Document:

Exhibit 10.3

[GRAPHIC OMITTED]                        PHILADELPHIA/GREAT VALLEY, PENNSYLVANIA

                                                              PROMUS HOTELS, INC
                                                              755 CROSSOVER LANE
                                                        MEMPHIS, TENNESSEE 38117

                                 HOMEWOOD SUITES
                                LICENSE AGREEMENT

DATED ____________________  BETWEEN PROMUS HOTELS, INC.,  A DELAWARE CORPORATION
("LICENSOR"),   AND  APPLE  SUITES  MANAGEMENT,  INC.,  A  VIRGINIA  CORPORATION
("LICENSEE"), WHOSE  ADDRESS IS 306 EAST MAIN STREET, RICHMOND, VIRGINIA 23219.

                          THE PARTIES AGREE AS FOLLOWS:

1.       THE LICENSE.

         Licensor  owns,  operates and  licenses a system  designed to provide a
         distinctive,  high quality  hotel  service to the public under the name
         "Homewood  Suites"  (the  "SYSTEM").   High  standards  established  by
         Licensor  are the  essence of the  System.  Future  investments  may be
         required  of  Licensee  under  this  License  Agreement  ("AGREEMENT").
         Licensee has independently investigated the risks of the business to be
         operated hereunder,  including current and potential market conditions,
         competitive factors and risks, has read Licensor's  "Franchise Offering
         Circular,"  and has made an  independent  evaluation of all such facts.
         Aware of the  relevant  facts,  Licensee  desires  to enter  into  this
         Agreement  in  order to  obtain  a  license  to use the  System  in the
         operation  of a Homewood  Suites  hotel  located at 12 EAST  SWEDESFORD
         ROAD, MALVERN, PENNSYLVANIA 19355 (the "HOTEL") subject to the terms of
         this Agreement.

         A.   THE  HOTEL.  The  Hotel  comprises  all  structures,   facilities,
              appurtenances,  furniture,  fixtures,  equipment, and entry, exit,
              parking  and other  areas  from time to time  located  on the site
              approved   for  the  Hotel  and   acknowledged   by   Licensor  in
              anticipation of the execution of this Agreement, or located on any
              land from time to time approved by Licensor for  additions,  signs
              or other  facilities.  No change in the number of  approved  guest
              suites  ("GUEST  SUITES")  reflected on Attachment B (the "RIDER")
              and no other  significant  change in the Hotel may be made without
              Licensor's  prior  approval.  Redecoration  and  minor  structural
              changes that comply with Licensor's  standards and  specifications
              will not be considered significant. Licensee represents that it is
              entitled to possession of the Hotel during the entire License Term
              without   restrictions   that  would   interfere   with   anything
              contemplated in this Agreement.

         B.   THE SYSTEM. The System is composed of elements, as designated from
              time to time by Licensor,  designed to identify  "Homewood  Suites
              hotels"  to the  consuming  public  and/or to  contribute  to such
              identification  and its association  with quality  standards.  The
              System at present includes the service mark "Homewood  Suites" and
              such  other  service  marks and such  copyrights,  trademarks  and
              similar  property rights as may be designated from time to time by
              Licensor  to be  part  of  the  System;  access  to a  reservation
              service;   distribution  of   advertising,   publicity  and  other
              marketing  programs  and  materials;  the  furnishing  of training
              programs and materials, standards, specifications and policies for
              construction, furnishing, operation, appearance and service of the
              Hotel,  and other  requirements  as stated or  referred to in this
              Agreement and from time to time in the Manual (as defined  herein)
              or  in  other   communications  to  Licensee;   and  programs  for
              inspecting  the Hotel and consulting  with Licensee.  Licensor may
              add elements to the System or modify,  alter or delete elements of
              the  System  (including  the trade name  and/or  brand name of the
              Hotel) at its sole discretion from time to time.  Licensee is only
              authorized  to  use  "Homewood  Suites"  ----  service  marks  and
              trademarks at or in connection with the Hotel.

         C.   THE  MANUAL.  Licensee  acknowledges  the  receipt  of  a  current
              Homewood Suites Standards Manual

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              ("MANUAL").  The Manual  contains,  among other  matters,  minimum
              standards   and   requirements   for   constructing,    equipping,
              furnishing,  supplying,  operating,  maintaining and marketing the
              Hotel.  Licensor  shall have the right to change  the Manual  from
              time to time  and  Licensee  agrees  to  abide  by the  Manual  as
              changed. The Manual shall at all times remain the sole property of
              Licensor.  Licensee shall use all  reasonable  efforts to maintain
              the  confidentiality  of the  Manual.  Licensee  shall not make or
              distribute copies of the Manual or any portion thereof.

         D.   APPLICATION OF MANUAL.  All hotels operated within the System will
              be subject to the Manual,  as it may from time to time be modified
              or revised by  Licensor.  Licensor  may,  in its sole  discretion,
              grant limited exceptions from compliance with the Manual which may
              be made based on local conditions or special  circumstances.  Each
              material  change in the  Manual  will be  explained  in writing to
              Licensee at least 30 days before it goes into effect.  Licensee is
              responsible  for the costs of  implementing  all changes  required
              because of modification to the Manual.

              Licensor  may  require  that   particular   models  or  brands  of
              furniture,    fixtures,   equipment,   food,   and   other   items
              (collectively,  the  "SUPPLIES")  be used in the  operation of the
              Hotel or be purchased from Licensor or from a source designated by
              Licensor.  Otherwise,  Licensee may purchase all Supplies from any
              source as long as the standards and  specifications  in the Manual
              are met,  which  standards  and  specifications  may be changed by
              Licensor from time to time.  Licensee will be responsible  for the
              costs,  if any,  associated  with  the  purchase  of  Supplies  or
              changing brands, models or sources of supply.

2.       GRANT OF LICENSE.

         Licensor  hereby  grants  to  Licensee  a  nonexclusive   license  (the
         "LICENSE") to use the System only at the Hotel, only in connection with
         the operation of a Homewood Suites hotel,  only in accordance with this
         Agreement and only during the "License  Term"  beginning  with the date
         hereof and terminating as provided in Paragraph 13. The License applies
         to the  location  of the Hotel  specified  herein  and no  other.  This
         Agreement does not limit Licensor's right, or the rights of any parent,
         subsidiary,  division or affiliate of Licensor ("ENTITIES"),  to use or
         license  to others  the  System or any part  thereof or to engage in or
         license  any  business   activity  at  any  other  location.   Licensee
         acknowledges  that  Licensor and its Entities are and may in the future
         be engaged in other business activities  including activities involving
         transient lodging and related  activities which may be or may be deemed
         to be competitive with the System; that facilities,  programs, services
         and/or personnel used in connection with the System may also be used in
         connection  with such other  business  activities  of Licensor  and its
         Entities; and that Licensee is acquiring no rights hereunder other than
         the non-exclusive right to use the System in connection with a Homewood
         Suites hotel as  specifically  defined  herein in  accordance  with the
         terms of this Agreement.

3.       LICENSOR'S RESPONSIBILITIES.

         A.   TRAINING.  During the License Term, Licensor will specify required
              and  optional  training  programs  and provide  these  programs at
              various  locations.  Licensee  may be  charged  for  (i)  required
              training  services and  materials  and (ii) for optional  training
              services and  materials if provided to Licensee.  Travel,  lodging
              and other  expenses of Licensee and its employees will be borne by
              Licensee.

         B.   RESERVATION SERVICES. During the License Term, so long as Licensee
              is in full  compliance  with  the  obligations  set  forth in this
              Agreement,  Licensor will afford  Licensee  access to  reservation
              services for the Hotel.

         C.   CONSULTATION.  Licensor will, from time to time at Licensor's sole
              discretion,  make available to Licensee consultation and advice in
              connection  with  operations,  facilities and marketing.  Licensor
              shall have the right to  establish  fees in advance for its advice
              and consultation on a project-by-project basis.

         D.   ARRANGEMENTS   FOR   MARKETING,   ETC.   Licensor   will  use  the
              Marketing/Reservation   Contribution  for  costs  associated  with
              advertising,  promotion,  publicity,  market  research  and  other
              marketing programs and related activities,  including  reservation
              programs and services.  Licensor may enter into  arrangements  for
              development, marketing, operations, administrative,  technical and
              support functions, facilities, programs, services and/or personnel
              with  any  other  entity  and may use  any  facilities,  programs,
              services  and/or  personnel used in connection  with the System in
              connection with any business activities of its Entities.

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              Licensor  is not  obligated  to  expend  funds  for  marketing  or
              reservation  services  in  excess  of the  amounts  received  from
              Licensees using the System.  Licensor and its designees shall have
              no obligation  in  administering  any  marketing  and  reservation
              activities to make  expenditures for Licensee which are equivalent
              or  proportionate  to Licensee's  payments,  or to ensure that any
              particular hotel benefits  directly or  proportionately  from such
              expenditures.

         E.   INSPECTIONS/COMPLIANCE  ASSISTANCE.  Licensor  has  the  right  to
              inspect the Hotel at any time, with or without notice to Licensee,
              to determine if the Hotel is in compliance  with the standards and
              rules of operation set forth in the Manual.  If the Hotel fails to
              comply with such  standards and rules of operation,  Licensor may,
              at its option and at  Licensee's  cost,  require an action plan to
              correct  the  deficiencies.  Licensee  must  then  take all  steps
              necessary to correct any deficiencies within the times established
              by Licensor.  Licensor's approval of an action plan does not waive
              any rights it may have under  this  Agreement  nor does it relieve
              Licensee of any obligations under this Agreement.

4.       PROPRIETARY RIGHTS.

         A.   OWNERSHIP  OF THE  SYSTEM.  Licensee  acknowledges  and  will  not
              contest,  either  directly  or  indirectly,   Licensor's  (or  its
              affiliates',  as the  case  may  be)  unrestricted  and  exclusive
              ownership  of  the  System  and  any  element(s)  or  component(s)
              thereof,  and  acknowledges  that  Licensor  has the sole right to
              grant licenses to use all or any element(s) or component(s) of the
              System.   Licensee   specifically  agrees  and  acknowledges  that
              Licensor (or its affiliates) is the owner of all right,  title and
              interest  in  and to  the  service  mark  "Homewood  Suites",  its
              distinguishing   characteristics,   trade  names,  service  marks,
              trademarks, logos, copyrights,  slogans, etc., and all other marks
              associated  with the System  ("MARKS")  together with the goodwill
              symbolized  thereby and that Licensee will not contest directly or
              indirectly  the validity or  ownership of the Marks either  during
              the  term  of  this  Agreement  or at  any  time  thereafter.  All
              improvements and additions whenever made to or associated with the
              System by the parties to this  Agreement or anyone  else,  and all
              service  marks,  trademarks,  copyrights,  and  service  mark  and
              trademark  registrations at any time used,  applied for or granted
              in  connection  with the System,  and all  goodwill  arising  from
              Licensee's  use of the Marks  shall  inure to the  benefit  of and
              become the  property of Licensor  (or its  applicable  affiliate).
              Upon  expiration or  termination  of this  Agreement,  no monetary
              amount  shall  be  assigned  as   attributable   to  any  goodwill
              associated  with Licensee's use of the System or any element(s) or
              component(s) of the System including the name or Marks.

         B.   USE OF  NAME.  Licensee  will  not  use  the  word  "Homewood"  or
              "Homewood  Suites"  or  any  similar  word(s)  in  its  corporate,
              partnership,  business or trade name,  or in any Internet  related
              name  (including  a  domain  name)  except  as  provided  in  this
              Agreement or the Manual,  nor  authorize or permit such word(s) to
              be used by anyone else.

5.       TRADEMARK AND SERVICE MARK.

         A.   TRADEMARK  DISPUTES.   Licensor  will  have  the  sole  right  and
              responsibility  to handle  disputes with third parties  concerning
              use of all or any part of the System,  and Licensee  will,  at its
              reasonable expense, extend its full cooperation to Licensor in all
              such  matters.  All  recoveries  made as a result of disputes with
              third  parties  regarding  use of the  System or any part  thereof
              shall be for the account of Licensor.  Licensor  need not initiate
              suit against  alleged  imitators or infringers  and may settle any
              dispute  by grant of a license  or  otherwise.  Licensee  will not
              initiate  any suit or  proceeding  against  alleged  imitators  or
              infringers  or any other suit or  proceeding to enforce or protect
              the System.

         B.   PROTECTION OF NAMES AND MARKS. Both parties will make every effort
              consistent  with the  foregoing  to protect and maintain the Marks
              and name "Homewood Suites" and its distinguishing  characteristics
              as standing for the System and only the System. Licensee agrees to
              execute any documents  deemed necessary by Licensor or its counsel
              to obtain  protection  for  Licensor's  Marks or to maintain their
              continued validity and enforceability. Licensee agrees to use such
              names  and  Marks  only in  connection  with  the  operation  of a
              Homewood  Suites hotel and in the manner  authorized  by Licensor.
              Licensee  acknowledges  that any  unauthorized use of the names or
              Marks shall constitute infringement of Licensor's rights. Licensee
              must notify Licensor immediately,  in writing, of any infringement
              or challenge to Licensee's use of the Marks or of any unauthorized
              use  or  possible   misuse  of  Licensor's   Marks  or  Licensor's
              proprietary information.

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<PAGE>

6.       LICENSEE'S RESPONSIBILITIES.

         A.   OPERATIONAL  AND OTHER  REQUIREMENTS.  During  the  License  Term,
              Licensee will:

              (1)   promptly  pay to Licensor  all amounts due  Licensor and its
                    Entities  as  royalties  or fees or for  goods  or  services
                    purchased by Licensee;

              (2)   maintain the Hotel in a clean,  safe and orderly  manner and
                    in first class condition;

              (3)   provide efficient, courteous and high-quality service to the
                    public;

              (4)   operate  the  Hotel  24 hours a day  every  day,  except  as
                    otherwise   permitted   by   Licensor   based   on   special
                    circumstances;

              (5)   strictly comply in all respects with the Manual and with all
                    other  policies,  procedures  and  requirements  of Licensor
                    which may be from time to time communicated to Licensee;

              (6)   strictly comply with Licensor's  reasonable  requirements to
                    protect the System and the Hotel from unreliable  sources of
                    supply;

              (7)   strictly comply with Licensor's requirements as to:

                    (a)   the types of services and products that either must or
                          may be used, promoted or offered at the Hotel;

                    (b)   use, display, style and type of signage;

                    (c)   directory  and  reservation  service  listings  of the
                          Hotel;

                    (d)   training of persons to be involved in the operation of
                          the Hotel;

                    (e)   participation in all marketing,  reservation  service,
                          advertising,    training   and   operating    programs
                          designated by Licensor as  System-wide  (or area-wide)
                          programs   based  on  Licensor's   assessment  of  the
                          long-term  best  interests of hotels using the System,
                          considering the interest of the System overall;

                    (f)   maintenance, appearance and condition of the Hotel;

                    (g)   quality and types of services  offered to customers at
                          the Hotel, and

                    (h)   its 100% Satisfaction Guarantee rule of operation, and
                          any similar rules of operation designed to maintain or
                          improve relationships with past, present and potential
                          guests  and  other  hotel  customers,  as such rule or
                          rules are in effect or as they may be  established  or
                          revised hereafter;

              (8)   use such  automated  guest service  and/or hotel  management
                    and/or telephone system(s) which Licensor deems to be in the
                    best interests of the System based on Licensor's  assessment
                    of the long-term  best interests of hotels using the System,
                    considering the interests of the System  overall,  including
                    any additions, enhancements, supplements or variants thereof
                    which may be developed during the term hereof;

              (9)   participate  in and use  those  reservation  services  which
                    Licensor  deems to be in the best  interests  of the  System
                    based  on  Licensor's   assessment  of  the  long-term  best
                    interests  of  hotels  using  the  System,  considering  the
                    interests of the System  overall,  including any  additions,
                    enhancements,  supplements or variants  thereof which may be
                    developed during the term hereof;

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              (10)  adopt  improvements  or changes to the System as may be from
                    time to time designated by Licensor;

              (11)  strictly   comply   with  all   governmental   requirements,
                    including the filing and  maintenance  of any required trade
                    name or fictitious name registrations, paying all taxes, and
                    maintaining all governmental  licenses and permits necessary
                    to operate the Hotel in accordance with the System;

              (12)  permit inspection of the Hotel by Licensor's representatives
                    at any time and give them free  lodging for such time as may
                    be reasonably necessary to complete their inspections;

              (13)  upon request by Licensor,  provide to Licensor statistics on
                    Hotel operations in the form specified by Licensor and using
                    definitions specified by Licensor;

              (14)  promote  the Hotel on a local or regional  basis  subject to
                    Licensor's  requirements  as  to  form,  content  and  prior
                    approvals;

              (15)  ensure  that no  part  of the  Hotel  or  System  is used to
                    further or promote another lodging  facility or any business
                    that  competes  with any  business  Licensor or an affiliate
                    engages in at any time during the Agreement (including,  but
                    not limited to, the timeshare  resort or vacation  ownership
                    business),  except  for  those  approved  by  Licensor,  its
                    parent, subsidiaries or affiliates;

              (16)  use every  reasonable  means to  encourage  use of  Homewood
                    Suites  facilities  everywhere  by  the  public;   provided,
                    however,  this will not  prohibit  Licensor  from  requiring
                    Licensee's  participation  in  programs  designed  to  refer
                    prospective  customers  to other  hotels  (in the  System or
                    otherwise);

              (17)  in all  respects  use  Licensee's  best  efforts  to reflect
                    credit upon and create favorable public response to the name
                    "Homewood Suites";

              (18)  comply    with    Licensor's     requirements     concerning
                    confidentiality of information;

              (19)  not at any time during the term of this  Agreement,  through
                    itself or any member of an  affiliated  group (as defined by
                    the Internal  Revenue  Code) own, in whole or in part, or be
                    the licensor of, a hotel brand,  tradename,  system or chain
                    without  the  written   consent  of  Licensor  in  its  sole
                    discretion.  Hereafter,  any entity that,  through itself or
                    any affiliate,  owns in whole or in part, or is the licensor
                    of a hotel  brand,  tradename,  system  or  chain  shall  be
                    referred to as a COMPETITOR; and

              (20)  maintain possession and control of the Hotel and Hotel site.

         B.   UPGRADING  OF THE  HOTEL.  Licensor  may at any  time  during  the
              License Term require substantial modernization, rehabilitation and
              other  upgrading of the Hotel to meet the then  current  standards
              specified  in the  Manual  as long as those  standards  apply to a
              majority of the hotels  operated by Licensor and its  licensees in
              the same brand or category as the Hotel. Nothing in this paragraph
              shall be  construed to relieve  Licensee  from the  obligation  to
              maintain  acceptable  product  quality  ratings  at the  Hotel and
              maintain  the  Hotel in  accordance  with the  Manual at all times
              during the Agreement.  Limited exceptions from those standards may
              be  made  by  Licensor  based  on  local   conditions  or  special
              circumstances.  If the  upgrading  requirements  contained in this
              Paragraph 6b cause Licensee undue hardship, Licensee may terminate
              this  Agreement  by paying a fee  computed  according to Paragraph
              13f.

         C.   STAFF AND MANAGEMENT. Licensee is at all times responsible for the
              management  of the Hotel's  business.  Licensee  may fulfill  this
              responsibility  by  retaining  a third  party  management  company
              ("MANAGER");  provided, however, Licensee shall not enter into any
              lease,  management  agreement or other similar arrangement for the
              operation of the Hotel or any part thereof with any entity without
              the  prior  written   consent  of  Licensor  in  Licensor's   sole
              discretion  (there being no  obligation on the part of Licensor to
              approve a third party management  company).  Licensee  understands
              that Licensor will not normally approve a Competitor to manage the
              Hotel,  or any entity that (through itself or an affiliate) is the
              exclusive  manager  for  a  Competitor.  If a  Manager  becomes  a
              Competitor at any time during the term of the Agreement,  Licensee
              shall  have 90 days to retain a  substitute  manager  suitable  to
              Licensor.  As a prerequisite for Licensor's approval of a

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              Manager, the  proposed   management  agreement  must  provide  (1)
              that the Manager has  authority  for the day-to-day  management of
              the Hotel; (2) that the  Manager  has the authority to perform the
              obligations of the Licensee under this Agreement;  and (3) that in
              the case of any conflict between this Agreement and the management
              agreement, this Agreement prevails.

7.       FEES.

         A.   Commencing  on the opening date of the Hotel as a Homewood  Suites
              hotel and continuing for the full term of this Agreement, for each
              month (or part of a month),  Licensee  will pay to Licensor by the
              15th of the following month:

              (1)   a  royalty  fee equal to 4  percent  of the  gross  revenues
                    attributable to or payable for rental of Guest Suites at the
                    Hotel with  deductions for sales and room taxes only ("GROSS
                    SUITES REVENUE"); and

              (2)   a "MARKETING/RESERVATION CONTRIBUTION" equal to 4 percent of
                    Gross Suites Revenue. The Marketing/Reservation Contribution
                    is subject to change by  Licensor  from time to time,  which
                    Marketing/Reservation Contributions do not include the cost,
                    installation   or  maintenance   of   reservation   services
                    equipment or training; and

              (3)   all amounts due Licensor for any other miscellaneous fees or
                    invoices or for goods or services  purchased  by or provided
                    to Licensee or paid by Licensor on Licensee's behalf; and

              (4)   an amount equal to any sales,  gross receipts or similar tax
                    imposed on Licensor for the receipt of the payments required
                    in (1), (2) and (3) of this Paragraph above,  unless the tax
                    is an  optional  alternative  to  an  income  tax  otherwise
                    payable by Licensor.

         B.   Licensee  will  operate the Hotel so as to maximize  Gross  Suites
              Revenue  consistent with sound marketing and industry practice and
              will not  engage in any  conduct  which is likely to reduce  Gross
              Suites Revenue in order to further other business activities.

         C.   Royalties may be charged on revenues (or upon any other basis,  if
              so  determined  by Licensor)  from any  activity  conducted at the
              Hotel if added by mutual  agreement and if: (i) not now offered at
              hotels  within  the  System  generally  and is likely  to  benefit
              significantly  from  or  be  identified   significantly  with  the
              Homewood  Suites  name or  other  aspects  of the  System  or (ii)
              designed or developed by or for Licensor.

