Document:

CONTRIBUTION AGREEMENT

                           dated as of March 8, 2000
                                     between

            SHREE ASSOCIATES, JSK II ASSOCIATES, SHREEJI ASSOCIATES,
            KUNJ ASSOCIATES, SHANTI III ASSOCIATES, DEVI ASSOCIATES,
        NEIL H. SHAH, DAVID L. DESFOR, AND SHREENATHJI ENTERPRISES, LTD.

                                as Contributors,

                                       and

                     HERSHA HOSPITALITY LIMITED PARTNERSHIP,
                         a Virginia limited partnership,

                                   as Acquiror

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                             CONTRIBUTION AGREEMENT

              THIS CONTRIBUTION AGREEMENT, dated as of the 8th  day of March,
2000, between SHREE ASSOCIATES ("Shree"),  JSK II ASSOCIATES ("JSK II"), SHREEJI
ASSOCIATES ("Shreeji"), KUNJ ASSOCIATES ("Kunj"), SHANTI III ASSOCIATES ("Shanti
III"), DEVI ASSOCIATES ("Devi") all Pennsylvania limited  partnerships,  NEIL H.
SHAH ("Shah"),  DAVID L. DESFOR ("Desfor"),  AND SHREENATHJI  ENTERPRISES,  LTD.
("SEL"), a Pennsylvania  corporation  (collectively,  the  "Contributors"),  and
HERSHA  HOSPITALITY  LIMITED  PARTNERSHIP,  a Virginia limited  partnership (the
"Acquiror"), provides:

                                    ARTICLE I
                       DEFINITIONS; RULES OF CONSTRUCTION

         1.1  Definitions. The following terms shall have the indicated
meanings:

             "Act of  Bankruptcy"  shall mean if a party  hereto or any  general
partner  thereof  shall  (a)apply for or consent to the  appointment  of, or the
taking of possession by, a receiver,  custodian, trustee or liquidator of itself
or of all or a  substantial  part  of its  property,  (b)admit  in  writing  its
inability to pay its debts as they become due, (c)make a general  assignment for
the  benefit  of its  creditors,  (d)file a  voluntary  petition  or  commence a
voluntary  case or  proceeding  under  the  Federal  Bankruptcy  Code (as now or
hereafter  in effect),  (e)be  adjudicated  a bankrupt or  insolvent,  (f)file a
petition  seeking to take  advantage  of any other law  relating to  bankruptcy,
insolvency,  reorganization,  winding-up or  composition or adjustment of debts,
(g)fail to  controvert  in a timely and  appropriate  manner,  or  acquiesce  in
writing to, any petition filed against it in an  involuntary  case or proceeding
under the Federal  Bankruptcy  Code (as now or hereafter in effect),  or (h)take
any  corporate or  partnership  action for the purpose of  effecting  any of the
foregoing;  or  if  a  proceeding  or  case  shall  be  commenced,  without  the
application or consent of a party hereto or any general partner thereof,  in any
court of competent  jurisdiction  seeking  (1)the  liquidation,  reorganization,
dissolution or winding-up,  or the composition or readjustment of debts, of such
party or general partner, (2)the appointment of a receiver,  custodian,  trustee
or liquidator or such party or general partner or all or any substantial part of
its assets,  or (3)other  similar  relief under any law relating to  bankruptcy,
insolvency,  reorganization,  winding-up or  composition or adjustment of debts,
and such proceeding or case shall continue  undismissed;  or an order (including
an order for relief entered in an involuntary case under the Federal  Bankruptcy
Code,  as now or hereafter in effect)  judgment or decree  approving or ordering
any of the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 consecutive days.

             "Shree Assignment and Assumption Agreement" shall mean that certain
assignment  and  assumption  agreement  whereby  Shree  assigns and the Acquiror
assumes the Shree Interest.

            "JSK II Assignment and Assumption Agreement" shall mean that 1

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certain  assignment  and  assumption  agreement  whereby  JSK II assigns and the
Acquiror assumes the JSK II Interest.

             "Shreeji  Assignment  and  Assumption  Agreement"  shall  mean that
certain  assignment and assumption  agreement  whereby  Shreeji  assigns and the
Acquiror assumes the Shreeji Interest.

             "Kunj Assignment and Assumption  Agreement" shall mean that certain
assignment  and  assumption  agreement  whereby  Kunj  assigns and the  Acquiror
assumes the Kunj Interest.

             "Shanti III Assignment and  Assumption  Agreement"  shall mean that
certain  assignment and assumption  agreement whereby Shanti III assigns and the
Acquiror assumes the Shanti Interest.

             "Devi Assignment and Assumption  Agreement" shall mean that certain
assignment  and  assumption  agreement  whereby  Devi  assigns and the  Acquiror
assumes the Devi Interest.

             "Shah Assignment and Assumption  Agreement" shall mean that certain
assignment  and  assumption  agreement  whereby  Shah  assigns and the  Acquiror
assumes the Shah Interest.

             "Desfor  Assignment  and  Assumption  Agreement"  shall  mean  that
certain  assignment  and  assumption  agreement  whereby  Desfor assigns and the
Acquiror assumes the Desfor Interest.

             "SEL Assignment and Assumption  Agreement"  shall mean that certain
assignment and assumption agreement whereby SEL assigns and the Acquiror assumes
the SEL Interest.

             "Assignment  and  Assumption   Agreements"  shall  mean  the  Shree
Assignment  and  Assumption   Agreement  ,  JSK  II  Assignment  and  Assumption
Agreement,  the Shreeji Assignment and Assumption Agreement, the Kunj Assignment
and Assumption  Agreement,  the Shanti III Assignment and Assumption  Agreement,
the Devi Assignment and Assumption Agreement, the Shah Assignment and Assumption
Agreement,   the  Desfor  Assignment  and  Assumption  Agreement,  and  the  SEL
Assignment and Assumption Agreement.

             "Authorizations"  shall mean all  licenses,  permits and  approvals
required by any governmental or  quasi-governmental  agency, body or officer for
the ownership, operation and use of the Property or any part thereof.

             "Closing"   shall  mean  the  Closing  of  the   contribution   and
acquisition of the Interests pursuant to this Agreement.

             "Closing Date" shall mean the date on which the Closing occurs.

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             "Consideration" shall mean $1.8 million payable to the Contributors
at Closing in the manner described in Section 2.3.

             "Continuing  Liabilities" shall include  liabilities  arising under
operating agreements, equipment leases, loan agreements, or proration credits at
Closing,  but shall exclude any liabilities  arising from any other arrangement,
agreement or pending litigation.

             "Escrow Agent" shall mean Sentinel Agency, 2146 North Second
Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666, Fax: (717)
234-8198.

             "FIRPTA  Certificates"  shall  mean  the  affidavit  of each of the
Contributors  under Section 1445 of the Internal  Revenue Code  certifying  that
such  Contributor is not a foreign  corporation,  foreign  partnership,  foreign
trust,  foreign  estate or  foreign  person (as those  terms are  defined in the
Internal  Revenue Code and the Income Tax  Regulations),  in form and  substance
satisfactory to the Acquiror.

             "Governmental  Body" means any federal,  state,  municipal or other
governmental department,  commission,  board, bureau, agency or instrumentality,
domestic or foreign.

                  "Hotel" shall mean the hotel and related  amenities located on
the Land.

                  "Improvements"  shall mean the Hotel and all other  buildings,
improvements, fixtures and other items of real estate located on the Land.

                  "Shree  Interest" shall mean all right,  title and interest of
Shree in the Partnership, consisting of a 5% limited partnership interest in the
Partnership.

                  "JSK II Interest" shall mean all right,  title and interest of
JSK II in the Partnership,  consisting of a 20% limited partnership  interest in
the Partnership.

                  "Shreeji Interest" shall mean all right, title and interest of
Shreeji in the Partnership,  consisting of a 12% limited partnership interest in
the Partnership.

                  "Kunj  Interest"  shall mean all right,  title and interest of
Kunj in the Partnership, consisting of a 12% limited partnership interest in the
Partnership.

                  "Shanti III Interest" shall mean all right, title and interest
of  Shanti  III in the  Partnership,  consisting  of a 20%  limited  partnership
interest in the Partnership.

                  "Devi  Interest"  shall mean all right,  title and interest of
Devi in the Partnership,  consisting of a 6% limited partnership interest in the
Partnership.

                  "Shah  Interest"  shall mean all right,  title and interest of
Shah in the Partnership, consisting of a 20% limited partnership interest in the
Partnership.

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                  "Desfor Interest" shall mean all right,  title and interest of
Desfor in the Partnership,  consisting of a 4% limited  partnership  interest in
the Partnership.

                  "SEL Interest" shall mean all right, title and interest of SEL
in the  Partnership,  consisting  of a 1% general  partnership  interest  in the
Partnership.

                  "Insurance  Policies"  shall mean those  certain  policies  of
insurance described on Exhibit C attached hereto.

                  "Intangible  Personal  Property"  shall  mean  all  intangible
personal  property owned or possessed by the Contributors and used in connection
with  the  ownership,  operation,  leasing,  occupancy  or  maintenance  of  the
Property,  including,  without  limitation,  the  right  to use the  trade  name
"Comfort Inn" and all variations thereof,  the Authorizations,  escrow accounts,
insurance   policies,   general   intangibles,   business  records,   plans  and
specifications,  surveys and title  insurance  policies  pertaining  to the Real
Property and the Personal  Property,  all licenses,  permits and approvals  with
respect  to  the  construction,  ownership,  operation,  leasing,  occupancy  or
maintenance of the Property,  any unpaid award for taking by condemnation or any
damage to the Land by reason  of a change of grade or  location  of or access to
any street or highway,  and the share of the Tray Ledger as hereinafter defined,
excluding  (a) any of the aforesaid  rights the Acquiror  elects not to acquire,
(b) the Contributors' cash on hand, in bank accounts and invested with financial
institutions and (c) accounts receivable except for the above described share of
the Tray Ledger.

                  "Interests"  shall  mean  the  Shree  Interest,   the  JSK  II
Interest,  the Shreeji Interest, the Kunj Interest, the Shanti III Interest, the
Devi Interest, the Shah Interest, the Desfor Interest and the SEL Interest.

                  "Inventory"  shall mean all  "inventories of merchandise"  and
"inventories  of supplies",  as such terms are defined in the Uniform  System of
Accounts for Hotels [9th Revised Edition] as published by the Hotel  Association
of New York City, Inc., as revised, and similar consumable supplies.

                  "Land" shall mean that certain parcel of real estate lying and
being at HCR 2-Box 11, Deep Creek Drive, McHenry,  Maryland, more commonly known
as the Deep Creek  Comfort  Inn,  as more  particularly  described  on Exhibit A
attached hereto, together with all easements,  rights,  privileges,  remainders,
reversions and appurtenances thereunto belonging or in any way appertaining, and
all of the estate,  right,  title,  interest,  claim or demand whatsoever of the
Contributors  therein,  in the streets and ways adjacent thereto and in the beds
thereof,  either  at law or in  equity,  in  possession  or  expectancy,  now or
hereafter acquired.

                  "Leases" shall mean those leases of real property  attached as
Exhibit D attached hereto.

                  "Manager" shall mean Hersha Hospitality Management L.P.

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                  "Operating  Agreements" shall mean the management  agreements,
service  contracts,  supply contracts,  leases (other than the Leases) and other
agreements,  if any,  in effect  with  respect to the  construction,  ownership,
operation,  occupancy  or  maintenance  of the  Property.  All of the  Operating
Agreements  in force and  effect as of the date  hereof  are listed on Exhibit E
attached hereto.

                  "Organizational  Documents" shall mean the current partnership
agreement  and  certificate  of  limited  partnership  of  each  of the  limited
partnership  Contributors,  true and correct copies of which are attached hereto
as Exhibits F and G and Articles of  Incorporation  and Bylaws of SEL,  true and
correct copies of which are attached hereto as Exhibits O and P.

                  "Shree's  Organizational  Documents"  shall  mean the  current
partnership  agreement and certificate of limited partnership of Shree, true and
correct copies of which are attached hereto as Exhibits F and G.

                  "JSK II's  Organizational  Documents"  shall mean the  current
partnership agreement and certificate of limited partnership of JSK II, true and
correct copies of which are attached hereto as Exhibits F and G.

                  "Shreeji's  Organizational  Documents"  shall mean the current
partnership  agreement and certificate of limited  partnership of Shreeji,  true
and correct copies of which are attached hereto as Exhibits F and G.

                  "Kunj's  Organizational  Documents"  shall  mean  the  current
partnership  agreement and certificate of limited  partnership of Kunj, true and
correct copies of which are attached hereto as Exhibits F and G.

                   "Shanti  III's  Organizational   Documents"  shall  mean  the
current  partnership  agreement and certificate of limited partnership of Shanti
III, true and correct copies of which are attached hereto as Exhibits F and G.

                  "Devi's  Organizational  Documents"  shall  mean  the  current
partnership  agreement and certificate of limited  partnership of Devi, true and
correct copies of which are attached hereto as Exhibits F and G.

                  "SEL's  Organizational   Documents"  shall  mean  the  current
Articles of  Incorporation  and Bylaws of SEL, true and correct  copies of which
are attached hereto as Exhibits O and P.

                  "Owner's  Title Policy" shall mean an owner's  policy of title
insurance  issued to the  Acquiror by the Title  Company,  pursuant to which the
Title Company  insures the Acquiror's  ownership of fee simple title to the Real
Property  (including the marketability  thereof) subject only to Permitted Title
Exceptions.  The Owner's Title Policy shall insure the Acquiror in the amount of
the Consideration and shall be acceptable in form and substance to the Acquiror.
The  description of the Land in the Owner's Title Policy shall be by courses and
distances and shall be identical to the description shown on the Survey.

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                  "Partnership"  shall  mean  1544  Associates,  a  Pennsylvania
limited  partnership  that owns as its sole assets  land and hotel  improvements
situate in McHenry, Garrett County, Maryland.

                  "Partnership  Units" shall mean the limited  partnership units
of Hersha Hospitality Limited Partnership.

                  "Permitted  Title  Exceptions"  shall mean those exceptions to
title to the Real Property that are  satisfactory  to the Acquiror as determined
pursuant to Section 2.2.

                  "Property"  shall mean  collectively  the Real  Property,  the
Inventory,  the  Reservation  System,  the  Tangible  Personal  Property and the
Intangible Personal Property.

                  "Real Property" shall mean the Land and the Improvements.

                  "Reservation System" shall mean the Contributors'  Reservation
Terminal and Reservation System equipment and software, if any.

                  "Tangible  Personal Property" shall mean the items of tangible
personal Property  consisting of all furniture,  fixtures and equipment situated
on,  attached  to, or used in the  operation  of the Hotel,  and all  furniture,
furnishings,  equipment,  machinery,  and other personal  property of every kind
located on or used in the operation of the Hotel and owned by the  Contributors;
provided,  however,  that the  Acquiror  agrees  that,  all  Inventory  shall be
conveyed to the Acquiror's property manager.

                   "Title  Commitment" shall mean the commitment by the Title
Company to issue the Owner's Title Policy.

                   "Title  Company"  shall mean  Sentinel  Agency,  2146 North
Second  Street, Harrisburg, Pennsylvania, 17110, Telephone: (717) 234-2666,
Fax: (717) 234-8198.

                  "Tray  Ledger"  shall  mean the  final  night's  room  revenue
(revenue from rooms occupied as of 12:01 a.m. on the Effective  Date,  exclusive
of food, beverage,  telephone and similar charges which shall be retained by the
Contributors), including any sales taxes, room taxes or other taxes thereon.

                  "Utilities"  shall  mean  public  sanitary  and storm  sewers,
natural gas, telephone,  public water facilities,  electrical facilities and all
other utility  facilities and services necessary for the operation and occupancy
of the Property as a hotel.

     1.2  Rules  of  Construction.  The  following  rules  shall  apply  to  the
construction and interpretation of this Agreement:

                  (a) Singular  words shall connote the plural number as well as
the singular and vice versa,  and the  masculine  shall include the feminine and
the neuter.

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                  (b) All references  herein to particular  articles,  sections,
subsections,   clauses  or  exhibits  are  references  to  articles,   sections,
subsections, clauses or exhibits of this Agreement.

                  (c) The headings contained herein are solely for convenience
of reference  and shall not  constitute a part of this  Agreement nor shall they
affect its meaning, construction or effect.

                  (d) Each  party  hereto  and its  counsel  have  reviewed  and
revised (or  requested  revisions  of) this  Agreement,  and therefore any usual
rules of construction  requiring that  ambiguities are to be resolved  against a
particular party shall not be applicable in the construction and  interpretation
of this Agreement or any exhibits hereto.

                                   ARTICLE II
           CONTRIBUTION AND ACQUISITION; PAYMENT OF CONSIDERATION AND
                            CONTINGENT CONSIDERATION

          2.1 Contribution and  Acquisition.  Each of the Contributors agrees to
contribute,  assign and  transfer  its Interest to the Acquiror and the Acquiror
agrees to accept each  Contributor's  Interest in exchange for the Consideration
and the  Contingent  Consideration  and in  accordance  with the other terms and
conditions set forth herein.

          2.2 Intentionally Omitted.

          2.3 Payment of the Consideration.  The consideration  shall be paid to
the Contributor in the following manner:

         (a) The Acquiror shall receive a credit against the Consideration in an
amount  equal to the  Contributor's  closing  costs  assumed and paid for by the
Acquiror pursuant to Section 6.4 hereof.

         (b) The Acquiror shall receive a credit against the Consideration in an
amount  equal to the  outstanding  balance  (principal,  interest,  fees and the
like), as of the date of Closing,  of the existing mortgage loan encumbering the
property as such balance is  evidenced  by a letter from the lender,  which loan
the Acquiror shall take subject to or, if requested, assume.

         (c) The Acquiror shall receive a credit against the Consideration in an
amount  equal to the  outstanding  balance ( principal,  interest,  fees and the
like),  as of the date of  Closing,  of the  Contributor's  loan to  Shreenathji
Enterprises,  Ltd.  as such  balance is  evidenced  by a letter from the lender,
which loan the Acquiror shall assume.

         (d)  The  Acquiror  shall  pay the  balance  of the  Consideration,  as
adjusted by the prorations  pursuant to Section 6.5 hereof, in the form of units
of  Partnership  Units or in the  lawful  money of the  United  States or in any
combination thereof as acceptable to the Contributors.

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         The  parties  agree that the  transfer  of the  assets to the  Acquiror
pursuant to this Agreement shall be treated for federal income tax purposes as a
contribution  of such assets  solely in exchange for a  partnership  interest in
Acquiror  that  qualifies as a tax-free  contribution  under  Section 721 of the
Internal revenue Code of 1986, as amended.

         2.4.  Determination  of Number of  Partnership  Units.  For purposes of
determining  the number of Partnership  Units to be delivered by the Acquiror at
the  Closing,  each  Partnership  Unit shall be deemed to have a value  equal to
$6.00. No fractional Partnership Units will be issued at Closing; in lieu of any
such fraction, the value shall be rounded up to a whole share value.

         2.5  Contributors'  Distribution of Partnership  Units. On the Closing
Date, the Partnership Units shall be distributed among the Contributors, as set
forth on Exhibit K attached  hereto , in the amount  specified  on Exhibit K. On
the date hereof, Contributors shall deliver or cause to be delivered to Acquiror
an Investor Questionnaire and Agreement in the form attached hereto as Exhibit F
(a "Questionnaire"), completed and executed by each of the Contributors. On the
Closing  Date,  Acquiror  shall  issue  certificates   reflecting  each  of  the
Contributors ownership of the Partnership Units. The certificates evidencing the
Partnership  Units  will  bear  appropriate  legends  indicating  (i)  that  the
Partnership  Units have not been registered under the Securities Act of 1933, as
amended ("Securities Act"), and (ii) that the Acquiror's  Partnership  Agreement
restricts  the  transfer of  Partnership  Units.  The  Acquiror  shall assume no
responsibility  for any allocation of the consideration,  including  Partnership
Units, to any of the Contributors' partners. Contributors agree to hold Acquiror
and its affiliates harmless and to indemnify Acquiror and its affiliates for all
costs,  claims,  damages and expenses,  including  reasonable  attorney's  fees,
incurred  by Acquiror  in  connection  with such  allocations.  Upon  receipt of
Partnership Units, the Acquiror's  Partnership Agreement shall be executed by or
on behalf of each of the Contributors and the Contributors  shall become limited
partners of Acquiror and agree to be bound by the Partnership Agreement.

         2.6      Intentionally Omitted.

         2.7      Intentionally Omitted.

         2.8 Redemption.  The Partnership Units may be redeemed upon delivery of
a  notice  ("Redemption  Notice")  from the  Contributors  , for  common  shares
("Common  Shares")  of  beneficial  interest  in Hersha  Hospitality  Trust (the
"REIT")  or  for  cash,  in  accordance  with  the  Hersha  Hospitality  Limited
Partnership Agreement, attached hereto as Exhibit M, and incorporated herein.

         2.9      Registration of Common Shares.

                  The  Contributors  acknowledge that the issuance of the Common
Shares  issuable upon  redemption of the  Partnership  Units shall not have been
registered  under the  applicable  provisions of the  Securities  Act, as of the
Closing  Date.  The REIT shall have the Common Shares  issuable upon  redemption
registered  in  accordance  with  the  Hersha  Hospitality  Limited  Partnership
Agreement attached hereto as Exhibit M and incorporated herein.

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         2.10       Consideration Contingency.

         The Contributors  shall value the Hotel on December 31, 2001. The value
of the Hotel  shall be computed  by  applying a 12%  capitalization  rate to the
audited  trailing 12 months net operating  income,  adjusted for a 2% of revenue
management fee and a 4% of revenue furniture, fixture and equipment reserve.

         If the then current value of the Hotel exceeds the  consideration  paid
by Acquiror hereunder,  the Acquiror will issue additional  Partnership Units at
$6.00 per Partnership Unit or the lawful money of the United States equal to the
difference  between the then current value and the consideration  paid hereunder
and all distributions paid on those units since Closing Date.

         If the then current  value of the Hotel is less than the  Consideration
paid by the Acquiror  hereunder,  the  Contributors  will return to the Acquirer
Partnership  Units at $6.00  per  Partnership  Unit or the  lawful  money of the
United  States equal to the  difference  between the then  current  value of the
Hotel and the Consideration  paid hereunder and all distributions  paid on those
units since the Closing Date.

                                   ARTICLE III
             CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND COVENANTS

         To induce the Acquiror to enter into this  Agreement and to acquire the
Interests,   the  Contributors   hereby  make  the  following   representations,
warranties  and  covenants on a joint and several basis , upon each of which the
Contributors acknowledge and agree that the Acquiror is entitled to rely and has
relied:

         3.1 Organization  and Power. The Contributors are limited  partnerships
duly  formed,  validly  existing  and in good  standing  under  the  laws of the
Commonwealth of Pennsylvania, a corporation duly formed, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania or individuals,
and have all requisite  powers and all  governmental  licenses,  authorizations,
consents and approvals  necessary to carry on its business as now conducted,  to
own, lease and operate its properties, to execute and deliver this Agreement and
any document or  instrument  required to be executed and  delivered on behalf of
the Contributors  hereunder,  to perform their  obligations under this Agreement
and any such other documents or instruments  and to consummate the  transactions
contemplated hereby.

        3.2      Authorization, No Violations and Notices.

           (a) The execution,  delivery and performance of this Agreement by
               the  Contributors,  and  the  consummation  of  the  transactions
               contemplated  hereby  have  been  duly  authorized,  adopted  and
               approved  by  the   partners  of  the   Contributors   for  those
               Contributors  that are  partnerships  to the extent  required  by
               their  organizational  documents  and  applicable  law.  No other
               proceedings  are  necessary to authorize  this  Agreement and the
               transactions  contemplated  hereby.  This Agreement has been duly
               executed by Shree, JSK II, Shreeji, Kunj, Shanti III, Devi, Shah,

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               Desfor and SEL and is a valid and binding obligation  enforceable
               against them in accordance with its terms.

          (b)  Neither  the  execution,  delivery,  or  performance  by the
               Contributors  of  this  Agreement,  nor the  consummation  of the
               transactions   contemplated   hereby,   nor   compliance  by  the
               Contributors with any of the provisions hereof, will:

               (i)  violate,  conflict  with,  result  in a  breach  of any
                    provision of, constitute a default (or an event that, which,
                    with or lapse of time or both,  would  constitute a default)
                    under,   result  in  the  termination  of,   accelerate  the
                    performance required by, or result in a right of termination
                    or  acceleration,  or the  creation  of any  lien,  security
                    interest,  charge, or encumbrance upon any of the properties
                    or  assets  of the  Partnership,  under  any  of the  terms,
                    conditions, or provisions of, its Partnership,  or any note,
                    bond, mortgage,  indenture,  deed of trust, license,  lease,
                    agreement,  or other instrument,  or obligation to which the
                    Partnership is a party,  or by which the  Partnership may be
                    bound,  or to which the  Partnership  or its  properties  or
                    assets may be subject; or

               (ii) violate any judgment,  ruling, order, writ, injunction,
                    decree,  statute,  rule,  or  regulation  applicable  to the
                    Partnership  or its  property  or assets  that  would not be
                    violated by the  execution,  delivery or performance of this
                    Agreement  or the  transactions  contemplated  hereby by the
                    Contributors or compliance by the  Contributors  with any of
                    the provisions hereof.

         3.3 Litigation with respect to Contributors.  There is no action, suit,
claim or  proceeding  pending  or, to the  Contributors'  knowledge,  threatened
against or affecting the  Contributors or their assets in any court,  before any
arbitrator or before or by any governmental  body or other regulatory  authority
(i) that would  adversely  affect  the  Interests,  (ii) that  seeks  restraint,
prohibition,  damages or other relief in connection  with this  Agreement or the
transactions  contemplated  hereby, or (iii) would delay the consummation of any
of the transactions contemplated hereby. The Contributors are not subject to any
judgment,  decree,  injunction,  rule or  order  of any  court  relating  to the
Contribtuors' participation in the transactions contemplated by this Agreement.

         3.4  Interests.  The Interests  will be free and clear of all liens and
encumbrances on the Closing Date and the  Contributors  have good,  merchantable
title thereto and the right to convey same in accordance  with the terms of this
Agreement.  Upon delivery of the  Assignment  and  Assumption  Agreements to the
Acquiror at Closing,  good valid and merchantable  title to the Interests,  free
and clear of all liens and encumbrances, will pass to the Acquiror.

        3.5 Bankruptcy with Respect to Contributors.  No Act of Bankruptcy has
occurred with respect to the Contributors.

         3.6  Brokerage  Commission.  The  Contributors  have  not  engaged  the
services  of, nor are they or will they or Acquiror  become  liable to, any real
estate agent, broker,  finder or any other person or entity for any brokerage or

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finder's  fee,  commission  or other  amount  with  respect to the  transactions
described herein on account of any action by the Contributors.

       3.7      The Partnership.

          (a)  The Partnership is a limited partnership duly formed, validly
               existing and in good standing under the laws of the  Commonwealth
               of Pennsylvania  and has all requisite  powers necessary to carry
               on its business as now  conducted,  to own, lease and operate its
               properties.

          (b)  Neither  the  execution,  delivery,  or  performance  by the
               Contributors  of  this  Agreement,  nor the  consummation  of the
               transactions   contemplated   hereby,   nor   compliance  by  the
               Contributors with any of the provisions hereof, will:

               (i)  violate,  conflict  with,  result  in a  breach  of any
                    provision of,  constitute a default (or an event that,  with
                    notice or lapse of time or both, would constitute a default)
                    under,   result  in  the  termination  of,   accelerate  the
                    performance required by, or result in a right of termination
                    or  acceleration,  or the  creation  of any  lien,  security
                    interest,  charge, or encumbrance upon any of the properties
                    or  assets  of the  Partnership,  under  any  of the  terms,
                    conditions,    or   provisions   of,   their   articles   of
                    incorporation  or  bylaws,  or  any  note,  bond,  mortgage,
                    indenture,  deed of trust,  license,  lease,  agreement,  or
                    other instrument or obligation to which the Partnership is a
                    party, or by which the Partnership may be bound, or to which
                    the  Partnership or its properties or assets may be subject;
                    or

               (ii) violate any judgment,  ruling, order, writ, injunction,
                    decree,  statute,  rule,  or  regulation  applicable  to the
                    Partnership  or  any  of  the  Partnership's  properties  or
                    assets.

          (c)  Except for the Contributors, no party has any interest in the
               Partnership or the right or option to acquire any interest in the
               Partnership  or  the  property  or  any  portion   thereof.   The
               Partnership  has  no  subsidiaries   and  does  not  directly  or
               indirectly own any securities of or interest in any other entity,
               including, without limitation, any partnership or joint venture.

