[ON MERRILL LYNCH LETTERHEAD]
July 12, 2002
Lodgian Inc.
3445 Peachtree Road, NE
Suite 700
Atlanta, Georgia 30326
Attention: David Hawthorne
Re: Commitment to provide first mortgage financing in the
aggregate amount of $286,200,000 (the "LOAN") to a special
purpose entity (the "BORROWER"), to be owned and controlled by
Lodgian Inc. (the "COMPANY") following its reorganization
-------------------------------------------------------------
Ladies and Gentlemen:
On December 20, 2001, the Company filed a voluntary petition for relief
under chapter 11 of title 11 of the United States Code (the "BANKRUPTCY Code")
in the United States Bankruptcy Court for the Southern District of New York (the
"BANKRUPTCY COURT") and has since continued in the operation of its business and
the management of its properties as a debtor-in-possession pursuant to sections
1107 and 1108 of the Bankruptcy Code. The Company has informed us that it is
currently exploring exit financing alternatives as part of a proposed Plan of
Reorganization (the "PROPOSED PLAN") that it anticipates filing with the
Bankruptcy Court in July, 2002. The Proposed Plan will contemplate, among other
things, refinancing (i) an existing $195,600,000 first mortgage loan made by a
bank syndicate led by Morgan Stanley and Lehman Brothers and secured by mortgage
liens on 50 hotels (the "MSLB HOTELS") and (ii) two mortgage loans in the
aggregate principal amount of $60,600,000 held by Rockbridge Capital, Inc. and
secured by mortgage liens on six hotels (the "ROCKBRIDGE HOTELS"; the MSLB
Hotels and the Rockbridge Hotels, collectively, the "PORTFOLIO HOTELS").
Merrill Lynch Mortgage Capital Inc. and/or its affiliates
("MERRILL LYNCH" or the "LENDER") are pleased to commit to provide the Loan on
the terms and subject to the conditions set forth herein and in the Summary of
Principal Terms (the "SPT") attached hereto. The obligation of the Lender to
make the Loan is subject to, among the other conditions set forth herein and in
the SPT, the following: (i) the preparation, execution and delivery of a loan
agreement (the "LOAN AGREEMENT") and other loan documents (collectively,
together with the Loan Agreement, the "LOAN DOCUMENTS") reasonably acceptable to
the Lender and incorporating substantially the terms and conditions set forth
herein and in the SPT; (ii) actual EBITDA of the Portfolio Hotels, measured on a
cumulative basis for the period from July 1,
2002 through the Closing (as defined in the SPT) shall not be less than 90% of
EBITDA of the Portfolio Hotels for the same period, as set forth in the
Company's budget (the "BUDGET"), a copy of which is attached hereto as Schedule
1, and all calculations of EBITDA shall employ the same methodology as is
employed in the Budget; (iii) the Lender's reasonable determination that there
has been no material adverse change since the date of this commitment letter in
the United States hospitality sector due to acts of terrorism, declaration by
the United States of war or national emergency or the outbreak or escalation of
other hostilities involving the United States in the United States or abroad;
(iv) as of Closing (a) Portfolio Hotels assigned not less than 75% of the
aggregate of the percentages (the "ASSIGNED PERCENTAGES") of the total value of
the Portfolio Hotels assigned to the individual Portfolio Hotels, as set forth
on Schedule 2, must be operated under franchise agreements with Six Continents
and Marriott, and (b) Portfolio Hotels assigned not more than 10% of the
aggregate of the Assigned Percentages are operated without franchise agreements
with nationally-recognized hotel franchises; (v) as of Closing, the total number
of hotel rooms in the Portfolio Hotels having failing scores under franchise
agreements, other than failing scores under agreements with Six Continents
resulting from failing guest service scores under Six Continents' revised
scoring system ("EXCLUDED FAILING SCORES"), shall not exceed the sum of (a) the
number of hotel rooms having failing scores, other than Excluded Failing Scores,
as of the date of this commitment letter and (b) 10% of the total number of
hotel rooms in the Portfolio Hotels; and (vi) not more than 10% (by appraised
value) of the rooms constituting the Portfolio Hotels are unavailable due to
casualty.
The Company shall continue to actively assist the Lender in connection
with the underwriting of the Loan, and, in connection therewith, shall provide
and cause its advisors to provide the Lender upon request with all information
reasonably requested and otherwise to assist the Lender in its underwriting
efforts, including making available officers and advisors of the Company from
time to time to attend and make presentations regarding the Proposed Plan and
the business and prospects of the Company and the Portfolio Hotels, as
appropriate, at a meeting or meetings with the Lender. From the date of this
commitment letter until the earlier of (i) its termination and (ii) the 70th day
after the Company's timely acceptance of this commitment letter, the Company
shall refrain from engaging or soliciting any prospective lender to provide
financing with respect to any of the Portfolio Hotels. In addition, if the
Company determines to engage a financial advisor, in addition to its currently
engaged advisors and the current scope of their engagement, with respect to the
sale, financing or refinancing of all or any portion of the Company, its
operations or assets, the Company shall, to the extent practicable, afford
appropriate affiliates of the Lender an opportunity to be considered for such
engagement(s) comparable to that afforded other prospective advisors.
The Company recognizes that the Lender has not had the opportunity to
complete its legal due diligence, including its review of franchise
arrangements, or to conduct certain structural and environmental evaluations of
the Portfolio Hotels. The Lender's obligation to make the Loan is subject to the
Lender's satisfaction with (i) all third party reports with respect to the
Portfolio Hotels that the Lender shall reasonably require, including, without
limitation, appraisals, structural and environmental reports and title reports
(the "THIRD PARTY REPORTS"), and (ii) all legal due diligence items that the
Lender shall reasonably require with respect to the Portfolio Hotels, the
Borrower and the Company, including, without limitation, all management
agreements, franchise agreements, ground leases, space leases and filings in
pending litigation (the "LEGAL DUE DILIGENCE ITEMS"). The Lender shall use
reasonable efforts to arrange for its receipt
2
of the Third Party Reports not later than the 60th day following the Company's
timely acceptance of this commitment letter. The Company shall promptly, and in
any event within 10 days after receipt of the Lender's written request, make
available to the Lender copies of requested Legal Due Diligence Items. If and
when the Lender has determined to approve, for the purpose of satisfying the
corresponding conditions to the making of the Loan, all Third Party Reports and
all Legal Due Diligence Items (other than Legal Due Diligence Items that the
Company has failed to make available as required above), the Lender shall
deliver to the Company written notice (the "DILIGENCE COMPLETION NOTICE"), which
shall be subject to the limitations set forth in the SPT. Following the 84th day
(the "DUE DILIGENCE CUT-OFF DATE") after the Company's timely acceptance of this
commitment letter, if the Lender has not delivered to the Company the Diligence
Completion Notice on or before the Due Diligence Cut-off Date, the Company may,
by written notice delivered to the Lender at any time thereafter terminate this
commitment letter, and the obligations of the parties hereunder (other than the
Company's obligations to pay the expenses required by the seventh paragraph of
this commitment letter). The Lender shall promptly notify the Borrower of any
findings from the Lender's review of the Third Party Reports and Legal Due
Diligence Items that the Lender believes, individually or in the aggregate,
would cause a failure of a condition precedent to the making of the Loan to be
satisfied.
