Document:

Exhibit 10.3

                             SUBSCRIPTION AGREEMENT

                    Sandalwood Lodging Investment Corporation

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                   Up to 11,752,688 Shares -- $20.00 per Share
                    Minimum Purchase -- 500 Shares ($10,000)
                          150 Shares ($3,000) for IRAs

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PLEASE READ CAREFULLY this Subscription Agreement and the Notices (on the back
of the Agreement) before completing this document. TO SUBSCRIBE FOR SHARES,
complete and sign, where appropriate, and deliver this Subscription Agreement,
along with your check, to U.S. Bank National Association, Escrow Agent. YOUR
CHECK SHOULD BE MADE PAYABLE TO:

                   U.S. Bank National Association Escrow Agent

      ALL ITEMS ON THIS SUBSCRIPTION AGREEMENT MUST BE COMPLETED IN ORDER FOR
      YOUR SUBSCRIPTION TO BE PROCESSED.

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        Overnight Packages                      Regular Mail Packages
          Attn: [Name]                              Attn: [Name]
          [Address]                                 [Address]

                            For Telephone Inquiries:
                       Emerald Bay Capital Management, LLC
                                   [Telephone]

<PAGE>

1. INVESTMENT

This subscription is in the amount of $___________ for the purchase of
___________ Shares of Sandalwood Lodging Investment Corporation ($20.00 per
Share). The minimum initial subscription is 500 Shares ($10,000); 150 Shares
($3,000) for IRAs (except in states with higher minimum purchase requirements).

|_|   ADDITIONAL PURCHASE
|_|   REINVESTMENT PLAN - Investor elects to participate in Plan (See prospectus
      for details.)

2. SUBSCRIBER INFORMATION

Name (1st)___________________    |_| M |_| F  Date of Birth (MM/DD/YY)__________
Name (2nd)___________________    |_| M |_| F  Date of Birth (MM/DD/YY)__________
Address_________________________________________________________________________
City___________________________________ State___________ Zip Code_______________
Custodian Account No._____________________ Daytime Phone # (___)________________

|_| U.S. Citizen  |_| Resident Alien  |_| Foreign Resident  Country_____________

|_| Check if Subscriber is a U.S.  citizen residing outside the U.S.

Income Tax Filing State____________________________________________

ALL SUBSCRIBERS: State of Residence of Subscriber/Plan Beneficiary (required)

Taxpayer Identification Number: For most individual taxpayers, it is their
Social Security number. Note: If the purchase is in more than one name, the
number should be that of the first person listed. For IRAs, Keoghs and pension
plans, enter both the Social Security number and the custodian taxpayer
identification number.

You must provide your social security number to avoid backup withholding. Under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code, payers are
required to withhold 20% from all taxable interest, dividend and certain other
payments on accounts which do not reflect a certified social security number of
tax identification number. This is referred to as "backup" withholding. "Backup"
withholding is not an additional tax or penalty. Any amount withheld from your
account may be used as a credit against your federal income tax.

Taxpayer ID#_____ - ______ - ______         Social Security #_____ -_____ - ____

Taxpayer ID#_____ - ______ - ______         Social Security #_____ -_____ - ____

3. INVESTOR MAILING ADDRESS

For the Subscriber of an IRA, Keogh, or pension plan to receive informational
mailings, please complete if different from address in Section 2.

Name____________________________________________________________________________
Address_________________________________________________________________________
City ____________________________    State _______________   Zip Code___________
Daytime Phone___________________________________________________________________

4. DIRECT DEPOSIT ADDRESS

Investors requesting direct deposit of distribution checks to another financial
institution or mutual fund, please complete below. In no event will the Company
or its Affiliates be responsible for any adverse consequences of direct deposit.

Company_________________________________________________________________________
Address_________________________________________________________________________
City ____________________________    State _______________   Zip Code___________
Account No.________________________        Phone #______________________________
<PAGE>

5. FORM OF OWNERSHIP

(Select only one)

|_| INDIVIDUAL-one signature required

|_| HUSBAND AND WIFE, AS COMMUNITY PROPERTY- two signatures required

|_| TENANTS IN COMMON-two signatures required

|_| TENANTS BY THE ENTIRETY-two signatures required

|_| S-CORPORATION

|_| C-CORPORATION

|_| IRA-custodian signature required

|_| ROTH IRA-custodian signature required

|_| SEP-custodian signature required

|_| TAXABLE TRUST

|_| TAX-EXEMPT TRUST

|_| JOINT TENANTS WITH RIGHT OF SURVIVORSHIP-all parties must sign

|_| A MARRIED PERSON/SEPARATE PROPERTY-one signature required

|_| KEOGH (H.R.10)-trustee signature required

|_| CUSTODIAN-custodian signature required

|_| PARTNERSHIP

|_| NON-PROFIT ORGANIZATION

|_| PENSION PLAN-trustee signature(s) required

|_| PROFIT SHARING PLAN-trustee signature(s) required

|_| CUSTODIAN UGMA-STATE of _________ -custodian signature required

|_| CUSTODIAN UTMA-STATE of _________ -custodian signature required

|_| ESTATE-Personal Representative signature required

|_| REVOCABLE GRANTOR TRUST-grantor signature required

|_| IRREVOCABLE TRUST-trustee signature required

6. SUBSCRIBER REPRESENTATIONS

The Subscriber(s) hereby represent as follows (Subscriber(s) must initial each
representation):

Initials ___  Subscriber(s) is purchasing the Shares for his or her own account.

Initials ___  Subscriber(s) has received a copy of the Prospectus.

7. SUBSCRIBER SIGNATURES

If the Subscriber(s) is executing the Subscriber Signature Page, the Subscriber
(i) understands that, BY EXECUTING THIS AGREEMENT A SUBSCRIBER DOES NOT WAIVE
ANY RIGHTS HE/SHE MAY HAVE UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934 OR UNDER ANY STATE SECURITIES LAW and (ii) under the
penalties of perjury, certifies that the information provided in Section 2 is
true, correct and complete and that he/she is not subject to back-up withholding
under the provisions of Section 3406 (a)(1)(C) of the Internal Revenue Code:

X
-------------------------------          -----------------------------
Signature of 1st Subscriber              Date

X
-------------------------------          -----------------------------
Signature of 2nd Subscriber              Date

<PAGE>

                                 SIGNATURE PAGE
                               FOR TRUST INVESTORS

________________________________________________
Name of Trust (Please print or type)

________________________________________________
Name of Trustee (Please print or type)

________________________________________________
Date Trust was formed

By______________________________________________
  Trustee's Signature

Taxpayer Identification Number:_________________

Trustee's Address:   ___________________________

                     ___________________________

                     ___________________________

                     Attention:_________________

<PAGE>

                                 SIGNATURE PAGE
                             FOR CORPORATE INVESTORS

________________________________________________
Name of Corporation (Please print or type)

By______________________________________________
    Signature of Authorized Officer, Title

  ______________________________________________
  Name (Please print or type)

Taxpayer Identification Number:_________________

Corporate Address:              _______________________________

                                _______________________________

                                _______________________________

Mailing Address (if different):

                                _______________________________

                                _______________________________

                                Attention:_____________________

<PAGE>

                                 SIGNATURE PAGE
                           FOR PARTNERSHIP INVESTORS

________________________________________________
Name of Partnership (Please print or type)

By______________________________________________
     Signature of a General Partner
  ______________________________________________
  Name (Please print or type)

By______________________________________________
  Signature of Additional General Partner
  (if required by partnership agreement)

  ______________________________________________
  Name (Please print or type)

By______________________________________________
  Signature of Additional General Partner
  (if required by partnership agreement)

  ______________________________________________
  Name (Please print or type)

Taxpayer Identification Number:_________________

Partnership's Address: _________________________

                       _________________________

                       _________________________

<PAGE>

8. BROKER/DEALER INFORMATION

Broker/Dealer NASD Firm Name: Emerald Bay Capital Management, LLC
Registered Representative_______________________________________________________
Branch Mail Address_____________________________________________________________
City_________________________________  State_____________  Zip Code_____________
Phone #______________________ Fax #______________________

Shipping Address________________________________________________________________
City_________________________________  State_____________  Zip Code_____________

|_| Telephonic Subscriptions (check here): If the Registered Representative and
Branch Manager are executing the signature page on behalf of the Subscriber,
both must sign below. [NOTE: Not to be executed until Subscriber(s) has (have)
acknowledged receipt of final prospectus.] Telephonic subscriptions may not be
completed for IRA accounts.

|_| Registered Investment Advisor (RIA) (check here): This investment is made
through the RIA in its capacity as a RIA and not in its capacity as a Registered
Representative, if applicable. If an owner or principal or any member of the RIA
firm is a NASD licensed Registered representative affiliated with a
Broker/Dealer, the transaction should be conducted through that Broker/Dealer,
not through the RIA.

