Document:

<PAGE>

                                                                    Exhibit 10.1
                                                                    ------------

                          LEASE TERMINATION AGREEMENT

                                     among

         HUMPHREY HOSPITALITY MANAGEMENT, INC., a Maryland corporation

         SUPERTEL HOSPITALITY MANAGEMENT, INC., a Maryland corporation

           HUMPHREY HOSPITALITY TRUST, INC., a Virginia corporation

   HUMPHREY HOSPITALITY LIMITED PARTNERSHIP, a Virginia limited partnership

       E&P FINANCING LIMITED PARTNERSHIP, a Maryland limited partnership

    SOLOMONS BEACON INN LIMITED PARTNERSHIP, a Maryland limited partnership

                                      and

                   TRS LEASING, INC., a Virginia corporation

                         dated as of December 31, 2001
<PAGE>

                          LEASE TERMINATION AGREEMENT

               LEASE TERMINATION AGREEMENT dated as of December 31, 2001, among
Humphrey Hospitality Management, Inc., a Maryland corporation ("HHM"), Supertel
Hospitality Management, Inc., a Maryland corporation ("Supertel"), Humphrey
Hospitality Trust, Inc., a Virginia corporation (the "REIT"), Humphrey
Hospitality Limited Partnership, a Virginia limited partnership ("HUMP OP"), E&P
Financing Limited Partnership, a Maryland limited partnership ("E&P OP"),
Solomons Beacon Inn Limited Partnership, a Maryland limited partnership
("Solomons") and TRS Leasing, Inc, a Virginia corporation (the "TRS").

                             W I T N E S S E T H:

               WHEREAS, the Lessees and the Lessors (each as defined below) have
entered into lease agreements with respect to the hotels described in Exhibit
                                                                      -------
1(a) hereto (as such agreements may have been amended or modified, each a "Lease
----
Agreement" and collectively, the "Lease Agreements"); and

               WHEREAS, certain parties hereto have entered into the agreements
described in Exhibit 1(b) hereto (as such agreements may have been amended or
             ------------
modified, the "Ancillary Agreements"); and

               WHEREAS, the parties desire to provide for the termination of the
Lease Agreements and the termination of the Ancillary Agreements subject to the
terms and conditions described herein; and

               WHEREAS, the parties desire to set forth other agreements and
covenants as set forth herein;

               NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the parties do hereby agree as follows:

Section 1.     Definitions.
               -----------

               (a)  Certain Definitions. For purposes of this Agreement the
                    -------------------
following words and phrases shall have the meanings set forth below:

               "Administrative Services Agreement" shall mean the Financial and
                ---------------------------------
Administrative Services Agreement, dated as of January 1, 2001, as amended, by
and between the REIT, HUMP OP, E&P OP and HHM.

               "Aggregate Lease Termination Payment" shall mean One Million
                -----------------------------------
Eight Hundred Thousand Dollars ($1,800,000.00).

               "Contracts" shall mean, with respect to any Hotel, all contracts
                ---------
to which a Lessee is a party or is otherwise obligated relating to the operation
of such Hotel other than (i) any Lease Agreement, Franchise Agreement, or
License and (ii) any such contracts with or between a Lessee and an affiliate of
any of the Lessees.
<PAGE>

          "Excluded Material Contract" shall mean (i) any Material Contract in
           --------------------------
existence as of the date of this Agreement which is not disclosed on Exhibit 14
                                                                     ----------
hereto, and (ii) any Material Contract executed after the date of this Agreement
without the prior written consent of the TRS.

          "Franchise Agreement" shall mean, with respect to any Hotel, the hotel
           -------------------
franchise agreement under which such Hotel is operated as set forth on Exhibit
                                                                       -------
2(d).
----

          "Franchisors" shall mean the franchisors under the Franchise
           -----------
Agreements (each a "Franchisor").

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

          "Hotels" shall mean the hotels subject to the Lease Agreements
           ------
described in Exhibit 1(a) hereto.
             ------------

          "Lessees" shall mean, collectively, HHM and its wholly-owned
           -------
subsidiary Supertel (each a "Lessee").

          "Lessors" shall mean, collectively, HUMP OP, E&P OP and Solomons (each
           -------
a "Lessor").

          "Licenses" shall mean, with respect to any Hotel, all licenses,
           --------
operating permits and other governmental authorizations that may be necessary
for the operation of such Hotel, including liquor licenses.

          "Material Contract" shall mean any Contract applicable to one or more
           -----------------
Leased Hotels which (i) requires annual payments by any Lessee or an affiliate
of a Lessee of $5,000 or more or (ii) requires the delivery of more than 10 room
nights per month in exchange for services.

          "REIT Parties" shall mean the REIT, the TRS and the Lessors
           ------------
collectively.

          "Significant Supplies" shall mean the following supplies as required
          ---------------------
by a Franchisor:  (i) irons/ironing boards, (ii) coffee makers, (iii) kitchen
supplies for guest rooms in any extended stay hotels, (iv) linens and (v) other
operational supplies, including paper products, cleaning materials and similar
items.

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

          (b)  Other Definitions.  For purposes of this Agreement, the following
               -----------------
words and phrases shall have the meanings set forth in the respective sections
hereof or exhibits hereto set forth below:

                                       2
<PAGE>

            Ancillary Agreements                          Recitals
            E&P OP                                        Preamble
            HHM                                           Preamble
            Hotel Employees                               6
            HUMP OP                                       Preamble
            Lease Agreements                              Recitals
            Leased Hotels                                 2(a)
            Lessee Indemnitees                            21(c)
            Lessee Indemnitees                            13(c)
            Liabilities                                   13(b)
            Long Term Management Agreements               2(f)
            Management Agreement                          2(e)
            PIP                                           2(c)
            REIT                                          Preamble
            REIT Indemnities                              13(b)
            Sale Hotels                                   2(a)
            Short Term Management Agreement               2(f)
            Solomons                                      Preamble
            Supertel                                      Preamble
            Termination Date                              4(b)
            TRS                                           Preamble

Section 2.  Termination of Lease Agreements and Related Matters.
            ---------------------------------------------------

            (a)  Termination of Lease Agreements.  Subject to the terms and
                 -------------------------------
conditions set forth herein, the Lessors, the Lessees and the TRS hereby agree
that on the Termination Date (i) the Lease Agreements for the hotels described
on Exhibit 1(a) as Sale Hotels (the "Sale Hotels") shall be terminated with
retroactive effect to June 1, 2001, and (ii) the Lease Agreements for the Hotels
on Exhibit 1(a) other than the Sale Hotels (the "Leased Hotels") shall be
terminated effective as of 11:59 p.m. on December 31, 2001.  Notwithstanding the
foregoing, effective as of the Termination Date, upon request by the Lessors,
the Lessees will assign certain of the Lease Agreements to the TRS.

            (b)  Ancillary Agreements. Effective as of the Termination Date, the
                 --------------------
Ancillary Agreements shall terminate.

            (c)  Surrender of Leased Property. Subject to the terms and
                 ----------------------------
conditions set forth herein, on the Termination Date, each Lessee shall remise,
release, surrender and quitclaim all right, title and interest of such Lessee in
and to the Lease Agreements relating to the Leased Hotels.

            (d)  Franchise Agreements.
                 --------------------

                 (i)  Subject to the terms and conditions set forth herein, each
     Lessee for each Hotel operating under a Franchise Agreement as set forth on
     Exhibit 2(d) shall exercise its good faith commercial efforts to assist the
     ------------
     TRS and the Lessors in obtaining

                                       3
<PAGE>

     an assignment of each Franchise Agreement or a replacement franchise
     agreement (or commitment therefor) of the same brand for the balance of the
     existing term in favor of the TRS (or, in the case of the Sale Hotels, the
     TRS or the Lessor) on terms then applicable for the issuance of such
     replacement franchise agreements (or commitments therefor) and effective as
     of the Termination Date (or such other date as may be requested by the
     REIT), including without limitation executing any termination agreements or
     other documents reasonably required by the Franchisors to effect such
     transfer or replacement.

               (ii)   Notwithstanding Section 2(d)(i) above, if the REIT
     determines, in its sole discretion, that a Franchisor's Product Improvement
     Plan ("PIP"), new franchise terms or change of ownership terms or costs
     with respect to one or more Hotels are unreasonable, the REIT may elect to
     so notify the Lessees, in which event, at the direction of the REIT, the
     Lessees shall either (A) maintain the Franchise Agreement for that Hotel,
     subject to the right of the REIT or the TRS to require the Lessees to
     transfer the franchise license to the TRS at any time upon notice from the
     REIT, subject to Franchisor consent, or (B) terminate the Franchise
     Agreement (in which event the REIT shall pay all costs associated with
     terminating such Franchise Agreement). In the event the REIT so notifies
     the Lessees that the REIT has determined that the Lessees shall maintain a
     Franchise Agreement, (i) the TRS or the Lessor shall be responsible for
     paying or reimbursing the Lessees for the franchise fees payable by Lessees
     to the Franchisor under any such Franchise Agreement after the Termination
     Date and (ii) the Lessees shall exercise good faith commercial efforts to
     assist the TRS in obtaining an assignment or replacement of each such
     Franchise Agreement for the TRS or a Lessor, if requested by the REIT.

