<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14-a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
SERVICO, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
SERVICO, INC.
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
a) Title of each class of securities to which transaction applies:
LODGIAN, INC. COMMON STOCK, PAR VALUE $.01 PER SHARE
---------------------------------------------------------------
b) Aggregate number of securities to which transaction applies:
1,000 (SHARES RECEIVED BY SERVICO, INC. AS OF FEBRUARY 11,
1998)
---------------------------------------------------------------
c) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): $.01 (par value of the 1,000 shares of common
stock of Lodgian, Inc., a newly formed subsidiary of SERVICO,
INC., RECEIVED BY SERVICO, INC. IN THE TRANSACTION)
---------------------------------------------------------------
d) Proposed maximum aggregate value of transaction: $10.00
---------------------------------------------------------------
e) Total fee paid: $0.002*
---------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
a) Amount Previously Paid:
b) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
c) Filing Party:
---------------------------------------------------------------
d) Date Filed:
---------------------------------------------------------------
* previously paid with the preliminary proxy materials filed on April 27,
1998.
<PAGE> 2
[SERVICO LOGO] SERVICO, INC.
1601 Belvedere Road
West Palm Beach, Florida 33406
_____________, 1998
Dear Fellow Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders to be
held at ________, on _____________, 1998, at _____ a.m., Eastern Time. At this
meeting, you will be asked to approve a merger between Servico and Impac Hotel
Group, L.L.C., a private hotel ownership, management and development company.
Impac owns, manages or has under development 55 hotels, with approximately 9,266
rooms in 24 states. In the merger, Servico shareholders and the unitholders of
Impac will become the owners of a combined company to be called Lodgian, Inc.,
with Servico shareholders and Impac unitholders owning approximately 74% and
26%, respectively, of Lodgian's outstanding common stock. The accompanying Joint
Proxy Statement/Prospectus provides a detailed description of the merger and its
effect on Servico and on you as shareholders of Servico.
The purpose of the merger is to create a combined enterprise with the increased
financial strength, franchise base and the expertise necessary to excel in the
increasingly competitive and consolidating hotel industry. However, the combined
company will be subject to significant potential risks including :
o Inability to successfully consolidate the business, operations and
personnel of the two companies;
o High levels of debt which subject the combined company to a greater
risk of default and foreclosure in economic downturns;
o Unavailability of capital for growth through the acquisition,
development or renovation of hotel properties;
o Increased competition for customers and hotel acquisition
opportunities; and
o Illiquidity of real estate and exposure to general economic downturns
in the lodging industry.
At the Annual Meeting, you will also be asked to approve the Lodgian 1998
Short-Term Incentive Compensation Plan, the Lodgian 1998 Stock Incentive Plan
and the Lodgian Non-Employee Directors' Stock Plan and an amendment to Servico's
existing Stock Option Plan to increase the number of shares in the Servico Stock
Option Plan. The Lodgian Plans will replace the Servico Stock Option Plan if the
merger is approved. Servico shareholders will also vote on the election of one
director to serve until the earlier of the year 2001 or the completion of the
merger.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
SERVICO AND ITS SHAREHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AND FOR EACH OF THE
LODGIAN PLANS. YOUR BOARD OF DIRECTORS ALSO RECOMMENDS THAT YOU VOTE FOR ITS
NOMINEE FOR DIRECTOR AND FOR APPROVAL OF THE AMENDMENT TO SERVICO'S EXISTING
STOCK OPTION PLAN.
Whether or not you plan to attend the Annual Meeting and regardless of the
number of shares you own, please complete, sign and date your proxy card and
promptly return it in the envelope provided. If you attend the Annual Meeting
you may vote in person, even if you previously returned a proxy.
<PAGE> 3
Sincerely yours,
David A. Buddemeyer,
Chairman of the Board, President and
Chief Executive Officer
The Securities and Exchange Commission and state securities regulations have not
approved the transaction described in this Joint Proxy Statement/Prospectus or
the shares of Lodgian common stock to be issued in the transaction, and they
have not determined if this Joint Proxy Statement/Prospectus is truthful or
complete. Furthermore, the Securities and Exchange Commission has not determined
the fairness or merits of the transaction. Any representation to the contrary is
a criminal offense.
SEE "RISK FACTORS" BEGINNING ON PAGE ___ FOR MATERIAL RISKS YOU SHOULD CONSIDER.
This Joint Proxy Statement/Prospectus is dated _________, 1998
and is first being mailed to shareholders and unitholders on or
about _____, 1998.
<PAGE> 4
[SERVICO LOGO]
SERVICO, INC.
1601 Belvedere Road
West Palm Beach, Florida 33406
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, 1998, AT __ A.M.
To Our Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of Servico, Inc., a Florida corporation ("Servico"), will be
held at _____________, on ___________, 1998, commencing at ____ a.m. Eastern
Time, and at any adjournments or postponements thereof, for the following
purposes:
1. To approve the Amended and Restated Agreement and Plan of Merger,
dated as of July ___, 1998 (the "Merger Agreement"), among Lodgian, Inc.
("Lodgian"), Servico, Impac Hotel Group, L.L.C., a Georgia limited liability
company ("Impac"), P-Burg Lodging Associates, Inc., a Kentucky corporation
("P-Burg"), Hazard Lodging Associates, Inc., a Kentucky corporation ("Hazard"),
Memphis Lodging Associates, Inc., a Florida corporation ("Memphis"), Delk
Lodging Associates, Inc., a Delaware corporation ("Delk"), Impac Hotel
Development, Inc., a Delaware corporation ("IHD"), Impac Design and
Construction, Inc., a Delaware corporation ("IDC"), Impac Hotel Group, Inc., a
Florida corporation ("IHG") (P-Burg, Hazard, Memphis, Delk, IHD, IDC and IHG
referred to collectively as the "Impac Affiliated Companies") and certain
acquisition subsidiaries providing for mergers which will result in Servico,
Impac and each of the Impac Affiliated Companies becoming wholly-owned
subsidiaries of Lodgian (together referred to as the "Merger");
2. To approve the Lodgian 1998 Short-Term Incentive Compensation Plan,
which appears as Appendix D to the accompanying Joint Proxy
Statement/Prospectus;
3. To approve the Lodgian 1998 Stock Incentive Plan, which appears as
Appendix E to the accompanying Joint Proxy Statement/Prospectus;
4. To approve the Lodgian Non-Employee Directors' Stock Plan, which
appears as Appendix F to the accompanying Joint Proxy Statement/Prospectus (the
Lodgian 1998 Short-Term Incentive Compensation Plan, the Lodgian 1998 Stock
Incentive Plan and the Lodgian Non-Employee Directors' Stock Plan being referred
to as the "Lodgian Plans");
5. To elect one director to the Board of Directors of Servico to serve
until the earlier of the year 2001 or the consummation of the Merger;
6. To approve an amendment of the Servico Stock Option Plan to increase
the number of shares issuable pursuant to the Plan; and
7. To transact such other business that may properly come before the
Annual Meeting or any adjournment or postponement thereof.
<PAGE> 5
Only shareholders of record on __________, 1998 will be entitled to
notice of and to vote at the Annual Meeting and any adjournments thereof. The
presence, either in person or by proxy, of the holders of a majority of the
issued and outstanding shares of common stock of Servico, par value $.01 per
share (the "Servico Common Stock"), is necessary to constitute a quorum at the
Annual Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of Servico Common Stock is required to approve the Merger.
The affirmative vote of a majority of the shares of Servico Common Stock voting
in person or by proxy at the Annual Meeting is required to approve each of the
Lodgian Plans and the amendment of the Servico Stock Option Plan. The nominee
will be elected as a director upon receipt of a plurality of the votes cast.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID REPLY ENVELOPE PROVIDED. THE
PROMPT RETURN OF YOUR PROXY WILL ASSIST US IN PREPARING FOR THE ANNUAL MEETING.
SHAREHOLDERS WHO ATTEND THE ANNUAL MEETING IN PERSON MAY REVOKE THEIR PROXIES
AND VOTE IN PERSON IF THEY DESIRE. YOU MAY ALSO REVOKE YOUR PROXY BY SIGNING AND
RETURNING A LATER DATED PROXY WITH RESPECT TO THE SAME SHARES OR BY FILING WITH
THE SECRETARY OF SERVICO A DULY EXECUTED LETTER OF REVOCATION. IF YOU SIGN AND
RETURN YOUR PROXY CARD WITHOUT SPECIFYING HOW YOU WOULD LIKE YOUR SHARES VOTED,
EACH OF YOUR SHARES WILL BE VOTED FOR THE APPROVAL OF THE MERGER, FOR THE
APPROVAL OF THE EACH OF THE LODGIAN PLANS, FOR THE AMENDMENT OF THE SERVICO
STOCK OPTION PLAN AND FOR THE ELECTION OF THE NOMINEE AS DIRECTOR.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
OF THE MERGER, EACH OF THE LODGIAN PLANS, THE AMENDMENT TO THE SERVICO STOCK
OPTION PLAN AND THE NOMINEE FOR DIRECTOR.
By Order Of The Board Of Directors
CHARLES M. DIAZ
SECRETARY
West Palm Beach, Florida
_____________, 1998
<PAGE> 6
[IMPAC LOGO] IMPAC HOTEL GROUP, L.L.C.
Two Live Oak Center
3445 Peachtree Road, N.E.
Suite 700
Atlanta, Georgia 30326
_____________, 1998
Dear Fellow Unitholders:
I am writing to you to solicit your consent to two very important matters that
directly affect your interest as unitholders of Class A Ordinary Membership
Interests of Impac Hotel Group, L.L.C. The first matter involves a merger with
Servico, Inc., a New York Stock Exchange listed company which owns or manages 89
hotels with approximately 17,937 rooms in 24 states. As a result of the merger,
Servico shareholders and Impac unitholders will become the owners of a combined
company to be called Lodgian, Inc. Shareholders of Servico will receive one
share of Lodgian common stock for each share of Servico common stock owned, an
aggregate of approximately 21 million shares, and unitholders of Impac will
receive an aggregate of 6 million shares of Lodgian common stock or 0.519 shares
for each unit owned (subject to adjustment based on the average closing price of
Servico common stock over the ten days prior to the merger). In addition, as
five of Impac's hotels that are currently under development are opened, the
Impac unitholders will receive up to an aggregate of 1.4 million additional
shares of Lodgian common stock representing an additional 0.121 shares of
Lodgian common stock for each Impac unit. Impac unitholders and Servico
shareholders will then own approximately 26% and 74% respectively of Lodgian's
outstanding common stock. The accompanying Joint Proxy Statement/Prospectus
provides a detailed description of the merger and its effect on Impac and on you
as unitholders of Impac.
You are also being asked to approve the Lodgian 1998 Short-Term Incentive
Compensation Plan, the Lodgian 1998 Stock Incentive Plan and the Lodgian
Non-Employee Directors' Stock Plan. The plans are intended to provide Lodgian's
directors and employees with incentives that are aligned with your interests as
a Lodgian shareholder going forward.
The purpose of the merger is to create a combined enterprise with the increased
financial strength, franchise base, global reach and expertise necessary to
excel in the increasingly competitive and consolidating hotel industry.
However, the merger will be subject to significant potential risks including:
o Inability to successfully consolidate the business, operations and
personnel of the two companies;
o High levels of debt which subject the combined company to a greater
risk of default and foreclosure in economic downturns;
o Unavailability of capital for growth through the acquisition,
development or renovation of hotel properties;
o Increased competition for customers and hotel acquisition
opportunities; and
o Illiquidity of real estate and exposure to general economic downturns
in the lodging industry.
I strongly believe in the merger and have agreed to vote my Impac units in favor
of the merger. My vote, together with the vote of others who have already agreed
to vote their units in favor of the merger, will represent more than
<PAGE> 7
a majority of the outstanding units, thus assuring the approval of the merger
and the Lodgian benefit plans by the Impac unitholders.
AS MANAGER, I HAVE CAREFULLY REVIEWED THE TERMS AND CONDITIONS OF THE MERGER AND
BELIEVE THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF IMPAC AND ITS
UNITHOLDERS AND RECOMMEND THAT YOU CONSENT TO THE MERGER AND TO THE ADOPTION OF
EACH OF THE LODGIAN BENEFIT PLANS. Please complete, sign and date your written
consent form and promptly return it in the envelope provided.
Sincerely yours,
ROBERT S. COLE
MANAGER
<PAGE> 8
[IMPAC LOGO]
IMPAC HOTEL GROUP, L.L.C.
Two Live Oak Center
3445 Peachtree Road, N.E.
Suite 700
Atlanta, Georgia 30326
SOLICITATION OF WRITTEN CONSENT OF UNITHOLDERS
To Our Unitholders:
Pursuant to Section 5.5(b)(i) of the Second Amended and Restated
Operating Agreement of Impac Hotel Group, L.L.C. ("Impac"), the consent of the
holders of the Class A Ordinary Membership Interests (the "Units") is solicited
in order to take the following actions:
1. To approve the Amended and Restated Agreement and Plan of Merger,
dated as of July ___, 1998 (the "Merger Agreement"), among Lodgian, Inc.
("Lodgian"), Servico, Impac Hotel Group, L.L.C., a Georgia limited liability
company ("Impac"), P-Burg Lodging Associates, Inc., a Kentucky corporation
("P-Burg"), Hazard Lodging Associates, Inc., a Kentucky corporation ("Hazard"),
Memphis Lodging Associates, Inc., a Florida corporation ("Memphis"), Delk
Lodging Associates, Inc., a Delaware corporation ("Delk"), Impac Hotel
Development, Inc., a Delaware corporation ("IHD"), Impac Design and
Construction, Inc., a Delaware corporation ("IDC"), Impac Hotel Group, Inc., a
Florida corporation ("IHG") (defined collectively as the "Impac Affiliated
Companies") and certain acquisition subsidiaries providing for mergers which
will result in Servico, Impac and each of the Impac Affiliated Companies
becoming wholly-owned subsidiaries of Lodgian (together referred to as the
"Merger");
2. To approve the Lodgian 1998 Short-Term Incentive Compensation Plan,
which appears as Appendix D to the accompanying Joint Proxy
Statement/Prospectus;
3. To approve the Lodgian 1998 Stock Incentive Plan, which appears as
Appendix E to the accompanying Joint Proxy Statement/Prospectus; and
4. To approve the Lodgian Non-Employee Directors' Stock Plan, which
appears as Appendix F to the accompanying Joint Proxy Statement/Prospectus (the
Lodgian 1998 Short-Term Incentive Compensation Plan, the Lodgian 1998 Stock
Incentive Plan and the Lodgian Non-Employee Directors' Stock Plan being referred
to as the "Lodgian Plans").
<PAGE> 9
The written consent of the holders of a majority of the outstanding
Units of Impac is required to approve the Merger and each of the Lodgian Plans.
Please sign, date and return promptly the enclosed form of written
consent in the postage-paid reply envelope provided. You may revoke your consent
by filing with the Secretary of Impac a duly executed letter of revocation prior
to completion of the Merger.
THE MANAGER RECOMMENDS THAT UNITHOLDERS CONSENT TO THE MERGER AND THE
ADOPTION OF EACH OF THE LODGIAN PLANS.
ROBERT S. COLE
MANAGER
Atlanta, Georgia
_____________, 1998
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE SERVICO/IMPAC TRANSACTION..........................................................vi
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY............................................................................1
The Companies .............................................................................................1
What You Will Receive in the Merger........................................................................1
Reasons for the Merger.....................................................................................2
Summary of Risk Factors ...................................................................................2
Recommendations ...........................................................................................2
Opinions of Financial Advisors.............................................................................2
Conflicts of Interests of Certain Persons..................................................................3
Conditions to the Transaction .............................................................................3
Termination of the Merger Agreement .......................................................................3
Termination Fees ..........................................................................................3
Regulatory Approvals ......................................................................................3
Material U.S. Federal Income Tax Consequences .............................................................3
No Appraisal Rights........................................................................................4
Per Share Market Price Information ........................................................................4
Listing of Lodgian Common Stock ...........................................................................4
Lodgian Dividend Policy....................................................................................4
Lodgian Plan Proposals ....................................................................................4
Other Servico Annual Meeting Matters.......................................................................4
Eligibility to Vote........................................................................................4
Vote Required .............................................................................................4
Cautionary Statement.......................................................................................5
Organizational Chart.......................................................................................6
SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION...............................................................7
Selected Historical Financial Information - Servico........................................................7
Selected Historical Financial Information - Impac..........................................................8
Selected Unaudited Pro Forma Financial Information.........................................................8
Comparative Per Share Information.........................................................................10
RISK FACTORS.......................................................................................................11
Inability to Successfully Integrate Operations............................................................11
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Risks Associated with High Levels of Debt.................................................................11
Inability to Expand.......................................................................................13
Delays in Completion or Unanticipated Costs Associated with Development
and Renovation of Properties..............................................................................13
Illiquidity and Possible Declines in Value of Real Estate.................................................13
Loss of Flexibility of Ownership of Real Estate with Others...............................................14
Lodging Industry Risks....................................................................................14
Limitations and Requirements of Franchise Agreements......................................................15
Costs of Compliance with Environmental Laws...............................................................16
No Intention to Pay Dividends.............................................................................16
Cost of Compliance with Governmental Regulations..........................................................16
Substantial Reliance on Key Personnel.....................................................................17
Anti-Takeover Provisions..................................................................................17
SERVICO ANNUAL MEETING.............................................................................................18
Date, Time and Place and Purpose..........................................................................18
Record Date for Eligibility to Vote.......................................................................18
Voting of Proxies.........................................................................................18
Revocability of Proxies...................................................................................19
Votes Required; Shares Held by Certain Persons............................................................19
Solicitation of Proxies...................................................................................19
MATTERS TO BE VOTED UPON AT THE SERVICO ANNUAL MEETING.............................................................20
Approval of the Merger ..................................................................................20
Approval of Each of the Lodgian Plans.....................................................................20
Amendment of Servico Stock Option Plan....................................................................20
Election of Directors ...................................................................................21
SOLICITATION OF IMPAC UNITHOLDER CONSENTS..........................................................................21
Purpose .................................................................................................21
Unitholders Entitled to Vote..............................................................................21
Submission of Written Consent.............................................................................21
Revocability of Consent...................................................................................21
Consent Required; Voting Agreements.......................................................................21
Solicitation of Consents..................................................................................22
THE MERGER.........................................................................................................22
General .................................................................................................22
The Merger................................................................................................22
Background of the Merger..................................................................................24
Reasons for the Merger; Negative Considerations and Potential Disadvantages of the Merger;
Recommendation of Servico's Board and Impac's Manager.....................................................26
Opinion of Financial Advisors.............................................................................30
Material Federal Income Tax Consequences..................................................................40
Accounting Treatment......................................................................................42
Anti-Trust Approval.......................................................................................43
No Appraisal Rights.......................................................................................43
Stock Exchange Listing....................................................................................43
Delisting and Deregistration of Servico Common Stock......................................................43
</TABLE>
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Securities Law Restrictions...............................................................................43
THE MERGER AGREEMENT...............................................................................................44
General .................................................................................................44
Consideration to be Received in the Merger................................................................44
Exchange of Shares........................................................................................47
Lodgian Following the Merger..............................................................................48
Certain Representations and Warranties....................................................................49
Certain Covenants.........................................................................................49
Restrictions on Solicitation of Alternative Transactions..................................................51
Certain Benefits Matters..................................................................................52
Indemnification and Insurance.............................................................................52
Certain Conditions........................................................................................53
Amendment and Waiver......................................................................................54
Termination...............................................................................................54
Termination Fees; Expenses................................................................................55
Impac Voting Agreements...................................................................................56
Registration Rights Agreement.............................................................................56
CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER.............................................................57
Certain Arrangements Regarding Management and Directors of Lodgian........................................57
Arrangements with Executive Officers......................................................................57
Development Agreements....................................................................................59
Registration Rights Agreement.............................................................................59
Indemnification and Insurance.............................................................................59
Release of Guarantees.....................................................................................59
MARKET PRICE AND DIVIDEND DATA.....................................................................................61
Servico .................................................................................................61
Impac .................................................................................................61
LODGIAN, INC. UNAUDITED PRO FORMA COMBINED CONSOLIDATED
FINANCIAL STATEMENTS...............................................................................................63
LODGIAN, INC. UNAUDITED PRO FORMA COMBINING BALANCE SHEET
MARCH 31, 1998.....................................................................................................64
SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA FINANCIAL
STATEMENTS FOR THE OFFERING, EXCLUDING THE MERGER.................................................................69
SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEETS MARCH 31, 1998.........................................................................70
SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT
OF INCOME YEAR ENDED DECEMBER 31, 1997.............................................................................71
SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT
OF INCOME THREE MONTHS ENDED MARCH 31, 1998........................................................................72
</TABLE>
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SERVICO, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA
STATEMENT OF INCOME................................................................................................73
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL
DEVELOPMENT, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
EXCLUDING THE MERGER...............................................................................................75
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL
DEVELOPMENT, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997.......................................................................................76
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL
DEVELOPMENT, INC. NOTES TO UNAUDITED PRO FORMA STATEMENT
OF OPERATIONS......................................................................................................77
DESCRIPTION OF LODGIAN.............................................................................................78
Directors And Management of Lodgian Following The Merger; Compensation....................................78
Stock Ownership of Directors, Executive Officers and Five Percent Shareholders............................80
DESCRIPTION OF SERVICO.............................................................................................85
General .................................................................................................85
Information Relating to Directors and Executive Officers of Servico.......................................85
Servico Employment Agreements and Termination of Employment...............................................90
Report of the Compensation Committee on Executive Compensation............................................91
Performance Graph.........................................................................................93
Security Ownership of Certain Beneficial Owners and Management ..........................................94
BUSINESS OF IMPAC..................................................................................................97
General .................................................................................................97
Organization..............................................................................................97
Investment Strategy.......................................................................................98
Acquisition and Development Strategy......................................................................98
Operating Strategy........................................................................................99
Properties...............................................................................................100
Hotel Operations.........................................................................................101
Franchise Affiliation....................................................................................102
Development Agreements...................................................................................104
Compensation Paid to Impac Manager.......................................................................104
Employees................................................................................................105
Legal Proceedings........................................................................................105
SELECTED HISTORICAL FINANCIAL DATA - IMPAC........................................................................106
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - IMPAC.................................................................................107
General ................................................................................................107
Results of Operations....................................................................................107
Liquidity and Capital Resources..........................................................................110
Existing Financing Arrangements..........................................................................110
Refinancing Commitment...................................................................................115
DESCRIPTION OF LODGIAN CAPITAL STOCK..............................................................................116
Authorized Capital Stock.................................................................................116
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Lodgian Common Stock.....................................................................................116
Lodgian Preferred Stock..................................................................................117
Transfer Agent and Registrar.............................................................................117
COMPARISON OF CERTAIN RIGHTS OF THE HOLDERS OF SERVICO COMMON
STOCK AND IMPAC UNITS.............................................................................................117
Comparison of Current Servico Shareholder Rights and Lodgian Shareholder Rights
Following the Merger.....................................................................................117
Comparison of Current Impac Unitholder Rights and Lodgian Shareholder Rights
Following the Merger.....................................................................................122
LODGIAN PLAN PROPOSALS............................................................................................129
The Lodgian 1998 Short-Term Incentive Compensation Plan..................................................129
Federal Income Tax Consequences..........................................................................131
The Lodgian 1998 Stock Incentive Plan....................................................................131
Federal Income Tax Consequences..........................................................................134
The Lodgian Non-Employee Directors' Stock Plan...........................................................135
Federal Income Tax Consequences..........................................................................136
PROPOSAL TO AMEND THE SERVICO STOCK OPTION PLAN...................................................................137
Description of the Servico Stock Option Plan.............................................................137
Federal Income Tax Consequences..........................................................................138
Options Granted Under the Plan...........................................................................139
Amendment to the Plan....................................................................................139
LEGAL MATTERS.....................................................................................................140
EXPERTS .........................................................................................................140
SHAREHOLDER PROPOSALS.............................................................................................140
WHERE YOU CAN FIND MORE INFORMATION...............................................................................140
INDEX TO FINANCIAL STATEMENTS.....................................................................................F-1
</TABLE>
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APPENDICES PAGE
<S> <C> <C> <C>
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Opinion of Lehman Brothers
APPENDIX C - Opinion of Allen & Company
APPENDIX D - Lodgian 1998 Short-Term Incentive Compensation Plan
APPENDIX E - Lodgian 1998 Stock Incentive Plan
APPENDIX F - Lodgian Non-Employee Directors' Stock Plan
APPENDIX G - Form of Restated Certificate of Incorporation
of Lodgian
APPENDIX H - Form of Restated Bylaws of Lodgian
</TABLE>
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QUESTIONS AND ANSWERS
ABOUT THE SERVICO/IMPAC TRANSACTION
Q. WHEN ARE THE MEETINGS?
A. The Servico meeting will take place on ___________, 1998. No meeting of
Impac unitholders will be held. If you are an Impac unitholder, you should
mail in your consent indicating your vote.
Q. WHAT DO I NEED TO DO NOW?
A. First, read the proxy statement-prospectus carefully. Then you should vote.
Q. HOW DO I VOTE?
A. IF YOU ARE A SERVICO SHAREHOLDER, please mail your signed proxy card in the
enclosed postage prepaid return envelope as soon as possible, so that your
shares may be represented and voted at the Annual Meeting, which is
scheduled to take place on _____, 1998. Since a majority of the outstanding
shares of Servico must approve the Merger, it is especially important that
Servico shareholders return their signed proxy cards. YOUR VOTE IS VERY
IMPORTANT.
IF YOU ARE AN IMPAC UNITHOLDER, please mail your signed written consent
form in the enclosed postage prepaid return envelope as soon as possible.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE OR REVOKE MY CONSENT AFTER I HAVE
MAILED MY PROXY CARD OR CONSENT FORM?
A. IF YOU ARE A SERVICO SHAREHOLDER, there are three ways in which you may
revoke your proxy. First, you may submit a written notification stating
that you would like to revoke your proxy. Second, you may complete and
submit a new proxy card. If you choose either of these methods, you should
send your notice of revocation or new proxy card to Charles M. Diaz,
Corporate Secretary of Servico at the address on the cover of this Joint
Proxy Statement/Prospectus. Third, you may attend the Servico Annual
Meeting and vote in person. If you hold your shares in "street name" or
through a nominee or broker, you must follow directions received from your
broker to cast or change your vote.
IF YOU ARE AN IMPAC UNITHOLDER, you may revoke your consent by submitting a
written notification stating that you would like to revoke your consent.
You should send your notice of revocation to the Secretary of Impac at the
address shown on the cover of this Joint Proxy Statement/Prospectus.
Q. SHOULD I SEND IN MY STOCK OR UNITS NOW?
A. No. If the merger is completed, you will receive written instructions for
exchanging your shares or units for certificates representing Lodgian
common stock.
Q. PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A. SERVICO SHAREHOLDERS:
Servico shareholders will receive one share of Lodgian common stock for
each share of Servico common stock that they own.
IMPAC UNITHOLDERS AND IMPAC AFFILIATED COMPANY SHAREHOLDERS:
Impac unitholders and Impac Affiliated Company Shareholders will receive a
number of shares of Lodgian common stock that will be determined based on
the
-vii-
<PAGE> 17
average price of Servico common stock during a specified ten-day period
prior to the merger. If the average price of Servico common stock is at
least $14.00 per share and not more than $25.00 per share, then the Impac
unitholders and the Impac Affiliated Company Shareholders will receive a
total of 6.0 million shares of Lodgian common stock. Approximately 0.519 of
a share of Lodgian common stock will be issued for each Impac Unit
outstanding prior to the Merger. If the average price of the Servico common
stock is less than $14.00 per share or more than $25.00 per share, the
number of Lodgian shares to be issued will be adjusted. An aggregate of an
additional 1.4 million shares of Lodgian common stock will be issued as
each of five Impac hotels that are currently under development is opened.
This means approximately 0.121 additional shares of Lodgian common stock
could be issued for each Impac Unit outstanding prior to the Merger
assuming the opening of all five hotels.
IMPAC AFFILIATED COMPANY SHAREHOLDERS:
For federal income tax planning purposes, the Impac Affiliated Companies,
which are all Impac unitholders, will each merge directly with newly formed
subsidiaries of Lodgian and the shareholders of the Impac Affiliated
Companies will acquire Lodgian common stock directly in the Merger based
upon the number of Impac units held by the respective Impac Affiliated
Company and each shareholder's respective holdings in the Impac Affiliated
Company.
Q. WHEN WILL THE ADDITIONAL 1.4 MILLION SHARES OF LODGIAN COMMON STOCK BE
ISSUED?
A. The additional shares will be issued to former Impac unitholders and former
Impac Affiliated Company shareholders upon receipt by Lodgian of the
certificates of occupancy and the initial opening for business of five
Impac hotels that are currently under development. The hotels are expected
to open in 1999 and the additional shares of Lodgian common stock will be
issued to former Impac unitholders and former Impac Affiliated Company
shareholders upon each hotel opening, based upon an allocated value for
each hotel, whether or not the former unitholders or shareholders still own
their Lodgian stock.
Q. WILL LODGIAN ISSUE FRACTIONAL SHARES?
A. No. Lodgian will not issue fractional shares. Instead, you will be paid
cash based on the market value of any fractional shares of Lodgian common
stock you would have otherwise received.
Q. IF MY SERVICO SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A. If you are a Servico shareholder, your broker is not permitted to vote your
shares of Servico common stock on the merger proposal or the proposals to
approve each of the Lodgian Plans unless you provide instructions on how to
vote.
-viii-
<PAGE> 18
All shareholders of Servico should instruct their brokers to vote their
shares following directions provided by their brokers.
Q. WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED?
A. We expect to complete the merger during the third quarter of 1998.
Q. WHOM SHOULD I CALL WITH QUESTIONS?
A. If you have questions about the transaction, you should call: Georgeson &
Company Inc. at 1-800-223-2064.
-ix-
<PAGE> 19
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE LEGAL
TERMS OF THE MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS
OF THE MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS
TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" (PAGE
_____).
THE COMPANIES (PAGES _______)
SERVICO, INC.
1601 Belvedere Road
West Palm Beach, Florida 33406
(561) 689-9970
Servico is one of the largest owners and operators of full-service hotels
in the United States. Servico currently owns or manages 89 hotels containing
approximately 17,937 rooms located in 24 states and Canada. Servico's hotels are
primarily mid-sized, with an average of approximately 202 rooms per hotel, and
are primarily located in secondary metropolitan markets. Servico's full-service
hotels offer food and beverage services and meeting and banquet facilities.
Servico's hotels include 76 wholly owned hotels, 11 partially owned hotels and
two managed hotels. Substantially all of Servico's hotels are affiliated with
nationally recognized hospitality franchises, including Holiday Inn, Crowne
Plaza, Hilton, Omni, Radisson, Sheraton and Westin. Servico operates 59 hotels
under franchise agreements with Holiday Inn, making Servico the second largest
Holiday Inn franchisee in the United States.
IMPAC HOTEL GROUP, L.L.C.
Two Live Oak Center
3445 Peachtree Road, N.E., Suite 700
Atlanta, Georgia 30326
(404) 364-9400
Impac is one of the largest private hotel companies in the United States.
Impac owns or manages primarily upscale or mid-market full service hotels, most
of which have been renovated or developed within the last five years. Impac
currently owns or operates 55 hotels (including five under development)
containing approximately 9,266 rooms located in 24 states. Impac's hotels
include 52 wholly owned hotels, one partially owned hotel and two managed
hotels. Impac's hotels are generally affiliated with internationally recognized
brands including Marriott, Doubletree and Holiday Inn. Impac operates 24 hotels
under franchise agreements with Holiday Inn.
LODGIAN, INC.
Lodgian, Inc. was formed by Servico in connection with the proposed Merger.
Lodgian will own Servico, Impac and the Impac Affiliated Companies after the
Merger.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGES _______)
SERVICO SHAREHOLDERS:
Servico shareholders will receive one share of Lodgian common stock for
each share of Servico common stock that they own.
IMPAC UNITHOLDERS AND IMPAC AFFILIATED COMPANY SHAREHOLDERS:
Impac unitholders and Impac Affiliated Company shareholders will receive a
number of shares of Lodgian common stock that will be determined based on the
average price of Servico common stock during a specified ten-day period prior to
the merger.
o If the average price of Servico common stock is at least $14.00 per
share and not more than $25.00 per share, then the Impac unitholders
and Impac Affiliated Company shareholders will receive a total of 6.0
million shares of Lodgian common stock or approximately 0.519 of a
share of Lodgian common stock for each Impac Unit.
o If the average price of the Servico common stock is less than $14.00
per share, the number of shares of Lodgian common stock to be received
will be determined by dividing $103.6 million by the average Servico
common stock price during the specified ten-day period and then
subtracting 1.4 million shares.
o If the average price of Servico common stock is more than $25.00 per
share, the number of shares of Lodgian common stock to be received will
be determined by dividing $185 million by the average Servico common
stock price during the specified ten day period and then subtracting
1.4 million shares.
-1-
<PAGE> 20
The number of shares of Lodgian common stock Impac unitholders and Impac
Affiliated Company shareholders will receive for each Impac Unit outstanding can
be determined by dividing the total number of Lodgian shares to be delivered to
the Impac unitholders and Impac Affiliated Company shareholders by
11,559,527.20 (which is the total number of outstanding Impac Units).
o In addition, Impac unitholders and Impac Affiliated Company
shareholders will receive an incremental portion of an aggregate of an
additional 1.4 million shares of Lodgian common stock upon the opening
of each of five Impac hotels that are currently under development or
approximately 0.121 of additional shares of Lodgian common stock for
each Impac Unit outstanding prior to the Merger.
The number of shares of Lodgian common stock each Impac Affiliated Company
shareholder will receive will be based upon (i) the number of Impac units owned
by the respective Impac Affiliated Company and (ii) the shareholder's ownership
percentage in the respective Impac Affiliated Company.
REASONS FOR THE MERGER (PAGES _______)
If completed, the Merger will create one of the largest independent
multi-brand owner and operator of hotels in the United States. Here are a few of
the highlights of how Lodgian would look after the Merger:
o Lodgian will own or manage 140 hotels, including six hotels under
development, with approximately 26,698 rooms.
o Lodgian will have greater geographic diversity with hotels in 35 states
and Canada.
o Based on historical results of the combined companies at December 31,
1997, Lodgian would have had combined annual revenues of approximately
$474 million.
Servico believes that the Merger meets its criteria for a strategic
acquisition based on the following additional factors:
o Servico expects the Merger to contribute to earnings (before one-time
merger-related charges) in the first year of combined operations.
o The Merger offers possible opportunities for cost savings including
savings through the addition of Impac's development expertise, greater
purchasing power and the elimination of duplicate administrative and
accounting functions.
o The Merger will add a number of upscale hotels in major markets where
Servico currently does not hold properties.
SUMMARY OF RISK FACTORS (PAGES ______)
The following principal risks and uncertainties should be considered by
both Servico shareholders and Impac unitholders and Impac Affiliated Company
shareholders:
o adverse changes in the economy generally or in the lodging industry in
particular could materially negatively impact Lodgian;
o the risk that the contemplated benefits of the Merger will not be
achieved;
o the challenges of integrating the two companies including potential
personnel changes and costs associated with moving Servico's offices to
Atlanta as well as the fact that no cost savings or efficiencies will
be achieved;
o the risks associated with the high amount of indebtedness of the
combined company including the increased possibility of default,
foreclosure and loss of properties;
o Impac unitholders will no longer receive distributions on their Units
and Lodgian's business plan does not contemplate the disposition of the
properties;
o Unlike Impac, Lodgian will not be a limited life entity; and
o The Manager of Impac will be employed by Lodgian pursuant to a
three-year employment agreement and will receive options to buy Lodgian
stock which are benefits not enjoyed by other Impac unitholders.
RECOMMENDATIONS (PAGES _______)
SERVICO:
The Servico Board believes that the terms of the Merger are fair to,
and in the best interests of, Servico and its shareholders and unanimously
recommends that the shareholders of Servico vote to approve the Merger, each of
the Lodgian Plans and the amendment of the Servico Stock Option Plan and to
elect the nominee as a director.
IMPAC:
The Manager of Impac has determined that the terms of the Merger are
fair to, and in the best interests of, Impac and its unitholders and recommends
that the unitholders of Impac consent to the Merger and to the adoption of each
of the Lodgian Plans.
OPINIONS OF FINANCIAL ADVISORS (PAGES ______)
In deciding to approve the Merger, the Board of Directors of Servico
and the Manager of Impac considered opinions from financial advisors as to the
fairness of the consideration from a financial point of view. Servico received
the opinion of its financial advisor, Lehman Brothers, Inc., and Impac received
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<PAGE> 21
the opinion of its financial advisor, Allen & Company Incorporated. Their
opinions are attached as Appendices B and C to this Joint Proxy
Statement/Prospectus. We encourage you to read and consider these opinions.
CONFLICTS OF INTERESTS OF CERTAIN PERSONS (PAGES __________)
In considering the recommendations of the Servico Board and the Impac
Manager, shareholders of Servico and unitholders of Impac should be aware that
certain officers and directors of Servico and the Manager of Impac will receive
certain benefits you will not receive. Messrs. Buddemeyer and Cole will receive
employment agreements with Lodgian pursuant to which they will receive base
compensation of $405,000 and $300,000, respectively, potential bonuses based on
future performance and, in the event of certain changes of control of Lodgian,
2.5 times their base salary plus bonus and other benefits. The Merger Agreement
also provides that Lodgian will assume an option that was previously granted by
Impac to Mr. Cole. Pursuant to the Merger Agreement, this option will be
converted into an option to purchase 185,000 shares of Lodgian Common Stock at
an exercise price of $17.75 per share.
CONDITIONS TO THE TRANSACTION (PAGES _______)
The completion of the Merger depends upon meeting a number of conditions,
including the following:
o obtaining the approval by the shareholders of Servico and unitholders
of Impac;
o there being no law, litigation or court order that prohibits the
Merger;
o clearance from U.S. antitrust agencies;
o receipt of opinions from our respective tax counsel that the Merger
will qualify as a tax-free transaction for Federal income tax
purposes;
o receipt of a commitment to restructure the indebtedness of Impac and
its subsidiaries;
o the representations and warranties of the respective parties being true
and correct in all material respects;
o there being no material adverse change in the businesses of either
Impac or Servico.