          3.8  Liabilities,  Debts and  Obligations.  Except for the  Continuing
Liabilities, the Partnership has no liability, debt or obligation.

                                       11

<PAGE>

         3.9      Tax Matters with respect to Partnership.

      (a) The Partnership  has filed all income tax  information  returns on
          IRS Form 1065 (including  K-1s for each partner) and applicable  state
          and local income tax forms required to be filed with the United States
          Government  and with all states  and  political  subdivisions  thereof
          where any such  returns are required to be filed and where the failure
          to file such return or report  would  subject the  Partnership  or its
          partners to any material  liability or penalty.  All taxes (other than
          sale taxes,  rental taxes or the equivalent  and real property  taxes)
          imposed by the United  States,  or by any foreign  country,  or by any
          state,  municipality,  subdivision,  or  instrumentality of the United
          States or of any  foreign  country or by any other  taxing  authority,
          which are due and payable by the Partnership have been paid in full or
          adequately  provided for by reserves  shown in their records and books
          of  account  and  in  the  Partnership's  financial  information.  The
          Partnership has not obtained or received any extension of time (beyond
          the Closing Date) for the assessment of deficiencies  for any years or
          waived or extended the statute of limitations for the determination or
          collection  of any tax. To the  Contributors'  knowledge no unassessed
          tax deficiency is proposed or threatened against the Partnership.

      (b) All taxes,  rental taxes or the  equivalent,  and all interest and
          penalties  due  thereon,  required  to be  paid  or  collected  by the
          Partnership in connection with the operation of the Property as of the
          Closing Date will have been collected  and/or paid to the  appropriate
          governmental  authorities,  as  required  or  such  amounts  shall  be
          pro-rated as of the Closing  Date.  The  Partnership  shall file,  all
          necessary  returns  and  petitions  required  to be filed  through the
          Closing Date. The  Partnership  shall prepare and file all federal and
          state  income tax  returns  for the tax period  ending on the  Closing
          Date,  which shall  reflect the  termination  for tax  purposes of the
          Partnership.  If requested by the  Acquiror,  the  Contributors  shall
          cause the  Partnership  to make an election  under  Section 754 of the
          Code for the period ending on the Closing Date.

         3.10 Contracts and Agreements.  There is no loan agreement,  guarantee,
note,  bond,  indenture and other debt  instrument,  lease and other contract to
which the  Partnership  is a party or by which its assets  are bound  other than
Permitted Title Encumbrances, the Leases, and the Operating Agreements.

         3.11 No Special Taxes.  The  Contributors  have no actual knowledge of,
nor have they received any written  notice of, any special taxes or  assessments
relating  to the  Partnership  or  Property  or any part  thereof or any planned
public  improvements that may result in a special tax or assessment  against the
Property.

         3.12  Compliance  with Existing  Laws.  The  Partnership  possesses all
Authorizations,  each of which is valid and in full force and  effect,  and,  to
Contributors' actual knowledge, no provision,  condition or limitation of any of
the  Authorizations  has been  breached or  violated.  The  Partnership  has not
misrepresented  or  failed  to  disclose  any  relevant  fact in  obtaining  all
Authorizations,  and the Contributors  have no actual knowledge of any change in
the circumstances under which those  Authorizations were obtained that result in
their termination, suspension, modification or limitation. The Contributors have
no actual knowledge, nor have they received written notice within the past three
years,  of any existing  violation of any provision of any applicable  building,
zoning, subdivision,  environmental or other governmental ordinance, resolution,
statute,  rule,  order or  regulation,  including  but not  limited  to those of
environmental agencies or insurance boards of underwriters,  with respect to the
ownership,  operation, use, maintenance or condition of the Property or any part
thereof, or requiring any repairs or alterations other than those that have been
made prior to the date hereof.

         3.13 Operating  Agreements.  The  Partnership  has performed all of its
obligations  under each of the Operating  Agreements and no fact or circumstance
has  occurred  which,  by itself or with the  passage  of time or the  giving of
notice or both,  would  constitute a material default under any of the Operating
Agreements.  The Partnership shall not enter into any new management  agreement,
maintenance or repair contract,  supply contract, lease in which it is lessee or
other agreements with respect to the Property,  nor shall the Partnership  enter
into any  agreements  modifying  the Operating  Agreements,  unless (a) any such
agreement or  modification  will not bind the Acquiror or the Property after the

                                       12

<PAGE>

date of Closing or (b) the  Contributors  have  obtained  the  Acquiror's  prior
written  consent to such agreement or  modification,  which consent shall not be
unreasonably withheld or delayed.

         3.14  Warranties  and  Guaranties.  The  Partnership  shall not  before
Closing,   release  or  modify  any  warranties  or   guarantees,   if  any,  of
manufacturers,  suppliers and installers  relating to the  Improvements  and the
Personal Property or any part thereof,  except with the prior written consent of
the Acquiror,  which consent shall not be  unreasonably  withheld or delayed.  A
complete list of all such warranties and guaranties in effect as of this date is
attached hereto as Exhibit H.

         3.15 Insurance.  All of the Partnership's  Insurance Policies are valid
and in full force and effect,  all premiums for such policies were paid when due
and all future premiums for such policies (and any  replacements  thereof) shall
be paid by the  Partnership on or before the due date therefor.  The Partnership
shall pay all premiums on, and shall not cancel or voluntarily  allow to expire,
any of the  Partnership's  Insurance  Policies  prior to the Closing Date unless
such policy is  replaced,  without any lapse of coverage,  by another  policy or
policies  providing  coverage  at least as  extensive  as the policy or policies
being replaced. The Partnership shall name the Acquiror as an additional insured
on each of the Partnership's Insurance Policies.

         3.16 Condemnation  Proceedings;  Roadways. The Partnership has received
no written notice of any  condemnation or eminent domain  proceeding  pending or
threatened  against the Property or any part thereof.  The Contributors  have no
actual  knowledge of any change or proposed change in the route,  grade or width
of, or otherwise  affecting,  any street or road adjacent to or serving the Real
Property.

         3.17  Litigation  with respect to  Partnership.  Except as set forth on
Exhibit  I there  is no  action,  suit or  proceeding  pending  or  known  to be
threatened  against or affecting the  Partnership  or its property in any court,
before any arbitrator or before or by any  governmental  agency which (a) in any
manner  raises any question  affecting  the validity or  enforceability  of this
Agreement or any other material agreement or instrument to which the Partnership
are a  party  or by  which  they  are  bound  and  that  is or is to be  used in
connection with, or is contemplated by, this Agreement, (b) could materially and
adversely  affect the business,  financial  position or results of operations of
the  Partnership,  (c) could  materially and adversely affect the ability of the
Partnership  perform  its  obligations  hereunder,  or under any  document to be

                                       13

<PAGE>

delivered  pursuant  hereto,  (d) could create a lien on the Property,  any part
thereof or any interest  therein,  or (e) could otherwise  materially  adversely
affect  the  Property,  any part  thereof  or any  interest  therein or the use,
operation, condition or occupancy thereof.

         3.18 Labor Disputes and Agreements.  The  Partnership  currently has no
labor disputes pending or,  threatened as to the operation or maintenance of the
Property or any part  thereof.  The  Partnership  is not a party to any union or
other collective bargaining agreement with employees employed in connection with
the ownership,  operation or maintenance of the Property.  The Acquiror will not
be obligated to give or pay any amount to any employee of the  Partnership,  and
the Acquiror  shall not have any liability  under any pension or profit  sharing
plan that the Partnership may have  established  with respect to the Property or
their or its employees.

         3.19 Financial Information.  To the best of the Contributors' knowledge
except as otherwise  disclosed in writing to the Acquiror  prior to the closing,
for each of the Partnership's  accounting years, when a given year is taken as a
whole, all of the Partnership's financial information previously delivered or to
be  delivered  to the  Acquiror  is and shall be  correct  and  complete  in all
material  respects and presents  accurately the results of the operations of the
Property for the periods indicated, except such statements do not have footnotes
or  schedules  that may  otherwise  be required  by GAAP.  If  requested  by the
Acquiror,  Contributors  will  forward  promptly  all  four-week  period  ending
financial information they receive from the Partnership. Contributors' financial
information is prepared based on information  provided by the Partnership  based
on books and  records  maintained  by the  Partnership  in  accordance  with the
Partnership's  accounting system.  Partnership financial information provided by
the Acquiror has been provided to the Acquiror without any changes or alteration
thereto.  To the best of  Contributors'  knowledge,  since  the date of the last
financial statement included in the Partnership's  financial information,  there
has  been no  material  adverse  change  in the  financial  condition  or in the
operations of the Property.

         3.20  Organizational   Documents.   The  Partnership's   Organizational
Documents  are  in  full  force  and  effect  and  have  not  been  modified  or
supplemented,  and no fact or circumstance  has occurred that, by itself or with
the giving of notice or the passage of time or both,  would constitute a default
thereunder.

         3.21 Operation of Property.  The Contributors covenant that between the
date hereof and the date of Closing  they will make good faith  efforts to cause
the  Partnership  to (a) operate  the  Property  only in the usual,  regular and
ordinary manner consistent with the Partnership's  prior practice,  (b) maintain
their books of account and records in the usual, regular and ordinary manner, in
accordance with sound accounting  principles  applied on a basis consistent with
the basis used in keeping its books in prior years,  and (c) use all  reasonable
efforts to preserve intact their present business  organization,  keep available
the  services  of their  present  officers  and  employees  and  preserve  their
relationships  with suppliers and others having business dealings with them. The
Contributors  shall make good faith  efforts to  encourage  the  Partnership  to
continue  to make good  efforts  to take  guest  room  reservations  and to book
functions  and meetings and otherwise to promote the business of the Property in
generally the same manner as the  Partnership did prior to the execution of this
Agreement.  Except as  otherwise  permitted  hereby,  from the date hereof until
Closing,  the  Contributors  shall use its good faith efforts to ensure that the
Partnership shall not take any action or fail to take action the result of which
(i) would have a  material  adverse  effect on the  Property  or the  Acquiror's
ability  to  continue  the  operation  thereof  after  the  date of  Closing  in
substantially the same manner as presently conducted, (ii) reduce or cause to be

                                       14

<PAGE>

reduced  any room  rents or any  other  charges  over  which  Contributors  have
operational  control,  or  (iii)  would  cause  any of the  representations  and
warranties contained in this Article III to be untrue as of Closing.

         3.22     Intentionally Omitted.

         3.23 Bankruptcy with respect to Partnership.  No Act of Bankruptcy has
occurred with respect to the Partnership.

         3.24  Hazardous  Substances.  Except for  matters in  Partnership's  or
Acquiror's  audits,  Contributors have no knowledge:  (a) of the presence of any
"Hazardous  Substances"  (as  defined  below) on the  Property,  or any  portion
thereof, or, (b) of any spills, releases,  discharges,  or disposal of Hazardous
Substances  that  have  occurred  or are  presently  occurring  on or  onto  the
Property, or any portion thereof, or (c) of the presence of any PCB transformers
serving,  or stored on, the Property,  or any portion thereof,  and Contributors
have no actual  knowledge  of any failure to comply with any  applicable  local,
state and federal environmental laws, regulations, ordinances and administrative
and judicial orders relating to the generation, recycling, reuse, sale, storage,
handling,  transport and disposal of any Hazardous  Substances  (as used herein,
"Hazardous  Substances"  shall mean any  substance or material  whose  presence,
nature,  quantity  or  intensity  of  existence,  use,  manufacture,   disposal,
transportation,  spill,  release or effect,  either by itself or in  combination
with other materials is either: (1) potentially  injurious to the public health,
safety or welfare, the environment or the Property, (2) regulated,  monitored or
defined  as a  hazardous  or  toxic  substance  or  waste  by any  Environmental
Authority,  or (3) a basis for  liability  of the owner of the  Property  to any
Environmental  Authority or third party, and Hazardous Substances shall include,
but not be limited  to,  hydrocarbons,  petroleum,  gasoline,  crude oil, or any
products,  by-products or components  thereof,  and  asbestos).  Notwithstanding
anything to the contrary  contained herein  Contributors shall have no liability
to Acquiror for any Hazardous  Substances of which  Contributors  have no actual
knowledge.

         3.25 Room Furnishings.  All public spaces, lobbies, meeting rooms, and
each  room  in the  Hotel  available  for  guest  rental  is  furnished  in
accordance with Licensor's standards for the Hotel and room type.

         3.26  License.  The  license  from  Choice  Hotels  International  (the
"Licensor")  with respect to the Hotel (the  "License")  is, and at Closing will
be, valid and in full force and effect,  and  Contributors  will make good faith
efforts not to be in default with respect thereto (with or without the giving of
any required notice and/or lapse of time).

         3.27 Independent Audit. Contributors shall provide access by Acquiror's
representatives, to all financial and other information relating to the Property
which would be sufficient to enable them to prepare audited financial statements
in conformity with Regulation S-X of the Securities and Exchange Commission (the
"Commission")  and to enable them to prepare report or disclosure  statement for
filing  with the  Commission.  Contributors  shall also  provide  to  Acquiror's

                                       15
<PAGE>

representatives a signed  representative letter and a hold harmless letter which
would be  sufficient  to enable an  independent  public  accountant to render an
opinion on the financial statements related to the Property.

          3.28 Bulk  Sale  Compliance.  Contributors  shall  indemnify  Acquiror
against  any  claim,  loss or  liability  arising  under  the bulk  sales law in
connection with the transaction contemplated herein.

          3.29 Intentionally Omitted.

          3.30  Sufficiency  of Certain  Items.  The Property  contains not less
than:

                  (a) a  sufficient  amount  of  furniture,  furnishings,  color
television sets, carpets,  drapes, rugs, floor coverings,  mattresses,  pillows,
bedspreads  and the like,  to furnish  each guest room,  so that each such guest
room is, in fact, fully furnished; and

                  (b) a sufficient amount of towels,  washcloths and bed linens,
so that  there are three sets of  towels,  washcloths  and linens for each guest
room (one on the beds,  one on the shelves,  and one in the  laundry),  together
with a sufficient supply of paper goods, soaps, cleaning supplies and other such
supplies and materials,  as are reasonably adequate for the current operation of
the Hotel.

         3.31  Noncompetition.  If Contributors develop or acquire other lodging
facilities, not owned at the time of the execution of this Agreement,  within 15
miles of any facility  owned or to be owned by the  Acquiror,  the  Contributors
shall give the  Acquiror the option to purchase the facility for a period of two
years following the opening or acquisition of such facility.

         3.32 Leases.  True, complete copies of the Leases, if any, are attached
as Exhibit D hereto.  The Leases are,  and will at Closing be, in full force and
effect and Contributors,  is not in default and will make good faith efforts not
to be in default with respect  thereto (with or without the giving of any notice
and/or lapse of time). The Leases are, or will be at Closing,  freely assignable
by  Contributors  and  Contributors  will have  obtained  all necessary consents
of any third party.

         3.33 Securities Law Matters. Contributors further represent and warrant
that  they have (i)  received,  reviewed,  been  given  the  opportunity  to ask
questions  of  representatives  of  the  Operating   Partnership  and  the  REIT
regarding,  and understand the Acquiror's Partnership Agreement, as amended, and
each filing of the REIT under the Securities Act, and (ii)  Contributors and the
Transferees are "accredited investors" as defined under Regulation D promulgated
under the Securities Act.

         3.34  Tax  Matters  with  Respect  to  Contributors.  The  Contributors
represent  and warrant that they (and each of its  partners)  have obtained from
its own counsel advice regarding the tax consequences of (i) the transfer of the
Partnership  Interest to the  Acquiror and the receipt of  Partnership  Units or

                                       16
<PAGE>

lawful  money  of  the  United  States  as  consideration   therefor,  (ii)  the
Contributors'  admission  as  partners  of the  Acquiror,  and  (iii)  any other
transaction  contemplated by this Agreement.  The Contributors further represent
and  warrant  that  they  have not  relied  on the  Acquiror  or the  Acquiror's
representatives or counsel for such advice.

         3.35   Noncontravention.   The  execution  and  delivery  of,  and  the
performance by the Contributors of their obligations under this Agreement do not
and will not  contravene,  or  constitute  a default  under,  any  provision  of
applicable law or regulation, the Contributors'  Organizational Documents or any
agreement,  judgment, injunction, order, decree or other instrument binding upon
the Contributors,  or result in the creation of any lien or other encumbrance on
any asset of the Contributor.  There are no outstanding  agreements  (written or
oral)   pursuant  to  which  the   Contributors   (or  any   predecessor  to  or
representative of the Contributors) have agreed to contribute or have granted an
option or right of first refusal to acquire the Property or any part thereof.

         Each of the representations, warranties and covenants contained in this
Article III and its various  subparagraphs  are  intended for the benefit of the
Acquiror and may be waived in whole or in part, by the Acquiror,  but only by an
instrument  in writing  signed by the  Acquiror.  Each of said  representations,
warranties  and  covenants   shall  survive  the  closing  of  the   transaction
contemplated  hereby for twenty-four (24) months,  and no investigation,  audit,
inspection,  review or the like  conducted by or on behalf of the Acquiror shall
be deemed to terminate the effect of any such  representations,  warranties  and
covenants,  it being  understood that the Acquiror has the right to rely thereon
and that each such representation,  warranty and covenant constitutes a material
inducement  to  the  Acquiror  to  execute  this  Agreement  and  to  close  the
transaction   contemplated   hereby  and  to  pay  the   Consideration   to  the
Contributors.   Acquiror   acknowledges   and  agrees   that,   except  for  the
representations and warranties expressly set forth herein, Acquiror is acquiring
the Property "AS-IS,  WHERE-IS" with no representations or warranties by or from
Contributors  or  any of its  affiliates,  express  or  implied,  or any  nature
whatsoever.

                                   ARTICLE IV
              ACQUIROR'S REPRESENTATIONS, WARRANTIES AND COVENANTS

         To induce the Contributors to enter into this Agreement and to sell the
Interests, the Acquiror hereby makes the following  representations,  warranties
and  covenants  with  respect to the  Property,  upon each of which the Acquiror
acknowledges  and agrees  that the  Contributors  are  entitled to rely and have
relied:

         4.1 Organization and Power. The Acquiror is a limited  partnership duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
Commonwealth of Virginia,  and has all partnership  powers and all  governmental
licenses, authorizations, consents and approvals to carry on its business as now
conducted and to enter into and perform its obligations under this Agreement and
any document or  instrument  required to be executed and  delivered on behalf of
the Acquiror hereunder.

                                       17

<PAGE>

         4.2 Noncontravention.  The execution and delivery of this Agreement and
the performance by the Acquiror of its obligations hereunder do not and will not
contravene,  or constitute a default under,  any provisions of applicable law or
regulation,  the Acquiror's  partnership  agreement or any agreement,  judgment,
injunction,  order,  decree or other  instrument  binding  upon the  Acquiror or
result  in the  creation  of any lien or other  encumbrance  on any asset of the
Acquiror.

         4.3  Litigation.  There is no action,  suit or  proceeding,  pending or
known to be threatened, against or affecting the Acquiror in any court or before
any  arbitrator or before any  Governmental  Body which (a) in any manner raises
any question  affecting the validity or  enforceability of this Agreement or any
other agreement or instrument to which the Acquiror is a party or by which it is
bound and that is to be used in  connection  with, or is  contemplated  by, this
Agreement,  (b) could  materially and adversely  affect the business,  financial
position or results of  operations  of the Acquiror,  (c) could  materially  and
adversely  affect the ability of the  Contributors to perform their  obligations
hereunder,  or under any document to be  delivered  pursuant  hereto,  (d) could
create a lien on the Property,  any part thereof or any interest  therein or (e)
could adversely affect the Property, any part thereof or any interest therein or
the use, operation, condition or occupancy thereof.

          4.4 Bankruptcy.  No Act of Bankruptcy has occurred with respect to the
Acquiror.

         4.5 No Brokers. The Acquiror has not engaged the services of, nor is it
or will it become liable to, any real estate agent, broker,  finder or any other
person or entity for any brokerage or finder's  fee,  commission or other amount
with respect to the transaction described herein.

                                    ARTICLE V
                       CONDITIONS AND ADDITIONAL COVENANTS

         The Acquiror's obligations hereunder are subject to the satisfaction of
the following  conditions  precedent and the compliance by the Contributors with
the following covenants:

          5.1 Contributors' Deliveries. The Contributors shall have delivered to
the Escrow Agent or the  Acquiror,  as the case may be, on or before the date of
Closing,  all of the documents and other  information  required of  Contributors
pursuant to Section 6.2.

         5.2   Representations,   Warranties  and   Covenants;   Obligations  of
Contributors;   Certificate.  All  of  the  Contributors'   representations  and
warranties  made in this  Agreement  shall  be true and  correct  as of the date
hereof and as of the date of Closing as if then made,  there shall have occurred
no material adverse change in the financial  condition of the Property since the
date hereof, the Contributors shall have performed all of its material covenants
and other  obligations  under this  Agreement  and the  Contributors  shall have
executed and delivered to the Acquiror at Closing a certificate to the foregoing
effect.

                                       18
<PAGE>

         5.3 Title Insurance. Good and indefeasible fee simple title to the Real
Property  shall be  insurable  as such by the  Title  Company  at or  below  its
regularly  scheduled  rates  subject  only  to  Permitted  Title  Exceptions  as
determined in accordance with Section 2.2.

         5.4      Intentionally Omitted.

         5.5  Condition  of  Improvements.  The  Improvements  and the  Tangible
Personal  Property  (including  but  not  limited  to  the  mechanical  systems,
plumbing,  electrical,  wiring, appliances,  fixtures, heating, air conditioning
and ventilating equipment,  elevators,  boilers,  equipment,  roofs,  structural
members and furnaces)  shall be in the same  condition at Closing as they are as
of the date hereof,  reasonable  wear and tear excepted.  Prior to Closing,  the
Contributors  shall not have  diminished  the quality or quantity of maintenance
and upkeep  services  heretofore  provided to the Real Property and the Tangible
Personal Property and the Contributors  shall not have diminished the Inventory.
The Contributors shall not have removed or caused or permitted to be removed any
part or portion of the Real Property or the Tangible  Personal  Property  unless
the same is replaced,  prior to Closing,  with  similar  items of at least equal
quality and acceptable to the Acquiror.

         5.6 Utilities. All of the Utilities shall be installed in and operating
at the  Property,  and service shall be available for the removal of garbage and
other waste from the Property.

         5.7      Intentionally Omitted.

         5.8 License.  From the date hereof to and  including  the Closing Date,
Contributors  shall comply with and perform all of the duties and obligations of
licensee under the License.

         5.9      Intentionally Omitted.

                                   ARTICLE VI
                                     CLOSING

         6.1  Closing.  Closing  shall be held at a location  that is  mutually
acceptable to the parties, on or before March 8, 2000.

         6.2  Contributors'  Deliveries.  At  Closing,  the  Contributors  shall
deliver to Acquiror all of the following  instruments,  each of which shall have
been  duly  executed  and,  where  applicable,  acknowledged  on  behalf  of the
Contributors and shall be dated as of the date of Closing:

                    (a) The certificate required by Section 5.2.

                    (b) The Assignment and Assumption Agreements.

                    (c)  Certificate(s)/Registration  of Title  for any  vehicle
owned by the Contributors and used in connection with the Property.

                                       19
<PAGE>

                    (d) Such agreements, affidavits or other documents as may be
required by the Title  Company to issue the Owner's  Title Policy with affirma-
tive coverage over mechanics' and materialmen's liens.

                    (e) The FIRPTA Certificates.

                    (f) True, correct and complete copies of all warranties,  if
any, of  manufacturers,  suppliers  and  installers  possessed  by the Contri-
butors  and  relating  to  the  Improvements  and  the  Personal Property, or
any part thereof.

                    (g)   Certified   copies  of  the   Contributors'   and  the
Partnership's Organizational Documents.

                    (h)   Appropriate   resolutions   of  the  partners  of  the
Contributors,  together with all other  necessary  approvals and consents of the
Contributors,  authorizing  (A) the execution on behalf of the  Contributors  of
this   Agreement  and  the  documents  to  be  executed  and  delivered  by  the
Contributors  prior to, at or otherwise in connection with Closing,  and (B) the
performance  by the  Contributors  of its  obligations  hereunder and under such
documents.

                    (i)  Valid,   final  and  unconditional   certificate(s)  of
occupancy  for the Real  Property and  Improvements,  issued by the  appropriate
governmental authority.

                    (j) The written  consent of the  Licensor to the transfer of
the license, if applicable, and if so required.

                    (k) Such proof as the Acquiror may  reasonably  require with
respect  to  Contributors'  compliance  with  the  bulk  sales  laws or  similar
statutes.

                    (l) A  written  instrument  executed  by  the  Contributors,
conveying and transferring to the Acquiror all of the Contributors' right, title
and interest in any  telephone  numbers and  facsimile  numbers  relating to the
Property, and, if the Contributors maintains a post office box, conveying to the
Acquiror  all of its  interest  in and to such post  office  box and the  number
associated   therewith,   so  as  to  assure  a  continuity   in  operation  and
communication.

                    (m) All current real estate and personal  property tax bills
in the Contributors' possession or under its control.

                    (n) A complete set of all guest  registration  cards,  guest
transcripts, guest histories, and all other available guest information.

                    (o) An updated  schedule of employees,  showing salaries and
duties with a statement of the length of service of each such employee,  brought
current to a date not more than 48 hours prior to the Closing.

                                       20
<PAGE>

                    (p) A  complete  list  of  all  advance  room  reservations,
functions  and the like,  in  reasonable  detail so as to enable the Acquiror to
honor the Contributors' commitments in that regard.

                    (q)  A  list  of  the  Contributors'   outstanding  accounts
receivable as of midnight on the date prior to the Closing,  specifying the name
of each account and the amount due the Contributors.

                    (r) Intentionally Omitted

                    (s) All keys for the Property.

                    (t)  All  books,  records,   operating  reports,   appraisal
reports,  files and other materials in the  Contributors'  possession or control
which are  necessary  in the  Acquirors  discretion  to maintain  continuity  of
operation of the Property.

                    (u) To the extent permitted under applicable law,  documents
of transfer  necessary to transfer to the Acquiror the Contributors'  employment
rating for workmens' compensation and state unemployment tax purposes.

                    (v) An assignment of all warranties and guarantees  from all
contractors  and  subcontractors,  manufacturers,  and  suppliers in effect with
respect to the Improvements.

                    (w)   Complete   set  of   "as-built"   drawings   for   the
Improvements.

                    (x) Such agreements, affidavits or other documents as may be
required  by the Title  Company  in order to issue  affirmative  mechanics  lien
coverage in the Owner's Title Policy for the Property.

                    (y) a  completed  version  of  the  Questionnaire  from  the
Contributors and each Transferee.

                    (z) Any other document or instrument reasonably requested by
the Acquiror or required hereby.

      6.3 Acquiror's  Deliveries. At Closing,  the Acquiror shall pay or deliver
to the Contributors the following:

                    (a) The Consideration described in Section 2.3.

                    (b) The Assignment and Assumption Agreements.

                    (c) The certificates described in Section 2.5 evidencing the
Transferees  ownership  of  the  Partnership  Units  and  the  admission  of the
Transferees as limited partners in the Acquiror.

                                       21
<PAGE>

                    (d) Any other document or instrument reasonably requested by
the Contributors or required hereby.

         6.4 Closing Costs.  The Acquiror shall pay all legal fees and expenses.
All filing fees for the recording or other similar taxes due with respect to the
transfer of title and all charges for title insurance  premiums shall be paid by
the Acquiror.  The Acquiror shall pay reasonable fees for the preparation of the
documents to be delivered by the Contributor  hereunder.  Contributor  shall pay
for  the  releases  of  any  deeds  of  trust,  mortgages  and  other  financing
encumbering  the  Property  and for any  costs  associated  with any  corrective
instruments.  The Acquiror  shall pay all other costs,  including  all franchise
license transfer fees, in carrying out the transactions contemplated hereunder.

         6.5 Income and Expense Allocations.  All income,  except any Intangible
Personal Property,  and expenses with respect to the Property, and applicable to
the period of time before and after Closing, determined in accordance with sound
accounting  principles  consistently  applied,  shall be  allocated  between the
Contributors and the Acquiror.  The Contributors shall be entitled to all income
(including all cash box receipts and cash credits for unused  expendables),  and
responsible  for all  expenses  for the  period of time up to but not  including
12:01 a.m. on the Closing Date, and the Acquiror shall be entitled to all income
and  responsible  for all  expenses  for the  period  of time  from,  after  and
including the Closing Date. Only adjustments for ground rent, if applicable, and
real  estate  taxes  shall be  shown on the  settlement  statements  (with  such
supporting  documentation  as the parties  hereto may require being  attached as
exhibits to the  settlement  statements)  and shall increase or decrease (as the
case may be) the amount  payable  by the  Acquiror.  All other such  adjustments
shall be made by separate  agreement between the parties and shall be payable by
check or wire directly  between the parties.  Without limiting the generality of
the foregoing,  the following  items of income and expense shall be allocated as
of the Closing Date:

                   (a) Current and prepaid rents, including, without limitation,
prepaid room receipts, function receipts and other reservation receipts.

