessor and Lessee are  parties,  (d) any  bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other  proceedings  affecting Lessor or any assignee or transferee
of Lessor,  or (e) for any other cause  whether  similar or dissimilar to any of
the foregoing  other than a discharge of Lessee from any such  obligations  as a
matter of law. Lessee hereby  specifically  waives all rights,  arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law to
(1) modify,  surrender or terminate  this Lease or quit or surrender  the Leased
Property  or any  portion  thereof,  or (2)  entitle  Lessee  to any  abatement,
reduction,  suspension  or deferment of the Rent or other sums payable by Lessee
hereunder,  except  as  otherwise  specifically  provided  in  this  Lease.  The
obligations of Lessee hereunder shall be separate and independent  covenants and
agreements  and the Rent and all other sums  payable by Lessee  hereunder  shall
continue  to be  payable in all events  unless the  obligations  to pay the same
shall be  terminated  pursuant  to the  express  provisions  of this Lease or by
termination of this Lease other than by reason of an Event of Default.

         3.5.     Material Changes in Economic Climate.

                  (a)      In the event of the  occurrence of a Force Majeure or
a Hotel  Market  Decline,  Lessor and Lessee  shall,  in good  faith,  negotiate
possible  modifications to the Base Rent and Percentage Rent to reduce such Base
Rent and  Percentage  Rent to recent  market  rates for hotel  REIT  leases  for
similar hotel properties in the Hotel's Competitive Set, retroactively effective
as of the  first  calendar  month  of the  Term  following  the  last day of the
six-month  period  during which

                                       23
<PAGE>

such  Hotel  Market  Decline  has  occurred  with the  excess  of Base  Rent and
Percentage  Rent  actually  paid for such period over the reduced  Base Rent and
Percentage  Rent, plus interest  thereon at the Base Rate, to be credited to the
next payments of Rent due and owing  hereunder.  If Lessor and Lessee are unable
to agree that a Force  Majeure or a Hotel Market  Decline has  occurred,  within
thirty (30) days after the date of written  certification  from Lessee to Lessor
that a Force  Majeure and Hotel  Market  Decline has  occurred  (accompanied  by
reasonably  detailed  computations and documentation to support such assertion),
the matter may be submitted by either party to  arbitration  under  Section 25.2
hereof for  resolution  (during which period  Lessee shall  continue to pay Base
Rent and  Percentage  Rent as required  under  Section 3.1 of this  Lease).  If,
within ninety (90) days (during  which period Lessee shall  continue to pay Base
Rent and Percentage Rent as required under Section 3.1 of this Lease)  following
the date of such written certification from Lessee (or the date of a decision of
an arbitrator if required  hereunder to determine that a Force Majeure and Hotel
Market  Decline  has  occurred),  Lessor and Lessee are unable to agree upon the
amount of reduction in Base Rent and Percentage Rent contemplated hereby, Lessee
shall have the option to  terminate  this Lease upon not less than  thirty  (30)
days prior written notice to Lessor.

                  (b)      In the event of the occurrence of a National Economic
Decline or a Regional  Market  Decline,  Lessor and Lessee shall, in good faith,
negotiate (i) possible  modifications  to the Base Rent and  Percentage  Rent to
reduce such Base Rent and Percentage  Rent to recent market rates for hotel REIT
leases for similar  hotel  properties in the Hotel's  Competitive  Set, and (ii)
possible modifications to the Base and Percentage Rent payable under each of the
Other Leases for Other Hotels in the same Region (as defined in the STR Reports)
as the Hotel to reduce such Base Rent and Percentage Rent to recent market rates
for hotel REIT leases for similar hotel  properties  in the Hotel's  Competitive
Set, in each case retroactively  effective as of the first calendar month of the
Term  following  the last day of the six month period during which such Regional
Market  Decline has occurred  with the excess of Base Rent and  Percentage  Rent
actually  paid for such period over the reduced Base Rent and  Percentage  Rent,
plus  interest  thereon at the Base Rent, to be credited to the next payments of
Rent due and owing  hereunder.  If,  within  thirty  (30) days after the date of
written certification from Lessee to Lessor that a National Economic Decline and
Regional  Market  Decline  has  occurred  (accompanied  by  reasonably  detailed
computations and documentation to support such assertion), Lessor and Lessee are
unable to agree that a National  Economic Decline or Regional Market Decline has
occurred,  the matter may be  submitted  by either  party to  arbitration  under
Section 25.2 hereof for resolution (during which period Lessee shall continue to
pay Base Rent and Percentage  Rent as required under Section 3.1 of this Lease).
If, within  ninety (90) days (during  which period Lessee shall  continue to pay
Base Rent and  Percentage  Rent as  required  under  Section  3.1 of this Lease)
following  the date of such initial  written  certification  from Lessee (or the
date of a decision of an  arbitrator if required  hereunder to determine  that a
National Economic Decline and Regional Market Decline has occurred),  Lessor and
Lessee  are  unable  to agree  upon the  amount  of  reduction  in Base Rent and
Percentage Rent contemplated hereby, Lessee shall have the option, upon not less
than sixty (60) days prior written  notice to Lessor,  to terminate all (but not
less than all) of the Existing Leases of hotels in the same Region as the Hotel,
including this Lease.

         3.6.     Rent Adjustment:  Basic Assumptions  Incorrect.  Except to the
extent that doing so would cause  Lessor to  recognize  income other than "rents
from real  property" as defined in Section  856(d) of the Code,  notwithstanding
anything  herein (other than Article 19) to the  contrary,  if (i)

                                       24
<PAGE>

the facts and  circumstances  underlying the documented,  basic assumptions upon
which both Lessor and Lessee have relied in determining the Base Rent, the Suite
Revenue Breakpoint,  and the Percentage Rent payable hereunder become materially
incorrect  solely as a result of (A) a decision  to  re-brand  the Hotel that is
made  after  the  Commencement  Date,  (B) the  scope  or  cost  of  substantial
renovations   or  other  capital   improvements   to  the  Hotel,   or  (C)  the
implementation  of any  other  hotel  repositioning  strategies  (that  were not
planned as of the Commencement Date) resulting in significant  disruption of the
operations of the Hotel (collectively,  a "Repositioning"),  and (ii) Lessor and
Lessee so agree in  writing,  then  Lessor  and  Lessee  shall,  in good  faith,
negotiate   modifications  to  the  Base  Rent,  Suite  Revenue  Breakpoint  and
Percentage Rent to adjust (i.e., increase,  decrease or reallocate among revenue
categories)  such Base Rent,  Suite Revenue  Breakpoint and  Percentage  Rent to
reflect such change in basic  assumptions  for the affected  periods,  using the
same  methodology  and other basic  assumptions  as were  initially  utilized in
determining  the  Base  Rent,  Suite  Revenue  Breakpoint  and  Percentage  Rent
hereunder.  If Lessor and Lessee are unable to agree,  within  thirty  (30) days
after the date of  written  certification  from  either  Lessee or Lessor to the
other  party  that a good  faith  dispute  exists,  as to the  existence  of the
occurrence of a  Repositioning  or the  adjustments to be made to the amounts or
percentages  for the Base Rent,  Suite Revenue  Breakpoint and  Percentage  Rent
hereunder  as a result of any  repositioning,  the dispute may be  submitted  by
either party to  arbitration  under Section 25.2 hereof for  resolution  (during
which  period  Lessee  shall  continue to pay Base Rent and  Percentage  Rent as
required under Section 3.1 of this Lease); provided,  however, that for purposes
of applying  the  procedures  in Section  25.3 to such  arbitration,  the target
deadline  therein for concluding the arbitration  shall be shortened from ninety
(90) days to thirty (30) days.

                                   ARTICLE 4
                        ANNUAL BUDGETS; BOOKS AND RECORDS

         4.1.     Annual  Budget.  Not later than  thirty (30) days prior to the
commencement  of each Fiscal  Year,  Lessee  shall  submit the Annual  Budget to
Lessor. The Annual Budget shall contain the following, to the extent included in
the operating  budgets and capital  budgets  provided to Lessee by Manager under
the management agreement for the Hotel:

                  (a)      Lessee's   reasonable   estimate  of  Gross  Revenues
(including room rates and Suite Revenues),  Gross Operating Expenses,  and Gross
Operating  Profits for the  forthcoming  Fiscal Year  itemized on schedules on a
quarterly  basis as  approved  by Lessor and  Lessee,  as same may be revised or
replaced  from time to time by Lessee and approved by Lessor,  together with the
assumptions, in narrative form, forming the basis of such schedules.

                  (b)      An  estimate of the  amounts to be  dedicated  to the
repair, replacement, or refurbishment of Furniture and Equipment.

                  (c)      An estimate of any amounts Lessor will be required to
provide for required or desirable  capital  improvements  to the Hotel or any of
its components.

                  (d)      A cash flow projection.

                                       25
<PAGE>

                  (e)      A  business  plan,  which  shall  describe   business
objectives  and strategies  for the  forthcoming  Fiscal Year, and shall include
without limitation an analysis of the market area in which the Hotel competes, a
comparison of the Hotel and its business with competitive hotels, an analysis of
categories  of  potential  guests,  and a  description  of sales  and  marketing
activities  designed  to  achieve  and  implement   identified   objectives  and
strategies.

         4.2.     Books and Records.  Lessee 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  generally  accepted   accounting
principles and the obligations of Lessee under this Lease.  The books of account
and all other records relating to or reflecting the operation of the Hotel shall
be kept either at the Hotel or at Lessee's  offices in Richmond,  Virginia or at
Manager's   central   offices,   and  shall  be  available  to  Lessor  and  its
representatives  and its auditors or accountants,  at all reasonable times, upon
prior written notice to Lessee and Manager, for examination,  audit, inspection,
and  transcription;  provided,  however  that  Lessor may only  inspect or audit
records in Manager's  possession subject to the terms of Lessee's access thereto
under the Management Agreement.  All of 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 Lessor and shall not be
removed from the Hotel or Lessee's offices or Manager's central offices (but may
be moved among any of the foregoing) by Lessee without Lessor approval.

                                   ARTICLE 5
                            IMPOSITIONS; HOTEL COSTS

         5.1.  Payment of  Impositions.  Subject to Section  12.2  (relating  to
permitted  contests),  Lessee  will pay,  or cause to be paid,  all  Impositions
(other than Real Estate Taxes and Personal  Property Taxes,  which shall be paid
by  Lessor)  before  any  fine,  penalty,  interest  or cost  may be  added  for
non-payment,  such  payments  to  be  made  directly  to  the  taxing  or  other
authorities  where  feasible,  and will  promptly  furnish  to Lessor  copies of
official receipts or other satisfactory proof evidencing such payments. Lessee's
obligation to pay such  Impositions  shall be deemed  absolutely  fixed upon the
date  such  Impositions  become a lien  upon  the  Leased  Property  or any part
thereof. If any such Imposition may, at the option of the taxpayer,  lawfully be
paid in installments (whether or not interest shall accrue on the unpaid balance
of such  Imposition),  Lessee may  exercise  the option to pay the same (and any
accrued  interest on the unpaid balance of such  Imposition) in installments and
in such event,  shall pay such  installments  during the Term hereof (subject to
Lessee's  right of contest  pursuant to the  provisions  of Section 12.2) as the
same  respectively  become due and before any fine,  penalty,  premium,  further
interest or cost may be added thereto.  Lessor,  at its expense,  shall,  to the
extent required or permitted by applicable law, prepare and file all tax returns
in respect  of  Lessor's  net  income,  gross  receipts,  sales and use,  single
business,  transaction privilege, rent, ad valorem, franchise taxes, Real Estate
Taxes,  Personal  Property Taxes and taxes on its capital stock, and Lessee,  at
its expense,  shall,  to the extent required or permitted by applicable laws and
regulations,  prepare  and file all other tax  returns and reports in respect of
any  Imposition as may be required by  governmental  authorities.  If any refund
shall be due from any taxing  authority  in respect  of any  Imposition  paid by
Lessee,  the same  shall be paid  over to or  retained  by Lessee if no Event of
Default shall have occurred hereunder and be continuing.  If an Event of Default
shall have occurred and be continuing,  any such refund shall be paid over to or

                                       26
<PAGE>

retained by Lessor. Any such funds retained by Lessor due to an Event of Default
shall be applied  as  provided  in Article  16.  Lessor and Lessee  shall,  upon
request of the other,  provide such data as is  maintained  by the party to whom
the request is made with  respect to the Leased  Property as may be necessary to
prepare  any  required  returns  and  reports.  Lessee  shall file all  Personal
Property Tax returns in such  jurisdictions  where it is legally  required so to
file.  Lessor, to the extent it possesses the same, and Lessee, to the extent it
possesses the same,  will provide the other party,  upon request,  with cost and
depreciation records necessary for filing returns for any property classified as
personal  property.  Where Lessor is legally required to file Personal  Property
Tax returns,  Lessee shall provide  Lessor with copies of assessment  notices in
sufficient time for Lessor to file a protest. Lessor may, upon Notice to Lessee,
at Lessor's option and at Lessor's sole expense,  protest,  appeal, or institute
such other  proceedings (in its or Lessee's name) as Lessor may deem appropriate
to effect a reduction of real estate or personal property  assessments for those
Impositions to be paid by Lessor,  and Lessee, at Lessor's expense as aforesaid,
shall fully  cooperate  with Lessor in such  protest,  appeal,  or other action.
Lessor  hereby agrees to indemnify,  defend,  and hold harmless  Lessee from and
against any claims,  obligations,  liabilities  and loss  against or incurred by
Lessee in  connection  with such  cooperation.  Billings  for  reimbursement  of
Personal  Property Taxes by Lessee to Lessor shall be accompanied by copies of a
bill  therefor and payments  thereof which  identify the personal  property with
respect to which such payments are made. Lessor, however,  reserves the right to
effect any such  protest,  appeal or other  action  and,  upon Notice to Lessee,
shall  control any such  activity,  which shall then go forward at Lessor's sole
expense.  Upon such Notice,  Lessee, at Lessor's expense,  shall cooperate fully
with such activities.

         5.2. Notice of  Impositions.  Lessor shall give prompt Notice to Lessee
of all Impositions  payable by Lessee  hereunder of which Lessor at any time has
knowledge,  provided that  Lessor's  failure to give any such Notice shall in no
way diminish Lessee's  obligations  hereunder to pay such Impositions,  but such
failure shall obviate any default  hereunder for a reasonable  time after Lessee
receives Notice of any Imposition  which it is obligated to pay during the first
taxing period applicable thereto.

         5.3.  Adjustment of Impositions.  Impositions imposed in respect of the
tax-fiscal  period  during  which  the Term  terminates  shall be  adjusted  and
prorated  between Lessor and Lessee,  whether or not such  Imposition is imposed
before or after such  termination,  and Lessee's  obligation to pay its prorated
share thereof after termination shall survive such termination.

         5.4. Utility Charges.  Lessee will be solely  responsible for obtaining
and maintaining utility services to the Leased Property and will pay or cause to
be paid all charges for electricity,  gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.

         5.5.  Insurance  Premiums.  Lessee  will  pay or  cause  to be paid all
premiums for the  insurance  coverage's  required to be  maintained  by it under
Article 13.

         5.6. Franchise Fees. Lessee will maintain in full force and effect, and
pay or cause to be paid all fees and other  charges  payable  pursuant  to,  any
Franchise Agreement with respect to the Hotel.

                                       27
<PAGE>

         5.7.  Ground Rent. In the event that  Lessor's  interest in the Land is
pursuant to a Ground Lease or sublease,  Lessor shall be solely  responsible for
the payment of any ground rent,  building  rent or subrent,  as the case may be,
due with respect to the Leased Property.

                                   ARTICLE 6
                   LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY

         6.1.  Ownership of the Leased Property.  Lessee  acknowledges  that the
Leased  Property is the property of Lessor and that Lessee has only the right to
the possession  and use of the Leased  Property upon the terms and conditions of
this Lease.

         6.2.  Lessee's  Personal  Property.  Lessee will  acquire and  maintain
throughout the Term such Inventory as is required to operate the Leased Property
in the manner  contemplated  by this  Lease.  Lessee may (and shall as  provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee.  Lessee, at the commencement of the Term,
and from time to time thereafter,  shall provide Lessor with an accurate list of
all such  items of  Lessee's  personal  property  (collectively,  the  "Lessee's
Personal  Property").  Lessee may, subject to the first sentence of this Section
6.2 and the conditions set forth below, remove any of Lessee's Personal Property
set forth on such list at any time during the Term or upon the expiration or any
prior  termination of the Term. All of Lessee's  Personal  Property,  other than
Inventory,  not removed by Lessee within ten (10) days  following the expiration
or earlier  termination of the Term shall be considered  abandoned by Lessee and
may be appropriated,  sold, destroyed or otherwise disposed of by Lessor without
first giving Notice thereof to Lessee, without any payment to Lessee and without
any  obligation to account  therefor.  Lessee will, at its expense,  restore the
Leased Property to the condition required by Subsection 2.3(g), including repair
of all damage to the Leased Property caused by the removal of Lessee's  Personal
Property,  whether effected by Lessee or Lessor.  Upon the expiration or earlier
termination  of the  Term,  Lessor  or its  designee  shall  have the  option to
purchase  all  Inventory  on hand at the  Leased  Property  at the  time of such
expiration  or  termination  for a sale price equal to the fair market  value of
such  Inventory.  Lessee may make such financing  arrangements,  title retention
agreements,  leases  or other  agreements  with  respect  to  Lessee's  Personal
Property as it sees fit provided  that Lessee first  advises  Lessor of any such
arrangement  and  such  arrangement  expressly  provides  that in the  event  of
Lessee's  default  thereunder,  Lessor (or its  designee)  may  assume  Lessee's
obligations and rights under such arrangement.

