Document:

<PAGE>   1

                                                                    EXHIBIT 10.1

                             MASTER LEASE AGREEMENT

                        DATED AS OF _______________, 2001

                                     BETWEEN

                              RFS PARTNERSHIP, L.P.

                                    AS LESSOR

                                       AND

                              RFS LEASING VII, INC.
                                    AS LESSEE

<PAGE>   2

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION                                                                                                        PAGE
<S>                                                                                                            <C>
ARTICLE I.........................................................................................................1
         1.1. Leased Property.....................................................................................1
              ---------------
         1.2. Term................................................................................................2
              ----

ARTICLE II........................................................................................................2
         Definitions..............................................................................................2
         -----------

ARTICLE III......................................................................................................11
         3.1. Rent...............................................................................................11
              ----
         3.2. Confirmation of Percentage Rent....................................................................15
              -------------------------------
         3.3. Additional Charges.................................................................................14
              ------------------
         3.4. Net Lease Provision................................................................................16
              -------------------
         3.5. Conversion of Property.............................................................................16
              ----------------------

ARTICLE IV.......................................................................................................15
         4.1. Payment of Impositions.............................................................................15
              ----------------------
         4.2. Notice of Impositions..............................................................................16
              ---------------------
         4.3. Adjustment of Impositions..........................................................................18
              -------------------------
         4.4. Utility Charges....................................................................................18
              ---------------
         4.5. Insurance Premiums.................................................................................18
              ------------------

ARTICLE V........................................................................................................18
         5.1. No Termination, Abatement, etc.....................................................................18
              -------------------------------
         5.2. Abatement Procedures...............................................................................19
              --------------------

ARTICLE VI.......................................................................................................19
         6.1. Ownership of the Leased Property...................................................................19
              --------------------------------
         6.2. Lessee's Personal Property.........................................................................19
              --------------------------
         6.3. Lessor's Lien......................................................................................20
              -------------

ARTICLE VII......................................................................................................20
         7.1. Condition of the Leased Property...................................................................20
              --------------------------------
         7.2. Use of the Leased Property.........................................................................21
              --------------------------
         7.3. Lessor to Grant Easements, etc.....................................................................22
              -------------------------------

ARTICLE VIII.....................................................................................................22
         8.1. Compliance with Legal and Insurance Requirements, etc..............................................22
              ------------------------------------------------------
         8.2. Legal Requirement Covenants........................................................................22
              ---------------------------
         8.3. Environmental Covenants............................................................................23
              -----------------------

ARTICLE IX.......................................................................................................25
         9.1. Maintenance and Repair.............................................................................25
              ----------------------
         9.2. Encroachments, Restrictions, Etc...................................................................26
              --------------------------------

ARTICLE X........................................................................................................27
         10.1. Alterations.......................................................................................27
               -----------
         10.2. Salvage...........................................................................................27
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</TABLE>

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<TABLE>
<S>      <C>                                                                                                     <C>
         10.3. Joint Use Agreements..............................................................................27
               --------------------

ARTICLE XI.......................................................................................................28
         Liens...................................................................................................28
         -----

ARTICLE XII......................................................................................................28
         Permitted Contests......................................................................................28
         ------------------

ARTICLE XIII.....................................................................................................29
         13.1. General Insurance Requirements....................................................................29
               ------------------------------
         13.2. Replacement Cost..................................................................................30
               ----------------
         13.3. Worker's Compensation.............................................................................30
               ---------------------
         13.4. Waiver of Subrogation.............................................................................30
               ---------------------
         13.5. Form Satisfactory, etc............................................................................31
               ----------------------
         13.6. Increase in Limits................................................................................31
               ------------------
         13.7. Blanket Policy....................................................................................31
               --------------
         13.8. No Separate Insurance.............................................................................31
               ---------------------

ARTICLE XIV......................................................................................................32
         14.1. Insurance Proceeds................................................................................32
               ------------------
         14.2. Reconstruction in the Event of Damage or Destruction Covered by Insurance.........................32
               --------------------------------------------------------------------------
         14.3. Reconstruction in the Event of Damage or Destruction Not Covered by Insurance.....................33
               -----------------------------------------------------------------------------
         14.4. Lessee's Property.................................................................................33
               -----------------
         14.5. Abatement of Rent.................................................................................33
               -----------------
         14.6. Damage Near End of Term...........................................................................33
               -----------------------
         14.7. Waiver............................................................................................33
               ------

ARTICLE XV.......................................................................................................33
         15.1. Definitions.......................................................................................33
               -----------
         15.2. Parties' Rights and Obligations...................................................................34
               -------------------------------
         15.3. Total Taking......................................................................................34
               ------------
         15.4. Allocation of Award...............................................................................34
               -------------------
         15.5. Partial Taking....................................................................................34
               --------------
         15.6. Temporary Taking..................................................................................35
               ----------------

ARTICLE XVI......................................................................................................35
         16.1. Events of Default.................................................................................35
               -----------------
         16.2. Surrender.........................................................................................37
               ---------
         16.3. Damages...........................................................................................37
               -------
         16.4. Waiver............................................................................................38
               ------
         16.5. Application of Funds..............................................................................38
               --------------------

ARTICLE XVII.....................................................................................................38
         Lessor's Right to Cure Lessee's Default.................................................................38
         ---------------------------------------

ARTICLE XVIII....................................................................................................39
         INTENTIONALLY OMITTED...................................................................................39

ARTICLE XIX......................................................................................................39
         19.1. REIT Requirements.................................................................................39
               -----------------
</TABLE>

                                       ii
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<TABLE>
<S>      <C>                                                                                                     <C>
         19.2. Lessee Officer and Employee Limitation............................................................40
               --------------------------------------
         19.3. Management Agreement..............................................................................40
               --------------------

ARTICLE XX.......................................................................................................41
         Holding Over............................................................................................41
         ------------

ARTICLE XXI......................................................................................................41
         Risk of Loss............................................................................................41
         ------------

ARTICLE XXII.....................................................................................................41
         Indemnification.........................................................................................41
         ---------------

ARTICLE XXIII....................................................................................................42
         23.1. Subletting and Assignment.........................................................................42
               --------------------------
         23.2. Attornment........................................................................................43
               ----------

ARTICLE XXIV.....................................................................................................43
         24.1. Officer's Certificates; Financial Statements; Budgets; Lessor's Estoppel Certificates and
               ------------------------------------------------------------------------------------------
                  Covenants......................................................................................43
                  ---------
         24.2. Operating Budget..................................................................................44
               ----------------
         24.3. Marketing Plan....................................................................................44
               --------------
         24.4. Capital Budget....................................................................................44
               --------------
         24.5. Disputes..........................................................................................44
               --------

ARTICLE XXV......................................................................................................44
         Lessor's Right to Inspect...............................................................................44
         -------------------------

ARTICLE XXVI.....................................................................................................45
         No Waiver...............................................................................................45
         ---------

ARTICLE XXVII....................................................................................................45
         Remedies Cumulative.....................................................................................45
         -------------------

ARTICLE XXVIII...................................................................................................45
         Acceptance of Surrender.................................................................................45
         -----------------------

ARTICLE XXIX.....................................................................................................45
         No Merger of Title......................................................................................45
         ------------------

ARTICLE XXX......................................................................................................45
         Conveyance by Lessor....................................................................................45
         --------------------

ARTICLE XXXI.....................................................................................................46
         Quiet Enjoyment.........................................................................................46
         ---------------

ARTICLE XXXII....................................................................................................46
         Notices.................................................................................................46
         -------

ARTICLE XXXIII...................................................................................................46
         Appraisers..............................................................................................46
         ----------
</TABLE>

                                      iii

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<TABLE>
<S>                                                                                                              <C>
ARTICLE XXXIV....................................................................................................47
         34.1. Lessor May Grant Liens............................................................................47
               ----------------------
         34.2. Lessee's Right to Cure............................................................................47
               ----------------------
         34.3. Breach by Lessor..................................................................................48
               ----------------

ARTICLE XXXV.....................................................................................................48
         35.1. Miscellaneous.....................................................................................48
               -------------
         35.2. Transfer of Licenses..............................................................................48
               --------------------
         35.3. Waiver of Presentment, etc........................................................................49
               ---------------------------

ARTICLE XXXVI....................................................................................................49
         Memorandum of Lease.....................................................................................49
         -------------------

ARTICLE XXXVII...................................................................................................49
         Lessor's Option to Purchase Assets of Lessee............................................................49
         --------------------------------------------

ARTICLE XXXVIII..................................................................................................49
         Lessor's Option to Terminate Lease......................................................................49
         ----------------------------------

ARTICLE XXXIX....................................................................................................50
         Compliance with Franchise Agreement.....................................................................50
         -----------------------------------

ARTICLE XL.......................................................................................................50
         40.1. Lessor Approval of Capital Expenditures...........................................................50
               ---------------------------------------
         40.2. Inventory.........................................................................................51
               ---------
</TABLE>

EXHIBIT A -       Property Description
EXHIBIT B -       Percentage Rent
EXHIBIT C -       Capital Expenditures Policy
EXHIBIT D -       Management Agreement
EXHIBIT E -       Lease Termination Payments

                                       iv
<PAGE>   6

                                 LEASE AGREEMENT

         THIS LEASE AGREEMENT (hereinafter called "Lease"), made as of the ____
day of _______________, 2001, by and between RFS Partnership, L.P., a Tennessee
limited partnership (hereinafter called "Lessor"), and RFS Leasing II, Inc., a
Tennessee corporation (hereinafter called "Lessee"), provides as follows.

                              W I T N E S S E T H:

         Lessor owns fee title to the Leased Property (as defined below);

         Lessor and Lessee desire to enter this Lease Agreement as a separate
lease for each Leased Property.

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

                                    ARTICLE I

         1.1.     Leased Property. The Leased Property is comprised of Lessor's
interest in each of the hotel properties described in Exhibit "A" attached
hereto, as it may be amended from time to time (each a "Leased Property") as
follows:

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

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

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

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

                  (e)      all furniture and furnishings and all other items of
personal property (excluding Inventory and personal property owned by Lessee)
located on, and used in connection with, the operation

<PAGE>   7

of the Leased Improvements as a hotel, together with all replacements,
modifications, alterations and additions thereto; and

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

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

         1.2.     Term. The term of the Lease (the "Term") shall commence on the
Commencement Date and shall end on the Expiration Date, unless sooner terminated
in accordance with the provisions hereof.

                                   ARTICLE II

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

         Additional Charges:  As defined in Section 3.3.

         Affiliate: As used in this Lease the term "Affiliate" of a person shall
mean (a) any person that, directly or indirectly, controls or is controlled by
or is under common control with such person, (b) any other person that owns,
beneficially, directly or indirectly, five percent or more of the outstanding
capital stock, shares or equity interests of such person, or (c) any officer,
director, employee, partner or trustee of such person or any person controlling,
controlled by or under common control with such person (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of such
person). The term "person" means and includes individuals, corporations, general
and limited partnerships, stock companies or associations, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, or other entities and governments and agencies and political
subdivisions thereof. For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person, through the ownership of voting securities,
partnership interests or other equity interests.

         Average Daily Rate:  Total Room Revenues divided by occupied rooms at
the Facility.

         Award:  As defined in Section 15.1(c).

                                       2
<PAGE>   8

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

         Base Rent:  As defined in Article III.

         Beverage Sales: Shall mean gross revenue from (i) the sale of wine,
beer, liquor or other alcoholic beverages, whether sold in the bar or lounge,
delivered to a guest room, sold at meetings or banquets or at any other location
at the Leased Property or (ii) non-alcoholic beverages sold in the bar or
lounge. Such revenues shall not include the following:

         (a)      Any gratuity or service charge added to a customer's bill or
statement in lieu of a gratuity which is paid to an employee;

         (b)      Any revenues that are subsequently credited, rebated or
refunded in the ordinary course of business; and

         (c)      Sales taxes or taxes of any other kind imposed on the sale of
alcoholic or other beverages.

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

         Capital Budget:  As defined in Section 24.4.

         Capital Expenditures:  Amounts advanced to pay the costs of Capital
Improvements.

         Capital Improvements: Improvements to (A) the external walls and
internal load bearing walls (other than windows and plate glass), (B) the roof
of the Facility, (C) private roadways, parking areas, sidewalks and curbs
appurtenant thereto that are under Lessee's control (other than cleaning,
patching and striping), (D) mechanical, electrical and plumbing systems that
service common areas, entire wings of the Facility or the entire Facility,
including conduit and ductware connected thereto, and (E) items of the types
described on Exhibit " C" attached hereto as items which should be capitalized.

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

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

         Commencement Date: The date set forth on Exhibit "A" attached hereto as
the commencement date with respect to the Facility.

         Condemnation, Condemnor:  As defined in Section 15.1.

         Consolidated Financials: For any fiscal year or other accounting period
for Lessee and its consolidated subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of such period, together with
the notes thereto, all in reasonable

                                       3
<PAGE>   9

detail and setting forth in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, and prepared in accordance
with generally accepted accounting principles and audited by nationally
recognized independent certified public accountants.

         Consumer Price Index: 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.

         CPI Adjustment Year: The calendar year next following the year in which
the Commencement Date occurs, if the Commencement Date occurs between January 1
and June 30, or the second calendar year following the year in which the
Commencement Date occurs, if the Commencement Date occurs between July 1 and
December 31.

         Date of Taking:  As defined in Section 15.1(b).

         Encumbrance:  As defined in Section 34.1.

         Eligible Independent Contractor:  A management company that meets the
following requirements:

         (a)      The management company does not own, directly or indirectly,
more than 35% of the outstanding stock of RFS.

         (b)      If the management company is a corporation, no more than 35%
of the total combined voting power of its outstanding stock (or 35% of the total
shares of all classes of its outstanding stock) or, if it is not a corporation,
no more than 35% of the ownership interest in its assets or profits is owned,
directly or indirectly, by one or more Persons owning 35% or more of the
outstanding stock of RFS.

