Interhotel Company, Ltd. - Page 7




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          written notice, under section 4.3.4.2(d) of the IHCL Restated               
          Agreement, that Dondi’s 99-percent allocation of IHCL’s net losses          
          was terminated.  Pursuant to the IHCL Restated Agreement, IHCL’s            
          net losses were then allocated to the partners pro rata in                  
          accordance with the 85:15 ratio reflecting the two partners’                
          interests.  As a consequence, 15 percent of the losses were                 
          allocated to Dondi and 85 percent of the losses were allocated to           
          THEI.  The special allocation of IHCL’s net income remained                 
          unchanged, and IHCL’s Restated Agreement continued to allocate 99           
          percent of its net income to Dondi.                                         
               In October of 1987, the Marriott Corp. (Marriott) obtained a           
          5-percent general partnership interest in both Landmark and                 
          Gateway.  Marriott also received an allocation of 95 percent of             
          Landmark’s net losses and 99 percent of Gateway’s net losses.               
          These allocations reduced the amount of losses Landmark and Gateway         
          previously allocated to IHCL.                                               
               By the end of 1990, THEI’s capital account in IHCL was a               
          negative $5,920,614; principally, this was the result of the losses         
          generated between Dondi’s April 1987 default, and the reallocation          
          of losses to Marriott 6 months later.  In contrast, by the end of           
          1990, Dondi’s capital account in IHCL grew to $14,879,392.                  
               IHCL’s balance sheet as of the end of 1990 revealed the                
          following:                                                                  








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