         6.3.  Lessor's Lien. To the fullest extent permitted by applicable law,
Lessor is granted a lien and security interest on all Lessee's personal property
now or  hereinafter  placed in or upon the  Leased  Property,  and such lien and
security interest shall remain attached to such Lessee's personal property until
payment  in full of all Rent and  satisfaction  of all of  Lessee's  obligations
hereunder;  provided,  however,  Lessor shall  subordinate its lien and security
interest to that of any  non-Affiliate  of Lessee which  finances  such Lessee's
personal  property  or any  non-Affiliate  conditional  seller of such  Lessee's
personal  property,  the  terms  and  conditions  of  such  subordination  to be
satisfactory to Lessor in the exercise of reasonable  discretion.  Lessee shall,
upon the request of Lessor, execute such financing statements or other documents
or instruments  reasonably  requested by Lessor to perfect the lien and security
interests herein granted.  Lessee hereby  authorizes  Lessor

                                       28
<PAGE>

to execute and file  financing  statements  signed only be a  representative  of
Lessor covering the security interest of Lessor in Lessee's personal property.

         6.4.  Lessor's  Option to Purchase  Assets of Lessee.  Effective on not
less than ninety (90) days'  prior  Notice  given at any time within one hundred
eighty (180) days before the  expiration of the Term,  but not later than ninety
(90) days prior to such expiration,  or upon such shorter Notice period as shall
be appropriate if this Lease is terminated prior to its expiration date,  Lessor
shall have the option to  purchase  all (but not less than all) of the assets of
Lessee,  tangible and  intangible,  relating to the Leased  Property (other than
this  Lease),  at the  expiration  or  termination  of this  Lease for an amount
(payable in cash on the expiration  date of this Lease) equal to the fair market
value  thereof as  appraised  in  conformity  with  Article 24,  except that the
appraisers  need  not be  members  of the  American  Institute  of  Real  Estate
Appraisers,  but  rather  shall be  appraisers  having at least ten (10)  years'
experience in valuing similar assets.  Notwithstanding any such purchase, Lessor
shall  obtain no rights to any trade  name or logo used in  connection  with the
Franchise Agreement unless separate agreement as to such use is reached with the
applicable franchisor.

                                   ARTICLE 7
                      CONDITION AND USE OF LEASED PROPERTY

         7.1. Condition of the Leased Property.  Lessee acknowledges receipt and
delivery of possession of the Leased Property. Lessee has examined and otherwise
has knowledge of the condition of the Leased  Property and has found the same to
be  satisfactory  for its  purposes  hereunder.  Lessee is  leasing  the  Leased
Property  "as is" in its present  condition.  Lessee  waives any claim or action
against Lessor in respect of the condition of the Leased Property.  LESSOR MAKES
NO WARRANTY  OR  REPRESENTATION,  EXPRESS OR  IMPLIED,  IN RESPECT OF THE LEASED
PROPERTY,  OR ANY PART  THEREOF,  EITHER AS TO ITS  FITNESS  FOR USE,  DESIGN OR
CONDITION FOR ANY PARTICULAR  USE OR PURPOSE OR OTHERWISE,  AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN,  LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH  RISKS  ARE TO BE BORNE BY  LESSEE.  LESSEE  ACKNOWLEDGES  THAT THE  LEASED
PROPERTY  HAS BEEN  INSPECTED  BY LESSEE AND IS  SATISFACTORY  TO IT.  Provided,
however,  to the extent permitted by law, Lessor hereby assigns to Lessee all of
Lessor's  rights to proceed  against any  predecessor  in title  (other than any
Affiliate  of Lessee  which  conveyed  the  Property to Lessor) for  breaches of
warranties  or  representations  or for latent  defects in the Leased  Property.
Lessor shall fully  cooperate with Lessee in the  prosecution of any such claim,
in Lessor's or Lessee's  name,  all at Lessee's  sole cost and  expense.  Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against any
claims,  obligations and liabilities against or incurred by Lessor in connection
with such cooperation.

         7.2.     Use of the Leased Property.

                  (a)      Lessee  covenants  that it will  proceed with all due
diligence  and will  exercise  reasonable  efforts to obtain and to maintain all
Licenses and other  approvals  needed to use and operate the Leased Property and
the Hotel under applicable local, state and federal law.

                                       29
<PAGE>

                  (b)      Lessee  shall  use or  cause  to be used  the  Leased
Property only as a Homewood  Suites(R)  all-suite hotel  facility,  and for such
other uses as may be  necessary or  incidental  to such use or such other use as
otherwise approved by Lessor (the "Primary Intended Use").  Lessee shall not use
the Leased  Property or any portion  thereof for any other use without the prior
written consent of Lessor,  which consent may be granted,  denied or conditioned
in Lessor's sole discretion. No use shall be made or permitted to be made of the
Leased Property, and no acts shall be done, which will cause the cancellation or
increase the premium of any insurance policy covering the Leased Property or any
part thereof (unless another adequate policy satisfactory to Lessor is available
and Lessee pays any  premium  increase),  nor shall  Lessee sell or permit to be
kept,  used or sold in or about the Leased  Property  any  article  which may be
prohibited by law or fire underwriter's  regulations.  Lessee shall, at its sole
cost,  comply with all of the requirements  pertaining to the Leased Property of
any insurance  board,  association,  organization  or company  necessary for the
maintenance of insurance,  as herein provided,  covering the Leased Property and
Lessee's Personal Property.

                  (c)      Subject to the  provisions of Articles 14, 15, 18 and
21,  Lessee  covenants  and  agrees  that  during  the Term it will (1)  operate
continuously the Leased Property as a hotel facility, (2) keep in full force and
effect and comply with all the  provisions  of the  Franchise  Agreement and the
Management Agreement,  (3) not terminate or amend the Franchise Agreement or the
Management  Agreement  without  the  consent  of  Lessor  (which  shall  not  be
unreasonably withheld or delayed),  (4) maintain appropriate  certifications and
Licenses  for such use and (5) seek to  maximize  the Gross  Revenues  generated
therefrom consistent with sound business practices.

                  (d)      Lessee shall not commit or suffer to be committed any
waste on the Leased Property,  or in the Hotel, nor shall Lessee cause or permit
any nuisance thereon.

                  (e)      Lessee  shall  neither  suffer  nor permit the Leased
Property or any portion thereof,  or Lessee's Personal  Property,  to be used in
such a manner as (1) might  reasonably tend to impair Lessor's (or Lessee's,  as
the case may be) title thereto or to any portion thereof,  or (2) may reasonably
make  possible a claim or claims of adverse  usage or adverse  possession by the
public, as such, or of implied  dedication of the Leased Property or any portion
thereof,  except as necessary in the ordinary and prudent operation of the Hotel
on the Leased Property.

         7.3.     Lessor to Grant  Easements,  Etc.  Lessor  will,  from time to
time,  so long as no Event of Default has  occurred  and is  continuing,  at the
request of Lessee and at Lessee's  cost and expense (but subject to the approval
of Lessor,  which approval shall not be unreasonably  withheld or delayed),  (a)
grant  easements and other rights in the nature of easements with respect to the
Leased Property to third parties, (b) release existing easements or other rights
in the nature of easements which are for the benefit of the Leased Property, (c)
dedicate  or  transfer  unimproved  portions  of the Leased  Property  for road,
highway or other  public  purposes,  (d)  execute  petitions  to have the Leased
Property annexed to any municipal  corporation or utility district,  (e) execute
amendments to any covenants and  restrictions  affecting the Leased Property and
(f) execute and deliver to any Person any  instrument  appropriate to confirm or
effect such grants, releases,  dedications,  transfers, petitions and amendments
(to the extent of its interests in the Leased Property),  but only upon delivery
to  Lessor  of an  Officer's  Certificate  stating  that  such  grant,  release,
dedication,  transfer,

                                       30
<PAGE>

petition or amendment does not interfere with the proper conduct of the business
of Lessee on the Leased Property and does not materially reduce the value of the
Leased Property.

                                   ARTICLE 8
              LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS

         8.1. Compliance with Legal and Insurance Requirements,  Etc. Subject to
Subsection  8.3(b)  below and Section 12.2  (relating  to  permitted  contests),
Lessee,  at its  expense,  will  promptly (a) comply with all  applicable  Legal
Requirements  and  Insurance  Requirements  in  respect  of the use,  operation,
maintenance, repair and restoration of the Leased Property (excluding any repair
or  restoration  of any  portion of the Leased  Property  required to be made by
Lessor  pursuant to  Subsection  9.1(b)  below,  which  repair  shall be made by
Lessor), and (b) procure,  maintain and comply with all appropriate Licenses and
other  authorizations  required for any use of the Leased  Property and Lessee's
Personal  Property then being made, and for the proper  erection,  installation,
operation and maintenance of the Leased Property or any part thereof.

         8.2.     Legal Requirement Covenants.

                  (a)      Subject to Subsection  8.3(b) and  Subsection  9.1(b)
below,  Lessee  covenants  and agrees  that the  Leased  Property  and  Lessee's
Personal  Property shall not be used for any unlawful  purpose,  and that Lessee
shall not permit or suffer to exist any unlawful  use of the Leased  Property by
others.   Lessee  shall   acquire  and  maintain   all   appropriate   licenses,
certifications, permits and other authorizations and approvals needed to operate
the Leased  Property in its customary  manner for the Primary  Intended Use, and
any other lawful use conducted on the Leased  Property as may be permitted  from
time to time hereunder. Lessee further covenants and agrees that Lessee's use of
the Leased Property and maintenance,  alteration, and operation of the same, and
all parts thereof, shall at all times conform to all Legal Requirements,  unless
the same are  finally  determined  by a court of  competent  jurisdiction  to be
unlawful (and Lessee shall cause all sub-tenants,  invitees or others within its
control so to comply with all Legal  Requirements).  Lessee may,  however,  upon
prior Notice to Lessor,  contest the legality or applicability of any such Legal
Requirement or any licensure or certification  decision if Lessee maintains such
action in good faith,  with due diligence,  without prejudice to Lessor's rights
hereunder,  and at  Lessee's  sole  expense.  If by the terms of any such  Legal
Requirement  compliance therewith pending the prosecution of any such proceeding
may legally be delayed  without the occurrence of any charge or liability of any
kind,  or the  filing  of any lien,  against  the  Hotel or  Lessee's  leasehold
interest therein and without subjecting Lessee or Lessor to any liability, civil
or criminal,  for failure so to comply  therewith,  Lessee may delay  compliance
therewith until the final determination of such proceeding.  If any lien, charge
or civil or  criminal  liability  would be incurred by reason of any such delay,
Lessee,  on the prior  written  consent of Lessor,  which  consent  shall not be
unreasonably withheld or delayed, may nonetheless contest as aforesaid and delay
as  aforesaid  provided  that such delay  would not  subject  Lessor to criminal
liability  and  Lessee  both  (a)  furnishes  to  Lessor   security   reasonably
satisfactory  to Lessor  against any loss or injury by reason of such contest or
delay and (b) prosecutes the contest with due diligence and in good faith.

                  (b)      As  between  Lessor  and  Lessee,  Lessee  is  solely
responsible  for all  liabilities  or  obligations  of any kind with  respect to
employees  at  the  Leased  Property  during  the  Term.

                                       31
<PAGE>

Without  limiting the  generality  of the foregoing  sentence,  Lessee is solely
responsible for any required  compliance with the Worker Adjustment,  Retraining
and  Notification  Act of  1988  (the  "WARN  Act")  or any  similar  state  law
applicable to the Leased Property; any required compliance with the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"); and all alleged
and actual  obligations  and claims  arising from or relating to any  employment
agreement,  collective  bargaining  agreement  or employee  benefit  plans,  any
grievances,  arbitrations,  or unfair labor  practice  charges,  and relating to
compliance with any applicable state or federal labor employment law,  including
but not limited to all laws pertaining to discrimination, workers' compensation,
unemployment   compensation,   occupational  safety  and  health,  unfair  labor
practices,  family and medical  leave,  and wages,  hours or employee  benefits.
Lessee agrees to indemnify and defend and hold harmless  Lessor from and against
any claims  relating to any of the foregoing  matters.  Lessee further agrees to
reimburse Lessor for any and all losses, damages,  costs, expenses,  liabilities
and obligations of any kind, including without limitation  reasonable attorney's
fees and other legal costs and expenses,  incurred by Lessor in connection  with
any of the foregoing matters.

                  (c)      Notwithstanding   the  Lessee's   obligations   under
Section 8.1 to obtain and maintain all permits and licenses required for the use
of  the  Leased  Property,  and  without  limiting  any  obligations  of  Lessee
hereunder,  if (i) applicable law requires that the owner (rather than a lessee)
of a hotel be the licensee  under the required  liquor  license for the Hotel or
(ii) the former owner of the Hotel is holding the liquor  license and continuing
to  exercise  management  and  supervision  of the liquor  services at the Hotel
pending transfer of the license to Lessor or Lessee,  the Lessee shall indemnify
and hold Lessor  harmless from any  liability,  damages or claims (a) arising in
connection  with  liquor  operations  at the Hotel  during  such  period of time
following the Commencement  Date,  except to the extent caused by Lessor's gross
negligence or willful misconduct or (b) made by or through the former owner with
respect to liquor operations at the Hotel following the Commencement Date.

         8.3.     Environmental  Covenants.  Lessor and Lessee (in  addition to,
and not in diminution of,  Lessee's  covenants and  undertakings in Sections 8.1
and 8.2 hereof) covenant and agree as follows:

                  (a)      At all  times  hereafter  until the later of (i) such
time as all  liabilities,  duties or  obligations  of Lessee to Lessor under the
Lease  have been  satisfied  in full and (ii)  such  time as  Lessee  completely
vacates the Leased  Property and  surrenders  possession  of the same to Lessor,
Lessee shall fully comply with all  Environmental  Laws applicable to the Leased
Property and the operations thereon.  Lessee agrees to give Lessor prompt Notice
of (1) all Environmental Liabilities; (2) all pending, threatened or anticipated
Proceedings,  and all notices, demands, requests or investigations,  relating to
any Environmental Liability or relating to the issuance, revocation or change in
any Environmental  Authorization  required for operation of the Leased Property;
(3) all Releases at, on, in, under or in any way affecting the Leased  Property,
or any Release known by Lessee at, on, in or under any property  adjacent to the
Leased Property;  and (4) all facts,  events or conditions that could reasonably
lead to the occurrence of any of the above-referenced matters.

                  (b)      Lessor  hereby  agrees to defend,  indemnify and save
harmless  any and all Lessee  Indemnified  Parties  from and against any and all
Environmental  Liabilities  other than (i)

                                       32
<PAGE>

Environmental   Liabilities   resulting   from   conditions   disclosed  in  any
environmental  audit  obtained  by Lessor and  provided  to Lessee  prior to the
execution  of this Lease (the  "Environmental  Audit"),  and (ii)  Environmental
Liabilities  which  were  caused  by the acts or  negligent  failures  to act of
Lessee.

                  (c)      Lessee  hereby  agrees to defend,  indemnify and save
harmless  any and all Lessor  Indemnified  Parties  from and against any and all
Environmental  Liabilities which were (i) resulting from conditions disclosed in
the  Environmental  Audit, and (ii) caused by the acts or negligent  failures to
act of Lessee.