         (c)      Neither RFS, the Lessor, the Lessee, nor any Affiliate thereof
derives any income from the management company.

         (d)      At the time that the management company enters into a
management agreement with the Lessee to operate the Leased Property, the
management company (or any "related person" within the meaning of Section
856(d)(9)(F) of the Code) is actively engaged in the trade or business of
operating "qualified lodging facilities" within the meaning of Section
856(d)(9)(D) of the Code for any Person who is not a "related person" within the
meaning of Section 856(d)(9)(F) of the Code with respect to RFS or the Lessee
(an "Unrelated Person"). For purposes of determining whether the requirement of
this paragraph (d) has been met, a management company shall be treated as being
actively engaged in such a trade or business if the management company (i)
derives at least 10% of both its profits and revenue from operating "qualified
lodging facilities" within the meaning of Section 856(d)(9)(D) of the Code for
Unrelated Persons or (ii) complies with any regulations or other administrative
guidance under Section 856(d)(9) of the Code that provide a "safe harbor" rule
with respect to the amount of hotel management business with Unrelated Persons
that is necessary to qualify as an "eligible independent contractor" within the
meaning of such Code section.

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

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

                                       4
<PAGE>   10

         Environmental Laws: All applicable federal, state, local and foreign
laws and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials. Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.

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

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

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

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

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

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

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

         Event of Default:  As defined in Section 16.1.

         Expiration Date: The date set forth on Exhibit "A" attached hereto as
the expiration date with respect to the Facility.

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

         [Fair Market Value: The fair market value of the leasehold estate
hereunder, or under a replacement lease offered under Article XXXVIII, means an
amount equal to the price that a willing buyer not compelled to buy would pay a
willing seller not compelled to sell for such leasehold estate, calculated based
upon the present value (discounted at a rate of interest mutually agreeable to
the parties), of the net income stream reasonably projected by the parties to be
earned by Lessee under such lease for the then remaining

                                       5
<PAGE>   11

term of such lease, determined in accordance with the appraisal procedures set
forth in Article XXXIII (with the understanding that such appraisers will be
instructed to utilize the income stream approach as aforesaid) or in such other
manner as shall be mutually acceptable to Lessor and Lessee, and assuming that
such seller must pay customary closing costs.]

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

         Fiscal Year:  The 12-month period from January 1 to December 31.

         Fixtures:  As defined in Section 1.1.

         Food Sales: Shall mean gross revenue from the sale, for on-site
consumption, of food and non-alcohol beverages sold at the Leased Property,
including in respect to guest rooms, banquet rooms, meeting rooms and other
similar rooms. Such revenues shall not include the following:

         (a)      Vending machine sales;

         (b)      Any gratuities or service charges added to a customer's bill
or statement in lieu of a gratuity which is paid to an employee;

         (c)      Non-alcoholic beverages sold from the bar or lounge;

         (d)      Sales taxes or taxes of any other kind imposed on the sale of
food or non-alcoholic beverages; and

         (e)      Any revenues that are subsequently credited, refunded or
rebated in the ordinary course of business.

         Franchise Agreement: Any franchise license agreement with a national
franchisor under which the Facility is operated.

         GAAP: GAAP shall mean, as of any date of determination, accounting
principles (a) set forth as generally accepted in then currently effective
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) set forth as generally accepted in then
currently effective Statements of the Financial Accounting Standards Board or
(c) that are then approved by such other entity as may be approved by a
significant segment of the accounting profession in the United States of
America. The term "consistently applied," as used in connection therewith, means
that the accounting principles applied are consistent in all material respects
to those applied at prior dates or for prior periods.

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

         Gross Revenues: All revenues, receipts, and income of any kind derived
directly or indirectly by Lessee from or in connection with the Facility
(including rentals or other payments from tenants, lessees, licensees or
concessionaires but not including their gross receipts) whether on a cash basis
or credit, paid or collected, determined in accordance with GAAP and the Uniform
System, excluding, however: (i) funds furnished by Lessor, (ii) federal, state
and municipal excise, sales, and use taxes collected directly from patrons and
guests or as a part of the sales price of any goods, services or displays, such
as gross receipts,

                                       6
<PAGE>   12

admissions, cabaret or similar or equivalent taxes and paid over to federal,
state or municipal governments, (iii) gratuities paid to employees, (iv)
proceeds of insurance and condemnation, (v) proceeds from sales other than sales
in the ordinary course of business, (vi) all loan proceeds from financing or
refinancings of the Facility or interests therein or components thereof, (vii)
judgments and awards, except any portion thereof arising from normal business
operations of the Facility, and (viii) items constituting "allowances" under the
Uniform System.

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

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

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

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

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

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

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

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

                                       7
<PAGE>   13

         Indemnifying Party: Any party obligated to indemnify an Indemnified
Party pursuant to Sections 8.3 or 22.1.

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

         Inventory: All "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System and including any property of the
type described in Section 1221(1) of the Code.

         Land:  As defined in Section 1.1(a).

         Lease:  This Lease.

         Lease Year: Any 12-month period from January 1 through December 31
during the Term, or any shorter period at the beginning or end of the Term.

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

         Legal Requirements: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction, use or alteration thereof (whether by Lessee or otherwise),
whether or not hereafter enacted and in force, including (a) all laws, rules or
regulations pertaining to the environment, occupational health and safety and
public health, safety or welfare, and (b) any laws, rules or regulations that
may (1) require repairs, modifications or alterations in or to the Leased
Property or (2) in any way adversely affect the use and enjoyment thereof; and
all permits, licenses and authorizations and regulations relating thereto and
all covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.

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

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

         Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest (including a stockholder's
interest) in Lessee, the officers, directors, stockholders, employees,

                                       8
<PAGE>   14

agents and representatives of Lessee and any corporate stockholder, agent, or
representative of Lessee, and the respective heirs, personal representatives,
successors and assigns of any such officer, director, stockholder, employee,
agent or representative.

         Management Agreement:  As defined in Section 19.3.

         Manager:  As defined in Section 19.3.

         Net Worth: The excess of total assets over total liabilities, total
assets and total liabilities each to be determined in accordance with GAAP,
excluding, however, from the determination of total assets: (a) unamortized
goodwill, organizational expenses, research and development expenses,
trademarks, trade names, copyrights, patents, patent applications, and other
similar intangibles; (b) all deferred charges that are not required to be
capitalized in accordance with GAAP or unamortized debt discounts and expense;
(c) treasury stock; (d) securities which are not readily marketable (other than
preferred stock or common stock of RFS or partnership interests of the Lessor);
(e) any write-up in the book value of any asset resulting from a revaluation
thereof; (f) this Lease or any other lease between the Lessor and the Lessee;
and (g) any items not included in clauses (a) through (f) above that are treated
as intangibles in conformity with GAAP.

         Notice:  A notice given pursuant to Article XXXII.

         Officer's Certificate: A certificate of Lessee signed by the chief
financial officer or another officer authorized so to sign by the board of
directors or by-laws of Lessee, or any other person whose power and authority to
act has been authorized by delegation in writing by any such officer.

         Operating Budget:  As defined in Section 24.2.

         Other Income: All revenues, receipts, and income of any kind derived
directly or indirectly from or in connection with the Facility and included in
Gross Revenues, other than Room Revenues, Food Sales and Beverage Sales.

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

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

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

         Person: Any Government, natural person, corporation, partnership or
other legal entity.

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

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

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

                                       9
<PAGE>   15

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

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

         REIT Requirements:  As defined in Section 19.1.

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

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

         RFS:  RFS Hotel Investors, Inc., a Tennessee corporation.

         Room Revenues: Shall mean gross revenue from the rental of guest rooms,
whether to individuals, groups or transients, but excluding the following:

         (a)      The amount of all credits, rebates or refunds to customers,
guests or patrons;

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

         (c)      Any fees collected for amenities including, but not limited
to: telephone, laundry, movies or concessions.

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

         State:   The State or Commonwealth of the United States in which the
Leased Property is located.

         Subsidiaries: Corporations in which Lessee owns, directly or
indirectly, more than 50% of the voting stock or control, as applicable
(individually, a "Subsidiary").

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

         Term:  As defined in Section 1.2.

         Transition Date:  As defined in Section 7.2(f).

         TSCA:  The Toxic Substances Control Act, as amended.

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

                                       10
<PAGE>   16

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

         Uniform System: Shall mean the "Uniform System of Accounts for Hotels"
(9th Revised Edition, 1996) as published by the American Hotel and Motel
Association, as it may be amended from time to time with such exceptions as may
be required by the provisions of this Lease.

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

                                   ARTICLE III

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

         (a)      Base Rent: An annual sum in the amount set forth on Exhibit
"B" hereto as the "Base Rent" for the Leased Property, payable in advance in
equal, consecutive monthly installments, on or before the tenth day of each
calendar month of the Term ("Base Rent"); provided, however, that the first
monthly payment of Base Rent shall be payable on the Commencement Date and that
the first and last monthly payments of Base Rent shall be pro rated as to any
partial month (subject to adjustment as provided in Sections 5.2, 14.5, 15.3,
15.5, and 15.6); and

         (b)      Percentage Rent: For each Fiscal Year during the Term
commencing with the Fiscal Year in which the Commencement Date occurs, Tenant
shall pay percentage rent ("Percentage Rent") quarterly, on or before the 35th
day following the end of each of the first three calendar quarters in each
Fiscal Year, and on or before February 10 of the next year, with respect to the
fourth calendar quarter of each Fiscal Year, in an amount calculated by the
following formula:

         The amount equal to the Quarterly Revenues Computation (as defined on
         Exhibit "B" attached hereto)

                                      less

         an amount equal to the Base Rent paid year to date for the applicable
         Fiscal Year

                                      less

         an amount equal to Percentage Rent paid year to date for the applicable
         Fiscal Year

                                     equals

         Percentage Rent for the applicable quarter.

                                       11
<PAGE>   17

                  Notwithstanding the amounts of Percentage Rent paid quarterly
pursuant to the formula set forth above, for any Fiscal Year during the Term
commencing with the Fiscal Year in which the Commencement Date occurs, the
Percentage Rent payable under this Lease shall be no less than or greater than
the amount calculated by the following formula:

         The amount equal to the Annual Revenues Computation (as defined on
         Exhibit "B" attached hereto)

                                      less

         an amount equal to the Base Rent paid year to date for the applicable
         Fiscal Year

                                     equals

         Percentage Rent for the applicable Fiscal Year.

         Set forth on Exhibit "B" attached hereto is an example of the
Calculation of Percentage Rent.

         (c)      Officer's Certificates. Additionally, an Officer's Certificate
in form reasonably acceptable to Lessor shall be delivered to Lessor quarterly,
together with such quarterly Percentage Rent payment, setting forth the
calculation of such rent payment for such quarter within 35 days after each of
the first three quarters of each Fiscal Year (or part thereof) in the Term. Such
quarterly payments shall be based on the formula set forth in Section 3.1(b).
There shall be no reduction in the Base Rent regardless of the result of the
Revenue Computations.

         In addition, on or before February 10 of each year, commencing with the
February 10 first following the end of the Fiscal Year in which the Commencement
Date occurs, Lessee shall deliver to Lessor an Officer's Certificate reasonably
acceptable to Lessor setting forth the computation of the actual Percentage Rent
that accrued for the last quarter of the Fiscal Year that ended on the
immediately preceding December 31 and shall pay to Lessor Percentage Rent, if
due and payable, for the last quarter of the applicable Fiscal Year. The
Officer's Certificate shall also set forth the computation of the Percentage
Rent accrued and paid during the Fiscal Year that ended on the immediately
preceding December 31. If the annual Percentage Rent due and payable for any
Fiscal Year (as shown in the applicable Officer's Certificate) exceeds the
amount actually paid as Percentage Rent by Lessee for such year, Lessee also
shall pay such excess to Lessor at the time such certificate is delivered. If
the Percentage Rent actually due and payable for such Fiscal Year is shown by
such certificate to be less than the amount actually paid as Percentage Rent for
the applicable Fiscal Year, Lessor, at its option, shall reimburse such amount
to Lessee or credit such amount against the following months' Base Rent and, to
the extent necessary, the next quarters' Percentage Rent payments. Any such
credit to Base Rent shall not be applied for purposes of calculating Percentage
Rent payable for any subsequent quarter.

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

                                       12
<PAGE>   18

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

                  (d)      CPI Adjustments to Rent. For each Fiscal Year of the
Term beginning on or after the CPI Adjustment Year, the Base Rent then in
effect, and the threshold Room Revenues then included in the Quarterly and
Annual Revenues Computations set forth in Section 3.1(b) shall be adjusted from
time to time beginning in the CPI Adjustment Year as follows:

                  (1)      The average Consumer Price Index for the most
recently ended Fiscal Year shall be divided by the average Consumer Price Index
for the immediately preceding Fiscal Year.

                           (A)      The new Base Rent for the then current
Fiscal Year shall be the adjusted amount obtained by multiplying the Base Rent
for the immediately preceding Fiscal Year by the quotient obtained in
subparagraph (d)(1) above.

                           (B)      The new threshold dollar amount in the
Quarterly and Annual Revenues Computations described in Section 3.1(b) above for
the then current Fiscal Year shall be the product of the threshold dollar amount
of Room Revenues in effect in the most recently ended Fiscal Year and the
quotient obtained in subparagraph (1) above.

                  By way of example, if the CPI Adjustment Year were 2002, the
amount of Base Rent and the threshold Room Revenues amounts (and Food Sales and
Beverage Sales amounts, if applicable) in the Quarterly and Annual Revenues
Computations for the Fiscal Year commencing January 1, 2002 would be adjusted to
reflect any change in the average Consumer Price Index from the Fiscal Year
ended December 31, 2000 as compared to the Fiscal Year ended December 31, 2001.
Base Rent and the threshold Room Revenues amounts (and Food Sales and Beverage
Sales amounts, if applicable) in the Quarterly and Annual Revenues Computations
for the Fiscal Year commencing January 1, 2003 would be the Base Rent and
threshold Room Revenues amounts (and Food Sales and Beverage Sales amounts, if
applicable) applicable for the fiscal year ended December 31, 2002 as further
adjusted to reflect any change in the average Consumer Price Index from December
31, 2002 as compared to December 31, 2001.