With the cooperation of the Borrower, the Lender shall coordinate with
the Borrower's counsel in engaging the service providers that will prepare Third
Party Reports, all of which shall be addressed to the Lender and the Company.
The Lender recognizes that all Third Party Reports are the property of the
Company and may be made available to the Company and any party authorized by the
Company, subject to the second sentence of the third paragraph of this
commitment letter.
The Company hereby represents, warrants and covenants that (i) all
information, other than the Projections (as defined below), that it or its
representatives have made or hereafter make available to the Lender in
connection with the transactions contemplated hereby (the "INFORMATION"), when
taken as a whole, is and will be complete and correct in all material respects
and does not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained therein
not misleading and (ii) all financial projections it or its representatives have
made or hereafter make available to the Lender (the "PROJECTIONS") have been and
will be prepared in good faith based upon reasonable assumptions. The Company
shall furnish the Lender with such Information and Projections as the Lender may
reasonably request and to supplement the Information and the Projections from
time to time until the closing date for the Loan so that the representation and
warranty in the preceding sentence is correct on such closing date. The Company
acknowledges that, in underwriting the Loan, the Lender has used and relied on
and will be using and relying on the Information and the Projections without
independent verification thereof.
The Company shall reimburse the Lender for all reasonable out-of-pocket
costs and expenses payable by the Lender to third parties incurred before or
after the date of this commitment letter in connection with the Loan or the
preparation, negotiation, execution and delivery of this commitment letter, the
Loan Documents and any other documentation contemplated hereby or thereby; the
enforcement of the Company's obligations hereunder; due diligence investigations
relating to the Portfolio Hotels, the Borrower, the Company and the Proposed
Plan, the approval of this commitment letter and/or the Loan by the Bankruptcy
Court
3
and/or any of the creditors or other committees participating in the Company's
bankruptcy proceeding, participation with the Company in defending any appeal of
the Confirmation Order, including, without limitation reasonable fees and
expenses of counsel, appraisal costs, costs of environmental assessments, and
costs of any inspecting architects, engineers or other consultants retained by
the Lender. In addition, if the Closing occurs while any appeal of the
Confirmation Order is pending, the Company shall indemnify the Lender for
losses, costs and expenses resulting from such appeal. The Lender shall use its
best reasonable efforts to (a) provide the Company with an estimated expense
budget as soon as practicable after, and, in any event, within 14 days after,
the Company's timely acceptance of this commitment letter, (b) provide the
Company with notice of any material upward revisions to the expense budget as
soon as practicable after the Lender determines that the same are appropriate,
(c) provide the Company with a reasonably prompt notice and description of
actual expenses incurred by the Lender for the account of the Borrower when such
expenses reach $250,000, and each $100,000 increment in excess of $250,000 and
(d) advise the Company in advance of its intention to incur more than $50,000 in
out-of-pocket costs with respect to any due diligence item(s). The Lender's
failure to perform its obligations set forth in the preceding sentence shall not
relieve the Company of its obligations to reimburse the Lender for its costs and
expenses. With respect to any opinions or other advice of local counsel required
in connection with the Loan, the Lender and the Borrower shall use the same
local counsel, reasonably acceptable to the Lender, for each jurisdiction in
which a Portfolio Hotel is located.
The obligations of the Company set forth in the immediately preceding
paragraph shall continue and are and shall remain absolute obligations of the
Company, whether or not Loan Documents are executed or any loan is made by the
Lender or any conditions of lending are met, provided, however, that such
obligations shall terminate upon the execution and delivery of the Loan
Documents. The obligations of the Lender under this commitment letter shall be
enforceable solely by the Company and may not be relied upon by any other
person.
This commitment letter and the SPT are for the Company's/Borrower's
confidential use only and may not be disclosed by them to any person other than
their employees, attorneys, financial advisors, members of the Company's
official committee of unsecured creditors, such committee's financial advisors
and as required in connection with obtaining approval of this commitment letter
and the Final Plan by the Bankruptcy Court and then only in connection with the
proposed transaction and, other than in connection with Bankruptcy Court
approvals, on a confidential basis, except where disclosure is required by law
or where the Lender consents to the proposed disclosure, which consent shall not
be unreasonably withheld.
Please indicate your acceptance of the commitment herein contained in
the space indicated below and return a copy of this commitment letter so
executed to Merrill Lynch Mortgage Capital Inc. at 4 World Financial Center 7th
Floor, New York, New York, 10080; Attention Michael Nash. This commitment will
expire at 5:00 p.m. on July 12, 2002, unless on or prior to such time Merrill
Lynch shall have received a copy of this commitment letter executed by the
Company. Notwithstanding timely acceptance of this commitment letter pursuant to
the preceding sentence, the commitment herein contained will automatically
terminate and the parties shall have no further obligations hereunder (other
than the Company's obligations set forth in the seventh paragraph hereof) if (a)
the Company does not file a motion with the Bankruptcy Court seeking the
Approval Order (hereinafter defined) on or prior to
4
July 19, 2002, (b) the Bankruptcy Court does not enter an order (the "APPROVAL
ORDER") approving the Company's execution of this commitment letter and the
performance of the Company's obligations hereunder and the Approval Order has
not become non-appealable with no appeal pending on or prior to August 30, 2002,
(c) the Company does not pay either $500,000 installment of the Commitment Fee
(as defined in the SPT) as and when due in accordance with the SPT; (d) the
Bankruptcy Court does not enter an order (the "CONFIRMATION ORDER") confirming
the Company's final plan of reorganization (the "FINAL PLAN") on or before
November 15, 2002, or (e) the Closing has not occurred on or before November 30,
2002. Notwithstanding the foregoing, not earlier than September 1, 2002, the
Company may request in writing (an "EXTENSION REQUEST") that the Lender agree to
extend the deadlines set forth in clauses (d) and (e) each by not more than 60
days. If the Lender proposes to agree to such extensions, the Company shall pay
the Lender $350,000 (the "EXTENSION FEE")in consideration of, and as a condition
to, such agreement. If the Lender does not agree in writing to such extensions
on or prior to the 10th day following the Lender's receipt of an Extension
Request, the Company may, by written notice to the Lender given not later than
the 20th day following the Lender's receipt of such Extension Request, terminate
this commitment letter and the parties shall have no further obligations
hereunder except for the Company's obligations set forth in the seventh
paragraph hereof and its obligation to pay, if due in accordance with the SPT,
the balance of the Commitment Fee.
The Lender reserves the right to assign some or all of its rights and
delegate some or all of its responsibilities hereunder to one of its affiliates.
This commitment letter and the SPT supersede any and all prior versions hereof
or thereof. This commitment letter may only be amended by a writing signed by
all parties hereto. This commitment letter may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
counterparts taken together shall constitute one and the same original. Executed
copies of this commitment letter may be delivered by telecopy and, upon receipt,
shall be deemed originals and binding upon the parties hereto. Without limiting
or otherwise affecting the validity of executed copies hereof that have been
delivered by telecopy, the Company and the Lender each agree to use its best
efforts to deliver original signatures as promptly as possible following the
execution hereof.
5
IF THIS COMMITMENT LETTER OR THE SPT OR ANY ACT, OMISSION OR EVENT
HEREUNDER OR THEREUNDER BECOMES THE SUBJECT OF A DISPUTE, EACH OF THE COMPANY
AND THE LENDER HEREBY WAIVE TRIAL BY JURY. THIS COMMITMENT LETTER SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
MERRILL LYNCH MORTGAGE CAPITAL INC.