                   (b)  Real estate and personal property taxes.

                   (c) Amounts under the Operating Agreements.

                   (d) Utility  charges  (including  but not limited to charges
for water, sewer and electricity).

                   (e) Wages,  vacation pay,  pension and welfare  benefits and
other fringe  benefits of all persons  employed at the Property who the Acquiror
elects to employ.

                   (f) Value of fuel  stored on the  Property at the price paid
for such fuel by the Contributors, including any taxes.

                                       22
<PAGE>

                   (g)  All  prepaid   reservations  and  contracts  for  rooms
confirmed by Contributors  prior to the Closing Date for dates after the Closing
Date, all of which Acquiror shall honor.

         The Tray Ledger shall be retained by the Contributors. The Contributors
shall be required to pay all sales taxes and similar impositions currently up to
the Closing Date.

         Acquiror  shall not be obligated to collect any accounts  receivable or
revenues  accrued  prior to the Closing Date for  Contributors,  but if Acquiror
collects same,  such amounts will be promptly  remitted to  Contributors  in the
form received.

         If accurate allocations cannot be made at Closing because current bills
are not obtainable (as, for example, in the case of utility bills or tax bills),
the  parties  shall  allocate  such  income or  expenses  at Closing on the best
available  information,  subject to adjustment upon receipt of the final bill or
other  evidence  of the  applicable  income or expense.  Any income  received or
expense  incurred  by the  Contributors  or the  Acquiror  with  respect  to the
Property  after the date of Closing  shall be promptly  allocated  in the manner
described herein and the parties shall promptly pay or reimburse any amount due.
The  Contributors  shall  pay at  Closing  all  special  assessments  and  taxes
applicable to the Property.

         The  certificates   evidencing  the  Contributors'   ownership  of  the
Partnership  Units will be dated as of the Closing  Date,  and the  Contributors
will be  entitled  to any  dividends  accruing  thereon on and after the Closing
Date.

                                   ARTICLE VII
                           CONDEMNATION; RISK OF LOSS

         7.1  Condemnation.  In the event of any  actual or  threatened  taking,
pursuant  to the power of  eminent  domain,  of all or any  portion  of the Real
Property,  or any proposed sale in lieu  thereof,  the  Contributors  shall give
written notice thereof to the Acquiror promptly after the Contributors learns or
receives  notice  thereof.  If all or any part of the Real Property is, or is to
be, so condemned or sold,  the Acquiror  shall have the right to terminate  this
Agreement  pursuant to Section 8.3. If the Acquiror elects not to terminate this
Agreement,  all  proceeds,  awards  and  other  payments  arising  out  of  such
condemnation  or sale  (actual  or  threatened)  shall be paid or  assigned,  as
applicable, to the Acquiror at Closing.

         7.2 Risk of Loss.  The risk of any loss or damage to the Property prior
to the Closing shall remain upon the Contributors. If any such loss or damage to
more than  twenty five  percent  (25%) of the value of the  improvements  occurs
prior to Closing,  the Acquiror shall have the right to terminate this Agreement
pursuant to Section 8.3. If the Acquiror elects not to terminate this Agreement,
all insurance proceeds and rights to proceeds arising out of such loss or damage
shall be paid or assigned, as applicable, to the Acquiror at Closing.

                                       23
<PAGE>

                                  ARTICLE VIII
             LIABILITY OF ACQUIROR; INDEMNIFICATION BY CONTRIBUTORS;
                               TERMINATION RIGHTS

         8.1 Liability of Acquiror.  Except for any obligation expressly assumed
or agreed to be assumed by the  Acquiror  hereunder  and in the  Assignment  and
Assumption  Agreement,  the  Acquiror  does not  assume  any  obligation  of the
Contributors or any liability for claims arising out of any occurrence  prior to
Closing.

         8.2   Indemnification   by  Contributors.   The   Contributors   hereby
indemnifies and holds the Acquiror harmless from and against any and all claims,
costs,  penalties,   damages,   losses,   liabilities  and  expenses  (including
reasonable  attorneys'  fees),  subject to Section  9.11 that may at any time be
incurred by the Acquiror,  whether before or after  Closing,  as a result of any
breach by the Contributors of any of its representations,  warranties, covenants
or  obligations  set  forth  herein or in any other  document  delivered  by the
Contributors pursuant hereto.

         8.3  Termination by Acquiror.  If any condition set forth herein cannot
or will not be satisfied  prior to Closing,  or upon the occurrence of any other
event that would  entitle  the  Acquiror to  terminate  this  Agreement  and its
obligations hereunder, and the Contributors fails to cure any such matter within
ten business days after notice thereof from the Acquiror,  the Acquiror,  at its
option  and as its  sole  remedy,  shall  elect  either  (a) to  terminate  this
Agreement  and all other  rights and  obligations  of the  Contributors  and the
Acquiror  hereunder  shall terminate  immediately,  or (b) to waive its right to
terminate and, instead, to proceed to Closing.

         8.4  Termination by  Contributors.  If, prior to Closing,  the Acquiror
defaults in performing any of its  obligations  under this Agreement  (including
its  obligation to purchase the  Property),  and the Acquiror  fails to cure any
such  default   within  ten  business   days  after  notice   thereof  from  the
Contributors,  then the  Contributors'  sole remedy for such default shall be to
terminate this Agreement.

                                   ARTICLE IX
                            MISCELLANEOUS PROVISIONS

         9.1 Completeness;  Modification.  This Agreement constitutes the entire
agreement   between  the  parties  hereto  with  respect  to  the   transactions
contemplated  hereby  and  supersedes  all  prior  discussions,  understandings,
agreements and  negotiations  between the parties hereto.  This Agreement may be
modified only by a written instrument duly executed by the parties hereto.

         9.2  Assignments.  The Acquiror may assign its rights  hereunder to any
affiliate  of  Acquiror  without  the  consent  of  the  Contributors.  No  such
assignment  shall relieve the Acquiror of any of its obligations and liabilities
hereunder.

         9.3 Successors and Assigns.  The benefits and burdens of this Agreement
shall inure to the benefit of and bind the  Acquiror  and the  Contributors  and
their respective party hereto.
                                       24
<PAGE>

         9.4 Days. If any action is required to be performed,  or if any notice,
consent or other  communication  is given, on a day that is a Saturday or Sunday
or a legal  holiday in the  jurisdiction  in which the action is  required to be
performed or in which is located the intended recipient of such notice,  consent
or other  communication,  such performance  shall be deemed to be required,  and
such notice,  consent or other communication shall be deemed to be given, on the
first  business day following such  Saturday,  Sunday or legal  holiday.  Unless
otherwise  specified  herein,  all references  herein to a "day" or "days" shall
refer to calendar days and not business days.

        9.5 Governing Law. This Agreement and all documents referred to herein
shall be governed by and construed and  interpreted in accordance  with the laws
of the Commonwealth of Pennsylvania.

         9.6  Counterparts.  To  facilitate  execution,  this  Agreement  may be
executed in as many  counterparts as may be required.  It shall not be necessary
that the signature on behalf of both parties  hereto appear on each  counterpart
hereof.  All  counterparts   hereof  shall  collectively   constitute  a  single
agreement.

         9.7 Severability. If any term, covenant or condition of this Agreement,
or the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons or circumstances, shall not be
affected thereby,  and each term,  covenant or condition of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.

         9.8 Costs.  Regardless of whether Closing occurs hereunder,  and except
as otherwise  expressly provided herein,  each party hereto shall be responsible
for its own  costs  in  connection  with  this  Agreement  and the  transactions
contemplated hereby,  including without limitation fees of attorneys,  engineers
and accountants.

         9.9 Notices.  All notices,  requests,  demands and other communications
hereunder  shall be in writing and shall be  delivered by hand,  transmitted  by
facsimile  transmission,  sent  prepaid  by  Federal  Express  (or a  comparable
overnight  delivery  service)  or sent by the  United  States  mail,  certified,
postage prepaid, return receipt requested, at the addresses and with such copies
as  designated  below.  Any  notice,  request,  demand  or  other  communication
delivered or sent in the manner  aforesaid shall be deemed given or made (as the
case may be) when actually delivered to the intended recipient.

                                       25
<PAGE>

If to the Contributors:             Kiran P. Patel
                                    Hersha Enterprises, Ltd.
                                    148 Sheraton Drive, Box A
                                    New Cumberland, PA 17070
                                    Phone:(717) 770-2405
                                    Fax:(717)  774-7383

With a copy to:                     Jay H. Shah, Esquire
                                    The Shah Law Firm
                                    The Lafayette Building
                                    437 Chestnut Street, Suite 615
                                    Philadelphia. PA 19106
                                    Phone:(215) 238-1045
                                    Fax:(215) 238-0157

If to the Acquiror:
                                    Hasu P. Shah
                                    Hersha Hospitality Trust
                                    148 Sheraton Drive, Box A
                                    New Cumberland, PA 17070
                                    Phone:(717) 770-2405
                                    Fax:(717)  774-7383

With a copy to:                     Jay H. Shah, Esquire
                                    The Shah Law Firm
                                    The Lafayette Building
                                    437 Chestnut Street, Suite 615
                                    Philadelphia, PA 19106
                                    Phone: (215) 238-1045
                                    Fax: (215) 238-0157

Or to such other  address as the  intended  recipient  may have  specified  in a
notice to the other party.  Any party hereto may change its address or designate
different or other persons or entities to receive  copies by notifying the other
party and the Escrow Agent in a manner described in this Section.

          9.10  Incorporation by Reference.  All of the exhibits attached hereto
are by this reference incorporated herein and made a part hereof.

         9.11 Survival.  All of the representations,  warranties,  covenants and
agreements  of the  Contributors  and the Acquiror made in, or pursuant to, this
Agreement,  including  the  confidentiality  provision  of Article  9.15 of this
Agreement,  shall  survive for a period of  twenty-four  (24)  months  following
Closing  and  shall not merge  into any  document  or  instrument  executed  and
delivered in connection herewith.

                                       26
<PAGE>

         9.12  Further  Assurances.  The  Contributors  and  the  Acquiror  each
covenant and agree to sign, execute and deliver, or cause to be signed, executed
and delivered,  and to do or make, or cause to be done or made, upon the written
request of the other party, any and all agreements,  instruments, papers, deeds,
acts or things,  supplemental,  confirmatory or otherwise,  as may be reasonably
required  by either  party  hereto  for the  purpose  of or in  connection  with
consummating the transactions described herein.

         9.13 No Partnership. This Agreement does not and shall not be construed
to create a  partnership,  joint venture or any other  relationship  between the
parties hereto except the relationship of Contributors and Acquiror specifically
established hereby.

          9.14 Time of  Essence.  Time is of the essence  with  respect to every
provision hereof.

                                       27
<PAGE>

          9.15 Confidentiality.  Except as hereinafter provided,  from and after
the execution of this Agreement,  the Acquiror and the  Contributors  shall keep
the terms,  conditions and provisions of this Agreement confidential and neither
shall make any public  announcements  hereof unless the other first  approves of
same in writing, nor shall either disclose the terms,  conditions and provisions
hereof,  except  to  persons  who  "need  to  know",  such as  their  respective
attorneys,   accountants,   engineers,   surveyors,   financiers   and  bankers.
Notwithstanding  the foregoing,  it is acknowledged  that the general partner of
the Acquiror has elected to be a real estate  investment trust ("REIT") and that
the REIT has sold shares and may seek to sell  additional  shares to the general
public and that in connection therewith, the Acquiror will have the absolute and
unbridled  right to market such securities and prepare and file all necessary or
reasonably required registration  statements,  disclosure statements,  and other
papers,  documents  and  instruments  necessary  or  reasonably  required in the
Acquiror's  judgment and that of its attorneys and underwriters  with respect to
the REIT's  shares  with the U.S.  Securities  and  Exchange  Commission  and/or
similar state  authorities and to cause same to become effective and to disclose
therein  and thus to its  underwriters,  to the  U.S.  Securities  and  Exchange
Commission  and/or to  similar  state  authorities  and to the public all of the
terms, conditions and provisions of this Agreement.

         IN WITNESS WHEREOF,  the Contributors and the Acquiror have caused this
Agreement  to be  executed in their  names by their  respective  duly-authorized
representatives.

                      CONTRIBUTORS:

                      SHREE ASSOCIATES, a Pennsylvania limited partnership

                      By:  _______________________
                              Hasu P. Shah, General Partner

                      JSK II ASSOCIATES, a Pennsylvania limited partnership

                      By:  _______________________
                              Jay H. Shah, General Partner

                      SHREEJI ASSOCIATES, a Pennsylvania limited partnership

                      By: ______________________________
                             Rajendra O. Gandhi, General Partner

                                       28
<PAGE>

                      KUNJ ASSOCIATES a Pennsylvania limited partnership

                      By: ______________________________
                             Kiran P. Patel, General Partner

                      SHANTI III ASSOCIATES a Pennsylvania limited partnership

                      By: ________________________
                             K. D. Patel, General Partner

                      DEVI ASSOCIATES a Pennsylvania limited partnership

                      By: ___________________________
                             Bharat C. Mehta, General Partner

                      NEIL H. SHAH, individually

                      By: ______________________
                             Neil H. Shah

                      DAVID L. DESFOR, individually

                      By: _______________________
                             David L. Desfor

                      SHREENATHJI ENTERPRISES, LTD., a Pennsylvania
                      corporation

                      By: _____________________
                            Kiran P. Patel, Secretary

                      ACQUIROR:

                      HERSHA HOSPITALITY LIMITED PARTNERSHIP, a Virginia
                      limited partnership

                      By:      HERSHA HOSPITALITY TRUST, a Maryland
                               business trust, its sole general partner

                               By:
                                  ------------------------------------
                                        Hasu P. Shah, President

                                       29

<PAGE>

                                    EXHIBIT A

                                LEGAL DESCRIPTION

<PAGE>

                                    EXHIBIT B

                              EMPLOYMENT AGREEMENTS

<PAGE>

                                    EXHIBIT C

                               INSURANCE POLICIES

<PAGE>

                                    EXHIBIT D

                                     LEASES

<PAGE>

                                    EXHIBIT E

                              OPERATING AGREEMENTS

<PAGE>

                                    EXHIBIT F

                       CONTRIBUTORS' PARTNERSHIP AGREEMENT

<PAGE>

                                    EXHIBIT G

                CONTRIBUTORS' CERTIFICATE OF LIMITED PARTNERSHIP

<PAGE>

                                    EXHIBIT H

                     CONTRIBUTORS' WARRANTIES AND GUARANTIES

<PAGE>

                                    EXHIBIT I

                               LITIGATION SCHEDULE

                                      NONE

<PAGE>

                                    EXHIBIT J

                           ALLOCATION OF CONSIDERATION

Hotel:
         Land                                          $____________

         Tangible Personal Property                     ____________

         Intangible Personal Property                   ____________
                                                        ____________

TOTAL                                                  $
                                                        ------------
                                                        ------------

<PAGE>

                                    EXHIBIT K

Transferee                                         Number of Partnership Units
----------                                         ---------------------------

<PAGE>

                                    EXHIBIT L

                             INVESTOR QUESTIONNAIRE

                                  AND AGREEMENT

<PAGE>

                      AGREEMENT AND INVESTOR QUESTIONNAIRE

         THIS AGREEMENT AND INVESTOR  QUESTIONNAIRE is dated as of         ,
2000 by and  between         (the "Investor") and Hersha Hospitality Limited
Partnership, a Virginia limited partnership (the "Partnership").

          WHEREAS,   the  Investor  has  entered  into  a  certain  Contribution
Agreement dated as of          , 2000 (the "Contribution  Agreement"),  pursuant
to  which  the    Investor is  contributing  certain  assets  described  in the
Contribution Agreement (the   "Assets")  in  exchanges for Limited Partner Units
("Units") issued by the Partnership; and

         WHEREAS,  in order to comply with certain  exemptions from registration
under the  Securities Act of 1933, as amended (the  "Securities  Act") and state
securities laws, the Partnership must determine  whether the Investor  qualifies
as an "accredited  investor" (as defined in Regulation D promulgated pursuant to
the Securities Act);

         NOW, THEREFORE, in consideration of the foregoing,  and intending to be
legally bound hereby, the Investor and the Partnership agree as follows:

         1.       Representations and Agreements of the Investor

         (a)  The  Investor   acknowledges,   represents  and  warrants  to  the
Partnership  that the  Investor,  pursuant to and by reason of the knowledge and
experience  of the Investor in business and  financial  matters in general,  and
investments  in the same type of  security  or issuer as the  securities  of the
Company in particular (which  experience,  education and business  background is
summarized in the responses to the questions set forth below),  the  undersigned
is capable of evaluating and has in fact evaluated an investment in the Units.

         (b)  The  Investor  acknowledges  that  he,  she  or  it  has  had  the
opportunity to request,  has received and reviewed,  and fully  understands  any
information  the Investor deems  necessary or appropriate to evaluate the merits
and risks of the exchange of the Assets for the Units.  The undersigned  further
acknowledges that he, she or it has had sufficient  opportunity to ask questions
of, and receive answers from,  representatives of the Partnership concerning the
terms of the exchange pursuant to the Contribution Agreement and the information
received concerning the Partnership.

         (c) To  the  best  of the  knowledge  of  the  undersigned,  all of the
statements made by the Investor in the Investor Questionnaire attached hereto as
Exhibit A are true, complete and accurate.

         (d) The Investor hereby  acknowledges  and  understands  that the Units
will be issued pursuant to an exemption from  registration  under the Securities
Act and the securities laws of the state where the Investor maintains his or her
domicile (if the Investor is an individual)  or principal  place of business (if

                                      -42-
<PAGE>

the Investor is not a natural person),  and that the Units may not be offered or
sold unless first  registered  under the Securities Act and any applicable state
securities laws or unless such offer or sale is exempt from such registration.

         (e) The Investor is acquiring the Units for investment purposes, has no
current intention to sell the Units, and will not sell the Units in violation of
applicable state and federal securities laws.

         (f) The  Investor  has full power and  authority to execute and deliver
this Investor  Questionnaire and Agreement,  the Investor  Questionnaire and the
Power of Attorney and to carry out the  transactions  contemplated  hereby,  and
this  Agreement,  the Investor  Questionnaire  Power of Attorney  constitute the
valid and binding obligations of the Investor,  enforceable against the Investor
in accordance with their terms.

         IN WITNESS WHEREOF, the Investor and the Partnership have duly executed
this  Agreement,  or have caused  this  Agreement  to be duly  executed on their
behalf, as of the date and year first above written.

Witness:

-----------------------------      -------------------------------------------
                                                    [Investor]

                                   HERSHA HOSPITALITY LIMITED PARTNERSHIP

Attest:                            By:      Hersha Hospitality Trust, a Maryland
                                            business trust, its General Partner

_____________________________      By:_________________________________________
                                      Name:____________________________________
                                      Title:___________________________________

                                      -43-
<PAGE>

                                    EXHIBIT A

                  INVESTOR SUITABILITY EVALUATION QUESTIONNAIRE

1)       Investor
         Name:____________________________________

2)       Investor
         Address:_________________________________
         _________________________________________
         _________________________________________
         _________________________________________

         Address of
         Principal
         Residence (if Investor is an individual and if different from above):
         _________________________________________
         _________________________________________
         _________________________________________
         _________________________________________

3)       Phone Number:

         Business:________________________

         Principal
         Residence:_______________________

4)       Social Security Number or Taxpayer Identification Number:___________

5)       Occupation (if Investor is an individual) or nature of business
         (if Investor is an entity):__________________________________________

6)       Previous Illiquid Investment Activity:

         Please  describe your  investment  activities  in illiquid  investments
(e.g.,  private  placements  of  securities,  investment  partnerships,  venture
capital  investments,  real  estate  investments)  during the past  three  years
(Attach additional sheets if necessary):

<PAGE>

<TABLE>
<CAPTION>

------------------------------------- ----------------------------------- -----------------------------------
         Type of Investment                   Date of investment               Aggregate Dollar Amount
<S> <C>
------------------------------------- ----------------------------------- -----------------------------------

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

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

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

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

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

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

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

</TABLE>

7)  Education Background (if Investor is an individual):

_____ High School Degree
_____ College Degree    Major: __________________
_____ Graduate Degree   Major: __________________
_____ Other (describe): _________________________

8)  Type Of Entity (if Investor is an entity):

Corporation ______

General Partnership ______

Limited Partnership ______

Limited Liability Company ______

Limited Liability Partnership _______

Trust _______

Other entity (describe): ____________________________

Exhibit L
Page 2

<PAGE>

(a) Owners of or parties in interest of such  entity (add  additional  sheets if
required):

<TABLE>
<CAPTION>

------------------------------------- ----------------------------------- -----------------------------------
           Name of owner                           Address                        % of entity owned
<S> <C>
------------------------------------- ----------------------------------- -----------------------------------

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

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

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

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

------------------------------------- ----------------------------------- -----------------------------------
</TABLE>

          (b) Such entity was  incorporated or organized on:  _____________  and
currently exists under the laws of the state of ______________.

          (c) The primary purpose for which this entity was formed is:__________
________________________________________________________________________________

9)  Investor Representations:  Investor should initial the appropriate blanks
to which an affirmative representation can be made:

_____ I am an  individual  and have a net  worth,  or joint  net  worth  with my
spouse, of One Million Dollars ($1,000,000) or more.

_____ I am an individual and have an individual  income of Two Hundred  Thousand
Dollars  ($200,000)  or more in each 1998 and 1999,  or a joint  income  with my
spouse,  of at least Three Hundred Thousand  Dollars  ($300,000) in each of same
years, and reasonably expect income in such amount during 2000.

_____ The value of the asset(s) which I am contributing to the Partnership  does
not exceed Twenty Percent (20%) of my net worth or joint net worth of my spouse,
if married, exclusive of personal residence, furnishings and automobiles.

_____  Investor  is  a  private  venture  capital  firm  which  is  a  "Business
Development Company."

_____  Investor  is a  corporation,  trust,  partnership  non-profit  charitable
organization or other entity with total assets greater than Five Million Dollars
($5,000,000).

_____  Investor is an employee  benefit plan subject to ERISA which has either a
corporate trustee or Five Million Dollars ($5,000,000) in assets.

_____  Investor  is an  entity  which is owned  One  Hundred  Percent  (100%) by
"accredited   investors"   (i.e.,   persons  or  entities  meeting  any  of  the
classifications listed above).

Exhibit L
Page 3

<PAGE>

                                    EXHIBIT M

                HERSHA HOSPITALITY LIMITED PARTNERSHIP AGREEMENT

<PAGE>

                                    EXHIBIT N

                               CONTINGENT PURCHASE

                                PRICE CALCULATION

<PAGE>

                                    EXHIBIT O

                          SHREENATHJI ENTERPRISES, LTD

                            ARTICLES OF INCORPORATION

<PAGE>

                                    EXHIBIT P

                          SHREENATHJI ENTERPRISES, LTD.

                                     BYLAWSLEASE AGREEMENT

                            DATED AS OF March 8, 2000

                                     BETWEEN

                                ________________

                                    AS LESSOR

                                       AND

                       HERSHA HOSPITALITY MANAGEMENT, L.P.

                                    AS LESSEE

                             IN CONNECTION WITH THE

                       ___________________________________

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1.......................................................................
         1.1. Leased Property...................................................
         1.2. Term..............................................................
         1.3. Initial Transition................................................
ARTICLE 2.......................................................................
         2.1. Definitions.......................................................
ARTICLE 3.......................................................................
         3.1. Rent..............................................................
         3.2. Confirmation of Percentage Rent...................................
         3.3. Additional Charges................................................
         3.4. No Set Off........................................................
         3.5. Books and Records.................................................
         3.6. Changes in Operations.............................................
ARTICLE 4.......................................................................
         4.1. Payment of Impositions............................................
         4.2. Notice of Impositions.............................................
         4.3. Adjustment of Impositions.........................................
         4.4. Utility Charges...................................................
ARTICLE 5.......................................................................
         5.1. No Termination, Abatement, etc....................................
ARTICLE 6.......................................................................
         6.1. Ownership of the Leased Property..................................
         6.2. Lessee's Personal Property........................................
         6.3. Lessor's Lien.....................................................
ARTICLE 7.......................................................................
         7.1. Condition of the Leased Property..................................
         7.2. Use of the Leased Property........................................
ARTICLE 8.......................................................................
         8.1. Compliance with Legal and Insurance Requirements,   etc...........
         8.2. Legal Requirement Covenants.......................................
         8.3. Environmental Covenants...........................................
ARTICLE 9.......................................................................
         9.1. Maintenance and Repair; Capital Expenditures......................
         9.2. Encroachments, Restrictions, Etc..................................
ARTICLE 10......................................................................
         10.1. Alterations......................................................
         10.2. Salvage..........................................................
         10.3. Lessor Alterations...............................................
ARTICLE 11......................................................................
         11.1. Liens............................................................
ARTICLE 12......................................................................
         12.1. Permitted Contests...............................................
ARTICLE 13......................................................................
         13.1. General Insurance Requirements...................................

                                      i
<PAGE>

         13.2. Replacement Cost.................................................
         13.3. (Intentionally omitted)..........................................
         13.4. Waiver of Subrogation............................................
         13.5. Form Satisfactory, etc...........................................
         13.6. Increase in Limits...............................................
         13.7. Blanket Policy...................................................
         13.8. Separate Insurance...............................................
         13.9. Reports On Insurance Claims......................................
ARTICLE 14......................................................................
         14.1. Insurance Proceeds...............................................
         14.2.Reconstruction in the Event of Damage or
              Destruction Covered by Insurance..................................
         14.3.Reconstruction in the Event of Damage or Destruction
              Not Covered by Insurance or When Holder Will
              Not Release Insurance Proceeds....................................
         14.4.Lessee's Property and Business Interruption Insurance.............
         14.5.Abatement of Rent.................................................
ARTICLE 15......................................................................
         15.1. Definition.......................................................
         15.2. Parties' Rights and Obligations..................................
         15.3. Total Taking.....................................................
         15.4. Allocation of Award..............................................
         15.5. Partial Taking...................................................
         15.6. Temporary Taking.................................................
ARTICLE 16......................................................................
         16.1. Events of Default................................................
         16.2. Remedies.........................................................
         16.3. Waiver...........................................................
         16.4. Application of Funds.............................................
ARTICLE 17......................................................................
         17.1. Lessor's Right to Cure Lessee's Default..........................
ARTICLE 18......................................................................
         18.1. Personal Property Limitation.....................................
         18.2. Sublease Rent Limitation.........................................
         18.3. Sublease Lessee Limitation.......................................
         18.4. Lessee Ownership Limitation......................................
         18.5. Director, Officer and Employee Limitation........................
ARTICLE 19......................................................................
         19.1. Holding Over.....................................................
ARTICLE 20......................................................................
         20.1. Indemnification..................................................
ARTICLE 21......................................................................
         21.1. Subletting and Assignment........................................
         21.2. Attornment.......................................................
         21.3. Management Agreement.............................................
ARTICLE 22......................................................................
         22.1. Officer's Certificates; Financial Statements; Lessor's
               Estoppel Certificates and Covenants..............................

                                       ii
<PAGE>

ARTICLE 23......................................................................
         23.1. Regular Meetings; Lessor's Right to Inspect......................
ARTICLE 24......................................................................
         24.1. No Waiver........................................................
ARTICLE 25......................................................................
         25.1. Remedies Cumulative..............................................
ARTICLE 26......................................................................
         26.1. Acceptance of Surrender..........................................
ARTICLE 27......................................................................
         27.1. No Merger of Title...............................................
ARTICLE 28......................................................................
         28.1. Conveyance by Lessor.............................................
         28.2. Lessor May Grant Liens...........................................
ARTICLE 29......................................................................
         29.1. Quiet Enjoyment..................................................
ARTICLE 30......................................................................
         30.1. Notices..........................................................
ARTICLE 31......................................................................
         31.1. Appraisers.......................................................
ARTICLE 32......................................................................
         32.1. Lessee's Right to Cure...........................................
ARTICLE 33......................................................................
         33.1. Miscellaneous....................................................
         33.2. Transition Procedures............................................
         33.3. Waiver of Presentment, etc.......................................
         33.4. Standard of Discretion...........................................
         33.5. Action for Damages...............................................
         33.6. Lease Assumption in Bankruptcy Proceeding........................
         33.7. Intra-Family Transfers...........................................
ARTICLE 34......................................................................
         34.1. Memorandum of Lease..............................................
ARTICLE 35......................................................................
ARTICLE 36......................................................................
         36.1. Lessor's Option to Terminate Lease...............................
ARTICLE 37......................................................................
         37.1. Compliance with Franchise Agreement..............................
ARTICLE 38......................................................................
         38.1. Capital Expenditures.............................................
ARTICLE 39......................................................................
         39.1. Lessor's Default.................................................
ARTICLE 40......................................................................
         40.1. Arbitration......................................................
         40.2. Alternative Arbitration..........................................
         40.3. Arbitration Procedures...........................................
</TABLE>

                                       iii
<PAGE>

                                LIST OF EXHIBITS

         Exhibit A           -    Property Description

         Exhibit B           -    Other Properties

         Exhibit C           -    Percentage Rent Provisions

                                       iv
<PAGE>

                                 LEASE AGREEMENT

         THIS LEASE AGREEMENT  (hereinafter called "Lease"),  made as of the ___
day of ___________, 2000, by and between 3144 ASSOCIATES, a Pennsylvania limited
partnership  (hereinafter called "Lessor"),  and HERSHA HOSPITALITY  MANAGEMENT,
L.P., a Pennsylvania limited partnership (hereinafter called "Lessee"), provides
as follows.