                  Lessor shall calculate the annual adjustments as soon as
reasonably possible after the Consumer Price Index becomes available and shall
notify Lessee in writing of the amount of the annual adjustment, together with a
copy of the computation showing the adjustment amount. Adjustments calculated as
set forth above in the Base Rent and threshold Room Revenues amounts (and Food
Sales and Beverage Sales amounts, if applicable) shall be effective on January 1
of the Fiscal Year to which such adjusted amounts apply. If Rent is paid in any
Fiscal Year prior to the determination of the amount of any adjustment to Base
Rent or the threshold Room Revenues (and Food Sales and Beverage Sales amounts,
if applicable) applicable for such Fiscal Year, payment adjustments for any
shortfall in or overpayment of rent paid shall be made with the first Base Rent
Payment due after the amount of the adjustments are determined.

                                       13
<PAGE>   19

                  The "average Consumer Price Index" for any period shall be the
average of the Consumer Price Index for each month during the period.

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

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

         3.3.     Additional Charges. In addition to the Base Rent and
Percentage Rent, (a) Lessee also will pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions that Lessee
assumes or agrees to pay under this Lease, and (b) in the event of any failure
on the part of Lessee to pay any of those items referred to in clause (a) of
this Section 3.3, Lessee also will promptly pay and discharge every fine,
penalty, interest and cost that may be added for non-payment or late payment of
such items (the items referred to in clauses (a) and (b) of this Section 3.3
being additional

                                       14
<PAGE>   20

rent hereunder and being referred to herein collectively as the "Additional
Charges"), and Lessor shall have all legal, equitable and contractual rights,
powers and remedies provided either in this Lease or by statute or otherwise in
the case of non-payment of the Additional Charges as in the case of non-payment
of the Base Rent, including, but not limited to, the right, but not the
obligation to pay such Additional Charges on behalf of the Lessee and to require
reimbursement thereof by Lessee, together with interest thereon at the Overdue
Rate. If any installment of Base Rent, Percentage Rent or Additional Charges
(but only as to those Additional Charges that are payable directly to Lessor)
shall not be paid on its due date, Lessee will pay Lessor on demand, as
Additional Charges, a late charge (to the extent permitted by law) computed at
the Overdue Rate on the amount of such installment, from the due date of such
installment to the date of payment thereof. To the extent that Lessee pays any
Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee
shall be relieved of its obligation to pay such Additional Charges to the entity
to which they would otherwise be due and Lessor shall pay same from monies
received from Lessee.

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

         3.5.     Conversion of Property. If, during the Term, Lessee wishes to
cease food and beverage operations or institute food and beverage operations at
the Facility (all in accordance with the requirements of any applicable
Franchise Agreement), Lessee shall give notice of such desire to Lessor. If,
during the Term, Lessor wishes (a) Lessee to cease food and beverage operations
or to institute food and beverage operations at the Facility (all in accordance
with the requirements of any applicable Franchise Agreement), or (b) to change
the franchise affiliation of the Facility or to make substantial renovations to
the Facility, Lessor shall give notice thereof to Lessee. Following any such
notice, Lessor and Lessee shall commence negotiations to adjust Rent to reflect
the proposed renovation or change to the operation of the Facility, each acting
reasonably and in good faith, and subject to Lessor's reasonable satisfaction
that any Rent adjustment will not adversely affect RFS' status as a real estate
investment trust under the Code. All other terms of this Lease will remain
substantially the same. During negotiations, which shall not extend beyond 60
days, Lessee shall not "convert" the Facility and Lessor shall not change the
franchise or commence substantial renovations and Lessee shall continue
fulfilling its obligations under the existing terms of this Lease. If no
agreement is reached after such 60-day period, Lessee or Lessor, as appropriate,
shall withdraw such notice and this Lease shall continue in full force.

                                   ARTICLE IV

         4.1.     Payment of Impositions. Subject to Article XII relating to
permitted contests, Lessee will pay, or cause to be paid, all Impositions (other
than Real Estate Taxes, which shall be paid by Lessor) before any fine, penalty,
interest or cost may be added for non-payment, such payments to be made directly
to the taxing or other authorities where feasible, and will promptly furnish to
Lessor copies of official receipts or other satisfactory proof evidencing such
payments. Lessee's obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such Impositions become a lien upon the Leased Property or
any part thereof. If any such Imposition may, at the option of the taxpayer,
lawfully be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), Lessee may exercise the option to pay the
same (and any accrued interest on the unpaid balance of such Imposition) in
installments and in such event, shall pay such installments during the Term
hereof (subject

                                       15
<PAGE>   21

to Lessee's right of contest pursuant to the provisions of Article XII) as the
same respectively become due and before any fine, penalty, premium, further
interest or cost may be added thereto. Lessor, at its expense, shall, to the
extent required or permitted by applicable law, prepare and file all tax returns
in respect of Lessor's net income, gross receipts, sales and use, single
business, transaction privilege, rent, ad valorem, franchise taxes, Real Estate
Taxes and taxes on its capital stock, and Lessee, at its expense, shall, to the
extent required or permitted by applicable laws and regulations, prepare and
file all other tax returns and reports in respect of any Imposition as may be
required by governmental authorities. If any refund shall be due from any taxing
authority in respect of any Imposition paid by Lessee, the same shall be paid
over to or retained by Lessee if no Event of Default shall have occurred
hereunder and be continuing. If an Event of Default shall have occurred and be
continuing, any such refund shall be paid over to or retained by Lessor. Any
such funds retained by Lessor due to an Event of Default shall be applied as
provided in Article XVI. Lessor and Lessee shall, upon request of the other,
provide such data as is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any required
returns and reports. Lessee shall file all personal property tax returns in such
jurisdictions where it is legally required to so file. Lessor, to the extent it
possesses the same, and Lessee, to the extent it possesses the same, will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessor shall provide Lessee with copies of assessment notices in
sufficient time for Lessee to file a protest. Lessee may, upon notice to Lessor,
at Lessee's option and at Lessee's sole expense, protest, appeal, or institute
such other proceedings (in its or Lessor's name) as Lessee may deem appropriate
to effect a reduction of real estate or personal property assessments for those
Impositions to be paid by Lessee, and Lessor, at Lessee's expense as aforesaid,
shall fully cooperate with Lessee in such protest, appeal, or other action.
Lessee hereby agrees to indemnify, defend, and hold harmless Lessor from and
against any claims, obligations, and liabilities against or incurred by Lessor
in connection with such cooperation. Billings for reimbursement of personal
property taxes by Lessee to Lessor shall be accompanied by copies of a bill
therefor and payments thereof which identify the personal property with respect
to which such payments are made. Lessor, however, reserves the right to effect
any such protest, appeal or other action and, upon notice to Lessee, shall
control any such activity, which shall then go forward at Lessor's sole expense.
Upon such notice, Lessee, at Lessor's expense, shall cooperate fully with such
activities.

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

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

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

                                       16
<PAGE>   22

         4.5.     Insurance Premiums. Lessee will pay or cause to be paid all
premiums for the insurance coverages required to be maintained by it under
Article XIII.

                                    ARTICLE V

         5.1.     No Termination, Abatement, etc.. Except as otherwise
specifically provided in this Lease, and except for loss of the Franchise
Agreement solely by reason of any action or inaction by Lessor, Lessee, to the
extent permitted by law, shall remain bound by this Lease in accordance with its
terms and shall neither take any action without the written consent of Lessor to
modify, surrender or terminate the same, nor seek nor be entitled to any
abatement, deduction, deferment or reduction of the Rent, or setoff against the
Rent, nor shall the obligations of Lessee be otherwise affected by reason of (a)
any damage to, or destruction of, any Leased Property or any portion thereof
from whatever cause or any Taking of the Leased Property or any portion thereof,
(b) the lawful or unlawful prohibition of, or restriction upon, Lessee's use of
the Leased Property, or any portion thereof, or the interference with such use
by any Person, corporation, partnership or other entity, or by reason of
eviction by paramount title, (c) any claim which Lessee has or might have
against Lessor by reason of any default or breach of any warranty by Lessor
under this Lease or any other agreement between Lessor and Lessee, or to which
Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for
any other cause whether similar or dissimilar to any of the foregoing other than
a discharge of Lessee from any such obligations as a matter of law. Lessee
hereby specifically waives all rights, arising from any occurrence whatsoever,
which may now or hereafter be conferred upon it by law to (1) modify, surrender
or terminate this Lease or quit or surrender the Leased Property or any portion
thereof, or (2) entitle Lessee to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Lessee hereunder, except as
otherwise specifically provided in this Lease. The obligations of Lessee
hereunder shall be separate and independent covenants and agreements and the
Rent and all other sums payable by Lessee hereunder shall continue to be payable
in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.

         5.2.     Abatement Procedures. In the event of a partial Taking as
described in Section 15.5, the Lease shall not terminate, but the Base Rent
shall be abated in the manner and to the extent that is fair, just and equitable
to both Lessee and Lessor, taking into consideration, among other relevant
factors, the number of usable rooms, the amount of square footage, or the
revenues affected by such partial Taking. If Lessor and Lessee are unable to
agree upon the amount of such abatement within 30 days after such partial
Taking, the matter may be submitted by either party to a court of competent
jurisdiction for resolution.

                                   ARTICLE VI

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

         6.2.     Lessee's Personal Property. Lessee will acquire and maintain
throughout the Term such Inventory as is required to operate the Leased Property
in the manner contemplated by this Lease. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory)

                                       17
<PAGE>   23

owned by Lessee. Lessee, at the commencement of the Term, and from time to time
thereafter, shall provide Lessor with an accurate list of all such items of
Lessee's personal property (collectively, the "Lessee's Personal Property").
Lessee may, subject to the first sentence of this Section 6.2 and the conditions
set forth below, remove any of Lessee's Personal Property set forth on such list
at any time during the Term or upon the expiration or any prior termination of
the Term. All of Lessee's Personal Property, other than Inventory, not removed
by Lessee within ten days following the expiration or earlier termination of the
Term shall be considered abandoned by Lessee and may be appropriated, sold,
destroyed or otherwise disposed of by Lessor without first giving Notice thereof
to Lessee, without any payment to Lessee and without any obligation to account
therefor. Lessee will, at its expense, restore the Leased Property to the
condition required by Section 9.1(d), including repair of all damage to the
Leased Property caused by the removal of Lessee's Personal Property, whether
effected by Lessee or Lessor. Upon the expiration or earlier termination of the
Term, Lessee shall sell and Lessor, or its designee, shall purchase all
Inventory on hand at the Leased Property at the time of such expiration or
termination for a sale price equal to Lessee's actual cost of such Inventory, as
evidenced by invoices, receipts, or other reasonable documentation. Lessee may
make such financing arrangements, title retention agreements, leases or other
agreements with respect to the Lessee's Personal Property as it sees fit
provided that Lessee first advises Lessor of any such arrangement and such
arrangement expressly provides that in the event of Lessee's default thereunder,
Lessor (or its designee) may assume Lessee's obligations and rights under such
arrangement.

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

                                   ARTICLE VII

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

                                       18
<PAGE>   24

agrees to indemnify, defend and hold harmless Lessor from and against any
claims, obligations and liabilities against or incurred by Lessor in connection
with such cooperation.

         7.2.     Use of the Leased Property.

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

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

                  (c)      Subject to the provisions of Articles XIV, XV, XXI
and XXII, Lessee covenants and agrees that during the Term it will (1) operate
continuously the Leased Property as a hotel facility, (2) keep in full force and
effect and comply with all the provisions of the Franchise Agreement (other than
requirements with respect to Capital Improvements), (3) not terminate or amend
the Franchise Agreement without the consent of Lessor, (4) maintain appropriate
certifications and licenses for such use and (5) will seek to maximize the gross
revenues generated therefrom consistent with sound business practices.

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

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

                  (f)      Throughout the Term, neither Lessee nor any Affiliate
of Lessee shall own, lease, operate, manage, franchise or have any interest in
any hotel or motel that is within a five (5) mile radius of any hotel or motel
property in which Lessor or an Affiliate of Lessor has an interest on the date
Lessee or its Affiliate would otherwise commence operating or managing such
property, other than pursuant to this Lease or another lease, agreement or
arrangement with Lessor or an Affiliate of Lessor. Lessee agrees to notify
Lessor, from time to time at the request of Lessor, of the location of any hotel
or motel property the Lessee or any Affiliate owns, leases, operates, manages or
has an interest in. Lessor

                                       19
<PAGE>   25

agrees to notify Lessee, from time to time at the request of Lessee, of the
location of any hotel or motel property in which Lessor or an Affiliate of
Lessor has an interest. At the request of Lessor, Lessee shall provide such
information as Lessor may reasonably request in order to confirm to the Lessor
that the requirements of this paragraph (f) are satisfied.

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

                                  ARTICLE VIII

         8.1.     Compliance with Legal and Insurance Requirements, etc. Subject
to Section 8.3(b) below and Article XII relating to permitted contests, and
subject further to the obligations of Lessor with respect to Capital
Improvements as set forth in Section 9.1(b), Lessee, at its expense, will
promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and
restoration of the Leased Property, and (b) procure, maintain and comply with
all appropriate licenses and other authorizations required for any use of the
Leased Property and Lessee's Personal Property then being made, and for the
proper erection, installation, operation and maintenance of the Leased Property
or any part thereof.