By:
----------------------------------
Name: Steven Glassman
Title: Authorized Signatory
Terms and conditions of this
commitment letter accepted
and agreed this 12th day of July, 2002.
LODGIAN INC.
By:
-----------------------------
Name: David Hawthorne
Title: Chief Executive Officer
CC: R. Cartoon (Lodgian)
S. Armstrong (Oaktree Capital)
J. Gray (Blackstone)
K. Caplan (Blackstone)
6
SCHEDULE 1 -- BUDGET
7
SCHEDULE 2 -- ASSIGNED PERCENTAGES
8
SCHEDULE 1
LODGIAN MERRILL LYNCH PORTFOLIO
2002 EXIT FINANCING BUDGET
56 HOTELS
<Table>
<Caption>
JUL-02 AUG-02 SEP-02 OCT-02 NOV-02 DEC-02
INCOME STATEMENT ----------- ----------- ----------- ----------- ----------- -----------
Rooms Available 339,977 339,977 329,010 339,977 329,010 339,977
Rooms Rented 229,429 216,927 202,961 229,196 186,962 152,578
Occupancy % 67.5% 63.8% 61.7% 67.4% 56.8% 44.9%
A.D.R. $ 78.56 $ 78.08 $ 75.95 $ 75.29 $ 72.57 $ 59.03
REVPAR $ 53.02 $ 49.82 $ 46.85 $ 50.75 $ 41.24 $ 30.98
Department Revenue
Rooms $18,023,962 $18,937,031 $15,413,954 $17,255,121 $13,567,028 $10,533,207
Food 3,311,588 3,348,713 3,450,641 4,189,892 3,377,945 3,538,951
Beverage 685,010 710,285 715,014 759,574 655,868 924,998
Telephone 305,976 302,013 283,145 325,041 267,403 208,950
Other Operating Income 523,834 519,477 497,914 530,096 454,734 373,734
----------- ----------- ----------- ----------- ----------- -----------
Total Revenue 22,830,371 21,817,518 20,360,678 23,059,724 18,322,979 15,579,639
Dept. Costs & Expenses
Rooms 4,702,779 4,449,841 4,304,286 4,400,056 4,002,273 3,468,359
Food 2,708,155 2,717,546 2,796,410 3,100,520 2,668,577 2,861,161
Beverage 334,967 350,785 354,509 349,404 321,375 397,749
Telephone 202,917 197,689 191,229 214,527 197,678 162,981
Other Operating Expenses 337,681 324,324 318,073 333,960 309,219 242,927
----------- ----------- ----------- ----------- ----------- -----------
Total Dept. Expenses 8,288,499 8,040,188 7,964,507 8,398,467 7,499,323 7,131,176
----------- ----------- ----------- ----------- ----------- -----------
Gross Contribution 14,543,872 13,777,332 12,396,171 14,661,256 10,823,658 8,448,863
G&U Expenses
General & Administrative 1,185,764 1,175,050 1,198,441 1,176,045 1,090,217 1,201,328
Advertising & Promotion 877,191 873,564 955,795 922,369 824,534 878,572
Franchise Expenses 1,564,362 1,500,189 1,341,015 1,518,451 1,207,468 916,389
Repairs & Maintenance 1,074,763 1,054,872 1,030,140 1,175,046 961,958 919,211
Utilities 1,209,841 1,196,189 1,141,473 1,060,747 1,007,784 1,059,429
----------- ----------- ----------- ----------- ----------- -----------
Total G&U Expenses 5,911,921 5,799,884 5,666,884 5,853,679 5,091,937 4,974,929
----------- ----------- ----------- ----------- ----------- -----------
House Profit 8,631,950 7,977,448 6,729,307 8,807,578 5,731,719 3,473,734
House Profit % 37.8% 36.6% 33.1% 38.2% 31.3% 22.3%
Other Operating Expenses
Management Fees 913,215 872,701 814,427 922,389 732,919 623,194
Equipment Rentals 123,257 123,354 124,402 125,358 121,702 122,693
Insurance 302,279 302,279 356,312 390,614 357,884 356,685
Property & Other Taxes 928,312 928,312 928,312 1,023,297 1,023,297 928,312
Other Expenses (Income) 45,000 45,000 45,000 45,000 45,000 45,000
Ground Rent 202,917 202,917 202,917 202,917 202,917 202,917
----------- ----------- ----------- ----------- ----------- -----------
Total Other Operating Expenses 2,514,980 2,474,563 2,471,370 2,709,575 2,483,719 2,278,801
----------- ----------- ----------- ----------- ----------- -----------
EBITDA $ 6,116,970 $ 5,502,885 $ 4,257,937 $ 6,098,003 $ 3,248,000 $ 1,194,934
=========== =========== =========== =========== =========== ===========
<Caption>
3RD 4TH
QUARTER QUARTER
2002 2002
INCOME STATEMENT ----------- -----------
Rooms Available 1,008,964 1,008,964
Rooms Rented 649,317 568,736
Occupancy % 64.4% 56.4%
A.D.R. $ 77.58 $ 72.71
REVPAR $ 49.93 $ 40.99
Department Revenue
Rooms $50,374,957 $41,355,357
Food 10,110,943 11,106,789
Beverage 2,090,308 2,340,439
Telephone 891,134 801,394
Other Operating Income 1,541,225 1,358,583
----------- -----------
Total Revenue 65,008,567 56,962,541
Dept. Costs & Expenses
Rooms 13,458,906 11,868,688
Food 8,222,112 8,630,258
Beverage 1,040,261 1,068,528
Telephone 591,836 575,386
Other Operating Expenses 980,078 886,106
----------- -----------
Total Dept. Expenses 24,291,192 23,028,968
----------- -----------
Gross Contribution 40,717,375 33,933,575
G&U Expenses
General & Administrative 3,559,255 3,487,591
Advertising & Promotion 2,706,570 2,625,495
Franchise Expenses 4,405,568 3,842,305
Repairs & Maintenance 3,159,775 3,057,213
Utilities 3,547,503 3,127,940
----------- -----------
Total G&U Expenses 17,378,669 15,920,544
----------- -----------
House Profit 23,338,706 18,013,031
House Profit % 35.9% 31.6%
Other Operating Expenses
Management Fees 2,600,343 2,278,502
Equipment Rentals 371,012 369,753
Insurance 960,870 1,105,183
Property & Other Taxes 2,784,937 2,974,908
Other Expenses (Income) 135,000 135,000
Ground Rent 608,751 608,751
----------- -----------
Total Other Operating Expenses 7,460,913 7,472,094
----------- -----------
EBITDA $15,877,793 $10,540,938
=========== ===========
</Table>
SCHEDULE 2
<Table>
<Caption>
LODGIAN PROPERTY SUMMARY
- ------------------------------------------------------------------------------------------------------
INDIVIDUAL PROPERTY
GPI # YEAR VALUES AS A PERCENT
# CHAIN/NAME CITY ST ROOMS BUILT OF TOTAL VALUE
- --- --------------------- -------------------- ---- ------ ----- -------------------
1 Holiday Inn Silver Spring MD 213 1973 5.4%
2 Courtyard by Marriott Atlanta GA 181 1996 4.7%
3 Crowne Plaza Houston TX 291 1980 5.0%
4 Crowne Plaza Albany NY 384 1980 4.5%
5 Holiday Inn Select Dallas (DFW Airport) TX 282 1974 2.8%
6 Holiday Inn Select Windsor ONT. 214 1991 3.1%
7 Hilton Columbia MD 152 1982 2.6%
8 Doubletree Club Philadelphia PA 189 1972 2.8%