The Servico Board or the Impac Manager may, exercising its or his fiduciary
duty, respectively, choose to waive any of the last three of these conditions.
TERMINATION OF THE MERGER AGREEMENT (PAGES _____)
Servico and Impac can agree in writing to terminate the Merger Agreement at
any time without completing the transaction.
Either Servico or Impac may terminate the Merger Agreement if:
o the Merger is not completed by December 31, 1998;
o any governmental authority, such as a court, prohibits the Merger;
o the Servico shareholders do not approve the Merger;
o Servico's Board withdraws or changes its recommendation of the Merger;
o Servico chooses to pursue an alternative acquisition transaction;
o either Servico or Impac is negotiating with any third party or provides
a third party for an alternative acquisition transaction with
non-public information concerning its business;
o the other party materially breaches its representations, warranties or
obligations under the Merger Agreement.
In addition, Impac may terminate the Merger Agreement if Servico determines
to acquire more than $100 million of hotels and Impac reasonably believes that
these acquisitions would be materially adverse to Servico or materially change
the nature of Servico's business.
TERMINATION FEES (PAGES ______)
The Merger Agreement requires Servico or Impac to pay the other a
termination fee if, under certain circumstances, the Merger Agreement is
terminated. Depending on the date and circumstances of the termination, Servico
may be obligated to pay Impac a termination fee ranging from $10 million to $15
million and Impac may be obligated to pay Servico a termination fee of $10
million. Additionally, Servico or Impac may become obligated to reimburse the
other party for up to $2.5 million for costs and expenses incurred in connection
with the transaction.
REGULATORY APPROVALS (PAGE ____)
Federal law required us to furnish certain information and materials to the
Antitrust Division of the United States Department of Justice and the Federal
Trade Commission and requires that a specified waiting period expire or be
terminated before the Merger can be completed. On June 28, 1998, the waiting
period terminated. Nevertheless, the Antitrust Division of the Department of
Justice and the Federal Trade Commission will have the authority to challenge
the transaction on antitrust grounds before or after the transaction is
completed.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (PAGES _______)
The transaction has been structured so that neither Servico, Impac nor the
Impac Affiliated Companies, nor their respective shareholders or unitholders
will recognize gain or loss for federal income tax purposes as a result of the
Merger, except for taxes payable on
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<PAGE> 22
cash received in lieu of fractional shares and gain recognized equal to the
excess of their share of Impac liabilities over their basis in their Impac
Units. THE TAX CONSEQUENCES OF THE TRANSACTION TO SHAREHOLDERS OF SERVICO,
UNITHOLDERS OF IMPAC AND SHAREHOLDERS OF ANY IMPAC AFFILIATED COMPANY WILL
DEPEND ON THE FACTS OF EACH HOLDER'S SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE TRANSACTION TO
YOU.
NO APPRAISAL RIGHTS (PAGE _____)
Neither Servico shareholders, Impac unitholders nor Impac Affiliated
Company shareholders have any right to an appraisal of the value of their shares
or units in connection with the Merger.
PER SHARE MARKET PRICE INFORMATION (PAGES ______)
Shares of Servico common stock are listed on the New York Stock Exchange.
On March 20, 1998, the last full trading day of the New York Stock Exchange
prior to the public announcement of the proposed Merger, Servico common stock
closed at $17.75 per share. On ______, 1998, Servico common stock closed at
$______ per share. Impac Units are not reported on any national quotation system
nor is there any established public trading market for Impac Units. Assuming an
exchange ratio for Impac of 0.519, the equivalent of an Impac Unit was $_____ on
____________, 1998.
LISTING OF LODGIAN COMMON STOCK (PAGE _____)
The shares of Lodgian common stock to be issued in connection with the
Merger will be listed on the New York Stock Exchange and will trade under the
symbol LOD.
LODGIAN DIVIDEND POLICY
Lodgian currently intends to retain future earnings for use in its business
and does not intend to pay dividends on its common stock.
LODGIAN PLAN PROPOSALS (PAGES ________)
Because Lodgian is a new company, in addition to approving the Merger, the
shareholders of Servico and unitholders of Impac are being asked to approve
three incentive compensation plans for Lodgian. Servico and Impac currently have
different incentive compensation plans. These new plans will replace those plans
currently in effect with a package of incentive compensation plans for directors
and employees of Lodgian. The new plans are the following: (i) a short-term
incentive plan that provides for bonus compensation linked to performance over a
fiscal year or other relatively short period; (ii) a stock incentive plan that
provides for longer-term incentives in the form of stock options, stock
appreciation rights or other equity-based compensation awards; and (iii) a stock
plan for non-employee directors that provides for grants of stock options. For a
more complete description of each of these plans, see pages ___ through ____.
OTHER SERVICO ANNUAL MEETING MATTERS
At the Servico Annual Meeting, Servico is also asking its shareholders to
vote on the following annual meeting proposals:
o amendment of Servico's existing Stock Option Plan to increase the
number of shares of common stock issuable under the Plan;
o the election of a director to Servico's Board.
Approval by Servico shareholders of these matters is not a condition to
completion of the Merger. Likewise, approval of the Merger is not a condition to
the approval of these matters.
ELIGIBILITY TO VOTE
If you were the owner of record of shares of Servico common stock on the
close of business on ___________, 1998, you are entitled to vote at the Servico
Annual Meeting. At the Servico record date, [21,038,995] shares of Servico
common stock were outstanding which were held by approximately 3,000 holders of
record.
All holders of Impac units will be entitled to vote on the Merger and the
Lodgian benefit plans.
VOTE REQUIRED (PAGES _____)
SERVICO SHAREHOLDERS:
You will have one vote for each share of Servico common stock that you
owned on the record date. The favorable vote of the holders of at least a
majority of the outstanding shares of Servico common stock is required to
approve the Merger. ACCORDINGLY, YOUR FAILURE TO VOTE YOUR SHARES OF SERVICO
COMMON STOCK WILL HAVE THE EFFECT OF A VOTE AGAINST THE MERGER. The favorable
vote of the holders of at least a majority of the total number of eligible votes
cast at the Servico Annual Meeting is required to approve each of the Lodgian
Plans and the amendment to the Servico Stock Option Plan. A plurality of the
votes cast will be required to elect the nominee as a director of Servico.
IMPAC UNITHOLDERS:
You will have one vote for each Impac Unit that you own. The written
consent of the holders of at least a majority of the outstanding Impac Units is
required to approve the Merger and to approve each of the Lodgian Plans.
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<PAGE> 23
Robert Cole, the President and Manager of Impac, certain entities
controlled by Mr. Cole or members of his family, and other Impac unitholders who
collectively own or control more than 51% of Impac's outstanding Units,
previously agreed to vote in favor of the Merger and the Lodgian Plans, thus
assuring the approval of the Merger and the Lodgian Plans by the Impac
unitholders.
CAUTIONARY STATEMENT
This document and documents that are incorporated herein by reference
include various forward-looking statements about Servico, Impac and Lodgian that
are subject to risks and uncertainties. Forward-looking statements include the
information concerning anticipated future results of operations of Servico,
Impac and Lodgian. Also, statements including the words "expects,"
"anticipates," "intends," "plans," "believes," "estimates," or similar
expressions are forward-looking statements. Shareholders and unitholders should
note that many factors, some of which are discussed elsewhere in this document
and in the documents that are incorporated by reference, could cause the actual
results of Servico, Impac or Lodgian to differ materially from the anticipated
results set forth in or contemplated by such forward-looking statements. You are
cautioned that such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of Servico, Impac or Lodgian to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors may affect Servico's, Impac's or
Lodgian's operations, markets and services. Such factors and risks include:
adverse changes in general economic and business conditions, including changes
in local real estate markets; changes in interest rates and in the availability,
cost and terms of financing; rates of inflation and the performance of financial
markets which can impact not only operations but the availability of capital;
changes in domestic and foreign laws, regulations and taxes which can require
additional expenditures, decrease profitability, increase liability or delay or
impede property development or renovation; the significant levels of
indebtedness of Servico and Impac and Lodgian's ability to service such
indebtedness or to reference such indebtedness and to satisfy the financial
covenants required by outstanding indebtedness; integration of the operations of
Servico and Impac, including the failure to realize the benefits from the
transaction; increased competition in the hospitality industry generally or in
specific markets or overbuilding in the hotel industry as a whole; the loss of
any franchises; availability of additional capital to support growth;
construction and renovation cost overruns and delays; seasonal fluctuations; and
an adverse change in the level of tourism or business related travel; and other
factors discussed under "Risk Factors" or elsewhere herein or in the documents
that are incorporated by reference herein. Further, changes in business strategy
or development plans could impact future results and the forward-looking
statements contained herein.
-5-
<PAGE> 24
ORGANIZATIONAL CHART
EXISTING ENTITIES
<TABLE>
<CAPTION>
<S> <C> <C>
UNITHOLDERS PUBLIC
(INCLUDING IMPAC SHAREHOLDERS
AFFILIATED COMPANIES)
IMPAC HOTEL SERVICO, INC.
GROUP, LLC
THE MERGER
LODGIAN, INC.
SHG-I Sub, LLC IMPAC AFFILIATED SUBS SHG-S Sub, Inc.
(Impac Merger Sub) (Servico Merger Sub)
merges into merge into merges into
IMPAC HOTEL IMPAC AFFILIATED SERVICO, INC.
GROUP, LLC COMPANIES
RESULTING STRUCTURE
FORMER IMPAC
UNITHOLDERS,
SHAREHOLDERS OF
IMPAC AFFILIATED
COMPANIES AND
FORMER SERVICO
SHAREHOLDERS
LODGIAN, INC.
IMPAC HOTEL IMPAC AFFILIATED SERVICO, INC.
GROUP, LLC COMPANIES
</TABLE>
-6-
<PAGE> 25
SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following financial information is provided to assist you in the
analysis of the financial aspects of the Merger. This information was derived
from the audited consolidated financial statements of Servico for the years
ended December 31, 1993 through 1997 and the unaudited consolidated financial
statements of Servico for the three months ended March 31, 1998 and the
unaudited consolidated and combined financial statements of Impac and IHD for
the years ended December 31, 1993 and 1994, the audited consolidated and
combined financial statements of Impac for the years ended December 31, 1995
through 1997 and the unaudited consolidated and combined financial statements of
Impac and IHD for the three months ended March 31, 1998. The summary financial
information for the three months ended March 31, 1997 and 1998 is unaudited. The
information is only a summary and should be read in conjunction with the
Unaudited Pro Forma Combined Consolidated Financial Statements on pages _____
and the accompanying notes, the historical financial statements of Impac and IHD
on page F-5 and the historical financial statements of Servico contained in
Servico's annual reports and other information that Servico has filed with the
Securities and Exchange Commission, and any other financial information included
and incorporated by reference in this Joint Proxy Statement/Prospectus.
See "Where You Can Find More Information" on page _____.
SELECTED HISTORICAL FINANCIAL INFORMATION - SERVICO
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- --------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $128,998 $149,683 $178,480 $239,526 $276,657 $ 62,647 $82,881
Income before extraordinary items,
net of taxes 1,777 2,781 3,909 8,548 12,570 310 2,996
Earnings per common share (a):
Income before extraordinary items, net
of taxes $ .25 $ .36 $ .45 $ .92 $ .83 $ .03 $ .14
Earnings per common share-assuming
dilution:
Income before extraordinary items, net
of taxes $ .25 $ .33 $ .42 $ .88 $ .80 $ .03 $ .14
Basic weighted average shares 7,061 7,827 8,651 9,295 15,183 9,389 20,989
Diluted weighted average shares 7,131 8,335 9,319 9,751 15,640 9,926 21,437
Cash dividends per common share - - - - - - -
End of period:
Total assets $191,270 $228,900 $ 324,202 $439,786 $627,651 $445,170 $694,854
Long-term obligations 114,841 143,830 210,242 284,880 323,320 285,237 376,793
Total stockholders' equity 35,008 46,740 62,820 74,738 239,535 75,315 243,439
</TABLE>
- ---------------------
(a) All prior-period earnings per share amounts have been restated to conform
to Financial Accounting Standards Board Statement No. 128 "Earnings per
Share".
-7-
<PAGE> 26
SELECTED HISTORICAL FINANCIAL INFORMATION - IMPAC
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ---------------
1993 1994 1995 1996 1997(a) 1997 1998(d)
---- ---- ---- ---- ------- ---- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (Unaudited)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $23,927 $41,615 $ 55,576 $ 67,813 $119,859 $ 22,306 $ 34,571
(Loss) income before extraordinary
items (b) (457) (64) 5,619 14,064 (16,089)(c) (3,762)(d) (4,707)
End of period:
Total assets $48,143 $71,875 $116,248 $191,666 $417,780 $266,142 $433,781
Long-term obligations 42,615 61,754 92,849 155,851 355,236 222,495 377,427
Total members'/partners' equity 3,284 5,375 13,408 19,760 36,970 30,006 31,356
</TABLE>
- ---------------------------
(a) On March 12, 1997, Impac was formed through the combination of 22
partnerships, 4 corporations and two operating companies (collectively,
the "Predecessors") through a reorganization. The formation of Impac
was accounted for as a reorganization of entities under common control
with the purchase of minority interest. The operations and financial
position of the Predecessors prior to the reorganization are presented
on a combined basis. The principal activity of IHD is to analyze
prospective hotel acquisitions for Impac. IHD was not acquired by Impac
in the above-described reorganization.
(b) Impac is a limited liability company and is not subject to income
taxes. The Predecessors and IHD were each either general or limited
partnerships or S-corporations and were similarly not subject to income
taxes. The results of these entities operations are included in the tax
returns of the unitholders, partners or S-corporation shareholders.
(c) Twenty-five of Impac's properties were under significant renovation
during 1997. Impac purchased 16 properties and opened three newly
constructed properties during 1997. The renovation process greatly
affects the operating performance of a hotel while it is underway.
Revenues are significantly reduced while fixed expenses remain
substantially constant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Impac".
(d) Impac opened or acquired six hotels during the quarter ended March 31,
1997. During the quarter ended March 31, 1998, Impac had 18 hotels
under renovation. Impac also had 18 hotels under renovation during the
first quarter of 1997. Although revenues have increased substantially
during the first quarter of 1998 compared to the first quarter of 1997,
revenues have been adversely affected by the renovations which
remained ongoing during the first quarter ended March 31, 1998. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-Impac."
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<PAGE> 27
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro forma financial information
presents the combined condensed consolidated financial statements of Servico and
Impac as if the Merger had occurred for the periods indicated. The Merger will
be treated as a purchase for financial accounting purposes. You should read this
together with the combined and consolidated financial statements and
accompanying notes of Servico and Impac included elsewhere in this Joint Proxy
Statement/Prospectus and in the documents described under "Where You Can Find
More Information" and in the unaudited pro forma combined condensed financial
statements and accompanying discussion and notes set forth under "Unaudited Pro
Forma Combined Condensed Consolidated Financial Statements" included herein. The
pro forma amounts in the table below are presented for your information and do
not indicate what the financial position or the results of operations of Lodgian
would have been had the Merger occurred as of the dates or for the periods
presented. The pro forma amounts also do not indicate what the financial
position or future results of operations of Lodgian will be. No adjustment has
been included in the pro forma amounts for any cost savings or other synergies
anticipated as a result of the Merger or any Merger-related expenses.
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<PAGE> 28
Selected Unaudited Pro Forma Combined
Condensed Consolidated Financial Information
Year Ended December 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
SERVICO IMPAC ADJUSTMENTS COMBINED
---------- --------- ----------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $334,340 $139,630 $ - $ 473,970
Income (loss) before extraordinary
items 17,982 (8,659) (2,591) 6,732
Earnings per common share:
Income (loss) before extraordinary
items $ .86 - $ .25
Earnings per common share
assuming dilution:
Income (loss) before extraordinary
items $ .84 - $ .25
Basic weighted average shares 20,918 - 26,918
Diluted weighted average shares 21,375 - 27,375
End of period:
Total assets $630,346 $417,780 $116,030 $1,164,156
Long-term obligations 154,845 355,236 - 510,081
Total stockholders'/members' equity 237,237 36,726 71,030 344,993
</TABLE>
Selected Unaudited Pro Forma Combined
Condensed Consolidated Financial Information
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL PRO FORM PRO FORMA
SERVICO IMPAC ADJUSTMENTS COMBINED
--------- ---------- ----------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 82,881 $ 34,571 $ - $ 117,452
Income (loss) before extraordinary
items 3,247 (4,707) (1,282) (178)
Earnings per common share:
Income (loss) before extraordinary
items $ .15 - (.01)
Earnings per common share
assuming dilution:
Income (loss) before extraordinary
items $ .15 - (.01)
Basic weighted average shares 20,989 26,989
Diluted weighted average shares 21,437 27,437
End of period:
Total assets $697,800 $433,781 $121,644 $1,253,225
Preferred redeemable securities $175,000 - - -
Long-term obligations 208,318 377,427 - 585,745
Total stockholders'/members' equity 241,292 31,356 76,644 349,292
</TABLE>
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<PAGE> 29
COMPARATIVE PER SHARE INFORMATION
Certain of the above per share or per unit information has been
summarized for the respective companies on a historical, pro forma combined and
equivalent basis. The Servico per share equivalents are equal to the Unaudited
Pro Forma Combined per share amounts because the Servico shareholders will
receive one share of Lodgian common stock for each share of Servico common
stock. The Impac per Unit equivalents are calculated by multiplying the
outstanding Impac Units by approximately .519, the Impac Exchange Ratio,
assuming the price of Servico common stock is greater than $14.00 per share and
not more than $25.00 per share during the specified ten-day period prior to the
Merger. As of the date of this Joint Proxy Statement/Prospectus, there were
11,559,527.20 Impac Units outstanding.
<TABLE>
<CAPTION>
LODGIAN IMPAC PRO
SERVICO IMPAC PRO FORMA FORMA
HISTORICAL HISTORICAL COMBINED EQUIVALENT
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Book value per common share/unit assuming dilution:
December 31, 1997....................................... $ 15.32 $ 3.71 $ 12.70 $ 7.16
March 31, 1998.......................................... 11.36 2.71 12.73 5.23
Cash dividends per common share/unit:
Year ended December 31, 1997............................ - - - -
Three months ended March 31, 1998....................... - - - -
Income (loss) per common share/unit from continuing
operations:
Primary:
Year ended December 31, 1997............................ .83 (1.64) .32 (3.11)
Three months ended March 31, 1998....................... .14 (.41) - (.78)
Diluted:
Year ended December 31, 1997........................... .80 (1.64) .31 (3.11)
Three months ended March 31, 1998...................... .14 (.41) - (.78)
</TABLE>
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<PAGE> 30
RISK FACTORS
SHAREHOLDERS OF SERVICO AND UNITHOLDERS OF IMPAC SHOULD CONSIDER ALL OF
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING
THE FOLLOWING FACTORS:
INABILITY TO SUCCESSFULLY INTEGRATE OPERATIONS
The Merger involves the integration of two separate companies that
previously operated independently. Lodgian may encounter difficulties in
integrating the operations of Servico and Impac and the benefits and operating
synergies anticipated from the Merger may not be realized. Lodgian's growth and
profitability will be impacted by its ability to consolidate the business,
operations and personnel of the two companies including its ability to eliminate
duplicative functions and to achieve anticipated cost savings. Any delays or
unexpected costs incurred in connection with such integration could have a
material adverse effect on Lodgian's business, financial condition and results
of operations. No assurance can be given that Lodgian will be able to accomplish
the consolidation and cost savings in a timely or profitable manner or that any
savings will be realized. If the Merger is approved, Servico's operations will
be moved from West Palm Beach, Florida to Atlanta, Georgia. Additional costs
will be incurred in connection with such move including not only the cost and
disruption associated with the move but also any severance costs associated with
Servico employees who do not move to Atlanta.
RISKS ASSOCIATED WITH HIGH LEVELS OF DEBT
SIGNIFICANT AMOUNT OF DEBT. Substantially all of Servico's and Impac's
hotels and properties are subject to mortgage financing, which at March 31,
1998, totaled approximately $372.0 and $377.4 million, respectively.
Additionally, in June 1998 Servico issued $175 million of 7% Convertible Junior
Subordinated Debentures Due 2010 in connection with a private offering of
convertible trust preferred securities. "See "-Recent Convertible Trust Security
Offering." Substantially all of the indebtedness of Servico and Impac is, and
Lodgian's indebtedness will likely continue to be, secured by mortgages on all,
or substantially all, of the hotels, and by the equity of subsidiaries. Lodgian
may not in the future be able to meet its debt service obligations and if it
cannot, there is a risk of loss of some or all of its assets, including hotels,
to foreclosure. Further, adverse economic conditions could cause the terms on
which borrowings become available to be unfavorable. In such circumstances, if
additional capital is required to repay indebtedness in accordance with its
terms or otherwise, it may be necessary to liquidate one or more investments in
hotels at times which may not permit realization of the maximum return on such
investments. Servico's and Impac's leverage poses certain risks for Lodgian's
future operations, including the risk that sufficient cash flow will not be
generated to service the indebtedness; that additional financing or refinancing
may be unavailable in the future; that, to the extent Lodgian is significantly
more leveraged than its competitors, Lodgian may be placed at a competitive
disadvantage and that its ability to respond to market conditions may be
adversely affected. Lodgian's ability to service its debt will depend on its
future performance, which in turn will largely depend on prevailing economic and
competitive conditions.
NO LIMIT ON ADDITIONAL DEBT. Lodgian's Certificate of Incorporation and
Bylaws will not limit the amount of indebtedness that Lodgian may incur. Subject
to any limitations in its debt instruments, Lodgian may incur additional debt in
the future to finance acquisitions and renovations. Substantial indebtedness
could increase Lodgian's vulnerability to general economic and lodging industry
conditions (including increases in interest rates) and could limit Lodgian's
ability to obtain additional financing in the future and to take advantage of
business opportunities that may arise.
TERMS OF INDEBTEDNESS WHICH INCLUDE VARIABLE RATES AND PREPAYMENT
PENALTIES. Impac's and Servico's indebtedness bears interest at both fixed and
variable rates. To the extent that Servico or Impac has or Lodgian incurs
additional debt bearing interest at variable rates, economic conditions could
result in increased debt service requirements and could reduce the amount of
cash available for other corporate purposes. Such economic conditions could also
result in an increase of the U.S. Treasury benchmark rate at which Impac fixes a
significant portion of its
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<PAGE> 31
variable rate indebtedness. To the extent Impac has not previously locked in a
lower benchmark Treasury rate, this would result in higher interest rates for
the remaining term of those loans. Further, certain of the loans prohibit or
limit prepayment during certain years, impose prepayment penalties during
certain later years, restrict the ability to utilize the cash generated by the
hotels if the hotels fail to meet certain financial covenants, and in certain
events may accelerate the repayment of the loans. Certain of the mortgages and
related loan documents evidencing Impac's indebtedness contain provisions that
would require the borrower to prepay such financing within the near future if
specified conditions are not met. With respect to the Impac indebtedness, there
can be no assurance that such conditions will be met, that prepayments will not
be required, or that any such prepayment will not have an adverse effect on
Impac's or Lodgian's business, financial condition and results of operations.
Further, Impac's indebtedness, with Nomura Asset Capital Corporation ("NACC"),
provides that in the event the NACC indebtedness is to be repaid in connection
with a merger, reorganization or sale of Impac, NACC will negotiate in good
faith an appropriate prepayment premium, making due allowance for among other
things the expected profits that NACC could reasonably have been expected to
have received if the loans had not been prepaid, including profits associated
with the securitization of the indebtedness. Servico and NACC are currently
negotiating the amount of the payment which would be due to NACC in the event of
a prepayment but it is anticipated that such prepayment penalty would be
substantial.
Finally, Impac has certain other third-party indebtedness in the
approximate principal amount of $78.5 million (which is included in the total
indebtedness of $377.4 million described above) which is subordinated to the
NACC indebtedness. The terms of such indebtedness require that Impac either
obtain the consent of the holder thereof to the Merger or that Impac prepay such
indebtedness in full on the effective date of the Merger. Depending upon certain
factors, including whether the source of proceeds used to make such prepayment
is treated as equity or debt at the Impac level (and if debt, whether it is to
be subordinated to the NACC loans), Impac may need to obtain NACC's consent to
the prepayment of such subordinated debt prior to satisfaction in full of
Impac's obligations to NACC. No assurance can be given that NACC's consent, if
required, could be obtained. If NACC's consent is required but cannot be
obtained, Impac will be unable to prepay such indebtedness and will be required
to obtain the consent of the holder of the subordinated indebtedness to the
Merger. No request for any such consents have yet been made, and no assurance
can be given as to the likelihood of receiving such consents or the terms or
conditions upon which any such consents could be obtained.
CROSS DEFAULT PROVISIONS AND CORPORATE GUARANTEES. Certain of the
mortgages and related loan documents evidencing Servico and Impac's indebtedness
contain provisions which, among other things, cross-collateralize and
cross-default each of the mortgages granted by the same borrower. Further, at
March 31, 1998, approximately $210 million and $25.1 million of the outstanding
financing is guaranteed by Servico and Impac, respectively, excluding amounts
which may be guaranteed from time to time in connection with the construction or
renovation of hotels. Each of Servico's and Impac's guarantees of mortgage
financing generally provide for direct recourse by the lender without requiring
the lender to seek recourse against either the applicable subsidiary or the
hotel property securing the mortgage financing. As a consequence, if payments
under mortgage financing guaranteed by Servico or Impac are not timely made,
Servico or Impac may be required to make payments in accordance with its
guarantees. Lodgian may be required to guarantee debt in the future in
connection with the refinancing or assumption of debt.
RECENT CONVERTIBLE TRUST SECURITY OFFERING
In June 1998, Servico issued $175 million of 7% Convertible Junior
Subordinated Debentures Due 2010 to a newly created wholly owned trust which, in
turn, sold convertible trust preferred securities to qualified institutional
buyers in a private offering. The Debentures and the trust securities bear
interest at a rate of 7% per annum, payable quarterly in arrears, commencing
September 30, 1998. The trust will utilize the payments under the Debentures to
make corresponding payments under the trust securities. The trust securities are
convertible, in whole or in part, at any time beginning in September 1998
through June 2010, at the option of the holders thereof, into shares of Servico
Common Stock at an initial conversion price of $21.42 per share of Servico
Common Stock. In the event the Merger is completed, Lodgian will assume all of
Servico's obligations with respect to the Debentures and the related trust
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<PAGE> 32
securities, and the trust securities will become convertible into shares of
Lodgian Common Stock at the same conversion price and on the same terms.
Additionally, in the event the Merger Agreement is terminated or the
Merger has not been completed by December 31, 1998, holders of the trust
securities will have the right to require Servico to repurchase any of their
trust securities for cash at a purchase price equal to 101% of the aggregate
liquidation amount thereof plus accrued and unpaid interest. In such event,
Servico may not have sufficient financial resources, or may not be able to
arrange financing, to repay the required purchase price for all the trust
securities tendered.
INABILITY TO EXPAND
UNAVAILABILITY OF ADDITIONAL CAPITAL TO SUPPORT GROWTH. As part of
Lodgian's business strategy, Lodgian intends to seek to continue to grow through
the identification, acquisition, repositioning and renovation of additional
hotel properties. In order to pursue this strategy, Lodgian will be required to
obtain additional capital. Capital may be raised by the issuance of additional
equity or the incurrence of indebtedness. In addition, in appropriate
situations, Lodgian may seek financing from other sources or enter into joint
ventures and other collaborative arrangements in connection with the acquisition
of hotel properties. Lodgian may not be successful in obtaining additional
capital in a timely manner, on favorable terms or at all. Insufficient capital
may cause Lodgian to delay, scale back or abandon some or all of its property
acquisition plans or opportunities.
COMPETITION FOR ACQUISITIONS AND IMPACT ON PROFITABILITY. Servico and
Impac currently compete and Lodgian will compete for the acquisition of hotels
with numerous entities, some of which have greater financial resources than
Lodgian, Servico or Impac. The recent economic recovery in the lodging industry
and the resulting increase in funds available for hotel acquisitions has
attracted additional investors to enter the hotel acquisition market, which in
turn has caused the cost of hotel acquisitions to increase and the number of
attractive hotel acquisition opportunities to decrease. To successfully
implement a growth strategy, Lodgian must be able to continue to successfully
acquire hotels on attractive terms and to integrate the acquired hotels into its
existing operations. The failure of Lodgian to consolidate the management and
operations and integrate the systems and procedures of the combined operations
of Servico and Impac and of acquired hotels into Lodgian's operations in a
timely and profitable manner could have a material adverse effect on Lodgian's
business, financial condition and results of operations. There can be no
assurance that Lodgian will be in a position to grown or to achieve operating
results in its newly acquired hotels comparable to Servico's or Impac's
historical performance.
DELAYS IN COMPLETION OR UNANTICIPATED COSTS ASSOCIATED WITH DEVELOPMENT AND
RENOVATION OF PROPERTIES
Both Servico and Impac are, and Lodgian will be, involved in the
renovation and development of hotels as contemplated by their business plans or
as may be required by their franchisors. The development and renovation of
hotels involves all of the risks associated with the construction and renovation
of real property including cost overruns and delays associated with regulatory
compliance, inclement weather and labor and material shortages and cash flow
limitations. Such risks also include delays or the inability to obtain necessary
zoning, the need for and costs associated with the accessibility of utilities
necessary to develop the property or expand operations, the availability of and
costs associated with obtaining the permits, approvals, or licenses necessary to
develop or renovate the property, and the costs of environmental compliance. Any
unanticipated delays or expenses in connection with the development or
renovation of hotels could have a material adverse effect on Lodgian's business,
financial condition and results of operations.
ILLIQUIDITY AND POSSIBLE DECLINES IN VALUE OF REAL ESTATE
Servico and Impac are, and Lodgian will be, subject to varying degrees
of risk generally incident to the ownership of real estate. These risks include
changes in national, regional and local economic conditions, changes in local
real estate market conditions, changes in interest rates and in the
availability, cost and terms of financing, the potential for uninsured casualty
and other losses, the impact of present or future environmental legislation and
adverse
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<PAGE> 33
changes in zoning laws and other regulations. Many of these risks are beyond the
control of the companies. In addition, real estate investments are relatively
illiquid, resulting in a limited ability of such companies to vary their
portfolio of hotels or motels in response to changes in economic and other
conditions. The market value of any one of, or all of, the properties owned by
the companies may decrease in the future. Moreover, there can be no assurance
that Servico, Impac or Lodgian will be able to dispose of an investment when it
finds dispositions advantageous or necessary or that the sales price of any
disposition will exceed the company's investment in the property.
LOSS OF FLEXIBILITY OF OWNERSHIP OF REAL ESTATE WITH OTHERS
Ten of the hotels owned by Servico are owned in partnerships with other
parties. Servico does not have sole control over decisions regarding sale and
refinancing of these hotels as the partnership agreements provide certain
protective provisions or the non-Servico partners which make sale or refinancing
subject to such partners' consent although such consent may not be unreasonably
withheld. Servico's investments in these joint ventures may, under certain
circumstances, involve risks not otherwise present in property ownership,
including (i) Servico's partner in a joint venture may become bankrupt, (ii)
buy/sell rights that exist with respect to certain of such hotels may result in
the disposition of the property, (iii) Servico's partner may have economic or
other business interests or goals that are inconsistent with the business
interests or goals of Servico, and (iv) the partner(s) may be in a position to
veto actions which may be inconsistent with Servico's objectives or policies.
Impac faces similar risks as a party to a joint venture arrangement involving
one of its hotels.
LODGING INDUSTRY RISKS
Risks generally inherent in investments in hotel facilities may cause
operating results for hotels to vary more than for investments in other types of
properties. These factors include the following:
NO ASSURANCE OF PROFITABILITY. Servico and Impac are, and Lodgian will
be, subject to risks generally incident to the lodging industry. Cash flow will
vary based on seasonal fluctuations and individual property performance which in
turn is impacted by changes in both general and local economic conditions.
Further, periodic over-building in the hotel industry or over-building in a
specific market; and competition from existing hotels, motels and recreational
properties has and may in the future make it difficult to maintain hotel
occupancy levels and room rates. Additionally, changes in levels of tourism or
business-related travel and changes in travel patterns will impact hotel
performance. Labor unavailability and disruptions could increase costs and if
significant in scope could make it impossible to operate a property. Travel
disruptions could also result in a loss of a property's customer base. Further,
there is also a recurring need for renovation, refurbishment and improvement of
hotel properties (including furniture, fixtures and equipment) so as to attract
customers and maintain franchises and this results in a continuing need for
funds available for this purpose and disruption of cash flow during renovations.
The operation of hotels also involves required compliance with governmental
regulations which influence or determine wages, interest rates and construction
procedures and the application of health and beverage laws. Hotel operations
could also be negatively impacted by losses due to personal injuries, fire,
earthquake, collapse or structural defects. Many of the factors which could
impact operations are beyond the control of Servico and Impac and will be beyond
the control of Lodgian. In addition, due to the level of fixed costs required to
operate full-service hotels, certain significant expenditures necessary for the
operation of hotels generally cannot be reduced when circumstances cause a
reduction in revenue.
COMPETITION FOR CUSTOMERS. The hotel industry is highly competitive in
nature. While there is no single competitor or small group of competitors that
are dominant in the industry, competition within the industry has recently
resulted in consolidations and other ownership changes among major hotel
companies. Servico's and Impac's hotels generally operate in areas that contain
numerous other competitive lodging facilities, some of which have greater
financial resources than either Servico or Impac or those which Lodgian will
have. Each of the companies competes with and Lodgian will compete with such
companies and facilities on various bases, including room rates and quality,
brand name recognition, location and other services and amenities offered. New
or existing competitors could significantly lower rates or offer greater
conveniences, services or amenities or significantly expand, improve or
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<PAGE> 34
introduce new facilities, thereby adversely affecting Servico and Impac's
operations and Lodgian's future operations.
MAINTENANCE AND REFURBISHMENT EXPENSES. For hotels to remain
competitive, they must be maintained and refurbished on an ongoing basis and
these renovations and refurbishments increase the need for funds for capital
improvements (whether from reserves, current cash flow or financing). Moreover,
operating revenues may decrease as facilities are removed from service from time
to time during such renovations. See "Risk Factors--Development and Renovation
Risks" above.
LIABILITY AND UNAVAILABILITY OR INCREASED COSTS OF INSURANCE. Hotels
have extensive assets, require more employees, rely more on suppliers and serve
more customers than many other types of real estate properties. Hotels are also
subject in certain states to dram shop statutes which may give an injured person
the right to recover damages from any establishment which wrongfully served
alcoholic beverages to the person who, while intoxicated, caused the injury. As
a result, hotels may have greater exposure to liability for, among other things,
theft of property and other casualty and property loss, labor difficulties and
personal injuries. In this respect, many businesses, including those in the
lodging industry, have experienced recent increases in the cost of, and
contraction in the availability of, insurance, resulting in cost escalation and
reductions in amounts of coverage available. The continuation of this trend
could render certain types of desired coverage unavailable with the attendant
possibility that certain claims may exceed coverage.
SEASONAL FLUCTUATIONS IN OPERATING RESULTS. The hotel industry is
seasonal in nature. Generally, hotel revenues are greater in the second and
third quarters than in the first and fourth quarters. This seasonality can be
expected to cause quarterly fluctuations in the revenues of Servico and Impac.
Quarterly earnings also may be adversely affected by events beyond Servico's or
Impac's control, such as extreme weather conditions, economic factors and other
considerations affecting travel. Poor weather conditions will generally result
in decreased revenues at the affected hotel.
INCREASING COSTS AND DECREASED PROFITABILITY ASSOCIATED WITH INFLATION.
Inflationary pressures could have the effect of increasing operating expenses,
including labor and energy costs (and, indirectly, property taxes) above
expected levels at a time when it may not be possible to increase room rates to
offset such higher operating expenses. In addition, inflation could have a
secondary effect upon occupancy rates by increasing the cost or decreasing the
availability of travel by potential guests. Although the inflation rate has been
low recently, there is no assurance that it will not increase in the future.
LIMITATIONS AND REQUIREMENTS OF FRANCHISE AGREEMENTS
Servico's and Impac's hotels are, and Lodgian's hotels will be,
operated pursuant to franchise agreements with major hotel chains. Each of the
franchise agreements contain specific standards for, and restrictions and
limitations on, the operation and maintenance of a hotel. The requirements may
be contrary to the planned expenditures and priorities set by Servico, Impac or
Lodgian. Further, such requirements are often subject to change over time, in
some cases at the discretion of the franchisor, and may restrict the ability of
Servico, Impac or Lodgian to make improvements or modifications to a hotel
without the consent of the franchisor. In addition, compliance with such
requirements could require Servico, Impac or Lodgian to incur significant
expenses or capital expenditures. Additionally, in connection with changing the
franchise affiliation of a hotel in the future, Lodgian may be required to incur
additional expenses or capital expenditures. Franchise agreements are terminable
by the franchisor upon the failure to maintain specified operating standards or
to make payments due under the applicable agreements in a timely fashion or at
the end of its term. If Servico, Impac or Lodgian lose a franchise, this may
have an adverse impact on the operations and underlying value of the affected
hotel because of the loss of name recognition, marketing support and centralized
reservation systems provided by the franchisor. Franchise
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<PAGE> 35
agreements often define transactions such as the Merger as a "change of control"
that require the franchisor's approval and in some cases the payment of certain
fees. It is anticipated that approximately $1 million to $2.5 million could be
payable to franchisors in connection with the Merger under such provisions. A
majority of the hotels owned by Servico and Impac are affiliated with Holiday
Inn and any deterioration in the relationship with or the benefits associated
with being a franchisee of Holiday Inn could have a material adverse effect on
Lodgian's business, financial condition and results of operations.
COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Under federal, state, and local environmental laws, ordinances and
regulations, Servico, Impac or Lodgian as a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. The law often
imposes liability whether or not Servico, Impac or Lodgian knew of, or was
responsible for, the presence of such hazardous or toxic substances. The costs
of any remediation or removal of hazardous or toxic substances discovered by
Servico, Impac or Lodgian may be substantial, and the presence of any such
substance, or the failure promptly to remediate any such substance, may
adversely affect the ability of Servico, Impac or Lodgian to sell or lease the
property, to use the property for its intended purpose, or to borrow using the
property as collateral. Other federal, state and local laws, ordinances and
regulations require abatement or removal of certain asbestos-containing
materials in connection with demolition or certain renovations or remodeling,
impose certain worker protection and notification requirements, and govern
emissions of and exposure to asbestos fibers in the air. Additionally, federal,
state and local laws, ordinances and regulations and the common law impose on
Servico and Impac and will impose on Lodgian requirements regarding conditions
and activities that may affect human health or the environment, such as the
presence of lead in drinking water or lead-containing paint in occupied
structures, and the ownership or operation of underground storage tanks. Failure
to comply with requirements could, in addition to making it difficult for
Servico, Impac or Lodgian to lease, sell or finance any affected property,
result in the imposition of monetary penalties, expenditures necessary to bring
the property into compliance and potential liability to third parties. Hotels
acquired by Servico and Impac have in the past contained asbestos which was
handled as required by applicable regulations and additional hotels may be
acquired in the future which contain asbestos requiring removal or remediation.
While there are currently no material environmental issues known to Servico or
Impac, any liability resulting from non-compliance or other claims relating to
environmental matters in the future could have a material adverse effect on
Lodgian's business, financial condition and results of operations.
NO INTENTION TO PAY DIVIDENDS
Servico has not paid any dividends since its reorganization in 1992 and
has no current plans to initiate the payment of dividends. Impac has
historically paid dividends to its unitholders each year and its Operating
Agreement provides for quarterly distributions based on cash flow and
distributions upon the sale of properties. It is currently anticipated that
Lodgian will retain future earnings for business use and does not expect to
declare or pay any dividends in the foreseeable future. The Board of Directors
of Lodgian will determine future dividend policies based on Lodgian's financial
condition, profitability, cash flow and capital requirements, among other
factors, and subject to any applicable restrictions on the payment of dividends.
COST OF COMPLIANCE WITH GOVERNMENTAL REGULATIONS
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. Each of Servico
and Impac
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<PAGE> 36
believes that it is substantially in compliance with these requirements.
Managers of hotels are also subject to laws governing their relationships with
hotel employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. Compliance with, or changes in, these
laws could reduce the revenue and profitability of the hotels and could
otherwise adversely affect Lodgian's business, financial condition and results
of operations.
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations are required to meet certain requirements related to access and
use by disabled persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA-required
upgrades to Servico's and Impac's hotels, a determination that Servico, Impac or
Lodgian is not in compliance with the ADA could result in a judicial order
requiring compliance, imposition of fines or an award of damages to private
litigants which could increase expenses and reduce earnings.
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
Lodgian will place substantial reliance on the hotel industry knowledge
and experience and the continued services of its senior management, led by Mr.
David Buddemeyer, Servico's Chairman, President and Chief Executive Officer and
Mr. Robert Cole, the Manager and President of Impac. Lodgian's future success
and its ability to manage future growth depends in large part upon the efforts
of these persons and on its ability to attract and retain other highly qualified
personnel. Competition for such personnel is intense, and there can be no
assurance that Lodgian will be successful in attracting and retaining such
personnel. The loss of the services of Mr. Buddemeyer or Mr. Cole or the
inability to attract and retain other highly qualified personnel may adversely
affect Lodgian's business, financial condition and the results of operations.
ANTI-TAKEOVER PROVISIONS
Lodgian's Certificate and Bylaws, which have been filed hereto as
Appendices G and H, respectively, contain provisions that could prevent or delay
an acquisition of Lodgian by means of a tender offer, a proxy contest or
otherwise and may adversely affect prevailing market prices for Lodgian common
stock. These provisions, among other things, provide: (i) for a classified board
of directors with each class of directors consisting of one-third of the total
number of directors of Lodgian and serving for a term of one to three years;
(ii) that the Lodgian Board may designate the terms of any new series of
preferred stock of Lodgian; (iii) that any shareholder who wishes to propose any
business or to nominate a person or persons for election as a director at any
annual meeting may only do so if advance notice is given to the Secretary of
Lodgian; (iv) that no shareholder action may be effected by written consent; (v)
that a director may be removed only for due cause and upon majority shareholder
vote; and (vi) that only a majority of the directors or the Chief Executive
Officer may call special meetings of the shareholders. In addition, Lodgian is
also subject to Section 203 of the Delaware General Corporation Law ("DGCL"),
which generally limits transactions between a publicly held company and
"interested shareholders" (generally, those shareholders who, together with
their affiliates and associates, own 15% or more of Lodgian's outstanding voting
stock) and which generally prohibits such "interested shareholders" from
engaging in certain business combinations involving Lodgian during the
three-year period after the date the person became an interested shareholder
unless the transaction or business combination is generally approved by the
board of directors or a majority of the shares entitled to vote, excluding
interested shares. See "Description of Lodgian Capital Stock" and "Comparison of
Certain Rights of the Holders of Servico Common Stock and Impac Units."
Additionally, the terms of Servico's recently issued convertible trust
securities provide for certain adjustments to the conversion price in the event
of a sale of Servico (or after completion of the Merger, a sale of Lodgian)
which could deter a possible acquisition of the company or increase the costs of
such acquisition. Such provisions may also adversely affect prevailing market
prices for Servico (or Lodgian) common stock.
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<PAGE> 37
SERVICO ANNUAL MEETING
DATE, TIME AND PLACE AND PURPOSE
The Annual Meeting of Shareholders of Servico will be held at [time],
on [day], [month and date], 1998, at the [place], [address].
At the Servico Annual Meeting, the holders of Servico common stock, par
value $.01 per share (the "Servico Common Stock"), will consider and vote upon
(1) the approval of the Merger, (2) the approval of each of the Lodgian Plans,
(3) an amendment of the Servico Stock Option Plan (the "Servico Plan") to
increase the number of shares issuable thereunder, and (4) the election of one
director to serve until 2001 or the date on which the Merger is completed. The
Lodgian Plans will replace the Servico Plan in the event the Merger is approved
and in such case, no further options will be granted under the Servico Plan.
RECORD DATE FOR ELIGIBILITY TO VOTE
The Servico Board has fixed the close of business on __________, 1998,
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Servico Annual Meeting. At the Servico
Record Date, there were [21,038,995] shares of Servico Common Stock outstanding
which were held by approximately 3,000 holders of record.
VOTING OF PROXIES
Shares of Servico Common Stock represented by properly executed proxies
received by Servico prior to the vote at the Servico Annual Meeting will be
voted at the Servico Annual Meeting in the manner directed on the proxy card,
unless such proxy is revoked in advance of such vote. All shares represented by
a properly executed proxy on which no choice is specified will be voted by the
persons named on the proxy, to the extent applicable, (i) FOR approval of the
Merger, (ii) FOR approval of each of the Lodgian Plans, (iii) FOR the amendment
to the Servico Plan, (iv) FOR the election of the nominee as director, and (v)
at the discretion of the proxy holder, as to any other matter which may properly
come before the Servico Annual Meeting or any adjournments or postponements
thereof. Such adjournments may be for the purpose of soliciting additional
proxies for a shareholder vote on any proposal. Shares represented by proxies
voting for the approval of the Merger will be voted for any proposal to adjourn
the Servico Annual Meeting for the purpose of soliciting additional proxies for
a shareholder vote on such proposal. Shares represented by proxies voting
against the approval of the Merger will be voted against a proposal to adjourn
the Servico Annual Meeting for the purpose of soliciting additional proxies.
Servico currently does not intend to seek an adjournment of its Annual Meeting.
Servico knows of no reason why Michael A. Leven, the nominee for
election as a director, would be unable to serve. Nevertheless, should the
nominee become unable to serve, all proxies, except where a contrary instruction
has been given, will be voted in accordance with the best judgment of the
persons named as proxies.
Under the New York Stock Exchange (the "NYSE") rules, brokers who hold
shares in "street name" for customers are precluded from exercising voting
discretion with respect to the approval of non-routine matters such as the
proposal to approve the Merger, the approval of each of the Lodgian Plans and
the amendment to the Servico Plan. Accordingly, absent specific instructions
from the beneficial owner of such shares, brokers are not empowered to vote such
shares with respect to the approval of such proposals. Since the affirmative
vote of a majority of the aggregate voting power of Servico is required for
approval of the Merger, a "broker non-vote" with respect to the Merger will have
the effect of a vote against the Merger. "Broker non-votes" will have no effect
on the proposals to approve each of the Lodgian Plans, amend the Servico Plan or
the election of a Servico director.
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<PAGE> 38
REVOCABILITY OF PROXIES
A proxy may be revoked by the record owner by delivering written notice
to the Secretary of Servico prior to the vote at the Servico Annual Meeting, or
by filing a duly executed proxy bearing a later date with the Secretary of
Servico prior to the vote at the Servico Annual Meeting. Attendance at the
Servico Annual Meeting will not in itself operate to revoke a proxy. A holder of
Servico Common Stock who attends the Servico Annual Meeting may, if he wishes,
vote by ballot and such vote will cancel any proxy previously given.
VOTES REQUIRED; SHARES HELD BY CERTAIN PERSONS
Holders of record of Servico Common Stock on the Servico Record Date
are entitled to one vote for each share held by them on any matter that may
properly come before the Servico Annual Meeting. The presence, either in person
or by proxy, at the Servico Annual Meeting of holders of a majority of the
issued and outstanding shares of Servico Common Stock on the Servico Record Date
is necessary to constitute a quorum for the transaction of business at the
Servico Annual Meeting.
The affirmative vote of the holders of a majority of the outstanding
Servico Common Stock as of the Servico Record Date is required for the approval
of the Merger. Abstentions may be specified with respect to the approval of the
Merger by properly marking the "ABSTAIN" box on the proxy for such proposal, and
will be counted as present for the purpose of determining the existence of a
quorum but will have the effect of a negative vote, due to the requirement for
the affirmative vote of the holders of a majority of the outstanding Servico
Common Stock to approve the Merger. In addition, the failure of a Servico
shareholder to return a proxy will have the effect of a vote against the Merger.
Approval of each of the Lodgian Plans and amendment of the Servico Plan
each requires the affirmative vote of a majority of the shares present in person
or by proxy at the Servico Annual Meeting and entitled to vote thereon. An
abstention from voting on any of such proposals, by properly marking the
"ABSTAIN" box on the proxy for such proposal, will have the same effect as a
vote cast against such proposal.
In the election of the nominee as a director for a three-year term in
the event the Merger is not consummated, the director will be elected by a
plurality of the shares of Servico Common Stock voting in person or by proxy at
the Servico Annual Meeting. The nominee for director receiving the highest
number of votes will be elected to Servico's Board. An abstention from voting
for the nominee by properly marking the "WITHHOLD" box on the proxy will be
tabulated as a vote withheld in the election of directors and will have no
influence on the voting results.
As of the Servico Record Date, directors and executive officers of
Servico beneficially owned (excluding currently exercisable options) an
aggregate of approximately 770,000 shares of Servico Common Stock, representing
approximately 3.6% of the issued and outstanding shares of Servico Common Stock.
The directors and executive officers of Servico have indicated their intention
to vote their shares of Servico Common Stock in favor of the approval of the
Merger, for the approval of each of the Lodgian Plans, for the amendment of the
Servico Plan and for the election of the nominee to Servico's Board.
SOLICITATION OF PROXIES
Servico will bear the costs of the solicitation of proxies from its
shareholders. In addition to soliciting proxies by mail, directors, officers and
selected other employees of Servico may solicit proxies in person, by telephone,
by telegram or by similar means of communication. Directors, officers and any
other employees of Servico who solicit proxies will not be specially compensated
for such services, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Arrangements have also been made with brokerage firms and
other custodians, nominees and fiduciaries to forward solicitation materials to
the beneficial owners of shares of Servico Common Stock held of record by such
persons. Servico will reimburse the persons with whom these arrangements have
been made for reasonable out-of-pocket expenses incurred by them in connection
with this solicitation in accordance with
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<PAGE> 39
applicable rules. Servico has retained Georgeson & Company Inc. to aid in the
solicitation of proxies and to verify certain records relating to the
solicitation at a fee of $____________ plus expenses.
MATTERS TO BE VOTED UPON AT THE SERVICO ANNUAL MEETING
APPROVAL OF THE MERGER
The Servico Board has determined that the terms of the Merger Agreement
and the transactions contemplated thereby are fair to, and in the best interests
of, Servico and its shareholders. The Servico Board believes that the Merger,
which will create one of the largest independent, multi-brand owners and
operators of full service hotels in the United States, will result in a combined
enterprise with the financial strength, franchise base and the expertise
necessary to excel in the hotel industry. Accordingly, the Servico Board has
unanimously approved the Merger Agreement and the Merger.
THE SERVICO BOARD RECOMMENDS A VOTE FOR THE PROPOSAL
TO APPROVE THE MERGER.
APPROVAL OF EACH OF THE LODGIAN PLANS
In addition to approving the Merger, because Lodgian is a new company,
the shareholders of Servico and unitholders of Impac are being asked to approve
three incentive compensation plans for Lodgian. Servico currently has in effect
the Servico Plan. The Lodgian Plans will replace the Servico Plan in the event
the Merger is approved and, in such case, no further options will be granted
under the Servico Plan. The Lodgian Plans are intended to provide Lodgian's
directors and employees with incentives which align the interests of the Lodgian
directors and employees going forward with the interests of Lodgian
shareholders.
THE SERVICO BOARD RECOMMENDS A VOTE FOR THE PROPOSALS
TO APPROVE EACH OF THE LODGIAN PLANS.
AMENDMENT OF SERVICO STOCK OPTION PLAN
The proposed amendment would increase the number of shares of Servico
Common Stock available for issuance under the Plan from 1,675,000 shares to
3,250,000. The Servico Plan was established by Servico in 1992 to provide
Servico with an effective means to attract, retain, and motivate employees of
Servico. Currently, 1,675,000 shares of Servico Common Stock are issuable under
the Servico Plan and no shares remain available for grant under the Plan. In
August, 1997, Servico granted stock options with respect to 590,000 shares, to
certain of its officers and employees (including options granted to acquire
240,000 shares to David Buddemeyer, 70,000 shares to Peter Walz and 50,000
shares each to Karen Marasco, Warren Knight and Don Shouldice) which, because
the Servico Plan did not then have sufficient shares available for issuance,
were granted subject to approval by Servico's shareholders of an amendment to
the Servico Plan. Approval of this proposal will enable Servico to issue the
options previously awarded to employees under the Plan. The Servico Board
believes that awards made under the Servico Plan have enabled Servico to better
compete for qualified personnel, to retain such personnel in the employ of
Servico and to motivate such personnel and align their long-term interests with
those of Servico's shareholders. In the event the Merger is approved, the
Lodgian Plans are expected to replace the Servico Plan and, in such case, no
further options will be granted under the Servico Plan. Any options outstanding
under the Servico Plan will convert into options to acquire shares of Lodgian
Common Stock after the Merger.
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<PAGE> 40
THE SERVICO BOARD RECOMMENDS A VOTE FOR THE PROPOSAL
TO AMEND THE SERVICO STOCK OPTION PLAN.
ELECTION OF DIRECTORS
Servico's Bylaws provide that the number of directors of the Company
shall not be less than one nor more than eleven and shall be determined from
time to time by resolution of the Servico Board or by shareholders at an annual
meeting. The number of directors is currently set at five, divided into three
classes. The holders of Servico Common Stock elected all current directors,
other than Mr. Michael A. Leven, who was elected by the Servico Board at its
August 1997 meeting and is standing for election at the Servico Annual Meeting.
The Servico Bylaws also provide that directors elected by the holders of Servico
Common Stock shall be elected for three-year terms and that one class of such
directors shall be elected at each annual meeting of shareholders. At the
Servico Annual Meeting, Mr. Leven, as the sole member of the class of directors
whose term expires at that time, shall be elected for a term expiring at the
Annual Meeting of Servico shareholders held in 2001. In the event the Merger is
completed as expected, Mr. Leven's term as a director of Servico will end and
Mr. Leven will become a director of Lodgian.
THE SERVICO BOARD RECOMMENDS A VOTE FOR THE ELECTION
OF MR. LEVEN TO SERVICO'S BOARD.
SOLICITATION OF IMPAC UNITHOLDER CONSENTS
PURPOSE
In accordance with Section 5.5(b)(i) of Impac's Second Amended and
Restated Operating Agreement (the "Operating Agreement"), the Manager of Impac
is soliciting the consent of the holders of Impac Units to: (i) the Merger and
all other transactions contemplated by the Merger Agreement; and (ii) the
adoption of each of the Lodgian Plans.
UNITHOLDERS ENTITLED TO VOTE
All holders of Impac Units as of the date of this Joint Proxy
Statement/Prospectus will have the opportunity to consent to the matters
presented to the Impac unitholders herein.
SUBMISSION OF WRITTEN CONSENT
To consent to any of the matters described above, holders of Impac
Units must deliver their signed written consent forms to the Secretary of Impac
prior to the consummation of the Merger. All Units represented by a properly
executed written consent form will be voted as specified on such form.
REVOCABILITY OF CONSENT
Holders of Impac Units may revoke their consent to any of the matters
presented for their approval by submitting to the Secretary of Impac, prior to
consummation of the Merger, a written notification of intent to revoke their
consent.
CONSENT REQUIRED; VOTING AGREEMENTS
Holders of Impac Units as of the date of this Joint Proxy
Statement/Prospectus are entitled to one vote for each Unit held by them on the
matters presented for their approval. The consent of the holders of a majority
of the outstanding Impac Units is required for approval of the Merger and each
of the Lodgian Plans.
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<PAGE> 41
Pursuant to Voting Agreements between Servico and Robert Cole, the
President and Manager of Impac, and entities that Mr. Cole or his family control
(the "Cole Entities"), and other Impac unitholders who, together with the Cole
Entities, own approximately 55.9% of the outstanding Impac Units (the "Impac
Voting Agreements"), the parties thereto have agreed (i) subject to certain
exceptions, not to sell or transfer Impac Units held by them during the term of
the Merger Agreement and (ii) to vote such Impac Units in favor of the Merger
and against any competing transaction during the term of the Merger Agreement
and for a one-year period after termination of the Merger Agreement under
certain circumstances. Certain Impac unitholders executing the Impac Voting
Agreements have the limited right to transfer Impac Units to their partners or
equity holders during the term of the Impac Voting Agreements so long as such
transferees agree to be bound by the terms of the Impac Voting Agreements.
The vote of the Cole Entities and the other Impac unitholders bound by
the Impac Voting Agreements in favor of the Merger is sufficient to approve the
Merger without any action on the part of any other holder of Impac Units.
SOLICITATION OF CONSENTS
Impac will bear the costs of the solicitation of consents from its
unitholders. In addition to soliciting consents by mail, managers, officers and
selected other employees of Impac may solicit consents in person, by telephone,
by telegram or by similar means of communication. Manager, officers and any
other employees of Impac who solicit consents will not be specially compensated
for such services, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith.
THE MERGER
GENERAL
The Merger contemplates a transaction pursuant to which the businesses
of Servico and Impac will be combined under the ownership of Lodgian. At the
Effective Time (as defined below), Lodgian will acquire all of the issued and
outstanding Servico Common Stock and Impac Units and all the issued and
outstanding capital stock of each Impac Affiliated Company (the "Impac
Affiliated Company Common Stock") through the merger of Servico Merger Sub,
Lodgian's wholly-owned subsidiary, with and into Servico (the "Servico Merger"),
the merger of Impac Merger Sub, Lodgian's wholly-owned subsidiary, with and into
Impac (the "Impac Merger") and the merger of each newly-formed acquisition
subsidiary of Lodgian (each an "Impac Affiliated Sub"), with and into the
respective Impac Affiliated Company (collectively, the "Impac Affiliated
Merger"). Therefore, as a result of the Merger, Servico, Impac and the Impac
Affiliated Companies will all be owned by Lodgian. The Effective Time means the
later of the time that the Articles or Certificate of Merger relating to the
Servico Merger, the Impac Merger or the Impac Affiliated Mergers are filed with
the Secretary of State of the applicable state of incorporation or organization
for each of the merging entities.
The discussion in this Joint Proxy Statement/Prospectus of the Merger
and the description of the principal terms of the Merger are subject to and
qualified in their entirety by reference to the Merger Agreement, a copy of
which is attached to this Joint Proxy Statement/Prospectus as Appendix A, and
which is incorporated herein by reference.
THE MERGER
INITIAL ISSUANCE OF SHARES. At the Effective Time, Lodgian will acquire
all of the issued and outstanding shares of Servico Common Stock, Impac Units
and Impac Affiliated Company Common Stock. Pursuant to the Merger, each share of
Servico Common Stock issued and outstanding immediately prior to the Effective
Time will be converted into the right to receive one share of common stock of
Lodgian, par value $.01 per share (the "Lodgian Common Stock"), and each Impac
Unit and each share of Impac Affiliated Company Common Stock
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<PAGE> 42
issued and outstanding immediately prior to the Effective Time will be converted
into the right to receive a certain number of shares of Lodgian Common Stock
equal to a formula based on the average price of Servico Common Stock during a
specified ten-day period prior to the Merger. Throughout this discussion and
throughout this Joint Proxy Statement/Prospectus, reference to Impac unitholders
will be deemed to exclude the Impac Affiliated Companies whose shareholders will
directly receive Lodgian shares based on the number of Impac Units held by each
of the Impac Affiliated Companies. If the average price of the Servico Common
Stock is at least $14.00 per share and not more than $25.00 per share, then the
Impac unitholders and Impac Affiliated Company shareholders will receive a total
of 6.0 million shares of Lodgian Common Stock. Based on the number of Impac
Units outstanding immediately prior to the Merger, approximately 0.519 of a
share of Lodgian Common Stock will be issued for each Impac Unit owned. If the
average price of the Servico Common Stock is less than $14.00 per share, the
Impac unitholders and Impac Affiliated Company shareholders will receive a total
number of shares of Lodgian Common Stock determined by dividing $103.6 million
by the average Servico Common Stock price during the specified ten-day period
and then subtracting 1.4 million. If the average price of Servico Common Stock
is more than $25.00 per share, the Impac unitholders will receive a total number
of shares of Lodgian Common Stock determined by dividing $185 million by the
average Servico Common Stock price during the specified ten-day period and then
subtracting 1.4 million.
SHARES ALLOCABLE TO IMPAC UNITHOLDERS. The number of shares of Lodgian
Common Stock each Impac unitholder will receive for each of his Impac Units can
be determined by dividing the total number of shares to be delivered based on
the Impac Units outstanding prior to the Merger by 11,559,527.20 (which is the
total number of outstanding Impac Units).
SHARES ALLOCABLE TO IMPAC AFFILIATED COMPANIES. For federal income tax
planning purposes, the Impac Affiliated Companies will each merge directly into
the Impac Affiliated Subs and, accordingly, each share of Impac Affiliated
Company Common Stock will, pursuant to the Merger, be converted into the right
to receive a number of shares of Lodgian Common Stock based upon the number of
Impac Units owned by the respective Impac Affiliated Companies. The number of
Impac Units owned by each of the Impac Affiliated Companies is set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES OF
LODGIAN COMMON
PERCENTAGE OF STOCK INITIALLY
NUMBER OF IMPAC OUTSTANDING IMPAC RECEIVED IN THE
IMPAC AFFILIATED COMPANY UNITS OWNED UNITS MERGER(1)
------------------------ --------------- ----------------- -------------------
<S> <C> <C> <C>
P-Burg Lodging Associates, Inc. 211,789.68 1.83% 109,929
Hazard Lodging Associates, Inc. 111,469.33 0.96% 57,858
Memphis Lodging Associates, Inc. 153,683.58 1.33% 79,769
Delk Lodging Associates, Inc. 73,414.96 0.64% 38,106
Impac Hotel Development, Inc. 1,281,957.39 11.09% 665,403
Impac Design and Construction, Inc. 74,786.85 0.65% 38,818
Impac Hotel Company, Inc. 124,644.77 1.08% 64,697
------------ ----- ---------
Total 2,031,746.56 17.58% 1,054,580
</TABLE>
- --------------------------
(1) Based upon an Impac Exchange Ratio of 0.519. The Impac Exchange Ratio
will be adjusted in the event the price of Servico Common Stock is less
than $14.00 per share or greater than $25.00 per share during the
specified 10-day period prior to the Merger. Does not include Impac
Additional Shares (as defined) and does not provide for the issuance of
cash in lieu of fractional shares.
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<PAGE> 43
ISSUANCE OF IMPAC ADDITIONAL SHARES. As five of Impac's hotels that are
currently under development are opened, holders of Impac Units and Impac
Affiliated Company Common Stock will receive up to an aggregate of 1.4 million
additional shares of Lodgian Common Stock (the "Impac Additional Shares"). The
following incremental portions of the Impac Additional Shares (which will not be
subject to change) will be issued following the opening of each of the following
development hotels:
<TABLE>
<CAPTION>
Dollar Value
Anticipated Additional Shares Attributable to
Hotel Completion Date per Impac Unit* Additional Shares**
----- --------------- ----------------- -------------------
<S> <C> <C> <C>
Marriott, Portland, Oregon First Quarter, 1999 490,000(.042) $ 8,820,000
Marriot, Denver, Colorado Fourth Quarter, 1998 350,000(.030) $ 6,300,000
Hilton Garden Inn, Lake Oswego, Fourth Quarter, 1999 238,000(.021) $ 4,284,000
Oregon
Courtyard by Marriott, Livermore, First Quarter, 1999 168,000(.95) $ 3,024,000
California
Hilton Garden Inn, Rio Ranch, First Quarter, 1999 154,000(.015) $ 2,772,000
New Mexico
TOTAL: 1,400,000(.121) $25,200,000
</TABLE>
- ----------------
* Assumes 11,559,527.20 Impac Units outstanding at the time of the Merger.
The holders of Impac Affiliated Company Common Stock will receive a number
of Impac Additional Shares based upon the number of Impac Units owned by
the respective Impac Affiliated Companies.
** Based upon the price of Servico's Common Stock on _________, 1998. The
number of Impac Additional Shares will not be adjusted in the event of any
increase or decrease in the price of Servico Common Stock. The price of
Servico Common Stock at the Effective Time (and thus the Dollar Value
Attributable to Impac Additional Shares shown in the above table) may be
higher or lower than its price at the date of this Joint Proxy
Statement/Prospectus.
Each of the hotels is currently under construction and is expected to open in
1999. The number of Impac Additional Shares attributable to each property will
be placed in escrow with the Exchange Agent when the Merger is consummated and
subsequently distributed pro rata to persons and entities that were holders of
Impac Units or Impac Affiliated Company Common Stock at the time of the Merger
based upon the number of Impac Units or shares of Impac Affiliated Company
Common Stock they held immediately prior to consummation of the Merger,
regardless of whether they continue to hold the Lodgian shares issued to them in
connection with the Merger and regardless of whether they received cash in lieu
of fractional shares in connection with the Merger. No additional action needs
to be taken by former Impac Members or former Impac Affiliated Company
shareholders to receive their pro rata share of the Impac Additional Shares
unless there is a change of address, in which case the Escrow Agent should be
advised of any such change. However, at the time the Impac Additional Shares are
issued, cash will again be paid in lieu of fractional shares.
BACKGROUND OF THE MERGER
Since its inception, Impac has raised an aggregate of $125 million in
capital which includes the appraised value of the assets acquired from Impac's
predecessor entities. Substantially all of this capital is invested in hotel
properties in accordance with Impac's investment objectives which are described
in "Business of Impac-Investment Strategy" with the balance used to fund
short-term working capital requirements.
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<PAGE> 44
No representative of Impac had any significant discussions or
negotiations with any party regarding a potential change of control of Impac
until May 1997 when the first contact between representatives of Impac and
Servico occurred. At that time the parties met for the purpose of discussing the
retention of Impac in connection with the renovation of certain Servico hotel
properties. Thereafter, in June 1997, Mark Elliott of Hodges, Ward & Elliott, a
consulting firm who had previously had independent dealings with both Impac and
Servico as a hotel broker, spoke with Peter Walz, Vice President of Servico,
regarding Servico's interest in discussing a potential business combination with
representatives of Impac and called Robert Cole, the Manager of Impac, to
inquire whether Mr. Cole would be interested in meeting with representatives of
Servico to discuss a possible combination. Following Mr. Elliot's introduction,
David Buddemeyer and Peter Walz of Servico met with Mr. Cole in July 1997 to
discuss each company's strategy, portfolio and acquisition/development
activities.
In August 1997, Mr. Cole initiated the Merger discussions with Servico
on behalf of Impac by indicating that he would be interested in pursuing further
discussions with Servico and thereafter Messrs. Buddemeyer, Walz and Cole met to
discuss the possible business combination and specific valuation issues relating
to Impac.
In September 1997, Mr. Cole asked Allen & Company Incorporated ("Allen
& Company") to assist Impac in its review of a potential business combination
with Servico. On September 23, 1997, representatives of Impac and Servico, their
financial advisors (Allen & Company and Lehman Brothers, Inc. ("Lehman
Brothers"), respectively) and their counsel met to discuss the issues raised by
such a business combination and the potential advantages and synergies that
could be realized by such a combination. The parties discussed various business
points, the appropriate corporate structure for the combined entity, tax and
accounting issues including the impact of accounting for the transaction as a
purchase or pooling of interests, the terms of Impac's indebtedness, potential
refinancing options and the composition of the Board of Directors of the
combined entity.
In October, 1997, representatives of Impac and Servico and their
respective financial advisors, attorneys and independent accountants met to
discuss alternative accounting and transaction structures, refinancing
alternatives, financial results, the structure of the combined entity, the
process and schedule for the completion of Impac's audit and a possible
timetable for pursuing the transaction. Thereafter, drafts of a proposed form of
Merger Agreement were circulated and negotiation of the terms of the Agreement
commenced.
In December, 1997, representatives of Impac and Servico and their
respective financial advisors, attorneys and independent accountants met to
discuss the terms of a proposed credit facility for the combined entity and the
status of Impac's audit. The parties also discussed outstanding issues relating
to the proposed Merger Agreement, including the scope of Impac's representations
and warranties and the operation of Servico's and Impac's business during the
period after the execution of an agreement and before closing.
In January and February, 1998, the parties continued to negotiate the
terms of the transaction including, in particular, issues relating to
valuations, the accretiveness of the transaction and the stock price collar,
issues relating to the appropriate accounting treatment of the transaction, the
impact on the transaction of the inclusion of the development properties, the
responsibility for costs and break up fees in the event the transaction is not
consummated, and the positions and terms of employment of Messrs. Buddemeyer and
Cole. On January 28, 1998, Impac delivered to Servico audited financial
statements for the period ended September 30, 1997 and the parties continued to
negotiate the timing and number of Lodgian shares to be issued to Impac
unitholders in connection with the transaction.
In February 1998, Impac retained Bear Stearns & Company, Inc. as a
co-advisor to assist in the execution of the business strategy following the
signing of the Merger Agreement.
In March 1998, representatives of Impac and Servico and their
respective attorneys and financial advisors continued to negotiate the terms of
the definitive Merger Agreement. While Servico's Board of Directors reviewed the
proposed terms of the transaction and the status of negotiations at each of the
seven Board meetings commencing with their meeting in September, 1997, on March
11, 1998, Servico's directors, after reviewing the material terms of the
transaction and the proposed form of Merger Agreement and after a full
discussion of the potential benefits as
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well as risks associated with the transaction, approved the transaction and
authorized David Buddemeyer to execute the Merger Agreement on behalf of
Servico. Impac's Manager approved the Merger Agreement on March 20, 1998. The
parties executed the Merger Agreement on March 20, 1998 and issued a press
release announcing the transaction on March 23, 1998.
In July 1998, Servico and Impac amended and restated the Merger
Agreement to, among other things, extend the termination date from July 31, 1998
to December 31, 1998, and to permit the direct merger of the Impac Affiliated
Companies into newly-formed subsidiaries of Lodgian so that the shareholders of
the Impac Affiliated Companies could receive shares of Lodgian directly in a tax
free reorganization.
REASONS FOR THE MERGER; NEGATIVE CONSIDERATIONS AND POTENTIAL DISADVANTAGES OF
THE MERGER; RECOMMENDATION OF SERVICO'S BOARD AND IMPAC'S MANAGER
SERVICO. THE SERVICO BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, SERVICO AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF SERVICO VOTE FOR APPROVAL OF THE
MERGER.
REASONS FOR THE MERGER. The Servico Board believes that the Merger
offers the unique opportunity to combine two successful and financially sound
companies to form Lodgian. The Servico Board considered the significant benefits
associated with combining Servico's business and Impac's business in light of
the Servico Board's belief that the Merger represents an excellent fit of the
two companies' respective strategic advantages in operating and owning hotels,
including opportunities for efficiencies and earnings growth. The Merger adds a
number of upscale properties to Servico's portfolio, including the Marriott at
the Denver Airport, the Marriott Downtown Portland and the four star and four
diamond Mayfair Hotel in the Coconut Grove section of Miami. Servico should also
benefit from the improved geographic diversity with the addition of hotels in 11
new states, including entry into major markets such as Atlanta, Boston, Denver,
Los Angeles, Miami, Portland and San Francisco. Servico's existing hotels will
also potentially benefit from the resources offered by Impac's "Revenue Center",
which centralizes certain of Impac's reservations, sales and marketing functions
at one location in Louisiana, and Impac's management information systems, which
track guest satisfaction daily. Further, Impac's development and construction
expertise will potentially give the combined company a significant competitive
advantage in connection with the renovation of properties and in pursuing the
strategic development of upscale, premium branded properties. The Servico Board
believes that Impac's development properties, together with both companies'
substantial recent growth, represent a built-in pipeline of substantial internal
growth through 1999.
In arriving at its determination, the Servico Board considered a number
of factors, including the material factors described below:
(i) The current state of the hospitality industry and economic and
market conditions, including in particular the intensification of competition
within the hotel industry and the recent consolidation trend within the
industry;
(ii) The Merger will add scale and geographic diversification to
Servico's existing business;
(iii) The Merger will create one of the largest independent,
multi-brand owners and operators of full service hotels in the United States,
helping Servico to achieve its objective of strategic growth;
(iv) The Merger will enable Servico to add individuals to its
management from Impac's management who can help grow the combined businesses;
(v) The Merger should permit operational efficiencies by (a) providing
renovation and development expertise, (b) creating greater purchasing power, (c)
eliminating duplicate administrative and accounting functions,
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(d) integrating information systems and related personnel, and (e) utilizing
Impac's Revenue Center, which will centralize the companies' reservations and
sales and marketing functions at one location and track guest satisfaction;
(vi) That based upon the advice of its tax counsel, the Merger will be
a tax-free transaction from the perspective of Servico's shareholders;
(vii) The opinion of Lehman Brothers to the effect that, as of the date
of such opinion and based upon, and subject to, certain matters stated therein,
the consideration to be paid in the Merger was fair, from a financial point of
view, to Servico;
(viii) The financial and other information concerning Impac that was
provided to Servico and Impac's representatives as part of Servico's due
diligence investigation, including, among other things, information regarding
Impac's business, properties, operations, financial condition and future
prospects; and
(ix) The terms of the Merger Agreement.
NEGATIVE CONSIDERATIONS AND POTENTIAL DISADVANTAGES OF THE MERGER. The
Servico Board evaluated the advantages, opportunities and general considerations
in light of certain risks or other considerations associated with the Merger,
including, without limitation, the following:
(i) The challenges and costs inherent in combining two businesses of
the size of Servico and Impac and the resulting diversion of management's
attention for an extended period of time;
(ii) The risk that the benefits sought in the Merger would not be
obtained;
(iii) The effect of the public announcement of the Merger and the
proposed relocation of Servico's corporate headquarters from West Palm Beach,
Florida, to Atlanta, Georgia, on relationships with franchisors, operating
results and Servico's ability to retain employees, and the possible negative
effect of the announcement on the trading price of Servico Common Stock;
(iv) The possibility that certain provisions of the Merger Agreement
might have the effect of discouraging other business combinations or strategic
alternatives with other companies;
(v) The terms and amount of Impac's outstanding indebtedness and when
combined with Servico's outstanding indebtedness, the effect on the combined
company of high levels of indebtedness, including the ability to generate
sufficient cash flow from operations to service the debt, the ability to obtain
additional financing or refinancing in the future and the increased
vulnerability to adverse changes in general economic conditions; and
(vi) The risks inherent in the construction and completion of Impac's
hotels currently under development, including the possibility of construction
cost overruns and delays and the resulting impact on the combined company's
results of operations and financial condition.
CONCLUSION. In view of the wide variety of factors considered by the
Servico Board in connection with the evaluation of the Merger and the complexity
of such matters, the Servico Board did not consider it practicable to, nor did
it attempt to, quantify, rank or otherwise assign relative weight to the
specific factors it considered in reaching its decision. The Servico Board
relied on the experience and expertise of its financial advisors for
quantitative analysis of the financial terms of the Merger. See "The
Merger--Opinion of Lehman Brothers." In addition, the Servico Board did not
undertake to make any specific determination as to whether any particular factor
(or any aspect of any particular factor) was determinative in its ultimate
decision, but rather conducted a discussion of the factors described above,
including asking questions of Servico's management and legal, financial and
accounting advisors, and reached a general consensus that the Merger was
advisable and in the best interests of Servico and the Servico shareholders.
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In considering the factors described above, individual members of the Servico
Board may have given different weight to different factors.
The foregoing discussion of the information and factors considered and
given weight by Servico's Board is not intended to be exhaustive but includes
the material factors considered.
IMPAC. THE MANAGER OF IMPAC REASONABLY BELIEVES THAT THE TERMS OF THE
MERGER AGREEMENT, ARE FAIR TO, AND IN THE BEST INTERESTS OF, IMPAC AND ITS
UNITHOLDERS AND RECOMMENDS THAT THE HOLDERS OF IMPAC UNITS CONSENT TO THE
MERGER.