                  (d)      If any Proceeding is brought  against any Indemnified
Party in  respect  of an  Environmental  Liability  with  respect  to which such
Indemnified  Party may claim  indemnification  under either Subsection 8.3(b) or
(c), the Indemnifying Party, upon request,  shall at its sole expense resist and
defend such Proceeding, or cause the same to be resisted and defended by counsel
designated  by the  Indemnified  Party and approved by the  Indemnifying  Party,
which approval shall not be unreasonably withheld or delayed; provided, however,
that such  approval  shall not be  required  in the case of  defense  by counsel
designated by any insurance  company  undertaking  such defense  pursuant to any
applicable  policy of insurance.  Each Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to participate in the defense
thereof,  but the fees and  expenses of such counsel will be at the sole expense
of  such  Indemnified  Party  unless  such  counsel  has  been  approved  by the
Indemnifying  Party,  which  approval  shall  not be  unreasonably  withheld  or
delayed.  The  Indemnifying  Party shall not be liable for any settlement of any
such  Proceeding  made  without its  consent,  which  shall not be  unreasonably
withheld or delayed,  but if settled with the consent of the Indemnifying Party,
or if settled without its consent (if its consent shall be unreasonably withheld
or  delayed),  or if there be a final,  nonappealable  judgment for an adversary
party in any such Proceeding,  the  Indemnifying  Party shall indemnify and hold
harmless  the  Indemnified  Parties  from and against any  liabilities  and loss
incurred by such Indemnified Parties by reason of such settlement or judgement.

                  (e)      At any time  any  Indemnified  Party  has  reason  to
believe  circumstances  exist which could reasonably  result in an Environmental
Liability,  upon  reasonable  prior  Notice to Lessee and Manager  stating  such
Indemnified  Party's basis for such belief,  an Indemnified Party shall be given
immediate  access to the Leased  Property  (including,  but not  limited to, the
right to enter upon,  investigate,  drill wells,  take soil  borings,  excavate,
monitor,  test,  cap  and  use  available  land  for  the  testing  of  remedial
technologies),  Lessee's  employees,  and to all relevant  documents and records
regarding  the matter as to which a  responsibility,  liability or obligation is
asserted or which is the subject of any  Proceeding;  provided  that such access
may he  conditioned  or  restricted  as may be  reasonably  necessary  to ensure
compliance  with law and the safety of personnel  and  facilities  or to protect
confidential or privileged information.  All Indemnified Parties requesting such
immediate  access and  cooperation  shall endeavor to coordinate such efforts to
result in as minimal  interruption  of the  operation of the Leased  Property as
practicable.

                  (f)      The indemnification  rights and obligations  provided
for in this  Article 8 shall be in  addition to any  indemnification  rights and
obligations provided for elsewhere in this Lease.

                                       33
<PAGE>

                  (g)      The indemnification  rights and obligations  provided
for in this Article 8 shall survive the termination of this Lease.

         For purposes of this Section 8.3, all amounts for which any Indemnified
Party seeks  indemnification  shall be computed net of (a) any actual income tax
benefit  resulting  therefrom  to such  Indemnified  Party,  (b)  any  insurance
proceeds received (net of tax effects) with respect thereto, and (c) any amounts
recovered  (net of tax  effects)  from any third  parties  based on  claims  the
Indemnified  Party has against such third  parties which reduce the damages that
would  otherwise be  sustained;  provided  that in all cases,  the timing of the
receipt  or  realization  of  insurance  proceeds  or  income  tax  benefits  or
recoveries  from third  parties shall be taken into account in  determining  the
amount  of  reduction  of  damages.  Each  Indemnified  Party  agrees to use its
reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may be,
any claims or rights it may have against any third party which would  materially
reduce the amount of damages otherwise incurred by such Indemnified Party.

         Notwithstanding  anything to the contrary  contained in this Lease,  if
Lessor shall become  entitled to the possession of the Leased Property by virtue
of the  termination of the Lease or repossession  of the Leased  Property,  then
Lessor may assign its indemnification rights under this Section 8.3 (but not any
other rights  under this Section 8.3) to any Person to whom Lessor  subsequently
transfers  the  Leased  Property,   subject  to  the  following  conditions  and
limitations,  each of which shall be deemed to be incorporated into the terms of
such assignment, whether or not specifically referred to therein:

                  (i) The indemnification rights referred to in this section may
         be assigned only if a known Environmental Liability then exists or if a
         Proceeding  is then  pending or, to the  knowledge of Lessee or Lessor,
         then threatened with respect to the Leased Property;

                  (ii)  Such   indemnification   rights   shall  be  limited  to
         Environmental  Liabilities  relating to or  specifically  affecting the
         Leased Property; and

                  (iii) Any assignment of such  indemnification  rights shall be
         limited to the immediate  transferee of Lessor, and shall not extend to
         any such transferee's successors or assigns.

                                   ARTICLE 9
             MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS

         9.1.     Maintenance and Repairs.

                  (a)      Lessee,  at its sole  expense,  will keep the  Leased
Property, and all private roadways, sidewalks and curbs appurtenant thereto that
are under  Lessee's  control,  including  windows and plate  glass,  mechanical,
electrical and plumbing systems and equipment  (including conduit and ductware),
and non-load bearing interior walls, and parking lot surfaces, in good order and
repair,  except (i) for ordinary wear and tear (whether or not the need for such
repairs occurred as a result of Lessee's use, any prior use, the elements or the
age of the Leased Property, or any

                                       34
<PAGE>

portion  thereof)  and (ii) to the  extent of damage  caused by  Lessor's  gross
negligence or willful misconduct or that of its employees or agents, and, except
as  otherwise  provided  in  Subsection  9.1(b),  Article 14 or Article 15, with
reasonable promptness,  make all necessary and appropriate repairs replacements,
and improvements thereto of every kind and nature,  whether interior or exterior
ordinary  or  extraordinary,  foreseen or  unforeseen  or arising by reason of a
condition  existing  prior  to  the  commencement  of the  Term  of  this  Lease
(concealed  or  otherwise),  or  required  by  any  governmental  agency  having
jurisdiction over the Leased Property,  except as to the structural  elements of
the Leased Improvements. Lessee, however, shall be permitted to prosecute claims
against  Lessor's  predecessors  in title for  breach of any  representation  or
warranty or for any latent  defects in the Leased  Property to be  maintained by
Lessee unless Lessor is already  diligently  pursuing such a claim.  All repairs
shall, to the extent reasonably achievable, be at least equivalent in quality to
the original work.  Lessee will not take or omit to take any action,  the taking
or omission of which might materially  impair the value or the usefulness of the
Leased Property or any part thereof for its Primary Intended Use.

                  (b)      Notwithstanding Lessee's obligations under Subsection
9.1(a) above,  except to the extent of damage  caused by Lessee's  negligence or
willful misconduct or that of its employees or agents,  Lessor shall be required
to bear the cost of  maintaining  any  underground  utilities and the structural
elements of the Leased  Improvements,  including  exterior walls and the roof of
the Hotel (but  excluding  windows and plate glass,  mechanical,  electrical and
plumbing  systems and equipment,  including  conduit and ductware,  and non-load
bearing walls,  and parking lot surfaces).  Except as set forth in the preceding
sentence  and in  Section  10.5,  Lessor  shall not under any  circumstances  be
required to build or rebuild any improvement on the Leased Property,  or to make
any repairs, replacements,  alterations,  restorations or renewals of any nature
or  description  to the Leased  Property,  whether  ordinary  or  extraordinary,
foreseen or  unforeseen,  or to make any  expenditure  whatsoever  with  respect
thereto,  in connection  with this Lease,  or to maintain the Leased Property in
any way. Lessee hereby waives, to the extent permitted by law, the right to make
repairs at the  expense of Lessor,  pursuant to any law in effect at the time of
the execution of this Lease or hereafter  enacted,  except following  default by
Lessor under this Lease, to the extent of repairs (for which Lessor is obligated
hereunder) required to be made in order for the Hotel, and Lessee's use thereof,
to comply  with  Lessee's  obligations  under the  Franchise  Agreement  and the
Management  Agreement.  Lessor shall have the right to give, record and post, as
appropriate,  notices of nonresponsibility under any mechanic's lien laws now or
hereafter existing.

                  (c)      Nothing  contained  in this  Lease  and no  action or
inaction by Lessor shall be construed as (1) constituting the request of Lessor,
expressed or implied, to any contractor,  subcontractor, laborer, materialman or
vendor to or for the  performance  of any labor or services or the furnishing of
any  materials or other  property for the  construction,  alteration,  addition,
repair or  demolition of or to the Leased  Property or any part thereof,  or (2)
giving  Lessee any right,  power or  permission  to  contract  for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against  Lessor
in respect  thereof or to make any agreement  that may create,  or in any way be
the basis for any right, title, interest,  lien, claim or other encumbrance upon
the estate of Lessor in the Leased Property, or any portion thereof.

                                       35
<PAGE>

         9.2.     Encroachments,   Restrictions,   Etc.  Lessor  represents  and
warrants  that the  Leased  Improvements  do not  materially  encroach  upon any
property, street or right-of-way adjacent to the Leased Property, or violate the
agreements or conditions  contained in any lawful restrictive  covenant or other
agreement  affecting the Leased  Property,  or any part  thereof,  or impair the
rights of others under any easement or right-of-way to which the Leased Property
is  subject.  Except to the extent  that such  representation  and  warranty  is
breached by Lessor,  if any of the Leased  Improvements,  at any time hereafter,
materially  encroach upon any property,  street or right-of-way  adjacent to the
Leased Property, or violate the agreements or conditions contained in any lawful
restrictive  covenant or other agreement  affecting the Leased Property,  or any
part thereof,  or impair the rights of others under any easement or right-of-way
to which the Leased  Property  is  subject,  then  promptly  upon the request of
Lessor  or at the  behest  of any  Person  affected  by any  such  encroachment,
violation or impairment,  Lessee shall, at its expense,  subject to its right to
contest the existence of any  encroachment,  violation or impairment and in such
case,  in the event of an adverse final  determination,  either (a) obtain valid
and effective  waivers or  settlements  of all claims,  liabilities  and damages
resulting from each such encroachment, violation or impairment, whether the same
shall  affect  Lessor  or  Lessee  or  (b)  make  such  changes  in  the  Leased
Improvements,  and take such other actions, as Lessee in the good faith exercise
of its judgment deems reasonably practicable to remove such encroachment, and to
end such violation or impairment, including, if necessary, the alteration of any
of the Leased  Improvements,  and in any event  take all such  actions as may be
necessary  in  order  to be  able  to  continue  the  operation  of  the  Leased
Improvements for the Primary Intended Use substantially in the manner and to the
extent the Leased  Improvements  were  operated  prior to the  assertion of such
violation,  impairment or  encroachment.  Any such  alteration  shall be made in
conformity with the applicable  requirements of Article 10. Lessee's obligations
under this Section 9.2 shall be in addition to and shall in no way  discharge or
diminish  any  obligation  of any  insurer  under  any  policy of title or other
insurance held by Lessor.

                                   ARTICLE 10
                   ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE

         10.1.  Alterations.  After receiving approval of Lessor, which approval
shall not be  unreasonably  withheld or delayed,  Lessee shall have the right to
make such additions,  modifications  or improvements to the Leased Property from
time to time as Lessee deems  desirable  for its  permitted  uses and  purposes,
provided that such action will not significantly alter the character or purposes
or significantly detract from the value or operating efficiency thereof and will
not significantly impair the revenue-producing capability of the Leased Property
or adversely  affect the ability of Lessee to comply with the provisions of this
Lease.  The cost of such additions,  modifications or improvements to the Leased
Property  shall be paid by Lessee,  and all such  additions,  modifications  and
improvements shall, without payment by Lessor at any time, be included under the
terms of this Lease and upon  expiration  or earlier  termination  of this Lease
shall pass to and become the property of Lessor.

         10.2.  Salvage.   All  materials  which  are  scrapped  or  removed  in
connection  with the making of repairs  required by Articles 9 or 10 shall be or
become the  property of Lessor or Lessee  depending on which party is paying for
or providing the financing for such work.

                                       36
<PAGE>

         10.3.   Joint  Use   Agreements.   If  Lessee   constructs   additional
improvements  that are  connected  to the Leased  Property or share  maintenance
facilities,  HVAC, electrical,  plumbing or other systems, utilities, parking or
other   amenities,   the  parties   shall   enter  into  a  mutually   agreeable
cross-easement  or joint use  agreement,  the form of which has been approved in
advance by Lessor,  to make  available  necessary  services  and  facilities  in
connection  with  such  additional  improvements,   to  protect  each  of  their
respective  interests in the  properties  affected,  and to provide for separate
ownership, use, and/or financing of such improvements.

         10.4.  Initial  Upgrade  of  Leased  Improvements.  Lessee  desires  to
install,  construct  and complete the  improvements,  alterations,  upgrades and
refurbishments  in  the  Leased  Improvements  (collectively,  "Lessee's  Work")
necessary  to qualify the Leased  Improvements  to operate  under the  Franchise
Agreement as a "Homewood Suites" hotel. Pursuant to the terms of the Work Letter
(the "Work  Letter")  attached  hereto as Exhibit  B,  Lessee  agrees to perform
Lessee's Work; provided,  however,  Lessor shall pay the costs actually incurred
by Lessee to perform Lessee's Work,  subject to and in accordance with the terms
and  conditions  of the Work Letter.  Lessee shall pay all  increased  taxes and
insurance on Lessee's Work or attributable thereto.

         10.5.  Furniture,  Fixture and  Equipment  Allowance.  Lessor  shall be
obligated to pay Lessee,  when and as required to meet the  requirements  of the
Franchise  Agreement  and the  Management  Agreement  for a reserve for periodic
repair,  replacement or refurbishing  of furniture,  fixtures and equipment that
constitute  Leased  Property,  an amount  equal up to five percent (5%) of Suite
Revenues monthly.  Upon written request by Lessee to Lessor stating the specific
use to be made and the  reasonable  approval  thereof by Lessor (or as otherwise
required by the  franchisor  under the Franchise  Agreement or Manager under the
Management  Agreement),  such reserve funds (and additional funds of Lessor,  if
necessary)  shall be made available by Lessor for use by Lessee for  replacement
or  refurbishing  of furniture,  fixtures and equipment that  constitute  Leased
Property in connection with the Primary Intended Use; provided, however, that no
amounts made  available  under this Article  shall be used to purchase  property
(other than "real property" within the meaning of Treasury  Regulations  Section
1.856-3(d)),  to the extent that doing so would cause Lessor to recognize income
other than "rents from real  property" as defined in Section 856(d) of the Code.
Lessor's  obligation  shall be cumulative,  but not compounded,  and any amounts
that have accrued hereunder shall be payable in future periods for such uses and
in accordance with the procedure set forth herein. Lessee shall have no interest
in any accrued  obligation of Lessor  hereunder  after the  termination  of this
Lease.

                                   ARTICLE 11
                            COMPLIANCE WITH FRANCHISE

         11.1. Compliance with Franchise Agreement and Management Agreement.  To
the  extent any of the  provisions  of the  Franchise  Agreement  or  Management
Agreement  impose  a  greater   obligation  on  Lessee  than  the  corresponding
provisions of the Lease,  then Lessee shall be obligated to comply with,  and to
take all reasonable actions necessary to prevent breaches or defaults under, the
provisions of the Franchise  Agreement and the Management  Agreement.  It is the
intent of the parties  hereto that Lessee shall comply in every respect with the
provisions of the  Franchise  Agreement  and the  Management  Agreement so as to
avoid any  material  default  thereunder  during

                                       37
<PAGE>

the term of this Lease.  Lessee  shall not  terminate,  extend or enter into any
material  modification  of the Franchise  Agreement or the Management  Agreement
without in each instance first obtaining  Lessor's prior written consent,  which
shall not be  unreasonably  withheld.  Lessor and Lessee agree to cooperate with
each other in the event it becomes necessary to obtain a franchise  extension or
modification  (or, at Lessor's option, a new franchise) for the Leased Property,
and in any transfer of the Franchise Agreement or Management Agreement to Lessor
or any  designee of Lessor or any  successor to Lessee upon the  termination  of
this Lease.  In the event of expiration or termination of a Franchise  Agreement
or Management Agreement, for whatever reason, Lessor will have the right, in the
exercise of its sole  discretion,  to approve  any new  Franchise  Agreement  or
Management Agreement for the Hotel.

                                   ARTICLE 12
                          PERMITTED LIENS AND CONTESTS

         12.1.  Liens.  Subject to the  provisions  of Section 12.2  relating to
permitted  contests,  Lessee will not directly or indirectly  create or allow to
remain  and will  promptly  discharge  at its  expense  any  lien,  encumbrance,
attachment,  title retention  agreement or claim upon the Leased Property or any
attachment,  levy,  claim or  encumbrance in respect of the Rent, not including,
however,  (a) this Lease,  (b) the matters  included as  exceptions in the title
policy insuring  Lessor's  interest in the Leased  Property,  (c)  restrictions,
liens and other  encumbrances which are consented to in writing by Lessor or any
easements  granted  pursuant to the provisions of Section 7.3 of this Lease, (d)
liens for those taxes upon  Lessor or the Leased  Property  which  Lessee is not
required to pay  hereunder,  (e) subleases  permitted by Article 20 hereof,  (f)
liens for  Impositions  or for sums  resulting  from  noncompliance  with  Legal
Requirements  so long as (1) the same are not yet payable or are payable without
the  addition  of any fine or penalty  or (2) such  liens are in the  process of
being contested as permitted by Section 12.2, (g) liens of mechanics,  laborers,
materialmen,  suppliers  or  vendors  for sums  either  disputed  or not yet due
provided  that (1) the  payment  of such sums shall not be  postponed  under any
related  contract  for more than  sixty (60) days  after the  completion  of the
action giving rise to such lien and such reserve or other appropriate provisions
as shall be required by law or generally  accepted  accounting  principles shall
have been  made  therefor  or (2) any such  liens  are in the  process  of being
contested as  permitted by Section 12.2 hereof,  and (h) any liens which are the
responsibility of Lessor pursuant to the provisions of Article 22 of this Lease.