9 Crowne Plaza West Palm Beach FL 219 1982 2.4%
10 Holiday Inn Select Niagra Falls NY 397 1974 1.8%
11 Holiday Inn Select Strongsville OH 304 1972 2.4%
12 Holiday Inn Winter Haven FL 228 1967 1.6%
13 Holiday Inn Rolling Meadows IL 420 1983 2.2%
14 Courtyard by Marriott Bentonville AR 90 1996 1.9%
15 Hilton Troy (Northfield) MI 191 1976 2.6%
16 Holiday Inn Greentree PA 200 1972 1.7%
17 Crowne Plaza Cedar Rapids IA 275 1991 1.7%
18 Holiday Inn St. Louis North MO 392 1956 1.9%
19 Holiday Inn Frederick MD 158 1963 1.2%
20 Holiday Inn Towson (Cromwell MD 139 1972 1.7%
Bridge)
21 Residence Inn Little Rock AR 96 1997 1.5%
22 Hampton Inn Pensacola FL 124 1985 1.5%
23 Courtyard by Marriott Paducah KY 100 1997 1.3%
24 Holiday Inn Austin TX 210 1984 1.3%
25 Holiday Inn SunSpree Myrtle Beach SC 133 1978 1.3%
26 Holiday Inn Valdosta GA 167 1963 0.8%
27 Holiday Inn Arden Hills/St. Paul MN 156 1973 1.6%
28 Courtyard by Marriott Abilene TX 99 1996 1.4%
29 Holiday Inn Pensacola FL 152 1961 1.2%
(University Mall)
30 Fairfield Inn Valdosta GA 108 1963 1.2%
31 Holiday Inn East Hartford CT 130 1974 0.8%
32 Holiday Inn Jamestown NY 146 1979 1.3%
33 Holiday Inn Brunswick GA 126 1974 0.9%
34 Holiday Inn Sheffield AL 201 1981 1.0%
35 Holiday Inn York PA 100 1970 0.9%
36 Hurstbourne Hotel Louisville KY 398 1971 1.0%
37 Hampton Inn Dothan AL 113 1989 0.8%
38 Holiday Inn Express Pensacola FL 214 1962 0.7%
39 Courtyard by Marriott Florence KY 78 1995 0.9%
40 Quality Hotel Melaine LA 205 1985 0.9%
41 Holiday Inn Marietta (hotel & GA 196 1973 0.5%
suites)
42 Holiday Inn Grand Island NY 261 1972 0.3%
43 Clarion Charleston SC 197 1981 0.4%
44 Holiday Inn Express Gadsden AL 141 1962 0.6%
45 Four Points Niagra Falls NY 189 1965 0.6%
46 Holiday Inn Baltimore West MD 135 1972 0.6%
(Belmont)
47 French Quarter Suites Memphis TN 105 1980 0.7%
48 Holiday Inn Dothan AL 102 1961 0.3%
49 Holiday Inn Dallas (Mkt Center) TX 246 1971 0.5%
50 Holiday Inn Pittsburgh (Pkwy PA 180 1975 0.6%
East)
51 Holiday Inn Glen Burnia MD 127 1973 1.3%
52 Residence Inn Dedham MA 81 1998 2.4%
53 Holiday Inn Baltimore, Inn MD 375 1964 7.8%
Harbor
54 Holiday Inn Lancaster PA 189 1971 1.2%
55 Holiday Inn Baltimore - BWI MD 259 1973 5.4%
Airport
56 Holiday Inn Jekyl Island GA 199 1972 0.6%
------ ---- -----
Totals/Averages 10,975 1975 100.0%
</Table>
LODGIAN HOTEL PORTFOLIO
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
This Summary of Principal Terms and Conditions (the "SPT") is not a commitment
by Merrill Lynch Mortgage Capital Inc.(the "LENDER") and the Lender shall have
no commitment or obligation hereunder except as set forth in the commitment
letter ("COMMITMENT LETTER") to which this SPT is attached. Capitalized terms
not defined herein shall have the meanings assigned to them in the Commitment
Letter.
PROPERTIES: Fifty-six hotel properties (each, a
"PORTFOLIO HOTEL") located throughout 20
states (with one Portfolio Hotel located in
Windsor, Ontario), comprising 10,975 hotel
rooms and more particularly described on
Exhibit A attached hereto and made a part
hereof.
PARTIES TO THE AGREEMENT
THE BORROWER: The Borrower shall be one or more
single-purpose, bankruptcy remote entities
(with organizational documents conforming to
customary rating agency requirements for
loans of this type), whose only assets are
the Portfolio Hotels and related assets
(such as inventory and receivables and
franchise agreements, management agreements,
insurance contracts, and other contracts,
licenses and permits relating to the
maintenance, renovation, use or operation of
the Portfolio Hotels) pledged to the Lender
(to the extent provided under "Security"
below) and whose sole business shall be the
ownership and operation of the Portfolio
Hotels. If the Lender elects to advance a
portion of the Loan Amount as a "mezzanine"
loan to the owner(s) of the Borrower, the
"mezzanine" loan borrower shall be a single
purpose entity whose only asset is the
Borrower Equity (as defined herein) pledged
to the Lender and whose sole business shall
be ownership of the Borrower Equity. The
Borrower(s) shall be wholly owned and
controlled by Lodgian Inc. (the "COMPANY").
If reasonably requested by the Lender, each
Portfolio Hotel shall be owned at Closing by
a separate, single purpose entity that
satisfies the foregoing requirements.
LENDER: Merrill Lynch Mortgage Capital Inc. and/or
its affiliates.
LOAN FACILITY
LOAN AMOUNT: $286,200,000.
PURPOSE: The Company shall use the proceeds of the
Loan to (1) refinance an existing
$195,600,000 mortgage loan secured by first
priority mortgage liens on 50 of the 56
Portfolio Hotels, and (2) refinance two
existing mortgage loans in the aggregate
principal amount of $60,600,000 secured
Page 1
by first priority mortgage liens on the
remaining six Portfolio Hotels. The
remaining proceeds shall be used (1) to fund
cash collateral requirements for letters of
credit, (2) to fund a capital improvement
reserve or (3) for general corporate
purposes, including, but not limited to
paying transaction expenses. However, such
remaining proceeds may not be used to
acquire any hotel property.
LOAN TERM:
Maturity Date: Two years from Closing.
Extension Options: The Borrower shall have the option to extend
the maturity of the Loan for three
additional consecutive periods of one year
each (each, an "EXTENSION PERIOD");
provided, however, that only one extension
option may be exercised at a time. The
option for the first Extension Period may be
exercised by the Borrower by written notice
to the Lender given any time not later than
45 days prior to the Maturity Date. The
option for each subsequent Extension Period
may be exercised by the Borrower by written
notice to the Lender not earlier than 120
days, but not later than 45 days, prior to
the first or second anniversary of the
Maturity Date, as applicable.