REASONS FOR THE MERGER. Impac's Manager believes the combination of
Servico and Impac constitutes a strategic opportunity for Impac and that the
terms of the Merger Agreement are fair and in the best interests of Impac's
unitholders. In reaching this determination, Impac's Manager considered the
following material factors:
(i) The value of the consideration to be received by the holders of
Impac Units in the Merger;
(ii) The combined operational efficiencies expected to be realized by
the entity resulting from the Merger including, but not limited to, (a) greater
purchasing power, (b) elimination of duplicate administrative and accounting
functions, (c) the integration of information systems and related personnel, and
(d) economies of scale in Impac's Revenue Center;
(iii) The increased managerial, operational and financial resources
that will be available to the combined entity, and the belief that, as a result
of its greater financial resources, the combined entity may be expected to have
enhanced access to capital on more favorable terms than were previously
available to Impac as a private company;
(iv) The size and market capitalization of the combined entity, which
is expected to: (a) increase liquidity for the holders of Impac Units, who would
otherwise have no public market for their Units; (b) increase the market
visibility of the company's combined operations; and (c) decrease the cost of
debt and equity capital;
(v) That, based upon the advice of its tax counsel, the Merger will be
a tax-free transaction from the perspective of Impac's unitholders except for
those Impac unitholders who will recognize gain equal to the excess of their
share of Impac liabilities over their basis in their Impac Units;
(vi) The opinion of Allen & Company to the effect that, as of the date
of such opinion and based upon, and subject to, certain matters stated therein,
the Impac Exchange Ratio was fair, from a financial point of view, to the
holders of Impac Units;
(vii) The financial and other information concerning Servico that was
provided to the Manager and other representatives of Impac as part of Impac's
due diligence investigation, including, among other things, information
regarding Servico's business, properties, operations, financial condition and
future prospects;
(viii) The geographic diversity of the combined hotel portfolio, which
is expected to mitigate risks relating to the geographic concentration presented
by Impac's existing portfolio; and
(ix) The terms of the Merger Agreement.
NEGATIVE CONSIDERATIONS AND POTENTIAL DISADVANTAGES OF THE MERGER.
Impac's Manager evaluated the advantages, opportunities and general
considerations associated with the Merger in light of certain risks or other
considerations associated with the Merger, including, without limitation, the
following:
(i) The risk that the benefits sought in the Merger will not be
obtained;
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(ii) The terms and amount of Impac's outstanding indebtedness, the risk
that the entity resulting from the Merger might not be able to generate
sufficient cash flow from operations to service the debt and the risk that such
indebtedness could not be restructured or refinanced on terms satisfactory to
Impac or the combined entity;
(iii) The management time required to integrate Servico's operations
with those of Impac and the additional costs that would be incurred in
connection with that process;
(iv) The fact that Lodgian does not intend to pay dividends on its
Common Stock and unitholders will, therefore, no longer receive distributions
with respect to their Units; and
(v) The risks inherent in the construction and completion of Impac's
hotels that are under development, including the possibility of cost overruns
and delays and the adverse consequences to Impac unitholders of the failure to
open certain of such hotels in a timely manner so as to entitle such unitholders
to receive up to an aggregate of 1.4 million additional shares of Lodgian Common
Stock.
ALTERNATIVES CONSIDERED BY THE MANAGER. The Manager also considered the
relative material potential risks and benefits of the Merger as compared to
those presented by: (i) Impac's continued status as a stand-alone, private
entity and (ii) a liquidation of Impac. The risks and benefits considered
relating to such alternatives are summarized below.
VALUE OF THE MERGER CONSIDERATION COMPARED TO THE VALUE OF
UNITS OF IMPAC AS A STAND-ALONE ENTITY. As is shown in "Opinion of
Financial Advisors-Opinion of Allen & Company," Impac's projected 1998
implied private market equity value, based upon projected 1998 net
income ($3.5 million), the multiple of market price to estimated 1998
earnings per share for a group of comparable public companies and a
liquidity discount of 20%, is approximately $57.7 million (or
approximately $4.99 per Unit). Assuming the average price of Servico
Common Stock during a specified 10-day period prior to the Merger is
between $14.00 and $25.00 per share, the value of the Merger
Consideration to be received by Impac unitholders in the Merger will
equal at least $84 million (or approximately $7.27 per Unit). This
value could be higher or lower, however, if the average price of
Servico Common Stock during that period is below $14.00 per share or
higher than $25.00 per share. See "The Merger Agreement." However,
there is no assurance that either the foregoing value of Impac as a
stand-alone entity or the value of the Merger Consideration will
ultimately be realized.
POTENTIAL BENEFITS OF THE MERGER VS. OPERATION AS A
STAND-ALONE ENTITY. A significant benefit to the Impac unitholders as a
result of the Merger will be liquidity for unitholders who do not
currently have liquidity as securityholders of a privately held
company. There is no public market for the Units. Further, Lodgian will
be much larger in size and have a greater market capitalization than
Impac, thus increasing market visibility of the combined entities.
Additionally, although not certain, combined operational efficiencies
are expected to be realized by Lodgian including, but not limited to,
greater purchasing power, elimination of duplicative administrative and
accounting functions, integration of information systems and related
personnel and achievement of economies of scale through the use of
Impac's Revenue Center. Increased managerial, operational and financial
resources are expected to have enhanced access to capital on more
favorable terms than were previously available to Impac as a private
company. Finally, geographic diversity of Lodgian's hotel portfolio is
expected to mitigate risks relating to the geographic concentration
presented by Impac's existing portfolio.
POTENTIAL RISKS PRESENTED BY THE MERGER VS. CONTINUED
OPERATION AS A STAND-ALONE ENTITY. Impac's Manager also considered the
following material risks associated with the Merger as compared to
remaining a stand-alone entity. He considered that Lodgian will have
increased indebtedness and accordingly, might not be able to generate
sufficient cash flow from operations to service the combined debt of
Impac and Servico and might not be able to restructure or refinance
such indebtedness on terms satisfactory to Lodgian. Additionally,
because the Merger will involve the integration of two large companies
that have previously
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operated independently, Lodgian could encounter difficulties in
integrating the respective operations of Servico and Impac and the
operation of Impac as a smaller stand-alone company might ultimately
have proven more viable. Further, Lodgian does not intend to pay
dividends on its common stock and, as a result, Impac unitholders will
no longer receive distributions with respect to their investment upon
consummation of the Merger. Finally, there are risks inherent in the
construction and completion of Impac's hotels that are under
development, including the possibility of cost overruns and delays, all
of which could preclude or delay Impac from opening such hotels and
would preclude or delay Impac unitholders from receiving up to an
aggregate of 1.4 million additional shares of Lodgian.
VALUE OF THE MERGER CONSIDERATION COMPARED TO THE LIQUIDATION
VALUE OF IMPAC UNITS. In the event of a liquidation, Impac would be
required to sell all of its hotels and other assets and distribute the
proceeds to its unitholders in accordance with the terms of its
Operating Agreement. Impac's management is unable to assess the
liquidation value of the Impac Units because Impac (i) is being
operated as a going concern, (ii) has not obtained current appraisals
of its properties, (iii) would, as a consequence of its outstanding
debt, be restricted in the disposition of the hotels which in the
aggregate serve as collateral for the debt and (iv) would be required
to pay significant prepayment penalties in the event of a liquidation.
Further, the liquidation and distribution of proceeds would be taxable
to unitholders.
POTENTIAL BENEFITS OF THE MERGER VS. LIQUIDATION. Impac's
Manager did not consider a liquidation of Impac as a viable alternative
to the Merger for the reasons set forth in the preceding paragraph.
Impac's Manager believes that the restrictions on Impac's ability to
dispose of hotels serving as collateral for Impac's debt, coupled with
the potential prepayment penalties described above, would reduce
significantly any proceeds which might otherwise be received on the
sale of Impac's properties. No assurance can be given, however, that
this would be the case, given the unpredictable nature of the real
estate market and the impossibility of predicting reliably the proceeds
or potential gain that might be realized upon the sale of Impac's
properties. The Manager also compared the tax consequences of the
Merger to those of a liquidation. The Merger was structured to be
tax-free with respect to Impac and to have no material tax consequences
to the Impac unitholders, while a liquidation would result in an
immediate payment of capital gains or ordinary income taxes on the gain
resulting from the distribution. Consequently, the Manager determined
that from a tax standpoint, the Merger would be more advantageous to
Impac and its unitholders than a liquidation.
POTENTIAL RISKS PRESENTED BY THE MERGER VS. LIQUIDATION. The
risks discussed above under "-Potential Risks Presented by the Merger
vs. Continued Operation as a Stand-Alone Entity" apply equally to a
determination of the relative risks presented by the Merger as opposed
to a liquidation of Impac. If any of these risks are realized, the
value of the Lodgian common stock that would be held by Impac
unitholders as a result of the Merger could have a value that would be
less than the value of the distribution they would otherwise have
received in the event of a liquidation of Impac. Further, in the event
that there is a significant decline in real estate values in the
future, a current liquidation might result in greater returns currently
than may be available in the future.
CONCLUSION. In view of the variety and complexity of the factors
considered in the evaluation of the Merger, the Manager of Impac did not
consider it practicable to, nor did he attempt to, quantify, rank or otherwise
assign
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relative weight to the specific factors he considered in reaching his decision.
The Manager relied on the experience and expertise of Impac's financial advisor
for quantitative analysis of the financial terms of the Merger. However, the
Manager did not retain any unaffiliated representative to act on behalf of other
unitholders for purposes of negotiating the terms of the Merger. See "The
Merger--Opinion of Allen & Company." In addition, the Manager did not undertake
to make any specific determination as to whether any particular factor (or any
aspect of any particular factor) was determinative in his ultimate decision or
assign any particular weight to any factor, but instead asked questions of other
members of Impac's management team and its legal, financial and accounting
advisors in determining that the Merger was in the best interests of Impac and
its unitholders.
The foregoing discussion of the information and factors considered and
given weight by Impac's Manager is not intended to be exhaustive but includes
the material factors considered.
OPINION OF FINANCIAL ADVISORS
OPINION OF LEHMAN BROTHERS
In connection with its role as financial advisor to Servico in
connection with the Merger, on March 11, 1998, Lehman Brothers rendered its oral
opinion, which was subsequently confirmed in a written opinion, dated March 12,
1998, that as of such dates, and based upon and subject to various
qualifications and assumptions described therein, the consideration to be paid
in the Merger was fair to the Company, from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS, DATED MARCH
12, 1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS
CONSIDERED IN, AND THE LIMITATIONS ON, THE REVIEW UNDERTAKEN IN CONNECTION WITH
SUCH OPINION, IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX B
AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE OPINION SET FORTH
BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
No instructions were given to Lehman Brothers by Servico and no
limitations were imposed by Servico on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. Lehman Brothers was not requested to and did not make any
recommendation to the Servico Board as to the form or amount of consideration to
be received by Servico shareholders in the Merger, which was determined through
arm's-length negotiations between Servico and Impac and their legal and
financial advisors. In arriving at its opinion, Lehman Brothers did not ascribe
a range of value to Servico, but rather made its determination as to the
fairness to Servico, from a financial point of view, of the consideration to be
paid in the Merger (the "Proposed Transaction") on the basis of financial and
comparative analyses described below. Lehman Brothers' opinion is for the use
and benefit of the Servico Board in connection with its consideration of the
Proposed Transaction and does not constitute a recommendation to any shareholder
of Servico as to how such shareholder should vote with respect to the Proposed
Transaction. Lehman Brothers was not requested to opine as to, and its opinion
does not in any manner address, Servico's underlying business decision to
proceed with or effect the Proposed Transaction. Lehman Brothers' analysis did
not result in any specific factors which did not support its fairness opinion.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i)
the Agreement and the specific terms of the Proposed Transaction; (ii) publicly
available information concerning Servico that Lehman Brothers believed to be
relevant to its analysis, including Servico's annual report on Form 10-K for the
year ended December 31, 1996 and quarterly reports on Form 10-Q for the quarters
ended March 31, June 30 and September 30, 1997; (iii) financial statements for
Impac and it subsidiaries, including balance sheets as of December 31, 1995 and
1996 and September 30, 1997, and the related statements of income, cash flow and
changes in members' equity for the fiscal years ended December 31, 1994, 1995
and 1996, including any related notes, audited and reported on, without
qualification, by Pricewaterhouse Coopers L.L.P., Impac's independent public
accountants and financial information for the nine months ended September 30,
1997; (iv) financial and operating information with respect to the business,
operations and prospects of Servico and Impac furnished to Lehman Brothers by
Servico and Impac, respectively; (v) a comparison of the historical financial
results
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and present financial condition of Servico with those of other companies that
Lehman Brothers deemed relevant; (vi) the trading history of Servico's Common
Stock from January 1996 to March 1997 and a comparison of that trading history
with those of other companies that Lehman Brothers deemed relevant; (vii) the
potential pro forma impact of the Proposed Transaction on Servico, including the
cost savings, operating synergies and strategic benefits expected by the
management of Servico to result from a combination of the applicable businesses;
(viii) a comparison of the relative contribution of Impac to the financial
results of Lodgian following the Proposed Transaction to the Impac ownership
interest in Lodgian following the Proposed Transaction; and (ix) a comparison of
the financial terms of the Proposed Transaction with the financial terms of
certain other recent transactions that Lehman Brothers deemed relevant. In
addition, Lehman Brothers had discussions with the management of Servico and
Impac concerning their respective businesses, operations, assets, financial
condition and prospects and undertook such other studies, analyses and
investigations as Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of the management of Servico
and Impac that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of Servico and Impac, upon advice of Servico and Impac, Lehman
Brothers assumed that such projections were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Servico and Impac as to the future financial performance of
Servico and Impac, respectively, and that Servico and Impac will perform
substantially in accordance with such projections. In arriving at its opinion,
Lehman Brothers did not conduct a physical inspection of the properties and
facilities of Servico or Impac and did not make or obtain any evaluations or
appraisals of the assets or liabilities of Servico or Impac. In addition,
Servico did not authorize Lehman Brothers to solicit, and Lehman Brothers did
not solicit, any indications of interest from any third party with respect to
the purchase of all or a part of Servico's business. Upon advice of Servico,
Impac and their respective legal and accounting advisors, Lehman Brothers
assumed that the Proposed Transaction will qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), with respect to Servico, and therefore as a tax-free transaction
to the shareholders of Servico. Lehman Brothers' opinion necessarily is based
upon market, economic and other conditions as they existed on, and can be
evaluated as of, the date of its opinion. It is not a requirement of the
transaction that Lehman Brothers update its opinion prior to the Merger.
Accordingly, it is possible that if it were redetermined based upon information
as of a later date, that an event could occur which could alter that fairness
determination. However, Servico is not aware of any significant event occurring
after the date of Lehman Brothers fairness opinion which would have altered
Lehman Brother's determination.
In the event that an amendment is made to the Merger Agreement which
the Board, after consultation with Lehman Brothers determines is material to the
opinion rendered by Lehman Brothers, the Board will seek to obtain a revised
fairness opinion in connection with such amendment.
PRO FORMA MERGER ANALYSIS. Lehman Brothers performed an accretion and
dilution analysis to shareholders of Servico under a "stand-alone" basis and
"merged company" basis using certain projections provided by Servico and Impac
management. The analysis performed under the stand-alone basis assumed that
Servico would not merge with Impac but would instead operate as a separate
company, whereas the analysis performed under the merged company basis assumed
the merger of Servico and Impac pursuant to the Merger Agreement. In evaluating
the estimated earnings per share ("EPS") of the stand-alone and combined
company, Lehman Brothers utilized certain projections provided by Servico and
Impac management. The analysis indicated that the merged company basis, when
compared to the stand-alone basis, would be accretive to Servico's EPS in both
1998 and 1999.
CONTRIBUTION ANALYSIS. Lehman Brothers analyzed the respective
contributions of EBITDA, equity market capitalization and total market
capitalization by Servico and Impac to Lodgian on a pro forma basis after taking
into account certain of the possible benefits that may be realized following the
Merger. The review was based on Servico's and Impac's current operating
characteristics and existing hotel portfolios and assumed no future acquisitions
would be made. The analysis showed that: (i) Servico would contribute 64% of
Lodgian's 1998 EBITDA and that Impac would contribute 36%; (ii) Servico would
contribute 59% of Lodgian's 1999 EBITDA and that Impac would contribute
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41%; (iii) Servico would contribute 78% of Lodgian's equity
market capitalization as of March 11, 1998 and that Impac would contribute 22%;
and (iv) Servico would contribute 57% of Lodgian's total market capitalization
(calculated with estimated net debt as of June 30, 1998 for both Servico and
Impac) as of March 11, 1998 and that Impac would contribute 43%. On a pro forma
basis, Impac unitholders will own 26% of the combined company. Estimates of
Servico's 1998 and 1999 EBITDA were derived from published research, and
estimates of Impac's 1998 and 1999 EBITDA were based on projections of Impac
management.
TARGET PRICE ANALYSIS. Using Lehman Brothers' published research and
Impac management projections for 1998 EBITDA and pro forma average net debt
outstanding in 1998, Lehman Brothers analyzed the theoretical value per share to
Servico shareholders of Servico on both a stand-alone and merged company basis
based on a target 1998 EBITDA multiple of 9.5x. The analysis indicated that on a
stand-alone and merged company basis, the per share target price of Servico was
approximately $25.50 and $26.60, respectively. Lehman Brothers made no assurance
or representation that either the shares of Servico or Lodgian at any time will
trade in the range of the above-mentioned target prices.
SELECTED TRANSACTION ANALYSIS. Lehman Brothers reviewed certain
publicly available information relating to the financial terms of certain recent
transactions in the lodging industry (the "Comparable Transactions"). The
Comparable Transactions were Promus/Doubletree, Bass PLC/Intercontinental,
Meditrust/La Quinta, Patriot American/Interstate, Starwood Lodging/ITT, Starwood
Lodging/Westin, Patriot American/Wyndham and Marriott International/Renaissance.
For each such Comparable Transaction, Lehman Brothers reviewed, among other
things, the total transaction value as a multiple of forward EBITDA and the
implied price per room. Estimates of forward EBITDA were derived from published
research and, in certain cases, from internal corporate projections of parties
to certain of the Comparable Transactions.
The analysis indicated that, for the Comparable Transactions: (i) the
forward EBITDA multiples had a range of 7.6x to 14.3x, compared to a multiple,
as of March 11, 1998, of 9.4x Impac's 1998 estimated EBITDA; and (ii) an implied
price per room of $52,000 to $211,000, compared to, as of March 11,1998, $57,300
for Impac's hotels.
Comparable Transactions were selected, in part, based upon brand
similarity, size and geographic considerations, and form of consideration.
Because the market conditions, rationale and circumstances surrounding each of
the transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of Servico
and the entities comprising the Comparable Transactions analyzed, Lehman
Brothers believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the analysis, and accordingly, also made
qualitative judgments concerning differences between the characteristics of
these transactions and the Merger that would affect the values inherent in the
Merger and the Comparable Transactions. In particular, Lehman Brothers
considered the size and desirability of the assets and the markets of operation
relative to those of Impac, the strategic fit of the acquired assets with the
acquiring company, the form of consideration offered to the seller and the tax
characteristics of the transaction. These qualitative judgments do not lead to
specific conclusions regarding Impac's value, but rather were part of Lehman
Brothers' evaluation of the relevancy of this comparative analysis under the
particular circumstances of the Merger.
COMPARABLE COMPANY ANALYSIS. Lehman Brothers reviewed and compared
certain financial information, ratios and public market multiples relating
Servico to corresponding financial information, ratios and public market
multiples for selected publicly traded companies in the hotel and lodging
industry. The selected companies were Bristol Hotels, La Quinta Inns, Prime
Hospitality and John Q. Hammons (collectively, the "Comparable Companies"). The
Comparable Companies were chosen because they are publicly-traded companies with
operations that, for the purpose of Lehman Brothers' analysis, are similar to
those aspects of Servico to which they were compared. For the comparable company
analysis, the estimates for Servico and the Comparable Companies were based on
research published by selected investment banking firms and market valuations as
of March 4, 1998.
With respect to the Comparable Companies, Lehman Brothers considered:
(i) 1997 and 1998 EBITDA multiples (based on March 4, 1998 closing share prices
and research analysts' EBITDA estimates) that ranged from
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6.9x to 11.2x for 1997 and 6.5x to 8.8x for 1998; and (ii) net debt-to-total
market capitalization ratios that ranged from 32.5% to 92.4%. For Servico,
Lehman Brothers observed that: (i) 1997 and 1998 EBITDA multiples were 10.3x and
7.7x, respectively; and (ii) the 1998 net debt-to-total market capitalization
ratio was 49.5%.
Because of the lack of a sufficient number of independent comparable
companies and the inherent difference between the businesses, operations and
prospects of Servico and the businesses, operations and prospects of the
companies included as Comparable Companies, Lehman Brothers believed that a
purely quantitative comparable company analysis would not be particularly
meaningful in the context of the Merger. Lehman Brothers believed that an
appropriate use of a comparable company analysis in this instance would involve
qualitative judgments concerning differences between the financial and operating
characteristics of Servico and the companies included as Comparable Companies
that would affect the public trading values of Servico and such Comparable
Companies.
The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial and comparative
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its opinion, Lehman Brothers did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Lehman Brothers believes that is analyses must
be considered as a whole and that considering any portion of such analyses and
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the process underlying its opinion. In its analyses,
Lehman Brothers made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Servico and Impac. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Lehman Brothers is an internationally recognized investment banking
firm. Lehman Brothers, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. The Servico Board retained
Lehman Brothers based upon Lehman Brothers' experience and expertise and its
familiarity with Servico. Lehman Brothers has performed various investment
banking services for Servico, including as a lead managing underwriter of
Servico's Common Stock Offering in June, 1997 and has acted, and is currently
acting, as a lender to Servico (with an outstanding amount owed by Servico of
approximately $200 million) and has received customary fees for such services.
In connection with such services, excluding fees relating to the Merger, during
the past two years Servico has paid Lehman Brothers fees totaling approximately
$20.1 million. In the ordinary course of its business, Lehman Brothers actively
trades in the securities of Servico for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to an engagement letter between Lehman Brothers and Servico,
Lehman Brothers is entitled to a fee of $500,000 upon delivery of its opinion
and is entitled to an additional fee of $3.1 million upon consummation of the
Merger. Servico has agreed to reimburse Lehman Brothers for its reasonable
expenses in connection with its engagement and to indemnify Lehman Brothers
against certain liabilities, including certain liabilities under federal
securities laws.
OPINION OF ALLEN & COMPANY
On March 19, 1998, Allen & Company delivered to the Manager of Impac
its oral opinion (subsequently confirmed in writing) to the effect that, as of
such date, the Impac Exchange Ratio contemplated by the Merger Agreement was
fair to holders of Impac Units from a financial point of view.
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The full text of the written opinion of Allen & Company, dated March
19, 1998, is set forth as Appendix C to this Joint Proxy Statement/Prospectus
and describes the assumptions made, matters considered and limits on the review
undertaken. The holders of Impac Units are urged to read the opinion in its
entirety. Allen & Company's opinion is directed only to the fairness, from a
financial point of view, of the Impac Exchange Ratio and does not constitute a
recommendation of the Merger over other courses of action that may be available
to Impac or constitute a recommendation to any holder of Impac Units concerning
how such holder should vote with respect to the Merger. The summary of the
opinion of Allen & Company set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
In arriving at its opinion, Allen & Company: (i) reviewed the terms and
conditions of the Merger Agreement and related documents; (ii) analyzed
historical business and financial information relating to Impac and management's
forecasts prepared by Impac, as presented in documents provided to Allen &
Company by Impac; (iii) analyzed publicly available historical business and
financial information relating to Servico, as presented in documents filed with
the Securities and Exchange Commission (the "SEC"); (iv) reviewed Impac's and
Servico's respective operations and considered the views of professional
analysts covering Servico; (v) reviewed certain limited non-public information
relating to Servico, including financial and operating results of Servico and
management's forecasts prepared by Servico; (vi) conducted discussions with
certain members of the senior management of Impac and Servico with respect to
the financial condition, business, operations, strategic objectives and
prospects of Impac and Servico, respectively; (vii) reviewed and analyzed public
information, including certain stock market data and financial information
relating to selected public companies which Allen & Company deemed generally
comparable to Impac and Servico; (viii) reviewed the trading history of the
Servico Common Stock, including such stock's performance in comparison to market
indices and to selected companies in comparable businesses; (ix) considered
multiples paid in merger and acquisition transactions Allen & Company deemed to
be comparable to the Merger; and (x) conducted such other financial analyses and
investigations and reviewed such other materials as Allen & Company deemed
necessary or appropriate for the purposes of the opinion expressed therein.
In connection with its review, Allen & Company assumed and relied on
the accuracy and completeness of the information it reviewed for the purpose of
its opinion and did not assume any responsibility for independent verification
of such information or for any independent evaluation or appraisal of the assets
of Impac or Servico. With respect to Impac's and Servico's financial forecasts,
Allen & Company assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Impac and Servico, respectively, and Allen & Company expressed no
opinion with respect to such forecasts or the assumptions on which they were
based. Allen & Company's opinion was necessarily based upon business, market,
economic and other conditions as they existed on, and could be evaluated as of,
the date of its opinion. Allen & Company's opinion does not imply any conclusion
as to the likely trading range of Lodgian Common Stock following the
consummation of the Merger, which may vary depending on, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
No limitations were imposed by Impac, nor did Allen & Company receive any
specific instructions from Impac, on the scope of Allen & Company's analyses or
the procedures to be followed by Allen & Company in rendering its opinion. Allen
& Company was not requested to and did not make any recommendation to Impac as
to the form or amount of consideration to be received by the holders of Impac
Units, which was determined by arm's-length negotiations between Impac and
Servico and their legal and financial advisors. Allen & Company's analyses did
not result in any specific factors which did not support its fairness opinion.
Allen & Company's engagement by Impac does not contemplate the issuance
by Allen & Company of an additional or supplemental fairness opinion at the
closing of the Merger. Impac's Manager has indicated that he may request an
additional or supplemental opinion at such time, if any, as consideration is
given to any amendment of the material terms of the Merger. Allen & Company's
fairness determination was made as of the date of its opinion. Accordingly, it
is possible that if it were redetermined based upon information as of a later
date, that an event could occur which could alter that fairness determination.
However, Impac is not aware of any significant events occurring since the
rendering of Allen & Company's fairness opinion on March 19, 1998 which would
have altered Allen & Company's determination.
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The following is a summary of the presentation made by Allen & Company
to the Manager of Impac in connection with the rendering of Allen & Company's
fairness opinion:
TRANSACTION OVERVIEW AND ANALYSIS. Allen & Company presented an
overview of the proposed transaction, noting the strategic fit of combining two
leading hotel companies, each of which possesses an experienced management team.
The transaction, structured as a tax free exchange of stock and accounted for as
a purchase, would permit the holders of Impac Units the ability to continue
their investment in the combined company resulting from the Merger and would
also provide such holders with the liquidity present in owning shares of a
public company. Allen & Company also noted that the combined operations of Impac
and Servico would likely benefit from the ability to capitalize on synergies
such as economies of scale in operations, information systems and purchasing
power.
Allen & Company analyzed the total enterprise value (the recent value
of all equity securities plus long-term debt less cash) of Impac (both before
and after giving effect to the issuance of the Impac Additional Shares and the
incurrence of debt associated with the five Impac hotels currently under
development, the opening of which will result in the issuance of the Impac
Additional Shares (the "Additional Hotel Debt")) and Servico based on the
closing price of Servico Common Stock ($17.75) on March 18, 1998, the day
preceding the delivery of Allen & Company's oral opinion to the Manager of
Impac. This analysis indicated an enterprise value of Impac of approximately
$445.9 million (based upon debt outstanding at December 31, 1997) without giving
effect to the Impac Additional Shares and Additional Hotel Debt, approximately
$538.6 million after giving effect to the Impac Additional Shares and Additional
Hotel Debt and approximately $580.3 million after giving effect to the Impac
Additional Shares, the Additional Hotel Debt and additional debt associated with
the renovation of certain of Impac's existing hotels. Allen & Company noted that
this analysis also indicated an enterprise value of Servico of approximately
$709.0 million. Allen & Company also noted that the enterprise value of Impac as
a multiple of total hotel rooms before and after giving effect to the Impac
Additional Shares and Additional Hotel Debt was estimated to be $56,450 and
$61,080, representing 66% and 72%, respectively, of the replacement value per
room.
Allen & Company reviewed the pro forma balance sheet for the combined
company resulting from the Merger and the projected 1998 and 1999 pro forma
financial results for the combined company after giving effect to certain
anticipated synergies resulting from the Merger. The analysis was performed
utilizing stand-alone earnings projected for calendar years 1998 and 1999 for
Impac and Servico based on certain financial projections for Impac prepared by
Impac's management and certain estimates of financial results for Servico based
upon certain industry analysts' estimates. Based on such analysis, the Merger is
expected to result in the combined company having a higher projected EPS than
Servico is projected to have on a stand-alone basis for 1998 ($1.10 for the
combined company versus $0.99 for Servico) and 1999 ($1.38 for the combined
company versus $1.16 for Servico).
Allen & Company also calculated the enterprise value of the combined
company based on the closing sale price of the Servico Common Stock on March 18,
1998 before ($1,154.8 million) and after ($1,247.5 million) giving effect to the
Impac Additional Shares and the Additional Hotel Debt. Allen & Company analyzed
the enterprise value of the combined company as multiples of various financial
performance criteria and compared such implied multiples to multiples of such
financial performance measures for a group of public companies that Allen &
Company deemed to be comparable to the combined company (the "Comparables
Group"): Bristol Hotels, Capstar, Interstate Hotels and Prime Hospitality. The
companies in the Comparables Group were chosen because they are publicly traded
companies with operations that Allen & Company deemed to be similar to those of
Servico and Impac. To calculate the trading multiples for the Comparables Group,
Allen & Company used publicly available information concerning historical and
estimated financial information for the Comparables Group. The multiple of
enterprise value to sales for the last twelve months ("LTM") for the Comparables
Group ranged from 2.6x to 4.3x with an average of 3.5x as compared to implied
multiples of enterprise value to 1997 revenue for the combined company of 2.9x
and 3.1x before and after giving effect to the Impac Additional Shares and
Additional Hotel Debt, respectively. The multiple of enterprise value to LTM
EBITDA for the Comparables Group ranged from 11.0x to 16.0x with an average of
12.4x as compared to implied multiples of enterprise value to 1997 EBITDA for
the combined company of 13.0x and 14.1x before and after giving effect to the
Impac Additional Shares and Additional Hotel Debt, respectively. The multiple of
enterprise value to LTM EBIT for the Comparables Group ranged from 14.8x to
21.4x with an average of 17.0x
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as compared to implied multiples of enterprise value to 1997 EBIT for the
combined company of 21.3x and 23.0x before and after giving effect to the Impac
Additional Shares and Additional Hotel Debt, respectively.
Allen & Company calculated the implied per share valuation of the
combined company resulting from the Merger based upon the multiple of market
price to estimated 1998 and 1999 EPS for the Comparables Group and the projected
1998 EPS ($1.10) and 1999 EPS ($1.38) for the combined company. This analysis
yielded an implied per share valuation for the combined company of $23.32 and
$23.87, representing a premium of 31.4% and 34.5%, respectively, to the $17.75
market price of Servico Common Stock on March 18, 1998. Allen & Company also
calculated the implied per share valuation of the combined company based upon
the multiple of enterprise value to estimated 1999 EBITDA for the Comparables
Group and the projected 1999 EBITDA ($189 million) for the combined company.
This analysis yielded an implied per share valuation for the combined company of
$22.73, representing a premium of 28.1% to the $17.75 market price of Servico
Common Stock on March 18, 1998. Allen & Company also noted that such $17.75
market price represented a multiple of 12.9x of projected 1999 pro forma EPS for
the combined entity as compared to the 17.3x average multiple of price to
estimated 1999 EPS at which the Comparables Group traded.
Allen & Company reviewed and analyzed certain financial, operating and
stock market information relating to selected merger transactions occurring in
the lodging industry between January 1, 1996 and March 18, 1998 (the "Lodging
Transactions"). The Lodging Transactions were Bally/Hilton, Red
Lions/Doubletree, Holiday Inns/Bristol, Studio Plus/Extended Stay,
Wyndam/Patriot American, Doubletree/Promus, Chartwell/Whitehall,
Interstate/Patriot American and LaQuinta/Meditrust, and were selected by Allen &
Company because they were recent transactions in the lodging industry involving
companies with operations that Allen & Company deemed similar to those of Impac
and Servico. Allen & Company also analyzed the enterprise value of Impac as
implied by the Merger as multiples of various financial performance criteria and
compared such implied multiples to multiples paid in such Lodging Transactions.
Allen & Company noted that the enterprise value as a multiple of LTM sales
ranged from 2.8x to 11.3x and averaged 3.9x for the Lodging Transactions as
compared to the multiple of Impac's enterprise value to LTM sales of 3.7x and
4.5x, before and after giving effect to the Impac Additional Shares and
Additional Hotel Debt, respectively. Allen & Company noted that the enterprise
value as a multiple of LTM EBITDA ranged from 7.1x to 28.4x and averaged 14.1x
for the Lodging Transactions as compared to the multiple of Impac's enterprise
value to LTM EBITDA of 23.6x and 28.5x, before and after giving effect to the
Impac Additional Shares and Additional Hotel Debt, respectively. Allen & Company
noted that the enterprise value as a multiple of LTM EBIT ranged from 9.8x to
41.5x and averaged 20.6x for the Lodging Transactions as compared to the
multiple of Impac's enterprise value to LTM EBITDA of 57.9x and 69.9x, before
and after giving effect to the Impac Additional Shares and Additional Hotel
Debt, respectively. Allen & Company also noted that the enterprise value of the
combined entity as a multiple of total hotel rooms before and after giving
effect to the Impac Additional Shares and Additional Hotel Debt was estimated to
be $46,612 and $48,552, respectively, representing 58% and 61%, respectively, of
the replacement value per room.
Allen & Company analyzed and compared the pro forma contributions made
by each of Impac and Servico to the combined company's projected 1998 operations
based upon a comparison of certain stock market and financial information and
projections for each company on a stand-alone basis. Accordingly, this analysis
does not take into account any cost savings or revenue enhancements that may
result from the Merger. This analysis indicated that on a pro forma basis Impac
and Servico would account for approximately 31.8% and 68.2%, respectively, of
the combined company's projected 1998 pro forma revenues ($554 million),
approximately 34.0% and 66.0%, respectively, of the combined company's projected
1998 pro forma EBITDA ($151 million), and approximately 14.2% and 85.8%,
respectively, of the combined company's projected 1998 pro forma net income
($24.7 million). Allen & Company considered these projected contributions in
light of the Impac Exchange Ratio which would result in the holders of the Impac
Units owning approximately 21.8% of the common stock of the combined entity
before giving effect to the Impac Additional Shares, which is expected to occur
in 1999 upon the opening of five Impac hotels currently under development.
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OVERVIEW OF IMPAC. Allen & Company presented an overview of Impac's
business operations. Allen & Company also reviewed Impac's balance sheet as of
December 31, 1997, its historical operating results for the three years ended
December 31, 1997 and its projected operating results for the six months ending
December 31, 1998 and the year ending December 31, 1999.
Allen & Company also calculated the implied private market equity value
of Impac based upon projected 1998 net income ($3.5 million) and 1999 net income
($9.1 million) for Impac and based upon the multiple of market price to
estimated 1998 and 1999 EPS for a group of public companies that Allen & Company
deemed to be comparable to Impac (the "Impac Comparables"): Servico, Bristol
Hotels, Capstar, Interstate Hotels and Prime Hospitality. This analysis yielded
an implied private market equity value for Impac of approximately $57.7 million
and $122.3 million, respectively. Allen & Company also calculated the implied
private market equity value of Impac based upon the projected 1999 EBITDA ($72.3
million) for Impac and based upon the multiple of enterprise value to estimated
1999 EBITDA for the Impac Comparables. This analysis yielded an implied private
market equity value for Impac of approximately $121.8 million. Allen & Company
calculated the implied private market equity value of Impac based upon Impac's
LTM sales, LTM EBITDA and LTM EBIT and based upon the multiple of enterprise
value to LTM sales, LTM EBITDA and LTM EBIT for the Lodging Transactions. This
analysis yielded an implied private market equity value for Impac of
approximately $128.2 million based on LTM sales, $52.3 million based on LTM
EBITDA and a negative value for Impac based on LTM EBIT. In calculating the
private market valuations above, Allen & Company utilized a 20% private market
(liquidity) discount. In addition, Allen & Company calculated the implied
private market equity value of Impac by utilizing certain common industry
percentages of enterprise value to replacement value (per room).
OVERVIEW OF SERVICO. Allen & Company presented an overview of Servico's
business operations. Allen & Company also reviewed Servico's balance sheet as of
December 31, 1997 and its historical operating results for the four years ended
December 31, 1997.
Allen & Company also reviewed stock price and trading volume data for
the Servico Common Stock and compared Servico's general trading patterns to
those of the S&P 500 Index, the S&P Lodging Index and to each of the companies
included in the Comparables Group. Allen & Company also reviewed certain
industry analysts' perspectives on the Servico Common Stock. Allen & Company
also compared selected multiples derived from the recent price of Servico Common
Stock to multiples derived from recent trading prices of the companies included
in the Comparables Group. The multiples compared included enterprise value to
estimated 1998 EBITDA (which was 7.2x for Servico compared to an average of 8.6x
for the Comparables Group) and market price to estimated 1998 EPS (which was
17.9x for Servico compared to an average of 21.2x for the Comparables Group).