PLEASE READ CAREFULLY THE REVERSE SIDE OF THIS SIGNATURE PAGE AND SUBSCRIPTION
AGREEMENT BEFORE COMPLETING

X
---------------------------------   --------------------   ---------------------
Principal, Branch Manager or        Date                   Print or Type Name of
Other Authorized Signature                                 Person Signing

X
---------------------------------   --------------------   ---------------------
Registered Representative/          Date                   Print or Type Name of
Investment Advisor Signature                               Person Signing

<PAGE>

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Make check payable to :  U.S. BANK NATIONAL ASSOCIATION, ESCROW AGENT

Please remit check and           For Overnight Delivery,         For Office
Subscription Agreement to:       please send to:                 Use Only***

U.S. Bank National Association   U.S. Bank National Association  Sub.#__________
                                                                 Admit Date_____
ATTN: Investor Services          Attn: Investor Services         Amount_________
[Address]                        [Address]                       Region_________
Telephone number:                Telephone number:               RSVP #_________

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NOTICE TO ALL INVESTORS:

(a) The purchase of Shares by an IRA, Keogh, or other tax-qualified pension plan
does not, by itself, create the plan.

(b) The Company, in its sole and absolute discretion, may accept or reject the
Subscriber's subscription which if rejected will be promptly returned to the
Subscriber, without interest. Non-U.S. subscribers (as defined in the
Prospectus) will be admitted as stockholders with the approval of the Advisor.

(c) EXCEPT AS PROVIDED IN THIS NOTICE, THE NOTICE BELOW, AND IN THE PROSPECTUS,
THE SUBSCRIBER WILL NOT BE ENTITLED TO REVOKE OR WITHDRAW HIS OR HER
SUBSCRIPTION.

BROKER/DEALER AND FINANCIAL ADVISOR:

By signing this Subscription Agreement, the signers certify that they recognize
and have complied with their obligations under the NASD's Conduct Rules, and
hereby further certify as follows: (i) a copy of the Prospectus, including the
Subscription Agreement as amended and/or supplemented to date, has been
delivered to the Subscriber; (ii) they have discussed such investor's
prospective purchase of Shares with such investor and have advised such investor
of all pertinent facts with regard to the liquidity, valuation, and
marketability of the Shares; and (iii) they have reasonable grounds to believe
that the purchase of Shares is a suitable investment for such investor, and will
not be in violation of any laws for having engaged in such purchase, and that
such investor is in a financial position to enable such investor to realize the
benefits of such an investment and to suffer any loss that may occur with
respect thereto and will maintain documentation on which the determination was
based for a period of not less than six years; (iv) under penalties of perjury,
(a) the information provided in this Subscription Agreement to the best of our
knowledge and belief is true, correct, and complete, including, but not limited
to, the number shown above as the Subscriber's taxpayer identification number;
(b) to the best of our knowledge and belief, the Subscriber is not subject to
backup withholding either because the Subscriber has not been notified that the
Subscriber is subject to backup withholding as result of failure to report all
interest or dividends or the Internal Revenue Service has notified the
subscriber that the Subscriber is no longer subject to backup withholding under
Section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended; and (c)
to the best of our knowledge and belief, the Subscriber is not a nonresident
alien, foreign corporation, foreign trust, or foreign estate for U.S. tax
purposes, and we hereby agree to notify the Company if it comes to the attention
of either of us that the Subscriber becomes such a person within sixty (60) days
of any event giving rise to the Subscriber becoming such a person.

<PAGE>

                        ELECTRONIC DELIVERY OF DOCUMENTS

      The subscriber consents to delivery of all documents relating to his, her
or its investment in the Shares to the electronic mail address below or through
posting of such documents on the Internet web site www.sandalwoodlodging.com and
consents to receive notice of such postings at the electronic mail address
listed below. All documents will be delivered or posted in PDF format and free
access to Adobe Acrobat software will be provided for review of documents in PDF
format. To review documents in PDF format, a system running Windows 95, 98 or
2000, or McIntosh OS version 7.5.3 or more recent, is required and downloading
time may be substantial. The subscriber understands that he, she or it may
revoke this consent at any time by contacting Investor Relations at the address
provided in the Subscription Documents and will subsequently receive all such
documents in paper format. The subscriber understands that this revocation may
only apply to delivery of documents relating to his, her or its investment in
the Shares and not to any portion of such documents. In addition, the subscriber
understands that he, she or it may request paper copies of any documents
delivered electronically by contacting Investor Relations at the address
provided in the Subscription Agreement.

CONSENT TO ELECTRONIC DELIVERY MAY CAUSE YOU TO INCUR ADDITIONAL COSTS, SUCH AS
ON-LINE TIME, ADDITIONAL SOFTWARE AND PRINTING PAPER.

YOU SHOULD NOT CONSENT TO ELECTRONIC DELIVERY UNLESS YOU HAVE ACCESS TO THE
INTERNET AND THE ABILITY TO RECEIVE DOCUMENTS IN ONE OF THE FORMATS DESCRIBED
ABOVE.

THIS CONSENT IS EFFECTIVE UNTIL REVOKED AND APPLIES TO ALL DOCUMENTS RELATING TO
YOUR INVESTMENT IN THE SHARES.

_____________________________   ___________
Signature of 1st Subscriber     Date

_____________________________   ___________
Signature of 2nd Subscriber     Date

E-Mail Address: ___________________________Exhibit 10.4
                             SANDALWOOD LODGING, LLC

                               OPERATING AGREEMENT

      This OPERATING AGREEMENT (the "Agreement"), is made as of August , 2002
(the "Effective Date"), by SANDALWOOD HOSPITALITY ADVISORS, LLC, a Delaware
limited liability company (the "Managing Member") and SANDALWOOD LODGING
INVESTMENT CORPORATION, a Maryland corporation ("Sandalwood"), for the
governance of Sandalwood Lodging, LLC, a Delaware limited liability company (the
Company"), on the following terms and conditions:

                                    ARTICLE I
                                  ORGANIZATION

      1.1 Name and Organization. The business of the Company shall be conducted
under the name of Sandalwood Lodging, LLC, a Delaware limited liability company.
The Act shall govern the relationships among the parties hereto, except as
provided herein. The Members intend that the Company be considered a partnership
for tax purposes, but the Members expressly do not intend hereby to form a
partnership under any state partnership act or limited partnership act.

      1.2 Term. The Company shall commence existence on the date on which its
Certificate of Formation is filed with Delaware Secretary of State and continue
perpetually thereafter, unless sooner terminated and dissolved in accordance
with the terms of this Agreement.

      1.3 Place of Business. The Company's principal place of business shall be
located at 11790 Glen Road, Potomac, Maryland 20854, or at such other place as
the Members may designate.

      1.4 Purpose. The purpose of the limited liability company is to engage in
any lawful act or activity for which a limited liability company may be
organized under the Act, and to have and exercise all powers conferred by the
laws of the State of Delaware upon limited liability companies formed under the
Act.

                                   ARTICLE II
                                   DEFINITIONS

      For the purpose of this Agreement, the following terms shall have the
meaning specified below:

      "Act" shall mean the Delaware Limited Liability Company Act, as set forth
in title VI of the Code of the State of Delaware, as it may be amended or
superseded from time to time.

      "Advisor" shall mean the Managing Member in its capacity as the advisor
under the Advisory Agreement and any successor advisors.

      "Advisory Agreement" shall mean that advisory agreement dated , 2002
between the Managing Member as advisor, Sandalwood, the Company and a subsidiary
of the Company.

<PAGE>

      "Asset Valuation" shall mean the total value of a Company's or the
Companies' assets, as applicable, based upon an independent annual appraisal of
long-term assets and a quarterly GAAP valuation of current assets, as determined
annually after the earlier to occur of (i) trading volume of Sandalwood Shares
equal to at least six percent (6%) of the average outstanding Sandalwood Shares
over any 90 consecutive calendar days at an average price per share of greater
than $20.00, or (ii) five (5) years following the initial closing of the
Sandalwood Offering..

      "Capital Account" shall have the meaning provided therefore in A.3 of
Appendix A.

      "Capital Distributions" shall mean distributions attributable to Net
Capital Proceeds.

      "Certificate of Formation" shall have the meaning provided therefore in
Section 1.2.

      "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute thereto. Reference to any provision of the
Code shall mean such provision as in effect from time to time, as the same may
be amended, and any successor provision thereto, as interpreted by any
applicable regulations as in effect from time to time.

      "Company" shall mean Sandalwood Lodging, LLC, a Delaware limited liability
company.

      "Distributions" shall mean ay distributions of money or other property,
including distributions that may constitute a return of capital for federal
income tax purposes, but excluding any payments to members that constitute
guaranteed payments described in Code ss. 707(a).

      "Effective Date" shall have the meaning provided therefore in the
Preamble.

      "8% Shortfall Account" shall mean, for each and every year that the
Sandalwood Stockholders receive less than the Sandalwood Stockholders' 8%
Return, that amount calculated by deducting the cash distributions actually
received that year by Sandalwood Stockholders from what Sandalwood Stockholders
would have received had the Sandalwood Stockholders' 8% Return been distributed.