Each Extension Period will commence and
become effective on the day following the
original Maturity Date, or the day following
the first or second anniversary of the
Maturity Date, as applicable. If (1) no
monetary default exists and is continuing at
the time notice is given or on the date the
first Extension Period would otherwise
commence, (2) the Borrower shall have
entered into an interest rate cap agreement
(an "ELIGIBLE CAP AGREEMENT") with a
notional amount equal to the principal
amount of the Loan from time to time, a term
through the extended Maturity Date, a
counterparty having a credit rating of not
less than "AA" or its equivalent, and a
"strike" rate of not greater than 6.50% per
annum, and (3) the Borrower shall have
executed and delivered all documents
reasonably required by the Lender, the
Borrower shall have the right to exercise
its option to extend the maturity of the
Loan for the first one-year Extension
Period, subject to no other conditions
except for timely notice. The Borrower's
right to extend the Loan Term for additional
Extension Periods shall be subject to
satisfaction of the following conditions: o
- The existence of a DSCR
(hereinafter defined) at the time
of commencement of the Extension
Period of at least 1.30x; provided,
however, that the Borrower may
partially prepay the Loan (such
prepayment, a "SUPPLEMENTAL
PRINCIPAL PAYMENT") from the
proceeds of a contribution of
additional cash equity in an amount
necessary to achieve a DSCR of
1.30x.
- The existence of a Debt Yield Ratio
(hereinafter defined) of at least
Page 2
13.75%; provided, however, that the
Borrower may make a Supplemental
Principal Payment from the proceeds
of a contribution of additional
cash equity in an amount necessary
to achieve a Debt Yield Ratio of
13.75%.
- The Borrower shall continue to
possess all material licenses and
permits necessary to operate 90% of
the hotel rooms then remaining in
the portfolio in substantially the
same manner as operated on the date
of Closing.
- There shall exist no uncured Event
of Default and no default
("DEFAULT") that, with notice or
the passage of time or both, would
constitute an Event of Default.
- The Lender shall have received the
Extension Fee (hereinafter
defined).
- The Borrower shall have entered
into an Eligible Cap Agreement.
- Execution and delivery of all
documents reasonably required by
the Lender.
INTEREST RATE: LIBOR plus the Applicable Margin.
"APPLICABLE MARGIN" means 350 basis points
or, following an Event of Default, 850 basis
points.
"LIBOR" means the applicable London
interbank offered rate for deposits in U.S.
dollars appearing on Telerate Page 3750 as
of 11:00 a.m. (London time) two business
days prior to the first day of the
applicable interest period and having a
maturity equal to the duration of such
interest period, provided that, (1) if
Telerate Page 3750 is not available for any
reason, LIBOR for the relevant Interest
Period shall instead be the applicable
London interbank offered rate for deposits
in U.S. dollars as reported by any other
generally recognized financial information
service as of 11:00 a.m. (London time) two
business days prior to the first day of such
interest period, and having a remaining term
to maturity equal to such interest period,
and (2) if no such report is available,
LIBOR for the relevant interest period shall
instead be the rate determined by the Lender
to be the rate at which it offers to place
deposits in U.S. dollars with first-class
banks in the London interbank market at
approximately 11:00 a.m. (London time) two
business days prior to the first day of such
interest period, in the approximate amount
of its portion of the relevant loan and
having a maturity equal to such interest
period. LIBOR shall be adjusted for Federal
Reserve Board reserve requirements. LIBOR
interest periods will be one month.
Page 3
Interest shall be payable in arrears on the
last day of each interest period, upon any
prepayment (whether due to acceleration or
otherwise) and at final maturity. Interest
shall be calculated for actual days elapsed
on the basis of a 360-day year.
SECURITY: The Loan will be secured by (1) a first
mortgage lien on all land and improvements
constituting each Portfolio Hotel owned by
the Borrower in fee, and a first mortgage
lien on the Borrower's leasehold estate in
and to land and improvements constituting
each Portfolio Hotel as to which the
Borrower owns a leasehold estate, (2) a
perfected first priority security interest
in the personal property, fixtures and
equipment used in the operation of each of
the Portfolio Hotels, (3) a first priority
assignment of leases, rents, receivables and
other income, (4) a first priority
assignment of all management, license (to
the extent permitted by law), franchise (to
the extent assignable, the Borrower shall
use commercially reasonably efforts to cause
such assignment) and other significant
agreements, including any operating
agreements, (5) a perfected first priority
security interest in all permits (to the
extent permitted by law), approvals,
contracts and other agreements in connection
with the renovation, use or operation of
each of the Portfolio Hotels, (6) a
perfected first priority security interest
in all of the Borrower's cash management
accounts, escrows and reserves, including
the Portfolio Improvement Reserve and the
Lockbox Account, (7) a perfected first
priority security interest in the membership
or other equity interests ("BORROWER
EQUITY") of the Borrower held by the
owner(s) of the Borrower, (8) a first
priority pledge of the interest rate cap
agreement and (9) other customary items of
security for a loan of this size and type.
PREPAYMENT: The Loan will be prepayable in whole but not
(except as expressly contemplated hereby) in
part at any time during the Loan Term,
subject to payment of a fee (a "PREPAYMENT
FEE") of (a) 3% of the amount prepaid if
prepaid during the first year of the Loan
Term, (b) 2% of the amount prepaid if
prepaid during months 13 through 18 of the
Loan Term or (c) 1% of the amount prepaid if
prepaid during months 19 through 24 of the
Loan Term. Notwithstanding the foregoing,
the Borrower will not be required to pay a
Prepayment Fee with respect to prepayments
of up to 12% of the original Loan Amount
made as a result of Permitted Releases (as
described below).
RIGHT OF FIRST OFFER: The Lender shall have a right of first offer
with respect to any refinancing of the Loan,
in whole or in part, upon maturity, in
connection with a prepayment in full and/or
in connection with a Permitted Release, in
each case provided, however, that the
Company or one or more of its affiliates
retains title to the Portfolio Hotels that
will be the subject of such refinancing.
Page 4
PARTIAL RELEASES AND Individual Portfolio Hotels may be released
RELEASE PRICING: from the lien of the mortgages (a "PERMITTED
RELEASE") if (i) the Borrower determines to
withdraw a Portfolio Hotel from the
collateral pool, (ii) the Lender receives a
principal prepayment equal to the greater of
(x) 75% of net sale proceeds (in the case of
a sale) and (y) 120% of the portion of the
Loan allocated to such Portfolio Hotel
("ALLOCATED LOAN AMOUNT") and (iii)
following such Permitted Release and
prepayment, the DSCR and Debt Yield Ratio
are equal to or greater than the DSCR and
Debt Yield Ratio immediately prior to such
Permitted Release.
RECOURSE: The Loan will be non-recourse to the
Borrower; provided, however, that the
Borrower and the Company shall indemnify the
Lender for standard "carve-outs" to the
non-recourse provision (e.g., fraud, waste,
misappropriation of funds, certain
environmental matters, a transfer of any
Portfolio Hotel or direct or indirect
ownership interest in the Borrower in
violation of the Loan Documents, or a
violation of the "SPE" covenants). The Loan
shall be fully recourse to the Borrower and
(unless there is a "mezzanine" loan and the
bankruptcy filing or interference is
directed by the Lender as holder of the
Borrower Equity following its acquisition
thereof) the Company (1) in the event of a
voluntary bankruptcy filing by the Borrower,
or (x) an involuntary bankruptcy filing made
by a controlling or controlled affiliate or
(y) an involuntary bankruptcy filing which a
controlling or controlled affiliate causes
to be made, in any case, which filing is not
withdrawn or dismissed within 90 days or (2)
in the event of (x) a contest by the
Borrower of the Lender's enforcement of the
Loan Documents following maturity of the
Loan or acceleration of the Borrower's
payment obligations on account of a failure
to make a timely payment of principal or
interest (a "MONETARY DEFAULT") or (y) a
contest, without a good faith basis, of the
Lender's enforcement of the Loan Documents
following maturity of the Loan or
acceleration of the Borrower's payment
obligations for reasons other than a
Monetary Default.