               (iii)  The REIT Parties will pay all documented change of
     ownership fees, termination fees, PIP costs and/or other fees and costs
     required by the Franchisors and incurred in connection with Section 2(d)(i)
     and (ii) hereof. Notwithstanding the foregoing, the Lessees will continue
     to pay when due, and will be responsible for, all franchise fees payable
     under the Franchise Agreements through the Termination Date. Subject to the
     provisions of this Agreement and the Short Term Management Agreements, the
     REIT Parties shall reimburse the Lessees for all franchise fees payable
     under the Franchise Agreements with respect to the Sale Hotels arising on
     or after June 1, 2001. Upon request by the REIT Parties, the Lessees will
     request from the Franchisors, and deliver to the REIT Parties upon receipt,
     estoppel letters with respect to the Franchise Agreements.

          (e)  Contracts.  Subject to the terms and conditions set forth herein,
               ---------
the Lessees shall use their good faith reasonable commercial efforts to assign
and transfer to the TRS, all Contracts with respect to each Hotel effective as
of the Termination Date, and the TRS shall assume such assigned and transferred
Contracts; provided, however, that if (i) any such Contract is not permitted to
           --------  -------
be assigned or (ii) the TRS or the REIT elects (by written notice delivered to
the Lessees no less than thirty (30) days prior to the Termination Date) not to
accept and assume any such Contract, the Lessees shall use their good faith
reasonable commercial efforts to terminate such Contract as of the Termination
Date and the REIT Parties will pay all documented third party costs resulting
from the early termination of such Contracts.

                                       4
<PAGE>

               (f)   Management Agreements. On the Termination Date, (i) the
                     ---------------------
Lessors for the Sale Hotels and the Lessees for the Sale Hotels shall enter into
one or more management agreements in the form attached as Exhibit 2(f)(i) hereto
                                                          ---------------
(the "Short Term Management Agreement") with respect to the Sale Hotels and
providing for management fees and termination fees as described on Exhibit
                                                                   -------
2(f)(ii) hereto retroactive to June 1, 2001, and, (ii) the TRS and the Lessees
--------
will enter into one or more management agreements with respect to the Leased
Hotels in the form attached as Exhibit 2(f)(i) hereto (the "Long Term Management
                               ---------------
Agreements" and together with the Short Term Management Agreements, the
"Management Agreements") and providing for management fees and termination fees
as described on Exhibit 2(f)(ii) hereto and (iii) the TRS and HHM shall enter
                ----------------
into an administrative services agreement in the form of Exhibit 2(f)(iii)
                                                         -----------------
hereto. If any of the Sale Hotels have not been sold by March 31, 2002, then
effective April 1, 2002, (A) the Short Term Management Agreements shall be
amended to provide for management fees with respect thereto as set forth on
Exhibit 2(f)(ii) hereto (provided that no termination fee shall be payable with
----------------
respect to the sale of a Sale Hotel at any time) and (B) at the election of the
REIT Parties and upon notice from the REIT to the Lessees, the Lessees, the TRS
and the Lessors shall execute an assignment of the Short Term Management
Agreements with respect to the Sale Hotels from the Lessor to the TRS.

               (g)   Consents. If the parties are unable to obtain all the
                     --------
necessary consents to the termination of one or more of the Lease Agreements
hereunder on or prior to the Termination Date, such Lease Agreements shall
continue to remain in full force and effect until all required consents are
obtained, at which time such Lease Agreements shall be terminated in accordance
with the terms hereof. If all of the third party consents described on Exhibits
                                                                       --------
16(a)(ii) and 16(b)(ii) hereto are not obtained by December 31, 2001 (which date
---------     ---------
may be extended by mutual agreement of the parties) with respect to one or more
Leased Hotels, the Lease Agreements with respect to such Leased Hotels shall
continue until such consents are obtained and the closing of the transactions
contemplated by this Agreement with respect to such Leased Hotels will occur as
soon as practicable after all such consents have been obtained. Upon such
closing, the parties will make closing pro ration adjustments hereunder as if
such Lease Agreements had been terminated, and Management Agreements became
effective, at the close of business on December 31, 2001. Notwithstanding the
foregoing, (i) the Lessees will continue to pay all Rent (under each such Lease
Agreement) due and owing through the actual termination date for such Lease
Agreement and (ii) if (A) HHM has not met the requirements of Section 9(a)(iv)
hereof or Section 21.09 of the Management Agreements on or prior to December 31,
2001, or (B) the consents described in Exhibits 16(a)(ii) and 16(b)(ii) are not
                                       ------------------     ---------
obtained on or prior to December 31, 2001, this Agreement shall terminate
without liability of any party to any other party hereunder.

Section 3.     Consideration and Payments.
               --------------------------

               (a)   Termination Consideration. As consideration for the
                     -------------------------
termination of the Lease Agreements and the Ancillary Agreements, on the
Termination Date (or such other date pursuant to Section 3(c)(ii) hereof, the
                                                 ----------------
TRS shall pay to HHM the Aggregate Lease Termination Payment. The Aggregate
Lease Termination Payment shall be allocated to the Lease Agreements for the
applicable Leased Hotels as described in Exhibit 1(a) hereto (as so allocated to
                                         ------------
a Leased Hotel, an "Individual Lease Termination Payment"). Notwithstanding the
foregoing or any other provision in the Lease Agreements or the Ancillary
Agreements, (i) no termination
                                       5
<PAGE>

fee or any other fee or cost shall be payable by the REIT Parties to the Lessees
upon termination of the Lease Agreements for the Sale Hotels or otherwise in
connection with the sale of the Sale Hotels and (ii) no fees will be payable by
the REIT Parties to the Lessees in connection with the sale of any Leased Hotel,
other than as specifically set forth in the Management Agreements.

           (b)   Operational Settlement.
                 ----------------------

                 All of the items described on Exhibit 3(b) hereto shall be
                                               ------------
allocated and prorated as of 12:01 a.m. on the Termination Date (the "Cutoff
Time") (or, in the case of the Sale Hotels, retroactively to 12:01 a.m. June 1,
2001) in the manner described in Exhibit 3(b) and appropriate credits ensuing
                                 ------------
therefrom shall be given to the TRS (or, in the case of the Sale Hotels, the
appropriate Lessor) and the Lessees as adjustments to the Aggregate Lease
Termination Payment and the appropriate Individual Lease Termination Payment and
the other payments due and owing hereunder.

           (c)   Additional Payments.
                 -------------------

                 (i)   On the Termination Date, the REIT Parties shall pay or
     cause to be paid to the appropriate Lessees (A) all amounts accrued and
     owing through the Termination Date pursuant to the Administrative Services
     Agreement, and (B) the purchase price for the Accounts Receivable in
     accordance with Section 3(d) hereof.

                 (ii)  On the Termination Date, the Lessees shall (A) pay all
     Rent (as defined in the Lease Agreements) accrued and owing through the
     Termination Date, and (B) pay or make provisions for payment of all trade
     payables with respect to the Hotels when and as they become due. In the
     event that all Rent due and owing from the Lessees to the Lessors through
     the Termination Date is not paid on the Termination Date, (i) all such Base
     Rent (as defined in the Lease Agreements) and Impositions (as defined in
     the Lease Agreements) shall be paid on or before the tenth (10/th/) day
     following the Termination Date and all Percentage Rent (as defined in the
     Lease Agreements) shall be paid on or before the thirtieth (30/th/) day
     following the Termination Date, and (ii) the Aggregate Lease Termination
     Payment shall be paid at such time as all Rent through and including the
     Termination Date has been paid.

