Form of Environmental Indemnity

EXHIBIT 10.37


FORM OF ENVIRONMENTAL INDEMNITY


This ENVIRONMENTAL INDEMNITY, made as of June __, 2004 (this "AGREEMENT"), by the Borrowers named on the signature pages hereto, each having an address at c/o Lodgian, Inc., 3445 Peachtree Road, NE, Suite 700, Atlanta, Georgia 30326 (each, a "BORROWER" and collectively, "BORROWERS"), by LODGIAN, INC., a Delaware corporation, having an address at 3445 Peachtree Road, NE, Suite 700, Atlanta, Georgia 30326 ("OBLIGOR"), jointly and severally (Borrowers and Obligor being referred to herein collectively as "INDEMNITORS" and individually as an "INDEMNITOR"), in favor of MERRILL LYNCH MORTGAGE LENDING, INC., a Delaware corporation, having an address at 4 World Financial Center, New York, New York, 10080 (together with its successors, transferees and assigns, "LENDER").


WITNESSETH:


WHEREAS:


A. Borrowers are the owners of fee simple or leasehold title, as applicable, to those certain parcels of real property (collectively, the "PREMISES") described in EXHIBIT A attached hereto, and the buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and other improvements now or hereafter located thereon (the "IMPROVEMENTS"; together with the Premises, collectively, the "PROPERTY").


B. Borrowers and Lender have entered into a certain Loan and Security Agreement, dated as of the date hereof (as amended, modified or restated from time to time, the "LOAN AGREEMENT"), pursuant to which Lender has agreed to make a loan to Borrowers as more particularly described below. Capitalized terms used herein and not herein defined shall have the meanings assigned to such terms in the Loan Agreement.


C. Pursuant to the Loan Agreement, Lender is making a Loan to Borrower in the aggregate original principal amount of up to ______________________________________ (the "LOAN"). The Loan is evidenced by those certain Promissory Notes, each dated as of the date hereof (as amended, modified, restated or split from time to time, collectively, the "NOTE") and secured by, inter alia, those certain Mortgages/Deeds of Trust/Deeds to Secure Debt, Assignments of Leases and Rents and Security Agreements, dated as of the date hereof (as amended, modified or restated from time to time, collectively, the "SECURITY INSTRUMENT"), with respect to the Property.


D. As a condition to Lender's making the Loan, Lender is requiring that Indemnitors indemnify the Indemnified Parties (as hereinafter defined) with respect to environmental conditions or liabilities on, in, under or affecting the Property as hereinafter set forth.


E. Obligor holds a direct and/or indirect ownership interest in Borrower and will derive substantial economic benefit from Lender making the Loan to Borrower.


NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Indemnitors hereby covenant and agree for the benefit of the Indemnified Parties as follows:


1. DEFINITIONS. The following terms shall have the following meanings when used herein:


"COSTS" shall mean, collectively, all liens, damages, losses, fines, liabilities (including, without limitation, any strict liability), obligations, settlements, penalties, assessments, citations, directives, claims, litigations, demands, response costs (including, without limitation, investigation, removal, remediation, mitigation, containment, post-closure and monitoring costs), defenses, judgments, suits, proceedings, costs, laboratory fees, disbursements and expenses of any kind or nature whatsoever (including, without limitation, reasonable attorneys', consultants' and experts' fees and disbursements). Costs shall also include any future reduction in sales price of, or unmarketability and consequent inability of Lender to foreclose on or otherwise sell, the Property and the lost opportunity costs resulting from the inability of Lender to sell or dispose of its interest in the Property, all as a consequence of any event described in paragraph 2 herein to the extent that such loss in value results in Lender receiving in any foreclosure, or deed in lieu thereof, of the Properties less than the full amount of the Obligations by reason of any matter set forth in Section 2.


"ENVIRONMENTAL LAWS" shall have the meaning given to such term in the Loan Agreement.


"HAZARDOUS MATERIAL" shall have the meaning given to such term in the Loan Agreement.


"INDEMNIFIED PARTY" shall mean Lender, any subsequent holder of the Note and each of their officers, directors, shareholders, principals, partners, representatives, employees, agents, successors and assigns.


"TENANTS" shall mean all tenants, lessees, subtenants and other occupants of the Property.