                              W I T N E S S E T H:

         Contemporaneously  with the execution  hereof,  Lessor acquired (i) the
Leased Property (as hereinafter defined) and certain Other Properties,  and (ii)
Lessor is entering with Lessee into the Other Leases; and

         Lessor and Lessee now wish to enter into this Lease.

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

                                     ARTICLE
                                        1

1.1.     Leased Property.

                  The leased  property  (the "Leased  Property") is comprised of
Lessor's interest in the following:

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

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

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

                  (d) all  equipment,  machinery,  fixtures,  and other items of
property  required for or incidental to the use of the Leased  Improvements as a
hotel,  including all components thereof, now and hereafter  permanently affixed
to or incorporated into the Leased Improvements,  including, without limitation,
all  furnaces,  boilers,  heaters,  electrical  equipment,   heating,  plumbing,
lighting,  ventilating,  refrigerating,  incineration,  air and water  pollution

<PAGE>

control, waste disposal, air-cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection  equipment,  all of which to the
greatest  extent  permitted  by law are hereby  deemed by the parties  hereto to
constitute  real  estate,   together  with  all   replacements,   modifications,
alterations and additions thereto (collectively, the "Fixtures");

                  (e) all  furniture  and  furnishings  and all  other  items of
personal  property  (excluding  Inventory and personal property owned by Lessee)
located  on,  and  used  in  connection   with,  the  operation  of  the  Leased
Improvements  as  a  hotel,  together  with  all  replacements,   modifications,
alterations and additions thereto; and

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

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

1.2.     Term.

                  (a) The term of the Lease (the "Term")  shall  commence on the
date hereof (the "Commencement  Date") and shall end on the fifth anniversary of
the last day of the month in which the Commencement  Date occurs,  unless sooner
terminated  in  accordance  with  the  provisions  hereof.   Lessor  and  Lessee
acknowledge  that the Commencement  Date is the date of Lessor's  acquisition of
the Leased Property.

                  (b) Lessee may elect to extend this Lease and all of the Other
Leases for an additional  five-year  term and, at the end of the first  extended
term, may elect to extend this Lease for an additional five-year term (each such
extension, a "Renewal Term") by providing written Notice (a "Renewal Notice") to
Lessor no sooner  than 30 months and no later than 6 months  prior to the end of
the Term or Renewal Term, as applicable.  A Renewal Notice,  if given,  shall be
irrevocable,  but it shall not preclude Lessor from exercising any of its rights
to  terminate  this  Lease in  accordance  with the  provisions  hereof.  Lessee
acknowledges  that Lessor will rely on any Renewal  Notice  received from Lessee
and not pursue  opportunities to select another lessee for the Facility and will
be  materially  damaged if Lessee  fails  subsequently  to act as lessee for the
Renewal  Term for any reason  other than  Lessor's  termination  of the Lease in
accordance herewith.  No Renewal Notice may be given or shall be effective if an
Event of Default shall have occurred and, if curable  hereunder,  shall not have
been cured.  The terms of the Lease  during a Renewal  Term shall be the same as
the terms hereof.

                                       2
<PAGE>

1.3.     Initial Transition.

                  Simultaneously  with the execution of this Lease, Lessee shall
acquire for fair market  value from the  contributor  of the Leased  Property to
Lessor all  deposits,  prepaid  revenue  and  similar  accounts,  and  Inventory
existing at or with respect to the Leased Property as of the Commencement Date.

                                     ARTICLE
                                       2

2.1.     Definitions.

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

         Additional Charge(s):  As defined in Section 3.3.

         Affiliate:  The term  "Affiliate" of a Person shall mean (a) any Person
that,  directly or  indirectly,  controls or is controlled by or is under common
control with such Person, (b) any other Person that owns, beneficially, directly
or indirectly,  ten percent or more of the outstanding  capital stock, shares or
equity  interests  of such  Person,  or (c)  any  officer,  director,  employee,
partner,  manager,  member or trustee of such Person or any Person  controlling,
controlled by or under common control with such Person  (excluding  trustees and
Persons serving in similar capacities who are not otherwise an Affiliate of such
Person).  For  the  purposes  of  this  definition,   "control"  (including  the
correlative  meanings of the terms  "controlled  by" and "under  common  control
with"), as used with respect to any Person, shall mean the possession,  directly
or  indirectly,  of the power to direct or cause the direction of the management
and  policies  of such  Person,  through  the  ownership  of voting  securities,
partnership interests or other equity interests, by contract or otherwise.

         Award:  As defined in Section 15.1(c).

         Base Rate:  The prime rate (or base rate)  reported  in the Money Rates
column or comparable section of The Wall Street Journal, Eastern Edition, as the
rate then in effect for corporate  loans at large U.S.  money center  commercial
banks,  whether or not such rate has actually  been charged by any such bank. If
no such rate is reported in The Wall Street Journal,  Eastern Edition or if such
rate is  discontinued,  then  Base  Rate  shall  mean such  other  successor  or
comparable rate as Lessor may reasonably designate.

         Base Rent:  As defined in Article 3.

                                       3
<PAGE>

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

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

         Capital Expenditures Allowance:  As defined in Article 38.

         Capital Impositions: Taxes, assessments or similar charges imposed upon
or levied  against  the Leased  Property  for the costs of public  improvements,
including,  without  limitation,  roads,  sidewalks,  public lighting  fixtures,
utility lines, storm sewers drainage facilities, and similar improvements.

         Capital Improvements:  Improvements to the Leased Property and
replacement or refurbishing of Fixtures and of Furniture and Equipment, all
as designated as capital improvements by and determined in accordance with GAAP.

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

         Change of Control:  (i) The  issuance or sale by the Lessee or the sale
by any partner of the Lessee of a Controlling interest in Lessee; (ii) the sale,
conveyance or other  transfer of all or  substantially  all of the assets of the
Lessee  (whether by operation of law or otherwise);  (iii) any  transaction,  or
series  of  transactions,  pursuant  to  which  the  Lessee  is  merged  with or
consolidated  into another entity and either (A) the Lessee is not the surviving
entity or (B) the Lessee is the  surviving  entity but the previous  partners of
the Lessee do not maintain a Controlling interest in the Lessee.

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

         Commencement Date:  As defined in Section 1.2.

         Company: Hersha Hospitality Trust, a Maryland real estate investment
trust.

         Condemnation, Condemnor:  As defined in Section 15.1.

         Consolidated Financials: For any fiscal year or other accounting period
for (i) Lessee and (ii) Lessee and Lessee's Affiliates, if any, that lease hotel
properties  from Lessor or its  Affiliates,  a balance  sheet and  statements of
operations,  partners'  capital and cash flow (or, in the case of a corporation,
statements of operations,  retained  earnings and cash flow) for such period and
for the period from the  beginning of the  respective  fiscal year to the end of
such period and the related balance sheet as at the end of such period, together
with the  notes to any  such  yearly  statement,  all in such  detail  as may be
required by the SEC with respect to filings  made by the Company or Lessor,  and
setting  forth  in   comparative   form  the   corresponding   figures  for  the

                                       4
<PAGE>

corresponding  period in the preceding  fiscal year,  and prepared in accordance
with GAAP and audited  annually (and quarterly if required by the SEC) by a firm
of independent  certified public  accountants  selected by Lessor.  Consolidated
Financials  shall be  prepared  on the basis of a fiscal year ending on December
31.

         Control:  As  applied  to  any  Person,  the  possession,  directly  or
indirectly,  of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership or voting securities,  by
contract or otherwise.  The terms  "Controlling"  and "Controlled by" shall have
correlative meanings.

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

          Emergency  Expenditures:  Expenditures  required to take  necessary or
appropriate actions to respond to Emergency Situations.

         Emergency  Situations:  Fire, any other casualty,  or any other events,
circumstances or conditions which threaten the safety or physical  well-being of
the  Facility's  guests  or  employees  or which  involve  the risk of  material
property damage or material loss to the Facility.

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

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

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

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

                    (a) the failure to comply at any time with all Environmental
Laws applicable to the Leased Property;

                                       5
<PAGE>

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

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

                    (d) the identification of Lessee,  Lessor or any Predecessor
as a potentially responsible party under CERCLA or under any other Environmental
Law;

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

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

         Event of Default:  As defined in Section 16.1.

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

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

         First Annual Room Revenues Break Point: The amount of Room Revenues for
the applicable Lease Year corresponding to such term as set forth on Exhibit C.

          First Tier Room Revenue  Percentage:  The percentage  corresponding to
such term as set forth on Exhibit C.

         Fixtures:  As defined in Section 1.1.

          Franchise Agreement: The franchise agreement or license agreement with
Promus Hotel  Corporation  or any other  franchisor  under which the Facility is
operated.

         Furniture and Equipment: The terms "furniture and equipment" shall mean
collectively  all furniture,  furnishings,  wall  coverings,  Fixtures and hotel
equipment  and systems  located at, or used in  connection  with,  the Facility,
together  with all  replacements  therefor  and  additions  thereto,  including,
without limitation,  (i) all equipment and systems required for the operation of
kitchens,  bars and restaurants,  and laundry and dry cleaning facilities,  (ii)
office equipment  (excluding any office equipment used by the Lessee for its own
operations,  rather than hotel operations),  (iii) dining room wagons, materials
handling equipment,  and cleaning and engineering equipment,  (iv) telephone and

                                       6
<PAGE>

computerized  accounting systems,  and (v) vehicles (excluding any vehicles used
by the Lessee for its own operations, rather than hotel operations).

          GAAP:  Generally  accepted  accounting  principles  as are at the time
applicable and otherwise consistently applied.

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

         Gross Revenues:  The sum of Room Revenues and Other Revenues.

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

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

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

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

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

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

                    (f) Asbestos or asbestos containing materials;

                    (g) Urea Formaldehyde foam insulation; and

                    (h) Radon gas.

          Holder: Any holder of a Mortgage, any purchaser of the Leased Property
or any portion thereof at a foreclosure sale or any sale in lieu thereof, or any
designee of any of the foregoing.

         Impositions:  Collectively,  all taxes (including,  without limitation,
all ad valorem,  sales and use,  occupancy,  single  business,  gross  receipts,
transaction  privilege,  rent or  similar  taxes  as the same  relate  to or are
imposed  upon Lessee or Lessor or Lessee's  business  conducted  upon the Leased
Property),  assessments  (including,  without  limitation,  all private property
association  assessments and all assessments for public improvements or benefit,
whether or not  commenced or  completed  prior to the date hereof and whether or
not to be completed within the Term),  ground rents, water, sewer or other rents
and charges,  excises,  tax inspection,  authorization  and similar fees and all
other governmental charges, in each case whether general or special, ordinary or
extraordinary,  or foreseen or unforeseen,  of every character in respect of the
Leased  Property or the  business  conducted  thereon by Lessee  (including  all

                                       7
<PAGE>
interest  and  penalties  thereon  caused by any  failure in payment by Lessee),
which at any time prior to,  during or with  respect  to the Term  hereof may be
assessed  or  imposed  on or with  respect  to or be a lien  upon  (a)  Lessor's
interest in the Leased Property, (b) the Leased Property, or any part thereof or
any rent therefrom or any estate,  right, title or interest therein,  or (c) any
occupancy, operation, use or possession of, or sales from, or activity conducted
on or in  connection  with the  Leased  Property,  or the  leasing or use of the
Leased  Property  or any part  thereof  by  Lessee.  Nothing  contained  in this
definition of  Impositions  shall be construed to require  Lessee to pay (1) any
tax based on net income (whether  denominated as a franchise or capital stock or
other  tax)  imposed  on  Lessor or any  other  person,  or (2) any net or gross
revenue tax of Lessor or any other  person,  or (3) any tax imposed with respect
to the sale,  exchange or other  disposition by Lessor of any Leased Property or
the proceeds thereof.

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

          Indemnifying  Party:  Any party  obligated to indemnify an Indemnified
Party pursuant to any provision of this Lease.

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

         Inventory:   All  "Inventories  of  Merchandise"  and  "Inventories  of
Supplies"  as defined in the  Uniform  System,  including,  but not  limited to,
linens, china, silver,  glassware and other  non-depreciable  personal property,
and any property of the type described in Section 1221(1) of the Code.

         Land:  As defined in Article 1.

         Lease:  This Lease.

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

         Leased Improvements: As defined in Article 1.

         Leased Property: As defined in Section 1.1.

         Legal Requirements:  All federal,  state,  county,  municipal and other
governmental statutes, laws, rules, orders, regulations,  ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction,  use,  operation  or  alteration  thereof  (whether  by  Lessee or
otherwise),  whether or not  hereafter  enacted and in force,  including (a) all
laws, rules or regulations  pertaining to the environment,  occupational  health
and safety and public  health,  safety or  welfare,  and (b) any laws,  rules or
regulations that may (1) require repairs,  modifications or alterations in or to
the Leased  Property or (2) in any way  adversely  affect the use and  enjoyment
thereof; and all permits,  licenses and authorizations  necessary or appropriate
to operate the Leased  Property for its Primary  Intended Use and all covenants,
agreements,  restrictions and encumbrances contained in any instruments,  either

                                       8
<PAGE>

of record or known to Lessee  (other  than  encumbrances  hereafter  created  by
Lessor without the consent of Lessee), at any time in force affecting the Leased
Property.

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

         Lessee  Indemnified  Party:  Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or  indirect  ownership  interest  in Lessee,  the  officers,
directors,    stockholders,    partners,    members,   employees,   agents   and
representatives  of any of the foregoing Persons and any corporate  stockholder,
agent, or  representative  of any of the foregoing  Persons,  and the respective
heirs,  personal  representatives,  successors  and assigns of any such officer,
director, partner, member, stockholder, employee, agent or representative.

         Lessee's Personal Property:  As defined in Section 6.2.

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

         Lessor  Indemnified Party:  Lessor, any Affiliate of Lessor,  including
the Company,  any other Person against whom any claim for indemnification may be
asserted  hereunder  as a result of a direct or indirect  ownership  interest in
Lessor, the officers,  trustees,  directors,  stockholders,  partners,  members,
employees, agents and representatives of any of the foregoing Persons and of any
stockholder,  partner,  member, agent, or representative of any of the foregoing
Persons,  and the respective  heirs,  personal  representatives,  successors and
assigns of any such officer, trustee,  director,  partner, member,  stockholder,
employee, agent or representative.

         Lessor's  Audit:  An audit by  Lessor's  independent  certified  public
accountants of the operation of the Leased Property during any Lease Year, which
audit  may,  at  Lessor's  election,  be either a  complete  audit of the Leased
Property's  operations or an audit of Room Revenues  realized from the operation
of the Leased Property during such Lease Year.

         Management Agreement:  As defined in Section 21.3.

         Manager:  As defined in Section 21.3.

         Mortgage:  As defined in Section 28.2.

         Notice:  A notice given pursuant to Article 30.

         Officer's Certificate: A certificate of Lessee reasonably acceptable to
Lessor, signed by the chief financial officer or another officer duly authorized
so to sign by Lessee or a general  partner of Lessee,  or any other person whose
power and  authority to act has been  authorized by delegation in writing by any
such officer.

         Other Leases:     The leases of the Other Properties.

         Other Properties: The properties described on Exhibit B attached
hereto.

                                       9
<PAGE>

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

          Other Revenue Percentage: The percentage corresponding to such term as
set forth on Exhibit C.

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

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

         Percentage Rent:  As defined in Article 3.

         Person: The term "Person" means and includes individuals, corporations,
general and limited partnerships,  limited liability companies,  stock companies
or associations, joint ventures,  associations,  companies, trusts, banks, trust
companies,  land trusts,  business trusts,  or other entities and any Government
and agencies and political subdivisions thereof.

         Personal  Property  Taxes:  All personal  property taxes imposed on the
furniture,  furnishings or other items of personal property located on, and used
in connection  with, the operation of the Leased  Improvements as a hotel (other
than Inventory and other personal  property owned by the Lessee),  together with
all replacements, modifications, alterations and additions thereto.

         Predecessor:   Any  Person   whose   liabilities   arising   under  any
Environmental  Law have or may have been retained or assumed by Lessor or Lessee
pursuant to the provisions of this Lease.

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

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

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

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

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

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

                                       10

<PAGE>

         Room Revenues: Gross revenue from the rental of guest rooms, whether to
individuals,  groups or  transients,  at the  Facility,  determined  in a manner
consistent with the Uniform System and excluding the following:

                    (a) The amount of all credits, bad debt write-off rebates or
refunds to customers, guests or patrons; and

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

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

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

          SEC: The U.S.  Securities  and Exchange  Commission  or any  successor
agency.

         Second  Annual Room Revenues  Break Point:  The amount of Room Revenues
for the applicable Lease Year corresponding to such term as set forth on Exhibit
C.

          Second Tier Room Revenue Percentage:  The percentage  corresponding to
such term as set forth on Exhibit C.

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

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

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

         Term:  As defined in Section 1.2.

         Termination Fee:  As defined in Section 36.1(c).

          Third Tier Room Revenue  Percentage:  The percentage  corresponding to
such term as set forth on Exhibit C.

         TSCA:  The Toxic Substances Control Act, as amended.

         Unavoidable  Delay:  Delay due to  strikes,  lock-outs,  labor  unrest,
inability  to  procure  materials,  power  failure,  acts of  God,  governmental
restrictions,   enemy  action,  civil  commotion,  fire,  unavoidable  casualty,
condemnation or other similar causes beyond the reasonable  control of the party

                                       11

<PAGE>

responsible for performing an obligation hereunder,  provided that lack of funds
shall not be deemed a cause beyond the reasonable control of either party hereto
unless  such  lack of  funds  is  caused  by the  breach  of the  other  party's
obligation to perform any obligations of such other party under this Lease.

         Uneconomic  for its Primary  Intended  Use: A state or condition of the
Facility such that in the reasonable  judgment of Lessor the Facility  cannot be
operated on a commercially  practicable basis for its Primary Intended Use, such
that Lessor intends to, and shall, cease operation of the Facility.

          Uniform  System:  Shall mean the Uniform System of Accounts for Hotels
(9th Revised  Edition,  1996) as published by the Hotel  Association of New York
City, Inc., as the same may hereafter be revised, and as the same is interpreted
and  applied  by  the  Lessor's  independent  certified  public  accountants  in
connection with any audit.

         Unsuitable  for its Primary  Intended  Use: A state or condition of the
Facility such that in the reasonable  judgment of Lessor the Facility (i) cannot
function as an integrated hotel facility consistent with standards applicable to
a well maintained and operated hotel  comparable in quality and function to that
of the  Facility  prior to the  damage or loss  and,  (ii)  notwithstanding  the
application of insurance proceeds that may occur under Section 14.1, will remain
unsuitable for its Primary Intended Use for a period of 90 days or more.

                                     ARTICLE
                                       3

3.1.     Rent.

                  Lessee will pay to Lessor,  by wire transfer,  in lawful money
of the United  States of America  which shall be legal tender for the payment of
public and private debts, at Lessor's  address set forth in Article 30 hereof or
at such  other  place or to such  other  Person as Lessor  from time to time may
designate in a Notice,  all Initial Fixed Rent,  Base Rent,  Percentage Rent and
Additional Charges, during the Term, as follows:

         (a) The Rent  payable  from the  Commencement  Date  until the calendar
quarter  ending  December  31, 2001 shall  equal the annual  amount of Initial
Fixed  Rent set forth on Exhibit C and shall be  payable  quarterly  in arrears
on or before the first business day of the subsequent  calendar quarter;
provided,  however,  that  Initial  Fixed Rent shall be prorated as to any Lease
Year which is less than four  calendar  quarters and as to any partial  calendar
quarter;

          (b) The Rent  payable in each  calendar  quarter  from January 1, 2002
until the end of the Lease Term shall equal the greater of :

                    (i) the  annual  amount of Base Rent set forth on Exhibit C,
which shall be payable  quarterly in arrears on or before the first business day

                                       12

<PAGE>

of the subsequent calendar quarter;  provided,  however, that Base Rent shall be
prorated as to any Lease Year which is less than four  calendar  quarters and as
to any partial calendar quarter; plus

                    (ii) an  amount  of  percentage  rent  ("Percentage  Rent"),
calculated for each calendar quarter,  equal to the Period Revenues  Computation
through the end of such calendar  quarter for the applicable  Lease Year,  which
amount shall be payable on or before the  fifteenth  (15th) day of the following
calendar quarter.

                  The Period  Revenues  Computation  shall be an amount equal to
the sum of, for the applicable Lease Year, (i) an amount equal to the First Tier
Room Revenue  Percentage  of all Lease Year to date Room Revenues up to (but not
exceeding) the First Annual Room Revenues  Break Point,  (ii) an amount equal to
the Second Tier Room Revenue  Percentage of all Lease Year to date Room Revenues
in excess of the First Annual Room  Revenues  Break Point but not  exceeding the
Second Annual Room Revenues Break Point, (iii) an amount equal to the Third Tier
Room Revenue Percentage of all Lease Year to date Room Revenues in excess of the
Second Annual Room Revenues  Break Point,  and (iv) an amount equal to the Other
Revenue Percentage of all Lease Year to date Other Revenues.

                  The Initial Fixed Rent and the Base Rent shall accrue pro rata
during each  calendar  quarter of a Lease Year.  However,  the amount of Initial
Fixed Rent or Base Rent payable for the first three calendar quarters of a Lease
Year shall equal the annual amount of Initial Fixed Rent or Base Rent multiplied
by a fraction,  the  numerator of which is the amount of the  Lessee's  budgeted
Gross  Revenues for such calendar  quarter and the  denominator  of which is the
amount of the Lessee's  budgeted  Gross Revenues for such Lease Year. The amount
of Initial  Fixed Rent or Base Rent payable for the fourth  calendar  quarter of
such  Lease Year shall  equal the  annual  amount of Initial  Fixed Rent or Base
Rent, less the aggregate amount of Initial Fixed Rent or Base Rent payments made
by the Lessee for the first three  calendar  quarters of such Lease Year.  There
shall be no  reduction  in Base Rent  regardless  of the  result  of the  Period
Revenues Computation.

                  If the Term  begins or ends in the middle of a calendar  year,
then the  number of  calendar  quarters  falling  within  the Term  during  such
calendar year shall  constitute a separate Lease Year. In that event,  the First
Annual Room Revenues Break Point and the Second Annual Room Revenues Break Point
shall be multiplied by a fraction  equal to (x) the number of calendar  quarters
(including partial calendar quarters) in the Lease Year divided by (y) four.

          (c) Officer's Certificates.  An Officer's Certificate shall be
delivered  to  Lessor  with  each  Percentage  Rent  payment  setting  forth the
calculation  of the  Percentage  Rent  payment for the most  recently  completed
calendar  quarter  of each  Lease  Year in the Term.  Percentage  Rent  shall be
subject to confirmation and adjustment,  if applicable,  as set forth in Section
3.2.

                  The  obligation  to pay  Percentage  Rent  shall  survive  the
expiration  or  earlier  termination  of the Term,  and a final  reconciliation,
taking into account, among other relevant adjustments, any adjustments which are
accrued  after  such  expiration  or  termination  date  but  which  related  to
Percentage Rent accrued prior to such termination  date, shall be made not later
than 60 days after such expiration or termination date.

                                       13
<PAGE>

3.2.     Confirmation of Percentage Rent.

                  Lessee shall utilize,  or cause to be utilized,  an accounting
system  for the  Leased  Property  in  accordance  with its usual and  customary
practices,  and in  accordance  with  GAAP and the  Uniform  System,  that  will
accurately  record all data  necessary to compute  Percentage  Rent,  and Lessee
shall retain,  for at least five years after the  expiration of each Lease Year,
reasonably  adequate  records  conforming to such accounting  system showing all
data necessary to conduct Lessor's Audit and to compute  Percentage Rent for the
applicable  Lease Years.  Lessor shall have the right, for a period of two years
following  each  Lease  Year,   from  time  to  time,  by  its   accountants  or
representatives,  to audit such  information in connection  with Lessor's Audit,
and to examine all Lessee's  records  (including  supporting  data and sales and
excise tax returns) reasonably required to complete Lessor's Audit and to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of any
such data under Legal Requirements. If any Lessor's Audit discloses a deficiency
in the payment of Percentage  Rent,  and either Lessee agrees with the result of
Lessor's  Audit or the matter is otherwise  determined  or  compromised,  Lessee
shall forthwith pay to Lessor the amount of the deficiency, as finally agreed or
determined,  together  with interest at the Overdue Rate from the date when said
payment  should have been made to the date of payment  thereof.  If any Lessor's
Audit discloses a deficiency in the  determination  or reporting of Room Revenue
which,  as finally agreed or determined,  exceeds 3%, Lessee shall pay the costs
of the portion of Lessor's Audit allocable to the determination of Room Revenues
(the "Revenue Audit").  Any proprietary  information obtained by Lessor pursuant
to the provisions of this Section shall be treated as confidential,  except that
such information may be used, subject to appropriate confidentiality safeguards,
in any  litigation or  arbitration  between the parties and except  further that
Lessor may disclose  such  information  to  prospective  lenders,  investors and
underwriters  and to any other persons to whom disclosure is necessary to comply
with applicable laws, regulations and government  requirements.  The obligations
of Lessee  contained in this Section  shall  survive the  expiration  or earlier
termination  of this  Lease.  Any dispute as to the  existence  or amount of any
deficiency  in the payment of  Percentage  Rent as disclosed  by Lessor's  Audit
shall,  if not  otherwise  settled by the parties,  be submitted to  arbitration
pursuant to the provisions of Section 40.2.

3.3.     Additional Charges.

                  In addition to the Base Rent and  Percentage  Rent, (a) Lessee
also will pay and  discharge  as and when due and  payable  all  other  amounts,
liabilities,  obligations and  Impositions  that Lessee assumes or agrees to pay
under this  Lease,  and (b) in the event of any failure on the part of Lessee to
pay any of those items  referred to in clause (a) of this  Section  3.3,  Lessee
also will promptly pay and discharge every fine, penalty, interest and cost that
may be added for  non-payment  or late payment of such items (the items referred
to in clauses (a) and (b) of this Section 3.3 being  additional  rent  hereunder
and being referred to herein  collectively as the "Additional  Charge(s)"),  and
Lessor  shall have all  legal,  equitable  and  contractual  rights,  powers and
remedies provided either in this Lease or by statute or otherwise in the case of
non-payment of the Additional  Charges as in the case of non-payment of the Base
Rent. If any  installment of Base Rent,  Percentage  Rent or Additional  Charges

                                       14

<PAGE>

(but only as to those  Additional  Charges that are payable  directly to Lessor)
shall not be paid on its due date,  Lessee  will pay  Lessor  within ten days of
demand, as Additional  Charges,  an amount equal to the interest computed at the
Overdue  Rate on the  amount  of such  installment,  from  the due  date of such
installment to the date of payment  thereof.  To the extent that Lessee pays any
Additional  Charges to Lessor pursuant to any requirement of this Lease,  Lessee
shall be relieved of its obligation to pay such Additional Charges to the entity
to which they would  otherwise  be due and Lessor shall pay the same from monies
received from Lessee.

3.4.     No Set Off.

                  Rent shall be paid to Lessor  without  set off,  deduction  or
counterclaim,  subject  to  Lessee's  right to  assert  any  claim or  mandatory
counterclaim in any action brought by either party under this Lease.

