AMENDMENT NUMBER ONE

                         TO LOAN AND SECURITY AGREEMENT





                  This AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (the

"Amendment") is entered into as of October 3, 2001, between FOOTHILL CAPITAL

CORPORATION, a California corporation ("Agent"), with a place of business

located at 2450 Colorado Avenue, Suite 3000 West, Santa Monica, California

90404, as Agent for the Lenders (as defined herein), and as a Lender, the

lenders identified on the signature pages hereof (such lenders, together with

their respective successors and assigns, are referred to hereinafter each

individually as a "Lender" and collectively as the "Lenders", and together with

Agent, as the "Lender Group"), and THE HOTEL GROUP, INC., a Kansas corporation

("Borrower"), and SHOLODGE, INC., a Tennessee corporation ("Holdings"), with its

chief executive office located at 130 Maple Drive North, Hendersonville, TN

37075, with reference to the following:



                  WHEREAS, Borrower and Holdings previously entered into that

certain Loan and Security Agreement, dated as of August 27, 1999 (as amended,

restated, supplemented, or otherwise modified from time to time, the "Loan

Agreement"), with Agent and Lenders pursuant to which Lenders have made certain

loans and financial accommodations available to Borrower and Holdings;



                  WHEREAS, Borrower and Holdings have requested that Agent and

the Lenders amend the Loan Agreement;



                  WHEREAS, subject to the terms and conditions set forth herein,

Agent and the Lenders are willing to so amend the Loan Agreement.



                  NOW, THEREFORE, in consideration of the foregoing and the

mutual covenants herein contained, and for other good and valuable

consideration, the receipt and sufficiency of which are hereby acknowledged, the

parties hereby agree as follows:



         1.       Defined Terms. All terms used herein and not otherwise defined

shall have the meanings ascribed thereto in the Loan Agreement.



         2.       Amendments To The Loan Agreement.



                           (a)      Section 1.1 of the Loan Agreement hereby is

                  amended as follows:



                           (i)      The definition of "Additional Pledged Notes"

                  hereby is amended and restated in its entirety to read as

                  follows:



                           "Additional Pledged Notes" means the notes, itemized

                  on Schedule A-1, pledged by an Obligor in support of the

                  increase in the Maximum Facility





                                    5.20 - 1

{PAGE}



                  Amount above $30,000,000 as a result of an increase in the

                  Maximum Revolver Amount above $20,000,000, and such term shall

                  also include notes pledged by an Obligor pursuant to Section

                  4.5.



                           (ii)     The definition of "Applicable NOI Multiple"

                  is hereby amended and restated in its entirety to read as

                  follows:



                           "Applicable NOI Multiple" means the following stated

                  NOI numbers set forth below under the heading "NOI Multiple"

                  with respect to the specified levels of Subordinated

                  Indebtedness set forth below:



{TABLE}

{CAPTION}

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

  Amount of Subordinated Indebtedness              NOI Multiple

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

{S}                                                {C}

}$50,000,000                                             5.0

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

}$30,000,000 and {$50,000,000                            4.0

                 -

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

{$30,000,000                                             3.0

-

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

{/TABLE}



                           (iii)    The definition of "Applicable Prepayment

                  Premium" hereby is deleted in its entirety.



                           (iv)     The definition of "Baseline NOI" hereby is

                  amended and restated in its entirety to read as follows:



                           "Baseline NOI" means (i) from the Closing Date to the

                  Maximum Facility Amount Availability Date, the NOI

                  attributable to the Underlying Real Property Collateral which

                  secures the Pledged Notes, (ii) after the Maximum Facility

                  Amount Availability Date, the NOI attributable to the

                  Underlying Real Property Collateral which secures the Pledged

                  Notes and the Additional Pledged Notes, all as set forth on

                  Schedule A-1, and (iii) from time to time, the NOI

                  attributable to additional parcels of Real Property Collateral

                  added by amendment to Schedule A-1 as set forth in this

                  Agreement.



                           (v)      The definition of "Jonesboro Property"

                  hereby is deleted in its entirety.



                           (vi)     The definition of "Maximum Revolver Amount"

                  hereby is amended and restated in its entirety to read as

                  follows:



                           "Maximum Revolver Amount" means $20,000,000 or such

                  larger amount as may be approved from time to time by the

                  Lender Group (it being understood that there is currently no

                  present agreement to approve or consider any such larger

                  amount).





                                    5.20 - 2

{PAGE}



                           (vii)    The definition of "Maximum Facility Amount

                  Availability Date" hereby is amended and restated in its

                  entirety to read as follows:



                           "Maximum Facility Amount Availability Date" means

                  that date upon which all of the conditions precedent as set

                  forth in Section 3.2 to the Lenders' commitment to increase

                  the Maximum Facility Amount above $30,000,000 as a result of

                  an increase in the Maximum Revolver Amount above $20,000,000

                  have been either satisfied or waived by the Lender Group.



                           (viii)   The definition of "Real Property Collateral"

                  hereby is amended and restated in its entirety to read as

                  follows:



                           "Real Property Collateral" means the Real Property

                  owned in fee by an Obligor identified on Schedule A-1, as the

                  same may be amended or modified from time to time to reflect

                  the provision of additional Real Property Collateral to secure

                  the Obligations as set forth in Section 2.1(c), 3.9 or 4.5."



                           (ix)     The definition of "Total Maximum Commitment

                  Amount" hereby is amended and restated in its entirety to read

                  as follows:



                           "Total Maximum Commitment Amount" means, for each

                  Lender, the Dollar amount of the obligation of such Lender to

                  make Advances and to make its portion of the Term Loan, as

                  such amount is set forth opposite the name of such Lender

                  under the caption Total Maximum Commitment on Schedule C-1, in

                  an aggregate amount of $30,000,000.



                           (x)      The definition of "Unencumbered Asset Value"

                  hereby is amended by deleting from the parenthetical appearing

                  in subsection (v) of such definition the language ", such as

                  Murfreesboro and Jackson, which until they are directly

                  secured by real property".



                           (xi)     The following definitions hereby are added

                  in alphabetical order:



                           "Aggregate NOI" shall have the meaning set forth in

                  the definition "Go-forward Reserve".



                           "Average Quarterly NOI Decline" shall mean the

                  quotient obtained by dividing (a) the result of (i) the

                  quotient obtained by dividing (A) the result of (x) the

                  Aggregate NOI for the immediately preceding four quarters (the

                  "Most Recent NOI") subtracted from (y) the Aggregate NOI for

                  the equivalent four quarter period for the immediately

                  preceding year (the "Previous NOI") by (B) the Previous NOI

                  multiplied by (ii) the Most Recent NOI by (b) 4.





                                    5.20 - 3

{PAGE}



                           "Go-forward Reserve" shall mean the reserve against

                  the Borrowing Base to be established at such time as the

                  Interim Reserve is terminated following the delivery to the

                  Agent of the collateral reporting set forth in Section 6.2(e)

                  for the period ending December 31, 2001. Such reserve shall be

                  in an amount equal to the greater of (a) the product of 5

                  times the result of (i) the actual total NOI generated by the

                  Real Property Collateral and the Underlying Real Property

                  Collateral securing repayment of Eligible Notes (the

                  "Aggregate NOI") for the immediately preceding four quarters

                  subtracted from (ii) the Aggregate NOI for the four quarters

                  ended the immediately preceding quarter prior to the last

                  quarter in the period set forth in (a)(i) above or (b) the

                  product of 5 times the Average Quarterly NOI Decline. Schedule

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