         8.2.     Legal Requirement Covenants. Subject to Section 8.3(b) below,
Lessee covenants and agrees that the Leased Property and Lessee's Personal
Property shall not be used for any unlawful purpose, and that Lessee shall not
permit or suffer to exist any unlawful use of the Leased Property by others.
Lessee shall acquire and maintain all appropriate licenses, certifications,
permits and other authorizations and approvals needed to operate the Leased
Property in its customary manner for the Primary Intended Use, and any other
lawful use conducted on the Leased Property as may be permitted from time to
time hereunder. Lessee further covenants and agrees that Lessee's use of the
Leased Property and maintenance, alteration, and operation of the same, and all
parts thereof, shall at all times conform to all Legal Requirements, unless the
same are finally determined by a court of competent jurisdiction to be unlawful
(and Lessee shall cause all such sub-tenants, invitees or others to so comply
with all Legal Requirements). Lessee may, however, upon prior Notice to Lessor,
contest the legality or applicability of any such Legal Requirement or any
licensure or certification decision if Lessee maintains such action in good
faith, with due diligence, without prejudice to Lessor's rights hereunder, and
at Lessee's sole expense. If by the terms of any such Legal Requirement
compliance therewith pending the prosecution of any such proceeding may legally
be delayed without the incurrence of any lien, charge or liability of any kind
against the Facility or Lessee's leasehold interest therein and without
subjecting Lessee or Lessor to any liability, civil or criminal, for failure so
to comply therewith, Lessee may delay

                                       20
<PAGE>   26

compliance therewith until the final determination of such proceeding. If any
lien, charge or civil or criminal liability would be incurred by reason of any
such delay, Lessee, on the prior written consent of Lessor, which consent shall
not be unreasonably withheld, may nonetheless contest as aforesaid and delay as
aforesaid provided that such delay would not subject Lessor to criminal
liability and Lessee both (a) furnishes to Lessor security reasonably
satisfactory to Lessor against any loss or injury by reason of such contest or
delay and (b) prosecutes the contest with due diligence and in good faith.

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

                  (a)      At all times hereafter until such time as all
liabilities, duties or obligations of Lessee to the Lessor under the Lease have
been satisfied in full, Lessee shall fully comply with all Environmental Laws
applicable to the Leased Property and the operations thereon, subject to the
obligations of Lessor with respect to Capital Improvements as set forth in
Section 9.1(b) unless caused by the acts or grossly negligent failures to act of
Lessee. Lessee agrees to give Lessor written notice of the following, promptly
after Lessee receives knowledge thereof: (1) all Environmental Liabilities; (2)
all pending, threatened or anticipated Proceedings, and all notices, demands,
requests or investigations, relating to any Environmental Liability or relating
to the issuance, revocation or change in any Environmental Authorization
required for operation of the Leased Property; (3) all Releases at, on, in,
under or in any way affecting the Leased Property, or any Release at, on, in or
under any property adjacent to the Leased Property; and (4) all facts, events or
conditions that could reasonably lead to the occurrence of any of the
above-referenced matters.

                  (b)      Lessor hereby agrees to defend, indemnify and save
harmless any and all Lessee Indemnified Parties from and against any and all
Environmental Liabilities other than Environmental Liabilities which were caused
by the acts or grossly negligent failures to act of Lessee.

                  (c)      Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any and all
Environmental Liabilities caused by the acts or grossly negligent failures to
act of Lessee.

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

                                       21
<PAGE>   27

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

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

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

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

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

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

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

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

                                       22
<PAGE>   28

                                   ARTICLE IX

         9.1.     Maintenance and Repair.

                  (a)      Except as provided in Section 9.1(b) or Article XIV,
Lessee, at its sole expense, will keep the Leased Property in good order and
repair except for ordinary wear and tear (whether or not the need for such
repairs occurred as a result of Lessee's use, any prior use, the elements or the
age of the Leased Property, or any portion thereof), and, with reasonable
promptness, make all necessary and appropriate repairs, replacements, and
improvements thereto of every kind and nature, whether interior or exterior,
ordinary or extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to the commencement of the Term of this Lease
(concealed or otherwise), or required by any governmental agency having
jurisdiction over the Leased Property. Lessee, however, shall be permitted to
prosecute claims against Lessor's predecessors in title for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action, the taking or omission of which might materially impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use.

                  (b)      Notwithstanding Lessee's obligations under Section
9.1(a) above or elsewhere in this Lease, unless caused by Lessee's negligence or
willful misconduct or that of its employees or agents, Lessee shall not be
responsible for any Capital Improvements, including (without limitation) Capital
Improvements required by the Franchisor under the Franchise Agreement. Lessor
shall be responsible for all Capital Improvements, subject to (i) Lessor's right
to approve the Capital Budget pursuant to Article XL, and (ii) Lessor's right in
its sole discretion to refuse to make any Capital Expenditure required by the
Franchisor; provided that, if such refusal results in a default under or
termination of the Franchise Agreement, Lessor shall be responsible for all
damages, termination payments payable by Lessee under the terms of the Franchise
Agreement, application fees for a new franchise license approved by Lessor,
increased royalty fees and other costs arising out of such refusal or out of the
resulting need to apply for and enter into a substitute franchise license
agreement. Except as set forth in the preceding sentence, Lessor shall not under
any circumstances be required to build or rebuild any improvement on the Leased
Property, or to make any repairs, replacements, alterations, restorations or
renewals of any nature or description to the Leased Property, whether ordinary
or extraordinary, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto, in connection with this Lease, or to maintain the Leased
Property in any way. Lessee hereby waives, to the extent permitted by law, the
right to make repairs at the expense of Lessor pursuant to any law in effect at
the time of the execution of this Lease or hereafter enacted. Lessor shall have
the right to give, record and post, as appropriate, notices of nonresponsibility
under any mechanic's lien laws now or hereafter existing.

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

                                       23
<PAGE>   29

                  (d)      Lessee will, upon the expiration or prior termination
of the Term, vacate and surrender the Leased Property to Lessor in the condition
in which the Leased Property was originally received from Lessor, except as
repaired, rebuilt, restored, altered or added to as permitted or required by the
provisions of this Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and repair,
as would a prudent owner, during the entire Term of the Lease, to the extent
required in Section 9.1(a)), or damage by casualty or Condemnation (subject to
the obligations of Lessee to restore or repair as set forth in the Lease.)

         9.2.     Encroachments, Restrictions, Etc. If any of the Leased
Improvements, at any time, materially encroach upon any property, street or
right-of-way adjacent to the Leased Property, or violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or impair the rights of
others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor or at the behest of any person
affected by any such encroachment, violation or impairment, Lessee shall, at its
expense, subject to its right to contest the existence of any encroachment,
violation or impairment and in such case, in the event of an adverse final
determination, either (a) obtain valid and effective waivers or settlements of
all claims, liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Lessor or Lessee or (b)
make such changes in the Leased Improvements, and take such other actions, as
Lessee in the good faith exercise of its judgment deems reasonably practicable
to remove such encroachment, and to end such violation or impairment, including,
if necessary, the alteration of any of the Leased Improvements, and in any event
take all such actions as may be necessary in order to be able to continue the
operation of the Leased Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased Improvements were operated prior to
the assertion of such violation, impairment or encroachment; provided, however,
that any Capital Improvement shall be the responsibility of Lessor. Any such
alteration shall be made in conformity with the applicable requirements of
Article X. Lessee's obligations under this Section 9.2 shall be in addition to
and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance held by Lessor.

                                    ARTICLE X

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

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

         10.3.    Joint Use Agreements. If Lessee constructs additional
improvements that are connected to the Leased Property or share maintenance
facilities, HVAC, electrical, plumbing or other systems,

                                       24
<PAGE>   30

utilities, parking or other amenities, the parties shall enter into a mutually
agreeable cross-easement or joint use agreement to make available necessary
services and facilities in connection with such additional improvements, to
protect each of their respective interests in the properties affected, and to
provide for separate ownership, use, and/or financing of such improvements.

                                   ARTICLE XI

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

                                   ARTICLE XII

         Permitted Contests. Lessee shall have the right to contest the amount
or validity of any Imposition to be paid by Lessee or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim ("Claims") not otherwise permitted by Article XI, by appropriate legal
proceedings in good faith and with due diligence (but this shall not be deemed
or construed in any way to relieve, modify or extend Lessee's covenants to pay
or its covenants to cause to be paid any such charges at the time and in the
manner as in this Article provided), on condition, however, that such legal
proceedings shall not operate to relieve Lessee from its obligations hereunder
and shall not cause the sale or risk the loss of the Leased Property, or any
part thereof, or cause Lessor or Lessee to be in default under any mortgage,
deed of trust or security deed encumbering the Leased Property or any interest
therein. Upon the request of Lessor, Lessee shall either (a) provide a bond or
other assurance reasonably satisfactory to Lessor that all Claims which may be
assessed against the Leased Property together with interest and penalties, if
any, thereon will be paid, or (b) deposit within the time otherwise required for
payment with a bank or trust company as trustee upon terms reasonably
satisfactory to Lessor, as security for the payment of such Claims, money in an
amount sufficient to pay the same, together with interest and penalties in
connection therewith, as to all Claims which may be assessed against or become a
Claim on the Leased Property, or any part thereof, in said legal proceedings.
Lessee shall furnish Lessor and any lender of Lessor with reasonable evidence of
such deposit within five days of the same. Lessor agrees to join in any such
proceedings if the same be required to legally prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability for the payment of any costs or expenses in
connection with any proceedings brought by Lessee; and Lessee covenants to
indemnify and save harmless Lessor from any such costs or

                                       25
<PAGE>   31

expenses. Lessee shall be entitled to any refund of any Claims and such charges
and penalties or interest thereon which have been paid by Lessee or paid by
Lessor and for which Lessor has been fully reimbursed. In the event that Lessee
fails to pay any Claims when due or to provide the security therefor as provided
in this paragraph and to diligently prosecute any contest of the same, Lessor
may, upon ten days advance Notice to Lessee, pay such charges together with any
interest and penalties and the same shall be repayable by Lessee to Lessor as
Additional Charges at the next Payment Date provided for in this Lease.
Provided, however, that should Lessor reasonably determine that the giving of
such Notice would risk loss to the Leased Property or cause damage to Lessor,
then Lessor shall give such Notice as is practical under the circumstances.
Lessor reserves the right to contest any of the Claims at its expense not
pursued by Lessee. Lessor and Lessee agree to cooperate in coordinating the
contest of any claims.

                                  ARTICLE XIII

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

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

                  (b)      Insurance for loss or damage (direct and indirect)
from steam boilers, pressure vessels or similar apparatus, now or hereafter
installed in the Facility, in the minimum amount of $5,000,000 or in such
greater amounts as are then customary or as may be reasonably requested by
Lessor from time to time;

                  (c)      Loss of income insurance on the "Special Form", in
the amount of one year of Base Rent for the benefit of Lessor, and business
interruption insurance on the "Special Form" in the amount of one year of gross
profit, for the benefit of Lessee;

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

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

                                       26
<PAGE>   32
                  (f)      Fidelity bonds with limits and deductibles as may be
reasonably requested by Lessor, covering Lessee's employees in job
classifications normally bonded under prudent hotel management practices in the
United States or otherwise required by law;

                  (g)      Workers' compensation insurance to the extent
necessary to protect Lessor and the Leased Property against Lessee's workers'
compensation claims;

                  (h)      Vehicle liability insurance for owned, non-owned, and
hired vehicles, in the amount of $1,000,000;

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

         Lessor shall keep in force the foregoing insurance coverages at its
expense; provided, however, that Lessee shall reimburse Lessor for any premium
or premiums paid by Lessor for the coverages required under Sections
13.1(c)-13.1(i) and any other "casualty" coverages required by Lessor.

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

         13.3.    Worker's Compensation. Lessee, at its sole cost, shall at all
times maintain adequate worker's compensation insurance coverage for all persons
employed by Lessee on the Leased Property. Such worker's compensation insurance
shall be in accordance with the requirements of applicable local, state and
federal law.

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

         13.5.    Form Satisfactory, etc. All of the policies of insurance
referred to in this Article XIII shall be written in a form, with deductibles
and by insurance companies satisfactory to Lessor. Subject to the right to
reimbursement or credit specified in Section 13.1, Lessor shall pay all of the
premiums therefor, and deliver such policies or certificates thereof to Lessee
prior to their effective date (and, with respect to any renewal policy, 30 days
prior to the expiration of the existing policy), and in the event of the failure
of Lessor either to effect such insurance as herein called for or to pay the
premiums therefor, or to deliver such policies or certificates thereof to Lessee
at the times required, Lessee shall be entitled, but shall have no obligation,
to effect such insurance and pay the premiums therefor, and Lessor shall
reimburse Lessee for any premium or premiums paid by Lessee for the coverages
required under Sections 13.1(a) and 13.1(b) upon written demand therefor, and
Lessor's failure to repay the same within 30 days after Notice of such failure
from Lessee shall constitute an Event of Default within the meaning of Section
16.1(b). Each insurer mentioned in this Article XIII shall agree, by endorsement
to the policy or policies issued by it, or by independent instrument furnished
to Lessee, that it will give to Lessee 30 days'

                                       27
<PAGE>   33

written notice before the policy or policies in question shall be materially
altered, allowed to expire or canceled.

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

         13.7.    Blanket Policy.

         Notwithstanding anything to the contrary contained in this Article
XIII, Lessor may bring the insurance provided for herein within the coverage of
a so-called blanket policy or policies of insurance carried and maintained by
Lessor; provided, however, that the coverage afforded to Lessee will not be
reduced or diminished or otherwise be different from that which would exist
under a separate policy meeting all other requirements of this Lease by reason
of the use of such blanket policy of insurance, and provided further that the
requirements of this Article 0 are otherwise satisfied.