3.5.     Books and Records.

                  Lessee shall keep full and adequate books of account and other
records reflecting the results of operation of the Facility on an accrual basis,
all in accordance with the Uniform System and GAAP and the obligations of Lessee
under this Lease.  Lessee  agrees that  bad-debt  expenses will be recorded in a
manner which is consistent with the past practice of the current operator of the
Facility  for bad debt  writeoffs.  The books of account  and all other  records
relating to or reflecting the operation of the Facility  (whether  maintained by
Lessee or  Manager)  shall be kept  either at the  Facility  or at 148  Sheraton
Drive, New Cumberland,  Pennsylvania 17070, and shall be available to Lessor and
its representatives and its auditors or accountants, at all reasonable times for
examination, audit, inspection, and transcription. All of such books and records
pertaining to the Facility (whether  maintained by Lessee or Manager) including,
without limitation, books of account, guest records and front office records, at
all times  shall be the  property  of Lessor and shall not be  removed  from the
Facility or Lessee's  offices without  Lessor's prior written  approval.  Lessee
shall be  entitled  to make  copies of any or all such books and records for its
own files. Lessee's obligations under this Section 3.5 shall survive termination
of this Lease for any reason.

3.6.     Changes in Operations.

                  Without  Lessor's  prior written  consent,  which shall not be
unreasonably  withheld,  Lessee  shall  not (i)  provide  food  and/or  beverage
operations at the Facility if not presently provided,  (ii) discontinue any food
and/or  beverage  operations  which are presently  provided,  or (iii) convert a
subtenant, licensee or concessionaire to an operating department of the Facility
or vice-versa.

                                     ARTICLE
                                       4

4.1.     Payment of Impositions.

                  Lessor  shall pay, or cause to be paid,  all Real Estate Taxes
and  Personal  Property  Taxes.  Subject  to Article 12  relating  to  permitted

                                       15

<PAGE>

contests, Lessee will pay, or cause to be paid, all Impositions (other than Real
Estate Taxes and Personal Property Taxes) before any fine, penalty,  interest or
cost may be added for  nonpayment,  such  payments  to be made  directly  to the
taxing or other authorities where feasible,  and will promptly furnish to Lessor
copies  of  official  receipts  or  other  satisfactory  proof  evidencing  such
payments. Lessee's obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such  Impositions  become a lien upon the Leased Property or
any part  thereof.  If any such  Imposition  may, at the option of the taxpayer,
lawfully be paid in  installments  (whether or not interest  shall accrue on the
unpaid  balance of such  Imposition),  Lessee may exercise the option to pay the
same (and any accrued  interest  on the unpaid  balance of such  Imposition)  in
installments and in such event, shall pay such installments (subject to Lessee's
right  of  contest  pursuant  to the  provisions  of  Article  12)  as the  same
respectively become due and before any fine, penalty,  premium, further interest
or cost may be added  thereto.  If an  Imposition  becomes fixed during the Term
hereof  and the  Lessee  elects  to pay such  Imposition  in  installments  that
continue after the Term hereof, the Lessee's obligation to pay such installments
shall survive the termination of this Lease.  Lessor, at its expense,  shall, to
the extent  required or permitted by  applicable  law,  prepare and file all tax
returns in respect of Lessor's net income, gross receipts, sales and use, single
business, transaction privilege, rent, ad valorem, franchise taxes, and taxes on
its capital stock, and Lessee, at its expense,  shall, to the extent required or
permitted by  applicable  laws and  regulations,  prepare and file all other tax
returns  and  reports  in  respect  of any  Imposition  as may  be  required  by
governmental  authorities.  Lessee shall submit  copies of Real Estate Taxes and
Personal  Property Tax invoices to Lessor promptly upon Lessee's receipt of such
invoices. If any refund shall be due from any taxing authority in respect of any
Imposition paid by Lessee,  the same shall be paid over to or retained by Lessee
if no Event of Default shall have occurred  hereunder and be  continuing.  If an
Event of Default shall have been declared by Lessor and be continuing,  any such
refund shall be paid over to or retained by Lessor.  Any such funds  retained by
Lessor due to an Event of Default  shall be applied as  provided  in Article 16.
Any refund for Real Estate Taxes and Personal  Property  Taxes shall be promptly
remitted  to  Lessor.  Lessor  and  Lessee  shall,  upon  request  of the other,
cooperate with the other party and otherwise  provide such data as is maintained
by the party to whom the request is made with respect to the Leased  Property as
may be  necessary to prepare any required  returns and reports.  Lessor,  to the
extent it possesses the same,  and Lessee,  to the extent it possesses the same,
will provide the other party, upon request,  with cost and depreciation  records
necessary for filing returns for any property  classified as personal  property.
Lessor may,  upon  notice to Lessee,  at  Lessor's  option and at Lessor's  sole
expense,  protest,  appeal,  or  institute  such  other  proceedings  (in its or
Lessee's  name) as Lessor may deem  appropriate  to effect a  reduction  of real
estate  assessments,  and Lessee, at Lessor's expense as aforesaid,  shall fully
cooperate with Lessor in such protest,  appeal,  or other action.  Lessor hereby
agrees to  indemnify,  defend,  and hold  harmless  Lessee  from and against any
claims, obligations, and liabilities against or incurred by Lessee in connection
with such cooperation.  Lessor,  however,  reserves the right to effect any such
protest,  appeal or other action and,  upon notice to Lessee,  shall control any
such  activity,  which shall then proceed at Lessor's  sole  expense.  Upon such
notice, Lessee, at Lessor's expense, shall cooperate fully with such activities.
To the extent  received by it,  Lessee shall  furnish  Lessor with copies of all
assessment  notices for Real Estate Taxes in sufficient  time for Lessor to file
any  protest  with  respect to such tax must be made and pay such taxes  without
penalty.

                                       16

<PAGE>

4.2.     Notice of Impositions.

                  Lessor shall give prompt  Notice to Lessee of all  Impositions
payable by Lessee hereunder of which Lessor at any time has knowledge,  provided
that Lessor's failure to give any such Notice shall in no way diminish  Lessee's
obligations  hereunder to pay such Impositions,  but if Lessee did not otherwise
have  knowledge of such  Imposition  sufficient  to permit it to pay same,  such
failure shall obviate any default  hereunder for a reasonable  time after Lessee
receives Notice of any Imposition  which it is obligated to pay during the first
taxing period applicable thereto.

4.3.     Adjustment of Impositions.

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

4.4.     Utility Charges.

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

                                     ARTICLE
                                       5

5.1.     No Termination, Abatement, etc.

                  Except  as  otherwise  specifically  provided  in this  Lease,
Lessee,  to the extent  permitted  by law,  shall  remain bound by this Lease in
accordance  with its terms and shall neither take any action without the written
consent of Lessor to modify,  surrender or terminate  the same,  nor seek nor be
entitled to any  abatement,  deduction,  deferment or reduction of the Rent,  or
setoff  against  the  Rent,  nor shall the  obligations  of Lessee be  otherwise
affected by reason of (a) any damage to, or destruction  of, any Leased Property
or any portion  thereof from whatever cause or any Taking of the Leased Property
or  any  portion  thereof,  (b)  any  bankruptcy,  insolvency,   reorganization,
composition,  readjustment,   liquidation,  dissolution,  winding  up  or  other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (c) for
any other cause whether similar or dissimilar to any of the foregoing other than
a  discharge  of Lessee  from any such  obligations  as a matter of law.  Lessee
hereby specifically waives all rights, arising from any default under this Lease
by Lessor, which may now or hereafter be conferred upon it by law to (1) modify,
surrender or terminate  this Lease or quit or surrender  the Leased  Property or
any  portion  thereof,  or  (2)  entitle  Lessee  to any  abatement,  reduction,
suspension  or deferment of or set off against the Rent or other sums payable by
Lessee hereunder,  except as otherwise  specifically provided in this Lease. The
obligations of Lessee hereunder shall be separate and independent  covenants and
agreements  and the Rent and all other sums  payable by Lessee  hereunder  shall

                                       17
<PAGE>

continue  to be  payable in all events  unless the  obligations  to pay the same
shall be  terminated  pursuant  to the  express  provisions  of this Lease or by
termination of this Lease other than by reason of an Event of Default.

                                     ARTICLE
                                       6

6.1.     Ownership of the Leased Property.

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

6.2.     Lessee's Personal Property.

                  At  commencement  of the Term,  Lessee shall purchase for fair
market value from Lessor or the Contributor of the Leased Property to Lessor all
Inventory at the Leased  Property.  At all times  during the Term,  Lessee shall
maintain Inventory  consistent with the amount of inventory which is customarily
maintained in a hotel of the type and character of the Facility and is otherwise
required to operate the Leased Property in the manner contemplated by this Lease
and in compliance with the Franchise Agreement and all Legal  Requirements.  All
Inventory  shall be the  property  of Lessee.  Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including  Inventory)  owned by Lessee  (collectively,  the "Lessee's  Personal
Property").  Lessee may, subject to the following  sentence of this Section 6.2,
remove any of Lessee's Personal Property at any time during the Term or upon the
expiration  or any prior  termination  of the  Term.  All of  Lessee's  Personal
Property  not  removed by Lessee  within 30 days  following  the  expiration  or
earlier termination of the Term shall be considered  abandoned by Lessee and may
be  appropriated,  sold,  destroyed or otherwise  disposed of by Lessor  without
first giving Notice thereof to Lessee, without any payment to Lessee and without
any  obligation to account  therefor.  Lessee will, at its expense,  restore the
Leased Property to the condition required by Section 9.1(d), including repair of
all damage to the Leased  Property  caused by the removal of  Lessee's  Personal
Property, whether effected by Lessee or Lessor.

6.3.     Lessor's Lien.

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

                                       18

<PAGE>

                                     ARTICLE
                                       7

7.1.     Condition of the Leased Property.

                  Lessee acknowledges  receipt and delivery of possession of the
Leased  Property.  Lessee  has  examined  and  otherwise  has  knowledge  of the
condition of the Leased Property and has found the same to be  satisfactory  for
its purposes hereunder. Lessee is leasing the Leased Property "as is", "with all
faults", and in its present condition. Except as otherwise specifically provided
herein,  Lessee  waives  any claim or action  against  Lessor in  respect of the
condition of the Leased  Property.  LESSOR MAKES NO WARRANTY OR  REPRESENTATION,
EXPRESS OR  IMPLIED,  IN RESPECT OF THE LEASED  PROPERTY,  OR ANY PART  THEREOF,
EITHER AS TO ITS FITNESS FOR USE,  DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
PURPOSE OR OTHERWISE,  AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN,
LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE.
LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY  TO IT.  Lessee  shall  have  the  right  to  proceed  against  any
predecessor in title for breaches of warranties or representations or for latent
defects in the Leased Property, and Lessor shall, if requested by Lessee, assign
any such right to Lessee (other than claims  against  Affiliates of Lessee).  If
either  party  determines  to exercise  such right,  the other party shall fully
cooperate in the  prosecution  of any such claim,  in Lessor's or Lessee's name,
all at the cost and  expense of the  prosecuting  party,  who  hereby  agrees to
indemnify, defend and hold harmless the other party from and against any claims,
obligations  and  liabilities  against  or  incurred  by  such  other  party  in
connection  with such  cooperation,  and who further agrees to apply all amounts
realized  from the  prosecution  of such claim,  less its expenses in connection
therewith, to remedy such breach or cure such defect.

7.2.     Use of the Leased Property.

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

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

                                       19

<PAGE>

Leased  Property of any insurance  board,  association,  organization or company
necessary for the  maintenance of insurance,  as herein  provided,  covering the
Leased  Property and  Lessee's  Personal  Property,  which  compliance  shall be
performed at Lessee's sole cost.

                  (c) Subject to the  provisions  of Articles 14 and 15,  Lessee
covenants and agrees that during the Term it will either  directly or through an
approved  Manager  (1)  operate  continuously  the  Leased  Property  as a hotel
facility,  (2) keep in full force and effect and comply in all material respects
with all the provisions of the Franchise  Agreement,  (3) not terminate or amend
in any  respect the  Franchise  Agreement  without  the  consent of Lessor,  (4)
maintain  appropriate  certifications  and  licenses  for  such use and (5) keep
Lessor  advised of the status of any material  litigation  affecting  the Leased
Property.

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

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

                  (f) Lessee shall comply with all of the Lessor's covenants, in
any loan agreement or other financing  arrangement,  applicable to this Lease or
the operation of the Leased  Property.  Notwithstanding  the  foregoing,  Lessee
shall not be obligated to comply with Lessor's  covenants in any loan agreements
which (A) (i) are not  customary,  (ii) are not otherwise  contemplated  by this
Lease Agreement or any agreement or instrument  executed by Lessee in connection
herewith for the benefit of Lessor, and (iii)(x) materially and adversely affect
the  operations at the Facility or (y)  materially  increase  Lessee's  costs of
doing business or decrease revenues,  unless in cases where Subsection  (iii)(y)
is relied upon by Lessee the additional cost thereof is borne by Lessor,  or (B)
obligate Lessee to guarantee repayment of any debt of Lessor, or (C) require any
indemnification  undertakings other than customary  undertakings with respect to
servicing  agents or  similar  administrative  agents  which  administer  escrow
accounts  into which  Lessee may deposit  Rent  payments as required by Lessor's
lenders or other servicing agents. Lessor will provide Lessee with not less than
15,  and will  attempt in good  faith to  provide  not less than 30,  days prior
written  notice of the terms of such  covenants,  and if Lessee is relying  upon
Subsection  (iii)(y),  Lessee  shall within five days of receipt of such notice,
notify  Lessor in writing of any  anticipated  material  additional  costs which
Lessee may incur.  Lessor shall then notify Lessee in writing  whether it agrees
to pay or reimburse Lessee for the material  additional cost thereof as incurred
by Lessee, and Lessee's receipt of such notice shall be a condition precedent to
Lessee's  obligation to comply with such covenants.  Lessor shall have the right
to dispute  Lessee's  reliance on Subsections  (A)-(C) or Lessee's  estimates of
additional costs pursuant to Subsection (A)(iii)(y), and either party may submit
any such disputes to arbitration under the provisions of Section 40.2.

                                       20
<PAGE>

                                     ARTICLE
                                       8

8.1.     Compliance with Legal and Insurance Requirements, etc.

                  Subject to Section  8.2,  8.3(b) below and Article 12 relating
to permitted contests, Lessee, at its expense, will promptly (a) comply with all
applicable Legal Requirements and Insurance  Requirements in respect of the use,
operation,  maintenance,  repair and restoration of the Leased Property, and (b)
procure,   maintain  and  comply  with  all   appropriate   licenses  and  other
authorizations required for any use of the Leased Property and Lessee's Personal
Property then being made, and for the proper erection,  installation,  operation
and maintenance of the Leased Property or any part thereof.

8.2.     Legal Requirement Covenants.

                  (a) Subject to Section  8.3(b)  below,  Lessee  covenants  and
agrees that the Leased Property and Lessee's Personal Property shall not be used
by anyone other than Lessor for any unlawful purpose,  and that Lessee shall use
all  commercially  reasonable  efforts  not to  permit  or  suffer  to exist any
unlawful use of the Leased Property by others. Lessee shall acquire and maintain
all licenses,  certifications,  permits and other  authorizations  and approvals
required to operate the Leased Property in its customary  manner for the Primary
Intended Use, and any other lawful use  conducted on the Leased  Property as may
be permitted from time to time  hereunder.  Lessee further  covenants and agrees
that  Lessee's  use of the Leased  Property  and  maintenance,  alteration,  and
operation of the same, and all parts thereof,  shall at all times conform to all
Legal  Requirements,  unless  the  same  are  finally  determined  by a court of
competent   jurisdiction  to  be  unlawful  (and  Lessee  shall  cause  all  its
sub-tenants, invitees or others to so comply with all Legal Requirements).

                  (b) As between Lessor and Lessee, Lessee is solely responsible
for all  liabilities or obligations of any kind with respect to employees at the
Leased  Property  during  the  Term.  Without  limiting  the  generality  of the
foregoing  sentence,  Lessee is solely  responsible for any required  compliance
with the Worker  Adjustment,  Retraining and  Notification Act of 1988 (WARN) or
any similar state law applicable to the Leased Property; any required compliance
with the  Consolidated  Omnibus  Budget  Reconciliation  Act of 1985, as amended
(COBRA);  and all  alleged and actual  obligations  and claims  arising  from or
relating  to  any  employment  agreement,  collective  bargaining  agreement  or
employee benefit plans, any grievances,  arbitrations,  or unfair labor practice
charges,  and relating to compliance with any applicable  state or federal labor
employment   law,   including  but  not  limited  to  all  laws   pertaining  to
discrimination,  workers' compensation,  unemployment compensation, occupational
safety and health, unfair labor practices,  family and medical leave, and wages,
hours or  employee  benefits.  Lessee  agrees to  indemnify  and defend and hold
harmless  Lessor from and against  any claims  relating to any of the  foregoing
matters.  Lessee  further  agrees to  reimburse  Lessor for any and all  losses,
damages,  costs,  expenses,  liabilities and obligations of any kind,  including
without  limitation  reasonable  attorney's  fees  and  other  legal  costs  and
expenses, incurred by Lessor in connection with any of the foregoing matters.

                                       21
<PAGE>

         Notwithstanding  the Lessee's  obligations  under Section 8.1 to obtain
and  maintain  all  permits  and  licenses  required  for the use of the  Leased
Property,  and without  limiting any  obligations  of Lessee  hereunder,  if (i)
applicable  law requires that the owner (rather than a lessee) of a hotel be the
licensee  under the required  liquor license for the Facility or (ii) the former
owner of the Facility is holding the liquor  license and  continuing to exercise
management  and  supervision  of the liquor  services  at the  Facility  pending
transfer of the license to Lessor or Lessee, the Lessee shall indemnify and hold
the  Lessor  harmless  from any  liability,  damages  or claims  (a)  arising in
connection  with liquor  operations at the Facility  during such period of time,
except for the Lessor's gross negligence or willful misconduct or (b) made by or
through the former owner with respect to liquor operations at the Facility.

8.3.     Environmental Covenants.

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

                  (a) At all times hereafter until Lessee completely vacates the
Leased  Property and surrenders  possession of the same to Lessor,  Lessee shall
fully comply with all  Environmental  Laws applicable to the Leased Property and
the operations thereon,  except to the extent that such compliance would require
the remediation of  Environmental  Liabilities for which Lessee has no indemnity
obligations  under Section  8.3(b).  Lessee agrees to give Lessor prompt written
notice of (1) all  Environmental  Liabilities;  (2) all pending,  threatened  or
anticipated Proceedings,  and all notices,  demands, requests or investigations,
relating to any Environmental Liability or relating to the issuance,  revocation
or change in any  Environmental  Authorization  required  for  operation  of the
Leased Property;  and (3) all Releases at, on, in, under or in any way affecting
the  Leased  Property,  or any  Release  known by Lessee at, on, in or under any
property adjacent to the Leased Property; in each case as to which it has actual
knowledge.

                  (b)  Lessee  hereby  agrees  to  defend,  indemnify  and  save
harmless  any and all Lessor  Indemnified  Parties  from and against any and all
Environmental  Liabilities  except to the extent that the same (i) are caused by
the intentionally  wrongful acts or grossly negligent failures to act of Lessor,
or  (ii)  result  from  Releases  or  other  violations  of  Environmental  Laws
originating  on  adjacent   property  but  affecting  the  Leased   Property  (a
"Migration"),  provided that such exclusions  shall not apply to the extent that
the Migration has been exacerbated by Lessee's act or negligent failure to act.

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

                  (d) If any Proceeding is brought against any Indemnified Party
in respect of an Environmental  Liability with respect to which such Indemnified
Party  may  claim  indemnification  under  either  Section  8.3(b)  or (c),  the
Indemnifying  Party,  upon request,  shall at its sole expense resist and defend
such  Proceeding,  or cause the same to be  resisted  and  defended  by  counsel
designated  by the  Indemnifying  Party and approved by the  Indemnified  Party,

                                       22
<PAGE>

which approval shall not be unreasonably withheld;  provided, however, that such
approval  shall not be required in the case of defense by counsel  designated by
any insurance company undertaking such defense pursuant to any applicable policy
of insurance.  Each  Indemnified  Party shall have the right to employ  separate
counsel in any such  Proceeding and to participate in the defense  thereof,  but
the fees and  expenses  of such  counsel  will be at the  sole  expense  of such
Indemnified Party unless a conflict of interest prevents  representation of such
Indemnified  Party by the counsel  selected by the  Indemnifying  Party and such
separate  counsel has been approved by the  Indemnifying  Party,  which approval
shall not be unreasonably  withheld.  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding made without its consent,  which shall
not  be  unreasonably   withheld,  but  if  settled  with  the  consent  of  the
Indemnifying  Party,  or if settled without its consent (if its consent shall be
unreasonably  withheld),  or if there be a final,  nonappealable judgment for an
adversary party in any such Proceeding,  the Indemnifying  Party shall indemnify
and hold  harmless  the  Indemnified  Parties  from and against any  liabilities
incurred by such Indemnified Parties by reason of such settlement or judgment.

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

                  (f) The indemnification rights and obligations provided for in
this  Article  8  shall  be  in  addition  to  any  indemnification  rights  and
obligations provided for elsewhere in this Lease,  provided that in the event of
a conflict  between  the  provisions  of this  Section  8.3 and  Article 20, the
provisions of this Section 8.3 shall control.

                  (g) The indemnification rights and obligations provided for in
this Article 8 shall survive the termination of this Lease.

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

                                       23
<PAGE>

use its reasonable efforts to pursue, or assign to Lessee or Lessor, as the case
may be, any claims or rights it may have  against  any third  party  which would
materially reduce the amount of damages  otherwise  incurred by such Indemnified
Party.

                                     ARTICLE
                                       9

9.1.     Maintenance and Repair; Capital Expenditures.

                  (a)  Lessee  will keep the  Leased  Property  and all  private
roadways,  sidewalks  and curbs  appurtenant  thereto  that are  under  Lessee's
control,  including  windows and plate glass,  parking lots,  HVAC,  mechanical,
electrical and plumbing systems and equipment  (including conduit and ductwork),
and  non-load  bearing  interior  walls,  in good order and  repair,  except for
ordinary wear and tear  (whether or not the need for such repairs  occurred as a
result of Lessee's  use,  any prior use,  the  elements or the age of the Leased
Property, or any portion thereof but subject to the obligation to make necessary
and appropriate  repairs and  replacements as provided in this Section  9.1(a)),
and,  except as otherwise  provided in Article 14 or Article 15, with reasonable
promptness,  make  all  necessary  and  appropriate  repairs,  replacements  and
improvements  thereto of every kind and nature,  whether  interior or  exterior,
ordinary  or  extraordinary,  foreseen or  unforeseen  or arising by reason of a
condition  existing  prior  to  the  commencement  of the  Term  of  this  Lease
(concealed  or  otherwise),  or  required  by  any  governmental  agency  having
jurisdiction over the Leased Property.  Lessee,  however,  shall be permitted to
prosecute  claims  against  Lessor's  predecessors  in title  for  breach of any
representation  or warranty or for any latent defects in the Leased  Property to
be  maintained by Lessee  unless  Lessor is already  diligently  pursuing such a
claim.  All repairs  shall,  to the extent  reasonably  achievable,  be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action, the taking or omission of which might materially impair the value or
the  usefulness  of the Leased  Property  or any part  thereof  for its  Primary
Intended  Use..  If Lessee  fails to make any required  repairs or  replacements
after  30 days  notice  from  Lessor,  or after  such  longer  period  as may be
reasonably  required provided that Lessee at all times diligently  proceeds with
such repair or replacement,  then Lessor shall have the right,  but shall not be
obligated, to make such repairs or replacements on behalf of and for the account
of  Lessee.  In such  event,  such  work  shall be paid for in full by Lessee as
Additional Charges.

                  (b) Subject to Lessor's  obligation  to make  available to the
Lessee amounts for Capital Expenditures as set forth in Article 38, Lessee shall
be required to make all Capital  Expenditures  required in  connection  with (i)
Emergency  Situations,  (ii)  Legal  Requirements,   (iii)  maintenance  of  the
Franchise  Agreement,  (iv) the performance by Lessee of its  obligations  under
this Lease,  and (v) other additions to the Leased Property as it may reasonably
deem appropriate and that are permitted hereunder during the Term. Lessee hereby
waives, to the extent permitted by law, the right to make repairs at the expense
of Lessor  pursuant  to any law in effect at the time of the  execution  of this
Lease or  hereafter  enacted.  Lessor  shall have the right to give,  record and
post, as appropriate,  notices of  non-responsibility  under any mechanic's lien
laws now or hereafter existing.

                  (c) Nothing  contained in this Lease and no action or inaction
by  Lessor  shall be  construed  as (1)  constituting  the  request  of  Lessor,

                                       24

<PAGE>

expressed or implied, to any contractor,  subcontractor, laborer, materialman or
vendor to or for the  performance  of any labor or services or the furnishing of
any  materials or other  property for the  construction,  alteration,  addition,
repair or  demolition of or to the Leased  Property or any part thereof,  or (2)
giving  Lessee any right,  power or  permission  to  contract  for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against  Lessor
in respect  thereof or to make any agreement  that may create,  or in any way be
the basis for any right, title, interest,  lien, claim or other encumbrance upon
the estate of Lessor in the Leased Property, or any portion thereof.

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

9.2.     Encroachments, Restrictions, Etc.

                  If any of the  Leased  Improvements,  at any time,  materially
encroach  upon  any  property,  street  or  right  of way  adjacent  to a Leased
Property,  or violate  the  agreements  or  conditions  contained  in any lawful
restrictive covenant or other agreement affecting a Leased Property, or any part
thereof,  or impair the rights of others  under any  easement or right of way to
which said Leased Property is subject,  then promptly upon the request of Lessor
or at the behest of any person affected by any such  encroachment,  violation or
impairment,  Lessee shall,  at its expense,  subject to its right to contest the
existence of any encroachment, violation or impairment and, in such case, in the
event of an adverse final  determination,  either (a) obtain valid and effective
waivers or settlements  of all claims,  liabilities  and damages  resulting from
each such encroachment,  violation or impairment,  whether the same shall affect
Lessor or Lessee or (b) make such changes in the Leased  Improvements,  and take
such other  actions,  as Lessee in the good faith exercise of its judgment deems
reasonably practicable to remove such encroachment, and to end such violation or
impairment,  including,  if  necessary,  the  alteration  of any  of the  Leased
Improvements,  and in any event  take all such  actions as may be  necessary  in
order to be able to continue the  operation of the Leased  Improvements  for the
Primary  Intended Use  substantially  in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation,  impairment
or  encroachment.  Any  such  alteration  shall be made in  conformity  with the
applicable  requirements of Article 10. Lessee's  obligations under this Section
9.2  shall be in  addition  to and shall in no way  discharge  or  diminish  any
obligation of any insurer under any policy of title or other  insurance  held by
Lessor.

                                       25
<PAGE>

                                     ARTICLE
                                       10

10.1.    Alterations.

                  After first  obtaining the written  approval of Lessor,  which
shall not be  unreasonably  withheld,  Lessee shall have the right,  but not the
obligation, to make such additions,  modifications or improvements to the Leased
Property from time to time as Lessee deems  desirable for its permitted uses and
purposes,  provided that such action will not alter the character or purposes of
the Leased  Property or detract from the value or operating  efficiency  thereof
and will not impair the  revenue-producing  capability of the Leased Property or
adversely affect the ability of the Lessee to comply with the provisions of this
Lease.  All such work shall be performed  in a first class manner in  accordance
with all applicable  governmental rules and regulations and after receipt of all
required  permits and licenses.  The cost of such  additions,  modifications  or
improvements  to the  Leased  Property  shall  be paid by  Lessee,  and all such
additions,  modifications and improvements  shall,  without payment by Lessor at
any time,  be  included  under the terms of this  Lease and upon  expiration  or
earlier  termination  of this Lease  shall pass to and  become the  property  of
Lessor.

10.2.    Salvage.

                  All materials which are scrapped or removed in connection with
the  making of  repairs  required  by  Articles  9 or 10 shall be or become  the
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work.

10.3.    Lessor Alterations.

                  Lessor shall have the right,  but not the obligation,  to make
such  other  additions  to  the  Leased  Property  as  it  may  reasonably  deem
appropriate during the Term, subject to the Lessee's approval which shall not be
unreasonably  withheld.  All such work shall be done after reasonable  notice to
and coordination  with Lessee, so as to minimize any disruptions or interference
with the operation of the Facility.

                                     ARTICLE
                                       11

11.1.    Liens.

                  Subject to the  provision  of Article 12 relating to permitted
contests,  Lessee will not directly or indirectly  create or allow to remain and
will promptly discharge at its expense any lien, encumbrance,  attachment, title
retention  agreement or claim upon the Leased Property resulting from the action
or inaction of Lessee, or any attachment,  levy, claim or encumbrance in respect
of the Rent,  excluding,  however,  (a) this  Lease,  (b) the  matters,  if any,
included as exceptions or insured against in the title policy insuring  Lessor's
interest in the Leased Property,(c)  restrictions,  liens and other encumbrances
which are  consented  to in writing by Lessor,  (d) liens for those  taxes which
Lessee is not required to pay hereunder,  (e) subleases  permitted by Article 21
hereof,  (f) liens for Impositions or for sums resulting from noncompliance with
Legal  Requirements  so long as (1) the same are not yet  delinquent or (2) such
liens are in the  process of being  contested  as  permitted  by Article 12, (g)
liens of mechanics,  laborers,  suppliers or vendors for sums either disputed or

                                       26
<PAGE>

not yet due provided that any such liens for disputed sums are in the process of
being  contested as permitted by Article 12 hereof,  and (h) any liens which are
the  responsibility  of Lessor  pursuant to the provisions of Article 32 of this
Lease.