         D.   Licensor may charge for optional  products or services accepted by
              Licensee from Licensor either in accordance with current  practice
              or as developed in the future.

         E.   A Guest Suite  addition  fee for guest suite  additions to a hotel
              set forth in Licensor's then current "FRANCHISE OFFERING CIRCULAR"
              shall be paid by Licensee to Licensor on Licensee's  submission of
              an  application  to  add  any  Guest  Suites  to the  Hotel.  As a
              condition to Licensor  granting its approval of such  application,
              Licensor  may require  Licensee  to upgrade the Hotel,  subject to
              Paragraph 6b.

         F.   Local and regional  marketing  programs and related activities may
              be  conducted  by  Licensee,  but only at  Licensee's  expense and
              subject to Licensor's requirements. Reasonable charges may be made
              by Licensor for optional advertising  materials ordered or used by
              Licensee for such programs and activities.

         G.   Licensee shall  participate in Licensor's  travel agent commission
              program(s)  as it may be  modified  from  time to time  and  shall
              reimburse  Licensor  on or before  the 15th of each month for call
              costs associated with such programs including, but not limited to,
              travel  agent  commissions  and third  party  reservation  service
              charges (such as airline reservation systems).

         H.   Each  payment  paid by  Licensor  under this  Paragraph 7 shall be
              accompanied by the monthly  statement  referred to in Paragraph 8.
              Licensor may apply any amounts  received under this Paragraph 7 to
              any amounts due under this Agreement.  If any amounts are not paid
              when  due,  such  non-payment  shall  constitute  a breach of this
              Agreement  and, in  addition,  such unpaid  amounts  will accrue a
              service charge  beginning on the first day of the month  following
              the due date of 1 1/2  percent  per month  but not to  exceed  the
              maximum amount permitted by applicable law.
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8.       RECORDS AND AUDITS.

         A.   DAILY AND MONTHLY  REPORTS.  At the request of Licensor,  Licensee
              shall prepare and deliver daily reports to Licensor, which reports
              will  contain  information  reasonably  requested by Licensor on a
              daily basis, such as daily rate and room occupancy,  and which may
              be used by Licensor for its reasonable purposes. At least monthly,
              Licensee  shall  prepare  a  statement   which  will  include  all
              information   concerning  Gross  Suites  Revenue,  other  revenues
              generated at the Hotel,  suite occupancy  rates,  reservation data
              and other information  required by Licensor (the "Data"). The Data
              will be  permanently  recorded and  retained as may be  reasonably
              required by  Licensor.  By the 15th of each month,  Licensee  will
              submit to  Licensor  a  statement  setting  forth the Data for the
              previous month and reflecting the  computation of the amounts then
              due  under  Paragraph  7. The  statement  will be in such form and
              detail as Licensor may  reasonably  request from time to time, and
              may be used by Licensor for its reasonable purposes.

         B.   MAINTENANCE  OF  RECORDS.  Licensee  shall,  in a manner  and form
              satisfactory  to Licensor and utilizing  accounting  and reporting
              standards as reasonably required by Licensor, prepare on a current
              basis (and  preserve  for no less than four  years),  complete and
              accurate   records   concerning   Gross  Suites  Revenue  and  all
              financial,  operating,  marketing  and other aspects of the Hotel,
              and  maintain an  accounting  system  which  fully and  accurately
              reflects all financial aspects of the Hotel and its business. Such
              records shall include books of account, tax returns,  governmental
              reports, register tapes, daily reports, and complete quarterly and
              annual financial  statements (profit and loss statements,  balance
              sheets and cash flow statements).

         C.   AUDIT.  Licensor  may require  Licensee  to have the Gross  Suites
              Revenue or other monies due  hereunder  computed and  certified as
              accurate by a certified public accountant. During the License Term
              and for two years  thereafter,  Licensor and its authorized agents
              shall  have the right to verify  information  required  under this
              Agreement by requesting,  receiving,  inspecting and auditing,  at
              all  reasonable  times,  any and all  records  referred  to  above
              wherever they may be located (or elsewhere if reasonably requested
              by  Licensor).  If  any  such  inspection  or  audit  discloses  a
              deficiency  in  any  payments  due   hereunder,   Licensee   shall
              immediately  pay to Licensor  (i) the  deficiency,  (ii) a service
              charge  thereon  as  provided  in  Paragraph  7h,  and  (iii)  all
              inspection  and audit costs  (including  travel,  lodging,  meals,
              salaries  and  other   expenses  of  the  inspecting  or  auditing
              personnel).  Licensor's  acceptance of  Licensee's  payment of any
              deficiency as provided for herein shall not waive Licensor's right
              to  terminate  this  Agreement as provided for herein in Paragraph
              13. If the audit discloses an  overpayment,  Licensor shall refund
              the overpayment to Licensee within 30 days.

         D.   ANNUAL  FINANCIAL  STATEMENTS.  Licensee  will  submit to Licensor
              complete  year-end  financial  statements for the Hotel,  Licensee
              and/or any  guarantors  as soon as available but not later than 90
              days  after  the end of  Licensee's  fiscal  year.  Licensee  will
              certify  them to be true and correct and to have been  prepared in
              accordance   with   generally   accepted   accounting   principles
              consistently applied, and any false certification will be a breach
              of this Agreement.

         E.   All of the  information  provided  to  Licensor  pursuant  to this
              paragraph or any other part of this Agreement,  or pursuant to any
              agreement  ancillary  to  this  Agreement  (including   agreements
              relating  to the  System  21  business  system  or other  property
              management system provided by Licensor) (the "INFORMATION"), shall
              be the property of Licensor. HOWEVER,  NOTWITHSTANDING ANYTHING TO
              THE  CONTRARY IN THIS  AGREEMENT,  INFORMATION,  SUCH AS FINANCIAL
              STATEMENTS,  PREPARED FOR THE HOTEL,  LICENSEE AND/OR  GUARANTORS,
              WHICH ANY SUCH  PARTIES  ARE  REQUIRED  BY LAW OR BY THEIR  NORMAL
              BUSINESS  PRACTICES TO USE FOR OTHER  PURPOSES (SUCH AS IN FILINGS
              WITH THE SECURITIES AND EXCHANGE  COMMISSION OR OTHER GOVERNMENTAL
              AUTHORITIES OR FOR  TRANSMISSION TO  SHAREHOLDERS)  MAY BE USED BY
              THEM FOR SUCH PURPOSES, AND SUCH PARTIES SHALL RETAIN OWNERSHIP IN
              SUCH  INFORMATION  TO THE  EXTENT  NECESSARY  TO PERMIT  SUCH USE.
              NEVERTHELESS,   LICENSOR   SHALL  OWN  THE   COPIES  OF  ANY  SUCH
              INFORMATION  PROVIDED BY ANY SUCH PARTIES IN  ACCORDANCE  WITH THE
              TERMS OF THIS AGREEMENT.  Licensor will use reasonable  efforts to
              sort,  categorize,  classify and otherwise analyze the information
              to help licensees market their hotels. The Information will remain
              the proprietary  information of Licensor which Licensor will share
              with  licensees  only  as  determined  by  Licensor  in  its  sole
              discretion.  Licensor and its affiliates  may use the  Information
              for  any  reason  whatsoever,   including  an  earnings  claim  in
              Licensor's offering circular.

                                       7

<PAGE>

9.       INDEMNITY.

         SUBJECT TO THE PROVISIONS OF ANY MANAGEMENT  AGREEMENT BETWEEN LICENSOR
         (AS MANAGER  THEREUNDER) AND LICENSEE (AS OWNER  THEREUNDER),  Licensee
         will indemnify,  during and after the term of this Agreement,  Licensor
         and  its  affiliates,   and  their  respective   officers,   directors,
         employees, agents,  predecessors,  successors and assigns ("INDEMNIFIED
         PARTIES") against, hold them harmless from, and promptly reimburse them
         for, all payments of money (fines, damages, legal fees, expenses, etc.)
         by  reason  of  any  claim,   demand,  tax,  penalty,  or  judicial  or
         administrative  investigation  or proceeding  (even where negligence of
         Licensor and/or its Entities and/or their Indemnified Parties is actual
         or alleged) arising from any claimed occurrence at the Hotel or arising
         from,  as a  result  of,  or in  connection  with  the  development  or
         operation  of the Hotel  (including,  but not  limited  to, the design,
         construction, financing, furnishing, equipment, acquisition of supplies
         or operation of the Hotel in any way), or any other of Licensee's acts,
         omissions or  obligations  or those of anyone  associated or affiliated
         with Licensee or the Hotel in any way arising out of or related to this
         Agreement.  At the  election  of  Licensor,  Licensee  will also defend
         Licensor and/or its Entities and/or their  Indemnified  Parties against
         the same. In any event,  Licensor will have the right,  through counsel
         of its choice, to control any matter to the extent it could directly or
         indirectly affect Licensor and/or its Entities and/or their Indemnified
         Parties  financially.  Licensee  will also  reimburse  Licensor for all
         expenses,   including  attorneys'  fees  and  court  costs,  reasonably
         incurred by Licensor to protect itself and/or its Entities and/or their
         Indemnified  Parties  from,  or to  remedy  Licensee's  defaults  or to
         collect any amounts due under this Agreement.

10.      INSURANCE.

         A.   Licensee will comply with Licensor's  specifications for insurance
              as to amount and type of coverage as may be  reasonably  specified
              by  Licensor  from time to time in  writing  and will in any event
              maintain as a minimum the following  insurance  underwritten by an
              insurer approved by Licensor:

              (1)   employer's liability and workers' compensation  insurance as
                    prescribed by applicable law; and

              (2)   liquor liability insurance,  if applicable,  naming Licensor
                    and  its  then  current  Entities  and  their  predecessors,
                    successors   and  assigns  as   additional   insureds   with
                    single-limit  coverage for  personal  and bodily  injury and
                    property damage of at least $10,000,000 for each occurrence;
                    and

              (3)   commercial  general  liability   insurance  (with  products,
                    completed operations and independent  contractors  coverage)
                    and comprehensive  automobile liability insurance, all on an
                    occurrence  and per  location  basis  naming  Licensor,  its
                    Entities and their  predecessors,  successors and assigns as
                    additional  insureds and underwritten by an insurer approved
                    by  Licensor,  with  single-limit  coverage for personal and
                    bodily  injury and property  damage of at least  $10,000,000
                    for each occurrence; and

              (4)   in connection with all  construction at the Hotel during the
                    License Term,  Licensee will cause the general contractor to
                    maintain  with an insurer  approved by  Licensor  commercial
                    general  liability   insurance  (with  products,   completed
                    operations,  and independent  contractors coverage including
                    workers' compensation and automobile liability insurance for
                    such  independent  contractors)  in at least  the  amount of
                    $10,000,000  for each  occurrence  for  personal  and bodily
                    injury and property  damage with Licensor,  its Entities and
                    their  predecessors,  successors  and assigns as  additional
                    insureds.

         B.   EVIDENCE OF INSURANCE/CHANGES. This coverage shall be evidenced by
              original   certificates   of   insurance   submitted  to  Licensor
              simultaneously herewith, annually hereafter and each time a change
              is made in any  insurance  or  insurance  carrier,  Licensee  will
              furnish to Licensor  certificates of insurance  including the term
              and coverage of the insurance in force, the persons insured, and a
              statement  that the  coverage  may not be  cancelled,  altered  or
              permitted  to lapse or  expire  without  30 days  advance  written
              notice to  Licensor.  Licensor  will send  Licensee  notice of any
              policy or coverage which Licensor,  in its sole discretion,  finds
              unacceptable  and  upon  receipt  of such  notice,  Licensee  will
              promptly undertake to change such policy or coverage.

         C.   If Licensee  fails or neglects to obtain or maintain the insurance
              or policy limits required by this  Agreement,  Licensor shall have
              the option,  without notice, to obtain and maintain such insurance
              for  Licensee,  and

                                       8

<PAGE>

              Licensee shall pay immediately upon demand therefore, the premiums
              and the cost incurred by Licensor in taking such action.

11.      TRANSFER.

         A.   TRANSFER OF THIS  AGREEMENT BY LICENSOR.  Licensor  shall have the
              right to transfer or assign this  Agreement  or any of  Licensor's
              rights,  obligations, or assets under this Agreement to any person
              or legal  entity  provided  that  the  transferee  assumes  all of
              Licensor's obligations to Licensee under this Agreement.

         B.   TRANSFERS BY LICENSEE.

              (1)   General Statement of Explanation and Intent.

                    This Agreement is not transferable by Licensee, and a change
                    in ownership of the Hotel or the  licensed  business  (i.e.,
                    either  this   Agreement,   the  Licensee  or  any  indirect
                    ownership  interest in the  Licensee)  is not allowed  under
                    this Agreement.  Certain intra-family  transfers of interest
                    and  (in  the  case  of   corporate   licensees)   corporate
                    restructurings  are  permitted  as long as the  requirements
                    described below are met. However,  Licensor has entered into
                    this Agreement with a particular  Licensee or its owners. If
                    the Licensee  wants to transfer the Hotel or its interest in
                    the licensed  business,  such a transfer  will  constitute a
                    "change of ownership".  If the transferee  wants to continue
                    to  operate  the  Hotel  as a  Homewood  Suites  hotel,  the
                    transferee  will have to apply for a new license  which,  if
                    approved,  will last at most for the  balance of the term of
                    this Agreement.  If the change of ownership is not approved,
                    or if the  transferee  does not want to  continue to operate
                    the Hotel as a Homewood Suites hotel, Licensor may refuse to
                    consent to the  termination of this  Agreement.  If Licensor
                    does consent to  termination,  this Agreement will terminate
                    and Licensee will owe liquidated  damages.  In addition,  if
                    the transfer is to a  Competitor,  Licensor has the right to
                    buy the  Hotel.  The  foregoing  explanation  is more  fully
                    described   and   qualified   by  the   following   specific
                    provisions.

              (2)   Licensee  understands and  acknowledges  that the rights and
                    duties set forth in this Agreement are personal to Licensee,
                    and  that  Licensor  has  entered  into  this  Agreement  in
                    reliance on the  business  skill,  financial  capacity,  and
                    personal   character   of  Licensee   (if   Licensee  is  an
                    individual),   and  that  of  the  partners,   members,   or
                    stockholders  of Licensee  (if  Licensee  is a  partnership,
                    company,  corporation, or other legal entity).  Accordingly,
                    no  direct  or  indirect  interest  in the  Hotel or in this
                    Agreement,  and no direct or indirect  Equity  Interest  (as
                    defined herein) in Licensee may be sold,  leased,  assigned,
                    or  transferred,   (such  instances  hereafter  referred  to
                    collectively  as a  "TRANSFER"),  without the consent of the
                    Licensor.  Nothing herein shall require Licensor's  approval
                    for any pledge,  mortgage,  or  hypothecation  of all or any
                    part of the assets of the licensed business (other than this
                    Agreement  or any Equity  Interest in  Licensee) to banks or
                    other lending institutions.

              (3)   Any  purported  Transfer,  by operation of law or otherwise,
                    not in  accordance  with the  provisions  of this  Agreement
                    shall be null and void and shall constitute a breach of this
                    Agreement,  for which  Licensor may terminate this Agreement
                    upon  notice   without   opportunity  to  cure  pursuant  to
                    Paragraph  13d, and as a result of which  Licensee  will owe
                    liquidated damages.

              (4)   References  in this  Agreement to "EQUITY  INTERESTS"  shall
                    mean any direct or indirect  beneficial interest in Licensee
                    (an  "INDIRECT"  interest is an interest in an entity  other
                    than the Licensee that either itself, or through others, has
                    an interest in the Licensee). In addition,  "PUBLICLY-TRADED
                    EQUITY  INTEREST"  shall mean any Equity  Interest  which is
                    traded  on  any  securities  exchange  or is  quoted  in any
                    publication or electronic  reporting  service  maintained by
                    the National Association of Securities Dealers,  Inc. or any
                    of its successors. In computing changes of Equity Interests,
                    limited  partners  will not be  distinguished  from  general
                    partners.  Licensor's judgment will be final if there is any
                    question as to the  definition  of Equity  Interest or as to
                    the computation of relative Equity Interests,  the principal
                    considerations  being:  direct  and  indirect  (i)  power to
                    exercise control over the affairs of Licensee; (ii) right to
                    share in Licensee's  profits;  and (iii) exposure to risk in
                    the Licensee's business.

              (5)   Licensee  represents that the Equity  Interests are directly
                    and (if applicable) indirectly owned as shown on the Rider.

                                       9

<PAGE>
         C.   PROCEDURES FOR TRANSFERS.  Licensee must provide written notice to
              Licensor in advance of any proposed  Transfer stating the identity
              of the prospective transferee,  purchaser, or lessee and the terms
              and conditions of the conveyance.  As a condition to consenting to
              the  transfer,  Licensor  may  require  any  one  or  more  of the
              following to be met:

              (1)   Licensee  will upon  request  provide a copy of any proposed
                    agreement of transfer and all other information with respect
                    thereto which Licensor may reasonably require;

              (2)   Licensee  will  upon  request  provide   documents   showing
                    ownership  structure  of the  Licensee,  site control by the
                    Licensee,  possession or management control by the Licensee,
                    financial  statements  of any  participants,  and any  other
                    documents reasonably requested by Licensor;

              (3)   Licensee will upon request pay a processing  fee to Licensor
                    of up to $5,000  to cover  Licensor's  costs to  review  and
                    consent to the Transfer;  provided however, in the case of a
                    transfer  of Equity  Interests  which  require  registration
                    under any federal or state securities law, Licensee will pay
                    a processing fee that will not exceed $25,000;

              (4)   Licensee  and  all   participants  in  any  proposed  public
                    offering  (including  the sale of  partnership or membership
                    interests)  (i)  agree  to  fully   indemnify   Licensor  in
                    connection with the registration, (ii) furnish Licensor with
                    all information requested,  and (iii) avoid using Licensor's
                    service marks or trademarks or otherwise implying Licensor's
                    participation in or endorsing of any public offering;

              (5)   Licensee  will  at all  times  adequately  provide  for  the
                    management of the Hotel during any Transfer; or

              (6)   Licensor may require the  transferee  to promptly  execute a
                    new license  agreement on  Licensor's  then current  license
                    agreement  for the  unexpired  term of this  Agreement,  and
                    Licensor  may  require  the  guarantee  of the  new  license
                    agreement  by the  same  guarantors  of this  Agreement  (or
                    substitute  guarantors  approved  by  Licensor  in its  sole
                    discretion).

         D.   PERMITTED  TRANSFERS.  Licensor  will  not  unreasonably  withhold
              consent  to any  of  the  following  Transfers  provided  Licensee
              complies with all the requirements  specified by Licensor pursuant
              to  Subparagraph c above (it being  understood that if Licensee is
              in default of any of its obligations under the Agreement,  it will
              not be  unreasonable  for  Licensor to refuse to consent to any of
              these Transfers):

              (1)   EQUITY  INTERESTS  WHICH  ARE  NOT  PUBLICLY-TRADED  MAY  BE
                    TRANSFERRED, IF AFTER THE TRANSACTION, GLADE M. KNIGHT OWNS,
                    DIRECTLY  OR  INDIRECTLY,   A  BENEFICIAL  INTEREST  IN  THE
                    LICENSEE AND CONTROLS  THE  MANAGEMENT  AND POLICIES OF SUCH
                    LICENSEE AND NOT LESS THAN 50% OF ALL EQUITY  INTERESTS  ARE
                    OWNED,  DIRECTLY OR  INDIRECTLY,  BY GLADE M. KNIGHT AND, IN
                    THE CASE OF ANY SUCH PERMITTED TRANSFER, THE REQUIREMENTS OF
                    CLAUSES  (3) AND (6) OF  SUBPARAGRAPH  C.  ABOVE NEED NOT BE
                    COMPLIED WITH BY LICENSEE.

              (2)   Publicly-traded equity interests may be transferred (without
                    Licensor's   consent  and  without   notification)  if  such
                    transfer  is  exempt   from   registration   under   federal
                    securities  law and if  immediately  before  and  after  the
                    transfer,  the transferor and transferee  respectively  each
                    own  less  than  25  percent  of  the  Equity  Interests  in
                    Licensee.

              (3)   Licensee,  if a natural person, may transfer its interest in
                    the  License or Equity  Interest  in the  Licensee to one or
                    more  of  Licensee's  spouse,  parents,  siblings,  nephews,
                    descendants  or  spouses'  descendants  or to a  corporation
                    entirely owned by Licensee ("PERMITTED TRANSFEREES").

              (4)   If Licensee is a natural person,  upon the Licensee's death,
                    the License or  Licensee's  Equity  Interest in the Licensee
                    will  pass  in  accordance  with  Licensee's  will,  or,  if
                    Licensee  dies   intestate,   in  accordance  with  laws  of
                    intestacy  governing  the  distribution  of  the  Licensee's
                    estate,  as the case may be,  provided the transferee is one
                    or more of the decedent's Permitted Transferees (excluding

                                       10

<PAGE>

                    corporations  formerly owned by the Licensee) and within one
                    year  after  the death the  Permitted  Transferees  meet all
                    Licensor's normal requirements of an approved applicant.

              (5)   Licensee may sell or lease the Hotel, the Hotel site, or any
                    portion thereof if, in the reasonable  judgment of Licensor,
                    after such  transfer,  Licensee will retain  possession  and
                    control  of the Hotel  site and  management  control  of the
                    Hotel  operations  (which may be via third party  management
                    contract  pursuant to Paragraph  6c). If, in the  reasonable
                    judgment of Licensor,  the transfer of the Hotel will result
                    in the loss of  possession  or control of the Hotel or Hotel
                    site  or  management   of  the  Hotel,   the  transfer  will
                    constitute   a  change  of   ownership   as   described   in
                    Subparagraph e.

         E.   CHANGE OF OWNERSHIP.

              (1)   Any Transfer  that does not qualify as a permitted  transfer
                    under  Subparagraph  d above  shall  constitute  a change of
                    ownership.  If in the case of a  change  of  ownership,  the
                    transferee  desires to  continue  to operate  the Hotel as a
                    Homewood  Suites  hotel,   the  transferee  must  submit  an
                    application for a new license agreement. The new license, if
                    approved,  will be at most  for the  unexpired  term of this
                    Agreement.  The  transferee  shall  be  responsible  for all
                    normal fees and costs (including  application fees and costs
                    of improvements to the Hotel).