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

                                   ARTICLE XIV

         14.1.    Insurance Proceeds. Subject to the provisions of Section 14.6,
all proceeds payable by reason of any loss or damage to the Leased Property, or
any portion thereof, and insured under any policy of insurance required by
Article XIII of this Lease shall be paid to Lessor and held by Lessor in an
interest-bearing account, shall be made available, if applicable, for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof, and, if applicable, shall be paid
out by Lessor from time to time for the reasonable costs of such reconstruction
or repair upon satisfaction of reasonable terms and conditions specified by
Lessor. Any excess proceeds of insurance remaining after the completion of the
restoration or reconstruction of the Leased Property shall be paid to Lessor. If
neither Lessor nor Lessee is required or elects to repair and restore, all
insurance proceeds shall be retained by Lessor. All salvage resulting from any
risk covered by insurance shall belong to Lessor.

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

                  (a)      Except as provided in Section 14.6, if during the
Term the Leased Property is totally or partially destroyed by a risk covered by
the insurance described in Article XIII, whether or not such damage or
destruction renders the Facility Unsuitable for its Primary Intended Use, Lessee
shall be obligated, but only to the extent of any insurance proceeds made
available to Lessee and any other sums

                                       28
<PAGE>   34

advanced by Lessor pursuant to the next sentence, to restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of the Lease. If the
insurance proceeds are not adequate to restore the Facility to that condition,
each of Lessor and Lessee shall have the right to terminate this Lease, without
in any way affecting any other leases in effect between Lessor and Lessee, by
giving Notice to the other and all insurance proceeds shall be retained by
Lessor; provided, however that, if such termination is by Lessee, Lessor shall
have the right, in its sole discretion, to nullify the termination and keep this
Lease in full force by providing, within thirty (30) days after Lessee's Notice
of termination, a Notice to Lessee of Lessor's unconditional, legally binding
obligation to be responsible for all restoration costs in excess of the
insurance proceeds. If this Lease is terminated by either party as aforesaid
(and such termination is not nullified by Lessor) and if the inadequacy of
insurance proceeds was the result of Lessor's failure to maintain the proper
insurance coverages as required pursuant to Article XIII, Lessor shall, within
180 days after such termination, either (i) pay to Lessee the Fair Market Value
of the leasehold estate hereunder as of the termination date or (ii) offer to
lease to Lessee one or more hotel facilities pursuant to one or more leases that
would create for Lessee leasehold estates having an aggregate Fair Market Value
no less than the Fair Market Value of the leasehold estate hereunder, as of the
date of termination. If this Lease is not terminated and Lessee restores the
Facility, the insurance proceeds, and any other sums made available by Lessor as
aforesaid, shall be paid out by Lessor from time to time for the reasonable
costs of such restoration upon satisfaction of reasonable terms and conditions,
and any excess proceeds remaining after such restoration shall be retained by
Lessor.

                  (b)      Notwithstanding the provisions of Section 14.2(a)
above, if Lessee cannot within a reasonable time obtain all necessary government
approvals, including building permits, licenses and conditional use permits,
after diligent efforts to do so, to perform all required repair and restoration
work and to operate the Facility for its Primary Intended Use in substantially
the same manner as that existing immediately prior to such damage or destruction
and otherwise in accordance with the terms of the Lease, either Lessor or Lessee
may terminate this Lease by providing Notice to the other party, without in any
way affecting any other Leases then in effect between Lessor and Lessee.

         14.3.    Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance. Except as provided in Section 14.6, if during the Term the
Facility is totally or materially destroyed by a risk not covered by the
insurance described in Article XIII, whether or not such damage or destruction
renders the Facility Unsuitable for its Primary Intended Use, the provisions of
Section 14.2 applicable to casualties for which insurance proceeds are
inadequate shall govern.

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

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

         14.6.    Damage Near End of Term. Notwithstanding any provisions of
Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of
the Facility unsuitable for its Primary Intended Use occurs during the last 24
months of the Term, then Lessee shall have the right to terminate this Lease by
giving written notice to Lessee within 30 days after the date of damage or
destruction, whereupon all

                                       29
<PAGE>   35

accrued Rent shall be paid immediately, and this Lease shall automatically
terminate five days after the date of such notice.

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

                                   ARTICLE XV

         15.1.    Definitions.

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

                  (b)      "Date of Taking" means the date the Condemnor has the
right to possession of the property being condemned.

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

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

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

         15.3.    Total Taking. If title to the fee of the whole of the Leased
Property is condemned by any Condemnor, this Lease shall cease and terminate as
of the Date of Taking by the Condemnor, without in any way affecting any other
Leases then in effect between Lessor and Lessee. If title to the fee of less
than the whole of the Leased Property is so taken or condemned, which
nevertheless renders the Leased Property Unsuitable or Uneconomic for its
Primary Intended Use, Lessee and Lessor shall each have the option, by notice to
the other, at any time prior to the Date of Taking, to terminate this Lease as
of the Date of Taking. Upon such date, if such Notice has been given, this Lease
shall thereupon cease and terminate. All Base Rent, Percentage Rent and
Additional Charges paid or payable by Lessee hereunder shall be apportioned as
of the Date of Taking, and Lessee shall promptly pay Lessor such amounts.

         15.4.    Allocation of Award. The total Award made with respect to the
Leased Property in connection with a Total Taking shall be equitably apportioned
between Lessor and Lessee in proportion to the then fair market values of the
respective estates and interests of Lessor and Lessee in and to the Leased
Property and under this Lease.

         15.5.    Partial Taking. If title to less than the whole of the Leased
Property is condemned, and the Leased Property is still suitable for its Primary
Intended Use, and not Uneconomic for its Primary Intended Use, or if Lessee or
Lessor is entitled but neither elects not to terminate this Lease as provided in
Section 15.3, Lessee at its cost shall with all reasonable dispatch , but only
to the extent of any condemnation awards made available to Lessee and any other
sums advanced by Lessor pursuant to the

                                       30
<PAGE>   36

next sentence, restore the untaken portion of any Leased Improvements so that
such Leased Improvements constitute a complete architectural unit of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Improvements existing immediately prior to the
Condemnation. If the condemnation awards are not adequate to restore the
Facility to that condition, each of Lessor and Lessee shall have the right to
terminate this Lease, without in any way affecting any other leases in effect
between Lessor and Lessee, by giving Notice to the other; provided, however
that, if such termination is by Lessee, Lessor shall have the right, in its sole
discretion, to nullify the termination and keep this Lease in full force by
providing, within thirty (30) days after Lessee's Notice of termination, a
Notice to Lessee of Lessor's unconditional, legally binding obligation to be
responsible for all restoration costs in excess of the condemnation awards. If
this Lease is not terminated and Lessee restores the Facility, the condemnation
awards, and any other sums made available by Lessor as aforesaid, shall be held
in trust by Lessor and paid out by Lessor from time to time for the reasonable
costs of such restoration upon satisfaction of reasonable terms and conditions,
and any excess awards remaining after such restoration shall be retained by
Lessor unless the partial condemnation materially impairs the operations or
financial performance of the Facility, in which latter event the award shall be
equitably apportioned between Lessor and Lessee in proportion to the then fair
market values of the respective estates and interests of Lessor and Lessee in
and to the Leased Property and under this Lease.

         15.6.    Temporary Taking. If the whole or any part of the Leased
Property or of Lessee's interest under this Lease is condemned by any Condemnor
for its temporary use or occupancy, this Lease shall not terminate by reason
thereof, and Lessee shall continue to pay, in the manner and at the terms herein
specified, the full amounts of Base Rent and Additional Charges. In addition,
the entire amount of any Award made for such Condemnation allocable to the Term
of this Lease, whether paid by way of damages, rent or otherwise, shall be paid
to Lessee and, except for any portion thereof utilized for restoration, shall be
deemed to be Room Revenues for the purpose of calculating the Percentage Rent
payable hereunder during such temporary taking. Except only to the extent that
Lessee may be prevented from so doing pursuant to the terms of the order of the
Condemnor, Lessee shall continue to perform and observe all of the other terms,
covenants, conditions and obligations hereof on the part of the Lessee to be
performed and observed, as though such Condemnation had not occurred. Lessee
covenants that upon the termination of any such period of temporary use or
occupancy it will, at its sole cost and expense (subject to Lessor's
contribution as set forth below), restore the Leased Property as nearly as may
be reasonably possible to the condition in which the same was immediately prior
to such Condemnation, unless (a) such period of temporary use or occupancy
extends beyond the expiration of the Term, in which case Lessee shall not be
required to make such restoration, or (b) the condemnation award is inadequate
to cover the costs of such restoration, in which case the provisions of Section
15.5 applicable to inadequate awards shall govern. If restoration is required in
connection with such temporary taking and the condemnation award (together with
any other sums Lessor elects, in its sole discretion, to advance) is adequate to
pay the costs thereof, the provisions of Section 15.5 shall govern the
disbursement of the awards (and other sums, if applicable) and the disposition
of any awards in excess of restoration costs. If restoration is required
hereunder, Lessor shall contribute to the cost of such restoration that portion
of its entire Award that is specifically allocated to such restoration in the
judgment or order of the court, if any, and Lessee shall fund the balance of
such costs in advance of restoration in a manner reasonably satisfactory to
Lessor.

                                  ARTICLE XVI

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

                                       31
<PAGE>   37

                  (a)      if Lessee fails to make payment of the Base Rent when
the same becomes due and payable for a period of ten days after receipt by the
Lessee of Notice from the Lessor thereof;

                  (b)      if Lessee fails to make payment of quarterly
Percentage Rent when the same becomes due and payable and such condition
continues for a period of ten days after receipt by the Lessee of Notice from
the Lessor thereof;

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

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

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

                  (f)      if the estate or interest of Lessee in the Leased
Property or any part thereof is voluntarily or involuntarily transferred,
assigned, conveyed, levied upon or attached in any proceeding (unless Lessee is
contesting such lien or attachment in good faith in accordance with Article XII
hereof); or

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

                  (h)      if: (A) an event of default has been declared by the
franchisor under the Franchise Agreement with respect to the Facility on the
Leased Premises as a result of any action or failure to act by Lessee or any
Person with whom Lessee contracts for management services at the Facility, other
than a failure to complete a Capital Improvement required by the Franchisor
resulting from Lessor's failure to fund the Capital Expenditure therefor
pursuant to Section 9.1(b), and (B) Lessee has failed, within 30 days
thereafter, to cure such default by either (1) curing the underlying default
under the Franchise Agreement and paying all costs and expenses associated
therewith, or (2) obtaining at Lessee's sole cost and expense a substitute
franchise license agreement with a substitute franchisor acceptable to Lessor,
on terms and conditions acceptable to Lessor; provided, however, that if Lessee
is in good faith

                                       32
<PAGE>   38

disputing an assertion of default by the franchisor or is proceeding diligently
to cure such default, the 30-day period shall be extended for such period of
time as Lessee continues to dispute such default in good faith or diligently
proceeds to cure such default, so long as there is no period during which the
Facility is not operated pursuant to a Franchise Agreement approved by Lessor;

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

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

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

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

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

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

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

                  (2)      the sum of:

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

                                       33
<PAGE>   39

                           (B)      the worth at the time of termination,
                           repossession or reletting of the amount by which the
                           unpaid Rent for the balance of the Term after the
                           time of termination, repossession or reletting,
                           exceeds the amount of such rental loss that Lessee
                           proves could be reasonably avoided, and

                           (C)      any other amount necessary to compensate
                           Lessor for all the detriment proximately caused by
                           Lessee's failure to perform its obligations under
                           this Lease or which in the ordinary course of things,
                           would be likely to result therefrom. The worth at the
                           time of termination, repossession or reletting of the
                           amount referred to in subparagraph (B) is computed by
                           discounting such amount at the discount rate of the
                           Federal Reserve Bank of New York at the time of award
                           plus 1%.

         Rent for the purposes of this Section 16.3 shall be a sum equal to (i)
the average of the annual amounts of the Percentage Rent for the three Fiscal
Years immediately preceding the Fiscal Year in which the termination, re-entry
or repossession takes place, or (ii) if three Fiscal Years shall not have
elapsed, the average of the Percentage Rent during the preceding Fiscal Years
during which the Lease was in effect, or (iii) if one Fiscal Year has not
elapsed, the amount derived by annualizing the Percentage Rent from the
effective date of this Lease.

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

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

                                  ARTICLE XVII

         Lessor's Right to Cure Lessee's Default. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of any
Franchise Agreement, and fails to cure the same within the relevant time periods
provided in Section 16.1, Lessor, without waiving or releasing any obligation of
Lessee, and without waiving or releasing any obligation or default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of Lessee, and may, to the
extent permitted by law, enter upon the Leased Property for such purpose and,
subject to Section 16.4, take all such action thereon as, in Lessor's opinion,
may be necessary or appropriate therefor. No such entry shall be deemed an
eviction of Lessee. All sums so paid by Lessor and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, in each
case to the extent permitted by law) so incurred, together with a late charge
thereon (to the extent permitted by law) at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Lessor, shall be paid by
Lessee to Lessor on demand. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier termination of
this Lease.

                                       34
<PAGE>   40

                                  ARTICLE XVIII

                              INTENTIONALLY OMITTED

                                   ARTICLE XIX

         19.1.    REIT Requirements.

                  (a)      Lessee understands that, in order for RFS to qualify
as a REIT, the following requirements (the "REIT Requirements") must be
satisfied:

                           (i)      The average of the fair market values of
Lessor's personal property that is leased to Lessee under a lease at the
beginning and end of a calendar year cannot exceed 15% of the average of the
aggregate fair market values of all of Lessor's property that is leased to
Lessee under such lease at the beginning and end of such calendar year.

                           (ii)     Lessee cannot sublet the property that is
leased to it by Lessor, or enter into any similar arrangement, on any basis such
that the rental or other amounts paid by the sublessee thereunder would be
based, in whole or in part, on either (i) the net income or profits derived by
the business activities of the sublessee or (ii) any other formula such that any
portion of the rent paid by Lessee to Lessor would fail to qualify as "rents
from real property" within the meaning of Section 856(d) of the Code.