           (d)   Accounts Receivable.  On the Termination Date, the TRS shall
                 -------------------
purchase from the Lessees, pursuant to an Assignment of Accounts Receivable in
the form of Exhibit 3(d) hereto, all guest ledger and city ledger accounts
            ------------
receivable of the Leased Hotels not more than ninety (90) days past due, after
deducting all guest ledger accounts receivable that are (i) disputed by the
guest, (ii) for personnel of the Lessees, or (iii) complimentary, and net of all
applicable discounts other than credit card discounts not to exceed $1,000.00.
The purchase price for the receivables shall be the face amount of such
receivable, net of the foregoing adjustments and shall be paid by delivery of a
promissory note from the TRS to the Lessees in the principal amount of the
purchase price and in the form of Exhibit 3(d)-1.  The Lessees will cooperate
                                  --------------
with the TRS in collecting all such receivables.  Notwithstanding the foregoing,
none of the REIT Parties shall be under any obligation to pursue fee-based
collection proceedings or institute legal action to collect any such
receivables.  The TRS will permit the Lessees to pursue the collection of guest
ledger and city ledger receivables being acquired by the TRS from the

                                       6
<PAGE>

Lessee as well as guest ledger and city ledger receivables more than ninety (90)
days past due as of the Termination Date which are not being acquired by the
TRS. On April 1, 2002, the Lessees will re-purchase all accounts receivable with
respect to the Leased Hotels which remain uncollected at April 1, 2002, at the
price paid by the TRS to the Lessees for such receivables. Thereafter, no
further adjustments for accounts receivable shall occur between the TRS and the
Lessees and upon receipt of payment in full for any and all accounts receivable
re-purchased by the Lessees from the TRS, the TRS will re-assign all of its
rights with respect to such accounts receivable to the Lessees pursuant to an
Assignment of Accounts Receivable in the form of Exhibit 3(d) hereto.
                                                 ------------

Section 4.  The Closing.
            -----------

            (a)   Notice. On or before December 15, 2001, the Lessees will
                  ------
notify the REIT, in writing, (i) that the conditions set forth in Section 9(a)
hereof have been satisfied and (ii) specifying a date, not more than 15 days and
not less than 10 days following the date of the notice on which the transactions
contemplated by the Agreement will close. If no such notice is provided, the
closing will occur on the date set forth in subsection (b) below.

            (b)   Closing.  The closing of the transactions contemplated by this
                  -------
Agreement shall take place on December 31, 2001 (the "Termination Date") at the
offices of Hunton & Williams, Richmond, Virginia or at such other place or such
other date as the parties shall mutually agree.

            (c)   Closing Deliveries by the Lessees. On the Termination Date,
                  ---------------------------------
the Lessees shall execute and deliver or cause to be executed and delivered the
following to the REIT Parties or the TRS:

                  (i)    duly executed counterpart to a closing statement;

                  (ii)   [Intentionally Left Blank];

                  (iii)  duly executed counterpart to an Assignment of Contracts
     and Assumption Agreement in the form of Exhibit 4(c)(iii) hereto covering
                                             -----------------
     all Contracts to be assigned and assumed as of the Termination Date in
     accordance with Section 2(e) hereof;

                  (iv)   duly executed opinion of counsel to the Lessees
     reasonably acceptable to the REIT Parties with respect to the matters set
     forth on Exhibit 4(c)(iv) hereto;
              ----------------

                  (v)    [Intentionally Left Blank];

                  (vi)   duly executed certificate of the Lessees as to non-
     foreign status pursuant to Section 1445 of the Internal Revenue Code;

                  (vii)  evidence reasonably acceptable to the REIT Parties that
     HHM has met the requirements to be an "eligible independent contractor" as
     defined in Section 856(d)(9) of the Internal Revenue Code.

                                       7
<PAGE>

               (viii) all payments required to be made by the Lessees on the
     Termination Date as set forth in Section 3 hereof;

               (ix)   duly executed assignment of any sub-leases at any of the
     Hotels in the form of Exhibit 4(c)(ix) hereto, together with a copy of the
                           ----------------
     executed sub-lease and a notice to the sub-lessee that all rents thereafter
     shall be payable to the TRS;

               (x)    upon request by the REIT, copies of all records, including
     without limitation, written, magnetic and electronic relating to the
     operation of the Hotels, and including all employee and payroll records;
     and

               (xi)   such other documents as may be reasonably requested by the
     REIT Parties to consummate the transactions contemplated by this Agreement.

          (d)  Closing Deliveries by the REIT Parties.  On the Termination Date,
               --------------------------------------
the REIT Parties shall execute and deliver or cause to be executed and delivered
the following to the Lessees:

               (i)    all payments required to be made by the REIT Parties on
     the Termination Date as set forth in Section 3 hereof;

               (ii)   duly executed counterpart to a closing statement;

               (iii)  [Intentionally Left Blank];

               (iv)   duly executed counterpart to an Assignment of Contracts
     and Assumption Agreement for each Leased Hotel in the form of Exhibit
                                                                   -------
     4(c)(iii) hereto covering all Contracts to be assigned and assumed as of
     ---------
     the Termination Date in accordance with Section 2(e) hereof;

               (v)    duly executed opinion of counsel to the REIT Parties
     reasonably acceptable to the Lessees with respect to the matters set forth
     on Exhibit 4(d)(v) hereto; and
        ---------------

               (vi)   [Intentionally Left Blank];

               (vii)  an indemnification agreement in favor of James I.
     Humphrey, Jr. in the from of Exhibit 4(d)(vii) hereto.
                                  -----------------

          (e)  Effect of Termination.
               ---------------------

               Effective on the Termination Date, (i) each Lease Agreement
     (including, without limitation, any lease agreement which was amended or
     restated thereby, the leasehold interest thereunder, and any rights to
     review, options, or rights of first offer or first refusal, if any, created
     thereby) shall terminate (ii) each Ancillary Agreement shall terminate and
     shall be null and void and have no further force and effect (except with
     respect to the provisions thereof which survive termination), and (iii) the
     TRS and HHM shall enter into the Management Agreements. Notwithstanding the
     foregoing, and except
                                       8
<PAGE>

     as otherwise contemplated by Section 3(c)(ii) hereof, on the Termination
     Date, each Lessee shall pay all Rent (as defined in the respective Lease
     Agreements) with respect to the Hotels then accrued and unpaid through the
     Termination Date.

Section 5.   Closing Inventories.
             -------------------

             On the Termination Date, the Lessees shall cause each Hotel to have
on hand, at no cost to the REIT, inventories of the Significant Supplies at the
levels and of the quality described on Exhibit 5 hereto.
                                       ---------

Section 6.   Employee Matters.
             ----------------

             The Lessees shall use their reasonable good faith efforts to
maintain the services of the existing hotel employees prior to and after the
Termination Date.

Section 7.   Transition of Hotel Management.
             ------------------------------

             (a)  Franchise Agreements.  Except with respect to any Franchise
                  --------------------
Agreement(s) maintained by the Lessees after the Termination Date pursuant to
Section 2(d)(ii) hereof, the parties shall exercise their good faith commercial
efforts to obtain from each Franchisor a release of the applicable Lessee from
all liabilities arising under each Franchise Agreement or any other related
agreement from and after the Termination Date, and shall execute and deliver all
documents reasonably required by Franchisors in connection therewith.

             (b)  Licenses.  The Lessees shall exercise good faith commercial
                  --------
efforts to assist the TRS in obtaining replacement Licenses.  If the TRS is not
able to obtain replacement Licenses for one or more of the Hotels effective as
of (or as soon as practicable after) the Termination Date, the REIT shall so
notify the Lessees at least ten (10) days prior to the Termination Date, and on
the Termination Date, the TRS and the Lessees shall execute a temporary
operating agreement, in form and substance mutually acceptable to the TRS and
the Lessees, to allow the uninterrupted operation of such Hotels for a
reasonable period of time after the Termination Date pending receipt of the
replacement Licenses.

             (c)  Books and Records.  Upon request by the REIT, all books and
                  -----------------
records (including, but not limited to, accounting and financial records) for
the Hotels kept by the Lessees, and all personnel files regarding Hotel
Employees, shall be delivered to the TRS on or promptly after the Termination
Date; provided, however, that such books and records shall thereafter be
      --------  -------
available to the Lessees at all reasonable times for inspection, audit,
examination and transcription for a period of seven (7) years, and the Lessees
may retain copies or computer records thereof.  The Lessees will retain
ownership of any computer equipment and licensed software owned by the Lessees
but will provide the REIT Parties access to all data used in preparing and
maintaining the books and records of the REIT Parties and the Hotels.

Section 8.   Financial Information.
             ---------------------

             From and after the date hereof, the Lessees shall (i) provide such
financial information with respect to the Lessees and the Hotels as may be
reasonably requested by the REIT Parties and their respective permitted
successors and assigns, and (ii) exercise their good

                                       9
<PAGE>

faith reasonable commercial efforts to obtain from their independent public
accountants such consents, "comfort letters" and similar documents relating to
the financial information described in clause (i) above as may reasonably be
requested by the REIT Parties and their respective permitted successors and
assigns for compliance with their respective SEC disclosure obligations and in
connection with financing or similar transactions.

Section 9.   Conditions to Closing.
             ---------------------

             (a)  Conditions Precedent to Closing by the REIT Parties.  The
                  ---------------------------------------------------
obligations of the REIT Parties to consummate the transactions contemplated by
this Agreement are subject to the satisfaction or waiver of the following
conditions on or before the Termination Date:

                  (i)    Performance of Covenants.  The Lessees shall have (i)
                         ------------------------
     performed, satisfied and complied with all covenants and agreements
     required by this Agreement to be performed, satisfied or complied with by
     the Lessees on or before the Termination Date and (ii) obtained the
     consents described on Exhibit 16(b)(ii) hereto;
                           -----------------

                  (ii)   Actions, Suits, Proceedings. No action, suit or
                         ---------------------------
     proceeding by any governmental authority or other third party seeking to
     prevent or enjoin the transactions contemplated by this Agreement shall
     have been instituted or threatened on or before the Termination Date;

                  (iii)  Representations and Warranties. The representations and
                         ------------------------------
     warranties of the Lessees in Section 14 hereof shall continue to be true
     and correct as of the Termination Date;

                  (iv)   Eligible Independent Contractor.  HHM (and Supertel, if
                         -------------------------------
     Supertel is to manage any of the Hotels) shall meet the requirements of an
     "eligible independent contractor," as defined in Section 856(d)(9) of the
     Internal Revenue Code, as determined by the REIT; and

                  (v)    receipt from the Franchisors of documentation
     reasonably acceptable to the REIT with respect to the Franchise Agreements.