      "Gross Proceeds" shall mean the aggregate purchase price of all Sandalwood
Shares sold for the account of Sandalwood through the Sandalwood Offering,
without deduction for selling commissions, volume discounts, the marketing
expense reimbursement, or organizational and offering expenses.

      "Invested Capital" shall mean with respect to a Member, at any time, the
excess, if any, of the aggregate capital contributions of the Member through
that time over the aggregate Capital Distributions to the Member through that
time.

      "Managing Member" shall mean Sandalwood Hospitality Advisors, LLC, or such
other Member who succeeds it in that capacity in accordance with the provisions
of this Agreement.

      "Measuring Date" shall have the meaning provided therefore in Section
4.2(b)(i).

      "Members" shall mean the Managing Member and Sandalwood and any other
person or

                                       2
<PAGE>

entity that hereafter holds a Membership Interest in the Company and becomes a
member of the Company in accordance with the terms of this Agreement.

      "Membership Interest" shall mean a Member's entire interest as a Member of
the Company.

      "Net Capital Proceeds" shall mean Net Refinancing Proceeds, Net Sales
Proceeds, and Net Capital Proceeds from an Asset Valuation.

      "Net Capital Proceeds from an Asset Valuation" shall mean the proceeds
from the calculation of Asset Valuation and distributed pursuant to Section 4.4
hereof.

      "Net Refinancing Proceeds" shall mean the gross proceeds received by the
Company from any refinancing or borrowing, the proceeds of which are applied to
make distributions to the Members, including the proceeds of a sale and
leaseback transaction in which no taxable gain or loss is recognized for federal
income tax purposes, less (i) the amount of any legal, brokerage or other fees
incurred in connection with the transaction and paid from gross proceeds and
(ii) any amounts applied by the Company toward the payment of any indebtedness,
other obligation, or expense of the Company.

      "Net Sales Proceeds" shall mean the gross proceeds from (i) the sale,
exchange, condemnation, eminent domain taking, casualty, other disposition of
any or all of the Company's assets, or (ii) the liquidation of such assets in
connection with a dissolution of the Company, less in each case (A) any fees or
expenses incurred in connection therewith and paid from the gross proceeds and
(B) any amounts applied by the Managing Member toward the payment of any
indebtedness, other obligations, or expenses of the Company, or the creation of
any reserves deemed necessary by the Managing Member.

      "Noncapital Distributions" shall mean Distributions to Members other than
Capital Distributions.

      "Percentage Interest" shall mean, subject to the provisions of Section
4.4, Section 4.5 and Section 10.4, with respect to any Member, the percentage
set forth opposite such Member's name on the signature page of this Agreement,
as such percentages may be modified by written agreement among all Members.

      "Profits" and "Losses" shall have the meaning provided in A.2 of Appendix
A.

      "Regulatory Allocations" shall have the meaning provided in A.4.2 of
Appendix A.

      "Sandalwood" shall have the meaning provided therefore in the Preamble.

      "Sandalwood Board of Directors" shall mean the persons holding such
office, as of any particular time, under the Articles of Incorporation of
Sandalwood, whether they be the directors named therein or additional or
successor directors.

      "Sandalwood Distributions" shall mean any distributions of money or other
property by Sandalwood to owners of Sandalwood Shares including distributions
that may constitute a return of capital for federal income tax purposes.

                                       3
<PAGE>

      "Sandalwood Invested Capital" shall mean shall mean the Gross Proceeds of
the Sandalwood Offering plus the amount calculated by multiplying the total
number of additional Sandalwood Shares purchased by Sandalwood Stockholders by
the purchase price, reduced by the portion of any distribution to Sandalwood
Stockholders that is attributable to Sandalwood Net Capital Proceeds.

      "Sandalwood Net Capital Proceeds" shall mean Sandalwood Net Refinancing
Proceeds, Sandalwood Net Sales Proceeds, and the Asset Valuation, if any.

      "Sandalwood Net Refinancing Proceeds" shall mean the gross proceeds
received by Sandalwood from any refinancing or borrowing, the proceeds of which
are applied to make distributions to the Sandalwood Stockholders, including the
proceeds of a sale and leaseback transaction in which no taxable gain or loss is
recognized for federal income tax purposes, less (i) the amount of any legal,
brokerage or other fees incurred in connection with the transaction and paid
from gross proceeds and (ii) any amounts applied by Sandalwood toward the
payment of any indebtedness, other obligation, or expense of Sandalwood.

      "Sandalwood Net Sales Proceeds" shall mean the gross proceeds from (i) the
sale, exchange, condemnation, eminent domain taking, casualty, other disposition
of any or all of Sandalwood's assets, or (ii) the liquidation of such assets in
connection with a dissolution of Sandalwood, less in each case (A) any fees or
expenses incurred in connection therewith and paid from the gross proceeds and
(B) any amounts applied by the Advisor toward the payment of any indebtedness,
other obligations, or expenses of Sandalwood, or the creation of any reserves
deemed necessary by the Advisor.

      "Sandalwood Offering" shall mean the public offering of 11,752,688 Shares
of Sandalwood that commenced upon ____________, 2002.

      "Sandalwood Shares" shall mean transferable shares of beneficial interest
in Sandalwood of any class or series, including common shares or preferred
shares.

      "Sandalwood Stockholders" shall mean the registered holders of the
Sandalwood Shares.

      "Sandalwood 8% Return Requirement" shall mean, that as of each date,
Sandalwood has received aggregate Noncapital Distributions sufficient to provide
an aggregate, an 8% cumulative, noncompounded, annual return on Sandalwood
Invested Capital.

      "Sandalwood 12% Return Requirement" shall mean, as of each date, an
aggregate amount equal to a 12% cumulative, noncompounded, annual return on
Sandalwood Invested Capital.

      "12% Shortfall Account" shall mean, for each and every year that the
Sandalwood Stockholders receive at least the Sandalwood Stockholders' 8% Return,
but less than the Sandalwood Stockholders' 12% Return, that amount calculated by
deducting the cash distributions actually received that year by Sandalwood
Stockholders from what Sandalwood Stockholders would have received had they
received the Sandalwood Stockholders' 12% Return.

      "Transfer" with respect to any Membership Interest (and whether or not
such word is

                                       4
<PAGE>

capitalized herein), shall mean any sale, assignment, transfer (including
transfers by operation of law), pledge, hypothecation, gift, bequest or other
disposition whatsoever of any Membership Interest or any portion thereof or
rights therein.

      "Withdrawal" shall have the meaning provided in Section 10.1.

                                   ARTICLE III
                        COMPANY CAPITAL AND CONTRIBUTIONS

      3.1 Contributions. The Members shall make initial contributions to the
capital of the Company as follows:

      Managing Member:  Sandalwood Hospitality Advisors, LLC             $1.00

      Sandalwood:       Sandalwood Lodging Investment Corporation        $999.00

      3.2 Additional Contributions. No Member shall be required to make
additional capital contributions to the Company. Sandalwood may make additional
capital contributions from time to time.

      3.3 Interest. No Member shall receive interest on his contribution to the
capital of the Company. No Member shall have the right to receive property other
than cash under any circumstances requiring a return of his contribution.

      3.4 Advances. Any loan made by a Member to the Company shall be evidenced
by a signed promissory note and shall be a term loan and shall bear interest at
a rate set forth in the promissory note evidencing the indebtedness.

      3.5 Ownership Interests. Subject to the provisions of Sections 4.4, 4.5
and 10.4, notwithstanding that a Member shall have contributed more to capital
and/or for any reason have a larger capital account than the other Member(s),
unless all Members otherwise agree in writing, the Percentage Interest of each
Member as stated in this Agreement shall not change so long as the Member
remains a Member of the Company.

                                   ARTICLE IV
                         ALLOCATIONS AND DISTRIBUTIONS

      4.1 Distributions.

            (a) Cash Available for Distribution. A Member has no right to demand
and receive any distribution in a form other than cash. The Company shall
distribute from time to time available cash that is not required to meet
contingencies or that is not expected to be reinvested. The Company shall seek
to make sufficient Distributions to Sandalwood to permit Sandalwood to make
sufficient distributions to Sandalwood Stockholders to maintain its status as a
"real estate investment trust" under the Code. The Managing Member shall
determine what portion of a Distribution is a Capital Distribution and what
portion is a Noncapital Distribution.

                                       5
<PAGE>

            (b) Distributions. Distributions shall be made to Members in the
following order of priority:

                  (i) If at the time of the Distribution, the Sandalwood 8%
Return Requirement has not been satisfied, 99.999% to Sandalwood and .001% to
the Managing Member until the Sandalwood 8% Return Requirement is satisfied;

                  (ii) If at the time of the Distribution, the Sandalwood 8%
Return Requirement has been met, but the Sandalwood 12% Return Requirement has
not been satisfied, the excess of that necessary to make the Sandalwood 8%
Return Requirement will be distributed 80% to Sandalwood and 20% to the Managing
Member as an incentive profit participation until the Sandalwood 12% Return
Requirement is satisfied; and

                  (iii) If at the time of the Distribution, the Sandalwood 12%
Return Requirement has been satisfied, the excess of that necessary to make the
Sandalwood 12% Return Requirement will be distributed 60% to Sandalwood and 40%
to the Managing Member.

