Document:

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                           FIRST AMENDED AND RESTATED

                                      HOTEL

                              MANAGEMENT AGREEMENT

                                     Between

                               TRS LEASING, INC.,

                               TRS SUBSIDIARY, LLC

                                       and

                      HUMPHREY HOSPITALITY MANAGEMENT, INC.

                                      Dated

                                November 26, 2002

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                                TABLE OF CONTENTS

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ARTICLE I DEFINITIONS.................................................................       1
     Section 1.01.     Definitions....................................................       1

ARTICLE II TERM OF AGREEMENT..........................................................       9
     Section 2.01.     Term...........................................................       9

ARTICLE III OPERATION OF THE HOTEL....................................................      11
     Section 3.01.     Representations by Operator; Engagement of Operator............      11
     Section 3.02.     Standards of Operation.........................................      11
     Section 3.03.     Reservations Services..........................................      12
     Section 3.04.     Marketing......................................................      12
     Section 3.05.     Consultations Between Lessee and Operator......................      12
     Section 3.06.     Transactions with Affiliates and Other Relationships...........      12

ARTICLE IV INDEPENDENT CONTRACTOR.....................................................      13
     Section 4.01.     Operator Status................................................      13
     Section 4.02.     Employees......................................................      13
     Section 4.03.     Employee Expenses..............................................      14
     Section 4.04.     Employee Benefit Plans.........................................      14
     Section 4.05.     Execution of Agreements........................................      15

ARTICLE V INDEMNIFICATION.............................................................      15
     Section 5.01.     Indemnification by Operator....................................      15
     Section 5.02.     Limitations on Indemnification.................................      16
     Section 5.03.     Indemnification by Lessee......................................      16
     Section 5.04.     Survival of Indemnity..........................................      16

ARTICLE VI BUDGETS AND POLICY MEETINGS................................................      16
     Section 6.01.     Budgets........................................................      16
     Section 6.02.     Budget Meetings................................................      17
     Section 6.03.     Approval by Lessee Required....................................      18

ARTICLE VII OPERATING EXPENSES........................................................      18
     Section 7.01.     Payment of Operating Expenses..................................      18
     Section 7.02.     Operating Expenses Not an Obligation of Operator...............      18

ARTICLE VIII WORKING CAPITAL AND BANK ACCOUNTS........................................      19
     Section 8.01.     Working Capital. ..............................................      19
     Section 8.02.     Bank Accounts..................................................      19
     Section 8.03.     Authorized Signatures..........................................      20
     Section 8.04.     Investment of Hotel Cash.......................................      20

ARTICLE IX BOOKS, RECORDS AND STATEMENTS..............................................      20
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     Section 9.01.     Books and Records.............................................   20
     Section 9.02.     Statements....................................................   21
     Section 9.03.     Costs.........................................................   22

ARTICLE X OPERATOR'S FEE AND TRANSFERS TO LESSEE.....................................   22
     Section 10.01.    Payment of Operator's Basic Fee...............................   22
     Section 10.02.    Payment of Operator's Incentive Fee...........................   22
     Section 10.03.    Distribution of Cash..........................................   22
     Section 10.04.    Adjustments to Allocations....................................   23
     Section 10.05.    Arbitration...................................................   23
     Section 10.06.    Other Fees....................................................   24

ARTICLE XI REPAIRS AND MAINTENANCE...................................................   24

ARTICLE XII INSURANCE................................................................   24
     Section 12.01.    General.......................................................   24
     Section 12.02.    Workers' Compensation Insurance...............................   24
     Section 12.03.    Approval of Companies and Cost by Owner and Lessee............   25
     Section 12.04.    Maintenance of Coverages......................................   25
     Section 12.05.    Waiver of Subrogation.........................................   25
     Section 12.06.    Blanket Coverage and Self-Insurance...........................   25

ARTICLE XIII PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS...............   25
     Section 13.01.    Property Taxes................................................   25
     Section 13.02.    Lessee's Right to Contest.....................................   26

ARTICLE XIV DAMAGE OR DESTRUCTION - CONDEMNATION ....................................   26
     Section 14.01.    Damage........................................................   26
     Section 14.02.    Condemnation..................................................   26

ARTICLE XV USE OF NAME...............................................................   26

ARTICLE XVI OWNER'S RIGHT TO SELL....................................................   26

ARTICLE XVII DEFAULT AND REMEDIES....................................................   27
     Section 17.01.    Events of Default- Remedies...................................   27
     Section 17.02.    Rights Not Exclusive..........................................   28

ARTICLE XVIII NOTICES................................................................   29
     Section 18.01.    Notices.......................................................   29

ARTICLE XIX ASSIGNMENT...............................................................   30
     Section 19.01.    No Assignment by Operator.....................................   30
     Section 19.02.    Assignment by Lessee..........................................   30

ARTICLE XX SUBORDINATION.............................................................   30
     Section 20.01.    Subordination To Mortgage.....................................   30
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        Section 20.02.    Foreclosure.......................................    31

ARTICLE XXI MISCELLANEOUS...................................................    31
        Section 21.01.    Further Documentation.............................    31
        Section 21.02.    Captions..........................................    31
        Section 21.03.    Successors and Assigns............................    31
        Section 21.04.    Competitive Market Area...........................    32
        Section 21.05.    Assumption of Post Termination Obligations........    32
        Section 21.06.    Entire Agreement..................................    32
        Section 21.07.    Governing Law.....................................    32
        Section 21.08.    No Political Contributions........................    32
        Section 21.09.    Eligible Independent Contractor...................    33
        Section 21.10.    Time of the Essence...............................    34
        Section 21.11.    Offsets...........................................    34
        Section 21.12.    Attorney's Fees...................................    34
        Section 21.13.    Final Accounting..................................    34
        Section 21.14.    Non-Solicitation..................................    34
        Section 21.15.    Franchisor Communications.........................    34
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        EXHIBIT A -- Hotel Properties and Owners

        EXHIBIT B -- Franchise Agreements

        EXHIBIT C -- [Intentionally Left Blank]

        EXHIBIT D -- [Intentionally Left Blank]

        EXHIBIT E -- Capital Expenditure Policy

        EXHIBIT F -- Marketing Services

        EXHIBIT G -- [Intentionally Left Blank]

        EXHIBIT H -- Form of Reports

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                           FIRST AMENDED AND RESTATED
                           HOTEL MANAGEMENT AGREEMENT

         This HOTEL MANAGEMENT AGREEMENT is made and entered into effective as
of November 26, 2002, by and among TRS Leasing, Inc., a Virginia corporation
("TRS"), TRS Subsidiary, LLC, a Delaware limited liability company ("TRS Sub"
and, together with TRS, collectively, "Lessee") and Humphrey Hospitality
Management, Inc., a Maryland corporation ("HHM" or the "Operator"), with
reference to the following facts:

         A.   Lessee leases from the entities described on Exhibit A (each, an
"Owner" and collectively, the "Owners") the hotel properties described on
Exhibit A (each, a "Hotel" and collectively, the "Hotels") pursuant to one or
more Lease Agreements described on Exhibit A (each, a "Lease" and collectively,
the "Leases");

         B.   HHM manages the Hotels pursuant to a Hotel Management Agreement
dated as of January 1, 2002 between HHM and Lessee (the "Original Agreement");

         C.   HHM and Lessee desire to amend and restate the Original Agreement
on the terms set forth herein;

         D.   Lessee desires to engage HHM to operate and manage the Hotels
listed on Exhibit A in accordance with the terms of this Agreement;

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

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

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

                                    ARTICLE I

                                   DEFINITIONS

Section 1.01.  Definitions.

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

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

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

               (3)   "Approved Budget" shall mean the Hotel Operating Budget
prepared in accordance with Section 6.01 of this Agreement and approved in
writing by Lessee.

               (4)   "Base NOI" shall mean initially, the amount of $29,846,101,
subject to adjustment as provided herein.

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

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

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

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

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

               (10)  "GAAP" shall mean generally accepted accounting principles
and procedures in the United States, based on the Uniform System.

               (11)  "Gross Hotel Income" shall mean all income and proceeds of
sales received by Operator for guest use, occupancy or enjoyment of the Hotel or
for the sale of any goods, services or other items sold on or provided from the
Hotel to guests in the ordinary course of the Hotel operation, net of changes in
the month end balance of the reserve for uncollectible accounts receivable, and
including gross receipts received by lessees, sub-lessees, licensees or
concessionaires of the Hotel if Operator in fact performs all necessary
oversight and management activities with respect thereto (unless Lessee
specifically notifies Operator that Lessee no longer wants Operator to perform
such oversight and management activities) but excluding the following: (i) any
excise, sales or use taxes or similar government charges collected directly from
patrons or guests, or as a part of the sales price of any goods, services or
displays, such as gross receipts, admission, cabaret or similar or equivalent
taxes; (ii) receipts from condemnation awards or sales in lieu of or under
threat of condemnation; (iii) proceeds of insurance (other than proceeds from
business interruption insurance payable to Lessee which shall be estimated and
accrued by Lessee for any applicable periods); (iv) other allowances and
deductions as provided by the Uniform System in determining the sum contemplated
by this definition, by whatever name, it may be called; (v) adjustments made
pursuant to Section 10.04;

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(vi) proceeds of sales of capital assets, furniture and Hotel Operating
Equipment; (vii) [Intentionally Left Blank]; (viii) consideration received at
the Hotel for hotel accommodations, goods and services to be provided at other
hotels although arranged by, for or on behalf of, Operator; (ix) gratuities
collected for the benefit of employees; (x) proceeds of any financing; (xi)
working capital provided by Lessee; (xii) any funds provided by Lessee to
Operator whether for Operating Expenses or otherwise; (xiii) interest income and
fees, rents and other revenues from telecommunications tower or similar leases
or other leases or sub-leases of any part of the Property and (xiv) other income
or proceeds resulting other than from guest use or occupancy of the Hotel or the
Property, or any part thereof, or other than from the sale of goods, services or
other items sold on or provided in connection with guest services at the Hotel
in the ordinary course of business.

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

               (13)  "Hotel Capital Budget" shall mean the budget relating to
capital expenditures at a Hotel as described in Section 6.01.

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

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

               (16)  "Hotel Operating Budget" shall mean the budget relating to
the operation of a Hotel as described in Section 6.01.

               (17)  "Hotel Operating Equipment" shall mean linens, chinaware,
glassware, silverware, uniforms, utensils and other non-consumable items of
similar nature.

               (18)  "Hotel Operating Supplies" shall mean paper supplies,
cleaning materials and similar consumable items.

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

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

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

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

               (23)  "Lease" shall have the meaning set forth in the recitals.

               (24)  "Lessee" shall have the meaning set forth in the recitals.

               (25)  "Marketing Expenses" shall mean an amount up to $300,000
per Fiscal Year (pro rated for any partial Fiscal Year), for the Hotels, of
documented reasonable out-of-pocket and compensation expenses for Operators'
employees who oversee sales and marketing services for all the Hotels as
described on Exhibit F for which Lessee will reimburse Operator pursuant to
Section 10.06. Marketing Expenses shall not include the advertising, sales and
marketing costs at the Hotel, which costs shall be set forth specifically in the
Hotel Operating Budget. If, during the Operating Term, the number of Hotels
subject to this Agreement exceeds 110 hotels or falls below 70 hotels, Lessee
and Operator shall negotiate in good faith a new maximum amount of Marketing
Expenses for which Lessee will reimburse Operator pursuant to Section 10.06.

               (26)  "Marketing Plan" shall mean the marketing plan prepared and
approved for each Hotel for each Fiscal Year pursuant to Section 3.04(a).

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

               (28)  "NOI" shall mean Net Operating Income which shall be
determined by deducting Operating Expenses from Gross Hotel Income; provided,
however, that for purposes of determining NOI, real and personal property taxes
and property and general liability insurance expense (including deductibles and
uninsured casualties) shall be excluded from Operating Expenses.