              (2)   Licensor shall process such change of ownership  application
                    in good faith and in accordance with Licensor's then current
                    procedures, criteria and requirements regarding upgrading of
                    the Hotel, credit,  operational  abilities and capabilities,
                    prior business dealings, market feasibility, guarantees, and
                    other factors deemed relevant by Licensor. If such change of
                    ownership  application  is  approved,  Licensor  and the new
                    owner shall, upon surrender of this Agreement,  enter into a
                    new license agreement. The new license agreement shall be on
                    Licensor's  then  current form and contain  Licensor's  then
                    current terms (except for duration), and if applicable,  the
                    new license agreement will contain  specified  upgrading and
                    other requirements. If the application is approved, Licensee
                    submits a voluntary  termination of this Agreement and signs
                    a release (in a form satisfactory to Licensor) of all claims
                    against Licensor,  and the proposed new owner executes a new
                    license  within  30  days  of  the  sale  of the  Hotel,  no
                    liquidated damages described in Paragraph 13 will be owed by
                    Licensee for the termination of this Agreement.

              (3)   If a  change  of  ownership  application  for  the  proposed
                    transferee  is not  approved by  Licensor or the  transferee
                    does not want to continue to operate the Hotel as a Homewood
                    Suites  hotel,  Licensor may refuse  consent to the transfer
                    and reserve all  remedies;  if Licensor does consent and the
                    Transfer   occurs,   then  this  Agreement  shall  terminate
                    pursuant  to  Paragraph  13d  hereof and  Licensor  shall be
                    entitled  to  all  of  its  remedies  including   liquidated
                    damages.

         F.   TRANSFER TO COMPETITOR.  Notwithstanding any of the foregoing,  if
              the  Licensee  receives  a bona fide offer  from a  Competitor  to
              purchase or lease the Hotel or to purchase  Licensee or any entity
              that controls Licensee,  or to purchase an interest in either, and
              Licensee or any person or entity  that owns or  controls  Licensee
              wishes to accept such offer,  Licensee  shall give written  notice
              thereof to  Licensor,  stating  the name and full  identity of the
              prospective purchaser or tenant, as the case may be, including the
              names  and   addresses  of  the  owners  of  the  capital   stock,
              partnership  interests  or  other  proprietary  interests  of such
              prospective purchaser or tenant, the price or rental and all terms
              and  conditions  of such proposed  transaction,  together with all
              other  information  with  respect  thereto  which is  requested by
              Licensor and  reasonably  available  to  Licensee.  Within 60 days
              after  receipt by Licensor of such written  notice from  Licensee,
              Licensor  shall  elect by written  notice to  Licensee  one of the
              following four alternatives:

              (1)   If the proposed transaction is a sale or lease of the Hotel,
                    Licensor (or its designee)  shall have the right to purchase
                    or lease the Hotel premises and related property at the same
                    price or rental  and upon the same terms and  conditions  as
                    those set forth in such bona fide offer  from a  Competitor.
                    In such event Licensee and Licensor (or its designee)  shall
                    promptly  enter into an  agreement  for sale or lease at the
                    price or rental and on terms  consistent with such bona fide
                    offer.

              (2)   If  the  proposed  transaction  is a  purchase  of  all or a
                    portion of the stock or assets (which includes the Hotel) of
                    Licensee  or the  person  that  owns or  controls  Licensee,
                    Licensor (or its designee)  shall have

                                       11

<PAGE>

                    the  right  to  purchase  the  Hotel  premises  and  related
                    property.  If  the  parties  are  unable  to  agree  as to a
                    purchase  price and terms within  thirty days of  Licensor's
                    election,  the fair market  value of the Hotel  premises and
                    related  property  shall be  determined  by  arbitration  as
                    follows:  Either  party may by  written  notice to the other
                    appoint an arbitrator.  Thereupon,  within 15 days after the
                    giving of such notice,  the other shall by written notice to
                    the former  appoint  another  arbitrator,  and in default of
                    such second appointment the arbitrator first appointed shall
                    be the sole  arbitrator.  When any two arbitrators have been
                    appointed as aforesaid,  they shall, if possible, agree upon
                    a third  arbitrator  and  shall  appoint  him by  notice  in
                    writing, signed by both of them in triplicate,  one of which
                    triplicate  notices shall be given to each party hereto; but
                    if 15 days shall lapse without the  appointment of the third
                    arbitrator as aforesaid, then such third arbitrator shall be
                    appointed by the American  Arbitration  Association from its
                    qualified panel of arbitrators, and shall be a person having
                    at least ten (10) years' recent  professional  experience as
                    to the subject matter in question.  Upon  appointment of the
                    third arbitrator (whichever way appointed as aforesaid), the
                    three arbitrators shall meet and render their decision.  The
                    decision of a majority of the arbitrators so chosen shall be
                    conclusive. Licensor (or its designee) shall have the right,
                    at any time  within 30 days of being  notified in writing of
                    the decision of the  arbitrators  as aforesaid,  to purchase
                    the Hotel  premises  and related  property at the  valuation
                    fixed by the  arbitrators.  The parties  shall share equally
                    the expense of such arbitration.

              (3)   To terminate this  Agreement,  in which event Licensee shall
                    be obligated to pay to Licensor  liquidated damages pursuant
                    to a Special Termination as set forth in Paragraph 13f.

              (4)   To refuse to consent to the Transfer, reserving all remedies
                    under the applicable law.

         G.   FINANCING.  The construction and/or operation of the Hotel may not
              be financed by a public  offering of any right,  title or interest
              in the Hotel,  the property upon which it is built or the receipts
              from its  operation  without the prior  review and approval of the
              applicable  documentation  by  Licensor.  Licensee  shall submit a
              non-refundable $25,000 fee with said documentation.

12.      CONDEMNATION AND CASUALTY.

         A.   CONDEMNATION.  Licensee shall, at the earliest possible time, give
              Licensor  notice of any  proposed  taking by  eminent  domain.  If
              Licensor agrees that the Hotel or a substantial part thereof is to
              be  taken,  Licensor  may,  in its sole  discretion  and  within a
              reasonable  time of the taking (within four months)  transfer this
              Agreement to a nearby location  selected by Licensee.  If Licensor
              approves  the new  location  and  authorizes  the  transfer and if
              within one year of the closing of the Hotel  Licensee  opens a new
              hotel  at  the  new  location  in   accordance   with   Licensor's
              specifications,  then the new hotel will be deemed to be the Hotel
              licensed under this Agreement. If a condemnation takes place and a
              new hotel does not,  for whatever  reason,  become the Hotel under
              this Agreement in strict  accordance with this paragraph (or if it
              is  reasonably  evident to  Licensor  that such will be the case),
              this Agreement will terminate  immediately  upon notice thereof by
              Licensor to Licensee, without the payment of liquidated damages as
              calculated in Paragraph 13f.

         B.   CASUALTY.  If the  Hotel is  damaged  by fire or  other  casualty,
              Licensee will  expeditiously  repair the damage.  If the damage or
              repair  requires  closing  the Hotel,  Licensee  will  immediately
              notify  Licensor,  will repair or rebuild the Hotel  according  to
              Licensor's  standards,  will commence  reconstruction  within four
              months  after  closing,  and will reopen the Hotel for  continuous
              business  operations  as soon  as  practicable  (but in any  event
              within one year after the closing of the Hotel),  giving  Licensor
              ample advance notice of the date of reopening. If the Hotel is not
              reopened   according  to  this  Paragraph,   this  Agreement  will
              terminate   immediately,   upon  notice  thereof  by  Licensor  to
              Licensee,  with the payment of liquidated damages as calculated in
              Paragraph 13f,  provided however,  if Licensee's  insurer fails to
              pay the applicable  insurance  policy proceeds to Licensee,  or if
              Licensee's  lender,  pursuant to a valid  agreement with Licensee,
              refuses to allow the  insurance  proceeds to be used for repair or
              rebuilding,  the Agreement  may be terminated by Licensee  without
              payment of the  liquidated  damages in Paragraph 13f. In such case
              Licensee shall notify  Licensor and provide any  reasonable  proof
              requested by Licensor.

         C.   NO  EXTENSIONS OF TERM.  Nothing in this  Paragraph 12 will extend
              the License  Term but  Licensee  shall not be required to make any
              payments  pursuant to  Paragraph 7 for  periods  during  which the
              Hotel is closed by reason of condemnation or casualty.

                                       12

<PAGE>
13.      TERMINATION.

         A.   EXPIRATION OF TERM. Unless terminated earlier, this Agreement will
              expire  without  notice 20 YEARS FROM THE  EFFECTIVE  DATE OF THIS
              AGREEMENT, AS DEFINED ON ATTACHMENT B HEREIN.

         B.   PERMITTED  TERMINATION  PRIOR TO EXPIRATION OF TERM.  Licensee may
              terminate  this  Agreement on the tenth or  fifteenth  anniversary
              date of the  opening  of the  Hotel by  giving at least 12 but not
              more than 15 months advance notice to Licensor  accompanied by the
              payment as provided in Paragraph 13f herein.

         C.   TERMINATION  OR  SUSPENSION  BY LICENSOR ON ADVANCE  NOTICE.  This
              Agreement  may be  terminated  if  Licensee  fails to satisfy  any
              obligations under this Agreement or any attachment hereto.  Except
              in  the  case  of  an   immediate   termination   as  provided  in
              subparagraph 13d below, this Agreement shall terminate if Licensee
              fails to cure an Event of  Default  after the  Licensor  furnishes
              adequate notice of termination based on the Event of Default.

              (1)   An "EVENT OF DEFAULT"  shall occur if the Licensee  fails to
                    satisfy or comply with any of the requirements,  conditions,
                    or terms set forth in (i) this  Agreement or any  attachment
                    including, but not limited to, any provisions regarding: any
                    transfer of the Hotel, or any direct or indirect interest in
                    the Agreement or Licensee,  any  representation or warranty,
                    any fee obligation,  any operational requirements (including
                    the standards in the Manual);  trademarks usage; maintenance
                    of  records,  insurance  and  indemnity;  or (ii) any  other
                    agreement  between  Licensor (or an affiliate)  and Licensee
                    relating  to the Hotel,  including,  but not limited to, any
                    property management system agreement,  such as the System 21
                    business  system  agreement,  or any agreement to manage the
                    Hotel.

              (2)   Notice of  termination  shall be adequate,  if mailed thirty
                    (30) days (or such longer period required by applicable law)
                    in advance of the termination date.

              (3)   Licensor's  notice of termination shall not relieve Licensee
                    of its obligations under this Agreement or any attachment.

              (4)   As a result of  Licensee's  efforts to comply with the terms
                    and  conditions  contained on  Attachment A and elsewhere in
                    this Agreement,  Licensee will incur substantial expense and
                    expend  substantial time and effort.  Licensee  acknowledges
                    and  agrees  that  Licensor   shall  have  no  liability  or
                    obligation   to  Licensee   for  any  losses,   obligations,
                    liabilities or expenses incurred by Licensee if (i) Licensee
                    commits  an Event  of  Default  as  described  in  Paragraph
                    13c(1); (ii) the Hotel is not authorized by Licensor to Open
                    as  defined  in  Attachment  A or (iii)  this  Agreement  is
                    terminated  because Licensee has not complied with the terms
                    and conditions of this Agreement.

              (5)   Notwithstanding   the  foregoing,   following  an  Event  of
                    Default,  Licensor may at any time, in its sole  discretion,
                    suspend  its  obligations  under this  Agreement  (including
                    reservation services).

         D.   IMMEDIATE  TERMINATION BY LICENSOR.  Notwithstanding the foregoing
              paragraph,  this  Agreement  may  be  immediately  terminated  (or
              terminated  at the earliest time  permitted by applicable  law) if
              one or more of the following  material  breaches to this Agreement
              or any Attachment occur:

              (1)   Any Event of Default where a prior Event of Default had also
                    occurred during the preceding 12 months, but the License was
                    not  terminated  because  Licensee  cured the prior Event of
                    Default;

              (2)   Licensee  or  any   guarantor  of   Licensee's   obligations
                    hereunder shall:

                    (a) generally  not pay its debts as they become due or shall
                        admit in writing  its  inability  to pay its  debts,  or
                        shall  make a  general  assignment  for the  benefit  of
                        creditors; or

                    (b) commence any case,  proceeding  or other action  seeking
                        reorganization,  arrangement,  adjustment,  liquidation,
                        dissolution  or composition of it or its debts under any
                        law relating to bankruptcy,  insolvency,  reorganization
                        or  relief  of  debtors,  or  seeking  appointment  of a
                                       13
<PAGE>
                        receiver,  trustee,  custodian or other similar official
                        for  it or  for  all  or  any  substantial  part  of its
                        property; or

                    (c) take any  corporate or other action to authorize  any of
                        the actions set forth above in Paragraphs (a) or (b).

              (3)   Any case, proceeding or other action against Licensee or any
                    such guarantor  shall be commenced  seeking to have an order
                    for  relief  entered  against  it  as  debtor,   or  seeking
                    reorganization,    arrangement,   adjustment,   liquidation,
                    dissolution  or composition of it or its debts under any law
                    relating to bankruptcy, insolvency, reorganization or relief
                    of debtors, or seeking  appointment of a receiver,  trustee,
                    custodian or other similar official for it or for all or any
                    substantial part of its property,  and such case, proceeding
                    or other  action  (i)  results  in the entry of an order for
                    relief  against it which is not fully  stayed  within  seven
                    business  days  after  the  entry  thereof  or (ii)  remains
                    undismissed for a period of 45 days; or

              (4)   an attachment  remains on all or a  substantial  part of the
                    Hotel or of Licensee's or any such guarantors  assets for 30
                    days; or

              (5)   Licensee or any such  guarantor  fails within 60 days of the
                    entry of a final  judgment  against  Licensee  in any amount
                    exceeding  $50,000  to  discharge,  vacate  or  reverse  the
                    judgment,  or to stay  execution of it, or if  appealed,  to
                    discharge the judgment  within 30 days after a final adverse
                    decision in the appeal; or

              (6)   Licensee loses  possession or the right to possession of all
                    or a significant part of the Hotel or Hotel site; or

              (7)   Licensee  fails to  continue  to  identify  the Hotel to the
                    public as a Homewood Suites hotel; or

              (8)   Licensee  contests  in any  court or  proceeding  Licensor's
                    ownership  of the System or any part of the  System,  or the
                    validity of any service marks or trademarks  associated with
                    Licensor's business; or

              (9)   Any  action  is  taken  toward   dissolving  or  liquidating
                    Licensee or any such  guarantor,  if it is a corporation  or
                    partnership, except for death of a partner; or

              (10)  Licensee or any of its  principals  is, or is  discovered to
                    have been  convicted of a felony (or any other offense if it
                    is likely to adversely reflect upon or affect the Hotel, the
                    System, the Licensor and/or its Entities in any way; or

              (11)  Licensee  maintains  false  books and records of accounts or
                    submits false reports or information to Licensor.

              (12)  Licensee  becomes a  Competitor  (as  defined  in  Paragraph
                    6a(19).

         E.   DE-IDENTIFICATION  OF HOTEL UPON TERMINATION.  Upon termination or
              expiration  of the term,  Licensee  will take  whatever  action is
              necessary  to assure that no use is made of any part of the System
              (including but not limited to the Marks) at or in connection  with
              the Hotel or  otherwise.  Licensee  shall  return to Licensor  the
              Manual and all other proprietary materials, remove all distinctive
              System features of the Hotel,  including the primary  freestanding
              sign down to the  structural  steel,  and take all  other  actions
              ("DE-IDENTIFICATION ACTIONS") required to preclude any possibility
              of  confusion  on the part of the  public  that the Hotel is still
              using all or any part of the System or is otherwise holding itself
              out to the public as a Homewood  Suites  hotel.  If within 30 days
              after termination of this Agreement  Licensee fails to comply with
              this paragraph,  Licensor or its agents at Licensee's expense, may
              enter the  premises of the Hotel to perform the  De-identification
              Actions.  The  preceding  sentence  shall  not  in any  way  limit
              Licensor's other rights or remedies under this Agreement.

         F.   LIQUIDATED  DAMAGES.  The  parties  recognize  the  difficulty  of
              ascertaining   damages  to  Licensor   resulting   from  premature
              termination  of this  Agreement,  and have provided for liquidated
              damages,  which  represent  the parties'  best  estimate as to the
              damages arising from the  circumstances in which they are provided
              and

                                       14

<PAGE>
              which  are  only  damages  for the premature  termination  of this
              Agreement,  and not as a penalty or as damages for breaching  this
              Agreement or in lieu of any other  payment.  If this  Agreement is
              terminated  other than by the  expiration of the term described in
              Paragraph  13a,  Licensee  will pay  Licensor,  within  10 days of
              termination,   liquidated  damages  in  an  amount  determined  as
              follows:

              (1)   an amount  equal to the amount  payable  under  Paragraph  7
                    (regarding  Fees) for the three years prior to  termination;
                    or

              (2)   if the Hotel  opened  but has been Open for less than  three
                    years,  an amount  equal to the greater of: (i) 36 times the
                    monthly  average payable under Paragraph 7, or (ii) 36 times
                    the amount payable under Paragraph 7 for the last full month
                    prior to termination; or

              (3)   if the Hotel  opened,  but has not been in operation for one
                    full month, an amount equal to $3,000 per Guest Suite in the
                    Hotel; or

              (4)   if the Agreement is terminated  before the  commencement  of
                    construction  or of the Work (as described in the applicable
                    attachment),  an amount equal to the initial application fee
                    that  would be due for a license  application  according  to
                    Licensor's  then  current  franchise  offering  circular (in
                    addition to any initial application fee already paid); or

              (5)   if  the  Agreement  is  terminated  after   commencement  of
                    construction or of the Work but before opening of the Hotel,
                    an amount equal to two times the initial application fee; or

              (6)   if the  Agreement is  terminated  pursuant to Paragraph  13b
                    (permitted  termination  after 10th or 15th year)  only,  an
                    amount equal to the amount payable under Paragraph 7 for the
                    two years prior to notice of termination.

              Furthermore,  Licensee  recognizes the  additional  harm by way of
              confusion with respect to national accounts, greater difficulty in
              re-entering  the market,  and damage to goodwill of the Marks that
              Licensor will suffer in the case of (i) a Licensee who  terminates
              two or more license  agreements with Licensor at approximately the
              same time (between  either itself or its  affiliates and Licensor)
              or (ii) a  license  that  terminates  as a result  of the Hotel or
              Licensee  being  acquired  by a  Competitor,  and the  Licensor is
              unable or elects not to buy the Hotel  pursuant to  Paragraph  11f
              (each of these will be  referred  to as a "SPECIAL  TERMINATION").
              Licensee  agrees  that in the case of a Special  Termination,  the
              amount of liquidated damages as calculated above will be doubled.

14.      RENEWAL.

         This Agreement is non-renewable.

15.      RELATIONSHIP OF PARTIES.

         A.   NO AGENCY  RELATIONSHIP.  Licensee is an  independent  contractor.
              Neither party is the legal  representative or agent of, or has the
              power to  obligate  (or has the right to direct or  supervise  the
              daily affairs of) the other for any purpose  whatsoever.  Licensor
              and Licensee expressly  acknowledge that the relationship intended
              by them is a business  relationship based entirely on, and defined
              by,  the  express   provisions  of  this  Agreement  and  that  no
              partnership,   joint  venture,  agency,  fiduciary  or  employment
              relationship is intended or created by reason of this Agreement.

         B.   LICENSEE'S  NOTICES  TO  PUBLIC  CONCERNING   INDEPENDENT  STATUS.
              Licensee will take all necessary steps including those  reasonably
              requested by Licensor to minimize the chance of a claim being made
              against  Licensor  for anything  that occurs at the Hotel,  or for
              acts, omissions or obligations of Licensee or anyone associated or
              affiliated  with  Licensee  or the  Hotel.  Such  steps  may,  for
              example,  include giving notice in Guest Suites,  public rooms and
              advertisements,  on business forms and  stationery,  etc.,  making
              clear to the public that  Licensor is not the owner or operator of
              the Hotel and is not  accountable  for what  happens at the Hotel.
              Unless   required  by  law,   Licensee  will  not  use  the  words
              "Homewood",   "Homewood   Suites"  or  any  other  names  or  mark
              associated with the System to incur any obligation or indebtedness
              on behalf of

                                       15

<PAGE>

              Licensor.  Licensee  shall not enter into or execute any contracts
              in the  name  "Homewood  Suites  hotel",  and  all  contracts  for
              the Hotel's  operations  and services at the Hotel shall be in the
              name of Licensee or Licensee's management company.   Likewise, the
              words "Homewood", "Homewood Suites", or any similar words will not
              be used to name or identify developments adjacent to or associated
              with the Hotel,  nor will Licensee use such names   in its general
              business in any manner separated from the business of the Hotel.

16.      MISCELLANEOUS.

         A.   SEVERABILITY  AND  INTERPRETATION.  The remedies  provided in this
              Agreement are not exclusive. If any provision of this Agreement is
              held to be  unenforceable,  void or voidable as being  contrary to
              the law or public policy of the jurisdiction  entitled to exercise
              authority  hereunder,  all remaining provisions shall nevertheless
              continue  in  full  force  and  effect  unless  deletion  of  such
              provision(s)  impairs the  consideration  for this  Agreement in a
              manner  which  frustrates  the  purpose  of the  parties  or makes
              performance  commercially  impracticable.  The  provisions of this
              Agreement shall be interpreted  based on the reasonable  intention
              of  the  parties  in  the  context  of  this  transaction  without
              interpreting  any  provision  in favor  of or  against  any  party
              whether  or not  such  party  was the  drafting  party  or by such
              party's position  relative to the other party. Any covenant,  term
              or  provision  of this  Agreement  which,  in order to effect  the
              intent  of the  parties,  must  survive  the  termination  of this
              Agreement, shall survive any such termination.

         B.   CONTROLLING  LAW. This Agreement shall become valid when signed by
              the parties  hereto.  It shall be deemed made and entered  into in
              the State of Tennessee and shall be governed and  construed  under
              and in  accordance  with the laws of the  State of  Tennessee.  In
              entering into this Agreement,  Licensee  acknowledges  that it has
              sought,  voluntarily  accepted and become associated with Licensor
              who  is  headquartered  in  Memphis,   Tennessee,  and  that  this
              Agreement  contemplates and will result in business  relationships
              with  Licensor's   headquarter's  personnel.  The  choice  of  law
              designation   permits,   but  does  not  require  that  all  suits
              concerning this Agreement be filed in the State of Tennessee.