                                     ARTICLE
                                       12

12.1.    Permitted Contests.

                  Lessee  shall have the right to contest the amount or validity
of any  Imposition  to be paid by Lessee or any Legal  Requirement  or any lien,
attachment,  levy,  encumbrance,  charge or claim  (any such  Imposition,  Legal
Requirement,  lien,  attachment,  levy,  encumbrance,  charge  or  claim  herein
referred to as "Claims") not otherwise  permitted by Article 11, by  appropriate
legal  proceedings  in good faith and with due diligence  (but this shall not be
deemed or construed in any way to relieve,  modify or extend Lessee's  covenants
to pay or its  covenants to cause to be paid any such charges at the time and in
the manner as in this Article provided), on condition,  however, that such legal
proceedings  shall not operate to relieve Lessee from its obligations  hereunder
and  shall  not cause  the sale or risk the loss of any  portion  of the  Leased
Property,  or any part thereof, or cause Lessor or Lessee to be in default under
any mortgage,  deed of trust,  security deed or other agreement  encumbering the
Leased  Property or any  interest  therein.  Upon the request of Lessor,  Lessee
shall either (a) provide a bond or other  assurance  reasonably  satisfactory to
Lessor  that all  Claims  which may be  assessed  against  the  Leased  Property
together with interest and penalties, if any, thereon and legal fees anticipated
to be incurred in connection  therewith  will be paid, or (b) deposit within the
time otherwise required for payment with a bank or trust company as trustee upon
terms  reasonably  satisfactory  to Lessor,  as security for the payment of such
Claims,  money in an amount  sufficient to pay the same,  together with interest
and penalties  thereon and legal fees  anticipated  to be incurred in connection
therewith,  as to all Claims which may be assessed  against or become a Claim on
the Leased  Property,  or any part thereof,  in said legal  proceedings.  Lessee
shall furnish Lessor and any lender of Lessor with  reasonable  evidence of such
deposit  within  five  days of the  same.  Lessor  agrees  to  join in any  such
proceedings  if the same be required to legally  prosecute  such  contest of the
validity of such  Claims;  provided,  however,  that Lessor shall not thereby be
subjected  to any  liability  for  the  payment  of any  costs  or  expenses  in
connection  with any  proceedings  brought by Lessee;  and Lessee  covenants  to
indemnify and save harmless Lessor from any such costs or expenses. Lessee shall
be  entitled  to any refund of any  Claims and such  charges  and  penalties  or
interest  thereon which have been paid by Lessee or paid by Lessor and for which
Lessor has been fully  reimbursed.  In the event  that  Lessee  fails to pay any
Claims  when  due or to  provide  the  security  therefor  as  provided  in this

                                       27
<PAGE>

paragraph and to diligently  prosecute any contest of the same, Lessor may, upon
ten days advance Notice to Lessee,  pay such charges  together with any interest
and  penalties and the same shall be repayable by Lessee to Lessor as Additional
Charges at the next Payment Date provided for in this Lease. Provided,  however,
that should  Lessor  reasonably  determine  that the giving of such Notice would
risk loss to the Leased  Property or cause  damage to Lessor,  then Lessor shall
only give such Notice as is practical under the  circumstances.  Lessor reserves
the right to contest  any of the Claims at its  expense  not  pursued by Lessee.
Lessor and Lessee agree to cooperate in coordinating the contest of any Claims.

                                     ARTICLE
                                       13

13.1.    General Insurance Requirements.

                  (a)  Coverages.  During  the Term of this  Lease,  the  Leased
Property  shall at all times be insured  with the kinds and amounts of insurance
described  below.  This  insurance  shall be written by companies  authorized to
issue insurance in the State. The policies must name the Lessor as an additional
named  insured,  and the Manager  shall also be named as an  additional  insured
under the  coverages  described in Sections  13.1(a) (iv) through  (xi).  Losses
shall be  payable  to  Lessor  or Lessee as  provided  in this  Lease.  Any loss
adjustment for coverages insuring both parties shall require the written consent
of Lessor and Lessee,  each  acting  reasonably  and in good faith.  Evidence of
insurance shall be deposited with Lessor.  The policies on the Leased  Property,
including  the Leased  Improvements,  Fixtures and Lessee's  Personal  Property,
shall  satisfy the  requirements  of the  Franchise  Agreement and of any ground
lease, mortgage, security agreement or other financing lien affecting the Leased
Property and at a minimum shall include:

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

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

                      (iii) Loss of income  insurance on the "Special  Form", in
         the amount of 18 months of the sum of  Initial  Fixed Rent or Base Rent
         plus  Percentage Rent (based on the last Lease Year of operation or, to
         the extent  the Leased  Property  has not been  operated  for an entire
         18-month Lease Year, based on prorated Percentage Rent) for the benefit
         of Lessor, and business interruption insurance on the "Special Form" in
         the amount of 18 months of gross profit, for the benefit of Lessee;

                       (iv) Commercial general liability insurance, with amounts
         not less than $1,000,000  combined single limit for each occurrence and
         $2,000,000  for the  aggregate  of all  occurrences  within each policy
         year, as well as excess liability  (umbrella)  insurance with limits of
         at least  $25,000,000 per  occurrence,  covering each of the following:
         bodily injury,  death,  or property  damage  liability per  occurrence,
         personal  and  advertising  injury,  general  aggregate,  products  and

                                       28
<PAGE>

         completed  operations,  with  respect  to  Lessor,  and "all risk legal
         liability" (including liquor law or "dram shop" liability, if liquor or
         alcoholic  beverages are served on the Leased Property) with respect to
         Lessor and Lessee;

                        (v) Fidelity bonds or blanket crime policies with limits
         and  deductibles  as may be reasonably  determined by Lessor,  covering
         Lessee's and/or  Manager's  employees in job  classifications  normally
         bonded under prudent hotel management practices in the United States or
         otherwise required by law;

                       (vi)  Workers'  compensation   insurance  to  the  extent
         necessary to protect  Lessor,  Lessee and the Leased  Property  against
         Lessee's and/or Manager's  workman's  compensation claims to the extent
         required by applicable state laws;

                      (vii) Comprehensive form vehicle liability insurance for
         owned, non-owned, and hired vehicles, in the amount of $1,000,000;

                     (viii)  Garagekeeper's  legal liability  insurance covering
         both comprehensive and collision-type  losses with a limit of liability
         of $3,000,000  for any one  occurrence,  of which coverage in excess of
         $1,000,000 may be provided by way of an excess liability policy;

                       (ix)  Innkeeper's  legal  liability   insurance  covering
         property of guests  while on the Leased  Property  for which  Lessor is
         legally  responsible with a limit of not less than $2,000 per guest and
         $50,000 in any one occurrence or $25,000 annual aggregate;

                        (x) Safe deposit box legal liability  insurance covering
         property of guests while in a safe  deposit box on the Leased  Property
         for which Lessor is legally  responsible  with a limit of not less than
         $50,000 in any one occurrence; and

                       (xi) Insurance covering such other hazards (such as plate
         glass or other common risks) and in such amounts as may be (A) required
         by a Holder, or (B) customary for comparable  properties in the area of
         the  Leased  Property  and  is  available  from  insurance   companies,
         insurance  pools  or  other  appropriate  companies  authorized  to  do
         business in the State at rates which are  economically  practicable  in
         relation  to the  risks  covered  as may be  reasonably  determined  by
         Lessor.

                  (b)  Responsibility  for  Insurance.  Lessor  shall obtain the
insurance and pay the premiums for the coverages described in Section 13.1(a)(i)
- (iii) above (excluding the business interruption  insurance for the benefit of
the Lessee in Section  13.1(a)(iii)).  Lessee shall obtain the insurance and pay
the premiums for the coverages  described in Section  13.1(a)(iii)  - (xi) above
(excluding the loss of income insurance for the benefit of the Lessor in Section
13.1(a)(iii)).  The Lessee shall also be responsible for any and all deductibles
in  connection  with  such  coverages.  In the  event  that  Lessor  can  obtain
comparable  insurance  coverage required to be carried by Lessee from comparable
insurers and at a cost  significantly  less than that at which Lessee can obtain
such coverage, the parties shall cooperate in good faith to obtain such coverage
at the lower cost and the Lessee shall pay the premiums therefor.

                                       29
<PAGE>

13.2.    Replacement Cost.

                  The term "full replacement cost" as used herein shall mean the
actual replacement cost of the Leased Property  requiring  replacement from time
to time including an increased cost of construction  endorsement,  if available,
and the cost of debris  removal.  In the event either party  believes  that full
replacement  cost has  increased or  decreased  at any time during the Term,  it
shall have the right to have such full replacement cost redetermined.

13.3.    (Intentionally omitted)

13.4.    Waiver of Subrogation.

                  All  insurance  policies  covering  the Leased  Property,  the
Fixtures,  the  Facility  or  Lessee's  Personal  Property,  including,  without
limitation,  contents,  fire and casualty  insurance,  shall expressly waive any
right of  subrogation on the part of the insurer  against the other party.  Each
party agrees to seek recovery from any  applicable  insurance  coverage prior to
seeking recovery against the other party.

13.5.    Form Satisfactory, etc.

                  All of the policies of  insurance  referred to in this Article
13 that are the  responsibility  of the Lessee shall be written in a form,  with
deductibles and by insurance companies  satisfactory to Lessor and shall satisfy
the  requirements  of any ground lease,  mortgage,  security  agreement or other
financing lien on the Leased Property and of the Franchise Agreement. The Lessee
shall pay all of the premiums  therefor,  and deliver copies of such policies or
certificates  thereof to the Lessor  prior to their  effective  date (and,  with
respect to any renewal  policy,  30 days prior to the expiration of the existing
policy),  and in the event of the  failure of the Lessee  either to effect  such
insurance as herein  called for or to pay the premiums  therefor,  or to deliver
such policies or certificates  thereof to the Lessor at the times required,  the
Lessor shall be entitled, but shall have no obligation, after 10 days' Notice to
Lessee (or after less than 10 days' Notice if required to prevent the expiration
of any existing policy), to effect such insurance and pay the premiums therefor,
and to be  reimbursed  by  Lessee  for any such  premiums  upon  written  demand
therefor.  Each insurer mentioned in this Article 13 shall agree, by endorsement
to the policy or policies issued by it, or by independent  instrument  furnished
to the Lessor  that it will give to Lessor 30 days'  written  notice  before the
policy or policies in question shall be materially altered, allowed to expire or
canceled.

13.6.    Increase in Limits.

                  If either Lessor or Lessee at any time deems the limits of the
personal  injury or property  damage under the  comprehensive  public  liability
insurance then carried to be either excessive or insufficient, Lessor and Lessee
shall  endeavor in good faith to agree on the proper and  reasonable  limits for
such insurance to be carried and such insurance shall thereafter be carried with
the limits thus agreed on until  further  change  pursuant to the  provisions of
this Section.  If the parties fail to agree on such limits,  the matter shall be
referred to arbitration as provided for in Section 40.2.

                                       30
<PAGE>

13.7.    Blanket Policy.

                  Notwithstanding  anything to the  contrary  contained  in this
Article  13,  Lessee may bring the  insurance  provided  for  herein  within the
coverage of a so-called  blanket  policy or  policies of  insurance  carried and
maintained by Lessee;  provided,  however,  that the coverage afforded to Lessor
and Lessee will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all other requirements of this
Lease by reason of the use of such  blanket  policy of  insurance,  and provided
further that the requirements of this Article 13 are otherwise satisfied.

13.8.    Separate Insurance.

                  Neither  Lessor  nor  Lessee  shall on its own  initiative  or
pursuant to the request or  requirement  of any third  party,  take out separate
insurance  concurrent  in form or  contributing  in the  event of loss with that
required in this  Article to be  furnished,  or increase  the amount of any then
existing  insurance by securing an  additional  policy or  additional  policies,
unless all parties  having an  insurable  interest in the subject  matter of the
insurance,  including in all cases  Lessor,  are included  therein as additional
insureds,  and the loss is payable under such additional  separate  insurance in
the same  manner as losses are  payable  under  this  Lease.  Each  party  shall
immediately  notify  the other  party  that it has  obtained  any such  separate
insurance  or of the  increasing  of any of the  amounts  of the  then  existing
insurance.

13.9.    Reports On Insurance Claims.

                  Lessee  shall  promptly  investigate  and make a complete  and
timely written report to the appropriate  insurance company as to all accidents,
all claims for damage relating to the ownership,  operation,  and maintenance of
the Facility,  and any damage or  destruction  to the Facility and the estimated
cost of repair  thereof and shall  prepare  any and all reports  required by any
insurance  company in  connection  therewith.  All such reports  shall be timely
filed with the  insurance  company as required  under the terms of the insurance
policy  involved,  and a copy of all such reports  shall be furnished to Lessor.
Lessee shall be authorized to adjust,  settle or compromise any insurable  loss,
or to execute proofs of such losses, in the aggregate,  of $10,000 or less, with
respect to any single casualty or other event.

                                     ARTICLE
                                       14

14.1.    Insurance Proceeds.

                  Subject to the provision of Section 13.9,  all proceeds of the
insurance contemplated by Sections 13.1(a) (i) and (ii) payable by reason of any
loss or damage to the Leased Property, or any portion thereof, and insured under
any policy of  insurance  required  by Article 13 of this Lease shall be paid to
Lessor and held in trust in an interest  bearing account and made available,  if

                                       31

<PAGE>

applicable,  for  reconstruction or repair, as the case may be, of any damage to
or  destruction  of  the  Leased  Property  or  any  portion  thereof,  and,  if
applicable,  shall be paid out by Lessor  from  time to time for the  reasonable
costs of such reconstruction or repair upon satisfaction of reasonable terms and
conditions specified by Lessor. Any excess proceeds of insurance remaining after
the completion of the restoration or reconstruction of the Leased Property shall
be paid to Lessor.  If neither Lessor nor Lessee is required or elects to repair
and restore,  and the Lease is terminated as described in Section 14.2, all such
insurance  proceeds  shall be retained by Lessor  except for any amount  thereof
paid with respect to Lessee's Personal Property.  All salvage resulting from any
risk  covered  by  insurance  shall  belong to  Lessor,  except to the extent of
salvage relating to Lessee's Personal Property.

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

                  (a) If during  the Term the  Leased  Property  is  totally  or
partially  destroyed by a risk covered by the insurance  described in Article 13
and the Facility  thereby is rendered  Unsuitable for its Primary  Intended Use,
the Lease shall  terminate as of the date of the casualty and neither Lessor nor
Lessee shall have any further  liability  hereunder  except for any  liabilities
which have arisen prior to or which survive such  termination,  and Lessor shall
be entitled to retain all insurance  proceeds except for any amount thereof paid
with respect to Lessee's Personal Property.

                  (b) If  during  the  Term the  Leased  Property  is  partially
destroyed  by a risk covered by the  insurance  described in Article 13, but the
Facility is not thereby rendered Unsuitable for its Primary Intended Use, Lessor
or,  at  the  election  of  Lessor,   Lessee  shall   restore  the  Facility  to
substantially  the same  condition as existed  immediately  before the damage or
destruction and otherwise in accordance with the terms of the Lease. Such damage
or destruction  shall not terminate this Lease. If Lessee restores the Facility,
the  insurance  proceeds  shall be paid out by Lessor  from time to time for the
reasonable costs of such  restoration upon  satisfaction of terms and conditions
specified by Lessor,  and any excess proceeds  remaining after such  restoration
shall be paid to Lessor  except  for any  amount  thereof  paid with  respect to
Lessee's Personal Property.

                  (c) If the  cost of the  repair  or  restoration  exceeds  the
amount of proceeds received by Lessor from the insurance  required under Article
13, Lessor shall agree to contribute  any excess  amounts  needed to restore the
Facility prior to requiring  Lessee to commence such work. Such difference shall
be made available by Lessor,  together with any other  insurance  proceeds,  for
application  to the  cost of  repair  and  restoration  in  accordance  with the
provisions of Section 14.2(b).

14.3.    Reconstruction in the Event of Damage or Destruction Not Covered by
         Insurance or When Holder Will Not Release Insurance Proceeds.

                  If during  the Term the  Facility  is  totally  or  materially
damaged or destroyed by a risk not covered by the insurance described in Article
13, or,  notwithstanding  the provisions of Section 14.2(b),  if the Holder will
not make the proceeds of such insurance  available to Lessor for  restoration of

                                       32

<PAGE>

the Facility,  whether or not in either event such damage or destruction renders
the Facility  Unsuitable for its Primary  Intended Use,  Lessor,  at its option,
shall  either,  (a) at Lessor's  sole cost and expense,  restore the Facility to
substantially  the same  condition it was in  immediately  before such damage or
destruction  and such damage or destruction  shall not terminate this Lease,  or
(b)  terminate  the Lease and neither  Lessor nor Lessee  shall have any further
liability  thereunder  except for any liabilities  which have arisen or occurred
prior to such termination and those which expressly survive  termination of this
Lease. If such damage or destruction is determined by Lessor not to be material,
Lessor  may,  at  Lessor's  sole  cost and  expense,  restore  the  Facility  to
substantially  the same  condition as existed  immediately  before the damage or
destruction  and otherwise in accordance  with the terms of the Lease,  and such
damage or destruction shall not terminate the Lease.

14.4.    Lessee's Property and Business Interruption Insurance.

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

14.5.    Abatement of Rent.

                  Any damage or destruction due to casualty notwithstanding, and
provided the Lease has not otherwise been terminated, this Lease shall remain in
full force and effect and Lessee's obligation to pay Rent required by this Lease
shall remain  unabated by any damage or  destruction  which does not result in a
reduction of Gross Revenues. If and to the extent that any damage or destruction
results in a reduction of Gross  Revenues  which would  otherwise be  realizable
from the operation of the Facility, then Lessor shall receive all loss of income
insurance  and  Lessee  shall  have no  obligation  to pay Rent in excess of the
amount of Percentage Rent, if any,  realizable from Gross Revenues  generated by
the  operation  of the Leased  Property  during the  existence of such damage or
destruction.

                                     ARTICLE
                                       15

15.1.    Definition.

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

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

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

                                       33
<PAGE>

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

15.2.    Parties' Rights and Obligations.

                  If during  the Term  there is any  Condemnation  of all or any
part of the  Leased  Property  or any  interest  in this  Lease,  the rights and
obligations of Lessor and Lessee shall be determined by this Article 15.

15.3.    Total Taking.

                  If title to the fee of the  whole of the  Leased  Property  is
condemned by any Condemnor,  this Lease shall cease and terminate as of the Date
of  Taking by the  Condemnor.  If title to the fee of less than the whole of the
Leased Property is so taken or condemned,  which nevertheless renders the Leased
Property  Unsuitable for its Primary  Intended Use or Uneconomic for its Primary
Intended Use,  then either Lessee or Lessor shall have the option,  by notice to
the other,  at any time prior to the Date of Taking,  to terminate this Lease as
of the Date of Taking. Upon such date, if such Notice has been given, this Lease
shall  thereupon  cease  and  terminate.  All  Base  Rent,  Percentage  Rent and
Additional  Charges paid or payable by Lessee  hereunder shall be apportioned as
of the Date of Taking, and Lessee shall promptly pay Lessor such amounts.

15.4.    Allocation of Award.

                  The total  Award made with  respect to the Leased  Property or
for loss of rent,  or for Lessor's  loss of business  beyond the Term,  shall be
solely  the  property  of and  payable  to  Lessor.  Any Award  made for loss of
Lessee's  business during the remaining Term, if any, for the taking of Lessee's
Personal Property,  or for removal and relocation expenses of Lessee in any such
proceedings  shall  be the  sole  property  of and  payable  to  Lessee.  In any
Condemnation  proceedings  Lessor  and  Lessee  shall  each  seek  its  Award in
conformity  herewith,  at its respective  expense;  provided,  however,  neither
Lessor nor Lessee shall initiate, prosecute or acquiesce in any proceedings that
may result in a diminution of any Award payable to the other.

15.5.    Partial Taking.

                  (a) If title to less than the whole of the Leased  Property is
condemned,  and the Leased  Property is not Unsuitable for its Primary  Intended
Use or  Uneconomic  for its Primary  Intended  Use, or if Lessor is entitled but
elects not to terminate this Lease as provided in Section 15.3,  then Lessor or,
at Lessor's  election,  Lessee shall,  with all  reasonable  dispatch and to the
extent that the Holder  permits the  application  of the Award  therefor and the
Award  is  sufficient  therefor,  restore  the  untaken  portion  of any  Leased
Improvements   so  that  such   Leased   Improvements   constitute   a  complete
architectural unit of the same general character and condition (as nearly as may
be  possible  under  the  circumstances)  as the  Leased  Improvements  existing
immediately prior to the  Condemnation.  Lessor and Lessee shall each contribute
to the cost of restoration that part of its Award specifically allocated to such

                                       34

<PAGE>

restoration,  if any,  together with severance and other damages awarded for the
taken  Leased  Improvements;   provided,   however,  that  the  amount  of  such
contribution shall not exceed such cost.

                  (b) In the event of a partial  Taking as  described in Section
15.5(a),  which does not result in a  termination  of this Lease by Lessor,  the
Base Rent shall be abated in the manner and to the extent that is fair, just and
equitable  to both Lessee and Lessor,  taking  into  consideration,  among other
relevant factors,  the number of usable rooms, the amount of square footage,  or
the revenues affected by such partial Taking. If Lessor and Lessee are unable to
agree  upon the  amount of such  abatement  within 30 days  after  such  partial
Taking,  the matter shall be submitted to Arbitration as provided for in Section
40.2 hereof.

15.6.    Temporary Taking.

                  If the whole or any part of the Leased Property or of Lessee's
interest under this Lease is condemned by any Condemnor for its temporary use or
occupancy,  this Lease shall not terminate by reason  thereof,  and Lessee shall
continue  to pay,  in the manner  and at the times  herein  specified,  the full
amounts of Base Rent and Additional Charges, but only to the extent of the Award
made to Lessee for such Condemnation  allocable to the Term. In addition, to the
extent of the remaining balance, if any, of the Award made for such Condemnation
allocable  to the Term  (after  payment  of Base Rent and  Additional  Charges),
Lessee shall pay Percentage Rent at a rate equal to the average  Percentage Rent
during the last three  preceding  full Lease Years (or if three full Lease Years
shall not have  elapsed,  the average  during the  preceding  full Lease Years).
Except only to the extent that Lessee may be prevented from so doing pursuant to
the terms of the order of the  Condemnor,  Lessee shall  continue to perform and
observe all of the other terms, covenants,  conditions and obligations hereof on
the part of the Lessee to be performed and observed, as though such Condemnation
had not  occurred.  In the event of any  Condemnation  as in this  Section  15.6
described,  the entire amount of any Award made for such Condemnation  allocable
to the Term of this Lease,  whether paid by way of damages,  rent or  otherwise,
shall be paid to Lessee.  Lessee covenants that upon the termination of any such
period of temporary  use or  occupancy it will,  to the extent that its Award is
sufficient  therefor  and subject to Lessor's  contribution  as set forth below,
restore  the Leased  Property  as nearly as may be  reasonably  possible  to the
condition in which the same was immediately prior to such  Condemnation,  unless
such period of temporary use or occupancy  extends  beyond the expiration of the
Term,  in which case Lessee shall not be required to make such  restoration.  If
restoration is required  hereunder,  Lessor shall contribute to the cost of such
restoration  that portion of its entire Award that is specifically  allocated to
such restoration in the judgment or order of the court, if any.

                                     ARTICLE
                                       16

16.1.    Events of Default.

                  Any one or more of the  following  events shall  constitute an
Event of Default hereunder:

                                       35

<PAGE>

                  (a) if Lessee  fails to make any payment of Intial Fixed Rent,
Base Rent or Percentage Rent or Additional Charges within ten days after receipt
by  Lessee of Notice  from  Lessor  that the same has  become  due and  payable,
provided  that  Lessor  shall not be  required to give any such Notice more than
twice in any  Lease  Year and that any  third or  subsequent  failure  by Lessee
during  such Lease Year to make any payment of Intial  Fixed Rent,  Base Rent or
Percentage Rent on the date the same becomes due and payable shall constitute an
immediate Event of Default; or

                  (b) if Lessee  fails to  observe or  perform  any other  term,
covenant  or  condition  of this Lease and such  failure is not  curable,  or if
curable is not cured by Lessee  within a period of 30 days after  receipt by the
Lessee of Notice thereof from Lessor,  unless such failure is curable but cannot
with due  diligence be cured within a period of 30 days,  in which case it shall
not be deemed an Event of  Default if (i)  Lessee,  within  such 30 day  period,
proceeds  with due  diligence  to cure the  failure  and  thereafter  diligently
completes the curing thereof within 120 days of Lessor's Notice to Lessee, which
120-day  period shall cease to run during any period that a cure of such failure
is prevented by an Unavoidable Delay and shall resume running upon the cessation
of such  Unavoidable  Delay, and (ii) the failure does not result in a notice or
declaration of default under any material contract or agreement to which Lessor,
the  Company,  or any  Affiliate of either of them is a party or by which any of
their assets are bound; or

                  (c) if Lessee or Manager shall (i) be generally not paying its
debts as they become due,  (ii) file,  or consent by answer or  otherwise to the
filing against it of, a petition for relief or  reorganization or arrangement or
any other  petition in bankruptcy,  for  liquidation or to take advantage of any
bankruptcy or insolvency law of any  jurisdiction,  (iii) make an assignment for
the benefit of its  creditors,  (iv) consent to the  appointment of a custodian,
receiver,  trustee or other  officer with  similar  powers with respect to it or
with respect to any substantial part of its assets, (v) be adjudicated insolvent
or (vi) take corporate  action for the purpose of any of the foregoing;  or if a
court or governmental  authority of competent  jurisdiction shall enter an order
appointing,  without consent by Lessee, a custodian,  receiver, trustee or other
officer  with  similar  powers  with  respect  to  it or  with  respect  to  any
substantial  part of its assets,  or if an order for relief  shall be entered in
any case or proceeding for  liquidation or  reorganization  or otherwise to take
advantage of any bankruptcy or insolvency law of any  jurisdiction,  or ordering
the dissolution, winding-up or liquidation of Lessee, or if any petition for any
such  relief  shall be filed  against  Lessee  and such  petition  shall  not be
dismissed within 60 days; or

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

                  (e) if the estate or interest of Lessee in the Leased Property
or any part  thereof is  voluntarily  or  involuntarily  transferred,  assigned,
conveyed,  levied  upon or  attached  in any  Proceeding  (for  purposes of this
Section  16.1(e),  a Change of Control  shall  constitute  an assignment of this
Lease); or

                  (f) if, except as a result of and to the extent  required by
damage,  destruction,  Condemnation,  Lessee  ceases  operations  on the  Leased
Property; or

                                       36
<PAGE>

                  (g) if the Franchise Agreement with respect to the Facility on
the Leased Property is terminated by the franchisor as a result of any action or
failure to act by the Lessee or its  agents,  other than the failure to complete
improvements  required by the  franchisor  because  the Lessor  fails to pay the
costs of such improvements; or

                  (h) if an Event of Default occurs under any of the Other
Leases.