         12.2.  Permitted  Contests.  Lessee shall have the right to contest the
amount  or  validity  of any  Imposition  to be  paid  by  Lessee  or any  Legal
Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance,
charge  or  claim  ("Claims")  not  otherwise  permitted  by  Section  12.1,  by
appropriate  legal  proceedings  in good faith and with due diligence  (but this
shall  not be  deemed  or  construed  in any way to  relieve,  modify  or extend
Lessee's  covenants to pay or its covenants to cause to be paid any such charges
at the  time and in the  manner  as in this  Section  provided),  on  condition,
however,  that such legal  proceedings  shall not operate to relieve Lessee from
its  obligations  hereunder and shall not cause the sale or risk the loss of any
portion of the Leased Property,  or any part thereof,  or cause Lessor or Lessee
to be in  default  under any  mortgage,  deed of trust,  security  deed or other
agreement  encumbering  the Leased  Property or any interest  therein.  Upon the
request of Lessor,  Lessee  shall  either (a) provide a bond or other  assurance
reasonably  satisfactory to Lessor that all Claims which may be assessed against
the

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<PAGE>

Leased Property  together with interest and penalties,  if any,  thereon will be
paid, or (b) deposit within the time otherwise  required for payment with a bank
or trust company as trustee upon terms  reasonably  satisfactory  to Lessor,  as
security for the payment of such Claims,  money in an amount  sufficient  to pay
the same,  together with interest and penalties in connection  therewith,  as to
all  Claims  which  may be  assessed  against  or  become a Claim on the  Leased
Property,  or any part thereof, in said legal proceedings.  Lessee shall furnish
Lessor and any lender of Lessor with reasonable  evidence of such deposit within
five (5) days of the same.  Lessor agrees to join in any such proceedings if the
same be  required  legally to  prosecute  such  contest of the  validity of such
Claims;  provided,  however,  that Lessor  shall not thereby be subjected to any
liability  or loss for the payment of any costs or expenses in  connection  with
any proceedings  brought by Lessee;  and Lessee  covenants to indemnify and save
harmless Lessor from any such  liabilities,  losses,  costs or expenses.  Lessee
shall be entitled to any refund of any Claims and such charges and  penalties or
interest  thereon which have been paid by Lessee or paid by Lessor and for which
Lessor has been fully  reimbursed.  In the event  that  Lessee  fails to pay any
Claims when due or to provide the security  therefor as provided in this Section
and  diligently to prosecute any contest of the same,  Lessor may, upon ten (10)
days' advance Notice to Lessee,  and Lessee's failure to correct the same within
such ten (10) day  period,  pay such  charges  together  with any  interest  and
penalties  and the same  shall be  repayable  by Lessee to Lessor as  Additional
Charges at the next Payment Date provided for in this Lease; provided,  however,
that should  Lessor  reasonably  determine  that the giving of such Notice would
risk loss to the Leased  Property or cause  damage to Lessor,  then Lessor shall
give such Notice as is practical  under the  circumstances.  Lessor reserves the
right to contest any of the Claims at its expense not pursued by Lessee.  Lessor
and Lessee agree to cooperate in coordinating the contest of any Claims.

                                   ARTICLE 13
                             INSURANCE REQUIREMENTS

         13.1.  General Insurance  Requirements.  During the Term of this Lease,
Lessor and Lessee shall at all times keep the Leased  Property  insured with the
kinds  and  amounts  of  insurance  described  below,  or such  other  insurance
coverage(s) as may be required by the Franchise Agreement.  This insurance shall
be written by companies authorized to issue insurance in the State. The policies
must  name  Lessor  and/or  Lessee,  as  applicable,  as  the  insured  or as an
additional named insured,  as the case may be. Losses shall be payable to Lessor
or Lessee as provided  in this  Lease.  Any loss  adjustment  shall  require the
written consent of Lessor and Lessee,  each acting reasonably and in good faith.
Evidence of insurance shall be deposited with Lessor. The policies on the Leased
Property,  including  the Leased  Improvements,  Fixtures and Lessee's  Personal
Property, shall include the following:

                  (a)      Lessor shall obtain and maintain, at its own expense:

                           (i)  Building   insurance   on  the  "Special   Form"
                  (formerly "All Risk" form) (including  earthquake and flood in
                  reasonable  amounts as  determined by Lessor) in an amount not
                  less than 100% of the then full  replacement  cost thereof (as
                  defined  in  Section  13.2)  or such  other  amount  which  is
                  acceptable  to  Lessor  and  Lessee,   and  personal  property
                  insurance  (on other than Lessee's  Personal  Property) on the
                  "Special  Form" in the full  amount  of the  replacement  cost
                  thereof;

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<PAGE>

                           (ii)   Insurance  for  loss  or  damage  (direct  and
                  indirect)  from  steam  boilers,  pressure  vessels or similar
                  apparatus,  now or hereafter  installed  in the Hotel,  in the
                  minimum amount of $5,000,000 or in such greater amounts as are
                  then customary; and

                           (iii) Loss of income insurance on the "Special Form",
                  in the amount of one year of Base Rent and Additional  Charges
                  (to the extent quantifiable) for the benefit of Lessor.

                  (b)      Lessee shall obtain and maintain, at its own expense:

                           (i) Personal property  insurance on Lessee's Personal
                  Property  on the  "Special  Form"  in the full  amount  of the
                  replacement cost thereof;

                           (ii) Comprehensive general liability insurance,  with
                  amounts  not  less  than  $10,000,000  covering  each  of  the
                  following:  bodily injury, death, or property damage liability
                  per  occurrence,  personal  and  advertising  injury,  general
                  aggregate,  products and completed operations, with respect to
                  Lessor,  and "all risk legal liability"  (including liquor law
                  or "dram shop" liability, if liquor or alcoholic beverages are
                  served on the  Leased  Property)  with  respect  to Lessor and
                  Lessee;

                           (iii)  Insurance  covering  such other hazards and in
                  such amounts as may be customary for comparable  properties in
                  the  area  of  the  Leased  Property  and  is  available  from
                  insurance  companies,  insurance  pools or  other  appropriate
                  companies  authorized  to do  business  in the  State at rates
                  which are  economically  practicable  in relation to the risks
                  covered, as may be reasonably requested by Lessor;

                           (iv) Fidelity  bonds with limits and  deductibles  as
                  may be  reasonably  requested  by  Lessor,  covering  Lessee's
                  employees in job classifications normally bonded under prudent
                  hotel  management  practices in the United States or otherwise
                  required by law;

                           (v) Worker's compensation  insurance coverage for all
                  persons, if any, employed by Lessee on the Leased Premises, to
                  the extent necessary to protect Lessor and the Leased Property
                  against Lessee's worker's  compensation  claims, such worker's
                  compensation   insurance   to  be  in   accordance   with  the
                  requirements of applicable local, state and federal law;

                           (vi)   Vehicle   liability   insurance   for   owned,
                  non-owned,  and hired  vehicles,  in the amount of $5,000,000;
                  and

                           (vii) Such other  insurance as Lessor may  reasonably
                  request for  facilities  such as the Leased  Property  and the
                  operation thereof.

                                       40
<PAGE>

         13.2. Replacement Cost. The term "full replacement cost" as used herein
shall  mean  the  actual  replacement  cost  of the  Leased  Property  requiring
replacement  from  time to time  including  an  increased  cost of  construction
endorsement,  if available,  and the cost of debris removal. In the event either
party believes that full replacement cost (the  then-replacement  cost less such
exclusions)  has  increased or  decreased at any time during the Lease Term,  it
shall have the right to have such full replacement cost re-determined.

         13.3. Waiver of Subrogation.  All insurance  policies carried by Lessor
or Lessee  covering the Leased  Property,  the  Fixtures,  the Hotel or Lessee's
Personal Property,  including,  without limitation,  contents, fire and casualty
insurance,  shall  expressly  waive any right of  subrogation on the part of the
insurer  against the other party.  The parties  hereto agree that their policies
will  include  such  waiver  clause  or  endorsement  so  long as the  same  are
obtainable  without  extra  cost,  and in the event of such an extra  charge the
other party, at its election, may pay the same, but shall not be obligated to do
so.

         13.4.    Form Satisfactory, Etc.

                  (a)      All of the policies of insurance  referred to in this
Article  13 to be  maintained  by  Lessee  shall  be  written  in a  form,  with
deductibles and by insurance companies  satisfactory to Lessor. Lessee shall pay
all of the premiums therefor,  and deliver such policies or certificates thereof
to Lessor  prior to their  effective  date (and,  with  respect  to any  renewal
policy, thirty (30) days prior to the expiration of the existing policy), and in
the event of the  failure of Lessee  either to effect such  insurance  as herein
called for or to pay the  premiums  therefor,  or to deliver  such  policies  or
certificates thereof to Lessor at the times required,  Lessor shall be entitled,
but shall have no  obligation,  to effect such  insurance  and pay the  premiums
therefor,  and Lessee shall reimburse Lessor for any premium or premiums paid by
Lessor for the  coverages  required of Lessee under this Article 13 upon written
demand therefor,  and Lessee's failure to repay the same within thirty (30) days
after Notice of such failure  from Lessor shall  constitute  an Event of Default
within the meaning of Section  16.1.  Each insurer  mentioned in this Article 13
shall  agree,  by  endorsement  to the  policy or  policies  issued by it, or by
independent  instrument  furnished to Lessor, that it will give to Lessor thirty
(30) days'  written  notice  before the policy or policies in question  shall be
materially altered, allowed to expire or canceled.

                  (b)      All of the policies of insurance  referred to in this
Article  13 to be  maintained  by  Lessor  shall  be  written  in a  form,  with
deductibles and by insurance companies  satisfactory to Lessee. Lessor shall pay
all of the premiums therefor,  and deliver such policies or certificates thereof
to Lessee  prior to their  effective  date (and,  with  respect  to any  renewal
policy, thirty (30) days prior to the expiration of the existing policy), and in
the event of the  failure of Lessor  either to effect such  insurance  as herein
called for or to pay the  premiums  therefor,  or to deliver  such  policies  or
certificates thereof to Lessee at the times required,  Lessee shall be entitled,
but shall have no  obligation,  to effect such  insurance  and pay the  premiums
therefor,  and Lessor shall reimburse Lessee for any premium or premiums paid by
Lessee  for the  coverages  required  under this  Section  upon  written  demand
therefor.  Each insurer mentioned in this Article 13 shall agree, by endorsement
to the policy or policies issued by it, or by independent  instrument  furnished
to Lessee,  that it will give to Lessee thirty (30) days' written  notice before
the policy or policies  in  question  shall be  materially  altered,  allowed to
expire or canceled.

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<PAGE>

         13.5.  Increase in Limits. If either Lessor or Lessee at any time deems
the limits of the personal  injury or property  damage  under the  comprehensive
public liability  insurance then carried to be either excessive or insufficient,
Lessor  and  Lessee  shall  endeavor  in good  faith to agree on the  proper and
reasonable  limits for such  insurance  to be carried and such  insurance  shall
thereafter  be  carried  with the limits  thus  agreed on until  further  change
pursuant to the provisions of this Article 13.

         13.6.  Blanket  Policy.   Notwithstanding   anything  to  the  contrary
contained in this Article 13. Lessee or Lessor may bring the insurance  provided
for herein  within the  coverage  of a so-called  blanket  policy or policies of
insurance  carried and  maintained  by Lessee (or Manager) or Lessor;  provided,
however,  that the coverage afforded to Lessor and Lessee will not be reduced or
diminished  or  otherwise  be  different  from that which  would  exist  under a
separate  policy meeting all other  requirements  of this Lease by reason of the
use of  such  blanket  policy  of  insurance,  and  provided  further  that  the
requirements of this Article 13 are otherwise satisfied.

         13.7.  No  Separate  Insurance.  Lessee  shall  not,  on  Lessee's  own
initiative or pursuant to the request or  requirement  of any third party,  take
out separate  insurance  concurrent in form or contributing in the event of loss
with that  required in this Article to be  furnished,  or increase the amount of
any then  existing  insurance  by securing an  additional  policy or  additional
policies,  unless all parties having an insurable interest in the subject matter
of the  insurance,  including  in all cases  Lessor,  are  included  therein  as
additional  insured,  and the loss is  payable  under such  additional  separate
insurance  in the same  manner as losses are payable  under this  Lease.  Lessee
shall immediately  notify Lessor of any such separate  insurance that Lessee has
obtained  or of  the  increase  of  any of the  amounts  of  the  then  existing
insurance.

         13.8.  Reports On Insurance Claims.  Lessee shall promptly  investigate
and make a  complete  and timely  written  report to the  appropriate  insurance
company  as to all  accidents,  claims  for damage  relating  to the  ownership,
operation,  and maintenance of the Hotel, any damage or destruction to the Hotel
and the estimated  cost of repair  thereof and shall prepare any and all reports
required by any  insurance  company in  connection  therewith.  All such reports
shall be timely filed with the insurance  company as required under the terms of
the  insurance  policy  involved,  and a  final  copy of such  report  shall  be
furnished to Lessor. Lessee shall be authorized to adjust, settle, or compromise
any insurance  loss, or to execute proofs of such loss, in the aggregate  amount
of $25,000 or less, with respect to any single casualty or other event.

                                   ARTICLE 14
                   CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION

         14.1.  Insurance  Proceeds.  Subject to the provisions of Section 14.4,
all proceeds payable by reason of any loss or damage to the Leased Property,  or
any portion thereof,  insured under any policy of insurance  required by Article
13 of this  Lease,  shall be paid to  Lessor  and held in trust by  Lessor in an
interest-bearing   account,  shall  be  made  available,   if  applicable,   for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof,  and, if applicable,  shall be paid
out by Lessor from time to time for the reasonable costs of such  reconstruction
or repair upon  satisfaction  of reasonable  terms and  conditions  specified by

                                       42
<PAGE>

Lessor. Any excess proceeds of insurance (and accrued interest)  remaining after
the completion of the restoration or reconstruction  of the Leased Property,  as
hereinafter set forth,  shall be paid to Lessee. If neither Lessor nor Lessee is
required or elects to repair and restore,  and the Lease is  terminated  without
purchase by Lessee as described in Section  14.2,  all such  insurance  proceeds
shall be retained  by Lessor.  All salvage  resulting  from any risk  covered by
insurance shall belong to Lessor.

         14.2.    Reconstruction  in the Event of Damage or Destruction  Covered
by Insurance.

                  (a)      Except as  provided  in Section  14.6,  if during the
Term the Leased Property is totally or partially  destroyed by a risk covered by
the  insurance  described  in  Article  13 and the  Hotel  thereby  is  rendered
Unsuitable  for its Primary  Intended  Use,  Lessee shall,  at Lessee's  option,
either (1)  restore the Hotel to  substantially  the same  condition  as existed
immediately  before the damage or destruction  and otherwise in accordance  with
the terms of the Lease,  or (2) offer to acquire the Leased Property from Lessor
for a purchase price equal to the Rejectable Offer Price of the Leased Property.
If Lessee restores the Hotel, the insurance proceeds shall be paid out by Lessor
from time to time for the reasonable costs of such restoration upon satisfaction
of reasonable terms and conditions, and any excess proceeds remaining after such
restoration  shall be paid to Lessee.  If Lessee  acquires the Leased  Property,
Lessee shall receive the insurance proceeds.  If Lessor does not accept Lessee's
offer so to purchase the Leased  Property  within  ninety (90) days,  Lessee may
withdraw its offer to purchase the Leased Property and, if so withdrawn,  Lessee
may  terminate  the Lease with respect to the Leased  Property  without  further
liability  hereunder  and  Lessor  shall be  entitled  to retain  all  insurance
proceeds.