Allen & Company also calculated the implied per share valuation of
Servico based upon 1998 and 1999 EPS for Servico obtained from industry
analysts' estimates and based upon the multiples of market price to estimated
1998 and 1999 EPS for the Comparables Group. This analysis yielded an implied
per share valuation for Servico of $20.99 and $20.24, respectively, representing
a premium of 18.2% and 14.0%, respectively, to the $17.75 market price of
Servico Common Stock on March 18, 1998. Allen & Company also calculated the
implied per share valuation of Servico based upon the estimated 1998 EBITDA for
Servico and based upon the multiple of enterprise value to estimated 1998 EBITDA
for the Comparables Group. This analysis yielded an implied per share valuation
for Servico of $24.61, representing a premium of 38.7% to the $17.75 market
price of Servico Common Stock on March 18, 1998. Allen & Company also noted that
the enterprise value of Servico as a multiple of total hotel rooms was estimated
to be $41,812, representing 56% of the replacement value per room.
No company used in the comparable company analyses summarized above is
identical to Impac or Servico, and no transaction used in the comparable
transaction analysis summarized above is identical to the Merger. Accordingly,
any such analysis of the value of the consideration to be received by the
holders of Impac Units pursuant to the Merger involves complex considerations
and judgments concerning differences in the potential financial and operating
characteristics of the comparable companies and transactions and other factors
in relation to the trading and acquisition values of the comparable companies.
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The preparation of a fairness opinion is not susceptible to partial
analysis or summary description. Allen & Company believes that its analyses and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in its opinion. Allen & Company has not
indicated that any of the analyses which it performed had a greater significance
than any other.
In determining the appropriate analyses to conduct and when performing
those analyses, Allen & Company made numerous assumptions with respect to
industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of Impac or
Servico. The analyses which Allen & Company performed are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of Allen & Company's analysis of the fairness, from a
financial point of view, of the Impac Exchange Ratio to the holders of Impac
Units. The analyses do not purport to be appraisals or to reflect the prices at
which a company might actually be sold or the prices at which any securities may
trade at the present time or at any time in the future.
Allen & Company's opinion does not constitute a recommendation with
respect to whether any unitholder of Impac should, upon the consummation of the
Merger, continue its investment in the Lodgian Common Stock received as
consideration in the Merger or sell such shares of Lodgian Common Stock
immediately or at any time. Allen & Company did not specifically analyze the
impact on any individual holder of Impac Units of continuing its investment in
the Lodgian Common Stock after the Merger because it is believed that Impac
unitholders would make such decision only after careful consideration of their
respective tax consequences affecting such decision.
Allen & Company is a nationally recognized investment banking firm that
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Impac
retained Allen & Company based on such qualifications as well as its familiarity
with Impac. In addition, as a part of its investment banking and securities
trading business, Allen & Company may hold positions in and trade in the
securities of Servico from time to time.
Impac entered into a letter agreement with Allen & Company as of March
19, 1998 (the "Engagement Letter"), pursuant to which Allen & Company agreed to
act as Impac's financial advisor in connection with the Merger and to render an
opinion as to the fairness from a financial point of view of the Impac Exchange
Ratio to the holders of the Impac Units. Pursuant to the Engagement Letter,
Impac agreed to pay Allen & Company a fee of $350,000 earned upon the delivery
of its oral fairness opinion to the Manager and payable upon the earlier to
occur of July 1, 1998 and the closing of the Merger and $1,900,000 earned and
payable upon the closing of the Merger. Whether or not the Merger is
consummated, Impac has agreed, pursuant to the Engagement Letter, to reimburse
Allen & Company for all its reasonable out-of-pocket expenses, including the
fees and disbursements of its counsel, incurred in connection with its
engagement by Impac and to indemnify Allen & Company against certain liabilities
and expenses in connection with its engagement.
Pursuant to the Engagement Letter, if the Merger is not consummated,
Impac shall pay to Allen & Company $750,000 if Impac receives a termination fee
and $500,000 if Impac receives an expense reimbursement (but not a termination
fee), subject in each case for a credit for any portion of the $350,000 which
theretofore may have been paid to Allen & Company with respect to Allen &
Company's submission of its fairness opinion. If Impac does not consummate the
Merger in contemplation of, or due to, Impac's entering into an alternative
business combination transaction with a party other than Servico (a "Third
Party"), and either (a) Impac enters, at any time, into such alternative
transaction or (b) Impac enters, within 120 days of the termination of the
Merger Agreement, into an alternative transaction with a party other than the
Third Party, then Impac shall pay to Allen & Company in cash a full investment
banking fee with respect to such alternative transaction payable upon the
closing of such transaction. Impac and Allen & Company have agreed to negotiate
a mutually agreeable fee in respect thereof.
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CAUTIONARY STATEMENT REGARDING IMPAC PROJECTED FINANCIAL INFORMATION.
Impac does not make, as a matter of course, public forecasts or projections as
to future performance or earnings. However, in connection with ongoing budgetary
and financing activities, management of Impac periodically prepares projections
for internal use. Certain of such projections relating to Impac were provided to
Allen & Company and Lehman Brothers in connection with the Merger. Such
projections were not prepared for, or with a view toward, dissemination to the
public. SUCH PROJECTIONS WERE NOT PREPARED IN ACCORDANCE WITH PUBLISHED
GUIDELINES OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OR THE SEC
REGARDING PROJECTIONS AND FORECASTS, NOR HAVE SUCH PROJECTIONS BEEN AUDITED,
EXAMINED OR OTHERWISE REVIEWED BY INDEPENDENT PUBLIC AUDITORS OF IMPAC. In
addition, such projections are based upon a variety of assumptions and estimates
and are inherently subject to significant economic and competitive uncertainties
and contingencies, many of which are beyond the control of management of Impac.
Accordingly, actual results may be materially higher or lower than those
projected. The inclusion of such projections herein should not be regarded as a
representation by Impac, Servico or Lodgian or any other person that the
projections will prove to be correct. None of Lehman Brothers, Allen & Company
or any party to whom any of these projections were provided assumes any
responsibility for the accuracy of such information.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson,
P.A. ("Stearns Weaver"), counsel to Servico, and Powell, Goldstein, Frazer &
Murphy LLP ("Powell Goldstein"), counsel to Impac and the Impac Affiliated
Companies, the following is a discussion of the material federal income tax
consequences of the Merger and is based on the Code, the regulations promulgated
thereunder, existing administrative interpretations and court decisions. Future
legislation, regulations, administrative interpretations or court decisions
could significantly change such authorities either prospectively or
retroactively. The discussion does not address all aspects of federal income
taxation that may be important to a shareholder or unitholder in light of such
shareholder's or unitholder's particular circumstances or to shareholders or
unitholders subject to special rules, such as shareholders or unitholders who
are not citizens or residents of the United States, financial institutions,
tax-exempt organizations, insurance companies, dealers in securities or
shareholders or unitholders who acquired their shares of Servico or of one of
the Impac Affiliated Companies, or Impac Units pursuant to the exercise of
options or similar derivative securities or otherwise as compensation. This
discussion assumes that Servico or any Impac Affiliated Company shareholders and
Impac unitholders hold their respective shares of stock or units as capital
assets within the meaning of Section 1221 of the Code.
Servico has received an opinion from its counsel, Stearns Weaver, that
the Servico Merger will (a) qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code and (ii) Lodgian and Servico will each be
a "party to a reorganization" within the meaning of Section 368(b) of the Code
with respect to the Servico Merger. Impac has received an opinion from its
counsel, Powell Goldstein, that each of the Impac Affiliated Companies Mergers,
except the IHD Merger, will (a) qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code and (b) Lodgian and each of the Impac
Affiliated Companies will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code with respect to the Impac Affiliated
Companies Mergers; and that the Impac Merger and the IHD Merger (x) will be
considered part of an integrated plan that includes the Servico Merger and, as
such, (y) the exchange of Impac Units by the Impac Unitholders and IHD Common
Stock by IHD shareholders for Lodgian Common Stock will be considered to be a
transfer to a controlled corporation within the meaning of Section 351(a) of the
Code. The opinions of counsel are based, in part, upon certain covenants,
assumptions, and representations contained in certificates of officers of
Servico, Impac and Impac Affiliated Companies. In addition, it is a condition to
the obligations of Servico and Impac under the Merger Agreement that the
companies receive similar opinions as of the date the Merger is consummated.
Neither Servico nor Impac intends to secure a ruling from the Internal Revenue
Service (the "IRS") with respect to the tax consequences of the Merger. Servico,
Impac and the Impac Affiliated Companies believe, based on the
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opinions of Stearns Weaver and Powell Goldstein, that the Merger will have the
federal income tax consequences discussed below. The opinions of counsel to be
delivered on the date the Merger is consummated will assume the absence of
changes in existing facts and may rely on assumptions, representations and
covenants including those contained in certificates of officers of Servico,
Impac, Impac Affiliated Companies and others. The tax opinions neither bind nor
preclude the IRS from adopting a contrary position. Rather, an opinion of
counsel only sets forth such counsel's legal judgment and has no binding effect
or official status of any kind, and no assurance can be given that contrary
positions will not be successfully asserted by the IRS or adopted by a court if
the issues are litigated. Further, it must be emphasized that Stearns Weaver's
and Powell Goldstein's opinions each will be based upon certain assumptions and
will be conditioned upon certain representations as to factual matters made by
the managements of Servico, Impac, and Impac Affiliated Companies, including
assumptions and representations regarding the operations of Lodgian and the new
ownership of Lodgian's Common Stock by Servico's and Impac Affiliated Companies'
shareholders and Impac's unitholders after the Merger. In the event that the
representations are inaccurate or the assumptions upon which the opinions are
based prove incorrect, the opinions could be rendered invalid. Copies of Stearns
Weaver's and Powell Goldstein's opinions will be transmitted promptly without
charge to Servico shareholders and Impac Members, respectively, upon written
request, to:
In the case of Servico: In the case of Impac:
Charles M. Diaz, Secretary Robert M. Cole, Manager
Servico, Inc. Two Live Oak Center
1601 Belvedere Road 3445 Peachtree Road, N.E., Suite 700
West Palm Beach, Florida 33406 Atlanta, Georgia 30326
TAX IMPLICATIONS TO SERVICO SHAREHOLDERS AND IMPAC UNITHOLDERS. In
general, (a) no gain or loss will be recognized for federal income tax purposes
by holders of Servico or Impac Affiliated Companies Common Stock or Impac Units
who exchange their Servico or Impac Affiliated Companies Common Stock or Impac
Units for Lodgian Common Stock pursuant to the Merger except, as discussed
below, to the extent that an Impac unitholder's allocable share of Impac
indebtedness exceeds such unitholder's adjusted basis in his Impac Units at the
time of the Merger and except to the extent of cash received in lieu of
fractional shares, and (b) the aggregate tax basis of Lodgian Common Stock
received by a shareholder or unitholder as a result of the Merger will be the
same as the shareholder's or unitholder's adjusted tax basis in the Servico or
Impac Affiliated Companies Common Stock or Impac Units surrendered in the Merger
(reduced by any such tax basis allocable to fractional shares for which cash is
received). The holding period of the Lodgian Common Stock held by each former
Servico or Impac Affiliated Companies shareholder or Impac unitholder as a
result of the Merger will include the period during which such shareholder or
unitholder held the Servico or Impac Affiliated Companies Common Stock or Impac
Units exchanged. If a shareholder or unitholder has differing bases and/or
holding periods in respect of its shares of Servico or Impac Affiliated
Companies Common Stock or Impac Units, he should consult his own tax advisor
prior to the Merger with regard to identifying the bases and/or holding periods
of the particular shares of Lodgian Common Stock received in the Merger. Cash
received by a holder of Impac Units or shareholders of Impac Affiliated
Companies in lieu of a fractional share interest in Lodgian Common Stock will
result in the recognition of gain or loss for federal income tax purposes,
measured by the difference between the amount of cash received and the portion
of the tax basis of a share of an Impac Unit allocable to such fractional share
interest. Such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if such Impac Unit has been held for more than one year at
the Effective Time.
As stated above, an Impac unitholder will recognize gain as a result of
the Impac Merger if the unitholder's allocable share of Impac indebtedness
immediately prior to the Impac Merger exceeds such unitholder's adjusted basis
in his Impac Units at such time. Lodgian will advise Impac unitholders in
writing by mail of their allocable share of Impac indebtedness, together with
all other information required to file their tax returns within the time period
required by the Code and the regulations promulgated thereunder. The amount of
such gain will be equal to the excess of such share of allocable indebtedness
over such unitholder's basis in his Units. For example, if an Impac unitholder's
allocable share of Impac indebtedness immediately prior to the Impac Merger is
$45,000 and the unitholder's basis in his Impac Units is $30,000 at such time,
then the Impac unitholder will recognize gain equal to
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$15,000 (the excess of $45,000, the unitholder's allocable share of
indebtedness, over $30,000, the unitholder's basis in the Impac units) as a
result of the Merger.
A determination of the amount of gain that might be recognized by an
Impac unitholder as a result of the Merger cannot be made with complete accuracy
prior to the Merger because each unitholder's allocable share of Impac
indebtedness as of the time of the Merger cannot be determined currently. The
most recent determination of each unitholder's allocable share of Impac
indebtedness was made as of December 31, 1997, and was reported to the
unitholders on the 1997 IRS Schedule K-1 issued to the unitholders by Impac. In
addition, an Impac unitholder's basis is a determination that must be made by
each unitholder and cannot be made by Impac. A unitholder, most likely, would
have needed to determine his basis in his Units in connection with the
preparation of his federal 1997 income tax return. In order for a unitholder to
determine his basis in his Impac Units at the time of the Merger, the unitholder
would need to adjust his basis, if so determined as of December 31, 1997, for
his allocable share of Impac income or loss for the period January 1, 1998
through the date of the Merger, distributions made to the unitholder by Impac
during such period, and for such other items as may be taken into account in
determining a unitholder's basis in his Impac units.
The character of such gain will be capital gain, assuming that an Impac
unitholder holds his Impac Units as a capital asset, except to the extent that
the gain is attributable to unrealized receivables (including depreciation
recapture gain, if any, computed as if Impac had sold its properties at their
fair market values) and inventory items of Impac, which gain will be taxed as
ordinary income. In addition, an Impac unitholder will not need to compute the
amount of gain recognized in connection with the Merger separately with respect
to each block of Impac Units exchanged in the Merger, even if the unitholder
acquired the Impac Units in separate transactions and would have a different
basis with respect to each set of Impac Units so acquired. A member that holds
more than one interest in a limited liability company that is treated as a
partnership for federal income tax purposes is considered to have a single
interest in the entity, with a basis in the interest equal to the aggregate of
the bases of all the individual interests in the limited liability company, for
purposes of computing any gain recognized with respect to such member's
allocable share of limited liability company indebtedness that is in excess of
basis.
Any gain recognized by an Impac unitholder that is capital gain will be
considered long-term capital gain, taxed at a maximum federal rate of 28%, so
long as the Impac unitholder has held his Impac Units for more than one (1)
year. If the Impac unitholder has held his Impac units for more than 18 months,
any capital gain recognized by the Impac unitholder will be subject to the
maximum federal capital gains tax rate of 20%. Any gain recognized that is other
than long-term capital gain will be taxed at federal income tax rates of up to
39.6%.
BACKUP WITHHOLDING. Unless a holder or unitholder complies with certain
reporting and certification procedures or is an "exempt recipient" (i.e., in
general, corporations and certain other entities), the holder may be subject to
withholding tax of 31% with respect to any cash payments received pursuant to
the Merger.
TAX IMPLICATIONS TO LODGIAN, SERVICO, IMPAC, IMPAC AFFILIATED
COMPANIES, SERVICO MERGER SUB AND IMPAC MERGER SUB. No gain or loss will be
recognized for federal income tax purposes by Lodgian, Servico, Impac, Impac
Affiliated Companies, Servico Merger Sub or Impac Merger Sub as a result of the
formation of either Lodgian, Servico Merger Sub or Impac Merger Sub or as a
result of the Merger.
THE DISCUSSION SET FORTH ABOVE UNDER "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY, AND DOES NOT
PURPORT TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER. IN ADDITION, THE FOREGOING DISCUSSION DOES NOT
ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL
CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR
ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER. THIS DISCUSSION DOES
NOT ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE MERGER.
ACCORDINGLY, EACH SHAREHOLDER OR UNITHOLDER IS STRONGLY URGED TO CONSULT WITH
SUCH SHAREHOLDER'S OR UNITHOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR
UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES
OF THE MERGER TO SUCH SHAREHOLDER OR UNITHOLDER.
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ACCOUNTING TREATMENT
Lodgian will account for the Merger by the purchase method of
accounting under generally accepted accounting principles ("GAAP"). Under GAAP,
Servico is the accounting acquirer with Lodgian being the successor in interest
to Servico. Servico's values will be carried over to Lodgian and the excess of
Servico's cost of acquisition of Impac over the fair value of Impac's assets and
liabilities to be acquired in the Merger, if any, will be recorded as goodwill
and amortized over a period not to exceed 40 years. It is anticipated that upon
consummation of the Merger, the fiscal year of Lodgian will be the calendar
year.
ANTI-TRUST APPROVAL
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the United States Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. Servico and Impac filed notification and report forms under the HSR
Act with the FTC and the Antitrust Division on May 29, 1998 and on June 28, 1998
the above-referenced waiting period expired. The Antitrust Division nevertheless
has the authority to challenge the Merger on antitrust grounds before or after
the Merger is completed.
NO APPRAISAL RIGHTS
Holders of Servico Common Stock, Impac Affiliated Company Common Stock
and Impac Units are not entitled to appraisal rights in connection with the
Merger under applicable state laws.
STOCK EXCHANGE LISTING
Lodgian will file an application to list the shares of Lodgian Common
Stock to be issued in connection with the Merger on the NYSE, subject to
approval of the Merger Agreement by Servico's shareholders and Impac's
unitholders and official notice of issuance. It is anticipated that the shares
of Lodgian Common Stock will be traded on the NYSE under the ticker symbol
"LOD" or another symbol selected by Lodgian.
DELISTING AND DEREGISTRATION OF SERVICO COMMON STOCK
If the Merger is consummated, the shares of Servico Common Stock will
be delisted from the NYSE and will be deregistered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
SECURITIES LAW RESTRICTIONS
The shares of Lodgian Common Stock to be issued to shareholders of
Servico, shareholders of the Impac Affiliated Companies and unitholders of Impac
in connection with the Merger have been registered under the Securities Act of
1933, as amended (the "Securities Act"). All shares of Lodgian Common Stock
received by holders of Servico Common Stock, Impac Affiliated Company Common
Stock and Impac Units upon consummation of the Merger will be freely
transferable under the Securities Act, except for such shares of Lodgian Common
Stock received by persons who are deemed to be "Affiliates" of Servico, any
Impac Affiliated Company or Impac, respectively, for purposes of Rule 145 under
the Securities Act at the time of the Servico Annual Meeting and the effective
date of the consent of the Impac unitholders, as the case may be. "Affiliates"
are generally defined as persons who control, are controlled by, or are under
common control with, Servico, any Impac Affiliated Company or Impac, as the case
may be (generally, certain executive officers, directors and principal
shareholders or unitholders).
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<PAGE> 63
Shares of Lodgian Common Stock acquired by Affiliates in connection
with the Merger may be resold by such Affiliates only in transactions permitted
under Rule 145 or as otherwise permitted under the Securities Act. In general,
under Rule 145, for two years following the Effective Time, an Affiliate
(together with certain related persons) would be entitled to sell shares of
Lodgian Common Stock acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares to be sold by an Affiliate (together with
certain related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed the greater of one
percent of the outstanding shares of Lodgian Common Stock or the average weekly
trading volume of such stock during the four calendar weeks preceding such sale.
Rule 145 would only remain available, however, to Affiliates if Lodgian remained
current with its informational filings with the SEC under the Exchange Act. Two
years after the Effective Time, an Affiliate would be able to sell his shares
without any restrictions so long as such Affiliate had not been an Affiliate of
Lodgian for at least three months prior thereto.
Impac has agreed in the Merger Agreement to use its best efforts to
deliver or cause to be delivered to Servico a letter executed by each person
identified as an Affiliate of Impac and each other person, who may be deemed an
Affiliate of Impac. Lodgian will place a legend on the certificates representing
shares of its Common Stock received by such person in the Merger, to the effect
that such shares may be sold, transferred or conveyed only in accordance with
Rule 145(d), pursuant to an effective registration statement under the
Securities Act, or pursuant to an exemption from registration under the
Securities Act and such legend may be placed on the certificates regardless of
whether such person has executed and delivered a letter to Servico or Impac.
Lodgian will also be entitled to issue stop transfer instructions to its
transfer agent in accordance with the restrictions set forth on such legends.
Such restrictions will apply to all purported sales, transfers or conveyances of
shares of Lodgian Common Stock received in exchange for Servico Common Stock or
Impac Units by such persons.
In connection with the above, Lodgian will grant certain "piggy-back"
registration rights pursuant to a Registration Rights Agreement to those
unitholders of Impac and shareholders of the Impac Affiliated Companies who
receive Lodgian Common Stock in the Merger and who (i) as a result of the
Merger, become subject to the restrictions on the sale of such Lodgian Common
Stock pursuant to Rule 145 discussed above and (ii) would be prohibited from
selling, over a 12 month period, all of their respective shares of Lodgian
Common Stock received in the Merger by virtue of the volume limitations set
forth in Rule 145. See "The Merger Agreement -- Registration Rights Agreement."
THE FOLLOWING DESCRIPTION OF CERTAIN TERMS OF THE MERGER AGREEMENT IS ONLY A
SUMMARY DESCRIBING THE MATERIAL TERMS OF SUCH AGREEMENT BUT DOES NOT PURPORT TO
BE COMPLETE. THE FOLLOWING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX A AND INCORPORATED BY
REFERENCE HEREIN. CAPITALIZED TERMS USED IN THIS SECTION AND NOT OTHERWISE
DEFINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL HAVE THE MEANINGS
ASCRIBED TO THEM IN THE MERGER AGREEMENT.
THE MERGER AGREEMENT
GENERAL
Servico has formed Lodgian and Servico Merger Sub and Impac Merger Sub
as wholly-owned subsidiaries of Lodgian. The Merger Agreement contemplates the
merger of Servico Merger Sub with and into Servico, with Servico being the
surviving entity, and the merger of Impac Merger Sub with and into Impac, with
Impac being the surviving entity and the merger of each of the Impac Affiliated
Subs into the respective Impac Affiliated Companies, with each of the Impac
Affiliated Companies being the surviving entity. The Merger will become
effective upon the filing of Articles or Certificates of Merger relating to each
of the various mergers with the Secretary of State of the State of incorporation
or organization of the
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<PAGE> 64
merger entities or at such later time as may be set forth in such documents. At
the Effective Time, Servico, Impac and each of the Impac Affiliated Companies
will become wholly-owned subsidiaries of Lodgian.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time:
(a) each issued and outstanding share of Servico Common Stock
(excluding shares owned by Impac or any wholly-owned subsidiary of Servico or
Impac, but including any shares held by any Servico employee benefit plan) and
all rights in respect thereof, will be converted into one share of Lodgian
Common Stock;
(b) each issued and outstanding Impac Unit (excluding Impac
Units owned by Servico, Holdings, any Impac Affiliated Company or any
wholly-owned subsidiary of Servico or Impac), and all rights in respect thereof,
will be converted into a certain number of shares of Lodgian Common Stock equal
to the quotient of (i) the difference between 6,099,347.79 (the "Impac Base
Number") and 1,153,930.66 divided by (ii) the number of outstanding Impac Units
(excluding Impac Units owned by Servico, Holdings, any Impac Affiliated Company
or any wholly-owned subsidiary of Servico or Impac); provided, however, that if
the average of the closing sale prices per share of Servico Common Stock on the
NYSE over the ten consecutive trading periods preceding the date on which all
conditions precedent to the Merger have been satisfied (the "Trading Period
Average") is (i) less than $14.00 per share, the Impac Base Number will be equal
to the product of the Impac Base Number and a fraction, the numerator of which
is $14.00 and the denominator of which is the Trading Period Average, or (ii)
greater than $25.00 per share, the Impac Base Number will be equal to the
product of the Impac Base Number and a fraction, the numerator of which $25.00
and the denominator of which is the Trading Period Average (such ratio of Impac
Units to shares of Lodgian Common Stock being referred to as the "Impac Exchange
Ratio");
(c) each issued and outstanding share of P-Burg Common Stock
and all rights in respect thereof, will be converted into a certain number of
shares of Lodgian Common Stock equal to the quotient of (i) the difference
between 135,580.25 (the "P-Burg Base Number") and 25,650.32 divided by (ii) the
number of outstanding shares of P-Burg Common Stock; provided, however, that if
the Trading Period Average is (i) less than $14.00, the P-Burg Base Number shall
be equal to the product of the P-Burg Base Number and a fraction, the numerator
of which is $14.00 and the denominator of which is the Trading Period Average,
and (ii) if the Trading Period Average is greater than $25.00, the P-Burg Base
Number shall be equal to the product of the P-Burg Base Number and a fraction,
the numerator of which is $25.00 and the denominator of which is the Trading
Period Average;
(d) each issued and outstanding share of Hazard Common Stock
and all rights in respect thereof will be converted into a certain number of
shares of Lodgian Common Stock equal to the quotient of (i) the difference
between 71,358.72 (the "Hazard Base Number") and 13,500.30 divided by (ii) the
number of outstanding shares of Hazard Common Stock; provided, however, that if
the Trading Period Average is (i) less than $14.00, the Hazard Base Number shall
be equal to the product of the Hazard Base Number and a fraction, the numerator
of which is $14.00 and the denominator of which is the Trading Period Average,
and (ii) if the Trading Period Average is greater than $25.00, the Hazard Base
Number shall be equal to the product of the Hazard Base Number and a fraction,
the numerator of which is $25.00 and the denominator of which is the Trading
Period Average;
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(e) each issued and outstanding share of Memphis Common Stock
and all rights in respect thereof will be converted into a certain number of
shares of Lodgian Common Stock equal to the quotient of (i) the difference
between 98,382.79 (the "Memphis Base Number") and 18,612.96 divided by (ii) the
number of outstanding shares of Memphis Common Stock; provided, however, that if
the Trading Period Average is (i) less than $14.00, the Memphis Base Number
shall be equal to the product of the Memphis Base Number and a fraction, the
numerator of which is $14.00 and the denominator of which is the Trading Period
Average, and (ii) if the Trading Period Average is greater than $25.00, the
Memphis Base Number shall be equal to the product of the Memphis Base Number and
a fraction, the numerator of which is $25.00 and the denominator of which is the
Trading Period Average;
(f) each issued and outstanding share of Delk Common Stock and
all rights in respect thereof will be converted into a certain number of shares
of Lodgian Common Stock equal to the quotient of (i) the difference between
46,997.66 (the "Delk Base Number") and 8,891.45 divided by (ii) the number of
outstanding shares of Delk Common Stock; provided, however, that if the Trading
Period Average is (i) less than $14.00, the Delk Base Number shall be equal to
the product of the Delk Base Number and a fraction, the numerator of which is
$14.00 and the denominator of which is the Trading Period Average, and (ii) if
the Trading Period Average is greater than $25.00, the Delk Base Number shall be
equal to the product of the Delk Base Number and a fraction, the numerator of
which is $25.00 and the denominator of which is the Trading Period Average;
(g) each issued and outstanding share of IHD Common Stock and
all rights in respect thereof will be converted into a certain number of shares
of Lodgian Common Stock equal to the quotient of (i) the difference between
820,663.73 (the "IHD Base Number") and 155,260.71 divided by (ii) the number of
outstanding shares of IHD Common Stock; provided, however, that if the Trading
Period Average is (i) less than $14.00, the IHD Base Number shall be equal to
the product of the IHD Base Number and a fraction, the numerator of which is
$14.00 and the denominator of which is the Trading Period Average, and (ii) if
the Trading Period Average is greater than $25.00, the IHD Base Number shall be
equal to the product of the IHD Base Number and a fraction, the numerator of
which is $25.00 and the denominator of which is the Trading Period Average;
(h) each issued and outstanding share of IDC Common Stock and
all rights in respect thereof will be converted into a certain number of shares
of Lodgian Common Stock equal to the quotient of (i) the difference between
47,875.89 (the "IDC Base Number") and 9,057.60 divided by (ii) the number of
outstanding shares of IDC Common Stock; provided, however, that if the Trading
Period Average is (i) less than $14.00, the IDC Base Number shall be equal to
the product of the IDC Base Number and a fraction, the numerator of which is
$14.00 and the denominator of which is the Trading Period Average, and (ii) if
the Trading Period Average is greater than $25.00, the IDC Base Number shall be
equal to the product of the IDC Base Number and a fraction, the numerator of
which is $25.00 and the denominator of which is the Trading Period Average;
(i) each issued and outstanding share of IHG Common Stock and
all rights in respect thereof will be converted into a certain number of shares
of Lodgian Common Stock equal to the quotient of (i) the difference between
79,793.17 (the "IHG Base Number") and 15,096.00 divided by (ii) the number of
outstanding shares of IHG Common Stock; provided, however, that if the Trading
Period Average is (i) less than $14.00, the IHG Base Number shall be equal to
the product of the IHG Base Number and a fraction, the numerator of which is
$14.00 and the denominator of which is the Trading Period Average, and (ii) if
the Trading Period Average is greater than $25.00, the IHG Base Number shall be
equal to the product of the IHG Base Number and a fraction, the numerator of
which is $25.00 and the denominator of which is the Trading Period Average;
The sum of the Impac Base Number, the P-Burg Base Number, the Hazard
Base Number, the Memphis Base Number, the Delk Base Number, the IHD Base Number,
the IDC Base Number and the IHG Base Number shall be referred to as the "Base
Number."
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Additionally, (a) each share of Servico Common Stock owned by Impac or
any wholly-owned subsidiary of Servico or Impac and each Impac Unit owned by
Servico, Holdings, any Impac Affiliated Company or any wholly-owned subsidiary
of Servico or Impac will be canceled and retired; (b) each share of Lodgian
Common Stock held by Servico will be canceled and retired, (c) each Class B
Ordinary Membership Interest of Impac (the "Class B Interest") will be canceled
and retired, and (d) each outstanding and unexercised option or warrant granted
by Servico to purchase shares of Servico Common Stock immediately prior to the
Effective Time will be assumed by Lodgian and converted into an option or
warrant to purchase shares of Lodgian Common Stock. See "Interests of Certain
Persons in the Merger -- Arrangements with Executive Officers." Additionally,
upon the opening of five of Impac's hotels currently under development, the
Impac unitholders and the Impac Affiliated Company shareholders will receive as
an "earn-out" the Impac Additional Shares as described below. A pro rated
portion of the Impac Additional Shares will be issued following the opening of
each development hotel. Certificates representing the Impac Additional Shares
will be delivered at the closing date of the Merger to the exchange agent, which
is appointed by Lodgian to effect the exchange of Servico Common Stock, Impac
Affiliated Company Common Stock and Impac Units for Lodgian Common Stock (the
"Exchange Agent"), as escrow agent, to be held and delivered to the former
holders of Impac Units and former shareholders of the Impac Affiliated Companies
upon the opening of Impac's hotels. The escrow agreement will provide for the
Impac Additional Shares to be released from escrow from time to time upon the
opening of each hotel (the "Milestone Date") in accordance with the following
schedule: (i) Marriott, Portland, Oregon - 490,000 shares; (ii) Marriott,
Denver, Colorado - 350,000 shares; (iii) Hilton Garden Inn, Lake Oswego, Oregon
- - 238,000 shares; (iv) Courtyard by Marriott, Livermore, California - 168,000
shares; and (v) Hilton Garden Inn, Rio Rancho, New Mexico - 154,000 shares.
Assuming that there is no adjustment of the Base Number of Shares to be
issued, the following table reflects the shares of Lodgian common stock to be
issued in connection with the Merger to each holder of an Impac Unit and each
holder of one share of Servico Common Stock:
<TABLE>
<CAPTION>
UPON OPENING EACH OF THE DEVELOPMENT HOTELS
LODGIAN ANTICIPATED
SHARES UPON COMPLETION NUMBER
MERGER NAME OF HOTEL DATE OF SHARES
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Servico Common Stock 1 N/A N/A 0
---
Impac Unit
Total Upon Merger 0.519
Marriott, Portland, OR 1st Quarter 1999 0.042
Marriot, Denver, CO 4th Quarter 1998 0.030
Hilton Garden Inn, Lake 4th Quarter 1999 0.021
Oswego, OR
Courtyard by Marriott, 1st Quarter 1999 0.015
Livermore, CA
Hilton Garden Inn, Rio 1st Quarter 1999 0.013
Rancho, NM
Total Upon Opening of
Development Hotels 0.121
Impac Total 0.640
</TABLE>
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If the Trading Period Average of Servico Common Stock is less than
$14.00 or more than $25.00, the Base Number of Lodgian shares will be adjusted.
If the Trading Period Average is less than $14.00 per share, the Base Number
will be determined by dividing $103.6 million by the Trading Period Average. If
the Trading Period Average is more than $25.00 per share, the Base Number will
be determined by dividing $185 million by the Trading Period Average. The
following table reflects the affect on the Impac Exchange Ratio of an adjustment
of the Base Number at selected Trading Period Averages assuming the full release
of all Impac Additional Shares (0.121 Lodgian Shares per Unit).
TRADING LODGIAN SHARES
PERIOD AVERAGE UPON MERGER
-------------- --------------
$13.00 0.689
$13.25 0.676
$13.50 0.664
$13.75 0.652
$14.00-25.00 0.640
$25.25 0.634
$25.50 0.628
$25.75 0.621
$26.00 0.615
EXCHANGE OF SHARES
Subject to the terms and conditions of the Merger Agreement, at or
prior to the Effective Time, an Exchange Agent will be appointed by Lodgian to
effect the exchange of certificates representing the Servico Common Stock, Impac
Affiliated Company Common Stock and the Impac Units for certificates
representing shares of Lodgian Common Stock. Lodgian will from time to time
deposit certificates representing shares of Lodgian Common Stock with the
Exchange Agent for the conversion of shares as described above in
"--Consideration to be Received in the Merger." Commencing immediately after the
Effective Time and until the appointment of the Exchange Agent shall be
terminated, each holder of Servico Common Stock, Impac Affiliated Company Common
Stock or Impac Units may submit his or her certificates to the Exchange Agent
(or directly to Lodgian if the appointment of the Exchange Agent has been
terminated), together with a duly signed letter of transmittal. In exchange for
such share certificates, each holder will receive certificates representing the
number of shares of Lodgian Common Stock to which such holder is entitled. All
such shares of Lodgian Common Stock will be deemed to have been issued at the
Effective Time; provided, however, that the Impac Additional Shares will not be
deemed to be issued or outstanding until issuable on the applicable Milestone
Date. Until their shares are surrendered, holders of unexchanged shares of
Servico Common Stock, Impac Affiliated Company Common Stock or Impac Units will
not be entitled to receive any dividends or other distributions payable by
Lodgian. Upon surrender, however, subject to applicable laws, such holders will
receive accumulated dividends and distributions, without interest.
No fractional shares of Lodgian Common Stock will be issued to holders
of Servico Common Stock, Impac Affiliated Company Common Stock or Impac Units.
For each fractional share that would otherwise be issued, the Exchange Agent
will pay to holders of Servico Common Stock, Impac Affiliated Company Common
Stock and Impac Units an amount equal to either (a) a pro rata portion of the
proceeds of the sale by the Exchange Agent of shares of Lodgian Common Stock
representing the aggregate of all such fractional shares, such sale to be
executed by the Exchange Agent at then prevailing prices on the NYSE, as
promptly after the Effective Time (or Milestone
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Date, as applicable) as, in the Exchange Agent's reasonable judgment, is
consistent with obtaining the best execution of such sales in light of
prevailing market conditions, or (b) at the option of Servico, an amount equal
to the product obtained by multiplying (i) the fractional share interest to
which such holder would otherwise be entitled (after taking into account all
shares of Servico Common Stock, Impac Affiliated Company Common Stock and the
Impac Units held at the Effective Time by such holder) by (ii) the closing price
for a share of Lodgian Common Stock on the NYSE Composite Transaction Tape on
the first business day immediately following the Effective Time or the
applicable Milestone Date, as the case may be.
LODGIAN FOLLOWING THE MERGER
HEADQUARTERS. The Restated Bylaws of Lodgian provide that the initial
headquarters of Lodgian will be located in Atlanta, Georgia.
BOARD. The Merger Agreement provides that, at the Effective Time, the
Lodgian Board will consist of eight members (unless otherwise agreed to in
writing by Servico and Impac), five of whom will be Servico Directors, two of
whom will be Impac Directors, and one of whom will be selected by both Impac and
Servico. The term "Servico Director" means any person who is designated by
Servico to become a director of Lodgian at the Effective Time in accordance with
the terms of the Merger Agreement, and the term "Impac Director" means any
person who is designated by Impac to become a director of Lodgian at the
Effective Time. The Lodgian Board will be divided into three classes, designated
as Class I, Class II and Class III. The initial directors of Lodgian and initial
allocations of the directors among the three classes is as follows: (a) Class I
will consist of two directors, comprised of Peter R. Tyson, a Servico Director,
and one director selected by both Servico and Impac; (b) Class II will consist
of three directors, comprised of two Servico Directors, Joseph C. Calabro and
Michael Leven, and one Impac Director, John Lang; and (c) Class III will consist
of three directors, comprised of David A. Buddemeyer and Richard H. Weiner, both
of whom are Servico Directors, and Robert S. Cole, an Impac Director. Such
directors shall serve as the directors of Lodgian from and after the Effective
Time in accordance with the Restated Certificate and Restated Bylaws of Lodgian
until their successors are elected or appointed and qualified or until their
resignation or removal. In the event that, prior to the Effective Time, any
person so selected to serve on the Board of Directors of Lodgian is unable or
unwilling to serve in such position, the company that selected such person shall
designate another person to serve in such person's stead. From and after the
Effective Time, the composition of the Board of Directors shall be determined in
accordance with the Restated Certificate and Restated Bylaws of Lodgian.