2. INDEMNITY.


(a) Except as provided in Section 2(b) below, Indemnitors hereby assume liability for, and agree to pay, protect, defend, indemnify and save all Indemnified Parties harmless from and against any and all Costs which may be imposed upon, incurred by or asserted or awarded against any of the Indemnified Parties or the Property, and arising directly or indirectly from: (i) the violation or alleged violation of any Environmental Laws relating to or affecting the Property, whether or not caused by or within the control of Indemnitors; (ii) the actual or alleged presence, release or threat of release of, or exposure to any Hazardous Material on, in, under or affecting all or any portion of the Property or any surrounding areas, regardless of whether or not caused by or within the control of Indemnitors; (iii) any actual or alleged personal injury or property damage arising out of or related to Hazardous Material on the Property; (iv) any acts or omissions that exacerbate an existing condition at the Property and give


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rise to liability under any Environmental Law; (v) the failure by Indemnitors to comply fully with the terms and conditions of this Agreement in all material respects; (vi) a material breach of any representation or warranty contained in this Agreement; (vii) the enforcement of this Agreement; or (viii) assessment, investigation, containment, monitoring, remediation and/or removal of any and all Hazardous Material from the Property or any surrounding areas, and costs incurred to comply with Environmental Laws in connection with the Property or any surrounding areas.


(b) Notwithstanding any provision hereof to the contrary, Indemnitors shall have no liability under this Agreement with respect to Costs relating to Hazardous Material which is initially placed on, in or under the Property after the earlier of (i) Lender or any receiver appointed at the request of Lender taking actual possession and control of the Property following an Event of Default, and (ii) Lender completing a foreclosure or other sale pursuant to which Lender takes title to the Property. Indemnitors shall have no liability under this Agreement to any Indemnified Party with respect to Costs which result from such Indemnified Party's willful misconduct or gross negligence. In addition to the foregoing, Obligor shall have no liability pursuant to this Agreement with respect to costs relating to Hazardous Material which is initially placed on, in or under the Property after the transfer of the Mezzanine Borrowers' equity interest in the applicable Borrower to the Mezzanine Lender or its designee by reason of, or in lieu of, enforcement of the Mezzanine Lender's rights under the Mezzanine Loan Documents.


(c) Indemnitors' obligation to defend the Indemnified Parties hereunder shall include defense at both the trial and appellate levels and shall be with attorneys, consultants and experts selected by Indemnitor and subject to the reasonable approval of the Indemnified Parties.


3. REPRESENTATIONS REGARDING HAZARDOUS MATERIAL. Indemnitors hereby represent and warrant to agree with the Indemnified Parties as follows:


(a) Indemnitors, the Property and all businesses or operations conducted thereon are in compliance with all applicable Environmental Laws in all material respects;


(b) Except as previously disclosed to Lender in the Phase I Reports, no Hazardous Material has been disposed of on or released (as used herein, "RELEASE" shall have the meaning provided in 42 U.S.C. ss. 9601(22)) at, onto oR under the Property by any Indemnitor or, to Indemnitors' knowledge, by any other Person that has not been remediated in accordance with applicable Environmental Laws or that is present at or under the Property at a level in excess of that allowed by applicable Environmental Laws;


(c) Except as previously disclosed to Lender in the Phase I Reports, no Hazardous Material is located in, on or under, or has been handled, generated, stored, processed or discharged from the Property in violation of applicable Environmental Laws by any Indemnitor or, to the Indemnitors' knowledge, by any other Person, except for those materials used by Borrowers, Manager or tenants of the Property ("TENANTS") in the ordinary course of their business in material compliance with all applicable Environmental Laws and not reasonably expected to give rise to liability under applicable Environmental Laws;


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(d) Indemnitors have received no written notice that the Property is subject to any private or governmental lien or judicial or administrative notice or action relating to or arising under applicable Environmental Laws;


(e) Except as previously disclosed to Lender in the Phase I Reports, there are no underground storage receptacles or surface impoundments, landfills or dumps for Hazardous Material on the Property;


(f) Indemnitors have received no notice of, and to Indemnitors' knowledge there exists no investigation, action, proceeding or claim by any agency, authority or unit of government or by any third party asserted or threatened which could result in any liability, penalty, sanction or judgment under any applicable Environmental Laws with respect to any condition, use or operation of the Property, nor do Indemnitors know of any basis for any of the foregoing;


(g) Except as previously disclosed to Lender in the Phase I Reports or the Property Condition Reports, there is no asbestos-containing material or lead-based paint at the Property nor are there any polychlorinated biphenyls ("PCB'S"), endangered species' habitats or wetlands at the Property;