                           (iii)    Lessee cannot sublease the property leased
to it by Lessor to, or enter into any similar arrangement with, any person in
which RFS owns, directly or indirectly, a 10% or more interest, within the
meaning of Section 856(d)(2)(B) of the Code.

                           (iv)     Lessee agrees to make an election to be, and
to operate as a "taxable REIT subsidiary" of RFS within the meaning of Section
856(e) of the Code.

                           (v)      No person can own, directly or directly,
capital stock of RFS that exceeds the "Limit" (as defined in RFS' Charter, as
amended and restated).

                           (vi)     Lessee shall not (i) directly or indirectly
operate or manage a "lodging facility" within the meaning of Section
856(d)(9)(D)(ii) of the Code or a "health care facility" within the meaning of
Section 856(e)(6)(D)(ii) or (ii) directly or indirectly provide to any other
person (under a franchise, license, or otherwise) rights to any brand name under
which any lodging facility or health care facility is operated; provided,
however, that Lessee may provide such rights to Manager to operate or manage a
lodging facility as long as such rights are held by Lessee as a franchisee,
licensee, or in a similar capacity and such lodging facility is either owned by
Lessee or is leased to Lessee by Lessor or one of its Affiliates.

         (b)      Lessee agrees, and agrees to use reasonable efforts to cause
its Affiliates, to use its best efforts to permit the REIT Requirements to be
satisfied. Lessee agrees, and agrees to use reasonable efforts to cause its
Affiliates, to cooperate in good faith with RFS and Lessor to ensure that the
REIT Requirements are satisfied, including but not limited to, providing RFS
with information about the ownership of Lessee, and its Affiliates to the extent
that such information is reasonably available. Lessee agrees, and agrees to use
reasonable efforts to cause its Affiliates, upon request by RFS, and, where

                                       35
<PAGE>   41

appropriate, at RFS's expense, to take reasonable action necessary to ensure
compliance with the REIT Requirements. Immediately after becoming aware that the
REIT Requirements are not, or will not be, satisfied, Lessee shall notify, or
use reasonable efforts to cause its Affiliates to notify, RFS of such
noncompliance.

         19.2.    Lessee Officer and Employee Limitation. Anything contained in
this Lease to the contrary notwithstanding, none of the officers or employees of
the Lessee or any Affiliate shall be officers or employees of Manager (or any
Person who operates or manages the Leased Property). In addition, if a Person
serves as both (a) a director of the Lessee or any Affiliate and (b) a director
and officer (or employee) of Manager (or any Person who operates or manages the
Leased Property), that Person shall not receive any compensation for serving as
a director of the Lessee or any Affiliate. If a person serves as both (a) a
director of Manager or any Affiliate (or any Person who operates or manages the
Leased Property) and (b) a director and officer (or employee) of Lessee, that
Person shall not receive any compensation for serving as a director of Manager.

         19.3.    Management Agreement. Lessee agrees that, in order to comply
with certain of the REIT Requirements, it will, at all times during the Term,
cause the Leased Property to be operated and managed by a management company
("Manager") that is an Eligible Independent Contractor. Effective as of the
Commencement Date, the Lessee shall enter into an initial management agreement
in the form of Exhibit "D" attached hereto (the "Management Agreement") and
Lessee shall provide Lessor with an executed copy thereof. Lessee may not amend,
modify or terminate the Management Agreement in any respect or change the
Manager without the prior written consent of Lessor. Lessee shall also provide
Lessor with copies of any amendments or modifications to the Management
Agreement which are entered into from time to time or any other management
agreement. Lessor shall have the right to approve in advance any Manager.

                                   ARTICLE XX

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

                                   ARTICLE XXI

         Risk of Loss. During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequence of the damage
or destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than those caused by Lessor and those claiming from, through or under
Lessor) is assumed by Lessee except as specifically provided in this Lease, and,
in the absence of gross negligence, willful misconduct or breach of this Lease
by Lessor pursuant to Section 34.3, Lessor shall in no event be

                                       36
<PAGE>   42

answerable or accountable therefor, nor shall any of the events mentioned in
this Section entitle Lessee to any abatement of Rent except as specifically
provided in this Lease.

                                  ARTICLE XXII

         Indemnification. Notwithstanding the existence of any insurance, and
without regard to the policy limits of any such insurance or self-insurance, but
subject to Section 16.4 and Article VIII, Lessee will protect, indemnify, hold
harmless and defend Lessor from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses), to the extent
permitted by law, imposed upon or incurred by or asserted against Lessor
Indemnified Parties by reason of: (a) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks, including without limitation any claims under
liquor liability, "dram shop" or similar laws, (b) any past, present or future
use, misuse, non-use, condition, management, maintenance or repair by Lessee or
any of its agents, employees or invitees of the Leased Property or Lessee's
Personal Property or any litigation, proceeding or claim by governmental
entities or other third parties to which a Lessor Indemnified Party is made a
party or participant related to such use, misuse, non-use, condition,
management, maintenance, or repair thereof by Lessee or any of its agents,
employees or invitees, including any failure of Lessee or any of its agents,
employees or invitees to perform any obligations under this Lease or imposed by
applicable law (other than arising out of Condemnation proceedings), (c) any
Impositions that are the obligations of Lessee pursuant to the applicable
provisions of this Lease, (d) any failure on the part of Lessee to perform or
comply with any of the terms of this Lease, and (e) the non-performance of any
of the terms and provisions of any and all existing and future subleases of the
Leased Property to be performed by the landlord thereunder.

         Lessor shall indemnify, save harmless and defend Lessee Indemnified
Parties from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses imposed upon or incurred by or
asserted against Lessee Indemnified Parties as a result of (a) the gross
negligence or willful misconduct of Lessor arising in connection with this Lease
or (b) any failure on the part of Lessor to perform or comply with any of the
terms of this Lease.

         Any amounts that become payable by an Indemnifying Party under this
Section shall be paid within ten days after liability therefor on the part of
the Indemnifying Party is determined by litigation or otherwise, and if not
timely paid, shall bear a late charge (to the extent permitted by law) at the
Overdue Rate from the date of such determination to the date of payment. An
Indemnifying Party, at its expense, shall contest, resist and defend any such
claim, action or proceeding asserted or instituted against the Indemnified
Party. The Indemnified Party, at its expense, shall be entitled to participate
in any such claim, action, or proceeding, and the Indemnifying Party may not
compromise or otherwise dispose of the same without the consent of the
Indemnified Party, which may not be unreasonably withheld. Nothing herein shall
be construed as indemnifying a Lessor Indemnified Party against its own grossly
negligent acts or omissions or willful misconduct.

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

                                       37
<PAGE>   43

                                  ARTICLE XXIII

         23.1.    Subletting and Assignment. Subject to the provisions of
Article XIX and Section 23.2 and any other express conditions or limitations set
forth herein, Lessee may, but only with the prior written consent of Lessor, (a)
assign this Lease or sublet all or any part of the Leased Property to an
Affiliate of Lessee, or (b) sublet any retail or restaurant portion of the
Leased Improvements in the normal course of the Primary Intended Use; provided
that any subletting to any party other than an Affiliate of Lessee shall not
individually as to any one such subletting, or in the aggregate, materially
diminish the actual or potential Percentage Rent payable under this Lease. In
the case of a subletting, the sublessee shall comply with the provisions of
Section 23.2, and in the case of an assignment, the assignee shall assume in
writing and agree to keep and perform all of the terms of this Lease on the part
of Lessee to be kept and performed and shall be, and become, jointly and
severally liable with Lessee for the performance thereof. Notwithstanding the
above, Lessee may assign the Lease to an Affiliate without the consent of
Lessor; provided that any such assignee assumes in writing and agrees to keep
and perform all of the terms of the Lease on the part of the Lessee to be kept
and performed and shall be and become jointly and severally liable with Lessee
for the performance thereof. In case of either an assignment or subletting made
during the Term, Lessee shall remain primarily liable, as principal rather than
as surety, for the prompt payment of the Rent and for the performance and
observance of all of the covenants and conditions to be performed by Lessee
hereunder. An original counterpart of each such sublease and assignment and
assumption, duly executed by Lessee and such sublessee or assignee, as the case
may be, in form and substance satisfactory to Lessor, shall be delivered
promptly to Lessor.

         23.2.    Attornment. Lessee shall insert in each sublease permitted
under Section 23.1 provisions to the effect that (a) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Lessor hereunder, (b) if this Lease terminates before the expiration
of such sublease, the sublessee thereunder will, at Lessor's option, attorn to
Lessor and waive any right the sublessee may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a written Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.

                                  ARTICLE XXIV

         24.1.    Officer's Certificates; Financial Statements; Budgets;
Lessor's Estoppel Certificates and Covenants.

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

                                       38
<PAGE>   44

                  (b)      Throughout the Term, Lessee will furnish to Lessor
such historical financial information of Lessee and the Facility as Lessor may
reasonably request and shall provide Lessor access to Lessee's books and records
with respect thereto.

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

                  (d)      Lessee covenants that during the Term it will
maintain a ratio of debt-to-Net Worth of 50% or less, exclusive of capitalized
leases.

                  (e)      During the Term, Lessee will maintain a net worth of
not less than $11 million.

         24.2.    Operating Budget. Not later than sixty (60) days prior to the
commencement of each Lease Year, Lessee, in consultation with the Manager, shall
prepare and submit to Lessor an operating budget (the "Operating Budget") in
form and substance satisfactory to Lessor, prepared in accordance with the
requirements of this Section 24.2. The Operating Budget shall be prepared in
accordance with the Uniform System to the extent applicable and show by month
and quarter and for the year as a whole in the degree of detail specified by the
Uniform System for monthly statements, and in accordance with the detail level
of monthly financial statements, the following:

                  (a)      Lessee's reasonable estimate of Gross Revenues, Room
Revenues, Food Sales and Beverage Sales (including room rates) for the Facility
for the forthcoming Lease Year itemized on schedules on a monthly and quarterly
basis as approved by Lessor and Lessee, together with the assumptions, in
narrative form, forming the basis of such schedules.

                  (b)      A cash flow projection.

                  (c)      Lessee's reasonable estimate for each quarter of the
Lease Year of Percentage Rent.

         24.3.    Marketing Plan. Not later than sixty (60) days prior to the
commencement of each Lease Year, Lessee, in consultation with the Manager, will
prepare and submit to Lessor a narrative description of the program for
advertising and marketing the Facility for the forthcoming Lease Year (the
"Marketing Plan") containing a detailed budget itemization of the proposed
advertising expenditures by category and the assumptions, in narrative form,
forming the basis of such budget itemization.

         24.4.    Capital Budget. Not later than sixty (60) days prior to the
commencement of each Lease Year, Lessor shall prepare and submit to Lessee a
capital budget (the "Capital Budget") prepared in accordance with this Section
24.4. The Capital Budget shall be prepared in accordance with the Uniform System
to the extent applicable and shall set forth Lessor's proposed Capital
Expenditures for the ensuing Lease Year.

         24.5.    Disputes. In the event of any dispute between Lessor and
Lessee as to the Operating Budget, the Marketing Plan or the Capital Budget,
Lessor and Lessee shall act promptly, reasonably and

                                       39
<PAGE>   45

in good faith in seeking to resolve such disputes and in arriving at a mutually
acceptable Operating Budget, Marketing Plan and Capital Budget.

                                   ARTICLE XXV

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

                                  ARTICLE XXVI

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

                                  ARTICLE XXVII

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

                                 ARTICLE XXVIII

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

                                  ARTICLE XXIX

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

                                   ARTICLE XXX

         Conveyance by Lessor. If Lessor or any successor owner of the Leased
Property conveys the Leased Property to a Person other than an Affiliate of
Lessor in accordance with the terms hereof other than as security for a debt,
and the grantee or transferee of the Leased Property expressly assumes all
obligations of Lessor hereunder arising or accruing from and after the date of
such conveyance or transfer, Lessor or

                                       40
<PAGE>   46

such successor owner, as the case may be, shall thereupon be released from all
future liabilities and obligations of Lessor under this Lease arising or
accruing from and after the date of such conveyance or other transfer as to the
Leased Property and all such future liabilities and obligations shall thereupon
be binding upon the new owner.

                                  ARTICLE XXXI

         Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes
due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace periods, if any,
Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for
the Term hereof, free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor, but subject to all liens and encumbrances subject
to which the Leased Property was conveyed to Lessor or hereafter consented to by
Lessee or provided for herein. Notwithstanding the foregoing, Lessee shall have
the right by separate and independent action to pursue any claim it may have
against Lessor as a result of a breach by Lessor of the covenant of quiet
enjoyment contained in this Section.

                                  ARTICLE XXXII

         Notices. All notices, demands, requests, consents approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served, mailed (by registered or certified mail, return receipt
requested and postage prepaid) or sent by facsimile, addressed to Lessor at 850
Ridge Lake Blvd., Suite 220, Memphis, Tennessee 38120, Facsimile (901) 818-5260,
Attention: President, and addressed to Lessee at 850 Ridge Lake Boulevard, Suite
220, Memphis Tennessee 38120, Attention: President, Facsimile (901) 818-5260, or
to such other address or addresses as either party may hereafter designate.
Personally delivered Notice shall be effective upon receipt, and Notice given by
mail shall be complete at the time of deposit in the U.S. Mail system, but any
prescribed period of Notice and any right or duty to do any act or make any
response within any prescribed period or on a date certain after the service of
such Notice given by mail shall be extended five days.