         C.   EXCLUSIVE  BENEFIT.  This Agreement is exclusively for the benefit
              of the parties hereto,  and it may not give rise to liability to a
              third party, except as otherwise specifically set forth herein. No
              agreement  between  Licensor and anyone else is for the benefit of
              Licensee.

         D.   ENTIRE  AGREEMENT.  Licensor and the Licensee each acknowledge and
              warrant  to each  other  that  they wish to have all terms of this
              business  relationship defined in this written agreement.  Neither
              Licensor nor Licensee wishes to enter into a business relationship
              with the other in which any terms or  obligations  are the subject
              of alleged oral  statements or in which oral  statements  serve as
              the basis for creating  rights or  obligations  different  than or
              supplementary  to the  rights  and  obligations  set forth in this
              Agreement.  Accordingly,  Licensor  and  Licensee  agree that this
              Agreement and any Attachments hereto and the documents referred to
              herein, shall be construed together and shall supersede and cancel
              any prior and/or contemporaneous  discussions or writings (whether
              described as representations, inducements, promises, agreements or
              any other term)  between  Licensor or anyone  acting on its behalf
              and  Licensee or anyone  acting on his,  her or its behalf,  which
              might  be  taken  to   constitute   agreements,   representations,
              inducements, promises or understandings (or any equivalent to such
              terms) with respect to this Agreement or the relationship  between
              the parties and Licensor  and  Licensee  each agree that they have
              placed,  and will place,  no reliance on any such  discussions  or
              writings.  This  Agreement  (including  any  Attachments  and  the
              documents referred to herein), is the entire agreement between the
              parties  and  contains  all of the terms,  conditions,  rights and
              obligations  of the parties with respect to the Hotel or any other
              aspect of the relationship  between the parties. No future license
              or  offer of a  license  for  additional  locations  or any  other
              business  activity  have been  promised  to  Licensee  and no such
              license or offer shall come into  existence,  except by means of a
              separate  writing,  executed by  Licensor's  officer or such other
              entity  granting  the license  and  specifically  identified  as a
              License Agreement. No change, modification, amendment or waiver of
              any of the  provisions  of this  Agreement  will be effective  and
              binding  upon  Licensor  unless  it  is in  writing,  specifically
              identified  as an  amendment  to  this  Agreement  and  signed  by
              Licensor's officer.

         E.   LICENSOR'S WITHHOLDING CONSENT. Licensor may withhold its consent,
              wherever  required under this Agreement,  if any default or breach
              by Licensee exists under this Agreement. Approvals and consents by
              Licensor will not be effective  unless evidenced by a writing duly
              executed on behalf of Licensor.

                                       16

<PAGE>

         F.   NOTICES.  Any notice must be in writing and will be  effective  on
              either (1) the day it is sent via facsimile with a confirmation of
              receipt;  or (2) the third  day after it is mailed by first  class
              mail; or (3) the day it is delivered by express delivery  service;
              or (4) the  third day  after it is sent by  certified  mail to the
              appropriate  party at its address  first  stated  above or to such
              person  and  at  such  address  as  may be  designated  by  notice
              hereunder.

         G.   GENERAL    RELEASE.    Licensee   and   its   respective    heirs,
              administrators,   executors,  agents,  representatives  and  their
              respective successors and assigns, hereby release,  remise, acquit
              and  forever  discharge   Licensor  and  its  Entities  and  their
              officers, directors,  employees, agents, representatives and their
              respective  successors  and  assigns  from  any and  all  actions,
              claims,  causes of  action,  suits,  rights,  debts,  liabilities,
              accounts,  agreements,  covenants,  contracts, promises, warrants,
              judgments,  executions,  demands,  damages,  costs  and  expenses,
              whether  known or  unknown  at this  time,  of any kind or nature,
              absolute or contingent, if any, at law or in equity, on account of
              any  matter,   cause  or  thing  whatsoever  which  has  happened,
              developed  or occurred at any time from the  beginning  of time to
              and  including  the date of  Licensee's  execution and delivery to
              Licensor of this  Agreement  and that they will not  institute any
              suit or action at law or otherwise  against  Licensor  directly or
              indirectly relating to any claim released hereby by Licensee. This
              release and covenant not to sue shall survive the  termination  of
              this  Agreement.  Licensee shall take whatever steps are necessary
              or  appropriate  to  carry  out the  terms  of this  release  upon
              Licensor's request.

         H.   DESCRIPTIVE  HEADINGS.  The descriptive headings in this Agreement
              are for  convenience  only and shall  not  control  or affect  the
              meaning or construction of any provision in this Agreement.

         I.   WARRANTIES.  Licensee  warrants,  represents  and agrees  that all
              statements  made  by  Licensee  in the  Application  submitted  to
              Licensor in anticipation of this Agreement and all other documents
              and  information  submitted  by  Licensee  are true,  correct  and
              complete as of the date hereof and will  continue to be updated so
              that  they are true,  correct  and  complete.  This  warranty  and
              representation shall survive the termination of this Agreement.

         J.   TIME. Time is of the essence in this Agreement.

         K.   INCLUDING. Including shall mean including, without limitation.

         L.   COUNTERPARTS.  This Agreement may be executed in counterparts, and
              each copy so executed and delivered shall be deemed an original.

         M.   AMENDMENTS. If an amendment to this Agreement is required prior to
              its  execution,  said  amendment  shall  be  made a part  of  this
              Agreement as an  Attachment.  If an amendment to this Agreement is
              necessary after its execution, said amendment shall be made a part
              of this Agreement in the form of a separate document.

         N.   PERFORMANCE REQUIREMENTS/RESPONSIBILITIES.  Attachment A is hereby
              incorporated by reference and made a part of this Agreement to set
              forth   certain   of   Licensee's   performance   conditions   and
              requirements.

         O.   BUSINESS JUDGMENT. The parties hereto recognize,  and any mediator
              or judge is affirmatively advised, that certain provisions of this
              Agreement  describe the right of Licensor to take (or refrain from
              taking)  certain  actions in the exercise of its assessment of the
              long-term best  interests of hotels using the System,  considering
              the interests of the System  overall.  Where such  decisions  have
              been taken by Licensor and are supported by the business  judgment
              of  Licensor,  neither a mediator nor a judge nor any other person
              reviewing such decisions shall substitute his, her or its judgment
              for the judgment so exercised by Licensor.

17.      EXPIRATION OF OFFER.

         This  Agreement  constitutes  an offer  which must be  accepted  by the
         Licensee  named on the signature  page hereof by dating,  executing and
         returning to Licensor two copies  hereof (and all  attachments  hereto,
         including,  if required,  the Guaranty) on or before the date specified
         on the Rider.

                                       17

<PAGE>

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

--------------------------------------------------------------------------------
    LICENSEE:                                    LICENSOR:

    APPLE SUITES MANAGEMENT, INC.                PROMUS HOTELS, INC.

    BY:  /s/ Glade M. Knight                     BY:

    NAME:     GLADE M. KNIGHT, PRESIDENT         NAME:
           -------------------------------

    TITLE:    PRESIDENT                          TITLE:
           ------------

    WITNESS:                                     WITNESS:

    DATE:                                        DATE:

                                       18

<PAGE>

                                    GUARANTY

Location:   12 EAST SWEDESFORD ROAD, PHILADELPHIA/GREAT VALLEY, PENNSYLVANIA
            ----------------------------------------------------------------

As an  inducement  to Promus  Hotels,  Inc.  ("LICENSOR")  to execute  the above
License   Agreement,   the   undersigned,    jointly   and   severally,   hereby
unconditionally  warrant to Licensor and its  successors and assigns that all of
Licensee's   representations  in  the  License  Agreement  and  the  application
submitted  by Licensee to obtain the License  Agreement  are true and  guarantee
that all of Licensee's obligations under the above License Agreement,  including
any amendments thereto whenever made (the "AGREEMENT"),  will be punctually paid
and performed.

Upon  default  by  Licensee  or  notice  from  Licensor,  the  undersigned  will
immediately make each payment required of Licensee under the Agreement.  Without
affecting the obligations of the undersigned  under this Guaranty,  Licensor may
without notice to the undersigned extend,  modify or release any indebtedness or
obligation  of Licensee,  or settle,  adjust or  compromise  any claims  against
Licensee.  The undersigned waive notice of amendment of the Agreement and notice
of demand for payment or performance by Licensee.

Upon the death of an individual guarantor,  the estate of such guarantor will be
bound by this Guaranty but only for defaults and obligations  hereunder existing
at the time of death,  and the obligations of the other guarantors will continue
in full force and effect.

The Guaranty  constitutes a guaranty of payment and not of collection,  and each
of the  guarantors  specifically  waives any  obligation  of Licensor to proceed
against  Licensee  on any money or  property  held by  Licensee  or by any other
person or entity as collateral  security,  by way of set off or  otherwise.  The
undersigned  further agree that this Guaranty  shall continue to be effective or
be  reinstated  as the  case  may  be,  if at  any  time  payment  or any of the
guaranteed obligations is rescinded or must otherwise be restored or returned by
Licensor upon the insolvency, bankruptcy or reorganization of Licensee or any of
the undersigned, all as though such payment has not been made.

This Guaranty shall be governed and construed  under and in accordance  with the
laws of the State of Tennessee.

IN WITNESS  WHEREOF,  each of the undersigned has signed this Guaranty as of the
date of the above Agreement.

Witnesses:                         Guarantors:

                                            Apple Suites, Inc.

-------------------------------             By:
----------------------------------(Seal)
                                                      Glade M. Knight, President

                                       19

<PAGE>

                                  ATTACHMENT B
                           RIDER TO LICENSE AGREEMENT

1.     Name and Address of Licensee:        Apple Suites Management, Inc.
                                            Attn: Glade M. Knight
                                            306 East Main Street
                                            Richmond, Virginia  23219

2.     Location of Hotel:                   12 East Swedesford Road
                                            Malvern, Pennsylvania 19355

3.     Number of Approved Guest Rooms:      123

4.     Effective Date of License:           Date Apple Suites,  Inc.  closes the
                                            purchase of and  obtains  possession
                                            and    control    of    the    Hotel
                                            ("Closing").

                                            It shall be a condition precedent to
                                            the validity of this Agreement,  and
                                            this Agreement  shall be of no force
                                            and effect and  Licensee  shall have
                                            no rights hereunder unless and until
                                            on  or  before   April   15,   2000,
                                            Licensee  shall  have  submitted  to
                                            Licensor, written verification, in a
                                            form satisfactory to Licensor,  that
                                            Closing  has  occurred.  Within five
                                            days  of  Closing,   Licensee  shall
                                            submit to Licensor (i) a copy of the
                                            deed, as recorded,  transferring the
                                            Hotel to Apple Suites,  Inc., (ii) a
                                            copy of the lease agreement  between
                                            Licensee and Apple Suites, Inc., and
                                            (iii) the franchise  application fee
                                            in the amount of $55,350

5.  Term of License to Expire:              20 years from the date of Closing

6.  Plans Submission Dates:                 as  required  under  the     Product
                                            Improvement Plan (Attachment C)

7.  Construction or Work Commencement Date: upon Closing

8.  Construction or Work Completion Date:   within 90 days of Closing

9.  Offer Expiration Date [Paragraph 17]:   April 15, 2000

10. Ownership of Licensee:                  Apple Suites Management, Inc.   100%

                                            Stockholder:
                                            -----------
                                            Glade M. Knight             100%

                                 Attachment B-1
<PAGE>

                      ATTACHMENT A - PERFORMANCE CONDITIONS
                               CHANGE OF OWNERSHIP

I.      CONSULTATION. Licensee or its representative(s) shall meet with Licensor
        at a location selected by Licensor, within 30 days following the date of
        Licensee's  receipt of a request  from  Licensor  for  consultation  and
        coordination with the project manager assigned to Licensee by Licensor.

II.     WORK AND PURCHASE  REQUIREMENt.  Attachment  C, the Product  Improvement
        Plan (the "PIP"),  is incorporated by reference,  attached to and made a
        part of this  Agreement.  Licensee shall perform the  renovation  and/or
        construction  work and  purchase  the  items  described  on the PIP (the
        "WORK") on or before the completion date specified on the Rider. Whether
        or  not  indicated  on  the  PIP,  the  Work  shall  include  Licensee's
        purchasing  and/or  leasing  and  installing  all  fixtures,  equipment,
        furnishings, furniture, signs, computer terminals and related equipment,
        supplies  and other items  which  would be  required  of a new  Homewood
        Suites licensee under the Manual and such other  equipment,  furnishings
        and  supplies  as may be  required  by  Licensor in order to operate the
        Hotel.  Licensee shall be solely responsible for obtaining all necessary
        licenses, permits and zoning variances required for the Hotel.

III.    APPROVAL OF ARCHITECT/ENGINEER  AND CONTRACTOR.  Licensor shall have the
        right to approve the  architect/engineer,  general  contractor and major
        subcontractors  for the Work.  The Work  shall not  commence  until such
        approval has been granted, which approvals may be conditioned on bonding
        of the  contractors.  Prior to commencement of the Work, if requested by
        Licensor,  Licensee  shall  submit to  Licensor,  resumes and  financial
        statements of the  architect/engineer,  general contractor and any major
        sub-contractors for the Work and such additional  information concerning
        their experience and financial responsibility as Licensor may request.

IV.     APPROVAL OF PLANS.  On or before the Plans  submission date specified on
        the Rider,  Licensee  shall  submit to  Licensor,  Licensee's  plans and
        specifications  and  drawings  for  the  Work,  including  the  proposed
        furnishings,  fixtures, equipment and signs (collectively,  "PLANS") for
        approval.  Licensor may supply  Licensee with  representative  prototype
        Guest Room and public area plans and schematic building plans as a guide
        for preparation of plans and specifications for the Hotel. Once Licensor
        has approved the Plans, no change shall be made to the Plans without the
        advance consent of Licensor.  In approving the Plans,  Licensor does not
        in  any  manner  warrant  the  depth  of  its  analysis  or  assume  any
        responsibility   for  the  efficacy  of  the  Plans  or  the   resulting
        construction.   Licensee  shall  cause  the  Hotel   renovation   and/or
        construction  to be in  accordance  with this  Agreement,  the  approved
        Plans, the Manual and the PIP.

V.      COMMENCEMENT;  COMPLETION. Licensee shall commence the Work on or before
        the  date   specified   on  the  Rider  and  shall   continue  the  Work
        uninterrupted  (except for interruption by reason of events constituting
        force majeure) until it is completed.  Notwithstanding the occurrence of
        any events  constituting  force  majeure,  or any other cause,  the Work
        shall be completed and the Hotel shall be furnished, equipped, and shall
        otherwise be in compliance  with this  Agreement not later than the date
        specified on the Rider.  Licensor shall have the sole right to determine
        whether the Work has been completed in accordance  with this  Agreement,
        the approved Plans, the Manual and the PIP.

VI.     INSPECTION.  During the course of the Work, Licensee shall, and Licensee
        shall cause the architect, engineer,  contractors, and subcontractors to
        cooperate fully with Licensor for the purpose of permitting  Licensor to
        inspect the Hotel in order to  determine  whether the Work is being done
        in  accordance  with this  Agreement  and shall  provide  Licensor  with
        samples of construction materials, etc. as Licensor may request.

VII.    REPORTS.  Licensee  shall  submit to Licensor  each month after the date
        hereof  (or more  frequently  if  Licensor  shall so  request)  a report
        showing progress made toward fulfilling the terms of this Agreement.

                                 Attachment A-1

<PAGE>

VIII.   ACQUISITION OF EQUIPMENT,  FURNISHINGS, AND SUPPLIES/STAFFING.  Licensee
        shall order, purchase and/or lease and install all fixtures,  equipment,
        furnishings, furniture, signs, computer terminals and related equipment,
        supplies  and other items  required by  Licensor,  this  Agreement,  the
        approved Plans, the Manual and the PIP.

        In  accordance  with the  Manual  and  such  other  instructions  as are
        furnished  to Licensee by Licensor,  Licensee  shall cause to be hired a
        staff to operate the Hotel,  and all such personnel  shall be trained as
        required  by the Manual.  All costs and  expenses  incurred  directly or
        indirectly  in hiring and training such staff shall be paid by Licensee,
        except as expressly provided otherwise in the Manual.

IX.     COST OF CONSTRUCTION AND EQUIPPING.  Licensee shall bear the entire cost
        of the  Work,  including  the  cost  of the  plans,  professional  fees,
        licenses and permits, equipment, furniture, furnishings and supplies.

X.      LIMITATION  OF  LIABILITY.  Notwithstanding  the  right of  Licensor  to
        approve the Plans, the architect,  engineer and certain contractors, and
        to inspect the Work and the Hotel,  Licensor  shall have no liability or
        obligation  with respect to the Work, or the design and  construction of
        the Hotel, as the rights of Licensor are being exercised  solely for the
        purpose of assuring  compliance  with the terms and  conditions  of this
        Agreement. Licensor does not undertake to approve the Hotel as complying
        with  governmental  requirements  or as being  safe for  guests or other
        third parties. Licensee should not rely upon Licensor's approval for any
        purpose  whatsoever  except  compliance  with Licensor's then prevailing
        standards and requirements of the Manual.

XI.     CONDITIONAL AUTHORIZATION. Licensor may conditionally authorize Licensee
        to continue to operate the Hotel as a Homewood  Suites hotel even though
        Licensee has not fully complied with the terms of this Agreement.  Under
        certain  circumstances,  Licensor  may  suspend  services  to the  Hotel
        (including  reservation  services)  while the Work is being performed by
        Licensee.

XII.    PERFORMANCE  OF AGREEMENT.  Licensee  agrees to satisfy all of the terms
        and  conditions of this  Agreement,  and to equip,  supply and staff the
        Hotel in accordance  with this  Agreement and to cooperate with Licensor
        in connection  therewith.  As a result of  Licensee's  efforts to comply
        with the terms and  conditions  of this  Agreement,  Licensee will incur
        substantial  expense and expend  substantial  time and effort.  Licensee
        acknowledges  and  agrees  that  Licensor  shall  have no  liability  or
        obligation  to Licensee  for any  losses,  obligations,  liabilities  or
        expenses  incurred by Licensee if this  Agreement is terminated  because
        Licensee  has  not  complied  with  the  terms  and  conditions  of this
        Agreement.

                                 Attachment A-2Exhibit 10.4

                                                                  [Pennsylvania]

                              MANAGEMENT AGREEMENT

         This  Management  Agreement  (as the same may be  amended,  modified or
supplemented from time to time, this "Agreement") is made and entered into as of
the 8th day of May, 2000  ("Effective  Date")  between Apple Suites  Management,
Inc., a Virginia corporation,  whose address is 306 East Main Street,  Richmond,
Virginia 23219 ("Owner") and Promus Hotels, Inc., a Delaware corporation,  whose
address is 755 Crossover Lane, Memphis, Tennessee 38117 ("Manager").

                                    ARTICLE 1

                                    THE HOTEL

         Section 1.01.  The Hotel.  The subject  matter of this Agreement is the
management of the "Hotel",  as defined in the Homewood Suites License  Agreement
attached  hereto as Exhibit  "A"  (hereinafter  collectively  referred to as the
"License  Agreement"),  by Manager. The leasehold interest in the Hotel is owned
by Apple  Suites,  Inc.,  a Virginia  corporation,  as trustee for Apple  Suites
Pennsylvania  Business Trust ("Fee Owner") and is subleased to Owner pursuant to
a lease  between  Fee  Owner  and Owner  with a  commencement  date of even date
herewith covering the Hotel  (hereinafter the "Percentage  Lease").  The License
Agreement  shall  exclusively  govern  Owner's right to use the Homewood  Suites
"System" (as defined in the License  Agreement)  in the  operation of the Hotel.
Fee Owner  shall have no right to use the  Homewood  Suites  "System"  except as
expressly  set  forth  in  the  License   Agreement.   Owner  hereby   expressly
acknowledges  that neither it nor Fee Owner shall derive any rights in or to the
use of the  "Homewood  Suites" name or the Homewood  Suites  "System"  from this
Agreement.

                                    ARTICLE 2

                                      TERM

         Section 2.01.  Term.  The term shall commence on the Effective Date and
continue for the term of years from the Effective  Date set forth on Exhibit "B"
("Term").