             (b)  Conditions Precedent to Closing by the Lessees. The
                  ----------------------------------------------
obligations of any of the Lessees to consummate the transactions contemplated by
this Agreement are subject to the satisfaction or waiver of the following
conditions on or before the Termination Date:

                  (i)    Performance of Covenants. The REIT Parties shall have
                         ------------------------
     (i) performed, satisfied and complied with all covenants and agreements
     required by this Agreement to be performed, satisfied or complied with by
     the REIT Parties on or before the Termination Date and (ii) obtained the
     consents described on Exhibit 16(a)(ii) hereto;
                           -----------------

                  (ii)   Actions, Suits, Proceedings. No action, suit or
                         ---------------------------
     proceeding by any governmental authority or other third party seeking to
     prevent or enjoin the transactions contemplated by this Agreement shall
     have been instituted or threatened on or before the Termination Date; and

                                      10
<PAGE>

                (iii) Representations and Warranties.  The representations and
                      ------------------------------
     warranties of the REIT Parties in Section 16(b) hereof shall continue to be
     true and correct as of the Termination Date.

Section 10. Termination.
            ------------

            (a) Termination Due to Other Circumstances.  This Agreement may be
                --------------------------------------
terminated:

                (i)   at any time by mutual written agreement of all parties
     hereto;

                (ii)  by any party hereto if the Termination Date shall not have
     occurred on or before December 31, 2001; provided, however, that this
                                              --------  -------
     provision shall not be available to the Lessees if the REIT Parties have
     the right to terminate this Agreement under clause (iii) below, and this
     provision shall not be available to the REIT Parties if the Lessees have
     the right to terminate this Agreement under clause (iv) below;

                (iii) by the REIT Parties if there is (A) a breach of any
     material covenant or material agreement to be complied with or performed by
     the Lessees pursuant to the terms of this Agreement and such breach has not
     been cured by the Termination Date or (B) a failure of any condition set
     forth in Section 9(a) hereof to be satisfied on or prior to the Termination
     Date; or

                (iv)  by the Lessees if there is (A) a breach of any material
     covenant or material agreement to be complied with or performed by the REIT
     Parties pursuant to the terms of this Agreement and such breach has not
     been cured by the Termination Date, or (B) a failure of any condition set
     forth in Section 9(b) hereof to be satisfied on or prior to the Termination
     Date.

            (b) Effect of Termination. The termination of this Agreement
                ---------------------
pursuant to Section 10(a) above shall not affect the right of any party to bring
any action for breach of this Agreement, and the obligations of the parties
under Sections 11 and 13 of this Agreement shall survive any such termination.
Each of the Lessees shall be jointly and severally liable for any breach of this
Agreement by either of the Lessees, and each of the REIT Parties shall be
jointly and severally liable for any breach of this Agreement by any of the REIT
Parties.

Section 11. Public Announcements; Confidentiality.
            --------------------------------------

            (a) Public Announcements.  The Lessees shall not issue or make any
                --------------------
reports, statements or releases to the public or generally to its employees,
customers, suppliers or other persons with respect to this Agreement or the
transactions contemplated hereby without giving the REIT three (3) business days
to comment on such report, statement or release.

            (b) Confidentiality.  Each party hereto shall keep confidential, and
                ---------------
shall cause its directors, officers, employees, agents, representatives and
advisors to keep confidential, any information from time to time received by it
from any other party regarding such other party or its business affairs;
provided, however, that nothing herein shall restrict the disclosure of any such
--------  -------
information to the extent required by statute, rule (including Nasdaq rules and
rules and

                                      11
<PAGE>

regulations of the Securities and Exchange Commission), regulation or judicial
process, or the disclosure of any such information which is generally available
to the public.

Section 12. Further Covenants and Agreements.
            ---------------------------------

            (a) Cooperation. Each party hereby agrees to cooperate in good faith
                -----------
with the other parties and to execute and deliver such other agreements,
documents or instruments as may be necessary or desirable in connection with the
transactions contemplated by this Agreement (including, without limitation, the
termination of the Lease Agreements and the Ancillary Agreements and the
operational settlement procedures described in Section 3(b)).  Each party hereby
further agrees to use its good faith commercial efforts to obtain consents and
waivers from third parties, including Franchisors, suppliers, vendors,
employees, lessors, lessees, lenders, trustees, rating agencies and other third
parties necessary to effect the transactions contemplated by this Agreement,
including, without limitation, all requisite consents and waivers identified on
Exhibit 16(a)(ii) hereto and Exhibit 16(b)(ii) hereto.  Notwithstanding the
-----------------            -----------------
foregoing, the parties agree that the Lessees' compliance with the provisions of
Section 9(a)(iv) of this Agreement is solely the responsibility of the Lessees
and nothing herein shall be deemed to require the REIT Parties to take any
action or execute any agreement or waiver with respect thereto.

            (b) Norfolk Office Lease. The parties agree that the lease agreement
                --------------------
with respect to the office building in Norfolk, Nebraska shall be amended so
that the term of the lease agreement shall be co-terminus with the Management
Agreement.  For this purpose only, the Management Agreement will be deemed to
have been terminated if the number of the REIT's hotels in the midwest division
subject to the Management Agreement falls below fifteen (15) hotels.

            (c) Hotel Budgets. The Lessees have prepared and submitted to the
                -------------
TRS and the Lessors operating budgets for each Hotel for 2002 reflecting the
termination of the Lease Agreements and the implementation of the Management
Agreement effective January 1, 2002.

            (d) Property Tax Payments.  The Lessees agree to pay, when due, all
                ---------------------
real and personal property tax payments due on or prior to the Termination Date
and shall submit to the REIT on or prior to the Termination Date satisfactory
evidence and documentation for such payments.  In addition, the Lessees shall
pay when due all tax payments not yet due and owing as of the Termination Date
for which payment was made to the Lessees by the REIT Parties on or about
January 1, 2001 as described in Exhibit 12(d) and shall provide the REIT Parties
                                -------------
satisfactory evidence and documentation for such payments.  Exhibit 12(d)
                                                            -------------
describes all such tax payments made by the Lessees through December 31, 2001
and the amount and date of future payments.

            (e) Repairs and Maintenance.  The Lessees have spent, prior to the
                -----------------------
Termination Date, not less than ninety five percent (95%) of the budgeted 2001
maintenance and repair expenses for each Hotel and the budgeted 2001 marketing
expenses for each Hotel and shall submit to the REIT on or prior to the
Termination Date satisfactory evidence and documentation for such payments.

                                      12
<PAGE>

            (f) Foreclosure Property Election.  If the REIT decides to make a
                -----------------------------
foreclosure property election under Section 856(e) of the Internal Revenue Code
with respect to the Sale Hotels, the Lessees agree to cooperate in good faith
with the REIT in making such election.

            (g) Rent Payment.  The Lessees shall pay all Rent owing prior to the
                ------------
Termination Date as and when it becomes due.

Section 13. Costs and Expenses; Indemnities.
            --------------------------------

            (a) Costs and Expenses.
                ------------------

                (i)   Costs and Expenses Payable by the Lessees.  In addition to
                      -----------------------------------------
     other costs and expenses set forth herein, the Lessees shall pay all fees,
     costs and expenses associated with (A) obtaining the consents, waivers and
     other actions described on Exhibit 16(b)(ii) hereto and (B) the Franchise
                                -----------------
     Agreements, Contracts and Licenses for the period prior to the Termination
     Date (other than amounts relating to the assignment or termination thereof,
     which shall be the responsibility of the TRS).

                (ii)  Costs and Expenses Payable by the REIT Parties. In
                      ----------------------------------------------
     addition to other costs and expenses set forth herein, the REIT Parties
     shall pay all fees, costs and expenses associated with (A) the replacement
     or termination of the Franchise Agreements applicable to the Hotels in
     accordance with Section 2(d) hereof, including, without limitation, new
     license application fees, change of ownership fees, liquidated damages, PIP
     costs and other payments owing to the franchisors thereunder, as a result
     of the assignment of the applicable Lease Agreement or Franchise Agreement,
     the change of ownership of the franchise, the execution of a replacement
     Franchise Agreement with the TRS, or otherwise, (B) the replacement and
     termination of the Licenses applicable to the Hotels in accordance with
     Section 7(b) hereof, (C) the assignment or termination of the Contracts
     applicable to the Hotels (other than the Excluded Material Contracts) in
     accordance with Section 2(d) hereof, and (D) obtaining the consents,
     waivers and other actions described on Exhibit 16(a)(ii) hereto; provided,
                                            -----------------         --------
     however, that notwithstanding the foregoing, the REIT Parties shall not be
     -------
     responsible for amounts owing by the Lessees or any of their affiliates
     under the Franchise Agreements (normal franchise fees), Contracts, Licenses
     for the period prior to the Termination Date, all of which shall be paid by
     the Lessees.