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

16.2.    Remedies.

         Upon the  occurrence  of an Event of  Default,  Lessor  shall  have the
right,  at  Lessor's  option,  to elect  to do any one or more of the  following
without  further notice or demand to Lessee:  (a) terminate this Lease, in which
event Lessee shall immediately  surrender the Leased Property to Lessor, and, if
Lessee fails to so surrender,  Lessor shall have the right,  without notice,  to
enter upon and take  possession  of the Leased  Property  and to expel or remove
Lessee and its effects  without  being liable for  prosecution  or any claim for
damages  therefor;  and Lessee shall, and hereby agrees to, indemnify Lessor for
all  loss and  damage  which  Lessor  suffers  by  reason  of such  termination,
including without limitation, damages in an amount equal to the total of (1) the
reasonable costs of recovering the Leased Property in the event that Lessee does
not promptly  surrender the Leased Property,  and all other reasonable  expenses
incurred by Lessor in connection with Lessee's default;  and (2) the unpaid Rent
earned as of the date of termination, plus interest at the Overdue Rate accruing
after the due date; (3) the total Rent (including  Percentage Rent as determined
below) which Lessor would have  received  under this Lease for the  remainder of
the Term,  but  discounted to the then present value at a rate of 12% per annum,
less the fair market  rental  value of the balance of the Term as of the time of
such default  discounted  to the then present  value at a rate of 12% per annum;
and (4) all other sums of money and  damages  owing by Lessee to Lessor;  or (b)
enter upon and take possession of the Leased Property  without  terminating this
Lease and without being liable to prosecution or any claim for damages therefor,
and, if Lessor elects,  relet the Leased  Property on such terms as Lessor deems
advisable,  in which event Lessee  shall pay to Lessor on demand the  reasonable
cost of  repossessing  the Leased  Property and any deficiency  between the Rent
payable hereunder  (including  Percentage Rent as determined below) and the rent

                                       37

<PAGE>

paid under such reletting;  provided, however, that Lessee shall not be entitled
to any excess payments received by Lessor from such reletting  (Lessor's failure
to relet the Leased Property shall not release or affect Lessee's  liability for
Rent or for damages);  or (c) enter the Leased Property without terminating this
Lease and without being liable for prosecution or any claim for damages therefor
and maintain the Leased  Property and repair or replace any damage thereto or do
anything  for which Lessee is  responsible  hereunder.  Lessee  shall  reimburse
Lessor  immediately  upon demand for any  expense  which  Lessor  incurs in thus
effecting  Lessee's  compliance under this Lease, and Lessor shall not be liable
to Lessee for any damages with respect thereto.  Notwithstanding anything herein
to the  contrary,  Lessee  shall  not be liable  to  Lessor  for  consequential,
punitive or exemplary damages.

                  The  rights  granted to Lessor in this  Section  16.2 shall be
cumulative of every other right or remedy provided in this Lease or which Lessor
may otherwise have at law or in equity or by statute, and the exercise of one or
more  rights  or  remedies  shall not  prejudice  or impair  the  concurrent  or
subsequent  exercise of other rights or remedies or  constitute a forfeiture  or
waiver of Rent or damages  accruing  to Lessor by reason of any Event of Default
under this Lease.

                  Percentage Rent for the purposes of this Section 16.2 shall be
a sum equal to (i) the average of the annual amounts of the Percentage  Rent for
the three full Lease  Years  immediately  preceding  the Lease Year in which the
termination,  re-entry or repossession  takes place, or (ii) if three full Lease
Years  shall not have  elapsed,  the average of the  Percentage  Rent during the
preceding full Lease Years during which the Lease was in effect, or (iii) if one
full  Lease  Year  has not  elapsed,  the  amount  derived  by  annualizing  the
Percentage Rent from the effective date of this Lease.

16.3.    Waiver.

                  Each party waives,  to the extent permitted by applicable law,
any  right to a trial by jury in any  proceedings  brought  by  either  party to
enforce the provisions of this Lease, including, without limitation, proceedings
to enforce the  remedies  set forth in this  Article  16, and Lessee  waives the
benefit of any laws now or hereafter in force exempting  property from liability
for rent or for debt.  Lessor waives any right to "pierce the corporate veil" of
Lessee other than to the extent  funds shall have been paid to any  Affiliate of
Lessee following a default leading to any Event of Default, and then only to the
extent of such payments.

16.4.    Application of Funds.

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

                                     ARTICLE
                                       17

17.1.    Lessor's Right to Cure Lessee's Default.

                  If Lessee  fails to make any  payment  or to  perform  any act
required to be made or performed under this Lease including, without limitation,
Lessee's failure to comply with the terms of any Franchise Agreement,  and fails
to cure the same within the  relevant  time  periods  provided in Section  16.1,
Lessor,  without  waiving or releasing  any  obligation  of Lessee,  and without
waiving or  releasing  any  obligation  or  default,  may (but shall be under no
obligation to) at any time thereafter upon Notice to Lessee make such payment or
perform  such act for the account and at the expense of Lessee,  and may, to the

                                       38
<PAGE>

extent  permitted by law,  enter upon the Leased  Property for such purpose and,
subject to Section 16.2,  take all such action thereon as, in Lessor's  opinion,
may be  necessary  or  appropriate  therefor.  No such entry  shall be deemed an
eviction  of  Lessee.  All sums so paid by Lessor  and all  costs  and  expenses
(including, without limitation, reasonable attorneys' fees and expenses, in each
case to the extent  permitted by law) so incurred,  together  with a late charge
thereon (to the extent  permitted  by law) at the Overdue  Rate from the date on
which such sums or expenses  are paid or  incurred  by Lessor,  shall be paid by
Lessee to Lessor on  demand.  The  obligations  of Lessee  and  rights of Lessor
contained in this Article shall survive the expiration or earlier termination of
this Lease.

                                     ARTICLE
                                       18

18.1.    Personal Property Limitation.

                  (a)   Anything   contained  in  this  Lease  to  the  contrary
notwithstanding,  the average of the adjusted tax bases of the items of Lessor's
personal  property  that are leased to Lessee under this Lease at the  beginning
and at the end of any Lease  Year  shall not  exceed  15% of the  average of the
aggregate  adjusted tax bases of the real and personal property contained in the
Leased  Property  at the  beginning  and at the  end of  such  Lease  Year  (the
"Personal  Property  Limitation").  If Lessor  reasonably  anticipates  that the
Personal  Property  Limitation  will be  exceeded  with  respect  to the  Leased
Property  for any Lease Year,  Lessor  shall  notify  Lessee,  and Lessee  shall
purchase items of personal property anticipated by Lessor to be in excess of the
Personal  Property  Limitation  ("Excess  Personal  Property Items") either from
Lessor or a third party.  If the Excess  Personal  Property  Items are purchased
from Lessor, the purchase prices of such Excess Personal Property Items shall be
equal to the adjusted tax bases of such Excess  Personal  Property  Items in the
hands of Lessor as of the closing of the purchase.

                  (b) If Lessee  purchases  Excess Personal  Property Items, the
Rent shall be reduced for the calendar quarter in which such purchase occurs and
each of four  succeeding  calendar  quarters by an amount each calendar  quarter
equal to 20% of the aggregate  purchase prices of such Excess Personal  Property
Items.

                  (c) If Lessee  purchases  Excess Personal  Property Items, the
amount  required by Lessor to be  deposited in the Capital  Expenditure  Reserve
pursuant to Article 38 hereof  shall be reduced for the Lease Year during  which
such purchase occurs by an amount equal to the aggregate purchase prices of such
Excess Personal Property Items.

18.2.    Sublease Rent Limitation.

                  Anything   contained   in   this   Lease   to   the   contrary
notwithstanding,  Lessee shall not sublet the Leased  Property 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 Code, or any similar or successor provision thereto.

                                       39

<PAGE>

18.3.    Sublease Lessee Limitation.

                  Anything   contained   in   this   Lease   to   the   contrary
notwithstanding, Lessee shall not sublease the Leased Property to, or enter into
any similar  arrangement with, any Person in which the Company owns, directly or
indirectly, a 10% or greater interest,  within the meaning of Section 856(d) (2)
(B) of the Code, or any similar or successor provisions thereto.

18.4.    Lessee Ownership Limitation.

                  Anything   contained   in   this   Lease   to   the   contrary
notwithstanding,  neither party shall take,  or permit to take,  any action that
would  cause the  Company  to own,  directly  or  indirectly,  a 10% or  greater
interest in the Lessee within the meaning of Section 856(d) (2) (B) of the Code,
or any similar or successor provision thereto.

18.5.    Director, Officer and Employee Limitation.

                  Anything   contained   in   this   Lease   to   the   contrary
notwithstanding,  Lessor  and  Lessee  shall  cooperate  to  ensure  that (i) no
officers or  employees  of Lessor or the Company  shall be officers or employees
of, or own any  ownership  interest  in,  any Person  who  furnishes  or renders
services  to the  tenants of the Leased  Property,  or manages or  operates  the
Leased Property,  other than the Lessee and (ii) no officers or employees of any
Person who furnishes or renders  services to the tenants of the Leased Property,
or  manages or  operates  the Leased  Property,  other than the Lessee  shall be
officers or employees of Lessor or the Company.  Furthermore, if a Person serves
as both (a) a director or trustee of Lessor,  the Company or any other Affiliate
of Lessor and (b) a director  and  officer (or  employee)  of the any Person who
furnishes or renders services to the tenants of the Leased Property,  or manages
or operates the Leased  Property,  other than the Lessee,  that Person shall not
receive any compensation (excluding reimbursement for expenses) for serving as a
trustee of the Lessor, the Company or the other Affiliate of Lessor.

                                     ARTICLE
                                       19

19.1.    Holding Over.

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

                                       40

<PAGE>

                                     ARTICLE
                                       20

20.1.    Indemnification.

                  Subject to the last  sentence  of Section  13.4,  Lessee  will
protect, indemnify, hold harmless and defend Lessor Indemnified Parties from and
against all liabilities,  obligations,  claims,  damages,  penalties,  causes of
action, costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses),  to the extent  permitted by law,  including those resulting
from a Lessor  Indemnified  Party's own negligence but excluding those resulting
from a Lessor  Indemnified  Party's  gross  negligence  or  willful  misconduct,
imposed upon or incurred by or asserted  against Lessor  Indemnified  Parties by
reason of: (a) any accident,  injury to or death of persons or loss of or damage
to property  occurring on or about the Leased  Property or adjoining  sidewalks,
including without  limitation any claims under liquor liability,  "dram shop" or
similar laws, (b) any past, present or future use, misuse,  non-use,  condition,
management,  maintenance or repair by Lessee or any of its agents,  employees or
invitees of the Leased Property or Lessee's Personal Property or any litigation,
proceeding or claim by  governmental  entities or other third parties to which a
Lessor  Indemnified  Party is made a party or  participant  related to such use,
misuse, non-use, condition, management, maintenance, or repair thereof by Lessee
or any of its agents, employees or invitees,  including any failure of Lessee or
any of its agents,  employees or invitees to perform any obligations  under this
Lease or imposed by  applicable  law (other  than  arising  out of  Condemnation
proceedings),  (c) any Impositions,  other than any portion of Real Estate Taxes
that the Lessor is  obligated  to pay under this  Lease,  (d) any failure on the
part of Lessee to perform or comply with any of the terms of this Lease, and (e)
the  nonperformance  of any of the terms and  provisions of any and all existing
and future  subleases  of the Leased  Property to be  performed  by the landlord
thereunder.

                  Subject to the last  sentence of Section  13.4,  Lessor  shall
indemnify,  save harmless and defend Lessee Indemnified Parties from and against
all liabilities,  obligations,  claims,  damages,  penalties,  causes of action,
costs and  expenses  imposed  upon or  incurred by or  asserted  against  Lessee
Indemnified  Parties  as a  result  of  (a)  the  gross  negligence  or  willful
misconduct of Lessor arising in connection with this Lease or (b) any failure on
the part of Lessor to perform or comply with any of the terms of this Lease.

                  Any amounts that become payable by an Indemnifying Party under
this Section shall be paid within ten days after liability  therefor on the part
of the Indemnifying  Party is determined by litigation or otherwise,  and if not
timely  paid,  shall bear a late charge (to the extent  permitted by law) at the
Overdue  Rate from the date of such  determination  to the date of payment.  Any
such  amounts  shall be reduced by  insurance  proceeds  received  and any other
recovery  (net of costs)  obtained by the  Indemnified  Party.  An  Indemnifying
Party, at its expense,  shall contest,  resist and defend any such claim, action

                                       41
<PAGE>

or  proceeding  asserted  or  instituted  against  the  Indemnified  Party.  The
Indemnified Party, at its expense,  shall be entitled to participate in any such
claim,  action, or proceeding,  and the Indemnifying Party may not compromise or
otherwise  dispose of the same  without  the consent of the  Indemnified  Party,
which may not be  unreasonably  withheld.  Nothing  herein shall be construed as
indemnifying a Lessor  Indemnified  Party against its own grossly negligent acts
or omissions or willful misconduct.

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

                                     ARTICLE
                                       21

21.1.    Subletting and Assignment.

                  In addition to the provisions of Article 18 and Sections 21.2,
21.3 and any other express consents, conditions, limitations or other provisions
set forth herein and in the Lease Master Agreement, Lessee shall not assign this
Lease or hereafter sublease all or any part of the Leased Property without first
obtaining the written consent of Lessor. In the case of a permitted  subletting,
the sublessee  shall comply with the provisions of Section 21.2 and 21.3, and in
the case of a permitted  assignment,  the  assignee  shall assume in writing and
agree to keep and  perform  all of the terms of this Lease on the part of Lessee
to be kept and performed and shall be, and become,  jointly and severally liable
with Lessee for the  performance  thereof.  In case of either an  assignment  or
subletting  made during the Term,  Lessee  shall  remain  primarily  liable,  as
principal rather than as surety,  for the prompt payment of the Rent and for the
performance  and  observance  of all  of  the  covenants  and  conditions  to be
performed by Lessee hereunder. An original counterpart of each such sublease and
assignment  and  assumption,  duly  executed  by Lessee  and such  sublessee  or
assignee,  as the case may be, in form and  substance  satisfactory  to  Lessor,
shall be delivered promptly to Lessor.

21.2.    Attornment.

                  Lessee shall insert in each future  sublease  permitted  under
Section  21.1  provisions  to the effect  that (a) such  sublease is subject and
subordinate  to all of the terms and  provisions of this Lease and to the rights
of Lessor hereunder,  (b) if this Lease terminates before the expiration of such
sublease,  the sublessee  thereunder will, at Lessor's option,  attorn to Lessor
and waive any right the  sublessee  may have to  terminate  the  sublease  or to
surrender  possession  thereunder as a result of the  termination of this Lease,
and (c) if the  sublessee  receives a written  Notice  from  Lessor or  Lessor's
assignees,  if any,  stating that an uncured Event of Default  exists under this
Lease,  the sublessee shall  thereafter be obligated to pay all rentals accruing
under said sublease  directly to the party giving such Notice,  or as such party
may  direct.  All  rentals  received  from the  sublessee  by Lessor or Lessor's
assignees,  if any, as the case may be,  shall be  credited  against the amounts
owing by Lessee under this Lease.

21.3.    Management Agreement.

                  If the Lessee  decides to enter  into a  management  or agency
agreement relating to the management or operation of the Facility (collectively,
the  "Management  Agreement"),  Lessor  shall  have  the  right to  approve  the
Management  Agreement , any modifications to the Management  Agreement affecting
the fees,  costs or expenses  payable or collectible  thereunder,  and any other

                                       42
<PAGE>

material modification to the Management  Agreement.  Lessor's approval shall not
be unreasonably  withheld.  The Management Agreement shall provide,  among other
things, that (i) upon termination of this Lease or termination of Lessee's right
to possession of the Leased Property for any reason  whatsoever,  the Management
Agreement may be terminated by Lessor  without  liability for any payment due or
to become due to the manager of the Facility (the "Manager"),  and (ii) all fees
and other  amounts  payable by Lessee to the Manager shall be  subordinate  on a
month to month  basis to Rent and  other  amounts  payable  by  Lessee to Lessor
hereunder  prior to the  existence  of an Event of Default,  and shall be at all
times  subordinate  to Rent and such other  amounts  after the  occurrence of an
Event of Default

                                     ARTICLE
                                       22

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

                  (a) At any time and from  time to time  upon not less  than 10
days Notice by Lessor,  Lessee will furnish to Lessor an  Officer's  Certificate
certifying  that this Lease is unmodified  and in full force and effect (or that
this  Lease is in full  force  and  effect as  modified  and  setting  forth the
modifications),  the date to  which  the Rent  has  been  paid,  whether  to the
knowledge of Lessee there is any existing default or Event of Default  hereunder
by Lessor or Lessee,  and such other information as may be reasonably  requested
by Lessor. Any such certificate furnished pursuant to this Section may be relied
upon by Lessor, any lender, any underwriter and any prospective purchaser of the
Leased Property.

                  (b) Lessee will  furnish,  at Lessee's  cost and expense,  the
following  statements  and  operating  information  to  Lessor,  each  in a form
satisfactory to Lessor:

                           (i)  Consolidated   Financials  of  Lessee  for  each
         calendar  quarter of each Lease Year, and for each calendar  quarter in
         the Lease  Year-to-date,  within 20 days after the end of such calendar
         quarter;

                            (ii)  Consolidated  Financials  of  Lessee  and each
         Affiliate of Lessee,  if any, that leases hotel  properties from Lessor
         or its  Affiliates,  for each calendar  quarter of each Lease Year, and
         for each  calendar  quarter in the Lease  Year to date,  within 20 days
         after the end of such calendar quarter;

                           (iii) audited  Consolidated  Financials of Lessee for
         each Lease Year, including the auditor's report thereon, within 60 days
         after the end of such year;

                           (iv) audited  Consolidated  Financials  of Lessee and
         each  Affiliate of Lessee that leases hotel  properties  from Lessor or
         its  Affiliates,  if any, for each Lease Year,  including the auditor's
         report thereon, within 60 days after the end of such year. The fees and
         expenses of the auditor  incurred in connection  with  conducting  such
         audits and delivering such reports shall be paid by Lessor;

                                       43
<PAGE>

                           (v)   with   reasonable   promptness,    such   other
         information  respecting  the financial  condition and affairs of Lessee
         (A) as Lessor or the Company may require or may deem  desirable  in its
         discretion to file with or provide to the SEC or any other governmental
         agency or any other  Person,  all in the form,  and  either  audited or
         unaudited, as Lessor may request in Lessor's reasonable discretion, and
         (B) as may be reasonably  necessary to confirm compliance by Lessee and
         its Affiliates with the requirements of this Lease;

                           (vi) on or  before  the  20th  day of  each  calendar
         quarter,  a balance sheet,  and detailed  profit and loss and cash flow
         statements showing the financial position of the Facility as at the end
         of the  preceding  calendar  quarter,  the results of  operation of the
         Facility for such preceding calendar quarter and the Lease Year-to-date
         and the average daily rate, occupancy and revenue-per-available room of
         the Facility in such preceding calendar quarter;

                           (vii)  within  five  (5)  days  of  Lessee's  receipt
         thereof,  any inspection reports received from the franchisor under the
         Franchise Agreement; and

                           (viii)   such   other   information   as  Lessor  may
         reasonably  request and that Lessee can  provide  without  unreasonable
         expense.

                  (c) At any time and from  time to time  upon not less  than 10
days notice by Lessee, Lessor will furnish to Lessee or to any person designated
by Lessee an estoppel  certificate  certifying that this Lease is unmodified and
in full  force and  effect  (or that this  Lease is in full  force and effect as
modified and setting forth the  modifications),  the date to which Rent has been
paid,  whether to the knowledge of Lessor there is any existing default or Event
of Default on Lessee's  part  hereunder,  and such other  information  as may be
reasonably requested by Lessee. Any such certificate  furnished pursuant to this
Section  may be relied  upon by Lessee,  any  lender,  any  underwriter  and any
purchaser of the assets of Lessee.

                  (d) If Company or Lessor proposes to include in any submission
or filing with its lender, stock exchange or the SEC, Consolidated Financials of
Lessee  delivered  or  required  to be  delivered  hereunder  and the consent of
Lessee's  auditor is required for such inclusion,  Lessee shall use commercially
reasonable  efforts  to cause its  auditor  to  deliver  promptly  to Lessor the
auditor's consent,  in the form required,  to the inclusion in the submission or
filing of the Consolidated  Financials  (including the report of the auditor, if
the Consolidated Financials to be included are audited). Lessee shall reasonably
cooperate with Lessor regarding Lessee's auditor's compliance with such requests
with the  purpose  of  minimizing  costs and  delays.  Lessee  shall  reasonably
cooperate  with all requests made by its auditor,  Lessor or the SEC to promptly
provide to the auditor,  Lessor or SEC such information or documents,  including
consents  and  representation  letters,  as may be  necessary  or  desirable  in
connection with the  preparation,  delivery,  audit or inclusion in SEC filings,
submissions  or other public  documents,  of  information,  including  financial
information, related to the Leased Property, the operation and financial results

                                       44

<PAGE>

of the Leased Property,  and the financial  results and condition of the Lessee.
Without  limiting the foregoing,  the information  shall be sufficient to permit
the  preparation  of a  Management's  Discussion  and  Analysis  of  Results  of
Operations and Financial Condition with respect to the Lessee as may be required
to be  included  in reports and  documents  filed by the  Company  with the SEC.
Lessee shall not be obligated to incur  material  additional  expense to prepare
any reports or information not  specifically  provided for herein that Lessor or
Company  may be  required  or elect to file  with  the  SEC,  and such  material
additional third-party costs shall be paid or reimbursed by Lessor.

                                     ARTICLE
                                       23

23.1.    Regular Meetings; Lessor's Right to Inspect.

                  (a) Lessee  agrees  that the  regional  manager,  the  general
manager,  the  director  of  marketing/sales,  and the  chief  engineer  for the
Facility will meet with Lessor and its representatives on a monthly basis at the
Facility  throughout  each  Lease Year in order to  discuss  all  aspects of the
management,  maintenance and operation of the Facility. If agreed upon by Lessor
and Lessee, such meetings may be held by conference call.

                  (b)   Lessee   shall   permit   Lessor   and  its   authorized
representatives,  which may include auditors,  underwriters and rating agencies,
as  frequently  as  reasonably  requested  by Lessor to (i)  inspect  the Leased
Property and Lessee's accounts and records pertaining thereto, including general
accounting records,  corporate records and agreements relating to the operations
of the  Leased  Property  and  Lessee's  financial  condition,  and make  copies
thereof,  and  (ii)  conduct  audits,  all  during  usual  business  hours  upon
reasonable  advance  notice,  subject  only  to  any  business   confidentiality
requirements  reasonably  requested by Lessee.  In conducting  such  inspections
Lessor shall not unreasonably interfere with the conduct of Lessee's business at
the Leased Property.

                  (c) Lessee will, on a space available basis, provide customary
gratuitous  accommodations to Lessor and its  representatives in connection with
all such meetings and inspections.

                                     ARTICLE
                                       24

24.1.    No Waiver.

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

                                       45

<PAGE>

                                     ARTICLE
                                       25

25.1.    Remedies Cumulative.

                  To the extent  permitted  by law but subject to Article 39 and
any other  provisions of this Lease  expressly  limiting the rights,  powers and
remedies of either Lessor or Lessee, each legal, equitable or contractual right,
power and remedy of Lessor or Lessee now or  hereafter  provided  either in this
Lease or by statute or otherwise shall be cumulative and concurrent and shall be
in  addition  to every  other  right,  power and  remedy,  and the  exercise  or
beginning of the exercise by Lessor or Lessee of any one or more of such rights,
powers and remedies shall not preclude the  simultaneous or subsequent  exercise
by Lessor or Lessee of any or all of such other rights, powers and remedies.

                                     ARTICLE
                                       26

26.1.    Acceptance of Surrender.

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

                                     ARTICLE
                                       27

27.1.    No Merger of Title.

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

                                     ARTICLE
                                       28

28.1.    Conveyance by Lessor.

                  Lessor  shall  have  the  unrestricted  right to  mortgage  or
otherwise  convey the Leased Property to a Holder.  If Lessor conveys the Leased
Property in  accordance  with the terms hereof  other than to a Holder,  and the
grantee or transferee of the Leased  Property  expressly  assumes in writing all
obligations of Lessor  hereunder  arising or accruing from and after the date of
such conveyance or transfer,  Lessor shall thereupon be released from all future
liabilities  and obligations of Lessor under this Lease arising or accruing from
and  after  the date of such  conveyance  or  other  transfer  as to the  Leased
Property and all such future  liabilities  and  obligations  shall  thereupon be
binding upon the new owner.  If Lessee is not reasonably  satisfied that the new

                                       46
<PAGE>

owner is a  capable,  reliable  and  qualified  Person  of good  reputation  and
character,  Lessee may terminate  this Lease upon 60-days Notice to Lessor given
within 30 days after Lessee receives Notice of such conveyance.

28.2.    Lessor May Grant Liens.

                  (a)  Subject to Section  7.2,  without  the consent of Lessee,
Lessor may from time to time, directly or indirectly,  create or otherwise cause
to exist any lien,  encumbrance  or title  retention  agreement  upon the Leased
Property,  or any portion thereof or interest therein, or upon Lessor's interest
in this Lease,  whether to secure any  borrowing  or other means of financing or
refinancing.  This Lease and Lessee's  interest  hereunder shall at all times be
subject and  subordinate  to the lien and security  title of any deeds to secure
debt,  deeds of trust,  mortgages,  or other  interests  heretofore or hereafter
granted by Lessor or which otherwise  encumber or affect the Leased Property and
to  any  and  all  advances  to  be  made   thereunder   and  to  all  renewals,
modifications,   consolidations,  replacements,  substitutions,  and  extensions
thereof  (all of which are herein  called  the  "Mortgage"),  provided  that the
Mortgage and all security agreements delivered by Lessor in connection therewith
shall be  subject to  Lessee's  rights  under  this  Lease to receive  all Gross
Revenues of the Facility  prior to the earlier of the  occurrence of an Event of
Default or the date that this Lease is  terminated by the Holder of the Mortgage
in  the  exercise  of  its  remedies   thereunder.   In   confirmation  of  such
subordination,  Lessee shall, at Lessor's request, promptly execute, acknowledge
and deliver any instrument  which may be required to evidence  subordination  to
any  Mortgage  and  attornment  to the Holder  thereof  and its  successors  and
assigns,  provided  Lessee  receives  customary and  reasonable  non-disturbance
protection  while it is not in default  hereunder.  The Lessee shall comply with
any material  covenants with respect to the Lessee  contained in such instrument
of subordination. In the event of Lessee's failure to deliver such subordination
and if the  Mortgage  does not  change  any term of the Lease,  Lessor  may,  in
addition  to any other  remedies  for  breach of  covenant  hereunder,  execute,
acknowledge,  and deliver the  instrument  as the agent or  attorney-in-fact  of
Lessee,  and Lessee hereby irrevocably  constitutes Lessor its  attorney-in-fact
for such purpose,  Lessee  acknowledging that the appointment is coupled with an
interest and is irrevocable.

                  (b) Lessee  shall,  upon the request of Lessor or any existing
or future  Holder,  (i) provide  Holder with  copies of all  licenses,  permits,
occupancy  agreements,  operating  agreements,  leases,  contracts  and  similar
agreements  reasonably  requested  in  connection  with any existing or proposed
financing of the Leased Property,  and (ii) execute, or cause the Manager or any
relevant  Affiliate  to  execute,   such  estoppel   agreements  and  collateral
assignments  with respect to the Facility's  liquor license and any of the other
aforementioned  agreements as Holder may reasonably  request in connection  with
any such  financing,  provided  that no such  estoppel  agreement or  collateral
assignment  shall in any way affect the Term or affect adversely in any material
respect any rights of Lessee under this Lease.

                  (c) No act or failure to act on the part of Lessor which would
entitle  Lessee under the terms of this Lease,  or by law, to be relieved of any
of Lessee's obligations hereunder (including, without limitation, its obligation
to  pay  Rent)  or to  terminate  this  Lease,  shall  result  in a  release  or
termination of such obligations of Lessee or a termination of this Lease unless:

                                       47

<PAGE>

(i) Lessee shall have first given  written  notice of Lessor's act or failure to
act to the  Holder,  specifying  the act or failure to act on the part of Lessor
which would give basis to Lessee's rights; and (ii) the Holder, after receipt of
such  notice,  shall have  failed or  refused  to correct or cure the  condition
complained  of within a  reasonable  time  thereafter  (in no event less than 60
days),  which  shall  include  a  reasonable  time for  such  Holder  to  obtain
possession of the Leased Property, if possession is reasonably necessary for the
Holder to correct or cure the condition,  or to foreclose such Mortgage,  and if
the Holder notifies the Lessee of its intention to take possession of the Leased
Property or to foreclosure such Mortgage, and correct or cure such condition. If
such Holder is prohibited by any process or injunction issued by any court or by
reason of any action by any court having jurisdiction or any bankruptcy,  debtor
rehabilitation  or insolvency  proceedings  involving  Lessor from commencing or
prosecuting  foreclosure or other appropriate proceedings in the nature thereof,
provided, however, that the Lease shall continue to be in full force and effect,
the times for commencing or prosecuting  such  foreclosure or other  proceedings
shall be extended for the period of such prohibition.

                  (d) Lessee  shall  deliver by notice  delivered  in the manner
provided  in Article 30 to any Holder  who gives  Lessee  written  notice of its
status as a Holder,  at such  Holder's  address  stated in the Holder's  written
notice or at such other  address as the Holder may  designate  by later  written
notice to Lessee, a duplicate copy of any and all notices  regarding any default
which  Lessee may from time to time give or serve upon  Lessor  pursuant  to the
provisions of this Lease. Copies of such notices given by Lessee to Lessor shall
be  delivered to such Holder  simultaneously  with  delivery to Lessor.  No such
notice by Lessee to Lessor  hereunder  shall be deemed to have been given unless
and until a copy thereof has been mailed to such Holder.