                                   ARTICLE 3

                              MANAGER'S OBLIGATIONS

         Section 3.01. Manager's Obligations.  Manager shall, on behalf of Owner
and at Owner's expense,  direct the operation of the Hotel pursuant to the terms
of this  Agreement  and the  License  Agreement.  Manager  shall be  exclusively
responsible   for  directing  the   day-to-day   activities  of  the  Hotel  and
establishing  all  policies  and

<PAGE>

procedures  relating to the  management  and  operation of the Hotel.  Except as
specifically  otherwise provided, all cost(s) and expense(s) incurred by Manager
in association  with the  performance of the  obligations  hereinafter set forth
shall be,  regardless of the  designation of a portion  thereof as Fee Ownership
Costs (as herein  defined),  operating costs and shall  accordingly be paid from
the Bank Account(s) as hereinafter  defined in Section 3.01(iv) below.  Manager,
during the Term, shall have the following obligations:

         (i)   Costs  of Fee  Owner  and  Owner.  Pursuant  to the  terms of the
               Percentage Lease,  Manager  understands that Fee Owner has agreed
               to pay,  among  other  things  (i) land,  building  and  personal
               property  taxes and  assessments  applicable  to the Hotel,  (ii)
               premiums  and  charges  for  the  casualty  insurance   coverages
               specified  on  Exhibit  "D",  (iii)   expenditures   for  capital
               replacements,  (iv)  expenditures  for  maintenance and repair of
               underground  utilities and structural  elements of the Hotel, (v)
               ground  rent under the ground  lease  pursuant to which Fee Owner
               has  leasehold  title to the  Hotel,  and (vi)  the  payments  of
               principal,  interest and other sums payable under the Acquisition
               Loan (as herein defined)  (collectively,  "Fee Ownership Costs").
               To the extent this Agreement  obligates or authorizes  Manager to
               pay any such Fee  Ownership  Costs,  Manager  shall  pay such Fee
               Ownership  Costs on behalf of Fee Owner to the extent of funds in
               the Bank  Account(s) (as herein defined) in the order of priority
               set forth in Exhibit B or the  Reserve  Fund (as herein  defined)
               and Fee Owner and Owner shall make such  adjustments and payments
               to each other as may be necessary  from time to time to take into
               account any such payments by Manager. Manager shall have no duty,
               obligation  or  liability  to Fee  Owner or Owner (i) to make any
               determination  as to whether any  expense  required to be paid by
               Manager  hereunder  is a Fee  Ownership  Cost or a cost of Owner,
               (ii) to make any  determination  as to whether  funds in the Bank
               Account(s)  or the  Reserve  Fund belong to Fee Owner or Owner or
               (iii) to  require  that Fee  Ownership  Costs be paid from  funds
               which can be identified as belonging to Fee Owner,  or that other
               costs  and  expenses  required  to be paid by Owner be paid  from
               funds which can be identified as belonging to Owner; it being the
               intent of the  parties to this  Agreement  that (i) Owner and Fee
               Owner  shall  look  only to each  other and not to  Manager  with
               respect  to  moneys  that  may be  owed  one to  the  other  as a
               consequence  of Manager's  performance  under this  Agreement and
               (ii)  Manager  need  only look to Owner to pay  operating  costs,
               including,  without  limitation,  those designated  herein as Fee
               Ownership Costs;

         (ii)  Personnel.  Manager  shall be the sole judge of the  fitness  and
               qualification  of all  personnel  working  at the  Hotel  ("Hotel
               Personnel")  and shall have the sole and absolute  right to hire,
               supervise,   order,   instruct,   discharge   and  determine  the
               compensation,  benefits  and  terms of  employment  of all  Hotel
               Personnel.  All Hotel  Personnel  shall be  employees of Manager.
               Manager  shall also have the right to use  employees  of Manager,
               Manager's  parent and subsidiary and  affiliated  companies,  not
               located at the Hotel to provide  services to the Hotel ("Off-Site
               Personnel")  and the  right to have the  general  manager  of the
               hotel serve as the regional  manager for other

                                       2

<PAGE>

               hotels managed by Manager.  All expenses,  costs (including,  but
               not  limited  to,   salaries,   benefits  and   severance   pay),
               liabilities  and claims which are related to Hotel  Personnel and
               Off-Site Personnel shall be operating costs;  provided,  however,
               with respect to any moving  expenses for any Hotel  Personnel who
               has not been an  employee  at the Hotel for at least  twelve (12)
               months,  only  that  portion  of such  moving  expenses  equal to
               Owner's Share (as hereinafter defined) shall constitute operating
               costs  and the  balance  shall  be paid by  Manager  and/or  such
               employee.  Manager  shall  also have the  right to have  Off-Site
               Personnel  performing  regional  or area  duties  relating to the
               Hotel and other  hotels  managed by  Manager  lodged at the Hotel
               from time to time free of charge.  "Owner's  Share"  shall mean a
               fraction  having twelve (12) as its denominator and the number of
               months  or part  thereof  such  person  has been one of the Hotel
               Personnel as its numerator.  All expenses for Off-Site  Personnel
               shall be included as a separate category or item of the Operating
               Budgets or shall otherwise be approved by Owner.

               Manager  agrees that it will  consult  with Owner  regarding  the
               hiring,  transferring,  or terminating of the general manager and
               director  of sales for the  Hotel.  Owner  shall be  afforded  an
               opportunity  to review  the  resumes  of, and to  interview,  the
               candidates  for  these   positions,   all  within  a  time  frame
               established  by  Manager,  which  shall be  reasonable  under the
               circumstances  in question.  Manager and Owner shall consult with
               each other  concerning  such decisions and Manager agrees to give
               serious  consideration  to the views of Owner prior to  Manager's
               making a final decision with respect to any such individual;

         (iii) Hotel  Policies.  Manager  shall  determine  the  terms  of guest
               admittance to the Hotel,  establish room rates,  and use of rooms
               for commercial purposes;

         (iv)  Bank  Accounts.  Manager  shall open and operate the Hotel's bank
               accounts.  All sums  received from the operation of the Hotel and
               all  items  paid  by  Manager  arising  by  virtue  of  Manager's
               operation  of  the  Hotel  shall  pass  through  bank  account(s)
               established  by Manager in Owner's  name at such banks as Manager
               and  Owner  shall  mutually  agree  ("Bank   Account(s)");   only
               Manager's  designees  shall be exclusively  authorized to operate
               and draw from the Bank Account(s).  Each fiscal month Manager, on
               behalf of Owner, shall disburse funds from the Bank Account(s) in
               the order of priority and to the extent  available in  accordance
               with the priority schedule set forth on Exhibit "B";

         (v)   Operating  Budgets.  Manager has submitted to Owner,  for Owner's
               approval,  a proposed  operating  budget for the ensuing  full or
               partial  fiscal year,  as the case may be  ("Operating  Budget").
               Hereafter,  Manager  shall,  not less than  forty-five  (45) days
               prior to the  commencement  of each full fiscal  year,  submit to
               Owner, for Owner's approval,  a proposed Operating Budget for the
               ensuing  full or partial  fiscal  year,  as the case may be. Each
               Operating  Budget shall be accompanied  by, and shall include,  a
               business

                                       3

<PAGE>

               plan which shall describe business  objectives and strategies for
               the period  covered by the  Operating  Budget.  The business plan
               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.  Fee  Owner  shall  have no right to
               approve any Operating Budget.

               Owner's   approval  of  the   Operating   Budget   shall  not  be
               unreasonably withheld and shall be deemed given unless a specific
               written objection thereto is delivered by Owner to Manager within
               fifteen  (15) days  after  submission.  Owner  shall  review  the
               Operating  Budget on a line-by-line  basis. To be effective,  any
               notice which disapproves a proposed Operating Budget must contain
               specific  objections  in  reasonable  detail to  individual  line
               items.

               If the initial Operating Budget contains disputed budget item(s),
               said item(s) shall be deemed adopted until Owner and Manager have
               resolved  the item(s)  objected to by Owner or the  Accountant(s)
               (hereinafter  defined in Section 10.02) have resolved the item(s)
               objected to by Owner. Thereafter,  if Owner disapproves or raises
               objections  to a  proposed  Operating  Budget in the  manner  and
               within the time period provided  therefor,  and Owner and Manager
               are unable to  resolve  the  disputed  or  objectionable  matters
               submitted by Owner prior to the  commencement  of the  applicable
               fiscal year,  the undisputed  portions of the proposed  Operating
               Budget  shall  be  deemed  to be  adopted  and  approved  and the
               corresponding line item contained in the Operating Budget for the
               preceding  fiscal year shall be adjusted as set forth  herein and
               shall  be  substituted  in  lieu  of the  disputed  items  in the
               proposed Operating Budget.  Those line items which are in dispute
               shall be  determined by  increasing  the preceding  fiscal year's
               corresponding line items by an amount determined by Manager which
               does not exceed the Consumer Price Index for All Urban  Consumers
               published by the Bureau of Labor  Statistics of the United States
               Department of Labor, U.S. City Average, all items (1984-1986=100)
               for the  fiscal  year prior to the  fiscal  year with  respect to
               which the adjustment to the line item is being  calculated or any
               successor or replacement index thereto.  The resulting  Operating
               Budget obtained in accordance  with the preceding  sentence shall
               be deemed to be the Operating Budget in effect until such time as
               Manager and Owner have resolved the items objected to by Owner.

               Manager shall revise the  Operating  Budget from time to time, as
               necessary,   to  reflect  any  unpredicted  significant  changes,
               variables  or  events  or  to  include  significant,  additional,
               unanticipated items of income or expense. Any such revision shall
               be submitted to Owner for approval,  which  approval shall not be
               unreasonably withheld,  delayed or conditioned.  Manager shall be
               permitted to reallocate  part or all of the

                                       4

<PAGE>

               amount  budgeted  with  respect to any line item to another  line
               item and to make such other modifications to the Operating Budget
               as Manager deems necessary,  provided,  however, that Manager may
               not  reallocate  from one Department to another  without  Owner's
               consent, which shall not be unreasonably withheld or delayed. The
               term   "Department"   shall  mean  and  refer  to  those  general
               divisional  categories shown in the Operating Budget (e.g., Guest
               Services Department or Administration Department),  but shall not
               mean or  refer  to  subcategories  (e.g.,  linen  replacement  or
               uniforms) appearing in a divisional category. In addition, in the
               event actual  Adjusted  Gross Revenues (as defined in Exhibit "C"
               hereto) for any calendar  period are greater than those  provided
               for  in  the  Operating  Budget,  the  amounts  approved  in  the
               Operating Budget for suite maintenance,  guest services, food and
               beverage,  telephone,  utilities,  marketing and hotel repair and
               maintenance for any calendar month shall be automatically  deemed
               to be  increased  to an amount  that bears the same  relationship
               (ratio) to the amounts budgeted for such items as actual Adjusted
               Gross  Revenue  for such month  bears to the  projected  Adjusted
               Gross  Revenue  for  such  month.  Owner  acknowledges  that  the
               Operating Budget is intended only to be a reasonable  estimate of
               the Hotel's  income and  expenses  for the ensuing  fiscal  year.
               Manager shall not be deemed to have made any guarantee,  warranty
               or  representation  whatsoever in  connection  with the Operating
               Budget;

         (vi)  Operating Statement.  Manager shall prepare and furnish Owner, on
               or  before  the   twentieth   (20th)  day  of  the  fiscal  month
               immediately  following  the  close  of a  fiscal  month,  with  a
               detailed  operating  statement  setting  forth the results of the
               Hotel's operations. Within ninety (90) days after the end of each
               fiscal  year,   Manager  shall  furnish  Owner  with  a  detailed
               operating  statement  setting  forth the  results of the  Hotel's
               operations for the fiscal year;

         (vii) Capital  Budgets.  Manager shall,  not less than  forty-five (45)
               days prior to the  commencement  of each fiscal  year,  submit to
               Owner, for Owner's approval,  a recommended  "Capital Budget" for
               the ensuing full or partial  fiscal year, as the case may be, for
               furnishings,  equipment,  and ordinary Hotel capital  replacement
               items as shall be  required  to operate  the Hotel in  accordance
               with the standards referred to in the License Agreement. Manager,
               to the extent it is able to do so without compromising compliance
               with  the  minimum  standards  required  under  the  terms of the
               License  Agreement,  shall take into  consideration,  among other
               factors,  the amount of funds  available  to pay for the proposed
               capital expenditures. Manager shall also identify for Owner those
               projects  that are required to meet the minimum  standards of the
               License  Agreement  and give  priority to such  items.  Owner and
               Manager  shall meet to discuss the  proposed  Capital  Budget and
               Owner shall be required to make specific written  objections to a
               proposed  Capital  Budget in the  manner and within the same time
               periods specified in Section 3.01(v) with respect to an Operating
               Budget.  Owner agrees not to  unreasonably  withhold or delay

                                       5

<PAGE>

               its  consent.  If Owner  does not  approve  the  Capital  Budget,
               Manager  (i) with  respect  to  Capital  Improvements  (as herein
               defined)  required to meet the minimum  standards  of the License
               Agreement,  will  be  entitled  to  spend  such  amounts  as  are
               necessary to meet such minimum standards and (ii) with respect to
               any other Capital  Improvements,  will only spend such amounts as
               are approved by Owner, acting reasonably, provided, however, that
               in any  event  Manager  shall  be  entitled  to  spend up to five
               percent (5%) of Gross Revenue for capital  expenditures after the
               date hereof until the disputed  Capital  Budget item(s) have been
               resolved in  accordance  with  Section  10.02.1(e).  Manager,  at
               Owner's expense, shall be responsible for supervising the design,
               installation  and construction of alterations or additions to, or
               rebuilding or renovation  of, the Hotel,  including any additions
               to  Hotel  furnishings  and  equipment  (collectively,   "Capital
               Improvements"). Owner shall have the right to approve and inspect
               the installation and construction of Capital Improvements and any
               mortgagee having a first lien on Owner's  subleasehold  estate in
               the Hotel ("Owner's Leasehold  Mortgagee") or a first lien on Fee
               Owner's   leasehold   estate  in  the  Hotel  (the  "Fee  Owner's
               Mortgagee")  shall also have any right of approval or  inspection
               of the installation and construction of the Capital  Improvements
               to the extent set forth in the  mortgage,  deed of trust or other
               loan documents (collectively, the "Mortgage Documents") (but only
               if and to the extent the Manager has been provided with copies of
               the  Mortgage  Documents).  Fee Owner shall not have the right to
               approve any Capital Budget.

               After a Capital  Budget has been adopted,  it shall be subject to
               review and modification in the event unpredicted or unanticipated
               capital  expenditures  are  required  during any  calendar  year.
               Manager  and Owner each  agree not to  unreasonably  withhold  or
               delay its consent to a proposed modification of a Capital Budget.
               Any amendment that is mutually  agreed upon shall be set forth in
               writing and signed by both parties.  It is  acknowledged by Owner
               that  capital  expenditures  required as a result of an emergency
               situation  shall not reduce  amounts  available  pursuant  to the
               Capital Budget or otherwise hereunder, other than to the extent a
               Capital Budget item is subsumed  within the capital  expenditures
               required as a result of the occurrence of the emergency;

        (viii) General  Maintenance  Non-Capital  Replacements.   Manager  shall
               supervise the maintenance,  repair and replacement of non-capital
               replacements;

         (ix)  Operating  Equipment.  Manager  shall  select  and  purchase  all
               operating  equipment  for the  Hotel  such as  linens,  utensils,
               uniforms and other  similar  items,  provided,  however,  that if
               Owner  determines that it can purchase  operating  equipment of a
               quality at least equal to that which Manager  generally uses at a
               price lower than the price  obtained by  Manager,  Manager  shall
               purchase such operating  equipment from the vendor  designated by
               Owner;

                                       6

<PAGE>

         (x)   Operating  Supplies.   Manager  shall  select  and  purchase  all
               operating supplies for the Hotel such as food,  beverages,  fuel,
               soap,  cleansing items,  stationery and other  consumable  items,
               provided,  however, that if Owner determines that it can purchase
               operating  supplies  of a quality  at least  equal to that  which
               Manager  generally  uses at a price lower than the price obtained
               by Manager,  Manager shall purchase such operating  supplies from
               the vendor designated by Owner;

         (xi)  Accounting  Standards.  Manager  shall  maintain  the  books  and
               records reflecting the operations of the Hotel in accordance with
               the accounting  practices of Manager in conformity with generally
               accepted  accounting  practices  consistently  applied  and shall
               adopt and  follow  the  fiscal  accounting  periods  utilized  by
               Manager  in its  normal  course  of  business.  The  Hotel  level
               generated   accounting  records  reflecting  detailed  day-to-day
               transactions of the Hotel's operations,  shall be kept by Manager
               at the  Hotel  or at  Manager's  regional  offices  or  corporate
               headquarters,   or  at  such  other  location  as  Manager  shall
               reasonably  determine.  Manager  shall  receive a monthly fee for
               accounting services provided to the Hotel ("Accounting Fee"). The
               current   Accounting  Fee  is  set  forth  on  Exhibit  "B".  The
               Accounting Fee shall be adjusted by Manager from time to time and
               set forth in the annual Operating Budget;

         (xii) Marketing and  Advertising.  Manager shall  advertise and promote
               the Hotel in coordination  with the sales and marketing  programs
               of  Manager  and  other  Homewood  Suites  hotels.   Manager  may
               participate  in sales and  promotional  campaigns and  activities
               involving   complimentary   rooms.   Manager,  in  marketing  and
               advertising the Hotel,  shall have the right to use marketing and
               advertising  services of  employees of Manager and its parent and
               affiliated companies not located at the Hotel. Manager may charge
               the Hotel for personnel and other costs and expenses  incurred in
               providing such services;  provided that (i) Manager's  allocation
               of such costs and expenses  among  hotels,  including  the Hotel,
               shall be pro rated  among all hotels  owned or managed by Manager
               and (ii) the annual  allocation of such costs and expenses to the
               Hotel shall not exceed $10,000.00.  Such costs and expenses shall
               be reflected in the budgets and operating  statements required to
               be prepared and submitted by Manager under this Agreement;

        (xiii) Permits and  Licenses.  Manager  shall  obtain and  maintain  the
               various permits and licenses  required or permitted to be held in
               its name that are  necessary  to enable  Manager to  operate  the
               Hotel in  accordance  with the  terms of this  Agreement  and the
               License  Agreement,  provided,  however,  that Manager shall only
               hold liquor licenses and alcoholic  beverage licenses if required
               by the laws of the jurisdiction in which the Hotel is located. In
               addition,  Manager shall upon request  cooperate  with and assist
               Owner in  obtaining  the various  permits and  licenses  that are
               required  to be held in the name of  either  or both of Owner and
               Fee Owner that are  necessary  to enable  Manager to operate  the
               Hotel.  Manager,  at  Owner's

                                       7

<PAGE>
               cost and expense, shall use all reasonable efforts, to the extent
               within its control,  to comply with the terms and  conditions  of
               all licenses and permits issued with respect to the Hotel and the
               business conducted at the Hotel,  including,  without limitation,
               the terms and conditions of the License Agreement;

         (xiv) Owner  Meetings.  The  Hotel's  general  manager  shall meet with
               Owner's   Representative   as  hereinafter   defined  in  Section
               4.01(viii)  quarterly  to review and  discuss  the  previous  and
               future month's operating  statement,  cash flow, budget,  capital
               expenditures,   important   personnel  matters  and  the  general
               concerns of Owner and Manager.  In addition,  a representative of
               Manager's corporate staff shall meet with Owner's  Representative
               quarterly to review and discuss the previous and future quarter's
               operating  statement,  cash flow, budget,  capital  expenditures,
               important personnel matters and the general concerns of Owner and
               Manager.  Except to the extent otherwise  mutually agreed upon by
               Owner and  Manager,  the  quarterly  meetings  described  in this
               clause (xiv) shall be held at the Hotel;

         (xv)  Insurance. Manager shall procure and maintain throughout the Term
               the insurance coverages set forth on Exhibit "D";

         (xvi) Compliance with Law. Manager, at Owner's cost and expense,  shall
               use all reasonable  efforts to comply with all laws,  ordinances,
               regulations and  requirements of any federal,  state or municipal
               government  that are  applicable  to the use and operation of the
               Hotel,  as well as with all orders and  requirements of the local
               fire  department,  of  which  Manager  has  knowledge;  provided,
               however,  that  Owner  shall  have the right to contest by proper
               legal proceedings, the validity of any such law, ordinance, rule,
               regulation,  order,  decision  or  requirement  and may  postpone
               compliance  therewith to the extent and in the manner provided by
               law until final  determination of any such  proceedings.  Manager
               promptly  shall  notify  Owner in writing of all notices of legal
               requirements  applicable  to  the  Hotel  that  are  received  by
               Manager;

        (xvii) Satisfaction  of  Obligations.  Manager  agrees to pay, when due,
               all  amounts  due  under  any  equipment  leases  and  all  other
               contracts and agreements relating to the operation or maintenance
               of the Hotel, and, if requested by Owner, any Mortgage  Documents
               relating to the loan from Owner's Leasehold  Mortgagee  ("Owner's
               Mortgage  Documents"),  but solely  from and to the  extent  that
               funds are  available in the Bank  Account(s),  and to comply,  at
               Owner's  cost  and  expense,   with  all  other   covenants   and
               obligations  contained  in the  equipment  leases and all utility
               contracts,  concession  agreements,  and service and  maintenance
               contracts, and, if requested by Owner, Owner's Mortgage Documents
               to the extent that compliance  therewith is within the reasonable
               control of Manager by reason of its  management  and operation of
               the Hotel pursuant to this Agreement;  provided, however, Manager
               shall have no  obligation  to comply with any  provisions  in the
               Mortgage  Documents that conflict with its rights and obligations
               under this Agreement. Manager shall have no

                                       8
<PAGE>

               obligation to perform or comply with any  obligations  of (i) Fee
               Owner or Owner under the Percentage Lease or (ii) Fee Owner under
               any  Mortgage  Documents  relating  to the loan from Fee  Owner's
               Mortgagee  (other  than any right to approve  or inspect  Capital
               Improvements contemplated by Section 3.01(vii) above);

      (xviii)  Requests  for   Information.    Manager   shall   respond,   with
               reasonable  promptness,  to any  information  requests by Owner's
               Leasehold   Mortgagee  in   accordance   with  Owner's   Mortgage
               Documents,  to the extent  such  information  is  required  to be
               furnished  by Manager to Owner  pursuant to this  Agreement.  Any
               additional  information or reports requested by Owner's Leasehold
               Mortgagee  shall be provided by Manager  only if Owner so directs
               Manager in writing and, to the extent such information or reports
               are not  being  prepared  for  Owner in the  ordinary  course  of
               business  pursuant  to this  Agreement,  Owner  agrees to pay the
               reasonable expenses of preparing such information and reports;

         (xix) Tax and Insurance Accruals.  If requested by Owner, Manager shall
               accrue and set aside on a monthly basis funds from Adjusted Gross
               Revenues if  available in the priority set forth on Exhibit B for
               the payment of real estate taxes and insurance premiums, and such
               accruals  shall  be  deposited  in a  separate  account  and  not
               commingled  with other  operating  accounts for Hotel  operations
               generally,  provided,  however,  that to the extent such accruals
               exceed the  amount  necessary  to pay the  actual  amount of real
               estate  taxes  and  insurance  premiums,  such  excess  shall  be
               available for operating  costs,  ownership  costs,  Owner's Basic
               Return, the Subordinated  Management Fee and the others items set
               forth on, and in the  priority  set forth on,  Exhibit B. If such
               accruals do not exceed the actual  amounts due in respect of real
               estate taxes and  insurance  premiums but Owner and Manager agree
               in writing, the tax and insurance accruals on deposit may be used
               from  time to time  to pay  operating  costs  if  Adjusted  Gross
               Revenues  are not  otherwise  sufficient  to pay  such  operating
               costs.