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

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

                     (ii)  Salaries and wages of on-site Hotel personnel,
                           including costs of payroll taxes and employee
                           benefits and amounts payable under bonus plans
                           approved by Lessee. The salaries or wages of other
                           employees or executives of Operator, or any Affiliate
                           of Operator

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                            shall in no event be Operating Expenses unless the
                            specific position and specific cost are approved in
                            advance by Lessee;

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

                     (iv)   The cost of repairs to and maintenance of the
                            Property to keep the Property in good condition
                            (subject to the capital expenditure policy described
                            in Exhibit E);

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

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

                     (vii)  Legal and accounting fees relating to Hotel
                            operations, excluding corporate level legal and
                            accounting expenses (unless directly related to
                            provision of guest services), and real estate tax
                            abatement and appeal services;

                     (viii) The costs and expenses of technical consultants and
                            specialized operational experts for specialized
                            services in connection with non-recurring work on
                            operational, functional, decorating, design or
                            construction problems and activities, including
                            reasonable third party fees reasonably deemed
                            necessary by Lessee for the efficient operation of
                            the Hotels if included in an Approved Budget;

                     (ix)   All expenses for marketing and sales, including all
                            expenses of advertising, sales promotion and public
                            relations activities for the Hotels, including the
                            Marketing Expenses;

                     (x)    Municipal, county and state license and permit fees;

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                     (xi)   All normal and recurring fees, assessments and
                            charges due and payable under Franchisor Agreements
                            but excluding termination or assignment costs in
                            connection with the assignment or transfer of
                            franchise license agreements from Operator to
                            Lessee;

                     (xii)  Credit card fees, travel agent commissions and other
                            third party reservation fees and charges;

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

                     (xiv)  All expenses related to the revenues included in
                            Gross Hotel Income, including without limitation,
                            expenses relating to telephone, vending, television,
                            cable television, pay television and similar
                            services; and

                     (xv)   The costs of obtaining and keeping in force all
                            licenses or permits (including liquor licenses, if
                            any) necessary for the operation of the Hotel and in
                            complying with governmental laws, rules,
                            regulations, ordinances, orders and requirements.

         Operating Expenses shall not include (a) depreciation and amortization
except as otherwise provided in this Agreement; (b) the cost of any other things
specified herein to be done or provided at Lessee's or Operator's sole expense;
(c) debt service; (d) Operator's Basic Fee and Operator's Incentive Fee, if any;
(e) capital expenditures in accordance with Exhibit E; and (f) lease payments to
Owner.

               (30)  Operating Loss" shall mean for any period the amount by
which Operating Expenses exceed Gross Hotel Income.

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

               (32)  "Operator" shall have the meaning set forth in the
recitals.

               (33)  "Operator's Basic Fee" shall mean, except as provided on
Exhibit A-1, (i) a monthly accounting fee equal to 1/2% of Gross Hotel Income,
(ii) a monthly fee of 1/2% of Gross Hotel Income to cover Operator's directors
of operations and (iii)(A) for periods prior to December 31, 2003, a fee equal
to four percent (4%) of Gross Hotel Income, plus an additional fee equal to one
percent (1%) of Gross Hotel Income if no event of default exists under the
Owners' loan agreements secured by mortgages on the Hotels and (B) for periods
after January 1, 2004, a fee equal to four percent (4%) of Gross Hotel Income,
which is payable as set forth in Section 10.01.

               (34)  "Operator's Incentive Fee" shall mean the fee, if any,
payable to Operator as an incentive fee and determined for each twelve month
period ending September 30 during the Operating Term, beginning with the twelve
month period ending December 31, 2003, as the

                                       6

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amount equal to twenty percent (20%) (the "Incentive Percentage") of the amount
by which annual aggregate hotel level NOI for all the Hotels as of the date of
this Agreement exceeds Base NOI, as it may be adjusted as provided below. In the
event a hotel is added to this Agreement after the date hereof, (a) for purposes
of calculating Operator's Incentive Fee for the period in which the new hotel is
added, Base NOI shall be increased by the amount of the Approved Budget NOI for
such hotel for the remainder of the period in which the hotel is added and (b)
for purposes of calculating Operator's Incentive Fee each twelve month period
thereafter, Base NOI shall be increased by the Approved Budget NOI for the new
hotel for the first full twelve month period after being added. In the event
this Agreement is terminated as to a Hotel after the date hereof, (c) for
purposes of calculating Operator's Incentive Fee for the period in which the
termination occurs, Base NOI shall be reduced by the amount of Base NOI
attributable to such Hotel for the period following the date of termination date
for the period in which the termination occurs and (d) for purposes of
calculating Operator's Incentive Fee each twelve month period thereafter, Base
NOI shall be reduced by the amount of the Base NOI attributable to the
terminated Hotel. In addition, notwithstanding the foregoing, if, in the event
Operator's Incentive Fee becomes payable hereunder for any period, the Incentive
Percentage shall be subject to adjustment as follows:

                     (i)    In the event aggregate real and personal property
                            taxes and property and general liability insurance
                            expenses (including deductibles and uninsured
                            casualties) for all the Hotels subject to this
                            Agreement ("Taxes and Insurance"), for any
                            measurement period used in determining the
                            Operator's Incentive Fee, should exceed Taxes and
                            Insurance for the comparable period during the
                            immediately preceding 12 month period, the
                            Operator's Incentive Fee shall be reduced by an
                            amount determined by (A) multiplying the Incentive
                            Percentage by (B) the percentage amount of the
                            increase in Taxes and Insurance (up to a maximum of
                            100%), and the resulting percentage amount shall be
                            multiplied by (C) the dollar amount by which Taxes
                            and Insurance for the incentive fee measurement
                            period exceed the comparable period Taxes and
                            Insurance dollar amount. In no event shall this
                            adjustment exceed the amount of the Operator's
                            Incentive Fee before said adjustment.

                     (ii)   In the event Taxes and Insurance, for any incentive
                            fee measurement period, are less than the amount of
                            Taxes and Insurance for the comparable period during
                            the immediately preceding 12 month period, the
                            Operator's Incentive Fee shall be increased by an
                            amount determined by (A) multiplying the Incentive
                            Percentage by (B) the percentage amount of the
                            decline in Taxes and Insurance (up to a maximum of
                            100%), and the resulting percentage amount shall be
                            multiplied by (C) the dollar amount by which Taxes
                            and Insurance for the incentive fee measurement
                            period declined from the comparable period Taxes and
                            Insurance dollar amount. In no event shall this
                            adjustment exceed the dollar amount of any reduction
                            to the Operator's

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                            Incentive Fee experienced by Operator during the
                            immediately preceding incentive fee measurement
                            period.

                            By way of example, if Taxes and Insurance for an
                            incentive fee measurement period increase by 50% (or
                            $10,000) over Taxes and Insurance for the
                            immediately preceding twelve month period, the
                            amount of the incentive fee reduction shall be
                            determined by multiplying the 50% increase by the
                            Incentive Percentage = 10%, which 10% shall then be
                            multiplied by the dollar amount by which Taxes and
                            Insurance during the measurement period exceeds
                            Taxes and Insurance from the immediately preceding
                            twelve month period (10% x $10,000 = $1,000, the
                            amount of reduction of Operator's Incentive Fee). By
                            way of further example, if in a subsequent incentive
                            fee measurement period, Taxes and Insurance decline
                            by 65% (or $15,000) over Taxes and Insurance for the
                            immediately preceding 12 month period, the amount of
                            the incentive fee increase shall be the lesser of
                            (A) the amount determined by multiplying the 65%
                            reduction by the Incentive Percentage = 13%, which
                            13% shall then be multiplied by the dollar amount by
                            which Taxes and Insurance declined during the
                            measurement period (13% x $15,000 = $1,950), or (B)
                            the amount of incentive fee adjustment surrendered
                            by Operator during the immediately preceding
                            incentive fee measurement period (=$1,000).

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

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

               (37)  "RevPAR" shall mean Hotel occupancy percentage multiplied
by average daily rate.

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

               (39)  "Uniform System" shall mean the then current edition of the
"Uniform System of Accounts for the Lodging Industry" published by the American
Hotel and Motel Association, with such modifications as may be required by the
provisions of this Agreement.

               (40)  "Unrelated Persons" shall have the meaning set forth in
Section 21.09.

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

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                                   ARTICLE II

                                TERM OF AGREEMENT

Section 2.01.  Term.

         (a)   The initial term of this Agreement shall commence on the date set
forth at the beginning of this Agreement and shall terminate at midnight on
December 1, 2007, subject to earlier termination as to one or more Hotels at any
time as set forth herein. Except as provided on Exhibit A-1, if, during the
initial term of this Agreement (i) Operator has not failed to achieve ninety
percent (90%) of the Approved Budget Hotel NOI for all the Hotels in the
aggregate for any calendar year and (ii) no Event of Default by Operator shall
have occurred effective December 1, 2007, the term of this Agreement shall
automatically be extended for an additional five (5) years unless Operator
notifies Lessee on or prior to June 1, 2007 that Operator does not wish to
extend the term hereof. The initial term, as it may be extended hereunder, is
referred to herein as the "Operating Term."

         (b)   This Agreement may be terminated by Lessee as to one or more
Hotels at any time and from time to time upon the sale of such Hotel(s) by
delivery of written notice by Lessee to Operator not less than sixty (60) days
prior to the effective date of termination which notice shall set forth (i) the
effective date of termination, and (ii) the Hotel or Hotels with respect to
which this Agreement is being terminated. Subject to the terms of this
Agreement, if Lessee terminates this Agreement upon sale of one or more Hotels
prior to September 30, 2003, Lessee will pay Operator a termination fee (in lieu
of other monetary damages and not as a penalty) equal to 33 1/3% of the sum of
Operator's Basic Fee and Operator's Incentive Fee, if any, for the most recent
twelve (12) month period ended prior to the date of termination. In addition,
the Hotel's operations for the period prior to termination shall be included in
the calculation of Operator's Incentive Fee, for the year in which the
termination occurs, if any. Notwithstanding the foregoing, no termination fee
will be payable by Lessee to Operator (i) upon the sale of Hotel if prior to the
termination, or within sixty (60) days thereafter, Lessee offers to permit
Operator to manage one or more hotels reasonably comparable to the Hotel for
which this Agreement is terminated and having a substantially similar term, or
(ii) for termination upon sale of a Hotel after September 30, 2003.

         (c)   Lessee may terminate this Agreement with respect to any Hotel at
any time (without payment of any termination fee) if (i) Operator fails to
achieve ninety percent (90%) of the aggregate Approved Budget Hotel NOI for all
Hotels for any calendar year commencing with the year 2003; provided, however,
that Operator shall have the right, but not the obligation, to avoid termination
by supplementing NOI by paying to Lessee an amount sufficient to increase
aggregate NOI to ninety percent (90%) of Approved Budget NOI, (ii) a Franchise
Agreement for such Hotel is terminated solely as a result of the failure of
Operator to satisfy its obligations under this Agreement (provided that Lessee
has timely given Operator copies of all deficiency notices received from
Franchisors) or, (iii) Operator fails to achieve ninety percent (90%) of the
Approved Budget Hotel NOI for all Hotels for two consecutive years during the
Operating Term, regardless of whether Operator has supplemented NOI as described
in (i) above. Notwithstanding the foregoing, Operator may only supplement NOI in
accordance with subsection (i) above, one (1) time during the Operating Term
after which, if Operator fails to

                                       9

<PAGE>

achieve 90% of Approved Budget Hotel NOI for all Hotels, this Agreement may be
terminated by Lessee with respect to any one or more of the Hotels without
payment of any fee or penalty to Operator.