                                 ARTICLE XXXIII

         Appraisers. If it becomes necessary to determine the Fair Market Value
of the leasehold estate hereunder for any purpose of this Lease, the party
required or permitted to give Notice of such required determination shall
include in the Notice the name of a person selected to act as appraiser on its
behalf. Within 10 days after Notice, Lessor (or Lessee, as the case may be)
shall by Notice to Lessee (or Lessor, as the case may be) appoint a second
person as appraiser on its behalf. The appraisers thus appointed, each of whom
must be a member of the American Institute of Real Estate Appraisers (or any
successor organization thereto) with at least five years experience in the State
appraising property similar to the Leased Property, shall, within 45 days after
the date of the Notice appointing the first appraiser, proceed to determine the
Fair Market Value of the leasehold estate hereunder as of the relevant date
(giving effect to the impact, if any, of inflation from the date of their
decision to the relevant date); provided, however, that if only one appraiser
shall have been so appointed, then the determination of such appraiser shall be
final and binding upon the parties. If two appraisers are appointed and if the
difference between the amounts so determined does not exceed 5% of the lesser of
such amounts, then the Fair Market Value shall be an amount equal to 50% of the
sum of the amounts so determined. If the difference between the amounts so
determined exceeds 5% of the lesser of such amounts, then such two appraisers
shall have 20 days to appoint a third appraiser. If no such appraiser shall have
been appointed within such 20 days or within 90 days of the original request for
a determination of Fair Market Value, whichever is earlier, either Lessor or
Lessee may apply to any court

                                       41
<PAGE>   47

having jurisdiction to have such appointment made by such court. Any appraiser
appointed by the original appraisers or by such court shall be instructed to
determine the Fair Market Value within 45 days after appointment of such
appraiser. The determination of the appraiser which differs most in the terms of
dollar amount from the determinations of the other two appraisers shall be
excluded, and 50% of the sum of the remaining two determinations shall be final
and binding upon Lessor and Lessee as the Fair Market Value of the leasehold
estate hereunder. This provision for determining by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
except as otherwise provided by applicable law. Lessor and Lessee shall each pay
the fees and expenses of the appraiser appointed by it and each shall pay
one-half of the fees and expenses of the third appraiser and one-half of all
other costs and expenses incurred in connection with each appraisal.

                                  ARTICLE XXXIV

         34.1.    Lessor May Grant Liens. Without the consent of Lessee, Lessor
may, subject to the terms and conditions set forth below in this Section 34.1,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing. Any such Encumbrance
shall (a) contain the right to prepay (whether or not subject to a prepayment
penalty); (b) provide that it is subject to the rights of Lessee under this
Lease, (c) contain the Agreement by the holder of the Encumbrance that it will
(1) give Lessee the same notice, if any, given to Lessor of any default or
acceleration of any obligation underlying any such Encumbrance or any sale in
foreclosure under such Encumbrance, (2) permit Lessee to cure any such default
on Lessor's behalf within any applicable cure period, and Lessee shall be
reimbursed by Lessor for any and all costs incurred in effecting such cure,
including without limitation out-of-pocket costs incurred to effect any such
cure (including reasonable attorneys' fees) and (3) permit Lessee to appear by
its representative and to bid at any sale in foreclosure made with respect to
any such Encumbrance. Upon the request of Lessor, Lessee shall subordinate this
Lease to the lien of a new mortgage on the Leased Property, on the condition
that the proposed mortgagee executes a non-disturbance agreement recognizing
this Lease, and agreeing, for itself and its successors and assigns, to comply
with the provisions of this Article XXXIV.

         34.2.    Lessee's Right to Cure. Subject to the provisions of Section
34.3, if Lessor breaches any covenant to be performed by it under this Lease,
Lessee, after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
may (but shall be under no obligation at any time thereafter to) make such
payment or perform such act for the account and at the expense of Lessor. All
sums so paid by Lessee and all costs and expenses (including, without
limitation, reasonable attorneys' fees) so incurred, together with interest
thereon at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Lessee, shall be paid by Lessor to Lessee on demand or,
following entry of a final, nonappealable judgment against Lessor for such sums,
may be offset by Lessee against the Base Rent payments next accruing or coming
due. The rights of Lessee hereunder to cure and to secure payment from Lessor in
accordance with this Section 34.2 shall survive the termination of this Lease
with respect to the Leased Property.

         34.3.    Breach by Lessor. It shall be a breach of this Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on its
part to be performed and such failure continues for a period of 30 days after
Notice thereof from Lessee, unless such failure cannot with due diligence be
cured

                                       42
<PAGE>   48

within a period of 30 days, in which case such failure shall not be deemed
to continue if Lessor, within such 30-day period, proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof. The
time within which Lessor shall be obligated to cure any such failure also shall
be subject to extension of time due to the occurrence of any Unavoidable Delay.
If Lessor fails to cure any such breach within the grace period described above,
Lessee, without waiving or releasing any obligations hereunder, and in addition
to all other remedies available to Lessee at law or in equity, may purchase the
Leased Property from Lessor for a purchase price equal to the then Fair Market
Value. If Lessee elects to purchase the Leased Property it shall deliver a
Notice thereof to Lessor specifying a settlement date to occur not less than 90
days subsequent to the date of such Notice on which it shall purchase the Leased
Property.

                                  ARTICLE XXXV

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

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

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

                                  ARTICLE XXXVI

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

                                       43
<PAGE>   49

                                 ARTICLE XXXVII

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

                                 ARTICLE XXXVIII

         Lessor's Option to Terminate Lease. Lessor may terminate the Lease as
to any Leased Property prior to the Expiration Date by giving to Lessee not less
than thirty (30) days prior Notice of Lessor's election to terminate this Lease.
Effective upon the termination date set forth in the Notice, this Lease shall
terminate and be of no further force and effect except as to any obligations of
the parties existing as of such date that survive termination of this Lease. As
compensation for the early termination of Lessee's leasehold estate under this
Article XXXVIII, Lessor shall, within 180 days following the termination date,
either (a) pay to Lessee the amount determined pursuant to Exhibit "E" attached
hereto as of the termination date of the Lease with respect to the Leased
Property or (b) within one year following the termination date offer to lease to
Lessee one or more substitute hotel facilities pursuant to one or more leases
that would create for the Lessee leasehold estates that have an aggregate Fair
Market Value of no less than the Fair Market Value of the leasehold estate for
the Leased Property being terminated hereunder, both such values as determined
as of the termination date of the Lease; provided, however, that in the event
Lessor does not pay to Lessee the termination amount or offer to lease to Lessee
substitute hotel facilities which meet the requirements described above within
180 days following the termination date, Lessor may extend the 180 day period
for an additional 185 days and interest on the amount of the termination payment
determined pursuant to Exhibit "E" shall accrue at the Base Rate from the 181st
day following the termination date until the date of payment or offer of a
substitute lease and the amount of any accrued interest shall be added to the
termination payment determined pursuant to Exhibit "E" or shall be included in
the computation of the Fair Market Value of the leasehold estate for purposes of
this Article XXXVIII. If Lessor elects and complies with the option described in
(b) above, regardless of whether Lessee enters into the lease(s) described
therein, Lessor shall have no further obligations to Lessee with respect to
compensation for the early termination of the Lease. In the event Lessor and
Lessee are unable to agree upon the fair market value of an original or
replacement leasehold estate, it shall be determined by appraisal using the
appraisal procedure set forth in Article XXXIII.

                                  ARTICLE XXXIX

         Compliance with Franchise Agreement. To the extent any of the
provisions of the Franchise Agreement impose a greater obligation on Lessee than
the corresponding provisions of this Lease, then Lessee shall be obligated to
comply with the provisions of the Franchise Agreement (other than requirements
with respect to Capital Improvements). It is the intent of the parties hereto
that Lessee shall

                                       44
<PAGE>   50

comply in every respect with the provisions of the Franchise Agreement so as to
avoid any default thereunder during the term of this Lease. Lessee shall not
terminate, extend or enter into any modification of the Franchise Agreement
without in each instance first obtaining Lessor's prior written consent. Lessor
and Lessee agree to cooperate with each other in the event it becomes necessary
to obtain a franchise extension or modification or a new franchise for the
Leased Property, and in any transfer of the Franchise Agreement to Lessor or any
designee of Lessor or any successor to Lessee upon the termination of this
Lease. In the event of expiration or termination of a Franchise Agreement, for
whatever reason, the Lessor will have the right, in its sole discretion, to
approve any new Franchise Agreement for the Facility. If, upon any expiration or
earlier termination of this Lease (other than upon an Event of Default by
Lessee), a Franchise Agreement remains in effect, or would but for such
expiration or termination remain in effect, Lessor shall indemnify, defend and
hold Lessee harmless with respect to the obligations and liabilities arising
thereunder after the date of expiration or termination of this Lease.

                                   ARTICLE XL

         40.1.    Lessor Approval of Capital Expenditures. All Capital
Expenditures whether pursuant to the Capital Budget or otherwise shall be
subject to the approval of Lessor, which approval shall extend both to the plans
and specifications (including matters of design and decor) and to the
contracting and purchasing of all labor, services and materials. Lessor shall
have the right to require competitive bidding of contracts for Capital
Improvements, review all bids and monitor costs, time, quality and performance.
The foregoing restrictions shall not apply to emergency Capital Expenditures
made by Lessee in amounts not to exceed $25,000, and with prior notice to Lessor
(if possible under the circumstances).

         40.2.    Inventory. On the Commencement Date, Lessee agrees to purchase
from Lessor, for cash, any Inventory at the Facility at a price equal to the
fair market value as agreed by Lessor and Lessee.

                                       45
<PAGE>   51

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

                                    "LESSOR"

                                    RFS PARTNERSHIP, L.P.

                                    By:  RFS Hotel Investors, Inc.
                                    Its: General Partner

                                    By:
                                        ----------------------------------------

                                    Title:
                                           -------------------------------------

                                    "LESSEE"

                                    RFS LEASING II, INC.

                                    By:
                                        ----------------------------------------

                                    Title:
                                           -------------------------------------

                                       46
<PAGE>   52

                                   Exhibit "A"

                              PROPERTY DESCRIPTION
<PAGE>   53

                                   Exhibit "B"

                                 PERCENTAGE RENT
<PAGE>   54

                                   Exhibit "C"

                                   RFS HOTELS
                           CAPITAL EXPENDITURES POLICY

                              CAPITAL EXPENDITURES

A capital expenditure is defined as an investment in a readily identifiable
facility which (l) is held for use or income rather than for sale or conversion
into goods or cash and (2) has a useful service life in excess of one year.
Nonrecurring expenses directly associated with the investment should be included
as part of the total expenditure for evaluation purposes, this includes
preopening expenses.

Capitalization Policy

If the cost of the capital addition is $2,500 or greater and the items acquired
have an expected service life of more than one year, the expenditure is
capitalized. See "Maintenance and Repairs" for those expenditures which are
expensed without regard to the $2,500 guideline. If the item(s) acquired meet
the more than one-year life criterion, but the total invoice cost is less than
$2,500, the expenditure is considered an expense item.

Replacement - Component Parts

If the estimated job or total invoice cost (including parts and labor) of any
particular item or series of items acquired with respect to one particular job
for replacement of the following major building components is under $2,500, the
expenditure is to be expensed to maintenance and repairs:

         Heating Equipment - Pumps, boilers, heat exchangers, thermostats,
         pressure gauges, alarm devices, piping.

         Plumbing Equipment - Pumps, meters, sprinkler and fire alarm system,
         piping.

         Air Conditioning Equipment - Compressors, condensers, motors, cooling
         towers, evaporative coolers, piping.

         Fire Prevention Equipment - Major fire system sprinklers, smoke
         detectors.

         Power - Transformer, conduits and boxes, panel boards, switches and
         outlets.

Betterments

If the estimated job or total invoice cost is $2,500 or above, and the
expenditure(s) will extend the useful life of an asset previously capitalized,
then the expenditure should be capitalized.
<PAGE>   55

                                   EXHIBIT "C"

                                   RFS HOTELS
                           CAPITAL EXPENDITURES POLICY

Maintenance and Repairs

The following replacement expenditures are considered maintenance and repairs
and are not subject to the total invoice cost guideline of $2,500.

         Repainting of Buildings, Pools, Park Areas (1)(6)
         Refinishing of Furniture (2)
         Glass Replacement
         Maintenance Service Contracts, such as Yard, Television, Elevator,
         Swimming Pool or Wall Paper or Vinyl (2)
         Reupholstery of Furniture (2)
         Replastering (2)
         Replacement of Chain Locks, Key Blanks, Keys, Locks, Locksets. Locks
         and locksets installed in new doors or offering substantial security
         improvements should be capitalized if the invoice is over $1000.
         Patching Parking Lot (3)
         Roof Repairs (4)
         Waterproofing of Lamp Globes & Lightbulbs
         Section Replacement for Neon Signs
         Caulking and Sealing (1)
         Chrome Fittings such as Faucets, Towel Bars, etc. (2)
         Toilet and Toilet Seats
         Stolen or Damaged Television
         Small Parts for Equipment
         Landscaping/Plants (5)
         Clocks, Clock-Radios or Similar Small Items (2)

Capital Items

         1.       If the complete exterior of the building is repainted,
including caulking and sealing of the building, those costs will be capitalized.

         2.       Expenditures for interior painting, wall paper, refinishing of
furniture, replastering, or reupholstering may be capitalized if:

                  1)       these expenditures are part of a major refurbishment
                           project, or
                  2)       the cost of these expenditures exceed $5,000 with
                           respect to any particular item or series of items
                           related to one particular job and extend the useful
                           life of the asset.

         3.       Repairing of parking lots, including resealing and
resurfacing, will be capitalized if the expenditures exceed $5,000.
<PAGE>   56

         4.       Replacement of the complete roof or complete section of the
roof (including laying a roof over an existing roof) will be capitalized if
total expenditures exceed $5,000.

         5.       If the landscaping is new or replacement of existing interior
or exterior landscaping and exceeds $5,000, the cost of the landscaping can be
capitalized.

         6.       Major overhauls to the pool which exceed $5,000 in cost and
extend the useful life of the asset will be capitalized.