                                   ARTICLE 4

                               OWNER'S OBLIGATIONS

         Section 4.01.  Owner's  Obligations.  During the Term, Owner shall have
the obligations set forth below:

         (i)  License  Agreement.  Owner  shall  comply  with all the  terms and
              conditions of the License Agreement (specifically  including,  but
              not limited to, Licensee's obligation to pay the fees, charges and
              contributions  set forth in  paragraphs  3.c. and 7 of the License
              Agreement) and keep the License Agreement in full force and effect
              from the Effective Date through the remainder of the Term. Nothing
              in this  Agreement  shall be  interpreted  in a manner which would
              relieve  Owner  of  any  of  its  obligations  under  the  License
              Agreement;

                                       9

<PAGE>

         (ii)   Licenses and  Permits.  Owner shall  obtain and  maintain,  with
                Manager's   assistance   and   cooperation,   all   governmental
                permissions, licenses and permits required to be held in Owner's
                and/or Fee Owner's name that are necessary to enable  Manager to
                operate the Hotel in accordance with the terms of this Agreement
                and the License Agreement;

         (iii)  Insurance.  Owner shall procure and maintain throughout the Term
                the insurance coverages set forth on Exhibit "E";

         (iv)   Intentionally Omitted;

         (v)    Operating  Funds.  Owner shall  provide all funds  necessary  to
                enable  Manager to manage and  operate  the Hotel in  accordance
                with the  terms of this  Agreement  and the  License  Agreement,
                regardless  of the  designation  of a portion  of the  operating
                costs as Fee Ownership Costs. Owner agrees to deliver to Manager
                for deposit into the Bank  Account(s) on the Effective  Date the
                amount  specified  on  Exhibit  "B"  which  amount  shall be the
                "Minimum  Balance" to be  maintained  by Owner  during the first
                year of the Hotel's  operation.  The Minimum Balance  thereafter
                shall  be no less  than  the  Hotel's  operating  costs  for the
                preceding  fiscal  month.  The  Minimum  Balance  shall serve as
                working capital for the Hotel's  operations.  Owner agrees, upon
                Manager's written request,  to immediately  furnish Manager with
                sufficient  funds  to  make  up any  deficiency  in the  Minimum
                Balance;

         (vi)   Capital  Funds.  Owner shall expend such amounts for  renovation
                programs,  furnishings,  equipment  and ordinary  Hotel  capital
                replacement  items  as are  required  from  time  to time to (a)
                maintain the Hotel in good order and repair, (b) comply with the
                standards referred to in the License  Agreement,  and (c) comply
                with governmental  regulations and orders. Owner shall cooperate
                fully with Manager in  establishing  appropriate  procedures and
                timetables for Owner to undertake capital replacement projects.

                It is recognized that expenditures for capital  replacements are
                incapable of precise  calculation  in advance.  Therefore,  five
                percent (5%) of Gross  Revenues  each year shall be paid over in
                cash in each  calendar  month  after the  Effective  Date into a
                Reserve  Fund  (as  hereinafter  defined)  to  pay  for  capital
                replacements.  In lieu of funding  monthly into the Reserve Fund
                as contemplated  above,  Owner shall have the right, but not the
                obligation,  to deposit into the Reserve  Fund,  on or about the
                commencement  of each  year,  the full  amount  set forth in the
                Capital  Budget.  Manager shall  establish a reserve for capital
                replacements  on the books of account for the Hotel and the cash
                amounts  required  for  such  reserve  shall be  placed  into an
                interest-bearing account (the "Reserve Fund") established in the
                Hotel's  name at the  bank at  which  the  Bank  Account(s)  are
                established,  with

                                       10

<PAGE>

                Manager's  designees  being the only  authorized  signatories on
                said  account.  All amounts on deposit in the Reserve Fund shall
                be Owner's. Any expenditures for capital replacements during any
                calendar  year which have been  included in an approved  Capital
                Budget may be made  without  Owner's or Fee  Owner's  additional
                approval and, to the extent available,  shall be made by Manager
                from the Reserve  Fund  (including  accrued  interest and unused
                accumulations  from prior calendar years). Any amounts remaining
                in the Reserve Fund at the close of each  calendar year shall be
                carried  forward and  retained  in the Reserve  Fund until fully
                used as herein  provided.  To the  extent  the  Reserve  Fund is
                insufficient  at a particular  time or to the extent the Reserve
                Fund plus  anticipated  contributions  for the ensuing  calendar
                year is less  than the  budgeted  expenditures  set forth in the
                approved  Capital  Budget for the ensuing  calendar year then in
                either  such  event,  Manager  shall give Owner  written  notice
                thereof at least  sixty (60) days  before the  anticipated  date
                such funds  will be needed.  Owner  shall  supply the  necessary
                funds by deposit to the Reserve Fund at least  fifteen (15) days
                before the  anticipated  date such  funds  will be  needed.  All
                proceeds from the sale of capital items no longer needed for the
                operation of the Hotel shall be  deposited to the Reserve  Fund.
                Sale of such items shall be at the  discretion  of Manager,  and
                conducted in a commercially reasonable manner. Manager shall not
                dispose of any capital  item or group of capital  items having a
                value  in  excess  of ten  thousand  dollars  ($10,000)  without
                Owner's prior written  consent  unless the  replacement  of such
                capital item or group of capital items has been  contemplated in
                the  applicable  Capital  Budget.  Manager also shall obtain the
                consent of Owner's  Leasehold  Mortgagee  when  required for any
                disposition  of capital  items  otherwise  prohibited  under the
                terms of Owner's Mortgage Documents,  provided, however, that to
                the extent a capital item is being replaced  because the same is
                defective or obsolete or with an item of equal or greater  value
                no  such  consent  need  be  obtained  from  Owner's   Leasehold
                Mortgagee.  Upon  termination  of this  Agreement  for  whatever
                reason or upon sale of the Hotel,  Manager's right to expend any
                unused  portion  of the  Reserve  Fund shall  terminate  and the
                balance of the fund  shall be paid over to Owner,  less any sums
                then due Manager.

                To the extent any expenditure  under this Section 4.01(vi) shall
                exceed twenty thousand  dollars  ($20,000),  Manager shall first
                solicit  bids  from  at  least  three  different  reputable  and
                qualified third parties,  and the lowest of the bidders shall be
                selected unless  acceptance of a higher bid has been approved by
                Owner  in  writing  or  unless  Manager  provides  a  reasonably
                detailed  explanation for its selection of a bid higher than the
                lowest of the bidders;

         (vii)  Payments to Manager.  Owner  shall  promptly  pay to Manager all
                amounts due Manager under this Agreement;

                                       11

<PAGE>

         (viii) Owner's Representative.  Owner shall appoint a representative to
                represent Owner in all matters relating to this Agreement and/or
                the Hotel  ("Owner's  Representative").  Owner's initial Owner's
                Representative  shall be the  individual  named on Exhibit  "B".
                Manager  shall have the right to deal  solely  with the  Owner's
                Representative  on all  such  matters.  Manager  may  rely  upon
                statements  and  representations  of Owner's  Representative  as
                being from and binding upon Owner.  Owner may change its Owner's
                Representative  from time to time by providing written notice to
                Manager in the manner provided for herein. Owner shall cause the
                Owner's Representative to attend all quarterly meetings referred
                to in Section 3.01(xiv);

         (ix)   Owner's  Audits.   Owner  shall  have  the  right  to  have  its
                independent accounting firm examine the books and records of the
                Hotel at any reasonable time upon  forty-eight (48) hours notice
                to Manager;

         (x)    Right  of  Inspection  and  Review.   Owner,  Owner's  Leasehold
                Mortgagee,  Fee  Owner  and  Fee  Owner's  Mortgagee  and  their
                respective    accountants,    attorneys,    agents   and   other
                representatives and invitees, shall have the right to enter upon
                any part of the  Hotel at all  reasonable  times  during  normal
                business  hours  and  during  the  term of this  Agreement  upon
                reasonable  prior notice to Manager for the purpose of examining
                or  inspecting  the  Hotel,  showing  the  Hotel to  prospective
                purchasers  or  mortgagees,  or  auditing,  examining  or making
                extracts  of books and  records of the  Hotel,  or for any other
                purpose which Owner,  in its reasonable  discretion,  shall deem
                necessary  or  advisable,  but the same  shall  be done  with as
                little  disruption  to the  business  of the  Hotel as under the
                circumstances is reasonable; and

         (xi)   Quiet and Peaceable  Operation.  Owner shall ensure that Manager
                is able to peaceably and quietly operate the Hotel in accordance
                with  the  terms  of  this  Agreement,  free  from  molestation,
                eviction  and  disturbance  by Owner or by any  other  person or
                persons  claiming  by,  through  or  under  Owner.  Owner  shall
                undertake and prosecute all reasonable and appropriate  actions,
                judicial  or  otherwise,  required  to  assure  such  quiet  and
                peaceable operations by Manager.

                                   ARTICLE 5

                                 MANAGEMENT FEE

         Section  5.01.  Management  Fee. On the first day of each fiscal  month
after the Effective Date,  Manager is authorized by Owner to pay itself from the
Bank  Account(s)  the  Management  Fees  calculated  in the  manner set forth on
Exhibit "C".

                                       12

<PAGE>

                                   ARTICLE 6

                              CLAIMS AND LIABILITY

         Section 6.01.  Claims and Liability.  Owner and Manager  mutually agree
for  the  benefit  of each  other  to look  only  to the  appropriate  insurance
coverages in effect  pursuant to this Agreement in the event any demand,  claim,
action,  damage,  loss,  liability  or  expense  occurs as a result of injury to
person or damage to property regardless whether any such demand,  claim, action,
damage,  loss,  liability or expense is caused or contributed  to, by or results
from the  negligence  of Owner or  Manager  or their  subsidiaries,  affiliates,
employees, directors, officers, agents or independent contractors and regardless
whether the injury to person or damage to property occurs in and about the Hotel
or elsewhere as a result of the performance of this Agreement.  Nevertheless, in
the event the  insurance  proceeds  are  insufficient  or there is no  insurance
coverage to satisfy the demand,  claim,  action,  loss, liability or expense and
the same did not arise out of the gross  negligence  or  willful  misconduct  of
Manager,  Owner  agrees,  at its expense,  to indemnify and hold Manager and its
subsidiaries,  affiliates, officers, directors, employees, agents or independent
contractors harmless to the extent of the excess liability.

         Section 6.02. Survival.  The provisions of this Article 6 shall survive
any  cancellation,  termination or expiration of this Agreement and shall remain
in full force and effect until such time as the applicable statute of limitation
shall cut off all demands,  claims,  actions,  damages,  losses,  liabilities or
expenses which are the subject of the provisions of this Article 6.

                                   ARTICLE 7

                         CLOSURE, EMERGENCIES AND DELAYS

         Section 7.01.  Events of Force Majeure.  If at any time during the Term
of this Agreement it becomes necessary, in Manager's opinion, to cease operation
of the Hotel in order to protect the Hotel and/or the health, safety and welfare
of the guests and/or  employees of the Hotel for reasons  beyond the  reasonable
control of Manager,  such as, but not  limited  to,  acts of war,  insurrection,
civil strife and commotion,  labor unrest,  governmental regulations and orders,
shortage or lack of adequate supplies or lack of skilled or unskilled employees,
contagious illness,  catastrophic events or acts of God, which shall not include
Manager's  computer  systems and software not being able to  accurately  process
date data and information, including, but not limited to, calculating, comparing
and sequencing from, into and between the twentieth  century,  the year 2000 and
the twenty-first century ("Force Majeure"), then in such event or similar events
Manager may close and cease operation of all or any part of the Hotel, reopening
and  commencing  operation  when  Manager  deems  that such may be done  without
jeopardy to the Hotel, its guests and employees.

         Manager and Owner agree,  except as otherwise provided herein, that the
time within  which a party is required to perform an  obligation  and  Manager's
right to manage the Hotel under this Agreement shall be extended for a period of
time equivalent to the period of delay caused by an event of Force Majeure.

                                       13

<PAGE>

         Section 7.02. Emergencies. If a condition of an emergency nature should
exist which requires that  immediate  repairs be made for the  preservation  and
protection  of the Hotel,  its guests or  employees,  or to assure the continued
operation of the Hotel,  Manager is  authorized  to take all actions and to make
all  expenditures  necessary  to repair and correct such  condition,  regardless
whether  provisions  have been made in the applicable  budget for such emergency
expenditures. Expenditures made by Manager in connection with an emergency shall
be paid, in Manager's sole discretion,  out of the Bank Account(s).  Owner shall
immediately  replenish such funds paid from the Bank  Account(s).  Manager shall
endeavor to communicate  with Owner prior to making any  expenditures to correct
an emergency  condition,  but in any event shall promptly notify Owner after the
emergency expenditures have been made.

                                   ARTICLE 8

                            CONDEMNATION AND CASUALTY

         Section  8.01.  Condemnation.  If the  Hotel is  taken  in any  eminent
domain,   expropriation,   condemnation,   compulsory   acquisition  or  similar
proceeding  by  a  competent  authority,   this  Agreement  shall  automatically
terminate as of the date of taking or  condemnation.  Any  compensation  for the
taking or  condemnation of the physical  facility  comprising the Hotel shall be
paid to Owner. Manager,  however, with the full cooperation of Owner, shall have
the  right to file a claim  with  the  appropriate  authorities  for the loss of
Management  Fee income for the remainder of the Term and any  extension  thereof
because  of the  condemnation  or  taking.  If only a portion of the Hotel is so
taken and the taking does not make it  unreasonable  or imprudent,  in Manager's
and Owner's opinion, to operate the remainder as a hotel of the type immediately
preceding such taking,  this Agreement  shall not  terminate.  Any  compensation
shall be used,  however, in whole or in part, to render the Hotel a complete and
satisfactory  architectural unit as a hotel of the same type and class as it was
immediately preceding such taking or condemnation.

         Section 8.02. Casualty. In the event of a fire or other casualty, Owner
shall comply with the terms of the License  Agreement and this  Agreement  shall
remain in full force and effect so long as the License Agreement remains in full
force and effect.

                                   ARTICLE 9

                               TERMINATION RIGHTS

         Section  9.01.   Bankruptcy  and   Dissolution.   If  either  party  is
voluntarily  or  involuntarily  dissolved or declared  bankrupt,  insolvent,  or
commits an act of bankruptcy,  or if a company enters into  liquidation  whether
compulsory  or  voluntary  otherwise  than for the  purpose of  amalgamation  or
reconstruction,  or compounds  with its creditors,  or has a receiver  appointed
over all or any part of its assets, or passes title in lieu of foreclosure,  the
other party may terminate this Agreement  immediately upon serving notice to the
other party, without liability on the part of the terminating party.

                                       14

<PAGE>

         Section  9.02.  Manager's  Termination  Right Upon the  Termination  of
License  Agreement.  If the  License  Agreement  is  terminated  for any reason,
Manager may terminate this Agreement  immediately  upon serving notice to Owner,
without  liability  on the  part  of  Manager.  Upon  such  termination,  unless
specifically provided otherwise herein, Manager shall be entitled to receive the
Sale  Termination  Fee  calculated  in the  manner  set  forth on  Exhibit  "B".
Notwithstanding  anything  contained  herein,  Manager  shall not be entitled to
receive the Sale Termination Fee if the License Agreement is terminated  because
of Manager's failure to perform its obligations  hereunder and Manager's failure
was not caused by the failure of Owner to perform its obligations hereunder.

         Section 9.03. (a) Owner's Default. The following shall, at the election
of Manager,  constitute  events of default by Owner under this  Agreement  (each
such event being referred to herein as an "Owner's Default"):

         (i)    The failure of Owner to pay any amount to Manager  provided  for
                herein  for a period of ten (10) days  after  written  notice by
                Manager of such failure to pay.

         (ii)   Failure  of  Owner  to keep or  perform  any  duty,  obligation,
                covenant or agreement of Owner under this Agreement  (other than
                the  obligation  to pay that is the  subject  of  paragraph  (i)
                above) and such  failure  continues  for a period of thirty (30)
                days after  receipt  of written  notice  thereof  from  Manager;
                provided, however, if such failure cannot reasonably be remedied
                or  corrected  within such  thirty  (30) day  period,  then such
                thirty  (30) day period  shall be extended  for such  additional
                period as may be  reasonably  required to cure such  default but
                only if  Owner  promptly  commences  to cure  such  default  and
                continues  thereafter  with all due diligence to complete such a
                cure to the satisfaction of Manager.

         (iii)  The  occurrence of a default under or other  termination  of the
                Percentage Lease.

         (iv)   Failure  of Fee Owner to keep or perform  any duty,  obligation,
                covenant or agreement of Fee Owner under the "Comfort Letter" of
                even date  herewith  from  Manager  to Fee  Owner  agreed to and
                accepted  by Fee Owner (the  "Comfort  Letter")  relating to the
                Hotel and such  failure  continues  for a period of thirty  (30)
                days after  receipt  of written  notice  thereof  from  Manager;
                provided, however, if such failure cannot reasonably be remedied
                or  corrected  within such  thirty  (30) day  period,  then such
                thirty  (30) day period  shall be extended  for such  additional
                period as may be reasonably  required to cure such default,  but
                only if Fee Owner  promptly  commences  to cure such default and
                continues  thereafter  with all due diligence to complete such a
                cure to the satisfaction of Manager.

                                       15

<PAGE>

         (v)    The  occurrence  of an "Event of  Default"  (as  defined  in the
                Acquisition  Mortgage  Documents (as herein  defined)) under the
                Acquisition Mortgage Documents.

         On the occurrence of any Owner's Default,  Manager shall have the right
to  terminate  this  Agreement  by written  notice to Owner,  in addition to its
rights to seek damages or other remedies available to it at law or in equity.

         (b) Manager  Default.  The following  shall,  at the election of Owner,
constitute an event of default by Manager under this Agreement (such event being
referred  to herein as the  "Manager  Default"):  Failure  of Manager to keep or
perform  any duty,  obligation,  covenant  or  agreement  of Manager  under this
Agreement and such failure shall continue for a period of thirty (30) days after
receipt of written notice thereof from Owner; provided, however, if such failure
cannot  reasonably be remedied or corrected  within such thirty (30) day period,
then such thirty (30) day period shall be extended for such additional period as
may be reasonably  required to cure such default  provided that Manager promptly
commences to cure such default and continues  thereafter  with all due diligence
to complete such cure to the  satisfaction of Owner.  Upon the occurrence of the
Manager  Default,  Owner shall have the right to  terminate  this  Agreement  by
written  notice to Manager,  in  addition to its right to seek  damages or other
remedies available to it at law or in equity.

         Section 9.04. Owner's -- Termination  Rights. (a) Provided Owner is not
in default  under this  Agreement  at the time of  delivery  of the  Termination
Notice (as defined herein) or on the Termination Date (as defined herein), Owner
shall have the right,  after the tenth  anniversary  of the  Effective  Date, to
terminate this Agreement by giving  written notice (a  "Termination  Notice") to
Manager setting forth an effective  termination date which shall be the last day
of a month (the  "Termination  Date")  and which  shall be not less than six (6)
months  nor more than  twelve  (12)  months  after the date of such  Termination
Notice and shall in no event be prior to the tenth  anniversary of the Effective
Date. If Owner terminates this Agreement  pursuant to this Section  9.04(a),  in
addition  to payment of all other fees and  reimbursable  sums due to Manager on
the Termination  Date,  Manager shall have the right to receive the Cancellation
Termination  Fee  calculated  in the  manner  set  forth on  Exhibit  "B".  Such
termination  shall be effective so long as on or before the Termination Date (x)
Owner  pays  to  Manager  the  Cancellation  Termination  Fee  and  all  amounts
determined by Owner and Manager, each acting reasonably and in good faith, to be
due and owing to Manager  pursuant to the terms and provisions of this Agreement
and (y) all sums then  outstanding  under the  Acquisition  Loan shall have been
paid in full.

         (b) (i) Provided  Owner is not in default under this  Agreement,  Owner
shall have the right to terminate this Agreement if, beginning in the first full
calendar  year  of  Hotel  operations,  Manager  fails  to  achieve,  in any two
consecutive  calendar years, a Gross Operating  Profit (as herein defined) which
is at least eighty-five  percent (85%) of the amount set forth in the respective
annual Operating Budget for Gross Operating Profit ("Budgeted  GOP");  provided,
however,  that, if within sixty (60) days of receipt of a notice from Owner that
Owner intends to terminate this Agreement  pursuant to this Section  9.04(b)(i),
Manager  pays in  cash to  Owner  the  difference  between  the  achieved  Gross
Operating  Profit and  eighty-five  percent  (85%) of the  Budgeted  GOP for the

                                       16

<PAGE>

second of the two consecutive calendar years in which shortfalls occurred,  then
Owner shall not be entitled to terminate this Agreement. If Owner is entitled to
and elects to  terminate  this  Agreement,  Owner shall give  written  notice to
Manager  within  ninety  (90) days  following  delivery  to Owner of the  annual
financial  statements  for the calendar  year. If such notice is not provided by
Owner to Manager  within such  ninety (90) day period,  Owner shall be deemed to
have waived its right  hereunder to terminate this Agreement with respect to the
calendar year as to which the failure occurred. In the event Owner has the right
to  terminate  with  respect to a calendar  year but waives such right,  Owner's
right to  terminate  shall  carry  forward and shall be  applicable  to the next
succeeding  calendar year if Manager fails to achieve  eighty-five percent (85%)
of Budgeted GOP for the next succeeding year, subject to Manager's right to cure
for such calendar year. For purposes of this section,  the term "Gross Operating
Profit" shall mean the amount,  if any, by which Adjusted Gross Revenues for any
calendar year exceed operating costs for such calendar year.

         (ii) The  provisions  of  clause  (b)(i)  above  shall not apply in any
calendar  year in which the  operation  of the Hotel,  or the use of the Hotel's
facilities,  are  significantly  disrupted  by casualty  loss,  strike,  eminent
domain, or other events of Force Majeure that are beyond the reasonable  control
of Manager,  or major  repairs to or  refurbishment  of the Hotel.  In the event
Owner  exercises the right of termination  contemplated  in clause (b)(i) above,
(a) Owner shall have no obligation to pay any  termination  fee or other damages
to Manager as a  consequence  of such  termination,  except  that Owner shall be
liable to  Manager  and shall pay  immediately  upon such  termination  all fees
earned  and other  amounts  and  expenses  payable  or  reimbursable  to Manager
pursuant to this  Agreement  and (b) the  exercise  of the right of  termination
shall only be valid if on or prior to the termination  date all sums outstanding
under the Acquisition Loan shall have been paid in full.