         (d)   This Agreement may be terminated by Lessee upon a change of
control (as defined below) during the Operating Term, in which event Lessee will
pay Operator a termination fee equal to 50% of the sum of Operator's Basic Fee
and Operator's Incentive Fee for the most recent twelve (12) month period ended
prior to the date of termination. For purposes hereof, a "change of control"
shall be deemed to have occurred if, during the Operating Term, any of the
following events occurs:

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

                   (ii)  individuals who, as of the date of this Agreement,
               constitute the Board of Directors of the Parent cease for any
               reason to constitute at least a majority of the Board of
               Directors of the Parent;

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

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

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

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<PAGE>

                   (vi)  any other transaction or series of related transactions
              occur that have substantially the effect of the transactions
              specified in (i) through (v) above.

                                  ARTICLE III

                             OPERATION OF THE HOTEL

Section 3.01. Representations by Operator; Engagement of Operator.

     Operator hereby represents that Operator (i) is experienced and capable and
will remain experienced and capable in the management and operation of hotels
throughout the United States, (ii) has reviewed and understands the terms and
provisions of the Lease and the Franchise Agreements and the Hotel Standards,
and (iii) will, on the effective date of this Agreement, meet the requirements
to be an "eligible independent contractor" under Section 856(d)(9) of the
Internal Revenue Code. In reliance on the foregoing representations, Lessee
hereby engages Operator to manage and operate the Hotels during the Operating
Term and Operator agrees to manage and operate the Hotels during the Operating
Term, in accordance with this Agreement. Operator will provide all property
management, financial accounting, reporting, marketing and other operational
services for each Hotel, including the services of a director of operations for
each Hotel and will use commercially reasonable efforts to maximize the
operating profitability thereof. Lessee and Operator acknowledge that it is the
intention of the parties that the Hotels be operated in a profitable manner and
in a manner for comparable hotels operated by a national operator within the
Hotel's market segment, all in accordance with the Hotel Standards. Operator
shall diligently pursue all feasible measures to enable the Hotels to adhere to
the Approved Budget.

Section 3.02. Standards of Operation.

     Operator agrees to diligently and efficiently operate each Hotel and all of
its facilities and activities (i) at all times in accordance with the Hotel
Standards; (ii) consistent with the terms of the Lease and Lessee's obligations
thereunder; (iii) in the same manner as is customary and usual in the
first-class operation of comparable hotels in its market; (iv) in compliance
with this Agreement, all easements, covenants and restrictions affecting the
Property (known or disclosed to Operator) and all applicable governmental laws,
rules, regulations, ordinances, orders and requirements; (v) in accordance with
the terms and conditions of any financing affecting the Property (known or
disclosed to Operator) to the extent such terms and conditions can be complied
with by Operator under the terms of this Agreement; and (vi) in accordance with
the requirements of any carrier having insurance on the Hotel or any part
thereof. Operator shall also obtain and keep in force any and all licenses or
permits necessary for the operation of the Hotel (provided that, at Lessee's
option, liquor licenses or other licenses or permits shall be obtained and held
in Lessee's name). All such licenses and permits shall belong to Lessee and/or
the Hotel and upon expiration or termination of this Agreement, Operator shall
take any and all actions reasonably requested by Lessee to transfer such
licenses and permits to Lessee or its designee. Operator also acknowledges and
agrees that this Agreement is subject and subordinate to the Lease and liens,
security interest and Mortgages in accordance with Article XX hereof.

                                       11

<PAGE>

Section 3.03. Reservations Services.

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

Section 3.04. Marketing.

     (a)  Operator shall provide the marketing services described in Exhibit F
hereto. Sixty (60) days prior to the beginning of each Fiscal Year and in
conjunction with preparation of the Hotel Operating Budget for the forthcoming
Fiscal Year, Operator shall deliver to Lessee a proposed marketing plan for each
Hotel for such Fiscal Year which shall be consistent with the Hotel Operating
Budget. Operator shall review the marketing plan with Lessee and upon Lessee's
written approval it shall represent the approved marketing plan (the "Marketing
Plan") for the succeeding Fiscal Year and shall be implemented by Operator.

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

     (c)  Operator, in its discretion, may cause the Hotel to participate in
sales and promotional campaigns and activities involving complimentary rooms,
food and beverages, consistent with customary practices in the travel industry.

Section 3.05. Consultations Between Lessee and Operator.

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

Section 3.06. Transactions with Affiliates and Other Relationships.

     (a)  Operator shall obtain the prior written consent of Lessee (which
Lessee may withhold in Lessee's sole and absolute discretion) prior to
contracting with any Affiliate (or companies in which Operator has an ownership
or other economic interest if such interest is not sufficient to make such a
company an Affiliate) to provide goods and/or services to the Hotels.

     (b)  Prior to entering into any contract, agreement or arrangement with
respect to one or more of the Hotels pursuant to which Operator may receive
rebates, cash incentives,

                                       12

<PAGE>

administration fees, concessions, profit participations, stock or stock options,
investment rights or similar payments or economic consideration from or in, as
applicable, vendors or suppliers of goods or services collectively, "Rebates",
Operator shall promptly disclose to Lessee in writing the fact of and the
estimated amount of such Rebates, and (i) the charges and other amounts expected
to be incurred in connection with any such contracts or agreements (which shall
not exceed prevailing market rates with respect to such goods or services) and
Lessee shall approve in writing in advance (which approval may be withheld or
granted in Lessee's sole discretion) any such contracts, agreements or
arrangements. Operator hereby agrees that Lessee's approval of any such
contract, agreement or arrangement, in Lessee's sole discretion, may be
conditioned upon Lessee participating in any such Rebates.

                                   ARTICLE IV

                             INDEPENDENT CONTRACTOR

Section 4.01. Operator Status.

     In the performance of its duties in the administration, management and
operation of the Hotel, Operator shall act solely as an independent contractor.
Nothing herein shall constitute or be construed to be or create a partnership or
joint venture between Lessee and Operator, or be construed to appoint or
constitute Operator as an agent of Owner for any purpose, or be construed to
create a lease by Operator of the Hotel or the Property and Operator shall not
constitute a tenant or subtenant of Lessee or Owner. Operator's rights under
this Agreement shall be those of an agent only and shall not constitute an
interest in real property. Lessee or Owner shall have the right to lease,
develop or sell excess land or structures not required for operation of the
Hotel. It is expressly covenanted that this Agreement is no more than an
agreement for the rendering of services by Operator on behalf of Lessee in the
operation and management of the Hotel only.

Section 4.02. Employees.

     (a)  Each Hotel employee shall be the employee of Operator and not of
Lessee, and every person performing services in connection with this Agreement
shall be acting as the employee of Operator, but their salaries and other
related expenses shall be an Operating Expense.

     (b)  Operator shall provide evidence to Lessee of statutory Worker's
Compensation Insurance and Employer's Liability Insurance for each such
employee. The insurance coverages (including, without limitation, the carrier,
policy limits of each and waiver of subrogation endorsements) must be in form,
substance and amount satisfactory to Lessee in all respects. Upon request of
Lessee, Operator will deliver to Lessee waiver of subrogation endorsements in
favor of Lessee and Owner.

     (c)  The hiring policies and the discharge of employees at the Hotel shall
in all respects comply with all "applicable" laws and regulations, and Operator
shall comply with all laws, regulations and ordinances regarding the employment
and payment of persons engaged in the operation of each Hotel.

                                       13

<PAGE>

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

     (e)  Operator shall submit to Lessee the resumes of any person proposed to
serve as the Director of Marketing or Director of Sales of Operator or to serve
as general manager of the Hotels in the mid-western United States. Lessee shall
have five (5) business days following receipt of the resumes to reject each of
the persons proposed for such positions prior to such persons being so assigned.
Operator shall provide to Lessee at least fourteen (14) days prior notice of any
proposed transfer by Operator of any persons holding the positions described
above.

Section 4.03. Employee Expenses.

     (a)  All costs of every nature pertaining to all employees at the Hotel,
including, without limitation, salaries, benefits, the terms of any bonus plan
or arrangement, any relocation costs, employment-related legal costs, costs
incurred in connection with governmental laws and regulations and insurance
rules, shall be set forth in the Approved Budget as an Operating Expense.

     (b)  Within limits set forth in the Approved Budget, employees of Operator
other than those regularly employed at the Hotel shall be entitled to free room
and the free use of all hotel facilities at such times as they visit the Hotel
in connection with the management of the Hotel or are assigned temporarily to
the Hotel to perform services for the Hotel not to exceed ten (10) room nights
per Hotel per month (subject to longer stays to the extent key management
positions at the Hotel remain unfilled).

     (c)  Owner and Lessee shall be entitled to free room and the free use of
all hotel facilities for their employees and other persons designated by Owner
and Lessee (not to exceed ten (10) room nights per Hotel per month).

     (d)  Compensation, overhead costs and other expenses of Operator and its
Affiliates not specifically provided for herein shall not be Operating Expenses
and shall not be payable or reimbursable by Lessee.

Section 4.04. Employee Benefit Plans.

     Operator may enroll employees at the Hotels in pension, medical and health,
life insurance and employee benefit plans which are joint plans for the benefit
of non-Hotel employees. Operator's contributions to such plans, reasonable
administrative fees, at cost, which may be expended in connection therewith, and
reasonable expenses for such plans will be estimated and disclosed to Lessee in
advance and provided for in the Approved Budget and will be an Operating
Expense. The administration expenses of any joint plans will be equitably
apportioned among the various Hotels and any other hotels operated by Operator
or its affiliates whose employees participate in such plan. To the extent the
actual costs under the employee benefit plans described in this Section 4.04
cannot be determined precisely because of uncertainty regarding the number of
employees who will elect to participate in such plans, Operator shall use its
reasonable good faith estimate as to participation and costs in preparing the

                                       14

<PAGE>

Hotel Operating Budget and will disclose to Lessee the variable costs involved
in such plans based upon actual employee participation. Except for employer
matching contributions under the 401(k) plan, Lessee, in its sole discretion
shall determine whether to require employees at the Hotels to pay all or a
portion of the costs of the employees' participation in such plans. Except as
otherwise provided in Section 6.03, all costs referenced in Section 4.03 and
this Section 4.04 will be the responsibility of Lessee only to the extent the
same are provided for in the Approved Budget, otherwise all such costs shall be
borne solely by Operator without reimbursement by Lessee.

Section 4.05. Execution of Agreements.

     (a)  Except as provided in Section 4.05(b), Operator shall execute as agent
of Lessee all leases and other agreements relating to equipment and/or services
provided to each Hotel, all of which, unless otherwise approved in writing in
advance by Lessee, shall be cancelable upon not more than thirty (30) days'
written notice by Operator or Lessee without the payment of a penalty or fee.
Notwithstanding the foregoing, without the prior written approval of Lessee,
Operator shall not enter into any agreement (i) which provides for the payment
of sums not authorized by Lessee in an Approved Budget, (ii) which would give
rise to a lien upon all or any part of the Property, (iii) which would result in
liability to Lessee for sums other than as set forth in the applicable Approved
Budget, (iv) to lease any part of any Property, (v) relating to alterations to
the exterior, interior or structural design of the Hotel, (vi) which requires
the payment of more than $5,000 per year or over the term of the agreement, or
(vii) which is not cancelable by Lessee upon 30 days' notice or less.

     (b)  Subject to Lessee's prior approval of the same and upon Lessee's
request, Operator shall execute, as agent for Lessee, (i) all leases, as
sub-lessor, of any space at any Property, and (ii) equipment rental and/or lease
agreements which cannot be terminated upon thirty (30) days notice or less
without the payment of a penalty or fee. Operator shall exercise its best
efforts to obtain in each equipment agreement a right on the part of the lessee
of such equipment to terminate the same on thirty (30) days notice or less
without the payment of a penalty fee. Notwithstanding anything in this Section
4.05 to the contrary, Lessee reserves the right, exercisable at Lessee's option,
to execute any lease or other agreement relating to equipment and/or services
being provided to the Hotel.