INTEREST RATE PROTECTION: The Borrower shall enter into an Eligible
Cap Agreement.
AMORTIZATION: During the first year of the Loan Term, the
Borrower shall make monthly principal
payments (in addition to interest) of the
lesser of $250,000 and the Excess Cash Flow
for that month, provided, however, that if
Excess Cash Flow in any month exceeds the
amount necessary to make the required
principal payment, such excess shall be
applied to reduce principal to the extent of
"shortfalls" from prior months. Commencing
on the first anniversary of the Closing, the
Borrower shall make monthly principal
payments (in addition to interest) of
$375,000. Commencing on the second
anniversary of the Closing and through the
Maturity Date (including any Extension
Periods), the Borrower shall make monthly
Page 5
principal payments (in addition to interest)
of $500,000. Notwithstanding the foregoing,
if any principal prepayment made in
connection with a Permitted Release exceeds
the Allocated Loan Amount of the released
Portfolio Hotel, such excess may be
"applied" by the Borrower to offset its
obligations to make the foregoing scheduled
principal payments. If the principal amount
of the Loan is ever reduced to or below 30%
of the original Loan Amount, all Excess Cash
Flow shall be applied monthly as a principal
prepayment, without imposition of a
Prepayment Fee and without regard to the
preceding sentence.
ASSUMABILITY: The Loan may be assumed in whole, but not in
part, subject to reasonable approval by the
Lender of the transferee (and, if the Loan
has been securitized, letters from the
applicable rating agencies that such
assumption will not result in a downgrade,
withdrawal or qualification of any rating
assigned to the securities evidencing an
interest in the Loan) and payment of any
reasonable costs and expenses incurred by
the Lender.
CLOSING: Closing shall take place on the day
following the first business day that is at
least 11 days after entry of the
Confirmation Order. "CLOSING" means the
execution and delivery of the Loan Agreement
and all other loan documents, the
satisfaction of all Conditions Precedent to
Closing and the funding of the Loan.
LOCKBOX ACCOUNT: A Lockbox Account shall be maintained on
behalf of the Lender at a bank acceptable to
the Lender. All rents, receivables and other
revenue generated in connection with the
Portfolio Hotels shall be deposited directly
into the Lockbox Account. The Lender will
select a servicer, acceptable to the
Borrower in its reasonable discretion, to
administer, at the Borrower's expense, the
Loan, including the Lockbox Account and all
other accounts, escrows and reserves. In
general, and assuming the absence of a
pending notice of Default, an Event of
Default or the existence of a Cash Trap
Period, the lock box arrangement will
provide that funds therein be applied first,
to taxes, insurance and similar items,
second, to other property expenses and/or
reserves established therefor as set forth
in a budget approved by the Lender, third,
to debt service payable on the Loan, and
fourth, as and when directed by the
Borrower.
ASSIGNMENT, PARTICIPATION, The Lender shall have the right, without
SALE AND SECURITIZATION: consent of the Borrower, to assign,
syndicate, sell, securitize or participate
all or any portion of the Loan, and to
negotiate any necessary intercreditor
agreement, satisfactory to the Lender. The
Lender also reserves the right to bifurcate
the Loan into two or more notes (which may
include, without limitation, an A/B note
Page 6
structure or a first priority mortgage loan
and a "mezzanine" loan secured by Borrower
Equity held by special purpose entities,
owned directly or indirectly, by the
Company), provided, however, that any such
structure shall not result in an increase to
the Borrower in its overall borrowing costs
with respect to the Loan, but without regard
to the Borrower's obligation to pay its
counsel, as described below. The Borrower
shall cooperate in such assignment,
syndication, sale, securitization (including
in connection with obtaining credit
ratings), participation or bifurcation
process, and Lender shall pay all costs in
connection therewith except for costs and
fees of the Borrower's counsel, which the
Borrower shall be obligated to pay.
FEES AND EXPENSES
EXTENSION FEE: 0.25% of the then outstanding Loan Amount
for each extension (other than the first
Extension Period), payable by the Borrower
on or prior to the first day of the
Extension Period.
UP-FRONT FEE: 1.375% of the Loan Amount payable to the
Lender by the Borrower at Closing.
COMMITMENT FEE: $1,000,000 to be paid by the Borrower to the
Lender as follows: (i) $500,000 within two
business days after the date on which the
Approval Order has become non-appealable,
with no appeal pending; and (ii) $500,000
within two business days after receipt by
the Company of the Diligence Completion
Notice delivered by the Lender on or before
the Due Diligence Cut-off Date, provided,
however, that the Diligence Completion
Notice shall be subject to satisfaction of
the Updating Condition (as hereinafter
defined) and shall not constitute approval
of any due diligence matters arising
subsequent to delivery of the Diligence
Completion Notice.
The Commitment Fee shall be non-refundable;
provided, however, that if the Loan closes,
the Borrower's obligation to pay the
Up-Front Fee shall be reduced by the amount
of the Commitment Fee and any Extension Fee.
EXPENSES: The Company shall pay or reimburse the
Lender from time to time, whether or not the
Loan closes, for all reasonable
out-of-pocket costs as described in the
Commitment Letter. The Lender shall not be
required to pay any brokerage fees or
commissions arising from or in connection
with the making of the Loan (other than any
fees payable to any broker engaged by the
Lender). The Lender represents that it has
not dealt with, and will not deal with, any
broker in connection with the Loan other
than any broker engaged by the Lender.
Page 7
CONDITIONS
CONDITIONS PRECEDENT TO
CLOSING: The closing of the Loan will be subject to
customary conditions, the conditions
precedent set forth in the Commitment Letter
and the following:
- The Lender's receipt of all Loan
Documents and other documentation
relating to the Loan reasonably
required by the Lender in forms
reasonably satisfactory to the
Lender.
- The Confirmation Order shall have
been entered and consummation of
the Final Plan shall not be stayed
pending appeal. This is referred to
as the "CONFIRMATION ORDER
CONDITION".
- The Final Plan and the Confirmation
Order, as each pertains to and/or
affects the Borrower, the Loan
and/or the Portfolio Hotels, shall
be reasonably acceptable to the
Lender. The Final Plan shall
provide for (1) the distribution to
the Company's general unsecured
creditors (excluding holders of its
CRESTS) in exchange for their
pre-petition claims not less than
two-thirds of the Company's voting
equity ownership and not greater
than an aggregate $150 million
liquidation preference of preferred
stock of the Company; (2)
representation on the Company's
Board of Directors for the
Company's general unsecured
creditors (excluding holders of the
CRESTS, and consisting of entities
comprising the official creditors
committee or entities with
comparable investment experience)
constituting not less than 2/3 of
the Board; and (3) distribution to
the holders of the Company's CRESTS
in exchange for their pre-petition
claims common stock of the Company.
- Review and reasonable approval by
the Lender, or a designated expert
approved by the Lender, of the
following with respect to each of
the Portfolio Hotels:
- Final plans and
specifications for any
specifications for any
renovations.