            (c) The Company shall at all times be entitled to withhold or make
payments to any governmental authority with respect to (i) any federal, state,
local or foreign tax liability of any Member arising as a result of such
Member's membership in the Company or (ii) imposed on the Company by reason of a
Member being a citizen, resident or national of a state, locality or foreign
jurisdiction. Each such amount so withheld or paid shall be deemed to be a
Distribution for purposes of the Agreement, to the extent such Member is then
entitled to a Distribution, or an advance to be satisfied out of a future
distribution. Any advance to the Managing Member that is not satisfied out of a
Distribution within six months shall be promptly repaid without interest.

            (d) Distribution and Return Requirement Rules.

                  (i) For purposes of determining returns under the definitions
of Sandalwood 8% Return Requirement and Sandalwood 12% Return Requirement, the
required return shall be determined on a daily basis by multiplying Sandalwood's
Invested Capital on the beginning of such day by the daily return rate (i.e., 8%
or 12% divided by 365 or 366) and adding the amount so determined for each day
through and including date of determination.

      4.2 Allocations of Profits and Losses. Except as provided in the
Regulatory Allocations described in Appendix A and the curative allocations
described in Section A.4.3 and subject to Section 4.3, all Profits and Losses
shall be allocated to the Members as described below:

            (a) Liquidation, Dissolution. In the case of any year in which the
Company sells substantially all of its assets, liquidates, or dissolves, Profits
and Losses, after taking into account the Regulatory Allocations shall be
allocated in a manner such that if liquidating Distributions were made in
accordance with Capital Account balances (after adjustment for allocations), the
Distributions would be as close as possible to the Distributions that would be
made under Section 4.1. To the extent necessary to effect this result, Profits
or Losses from the sale of each asset and other components of Profits and Losses
may be separately allocated.

            (b) Regular Allocations of Profits. In the case of any year to which
Section 4.2(a) does not apply and for which there is a Profit (after taking into
account any mandatory Regulatory Allocations), Profits shall be allocation in
the following order:

                                       6
<PAGE>

                  (i) 99.999% to Sandalwood and .001% to the Managing Member
until the total allocations to Sandalwood for the year and prior years pursuant
to this clause equal the sum of the Distributions to Sandalwood pursuant to
Section 4.1(b)(i) through January 31 of the year following the year to which the
allocations relate (the "Measuring Date") and the cumulative Losses allocated to
Sandalwood pursuant to Section 4.2(c)(i);

                  (ii) 80% to Sandalwood and 20% to the Managing Member until
the total allocations to Sandalwood for the year and prior years pursuant to
this clause equal the sum of the Distributions to Sandalwood pursuant to Section
4.1(b)(ii) through the Measuring Date;

                  (iii) 60% to Sandalwood and 40% to the Managing Member until
the total allocations to Sandalwood for the year and prior years pursuant to
this clause equals the sum of the Distributions to Sandalwood pursuant to
Section 4.1(b)(iii) through the Measuring Date;

                  (iv) 99.999% to Sandalwood and .001% to the Managing Member if
the Sandalwood 8% Return Requirement is not satisfied as of the Measuring Date;

                  (v) 80% to Sandalwood and 20% to the Managing Member 20% of
the excess over that necessary to satisfy the Sandalwood 8% Return Requirement
if the Sandalwood 8% Return Requirement is satisfied as of the Measuring Date
but the Sandalwood 12% Return Requirement is not satisfied of the Measuring
Date; and

                  (vi) 60% to Sandalwood and 40% to the Managing Member of the
excess over that necessary to satisfy the Sandalwood 12% Return Requirement if
the Sandalwood 12% Return Requirement is satisfied as of the Measuring Date.

      (c) Regular Allocation of Losses. In the case of any year to which Section
4.2(a) does not apply and for which there is net Loss (after taking into account
any mandatory Regulatory Allocations), Losses shall be allocated in the
following order:

                  (i) if the Company has not earned Profits for any preceding
year, 99.999% to Sandalwood, .001% to the Managing Member.

                  (ii) thereafter, in a manner such that if the Company had
liquidated on the last day of the year, by selling all of its assets for their
adjusted tax bases (after taking into account depreciation or amortization
deductions for the year), satisfying all debts, and distributing the remainder
of its cash (including the deemed sales proceeds in accordance with Section
4.1), such distributions would be to the maximum extent possible consistent with
the Member's Capital Accounts (after adjustment for such allocations).

      4.3 Items Relating to Allocations

            (a) Discretionary Adjustments. The Members intend that the
allocations of Profit and Loss be made in such a manner as to have "substantial
economic effect" within the meaning of Code ss. 704 while having all
Distributions made in accordance with Section 4.1. If any allocations under
Section 4.2(b) or (c) would make it unlikely that future liquidating
Distributions would not be substantially in proportion to Capital Accounts if
made in accordance with Section 4.1, the Managing Member, in consultation with
the Company's accountants, shall have the authority to

                                       7
<PAGE>

alter allocations of Profit and Loss to more likely achieve a goal of having
liquidation, distributions in accordance with Capital Accounts match
distributions that would occur under Section 4.1.

            (b) Components of Profits and Loss. Except to the extent
inconsistent with Regulatory Allocations, each allocation of Profits or Losses
under Section 4.2 shall consist of proportional allocations of capital gains,
ordinary income, tax-exempt income, capital loss, ordinary loss, and
nondeductibility items making of such Profits or Losses.

            (c) For purposes of determining the Profits, Losses or any other
item allocable to any period, Profits, Losses and other items will be determined
on a daily, monthly or other basis, as determined by the Managing Member using
any permissible method under Code Section 706 and the related Treasury
Regulations.

            (d) Where allocations must be made for a period other than a fiscal
year, references in this Article IV and Appendix to fiscal year or years shall
be interpreted to refer to such other period.

            (e) Income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company or revalued pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(f), shall, solely for U.S. tax purposes,
be allocated among the Members so as to take account of any variation between
the adjusted basis of such property to the Company for federal income tax
purposes and its initial or reset Gross Asset Value in accordance with the
principles of Code Section 704(c) and the Treasury Regulations thereunder and
Treasury Regulations Section 1.704-1(b)(4)(i) using any reasonable method
required or permitted thereunder and agreed to by the Managing Member.

            (f) Subject to Section 4.3(e), if any gain (as computed for tax
purposes) on the sale or other disposition of Company property shall constitute
recapture of depreciation under Section 291, 1245 or 1250 of the Code or any
similar provision, such gain shall (to the extent possible) be divided among the
Members in accordance with the principles of Treasury Regulations Section
1.1245-1(e)(2) (i.e., generally in proportion to the depreciation deductions
previously claimed by them giving rise to such recapture), provided that this
Section 4.3(f) shall not affect the amount of gain otherwise allocable to a
Member.

      4.4 Distribution of Net Capital Proceeds

            (a) Net Capital Proceeds. Net Capital Proceeds will be distributed:

                  (i) first, to Sandalwood Stockholders in an amount equal to
their remaining Sandalwood Invested Capital;

                  (ii) next, to Sandalwood Stockholders in an amount equal to
the balance in the 8% Shortfall Account;

                  (iii) next, 80% to Sandalwood Stockholders and 20% to the
Managing Member until Sandalwood Stockholders have received an amount of such
Net Capital Proceeds equal to the 12% Shortfall Account;

                                       8
<PAGE>

                  (iv) then, 60% to Sandalwood Stockholders and 40% to the
Managing Member.

      4.5. Company Reserves. The Managing Member shall establish such reserves
as it, in its reasonable judgment, deems are necessary to carry out the Purposes
of the Company pursuant to Section 1.4.

      4.6 Obligation to Repay or Restore. A Member who has received
distributions may be obligated under the Act to repay or restore to the Company
to the extent required by the Act all or a portion of the amount received if
such distributions cause the fair market value of the Company's assets to be
less than the Company's liabilities. Subject to the foregoing requirement, no
Member shall be required to pay to the Company or to any other Member any
deficit or negative balance which may exist from time to time in his Capital
Account; provided, however, in the event a Member erroneously receives
distributions in excess of his interest in such distributions as specified in
Section 4.1 hereof ("Excess Distributions"), then, as between the Members but
not for the benefit of other Persons, such Member shall be indebted to the
Company for such Excess Distribution, and such indebtedness shall be payable on
terms or on demand as may be prescribed by the Board.

      4.7 Consistency of Tax Treatment. The Members agree to be bound by the
provisions of this Agreement, including Appendix A in reporting their shares of
Company income, gain, loss, deduction and credits for federal, state and local
income tax purposes.

