LODGIAN INC
COMMITMENT LETTER FROM MERRILL LYNCH MORTGAGE
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>g77929exv10w1.txt
<DESCRIPTION>COMMITMENT LETTER FROM MERRILL LYNCH MORTGAGE
<TEXT>
<PAGE>
                          [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,


<PAGE>
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
<PAGE>
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
<PAGE>

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
<PAGE>

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
<PAGE>
         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
<PAGE>


                              SCHEDULE 1 -- BUDGET


                                       7
<PAGE>


                       SCHEDULE 2 -- ASSIGNED PERCENTAGES



                                       8
<PAGE>

                                                                      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                             -----------   -----------   -----------   -----------   -----------   -----------
<S>                                          <C>           <C>           <C>           <C>           <C>           <C>
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                             -----------   -----------
<S>                                          <C>           <C>
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>
<PAGE>

                                   SCHEDULE 2

<Table>
<Caption>

                                       LODGIAN PROPERTY SUMMARY
------------------------------------------------------------------------------------------------------
                                                                                   INDIVIDUAL PROPERTY
GPI                                                               #       YEAR     VALUES AS A PERCENT
 #          CHAIN/NAME                  CITY             ST     ROOMS     BUILT      OF TOTAL VALUE
---    ---------------------    --------------------    ----    ------    -----    -------------------
<C>    <S>                      <C>                     <C>     <C>       <C>      <C>
 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>

<PAGE>

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
<PAGE>

                                    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
<PAGE>

                                             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
<PAGE>

                                    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
<PAGE>

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
<PAGE>

                                    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
<PAGE>

                                    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
<PAGE>

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
<PAGE>

                                                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
<PAGE>

                                    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
<PAGE>

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
<PAGE>

                                    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
<PAGE>

                                    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
<PAGE>


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
<PAGE>
                                   EXHIBIT A
                               LIST OF PROPERTIES

<Table>
<Caption>
                                                                             #        Year       Rights
Chain/Name                     City                                ST        Rooms     Built      Owned
----------                     ----                                --        -----     -----      ------
<S>                           <C>                                 <C>       <C>       <C>         <C>
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>

</TEXT>
</DOCUMENT>