- Final capital improvement cost
budget.
- The appraisal referred to below.
- A current as-built ALTA survey.
- All title and easement
documents.
- All relevant environmental
information, including a
Page 8
satisfactory Phase I report and
reports of any additional due
diligence as may be required, or
recommended in such report.
- All soil tests and engineering
reports.
- Receipt by the Lender of an
extended coverage policy of title
insurance containing only such
exceptions as the Lender may
reasonably approve and including
such customary endorsements and
reinsurance as the Lender may
reasonably require. The title
insurer(s) shall be selected by the
Lender; provided, however, that, if
the direct title insurance is not
provided by the LandAmerica
Financial Group family of
underwriters ("LANDAMERICA"), the
premiums for direct title insurance
shall not be in excess of those
that LandAmerica would charge and
the estimated time of completion
and delivery of up-to-date title
insurance commitments shall not be
reasonably likely to delay the date
of Closing.
- If any Third Party Report dated no
earlier than August 15, 2002 is
more than 150 days old at Closing,
receipt by the Lender of an update
of such report showing that there
has been, no material adverse
change occurring after the date of
the original report. This is
referred to as the "UPDATING
CONDITION".
- Receipt by the Lender of an "as-is"
real estate appraisal of all of the
Portfolio Hotels, which appraisal
shall be performed by an appraiser
reasonably acceptable to the
Lender, be addressed to the Lender
and the Company and conform to
USPAP and FIRREA guidelines.
- The Lender's review and reasonable
approval of all management
agreements (and agreements
subordinating the same to the Loan)
and franchise agreements.
- Receipt by the Lender of all fees
and expense reimbursements required
to be paid on or before the
Closing.
- Receipt by the Lender of all
customary legal opinions (including
a non-consolidation opinion, and
opinion as to the Bankruptcy
Court's approval of the Loan and to
the satisfaction of the Final Order
Condition) regarding the Borrower,
the Company and the Loan Documents,
in form and substance, and from
counsel, reasonably satisfactory to
the Lender.
- A minimum DSCR on the date of
Closing of 1.45x.
Notwithstanding the foregoing, the Company
shall have the right to exclude from the
collateral pool Portfolio Hotels having an
aggregate
Page 9
Allocated Loan Amount of not more than
$30,000,000 and, in such event, the Loan
Amount shall be adjusted accordingly and
none of the foregoing conditions shall be
required to be satisfied with respect to
such excluded Portfolio Hotels.
REPRESENTATIONS AND
WARRANTIES Customary representations and warranties for
a loan of this size and type, including,
without limitation, representations
regarding corporate/partnership existence
and standing, authorization and validity,
absence of material litigation and material
contingent obligations (except, in each
case, as disclosed to and approved by the
Lender in writing), compliance with
applicable laws, ownership of properties,
insurance, absence of a Default or an Event
of Default.
COVENANTS
GENERAL AFFIRMATIVE: Affirmative covenants customary for a loan
of this size and type, including, without
limitation, covenants relating to compliance
with applicable laws, maintenance of
insurance, keeping of books and records,
maintenance of properties, payment of taxes,
furnishing of periodic financial statements
and reports, compliance certificates and
other financial information and maintenance
of the interest rate cap agreement with a
counterparty whose obligations do not fall
below "AA-" (or its equivalent).
FF&E RESERVE: The Borrower shall maintain in an
account pledged to the Lender an amount
equal to 4% of total gross revenue of the
Portfolio Hotels (remaining subject to the
lien of the Loan) as an FF&E reserve. The
Borrower shall make monthly deposits to the
account to maintain such FF&E reserve in the
required amount.
In the absence of a continuing default,
deposits to and disbursements from the
account will be controlled by the Borrower
pursuant to an annual budget approved by the
Lender. Upon the occurrence and during the
continuance of an Event of Default, the
Lender will control disbursements from the
account, subject to the manager's right to
draw funds from the account for normal
repairs, replacements and maintenance
expenses or otherwise in accordance with the
management agreement. The manager will be
required to provide to the Lender a complete
accounting of any use of the reserve on a
monthly basis.
Page 10
TAX AND INSURANCE ESCROW: The Borrower shall be required to make
monthly deposits into an escrow account
maintained by the Lender sufficient to pay
all real estate taxes and insurance premiums
for each of the Portfolio Hotels. The
Borrower shall be required to maintain
insurance coverage subject to commercially
reasonable deductibles (including
self-insured retention amounts) and limits
consistent with hospitality industry
practice for comparable properties securing
securitized loans of comparable amount and
otherwise reasonably acceptable to Lender
including, without limitation, terrorism
insurance and environmental insurance
insuring against damage or liability as a
result of mold, but only to the extent such
terrorism and environmental insurance are
available at rates that are commercially
reasonable (as compared to rates charged to
and paid by owners of properties comparable
to the Portfolio Hotels).
ENVIRONMENTAL REMEDIATION RESERVE: The Lender may require the establishment of
a reserve, in an amount to be reasonably
determined by the Lender, for the purpose of
funding any remediation of any environmental
conditions identified in any current
environmental report obtained by the Lender
at one or more of the Portfolio Hotels;
provided, however, that such environmental
condition is of a type that lenders that
originate comparable loans for
securitization customarily require be
remediated. The Borrower and the Company
shall covenant to carry out any operations
and maintenance plan required by the Lender.
CASH FLOW RESERVE: During a Cash Trap Period, all Excess Cash
Flow shall be deposited with and held by the
Lender in an account controlled by the
Lender and shall constitute additional
security for the Loan; provided, however,
that, so long as no Event of Default then
exists, deposited amounts (i) may, at the
Borrower's election, be held in the account,
applied to prepayment of the Loan, be used
to make capital expenditures approved by the
Lender or be used to make up to $3 million
of scheduled debt service payments and (ii)
shall (to the extent of any funds remaining)
be released to the Borrower, if the Cash
Trap Period terminates, no new Cash Trap
Period commences for 90 days following such
termination and no Default then exists.
"CASH TRAP PERIOD" means the period during
which (1) the DSCR (calculated quarterly,
except following the commencement of a Cash
Trap Period, then monthly) is below 1.30x;
or (2) the Debt Yield Ratio (calculated
quarterly, except following the commencement
of a Cash Trap Period, then monthly) is less
than (a) 13.25% in the first year of the
Loan Term, (b) 13.75% in the second year of
the Loan Term, (c) 14.00% during the first
Extension Period, (d) 14.25% during the
second Extension Period and (e) 14.50%
during the third Extension Period. The
Borrower may cause the termination of a Cash
Trap Period by means of a
Page 11
Supplemental Principal Payment in an amount
equal to the greater of (1) 120% of the
amount required to cure the violation of the
DSCR and Debt Yield Ratio requirements and
(2) 1% of the then current Loan Amount.
"EXCESS CASH FLOW" means all cash available
after payment of debt service on the Loan,
operating expenses, management fees, and
other amounts required to be paid pursuant
to the Loan Agreement including, without
limitation, all applicable reserves, and the
amount of any capital expenditures made in
accordance with the Borrower's budget or
otherwise with the Lender's approval from
cash in excess of available reserve amounts.
"DEBT YIELD RATIO" means, at any time of
determination, Net Cash Flow for the
trailing 12-month period divided by the then
outstanding Loan Amount.