      4.8 Distribution of Net Capital Proceeds to the Managing Member from an
Asset Valuation. Distribution of Net Capital Proceeds from an Asset Valuation to
the Managing Member pursuant to Section 4.4 hereof shall be in cash unless a
majority of the Sandalwood Board of Directors determines, in its reasonable
opinion, that Sandalwood does not possess sufficient cash to make such a
distribution, in which case the Managing Member shall determine to be paid
either pursuant to a self-amortizing promissory note over five (5) years at the
Prime Rate plus five (5) percentage points, or in freely transferable Sandalwood
Shares.

                                    ARTICLE V
                                   MANAGEMENT

      5.1 Management and Voting Entitlement. Management shall be vested in the
Managing Member. The Member designated as the Managing Member shall have the
duties as defined in Section 5.3. Notwithstanding any provision contained
elsewhere in this Agreement, neither the Managing Member nor any other Member
shall have the authority to take, and the Company shall not take, any of the
following actions without the written consent of Sandalwood:

            (a) The sale of all, or substantially all, of the assets of the
Company to, or the merger or consolidation of the Company with, any other person
or entity;

            (b) The incurring of any indebtedness for borrowed money, or the
giving of a guaranty of the obligation of any other person or entity, in excess
of $250,000 except for (i) trade payables incurred by the Company in the
ordinary course of business, accrued employee expenses, accrued taxes and
reasonable reserves for losses and other contingencies and (ii) indebtedness
incurred to refinance any existing loans;

                                       9
<PAGE>

            (c) The acquisition of any property, real or personal, except for
acquisitions of supplies, equipment and other personal property in the ordinary
course of business of the Company and not involving the payment of more than
$250,000 in any one case;

            (d) The transfer or pledge, mortgage or grant of a security interest
or other right or encumbrance of or in a material part of the assets of the
Company;

            (e) The amendment, alteration, modification or repeal of any
provision of the Company's Certificate of Formation or this Agreement;

            (f) The dissolution or liquidation of the Company (unless required
under Section 10.1), the confession of a judgment against the Company, an
assignment for the benefit of the Company's creditors or the filing of a
petition for relief or protection from the debts of the Company under any

            (g) The taking of any action that would make it impossible to carry
on the ordinary business of the Company; and

            (h) The declaration, payment or making of any allocation or
distribution to Members other than allocations and distributions made in
accordance with Article IV, Section 5.2 or Section 5.4; and

            (i) Any other matter requiring the approval or authorization of
Members under Delaware law.

      5.2 Designation of the Managing Member/Removal of Managing Member. The
Managing Member shall serve until removed by Sandalwood. Upon removal of the
Managing Member, at the option of the Managing Member, either (i) its interest
in the Company shall be converted to that of a non-managing Member and it shall
continue to be entitled to its share of the distributions and profits as
provided hereunder, or (ii) the assets of the Company will be deemed liquidated,
an appraisal of the assets will be performed, and the Incentive Profit
Participation in Sandalwood Net Capital Proceeds will be paid to the Managing
Member.

      5.3 Managing Member Powers and Responsibilities. Subject to the
limitations set forth in Section 5.1, the Managing Member shall have full charge
of, and be responsible for, the day-to-day management, conduct, operation and
control of the business, properties and affairs of the Company. The Managing
Member shall devote such amount of his time and energy as shall be necessary to
manage the business and affairs of the Company. The Managing Member's authority
as the Managing Member shall be exercised subject to the ultimate direction and
authority of the Members; but subject to such limitation, and the limitations
set forth in Section 5.1, the Managing Member shall have full and complete power
and authority to do, on behalf of the Company, any one or more of the following
in connection with the Company's business, properties or affairs: [DHSG comment
- Discuss]

            (a) purchasing, leasing or otherwise acquiring any furniture,
furnishings, equipment or other property which the Managing Member deems
necessary or appropriate for use in connection with the business of the Company;

                                       10
<PAGE>

            (b) executing or amending any agreements, leases and other contracts
in the name and on behalf of the Company;

            (c) incurring indebtedness in the name and on behalf of the Company
but only if such indebtedness has been approved by a majority of the Members or
falls within one of the exceptions set forth in clauses (i), or (ii) of Section
5.1(b);

            (d) obtaining refinancing of existing indebtedness of the Company or
prepay any borrowing of the Company in whole or in part;

            (e) entering into contracts with any employees, managing agents,
accountants, attorneys, appraisers, surveyors, brokers, financial advisers or
others, to render services to the Company as employees or independent
contractors at the Company's expense;

            (f) terminating any contract contemplated in Section 5.3(e) at any
time without notice to anyone;

            (g) executing and delivering any deeds, assignments, leases,
subleases, options, management contracts, maintenance contracts, promissory
notes, mortgages, deeds of trust, security agreements or other instruments of
any kind or character relating to or affecting the business of the Company or
its assets;

            (h) receiving, maintaining and disbursing Company funds, and,
pending disbursement, invest such funds in federally insured bank accounts,
money market accounts, time deposits, short-term governmental obligations,
commercial paper or in such other manner as the Members, acting by majority
vote, may approve;

            (i) enter into partnerships for purposes of investing in real
property; and

            (j) taking any actions which the Managing Member deems necessary or
appropriate in connection with any of the foregoing.

      5.4 Members' Rights. Each Member, including the Managing Member, shall
have the right to engage in other activities and businesses including ones that
compete with the business of the Company.

      5.5 Delegation of Authority. The Managing Member may delegate any specific
authority or responsibility to its managers, members, officers, agents, or
affiliates.

      5.6 Standard of Care. The management, conduct, operation and control of
the Company's business and affairs shall be at the expense and risk of the
Company and not at the expense or risk of any Member. No Member, including the
Managing Member and any manager, officer or agent appointed by the Members or
the Managing Member, shall be liable or obligated to the Company or to any of
its Members for any mistake of fact or judgment or for the doing of any act or
the failure to do any act by such Member, Managing Member, manager, officer or
agent in conducting the business and affairs of the Company, which may cause or
result in any loss or damage to the Company or any of its Members. The Members
and Managing Member shall

                                       11
<PAGE>

perform their duties as Members, and in the case of the Managing Member as
manager, in a manner he, she or it reasonably believes to be in the best
interests of the Company, and with such care as an ordinarily prudent person in
a like position would use under similar circumstances. A person who performs
his, her or its duties in accordance with this paragraph shall not have any
liability by reason of being or having been a Member, Managing Member, manager,
officer or agent. The Managing Member (including its managers, members,
officers, directors, employees and agents) will not be liable to the Company or
the Members or others, except by reason of acts constituting fraud, willful
misconduct, gross negligence or breach of fiduciary duty.

      5.7 REIT Requirements

      The Managing Partner shall make best efforts to select, manage, and
finance investments of the Company in a manner that will permit Sandalwood to
qualify and retain its status as a "real estate investment trust" as defined in
Code ss. 856 and avoid paying taxes under Code ss. 857(b)(5) for the failure to
meet certain REIT requirements (assuming in each case that Sandalwood promptly
distributes to Sandalwood Shareholders all Distributions received by it and
Sandalwood does not engage in other activity).

                                   ARTICLE VI
                    LIMITATION OF LIABILITY; INDEMNIFICATION

      6.1 Limitation of Liability of Managing Members. The Members hereby
acknowledge and agree that the liability of a Member, including the Managing
Member (provided it complies with the standards set forth in Section 5.6), to
the Company or to any of the other Members shall be limited to the maximum
extent permissible under the Act.

      6.2 Indemnification. To the maximum extent permissible under the Act, and
subject to the standards set forth in Section 5.6, the Company shall indemnify
any person who was or is a party to any proceeding, including a proceeding
brought by a Member on behalf of the Company or brought by or on behalf of the
Members of the Company by reason of the fact that such person is or was a Member
of the Company, a Managing Member, or serving at the request of the Company as a
manager, officer, employee, or agent of the Company or as a manager, director,
trustee, partner or officer of another limited liability company, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any liability and reasonable expenses (including reasonable attorneys'
fees) incurred by such person in connection with such proceeding unless he has
engaged in willful misconduct or a knowing violation of the criminal law. The
Company will indemnify the Managing Member (including its managers, members,
officers, directors, employees and agents) with respect to any acts or omissions
of the Managing Member made in accordance with the standards of Section 5.6. Any
such indemnification shall be made only out of the assets of the Company and not
from any Members. No amendment or repeal of this Section 6.2 shall have any
effect on the rights provided herein with respect to any act or omission
occurring prior to such amendment or repeal.

                                   ARTICLE VII
                              ACTION BY THE MEMBERS

      7.1 Voting. Each Member shall have one vote for each percentage point of
the Percentage Interest (a fractional Percentage Interest shall have a
corresponding fractional vote) then

                                       12
<PAGE>

held by the Member. Except as otherwise provided herein, action on a matter
shall be approved if a majority of all Percentage Interests voted in favor of
the action, unless a greater vote is required by this Agreement or by law. At
any meeting of the Members, each outstanding Percentage Interest which is
entitled to be voted may be voted in person or by general or specific proxy
and/or power of attorney directed to a Member present, or by specific
instructions in writing. Every proxy shall be in writing, dated and signed by
the Member entitled to vote or his duly authorized attorney-in-fact. No proxy
shall be valid after eleven (11) months from its date, unless otherwise
expressly provided in the proxy.