                  (b)      Except as  provided  in Section  14.6,  if during the
Term the  Leased  Property  is  partially  destroyed  by a risk  covered  by the
insurance  described  in  Article  13,  but the  Hotel is not  thereby  rendered
Unsuitable  for its Primary  Intended  Use,  Lessee  shall  restore the Hotel to
substantially  the same  condition as existed  immediately  before the damage or
destruction and otherwise in accordance with the terms of the Lease. Such damage
or destruction shall not terminate this Lease; provided, however, that if Lessee
cannot  within a  reasonable  time obtain all  necessary  government  approvals,
including building permits, licenses and conditional use permits, after diligent
efforts to do so, to perform all  required  repair and  restoration  work and to
operate the Hotel for its Primary Intended Use in substantially  the same manner
as that existing  immediately  prior to such damage or destruction and otherwise
in  accordance  with the terms of the Lease,  Lessee may offer to  purchase  the
Leased Property for a purchase price equal to the Rejectable  Offer Price of the
Leased  Property,  determined  without  regard to such damage or  destruction if
insurance  proceeds  are  available  to restore the Hotel.  If Lessee makes such
offer and Lessor does not accept the same,  Lessee shall withdraw such offer, in
which  event this Lease shall  remain in full force and effect and Lessee  shall
immediately  proceed to restore the Hotel to substantially the same condition as
existed   immediately  before  such  damage  or  destruction  and  otherwise  in
accordance  with the terms of the  Lease.  If Lessee  restores  the  Hotel,  the
insurance  proceeds  shall  be paid  out by  Lessor  from  time to time  for the
reasonable costs of such  restoration upon  satisfaction of reasonable terms and
conditions  specified by Lessor,  and any excess  proceeds  remaining after such
restoration shall be paid to Lessee.

                                       43
<PAGE>

                  (c)      If the cost of the repair or restoration  exceeds the
amount of  proceeds  received  by Lessor  from the  insurance  it  maintains  as
required  under Article 13,  Lessee shall be obligated to contribute  any excess
amounts needed to restore the Hotel.  Such difference shall be paid by Lessee to
Lessor promptly after Lessee receives Lessor's written invoice  therefor,  to be
held in trust in an interest-bearing  account, together with any other insurance
proceeds, for application to the cost of repair and restoration.

                  (d)      If Lessor  accepts  Lessee's  offer to  purchase  the
Leased Property under this Article,  this Lease shall terminate as to the Leased
Property  upon payment of the purchase  price,  and Lessor shall remit to Lessee
all insurance proceeds  pertaining to the Leased Property being held in trust by
Lessor.

         14.3.  Reconstruction in the Event of Damage or Destruction Not Covered
by  Insurance.  Except as provided in Section 14.6, if during the Term the Hotel
is totally  or  materially  destroyed  by a risk not  covered  by the  insurance
described in Article 13, whether or not such damage or  destruction  renders the
Hotel  Unsuitable  for its  Primary  Intended  Use,  Lessee at its option  shall
either,   (a)  at  Lessee's  sole  cost  and  expense,   restore  the  Hotel  to
substantially  the same  condition it was in  immediately  before such damage or
destruction  and such damage or destruction  shall not terminate this Lease,  or
(b) offer to  purchase  the Leased  Property  for a purchase  price equal to the
Rejectable  Offer Price of the Leased Property  without regard to such damage or
destruction. If such damage or destruction is not material, Lessee shall restore
the Hotel to substantially the same condition as existed  immediately before the
damage or destruction  and otherwise in accordance  with the terms of the Lease.
If Lessor  does not accept  Lessee's  offer so to purchase  the Leased  Property
within  ninety (90) days,  Lessee may  withdraw its offer to purchase the Leased
Property  and, if so  withdrawn,  Lessee may terminate the Lease with respect to
the Leased Property without further liability hereunder.

         14.4.  Lessee's  Property.  All insurance proceeds payable by reason of
any loss of or  damage to any of  Lessee's  Personal  Property  shall be paid to
Lessee;  provided,  however,  no such  payments  shall  diminish  or reduce  the
insurance payments otherwise payable to or for the benefit of Lessor hereunder.

         14.5.  Abatement  of Rent.  Any damage or  destruction  due to casualty
notwithstanding,  this Lease shall  remain in full force and effect and Lessee's
obligation to make rental payments and to pay all other charges required by this
Lease  shall  remain  unabated  during the first  three (3) months of any period
required for the applicable repair and restoration.  Thereafter, Base Rent shall
be equitably abated.

         14.6.  Damage  Near  End of Term.  Notwithstanding  any  provisions  of
Section 14.2 or 14.3  appearing to the contrary,  if damage to or destruction of
the Hotel rendering it unsuitable for its Primary Intended Use occurs during the
last  twenty-four  (24) months of the Term, then Lessor or Lessee shall have the
right to  terminate  this  Lease by giving  Notice,  respectively,  to Lessee or
Lessor  within  thirty  (30)  days  after  the date of  damage  or  destruction,
whereupon  all  accrued  Rent shall be paid  immediately,  and this Lease  shall
automatically terminate five (5) days after the date of such Notice.

                                       44
<PAGE>

         14.7. Waiver.  Lessee hereby waives any statutory rights of termination
that may arise by reason of any damage or  destruction  of the Hotel that Lessor
is  obligated  to restore or may  restore  under any of the  provisions  of this
Lease.

                                   ARTICLE 15
                         CONDEMNATION; AWARD ALLOCATION

         15.1.    Definitions.

                  (a)      "AWARD" means all  compensation,  sums or anything of
value awarded, paid or received on a total or partial Condemnation.

                  (b)      "CONDEMNATION"  means a Taking resulting from (1) the
exercise of any governmental  power,  whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal  proceedings for condemnation
are pending.

                  (c)      "CONDEMNOR"   means  any   public   or   quasi-public
authority,   or  private   corporation  or  individual,   having  the  power  of
Condemnation.

                  (d)      "DATE OF TAKING" means the date the Condemnor has the
right to possession of the property being condemned.

         15.2. Parties' Rights and Obligations.  If during the Term there is any
Condemnation  of all or any part of the Leased  Property or any interest in this
Lease,  the rights and  obligations  of Lessor and Lessee shall be determined by
this Article 15.

         15.3.  Total  Taking  If  title to the fee of the  whole of the  Leased
Property is condemned by any Condemnor,  this Lease shall cease and terminate as
of the Date of  Taking  by the  Condemnor.  If title to the fee of less than the
whole  of the  Leased  Property  is so taken or  condemned,  which  nevertheless
renders the Leased  Property  Unsuitable or Uneconomic for its Primary  Intended
Use,  Lessee and Lessor shall each have the option,  by Notice to the other,  at
any time prior to the Date of Taking,  to terminate this Lease as of the Date of
Taking.  Upon such  date,  if such  Notice  has been  given,  this  Lease  shall
thereupon  cease and terminate.  All Base Rent,  Percentage  Rent and Additional
Charges paid or payable by Lessee  hereunder shall be apportioned as of the Date
of Taking, and Lessee shall promptly pay Lessor such amounts.

         15.4.  Allocation  of Award.  The total Award made with  respect to the
Leased Property or for loss of rent, or for Lessor's loss of business beyond the
Term, shall be solely the property of and payable to Lessor.  Any Award made for
loss of Lessee's  business  during the remaining Term, if any, for the taking of
Lessee's Personal Property,  or for removal and relocation expenses of Lessee in
any such proceedings shall be the sole property of and payable to Lessee. In any
Condemnation  proceedings  Lessor  and  Lessee  shall  each  seek  its  Award in
conformity herewith, at its respective expense; provided,  however, Lessee shall
not  initiate,  prosecute or acquiesce in any  proceedings  that may result in a
diminution of any Award payable to Lessor.

                                       45
<PAGE>

         15.5.  Partial  Taking.  If title to less than the whole of the  Leased
Property is condemned, and the Leased Property is not Unsuitable for its Primary
Intended Use, and not Uneconomic  for its Primary  Intended Use, or if Lessee or
Lessor is entitled  but neither  elects to  terminate  this Lease as provided in
Section 15.3, Lessee at its cost shall with all reasonable  dispatch restore the
untaken  portion of any Leased  Improvements  so that such  Leased  Improvements
constitute  a complete  architectural  unit of the same  general  character  and
condition (as nearly as may be possible under the  circumstances)  as the Leased
Improvements  existing  immediately  prior  to the  Condemnation.  Lessor  shall
contribute  to the  cost of  restoration  that  part of its  Award  specifically
allocated to such restoration, if any, together with severance and other damages
awarded for the taken Leased Improvements; provided, however, that the amount of
such  contribution  shall not exceed  such cost.  In the event of such a partial
Taking, this Lease shall not terminate, but the Base Rent shall be abated in the
manner and to the extent  that is fair,  just and  equitable  to both Lessee and
Lessor,  taking into consideration,  among other relevant factors, the number of
usable rooms,  the amount of square  footage,  or the revenues  affected by such
partial Taking. If Lessor and Lessee are unable to agree upon the amount of such
abatement  within thirty (30) days after such partial Taking,  the matter may be
submitted by either party to a court of competent jurisdiction for resolution.

         15.6. Temporary Taking. If the whole or any part of the Leased Property
(other than the fee) or of Lessee's  interest  under this Lease is  condemned by
any Condemnor for its temporary use or occupancy  (which shall mean a period not
to exceed two years),  this Lease shall not  terminate  by reason  thereof,  and
Lessee shall  continue to pay, in the manner and at the terms herein  specified,
the full amounts of Base Rent and Additional Charges. In addition,  Lessee shall
pay Percentage  Rent at a rate equal to the average  Percentage  Rent during the
last three (3)  preceding  Fiscal  Years (or if three (3) Fiscal Years shall not
have elapsed, the average during the preceding Fiscal Years). Except only to the
extent that Lessee may be prevented  from so doing  pursuant to the terms of the
order of the Condemnor,  Lessee shall continue to perform and observe all of the
other terms, covenants,  conditions and obligations hereof on the part of Lessee
to be performed and observed,  as though such Condemnation had not occurred.  In
the event of any  Condemnation  as in this  Section 15.6  described,  the entire
amount of any Award  made for such  Condemnation  allocable  to the Term of this
Lease,  whether  paid by way of  damages,  rent or  otherwise,  shall be paid to
Lessee.  Lessee  covenants  that  upon the  termination  of any such  period  of
temporary  use or  occupancy it will,  at its sole cost and expense  (subject to
Lessor's contribution as set forth below), restore the Leased Property as nearly
as may be reasonably possible to the condition in which the same was immediately
prior to such  Condemnation,  unless such period of  temporary  use or occupancy
extends  beyond the  expiration  of the Term,  in which case Lessee shall not be
required to make such restoration.  If restoration is required hereunder, Lessor
shall  contribute  to the cost of such  restoration  that  portion of its entire
Award that is  specifically  allocated  to such  restoration  in the judgment or
order of the court, if any, and Lessee shall fund the balance of such costs in a
manner reasonably satisfactory to Lessor.

                                   ARTICLE 16
                      DEFAULT BY LESSEE; LESSOR'S REMEDIES

         16.1.  Events of Default.  If any one or more of the  following  events
(individually, an "Event of Default") occurs:

                                       46
<PAGE>

                  (a)      if an Event of Default  occurs  under any other lease
between Lessor or any Affiliate of Lessor and Lessee or any Affiliate of Lessee;
or

                  (b)      if  Lessee  fails to make  payment  of the Base  Rent
within ten (10) days after the same becomes due and payable; or

                  (c)      if Lessee  fails to make payment of  Percentage  Rent
when the same becomes due and payable and such condition  continues for a period
of thirty (30) days after the end of the applicable quarter; or

                  (d)      if Lessee fails to observe or perform any other term,
covenant  or  condition  of this  Lease and such  failure is not cured by Lessee
within a period of thirty  (30) days after  receipt by Lessee of Notice  thereof
from  Lessor,  unless such failure  cannot with due  diligence be cured within a
period of thirty  (30)  days,  in which  case it shall not be deemed an Event of
Default if Lessee  proceeds  promptly and with due diligence to cure the failure
and diligently completes the curing thereof provided, however, in no event shall
such cure period extend beyond ninety (90) days after such Notice; or

                  (e)      if Lessee  shall file a  petition  in  bankruptcy  or
reorganization  for an arrangement  pursuant to any federal or state  bankruptcy
law or any similar  federal or state law, or shall be  adjudicated a bankrupt or
shall make an assignment  for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a petition or
answer proposing the adjudication of Lessee as a bankrupt or its  reorganization
pursuant to any federal or state  bankruptcy law or any similar federal or state
law shall be filed in any court and Lessee shall be  adjudicated  a bankrupt and
such adjudication  shall not be vacated or set aside or stayed within sixty (60)
days after the entry of an order in respect thereof,  or if a receiver of Lessee
or of the whole or substantially  all of the assets of Lessee shall be appointed
in any  proceeding  brought  by  Lessee  or if any  such  receiver,  trustee  or
liquidator shall be appointed in any proceeding brought against Lessee and shall
not be  vacated  or set aside or  stayed  within  sixty  (60)  days  after  such
appointment; or

                  (f)      if  Lessee  is  liquidated  or  dissolved,  or begins
proceedings toward such liquidation or dissolution,  or, in any manner,  permits
the sale or divestiture of substantially all of its assets; or

                  (g)      if, except as expressly  permitted herein, the estate
or interest of Lessee in the Leased  Property or any part thereof is voluntarily
or involuntarily transferred, assigned, conveyed, levied upon or attached in any
proceeding (unless Lessee is contesting such lien or attachment in good faith in
accordance  with Section 12.2 hereof) or there is a Change of Control of Lessee;
or

                  (h)      if,  except as a result of damage,  destruction  or a
partial  or  complete   Condemnation  as  contemplated  by  this  Lease,  Lessee
voluntarily  ceases  operations on the Leased Property for a period in excess of
thirty (30) days; or

                  (i)      if an  event of  default  has  been  declared  by the
franchisor  under the Franchise  Agreement with respect to the Hotel as a result
of any  action  or  failure  to act by  Lessee or any

                                       47
<PAGE>

Person with whom Lessee contracts for management services at the Hotel, and such
default is not cured by the earlier of (A) ten (10) days  following  notice from
Lessor or (B) such earlier  date as is required for Lessee to avoid  termination
of the Franchise Agreement by the franchisor;

then, and in any such event,  Lessor may exercise one or more remedies available
to it herein or at law or in equity,  including  but not limited to its right to
terminate  this Lease by giving  Lessee  not less than ten (10) days'  Notice of
such termination.

                  If litigation is commenced with respect to any alleged default
under this Lease,  the prevailing  party in such  litigation  shall receive,  in
addition to its damages  incurred,  such sum as the court shall determine as its
reasonable  attorneys'  fees, and all costs and expenses  incurred in connection
therewith.

                  No Event of Default (other than a failure to make a payment of
money)  shall be deemed to exist  under  clause  (d)  during any time the curing
thereof is prevented by an Unavoidable  Delay,  provided that upon the cessation
of such  Unavoidable  Delay,  Lessee  remedies  such default or Event of Default
without further delay.

         16.2.  Surrender.  If an Event of Default  occurs (and the event giving
rise to such Event of  Default  has not been cured  within the  curative  period
relating thereto as set forth in Section 16.1) and is continuing, whether or not
this Lease has been  terminated  pursuant  to Section  16.1,  Lessee  shall,  if
requested  by Lessor  so to do,  immediately  surrender  to  Lessor  the  Leased
Property  including,  without  limitation,  any and all books,  records,  files,
licenses,  permits and keys relating  thereto,  and quit the same and Lessor may
enter upon and repossess the Leased Property by summary  proceedings,  ejectment
or  otherwise,  and may  remove  Lessee  and all other  Persons  and any and all
personal  property  from the  Leased  Property,  subject  to rights of any hotel
guests  and to any  requirement  of  law.  Lessee  hereby  waives  any  and  all
requirements  of  applicable  laws for service of notice to re-enter  the Leased
Property.  Lessor  shall be under no  obligation  to, but may if it so  chooses,
relet the Leased Property or otherwise mitigate Lessor's damages.

         16.3.  Damages.  Neither (a) the  termination  of this  Lease,  (b) the
repossession  of the  Leased  Property,  (c) the  failure of Lessor to relet the
Leased  Property,  nor (d) the  reletting of all or any portion  thereof,  shall
relieve Lessee of its liability and  obligations  hereunder,  all of which shall
survive any such  termination,  repossession  or reletting.  In the event of any
such termination,  Lessee shall forthwith pay to Lessor all Rent due and payable
with  respect  to the  Leased  Property  to  and  including  the  date  of  such
termination.

                  Lessee shall forthwith pay to Lessor,  at Lessor's option,  as
and for liquidated and agreed current damages for Lessee's default, either:

                           (i)  Without   termination   of  Lessee's   right  to
                  possession of the Leased  Property,  each  installment of Rent
                  (including Percentage Rent as determined below) and other sums
                  payable  by  Lessee  to  Lessor  under  the  Lease as the same
                  becomes due and payable,  which Rent and other sums shall bear
                  interest  at the  Overdue  Rate,  and Lessor may  enforce,  by
                  action or otherwise, any other term or covenant of this Lease;
                  or

                                       48
<PAGE>

                           (ii) the sum of:

                                    (A)      the  unpaid  Rent  which  had  been
                  earned at the time of termination,  repossession or reletting,
                  and

                                    (B)      the    worth   at   the   time   of
                  termination,  repossession or reletting of the amount by which
                  the unpaid  Rent for the balance of the Term after the time of
                  termination,  repossession or reletting, exceeds the amount of
                  such  rental  loss  that  Lessee  proves  could be  reasonably
                  avoided and as reduced for rentals  received after the time of
                  termination,  repossession or reletting,  if and to the extent
                  required by applicable law, and

                                    (C)      any  other   amount   necessary  to
                  compensate Lessor for all the detriment  proximately caused by
                  Lessee's  failure to perform its obligations  under this Lease
                  or which in the ordinary course of things,  would be likely to
                  result therefrom.