EXECUTIVE OFFICERS. At the Effective Time, subject to the Bylaws of
Lodgian and each of the Surviving Entities, (i) David A. Buddemeyer will hold
the position of Chief Executive Officer of Lodgian and each of the Surviving
Entities, (ii) Robert S. Cole will hold the position of President of Lodgian and
each of the Surviving Entities, and (iii) David Buddemeyer and Robert Cole will
hold the positions of Co-Chairmen of the Board of Directors of Lodgian and
each of the Surviving Entities. If any of such persons is unable or unwilling to
hold such offices as set forth above, his successor shall be selected by the
Board of Directors of Lodgian or the Surviving Entities in accordance with their
respective Bylaws.
FUTURE OPERATIONS. As indicated in the Pro Forma Combined Condensed
Consolidated Financial Information, it is anticipated that as a result of the
Merger each of Impac and Servico will be part of a combined company with
increased revenues, increased expenses and increased indebtedness. Assuming no
savings associated with the elimination of duplicative functions or from
operating synergies, the combined company would have recognized income before
extraordinary items of approximately $8.5 million for the year ended 1997 and
income before extraordinary items of approximately $47,000 for the quarter ended
March 31, 1998. As discussed throughout this Joint Proxy Statement/Prospectus,
Servico and Impac anticipate that their liquidity and capital resources will be
improved as a consequence of the Merger by virtue of the greater geographic
diversity of the combined company's properties and by its increased revenues and
size. See "Risk Factors-Risks Associated with High Levels of Debt," "The
Merger-Reasons for the Merger; Negative Considerations and Potential
Disadvantages of the Merger; Recommendation of Servico's Board and Impac's
Manager;" and "Lodgian, Inc. Unaudited Pro Forma Combined Consolidated Financial
Statements".
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DIVIDENDS. Pursuant to the Restated Bylaws of Lodgian, dividends will
be declared only out of any assets or funds of Lodgian legally available for the
payment of dividends at such times as the Lodgian Board directs. It is currently
anticipated that Lodgian will retain future earnings for business use and does
not expect to declare or pay any dividends in the foreseeable future.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties of
Servico, the Impac Affiliated Companies and Impac as to, among other things, due
organization and good standing, capitalization, ownership of subsidiaries,
corporate authority to enter into the contemplated transactions, the accuracy of
recent reports filed by Servico with the SEC and the financial statements
contained therein and of Impac, tax matters, regulatory matters, the absence of
contractual defaults, title to real and personal property and condition of
assets, the absence of material adverse changes or events, litigation,
compliance with laws, environmental matters, required board, manager,
shareholder and unitholder approvals, accounting matters and conflicts with
organizational documents and material agreements.
CERTAIN COVENANTS
The Merger Agreement also provides that, prior to the Effective Time,
Servico and Impac and their respective subsidiaries will, subject to specified
exceptions, each conduct their respective businesses in the ordinary course
consistent with past practices and will use all reasonable good faith efforts to
preserve intact their business organization and goodwill in all material
respects, to continuously maintain insurance coverage substantially equivalent
to the insurance coverage in existence prior to the Effective Time and to
preserve their present relationships with franchisors, licensors, distributors,
suppliers and others with whom each has business relationships. Without limiting
the foregoing, the Merger Agreement places specific restrictions on the ability
of Impac and its subsidiaries to: (i) amend or otherwise change its Articles of
Organization, Articles or Certificate of Incorporation, Operating Agreement,
Bylaws or other charter documents; (ii) issue, sell or authorize for issuance or
sale, any membership interests or shares of any class of its securities
(including, but not limited to, by way of stock split or dividend) or other
equity interests or any subscriptions, options, warrants, rights or convertible
securities or enter into any agreements or commitments obligating it to issue or
sell any such membership interests, securities or other equity interests; (iii)
redeem, purchase or otherwise acquire, directly or indirectly, any of its
membership interests or any shares of capital stock or other equity interests or
any option, warrant or other right to purchase or acquire any such shares,
membership interests or other equity interests or return all or any portion of
any capital contributions; (iv) enter into any commitment or transaction
(including, but not limited to, any capital expenditure or sale of assets),
other than in the ordinary course of business consistent with past practices;
provided, however, if the commitment or transaction involves the receipt (or
potential receipt) or payment (or potential payment) of in excess of Five
Hundred Thousand Dollars ($500,000), Servico's consent will be required; (v)
create, incur or assume any indebtedness (including purchase money financing),
except in the ordinary course of business consistent with past practices under
an existing loan availability (but in no event in an aggregate amount exceeding
Two Hundred Fifty Thousand Dollars ($250,000) more than is currently owed), and
certain other identified indebtedness, or any lien, pledge, mortgage or other
encumbrance affecting any of its assets; (vi) pay, discharge or satisfy claims,
liabilities or obligations which involve payments or commitments to make
payments which exceed normal business operating requirements, consistent with
past practice; (vii) cancel any debts or waive any claims or rights other than
immaterial debts or claims, in the ordinary course of business and consistent
with past practice, of persons who would not be deemed affiliates of Impac or
its subsidiaries; (viii) make any loans, advances or capital contributions to,
or investments in financial instruments of, any person or entity other than
capital contributions to subsidiaries of Impac consistent with past practices;
(ix) assume, guarantee, endorse or otherwise become liable or responsible for
the obligations of any other person or entity other than immaterial assumptions,
guarantees or endorsements made in the ordinary course of business consistent
with past practice in favor of persons who would not be deemed affiliates of
Impac or its subsidiaries; (x) grant any increase in the compensation payable or
pay any bonus to any of its managers, officers, employees, directors or
consultants or establish, adopt or increase any bonus, insurance or other
employee benefit plan, payment or arrangement made to or for any such persons
other than increases in the compensations or bonuses payable to such persons
other than Robert Cole or Robert
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Flanders in the ordinary course of business consistent with past practice; (xi)
enter into any employment agreement or grant any severance or termination pay
with or to any manager, officer or director or, except in the ordinary course of
business, any employee; (xii) declare or pay any dividend or other distribution
with respect to its membership interests or capital stock; (xiii) alter in any
material way the manner of keeping its books, accounts or records or its
accounting practices therein reflected; (xiv) enter into any agreement which
would be a material agreement or arrangement or terminate or materially amend
any existing material agreement or arrangement of Impac or its subsidiaries;
(xv) enter into any indemnification, contribution or similar agreement requiring
it to indemnify any other person or entity or make contributions to any other
person or entity other than immaterial indemnification, contribution or similar
agreements made in the ordinary course of business consistent with past
practices with persons who would not be deemed affiliates of Impac or its
subsidiaries; (xvi) do any act, or omit to do any act, or permit, to the extent
within Impac's control, any act or omission to act which would cause a material
violation or breach of any of the representations, warranties or covenants of
Impac set forth in the Merger Agreement; (xvii) enter into any agreement or take
any action which could have a material adverse effect on Impac (financial or
otherwise, an "Impac Material Adverse Effect"); or (xviii) agree, whether in
writing or otherwise, to do any of the foregoing.
Prior to the Effective Time, the Impac Affiliated Companies are
prohibited from conducting any business or commencing any operations other than
the passive ownership of Impac Units.
The Merger Agreement also places restrictions on the ability of Servico
and its subsidiaries to: (i) do any act, or omit to do any act, or permit, to
the extent within Servico's control, any act or omission to act which could
cause a material violation or breach of any of the representations, warranties
or covenants of Servico set forth in the Merger Agreement; (ii) enter into any
agreement or take any action which could have a material adverse effect on
Servico (financial or otherwise, a "Servico Material Adverse Effect"); (iii)
enter into any commitment or transaction which would be dilutive to Servico's
earnings per share in the fiscal year in which such transaction is consummated;
(iv) enter into any commitment or transaction outside of the ordinary course of
Servico's business requiring the payment of in excess of Two Million Dollars
($2,000,000) or create, incur or assume indebtedness in excess of Five Million
Dollars ($5,000,000) other than in connection with or related to the
acquisition, operation or renovation of hotel or hotel related properties; (v)
issue or sell any shares of Servico Common Stock or securities convertible into
Servico Common Stock other than either pursuant to or in connection with (A)
options granted to directors or employees or shares issued pursuant to currently
outstanding options or warrants and (B) transactions involving shares
representing no more than ten percent (10%) of the outstanding Servico Common
Stock; or (vi) agree, whether in writing or otherwise, to do any of the
foregoing. If prior to the Effective Time, Servico determines to acquire hotels
and related properties for an aggregate purchase price of more than One Hundred
Million Dollars ($100,000,000) (excluding any hotels currently under contract
such as the AMI Operating Partners, L.P. properties), then Servico shall
promptly notify Impac. If Impac reasonably determines that such acquisitions
will result in a material adverse effect or materially change the nature of
Servico's operations, then Impac may exercise its right to terminate the Merger
Agreement. See "The Merger Agreement -- Termination."
Servico and Impac also have agreed to cooperate and consult with each
other and will use their reasonable efforts to (i) take all reasonable action
within their control to consummate the Merger, (ii) obtain any necessary
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained in connection with the authorization, execution and
delivery of the Merger Agreement and consummation of the Merger, (iii) notify
the other of the occurrence or threatened occurrence of any event that would
either constitute a violation or breach of the Merger Agreement or cause any
representation or warranty made by any party in the Merger Agreement to be false
or misleading or any matter which would be required to be disclosed, (iv)
refrain from disclosing any confidential or proprietary information with respect
to the other party, (v) cause to be delivered to the other a "comfort" letter of
each of Ernst & Young L.L.P. and Pricewaterhouse Coopers L.L.P., (vi) prepare
and file the Registration Statement on Form S-4 of Lodgian in connection with
the registration under the Securities Act of the Lodgian Common Stock to be
issued in the Merger and this Joint Proxy Statement/Prospectus and to call the
meetings to vote upon the approval of the Merger Agreement and the Merger
contemplated thereby, (vii) make all necessary filings and any additional
submissions required under the rules or regulations of the NYSE, the Securities
Act, the Exchange Act or any other applicable federal or state securities law,
the HSR Act and any other applicable law, and (viii) obtain a
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release of any individuals from liability as guarantor of Impac's or its
subsidiaries' obligations to third parties under franchise agreements and other
related documentation and indemnify each such individual guarantor from and
against any liability such guarantor may incur after the Effective Time under
such guarantees as a result of Impac's or its subsidiaries' failure to satisfy
its obligations under such franchise agreements or related documentation. Impac
will cause the termination of a certain Development Agreement between Impac and
IHD, dated March 10, 1998, prior to the closing date of the Merger so that Impac
and its subsidiaries have no further obligation to IHD or its assigns of its
rights under the agreement after such closing date, other than the payment of up
to a 4% development fee (not to exceed $2.5 million in the aggregate) in the
event and only in the event Lodgian acquires any of the twenty hotels or nine
properties identified in the Merger Agreement as in Impac's acquisition
pipeline. Impac will also cause all affiliates of Impac or its subsidiaries to
cease using any and all tradenames, trademarks, logos or other names containing
the word "Impac" or change its name to a name which does not use or include the
name "Impac."
The Merger Agreement provides that, prior to the Effective Time,
Servico and Impac will use their reasonable efforts to obtain the approval for
listing on the NYSE the shares of Lodgian Common Stock to be issued upon
consummation of the Merger.
RESTRICTIONS ON SOLICITATION OF ALTERNATIVE TRANSACTIONS
The Merger Agreement provides that unless and until the Merger
Agreement is terminated, neither Impac nor any Impac Affiliated Company will
(nor will either permit any of its managers, officers, directors, agents or
affiliates to) enter into a Competing Transaction (as defined below) and will
not, directly or indirectly: (i) from the period commencing on the date of the
Merger Agreement and ending on May 1, 1998 (unless required by law or an
appropriate confidentiality agreement), disclose any non-public information or
any other information not customarily disclosed to any person or entity
concerning the business or assets, or afford to any person or entity (other than
Servico and its designees) access to the books and records, of Impac or its
subsidiaries; and (ii) after May 1, 1998 or such later date during which Servico
is actively negotiating with any other third party with respect to any offer or
proposal regarding a Change of Control (as defined below), solicit, encourage,
initiate or participate in any negotiations or discussions with respect to any
offer or proposal to enter into a Competing Transaction, or, except as required
by law, disclose any nonpublic information or any other information not
customarily disclosed to any person or entity concerning the business and assets
of Impac and any Impac subsidiary, afford to any person or entity (other than
Servico and its designees) access to the books or records of Impac or any Impac
subsidiary or otherwise assist or encourage any person or entity in connection
with any of the foregoing. In the event Impac shall receive or become aware of
any offer or proposal of the type referred to in the foregoing sentence, Impac
shall promptly inform Servico as to any such offer or proposal. The term
"Competing Transaction" means the entering into by Impac of a binding agreement
to sell all or substantially all of the business, assets, capital stock or Units
of Impac or its subsidiaries, whether by merger, purchase of assets or
otherwise. The term "Change of Control" means either (a) a consensual merger,
consolidation, share exchange, business combination or similar consensual
transaction pursuant to which any person, or any "group" (as defined under
Section 13(d) of the Exchange Act) acquires more than 28% of the outstanding
shares of Servico Common Stock or (b) a sale, lease, exchange, transfer or other
disposition of all or substantially all of Servico's business in a single
transaction or series of related transactions.
CERTAIN BENEFITS MATTERS
Except as specifically set forth in the Merger Agreement, the employee
benefit plans of Servico and Impac covering employees or former employees in
effect as of the Effective Time will remain in effect, subject to their terms,
until Lodgian otherwise determines after the Effective Time. With respect to any
Servico Plan or benefit plan of Lodgian under which the delivery of Servico
Common Stock or Lodgian Common Stock, as the case may be, is required upon
payment of benefits, grant of awards or exercise of options (the "Stock Plans"),
Lodgian will take all corporate action necessary or appropriate to (i) obtain
shareholder approval with respect to such plan to the extent such approval is
required for purposes of the Code or other applicable law, or to enable such
plan to comply with Rule 16b- 3 of the Exchange Act, (ii) reserve for issuance
under such plan or otherwise provide a sufficient number of shares
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of Lodgian Common Stock for delivery upon payment of benefits, grant of awards
or exercise of options under such plan and (iii) as soon as practicable after
the Effective Time, file registration statements on Form S-3 or Form S-8, as
appropriate (or any successor or other appropriate forms), with respect to the
shares of Lodgian Common Stock subject to such plan to the extent such
registration statement is required under applicable law. Lodgian will also
reserve for issuance under the Lodgian 1998 Stock Incentive Plan that number of
shares of Lodgian Common Stock which equals seven and one-half percent (7 1/2%)
of the Base Number. Additionally, Mr. Cole will receive options to purchase two
and one-half percent (2 1/2%) of the Base Number pursuant to his employment
agreement with Lodgian. See "Interests of Certain Persons in the Merger." Such
options will be granted to employees of Impac or its subsidiaries effective as
of the closing date of the Merger Agreement and in the names and respective
allocations determined by the Lodgian Board after consideration of
recommendations from Robert Cole and the grants of stock options made to
employees in comparable positions at Servico and its subsidiaries. With respect
to those individuals who subsequent to the Merger will be subject to the
reporting requirements under Section 16(a) of the Exchange Act, Lodgian will
administer the Stock Plans, where applicable, in a manner that complies with
Rule 16b-3 promulgated under the Exchange Act.
INDEMNIFICATION AND INSURANCE
After the Effective Time, Lodgian will, and will cause the Surviving
Entities to, indemnify and hold harmless each present and former director,
manager, member, officer and agent of Servico and Impac (the "Indemnified
Parties"), against any costs or expenses (including attorneys' fees), judgments,
fines, losses, claims, damages, liabilities or amounts paid in settlement
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, to the fullest extent that Servico or Impac would have been
permitted under Florida or Georgia law, as the case may be, and its articles of
incorporation, articles of organization, operating agreement or bylaws in effect
on the date hereof to indemnify such Indemnified Party (and Lodgian and the
Surviving Entities will also advance expenses as incurred to the fullest extent
permitted under applicable law, provided the Indemnified Party to whom expenses
are advanced provides an undertaking to repay such advances if it is ultimately
determined that such Indemnified Party is not entitled to indemnification).
For a period of six (6) years after the Effective Time, Lodgian will
maintain or cause the Surviving Entities to maintain (to the extent available in
the market) in effect a directors' and officers' liability insurance policy
covering those persons who are currently covered by a Servico or Impac
directors' and officers' liability insurance policy with coverage in amount and
scope at least as favorable as Servico's or Impac's existing coverage; provided,
however, in no event will Lodgian or the Surviving Entities be required to
expend in the aggregate in excess of 200% of the annual premium currently paid
by Servico or Impac for such coverage; and if such premium would at any time
exceed 200% of such amount, then Lodgian or the Surviving Entities will maintain
insurance policies which provide the maximum and best coverage available at an
annual premium equal to 200% of such amount.
CERTAIN CONDITIONS
CONDITIONS OF EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE MERGER. The
obligations of each party to the Merger Agreement to consummate the Merger are
subject to the following: (a) the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part shall have become effective and no stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings therefor shall have been initiated by the
SEC and not concluded or withdrawn, (b) the Merger Agreement and the Merger
shall have been duly approved by the requisite vote of shareholders of Servico
and unitholders of Impac in accordance with applicable law, (c) no judicial or
administrative decision shall have been rendered, no law or regulation shall
have been enacted, and no litigation, arbitration or other proceeding shall be
pending or threatened, which enjoins, prohibits or materially restricts the
Merger or the transaction contemplated in the Merger Agreement, (d) any waiting
period applicable to the Merger under the HSR Act, or similar law shall have
elapsed, (e) all material governmental consents, approvals and authorizations
required to be obtained to consummate the Merger shall have been obtained, (f)
each of Ernst & Young L.L.P., Servico's independent public accountants, and
Pricewaterhouse Coopers L.L.P., Impac's
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independent public accountants, shall have delivered their "comfort" letters to
Servico and Impac, and (g) the shares of Lodgian Common Stock to be issued
pursuant to the Merger Agreement shall have been authorized for listing on the
NYSE, subject to official notice of issuance.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SERVICO. The obligations of
Servico to effect the Merger are further subject to all the following
conditions: (i) all representations and warranties of Impac and the Impac
Affiliated Companies contained in the Merger Agreement shall be true and correct
in all material respects as of the Effective Time (except for changes
contemplated or permitted by the Merger Agreement), (ii) Impac and the Impac
Affiliated Companies shall have performed or complied in all material respects
with all of the agreements, covenants and obligations required by the Merger
Agreement on or before the Effective Time, (iii) an Impac Material Adverse
Effect shall not have occurred (except as permitted by the Merger Agreement),
(iv) Servico shall have received an opinion from its counsel that the Merger
will be treated for federal income tax purposes as a reorganization qualifying
under the provisions of Section 368(a) of the Code, and that each of Servico,
Servico Merger Sub and Lodgian shall be a party to the reorganization within the
meaning of Section 368(b) of the Code, which opinion shall not have been
withdrawn or modified in any material respect, (v) Servico shall have received
from Powell Goldstein, legal counsel to Impac, an opinion letter with respect to
certain matters relating to the Merger and an opinion that no membership
interests or other securities issued by any Impac Affiliated Company, Impac or
its subsidiaries from the date of its organization to the date of the Merger
were issued in violation of the rules and regulations of the Securities Act or
any blue sky laws, (vi) each of Impac and the Impac Affiliated Companies shall
have delivered to Servico a certificate executed by its Manager and President,
certifying, among other things, that the conditions specified in (i) and (ii) of
this paragraph have been fulfilled and a Certificate of Secretary as to the
incumbency and signatures of the officers of Impac of each Impac Affiliated
Company, and a certificate of the Secretary of State of the State of Georgia and
each other state in which any Impac Affiliated Company, Impac or its
subsidiaries are qualified to do business, as to the good standing of each Impac
Affiliated Company, Impac and its subsidiaries, (vii) Impac shall have obtained
all other material authorizations, consents, waivers and approvals required to
consummate the Merger and enable the business and operations of Impac after
consummation of the Merger to continue to be conducted in the same manner
currently conducted, and (viii) Servico and Impac shall have received a
commitment, effective as of the closing date of the Merger Agreement, to
restructure the indebtedness of Impac and its subsidiaries.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF IMPAC AND THE IMPAC
AFFILIATED COMPANIES. The obligations of Impac and the Impac Affiliated
Companies to effect the Merger are further subject to all the following
conditions: (i) all representations and warranties of Servico contained in the
Merger Agreement shall be true and correct in all material respects as of the
Effective Time (except for changes contemplated or permitted by the Merger
Agreement), (ii) Servico shall have performed or complied in all material
respects with all of the agreements, covenants and obligations required by the
Merger Agreement on or before the Effective Time, (iii) a Servico Material
Adverse Effect shall not have occurred (except as permitted by the Merger
Agreement), (iv) Impac and the Impac Affiliated Companies shall have received an
opinion from its counsel that the Merger will be treated for federal income tax
purposes as a transfer of property described in Section 351 of the Code, with
respect to Impac and the IHD Merger, and, with respect to each of the Impac
Affiliated Companies except for IHD, as a reorganization qualifying under the
provisions of Section 368(a) of the Code, and that each of the Impac Affiliated
Companies, the Impac Affiliated Subs and Lodgian shall be a party to the
reorganization within the meaning of Section 368(b) of the Code, which opinion
shall not have been withdrawn or modified in any material respect, (v) Impac
shall have received from Stearns Weaver an opinion letter with respect to
certain matters relating to the Merger, (vi) Servico shall have delivered to
Impac a certificate executed by its Chairman and President, certifying, among
other things, that the conditions specified in clauses (i) and (ii) of this
paragraph have been fulfilled and a Certificate of Secretary as to the
incumbency and signatures of the officers of Servico, (vii) Servico shall have
obtained all other material authorizations, consents, waivers and approvals
required to consummate the Merger and enable the business and operations of
Servico after consummation of the Merger to continue to be conducted in the same
manner as currently conducted, and (viii) David A. Buddemeyer and Robert S. Cole
shall have been offered employment with Lodgian on designated terms.
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<PAGE> 74
AMENDMENT AND WAIVER
The Merger Agreement may be amended in writing by the parties, by
action taken or authorized by Servico's Board of Directors or Impac's Manager,
but after approval by Servico shareholders and Impac unitholders, respectively,
no amendment shall be made which, by law, requires further approval without such
further approval.
At any time prior to the Merger, Servico (with respect to Servico and
Lodgian) or Impac by action taken or authorized by their respective Boards of
Directors or Manager may, to the extent legally allowed, (i) extend the time for
performance of any of the obligations or other acts of such party, (ii) waive
any inaccuracies in the representations and warranties contained in the Merger
Agreement or any document delivered pursuant thereto, and (iii) waive compliance
with any of the agreements or conditions contained therein, provided such waiver
or extension is set forth in a written instrument signed on behalf of such
party.
In the event that either Impac or Servico has the right to terminate
the Merger Agreement for any reason, the Servico Board or the Impac Manager, as
the case may be, may, in the exercise of its or his fiduciary duty, make a
determination whether to terminate the Merger Agreement or to waive the
condition that gives rise to such right to terminate the Merger Agreement and
proceed to the consummation of the Merger. If a determination is made to waive
the condition giving rise to such right to terminate and proceed to the
consummation of the Merger, the Servico Board or the Impac Manager, as the case
may be, will make a determination consistent with its or his legal obligations
and fiduciary duties as to whether or not to resolicit the approval of the
Servico shareholders or Impac unitholders. However, neither the Servico Board
nor the Impac Manager will waive any of the conditions included under
"Conditions of Each Party's Obligations to Consummate the Merger" or the receipt
of a tax opinion relating to the tax-free nature of the Merger.
TERMINATION
Prior to the Effective Time, the Merger Agreement may be terminated (i)
by Servico and Impac by mutual written consent, (ii) by either of Servico or
Impac, if (a) the Merger is not consummated on or before December 31, 1998 (the
"End Date") provided that the party wishing to terminate has not prevented such
consummation by failing to fulfill any of its obligations under the Merger
Agreement prior to the closing date, (b) any governmental, regulatory or
administrative authority or any court or arbitral body enters any order, decree
or ruling or takes any other action enjoining, restraining or otherwise
prohibiting the consummation of the Merger and such action is final and
nonappealable,(c) the requisite vote of the shareholders of Servico in favor of
the approval of the Merger is not obtained at the Servico Annual Meeting
(including any adjournments thereof), (d) a proposal for a Change of Control of
Servico is publicly announced and Servico's Board of Directors withdraws or
adversely modifies its recommendation to Servico's shareholders that they vote
in favor of the approval of the Merger (an "Adverse Recommendation") or Servico
chooses to enter into a definitive agreement for a Change of Control (the
"Change of Control Agreement"), or (e) after May 1, 1998, if the non-terminating
party (A) enters into active negotiations with any third party with respect to
any offer or proposal regarding a Change of Control of Servico or a Competing
Transaction with respect to Impac or (B) provides any third party with
non-public information concerning its business or assets with respect to any
offer or proposal described in (A) above, (iii) by Servico, if Impac or any
Impac Affiliated Company breaches or fails to comply in any material respect
with any of its obligations under the Merger Agreement or any representation or
warranty made by Impac or any Impac Affiliated Company in the Merger Agreement
is not true or correct in all material respects and such breach or
misrepresentation is not cured within fifteen (15) business days after notice
thereof, but in any event prior to the End Date, or (iv) by Impac, if (a)
Servico breaches or fails to comply in any material respect with any of its
obligations under the Merger Agreement or any representation or warranty made by
Servico in the Merger Agreement is not true or correct in all material respects
and such breach or misrepresentation is not cured within fifteen (15) business
days after notice thereof, but in no event prior to the End Date, or (b) from
the date of the Merger Agreement until the Effective Time, Servico notifies
Impac that it has determined to acquire hotels and related properties for an
aggregate purchase price of more than $100 million and Impac reasonably
determines that Servico's proposed acquisitions will result in a Servico
Material Adverse Effect or materially change the nature of Servico's operations
taken as a whole (provided that Impac so notifies Servico
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<PAGE> 75
of its election to terminate within ten days after receipt of Servico's notice),
or (c) after May 1,1998, Servico is actively engaged in negotiating with any
person with which it has exchanged any non-public information under a
confidentiality agreement (a "Designated Person") during the period from January
1, 1998 to the date of the Merger Agreement with respect to any offer or
proposal involving a Change of Control of Servico.
TERMINATION FEES; EXPENSES
TERMINATION FEE PAYABLE BY SERVICO. The Merger Agreement obligates
Servico to pay to Impac (i) an amount equal to all reasonable costs and
out-of-pocket expenses (including reasonable attorneys' and advisors' fees) (the
"Transaction Expenses") of up to $2.5 million incurred by Impac in connection
with the Merger if the Merger Agreement is terminated pursuant to (A) an
intentional or willful breach of any representation, warranty or covenant
contained in the Merger Agreement (a "Willful Breach") by Servico, or (B) clause
(iv)(c) of the preceding paragraph; provided, however, that if, within twelve
(12) months after such termination of the Merger Agreement, Servico consummates
a Designated Change of Control (as defined below), then Servico will pay Impac
an amount equal to $15 million, in any such case, less any amounts previously
paid to Impac for Transaction Expenses described above; (ii) an amount equal to
$10 million if the Merger Agreement is terminated pursuant to clause (ii)(d) of
the preceding paragraph as a result of an Adverse Recommendation by the Servico
Board or Servico entering into a Change of Control Agreement, and within twelve
(12) months after such termination, such Change of Control is consummated; and
(iii) an amount equal to the Designated Change of Control Fee Structure if the
Merger Agreement is terminated by Servico pursuant to clauses (ii)(a) or (c) or
clause (iii) of the preceding paragraph (except for incorrect representations or
warranties or breaches which have or could reasonably result in an Impac
Material Adverse Effect, in which case no amount would be due), or by Impac
pursuant to clauses (ii)(c) or (iv)(a) (for a Willful Breach) or clause (ii)(d)
of the preceding paragraph, and, within twelve (12) months after such
termination, a Designated Change of Control is consummated. The term "Designated
Change of Control" means a Change of Control transaction involving a Designated
Person or its affiliates. A Designated Change of Control will not exist if, at
the time of termination, any event or condition has occurred which results in or
could reasonably be expected to result in an Impac Material Adverse Effect.
TERMINATION FEE PAYABLE BY IMPAC. The Merger Agreement obligates Impac
to pay to Servico an amount equal to all Transaction Expenses of up to $2.5
million incurred by Servico in connection with the Merger if the Merger
Agreement is terminated as the result of a Willful Breach by Impac; provided,
however, that if, within twelve (12) months after such termination of the Merger
Agreement, Impac or its subsidiaries consummate a Competing Transaction with any
party with or to which, prior to such termination, Impac or its subsidiaries,
directly or indirectly, (i) engaged in negotiations or discussions regarding a
potential Competing Transaction or (ii) provided (or provided access to)
non-public information concerning its business or assets, then Impac will pay
Servico an amount equal to $10 million, less any Transaction Expenses previously
paid to Servico.
TERMINATION FEE PAYABLE BY IMPAC OR SERVICO. The Merger Agreement
obligates either Servico or Impac, if the non-terminating party, to pay to the
terminating party an amount equal to the Transaction Expenses incurred by the
terminating party of up to $2.5 million, if the Merger Agreement is terminated
pursuant to clause (ii)(e) of the paragraph above under the caption
"Termination" (unless prior to such termination, the terminating party has also
provided non-public information concerning its business or assets to any third
party, in which case no reimbursement will be made); provided, however, that if,
within twelve (12) months after such termination (A) Impac or its subsidiaries
consummate a Competing Transaction with a third party, then Impac will pay to
Servico an amount equal to $10 million, and (B) if Servico consummates a Change
of Control with a third party, then Servico will pay to Impac $10 million, in
each case, less any amounts previously paid to such party for reimbursement of
Transaction Expenses as described above.
EXPENSES. Except as provided in the preceding two paragraphs, each of
Servico and Impac will bear its own costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby, except that
any fee required to be paid in connection with the filing of premerger
notifications under the HSR Act will be shared equally by Servico and Impac.
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IMPAC VOTING AGREEMENTS
Pursuant to the Impac Voting Agreements among Servico and each of the
Cole Entities and other Impac unitholders, dated as of March 20, 1998, the
parties thereto, together owning approximately 55.9% of the outstanding Impac
Units, have agreed (i) subject to certain exceptions, not to sell or transfer
Impac Units held by them during the term of the Merger Agreement and (ii) to
vote such shares in favor of the Merger Agreement and the Merger and against any
Competing Transaction during the term of the Merger Agreement and for a one-year
period after termination of the Merger Agreement, if the Merger Agreement is
terminated by Servico as a result of a Willful Breach by Impac of any
representation, warranty or covenant contained in the Merger Agreement. Certain
Impac unitholders executing the Impac Voting Agreements have the limited right
to transfer Impac Units to their partners or equity holders during the term of
the Impac Voting Agreements so long as such transferees agree to be bound by the
terms of such Voting Agreements.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement, Lodgian will grant certain
"piggy-back" registration rights to those unitholders of Impac and those
shareholders of the Impac Affiliated Companies who receive Lodgian Common Stock
in the Merger and who (i) as a result of the Merger, become subject to the
restrictions on the sale of such Lodgian Common Stock pursuant to Rule 145 of
the rules and regulations of the Securities Act and (ii) would be prohibited
from selling, over a twelve (12) month period, all of their respective shares of
Lodgian Common Stock so received in the Merger by virtue of the volume
limitations of Rule 145 (the "Affected Members"). The Registration Rights
Agreement provides that, if at any time prior to the date which is two years
from the closing date of the Merger Agreement, Lodgian proposes to register any
of its Lodgian Common Stock for its own account under the Securities Act, in
connection with an underwritten public offering, Lodgian will give prompt
written notice to the Affected Members of its intention to effect such a
registration. Upon written request of the Affected Members, given within ten
(10) days after receipt from Lodgian of such notice, Lodgian will, subject to
certain limitations, use its best efforts to cause the number of shares of
Lodgian Common Stock issued to the Affected Members in connection with the
Merger (the "Registerable Securities") referred to in the request (which may not
exceed 40% of the number of Registerable Securities then held by such Affected
Member) to be included in such registration statement. The obligations of
Lodgian to register any Registerable Securities are subject to certain
limitations, which include, among others, that Lodgian is not required to
register Registerable Securities in an amount in excess of 10% of the aggregate
number of shares of Lodgian Common Stock being offered in the registration, any
Affected Member participating in the offering must enter into an underwriting
agreement and Lodgian may withdraw or abandon any registration statement it has
filed in which Affected Members have requested to participate at any time.
Lodgian will indemnify any Affected Members from liabilities or claims against
the Affected Members as a result of any untrue statement in the registration
statement, prospectus or amendment thereof. The Affected Members have the same
indemnification obligation to Lodgian with respect to information concerning
such Members.
CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER
In considering the respective recommendations of the Servico Board and
the Impac Manager with respect to the Merger, shareholders of Servico and
unitholders of Impac should be aware that certain officers and directors of
Servico, the Manager and certain officers and unitholders of Impac have
interests in the Merger that are different from, or in addition to, the
interests of the shareholders of Servico and the unitholders of Impac generally.
CERTAIN ARRANGEMENTS REGARDING MANAGEMENT AND DIRECTORS OF LODGIAN
MANAGEMENT OF LODGIAN. The Merger Agreement provides that at the
Effective Time, subject to the Restated Bylaws of Lodgian, Mr. Buddemeyer will
hold the position of Chief Executive Officer of Lodgian and each of the
Surviving Entities, Mr. Cole will hold the position of President of Lodgian and
each of the Surviving Entities, and Mr. Buddemeyer and Mr. Cole will hold the
positions of Co-Chairmen of the Board of Directors of Lodgian and each of
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the Surviving Entities. All officers and agents appointed by the Lodgian Board
will be subject to removal, with or without cause, at any time by the Lodgian
Board or by action of the holders of a majority of the shares of Lodgian
entitled to vote thereon.
BOARD OF DIRECTORS. At the Effective Time, eight persons will serve on
the Lodgian Board, five of whom will be Servico Directors, two of whom will be
Impac Directors and one of whom will be selected by both Impac and Servico. The
Lodgian Board will be divided into three classes of directors as described above
in "The Merger Agreement--Lodgian Following the Merger."
ARRANGEMENTS WITH EXECUTIVE OFFICERS
Lodgian will enter into an employment agreement with each of Mr.
Buddemeyer, Servico's Chairman and President, and Mr. Cole, Impac's Manager, as
described below (collectively, the "Employment Agreements" and individually, the
"Employment Agreement").
EMPLOYMENT AGREEMENTS. Pursuant to Employment Agreements of Messrs.
Buddemeyer and Cole (the "Executives"), each will be required to devote his full
business time during normal business hours to the affairs of Lodgian with
exceptions made for personal, financial and legal affairs as well as
participation on corporate, civic or charitable boards or committees.
COMPENSATION. Messrs. Buddemeyer and Cole will receive annual
base salaries of $405,000 and $300,000, respectively, payable in equal bi-weekly
installments, subject to periodic increases. In addition, the Executives will be
eligible to participate in an annual bonus plan (which the parties intend to be
the Lodgian 1998 Short-Term Incentive Compensation Plan) providing each with the
opportunity to earn 100% of his base salary upon Lodgian achieving certain
financial targets. The Executives shall also be entitled to benefits provided
other executives, including (i) paid vacation, holidays and sick leave, (ii)
reimbursement of business expenses, and (iii) health, pension, welfare and other
benefits in accordance with Lodgian's policies. Lodgian will also assume an
option that was previously granted by Impac to Mr. Cole. Pursuant to the Merger
Agreement this option will be converted into an option to purchase 185,000
shares of Lodgian Common Stock to Impac Unitholders at an exercise price of
$17.75 per share (representing the market price of Servico Common Stock on the
date immediately preceding announcement of the Merger) vesting in annual
increments of 20% beginning on the first anniversary of the date of his
Employment Agreement and exercisable for a period of ten years.
TERMINATION OF EMPLOYMENT. Each of the Executives' employment
will terminate automatically upon his death. Lodgian may terminate an
Executive's employment upon his Disability (as defined below) by giving 90 days'
prior written notice. Under each Employment Agreement, Disability means (i) the
Executive's inability to perform his duties for a period of 90 days due to
accident, illness, or physical or mental incapacity; (ii) the inability to work
due to an impairment that may result in death or be of long duration; or (iii)
the Executive's entitlement to disability benefits under the Social Security Act
or Lodgian's long-term disability plan. Lodgian may also terminate an
Executive's employment either with or without "Cause". Under each Employment
Agreement, Cause means: (i) a failure or refusal by the Executive to perform his
duties under the Employment Agreement (other than a Disability), if such refusal
has lasted for at least 10 days after the delivery of a written demand by
Lodgian; (ii) the engagement by the Executive in willful misconduct or an act of
moral turpitude which is materially injurious to Lodgian; or (iii) the
conviction of the Executive or his entry of a plea of NOLO CONTENDERE with
respect to a felony.
Each Executive may terminate his employment for a "Good
Reason," which means: (i) Lodgian's diminution of his position and authority or
assignment to him of any responsibilities inconsistent with his position; (ii) a
reduction in his base salary or bonus, unless implemented across the board to
all senior executives; (iii) a relocation of the Executive's place of employment
of more than 50 miles; (iv) failure by Lodgian to pay any portion of the
Executive's compensation or provide agreed upon benefits; or (v) any termination
of the Executive's employment if not done with proper notice. The Executive may
also terminate his employment due to medical reasons which are made dangerous by
the Executive's duties, and the failure of Lodgian to comply with any material
provision of the
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Employment Agreement (which failure has not been cured within
ten (10) days after written notice of such noncompliance). The Executive may
also terminate his employment for any reason other than Good Reason by giving 60
days' written notice and cooperating with Lodgian to assure a smooth transition.