"NET CASH FLOW" means NOI less (a) a
management fee equal to the greater of
actual management fees and 4% of gross
annual revenues of the Portfolio Hotels
remaining subject to the lien of the Loan,
(b) an FF&E Reserve of 4% of gross annual
revenues of the Portfolio Hotels remaining
subject to the lien of the Loan, and (c)
franchise fees.
"NET OPERATING INCOME" ("NOI") means net
income before management fees, interest,
income taxes, depreciation, amortization,
FF&E reserves and franchise fees.
"DEBT SERVICE COVERAGE RATIO" ("DSCR")
means, at any time of determination, Net
Cash Flow for the trailing 12-month period
divided by the amount of interest (assuming
an interest rate equal to the greater of (1)
the then current yield on the 10-year United
States Treasury Note plus the Applicable
Margin and (2) the then current Interest
Rate (such greater interest rate, the "TEST
RATE")) that the Borrower will be required
to pay over the succeeding 12 months plus,
in the case of any determination after the
first anniversary of the Closing, principal
amortization that would be required in
respect of the then outstanding principal
amount of the Loan over the first 12 months
of a 25-year amortization schedule,
calculated using the Test Rate.
GENERAL NEGATIVE: Restrictive covenants customary for a loan
of this size and type including, but not
limited to, restrictions on (1) dividends
and distributions following an Event of
Default or otherwise in a manner
inconsistent with the lock-box arrangement,
(2) other indebtedness, (3) direct or
indirect transfers of Portfolio Hotels
(other than a transfer permitted under the
Loan Documents), (4) investments, (5) liens
and encumbrances, (6) amendments to or
replacements of franchise, management or
other specified
Page 12
agreements, (7) contravention of "SPE"
requirements, (8) specified corporate and
organizational actions, such as merger,
creation of subsidiaries, dissolution, etc.,
(9) changes in nature, scope and/or place of
business, (10) affiliate transactions, (11)
debt cancellation, (12) alterations and (13)
settlement of claims.
REPORTING The Borrower will be required to provide to
the Lender financial and other information
with respect to the Borrower, the Company
and the Portfolio Hotels, as applicable,
including the following:
- Annual audited (by a "Big Four"
accounting firm, or other
accounting firm reasonably
acceptable to the Lender) financial
statements of the Borrower within
120 days, and the Company within 90
days, of their fiscal year end.
- Quarterly financial statements for
the Borrower and the Company within
45 days of quarter end.
- Quarterly compliance certificate
from the Chief Financial Officer,
Treasurer, or authorized
representative of the Borrower
confirming that there are no
defaults under the Loan and, as
required, a calculation of the
DSCR.
- Quarterly compliance certificate
from the Chief Financial Officer,
Treasurer, or authorized
representative of the Company's
confirming compliance with the
Company's financial covenants.
- Annual projected operating and
capital budgets for each Portfolio
Hotel property in the Portfolio
Hotels for the upcoming 12-month
period, to be received by the
Lender by February 15 of each year.
- Monthly operating statements for
each Portfolio Hotel to include
occupancy, average daily room rate
and revenue per available room,
within 30 days of month end.
- Any other reports the Lender may
reasonably require.
EVENTS OF DEFAULT Customary events of default for a loan of
this type including, without limitation,
failure to make payments when due; breach of
covenants; breach of representations and
warranties; bankruptcy or insolvency (or
related events) of the Borrower; and
judgments.
Page 13
This SPT is intended as an outline only and does not purport to summarize all
the conditions, covenants, representations, warranties and other provisions
which would be contained in definitive legal documentation for the financing
contemplated hereby. Any commitment of the Lender is subject to negotiation and
execution of definitive Loan Documents in form and substance reasonably
satisfactory to the Lender.
Page 14
EXHIBIT A
LIST OF PROPERTIES
<Table>
<Caption>
# Year Rights
Chain/Name City ST Rooms Built Owned
- ---------- ---- -- ----- ----- ------
Holiday Inn Silver Spring MD 231 1973 FS
Crowne Plaza Houston TX 291 1980 FS
Courtyard by Marriott Atlanta GA 181 1996 FS
Holiday Inn Select Windsor ONT. 214 1991 FS
Doubletree Club Philadelphia PA 189 1972 FS
Holiday Inn Select Dallas (DFW Airport) TX 282 1974 FS
Hilton Troy (Northfield) MI 191 1976 FS
Hilton Columbia MD 152 1982 FS
Residence Inn Dedham MA 81 1998 FS
Crowne Plaza West Palm Beach FL 219 1982 FS
Holiday Inn Select Strongsville OH 304 1972 FS
Holiday Inn Rolling Meadows IL 420 1963 FS
Courtyard by Marriott Bentonville AR 90 1996 FS
Holiday Inn St. Louis North MO 392 1956 FS
Holiday Inn Select Niagara Falls NY 397 1974 FS
Crowne Plaza Cedar Rapids IA 275 1991 FS
Holiday Inn Greentree PA 200 1972 FS
Holiday Inn Towson (Cromwell Bridge) MD 139 1972 FS
Holiday Inn Arden Hills/St. Paul MN 156 1973 FS
Holiday Inn Winter Haven FL 228 1967 FS
Residence Inn Little Rock AR 96 1997 FS
Hampton Inn Pensacola FL 124 1985 FS
Courtyard by Marriott Abilene TX 99 1996 FS
Courtyard by Marriott Paducah KY 100 1997 FS
Holiday Inn SunSpree Myrtle Beach SC 133 1978 FS
Holiday Inn Austin TX 210 1984 FS
Holiday Inn Jamestown NY 146 1979 FS
Holiday Inn Frederick MD 158 1963 FS
Fairfield Inn Valdosta GA 108 1963 FS
Holiday Inn Pensacola (University Mall) FL 152 1981 FS
Hurstbourne Hotel Louisville KY 393 1971 FS
Holiday Inn Brunswick GA 126 1974 FS
Courtyard by Marriott Florence KY 78 1995 FS
Quality Hotel Melairie LA 205 1985 FS
Holiday Inn York PA 100 1970 FS
Hampton Inn Dothan AL 113 1989 FS
Holiday Inn Valdosta GA 167 1963 FS
Holiday Inn Express Pensacola FL 214 1962 FS
Holiday Inn Pittsburgh (Pkwy East) PA 180 1975 FS
Four Points Niagara Falls NY 189 1965 FS
Holiday Inn Express Gadsden AL 141 1962 FS
Holiday Inn Baltimore West (Belmont) MD 135 1972 FS
Holiday Inn Marietta (hotel & suites) GA 196 1973 FS
Holiday Inn Dallas (Mkt Center) TX 246 1971 FS
Clarion Charleston SC 197 1981 FS
Holiday Inn Grand Island NY 261 1972 FS
Holiday Inn Dothan AL 102 1961 FS
Holiday Inn Baltimore, Inn Harbor MD 375 1964 LH
Holiday Inn Baltimore - BWI Airport MD 259 1973 LH
Crowne Plaza Albany NY 384 1980 LH
Holiday Inn Glen Burnie MD 127 1973 LH
Holiday Inn Lancaster PA 189 1971 LH
Holiday Inn Sheffield AL 201 1981 LH
Holiday Inn East Hartford CT 130 1974 LH
French Quarter Suites Memphis TN 105 1980 LH
Holiday Inn Jekyl Island GA 199 1972 LH
</Table>