                  The  worth  at  the  time  of  termination,   repossession  or
reletting  of  the  amount  referred  to in  subparagraph  (B)  is  computed  by
discounting  such amount at the discount rate of the Federal Reserve Bank of New
York at the  time of  award  plus  one  percent  (1%).  Percentage  Rent for the
purposes  of this  Section  16.3 shall be a sum equal to (i) the  average of the
annual amounts of the Percentage Rent for the three (3) Fiscal Years immediately
preceding  the Fiscal Year in which the  termination,  re-entry or  repossession
takes  place,  or (ii) if three (3) Fiscal  Years  shall not have  elapsed,  the
average of the  Percentage  Rent during the preceding  Fiscal Years during which
the Lease was in effect, or (iii) if one Fiscal Year has not elapsed, the amount
derived by  annualizing  the  Percentage  Rent from the  effective  date of this
Lease.

         16.4.  Waiver.  If this Lease is  terminated  pursuant to Section 16.1,
Lessee  waives,  to the extent  permitted by applicable  law, (a) any right to a
trial by jury in the event of summary  proceedings  to enforce the  remedies set
forth in this  Article 16, and (b) the benefit of any laws now or  hereafter  in
force  exempting  property from liability for rent or for debt and Lessor waives
any right to  "pierce  the  corporate  veil" of Lessee  other than to the extent
funds shall have been  fraudulently  paid by Lessee to any  Affiliate  of Lessee
following a default resulting in an Event of Default.

         16.5.  Application of Funds. Any payments  received by Lessor under any
of the provisions of this Lease during the existence or continuance of any Event
of Default shall be applied to Lessee's obligations in the order that Lessor may
determine or as may be prescribed by the laws of the State.

         16.6.  Lessor's Right to Cure Lessee's Default. If Lessee fails to make
any payment or to perform any act  required to be made or  performed  under this
Lease, including, without limitation,  Lessee's failure to comply with the terms
of any Franchise Agreement,  and fails to cure the same within the relevant time
periods  provided in Section  16.1,  Lessor,  without  waiving or releasing  any
obligation  of Lessee,  and  without  waiving or  releasing  any  obligation  or
default, may (but shall be

                                       49
<PAGE>

under no obligation to) at any time thereafter make such payment or perform such
act for the  account  and at the  expense  of  Lessee,  and may,  to the  extent
permitted by law, enter upon the Leased  Property for such purpose and,  subject
to Section 16.4,  take all such action thereon as, in Lessor's  opinion,  may be
necessary or appropriate  therefor. No such entry shall be deemed an eviction of
Lessee.  All sums so paid by  Lessor  and all  costs  and  expenses  (including,
without limitation, reasonable attorneys' fees and expenses, in each case to the
extent  permitted by law) so incurred,  together with a late charge  thereon (to
the extent  permitted  by law) at the  Overdue  Rate from the date on which such
sums or expenses  are paid or  incurred  by Lessors,  shall be paid by Lessee to
Lessor on demand.  The  obligations of Lessee and rights of Lessor  contained in
this Article shall survive the expiration or earlier termination of this Lease.

                                   ARTICLE 17
                      DEFAULT BY LESSOR; LESSEE'S REMEDIES

         17.1.  Breach by  Lessor.  It shall be a breach of this Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on its
part to be performed and such failure continues for a period of thirty (30) days
after Notice thereof from Lessee,  unless such failure cannot with due diligence
be cured within a period of thirty (30) days,  in which case such failure  shall
not be deemed to  continue  if  Lessor,  within  such  thirty  (30) day  period,
proceeds  promptly  and with due  diligence  to cure the failure and  diligently
completes  the curing  thereof;  provided,  however,  that such default shall be
cured by Lessor in any event prior to the date on which the  default  becomes an
event of default under the terms of the Franchise  Agreement for the Hotel.  The
time within  which Lessor shall be obligated to cure any such failure also shall
be subject to extension of time due to the occurrence of any Unavoidable  Delay.
If Lessor fails to cure any such breach within the grace period described above,
Lessee, without waiving or releasing any obligations hereunder,  and in addition
to all other remedies  available to Lessee at law or in equity, may purchase the
Leased  Property from Lessor for a purchase  price equal to the then Fair Market
Value.  If Lessee  elects to purchase  the Leased  Property  it shall  deliver a
Notice  thereof to Lessor  specifying a  settlement  date to occur not less than
ninety  (90)  days  subsequent  to the  date of such  Notice  on  which it shall
purchase  the Leased  Property,  and the same  shall be  thereupon  conveyed  in
accordance with the provisions of Section 17.3; provided,  however,  that Lessor
shall pay the cost of Lessee's title insurance and all closing costs  associated
with such purchase by Lessee following default by Lessor.

         17.2.  Lessee's  Right to Cure.  Subject to the  provisions  of Section
17.1,  if Lessor  breaches  any covenant to be performed by it under this Lease,
Lessee, after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
may (but  shall be under no  obligation  at any time  thereafter  to) make  such
payment or perform  such act for the account  and at the expense of Lessor.  All
sums  so  paid  by  Lessee  and  all  costs  and  expenses  (including,  without
limitation,  reasonable  attorneys'  fees) so incurred,  together  with interest
thereon at the  Overdue  Rate from the date on which such sums or  expenses  are
paid or  incurred  by  Lessee,  shall be paid by Lessor to Lessee on demand  or,
following entry of a final, nonappealable judgment against Lessor for such sums,
may be offset by Lessee  against the Base Rent and/or  Percentage  Rent payments
next  accruing  or coming  due.  The rights of Lessee  hereunder  to cure and to
secure  payment from Lessor in  accordance  with this Section 17.2 shall survive
the termination of this Lease with respect to the Leased Property.

                                       50
<PAGE>

         17.3. Provisions Relating to Purchase of the Leased Property by Lessee.
If Lessee purchases the Leased Property from Lessor pursuant to any of the terms
of this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase
price,  together  with full  payment of any  unpaid  Rent due and  payable  with
respect to any period ending on or before the date of the  purchase,  deliver to
Lessee an  appropriate  limited or  special  warranty  deed or other  conveyance
conveying the entire  interest of Lessor in and to the Leased Property to Lessee
free and clear of all  encumbrances  other than (a) those that Lessee has agreed
hereunder to pay or discharge, (b) those mortgage liens, if any, that Lessee has
agreed in writing to accept and to take title  subject  to, (c) those  liens and
encumbrances subject to which the Leased Property was conveyed to Lessor, to the
extent not released in connection  with the  transactions  contemplated  by this
Lease,  (d)  encumbrances,  easements,  licenses or rights of way required to be
imposed on the Leased Property under Section 7.3, and (e) any other encumbrances
permitted to be imposed on the Leased  Property  under the provisions of Article
22 that are  assumable  at no cost to Lessee or to which Lessee may take subject
without cost to Lessee. The difference between the applicable purchase price and
the total of the encumbrances  assumed or taken subject to shall be paid in cash
to Lessor or as Lessor may  direct,  in federal or other  immediately  available
funds, except as otherwise mutually agreed by Lessor and Lessee. All expenses of
such conveyance, including, without limitation, the cost of title examination or
title  insurance,  if desired by Lessee,  Lessee's  attorneys'  fees incurred in
connection with such conveyance and release,  and one-half of any transfer taxes
and recording  fees,  shall be paid by Lessee.  Lessor shall pay one-half of any
transfer taxes and recording fees and its attorney's fees.

                                   ARTICLE 18
                                 INDEMNIFICATION

         18.1.    Indemnification.

                  (a)      Notwithstanding  the existence of any insurance,  and
without regard to the policy limits of any such insurance or self-insurance, but
subject to Section 13.3 and Section 8.3,  Lessee will protect,  indemnify,  hold
harmless  and  defend   Lessor  from  and  against  all   liabilities,   losses,
obligations,  claims, damages,  penalties,  causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses), to the
extent  permitted by law, imposed upon or incurred by or asserted against Lessor
Indemnified  Parties  by  reason  of:  (a) any  accident,  injury to or death of
persons  or loss of or  damage to  property  occurring  on or about  the  Leased
Property or adjoining  sidewalks,  including without limitation any claims under
liquor  liability,  "dram shop" or similar laws, (b) any use,  misuse,  non-use,
condition,  management,  maintenance  or repair by Lessee or any of its  agents,
employees  or invitees of the Leased  Property  or  Lessee's  Personal  Property
during the Term or any litigation,  proceeding or claim by governmental entities
or other third  parties to which a Lessor  Indemnified  Party is made a party or
participant  related  to  such  use,  misuse,  non-use,  condition,  management,
maintenance,  or repair  thereof by Lessee or any of its  agents,  employees  or
invitees,  including  any failure of lessee or any of its agents,  employees  or
invitees to perform any  obligations  under this Lease or imposed by  applicable
law (other than arising out of  Condemnation  proceedings),  (c) any Impositions
that are the obligations of Lessee pursuant to the applicable provisions of this
Lease,  (d) any  failure on the

                                       51
<PAGE>

part of Lessee to perform or comply with any of the terms of this Lease, and (e)
the  non-performance  of any of the terms and provisions of any and all existing
and future  subleases  of the Leased  Property to be  performed  by the landlord
thereunder.

                  (b)      Notwithstanding  the existence of any insurance,  and
without regard to the policy limits of any such insurance or self-insurance, but
subject to Section 13.3 and Section 8.3, Lessor shall  indemnify,  save harmless
and  defend  Lessee  Indemnified  Parties  from  and  against  all  liabilities,
obligations,  claims, damages,  penalties,  causes of action, costs and expenses
imposed upon or incurred by or asserted against Lessee Indemnified  Parties as a
result of (a) the gross  negligence or willful  misconduct of Lessor  arising in
connection  with this Lease or (b) any  failure on the part of Lessor to perform
or comply with any of the terms of this Lease.  Any amounts that become  payable
by an  Indemnifying  Party under this Section shall be paid within ten (10) days
after liability  therefor on the part of the Indemnifying Party is determined by
litigation  or otherwise,  and if not timely paid,  shall bear a late charge (to
the  extent  permitted  by  law)  at the  Overdue  Rate  from  the  date of such
determination  to the date of payment.  An  Indemnifying  Party, at its expense,
shall contest,  resist and defend any such claim,  action or proceeding asserted
or instituted  against the  Indemnified  Party.  The  Indemnified  Party, at its
expense,  shall be  entitled  to  participate  in any  such  claim,  action,  or
proceeding,  and the Indemnifying  Party may not compromise or otherwise dispose
of the same  without  the  consent of the  Indemnified  Party,  which may not be
unreasonably  withheld  or  delayed.   Nothing  herein  shall  be  construed  as
indemnifying a Lessor  Indemnified  Party against its own (or Lessor's)  grossly
negligent acts or omissions or willful misconduct.

                  (c)      Lessee's  or Lessor's  liability  for a breach of the
provisions of this Article shall survive any termination of this Lease.

                                   ARTICLE 19
                       REIT REQUIREMENTS AND RESTRICTIONS

         19.1. Personal Property Limitation. Anything contained in this Lease to
the contrary notwithstanding, the average of the adjusted tax bases of the items
of personal property that are leased to Lessee under this Lease at the beginning
and at the end of any Fiscal Year shall not exceed fifteen  percent (15%) of the
average  of the  aggregate  adjusted  tax bases of the  Leased  Property  at the
beginning  and at the end of such Fiscal Year.  This Section 19.1 is intended to
ensure that the Rent qualifies as "rents from real property," within the meaning
of Section 856(d) of the Code, or any similar or successor  provisions  thereto,
and shall be interpreted in a manner consistent with such intent.

         19.2. Sublease Rent Limitation. Anything contained in this Lease to the
contrary  notwithstanding,  Lessee  shall not sublet the Leased  Property on any
basis  such that the  rental  to be paid by the  sublessee  thereunder  would be
based,  in whole or in part, on either (a) the income or profits  derived by the
business  activities  of the  sublessee,  or (b) any other formula such that any
portion of the Rent would fail to qualify as "rents from real  property"  within
the meaning of Section 856(d) of the Code, or any similar or successor provision
thereto.

                                       52
<PAGE>

         19.3.  Sublease Tenant Limitation.  Anything contained in this Lease to
the contrary  notwithstanding,  Lessee shall not sublease the Leased Property to
any Person in which Lessor owns, directly or indirectly,  a ten percent (10%) or
more interest,  within the meaning of Section  856(d)(2)(B)  of the Code, or any
similar or successor provisions thereto.

         19.4.    Lessee Ownership Limitations.

                  (a)      Anything  contained  in this  Lease  to the  contrary
notwithstanding,  neither  Lessee  nor an  Affiliate  of Lessee  shall  acquire,
directly or  indirectly,  a ten percent  (10%) or more interest in Lessor within
the meaning of Section  856(d)(2)(B)  of the Code,  or any similar or  successor
provision thereto.

                  (b)      Lessee  shall  not own,  operate,  manage or have any
interest  in any hotel or motel  property  in which  Lessor or an  Affiliate  of
Lessor  does not have an  interest,  pursuant  to this Lease or  another  lease,
agreement or arrangement with Lessor or an Affiliate of Lessor. Lessor agrees to
notify Lessee  promptly of the location of any hotel or motel  property in which
Lessor or an Affiliate of Lessor has an interest.

         19.5.  Lessee  Officer and Employee  Limitation.  If a Person serves as
both (a) a director of Lessee (or any Person who  furnishes or renders  services
to the  tenants  of the Leased  Property,  or  manages  or  operates  the Leased
Property)  and (b) an officer (or  employee) of the Lessor that Person shall not
receive any  compensation for serving as a director of Lessee (or any Person who
furnishes or renders services to the tenants of the Leased Property,  or manages
or operates the Leased Property).  Furthermore, if a Person serves as both (a) a
director of the Lessor and (b) an officer (or employee) of Lessee (or any Person
who  furnishes  or renders  services to the tenants of the Leased  Property,  or
manages or operates  the Leased  Property),  that  Person  shall not receive any
compensation  for  serving as a director of the  Lessor.  No Person,  other than
Glade M.  Knight,  shall  serve as an officer (or  employee)  of both Lessor and
Lessee.

         19.6.  Payments to Affiliates of Lessee.  During the Term, Lessee shall
not pay, or become  obligated  to pay,  any fees to any  Affiliate  of Lessee in
connection with the Hotel, other than fees that are subordinated to the payments
that are required to be made to Lessor pursuant to this Lease.

                                   ARTICLE 20
                            SUBLETTING AND ASSIGNMENT

         20.1.  Subletting and Assignment.  Subject to the provisions of Article
19 and Section 20.2 and any other express  conditions or  limitations  set forth
herein,  Lessee  may,  but only with the consent of Lessor  (which  shall not be
unreasonably  withheld or  delayed),  (a) assign this Lease or sublet all or any
part of the Leased Property to an Affiliate of Lessee,  or (b) sublet any retail
or  restaurant  portion of the Leased  Improvements  in the normal course of the
Primary  Intended Use;  provided that any  subletting to any party other than an
Affiliate of Lessee shall not individually as to any one such subletting,  or in
the  aggregate,  materially  diminish  the actual or potential  Percentage  Rent
payable  under this Lease.  In the case of a  subletting,  the  sublessee  shall
comply with the  provisions of Section 20.2,  and in the case of an  assignment,
the assignee shall assume in

                                       53
<PAGE>

writing and agree to keep and perform all of the terms of this Lease on the part
of  Lessee  to be kept and  performed  and shall be,  and  become,  jointly  and
severally liable with Lessee for the performance  thereof.  Notwithstanding  the
above,  Lessee may  assign  the Lease to an  Affiliate  without  the  consent of
Lessor;  provided that any such  assignee  assumes in writing and agrees to keep
and  perform  all of the terms of the Lease on the part of Lessee to be kept and
performed and shall be and become  jointly and severally  liable with Lessee for
the  performance  thereof.  In case of either an assignment  or subletting  made
during the Term,  Lessee shall remain primarily liable, as principal rather than
as  surety,  for the  prompt  payment  of the Rent and for the  performance  and
observance  of all of the  covenants  and  conditions  to be performed by Lessee
hereunder.  An original  counterpart  of each such sublease and  assignment  and
assumption,  duly executed by Lessee and such sublessee or assignee, as the case
may be,  in form and  substance  satisfactory  to  Lessor,  shall  be  delivered
promptly to Lessor.