                                   ARTICLE V

                                 INDEMNIFICATION

Section 5.01. Indemnification by Operator.

     In addition to all other obligations of Operator to Lessee hereunder,
Operator shall indemnify and hold Lessee harmless against all claims, demands,
actions, liabilities, losses, damages, lawsuits and other proceedings at law or
in equity, judgments, awards, commissions, fees, costs and expenses (including,
without limitation, attorneys' fees and expenses), of every kind and nature
whatsoever to or of any party connected with, or arising out of, or by reason of
any negligent act or omission, breach of contract, willful misconduct, or
tortious actions by Operator, or any Affiliate of Operator, or any officer,
employee, agent, contractor, subcontractor,

                                       15

<PAGE>

or other person or entity working for Operator or any Affiliate of Operator
other than employment related claims by hotel level employees (general manager
of the hotel and below). The indemnification provisions of this Section 5.01 are
subject to the limitations set forth in Section 5.02, as applicable.

Section 5.02. Limitations on Indemnification.

     None of the indemnifications set forth in Section 5.01 shall be applicable
to (1) liability resulting from the design or construction of the Hotel, or (2)
that portion of a liability which is covered and paid for by insurance
maintained for the Hotel. The standard of performance of which Operator is to be
responsible under this Agreement shall be that, reasonably and diligently
exercised, of a professional hotel operator. Settlement of a third party claim
shall not be prima facie evidence that a party has triggered an indemnification
obligation hereunder.

Section 5.03. Indemnification by Lessee.

     Lessee shall indemnify and hold Operator harmless against all claims,
demands, actions, liabilities, losses, damages, lawsuits and other proceedings
at law or in equity, judgments, awards, commissions, fees, costs and expenses
(including, without limitation, attorneys' fees and expenses), of every kind and
nature whatsoever to or of any party connected with or arising out of, or by
reason of any negligent act or omission, breach of contract, willful misconduct,
or tortious actions by Lessee or any Affiliate of Lessee, or any officer,
employee, agent, contractor, subcontractor, or other person or entity working
for Lessee or any Affiliate of Lessee. The indemnification provisions of this
Section 5.03 are subject to the limitations set forth in Section 5.02, as
applicable.

Section 5.04. Survival of Indemnity.

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

                                   ARTICLE VI

                           BUDGETS AND POLICY MEETINGS

Section 6.01. Budgets.

     (a)  No later than November 1 of each year, Operator will prepare and
submit to Lessee an annual capital budget for each Fiscal Year for each Hotel
(the "Hotel Capital Budget"). The Hotel Capital Budget will set forth all
projected capital improvements and all projected expenditures for replacements,
substitutions and additions to Hotel FF&E for such Fiscal Year, which budget
shall also be month-to-month as well as annual. The Hotel Capital Budget will be
subject to the approval of Lessee and Owner, in their sole and absolute
discretion, provided however that Lessee agrees to budget for each Fiscal Year
for capital improvements and capital expenditures at all the Hotels in the
aggregate an amount at least equal to four percent (4%) of Gross Hotel Income
for all the Hotels in the aggregate for the prior Fiscal Year (net of any Hotels
which have been sold), but provided further that the actual amount of capital

                                       16

<PAGE>

improvements and capital expenditures at any Hotel or Hotels, in Lessee's or
Owner's sole and absolute discretion, may be greater than or less than four
percent (4%) of that Hotel's or Hotels' Gross Hotel Income. No later than
November 1 of each year, Operator shall prepare and submit to Lessee an annual
forecast for the operation of the Hotel for the forthcoming Fiscal Year
containing detailed projections of Gross Hotel Income and budgets of Operating
Expenses (the "Hotel Operating Budget"). The Hotel Operating Budget shall be
month-to-month as well as annual and shall be in the form designated by Lessee.
The Hotel Operating Budget and the Hotel Capital Budget shall provide for
operating, equipping and maintaining the Hotel in accordance with the Hotel
Standards. Additionally, before the commencement of each Fiscal Year, Operator
shall submit to Lessee monthly budgeted occupancy, average daily rate and RevPAR
statistics for each hotel. The Hotel Operating Budget and the monthly budgeted
hotel operating statistics shall contain Operator's reasonable good faith
estimates of the amounts set forth therein. Operator shall provide Lessee, upon
request, all details, information and assumptions used in preparing the Hotel
Capital Budget and the Hotel Operating Budget. At the same time, Operator shall
also present the Marketing Plan. Subject to the provisions of the Administrative
Services Agreement among Owner, Lessee and Operator of even date herewith, Owner
shall be responsible for implementing the Hotel Capital Budget and may, in
Owner's sole discretion, increase, decrease, delete or modify in any respect any
capital expenditure in any Hotel Capital Budget subject to maintaining an annual
Capital Budget for all Hotels of at least 4% of Gross Hotel Income in the
aggregate.

     (b) Operator shall review the Hotel Operating Budget with Lessee, and upon
Lessee's written approval of the Budget, it shall constitute the Approved Budget
for the succeeding Fiscal Year and shall be implemented by Operator. If the
parties cannot agree on one or more items in a proposed Hotel Operating Budget,
Lessee and Operator agree to cooperate with each other in good faith to resolve
the disputed proposed item(s). In the event Lessee and Operator are not able to
reach mutual agreement concerning any item within a period of twenty (20) days
after the date Lessee provides written notice of its objections to Operator,
then either party shall be entitled to submit the dispute to arbitration in
accordance with the provisions of Section 10.05. In the event that Lessee and
Operator are unable to agree on the Hotel Operating Budget for a Hotel prior to
the commencement of the applicable Fiscal Year, an interim operating budget
shall be implemented which will reflect CPI increases for expenses and RevPAR
increases based on the appropriate previous 12-month Market Tract RevPAR growth
percentage for the sector in which the Hotel is included, as published by Smith
Travel Research, for revenue growth over the prior year's actual amounts.

Section 6.02. Budget Meetings.

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

                                       17

<PAGE>

Section 6.03. Approval by Lessee Required.

     Any request by Operator for Lessee or a Hotel to make any expenditure or
incur any obligations in excess of the Approved Budget shall be submitted to
Lessee in writing with an explanation of and accompanied by supporting
information for the request. Operator shall not make any such expenditure
without Lessee's prior written consent, except as is necessary, in Operator's
reasonable good faith judgment, for the immediate emergency protection of life
or property. Lessee shall endeavor to respond to any such request within fifteen
(15) days of the receipt thereof; provided, however, Lessee shall have no
obligation to agree to any such request and no liability for failing to respond
and failure to respond to such request within such fifteen (15) day period shall
be deemed a denial of the request. Notwithstanding the foregoing, (i) specific
Operating Expenses in excess of those set forth in the Approved Budget which
result directly from (A) increased Hotel revenues, such as franchise fee costs
or (B) employment related legal costs, cost incurred in connection with
governmental laws and regulations and insurance rules, will not require Lessee's
prior written consent and (ii) variances from the amounts set forth for the
expense categories in the Approved Budget shall not require Lessee's prior
written consent until such amounts exceed $1,000 and 107% of the amount set
forth in the Approved Budget on a year-to-date basis, but, in any such event,
Operator shall promptly provide to Lessee an explanation of any such variance
from the Approved Budget. Any expenditure or obligation not approved by Lessee
in accordance herewith shall be the responsibility of Operator which the
Operator shall fund promptly following the end of the Fiscal Year.

                                  ARTICLE VII

                               OPERATING EXPENSES

Section 7.01. Payment of Operating Expenses.

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

     (b)  Subject to Article V, all reasonable third party Operating Expenses
incurred by Operator in performing its authorized duties shall be reimbursed or
borne by Lessee; provided that such Operating Expenses are incurred pursuant to
and within the limits set forth in an Approved Budget or otherwise pursuant to
the terms of this Agreement.

Section 7.02. Operating Expenses Not an Obligation of Operator.

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

                                       18

<PAGE>

hereunder. Unless agreed to by Lessee in this Agreement, in the Hotel Operating
Budget or otherwise in writing in advance, compensation, overhead costs, and
other expenses of Operator and its parents and Affiliates unrelated to the
operation of the Hotels shall not be reimbursable to Operator by Lessee.

                                  ARTICLE VIII

                        WORKING CAPITAL AND BANK ACCOUNTS

Section 8.01. Working Capital.

     (a)  Upon the close of each Accounting Period, if and as requested by
Operator in writing on or before the tenth (10th) day of each calendar month,
Lessee shall provide to Operator on or before the thirtieth (30th) day of the
same calendar month additional working capital in an amount equal to the Gross
Operating Loss for the immediately preceding month.

     (b)  In the event of a dispute as to the amount of additional working
capital required for the operation of the Hotel, Lessee shall have the right, in
its sole discretion, to determine the amount of additional working capital
required to be provided by Lessee. Each written request for additional working
capital shall itemize and compare the request with the Approved Budget and shall
be accompanied by a written explanation from Operator of any variance from the
Approved Budget. Lessee shall have the right, in its reasonable discretion, to
approve or disapprove any such request.

Section 8.02. Bank Accounts.

     (a)  All funds to be made available to Operator by Lessee for the operation
of the Hotel, exclusive of funds designated as capital expenditures, shall be
deposited in the Hotel Operating Account. Lessee may also establish one or more
"sweep" accounts into which funds from one or more Hotel Operating Accounts may
be deposited. The Hotel Operating Account and any sweep account made available
to Operator are Lessee's accounts and the signing of the checks and handling of
the Hotel Operating Account and any sweep account as long as such account
remains open shall be subject to the check signing requirements of Section 8.03,
and shall be effected exclusively by the individuals designated for such
purposes by Operator and approved in writing by Lessee, and the signatures of
such persons shall be formally and expressly recognized to this end by the bank
in which such account or accounts are maintained. Designees of Operator shall
only be authorized to draw upon the Hotel Operating Account for purposes
authorized by this Agreement and in accordance with the terms of this Agreement.
Operator shall have the responsibility for payment of all Operating Expenses
(which may include Operator's Basic Fee and the monthly accruals of the Hotels)
using Positive Pay fraud prevention services and shall be reimbursed by Lessee
for such expenses (including the funding of monthly accruals of the Hotels that
have been assumed by Operator) upon submission of receipts and documentation
reasonably requested by Lessee. Lessee funds shall not be commingled with
Operator's funds and Operator shall provide to Lessee weekly a detailed
accounting of all Hotel Operating Account receipts and disbursements. Operator
shall comply with Lessee's or Owner's or their lenders' requirements with
respect to lock-box accounts provided that Lessee shall be

                                       19

<PAGE>

responsible for any incremental out-of-pocket costs of Operator resulting from
any such lock-box arrangement (which shall not be an Operating Expense).

     (b)  Operator may establish one or more separate bank accounts for handling
payroll costs. Such accounts shall be in a bank selected by Lessee, and shall be
handled exclusively by the individuals designated by Operator and approved in
writing by Lessee. Funds shall be deposited in the payroll account or accounts
from the Hotel Operating Account, as needed, in order to meet payroll
requirements; provided, however, all expenditures from such accounts shall be
subject to and in accordance with the terms of this Agreement.

Section 8.03. Authorized Signatures.