      7.2 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Members may be taken without a meeting if the action is
taken by written consent of Members holding the number of outstanding Percentage
Interests necessary for the action and entitled to vote thereon. Such action
without meeting shall be evidenced by one or more written consents to be filed
with the Company's records.

      7.3 Liability to Creditors. Except as otherwise required by law, no Member
shall be liable for the obligations or losses of the Company.

                                  ARTICLE VIII
                         NON-TRANSFERABILITY OF INTEREST

      8.1 Transfer Restrictions; Rights of First Refusal. Except as expressly
provided in Section 8.2, and subject to Sections 8.3 and 8.5, the Members shall
not transfer any portion of their Membership Interests or rights therein.

      8.2 Permitted Transfers. Subject to Sections 8.3 and 8.5, each Member
shall be permitted to transfer, free of the restrictions and provisions of
Sections 8.1, all or any portion of its Membership Interest to (i) another
Member or the Company, or (ii) to a corporation or limited liability company
that is majority-owned by the Member; provided, however, that in all such cases
each transferee agrees in writing to become bound by all of the terms of, and a
party to, this Agreement. In the case of a transfer of a Member's entire
Membership Interest under clause (ii) of the foregoing sentence, the transferee
corporation or company shall automatically become a Member (notwithstanding
Section 8.3). Notwithstanding the above, Sandalwood shall be permitted to
transfer all of its Membership Interest in connection with the sale of all or
substantially all of its assets pursuant to a dissolution and liquidation.

      8.3 Restriction on Transferees. Notwithstanding anything in this Article
VIII to the contrary, any assignment or transfer of a Membership Interest made
pursuant to the provisions of Sections 8.1 and 8.2 (other than clause (i) of the
first sentence of Section 8.2) to anyone not already a Member in the Company
shall be effective only to give the assignee the right to receive the share of
Profits and Losses and cash distributions to which his assignor would otherwise
be entitled, shall not relieve the assignor from liability under the provisions
of this Agreement and shall not give the assignee the right to become a
substitute Member; provided, however, a transferee may be admitted as a
substitute Member if the Managing Member so consents, which consent may be
withheld for any reason. The failure to obtain such consent renders any such
substitution voidable at the option of the Managing Member.

                                       13
<PAGE>

      8.4 Effect of Transfer. Any Membership Interest transferred to a
transferee pursuant to Section 8.1 or 8.2 shall continue to be subject to the
provisions of this Agreement, and the Company shall not be obligated to
recognize any Membership Interest in the name of such transferee unless and
until it shall have agreed in writing to become bound by such provisions.

      8.5 Compliance with Loan Covenants; Pledges, Mortgages and Security
Interests. Notwithstanding anything to the contrary set forth in this Article
VIII, (i) no Member shall be permitted to transfer any portion of its Membership
Interest or any beneficial interest therein, if such transfer will cause the
Company to be in breach of any covenant or obligation set forth in any
documentation evidencing, securing or otherwise pertaining to any loans obtained
by the Company from third parties, and (ii) no Member shall be permitted to
pledge, mortgage, or grant a security interest in any portion of his Membership
Interest without the prior written consent of the Company and the Managing
Member.

                                   ARTICLE IX
                                 COMPANY RECORDS

      9.1 Company Books. The Company shall maintain accurate books of the
affairs of the Company at its principal office using such methods as may be
approved from time to time by a majority of the Members. Each Member (and its
representatives and advisors acting on its behalf) shall have the right to
inspect and examine such books at reasonable times. The Company or its
accountant shall close and balance or review such books at the end of each
fiscal year of the Company and shall have delivered to each Member, within
ninety (90) days after the expiration of each fiscal year of the Company, a copy
of the balance sheet, and related statements of income and expenses, and sources
and uses of funds, together with a statement showing the income or loss and
Capital Account of each Member, the distributions to each Member and all
information necessary for a Member to prepare its federal and state tax returns.

      9.2 Banking. The Company shall maintain a bank account in which all funds
of the Company shall be deposited. This account may not be co-mingled with other
accounts. The Company's funds shall be used solely for the business of the
Company.

                                    ARTICLE X
                           DISSOLUTION AND TERMINATION

      10.1 Dissolution. Subject to Section 10.2, the Company shall be dissolved
and liquidated upon the earlier of the following: (i) the death, expulsion,
bankruptcy or dissolution of a Member or occurrence of any event which
terminates the continued membership of a Member in the Company (collectively,
"Withdrawal"); (ii) the entry of a decree of judicial dissolution; (iii) the
expiration of the stated term; or (iv) the bankruptcy or dissolution of a Member
or any other event that terminates the continued membership of a Member under
the Act. Upon dissolution, the Members shall wind up the affairs of the Company
and distribute its assets of proceeds thereof in accordance with this Agreement.
A reasonable time as determined by the Members, but not to exceed eighteen (18)
months, shall be allowed for the orderly liquidation and distribution of the
assets of the Company.

      10.2 Continuation Upon Withdrawal of Member. The Members shall have the
right to continue the Company upon a Withdrawal, as long as there are at least
two remaining Members, and

                                       14
<PAGE>

the remaining Members agree to continue the Company by unanimous written consent
within ninety (90) days after the Withdrawal of a Member.

      10.3 Gain or Loss. Except to the extent required by the Regulatory
Allocations but after taking the Regulatory Allocations into account, for tax
and accounting purposes (but not distributions), gain realized from a sale of
Company property or which would have been realized from a sale at fair value of
assets distributed in kind, upon or during liquidation and termination of the
Company, shall be allocated as provided in Section 4.2(a).

      10.4 Distributions.

            (a) Upon the liquidation of the Company, the net proceeds associated
with liquidating the Company and any undistributed cash or other assets of the
Company shall be distributed as follows:

                  (i) First, to the payment and discharge of all of the
      Company's debts and liabilities to creditors other than Members;

                  (ii) Second, to the payment and discharge of all of the
      Company's debts and liabilities, if any, to Members;

                  (iii) Third, to Members in accordance with Section 4.1.

                  (iv) Fourth, (a) to Sandalwood for distribution to Sandalwood
      Stockholders until they have received a return of all of their remaining
      Sandalwood Invested Capital; (b) next, to Sandalwood for distribution to
      Sandalwood Stockholders until they have received an amount of the Net
      Capital Proceeds equal to the balance in the Sandalwood 8% Shortfall
      Account; (c) next, 80% to Sandalwood for distribution to Sandalwood
      Stockholders and 20% to the Managing Member until the Sandalwood
      Stockholders have received an amount of Net Capital Proceeds equal to the
      balance in the Sandalwood 12% Shortfall Account; and (d) thereafter, 60%
      to Sandalwood for distribution to the Sandalwood Stockholders and 40% to
      the Managing Member.

            (b) Reserves. Notwithstanding Section 10.4(a), after satisfying the
distribution obligation contained in Section 10.4(a)(i), the Managing Member may
establish reserves reasonably required to provide for liabilities (contingent or
otherwise) of the Company and retain installment obligations owned by the
Company, provided that:

                  (i) the Capital Accounts of the Members are adjusted to
      reflect a revaluation of Company property at fair market value as of the
      date of adjustment with any unrealized income, gain, loss or deduction
      inherent in such property (that has not been reflected in Capital Accounts
      previously) allocated among the Members as if there were a taxable
      disposition of such property for such fair market value on such date;

                  (ii) such withheld amounts are distributed as soon as
      practicable; and

                  (iii) when distributed, the amounts are distributed in the
      ratios of the Members'

                                       15
<PAGE>

      positive Capital Account balances.

                                   ARTICLE XI
                               GENERAL PROVISIONS

      11.1 Additional Members. No person or entity shall be added as a Member of
the Company without the written consent of all Members.

      11.2 Notices. All notices contemplated by this Agreement shall be in
writing addressed to the parties at the addresses set forth beneath their
signatures to this Agreement or at such other addresses of which the Company
shall have been notified in writing by the Member, and to the Company at its
principal office, by certified mail, return receipt requested.

      11.3 Elections and Other Tax Matters.

            (a) The Managing Member shall be the "tax matters partner" within
the meaning of Codess. 6231.

            (b) To the extent that the Company may be or is required to make
elections for federal, state or local income or other tax purposes, such
elections generally shall be made in such manner as is best calculated, in the
opinion of the Managing Member, to minimize the cash requirements of the Company
and the Members without jeopardizing the status of Sandalwood as a real estate
investment trust under the Code.

            (c) If an audit of the Company's federal income tax return is
commenced, the Tax Matters Member will promptly advise Sandalwood of the audit
and provide Sandalwood with a copy of any final partnership administrative
adjustment (as defined in Section 6223(a) of the Code).