         20.2. Attornment.  Lessee shall insert in each sublease permitted under
Section  20.1  provisions  to the effect  that (a) such  sublease is subject and
subordinate  to all of the terms and  provisions of this Lease and to the rights
of Lessor hereunder,  (b) if this Lease terminates before the expiration of such
sublease,  the sublessee  thereunder will, at Lessor's option,  attorn to Lessor
and waive any right the  sublessee  may have to  terminate  the  sublease  or to
surrender  possession  thereunder as a result of the  termination of this Lease,
and (c) if the sublessee receives a Notice from Lessor or Lessor's assignees, if
any,  stating  that an uncured  Event of Default  exists  under this Lease,  the
sublessee shall  thereafter be obligated to pay all rentals  accruing under said
sublease  directly to the party giving such Notice, or as such party may direct.
All rentals received from the sublessee by Lessor or Lessor's assignees, if any,
as the case may be, shall be credited  against the amounts owing by Lessee under
this Lease.

         20.3.  Conveyance  by  Lessor.  Lessor  may  assign  this  Lease to any
purchaser of the Leased Property. If Lessor or any successor owner of the Leased
Property  conveys the Leased  Property in accordance with the terms hereof other
than as  security  for a debt,  and the  grantee  or  transferee  of the  Leased
Property  expressly  assumes  all  obligations  of Lessor  hereunder  arising or
accruing from and after the date of such conveyance or transfer,  Lessor or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities  and obligations of Lessor under this Lease arising or accruing from
and  after  the date of such  conveyance  or  other  transfer  as to the  Leased
Property and all such future  liabilities  and  obligations  shall  thereupon be
binding upon the new owner.

                                   ARTICLE 21
                          QUIET ENJOYMENT; RISK OF LOSS

         21.1.  Quiet  Enjoyment.  So long as  Lessee  pays all Rent as the same
becomes due and  complies  with all of the terms of this Lease and  performs its
obligations hereunder, in each case within the applicable grace periods, if any,
Lessee shall  peaceably and quietly have, hold and enjoy the Leased Property for
the Term hereof,  free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor,  but subject to all liens and encumbrances  subject
to which the Leased Property was conveyed to Lessor,  to the extent not released
in connection  with the  transactions  contemplated  by this Lease, or hereafter
consented to by Lessee or provided for herein.

                                       54
<PAGE>

Notwithstanding  the  foregoing,  Lessee  shall have the right by  separate  and
independent action to pursue any claim it may have against Lessor as a result of
a breach by Lessor of the covenant of quiet enjoyment contained in this Section.

         21.2. Risk of Loss. During the Term, the risk of loss or of decrease in
the enjoyment and  beneficial  use of the Leased  Property in consequence of the
damage or destruction thereof by fire, the elements,  casualties, thefts, riots,
wars or otherwise,  or in consequence of  foreclosures,  attachments,  levies or
executions  (other than those caused by Lessor and those claiming from,  through
or under Lessor) is assumed by Lessee,  and, in the absence of gross negligence,
willful  misconduct or breach of this Lease by Lessor  pursuant to Section 17.1,
Lessor shall in no event be answerable or accountable therefor, nor shall any of
the events  mentioned in this Section  entitle  Lessee to any  abatement of Rent
except as specifically provided in this Lease.

                                   ARTICLE 22
                    LESSOR MORTGAGES; SUBORDINATION OF LEASE

         22.1.  Lessor May Grant  Liens.  Without the consent of Lessee,  Lessor
may,  subject to the terms and  conditions set forth below in this Section 22.1,
from time to time,  directly or indirectly,  create or otherwise  cause to exist
any lien,  encumbrance or title  retention  agreement  ("Encumbrance")  upon the
Leased Property,  or any portion thereof or interest therein,  whether to secure
any  borrowing or other means of financing or  refinancing.  Upon the request of
Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the
Leased  Property,  on the  condition  that the  proposed  mortgagee  executes  a
non-disturbance   agreement  recognizing  this  Lease  in  accordance  with  the
provisions of Section  22.2,  and agreeing,  for itself and its  successors  and
assigns, to comply with the provisions of this Article 22.

         22.2.   Subordination  of  Lease.  This  Lease  and  Lessee's  interest
hereunder shall at all times be subject and subordinate to the lien and security
title  of any  deeds  to  secure  debt,  deeds  of  trust,  mortgages,  or other
Encumbrances  heretofore  or  hereafter  granted  by Lessor  or which  otherwise
encumber or affect the Leased  Property  and to any and all  advances to be made
thereunder  and to all renewals,  modifications,  consolidations,  replacements,
substitutions,  and  extensions  thereof  (all of which are  herein  called  the
"Mortgage");  provided,  however,  that with respect to any  Mortgage  hereafter
granted,  such  subordination  is  conditioned  upon  delivery  to  Lessee  of a
non-disturbance  agreement  which provides that Lessee shall not be disturbed in
its possession of the Leased Property hereunder  following a foreclosure of such
Mortgage (or delivery of a  deed-in-lieu-of-foreclosure)  and that the holder of
such  Mortgage or the  purchaser at a  foreclosure  sale (or grantee  under such
deed-in-lieu-of-foreclosure)  shall perform all obligations of Lessor under this
Lease. In confirmation of such subordination, however, Lessee shall, at Lessor's
request,  promptly execute,  acknowledge and deliver any instrument which may be
required to evidence subordination to any Mortgage and to the holder thereof. In
the event of Lessee's failure to deliver such  subordination and if the Mortgage
does not change any term of the Lease,  Lessor  may,  in  addition  to any other
remedies for breach of covenant hereunder, execute, acknowledge, and deliver the
instrument  as the  agent or  attorney-in-fact  of  Lessee,  and  Lessee  hereby
irrevocably  constitutes Lessor its  attorney-in-fact  for such purpose,  Lessee
acknowledging   that  the  appointment  is  coupled  with  an  interest  and  is
irrevocable.

                                       55
<PAGE>

                                   ARTICLE 23
         ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS

         23.1.    Estoppel Certificates; Financial Statements.

                  (a)      At any time and from  time to time upon not less than
ten (10) days  Notice by Lessor,  Lessee  will  furnish  to Lessor an  Officer's
Certificate  certifying  that this  Lease is  unmodified  and in full  force and
effect (or that this Lease is in full force and effect as  modified  and setting
forth the  modifications),  the date to which the Rent has been paid, whether to
the knowledge of Lessee there is any existing default or Event of Default exists
thereunder by Lessor or Lessee,  and such other information as may be reasonably
requested by Lessor. Any such certificate furnished pursuant to this Section may
be relied upon by Lessor, any lender and any prospective purchaser of the Leased
Property.

                  (b)      Lessee  will  furnish  the  following  statements  to
Lessor:

                           (i)  with  reasonable  promptness,  such  information
                  respecting  the  financial  condition  and  affairs  of Lessee
                  including  audited financial  statements  prepared by the same
                  certified  independent   accounting  firm  that  prepares  the
                  returns  for  Lessor or such other  accounting  firm as may be
                  approved by Lessor,  as Lessor may request  from time to time;
                  and

                           (ii)  the  most  recent  Consolidated  Financials  of
                  Lessee within  forty-five  (45) days after each quarter of any
                  Fiscal  Year  (or,  in the case of the  final  quarter  in any
                  Fiscal Year, the most recent audited  Consolidated  Financials
                  of Lessee within ninety (90) days); and

                           (iii) on or  about  the  20th  day of each  month,  a
                  detailed profit and loss statement for the Leased Property for
                  the preceding  month, a balance sheet for the Leased  Property
                  as  of  the  end  of  the  preceding  month,  and  a  detailed
                  accounting  of  revenues  for  the  Leased  Property  for  the
                  preceding month, each in form acceptable to Lessor.

Lessee will permit the inclusion of such  statements in any filings  required to
be made by Lessor under the Securities  Act of 1933 and the Securities  Exchange
Act of 1934.

                  (c)      At any time and from  time to time upon not less than
ten (10) days Notice by Lessee,  Lessor will  furnish to Lessee or to any Person
designated  by Lessee an  estoppel  certificate  certifying  that this  Lease is
unmodified and in full force and effect (or that this Lease is in full force and
effect as modified and setting forth the modifications),  the date to which Rent
has been paid,  whether to the knowledge of Lessor there is any existing default
or Event of Default on Lessee's part  hereunder,  and such other  information as
may be reasonably requested by Lessee.

                                       56
<PAGE>

                  (d)      Lessee shall at all times be Solvent. Furthermore, as
of the date of this  Agreement,  Lessee agrees to establish  and maintain,  in a
form  satisfactory  to  Lessor,  a  funding  commitment  in an  amount  equal to
$2,000,000  upon  which  Lessee  may  draw  upon  to pay to  Lessor  Base  Rent,
Percentage  Rent and  Additional  Charges.  Repayment of the funding  commitment
shall  be  subordinated  to all  payments  of Base  Rent,  Percentage  Rent  and
additional charges under all Leases between Lessor and Lessee.

         23.2.  Lessor's  Right to Inspect.  Lessee shall permit  Lessor and its
authorized  representatives  as frequently as reasonably  requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining thereto
and make copies  thereof,  during usual business hours upon  reasonable  advance
Notice,  subject only to any business  confidentiality  requirements  reasonably
requested by Lessee.

                                   ARTICLE 24
                                   APPRAISERS

         24.1. Appraisers.  If it becomes necessary to determine the Fair Market
Value or Fair  Market  Rental of the  Leased  Property  for any  purpose of this
Lease,  the  party  required  or  permitted  to give  Notice  of  such  required
determination  shall include in the Notice the name of a Person  selected to act
as  appraiser  on its  behalf.  Within  ten (10) days after  Notice,  Lessor (or
Lessee,  as the case may be) shall by Notice to Lessee (or  Lessor,  as the case
may be) appoint a second Person as appraiser on its behalf.  The appraisers thus
appointed,  each of whom  must be a member  of the  American  Institute  of Real
Estate Appraisers (or any successor organization thereto) with at least five (5)
years'  experience  in the  State  appraising  property  similar  to the  Leased
Property,  shall,  within  forty-five  (45) days  after  the date of the  Notice
appointing  the first  appraiser,  proceed to  appraise  the Leased  Property to
determine the Fair Market Value or Fair Market Rental thereof as of the relevant
date (giving  effect to the impact,  if any, of inflation from the date of their
decision to the relevant date);  provided,  however,  that if only one appraiser
shall have been so appointed,  then the determination of such appraiser shall be
final  and  binding  upon the  parties.  To the  extent  consistent  with  sound
appraisal  practice  as then  existing at the time of any such  appraisal,  such
appraisal shall be made on a basis consistent with the basis on which the Leased
Property was appraised for purposes of determining  its Fair Market Value at the
time the Leased  Property  was  acquired by Lessor.  If two (2)  appraisers  are
appointed  and if the  difference  between  the amounts so  determined  does not
exceed five  percent  (5%) of the lesser of such  amounts,  then the Fair Market
Value or Fair Market  Rental shall be an amount equal to fifty  percent (50%) of
the sum of the amounts so determined.  If the difference  between the amounts so
determined  exceeds five percent (5%) of the lesser of such  amounts,  then such
two appraisers shall have twenty (20) days to appoint a third  appraiser.  If no
such appraiser shall have been appointed  within such twenty (20) days or within
ninety  (90) days of the  original  request for a  determination  of Fair Market
Value or Fair Market Rental,  whichever is earlier,  either Lessor or Lessee may
apply to any court having  jurisdiction  to have such  appointment  made by such
court. Any appraiser appointed by the original appraisers or by such court shall
be  instructed  to determine  the Fair Market Value or Fair Market Rental within
forty-five (45) days after  appointment of such appraiser.  The determination of
the  appraiser  which  differs  most in the  terms  of  dollar  amount  from the
determinations of the other two appraisers shall be excluded,  and fifty percent
(50%) of the sum of the remaining two

                                       57
<PAGE>

determinations  shall be final and  binding  upon  Lessor and Lessee as the Fair
Market Value or Fair Market Rental of the Leased  Property,  as the case may be.
This provision for determining by appraisal shall be specifically enforceable to
the extent such remedy is available under applicable law, and any  determination
hereunder  shall be final and  binding  upon the  parties  except  as  otherwise
provided  by  applicable  law.  Lessor  and  Lessee  shall each pay the fees and
expenses of the  appraiser  appointed  by it and each shall pay  one-half of the
fees and  expenses of the third  appraiser  and  one-half of all other costs and
expenses incurred in connection with each appraisal.

                                   ARTICLE 25
                  ARBITRATION AND DISPUTE RESOLUTION PROCEDURES

         25.1.  Arbitration.  Except as set forth in Section  25.2, in each case
specified  in this  Lease in  which  it shall  become  necessary  to  resort  to
arbitration,  such  arbitration  shall be determined as provided in this Section
25.1.  The party desiring such  arbitration  shall give Notice to that effect to
the other party,  and an arbitrator shall be selected by mutual agreement of the
parties,  or if they cannot  agree within  thirty (30) days of such  notice,  by
appointment made by the American Arbitration  Association ("AAA") from among the
members of its panels who are  qualified  and who have  experience  in resolving
matters of a nature similar to the matter to be resolved by arbitration.

         25.2. Alternative Arbitration. In each case specified in this Lease for
a matter to be  submitted  to  arbitration  pursuant to the  provisions  of this
Section  25.2,  Lessor  and  Lessee  will  agree  upon a  nationally  recognized
accounting  firm with a  hospitality  division of which  neither party nor their
Affiliates  of Lessor is a  significant  client to serve as  arbitrator  of such
dispute  within  fifteen  (15) days  after  written  demand for  arbitration  is
received or sent by either  party.  In the event the  parties  fail to make such
designation  within such  fifteen  (15) day period,  Lessor shall be entitled to
designate any nationally  recognized accounting firm with a hospitality division
of which Lessor or an Affiliate of Lessor is not a  significant  client to serve
as arbitrator of such dispute within fifteen (15) days after the parties fail to
timely make such designation. In the event Lessor fails to make such designation
within such fifteen (15) day period,  Lessee shall be entitled to designate  any
nationally  recognized accounting firm with hospitality division of which Lessee
or an Affiliate of Lessee is not a significant  client to serve as arbitrator of
such dispute within fifteen (15) days after the parties fail to timely make such
designation.  In the event no nationally  recognized  accounting firm satisfying
such  qualifications  is  available  and  willing  to serve as  arbitrator,  the
arbitrator shall instead be administered as set forth in Section 25.1.

         25.3. Arbitration  Procedure.  In any arbitration commenced pursuant to
Sections 25.1 or 25.2, a single arbitrator shall be designated and shall resolve
the dispute.  The arbitrator's  decision shall be binding on all parties,  shall
not be  subject  to  further  review or appeal  except as  otherwise  allowed by
applicable  law  and may be  filed  in and  enforced  by a  court  of  competent
jurisdiction.  Upon the failure of either party (the  "non-complying  party") to
comply with his decision,  the arbitrator shall be empowered,  at the request of
the other party,  to order such  compliance  by the  non-complying  party and to
supervise or arrange for the supervision of the non-complying party's obligation
to  comply  with  the  arbitrator's   decision,   all  at  the  expense  of  the
non-complying  party. To the maximum extent practicable,  the arbitrator and the
parties,  and the AAA if applicable,  shall take any action  necessary to insure
that the arbitration shall be concluded within ninety (90) days of

                                       58
<PAGE>

the filing of such  dispute.  The fees and expenses of the  arbitrator  shall be
shared equally by Lessor and Lessee except as otherwise  specified above in this
Section 25.3.  Unless  otherwise agreed in writing by the parties or required by
the arbitrator or AAA, if applicable, arbitration proceedings hereunder shall be
conducted in the State. Notwithstanding formal rules of evidence, each party may
submit such evidence as each party deems appropriate to support its position and
the  arbitrator  shall have access to and right to examine all books and records
of Lessee and Lessor regarding the Hotel during the arbitration.

                                   ARTICLE 26
                                     NOTICES

         26.1. Notices. All notices, demands,  requests,  consents approvals and
other  communications  ("Notice" or "Notices") hereunder shall be in writing and
hand-delivered,  sent by FedEx or other nationally  recognized overnight courier
service,  or mailed (by registered or certified mail,  return receipt  requested
and postage prepaid), if to Lessor at 306 East Main Street,  Richmond,  Virginia
23219, Attn: Glade M. Knight and if to Lessee at 306 East Main Street, Richmond,
Virginia 23219,  Attn:  Glade M. Knight or to such other address or addresses as
either  party may  hereafter  designate.  Personally  delivered  Notice shall be
effective upon receipt, and Notice given by overnight courier service or by mail
shall be complete at the time of deposit with the courier service or in the U.S.
Mail system, respectively,  but any prescribed period of Notice and any right or
duty to do any act or make any  response  within any  prescribed  period or on a
date certain after the service of such Notice given by overnight courier service
shall be extended one (1) day and by mail shall be extended five (5) days.