         Section 9.05. Manager's Right to Terminate Upon Sale. If there is to be
a "Change in Ownership" as defined in the License Agreement and the new owner of
the Hotel has not received a Homewood Suites License Agreement for the operation
of the Hotel  (for  purposes  of this  Section  9.05,  said  agreement  shall be
referred  to as the  "License  Agreement"),  Manager  shall  have the right upon
giving  notice to Owner to  terminate  this  Agreement on the date the Change of
Ownership  occurs.  If there is a Change of  Ownership  and the new owner of the
Hotel  receives  a  License  Agreement,  but does not enter  into an  assumption
agreement,  pursuant to which the new owner  assumes all of Owner's  obligations
hereunder,  with  Manager  prior to the date the  Change  of  Ownership  occurs,
Manager  shall have the right,  upon giving notice to Owner,  to terminate  this
Agreement on the date the Change of Ownership occurs. If Manager terminates this
Agreement  pursuant to this  Section  9.05 (in  addition to payment of all other
fees and reimbursable  sums due to Manager to the date of termination),  Manager
shall have the right to  receive  the Sale  Termination  Fee  calculated  in the
manner set forth on Exhibit  "B". If a Change of Ownership  occurs,  and the new
owner  obtains a License  Agreement  and the new owner and Manager enter into an
assumption  agreement pursuant to which this Agreement remains in full force and
effect,  Manager  shall not receive a  Termination  Fee and  references  in this
Agreement to License  Agreement shall be to the License  Agreement with such new
owner.

                                       17

<PAGE>

         Section  9.06.  Delays.  Notwithstanding  any other  provision  of this
Agreement, if any event of the type described in Article 7 or 8 occurs after the
Effective Date and Manager is unable to operate the Hotel for a period of ninety
(90) days, Manager shall have the option to terminate this Agreement upon thirty
(30) days'  prior  written  notice to Owner,  without  liability  on the part of
Manager,  its  parent  or  their  subsidiaries  or  affiliates.  Under  any such
circumstances, the Acquisition Loan shall be repaid in full.

         Section 9.07.  Employment  Solicitation  Restriction Upon  Termination.
Owner and its affiliates and subsidiaries and their successors  hereby agree not
to solicit  the  employment  of the Hotel  general  manager,  assistant  general
manager  or  director  of sales at any time  during  the term of this  Agreement
without Manager's prior written approval.  Furthermore, Owner and its affiliates
and subsidiaries and successors agree not to employ the Hotel's general manager,
assistant  general  manager  or  director  of sales for a period of twelve  (12)
months after the termination or expiration of this Agreement,  without Manager's
prior written approval.

         Section 9.08. Transition Upon Termination. Upon any termination of this
Agreement,  all fees and  payments  due to Manager as of the  effective  date of
termination,  including all accrued and unpaid fees and reimbursable charges and
expenses,  shall be paid to Manager within ten (10) days after delivery to Owner
of an itemized statement of such fees and payments. Manager shall be entitled to
exercise  the right of setoff  provided in Section  11.16 hereof with respect to
such fees,  charges and expenses.  Manager shall deliver to Owner, or such other
person or persons as Owner may designate, copies of all books and records of the
Hotel and all funds in the possession of Manager  belonging to Owner or received
by Manager pursuant to the terms of this Agreement,  and shall assign,  transfer
or convey to such person or persons all service  contracts and personal property
relating to or used in the operation and  maintenance  of the Hotel,  except any
personal property which is owned by Manager. Manager also shall, for a period of
thirty (30) days after such expiration or termination,  make itself available to
consult  with and advise  Owner or such other  person or persons  regarding  the
operation and  maintenance of the Hotel at a consultation  fee to be agreed upon
between Manager and Owner.

                                   ARTICLE 10

                         APPLICABLE LAW AND ARBITRATION

         Section  10.01.  Applicable  Law.  The  interpretation,   validity  and
performance  of  this  Agreement   shall  be  governed  by  the  procedural  and
substantive  laws of the state of  Tennessee  and any and all  disputes,  except
those  specifically  referred to below,  shall be brought and maintained  within
that state. If any judicial  authority holds or declares that the law of another
jurisdiction is applicable,  this Agreement shall remain  enforceable  under the
laws of that jurisdiction.

         Section 10.02. Arbitration of Financial Matters.

                Subsection 10.02.1.  Matters to be Submitted to Arbitration.  In
         the case of a dispute  with  respect to any of the  following  matters,
         either  party may submit

                                       18

<PAGE>

         such matter to arbitration  which shall be conducted by the Accountants
         (as hereinafter defined in Subsection 10.02.2):  (a) computation of the
         Management Fees; (b) reimbursements due to Manager under the provisions
         of Section 11.15;  (c) any adjustment in the Minimum  Balance under the
         provisions of Section 4.01(v);  (d) any adjustment in dollar amounts of
         insurance  coverages  required  to be  maintained;  and (e) any dispute
         concerning the approval of an Operating Budget.

                All disputes  concerning the above matters shall be submitted to
         the  Accountants.  The decision of the Accountants  with respect to any
         matters  submitted  to them  under  this  Subsection  10.02.1  shall be
         binding on both parties hereto.

                Subsection 10.02.2. The Accountants.  The "Accountants" shall be
         one of three (3) firms of certified  public  accountants  of recognized
         national  standing in the hotel industry.  Until otherwise agreed to by
         the  parties,  the  three (3) firms  shall be  Arthur  Andersen  & Co.,
         PriceWaterhouseCoopers, and Ernst & Young, notwithstanding any existing
         relationships  which may exist between Owner and such accounting  firms
         or Manager and such accounting  firms. The party desiring to submit any
         matter to arbitration  under Subsection  10.02.1 shall do so by written
         notice to the other party, which notice shall set forth the items to be
         arbitrated  and such party's  choice of one of the three (3) accounting
         firms.  The party  receiving such notice shall within fifteen (15) days
         after receipt of such notice either  approve such choice,  or designate
         one of the remaining two (2) firms by written  notice back to the first
         party, and the first party shall within fifteen (15) days after receipt
         of such notice either  approve such choice or  disapprove  the same. If
         both parties  shall have  approved one of the three (3) firms under the
         preceding  sentence,  then such firm shall be the "Accountants" for the
         purposes of arbitrating the dispute; if the parties are unable to agree
         on an accounting firm, then the third firm, which was not designated by
         either  party,  shall  be  the  "Accountants"  for  such  purpose.  The
         Accountants  shall be required to render a decision in accordance  with
         the procedures described in Subsection 10.02.3 within fifteen (15) days
         after being notified of their  selection.  The fees and expenses of the
         Accountants will be paid by the non-prevailing party.

                Subsection 10.02.3.  Procedures.  In all arbitration proceedings
         submitted  to the  Accountants,  the  Accountants  shall be required to
         agree upon and approve the substantive  position  advocated by Owner or
         Manager with respect to each disputed  item.  Any decision  rendered by
         the Accountants  that does not reflect the position  advocated by Owner
         or  Manager  shall be beyond  the  scope of  authority  granted  to the
         Accountants and,  consequently,  may be overturned by either party. All
         proceedings by the  Accountants  shall be conducted in accordance  with
         the Uniform  Arbitration  Act,  except to the extent the  provisions of
         such act are modified by this Agreement or the mutual  agreement of the
         parties.  Unless otherwise agreed, all arbitration proceedings shall be
         conducted at the Hotel.

         Section 10.03.  Performance During Disputes. It is mutually agreed that
during any kind of  controversy,  claim,  disagreement  or dispute,  including a
dispute as to the validity of this Agreement, Manager shall remain in possession
of the Hotel as

                                       19

<PAGE>

Manager;  and  Owner  and  Manager  shall  continue  their  performance  of  the
provisions  of this  Agreement  and its  exhibits.  Manager shall be entitled to
injunctive  relief from a civil court or other  competent  authority to maintain
possession  in  the  event  of  a  threatened   eviction   during  any  dispute,
controversy, claim or disagreement arising out of this Agreement.

                                   ARTICLE 11

                               GENERAL PROVISIONS

         Section 11.01.  Authorization.  Owner and Manager represent and warrant
to each other that their respective  corporations  have full power and authority
to execute this  Agreement and to be bound by and perform the terms  hereof.  On
request, each party shall furnish the other evidence of such authority.

         Section 11.02.  Relationship.  Manager and Owner shall not be construed
as joint  venturers  or partners of each other by reason of this  Agreement  and
neither  shall have the power to bind or obligate  the other except as set forth
in this Agreement.

         Section 11.03.  Manager's  Contractual  Authority in the Performance of
this  Agreement.  Manager is authorized  to make,  enter into and perform in the
name of and for the account of Owner any contracts  deemed  necessary by Manager
to perform its  obligations  under this  Agreement.  In exercising its authority
hereunder, Manager shall be entitled to execute and enter into contracts without
the specific  approval of Owner and Fee Owner so long as each such  contract (i)
requires expenditures or otherwise establishes liability of twenty-five thousand
dollars  ($25,000)  or less and (ii) has a term  (excluding  options in favor of
Manager and Owner to renew) of one (1) year or less or can be cancelled  without
penalty  upon sixty  (60)  days'  notice or less,  provided,  however,  that any
contract  entered into pursuant to the last paragraph of Section  4.01(vi) shall
be governed by the provisions of said Section  4.01(vi).  Any contract that does
not satisfy the conditions set forth in the preceding sentence shall require the
prior approval in each instance of Owner, regardless whether such expenditure is
authorized in an applicable budget,  unless the form of the contract proposed to
be entered into has been approved in advance by Owner.  Owner agrees to promptly
respond to any request for  approval and further  agrees that its consent  shall
not be  unreasonably  withheld or delayed.  Manager shall be authorized to enter
into contracts with affiliates of Manager,  but only so long as Owner shall have
approved in advance the cost of the service or product to be provided.

         Section 11.04. Further Actions.  Owner and Manager agree to execute all
contracts,  agreements and documents and to take all actions necessary to comply
with the provisions of this Agreement and the intent hereof.

         Section  11.05.  Successors and Assigns.  Owner's  consent shall not be
required for Manager to assign any of its rights,  interests or  obligations  as
Manager  hereunder to any parent,  subsidiary  or affiliate of Manager or Promus
Hotel  Corporation,  provided that any such  assignee  agrees to be bound by the
terms and conditions of this Agreement and provided, further, that such assignee
has  received  an  assignment  of all  or  substantially  all of the  management
agreements entered into by Manager with respect to

                                       20

<PAGE>

other Homewood  Suites hotels.  The acquisition of Manager or its parent company
by a third party shall not constitute an assignment of this Agreement by Manager
and this  Agreement  shall  remain in full  force and effect  between  Owner and
Manager.  Except  as  herein  provided,  Manager  shall  not  assign  any of its
obligations  hereunder  without the prior written consent of Owner,  which shall
not be unreasonably withheld or delayed. Owner shall be deemed to have consented
to such an  assignment  of this  Agreement if Owner has not notified  Manager in
writing  to the  contrary  within  fifteen  (15) days after  Owner has  received
Manager's  request for Owner's consent to an assignment.  Manager shall have the
right to pledge or assign its right to receive  the  Management  Fees  hereunder
without the prior written consent of Owner.

         Owner  shall have the right to assign this  Agreement  to the person or
entity which has obtained (i) subleasehold title to the Hotel in accordance with
the Comfort Letter and (ii) a Homewood  Suites License  Agreement for the Hotel.
Except as  hereinabove  provided,  Owner shall not have the right to assign this
Agreement.

         Section 11.06.  Notices. All notices or other  communications  provided
for in this  Agreement  shall be in writing and shall be either hand  delivered,
delivered  by  certified  mail,  postage  prepaid,   return  receipt  requested,
delivered by an overnight  delivery  service,  or delivered by facsimile machine
(with an executed original sent the same day by an overnight  delivery service),
addressed as set forth on Exhibit "B".  Notices shall be deemed delivered on the
date that is four (4)  calendar  days after the notice is  deposited in the U.S.
mail (not  counting  the mailing  date) if sent by certified  mail,  or, if hand
delivered,  on the date the hand  delivery is made, or if delivered by facsimile
machine, on the date the transmission is made. If given by an overnight delivery
service, the notice shall be deemed delivered on the next business day following
the date that the notice is deposited with the overnight  delivery service.  The
addresses  given above may be changed by any party by notice given in the manner
provided herein.

         Section  11.07.  Documents.  Owner shall furnish  Manager copies of all
leases, title documents,  property tax receipts and bills, insurance statements,
all financing  documents  (including notes and mortgages)  relating to the Hotel
and such other documents pertaining to the Hotel as Manager shall request.

         Section 11.08. Defense. Manager shall defend and/or settle any claim or
legal  action  brought  against  Manager  or  Owner,  individually,  jointly  or
severally in connection  with the  operation of the Hotel.  Manager shall retain
and  supervise  legal  counsel,   accountants  and  such  other   professionals,
consultants and specialists as Manager deems appropriate to defend and/or settle
any such claim or cause of  action.  Owner  shall have the right to  participate
actively in the defense of any such claim or cause of action in which Owner is a
named defendant. Owner's approval shall be required with respect to any proposed
settlement  of any claim or cause of action in which  Owner is a named  party or
that is not covered by insurance  (excluding any deductible  amount specified in
the applicable policy of insurance).  Manager shall confer with Owner concerning
any  settlement  proposal that Manager is considering  accepting,  regardless of
whether Owner is a named party,  but Owner's  approval  shall not be required if
Owner is not a named  party and the  settlement  is  covered by  insurance.  All
liabilities,  costs, and expenses,  including attorneys' fees and disbursements,
incurred in defending  and/or  settling any such claim or legal action which are
not covered by insurance shall be paid by Owner.

                                       21

<PAGE>

         Section  11.09.  Waivers.  No  failure  or delay by Manager or Owner to
insist upon the strict performance of any covenant, agreement, term or condition
of this Agreement, or to exercise any right or remedy consequent upon the breach
thereof,  shall constitute a waiver of any such breach or any subsequent  breach
of such covenant, agreement, term or condition. No covenant, agreement, term, or
condition of this  Agreement and no breach  thereof shall be waived,  altered or
modified except by written  instrument.  No waiver of any breach shall affect or
alter this Agreement, but each and every covenant, agreement, term and condition
of this  Agreement  shall  continue in full force and effect with respect to any
other then existing or subsequent breach thereof.

         Section  11.10.   Changes.  Any  change  to  or  modification  of  this
Agreement,  including, without limitation, any change in the application of this
Agreement to the Hotel,  must be evidenced by a written  document signed by both
parties hereto.

         Section 11.11.  Captions. The captions for each Article and Section are
intended for convenience only.

         Section 11.12. Severability.  If any of the terms and provisions hereof
shall be held invalid or  unenforceable,  such  invalidity  or  unenforceability
shall not affect any of the other terms or provisions hereof.  If, however,  any
material part of a party's rights under this Agreement shall be declared invalid
or  unenforceable   (specifically  including  Manager's  right  to  receive  its
Management  Fees),  the  party  whose  rights  have  been  declared  invalid  or
unenforceable shall have the option to terminate this Agreement upon thirty (30)
days' written  notice to the other party,  without  liability on the part of the
terminating party.

         Section 11.13.  Interest. Any amount payable to Manager or Owner by the
other which has not been paid when due shall  accrue  interest at the lesser of:
(a) the highest legal limit in the state in which the Hotel is located,  (b) the
highest legal limit in the state of Tennessee, or (c) two percentage points (2%)
over the published  base rate of interest  charged by Citibank,  N.A., New York,
New York, to borrowers on ninety (90) day  unsecured  commercial  loans,  as the
same may be changed from time to time.

         Section  11.14.  Reimbursement.  The  performance  by  Manager  of  its
responsibilities  under this  Agreement  are  conditioned  upon Owner  providing
sufficient  funds to Manager on a timely basis to enable  Manager to perform its
obligations hereunder.  Nevertheless,  Manager shall be entitled, at its option,
after first providing not less than ten (10) days' prior written notice to Owner
specifying  the  obligations  to be  satisfied  and the  amount  of  money to be
advanced,  to advance funds or contribute  property,  on behalf of the Owner, to
satisfy  obligations of Owner in connection  with the Hotel and this  Agreement.
Manager shall keep  appropriate  records to document all  reimbursable  expenses
paid by Manager,  which records shall be made  available for inspection by Owner
or its agents upon request. Owner agrees to reimburse Manager with interest upon
demand for money paid or property  contributed by Manager to satisfy obligations
of Owner in  connection  with the Hotel and this  Agreement.  Interest  shall be
calculated  at the rate set  forth in  Section  11.13  from the date  Owner  was
obligated to remit the funds or contribute the property for the  satisfaction of
such obligation to the date reimbursement is made.

                                       22
<PAGE>

         Section  11.15.  Travel and  Out-of-Pocket  Expenses.  Manager shall be
reimbursed for all  reasonable  travel and  out-of-pocket  expenses of Manager's
employees  reasonably  incurred in the performance of this Agreement,  provided,
however,  that travel and  out-of-pocket  expenses  of officers of Manager,  its
parent and affiliates  shall not be  reimbursable  by Owner.  Manager shall have
sole  discretion,  which shall not be unreasonably  exercised,  to determine the
necessity for such travel or other expenses.

         Section  11.16.  Set  off.  Without  prejudice  to  Manager's  right to
terminate this Agreement  pursuant to the provisions of this Agreement,  Manager
may at any time and without  notice to Owner set off or transfer any sum or sums
held by Manager or other  affiliate  of Promus  Hotels,  Inc. to the order or on
behalf of Owner or Fee Owner or  standing to the credit of Owner or Fee Owner in
the Bank Account(s) in or towards  satisfaction of any of Owner's liabilities to
Manager in respect of all sums due to Manager under the terms of this Agreement.

         Section 11.17. Third Party  Beneficiary.  This Agreement is exclusively
for the  benefit of the  parties  hereto and it may not be enforced by any party
other than the parties to this Agreement and shall not give rise to liability to
any third party other than the authorized  successors and assigns of the parties
hereto.

         Section 11.18.  Brokerage.  Manager and Owner  represent and warrant to
each other that neither has sought the services of a broker,  finder or agent in
this transaction,  and neither has employed, nor authorized, any other person to
act in such capacity. Manager and Owner each hereby agrees to indemnify and hold
the other harmless from and against any and all claims, loss, liability,  damage
or expenses (including  reasonable  attorneys' fees) suffered or incurred by the
other  party as a result of a claim  brought  by a person or entity  engaged  or
claiming to be engaged as a finder, broker or agent by the indemnifying party.

         Section 11.19. Survival of Covenants.  Any covenant,  term or provision
of this Agreement which, in order to be effective,  must survive the termination
of this Agreement, shall survive any such termination.

         Section 11.20. Estoppel Certificate. Manager and Owner agree to furnish
to the other party, from time to time upon request,  an estoppel  certificate in
such reasonable  form as the requesting  party may request stating whether there
have been any defaults  under this Agreement  known to the party  furnishing the
estoppel  certificate and such other information relating to the Hotel as may be
reasonably requested.

         Section  11.21.  Other  Agreements.  Except to the extent as may now or
hereafter be specifically provided, nothing contained in this Agreement shall be
deemed to modify any other  agreement  between Owner and Manager with respect to
the Hotel or any other  property.  This  Agreement,  together  with the  Comfort
Letter,  contains the entire agreement  between Owner and Manager  regarding the
management of the Hotel.

         Section 11.22.  Periods of Time.  Whenever any  determination  is to be
made or action is to be taken on a date  specified  in this  Agreement,  if such
date shall fall on a  Saturday,  Sunday or legal  holiday  under the laws of the
states of Tennessee and Virginia and/or the state in which the Hotel is located,
then in such event said date  shall be  extended  to the next day which is not a
Saturday, Sunday or legal holiday.

                                       23

<PAGE>

         Section 11.23.  Preparation of Agreement.  This Agreement  shall not be
construed more strongly  against  either party  regardless of who is responsible
for its preparation.

         Section 11.24.  Exhibits. All exhibits attached hereto are incorporated
herein by reference  and made a part hereof as if fully  rewritten or reproduced
herein.

         Section  11.25.  Attorneys'  Fees and Other Costs.  The parties to this
Agreement  shall bear their own attorneys'  fees in relation to negotiating  and
drafting this Agreement. Should Owner or Manager engage in litigation to enforce
their respective  rights pursuant to this Agreement,  the prevailing party shall
have the right to indemnity by the  non-prevailing  party for an amount equal to
the prevailing  party's  reasonable  attorneys'  fees,  court costs and expenses
arising therefrom.

         Section  11.26.  Agreement  Not an  Interest  in  Real  Property.  This
Agreement  is not,  and shall not be deemed at any time to be or to  create,  an
interest in real estate or a lien or other  encumbrance  of any kind  whatsoever
against the Hotel or the land on which it is erected.