                (iii) Other Costs and Expenses. Except as otherwise specifically
                      ------------------------
     provided herein, each of the parties shall pay all costs and expenses
     incurred or to be incurred by it in negotiating and preparing this
     Agreement and the other documents and instruments contemplated herein and
     in performing their respective obligations hereunder and thereunder;
     provided, however, that the REIT Parties will reimburse the Lessees up to
     --------  -------
     $500 per trip for reasonable documented out-of-pocket travel expenses
     incurred by the Lessees in visiting the REIT's lenders.

            (b) Indemnity by the Lessees.  The Lessees agree, jointly and
                ------------------------
severally, to indemnify, defend and hold harmless the REIT Parties and their
respective affiliates, officers, directors, shareholders, employees and agents
(collectively, the "REIT Indemnitees") from and

                                      13
<PAGE>

against any and all claims, demands, obligations, losses, liabilities, damages,
recoveries and deficiencies, including interest, penalties and reasonable
attorneys' fees, costs and expenses, and any and all actions, suits and
proceedings in respect thereof (collectively, "Liabilities"), suffered or
incurred by any REIT Indemnitee as a result of (i) the breach of any covenant of
the Lessees set forth herein or in any document or instrument delivered in
connection herewith, (ii) the failure of any representation and warranty made by
the Lessees herein to be true and correct, (iii) the leasing and operation of
the Hotels by the Lessees prior to the Termination Date, including, without
limitation, claims or causes of action relating in any way to any employees of
the Lessees based upon events occurring prior to the Termination Date, including
but not limited to any alleged or actual unfair labor practices, employment
discrimination charges and lawsuits, violations of collective bargaining
contracts or trust agreements, and any other claims regarding employment,
severance, safety, compensation, benefits or other matters, or (iv) any untrue
statement of a material fact or omission of any material fact included in
written information provided by any Lessee to any of the REIT Parties or their
respective permitted successors and assigns expressly for inclusion in any
report or registration statement filed with the Securities and Exchange
Commission or (v) failure of the Lessees to pay, when due, all real and personal
property taxes in accordance with the provisions of Section 12(d) hereof. The
Lessees shall pay any and all amounts they agree to be owing or which are
otherwise proven to be owing under this indemnity within thirty (30) days after
demand by the applicable REIT Indemnitee together with reasonable supporting
documentation therefor. This indemnity shall survive the Termination Date for a
period of four (4) years plus, with respect only to any claim for
indemnification made hereunder before the expiration of such four (4)-year
period, any period during which such claim is pending and unresolved hereunder.
Payment of a Liability by a REIT Indemnitee shall not be a condition precedent
to the obligations of the Lessees under this indemnity.

          (c) Indemnity by the REIT Parties.  The REIT Parties agree, jointly
              -----------------------------
and severally, to indemnify, defend and hold harmless the Lessees and their
respective affiliates, officers, directors, shareholders, employees and agents
(collectively, the "Lessee Indemnitees") from and against any and all
Liabilities suffered or incurred by any Lessee Indemnitee as a result of (i) the
breach of any covenant of any REIT Party set forth herein or in any document or
instrument delivered in connection herewith, (ii) the failure of any
representation and warranty made by the REIT Parties herein to be true and
correct in all material respects and (iii) liabilities arising under the
Franchise Agreements from and after the Termination Date.  The REIT Parties
shall pay any and all amounts they agree to be owing or which are otherwise
proven to be owing under this indemnity within thirty (30) days after demand by
the applicable Lessee Indemnitee together with reasonable supporting
documentation therefor.  This indemnity shall survive the Termination Date for a
period of four (4) years plus, with respect only to any claim for
indemnification made hereunder before the expiration of such four (4)-year
period, any period during which such claim is pending and unresolved hereunder.
Payment of a Liability by a Lessee Indemnitee shall not be a condition precedent
to the obligations of the REIT Parties under this indemnity.

          (d) Defense of Claims.  If a claim for Liabilities is to be made by a
              -----------------
party entitled to indemnification under this Section 13, the party entitled to
such indemnification shall give written notice to the indemnifying party as soon
as practicable after the party entitled to indemnification becomes aware of any
fact, condition or event which may give rise to Liabilities for which
indemnification may be sought under this Section 13.  If any action, suit or
proceeding

                                      14
<PAGE>

alleging a claim for Liabilities is filed against any party entitled to the
benefit of indemnity hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable. After such notice, the
indemnifying party shall be entitled, if it so elects, (i) to take control of
the defense and investigation of such action, suit or proceeding, (ii) to employ
and engage attorneys and experts reasonably satisfactory to the indemnified
party to handle and defend the same, and (iii) with the indemnified party's
consent, to settle such action, suit or proceeding, all at the indemnifying
party's sole risk and expense, provided, in each instance, that the indemnifying
                               --------
party and such counsel shall proceed with diligence and in good faith with
respect thereto; and provided, further that any such settlement shall include,
                     --------  -------
among other things, an absolute and unconditional release of the indemnified
party from all Liabilities.  The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such action, suit or proceeding and any
appeal arising therefrom; provided, however, that the indemnified party may, at
                          --------  -------
its own cost, participate in the investigation, trial and defense of such
action, suit or proceeding and any appeal arising therefrom.

Section 14. Disclosure.
            -----------

            (a) Representations and Warranties of the Lessees. The Lessees
                ---------------------------------------------
hereby make the following representations and warranties to the REIT Parties:

                (i)  Litigation.  Section (a) of Exhibit 14 hereto sets forth a
                     ----------                  ----------
     true and correct list of all pending and threatened actions, suits and
     proceedings against the Lessees or affecting the Hotels as of the date
     hereof.

               (ii)  Material Contracts.  Section (b) of Exhibit 14 hereto sets
                     ------------------                  ----------
     forth a true and correct list of all Material Contracts as of the date
     hereof.

               (iii) Subleases.  Section (c) of Exhibit 14 hereto sets forth a
                     ---------                  ----------
     true and correct description of each sublease at any Hotel.

               (iv)  Other Agreements.  Section (d) of Exhibit 14 hereto sets
                     ----------------                  ----------
     forth a true and complete list of any management agreements or other
     agreements affecting any of the Hotels not otherwise described in sections
     (b) or (c) of Exhibit 14.
                   ----------

               (v)   Rent. The Lessees have paid all Rent due and owing under
                     ----
     the Lease Agreements.

               (vi)  Due Organization. Each of the Lessees is duly incorporated,
                     ----------------
     validly existing and in good standing under the laws of the state of its
     incorporation and is duly qualified and in good standing to conduct
     business as a foreign corporation in each other state in which the Hotels
     are located and where such qualification is required by applicable law.

               (vii) Due Execution.  The execution, delivery and performance of
                     -------------
     this Agreement and the consummation of the transactions contemplated herein
     by each of the Lessees has been duly authorized by all necessary corporate
     action.  The Agreement

                                      15
<PAGE>

     constitutes a valid and binding agreement of each of the Lessees,
     enforceable in accordance with its terms.

                (viii) Consents.  Except as set forth on Exhibit 16(a)(ii) and
                       --------                          -----------------
     Exhibit 16(b)(ii) hereto and except for required consents to the
     -----------------
     assignment, replacement and/or termination of the Franchise Agreements (and
     related agreements), the Licenses and the Contracts, no consents, waivers
     or other actions by any third party are required in connection with the
     execution, delivery and performance of any Agreement by any of the Lessees.

                (ix)   No Conflicts. The execution and delivery of this
                       ------------
     Agreement by the Lessees and the consummation by the Lessees of the
     transactions contemplated hereby will not, (A) violate any judgment, order,
     injunction, decree, regulation or ruling of any court or governmental
     entity or (B) conflict with, result in a breach of, or constitute a default
     under the articles of incorporation or by-laws of the Lessees, any note or
     other evidence of indebtedness, any mortgage, deed of trust or indenture,
     or any lease or other material agreement or instrument to which either
     Lessee is a party or by which either Lessee may be bound.

                (x)    Bankruptcy.  Neither of the Lessees has (A) commenced a
                       ----------
     voluntary case, or had entered against it a petition, for relief under any
     federal bankruptcy act or similar petition, order or decree under any
     federal or state law or statute relative to bankruptcy, insolvency or other
     relief for debtors, (B) caused, suffered or consented to the appointment of
     a receiver, trustee, administrator, conservator, liquidator or similar
     official in any federal, state or foreign judicial or non-judicial
     proceedings, to hold, administer and/or liquidate all or substantially all
     of its property, or (C) made an assignment for the benefit of creditors as
     an alternative to commencing a petition of bankruptcy.