COMPENSATION UPON TERMINATION. In the event an Executive's
employment is terminated by Lodgian for Cause or by the Executive for other than
Good Reason or due to medical reasons which are made dangerous by the
Executive's duties, the Executive shall be paid only his base salary through the
date of termination. If the Executive's employment is terminated after a Change
in Control of Lodgian either by Lodgian without Cause or by the Executive for
Good Reason or as a result of Lodgian's failure to comply with a material
provision of the Employment Agreement, then Lodgian shall pay the Executive: (i)
his base salary through the date of termination; (ii) a lump sum payment of two
and one-half times the base salary; (iii) the greater of the annual bonus owed
and the average annual bonuses earned over the past three years; (iv) for a
period of one year, life insurance, medical, health and similar welfare plan
benefits, other than group disability benefits, reduced by any amount of
benefits provided by a later employer; and (v) the vesting of any outstanding
stock options. Under the Employment Agreement, a Change in Control includes: (i)
acquisition by any person of at least 40% of the total number of votes that may
be cast in an election for directors of Lodgian; (ii) shareholder approval of
certain business combinations or sales of assets; or (iii) if, within any
24-month period, the persons who were directors of Lodgian immediately prior to
the beginning of such period no longer constitute the majority of the board.
CONFIDENTIALITY AND NON-SOLICITATION COVENANTS. The Executives
will be subject to covenants with regard to maintaining confidential
information. Each Executive will also be subject to covenants prohibiting his
solicitation of Lodgian's prospective and existing business, clients or
employees for his own or competing business' benefit during his employment and
for one year following his termination.
TAX REIMBURSEMENT. Lodgian will pay each Executive an amount
to pay taxes on any amount or benefit paid to the Executive which becomes
subject to the tax imposed under Section 4999 of the Code (the "Excise Tax").
Determining which amounts or benefits shall be subject to reimbursement will be
done by Lodgian's accountants in accordance with Section 280G of the Code. This
determination shall be subject to adjustments due to subsequent events affecting
the calculation of the amount of taxes owed.
STOCK OPTIONS AND OTHER EQUITY AWARDS. The Merger Agreement provides
that, at the Effective Time, each stock option granted by Servico to purchase
shares of Servico Common Stock which is outstanding and unexercised immediately
prior to the Effective Time will be assumed by Lodgian and converted into an
option to purchase shares of Lodgian Common Stock in such amount and at such
exercise price as provided below and otherwise having the same terms and
conditions as are in effect immediately prior to the Effective Time (except to
the extent that such terms, conditions and restrictions may be altered in
accordance with their terms as a result of the Merger). No outstanding option to
purchase Servico Common Stock or other equity compensation award will accelerate
as a result of the Merger. The number of shares of Lodgian Common Stock to be
subject to the new option will be equal to the number of shares subject to the
original option. The exercise price per share of Lodgian Common Stock under the
new option will be equal to the exercise price per share of the original option.
In addition, at the Effective Time, each outstanding stock appreciation right
issued by Servico which is outstanding will be assumed by Lodgian and converted
into a stock appreciation right with respect to shares of Lodgian Common Stock
otherwise having the same terms, conditions and restrictions as are in effect
immediately prior to the Effective Time (except to the extent that such terms,
conditions and restrictions may be altered in accordance with their terms as a
result of the Merger).
The Merger Agreement provides that Lodgian will reserve for issuance,
under the Lodgian 1998 Stock Incentive Plan, options to acquire approximately
555,000 shares of Lodgian Common Stock, which will be granted to certain
employees of Impac or its subsidiaries. Such options will be granted effective
as of the closing date of the Merger based on allocations determined by the
Lodgian Board after consideration of recommendations from Mr. Cole and the stock
options held by employees in comparable positions at Servico and its
subsidiaries.
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DEVELOPMENT AGREEMENTS
Mr. Cole was one of three shareholders of IHD, which provided
acquisition and property development services to Impac for a development fee of
four percent of the total project cost of each property acquired or developed.
Impac agreed to terminate this agreement prior to the consummation of the Merger
so that Impac and its subsidiaries will have no further obligations under the
agreement after the Merger other than the payment of up to a four percent
development fee (not to exceed $2.5 million in the aggregate) in the event
Lodgian acquires any of the hotels or properties identified in the Merger
Agreement as Impac's acquisition pipeline. IHD assigned this right to a newly
formed entity controlled by its three shareholders.
IHD has contracted with Elegant Interiors, LLC ("Elegant"), an entity
wholly owned by Sheila Lang (the spouse of John Lang) to provide interior design
consulting services. Since January 1, 1997, IHD has paid approximately $642,000
to Elegant, and in the event IHD, or its assignee, receives payment of the
above-referenced development fees, Elegant will be paid accrued consulting fees
(not to exceed $250,000) with respect to any of the hotels or properties
identified in the Merger Agreement as being in Impac's acquisition pipeline.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement, Lodgian will grant certain
"piggy-back" registration rights to those unitholders of Impac and shareholders
of the Impac Affiliated Companies who receive Lodgian Common Stock in the Merger
and who (i) as a result of the Merger, become subject to the restrictions on the
sale of such Lodgian Common Stock pursuant to Rule 145 of the rules and
regulations of the Securities Act and (ii) would be prohibited from selling,
over a 12 month period, all of their respective shares of Lodgian Common Stock
so received in the Merger by virtue of the volume limitations set forth in Rule
145. See "The Merger Agreement -- Registration Rights Agreement."
INDEMNIFICATION AND INSURANCE
Lodgian is required by the Merger Agreement to provide indemnification
and liability insurance for officers and directors of Servico and Impac. See
"The Merger Agreement -- Indemnification and Insurance."
RELEASE OF GUARANTEES
Lodgian is required by the Merger Agreement to use its reasonable
efforts (without the requirement to pay any fee or adversely modify the terms of
any agreement) to obtain a release of any individuals from liability as a
guarantor of Impac's or any Impac subsidiary's obligations to third parties
under certain franchise agreements. In any event, Lodgian has agreed to
indemnify and hold harmless each such individual guarantor from and against any
liability such guarantor may incur after the Effective Time under such
guarantees as a result of Impac's or any Impac subsidiary's failure to satisfy
its obligations under such franchise agreements or related documentation.
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MARKET PRICE AND DIVIDEND DATA
As of June 30, 1998, there were approximately 3,000 holders of record
of Servico Common Stock. As of June 30, 1998, there were approximately 121
unitholders of record of the Impac Units. There was one holder of record as of
such date of the Class B Interest of Impac, which will be canceled upon the
consummation of the Merger.
The market prices for Servico Common Stock shown below are historical
market prices for such Common Stock and are not indicative of the market value
of Lodgian or the trading prices for Lodgian Common Stock following the Merger.
Lodgian is a newly formed company with no operating history and no securities of
Lodgian have previously been publicly traded. Consequently, there has been no
trading activity with regard to Lodgian Common Stock. Application will be made
to list the shares of Lodgian Common Stock on the NYSE.
It is currently anticipated that Lodgian will retain any future
earnings for use in its business. The Board of Directors of Lodgian will
determine future dividend policies based on Lodgian's financial condition,
profitability, cash flow and capital requirements, among other factors, and
subject to any applicable restrictions on the payment of dividends.
SERVICO
Servico Common Stock is listed and principally traded on the NYSE. Its
ticker symbol is "SER". The table below sets forth, for the calendar quarters
indicated, the high and low sale prices of Servico Common Stock as reported on
the NYSE.
<TABLE>
<CAPTION>
SERVICO COMMON STOCK
---------------------
HIGH LOW
---- ---
($ PER SHARE)
1996
- ----
<S> <C> <C>
First Quarter.................................................. 13 7/8 10 1/2
Second Quarter................................................. 16 1/2 11 3/4
Third Quarter.................................................. 17 13 1/2
Fourth Quarter................................................. 17 1/4 14 1/2
1997
- ----
First Quarter.................................................. 20 1/2 16
Second Quarter................................................. 17 5/8 13 3/4
Third Quarter.................................................. 18 3/8 14 1/4
Fourth Quarter................................................. 19 14
1998
- ----
First Quarter.................................................. 21 1/4 15 1/4
Second Quarter................................................. 22 1/2 15 1/16
Third Quarter (through July __, 1998)..........................
</TABLE>
The last sale price of Servico Common Stock as reported on the NYSE on
(i) March 20, 1998, the last full trading day prior to Servico's and Impac's
public announcement of the execution of the Merger Agreement, was $17.75 per
share and (ii) July __, 1998, the last full trading day prior to the date of
this Joint Proxy Statement/Prospectus, was $___________ per share.
YOU ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SERVICO
COMMON STOCK.
Servico has not paid any dividends since its reorganization in 1992 and
has no current plans to initiate the payment of dividends.
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<PAGE> 81
IMPAC
The Impac units are not reported on any national quotation system and
there is no established public trading market thereon.
The table below sets forth, for the calendar quarters indicated, the
aggregate distributions paid by the predecessors of Impac to their respective
shareholders and partners and Impac to its unitholders from available cash flow
and proceeds from the sale of properties. Distributions per Impac Unit is not
necessarily comparable to dividends/distributions to predecessors, shareholders
and partners because of changes in the composition of the predecessors from year
to year and the fact that the timing and nature of distributions were specific
to each predecessor and its respective operations.
<TABLE>
<CAPTION>
IMPAC DIVIDENDS/
DISTRIBUTIONS
(IN THOUSANDS)
---------------
<S> <C>
1995
- ----
First Quarter............................................................... $ 1,322
Second Quarter.............................................................. 6,924
Third Quarter............................................................... 1,022
Fourth Quarter.............................................................. 1,117
-------
Total.................................................................. $10,385
1996
- ----
First Quarter............................................................... $ 3,076
Second Quarter.............................................................. 13,224
Third Quarter............................................................... 11,320
Fourth Quarter.............................................................. 1,144
-------
Total.................................................................. $28,764
1997
- ----
First Quarter............................................................... $ 257
Second Quarter.............................................................. 1,994
Third Quarter............................................................... 1,580
Fourth Quarter.............................................................. 3,788
-------
Total.................................................................. $ 7,619
1998
- ----
First Quarter............................................................... $ -
Second Quarter.............................................................. $ -
</TABLE>
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LODGIAN, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma combined consolidated financial
statements of Lodgian give effect to the offering by Servico of the $175 million
of convertible trust preferred securities (the "Offering") and the Merger with
Servico acquiring Impac and IHD using the purchase method of accounting, after
giving effect to the pro forma adjustments described in the accompanying notes
and in the pro forma financial statements and accompanying notes thereto of
Servico and Impac and IHD (excluding the Merger) set forth or incorporated by
reference in this Joint Proxy Statement/Prospectus. The unaudited pro forma
combined consolidated financial statements have been prepared in accordance with
GAAP and should be read in conjunction with the historical consolidated and
combined financial statements of Servico and Impac and IHD including the notes
thereto, the pro forma financial statements of Servico and Impac and IHD
(excluding the Merger) and other financial information of Servico and Impac and
IHD included elsewhere in or incorporated by reference in this Joint Proxy
Statement/Prospectus.
The accompanying unaudited pro forma information is presented for
illustrative purposes only and is based on certain assumptions and adjustments
described in the pro forma financial statements of Servico and Impac and IHD
(excluding the Merger). Such information is not necessarily indicative of the
operating results or financial position that would have occurred had the Merger
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or financial position of the combined companies. No
effect has been given in the unaudited pro forma combined consolidated financial
statements for operating and synergistic benefits that may be realized through
the Merger. In addition, the unaudited pro forma combined consolidated financial
statements do not reflect any of the initial, non-recurring costs associated
with the Merger, which costs are not currently estimatable.
In the Merger, each issued and outstanding share of Servico Common
Stock will be converted into the right to receive one share of Lodgian Common
Stock and each issued and outstanding Impac Unit will be converted into the
right to initially receive .519 shares of Lodgian Common Stock, assuming the
average price of Servico Common Stock is at least $14.00 per share and not more
than $25.00 per share during the specified ten-day period prior to the Merger
and the same number of Units remain outstanding at the Effective Time.
Additionally, Impac unitholders and Impac Affiliated Company shareholders will
receive an incremental portion of an aggregate of 1.4 million shares of Lodgian
Common Stock which will be released from escrow upon the achievement of certain
events as described in the Merger Agreement. See "The Merger--Consideration to
be Received in the Merger."
The accompanying unaudited Pro Forma Combined Consolidated Balance
Sheet gives effect to the Offering and the Merger as if they had occurred on
March 31, 1998, combining the pro forma consolidated balance sheet of Servico
and the historical balance sheet of Impac at March 31, 1998. The accompanying
unaudited Pro Forma Combined Consolidated Statement of Operations gives effect
to the Offering and the Merger as if they had occurred on January 1, 1997.
THE UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS DO
NOT PURPORT TO REPRESENT WHAT THE FINANCIAL POSITION OR RESULTS OF OPERATIONS OF
LODGIAN, SERVICO OR IMPAC WOULD ACTUALLY HAVE BEEN IF THE OFFERING OR THE MERGER
HAD IN FACT OCCURRED ON THE DATES INDICATED OR TO PROJECT THE FINANCIAL POSITION
OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD.
-64-
<PAGE> 83
LODGIAN, INC.
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA IMPAC HOTEL
SERVICO, INC. GROUP, L.L.C.
AND AND PRO FORMA PRO FORMA
SUBSIDIARIES IMPAC HOTEL DEVELOPMENT, INC. ADJUSTMENTS(A)
------------ ----------- ----------------- --------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 15,167 $ 1,572 $ - $ 16,739
Cash, restricted - 3,590 - 3,590
Accounts receivable, net of allowances 15,378 10,733 - 26,111
Other receivables 1,988 - - 1,988
Inventories 4,931 607 1,960 (B) 7,498
Deferred income taxes 2,254 - - 2,254
Other current assets 9,027 3,796 - 12,823
-------- --------- --------- ----------
Total current assets 48,745 20,298 1,960 71,003
Property and equipment, net 576,175 399,348 133,284 (B) 1,108,807
Deposits for capital expenditures 38,605 - - 38,605
Investment in unconsolidated entities 1,018 - - 1,018
-------- --------- --------- ----------
Other assets, net 33,257 14,135 (13,600) (B) 33,792
-------- --------- --------- ----------
$697,800 $433,781 $ 121,644 $1,253,225
======== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS'
AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 10,640 $ 15,358 $ - $ 25,998
Accrued liabilities 32,023 9,405 - 41,428
Current portion of long-term obligations 5,530 - - 5,530
-------- --------- --------- ----------
Total current liabilities 48,193 24,763 - 72,956
Long-term obligations, less current portion 208,318 377,427 - 585,745
Deferred income taxes 11,116 - 45,000 (B) 56,116
Commitments and contingencies
Minority interests 13,881 235 - 14,116
Minority interest-preferred redeemable
securities 175,000 - - 175,000
Stockholders' and members' equity:
Common stock 210 - 60 (B) 270
Additional paid-in capital 211,906 - 107,940 (B) 319,846
Retained earnings 29,176 - - 29,176
Members' equity 31,356 (31,356) (B) -
-------- --------- --------- ----------
Total stockholders' and members' equity 241,292 31,356 76,644 349,292
-------- --------- --------- ----------
$697,800 $433,781 $ 121,644 $1,253,225
======== ========= ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
-65-
<PAGE> 84
LODGIAN, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
SERVICO IMPAC ADJUSTMENTS(A) COMBINED
--------- --------- -------------- --------
<S> <C> <C> <C> <C>
Revenues:
Rooms $220,754 $105,716 $ - $326,470
Food and beverage 94,774 26,545 - 121,319
Other 18,812 7,369 - 26,181
-------- -------- ------- --------
334,340 139,630 - 473,970
Operating expenses:
Direct:
Rooms 59,651 32,414 - 92,065
Food and beverage 72,146 22,097 - 94,243
General and administrative 8,973 12,653 - 21,626
Other 110,222 51,231 - 161,453
Depreciation and amortization 26,663 12,173 4,319 (C) 43,155
-------- -------- ------- --------
277,655 130,568 4,319 412,542
Income from operations 56,685 9,062 (4,319) 61,428
Other income (expenses):
Interest income and other 1,869 271 - 2,140
Interest expense (15,006) (24,028) - (39,034)
Minority interests-preferred
redeemable securities (12,794) - - (12,794)
Minority interests-other (779) 263 - (516)
-------- -------- ------- --------
Income (loss) before income
taxes and extraordinary item 29,975 (14,432) (4,319) 11,224
Provision for or (benefit from)
income taxes 11,993 (5,773) (1,728) (D) 4,492
Income (loss) before extraordinary item $ 17,982 $ (8,659) $(2,591) $ 6,732
-------- -------- ------- --------
Earnings per common share(E):
Income (loss) before
extraordinary item $ .86 $ .25
======== ========
Earnings per common share-
assuming dilution (E):
Income (loss) before
extraordinary item $ .84 $ .25
======== ========
Basic weighted average shares 20,918 26,918
Diluted weighted average shares 21,375 27,375
</TABLE>
-64-
<PAGE> 85
LODGIAN, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA IMPAC AND PRO FORMA PRO FORMA
SERVICO IHD ADJUSTMENTS(A) COMBINED
--------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rooms $55,833 $25,892 $ - $ 81,725
Food and beverage 22,146 6,861 - 29,007
Other 4,902 1,818 - 6,720
------- ------- ------- --------
82,881 34,571 - 117,452
Operating expenses:
Direct:
Rooms 15,509 6,815 - 22,324
Food and beverage 17,647 5,501 - 23,148
General and administrative 2,387 2,777 - 5,164
Other 2,760 13,848 - 41,498
Depreciation and amortization 7,207 3,681 1,001 (C) 11,889
------- ------- ------- --------
70,400 32,622 1,001 104,023
<S> <C> <C> <C> <C>
Income from operations 12,481 1,949 (1,001) 13,429
Other income (expenses):
Interest income and other 454 143 - 597
Interest expense (4,229) (6,751) - (10,980)
Minority interests-preferred
redeemable securities (3,198) - - (3,198)
Minority interests-other (94) (48) - (142)
Income (loss) before income taxes
and extraordinary item 5,414 (4,707) (1,001) (294)
Provision for or (benefit from)
income taxes 2,167 - (2,283) (D) (116)
------- ------- ------- --------
Income (loss) before extraordinary item $ 3,247 $(4,707) $ 1,282 $ (178)
======= ======= ======= ========
Earnings per common share(E):
Income (loss) before
extraordinary item $ .15 $ (.01)
======= ========
Earnings per common share-assuming
dilution (E):
Income (loss) before
extraordinary item $ .15 $ (.01)
======= ========
Basic weighted average shares 20,989 26,989
Diluted weighted average shares 21,437 27,437
</TABLE>
-67-
<PAGE> 86
LODGIAN, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(A) The unaudited pro forma balance sheet of Servico as of March 31, 1998 and
the unaudited pro forma statements of income of Servico for the year ended
December 31, 1997 and the three months ended March 31, 1998, were derived
from Servico's pro forma financial information provided herein. The
unaudited historical balance sheet of Impac as of March 31, 1998, the
unaudited pro forma statement of operations of Impac for the year ended
December 31, 1997 and the unaudited historical statement of operations of
Impac for the three months ended March 31, 1998, were derived from Impac's
financial information provided herein in this Joint Proxy
Statement/Prospectus. The pro forma adjustments to the balance sheet
assume the Offering and the Merger were completed on March 31, 1998, and
the pro forma adjustments to the statements of operations assume the
Offering and the Merger had occurred on January 1, 1997.
(B) The preliminary purchase price of Impac to be paid by Servico is estimated
to be $555,425 consisting of the issuance of 6,000,000 shares of stock at
$18 per share plus the assumption of $447,425 of existing Impac debt and
deferred income taxes. The allocation of the preliminary purchase price is
as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
FAIR VALUE IMPAC ADJUSTMENTS
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS:
Current assets $ 22,258 $ 20,298 $ 1,960
Property and equipment 532,632 399,348 133,284
Other assets 535 14,135 (13,600)*
-------- -------- --------
$555,425 $433,781 $121,644
======== ======== ========
LIABILITIES AND EQUITY:
Current liabilities $ 24,763 $ 24,763 $ -
Long-term obligations 377,427 377,427 -
Deferred income taxes 45,000 - 45,000
Minority interests 235 235 -
Common stock 60 - 60
Additional paid-in capital 107,940 - 107,940
Members' equity - 31,356 (31,356)
-------- -------- --------
$555,425 $433,781 $121,644
======== ======== ========
</TABLE>
- --------------------
* Primarily deferred loan costs.
(C) Depreciation expense is recorded to reflect the costs associated with the
acquired assets. The allocation of the cost of acquired assets between
land, buildings and furnishings and equipment is based on the assets'
estimated fair value. Depreciation expense of buildings and furnishings
and equipment is based upon an estimated life of 40 and 7 years,
respectively. Depreciation expense is calculated on a straight line basis.
(D) Benefit from income taxes in the pro forma adjustments is recorded using
Servico's effective tax rate of 40%.
(E) The following table sets forth the pro forma computation of basic and
diluted earnings per share (in thousands, except per share data):
-68-
<PAGE> 87
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Numerator-basic and diluted per share:
Income before extraordinary items $ (178) $ 6,732
------- -------
Denominator:
Denominator for basic earnings per share-
weighted average shares(a) 26,989 26,918
Effect of dilutive securities:
Employee stock options 448 457
Denominator for diluted earnings per share-
adjusted weighted average shares and
assumed conversions 27,437 27,375
======= =======
Basic earnings per share $ (.01) $ .25
Diluted earnings per share $ (.01) $ .25
</TABLE>
- ------------------
(a) Includes 6,000 shares issued in connection with the Merger.
-69-
<PAGE> 88
SERVICO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
FOR THE OFFERING, EXCLUDING THE MERGER
The accompanying unaudited pro forma balance sheet is presented as if
the Offering had occurred on March 31, 1998. The accompanying unaudited pro
forma statements of income are presented as if the Offering and the hotels
acquired by Servico in 1997 and the shares of Common Stock issued by Servico in
a public underwriting offering completed in June 1997, had occurred on January
1, 1997. All of Servico's acquisitions have been accounted for using the
purchase method of accounting. Accordingly, assets acquired and liabilities
assumed have been recorded at their estimated fair values based on their
purchase price and other analyses.
The pro forma statements of income do not purport to present the
financial position or results of operations of Servico had the transactions and
events assumed therein occurred on the dates specified, nor is it necessarily
indicative of the results of operations that may be achieved in the future. The
pro forma statements of income do not reflect cost savings and revenue
enhancements which management believes have been and may continue to be realized
following the hotel acquisitions. These cost savings and revenue enhancements
have been and are expected to be realized primarily through the restructuring of
operations. No assurances can be made as to the amount of cost savings or
revenue enhancements, if any, that actually will be realized.
The pro forma statements of income are based on certain assumptions and
adjustments described in the Notes to Unaudited Pro Forma Financial Statements
and should be read in conjunction therewith and with the consolidated financial
statements and related notes thereto of Servico incorporated by reference in
this Joint Proxy/Prospectus Statement.
-70-
<PAGE> 89
SERVICO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
SERVICO ADJUSTMENTS(A) SERVICO
---------- -------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,167 $ - $ 15,167
Accounts receivable, net of allowances 15,378 - 15,378
Other current assets 18,200 - 18,200
-------- --------- --------
Total current assets 48,745 - 48,745
Property and equipment, net 576,175 - 576,175
Deposits for capital expenditures 38,605 - 38,605
Other assets, net 31,329 2,946 34,275
-------- --------- --------
$694,854 $ 2,946 $697,800
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,640 $ - $ 10,640
Accrued liabilities 33,455 (1,432) 32,023
Current portion of long-term obligations 5,530 - 5,530
Total current liabilities 49,625 (1,432) 48,193
Long-term obligations, less current portion 376,793 (168,475) 208,318
Deferred income taxes 11,116 - 11,116
Commitments and contingencies
Minority interests-other 13,881 - 13,881
Minority interests-preferred redeemable
securities - 175,000 175,000
Stockholders' equity:
Common stock, $.01 par value--25,000,000
shares authorized; 21,074,872 shares and
20,974,852 shares issued and outstanding
at March 31, 1998 and December 31, 1997,
respectively 210 - 210
Additional paid-in capital 211,906 - 211,906
Retained earnings 31,323 (2,147) 29,176
-------- -------- --------
Total stockholders' equity 243,439 (2,147) 241,292
-------- -------- --------
$694,854 $ 2,946 $697,800
======== ======== ========
</TABLE>
-71
<PAGE> 90
SERVICO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
SERVICO ADJUSTMENTS(B) SERVICO
---------- -------------- ---------
<S> <C> <C> <C>
Revenues:
Rooms $179,956 $ 40,798 $220,754
Food and beverage 80,335 14,439 94,774
Other 16,366 2,446 18,812
-------- -------- --------
276,657 57,683 334,340
Operating expenses:
Direct:
Rooms 49,608 10,043 59,651
Food and beverage 60,919 11,227 72,146
General and administrative 8,973 - 8,973
Other 88,036 22,186 110,222
Depreciation and amortization 23,023 3,640 (C) 26,663
-------- -------- --------
230,559 47,096 277,655
-------- -------- --------
Income from operations 46,098 10,587 56,685
Other income (expenses):
Interest income and other 1,720 149 1,869
Interest expense (25,909) 10,903 (D) (15,006)
Minority interests-preferred
redeemable securities - (12,794) (E) (12,794)
Minority interests-other (960) 181 (779)
-------- -------- --------
Income before income taxes and
extraordinary item 20,949 9,026 29,975
Provision for income taxes 8,379 3,614 (F) 11,993
-------- -------- --------
Income before extraordinary item $ 12,570 $ 5,412 $ 17,982
======== ======== ========
Earnings per common share(G):
Income before extraordinary item $ .83 $ .86
======== ========
Earnings per common share-assuming dilution(G):
Income before extraordinary item $ .80 $ .84
======== ========
Basic weighted average shares 15,183 20,918
Diluted weighted average shares 15,640 21,375
</TABLE>
-72-
<PAGE> 91
SERVICO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
SERVICO ADJUSTMENTS(B) SERVICO
---------- -------------- ---------
<S> <C> <C> <C>
Revenues:
Rooms $ 55,833 $ - $ 55,833
Food and beverage 22,146 - 22,146
Other 4,902 - 4,902
-------- -------- --------
82,881 - 82,881
Operating expenses:
Direct:
Rooms 15,509 - 15,509
Food and beverage 17,647 - 17,647
General and administrative 2,387 - 2,387
Other 27,650 - 27,650
Depreciation and amortization 7,207 - 7,207
-------- -------- --------
70,400 - 70,400
-------- -------- --------
Income from operations 12,481 - 12,481
Other income (expenses):
Interest income and other 454 - 454
Interest expense (7,846) 3,617 (H) (4,229)
Minority interests-preferred
redeemable securities - (3,198) (E) (3,198)
Minority interests-other (94) - (94)
-------- -------- --------
Income before income taxes 4,995 419 5,414
Provision for income taxes 1,999 168 (F) 2,167
Net income $ 2,996 $ 251 $ 3,247
======== ======== ========
Income per common share(G) $ .14 $ .15
======== ========
Income per common share-assuming
dilution (G) $ .14 $ .15
======== ========
Basic weighted average shares 20,989 20,989
Diluted weighted average shares 21,437 21,437
</TABLE>
-73-
<PAGE> 92
SERVICO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
(A) The Offering of $175 million of preferred redeemable securities will
generate $168.5 million of net proceeds which will be used to repay, prior
to maturity, $168.5 million of existing long-term obligations. In
connection with the early extinguishment of this debt the Company will
write off $3.5 million of deferred loan costs and record, as an
extraordinary item, a loss of $2.1 million, net of a benefit from income
taxes of $1.4 million. The discounts, commissions and estimated costs to
be paid by the Company relating to the Offering totaling $6.5 million will
be amortized over the life of the securities and recorded as additional
interest expense.
(B) The historical statement of income of Servico for the year ended
December 31, 1997 includes the operations of the various properties that
it acquired during 1997 from the date of the acquisition through December
31, 1997, and the effect of the common stock offering Servico completed in
June 1997.
The pro forma adjustments include operations of the acquired properties
from the beginning of 1997 through the date of acquisition as follows:
Holiday Inn Select, Phoenix February 28 (i)
Holiday Inn, Manhattan February 28 (i)
Holiday Inn, Lawrence February 28 (i)
Crowne Plaza, Cedar Rapids May 29
Holiday Inn, Dallas July 15
Sheraton, Concord September 24
Holiday Inn Select, Windsor October 3
Comfort Inn, Roseville October 17
Holiday Inn, Jamestown November 7
Hilton, Columbia November 7
Ramada, Houston November 21
Sheraton, West Palm Beach November 21
Holiday Inn, Silver Spring November 21
Holiday Inn, Rolling Meadows November 21
Holiday Inn, Winter Haven November 21
- ----------------------------
(i) Ownership percentage increased from 51% to 100%
(C) Depreciation expense is recorded to reflect the costs associated with the
acquired assets. The allocation of the cost of acquired assets between
land and building is based on the asset's estimated fair value.
(D) Interest expense of $5.8 million is based upon actual debt levels incurred
to purchase each property offset by $5.6 million relating to debt
extinguishment on 21 hotels using the proceeds of the common stock
offering and $8.3 million relating to the existing debt being repaid with
the proceeds of the Offering.. In addition, interest expense has been
reduced by $2.8 million representing amortized loan costs which would have
been written off at the beginning of the year.
(E) Minority interests - preferred redeemable securities represents interest
on the $175 million at 7.0% plus amortization of the Offering costs.
(F) To record the provision for income taxes relating to the pro forma
adjustments using Servico's effective tax rate of 40%.
(G) The following table sets forth the pro forma computation of basic and
diluted earnings per share (in thousands, except per share data):
-74-
<PAGE> 93
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Numerator - basic and diluted per share:
Income before extraordinary items $ 3,247 $17,982
Denominator:
Denominator for basic earnings per share-
weighted average shares 20,989 20,918
Effect of dilutive securities:
Employee stock options 448 457
Denominator for diluted earnings per share-
adjusted weighted average shares and
assumed conversions 21,437 21,375
Basic earnings per share $ .15 $ .86
Diluted earnings per share $ .15 $ .84
</TABLE>
(H) Interest expense for the three months ended March 31, 1998 is reduced by
$3.3 million relating to the existing debt being repaid with the proceeds
of the Offering and $.3 million relating to amortized loan costs which
would have been written off prior to 1998.
-75-
<PAGE> 94
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND
IMPAC HOTEL DEVELOPMENT, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
EXCLUDING THE MERGER
The accompanying unaudited pro forma statement of operations is
presented as if the hotels acquired by Impac during 1997 had occurred on January
1, 1997. All of Impac's acquisitions have been accounted for using the purchase
method of accounting. Accordingly, assets acquired and liabilities assumed have
been recorded at their estimated fair values based on their purchase price and
other analyses, with appropriate recognition given to the effect of current
interest rates.
The pro forma statement of operations does not purport to present the
financial position or results of operations of Impac and IHD had the
transactions and events assumed therein occurred on the dates specified, nor is
it necessarily indicative of the results of operations that may be achieved in
the future. The pro forma statement of operations does not reflect cost savings
and revenue enhancements that management believes have been and may continue to
be realized following the hotel acquisitions. These cost savings and revenue
enhancements have been and are expected to be realized primarily through the
restructuring of operations. No assurances can be made as to the amount of cost
savings or revenue enhancements, if any, that actually will be realized.
The pro forma statement of operations is based on certain assumptions
and adjustments described in the Notes to the Unaudited Pro Forma Statement of
Operations and should be read in conjunction therewith and with the consolidated
and combined financial statements and related notes thereto of Impac and IHD
appearing elsewhere in this Joint Proxy Statement/Prospectus.
-76-
<PAGE> 95
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND
IMPAC HOTEL DEVELOPMENT, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
SERVICO ADJUSTMENTS(A) SERVICO
---------- -------------- ---------
<S> <C> <C> <C>
Revenues:
Rooms $ 90,139 $ 15,577 $105,716
Food and beverage 23,429 3,116 26,545
Other 6,291 1,078 7,369
-------- -------- --------
119,859 19,771 139,630
Operating expenses:
Direct:
Rooms 28,303 4,111 32,414
Food and beverage 19,322 2,775 22,097
General and administrative 11,467 1,186 12,653
Other 44,946 6,285 51,231
Depreciation and amortization 11,136 1,037 (B) 12,173
-------- -------- --------
115,174 15,394 130,568
-------- -------- --------
Income from operations 4,685 4,377 9,062
Other income (expenses):
Interest income and other 271 - 271
Interest expense (21,265) (2,763) (C) (24,028)
Minority interests 220 43 263
-------- -------- --------
(Loss) income before income taxes
and extraordinary item (16,089) 1,657 (14,432)
Benefit from income taxes - 5,773 (D) 5,773
-------- -------- --------
(Loss) income before extraordinary item $(16,089) $ 7,430 $ (8,659)
======== ======== ========
</TABLE>
-77-
<PAGE> 96
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(A) The historical statement of operations of Impac includes the operations of
the various properties that it acquired during 1997 from the date of the
acquisition through December 31, 1997. Impac has not presented a pro forma
balance sheet at March 31, 1998 or a pro forma statement of operations for
the three months ended March 31, 1998, as no pro forma adjustments are
needed to the historical financial statements for these periods.
The pro forma adjustments include operations of the acquired properties
from the beginning of 1997 through the date of acquisition as follows:
Holiday Inn, Anchorage September 30
Fairfield Inn, Augusta October 30
Holiday Inn, Boise January 15
Fairfield Inn, Burlington October 30
Holiday Inn, Cincinnati January 15
Holiday Inn, Ft. Mitchell January 15
Holiday Inn, Hamburg April 15
Fairfield Inn, Jackson October 30
Crowne Plaza, Macon May 20
Mayfair House, Miami June 11
Howard Johnson, Miami April 10
Holiday Inn, Memphis January 15
Fairfield Inn, Merrimack October 30
Holiday Inn, Riverside May 16
Fairfield Inn, Valdosta May 20
Holiday Inn, Wilsonville January 30
(B) Depreciation expense is recorded to reflect the costs associated with the
acquired assets. The allocation of the cost of acquired assets between
land and building is based on the asset's estimated fair value.
(C) Interest expense is based upon the debt levels that would have been
incurred to purchase each property under the terms and conditions that are
available to Impac. The interest rate is based on the rate that would have
been charged at the time of each acquisition by Impac's credit facility.
(D) Impac is a limited liability corporation and is not subject to income
taxes. IHD is an S_Corporation and is not subject to income taxes. The
results of Impac's and IHD's operations are included in the tax returns of
Impac's unitholders and IHD's shareholders. In order to conform Impac's
pro forma financial information to Servico's financial information, a pro
forma adjustment has been made to record a tax benefit to Impac based on
Servico's effective tax rate of 40%.
-78-
<PAGE> 97
DESCRIPTION OF LODGIAN
Lodgian was incorporated on February 11, 1998 as a corporation under
the laws of the State of Delaware for the purpose of facilitating the Merger.
Lodgian has not conducted any activities other than in connection with its
organization and in connection with the Merger. After the consummation of the
Merger, Servico and Impac will be wholly-owned subsidiaries of Lodgian.
Lodgian's fiscal year will end on December 31.
Following consummation of the Merger, Lodgian intends to combine and
coordinate the respective equity, management, resources and administrative
operations of Servico and Impac and their respective subsidiaries. While
management believes that the Merger will create a combined entity with the
resources to compete more effectively in the hotel industry, Lodgian will
continue to be subject to the competitive factors described under "Risk
Factors--Risks Associated with Expansion--Competition."
Management will review the operations of Impac and Servico and, upon
completion of such review, will develop plans or proposals regarding, among
other things, the integration or combination of the management, resources,
facilities and other operations of Impac and Servico.
DIRECTORS AND MANAGEMENT OF LODGIAN FOLLOWING THE MERGER; COMPENSATION
DIRECTORS. The Merger Agreement provides that, immediately following
the consummation of the Merger, the Lodgian Board will have eight members, five
of whom will be Servico Directors, two of whom will be Impac Directors and one
of whom will be selected by Impac and Servico. The Restated Bylaws of Lodgian
provide that the Lodgian Board will consist of not less than six members, the
exact number to be determined by resolution adopted by the affirmative vote of a
majority of all directors of Lodgian. Directors will be elected by a plurality
of the votes cast at annual meetings of its shareholders, except that any
vacancy created by an increase in the number of directors may be filled either
by the shareholders or by the affirmative vote of a majority of the remaining
directors. See "The Merger Agreement - Lodgian Following the Merger."
At the Effective Time, the initial directors of Lodgian will allocate
the directors among three classes as follows: (i) Class I, to initially serve
for one year, will consist of two directors, comprised of Peter R. Tyson and a
person mutually selected by both Impac and Servico, (ii) Class II, to initially
serve for two years, will consist of three directors, comprised of Joseph C.
Calabro, Michael Leven and John Lang; and (iii) Class III, to initially serve
for three years, will consist of three directors, comprised of David Buddemeyer,
Robert Cole and Richard H. Weiner. Such directors shall serve as the directors
of Lodgian from and after the Effective Time in accordance with the Restated
Certificate and Restated Bylaws of Lodgian until their successors are elected or
appointed and qualified or until their resignation or removal. In the event
that, prior to the Effective Time, any person so selected to serve on the
Lodgian Board is unable or unwilling to serve in such position, the company that
selected such person shall designate another person to serve in such person's
stead. At each annual meeting of shareholders, beginning with the 1999 annual
meeting, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease will be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible. A
director shall hold office until the annual meeting for the year in which his
term expires and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. The term of a director elected by shareholders to fill a
newly created directorship or other vacancy shall expire at the same time as the
terms of the other directors of the class for which the new directorship is
created or in which the vacancy occurred. Any director elected by the Lodgian
Board to fill a vacancy shall hold office for a term that shall coincide with
the term of the class to which such director shall have been elected. Any or all
of the directors of Lodgian may be removed from office at any time only for
cause by the affirmative vote of holders of a majority of the outstanding shares
of Lodgian entitled to vote generally in the election of directors.
-79-
<PAGE> 98
COMMITTEES OF THE BOARD OF DIRECTORS. Pursuant to the Restated Bylaws,
the Lodgian Board, by resolution passed by a majority of the number of directors
constituting the whole Board, may designate members of the Lodgian Board to
constitute one or more committees, which committee will consist of not fewer
than two directors. The Lodgian Board, upon approval of a majority of the
directors, will have the power to change the members of any such committee at
any time, to fill vacancies therein and to discharge any such committee, either
with or without cause, at any time.