     The Hotel Operating Account shall be under the day-to-day control of
Operator, without prejudice, however, to Operator's obligation to account to
Lessee as and when provided for herein. Lessee shall have signatory authority
with respect to the Hotel Operating account. All receipts and income, including,
without limitation, Gross Hotel Income shall be promptly deposited in the Hotel
Operating Account. Operator will remit to Lessee such funds from the Hotel
Operating Account as Lessee may request from time to time in accordance with
Section 10.03. Checks or other documents of withdrawal shall be signed only by
the individual representatives of Operator approved in writing by Lessee and
duly recognized for such purpose by the bank or banks in which the referenced
accounts are maintained. Operator shall supply Lessee with fidelity bonds or
other insurance insuring the fidelity of authorized signatories to such
accounts, unless said bonds or other insurance shall have been placed by Lessee
and delivered directly by the bonding or insurance company to Lessee. The cost
of such fidelity bonds or other insurance shall be an Operating Expense and
subject to Lessee's approval. Neither Lessee nor Operator shall be responsible
for any losses occasioned by the failure or insolvency of the bank or banks in
which the referenced accounts are maintained. Upon expiration or termination of
this Agreement and the payment to Operator of all amounts due Operator hereunder
upon such expiration or termination, as provided in this Agreement, all
remaining amounts in the referenced accounts shall be transferred forthwith to
Lessee, or made freely available to Lessee.

Section 8.04. Investment of Hotel Cash.

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

                                   ARTICLE IX

                          BOOKS, RECORDS AND STATEMENTS

Section 9.01. Books and Records.

     (a)  Operator shall keep full and adequate books of account and other
records reflecting the results of operation of the Hotel on an accrual basis,
all in accordance with the Uniform System and generally accepted accounting
principles.

                                       20

<PAGE>

     (b)  Except for the books and records which may be kept in Operator's home
office or other location approved by Lessee the books of account and all other
records relating to or reflecting the operation of the Hotel shall be kept at
the Hotel. All such books and records pertaining to the Hotel, including,
without limitation, books of account, guest records and front office records, at
all times shall be the property of Lessee and, except for books of account,
accounts payable invoices, night audit packages, deposit records and similar
documents which may be sent to Operator's accounting department (currently
located in Norfolk, Nebraska) shall not be removed from the Hotel by Operator
without Lessee's written approval and consent. All books and records pertaining
to the Hotel and of Operator (including all budgetary records of Operator),
wherever kept, shall be available to Lessee and its representatives at all
reasonable times for examination, audit, inspection, transcription and copying.
Operator shall not remove, destroy or delete any books and records of the Hotels
without the prior written consent of Lessee. Upon any termination of this
Agreement, all of such books and records pertaining to the Hotel forthwith shall
be turned over to Lessee so as to insure the orderly continuance of the
operation of the Hotel, but such books and records shall be available to
Operator for a period of seven (7) years at all reasonable times for inspection,
audit, examination, and transcription of particulars relating to the period in
which Operator managed the Hotel.

Section 9.02.  Statements.

     (a)  Operator shall deliver to Lessee by the first (1st) business day
following the fifteenth (15th) calendar day of each month, for each Hotel, a
monthly report of the state of the business and affairs of the operation of the
Hotel for the immediately preceding month and for the Fiscal Year to date and
within fifteen (15) days after the end of each quarter, a quarterly report with
respect to the preceding quarter. Such reports shall include at least (i) a
balance sheet, (ii) a profit and loss statement, comparing current month and
Fiscal Year-to-date profit, loss, and operating expenses to the Approved Budget
and the prior year and comparing current month, quarter and Fiscal Year-to-date
average daily rate, occupancy and RevPAR to the Approved Budget and the prior
year, (iii) a statement which details the computation of all fees payable to
Operator for the month and quarter, (iv) the balance of all bank accounts, and
(v) an adjusting statement showing the actual cash position of the Hotel for the
month, quarter and Fiscal Year-to-date. Additionally, Operator shall deliver to
Lessee fifteen (15) days following the end of each month and twenty-five (25)
days following the end of each quarter a written narrative discussing any of the
aforementioned reports and year-to-date variances exceeding 7% of the Approved
Budget, without thereby implying Lessee's approval of such variance.

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

     (c)  Within thirty (30) days after the end of each quarter of each Fiscal
Year, Operator shall deliver to Lessee unaudited financial statements for
Operator and within seventy-five (75) days after the end of each Fiscal Year
audited financial statements for Operator. In the event of any amendments or
modifications to Securities and Exchange Commission or stock exchange

                                       21

<PAGE>

reporting requirements which reduce the time available for period-end reporting,
Operator agrees to expedite delivery of such information so as to permit timely
reporting.

     (d)  In addition, Operator shall timely deliver to Lessee a copy of (i) a
monthly STAR report from Smith Travel Research for each Hotel, where available
(which Operator hereby agrees to order with respect to each Hotel and provide to
the REIT, at the REIT's request), (ii) each Guest Satisfaction report, (iii) a
new competition report prepared with respect to each Hotel describing franchise
changes, new groundbreakings, new openings and similar market supply changes,
(iv) upon receipt, each Franchisor inspection report, and (v) such other reports
or information in such form as may be reasonably requested by Lessee.

     (e)  If requested by Lessee, Operator will deliver copies of daily, weekly
or other reports with respect to hotel operations in the form of Exhibit H.

Section 9.03.  Costs.

     The cost of providing all financial and operating data and accounting
services hereunder shall be included within Operator's Basic Fee.

                                   ARTICLE X

                     OPERATOR'S FEE AND TRANSFERS TO LESSEE

Section 10.01. Payment of Operator's Basic Fee.

     Effective December 1, 2002 and on the first (1st) day of each month
thereafter during the Operating Term, Operator shall be paid out of the Hotel
Operating Account the Operator's Basic Fee for the immediately prior month,
based upon Gross Hotel Income for the immediately prior month, as determined
from the books and records referred to in Article IX.

Section 10.02. Payment of Operator's Incentive Fee.

     On or before each December 31 during the Operating Term, beginning with
March 31, 2003, Lessee shall pay to Operator, the Operator's Incentive Fee, if
any, for the prior twelve month period ended September 30 which shall be
determined consistent with the audited annual financial statements.

Section 10.03. Distribution of Cash.

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

                                       22

<PAGE>

Section 10.04. Adjustments to Allocations.

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

Section 10.05. Arbitration.

     (a)  In the event of a dispute, controversy or difference between Operator
and Lessee over (i) the proposed Hotel Operating Budget or (ii) the calculation
of the amount of the Operator's Incentive Fee for any Fiscal Year, at the
request of either party, the parties shall submit such dispute, controversy or
difference to arbitration before an arbitrator who has knowledge and is
experienced in ownership and management of hotels of similar size and class as
the Hotel and who is selected by mutual agreement of Operator and Lessee from a
list provided by the American Arbitration Association. In the event Operator and
Lessee cannot mutually agree on an arbitrator on such list within fifteen (15)
days of receipt of the list, the parties agree that the American Arbitration
Association shall select a neutral arbitrator who shall make a final and binding
determination of the matter in controversy.

     (b)  Prior to the commencement of arbitration hearings, the arbitrator
shall provide an oath or undertaking of impartiality. The arbitration shall be
conducted in the city in which the REIT's principal executive offices are
located, in accordance with Title 9 of the U.S. Code (the Federal Arbitration
Act) and the Commercial Arbitration Rules of the American Arbitration
Association and the arbitration session shall be held not later than twenty (20)
days after the final selection of the arbitrator. The arbitration session shall
be limited to a time period of forty-eight (48) hours from commencement of such
session and the costs of arbitration shall be allocated by the arbitrator. The
parties shall submit their positions on each disputed item in writing to the
arbitrator. In so submitting their positions, each party shall state only one
substantive proposal as a resolution for each disputed item. The arbitrator
shall not consider multiple or alternative positions from either party with
respect to a disputed item and shall vote only in the affirmative or negative on
each item. The arbitrator shall be required to approve the substantive position
of either Lessee or Operator with respect to each disputed item, and shall not
be authorized to agree upon any alternative substantive position that has not
been presented to the arbitrator by Lessee or Operator. The decision of the
arbitrator so appointed and acting hereunder with respect to each disputed item
shall in all cases be binding and conclusive upon Lessee and Operator and a copy
of the arbitrator's decision shall be provided to the parties. Judgment on the
award rendered by the arbitrator in accordance with this Section 10.05 may be
entered in any court having jurisdiction thereof.

                                       23

<PAGE>

Section 10.06. Other Fees.

     Commencing with the execution of the new Administrative Services Agreement
of even date herewith among Humphrey Hospitality Limited Partnership, E&P
Financing Limited Partnership, Humphrey Hospitality Trust, Inc. and Humphrey
Hospitality Management, Inc., upon presentation of documentation reasonably
acceptable to Lessee, (i) Lessee will reimburse Operator for Marketing Expenses
and (ii) Lessee will reimburse Operator for up to $150,000 per Fiscal Year
(prorated for any partial Fiscal Year) for payroll processing services in
connection with management of the Hotels hereunder.

                                   ARTICLE XI

                             REPAIRS AND MAINTENANCE

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

                                  ARTICLE XII

                                    INSURANCE

Section 12.01. General.

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

Section 12.02. Workers' Compensation Insurance.

     The Hotel Operating Budget shall include, as an Operating Expense, (i)
workers' compensation insurance with respect to all Hotel employees in such
amounts as may be required by applicable law, and (ii) crime insurance in
connection with all operations, business and affairs arising out of or in
connection with the Hotel, including coverage on persons employed by Operator in
an amount specified by Lessee; provided that the cost of such insurance shall be
reasonable and shall be approved by Lessee.

                                       24

<PAGE>

Section 12.03. Approval of Companies and Cost by Owner and Lessee.

     All insurance shall be with such insurance company or companies as may be
selected by Owner or Lessee. Lessee will obtain all insurance but, upon the
request of Lessee not less than one hundred twenty (120) days prior to the
coverage date, Operator will obtain such insurance, subject to Lessee's approval
of the insurance companies and coverages. If Lessee or Owner elects to obtain
insurance and the premium therefor exceed the premiums obtainable by Operator
for the same coverage from insurers of equal or greater financial rating, the
excess amount shall not be included in calculating NOI. Comprehensive general
liability insurance and such other liability insurance as may be obtained or
afforded shall be in the name of Owner and Lessee, and shall name Operator as an
additional named insured as respects liability arising from the operation,
maintenance and use of the Hotel and operations incidental thereto. All property
insurance policies shall be endorsed specifically to the effect that the
proceeds of any building, contents or business interruption insurance shall be
made payable to Lessee.

Section 12.04. Maintenance of Coverages.

     Lessee shall hold all insurance policies obtained hereunder, and
certificates of such policies, if any, shall be delivered to each of Lessee and
Operator.

Section 12.05. Waiver of Subrogation.

     To the extent obtainable from carriers and to the extent that endorsement
forms are approved by the Insurance Commissioner (or comparable office or
department) of the state in which the Hotel is located, all policies of property
insurance shall provide that the insurance companies will have no rights to
subrogation against Lessee or Operator or the agents or employees thereof.

Section 12.06. Blanket Coverage and Self-Insurance.

     Owner and Lessee specifically reserve the right to self-insure against all
hazards, perils, risks and liabilities referred to in this Article XII and
reserve the right to provide any insurance referenced in this Article XII by one
or more so-called "blanket" or "umbrella" policies of insurance. Operator
further acknowledges that the insurance coverage of the Hotel may be part of the
general insurance plan of Owner or Lessee or of any of their affiliates. Owner
or Lessee may elect to obtain any of the insurance coverages set forth in this
Article XII with a "deductible loss" clause providing for per occurrence
deductibles.

                                  ARTICLE XIII

            PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

Section 13.01. Property Taxes.

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

                                       25

<PAGE>

Section 13.02. Lessee's Right to Contest.

     Notwithstanding the foregoing, Lessee or Owner may contest the validity or
the amount of any real or personal tax or assessment. Operator agrees to
cooperate with Lessee and Owner and execute any documents or pleadings required
for such purpose.

                                  ARTICLE XIV

                      DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01. Damage.

     If at any time during the Operating Term any Hotel or any portion thereof
should be damaged or destroyed, Owner and Lessee shall have the respective
rights and obligations set forth in the Lease with respect to damage or
destruction. In the event the Hotel is not repaired, rebuilt or replaced, Lessee
may terminate this Agreement by written notice to Operator, effective as of the
date sent and the parties shall treat such termination as if it were in
connection with the sale of the Hotel in accordance with Section 2.01(b).