            (b) Updating of Disclosures. The Lessees shall promptly update any
                -----------------------
of the information set forth in Exhibit 14 hereto to include developments after
                                ----------
the date hereof by delivering written notice of such new developments to the
REIT Parties.

Section 15. Counterparts.
            -------------

            This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original but all counterparts together shall constitute
one and the same instrument.

Section 16. Representations and Warranties of the REIT Parties.
            ---------------------------------------------------

            The REIT Parties hereby represent and warrant to the Lessees that
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein by each of the REIT Parties has been
duly authorized by all necessary corporate or partnership action, as the case
may be. The Agreement constitutes a valid and binding agreement of each of the
REIT Parties, enforceable in accordance with its terms.

                                      16
<PAGE>

Section 17. Notices.
            --------

            Any notice required or permitted to be given under this Agreement
shall be in writing and shall be sent by facsimile transmission (confirmed by
any of the following methods: overnight delivery (with proof of delivery),
courier service (with proof of delivery), hand delivery, or certified or
registered mail (return receipt requested and first class postage prepaid)) and
addressed as follows:

            If to a Lessee:

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

            with a copy (which shall not constitute notice) to:

                 Gallagher, Evelius & Jones
                 Park Charles
                 218 North Charles Street
                 Baltimore, MD 21201
                 Attention: Kevin Davidson, Esq.
                 Facsimile: 417-837-3085

            If to any REIT Party:

                 c/o Humphrey Hospitality Trust, Inc.
                 7170 Riverwood Drive, Suite A
                 Columbia, MD 21046
                 Attention: President
                 Facsimile: 443-259-4999

            with a copy (which shall not constitute notice) to:

                 Hunton & Williams
                 Riverfront Plaza, East Tower
                 951 East Byrd Street
                 Richmond, VA 23219
                 Attention: David C. Wright, Esq.
                 Facsimile: (804) 788-8218

       or to such other address as any party shall specify by written notice so
       given, and such notice shall be deemed to have been delivered as of the
       date the notice is received or receipt is rejected.

                                      17
<PAGE>

Section 18. Successors and Assigns.
            -----------------------

            This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns. No
Lessee may make any assignment of this Agreement or any rights or obligations
hereunder without the prior written consent of the REIT. The REIT Parties may
assign their rights hereunder to an affiliate of the REIT without the consent of
the Lessees. This Agreement and the Exhibits hereto shall be construed and
interpreted without reference to any canon or rule of law requiring
interpretation against the party drafting or causing the drafting of this
Agreement or the portions in question, it being agreed and understood that all
parties have participated in the preparation of this Agreement.

Section 19. Entire Agreement; Amendments.
            ----------------------------

            This Agreement and the exhibits and schedules hereto constitute the
entire agreement among the parties hereto with respect to the subject matters
hereof and supersede all prior agreements and understandings among the parties
with respect to the matters set forth herein, including, without limitation, any
termination or survival provisions in the Lease Agreements.  No addition to or
amendment or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by each party hereto.

Section 20. Headings.
            ---------

            Headings of the sections of this Agreement are for the convenience
of the parties only and shall be given no substantive or interpretive effect
whatsoever.

Section 21. Incorporation.
            --------------

            The exhibits hereto are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.

Section 22. Enforcement of Agreement.
            -------------------------

            The parties agree that irreparable damage will occur in the event
that any of the provisions of this Agreement is not performed in accordance with
the specific terms hereof or are otherwise breached. It is accordingly agreed
that in addition to any other remedy to which the parties are entitled at law or
in equity, the parties shall be entitled to injunctive relief to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court in the State of Maryland.

Section 23. Governing Law.
            --------------

            This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia without regard to its rules of
conflicts of laws.

                                      18
<PAGE>

Section 24. Severability.
            -------------

            Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.  If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.

Section 25. Attorneys' Fees.
            ----------------

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

Section 26. Time of the Essence.
            --------------------

            Time is of the essence of this Agreement.

Section 27. Risk of Loss.
            -------------

            In the event of a casualty or condemnation affecting any Hotel, no
party shall have the right to terminate this Agreement and the applicable Lessee
shall hold and assign to the applicable Lessor or the TRS any and all proceeds
of property insurance or any condemnation award relating to such casualty or
condemnation as of the Termination Date.  The Lessees shall be entitled to
retain the proceeds of business interruption insurance payable to the Lessees as
a result of such casualty or condemnation affecting any Hotel prior to or as of
the Termination Date, subject to the Lessees continuing to pay all Rent under
the Lease Agreements, when due, prior to and as of the Termination Date.

Section 28. Survival.
            ---------

            Except as limited by Section 13 hereof, all agreements and
obligations of the parties to this Agreement shall survive the Termination Date.

Section 29. Offsets.
            --------

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

                           [SIGNATURE PAGES FOLLOW]

                                      19
<PAGE>

          IN WITNESS WHEREOF, each party has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.

                                       HUMPHREY HOSPITALITY
                                       MANAGEMENT, INC.

                                       By: /s/ James I. Humphrey, Jr.
                                           -------------------------------------
                                       Name:   James I. Humphrey, Jr.
                                             -----------------------------------
                                       Title:  Chairman
                                              ----------------------------------

                                       SUPERTEL HOSPITALITY MANAGEMENT, INC.

                                       By: /s/ James I. Humphrey, Jr.
                                           -------------------------------------
                                       Name:   James I. Humphrey, Jr.
                                             -----------------------------------
                                       Title:   Chairman
                                              ----------------------------------

                                       HUMPHREY HOSPITALITY TRUST, INC.

                                       By: /s/ George R. Whittemore
                                           -------------------------------------
                                       Name: George R. Whittemore
                                       Title: President

                                       HUMPHREY HOSPITALITY LIMITED PARTNERSHIP

                                       By:  Humphrey Hospitality REIT Trust,
                                            general partner

                                       By: /s/ George R. Whittemore
                                           -------------------------------------
                                       Name:  George R. Whittemore
                                       Title:  President

                                      S-1
<PAGE>

                                  E&P FINANCING LIMITED PARTNERSHIP

                                  By:  E&P REIT Trust,
                                       general partner

                                  By: /s/ George R. Whittemore
                                      ------------------------------------------
                                  Name: George R. Whittemore
                                  Title: President

                                  SOLOMONS BEACON INN LIMITED PARTNERSHIP

                                  By:  Humphrey Hospitality Limited Partnership,
                                       its general partner

                                  By:  Humphrey Hospitality REIT Trust,
                                       its general partner

                                  By:  /s/ George R. Whittemore
                                      ------------------------------------------
                                  Name: George R. Whittemore
                                  Title: President

                                  TRS LEASING, INC.

                                  By: George R. Whittemore
                                      ------------------------------------------
                                  Name: George R. Whittemore
                                  Title: President

                                      S-2<PAGE>

                                                                    Exhibit 10.2
                                                                    ------------

                                     HOTEL

                             MANAGEMENT AGREEMENT

                                    Between

                               TRS LEASING, INC.

                                      and

                     HUMPHREY HOSPITALITY MANAGEMENT, INC.

                                     Dated

                                January 1, 2002
<PAGE>

                               TABLE OF CONTENTS

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

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

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

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

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

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

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

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

ARTICLE IX BOOKS, RECORDS AND STATEMENTS.........................................................................    20
     Section 9.01.    Books and Records..........................................................................    20
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                                                  <C>
     Section 9.02.     Statements................................................................................    21
     Section 9.03.     Costs.....................................................................................    22

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

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

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

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

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

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

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

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

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

ARTICLE XIX ASSIGNMENT...........................................................................................    29
     Section 19.01.    No Assignment by Operator.................................................................    29
     Section 19.02.    Assignment by Lessee......................................................................    30

ARTICLE XX SUBORDINATION.........................................................................................    30
     Section 20.01.    Subordination To Mortgage.................................................................    30
     Section 20.02.    Foreclosure...............................................................................    30
</TABLE>

                                      ii
<PAGE>

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

     EXHIBIT A -- Hotel Properties and Owners

     EXHIBIT B -- Franchise Agreements

     EXHIBIT C -- Sale Hotels

     EXHIBIT D -- [Intentionally Left Blank]

     EXHIBIT E -- Capital Expenditure Policy

     EXHIBIT F -- Marketing Services

     EXHIBIT G -- [Intentionally Left Blank]

     EXHIBIT H -- Form of Reports

                                      iii
<PAGE>

                          HOTEL MANAGEMENT AGREEMENT

        This HOTEL MANAGEMENT AGREEMENT is made and entered into effective as of
January 1, 2002, by and among TRS Leasing, Inc., a Virginia corporation
("Lessee"), and Humphrey Hospitality Management, Inc., a Maryland corporation
("HHM" or the "Operator"), with reference to the following facts:

        A.     Lessee leases from the entities described on Exhibit A (each, an
                                                            ---------
"Owner" and collectively, the "Owners") the hotel properties described on

Exhibit A (each, a "Hotel" and collectively, the "Hotels") pursuant to one or
---------
more Lease Agreements described on Exhibit A (each, a "Lease" and collectively,
                                   ---------
the "Leases");

        B.     Lessee desires to engage HHM to operate and manage the Hotels
listed on Exhibit A 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; and

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

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

                                   ARTICLE I

                                  DEFINITIONS
Section 1.01.  Definitions.
               ------------

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

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

               (2)  "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.