(h) Indemnitors have received no notice that, and to Indemnitors' knowledge, there has been no claim by any party that, any use, operation or condition of the Property has caused any nuisance or any other liability or adverse condition on any other property nor do Indemnitors know of any basis for such a claim relating to Hazardous Material;


(i) Except as previously disclosed in writing to Lender, Indemnitor has not knowingly waived or released any Person's liability with regard to Hazardous Material in, on, under or around the Property nor retained or assumed, contractually or otherwise, any other Person's liability relative to Hazardous Material or any claim, action or proceeding relating thereto; and


(j) Except as previously disclosed to Lender in the Phase I Reports, neither the Property nor any other property owned by any Borrower (i) is included or, to Indemnitor's knowledge, proposed for inclusion on the National Priorities List issued pursuant to CERCLA (hereinafter defined) by the United States Environmental Protection Agency (the "EPA") or on any of the inventories of other potential "Problem" sites issued by the EPA or other applicable Governmental Authority nor (ii) otherwise identified by the EPA as a potential CERCLA site or included or, to Indemnitor's knowledge, proposed for inclusion on any such list or inventory issued pursuant to any other applicable Environmental Law or issued by any other Governmental Authority.


4. COVENANTS OF INDEMNITORS.


(a) So long as any Borrower or Affiliate thereof owns or is in possession of the Property, Indemnitors shall, and shall use commercially reasonable efforts to cause all property managers, agents, employees and Tenants to: (i) comply with all Environmental Laws applicable to the Property, (ii) keep or cause the Property to be kept free from Hazardous Material (except those materials used by Borrower, Manager or Tenants in the ordinary course of


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their business, in compliance with applicable Environmental Laws), (iii) not install or use, or permit the installation or use of, any underground receptacles containing Hazardous Material on the Property, (iv) expressly prohibit the use, generation, handling, storage, production, release, processing and disposal of Hazardous Material by all future Tenants and Managers (except those substances used by such Tenants or Managers in the ordinary course of their business in compliance with all applicable Environmental Laws) and use all commercially reasonable efforts to prevent existing Tenants, Managers and other permitted occupants of the Property from taking any such actions, (v) in any event, not install on the Property or permit to be installed on the Property PCB's, urea formaldehyde insulation, asbestos or any substance containing asbestos or any material containing lead-based paint, (vi) prohibit the disposal and/or release of any Hazardous Material in violation of applicable Environmental Laws on, at or beneath, the Property, (vii) operate and maintain, or cause to be operated and maintained, the HVAC systems at the Property in accordance with standards for operation of similar systems located at properties that are similar (including, without limitation, the manner, class of operation, and/or Franchisor standards) to the Property, (viii) cause the Required Capital Improvements which relate to mold to be completed in accordance with the standards and time frames set forth in Section 6.5 of the Loan Agreement, and (ix) not permit any Lien imposed pursuant to any applicable Environmental Law to be imposed or, subject to Section 4(c) below, to remain on the Property.


(b) Indemnitors shall promptly notify Lender in writing should any Indemnitor become aware of (i) any release, disposal or discharge of Hazardous Material in violation of applicable Environmental Laws, or other material actual environmental problem or liability, with respect to or affecting the Property, (ii) any lien, action or notice of violation or potential liability affecting the Property or Borrowers and arising under any applicable Environmental Law, (iii) the institution of any investigation, inquiry or proceeding concerning Borrowers or the Property pursuant to any applicable Environmental Law or otherwise relating to Hazardous Material affecting the Property, (iv) the discovery of any occurrence, condition or state of facts which would render any representation or warranty contained in this Agreement incorrect or incomplete in any material respect if made at the time of such discovery, (v) any remedial action taken by Indemnitors or, if actually known by Indemnitor, any other Person in response to any Hazardous Material on, under or at the Property, (vi) the discovery by Indemnitors of any occurrence or condition on any real property adjoining or in the vicinity of the Property that would reasonably be expected to cause the Property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use thereof under any applicable Environmental Laws, and (vii) any request for information from any governmental agency that indicates such agency is investigating whether Indemnitors may be potentially responsible for a release, disposal or discharge of Hazardous Material. Borrowers shall promptly notify Lender of any proposed action to be taken pertaining in any way to the Property to commence any operations that could reasonably be expected to subject any Borrower or the Property to additional obligations or liabilities u ...