      11.4 Governing Law. All questions regarding the construction of this
Agreement and the rights and liabilities of the parties shall be determined in
accordance with the laws of the State of Delaware without regard to the conflict
of laws provisions thereof.

      11.5 Binding Effect. This Agreement shall be binding upon, and shall inure
to the benefit of, all of the Members and their respective successors in
interest, personal representatives, estates, distributees, legatees, and
permitted assigns.

      11.6 Interpretation. When the context in which words are used in this
Agreement so indicates, words in the singular number shall include the plural,
and vice versa, and words in the masculine gender shall include the feminine and
neuter genders, and vice versa. The term "person" and pronouns shall include an
individual, corporation, partnership, limited liability company, or other
entity. Reference to a statute shall also be deemed to refer to successor
provisions thereof.

      11.7 Validity. If a provision of this Agreement is declared invalid, such
invalidity shall not invalidate the remainder of this Agreement.

      11.8 Entire Agreement; Amendments. This Agreement contains the entire
understanding among the Members and supersedes all prior written and oral
agreements among them regarding the

                                       16
<PAGE>

subject matter of this Agreement. No representation, agreement, arrangement or
undertaking, oral or written, exists among the Members relating to the subject
matter of this Agreement that is not full expressed herein. All amendments to
this Agreement must be made in writing and unanimously approved by the Members.
If this Agreement is amended in accordance with this Section, each of the
Members shall sign all documents that may be necessary or desirable, including,
without limitation, an amended Agreement and amended Certificate of Formation.

      11.9 Agreement in Counterparts. This Agreement may be executed in several
counterparts and all counterparts so executed shall constitute one agreement,
binding on all the parties hereto, notwithstanding that all of the parties are
not signatory to the original or the same counterpart.

      11.10 Captions. Any section or paragraph title or caption contained in
this Agreement is for convenience of reference only, and shall not be deemed a
part of or construed to affect the meaning of this Agreement.

      11.11 Registered Office and Agent. The Company shall at all times have a
registered office and a registered agent. The Registered Agent shall give
notice, when necessary, to each Member.

      IN WITNESS WHEREOF, the Members have signed this Agreement as of the
Effective Date.

      MANAGING MEMBER:

      Sandalwood Hospitality Advisors, LLC [Percentage Interest: .001%]

      By:_________________________________

         Its: ____________________________

         Address: ________________________

                  ________________________

      SANDALWOOD:

      Sandalwood Lodging Investment Corporation [Percentage Interest: 99.999%]

      By:_________________________________

         Its: ____________________________

         Address: ________________________

                  ________________________

                                       17
<PAGE>

                                                                      Appendix A

A.1 Introduction.

      This appendix sets forth principles under which items of Company income,
gain, loss, deduction and credits shall be allocated among the Members for U.S.
federal income tax purposes. This appendix also provides (a) for the
determination and maintenance of Capital Accounts, generally in accordance with
Treasury Regulations promulgated under Section 704(b) of the Code (all as
defined below), for purposes of determining such allocations and (b) for certain
other income tax requirements.

A.2 Definitions.

      For purposes of this Appendix, the following terms have the meanings set
forth below. If a capitalized term is used herein but not defined in this
Section A.2, it shall have the meaning ascribed thereto in the Operating
Agreement to which this Appendix A is attached (the "Agreement"), unless the
context shall otherwise indicate.

      "Adjusted Basis" means the adjusted basis of an asset for federal income
tax purposes.

      "Adjusted Capital Account" means, with respect to a Member, such Member's
Capital Account after (i) crediting to such Capital Account any amount which
such Member is deemed to be obligated to restore pursuant to the penultimate
sentence of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); (ii)
crediting to such Capital Account the amount, if any, such Member is
unconditionally obligated to contribute to the Company under the Agreement or
applicable law; and (iii) debiting to such Capital Account the items described
in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6). This
definition of Adjusted Capital Account is intended to comply with the provisions
of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and 1.704-2, and will be
interpreted consistently with those provisions.

      "Adjusted Capital Account Deficit" means, with respect to a Member, the
deficit balance, if any, in that Member's Adjusted Capital Account.

      "Depreciation" means, for each fiscal year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for the year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of the year or other period, Depreciation
will be an amount which bears the same ratio to the beginning Gross Asset Value
as the federal income tax depreciation, amortization or other cost recovery
deduction for the year or other period bears to the beginning adjusted tax
basis, provided that if the federal income tax depreciation, amortization, or
other cost recovery deduction for the year or other period is zero, Depreciation
will be determined with reference to the beginning Gross Asset Value using any
reasonable method selected by the Managing Member.

      "Gross Asset Value" means, with respect to any asset, the adjusted basis
of the asset for U.S. federal income tax purposes, adjusted as follows:

                                       18
<PAGE>

      (i) The initial Gross Asset Value of any asset contributed (or deemed
contributed under Code Sections 704(b) and 752 and the Treasury Regulations
promulgated thereunder) by a Member to the Company will be the gross fair market
value of the asset on the date of the contribution, as agreed by the Members at
the time.

      (ii) The Gross Asset Values of all Company assets will be adjusted to
equal the respective fair market values of the assets, as determined by the
Managing Member after consultation with the Members, as of (i) the acquisition
of an additional interest in the Company by any new or existing Member in
exchange for more than a de minimis capital contribution, (ii) the distribution
by the Company to a Member of more than a de minimis amount of Company property
as consideration for an interest in the Company if the Managing Member
reasonably determines an adjustment is necessary or appropriate to reflect the
relative economic interests of the Members in the Company, and (iii) the
liquidation of the Company within the meaning of the Treasury Regulations
Section 1.704-1(b)(2)(ii)(g).

      (iii) The Gross Asset Value of any Company asset distributed to any Member
will be the gross fair market value of the asset, as agreed by the Members, on
the date of distribution.

      (iv) The Gross Asset Values of Company assets will be increased or
decreased to reflect any adjustment to the adjusted basis of the assets under
Code Section 734(b) or 743(b), but only to the extent that the adjustment is
taken into account in determining Capital Accounts under Treasury Regulations
Section 1.704-1(b)(2)(iv)(m), provided that Gross Asset Values will not be
adjusted under this paragraph (d) to the extent that the Managing Member
determines that an adjustment under paragraph (b) hereof is necessary or
appropriate in connection with a transaction that would otherwise result in an
adjustment under this paragraph (d).

      (v) After the Gross Asset Value of any asset has been determined or
adjusted under paragraphs (a), (b) or (d) hereof, such Gross Asset Value will be
adjusted by the Depreciation taken into account with respect to the asset for
purposes of computing Profits or Losses.

      "Item" means an item of income, gain, tax exempt income, loss, deduction
or a Section 705(a)(2)(B) Expenditure.

      "Liquidation" means the liquidation of the Company, which occurs upon the
earlier of the date upon which the Company is considered as terminated pursuant
to Code ss. 708(b)(1) or the date on which it ceases to be a going concern, even
though it may continue in existence for the purpose of winding up its affairs,
paying its debts, and distributing any remaining property and assets to the
Members.

      "Profits" and "Losses" mean, for each fiscal year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (and for this purpose, all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:

      (a) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Profits or Losses shall be added
to such taxable income or loss;

                                       19
<PAGE>

      (b) Any expenditures of the Company described in Code Section 705(a)(2)(B)
or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses, shall be subtracted from such taxable income or
loss;

      (c) Gain or loss resulting from any disposition of Company property with
respect to which gain or loss is recognized for U.S. federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of (unreduced by any liabilities attributable thereto), notwithstanding that the
adjusted tax basis of such property differs from its Gross Asset Value;

      (d) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year or other period;

      (e) If the Gross Asset Value of any Company asset is adjusted under
paragraphs (b) or (c) of its definition, the adjustment will be taken into
account as gain or loss from disposition of the asset for purposes of computing
Profits or Losses; and

      (f) The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Sections A.4.2 and A.4.3 hereof
shall be determined by applying rules analogous to those set forth above.

      (g) To the extent that the Context requires, the terms "Profits" and
"Losses" refer to Profits or Losses, as the case may be, determined without
taking into account items that are specially allocated pursuant to Sections
A.4.2 and A.4.3.

      "Nonrecourse Deductions" has the meaning set forth in Treasury Regulations
Section 1.704-2(b)(1) and shall be determined according to the provisions of
Treasury Regulations Section 1.704-2(c).

      "Nonrecourse Liability" has the meaning set forth in Treasury Regulations
Section 1.704-2(b)(3).

      "Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(4).

      "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2) and shall be determined in accordance
with Treasury Regulations Sections 1.704-2(i)(3) and (i)(5).

      "Partner Nonrecourse Deductions" has the meaning set forth in Treasury
Regulations Section 1.704-2(i)(1) and shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(2).

      "Partnership Minimum Gain" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(2) and shall be determined in accordance with
Treasury Regulations Section 1.704-2(d).