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

                                       1
<PAGE>

               (4)  "Base NOI" shall mean the aggregate hotel level NOI for all
                     --------
the Hotels as of the date of this Agreement (including the Sale Hotels) for the
twelve month period ended September 30, 2001.  The parties agree that the amount
of Base NOI is $33,024,395.00.

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

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

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

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

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

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

               (11) "Gross Hotel Income" shall mean all income and proceeds of
                     ------------------
sales received by Operator for guest use, occupancy or enjoyment of the Hotel or
for the sale of any goods, services or other items sold on or provided from the
Hotel to guests in the ordinary course of the Hotel operation, net of changes in
the month end balance of the reserve for uncollectible accounts receivable, and
including gross receipts received by lessees, sub-lessees, licensees or
concessionaires of the Hotel if Operator in fact performs all necessary
oversight and management activities with respect thereto (unless Lessee
specifically notifies Operator that Lessee no longer wants Operator to perform
such oversight and management activities) but excluding the following: (i) any
excise, sales or use taxes or similar government charges collected directly from
patrons or guests, or as a part of the sales price of any goods, services or
displays, such as gross receipts, admission, cabaret or similar or equivalent
taxes; (ii) receipts from condemnation awards or sales in lieu of or under
threat of condemnation; (iii) proceeds of insurance (other than proceeds from
business interruption insurance payable to Lessee which shall be estimated and
accrued by Lessee for any applicable periods); (iv) other allowances and
deductions as provided by the Uniform System in determining the sum contemplated
by this definition, by whatever name, it may be called; (v) adjustments made
pursuant to Section 10.04; (vi) proceeds of sales of capital assets, furniture
and Hotel Operating Equipment; (vii) [Intentionally Left Blank]; (viii)
consideration received at the Hotel for hotel accommodations, goods and services
to be provided at other hotels although arranged by, for or on behalf of,
Operator; (ix) gratuities collected for the benefit of employees; (x) proceeds
of any financing; (xi) working capital provided by Lessee; (xii) any funds
provided by Lessee to Operator whether for Operating Expenses or otherwise;
(xiii) interest income and fees, rents and other revenues

                                       2
<PAGE>

from telecommunications tower or similar leases or other leases or sub-leases of
any part of the Property and (xiv) other income or proceeds resulting other than
from guest use or occupancy of the Hotel or the Property, or any part thereof,
or other than from the sale of goods, services or other items sold on or
provided in connection with guest services at the Hotel in the ordinary course
of business.

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

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

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

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

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

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

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

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

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

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

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

                                       3
<PAGE>

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

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

               (25) "Marketing Expenses" shall mean an amount up to $300,000 per
                     ------------------
Fiscal Year (pro rated for any partial Fiscal Year), for the 92 initial Hotels,
of documented reasonable out-of-pocket and compensation expenses for Operators'
employees who oversee sales and marketing services for all the Hotels as
described on Exhibit F for which Lessee will reimburse Operator pursuant to
             ----------
Section 10.06.  Marketing Expenses shall not include the advertising, sales and
marketing costs at the Hotel, which costs shall be set forth specifically in the
Hotel Operating Budget.  If, during the Operating Term, the number of Hotels
subject to this Agreement exceeds 110 hotels or falls below 70 hotels, Lessee
and Operator shall negotiate in good faith a new maximum amount of Marketing
Expenses for which Lessee will reimburse Operator pursuant to Section 10.06.

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

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

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

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

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

                    (ii)   Salaries and wages of on-site Hotel personnel,
                           including costs of payroll taxes and employee
                           benefits and amounts payable under bonus plans
                           approved by Lessee. The salaries or wages of other
                           employees or executives of Operator, or any Affiliate
                           of Operator shall in no event be Operating Expenses
                           unless the specific position and specific cost are
                           approved in advance by Lessee;

                    (iii)  The cost of all other goods and services obtained by
                           Operator in connection with its operation of the
                           Property including, without

                                       4
<PAGE>

                           limitation, heat and utilities, office supplies and
                           all services performed by third parties, including
                           leasing expenses in connection with telephone and
                           data processing equipment and such other equipment as
                           Lessee shall designate;

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

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

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

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

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

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

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

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

                                       5
<PAGE>

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

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

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

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

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

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

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

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

               (33) "Operator's Basic Fee" shall mean, with respect to all
                     --------------------
Hotels (other than the Sale Hotels, as set forth in the following sentence) (i)
a monthly accounting fee equal to 1/2% of Gross Hotel Income, (ii) a monthly fee
of 1/2% of Gross Hotel Income to cover Operator's directors of operations and
(iii)(A) for periods prior to April 1, 2002, a fee equal to six percent (6%) of
Gross Hotel Income and (B) for periods after April 1, 2002, a fee equal to five
percent (5%) of Gross Hotel Income, which is payable as set forth in Section
10.01. Notwithstanding the foregoing, for the period prior to March 31, 2002,
Operator's Basic Fee for the Sale Hotels shall be 5% of Gross Hotel Income
during such period. Effective April 1, 2002, Operator's Basic Fee for the Sale
Hotels shall be as set forth above for periods after April 1, 2002.

               (34) "Operator's Incentive Fee" shall mean the fee, if any,
                     ------------------------
payable to Operator as an incentive fee and determined for each twelve month
period ending September 30 during the Operating Term, beginning with the twelve
month period ending September 30, 2002, as the amount equal to twenty percent
(20%) (the "Incentive Percentage") of the amount by which annual aggregate hotel
level NOI for all the Hotels as of the date of this Agreement (including the
Sale Hotels) exceeds Base NOI, as it may be adjusted as provided below. In the
event a hotel is added to this Agreement after the date hereof, (a) for purposes
of calculating Operator's

                                       6
<PAGE>

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

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

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

                                       7
<PAGE>

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

Notwithstanding the foregoing, solely for purposes of determining Operator's
Incentive Fee for the twelve month period ending September 20, 2002, hotel level
NOI for the period October 1, 2001 through December 31, 2001 shall be calculated
on a pro forma basis assuming this Management Agreement was in effect for the
period from October 1, 2001 through December 31, 2001.

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

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

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

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

               (39) "Sale Hotels" shall mean the ten (10) Hotels identified on
                     -----------
Exhibit C.
---------

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

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

                                       8
<PAGE>

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

                                  ARTICLE II

                               TERM OF AGREEMENT
Section 2.01.  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 September 30, 2005, subject to earlier termination as to one or more
Hotels at any time as set forth herein.

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

        (c)    Lessee may terminate this Agreement with respect to any Hotel at
any time (without payment of any termination fee) if (i) Operator fails to
achieve eighty-five percent (85%) of the Approved Budget Hotel NOI for that
Hotel for any calendar year commencing with the year 2002; provided, however,
that Operator shall have the right, but not the obligation, to avoid termination
by supplementing the NOI of the Hotel by paying to Lessee an amount sufficient
to increase NOI to the eighty-five percent (85%) level, (ii) a Franchise
Agreement for such Hotel is terminated solely as a result of the failure of
Operator to satisfy its obligations under this Agreement (provided that Lessee
has timely given Operator copies of all deficiency notices received from
Franchisors) or, (iii) Operator fails to achieve eighty-five percent (85%) of
the Approved Budget Hotel NOI for a Hotel for two consecutive years during the
Operating Term, regardless of whether Operator has supplemented the NOI of the
Hotel as described in (i) above. Notwithstanding the foregoing, Operator may
only supplement NOI in accordance with subsection (i) above, with respect to
each Hotel, one (1) time during the Operating Term after which, if Operator
fails to achieve 85% of Approved Budget Hotel NOI, this Agreement may be
terminated by Lessee with respect to the Hotel without payment of any fee or
penalty to Operator.