Section 14.02. Condemnation.

     If at any time during the Operating Term the whole or any part of the
Property shall be taken or condemned in any eminent domain, condemnation,
compulsory acquisition or like proceeding or sale in lieu thereof by any
competent authority, or if such a portion thereof shall be taken or condemned as
to make it imprudent or unreasonable to use the remaining portion as a hotel of
the type and class immediately preceding such taking or condemnation, then this
Agreement shall terminate as of the date of such taking or condemnation, and the
parties shall treat such termination as if it were in connection with the sale
of Hotel in accordance with Section 2.01(b). Operator shall have no right to the
award from the taking or condemning authority in any such proceeding.

                                   ARTICLE XV

                                   USE OF NAME

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

                                  ARTICLE XVI

                              OWNER'S RIGHT TO SELL

     At any time during the Operating Term, Owner may sell or otherwise dispose
of one or more Hotels or enter into a ground lease with respect to one or more
of the Hotels (hereinafter collectively referred to as "Sale of a Hotel"), to
any other person, partnership, firm or corporation (hereinafter referred to as
the "Purchaser"). In such event, Lessee may notify Operator in writing no less
than sixty (60) days prior to any such Sale of a Hotel and this Agreement shall
terminate

                                       26

<PAGE>

with respect to such Hotels upon the closing of the Sale of the Hotel, subject
to the provisions of Section 2.01(b).

                                  ARTICLE XVII

                              DEFAULT AND REMEDIES

Section 17.01. Events of Default- Remedies.

     (a)  The following shall constitute Events of Default:

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

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

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

          (4)  The filing of a voluntary petition in suspension of payments,
bankruptcy or insolvency by either Lessee or Operator or any entity which owns
or controls such party or if any such party otherwise voluntarily avails itself
of any federal or state laws for the relief of debtors or admits in writing its
inability to pay its debts as they become due;

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

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

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

          (8)  Loss of the franchise license for a Hotel solely as a result of
any action, or failure to act, on the part of Operator;

          (9)  Failure of either Lessee or Operator to comply with the
provisions of Article XIX;

                                       27

<PAGE>

          (10) Failure of Operator to pay, when due, all real property and
personal property taxes in accordance with the provisions of Section 12(d) of
the Lease Termination Agreement dated December 31, 2001 among Operator, Supertel
Hospitality Management, Inc., Humphrey Hospitality Trust, Inc., Humphrey
Hospitality Limited Partnership, E & P Financing Limited Partnership, Solomons
Beacon Inn Limited Partnership and Lessee; or

          (11) Failure by Operator to pay, when due, the accounts payable for
the Hotels for which Lessee had previously reimbursed Operator.

     (b)  Upon the occurrence of any Event of Default, the nondefaulting party
shall give to the defaulting party notice of its intention to terminate this
Agreement after the expiration of a period of ten (10) days from such date of
notice and, upon the expiration of such period, this Agreement shall terminate
and expire without penalty. If, however, with respect to the Events of Default
referred to in items (1), (4), (5), (6), (7), (10) and (11) of subsection (a)
above, unless a specific right of termination is specified elsewhere in this
Agreement for the breach in question, upon receipt of such notice, the
defaulting party shall promptly and with all due diligence cure the default or
take and continue action to cure such default within such ten (10) day period.
If such default shall not be capable of being cured within such ten (10) day
period, then provided the defaulting party diligently pursues the cure of such
default, such party shall have an additional five (5) days to cure any such
default unless otherwise extended by the non-defaulting party. The procedure set
forth in the preceding two sentences shall not be available for the curing of
any default under items (2), (3), (8) or (9) of subsection (a) above. In the
event such default is not cured by the expiration of such period, the
non-defaulting period may terminate this Agreement effective upon expiration of
such period without penalty or payment of any fee.

Section 17.02. Rights Not Exclusive.

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

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

                                       28

<PAGE>

                                 ARTICLE XVIII

                                     NOTICES

Section 18.01. Notices.

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

          (1)  Notices to Lessee shall be addressed:

                             TRS Leasing, Inc.
                             7170 Riverwood Drive, Suite A
                             Columbia, MD 21046
                             Attention: President
                             Facsimile: (443) 259-4999

                                       and

                             TRS Subsidiary, LLC
                             7170 Riverwood Drive, Suite A
                             Columbia, MD 21046
                             Attention: President
                             Facsimile: (443) 259-4999

          (2)  Notices to Operator shall be addressed:

                             Humphrey Hospitality Management, Inc.
                             7170 Riverwood Drive, Suite A
                             Columbia, MD 21046
                             Attention: President
                             Facsimile: (443) 259-4999

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

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

                                       29

<PAGE>

                                  ARTICLE XIX

                                   ASSIGNMENT

Section 19.01. No Assignment by Operator.

     (a)  Notwithstanding anything to the contrary set forth in this Agreement,
without the prior written consent of Lessee (which consent may be withheld in
Lessee's sole and absolute discretion), Operator shall have no right to sell,
transfer or assign (or permit the sale, transfer or assignment of) any of its
rights, duties or obligations under this Agreement in any manner, either
directly or indirectly, voluntarily, by operation of law, through a change in
control of Operator, or otherwise.

     (b)  Operator shall give Lessee not less than thirty (30) days written
notice of any event which would result in James I. Humphrey, Jr. owning less
than 51% of the equity interests in Operator. If, within thirty (30) days
following delivery of such notice, Lessee does not consent to the occurrence of
such event (which consent may be withheld in Lessee's sole and absolute
discretion), and such event occurs, Lessee may terminate this Agreement as to
one or more Hotels without any liability to Operator.

Section 19.02. Assignment by Lessee.

     Lessee may transfer or assign its rights and obligations under this
Agreement without the consent of Operator but shall deliver to Operator written
notice of such transfer or assignment not less than ten (10) days prior to the
effective date thereof; provided however, that without Operator's prior consent,
effective upon any such assignment to a non-affiliate of Lessee, the provisions
of the second sentence of Section 2.01(b) and clause (ii) of the last sentence
of Section 2.01 (b) shall terminate and be of no further force and effect. Any
transfer or assignment of this Agreement by Lessee shall include an express
assumption by the transferee or assignee of Lessee's obligations hereunder.
Nothing herein shall be deemed to require Lessee to assign or attempt to assign
this Agreement to any third party, including any buyer of a Hotel.

                                   ARTICLE XX

                                  SUBORDINATION

Section 20.01. Subordination To Mortgage.

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

                                       30

<PAGE>

Agreement and Operator's rights hereunder including without limitation providing
any purchaser of a Hotel at a foreclosure sale or deed-in-lieu of foreclosure
(including the lender) with the right to terminate this Agreement.

Section 20.02. Foreclosure.

         Prior to termination of this Agreement by foreclosure under the
Mortgage or by acquisition of the property to be covered by the Mortgage by deed
in lieu of foreclosure, Operator shall have the right to enjoy all rights and
privileges conferred upon it pursuant to this Agreement, including, without
limitation the rights to the Operator's Basic Fee, Operator's Incentive Fee and
amounts payable pursuant to Section 2.01(b) hereof, and Operator shall incur no
liability to the Holder for acting pursuant to the terms of this Agreement;
provided, however, Operator shall be required to (and does hereby agree to)
repay to the Holder any Operator's Basic Fee, Operator's Incentive Fee and
amounts payable pursuant to Section 2.01(b) paid to Operator under this
Agreement from and after the date which is thirty (30) days after the date of
receipt by Operator of a notice of default under the Mortgage, which default is
not cured and results in the acceleration of the indebtedness secured by the
Mortgage and the ultimate foreclosure of the liens and/or security interest
under the Mortgage and/or other acquisition of the property covered thereby by
the Holder in lieu of foreclosure. Notwithstanding the foregoing, Operator may
pursue, as an unsecured creditor, a claim for all amounts due and owing to
Operator under this Management Agreement in accordance with the terms of this
Section 20.02.

                                   ARTICLE XXI

                                  MISCELLANEOUS

Section 21.01. Further Documentation.

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

Section 21.02. Captions.

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

Section 21.03. Successors and Assigns.

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

                                       31

<PAGE>

Section 21.04. Competitive Market Area.

         Operator hereby agrees, for the benefit of Lessee, its successors and
assigns, that Operator will not own, operate, lease or otherwise have an
interest in, directly or indirectly, any hotel within a five (5) mile radius of
any Hotel during the Operating Term unless expressly consented to in writing by
Lessee in advance, which consent may be withheld in Lessee's sole and absolute
discretion.

Section 21.05. Assumption of Post Termination Obligations.

         In the event of termination of this Agreement, Lessee shall be
responsible for assuming obligations under contracts entered into by Operator
only to the extent that any such contract shall have been entered into in
accordance with Section 4.05(a) and Lessee shall be responsible for the payment
of obligations incurred by Operator in the operation of the Hotel only to the
extent that such obligations shall have been incurred in accordance with the
terms of this Agreement, and Operator hereby agrees to indemnify and to hold
Lessee harmless from and against any liability in connection with any such
contracts, agreements or obligations not so approved in writing by Lessee.

Section 21.06. Entire Agreement.

         This Agreement, together with the Exhibits hereto, constitutes the
entire Agreement between the parties relating to the subject matter hereof,
superseding all prior agreements or undertakings, oral or written. This
Agreement and the Exhibits hereto shall be construed and interpreted without
reference to any canon or rule of law requiring interpretation against the party
drafting or causing the drafting of this Agreement or the portions in question,
it being agreed and understood that all parties have participated in the
preparation of this Agreement.

Section 21.07. Governing Law.

         This Agreement shall be construed and enforced in accordance with the
laws of the Commonwealth of Virginia.

Section 21.08. No Political Contributions.

         Any provision hereof to the contrary notwithstanding, no money or
property of the Hotel shall be paid or used or offered, nor shall Lessee or
Operator directly or indirectly pay or use or offer, consent or agree to pay or
use or offer any money or property of the Hotel, for or in aid of any political
party, committee or organization, or for or in aid of, any corporation, joint
stock or other association organized or maintained for political purposes, or
for, or in aid or, any candidate for political office or for nomination for such
office, or in connection with any election including referendum for
constitutional amendment, or for any political purpose whatever, or for lobbying
in connection with legislation or regulation thereunder, or for the
reimbursement for indemnification of any person for money or property so used.

                                       32

<PAGE>

Section 21.09. Eligible Independent Contractor.

         (a)   At the effective time of this Agreement, Operator shall qualify
as an "eligible independent contractor" as defined in Section 856(d)(9) of the
Internal Revenue Code of 1986, as amended (the "Code"). To that end:

                     (i)    during the Operating Term, Operator shall not permit
                            wagering activities to be conducted at or in
                            connection with the Hotels;

                     (ii)   during the Operating Term, Operator shall not own,
                            directly or indirectly (within the meaning of
                            Section 856(d)(5) of the Code), more than 35% of the
                            shares of Humphrey Hospitality Trust, Inc.;

                     (iii)  during the Operating Term, no more than 35% of the
                            total combined voting power of Operator's
                            outstanding stock (or 35% of the total shares of all
                            classes of its outstanding stock) shall be owned,
                            directly or indirectly, by one or more persons
                            owning 35% or more of the outstanding stock of
                            Humphrey Hospitality Trust, Inc.; and

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

         (b)   A "qualified lodging facility" is defined in Section 856(d)(9)(D)
of the Code and means a "lodging facility" (defined below), unless wagering
activities are conducted at or in connection with such facility by any person
who is engaged in the business of accepting wagers and who is legally authorized
to engage in such business at or in connection with such facility. A "lodging
facility" is a hotel, motel or other establishment more than one-half of the
dwelling units in which are used on a transient basis, and includes customary
amenities and facilities operated as part of, or associated with, the lodging
facility so long as such amenities and facilities are customary for other
properties of a comparable size and class owned by other owners unrelated to
Humphrey Hospitality Trust, Inc.