                                       20
<PAGE>

      "Treasury Regulations" means the income tax regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

A.3 Capital Accounts.

A.3.1 The Company shall determine and maintain Capital Accounts. "Capital
Account" shall mean an account of each Member determined and maintained
throughout the full term of the Company generally in accordance with Section 704
of the Code and the capital accounting rules of Treasury Regulations Section
1.704-1(b)(2)(iv). Without limiting the generality of the foregoing, the
following rules shall apply:

      (a) The Capital Account of each Member shall be credited with (i) an
amount equal to such Member's capital contributions, including cash and the
initial Gross Asset Value of property contributed to the Company by such Member
(net of liabilities that the Company is considered to assume or to which it is
considered to take subject to under Code Section 752) and (ii) such Member's
share of the Company's Profits (or items thereof, including gross income) and
items of income or gain specially allocated to such Member pursuant to Sections
A.4.2 and A.4.3).

      (b) The Capital Account of each Member shall be debited by (i) the amount
of cash and the then Gross Asset Value of any property distributed to such
Member in kind (net of liabilities assumed by such Member and liabilities to
which such distributed property is subject) and (ii) such Member's share of the
Company's Losses (or items thereof), including items of loss or deduction
specially allocated to such Member pursuant to Sections A.4.2 and A.4.3.

      (c) In determining the amount of any liability for purposes of Sections
A.3.1(a)-(b), Code Section 752(c) and any other applicable provisions of the
Code and the Treasury Regulations will be taken into account.

      (d) Upon the transfer by a Member of all or part of an interest in the
Company after the date hereof, the Capital Account of the transferor that is
attributable to the transferred interest shall carry over to the transferee and
the Capital Accounts of the Members shall be adjusted to the extent provided in
Treasury Regulations Section 1.704-1(b)(2)(iv)(m).

      (e) Adjustments to such Capital Accounts in respect of Company income,
gain, loss, deduction, and Code Section 705(a)(2)(B) expenditures (or items
thereof) shall be made with reference to the U.S. federal tax treatment of such
items (and, in the case of book items, with reference to the U.S. federal tax
treatment of the corresponding tax items) at the Company level, without regard
to any requisite or elective tax treatment of such items at the Member level.

      (f) In the event the Managing Member shall determine that it is prudent to
modify the manner in which the Capital Accounts, or any debits or credits
thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property or which
are assumed by the Company or its Members), are computed in order to comply with
such Treasury Regulations, the Managing Member may make such modification,
provided that it is consistent with the manner that amounts are distributed to
Members pursuant to the Agreement during the existence of the Company and upon
the dissolution of the Company. The Managing Member also shall make any
adjustments that are necessary or appropriate to maintain equality

                                       21
<PAGE>

between the Capital Accounts of the Members and the amount of Company capital
reflected on the Company's balance sheet, as computed for book purposes, in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g).

A.4 Allocations of Profits and Losses.

A.4.1 In General.

Except as provided in the Regulatory Allocations, Profits and Losses shall be
allocated among the Members in the manner provided in Sections 4.2 and 4.3 of
the Agreement.

A.4.2 Regulatory Allocations.

      The following regulatory allocations shall be made in the following order
and priority:

      (a) Minimum Gain Chargeback. Notwithstanding anything to the contrary in
Section A.4, if there is a net decrease in Partnership Minimum Gain during any
fiscal year, then there shall be allocated to each Member items of income and
gain for that year (and, if necessary, subsequent fiscal years) in proportion
to, and to the extent of, an amount equal to such Member's share of the net
decrease in Partnership Minimum Gain (within the meaning of Treasury Regulations
Section 1.704-2(g)(2)), subject to the exceptions set forth in Treasury
Regulations Section 1.704-2(f)(2), (3) and (5). The items to be allocated will
be determined in accordance with Treasury Regulations Section 1.704-2(g). The
foregoing is intended to be a "minimum gain chargeback" provision as described
in Treasury Regulations Section 1.704-2(f) and shall be interpreted and applied
in all respects in accordance with the Treasury Regulations and will be subject
to all exceptions provided therein.

      (b) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding
anything to the contrary in Section A.4, if during a fiscal year there is a net
decrease in Partner Nonrecourse Debt Minimum Gain (as determined in accordance
with Treasury Regulations Section 1.704-2(i)(3)), then, in addition to the
amounts, if any, allocated pursuant to Section A.4.2(a), any Member with a share
of that Partner Nonrecourse Debt Minimum Gain (determined in accordance with
Treasury Regulations Section 1.704-2(i)(5)) as of the beginning of the fiscal
year shall, subject to the exceptions set forth in Treasury Regulations Section
1.704-2(i)(4), be allocated items of income and gain for that fiscal year (and,
if necessary, for subsequent fiscal years) equal to that Member's share of the
net decrease in the Partner Nonrecourse Debt Minimum Gain. The foregoing is
intended to be the "chargeback of partner nonrecourse debt minimum gain"
required by Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
and applied in all respects in accordance with the Treasury Regulations.

      (c) Nonrecourse Deductions. Nonrecourse Deductions for any Company fiscal
year or other period shall be allocated among the Members in accordance with
their Percentage Interests.

      (d) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any
Company fiscal year or other period shall be specially allocated to the Member
who bears the economic risk of loss with respect to the Partner Nonrecourse Debt
to which such Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulations Section 1.704-2(i)(1).

                                       22
<PAGE>

      (e) Qualified Income Offset. If any Member unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and gain
(consisting of a pro rata portion of each item of Company income, including
gross income, and gain for such year) shall be specially allocated to such
Member in an amount and manner sufficient to eliminate, to the extent required
by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member
as quickly as possible. An allocation pursuant to the foregoing sentence shall
be made only if and to the extent that such Member would have an Adjusted
Capital Account Deficit after all other allocations provided for in Article A.4
have been tentatively made as if this Section A.4.2(e) were not in this
Appendix. This allocation is intended to constitute a "qualified income offset"
within the meaning of Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(3) and
shall be construed in accordance with the requirements thereof. In the event any
Member has a deficit Capital Account at the end of any Company fiscal year that
is in excess of the amount, if any, that the Member is obligated to restore
under the Agreement, including any amount that such Member is deemed to be
obligated to restore under Treasury Regulations Section 1.704-2(g)(1) and
Section 1.704-2(i)(5), each such Member shall be specially allocated items of
Company income and gain in the amount necessary to eliminate such excess as
quickly as possible.

      (f) Adjusted Capital Account Deficit. No Allocation of Loss to any Member
shall result in an Adjusted Capital Account Deficit for such Member. To the
extent an allocation of Losses would result in an Adjusted Capital Account
Deficit, it shall be reallocated to other Members.

      (g) Basis Adjustments. To the extent an adjustment to the adjusted tax
basis of any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required under Treasury Regulations Section 1.704-1(b)(2)(iv)(m) to be
taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Treasury
Regulations.

A.4.3 Curative Allocations.

      (a) Subject to the other provisions of Section A.4.2, any allocations or
reallocations made under Section A.4.2(e) of (f) shall be taken into account in
allocating other items of income, gain, loss and deduction among the Members in
subsequent years so that, to the extent possible, the net amount of such
allocations of other items and the allocations under Section A.4.2(e) and (f) to
each Member shall be equal to the net amount that would have been allocated to
each such Member if the allocations under Section A.4.2(e) had not occurred.

      (b) Over the term of the Company, allocations under Section A.4.2(a) are
intended generally to offset allocations under Section A.4.2(c), and allocations
under Section A.4.2(b) are intended generally to offset allocations under
Section A.4.2(d). In the event that such offsets will not occur for any reason,
the Managing Member shall have reasonable discretion to make such additional
allocations (including allocations of gross income) so that (i) the net effect
of all allocations under Section A.4.2(a), Section A.4.2(c) and this Section
A.4.3(b) generally will (as of the dissolution of the Company) be as though no
allocations under any of such sections (including this Section A.4.3(b)) were
made and (ii) the net effect of all allocations under Section A.4.2(b), Section

                                       23
<PAGE>

A.4.2(d) and this Section A.4.3(b) generally will (as of the dissolution of the
Company) be as though no allocations under any of such sections (including this
Section A.4.3(b)) were made. The Managing Member will have discretion to
accomplish this result in any reasonable manner that is consistent with Code
Section 704 and the related Treasury Regulations, subject to the other
provisions of Section A.4.2.

A.4.4 Other Allocation Rules.

      (a) For purposes of determining a Member's proportionate share of the
"excess nonrecourse liabilities" of the Company within the meaning of Treasury
Regulations Section 1.752-3(a)(3), the Members' interests in Company profits
shall be deemed to be in proportion to their respective Percentage Interests.

      (c) Allocations pursuant to this Article A.5 are solely for purposes of
U.S. federal, state, and local taxes and shall not affect any Member's Capital
Account or share of Profits or Losses (or any amount distributable to any Member
under the Agreement).

                                       24

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