                                       9
<PAGE>

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

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

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

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

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

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

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

                                      10
<PAGE>

                                  ARTICLE III

                            OPERATION OF THE HOTEL

Section 3.01. Representations by Operator; Engagement of Operator.
              ----------------------------------------------------

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

Section 3.02. Standards of Operation.
              -----------------------

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

                                      11
<PAGE>

Section 3.03. Reservations Services.
              ----------------------

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

Section 3.04. Marketing.
              ----------

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

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

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

Section 3.05. Consultations Between Lessee and Operator.
              ------------------------------------------

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

Section 3.06. Transactions with Affiliates and Other Relationships.
              -----------------------------------------------------

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

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

                                      12
<PAGE>

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

                                  ARTICLE IV

                            INDEPENDENT CONTRACTOR

Section 4.01. Operator Status.
              ----------------

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

Section 4.02. Employees.
              ----------

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

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

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

                                      13
<PAGE>

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

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

Section 4.03. Employee Expenses.
              ------------------

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

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

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

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

Section 4.04. Employee Benefit Plans.
              -----------------------

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

                                      14
<PAGE>

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

Section 4.05. Execution of Agreements.
              ------------------------

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

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

                                   ARTICLE V

                                INDEMNIFICATION

Section 5.01. Indemnification by Operator.
              ----------------------------

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

                                      15
<PAGE>

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

Section 5.02. Limitations on Indemnification.
              -------------------------------

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

Section 5.03. Indemnification by Lessee.
              --------------------------

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

Section 5.04. Survival of Indemnity.
              ----------------------

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

                                  ARTICLE VI

                          BUDGETS AND POLICY MEETINGS

Section 6.01. Budgets.
              --------

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

                                      16
<PAGE>

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

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

Section 6.02. Budget Meetings.
              ----------------

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

                                      17
<PAGE>

Section 6.03. Approval by Lessee Required.
              ----------------------------

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

                                  ARTICLE VII

                              OPERATING EXPENSES

Section 7.01. Payment of Operating Expenses.
              ------------------------------

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

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

Section 7.02. Operating Expenses Not an Obligation of Operator.
              -------------------------------------------------

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

                                      18
<PAGE>

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

                                 ARTICLE VIII

                       WORKING CAPITAL AND BANK ACCOUNTS

Section 8.01. Working Capital.
              ----------------

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

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

Section 8.02. Bank Accounts.
              --------------

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

                                      19
<PAGE>

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

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

Section 8.03. Authorized Signatures.
              ----------------------

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

Section 8.04. Investment of Hotel Cash.
              -------------------------

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

                                  ARTICLE IX

                         BOOKS, RECORDS AND STATEMENTS

Section 9.01. Books and Records.
              ------------------

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

                                      20
<PAGE>

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

Section 9.02.  Statements.
               ----------

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

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

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

                                      21
<PAGE>

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

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

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

Section 9.03.  Costs.
               -----

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

                                   ARTICLE X

                    OPERATOR'S FEE AND TRANSFERS TO LESSEE

Section 10.01. Payment of Operator's Basic Fee.
               --------------------------------

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

Section 10.02. Payment of Operator's Incentive Fee.
               ------------------------------------

     On or before each December 31 during the Operating Term, beginning with
December 31, 2002, Lessee shall pay to Operator, the Operator's Incentive Fee,
if any, for the prior twelve month period ended September 30 which shall be
determined consistent with the audited annual financial statements.

Section 10.03. Distribution of Cash.
               ----------------------

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

                                      22
<PAGE>

Section 10.04. Adjustments to Allocations.
               --------------------------

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

Section 10.05. Arbitration.
               -----------

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

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

                                      23
<PAGE>

Section 10.06. Other Fees.
               -----------

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

                                  ARTICLE XI

                            REPAIRS AND MAINTENANCE

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

                                  ARTICLE XII

                                   INSURANCE

Section 12.01. General.
               -------

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

Section 12.02. Workers' Compensation Insurance.
               -------------------------------

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

                                      24
<PAGE>

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

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

Section 12.04. Maintenance of Coverages.
               ------------------------

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

Section 12.05. Waiver of Subrogation.
               ---------------------

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

Section 12.06. Blanket Coverage and Self-Insurance.
               -----------------------------------

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

                                 ARTICLE XIII

           PROPERTY TAXES, LOCAL TAXES, LEVIES AND OTHER ASSESSMENTS

Section 13.01. Property Taxes.
               --------------

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

                                      25
<PAGE>

Section 13.02. Lessee's Right to Contest.
               -------------------------

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

                                  ARTICLE XIV

                     DAMAGE OR DESTRUCTION - CONDEMNATION

Section 14.01. Damage.
               ------

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

Section 14.02. Condemnation.
               ------------

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

                                  ARTICLE XV

                                  USE OF NAME

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

                                  ARTICLE XVI

                             OWNER'S RIGHT TO SELL

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

                                      26
<PAGE>

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

                                 ARTICLE XVII

                             DEFAULT AND REMEDIES

Section 17.01. Events of Default- Remedies.
               ---------------------------

          (a)  The following shall constitute Events of Default:

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

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

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

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

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

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

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

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

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

                                      27
<PAGE>

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

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

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

Section 17.02. Rights Not Exclusive.
               --------------------

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

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

                                      28
<PAGE>

                                 ARTICLE XVIII

                                    NOTICES
Section 18.01. Notices.
               -------

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

               (1)  Notices to Lessee shall be addressed:

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

               (2)  Notices to Operator shall be addressed:

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

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

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

                                  ARTICLE XIX

                                  ASSIGNMENT

Section 19.01. No Assignment by Operator.
               -------------------------

          (a)  Notwithstanding anything to the contrary set forth in this
Agreement, without the prior written consent of Lessee (which consent may be
withheld in Lessee's sole and absolute

                                      29
<PAGE>

discretion), Operator shall have no right to sell, transfer or assign (or permit
the sale, transfer or assignment of) any of its rights, duties or obligations
under this Agreement in any manner, either directly or indirectly, voluntarily,
by operation of law, through a change in control of Operator, or otherwise.

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

Section 19.02. Assignment by Lessee.
               --------------------

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

                                  ARTICLE XX

                                 SUBORDINATION

Section 20.01. Subordination To Mortgage.
               -------------------------

          Operator hereby agrees that this Agreement, including, but not limited
to Operator's Basic Fee and Operator's Incentive Fee, shall in all respects be
and is hereby expressly made subordinate and inferior to the liens, security
interest and/or any Mortgage and to any promissory note and other indebtedness
secured or to be secured thereby and to all other instruments evidencing or
securing or to evidence or secure indebtedness, and all amendments,
modifications, supplements, consolidations, extensions and revisions of such
note and other instruments and any other indebtedness of Lessee or Owner,
secured or unsecured. Operator shall execute any and all subordination
agreements, estoppel certificates and other documents requested by Lessee or
Owner and/or the Holder to further evidence the subordination of this Agreement
and Operator's rights hereunder including without limitation providing any
purchaser of a Hotel at a foreclosure sale or deed-in-lieu of foreclosure
(including the lender) with the right to terminate this Agreement.

Section 20.02. Foreclosure.
               -----------

          Prior to termination of this Agreement by foreclosure under the
Mortgage or by acquisition of the property to be covered by the Mortgage by deed
in lieu of foreclosure,

                                      30
<PAGE>

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

                                  ARTICLE XXI

                                 MISCELLANEOUS

Section 21.01. Further Documentation.
               ---------------------

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

Section 21.02. Captions.
               --------

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

Section 21.03. Successors and Assigns.
               ----------------------

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

Section 21.04. Competitive Market Area.
               -----------------------

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

                                      31
<PAGE>

Section 21.05. Assumption of Post Termination Obligations.
               ------------------------------------------

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

Section 21.06. Entire Agreement.
               ----------------

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

Section 21.07. Governing Law.
               -------------

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

Section 21.08. No Political Contributions.
               --------------------------

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

Section 21.09. Eligible Independent Contractor.
               -------------------------------

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

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

                                      32
<PAGE>

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

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

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

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

          (c)  Operator shall not sublet any Hotel or enter into any similar
arrangement on any basis such that the rental or other amounts to be paid by the
sublessee thereunder would be based, in whole or in part, on either (a) the net
income or profits derived by the business activities of the sublessee, or (b)
any other formula such that any portion of the rent would fail to qualify as
"rents from real property" within the meaning of Section 856(d) of the Internal
Revenue Code, or any similar or successor provision thereto.

Section 21.10. Time of the Essence.
               -------------------

          Time is of the essence of this Agreement.

                                      33
<PAGE>

Section 21.11. Offsets.
               -------

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

Section 21.12. Attorney's Fees.
               ---------------

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

Section 21.13. Final Accounting.
               ----------------

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

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

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

Section 21.14. Non-Solicitation.
               ----------------

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

Section 21.15. Franchisor Communications.
               -------------------------

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

                                      34
<PAGE>

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

                              LESSEE: TRS LEASING, INC.

                              By:   /s/ George R. Whittemore
                                    --------------------------------------------

                              Name:     George R. Whittemore
                                    --------------------------------------------

                              Title:   President
                                     -------------------------------------------

                              OPERATOR: HUMPHREY HOSPITALITY
                                        MANAGEMENT, INC.

                              By:   /s/ James I. Humphrey, Jr.
                                    --------------------------------------------

                              Name:   James I. Humphrey, Jr.

                              Title:   Chairman

                                      35

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00033-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00033-of-00352.parquet"}]]