                  (e) At any time, and from time to time, upon not less than ten
(10) days' notice by a Holder to Lessee,  Lessee shall deliver to such Holder an
estoppel certificate  certifying as to the information required in paragraph (c)
of Article 22, and such other information as may be reasonably requested by such
Holder. Any such certificate may be relied upon by such Holder.

                  (f) Lessee shall cooperate in all reasonable respects,  and as
generally  described  in Section  33.2 of this Lease,  with any  transfer of the
Leased  Property  to a Holder  that  succeeds  to the  interest of Lessor in the
Leased Property (including,  without limitation, in connection with the transfer
of any franchise,  license, lease, permit, contract,  agreement, or similar item
to such Holder or such Holder's designee necessary or appropriate to operate the
Leased  Property).  Lessor and Lessee shall  cooperate in (i)  including in this
Lease by  suitable  amendment  from  time to time  any  provision  which  may be
requested by any proposed Holder, or may otherwise be reasonably  necessary,  to
implement  the  provisions  of this Article and (ii)  entering  into any further
agreement with or at the request of any Holder which may be reasonably requested
or required by such Holder in furtherance or  confirmation  of the provisions of
this Article; provided,  however, that any such amendment or agreement shall not
in any way affect the Term nor affect  adversely  in any  material  respect  any
rights of Lessor or Lessee under this Lease.

                                       48
<PAGE>

                                     ARTICLE
                                       29

29.1.    Quiet Enjoyment.

                  So long as Lessee  pays all Rent as the same  becomes  due and
complies  with all of the  terms of this  Lease  and  performs  its  obligations
hereunder, in each case within the applicable grace and/or cure periods, if any,
Lessee shall  peaceably and quietly have, hold and enjoy the Leased Property for
the Term hereof,  free of any claim or other action by Lessor or anyone claiming
by,  through or under Lessor and not claiming by,  through or under Lessee,  but
subject to all liens and  encumbrances  subject to which the Leased Property was
conveyed to Lessor or  hereafter  consented  to by Lessee in writing or provided
for herein.  Lessee shall have the right by separate and  independent  action to
pursue any claim it may have against Lessor as a result of a breach by Lessor of
the covenant of quiet enjoyment contained in this Section.

                                     ARTICLE
                                       30

30.1.    Notices.

                  All notices, demands, requests,  consents, approvals and other
communications  ("Notice"  or  "Notices")  hereunder  shall  be in  writing  and
personally  served  or  mailed  (by  express  or  overnight  mail,  courier,  or
registered or certified mail, return receipt requested and postage prepaid), (i)
if to Lessor at 148 Sheraton Drive, Box A, New Cumberland,  Pennsylvania  17070,
Attention: Hasu P. Shah, and (ii) if to Lessee at 148 Sheraton Drive, Box A, New
Cumberland,  Pennsylvania 17070, Attention: K.D. Patel, or to such other address
or addresses  as either  party may  hereafter  designate.  Personally  delivered
Notices  shall be  effective  upon  receipt,  and Notice  given by mail shall be
deemed  received  at the time of  deposit  in the  U.S.  Mail  system  or with a
recognized  overnight mail courier,  but any prescribed period of Notice and any
right or duty to do any act or make any response within any prescribed period or
on a date  certain  after the  service  of such  Notice  given by mail  shall be
extended five days.

                                     ARTICLE
                                       31

31.1.    Appraisers.

                  If it becomes  necessary to determine the fair market value or
fair market rental of the Leased  Property for any purpose of this Lease,  then,
except as  otherwise  expressly  provided in this Lease,  the party  required or
permitted to give Notice of such  required  determination  shall  include in the
Notice the name of a person  selected to act as appraiser on its behalf.  Within
10 days after Notice,  Lessor (or Lessee, as the case may be) shall by Notice to
Lessee (or Lessor,  as the case may be) appoint a second  person as appraiser on
its behalf. The appraisers thus appointed,  each of whom must be a member of the
American  Institute of Real Estate  Appraisers  (or any  successor  organization
thereto) with at least five years  experience in the State  appraising  property
similar  to the  Leased  Property,  shall,  within 10 days after the date of the
Notice appointing the second appraiser,  proceed to appraise the Leased Property
to  determine  the fair  market  value or fair market  rental  thereof as of the
relevant date (giving  effect to the impact,  if any, of inflation from the date
of their decision to the relevant  date);  provided,  however,  that if only one

                                       49

<PAGE>

appraiser shall have been so appointed, then the determination of such appraiser
shall be final and binding upon the parties. If two appraisers are appointed and
if the  difference  between the amounts so determined  does not exceed 5% of the
lesser of such  amounts,  then the fair market value or fair market rental shall
be an  amount  equal  to 50% of the sum of the  amounts  so  determined.  If the
difference  between the amounts so  determined  exceeds 5% of the lesser of such
amounts,  then  such  two  appraisers  shall  have 10 days  to  appoint  a third
appraiser. If no such appraiser shall have been appointed within such 10 days or
within 60 days of the original  request for a determination of fair market value
or fair market rental,  whichever is earlier,  either Lessor or Lessee may apply
to any court having  jurisdiction to have such  appointment  made by such court.
Any  appraiser  appointed by the original  appraisers  or by such court shall be
instructed  to determine  the fair market value or fair market  rental within 30
days after  appointment of such appraiser.  The  determination  of the appraiser
which  differs  most in terms of dollar  amount from the  determinations  of the
other two appraisers shall be excluded,  and 50% of the sum of the remaining two
determinations  shall be final and  binding  upon  Lessor and Lessee as the fair
market value or fair market rental of the Leased  Property,  as the case may be.
This provision for determining by appraisal shall be specifically enforceable to
the extent such remedy is available under applicable law, and any  determination
hereunder  shall be final and  binding  upon the  parties  except  as  otherwise
provided  by  applicable  law.  Lessor  and  Lessee  shall each pay the fees and
expenses of the  appraiser  appointed  by it and each shall pay  one-half of the
fees and  expenses of the third  appraiser  and  one-half of all other costs and
expenses incurred in connection with each appraisal.

                                     ARTICLE
                                       32

32.1.    Lessee's Right to Cure.

                  Subject to the  provisions  of Article 39, if Lessor  breaches
any covenant to be performed by it under this Lease, Lessee, after Notice to and
demand upon Lessor as provided in Article 39,  without  waiving or releasing any
obligation  hereunder,  may  (but  shall  be  under  no  obligation  at any time
thereafter  to) make such payment or perform such act for the account and at the
expense  of  Lessor.  All sums so paid by  Lessee  and all  costs  and  expenses
(including,  without  limitation,   reasonable  attorneys'  fees)  so  incurred,
together with  interest  thereon at the Overdue Rate from the date on which such
sums or  expenses  are paid or  incurred  by Lessee,  shall be paid by Lessor to
Lessee on demand.  The rights of Lessee  hereunder to cure and to secure payment
from Lessor in accordance  with this Article 32 shall survive the termination of
this Lease with respect to the Leased Property.

                                       50

<PAGE>

                                     ARTICLE
                                       33

33.1.    Miscellaneous.

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

33.2.    Transition Procedures.

                  Upon any  expiration or  termination  of the Term,  Lessor and
Lessee shall do the following and, in general,  shall cooperate in good faith to
effect an orderly  transition of the  management  or lease of the Facility.  The
provisions of this Section 33.2 shall survive the  expiration or  termination of
this Lease until they have been fully performed.  Nothing contained herein shall
limit Lessor's rights and remedies under this Lease if such  termination  occurs
as the result of an Event of Default.

                  (a) Transfer of Franchise  Agreement.  The Franchise Agreement
shall be  assigned,  at Lessor's  option,  effective  on the  termination  date,
without fee, cost, or penalty payable to the Lessee,  and without the imposition
by Lessee of a product  improvement (or similar) plan, to (i) Lessor,  or (ii) a
designee of Lessor of good reputation and with experience in operating hotels.

                  (b)  Transfer  of  Licenses.  Upon the  expiration  or earlier
termination  of the Term,  Lessee  shall use its best efforts (i) to transfer to
Lessor  or  Lessor's   nominee  all  licenses,   operating   permits  and  other
governmental   authorizations  and  all  contracts,   including  contracts  with
governmental  or  quasi-governmental  entities,  that may be  necessary  for the
operation of the Facility (collectively,  "Licenses"),  or (ii) if such transfer
is prohibited by law or Lessor  otherwise  elects,  to cooperate  with Lessor or
Lessor's nominee in connection with the processing by Lessor or Lessor's nominee
of any  applications  for all  Licenses,  including  Lessee  (or its  Affiliate)
continuing  to operate  the liquor  operations  under its  licenses  with Lessor
agreeing to indemnify  and hold Lessee (or its  Affiliate)  harmless as a result
thereof  except  for the gross  negligence  or  willful  misconduct  of  Lessee;
provided,  in either case,  that the costs and expenses of any such  transfer or
the  processing  of any such  application  shall be paid by Lessor  or  Lessor's
nominee.

                                       51

<PAGE>

                  (c) Leases and  Concessions.  Lessee shall assign to Lessor or
Lessor's nominee simultaneously with the termination of this Agreement,  and the
assignee  shall  assume,  all  leases,  contracts,   concession  agreements  and
agreements  in effect with respect to the Facility  then in Lessee's  name which
are designated by Lessor.

                  (d) Books and  Records.  To the  extent  that  Lessor  has not
already received copies thereof,  all books and records (including  computer and
computer-generated  records) for the Facility kept by Lessee pursuant to Section
3.6 (or copies thereof) shall be delivered  simultaneously  with the termination
of this Agreement to Lessor or Lessor's nominee.

                  (e) Receivables and Payables, etc. Lessee shall be entitled to
retain  all cash,  bank  accounts  and house  banks,  and to  collect  all Gross
Revenues and accounts  receivable  accrued through the termination  date. Lessee
shall be  responsible  for the payment of Rent,  all  operating  expenses of the
Facility and all other  obligations of Lessee accrued under this Lease as of the
termination date, and Lessor shall be responsible for all operating  expenses of
the Facility accruing after the termination date.

                  (f) Final  Accounting.  Lessee  shall,  within forty five (45)
days after the  expiration or  termination  of the Term,  prepare and deliver to
Lessor a final accounting  statement,  dated as of the date of the expiration or
termination,  as  more  particularly  described  in  Article  22,  along  with a
statement of any sums due from Lessee to Lessor  pursuant  hereto and payment of
such funds.

                  (g) Inventory.  Lessee shall insure that the Leased  Property,
at the date of such termination or expiration,  has Inventory of a substantially
equivalent   nature  and  amount  as  exists  at  the  Leased  Property  on  the
Commencement Date, and Lessor shall acquire such Inventory from Lessee by paying
Lessee  the fair  market  value  thereof,  calculated  on the same  basis as the
parties determined the fair market value of the Inventory purchased by Lessee on
the Commencement Date.

                  (i) Option to Purchase Lessee's Personal Property.  Upon the
expiration or termination of the Term,  Lessor shall have the option to purchase
Lessee's Personal Property related to the Leased Property at fair market value.

                  (h) Surrender.  Lessee shall peacefully and immediately vacate
and surrender  the Leased  Property to Lessor or Lessor's  designee,  shall turn
over all keys to Lessor  and  Lessor's  designee  and shall not  interfere  with
Lessor or any new Lessee or Manager.

33.3.    Waiver of Presentment, etc.

                  Lessee  waives all  presentments,  demands for payment and for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor,  and notices of  acceptance  and waives all notices of the  existence,
creation,  or incurring of new or  additional  obligations,  except as expressly
granted herein.
                                       52
<PAGE>

33.4.    Standard of Discretion.

                  In any  provision of this Lease  requiring or  permitting  the
exercise  by  Lessor or Lessee of such  party's  approval,  election,  decision,
consent,  judgment,  determination or words of similar import (collectively,  an
"Approval"),  such Approval may, unless  otherwise  expressly  specified in such
provision,  be given or withheld in such party's sole, absolute and unreviewable
discretion.  Any  Approval  which  by  the  terms  of  this  Lease  may  not  be
unreasonably withheld shall also not be unreasonably delayed.

33.5.    Action for Damages.

                  In any suit or other  claim  brought by either  party  seeking
damages against the other party for breach of its obligations  under this Lease,
the party  against  whom such claim is made  shall be liable to the other  party
only  for  actual  damages  and not for  consequential,  punitive  or  exemplary
damages.

33.6.    Lease Assumption in Bankruptcy Proceeding.

                  If an Event of Default  occurs and Lessee has filed or has had
filed against it a petition in bankruptcy or for  reorganization or other relief
pursuant to the federal  bankruptcy  code,  Lessee shall promptly move the court
presiding over the proceeding to assume the Lease pursuant to 11 U.S.C.  ss.365,
without seeking an extension of the time to file said motion.

33.7.    Intra-Family Transfers.

                  Lessee  acknowledges  that Lessor may transfer  legal title to
the  Leased  Property  one or more  times to  Affiliates  of the Lessor in which
Lessor or the Company owns a majority  interest (each, an "Affiliated  Lessor").
Lessee hereby consents to such transfers provided that, in each case, this Lease
is assumed by the  Affiliated  Lessor in its entirety and without  modification,
except to the extent that Lessor,  or the  Affiliated  Lessor that then owns the
Leased Property,  specifically  retains any obligations accrued through the date
of transfer hereunder.  Lessee covenants that in connection with such transfers,
Lessee will execute and deliver to Lessor,  the  Affiliated  Lessor and/or their
representatives appropriate estoppels and other documentation requested by them,
including  an  amendment  to this  Lease,  for the  purposes of  reflecting  and
acknowledging the Affiliated Lessor's interests as lessor hereunder.

                                     ARTICLE
                                       34

34.1.    Memorandum of Lease.

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

                                       53

<PAGE>

                                     ARTICLE
                                       35

                             (Intentionally Omitted)

                                     ARTICLE
                                       36

36.1.    Lessor's Option to Terminate.

                  (a) In the event  Lessor  enters into a bona fide  contract to
sell the Leased Property to a non-Affiliate other than Lessee or an Affiliate of
Lessee,  Lessor may  terminate  the Lease by giving not less than 60-days  prior
Notice to Lessee of Lessor's  election to  terminate  the Lease upon the closing
under such contract. Effective upon such date, this Lease shall terminate and be
of no  further  force and effect  except as to any  obligations  of the  parties
existing  as of such date that  survive  termination  of this Lease and all Rent
including  Percentage  Rent and  Additional  Charges shall be adjusted as of the
termination date.

                  (b) As compensation for the early termination of its leasehold
estate  under this Article 36 because of a sale of the Leased  Property,  Lessor
shall  within six months  after of the  closing of such sale,  either (i) pay to
Lessee the "Termination Fee" (as defined below) or (ii) offer to lease to Lessee
one or more  substitute  suite hotel  facilities  pursuant to one or more leases
that would create for the Lessee  leasehold  estates that have an aggregate fair
market  value of no less than the fair market  value of the  original  leasehold
estate (a "Comparable Lease"),  such value to be determined as of the closing of
the sale of the Leased  Property.  Lessee's  acceptance of the Comparable  Lease
shall not be  unreasonably  withheld.  If Lessee rejects the  Comparable  Lease,
Lessor shall pay the Termination  Fee to Lessee.  In the event Lessor and Lessee
are unable to agree upon the fair market  value of an  original  or  replacement
leasehold  estate,  it shall be  determined  by  appraisal  using the  appraisal
procedure set forth in Article 31.

                  (c) (i) For the purposes of this Section, fair market value of
the leasehold  estate means, as applicable,  an amount equal to the price that a
willing buyer not  compelled to buy would pay a willing  seller not compelled to
sell for Lessee's  leasehold  estate under this Lease or an offered  replacement
leasehold  estate.  In computing  fair market value of a leasehold  estate,  the
appraiser shall discount all future income and fees to the then present value at
a rate equal to the Prime Rate plus 2% per annum.

                    (ii) The Termination Fee shall equal the "Net Present Value"
(as  defined  below) of the  "Lessee  Leakage"  (as  defined  below) for (a) the
remaining  Lease Years of the Term or, (b) if the  termination  occurs less than
five Lease Years from the end of the Term, the remaining Lease Years in the Term
plus one year (the "Determination Period").  "Lessee Leakage" for any Lease Year
is defined as the net operating income of the Facility, determined in accordance
with GAAP and as if no Management Agreement existed,  less Rent paid and payable
hereunder.  The "Net Present Value" of the Lessee Leakage for the  Determination
Period shall be determined by (A) averaging the Lessee Leakage actually realized
by Lessee for the three most recently ended Lease Years (or all full Lease Years
if less than three full Lease Years have elapsed  since the  Commencement  Date)

                                       54

<PAGE>

(the  "Valuation  Period"),  (B) assuming that Lessee Leakage in the first Lease
Year of the  Determination  Period is the average  Lessee Leakage (as determined
under subsection (A) above) and that the Lessee Leakage in each subsequent Lease
Year in the  Determination  Period is the deemed Lessee Leakage for the previous
Lease Year, (C)  discounting the deemed Lessee Leakage in each Lease Year of the
Determination Period to then-present value at a rate of twelve percent (12%) per
annum and (D) aggregating the sum of such present values.

                  (d) In the event that Lessor  terminates  this Lease upon less
than 60-days  written  notice  pursuant to the  provisions of this Article 36 or
pursuant  to any  other  provisions  of this  Lease  except  for the  provisions
allowing  Lessor to  terminate  this Lease  under  Articles 14 or 15 or upon the
occurrence  of an Event of  Default,  the  parties  agree  that on and after the
effective  date  of  such  termination,   hotel  personnel  employed  by  Lessee
immediately  prior to the effective date of termination  will either be employed
by Lessor or its designee, or Lessor or its designee will take such other action
with  respect  to  their  employment,  which  may  include  notification  of the
prospective termination of their employment,  so as, in any case, to insure that
Lessee  does not incur any  liability  pursuant  to the WARN Act. In that event,
Lessor  hereby agrees to defend,  indemnify  and hold  harmless  Lessee from and
against any and all manner of claims, actions,  liabilities,  costs and expenses
(including,  without limitation,  reasonable  attorneys' fees and disbursements)
relating to or arising from Lessor's breach of this covenant, including, without
limitation,  any liability, costs and expenses arising out of asserted or actual
violation of the requirements of the WARN Act.  Further,  Lessor or its designee
shall  assume all COBRA  liabilities  and COBRA  obligations  to the  Facility's
personnel,  which Lessee shall or may incur in connection with such  termination
of this Lease,  and Lessor hereby agrees to defend,  indemnify and hold harmless
Lessee  from and  against  any and all manner of claims,  actions,  liabilities,
costs and expenses (including,  without limitation,  reasonable  attorneys' fees
and  disbursements)  relating  to or  resulting  from  Lessor's  breach  of  the
foregoing covenant with respect to COBRA matters, including, without limitation,
any  liability,  costs  and  expenses  arising  out of any  asserted  or  actual
violation  of the  requirements  of the COBRA  any  legislation.  Upon  Lessor's
written  request to Lessee,  Lessee shall take all action that is  reasonable to
notify,  advise and cooperate with Lessor in order to assist Lessor in complying
with the WARN Act or COBRA  legislation  and to  mitigate  Lessor's  expense  or
liability with respect to the WARN Act and COBRA legislation.

                                     ARTICLE
                                       37

37.1.    Compliance with Franchise Agreement.

                  To the extent any of the provisions of the Franchise Agreement
impose a greater  obligation on Lessee than the corresponding  provisions of the
Lease, then Lessee shall be obligated to comply with, and to take all reasonable
actions  necessary to prevent  breaches or defaults under, the provisions of the
Franchise  Agreement,  except  to the  extent  that  Lessee  is  prevented  from
complying  with the  Franchise  Agreement  because  of  Lessor's  breach  of its
obligations  to comply with  Article 38. It is the intent of the parties  hereto

                                       55

<PAGE>

that Lessee shall comply in every  respect with the  provisions of the Franchise
Agreement so as to avoid any default  thereunder  during the Term.  Lessee shall
not terminate or enter into any modification of the Franchise  Agreement without
in each instance first obtaining  Lessor's  written  consent.  Lessor and Lessee
agree to  cooperate  fully with each other in the event it becomes  necessary to
obtain a franchise  extension or  modification or a new franchise for the Leased
Property,  and in any  transfer  of the  Franchise  Agreement  to  Lessor or any
designee  thereof or any other  successor to Lessee upon the termination of this
Lease.

                                     ARTICLE
                                       38

38.1.    Capital Expenditures.

                  (a) Lessor shall be  obligated to make  available to Lessee an
amount equal to [4][6]% of Room  Revenues  from the  Facility  during each Lease
Year  ("Capital  Expenditures  Allowance").  Upon  written  request by Lessee to
Lessor  stating the specific use to be made and subject to the approval  thereof
by Lessor, which approval shall not be unreasonably  withheld,  such funds shall
be made available by Lessor for Capital Expenditures; provided, however, that no
Capital  Expenditures  shall be made to  purchase  property  (other  than  "real
property" within the meaning of Treasury Regulations Section 1.856-3(d)), to the
extent  that doing so would  cause the  Lessor to  recognize  income  other than
"rents from real  property" as defined in Section  856(d) of the Code.  Lessor's
obligation  shall be cumulative,  but not compounded,  and any amounts that have
accrued  hereunder  shall be  payable  in  future  periods  for such uses and in
accordance with the procedure set forth herein. Lessee shall have no interest in
any accrued  obligation of Lessor hereunder after the termination of this Lease.
All Capital  Improvements  shall be owned by Lessor subject to the provisions of
this Lease.

                  (b) Lessor's  obligation with respect to Capital  Expenditures
shall be limited to amounts available in the Capital Expenditures Allowance.

                                     ARTICLE
                                       39

39.1.    Lessor's Default.

                  It shall be a breach of this Lease if Lessor  fails to observe
or  perform  any term,  covenant  or  condition  of this Lease on its part to be
performed  and such  failure  continues  for a period  of 30 days  after  Notice
thereof from  Lessee,  unless such  failure  cannot with due  diligence be cured
within a period of 30 days,  in which  case such  failure  shall not be deemed a
breach if Lessor proceeds within such 30-day period, with due diligence, to cure
the failure and thereafter  diligently  completes the curing  thereof.  The time
within  which  Lessor  shall be obligated to cure any such failure also shall be
subject to extension of time due to the occurrence of any Unavoidable  Delay. If
Lessor  does not cure any such  failure  within the  applicable  time  period as
aforesaid,  Lessee may declare the  existence of a "Lessor  Default" by a second
Notice to Lessor.  Thereafter,  Lessee may forthwith cure the same in accordance
with the  provisions of Article 32,  subject to the  provisions of the following
paragraph.  Lessee  shall have no right to  terminate  this Lease for any Lessor

                                       56

<PAGE>

Default and no right,  for any such Lessor  Default,  to offset or  counterclaim
against any Rent or other charges due hereunder.

                  If Lessor shall in good faith  dispute the  occurrence  of any
Lessor Default and Lessor,  before the expiration of the applicable cure period,
shall give Notice thereof to Lessee,  setting forth, in reasonable  detail,  the
basis  therefor,  no Lessor  Default shall be deemed to have occurred and Lessor
shall have no obligation with respect thereto until final adverse  determination
thereof,  whether through arbitration or otherwise;  provided,  however, that in
the event of any such adverse determination, Lessor shall pay to Lessee interest
on any disputed funds at the Base Rate,  from the date demand for such funds was
made by Lessee until the date of final adverse determination and, thereafter, at
the Overdue Rate until paid. If Lessee and Lessor shall fail, in good faith,  to
resolve any such dispute within ten (10) days after Lessor's  Notice of dispute,
either may submit the matter for determination by arbitration,  but only if such
matter is required to be submitted to  arbitration  pursuant to any provision of
this Lease, or otherwise by a court of competent jurisdiction.

                                     ARTICLE
                                       40

40.1.    Arbitration.

                  Except as set forth in Section 40.2, in each case specified in
this Lease in which it shall  become  necessary to resort to  arbitration,  such
arbitration  shall be  determined  as provided in this Section  40.1.  The party
desiring such  arbitration  shall give Notice to that effect to the other party,
and an arbitrator  shall be selected by mutual  agreement of the parties,  or if
they cannot  agree  within 30 days of such notice,  by  appointment  made by the
American  Arbitration  Association  ("AAA") from among the members of its panels
who are  qualified  and who have  experience  in  resolving  matters of a nature
similar to the matter to be resolved by arbitration.

40.2.    Alternative Arbitration.

                  In each  case  specified  in this  Lease  for a  matter  to be
submitted to arbitration pursuant to the provisions of this Section 40.2, Lessor
shall be entitled to designate any nationally  recognized accounting firm with a
hospitality  division  of  which  Lessor  or an  Affiliate  of  Lessor  is not a
significant  client to serve as arbitrator of such dispute  within 15 days after
written  demand for  arbitration  is  received  or sent by Lessor.  In the event
Lessor fails to make such designation within such 15-day period, Lessee shall be
entitled  to  designate  any  nationally   recognized  accounting  firm  with  a
hospitality  division  of  which  Lessee  or an  Affiliate  of  Lessee  is not a
significant  client to serve as arbitrator of such dispute  within 15 days after
Lessor  fails to  timely  make  such  designation.  In the  event no  nationally
recognized  accounting  firm  satisfying  such  qualifications  is available and
willing to serve as arbitrator, the arbitration shall instead be administered as
set forth in Section 40.1.

                                       57

<PAGE>

40.3.    Arbitration Procedures.

                  In any  arbitration  commenced  pursuant to  Sections  40.1 or
40.2, a single arbitrator shall be designated and shall resolve the dispute. The
arbitrator's  decision  shall be binding on all parties and shall not be subject
to further review or appeal except as otherwise  allowed by applicable law. Upon
the  failure of either  party  (the  "non-complying  party") to comply  with his
decision, the arbitrator shall be empowered,  at the request of the other party,
to order such compliance by the non-complying  party and to supervise or arrange
for the supervision of the non-complying  party's  obligation to comply with the
arbitrator's  decision,  all at the expense of the  non-complying  party. To the
maximum  extent  practicable,  the  arbitrator  and the parties,  and the AAA if
applicable, shall take any action necessary to insure that the arbitration shall
be concluded within 90 days of the filing of such dispute. The fees and expenses
of the  arbitrator  shall be shared  equally  by  Lessor  and  Lessee  except as
otherwise  specified  above in this Section  40.3.  Unless  otherwise  agreed in
writing by the  parties or  required by the  arbitrator  or AAA, if  applicable,
arbitration   proceedings   hereunder   shall  be   conducted   in  the   State.
Notwithstanding formal rules of evidence, each party may submit such evidence as
each party deems  appropriate to support its position and the  arbitrator  shall
have  access to and right to examine  all books and records of Lessee and Lessor
regarding the Facility during the arbitration.

                            [Signature Page follows]

                                       58
<PAGE>

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

                          LESSOR:

                          _______________, a Pennsylvania limited partnership

                          By: HERSHA HOSPITALITY, LLC, a Virginia limited
                              liability company, its sole General Partner

                              By: HERSHA HOSPITALITY LIMITED
                                  PARTNERSHIP, a Virginia limited partnership,
                                  its sole member

                                   By: HERSHA HOSPITALITY TRUST, a
                                       Maryland real estate investment trust,
                                       its General Partner

                                         By:___________________________
                                             Hasu P. Shah, President

                          LESSEE:

                          HERSHA HOSPITALITY MANAGEMENT, L.P., a Pennsylvania
                          limited partnership

                          By: HERSHA HOSPITALITY MANAGEMENT CO., a Pennsylvania
                              corporation, its General Partner

                                 By:_____________________________________
                                        K.D. Patel, President

<PAGE>

                                       A-1

                                    Exhibit A

                              PROPERTY DESCRIPTION

<PAGE>

                                       B-1

                                    Exhibit B

                                OTHER PROPERTIES

The following hotels (excluding the Leased Property):

<PAGE>

                                    Exhibit C

                           PERCENTAGE RENT PROVISIONS

INITIAL FIXED RENT:                                                  $__________

BASE RENT:                                                           $__________

PERCENTAGE RENT:

         FIRST TIER
         ROOM REVENUE PERCENTAGE:                                            __%

         FIRST ANNUAL ROOM
         REVENUES BREAK POINT:                                         $_______

         SECOND TIER
         ROOM REVENUE PERCENTAGE:                                            __%

         SECOND ANNUAL ROOM
         REVENUES BREAK POINT:                                         $________

         THIRD TIER
         ROOM REVENUE PERCENTAGE:                                            __%

         OTHER REVENUE PERCENTAGE:                                           __%

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