All expense items will be expensed to M&R expense line items above GOP.
<PAGE>   57

                                   Exhibit "D"

                             [MANAGEMENT AGREEMENT]
<PAGE>   58

                                   EXHIBIT "E"

                           LEASE TERMINATION PAYMENTS

      [MIKE - PLEASE CHECK THESE - WE ALSO NEED TO KNOW THE LEASE TERMS TO
                           COMPUTE THE AMORTIZATIONS]

         The termination payment owed by Lessor to Lessee pursuant to the
provisions of Article XXXVIII shall be determined, with respect to each Leased
Property, as follows:

<TABLE>
<CAPTION>
          Hotel                 Location                                      Termination Payment Calculation
          -----                 --------                                      -------------------------------
<S>                          <C>                              <C>
1.   Holiday Inn             Louisville, KY                   $  214,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
2.   Holiday Inn             Clayton, MO                       3,177,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
3.   Holiday Inn             Columbia, SC                      1,217,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
4.   Holiday Inn             Lafayette, LA                     2,492,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
5.   Residence Inn           Kansas City, MO                     934,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
6.   Hampton Inn             Ft. Lauderdale, FL                  846,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
7.   Holiday Inn Express     Arlington Heights, IL               249,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
8.   Holiday Inn Express     Bloomington, MN                     975,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
9.   Hampton Inn             Bloomington, MN                     640,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
10.  Holiday Inn Express     Downers Grove, IL                   602,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
11.  Comfort Inn             Farmington Hills, MI                745,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
12.  Hampton Inn             Indianapolis, IN                    296,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
13.  Hampton Inn             Lincoln, NE                         259,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
14.  Hampton Inn             Minnetonka, MN                      300,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
15.  Hampton Inn             Tulsa, OK                           677,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
16.  Hampton Inn             Warren, MI                          270,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
17.  Holiday Inn Express     Wauwatosa, WI                       254,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
18.  Residence Inn           Tyler, TX                         1,117,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
19.  Residence Inn           Fishkill, NY                      3,218,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
20.  Hampton Inn             Memphis, TN                         572,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
21.  Residence Inn           Torrance, CA                      3,392,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
22.  Residence Inn           Wilmington, DE                    1,381,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
23.  Holiday Inn             Flint, MI                         3,413,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
</TABLE>

<PAGE>   59

<TABLE>
<CAPTION>
          Hotel                 Location                                      Termination Payment Calculation
          -----                 --------                                      -------------------------------
<S>                          <C>                              <C>
24.  Hawthorn Suites Hotel   Atlanta (Marietta), GA            1,783,550  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
25.  Hampton Inn             Lakewood, CO                        945,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
26.  Hampton Inn             Laredo, TX                        1,137,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
27.  Residence Inn           Atlanta, GA                          76,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
28.  Hampton Inn             Houston, TX                         378,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
29.  Courtyard by Marriott   Flint, MI                         1,016,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
30.  Hampton Inn             Chandler, AZ                              0

31.  Hampton Inn             Sedona, AZ                                0

32.  Sheraton Hotel          Milpitas, CA                      4,579,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
33.  Sheraton Four Points    Sunnyvale, CA                     3,992,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
34.  Sheraton Four Points    Pleasanton, CA                    3,140,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
35.  Sheraton Four Points    Bakersfield, CA                   1,658,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
36.  Beverly Heritage Hotel  Milpitas, CA                              0

37.  Hampton Inn             Plano, TX                           121,000  less $_________ for each month which has elapsed since
                                                                                          the Commencement Date
38.  Sheraton                Birmingham, AL                  Fair market value as determined by the agreement of the parties, or
                                                             in the absence of such pursuant to Article XXXII
39.  Hilton                  San Francisco, CA               Fair market value as determined by the agreement of the parties, or
                                                             in the absence of such pursuant to Article XXXII
</TABLE><PAGE>   1

                                                                    EXHIBIT 10.2

                                      HOTEL

                              MANAGEMENT AGREEMENT

                                 By and Between

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

                                       and

                      FLAGSTONE HOSPITALITY MANAGEMENT LLC

                                      Dated

                                January ___, 2001

<PAGE>   2

                                TABLE OF CONTENTS

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

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

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

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

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

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

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

<PAGE>   3

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

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

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

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

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

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

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

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

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

                                       ii
<PAGE>   4

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

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

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

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

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

EXHIBIT A -- Hotels and Owners

EXHIBIT B -- Franchise Agreements

EXHIBIT C -- Severance Amounts Reimbursable Pursuant to Section 21.09

EXHIBIT D -- REIT Hotels

EXHIBIT E -- Form of Guaranty

                                      iii
<PAGE>   5

                           HOTEL MANAGEMENT AGREEMENT

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

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

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

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

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

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

                                    ARTICLE I

                                   DEFINITIONS

Section 1.01.00   Definitions.

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

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

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

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

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

                                       1
<PAGE>   6

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       2
<PAGE>   7

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

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

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

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

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

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

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

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

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

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

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

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

                                       3
<PAGE>   8

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

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

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

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

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

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

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

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

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

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

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

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

                                       4
<PAGE>   9

                  (vii)    legal fees;

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

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

                  (x)      the Operator's Expenses;

                  (xi)     the Operator's Basic Fee;

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

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

                  (xiv)    reasonable reserves for uncollectible accounts
         receivable;

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

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

                  (xvii)   common expenses charges.

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

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

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

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

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

                                       5
<PAGE>   10

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       6
<PAGE>   11

                                   ARTICLE II

                                TERM OF AGREEMENT

Section 2.01.00   Term.

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

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

                                   ARTICLE III

                             OPERATION OF THE HOTEL

Section 3.01.00   Representations by Operator; Engagement of Operator.

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

Section 3.02.00   Standards of Operation.

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

                                       7
<PAGE>   12

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

Section 3.03.00   Reservations Services.

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

Section 3.04.00   Marketing.

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

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

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

                                       8
<PAGE>   13

Section 3.05.00   Consultations Between Lessee and Operator.

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

Section 3.06.00   Activities of MeriStar.

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

                                   ARTICLE IV

                             INDEPENDENT CONTRACTOR

Section 4.01.00   Operator Status.

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

Section 4.02.00   Employees.

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

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

                                       9
<PAGE>   14

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

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

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

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

Section 4.03.00   Reimbursement of Employee Expenses.

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

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

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

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

Section 4.04.00   Employee Benefit Plans.

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

                                       10
<PAGE>   15

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

Section 4.05.00   Execution of Agreements.

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

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

                                    ARTICLE V

                                 INDEMNIFICATION

Section 5.01.00   Indemnification by Operator.

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

                                       11
<PAGE>   16

Section 5.02.00   Limitations on Indemnification.

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

Section 5.03.00   Indemnification by Lessee.

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

Section 5.04.00   Survival of Indemnity.

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

Section 5.05.00   Employment Claim.

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

                                       12
<PAGE>   17

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

Section 5.06.00   Environmental Matters.

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

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

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

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

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

                                       13
<PAGE>   18

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

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

Section 5.07.00   Lessee Net Worth.

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

                                   ARTICLE VI

                           BUDGETS AND POLICY MEETINGS

Section 6.01.00   Budgets.

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

                                       14
<PAGE>   19

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

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

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

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

Section 6.02.00   Budget Meetings.

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

Section 6.03.00   Approval by Lessee Required.

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

                                   ARTICLE VII

                               OPERATING EXPENSES

Section 7.01.00   Payment of Operating Expenses.

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

                                       15
<PAGE>   20

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

Section 7.02.00   Operating Expenses Not an Obligation of Operator.

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

                                  ARTICLE VIII

                                  BANK ACCOUNTS

Section 8.01.00   Bank Accounts

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

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

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

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

                                       16
<PAGE>   21

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

Section 8.02.00   Authorized Signatures.

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

Section 8.03.00   Investment of Hotel Cash.

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

Section 8.04.     Payroll. 00

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

                                       17
<PAGE>   22

Section 8.05.     Security Deposits.  00

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

                                   ARTICLE IX

                          BOOKS, RECORDS AND STATEMENTS

Section 9.01.00  Books and Records.

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

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

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

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

Section 9.02.00   Statements.

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

                                       18
<PAGE>   23

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

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

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

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

                                    ARTICLE X

                     OPERATOR'S FEE AND TRANSFERS TO LESSEE

Section 10.01.00  Payment of Operator's Basic Fee.

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

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

Section 10.02.00  Payment of Operator's Incentive Fee.

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

                                       19
<PAGE>   24

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

Section 10.03.00  Distribution of Cash.

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

Section 10.04.00  Adjustments to Allocations.

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

Section 10.05.00  Arbitration.

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

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

                                       20
<PAGE>   25

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

Section 10.06.00  Other Fees.

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

                                   ARTICLE XI

                             REPAIRS AND MAINTENANCE

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

                                   ARTICLE XII

                                    INSURANCE

Section 12.01.00  General.

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

Section 12.02.00  Employment Insurance.

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

                                       21
<PAGE>   26

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

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

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

Section 12.04.00  Maintenance of Coverages.

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

Section 12.05.00  Waiver of Subrogation.

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

Section 12.06.00  Blanket Coverage and Self-Insurance.

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

Section 12.07.00  Adequacy of Insurance.

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

                                       22
<PAGE>   27

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

Section 12.08.00  Exclusions.

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

                                  ARTICLE XIII

                                 PROPERTY TAXES,
                    LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

Section 13.01.00  Property Taxes.

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

Section 13.02.00  Lessee's Right to Contest.

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

                                   ARTICLE XIV

                      DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01.00  Damage.

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

                                       23
<PAGE>   28

Section 14.02.00  Condemnation.

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

                                   ARTICLE XV

                                   USE OF NAME

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

                                   ARTICLE XVI

                              OWNER'S RIGHT TO SELL

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

                                 ARTICLE XVII

                              DEFAULT AND REMEDIES

Section 17.01.00  Events of Default- Remedies.

         (a)      The following shall constitute Events of Default:

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

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

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

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

                                       24
<PAGE>   29

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

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

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

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

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

Section 17.02.00  Rights Not Exclusive.

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

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

                                       25
<PAGE>   30

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

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

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

                                  ARTICLE XVIII

                                     NOTICES

Section 18.01.00  Notices.

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

                  (1)      Notices to Lessee shall be addressed:

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

                  (2)      Notices to Operator shall be addressed:

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

                                       26
<PAGE>   31

                                    With a copy to:

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

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

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

                                   ARTICLE XIX

                                   ASSIGNMENT

Section 19.01.00  No Assignment by Operator.

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

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

Section 19.02.00  Assignment by Lessee.

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

                                       27
<PAGE>   32

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

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

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

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

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

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

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

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

                                       28
<PAGE>   33

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

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

                                   ARTICLE XX

                                  SUBORDINATION

Section 20.01.00  Subordination To First Mortgage.

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

Section 20.02.00  Foreclosure.

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

                                   ARTICLE XXI

                                  MISCELLANEOUS

Section 21.01.00  Further Documentation.

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

                                       29
<PAGE>   34

Section 21.02.00  Captions.

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

Section 21.03.00  Successors and Assigns.

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

Section 21.04.00  Competitive Market Area.

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

Section 21.05.00  Assumption of Post Termination Obligations.

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

Section 21.06.00  Entire Agreement.

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

Section 21.07.00  Governing Law.

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

Section 21.08.00  No Political Contributions.

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

                                       30
<PAGE>   35

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

Section 21.09.00  Lessee Reimbursement Upon Certain Terminations.

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

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

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

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

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

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

                                       31
<PAGE>   36

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

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

Section 21.10.00  Management of Other Hotels.

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

Section 21.11.00  Eligible Independent Contractor.

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

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

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

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

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

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

                                       32
<PAGE>   37

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

Section 21.12.00  Affiliated Transactions.

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

Section 21.13.00  Non-Recourse to MeriStar.

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

Section 21.14.00  No Third Party Beneficiaries.

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

Section 21.15.00  Purchase of Furniture, Fixtures and Equipment.

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

                                       33
<PAGE>   38

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

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

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

OPERATOR:                                FLAGSTONE HOSPITALITY
                                         MANAGEMENT LLC

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

                                       34
<PAGE>   39

                                    EXHIBIT A

         Hotel                                                      Owner

                                    [TO COME]

                                       35
<PAGE>   40

                                    EXHIBIT B

                              Franchise Agreements

                                    [TO COME]

                                       36
<PAGE>   41

                                    EXHIBIT C

                         Severance Amounts Reimbursable
                            Pursuant to Section 21.09

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

PERSON                                      DURATION OF TIME AFTER TERMINATION

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

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

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

                                       37
<PAGE>   42

                                    EXHIBIT D

                                   REIT Hotels

ALABAMA

1.       Sheraton Hotel - Birmingham South

ARIZONA

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

CALIFORNIA

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

COLORADO

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

FLORIDA

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

GEORGIA

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

ILLINOIS

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

INDIANA

23.      Hampton Inn, Airport - Indianapolis

KENTUCKY

24.      Holiday Inn, SW - Louisville

                                       38
<PAGE>   43

LOUISIANA

25.      Holiday Inn, Central - Lafayette

MICHIGAN

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

MINNESOTA

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

MISSISSIPPI

33.      Hampton Inn - Hattiesburg

MISSOURI

34.      Sheraton, Clayton Plaza - St. Louis

NEBRASKA

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

OKLAHOMA

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

SOUTH CAROLINA

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

TENNESSEE

41.      Hampton Inn, Walnut Grove - Memphis

TEXAS

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

WISCONSIN

49.      Holiday Inn Express, Mayfair Mall - Milwaukee

                                       39
<PAGE>   44

                                    EXHIBIT E

                                    GUARANTY

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

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

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

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

                                    Executed this ____ day of January, 2001.

                                             RFS LEASING II, INC.

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

                                             RFS LEASING III, INC.

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

                                       40
<PAGE>   45

                                             RFS LEASING IV, INC.

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

                                             RFS LEASING V, INC.

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

                                             RFS LEASING VI, INC.

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

                                             RFS LEASING VII, INC.

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

                                       41

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