         Section 11.27.  Acquisition Loan;  Agency Coupled With an Interest;  No
Termination While the Acquisition Loan Remains  Outstanding.  In accordance with
the Purchase Agreement (as herein defined), that certain Agreement of Sale dated
August 6, 1999 by and among Hampton Inns, Inc., Promus Hotels Florida,  Inc. and
Promus Hotels, Inc., as sellers,  and Apple Suites, Inc.  ("Parent"),  as buyer,
and that certain  Agreement of Sale dated October 5, 1999 between  Hampton Inns,
Inc.,  as  seller,  and  Parent,  as  buyer  (as the  same  have  been  amended,
collectively,  the "Existing Purchase  Agreement"),  Promus Hotels, Inc. (in its
capacity as lender,  the  "Acquisition  Lender") has loaned to Parent the sum of
$80,186,250  (the  "Acquisition  Loan")  as  purchase  money  financing  for the
acquisition  of the  properties  (the  "Properties")  conveyed  pursuant  to the
Purchase Agreement and the Existing Purchase Agreement.  The Acquisition Loan is
evidenced  by (i) a note of Parent  dated  September  20,  1999 in the amount of
$26,625,000,  (ii) a note of  Parent  dated  October  5,  1999 in the  amount of
$7,350,000,  (iii) a note of Parent  dated  November  29,  1999 in the amount of
$30,210,000,  (iv) a note of Parent  dated  December  22,  1999 in the amount of
$4,384,500  and (v) a note of  Parent  of even date  herewith  in the  amount of
$11,616,750 is secured by, among other things, mortgage(s),  deed(s) of trust or
deed(s) to secure debt dated September 20, 1999,  October 5, 1999,  November 29,
1999, December 22, 1999 or of even date herewith from Parent or its wholly-owned
subsidiary(ies) which encumbers some or all of the Properties, which may include
the Hotel (the  documents  evidencing and securing the  Acquisition  Loan herein
referred  to  as  the  "Acquisition  Mortgage  Documents").  Owner  and  Manager
specifically acknowledge and agree that (i) Acquisition Lender has been induced,
in part, to make the Acquisition Loan to Parent based upon Owner's  agreement to
enter into this Agreement with Manager,  (ii) Acquisition  Lender required Owner
to enter  into  this  Agreement  with  Manager  as a  condition  to  making  the
Acquisition  Loan so that (inter alia) Manager could facilitate the repayment of
the Acquisition  Loan in accordance with its terms by managing and operating the
Hotel in  accordance  with  the  terms of this  Agreement,  and

                                       24

<PAGE>

(iii) it is the parties'  intention that Owner's retention of Manager to operate
the Hotel  pursuant to the terms of this  Agreement  is intended  to, and shall,
create an "agency  coupled with an  interest" in favor of Manager,  which agency
shall be irrevocable  unless and until the  Acquisition  Loan is repaid in full.
Manager shall be entitled to the legal and equitable protections that the status
of an agent  coupled  with an  interest  confers on  Manager  for so long as the
Acquisition Loan remains outstanding.  Accordingly, (x) no purported termination
of this  Agreement  by  Owner  for any  reason  whatsoever  (including,  without
limitation,  any purported termination pursuant to Article 8 or Article 9) shall
be  effective  unless and until the  Acquisition  Loan shall have been repaid in
full, and (y) Manager shall have the right and option to extend the Term of this
Agreement  indefinitely for so long as the Acquisition Loan remains outstanding.
The provisions of this Section shall take effect notwithstanding anything to the
contrary set forth in this Agreement.

         Section 11.28. Counterparts.  This Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed an original.

                                       25

<PAGE>

         The parties have  respectively  caused this Agreement to be executed as
of the respective dates shown below.

                                           OWNER:

  /s/  Gus G. Remppies                     APPLE SUITES MANAGEMENT,
-------------------------------            INC., a Virginia corporation
Witness:

                                           By /s/ Glade M. Knight
                                              --------------------------------
                                              Name:  Glade M. Knight
                                              Title: Chairman, CEO and President

                                              Date:

                                           MANAGER:

  /s/  Gus G. Remppies                     PROMUS HOTELS, INC.
-------------------------------
Witness:

                                           By /s/ Stevan D. Porter
                                              --------------------------------
                                              Stevan D. Porter
                                              Executive Vice President

                                              Date:

<PAGE>

                                   EXHIBIT "A"

                                LICENSE AGREEMENT

                                      A-1
<PAGE>

                                   EXHIBIT "B"

                               DEAL SPECIFIC TERMS

TERM:                                      Fifteen (15) years from the Effective
----                                       Date

INITIAL MINIMUM BALANCE
FOR THE BANK ACCOUNT(S)  :                 $75,000
-------------------------

INITIAL OWNER'S REPRESENTATIVE:            Doug Schepker

DISBURSEMENT PRIORITY SCHEDULE:
------------------------------

         Each fiscal month  Manager,  on behalf of Owner,  shall  disburse funds
from the Bank  Account(s) in the  following  order of priority and to the extent
available:

         (a)   all fees,  assessments  and  charges  due and  payable  under the
               License Agreement when issued;

         (b)   the Management Fee, but excluding, to the extent then applicable,
               the Subordinated Management Fee;

         (c)   all reimbursable expenses due Manager;

         (d)   all other Hotel  operating  costs  (herein  and in the  Agreement
               referred to as "operating costs"), as such costs and expenses are
               defined under the  accounting  practices of Manager in conformity
               with  generally  accepted   accounting   practices   consistently
               applied, specifically including, but not limited to, (i) the cost
               of operating  equipment and operating supplies,  wages,  salaries
               and  employee  fringe   benefits,   advertising  and  promotional
               expenses,  the cost of personnel training  programs,  utility and
               energy  costs,  operating  licenses  and  permits,   grounds  and
               landscaping  maintenance  costs and equipment rentals approved by
               Manager as an  operating  cost;  (ii) all  expenditures  made for
               maintenance  and repairs to keep the Hotel in good  condition and
               repair,   specifically   excluding   expenditures   for   Capital
               Replacements;  and (iii)  premiums  and charges on the  insurance
               coverages  specified in Exhibit "D" incurred  after the Effective
               Date.  There shall be excluded  from the  operating  costs of the
               Hotel the following, which shall be ownership costs of the Hotel:
               (i)  depreciation  of  the  Hotel,   furnishings,   fixtures  and
               equipment; (ii) rental pursuant to a ground lease, if any, or the
               Percentage Lease or any other lease payments;  (iii) debt service
               (interest and principal) on any mortgage(s)  encumbering  Owner's
               leasehold  interest  in,  and/or Fee Owner's fee interest in, the
               Hotel; (iv) property taxes and assessments;  (v) expenditures for
               Capital Replacements; (vi) audit, legal and other professional or
               special fees; (vii) premiums for insurance

                                      B-1

<PAGE>

               coverages  specified in Exhibit "E";  (viii)  administrative  and
               general   expenses   and   disbursements   of  Owner,   including
               compensation of employees of Owner; (ix) Federal, State and local
               Franchise and Income Taxes;  (x)  amortization  of bond discounts
               and mortgage  expenses;  (xi)  deposits  into the Reserve Fund or
               amounts held pursuant to Section 3.01(xix); and (xiii) such other
               costs or expenses which are normally  treated as ownership  costs
               under the  accounting  practices  of Manager in  conformity  with
               generally accepted accounting practices consistently applied;

         (e)   the following  ownership costs,  disbursed in the following order
               of priority and to the extent available:

               (i)     an amount  (annualized)  to satisfy  land,  building  and
                       personal property taxes and assessments;

               (ii)    an amount  (annualized)  to satisfy the  premiums for the
                       insurance  required to be obtained by Owner in accordance
                       with Exhibit "E";

               (iii)   the amount to be deposited  in the Reserve Fund  pursuant
                       to Section 4.01(d); and

               (iv)    any ground lease payments,  but  specifically  excluding,
                       except as specifically  itemized above,  any sums payable
                       by Owner to Fee Owner pursuant to the Percentage Lease;

         (f)   Owner's Basic Return;

         (g)   the Subordinated Management Fee;

         (h)   payments of principal,  interest and other sums payable under the
               Acquisition Loan;

         (i)   any  payments  not  specifically  contemplated  above  which  are
               required  to be  paid  by  Owner  to Fee  Owner  pursuant  to the
               Percentage Lease; and

         (j)   except as  provided  above,  debt  service  upon any  mortgage(s)
               encumbering the Hotel and any capital lease payments.

         After the  disbursements set forth above, any excess funds remaining in
the Bank  Account(s)  over the Minimum Balance shall be distributed to Owner. If
after making the disbursements  set forth above,  there shall be a deficiency in
the  Minimum  Balance,  Owner  shall  immediately  provide  such funds as may be
required to maintain the Minimum Balance in the Bank Account(s).

                                      B-2

<PAGE>

                  NOTICES:

                  Owner:                    Apple Suites Management, Inc.
                  -----                     306 East Main Street
                                            Richmond, Virginia 23219
                                            Fax:     804/782-9302
                                            Attention:  Mr. Glade M. Knight

                                                     with a copy to:

                                            Jenkens & Gilchrist
                                            1445 Ross Avenue, Suite 3200
                                            Dallas, Texas 75202-2799
                                            Fax:     214/855-4300
                                            Attention:  Thomas E. Davis, Esq.

                  Manager:                  Promus Hotels, Inc.
                  -------                   755 Crossover Lane
                                            Memphis, Tennessee 38117
                                            Fax:     901/374-5050
                                            Attention:  Corporate Secretary

                                                     with a copy to:

                                            Dewey Ballantine LLP
                                            1301 Avenue of the Americas
                                            New York, New York 10019-6092
                                            Fax:     212/259-6333
                                            Attention:  Graham R. Hone, Esq.

SALE TERMINATION FEE:

         The "Sale  Termination  Fee" shall be: (i) if the  termination  of this
Agreement occurs on or before the second  anniversary of the Effective Date, the
sum of $1,032,820;  (ii) if the  termination of this Agreement  occurs after the
second  anniversary  of the  Effective  Date but on or before  the tenth  (10th)
anniversary  of the Effective  Date, an amount equal to the product of (x) three
(3) times (y) the quotient of the aggregate of the Management Fees earned during
the preceding  twenty-four  (24) month period  divided by two (2);  (iii) if the
termination of this Agreement  occurs after the tenth (10th)  anniversary of the
Effective  Date  but on or  before  the  fourteenth  (14th)  anniversary  of the
Effective  Date,  an amount equal to the product of (x) one and  one-half  (1.5)
times (y) the  aggregate  of the  Management  Fees earned  during the  preceding
twenty-four month period divided by two (2); and (iv) if the termination of this
Agreement occurs after the fourteenth (14th)  anniversary of the Effective Date,
an amount  equal to the  product of (x) the  aggregate  of the  Management  Fees
earned during the preceding  twenty-four  (24) month period  divided by 24 times
(y) the number of full calendar months remaining in the Term.

                                      B-3

<PAGE>

CANCELLATION TERMINATION FEE:

         The "Cancellation  Termination Fee" shall be: (i) if the termination of
this Agreement  occurs after the tenth (10th)  anniversary of the Effective Date
but on or before the fourteenth  (14th)  anniversary  of the Effective  Date, an
amount  equal to the  product  of (x) two (2)  times  (y) the  aggregate  of the
Management Fees earned during the preceding  twenty-four month period divided by
two  (2);  and  (ii) if the  termination  of this  Agreement  occurs  after  the
fourteenth  (14th)  anniversary  of the  Effective  Date, an amount equal to the
product of (x) the aggregate of the Management  Fees earned during the preceding
twenty-four  (24)  month  period  divided  by 24 times  (y) the  number  of full
calendar months remaining in the Term.

ACCOUNTING FEE:   $1,000/month

                                      B-4

<PAGE>

                                   EXHIBIT "C"

                                 MANAGEMENT FEES

         The  "Management  Fee"  shall  mean and  refer  to a fee  equal to four
percent (4%) of Adjusted Gross Revenues (as hereinafter defined) with respect to
each fiscal month during the term of this Agreement, provided, however, that for
the first two years of the term of this  Agreement  a portion of the  Management
Fee equal to one percent (1%) of Adjusted  Gross  Revenues  (such  portion,  the
"Subordinated Management Fee") shall be subordinated to Owner's Basic Return (as
hereinafter  defined).  Manager  and Owner  agree  that,  in light of  Manager's
agreement to  subordinate  the  Subordinated  Management  Fee, the  Subordinated
Management  Fee,  while payable  monthly to the extent  proceeds are  available,
shall be adjusted annually and paid, to the extent Adjusted Gross Revenues after
payment of Owner's Basic Return are available therefor,  within thirty (30) days
of Manager's delivery of the operating  statements  required pursuant to Section
3.01(vi) of the Agreement.  Any Subordinated Management Fee not so paid pursuant
to the provisions of the immediately  preceding sentence shall not thereafter be
payable by Owner.

         The term "Gross  Revenues"  shall be defined as all revenues and income
of any nature derived  directly or indirectly  from the Hotel or from the use or
operation thereof,  whether on or off the Site, including total room sales, food
and beverage sales, if any,  laundry,  telephone,  telegraph and telex revenues,
other income, rental or other payments from lessees,  sublessees,  licensees and
concessionaires  (but  not  the  gross  receipts  of such  lessees,  sublessees,
licensees or concessionaires)  and the proceeds of business  interruption,  use,
occupancy or similar insurance.

         The term "Adjusted  Gross  Revenues" shall be defined as Gross Revenues
less the following revenues actually received by the Hotel and included in Gross
Revenues: (i) any gratuities or service charges added to a customer's bill; (ii)
any credits or refunds made to customers,  guests or patrons; (iii) any sums and
credits received by Owner for lost or damaged merchandise; (iv) any sales taxes,
excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist
taxes or charges;  (v) any proceeds  from the sale or other  disposition  of the
Hotel,  furnishings  and  equipment or other capital  assets;  (vi) any fire and
extended coverage insurance proceeds;  (vii) any condemnation awards; (viii) any
proceeds of financing or refinancing of the Hotel;  and (ix) any interest on the
Bank Account(s).

         The term  "Owner's  Investment"  shall mean the sum of (x) the purchase
price for the Hotel  ("Purchase  Price") as set forth in the  Agreement  of Sale
dated November 22, 1999 by and between Parent, as buyer, and Hampton Inns, Inc.,
Promus Hotels  Florida,  Inc. and Promus Hotels,  Inc. as sellers (the "Purchase
Agreement")  plus (y) all  reasonable  costs and expenses  incurred by Parent in
connection  with  performing  its due diligence in connection  with the Purchase
Agreement and consummating the purchase  contemplated by the Purchase Agreement,
including,  without limitation,  title and survey fees and charges,  real estate
transfer taxes and reasonable attorneys' fees and charges, which shall

                                      C-1

<PAGE>

be deemed to include any such reasonable costs and expenses incurred or advanced
by Cornerstone  Realty Income Trust,  Inc. or Glade M. Knight for the benefit of
Apple Suites,  Inc. or Owner and reimbursed to it or him by any of Apple Suites,
Inc.  or Owner  and  which  are  specifically  allocable  to the Hotel or if not
specifically  allocable  allocated  on a pro rata  basis  based on the  purchase
prices set forth in the Existing Purchase Agreement and the Purchase  Agreement,
including the purchase price of any other  properties  acquired by Parent or its
directly or indirectly wholly-owned affiliate(s) from Manager or its directly or
indirectly  wholly-owned  affiliate(s)  pursuant to the Purchase Agreement after
the date  hereof,  but  specifically  excluding  fees and charges  paid to Apple
Suites Advisors, Inc., Apple Suites Realty Group, Inc. or any other affiliate of
Glade M.  Knight or any fees and charges  paid in  connection  with  offering of
common stock in Parent plus (z) amounts advanced by any of Apple Suites, Inc. or
Owner in respect of the PIP (as defined in the License Agreement) and in respect
of Hotel capital replacement items which are in excess of amounts required to be
deposited in the Reserve Fund from Gross Revenues.

         The term  "Owner's  Basic  Return"  shall mean for the first and second
years, eleven percent (11%) of Owner's Investment.

         Attached  hereto and made a part hereof,  as Exhibit C-1, is an example
of the calculation of, and payment of, the Management Fee (less the Subordinated
Management Fee), the Owner's Basic Return and the Subordinated Management Fee.

                                      C-2

<PAGE>

                                  EXHIBIT "C-1"

                                 MANAGEMENT FEE

                                     C-1-1

<PAGE>

                                   EXHIBIT "D"

                                    INSURANCE

         In accordance with Section 3.01(xv),  Manager shall, on behalf of Owner
and at Owner's expense,  procure the insurance  coverages  hereinafter set forth
and ensure that they are in full force and effect as of the  Effective  Date and
that they remain in full force and effect throughout the Term of this Agreement.
All  cost(s)  and  expense(s)  incurred by Manager in  procuring  the  following
insurance  coverages  shall be  operating  costs and shall be paid from the Bank
Account(s):

Coverages:                                              Amounts of Insurance
----------                                              --------------------

         Comprehensive General Liability                $10,000,000 per location

              Including -
              Premises - Operations
              Products/Completed Operations
              Contractual
              Personal Injury
              Liquor Liability/Dram Shop (if applicable)
              Elevators and Escalators

         Automotive Liability                           $10,000,000

              Owned Vehicles
              Non-Owned Vehicles
              Uninsured Motorist where Required by Statute

         Automobile Physical Damage (Optional)

              Comprehensive                             (To Value if insured)
              Collision

         Workers' Compensation                          Statutory

         Employer's Liability                           $1,000,000

         Fidelity (Employee Dishonesty)                 As required

         Money and Securities                           As required

         All  insurance  coverages  provided for under this Exhibit "D" shall be
effected by policies issued by insurance companies (i) that are authorized to do
business in the state in which the Hotel is  located;  and (ii) that are of good
reputation and of sound and

                                      D-1

<PAGE>

adequate financial responsibility, having a Bests Rating of B+ VI, or better, or
a comparable rating if Bests ceases to publish its ratings or materially changes
its rating standards or procedures.

         Manager shall deliver to Owner duly executed  certificates of insurance
with respect to all of the policies of insurance  procured,  including existing,
additional and renewal policies.

         Each policy of insurance  maintained  in  accordance  with this Exhibit
"D," to the extent  obtainable,  shall specify that such  policies  shall not be
cancelled or materially changed without at least thirty (30) days' prior written
notice to Owner and Manager.

         Except as otherwise  provided in the Agreement,  Manager and Owner each
waives,  releases and discharges the other from all claims or demands which each
may have or acquire  against the other,  or against each  other's  subsidiaries,
affiliates,  directors, officers, agents, employees,  independent contractors or
partners,  with respect to any claims for any losses,  damages,  liabilities  or
expenses (including  attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property  or  business  arising out of
the ownership,  management,  operation and maintenance of the Hotel,  regardless
whether any such claim or demand may arise because of the fault of negligence of
the other party or its subsidiaries, affiliates, officers, employees, directors,
agents or  independent  contractors.  Each  policy of  insurance  maintained  in
accordance  with this Exhibit "D" shall contain a specific waiver of subrogation
reflecting the above with respect to insured claims.

         All policies of insurance  provided for under this Exhibit "D" shall be
carried  in the name of the  Manager.  Owner's  interest  and that of any  other
applicable  party will be included  in the  coverage  by an  additional  insured
endorsement.

         All such  policies  of  insurance  shall be written on an  "occurrence"
basis, with no per location aggregate limitation.

         Either Manager or Owner,  by notice to the other,  shall have the right
to require that the minimum amount of insurance to be maintained with respect to
the Hotel under this Exhibit "D" be increased to make such insurance  comparable
with prudent industry standards and to reflect increases in liability exposures,
taking into account the size and location of the Hotel.

         Owner hereby authorizes Manager to utilize the services of and/or place
the  insurance  set  forth  in this  Exhibit  "D"  with  (i) any  subsidiary  or
affiliated  company of Promus Hotels,  Inc. in the insurance business as Manager
deems  appropriate;  or  (ii)  a  third  party  insurance  carrier  meeting  the
specifications set forth above.

                                      D-2
<PAGE>

                                   EXHIBIT "E"

                                    INSURANCE

         In accordance with Section 4.01(iii),  Owner agrees, at its expense, to
procure and maintain the following insurance  coverages,  as reasonably adjusted
from time to time, throughout the Term of this Agreement:

Coverages:                                  Amounts of Insurance
----------                                  --------------------

         Builders Risk                      Completed value of the Hotel

              All  risk  for  term  of the  initial  and  any  subsequent  Hotel
              construction and renovation.

         Real and Personal Property         100%  replacement value of  building
                                            and contents

              Blanket Coverage
              Replacement Cost - all risk
              Boiler Machinery - written on a comprehensive form

         Business Interruption              Calculated yearly based on estimated
                                            Hotel revenues

              Blanket  Coverage for the perils  insured  against  under Real and
              Personal  Property  in  this  Exhibit  "E".  This  coverage  shall
              specifically cover Manager's loss of Management Fees. The business
              interruption  insurance shall be for a twelve (12) month indemnity
              period.

         Owner's Protective Liability                         $10,000,000

              All risks from construction and renovation  occurring prior to the
              Opening Date and all risks from Hotel  construction and renovation
              projects  costing more than $250,000  occurring  after the Opening
              Date.

         All  insurance  coverages  provided for under this Exhibit "E" shall be
effected by policies issued by insurance companies (i) that are authorized to do
business in the state in which the Hotel is  located;  and (ii) that are of good
reputation and of sound and adequate  financial  responsibility,  having a Bests
Rating of B+ VI, or better,  or a  comparable  rating if Bests ceases to publish
its ratings or materially changes its rating standards or procedures.

         Owner shall  deliver to Manager  duplicate  copies of either  insurance
policies or certificates of insurance (at Manager's  option) with respect to all
of the  policies of  insurance  procured,  including  existing,  additional  and
renewal policies, and in the case of insurance nearing expiration, shall deliver
duplicate  copies of the insurance  policies or  certificates  of insurance with
respect to the renewal  policies to Manager not less than thirty (30) days prior
to the respective dates of expiration.

                                      E-1

<PAGE>

         Each policy of insurance  maintained  in  accordance  with this Exhibit
"E," to the extent  obtainable,  shall specify that such  policies  shall not be
cancelled or materially changed without at least thirty (30) days' prior written
notice to Owner and Manager.

         Except as otherwise provided in this Agreement,  Manager and Owner each
waives,  releases and discharges the other from all claims or demands which each
may have or acquire  against the other,  or against each  other's  subsidiaries,
affiliates,  directors, officers, agents, employees,  independent contractors or
partners,  with respect to any claims for any losses,  damages,  liabilities  or
expenses (including  attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property  or  business  arising out of
the ownership,  management,  operation and maintenance of the Hotel,  regardless
whether any such claim or demand may arise because of the fault of negligence of
the other party or its subsidiaries, affiliates, officers, employees, directors,
agents or  independent  contractors.  Each  policy of  insurance  maintained  in
accordance  with this Exhibit "E" shall contain a specific waiver of subrogation
reflecting the above with respect to insured claims.

         All policies of insurance  provided for under this Exhibit "E" shall be
carried in the name of the Owner and  Manager,  and losses  thereunder  shall be
payable to the parties as their respective  interests may appear.  All liability
policies  shall  name  the  Owner  and  Manager,  and in each  case any of their
affiliated or subsidiary  companies which they may specify, and their respective
directors,   officers,  agents,  employees  and  partners  as  additional  named
insureds.

         All such  policies  of  insurance  shall be written on an  "occurrence"
basis.

         Either Manager or Owner,  by notice to the other,  shall have the right
to require the minimum amount of insurance to be maintained  with respect to the
Hotel under this Exhibit "E" be increased to make such insurance comparable with
prudent  industry  standards  and to reflect  increases in liability  exposures,
taking into account the size and location of the Hotel.

                                      E-2

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