         (c)   Operator shall not sublet any Hotel or enter into any similar
arrangement on any basis such that the rental or other amounts to be paid by the
sublessee thereunder would be based, in whole or in part, on either (a) the net
income or profits derived by the business

                                       33

<PAGE>

activities of the sublessee, or (b) any other formula such that any portion of
the rent would fail to qualify as "rents from real property" within the meaning
of Section 856(d) of the Internal Revenue Code, or any similar or successor
provision thereto.

Section 21.10. Time of the Essence.

         Time is of the essence of this Agreement.

Section 21.11. Offsets.

         The parties hereto may offset amounts owed to the other parties
hereunder against any amounts owed pursuant to any other agreements among the
parties.

Section 21.12. Attorney's Fees.

         If any party brings an action against another party to enforce any
provision of this Agreement, the prevailing party in such action shall be
entitled to recover its court costs, attorney's fees and expenses in the
judgment rendered through such action.

Section 21.13. Final Accounting.

         (a)   Within sixty (60) days following the effective date of expiration
or termination of this Agreement, Operator shall prepare and submit to Lessee a
final accounting of Hotel operations through the effective date of such
expiration or termination, which accounting shall be in the form of the
financial statements required hereunder.

         (b)   Upon the effective date of expiration or termination of this
Agreement, Operator shall deliver possession of the Hotel, and any cash,
property and other assets pertaining thereto, together with any and all keys or
other access devices, to Lessee.

         (c)   Upon the expiration or termination of this Agreement, Operator
shall reasonably cooperate with and assist Lessee as may be necessary for the
transfer of any and all Hotel licenses and permits to Lessee or Lessee's
designee.

Section 21.14. Non-Solicitation.

         Lessee shall not, during the Operating Term, or for a period of six (6)
months thereafter, without the consent of Operator, solicit for employment any
corporate level employee of Operator. The foregoing prohibition shall not apply
to any employee at the Hotels and shall not prohibit Lessee from hiring any
employee of Operator who solicits employment by Lessee or Lessee's affiliates.

Section 21.15. Franchisor Communications.

         During the Operating Term, each party shall promptly deliver to the
other party copies of any deficiency notices or similar notices received from a
Franchisor and any response thereto.

                                       34

<PAGE>

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

                                     LESSEE:

                                     TRS LEASING, INC.

                                     By:    /s/ Michael M. Schurer
                                            ------------------------------------

                                     Name:  Michael M. Schurer

                                     Title: Secretary

                                     TRS SUBSIDIARY, LLC

                                     By:   /s/ Michael M. Schurer
                                            ------------------------------------

                                     Name:  Michael M. Schurer

                                     Title: Secretary

                                     OPERATOR:

                                     HUMPHREY HOSPITALITY
                                     MANAGEMENT, INC.

                                     By:    /s/ James Humphrey
                                            ------------------------------------

                                     Name:  James Humphrey

                                     Title: President

                                       35<PAGE>

                                                                   Exhibit 10.1

                     SEVERANCE AGREEMENT AND GENERAL RELEASE

     THIS SEVERANCE AGREEMENT (the "Agreement") dated as of September 27, 2002
is entered into between John J. Nugent, whose address is 41 Bayside Road,
Quincy, Massachusetts 02171 (the "Executive"), and BJ's Wholesale Club, Inc., a
Delaware corporation, whose principal office is One Mercer Road, Natick,
Massachusetts 01760 (the "Company").

     WHEREAS, the Executive has resigned from his office as President and Chief
Executive Officer of the Company on September 9, 2002, and remains a general
employee of the Company;

     WHEREAS, the parties wish to resolve amicably the Executive's termination
from employment as a general employee of the Company and establish the terms of
the Executive's severance arrangement;

     WHEREAS, the Executive is advised that he has at least 21 days to consider
this Agreement, that he is advised to consult with his own attorney prior to
signing this Agreement and that he may revoke the agreement for a period of
seven (7) days after signing and the Agreement shall not be effective or
enforceable until the expiration of the seven (7) day revocation period;

     WHEREAS, the parties intend that this Agreement shall terminate (i) the
Employment Agreement dated as of July 28, 1997 (the "July 1997 Employment
Agreement") between the Executive and the Company pursuant to Section 8(a)
thereof and (ii) the Change of Control Severance Agreement dated as of February
4, 1999 (the "CIC Agreement") between the Executive and the Company;

     NOW, THEREFORE, in consideration of the promises and conditions set forth
herein, the sufficiency of which is hereby acknowledged, the Company and the
Executive agree as follows:

     1. Termination Date.  The Executive's effective date of termination from
        -----------------
all employment with the Company is September 28, 2002 (the "Termination Date").
Effective upon the Termination Date, the July 1997 Employment Agreement and the
CIC Agreement between the Executive and the Company will be terminated.

     2. Severance Compensation and Benefits.  In return for the execution of the
        ------------------------------------
instant Severance Agreement and General Release (this "Agreement"), the Company
agrees to provide the Executive with the following compensation and benefits:

        a) Severance Pay. For a period of seventy-eight (78) weeks following the
           --------------
Termination Date, through March 27, 2004 (the "Severance Period"), the Company
shall continue to pay the Executive his base salary as of the Termination Date,
at the rate of $13,461.54 per week. The Severance Pay shall be less all
applicable withholding for income and employment taxes and insurance benefits,
and shall be payable in such manner and at such time as the Company shall pay
base salary to other executives, but in no event shall such severance pay
commence earlier than the eighth (8th) day after execution of this Agreement.

        b) Insurance Benefits. During the Severance Period, the Company will
           -------------------
provide only medical and hospital insurance and life insurance (but not
disability or other types

                                       -1-

<PAGE>

of insurance) for the Executive and his family upon comparable terms and
conditions to those provided for the Company's executives generally. Following
the Severance Period, the Executive and his family may be eligible to receive
continuation coverage to the extent authorized and consistent with 29 U.S.C.
ss.1161, et seq., ("COBRA"), provided that he pays full cost for such coverage
in a timely manner.

        c) Management Incentive Plan. Pursuant to the Company's Management
           --------------------------
Incentive Plan ("MIP"), the Company will pay to the Executive a prorated portion
of the amount that the Executive would have been entitled to receive under MIP
for services performed during the current fiscal year. The prorated portion
shall be determined by multiplying the amount he would have received under MIP
for the full Plan Year by a fraction, the numerator of which is 34, and the
denominator of which is 52. Such amount will be paid in its entirety in a lump
sum, less applicable withholdings, at the same time as other MIP awards for the
fiscal year ending February 1, 2003. The Executive shall not be entitled to
receive any other MIP awards.

        d) Growth Incentive Plan. Pursuant to the Company's Growth Incentive
           ----------------------
Plan ("GIP"), awards will be payable as follows: (i) Award Period Ending in
                                                     ----------------------
2003. The Company will pay to the Executive, pursuant to Section 2.4 (b) of GIP,
-----
the amount he would have been entitled to receive under GIP as of the
Termination Date for the Award Period in which the Executive is a Participant
ending in 2003. The amounts paid with respect to the Award Period ending in 2003
shall be determined by multiplying the amount the Executive would have received
for the complete term of the Award Period by a fraction, the numerator of which
is the number of weeks in the Award Period through September 28, 2002, and the
denominator of which is the total number of weeks from the beginning of the
Award Period until the end of the Award Period. All such amounts payable for the
Award Period ending in 2003 will be paid in a lump sum minus applicable
withholdings as soon as practicable following the end of the fiscal year; (ii)
Award Period Ending in 2005 And Other GIP Award Entitlement. The Executive
------------------------------------------------------------
agrees and recognizes that he shall not be entitled to any award with respect to
the Award Period ending in 2005, and that, effective September 28, 2002, he
shall not be entitled to receive future GIP awards.

        e) Options.
           --------

           (i) Grants pursuant to the Company's 1997 Replacement Stock Incentive
               -----------------------------------------------------------------
Plan (the "1997 Replacement Plan"). Pursuant to the 1997 Replacement Plan and
-----------------------------------
the terms of the individual Non-Qualified Stock Option Certificates Granted
Under 1997 Replacement Stock Incentive Plan (the "Certificates"), and
recognizing that Section 6 (h) of the 1997 Replacement Plan does not apply, the
Executive's vested options shall be exercisable for a period of three (3) months
from the Termination Date. Such exercise rights shall be governed by the terms
and conditions of the 1997 Replacement Plan and respective Certificates.

           (ii) Grants pursuant to the Company's 1997 Stock Incentive Plan (the
                ---------------------------------------------------------------
"1997 Plan"). The Executive has six (6) Grants pursuant to the 1997 Plan: Option
-------------
to purchase 200,000 shares (of which 50,000 shares have been acquired)
exercisable at $15.0625 with a Grant Date of September 18, 1997 ("Grant 1");
Option to purchase 200,000 shares (of which 25,000 shares have been acquired)
exercisable at $18.16 with a Grant Date of August 27, 1998 ("Grant 2"); Option
to purchase 100,000 shares exercisable at $29.75 with a Grant Date of

                                       -2-

<PAGE>

September 17, 1999 ("Grant 3"); Option to purchase 100,000 shares exercisable at
$31.00 with a Grant Date of May 25, 2000 ("Grant 4"); Option to purchase 65,000
shares exercisable at $37.0625 with a Grant Date of September 14, 2000 ("Grant
5"); and Option to purchase 65,000 shares exercisable at $45.30 with a Grant
Date of September 25, 2001 ("Grant 6"), which will be treated as follows. Grants
1 and 2. Recognizing that the Executive is entitled to be treated as a retiree
under the terms of the 1997 Plan and applicable Nonstatutory Stock Option
Agreements Granted Under 1997 Stock Incentive Plan (the "Stock Option
Agreements"), vested options under Grants 1 and 2 shall be exercisable within
                                   --------------
one (1) year of the Termination Date, during which period he shall continue to
vest in such Grants under the terms of the 1997 Plan and respective Stock Option
Agreements. Grants 3, 4, 5, and 6. With respect to Grants 3, 4, 5, and 6,
                                                   ----------------------
because the Executive will be treated as a retiree under the terms of the 1997
Plan and the applicable Stock Option Agreements, vested options under Grants 3,
4, 5, and 6 shall be exercisable within one (1) year of the Termination Date,
during which period he shall continue to vest in such Grants under the terms of
the 1997 Plan and the respective Stock Option Agreements. In addition, in
consideration for past services to the Company, the Company agrees that it shall
issue amended Stock Option Agreements for Grants 3, 4, 5, and 6 providing for an
additional two (2) year extension of the period in which options under Grants 3,
4, 5, and 6 shall continue to vest and shall be exercisable. As a result of the
Executive's treatment as a retiree, as well as the Company's issuance of amended
Stock Option Agreements, the Executive shall have until and including September
28, 2005 in which to continue to vest in options subject to Grants 3, 4, 5 and 6
and to exercise vested options under Grants 3, 4, 5, and 6.

        f) Executive Retirement Plan. The Executive will receive a prorated
           --------------------------
Annual Retirement Contribution (as defined in the Company's Executive Retirement
Plan) solely as provided herein. Such Annual Retirement Contribution shall be
based on his compensation from the beginning of the Company's current fiscal
year until the Termination Date, multiplied by whatever rate of contribution is
approved for other senior executives of the Company participating in said plan
during the current fiscal year. Such Annual Retirement Contribution shall be
paid to the Executive in the same manner and at the same time as other payments
under said Plan.

        g) Other Benefits. Except as expressly provided above, the Executive's
           ---------------
eligibility to participate in any of the Company's employee benefits plans and
programs shall cease on or after the Termination Date in accordance with the
terms of such benefits and programs. As of the end of the current fiscal
quarter, the Executive will not be eligible for participation under any General
Deferred Compensation Plan. Any benefits previously accrued under said Plan will
be paid in accordance with its terms.