                                   ARTICLE 27
                                  MISCELLANEOUS

         27.1.  No Waiver.  No  failure  by Lessor or Lessee to insist  upon the
strict  performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach  thereof,  and no acceptance of full or partial payment
of Rent during the continuance of any such breach,  shall constitute a waiver of
any such breach or of any such term.  To the extent  permitted by law, no waiver
of any breach  shall  affect or alter this Lease,  which shall  continue in full
force and effect with respect to any other then existing or subsequent breach.

         27.2.  Remedies  Cumulative.  To the extent permitted by law and unless
otherwise provided herein to the contrary,  each legal, equitable or contractual
right,  power and remedy of Lessor or Lessee now or hereafter provided either in
this Lease or by statute or otherwise  shall be cumulative  and  concurrent  and
shall be in addition to every other right,  power and remedy and the exercise or
beginning of the exercise by Lessor or Lessee of any one or more of such rights,
powers and remedies shall not preclude the  simultaneous or subsequent  exercise
by Lessor or Lessee of any or all of such other rights, powers and remedies.

                                       59
<PAGE>

         27.3.  Waiver of Trial by Jury.  LESSOR AND LESSEE EACH  WAIVE,  TO THE
FULLEST EXTENT  PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN THE
EVENT OF A PROCEEDING WITH RESPECT TO THIS LEASE, INCLUDING, WITHOUT LIMITATION,
SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN ARTICLE 16.

         27.4. Acceptance of Surrender.  No surrender to Lessor of this Lease or
of the Leased Property or any part thereof, or of any interest therein, shall be
valid or effective unless agreed to and accepted in writing by Lessor and no act
by Lessor or any  representative  or agent of Lessor,  other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.

         27.5. No Merger of Title.  There shall be no merger of this Lease or of
the leasehold  estate  created hereby by reason of the fact that the same Person
may  acquire,  own or  hold,  directly  or  indirectly:  (a)  this  Lease or the
leasehold  estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.

         27.6.  Waiver of  Presentment,  Etc.  Lessee  waives all  presentments,
demands for payment and for performance,  notices of  nonperformance,  protests,
notices of protest,  notices of dishonor,  and notices of acceptance  and waives
all  notices of the  existence,  creation,  or  incurring  of new or  additional
obligations, except as expressly granted herein.

         27.7.  Action  for  Damages.  Except as  otherwise  expressly  provided
herein,  in any suit or other  claim  brought by either  party  seeking  damages
against the other  party for breach of its  obligations  under this  Lease,  the
party  against  whom such claim is made shall be liable to the other  party only
for actual damages and not for consequential, punitive or exemplary damages.

         27.8. Lease Assumption in Bankruptcy Proceeding. If an Event of Default
occurs and Lessee has filed or has had filed against it a petition in bankruptcy
or for  reorganization or other relief pursuant to the federal  bankruptcy code,
Lessee shall  promptly move the court  presiding  over the  proceeding to assume
this Lease pursuant to 11 U.S.C.  Section 365,  without  seeking an extension of
the time to file said motion.

         27.9. Enforceability.  Anything contained in this Lease to the contrary
notwithstanding,  all  claims  against,  and  liabilities  of,  Lessee or Lessor
arising  prior to any date of  termination  of this  Lease  shall  survive  such
termination.  If any term or provision of this Lease or any application  thereof
is  invalid  or  unenforceable,  the  remainder  of this  Lease  and  any  other
application  of such term or provisions  shall not be affected  thereby.  If any
late charges or any interest  rate  provided for in any  provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties  agree that such charges  shall be fixed at the maximum  permissible
rate.  Neither  this  Lease nor any  provision  hereof may be  changed,  waived,
discharged or  terminated  except by a written  instrument  in  recordable  form
signed by Lessor and Lessee. All the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The headings in this Lease are for convenience
of reference  only and shall not limit or otherwise  affect the meaning  hereof.
This Lease shall be

                                       60
<PAGE>

governed by and  construed  in  accordance  with the laws of the State,  but not
including its conflicts of laws rules.

         27.10.  Memorandum of Lease. Lessor and Lessee shall promptly, upon the
request of either party,  enter into a short form  memorandum of this Lease,  in
form  suitable for recording  under the laws of the State in which  reference to
this Lease, and all options  contained  herein,  shall be made. Lessee shall pay
all costs and expenses of recording such memorandum of this Lease.

                                       61
<PAGE>

         IN WITNESS WHEREOF,  the parties have executed this Lease by their duly
authorized officers as of the date first above written.

                                        "LESSOR"

                                        APPLE SUITES SPE I, INC.

                                        By:  /s/  Glade M. Knight
                                            ------------------------------------
                                        Name: Glade M. Knight
                                              ----------------------------------
                                        Title: President
                                              ----------------------------------

                                        "LESSEE"

                                        APPLE SUITES MANAGEMENT, INC.

                                        By:  /s/  Glade M. Knight
                                            ------------------------------------
                                        Name: Glade M. Knight
                                              ----------------------------------
                                        Title: President
                                              ----------------------------------

<PAGE>

                                    EXHIBIT A

                                LEGAL DESCRIPTION

                                    [OMITTED]

<PAGE>

                                    EXHIBIT B

                                   WORK LETTER

         This Work Letter  describes and specifies the rights and obligations of
Apple  Suites  SPE  I,  Inc.  ("Lessor"),  and  Apple  Suites  Management,  Inc.
("Lessee"), with respect to the design,  construction,  installation and payment
for the completion of Lessee's Work (as defined in Section 10.4 of the Lease).

         1.  Definitions.  Terms which are defined in that  certain  Hotel Lease
Agreement  (the "Lease")  executed  contemporaneously  herewith,  by and between
Lessor  and  Lessee,   shall  have  the  same   meaning  in  this  Work  Letter.
Additionally,  as used in this Work Letter, the following terms (when delineated
with initial capital  letters) shall have the respective  meaning  indicated for
each as follows:

                  (a) "Plans and Specifications" shall mean,  collectively,  the
         plans,  specifications and other information prepared or to be prepared
         by Lessee's  architect and, where  necessary,  by Lessee's  electrical,
         mechanical and structural  engineers,  which shall detail Lessee's Work
         and which shall be approved in writing by both Lessee and Lessor  prior
         to the  commencement of such work. The Plans and  Specifications  shall
         comply with the minimum requirements established by Lessor.

                  (b) "Cost of the Work" shall mean the actual contract costs of
         all materials and labor for the design,  construction  and installation
         to completion  of the Lessee's  Work in  accordance  with the Plans and
         Specifications.

                  (c) "Change  Cost" shall mean any  increase in the Cost of the
         Work attributable to any change in the Plans and Specifications.

         2. Procedure for the Completion of Plans and Specifications.  The Plans
and  Specifications   shall  be  completed  in  accordance  with  the  following
procedure:

                  (a) Design  Drawings.  Lessee  shall  submit to Lessor  design
         drawings  specifying  the intended  design,  character and finishing of
         Lessee's Work. The design drawings shall set forth the  requirements of
         Lessee with respect to the installation of Lessee's Work.

                           i) After  receipt of design  drawings,  Lessor  shall
                  return  to  Lessee  Lessor's  required   modifications  and/or
                  approval.

                           ii) If  Lessor  requires  modifications,  the  design
                  drawings shall be revised by Lessee and  resubmitted to Lessor
                  for  approval.  Unless  such  action is taken,  Lessee will be
                  deemed to have accepted and approved all of Lessor's  comments
                  on the design  drawings.  This  process  will  continue  until
                  approval of Lessor is obtained.

<PAGE>

                  (b)  Completion  of Plans  and  Specifications.  All Plans and
         Specifications  shall be prepared in strict  compliance with applicable
         standards and requirements as set forth in the Lease,  this Work Letter
         and otherwise, and shall also adhere to the design drawings approved by
         Lessor.  Lessee shall deliver to Lessor,  as soon as practicable  after
         the date of Lessor's  approval of design  drawings,  the proposed Plans
         and  Specifications.  If the Plans and  Specifications  are returned to
         Lessee with comments, but not bearing approval of Lessor, the Plans and
         Specifications shall be revised by Lessee and resubmitted to Lessor for
         approval.  This  process  will  continue  until  approval  of Lessor is
         obtained.

                  (c)  Compliance   with  Laws.   Lessee  shall  have  the  sole
         responsibility for compliance of the Plans and Specifications  with all
         applicable  statutes,  codes,  ordinances  and other  regulations.  The
         approval  of the  Plans and  Specifications  or  calculations  included
         therein by Lessor shall not constitute an indication, representation or
         certification  by  Lessor  that  such  Plans  and   Specifications   or
         calculations  are in compliance with said statutes,  codes,  ordinances
         and other regulations.  In instances where several sets of requirements
         must be met, the requirements of Lessor's insurance  underwriter or the
         strictest  applicable  requirements shall apply where not prohibited by
         applicable codes.

         3. Pricing.  As soon as practicable after finalization of the Plans and
Specifications,  as evidenced by Lessor's written approval thereof, Lessee shall
notify  Lessor in writing of the Cost of the Work.  Lessor shall either  approve
the Cost of the Work in writing or request that the Plans and Specifications and
the Cost of the Work be revised and  resubmitted to Lessor for approval.  Lessee
shall revise the Plans and  Specifications and the Cost of the Work and resubmit
them to Lessor for approval. This procedure shall continue until Lessor approves
the Cost of the Work.

         4.  Performance  of Work and Delays.  Lessee  shall  select one or more
contractors  ("Contractors")  to furnish labor and/or materials for the Lessee's
Work  in  substantial  accordance  with  the  Plans  and  Specifications.   Each
Contractor and the contract  between Lessee and such Contractor must be approved
in advance by Lessor.  After Lessor's approval of the Plans and  Specifications,
the Cost of the Work,  Contractors  and  contracts,  Lessee  agrees to cause the
Contractors to commence the  construction  and installation of the Lessee's Work
as promptly as  reasonably  practicable  and to proceed  with due  diligence  to
perform  Lessee's  Work in a good and  workmanlike  manner.  Lessee  warrants to
Lessor that all materials and equipment furnished in constructing and installing
the Lessee's Work will be new, unless  otherwise  specified to Lessor,  and that
such work shall be of good  quality,  free from  faults and  defects;  provided,
however,  Lessor's  sole remedy for breach of the above  warranty  shall be that
Lessee,  for a period of twelve (12) months after substantial  completion of the
Lessee's  Work, at its sole cost and expense,  will make all necessary  repairs,
replacements  and  corrections  of any  nature  or  description  as  may  become
necessary by reason of faulty  construction,  labor or materials in the Lessee's
Work.  Any delays in the  completion  of  Lessee's  Work shall not  justify  any
abatement or reduction of the rent payable under the Lease.

         5. Payments for Cost of Work. Lessor shall be liable for payment of the
Cost of the Work. Within ten (10) days after Lessor's receipt of an invoice from
Lessee, together with supporting billing statements,  architect certificates and
other  detailed  information  required by the  construction  contracts  with the
Contractors,  Lessor shall pay to Lessee the amount of the invoice. Lessee shall

                                       2
<PAGE>

pay over to its Contractors any payments by Lessor to Lessee for the Cost of the
Work. Lessor may, at its option,  elect to make its payments for the Cost of the
Work  directly to the  Contractors  rather than to Lessee.  Lessor  shall not be
obligated to pay for, and Lessee shall not pay for, any work performed by any of
the Contractors or their mechanics,  workmen or subcontractors  until Lessor has
received a lien waiver from any said party.

         6. Change Orders.  All changes and  modifications in Lessee's Work from
that contemplated in the Plans and Specifications, whether or not such change or
modification  gives rise to a Change Cost, must be evidenced by a written change
order executed by both Lessor and Lessee. In that regard, Lessee shall submit to
Lessor such information as Lessor shall require with respect to any change order
requested by Lessee. After receipt of any requested change order,  together with
such  information  as Lessor shall  require with respect  thereto,  Lessor shall
return to Lessee either the executed change order,  which will evidence Lessor's
approval  thereof,  or the Plans and  Specifications  with respect  thereto with
Lessor's  suggested  modifications.  Lessee  shall  revise the change  order and
resubmit it to Lessor.  This process will continue  until  Lessor's  approval is
obtained.

         7. Punch List.  Within ten (10) days after Lessor  receives notice from
Lessee of the substantial  completion of Lessee's Work, Lessor shall give Lessee
written notice specifying any details of construction,  decoration, installation
or mechanical  adjustment  which remain to be performed with respect to Lessee's
Work;  and except for the details  contained in such written notice from Lessor,
all  obligations  of Lessee in regard to  Lessee's  Work shall be deemed to have
been satisfied.  Lessor or its agents, servants,  employees or contractors shall
have the right to enter the Leased  Improvements  during the  progress and after
the completion of the Lessee's Work to inspect any details of the Lessee's Work,
and entry by Lessor,  its agents,  servants,  employees or contractors  for such
purpose shall not relieve  Lessee of any of its  obligations  under the Lease or
impose  any  liability  on  Lessor  or  its  agents,   servants,   employees  or
contractors.

         8.  Insurance;  Liability.  Lessee shall procure and maintain  adequate
Workmen's  Compensation  and public  liability  insurance  for bodily injury and
property  damage,  all in amounts,  with companies and in forms  satisfactory to
Lessor.  Lessee shall also cause each of the Contractors to provide and maintain
certificates  of such  insurance  and furnish  copies of same to Lessor prior to
proceeding with the Lessee's Work. Lessor shall not be liable in any way for any
injury,  loss or damage which may occur in connection with or as a result of the
Lessee's Work, the same being solely at Lessee's risk.  Lessee shall hold Lessor
harmless  from any claim,  demand or action  arising  from the  construction  or
installation activities in connection with Lessee's Work, the Contractors or any
workmen, mechanics or subcontractors working on the Lessee's Work.

         9. Whole  Agreement;  No Oral  Modification.  This Work  Letter and the
Lease embody all representations, warranties and agreements of Lessor and Lessee
with  respect to the matter  described  herein,  and this Work Letter may not be
altered or modified except by an agreement in writing signed by the parties.

         10. Paragraph  Headings.  The paragraph headings contained in this Work
Letter  are for  convenient  reference  only and shall not in any way affect the
meaning or interpretation of such paragraphs.

                                       3
<PAGE>

         11. Notices.  All notices  required or contemplated  hereunder shall be
given to the parties in the manner specified for giving notices under the Lease.

         12. Binding Effect.  This Work Letter shall be construed under the laws
of the State of Texas and shall be binding  upon and shall  inure to the benefit
of the parties hereto and their respective permitted successors and assigns.

         13. Conflict. In the event of conflict between this Work Letter and any
other exhibits or addenda to the Lease, this Work Letter shall prevail.

         DATED as of the 24th day of November, 1999.

                                        "LESSOR"

                                        APPLE SUITES SPE I, INC.

                                        By:  /s/ Glade M. Knight
                                            ------------------------------------
                                        Name: Glade M. Knight
                                              ----------------------------------
                                        Title: President
                                              ----------------------------------

                                        "LESSEE"

                                        APPLE SUITES MANAGEMENT, INC.

                                        By:  /s/ Glade M. Knight
                                            -----------------------------------
                                        Name: Glade M. Knight
                                              ----------------------------------
                                        Title: President
                                              ----------------------------------

                                       4
<PAGE>

                                 SCHEDULE 3.1(b)
                            SUITE REVENUE BREAKPOINT

HOMEWOOD SUITES(R) SALT LAKE
MIDVALE, UTAH

<TABLE>
<CAPTION>
------------------- ----------------- ---------------- ----------------- ---------------- -----------------
     QUARTERS             1999             2000              2001             2002              2003
     --------             ----             ----              ----             ----              ----
<S>                    <C>              <C>               <C>              <C>               <C>
1ST QUARTER               - -            $142,399          $146,780         $153,353          $157,734

2ND QUARTER               - -            $284,798          $293,561         $306,705          $315,468

3RD QUARTER               - -            $427,196          $440,341         $460,058          $473,202

4TH QUARTER             $47,320          $569,595          $587,121         $613,410          $630,936
------------------- ----------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
------------------- ----------------- ---------------- ----------------- ---------------- -----------------
     QUARTERS             2004             2005              2006             2007              2008
     --------             ----             ----              ----             ----              ----
<S>                    <C>              <C>               <C>              <C>               <C>
1ST QUARTER             $162,116         $166,497          $170,879         $175,260          $179,642

2ND QUARTER             $324,231         $332,994          $341,757         $350,520          $359,283

3RD QUARTER             $486,347         $499,491          $512,636         $525,780          $538,925

4TH QUARTER             $648,462         $665,988          $683,514         $701,040          $718,566
------------------- ----------------- ---------------- ----------------- ---------------- -----------------
</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00015-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00015-of-00352.parquet"}]]