     3. Agreement Not to Solicit or Compete.
        ------------------------------------

        a) The Executive shall not during the Severance Period under any
circumstances employ, solicit the employment of, or accept unsolicited the
services of, any "protected person", or recommend the employment of any
"protected person" to any other business organization in which the Executive has
any direct or indirect interest (other than a less-than-one percent equity
interest in an entity), with which the Executive is affiliated or for which the
Executive renders any services. A "protected person" shall be a person known by
the Executive to be employed by the Company or its subsidiaries at or within six
months prior to the commencement of conversations with such person with respect
to employment.

     As to (i) each "protected person" to whom the foregoing applies, (ii) each
limitation on (A) employment of, (B) solicitation of, and (C) unsolicited
acceptance of services

                                       -3-

<PAGE>

from, each "protected person" and (iii) each month of the period during which
the provisions of this subsection (a) apply to each of the foregoing, the
provisions set forth in this subsection (a) are deemed to be separate and
independent agreements and in the event of unenforceability of any such
agreement, such unenforceable agreement shall be deemed automatically deleted
from the provisions hereof and such deletion shall not affect the enforceability
of any other provision of this subsection (a) or any other term of this
Agreement.

        b) The Executive acknowledges that during the course of his employment
with the Company, he learned many trade secrets of the Company and had access to
confidential information and business plans of the Company. Therefore, during
the Severance Period, the Executive will not engage, either as a principal,
executive, partner, consultant or investor (other than a less-than-one percent
equity interest in an entity), in Wal-Mart Stores, Inc., or any affiliate of
Wal-Mart Stores, Inc. or any business, which is a competitor of the Company. A
business shall be deemed a competitor of the Company if it shall operate a chain
of membership warehouse clubs (such as Sam's Club or Costco), or warehouse
stores selling food and/or general merchandise, that includes a warehouse store
located within 10 miles of any "then existing" BJ's Wholesale Club warehouse
store. The term "then existing" in the previous sentence shall refer to any such
warehouse store that is, at any time during the Severance Period, operated by
the Company or any of its subsidiaries or divisions or under lease for operation
as aforesaid. Nothing herein shall restrict the right of the Executive to engage
in a business that operates exclusively a chain of home improvement stores,
conventional or full mark-up department stores, general merchandise discount
department stores, or apparel stores. The Executive agrees that if, at any time,
pursuant to action of any court or administrative or governmental body, the
operation of any part of this paragraph shall be determined to be unlawful or
otherwise unenforceable, then the coverage of this paragraph shall be deemed to
be restricted as to duration, geographical scope or otherwise, to the extent,
and only to the extent, necessary to make this paragraph lawful and enforceable
in the particular jurisdiction in which such determination is made.

        c) The Executive acknowledges that the restrictions contained in this
Section 3 are necessary for the protection of the business and goodwill of the
Company and considers the restrictions to be reasonable for such purpose. The
Executive agrees that any breach of this Agreement is likely to cause the
Company substantial and irrevocable damage and that therefore, in the event of
any breach of this Agreement, the Executive agrees that the Company, in addition
to such other remedies that may be available, shall be entitled to specific
performance and other injunctive relief without posting a bond.

     4. Release of Claims. In consideration of the Company entering into this
        ------------------
Agreement and the promises and benefits provided herein, the Executive hereby
fully, forever, irrevocably and unconditionally releases, remises and discharges
the Company and its current and former officers, directors, stockholders,
corporate affiliates, subsidiaries, parent companies, predecessors, agents,
employees and attorneys (the "Released Parties") from any and all claims,
charges, complaints, demands, actions, causes of action, suits, rights, debts,
sums of money, costs, accounts, covenants, contracts, agreements, promises,
doings, omissions, damages, executions, obligations, liabilities, and expenses
(including attorneys' fees and costs), of every kind and nature which the
Executive ever had or now has as of the date the Executive executes this
Agreement against the Released Parties including, but not limited
to, all claims arising out of the Executive's employment with and/or separation
from the Company, including, but not

                                       -4-

<PAGE>

limited to, all employment discrimination claims under Title VII of the Civil
Rights Act of 1964, 42 U.S.C.ss.2000e et seq., the Americans With Disabilities
Act of 1990, 42 U.S.C.,ss.12101 et seq., the Age Discrimination in Employment
Act, 29 U.S.C. ss.621 et seq., as amended by The Older Workers Benefit
Protection Act; the Family and Medical Leave Act of 1993, 29 U.S.C.ss.2601 et
seq., the Massachusetts Fair Employment Practices Act, M.G.L. c.151B,ss.1 et
seq.; and any and all other similar applicable federal and state statutes, all
as amended; all claims arising out of the Fair Credit Reporting Act, 15
U.S.C.ss.1681 et seq.; the Employee Retirement Income Security Act of 1974
("ERISA"), 29 U.S.C.ss.1001 et seq.; the Worker Adjustment and Retraining
Notification Act, 29 U.S.C.ss.2101 et seq.; the Massachusetts Civil Rights Act,
M.G.L. c.12,ss.ss.11H and 11I; the Massachusetts Equal Rights Act, M.G.L.
c.93,ss.102 and M.G.L. c.214,ss.1C; the Massachusetts Labor and Industries Act,
M.G.L. c.149,ss.1 et seq.; and the Massachusetts Privacy Act, M.G.L.
c.214,ss.1B, all as amended; all claims for benefits under the Company's
benefits plans and programs, including but not limited to, MIP, GIP, the 1997
Replacement Plan, the 1997 Plan, the Executive Retirement Plan, and the General
Deferred Compensation Plan, except as specifically provided for in this
Agreement; all common law claims including, but not limited to, actions in tort,
defamation and breach of contract; and any claim or damage arising out of the
Executive's employment with or change of employment status with the Company
(including a claim for retaliation) under any common law theory or any federal,
state or local statute or ordinance not expressly referenced above; provided,
however, that nothing in this Agreement prevents the Executive from filing,
cooperating with, or participating in any proceeding before the EEOC or a state
Fair Employment Practices Agency (except that the Executive acknowledges that he
may not be able to recover any monetary benefits in connection with any such
claim, charge or proceeding).

     5. Notices. All notices and other communications required hereunder shall
        --------
be in writing and shall be given either by personal delivery or by mailing the
same by certified or registered mail, return receipt requested, postage prepaid.
If sent to the Company, the same shall be mailed to the Company at One Mercer
Road, Natick, MA 01760, Attention: Chairman of the Board, or such other address
as Company may hereafter designate by notice to the Executive; and if sent to
the Executive, the same shall be mailed to the Executive at his address set
forth above, or at such other address as the Executive may hereafter designate
by notice to the Company. Notices shall be effective upon receipt.

     6. Return of Company Property. The Executive agrees to return within seven
        ---------------------------
(7) days of the execution of this Agreement all Company property including, but
not limited to, keys, files, records (and copies thereof), equipment,
(including, but not limited to, computer hardware, software and printers,
wireless handheld devices, cellular phones, pagers, etc.), Company
identification, Company vehicles and any other Company-owned property in his
possession or control. The Executive further agrees to leave intact all
electronic Company documents, including those which he developed or helped
develop during his employment. The Executive also agrees to cancel within seven
(7) days, all accounts for his benefit, if any, in the Company's name, including
but not limited to, credit cards, telephone charge cards, cellular phone and/or
pager accounts and computer accounts.

     7. Business Expenses and Compensation. The Executive agrees that he will
        -----------------------------------
submit within ten (10) days of the Termination Date any and all documentation
for any other reimbursements owed to him for authorized Company expenses.

                                       -5-

<PAGE>

     8. Non-Disparagement. The Executive understands and agrees that as a
        ------------------
condition for payment to him of the consideration herein described, he shall not
make any false, disparaging or derogatory statements to any media outlet,
industry group, financial institution or current or former employee, consultant,
client or customer of the Company regarding the Company or any of its directors,
officers, employees, agents or representatives or about the Company's business
affairs and financial condition.

     9. Amendment. This Agreement shall be binding upon the parties and may not
        ----------
be modified in any manner, except by an instrument in writing of concurrent or
subsequent date signed by duly authorized representatives of the parties hereto.

     10. Assignment. The rights and obligations of the Company shall inure to
         -----------
the benefit of and shall be binding upon the successors and assigns of the
Company. The rights and obligations of the Executive are not assignable except
only that payments payable to the Executive after the Executive's death shall be
made to the Executive's estate.

     11. Waiver of Rights. No delay or omission by the Company in exercising any
         -----------------
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.

     12. Validity. Should any provision of this Agreement be declared or be
         ---------
determined by any court of competent jurisdiction to be illegal or invalid, the
validity of the remaining parts, terms or provisions shall not be affected
thereby and said illegal or invalid part, term or provision shall be deemed not
to be a part of this Agreement.

     13. Confidentiality. The Executive understands and agrees that as a
         ----------------
condition for payment to him of the severance benefits herein described, the
terms and contents of this Agreement, and the contents of the negotiations and
discussions resulting in this Agreement, shall be maintained as confidential by
him and his agents and representatives and shall not be disclosed except to the
extent required by federal or state law or as otherwise agreed to in writing by
the Company.

     14. Nature of Agreement. The Executive understands and agrees that this
         --------------------
Agreement is a severance agreement and does not constitute an admission of
liability or wrongdoing on the part of the Company.

     15. Acknowledgments. The Executive acknowledges that he has been given at
         ----------------
least twenty-one (21) days to consider this Agreement, and that the Company
advised him to consult with an attorney of his own choosing prior to signing
this Agreement. He further understands that he may revoke this Agreement for a
period of seven (7) days after he signs it, and the Agreement shall not be
effective or enforceable until the expiration of this seven (7) day revocation
period. Finally, the Executive understands and agrees that by entering into this
Agreement he is waiving any and all rights or claims he might have under The Age
Discrimination in Employment Act, as amended by The Older Workers Benefit
Protection Act, and that he has received consideration beyond that to which he
was previously entitled.

     16. Voluntary Assent. The Executive affirms that no other promises or
         -----------------
agreements of any kind have been made to or with him by any person or entity
whatsoever to cause his to sign

                                       -6-

<PAGE>

this Agreement, and that he fully understands the meaning and intent of this
Agreement. The Executive further represents that he has had an opportunity to
fully discuss and review the terms of this Agreement with an attorney, and
understand the contents herein.

     17. Applicable Law. This Agreement shall be interpreted and construed by
         ---------------
the laws of the Commonwealth of Massachusetts, without regard to conflict of
laws provisions. The Executive hereby irrevocably submits to and acknowledges
and recognizes the jurisdiction of the courts of the Commonwealth of
Massachusetts, or if appropriate, a federal court located in Massachusetts
(which courts, for purposes of this Agreement, are the only courts of competent
jurisdiction), over any suit, action or other proceeding arising out of, under
or in connection with this Agreement or the subject matter hereof.

     18. Entire Agreement. This Agreement contains and constitutes the entire
         -----------------
understanding and agreement between the parties hereto with respect to severance
benefits and the settlement of claims against the Company and cancels all
previous oral and written negotiations, agreements, commitments and writings in
connection therewith.

     19. Captions. The captions of the sections of this Agreement are for
         ---------
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.

     THE EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.

     WITNESS the execution hereof the day and year first above written.

                                          /s/ John J. Nugent
                                          ------------------------------
                                          John J. Nugent
                                          9/30/02

                                          BJ'S WHOLESALE CLUB, INC.

                                          By /s/ Herbert Zarkin
                                             ---------------------------
                                             Herbert Zarkin
                                             Chairman of the Board

                                       -7-

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