COMPENSATION OF DIRECTORS. Directors who are employees of Lodgian will
not receive any additional compensation for service on the Lodgian Board. The
annual meeting and committee meeting fees to be paid to non-employee directors
of Lodgian have not yet been determined. In order to align more closely the
interests of non-employee directors of Lodgian and its shareholders, it is
expected that a significant portion of the total compensation to be paid to
non-employee directors of Lodgian will be based in stock. Pursuant to the terms
of the Lodgian Non- Employee Directors' Stock Plan, which is being submitted for
shareholder approval herewith, each non-employee director will receive an annual
grant of options with respect to 5,000 shares of Lodgian Common Stock on the
date of each annual meeting of Lodgian's shareholders, commencing with the
annual meeting held in 1999. Director options will vest in equal installments on
each of the three annual meetings following the date of grant. For a detailed
description of the Lodgian Non-Employee Directors' Stock Plan, see "Lodgian Plan
Proposals--The Lodgian Non- Employee Directors' Stock Plan." Each director, in
consideration of his serving as such, will be entitled to receive from Lodgian
such amount per annum, if any, or such fees, if any, for attendance at meetings
of the Lodgian Board or of any committee thereof, or both, as the Board
determines.
SENIOR EXECUTIVE OFFICERS. As of the Effective Time, David A.
Buddemeyer will be the Chief Executive Officer of Lodgian and each of the
Surviving Entities, Robert S. Cole will be President of Lodgian and each of the
Surviving Entities, and David Buddemeyer and Robert Cole will be the Co-Chairmen
of the Board of Directors of Lodgian and each of the Surviving Entities.
David Buddemeyer, 40, has been the Chairman of the Servico Board since
August 1997, its Chief Executive Officer since December 1995, a director of
Servico since April 1994 and Servico's President since May 1993. Mr. Buddemeyer
served as the Chief Operating Officer of Servico from May 1993 to December 1995
and its Executive Vice President from June 1990 to May 1993. Prior to such time,
from 1987 to June 1990, Mr. Buddemeyer served as Vice President-Operations of
Prime Motors Inns, Inc., a hotel management company.
Robert S. Cole, 36, began his career in the hospitality business in
1984 and held a variety of general manager positions in hotels throughout the
United States. He formed Impac's predecessor in 1990 and has since served as the
President of Impac, its predecessors and affiliates.
If any of such persons is unable or unwilling to hold such offices as
set forth above, his successor shall be selected by the Lodgian Board or the
Surviving Entities in accordance with their respective Bylaws.
To date, Servico and Impac have not decided who, in addition to Messrs.
Buddemeyer and Cole, will be designated to serve as executive officers of
Lodgian. It is expected that the other executive officers of Lodgian will be
appointed after the Effective Time.
EXECUTIVE COMPENSATION. The Lodgian Board will rely on its compensation
committee, which will be composed of non-employee directors, to recommend the
form and amount of compensation to be paid to Lodgian's executive officers. For
information regarding employment agreements with Messrs. Buddemeyer and Cole,
see "Interests of Certain Persons in the Merger--Arrangements with Executive
Officers."
ARRANGEMENTS REGARDING TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL.
Lodgian has adopted a severance policy which provides for payments to its
executive officers in an amount equal to two and one-half times their annual
base compensation, less any other cash severance payments contractually owed to
them by Lodgian, in the event that there is either a change in the majority of
the Board of Directors or the acquisition by any individual or group of in
excess of 40% of Lodgian's outstanding voting securities and the duties or
responsibilities of such executive officers are materially diminished within 24
months thereafter.
-80-
<PAGE> 99
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND FIVE PERCENT SHAREHOLDERS
LODGIAN COMMON STOCK OWNERSHIP BY 5% SHAREHOLDERS. The following table
sets forth, based on the number of shares of Servico Common Stock outstanding on
the Servico Record Date and the number of Impac Units outstanding on the date of
this Joint Proxy Statement/Prospectus, the percentage ownership of Lodgian
Common Stock by the persons whom Lodgian believes will own beneficially more
than 5% of its outstanding Common Stock other than directors and executive
officers listed in the table set forth below, assuming an Impac Exchange Ratio
of 0.519:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT
------------------------------------ ------------------ -------
<S> <C> <C>
Jeffery J. Neal (1) 1,437,955 5.3%
Bret N. Bearup (2) 1,437,955 5.3%
</TABLE>
(1) 5575 DTC Parkway, Suite 320, Englewood, CO 80111. Jeffery J. Neal is a
member and manager of ProTrust Properties, LLC which, upon consummation
of the liquidation of ProTrust Properties I, Ltd. and ProTrust
Properties III, Ltd., will hold approximately 120,431 shares of Lodgian
Common Stock; is a member and manager of ProTrust Holdings, LLC which,
upon consummation of the liquidation of ProTrust Properties IV, Ltd.,
will hold approximately 38,690 shares of Lodgian Common Stock; is an
executive officer and shareholder of ProTrust Capital, Inc., which is
the general partner of B.C.M. of Myrtle Beach, Ltd. and B.C.M. of St.
Louis, Ltd., the beneficial owner of an aggregate of 49,255 shares of
Lodgian Common Stock and accordingly, ProTrust Capital, Inc. may be
attributed beneficial ownership of the shares owned by B.C.M. of Myrtle
Beach, Ltd. and B.C.M. of St. Louis, Ltd.; is an executive officer and
shareholder of B & N Corporate Plaza, Inc., which owns 79,771 shares of
Lodgian Common Stock; is a member and manager of ProTrust Holdings II,
LLC, which is the general partner of ProTrust Properties V, Ltd., the
beneficial owner of 725,072 shares of Lodgian Common Stock and
accordingly, ProTrust Holdings II, LLC may be attributed beneficial
ownership of the shares owned by ProTrust Properties V, Ltd.; is a
member and manager of Hotel Investors, LLC, which is the general
partner of Hotel Investors, L.P., the beneficial owner of 305,949
shares of Lodgian Common Stock and accordingly, Hotel Investors, LLC
may be attributed beneficial ownership of the shares owned by Hotel
Investors, L.P.; and is a member and manager of ProTrust Equity
Partners, LLC, which is the general partner of ProTrust Equity Growth
Fund I, L.P., the beneficial owner of 108,055 shares of Lodgian Common
Stock and accordingly, ProTrust Equity Partners, LLC may be attributed
beneficial ownership of the shares owned by ProTrust Equity Growth Fund
I, L.P. The other member and manager of ProTrust Properties, LLC is
Bret N. Bearup and the other executive officer and shareholder of
ProTrust Capital, Inc. and B & N Corporate Plaza, Inc. is Bret N.
Bearup. The other members and managers of ProTrust Holdings, LLC,
ProTrust Holdings II, LLC and Hotel Investors, LLC are John M. Lang and
Bret N. Bearup and the other members and managers of ProTrust Equity
Partners, LLC are John M. Lang, Bret N. Bearup and Mark S. Cooley. Mr.
Neal disclaims beneficial ownership of such shares beyond his ownership
in ProTrust Properties, LLC, ProTrust Holdings, LLC, ProTrust Capital,
Inc., B & N Corporate Plaza, Inc., ProTrust Holdings II, LLC, Hotel
Investors, LLC and ProTrust Equity Partners, LLC.
(2) 3399 Peachtree Road, N.E., Suite 2050, Atlanta, Georgia 30326. Bret N.
Bearup is a member and manager of ProTrust Properties, LLC which, upon
consummation of the liquidation of ProTrust Properties I, Ltd. and
ProTrust Properties III, Ltd., will hold approximately 120,431 shares
of Lodgian Common Stock; is a member and manager of ProTrust Holdings,
LLC which, upon consummation of the liquidation of ProTrust Properties
IV, Ltd., will hold approximately 38,690 shares of Lodgian Common
Stock; is an executive officer and shareholder of ProTrust Capital,
Inc., which is the general partner of B.C.M. of Myrtle Beach, Ltd. and
B.C.M. of St. Louis, Ltd., the beneficial owner of an aggregate of
49,255 shares of Lodgian Common Stock and accordingly, ProTrust
Capital, Inc. may be attributed beneficial ownership of the shares
owned by B.C.M. of Myrtle Beach, Ltd. and B.C.M. of St. Louis, Ltd.; is
an executive officer and shareholder of B & N Corporate Plaza, Inc.,
which owns 79,771 shares of Lodgian Common Stock; is a member and
manager of ProTrust Holdings II, LLC, which is the general partner of
ProTrust Properties V, Ltd., the beneficial owner of 725,072 shares of
Lodgian Common Stock and accordingly, ProTrust Holdings II, LLC may be
attributed beneficial ownership of the shares owned by ProTrust
Properties V, Ltd.; is a member and manager of Hotel Investors, LLC,
which is the general partner of Hotel Investors, L.P., the beneficial
owner of 305,949 shares of Lodgian Common Stock and accordingly, Hotel
Investors, LLC may be attributed beneficial ownership of the shares
owned by Hotel Investors, L.P.; and is a member and manager of ProTrust
Equity Partners, LLC, which is the general partner of ProTrust Equity
Growth Fund I, L.P., the beneficial owner of 108,055 shares of Lodgian
Common Stock and accordingly, ProTrust Equity Partners, LLC may be
attributed beneficial ownership of the shares owned by ProTrust Equity
Growth Fund I, L.P. The other member and manager of ProTrust
Properties, LLC is Jeffery J. Neal and the other executive officer and
shareholder of ProTrust Capital, Inc. and B & N Corporate Plaza, Inc.
is Jeffery J. Neal. The other members and managers of ProTrust
Holdings, LLC, ProTrust Holdings II, LLC and Hotel Investors, LLC are
John M. Lang and Jeffery J. Neal and the other members and managers of
ProTrust Equity Partners, LLC are John M. Lang, Jeffery J. Neal and
Mark S. Cooley. Mr. Bearup disclaims beneficial ownership of such
shares beyond his ownership in ProTrust Properties, LLC, ProTrust
Holdings, LLC, ProTrust Capital, Inc., B & N Corporate Plaza, Inc.,
ProTrust Holdings II, LLC, Hotel Investors, LLC and ProTrust Equity
Partners, LLC.
-81-
<PAGE> 100
LODGIAN COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS. The
following table sets forth the expected beneficial ownership of Lodgian Common
Stock by all directors and each of the executive officers of Lodgian (and by all
directors and executive officers as a group) based on the number of shares of
Servico Common Stock or Impac Units owned by such individuals on March 25, 1998
and assuming an Impac Exchange Ratio of 0.519.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER POSITION AT LODGIAN BENEFICIALLY OWNED(1) PERCENT(2)
- ------------------------ ------------------- --------------------- ----------
<S> <C> <C> <C>
David Buddemeyer(2) Chief Executive Officer, 202,219 *
Co-Chair of the Board
Robert S. Cole(3) President, Co-Chair of the 1,205,075 4.5%
Board
Joseph C. Calabro(2)(4) Director 261,100 *
Michael A. Leven(2) Director 25,000 *
Peter R. Tyson(2) Director 55,600 *
Richard H. Weiner (2) Director 55,100 *
John Lang(5) Director 1,377,617 5.1%
All directors and executive officers 3,181,711 11.6%
as a group (7 persons)
</TABLE>
- ----------------------
* Represents less than 1%.
(1) The calculation of the number of shares and the percentage ownership of
each of the shareholders of Lodgian is based upon, as a result of the
Merger, each Servico shareholder receiving one share of Lodgian Common
Stock per share of Servico Common Stock and each Impac unitholder
receiving 0.519 of a share of Lodgian Common Stock per Impac Unit and
shares of Common Stock subject to outstanding stock options which are
exercisable by the named individual or group. Therefore, the number of
shares of Lodgian Common Stock outstanding is 27,588,795.
(2) The amounts shown include shares owned by options exercisable within 60
days of June __, 1998, as follows: David Buddemeyer - 172,400 shares;
Joseph C. Calabro - 55,000 shares; Michael A. Leven - 25,000 shares;
Peter R. Tyson - 55,000 shares; and Richard H. Weiner - 55,000 shares.
(3) Includes the following number of shares to be owned of record by the
indicated entities, which may be deemed to be controlled by Mr. Cole:
38,102 shares held by Delk Lodging Associates, Inc.; 57,852 shares held
by Hazard Lodging Associates, Inc.; 38,814 shares held by Impac Design
& Construction, Inc.; 667,918 shares held by Impac Hotel Development,
Inc.; 64,691 shares held by Impac Hotel Group, Inc.; 109,919 shares
held by P-Burg Lodging Associates, Inc.; 79,762 shares held by Memphis
Lodging Associates, Inc.; 24,644 shares held by Valdosta Lodging
Associates, Inc.; and 29,944 shares held by Buckhead Lodging
Associates, L.P.
(4) Mr. Calabro has sole voting and dispositive power with respect to
203,100 of such shares and shares voting and dispositive power with
respect to 3,000 shares with his wife.
(5) John M. Lang is a member and manager of ProTrust Holdings, LLC, which,
upon consummation of the liquidation of ProTrust Properties IV, Ltd.,
will hold approximately 38,690 shares of Lodgian Common Stock; is the
sole member and member of P.T. Partners, LLC, which owns 144,012 shares
of Lodgian Common Stock; is a member and manager of ProTrust Holdings
II, LLC, which is the general partner of ProTrust Properties V, Ltd.,
the beneficial owner of 725,072 shares of Lodgian Common Stock and
accordingly, ProTrust Holdings II, LLC may be attributed beneficial
ownership of the shares owned by ProTrust Properties V, Ltd.,; is a
member and manager of Hotel Investors, LLC, which is the general
partner of Hotel Investors, L.P., the beneficial owner of 305,949
shares of Lodgian Common Stock and accordingly, Hotel Investors, LLC
may be attributed beneficial ownership of the shares owned by Hotel
Investors, L.P.; and is a member and manager of ProTrust Equity
Partners, LLC, which is the general partner of ProTrust Equity Growth
Fund I, L.P., the beneficial owner of 108,055 shares of Lodgian Common
Stock and accordingly, ProTrust Equity Partners, LLC may be attributed
beneficial ownership of the shares owned by ProTrust Equity Growth Fund
I, L.P. The other members and managers of ProTrust Holdings, LLC,
ProTrust Holdings II, LLC and Hotel Investors, LLC are Jeffery J. Neal
and Bret N. Bearup and the other members and managers of ProTrust
Equity Partners, LLC are Jeffery J. Neal, Bret N. Bearup and Mark S.
Cooley. Mr. Lang disclaims beneficial ownership of such shares beyond
his ownership in ProTrust Holdings, LLC, P.T. Partners, LLC, ProTrust
Holdings II, LLC, Hotel Investors, LLC and ProTrust Equity Partners,
LLC.
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<PAGE> 101
SUMMARY INFORMATION REGARDING PROPERTIES FOLLOWING THE MERGER
The following tables set forth certain information related to hotels
owned by Servico, Impac and Lodgian (on a pro forma basis after the Merger) by
category of hotel and by geographic region:
SERVICO
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1997
------------------------------------------------------------
AVERAGE TOTAL
NUMBER NUMBER OF CAPITAL AVERAGE AVERAGE AVERAGE
GEOGRAPHIC AREA OF HOTELS ROOMS EXPENDITURES OCCUPANCY ADR REVPAR
--------------- --------- ----- ------------ --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Northeast 23 218 $19,187,765 64.1% $80.09 $51.34
Southeast 20 190 $14,115,566 69.8% $62.64 $43.72
Central 18 208 $23,480,280 67.7% $64.98 $43.99
Western 8 188 $ 4,224,960 69.4% $82.19 $57.04
=============== ================ ================== =============== ============ ==============
Total 69 204 $61,008,571 67.1% $71.74 $48.14
CATEGORY
Luxury 9 294 $11,869,770 68.4% $90.12 $61.64
Upscale 7 228 $ 7,819,900 64.5% $81.83 $52.78
Midscale with
Food and Beverage 44 194 $38,201,951 67.3% $67.05 $45.12
Midscale without
Food and Beverage 8 145 $ 3,045,120 66.1% $56.95 $37.64
Economy 1 140 $ 71,830 70.4% $49.75 $35.02
=============== ================ ================== =============== ============ ==============
Total 69 204 $61,006,571 67.1% $71.74 $48.14
</TABLE>
-83-
<PAGE> 102
IMPAC
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1997
------------------------------------------------------------
AVERAGE TOTAL
NUMBER NUMBER OF CAPITAL AVERAGE AVERAGE AVERAGE
GEOGRAPHIC AREA OF HOTELS ROOMS EXPENDITURES OCCUPANCY ADR REVPAR
--------------- --------- ----- ------------ --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Northeast 17 160 $27,631,874 56.7% $ 66.00 $37.42
Southeast 15 155 $23,122,453 57.3% $ 71.72 $41.10
Central 8 191 $18,625,210 62.5% $ 65.97 $41.23
Western 5 229 $19,676,662 $ 59.60 $25.39
============= ============== ================== ======= ============== ================
42.6%
Total 45 172 $89,056,199 56.5% $ 67.15 $37.94
CATEGORY
Luxury 1 179 $ 6,691,343 43.8% $154.01 $67.46
Upscale 5 230 $10,968,670 48.5% $ 77.26 $37.47
Midscale with
Food and Beverage 29 178 $61,881,237 57.7% $ 66.98 $38.65
Midscale without
Food and Beverage 3 166 $ 4,794,465 61.7% $ 53.77 $33.18
Economy 5 113 $ 4,060,774 56.5% $ 46.60 $26.33
Budget 2 83 $ 659,710 $ 44.96 $28.64
============== =============== ================== ======= ============== ================
63.7%
Total 45 172 $89,056,199 56.5% $ 67.15 $37.94
</TABLE>
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<PAGE> 103
LODGIAN
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1997
------------------------------------------------------------
AVERAGE TOTAL
NUMBER NUMBER OF CAPITAL AVERAGE AVERAGE AVERAGE
GEOGRAPHIC AREA OF HOTELS ROOMS EXPENDITURES OCCUPANCY ADR REVPAR
--------------- --------- ----- ------------ --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Northeast 40 194 $ 46,819,639 67.1% $75.15 $46.07
Southeast 35 175 $ 37,238,019 57.2% $65.82 $42.72
Central 26 203 $ 42,105,490 63.4% $65.33 $42.99
Western 13 204 $ 23,901,622 64.5% $42.99 $44.77
=============== ================ ================== ================= ============== ==========
Total 114 191 $150,064,770 63.1% $44.27 $44.27
CATEGORY
Luxury 10 283 $ 18,561,113 67.1% $92.28 $61.92
Upscale 12 229 $ 18,788,570 57.2% $80.05 $45.79
Midscale with
Food and Beverage 73 188 $100,083,188 63.4% $67.02 $42.49
Midscale without
Food and Beverage 11 151 $ 7,839,585 64.5% $55.81 $36.00
Economy 6 117 $ 4,132,604 63.1% $48.26 $30.45
Budget 2 83 659,710 63.7% $44.96 $28.64
=============== ================ ================== ================= ============== ==========
Total 114 191 $150,064,770 63.1% $70.16 $44.27
</TABLE>
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<PAGE> 104
DESCRIPTION OF SERVICO
GENERAL
Servico is one of the largest owners and operators of full-service
hotels in the United States. Servico currently owns or manages 89 hotels
containing approximately 17,937 rooms located in 24 states and Canada. Servico's
hotels are primarily mid-sized, with an average of approximately 202 rooms per
hotel, and are primarily located in secondary metropolitan markets. Servico's
full-service hotels offer food and beverage services and meeting and banquet
facilities. Servico's hotels include 76 wholly-owned hotels, 11 partially owned
hotels and 2 managed hotels. Fourteen of the hotels are subject to long-term
ground or building leases. Substantially all of Servico's hotels are affiliated
with nationally recognized hospitality franchises, including Holiday Inn, Crowne
Plaza, Hilton, Omni, Radisson, Sheraton and Westin. Servico operates 59 hotels
under franchise agreements with Holiday Inn, making Servico the second largest
Holiday Inn franchisee in the United States.
INFORMATION RELATING TO DIRECTORS AND EXECUTIVE OFFICERS OF SERVICO
The table below sets forth certain information with respect to the one
candidate for election as a director at Servico's Annual Meeting, and the
remaining four directors whose terms do not expire this year and the executive
officers of Servico.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH SERVICO
---- --- ---------------------
<S> <C> <C>
DIRECTOR WHOSE TERM EXPIRES IN 1998:
Michael A. Leven 60 Director
DIRECTORS WHOSE TERMS EXPIRE IN 1999:
David Buddemeyer 40 Chairman of the Board, President and
Chief Executive Officer
Peter R. Tyson 51 Director
Richard H. Weiner 48 Director
DIRECTOR WHOSE TERM EXPIRES IN 2000:
Joseph C. Calabro 47 Director
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
Karyn Marasco 40 Executive Vice President and Chief Operating
Officer
Charles M. Diaz 30 Vice President-Administration and Secretary
Warren M. Knight 51 Vice President-Finance and Chief Financial
Officer
Peter J. Walz 54 Vice President-Acquisitions
</TABLE>
DAVID BUDDEMEYER has been the Chairman of the Board of Servico since
August 1997, its Chief Executive Officer since December 1995, a director since
April 1994 and its President since May 1993. Mr. Buddemeyer served as the Chief
Operating Officer of Servico from May 1993 to December 1995 and its Executive
Vice President from June 1990 to May 1993. Prior to such time, from 1987 to June
1990, he served as Vice President- Operations of Prime Motor Inns, Inc., a hotel
management company.
-86-
<PAGE> 105
JOSEPH C. CALABRO has been a director of Servico since August 1992. Mr.
Calabro has been a principal of Joseph C. Calabro, C.P.A., a Devon, Pennsylvania
accounting firm, since 1982. Mr. Calabro has also been an officer and director
of Bibsy Corporation, which previously owned and operated a Holiday Inn hotel in
Bensalem, Pennsylvania, since 1971.
MICHAEL A. LEVEN has been a director of Servico since August 1997. Mr.
Leven is President and Chief Executive Officer of US Franchise Systems, Inc.
Prior to joining US Franchise Systems, Inc., Mr. Leven was
President and Chief Operating Officer of Holiday Inn Worldwide.
PETER R. TYSON has been a director of Servico since August 1992. From
December 1990 to the present, Mr. Tyson has been President of Peter R. Tyson &
Associates, Inc., a firm offering consulting services to clients in the
hospitality industry. Prior to forming Peter R. Tyson & Associates, Inc., Mr.
Tyson was the partner-in-charge of the hospitality industry consulting practice
in the Philadelphia office of the accounting and consulting firm of Laventhol &
Horwath, with which he was associated for 20 years.
RICHARD H. WEINER has been a director of Servico since August 1992. Mr.
Weiner is a senior partner in the Albany, New York law firm of Cooper, Erving,
Savage, Nolan & Heller, where he has practiced law since 1975.
KARYN MARASCO has been Executive Vice President and Chief Operating
Officer since May 1997. Prior to such time, Ms. Marasco was affiliated with
Westin Hotels and Resorts for 18 years. Most recently, Ms. Marasco served Westin
as Area Managing Director, based in Chicago.
CHARLES M. DIAZ has been Vice President-Administration and Secretary of
Servico since December 1997. Mr. Diaz joined Servico in March 1993 and has held
positions in the construction and operations areas of Servico.
WARREN M. KNIGHT has been Vice President-Finance and Chief Financial
Officer of Servico since December 1991. Prior to such time, from March 1988 to
November 1991, Mr. Knight served as Director of Finance for W.A. Taylor & Co.,
an importer of distilled spirits into the United States.
PETER J. WALZ has been Vice President-Acquisitions of Servico since
February 1996. Prior to such time, from December 1994 to January 1996, he was a
consultant to Servico. From October 1993 to November 1994, Mr. Walz was an
executive officer of Hospitality Investment Trust, Inc., a development stage
lodging real estate investment trust. Prior to such time, from April 1987 to
September 1993, Mr. Walz was Executive Vice President of CMS Development, Inc.,
a developer of office buildings, condominiums and hotels.
DIRECTOR COMPENSATION. During 1997, Servico paid non-employee directors
an annual retainer of $18,000, as well as a fee per board meeting or board
committee meeting of $1,000. Mr. John Adams, who served as Chairman of the Board
until his resignation from the Board, received compensation of $58,333 for
serving as Chairman from January to August 1997, but received no retainer,
meeting or committee fees. Servico also reimbursed directors other than Mr.
Adams for expenses associated with attending Board and committee meetings. Under
the Servico Plan, each non-employee director is automatically granted, on the
date such director's term of office commences and each year thereafter on the
day following any annual meeting of shareholders (as long as such director's
term as a director is continuing for the ensuing year), an option to acquire
5,000 shares of Servico Common Stock at an exercise price equal to the fair
market value of the Servico Common Stock on the date of grant. All options
granted to non-employee directors become exercisable upon grant.
In addition, in August 1997 each non-employee director was awarded an
option to acquire 20,000 shares of Servico Common Stock at an exercise price
equal to the fair market price on the date of grant. Such options became
exercisable upon the date of grant and were granted outside of the Servico Plan.
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<PAGE> 106
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS. Servico's Board of
Directors held ten meetings during the last fiscal year. No director attended
fewer than 75% of the total aggregate number of meetings of the Board of
Directors and any committee of the Board of Directors on which such director
served during his or her tenure as a director or committee member.
The Board of Directors of Servico currently has three standing
committees -- the Audit Committee, the Compensation Committee and the Stock
Option Committee. The full Board of Directors currently serves as the Nominating
Committee.
The principal functions of the Audit Committee are to review Servico's
financial statements and management's disclosures, recommend to the Board of
Directors the appointment of independent public accountants to be employed by
Servico, confer with the independent public accountants concerning the scope of
their audit and, on completion of their audit, review the accountants' findings
and recommendations, review the adequacy of Servico's systems of internal
accounting controls, review areas of possible conflicts of interest and
sensitive payments and consider such other matters as the committee deems
appropriate. The Audit Committee held two formal meetings during the last fiscal
year. The present members of the Audit Committee are Joseph C. Calabro, Peter R.
Tyson and Richard H. Weiner.
The principal functions of the Compensation Committee are to approve
or, in some cases, to recommend to the Board of Directors, remuneration
arrangements and compensation plans involving Servico's directors and executive
officers, review bonus criteria and bonus recommendations and review
compensation of directors. The Compensation Committee held one formal meeting
during the last fiscal year. The present members of the Compensation Committee
are Joseph C. Calabro, Peter R. Tyson and Richard H. Weiner.
The principal function of the Stock Option Committee is to administer
the Servico Plan. The Stock Option Committee held one formal meeting during the
last fiscal year. The present members of the Stock Option Committee are Joseph
C. Calabro and Peter R. Tyson.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Exchange Act requires Servico's directors, executive
officers and 10% shareholders to file reports of ownership and reports of
changes in ownership of Servico Common Stock and other equity securities with
the SEC and the NYSE. Directors, executive officers and 10% shareholders are
required to furnish Servico with copies of all Section 16(a) forms they file.
Based on a review of the copies of such reports furnished to it, Servico
believes that during 1997 Servico's directors, executive officers and 10%
shareholders complied with all Section 16(a) filing requirements applicable to
them, except with respect to the Form 4s required to be filed with respect to
the August 1997 stock option grants to directors which were not timely filed.
EXECUTIVE COMPENSATION. The following table sets forth certain summary
information concerning compensation paid or accrued by Servico, to or on behalf
of the Chief Executive Officer and to each of Servico's four most highly
compensated executive officers other than the Chief Executive Officer during the
year ended December 31, 1997.
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<PAGE> 107
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- -----------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS(5) COMPENSATION($)(6)
- --------------------------- ---- --------- -------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
David Buddemeyer, 1997 385,000 120,000 - 400,000 2,948
Chairman of the Board, 1996 350,000 96,745 - 13,500 4,726
President and Chief Executive 1995 275,000 70,905 - 5,000 4,733
Officer
Karyn Marasco, 1997 137,269 60,000 - 125,000 -
Executive Vice President and
Chief Operating Officer(1)
Warren M. Knight, 1997 188,000 60,000 - 75,000 3,556
Vice President-Finance 1996 170,000 46,990 - 13,500 4,844
and Chief Financial Officer 1995 150,000 38,675 - 5,000 3,921
Robert D. Ruffin(2) 1997 168,000 - - - 3,712
1996 160,000 44,227 - 13,500 5,192
1995 150,000 38,675 - 5,000 4,279
Peter J. Walz, 1997 150,000 - 174,700(4) 100,000 3,793
Vice President-Acquisitions(2) 1996 122,596 - 139,438(4) 15,500 2,375
1995 - - 348,730(4) - -
</TABLE>
- ------------------
(1) Ms. Marasco's employment with Servico began in May 1997.
(2) Mr. Ruffin served as Vice President-Administration and Secretary until
his resignation on December 31, 1997.
(3) Mr. Walz's employment with Servico began in January 1996.
(4) Represents commission payments made to Mr. Walz.
(5) Represents the number of shares of Servico Common Stock underlying the
options/SARs.
(6) Each item included in this column represents a contribution made by
Servico under its 401(k) plan on behalf of the named executive based on
such executive's annual elective pre-tax deferred contribution
(included under Salary) to such plan.
STOCK OPTION PLAN. The Servico Plan provides for the issuance of
incentive stock options within the meaning of Section 422A of the Code and
non-qualified stock options not intended to meet the requirements of Section
422A of the Code. The Servico Plan is administered by a committee of the Board
of Directors which, subject to the terms of the Plan, determines to whom grants
are made and the vesting, timing and amounts of such grants.
The following table sets forth information concerning stock option
grants made during 1997 to the executive officers named in the "Summary
Compensation Table", including the potential realizable value of each grant
assuming that the market value of the Servico Common Stock appreciates from the
date of grant to the expiration of the option at annualized rates of 5% and 10%,
in each case compounded annually over the term of the option. These assumed
rates of appreciation have been specified by the SEC for illustration purposes
only and are not intended to predict future prices of Servico Common Stock. The
actual future value of the options will depend on the market value of the
Servico Common Stock.
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<PAGE> 108
STOCK OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
----------------------------------------- ASSUMED ANNUAL
NUMBER OF RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APRECIATION
UNDERLYING OPTIONS/SARS EXERCISE FOR OPTION
OPTIONS/SARS GRANTED TO PRICE EXPIRATION ------------------------
GRANTED(#)(1) EMPLOYEES(%) ($/Sh) DATE 5%($) 10%($)
------------- ------------ ----- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
David Buddemeyer 400,000 35.27% $16.75 8/27/2007 4,213,594 10,678,074
Karyn Marasco 50,000 4.41% $15.25 5/06/2007 479,532 1,215,229
Karyn Marasco 75,000 6.61% $16.75 8/27/2007 790,049 2,002,139
Warren M. Knight 75,000 6.61% $16.75 8/20/2007 790,049 2,002,139
Peter J. Walz 100,000 8.82% $16.75 8/20/2007 1,053,398 2,669,519
</TABLE>
- ----------------------
(1) Approximately 410,000 of such options are subject to approval by
Servico's shareholders of an increase in the number of shares available
for grant under the Servico Plan.
(2) The options were granted at fair market value at the time of the grant
and generally vest in equal portions over a five year period.
The following table sets forth certain summary information concerning
exercised and unexercised options to purchase Servico Common Stock as of
December 31, 1997, under the Servico Plan held by the executive officers named
in the "Summary Compensation Table".
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STOCK OPTION EXERCISES IN
FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS HELD AT OPTIONS/SARS(2)
FISCAL YEAR-END (#) AT FISCAL YEAR-END($)
NAME AND POSITION ACQUIRED ON VALUE ------------------------------ ----------------------------
DURING 1997 FISCAL YEAR EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David Buddemeyer,
Chairman of the Board,
President and Chief
Executive Officer - - 189,700 333,800 1,393,163 128,275
Karyn Marasco,
Executive Vice President
and Chief Operating
Officer(1) - - 25,000 100,000 18,125 72,500
Warren M. Knight,
Vice President-Finance
and Chief Financial
Officer - - 112,400 73,800 1,224,100 95,775
Robert D. Ruffin(1) - - 60,700 12,800 746,788 80,900
Peter J. Walz,
Vice President-
Acquisitions - - 23,000 92,000 20,875 83,500
</TABLE>
- -----------------
(1) Mr. Ruffin served as Vice President-Administration and Secretary until
his resignation on December 31, 1997.
(2) The value of unexercised in-the-money options/SARs represents the
number of options/SARs held at year-end 1997 multiplied by the
difference between the exercise price and $16.875, the closing price of
Servico Common Stock at year-end 1997.
SERVICO EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
EMPLOYMENT AGREEMENTS. David Buddemeyer entered into an employment
agreement with Servico relating to his employment as President and Chief
Operating Officer as of May 14, 1993. Effective December 21, 1995, Mr.
Buddemeyer was elected Chief Executive Officer of Servico. The employment
agreement provides for a base salary subject to increases and bonuses, in each
case, at the discretion of the Board of Directors. The base salary paid to Mr.
Buddemeyer during 1997 was $385,000 and the base salary to be paid Mr.
Buddemeyer during 1998 is $405,000. Mr. Buddemeyer is also entitled to receive
paid health insurance, paid disability insurance and is entitled to participate,
to the extent he is eligible, under any benefit plans provided to other
executives of Servico. Mr. Buddemeyer is entitled to a minimum of four weeks
paid vacation annually. The employment agreement is terminable by either party
upon 30 days written notice. However, in the event that Mr. Buddemeyer is
terminated other than "for cause", as defined, Servico will be required to pay
him his base salary and other benefits under this agreement for a period of one
year. See "Interests of Certain Persons in the Merger- -Arrangements with
Executive Officers" for a discussion of the employment agreement to be offered
to Mr. Buddemeyer by Lodgian and which will replace Mr. Buddemeyer's employment
agreement with Servico.
Karyn Marasco entered into a three-year employment agreement with
Servico relating to her employment as Executive Vice President and Chief
Operating Officer of Servico on May 1, 1997. The employment agreement provides
for a base salary of $215,000 subject to increases and bonuses in the discretion
of the Board. Ms. Marasco is also entitled to receive the benefits offered other
executive officers. Pursuant to the terms of the Employment Agreement, Ms.
Marasco was granted options to acquire 50,000 shares of Servico Common Stock
with options with respect to 10,000 of such shares vesting immediately and
10,000 vesting annually. The Employment Agreement is terminable upon thirty days
notice but in the event Ms. Marasco is terminated other than "for cause", as
defined, she will be entitled to her base salary and benefits under the
agreement for the greater of the unexpired term or one year. Lodgian will assume
Ms. Marasco's employment agreement.
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<PAGE> 110
ARRANGEMENTS REGARDING TERMINATION OF EMPLOYMENT AND CHANGES OF
CONTROL. Servico has adopted a severance policy which provides for payments to
its executive officers in an amount equal to two and one-half times their annual
base compensation, less any other cash severance payments contractually owed to
them by Servico, in the event that there is either a change in the majority of
the Board of Directors or the acquisition by any individual or group of in
excess of 50% of Servico's outstanding Common Stock and the duties or
responsibilities of such executive officers are materially diminished within 24
months thereafter. The Merger will not result in any liability under these
provisions.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation of Servico's executive officers, including its Chief
Executive Officer, is determined by the Compensation Committee of Servico's
Board of Directors (the "Compensation Committee"), except for decisions
regarding the Servico Plan, which are made by the Stock Option Committee of the
Board of Directors (the "Stock Option Committee"). During 1997, the Compensation
Committee was comprised of the three non-employee directors, Joseph C. Calabro,
Peter R. Tyson and Richard H. Weiner. The current members of the Stock Option
Committee are Mr. Calabro and Mr. Tyson.
Servico's executive compensation policies are designed to provide
competitive levels of compensation that integrate pay with Servico's short-term
and long-term performance goals, reward corporate performance and recognize
individual initiative and achievement. It is anticipated that these policies
will help Servico to continue to attract and retain quality personnel and
thereby enhance Servico's long-term profitability and share value.
Executive compensation ranges have been designed to be competitive with
amounts paid to senior executives at companies in the hospitality industry which
compete with Servico, companies which are similar in size and profitability to
Servico and companies with which Servico competes for senior executives. Within
this framework, individual executive compensation is based on personal and
corporate achievement and the individual's level of responsibility and
experience. However, in any particular year, Servico's executives may be paid
more or less than executives in peer companies depending upon Servico's
performance.
BASE COMPENSATION. The base salaries of Servico's executive officers
are based in part on comparative industry data and on various quantitative and
qualitative considerations regarding corporate and individual performance. An
executive's base salary is determined only after an assessment of his or her
sustained performance, current salary in relation to the target salary for the
job responsibilities and his or her experience and potential for advancement.
Further, in establishing base salaries for Servico's executive officers,
numerous other factors, including the following, are considered:
i. Industry compensation trends.
ii. Cost-of-living and other local and geographic considerations.
iii. Consultation with other Servico executives.
iv. Hospitality industry and job-specific skills and knowledge.
v. Historical and expected contributions to Servico's performance.
vi. Level, complexity, breadth and difficulty of duties.
In establishing the base salaries of the executive officers, the
Compensation Committee was cognizant of the roles of each executive officer in
the operations of Servico. The Compensation Committee specifically recognized
the improvements achieved in Servico's results of operations and financial
condition during the prior fiscal year and the roles and responsibilities of
each of the executive officers.
BONUS PROGRAM. An annual bonus program has been implemented at Servico.
The objective of the bonus program is to motivate and reward the accomplishment
of corporate objectives; reinforce a strong performance orientation; provide a
direct link between corporate performance and executive compensation; and
provide a fully competitive compensation package which will attract, reward and
retain individuals of the highest quality. As a performance-based plan, cash
bonus awards are required to be paid under the plan only upon the achievement of
preestablished corporate performance objectives on a quarterly and annual basis
and no bonuses are required
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<PAGE> 111
to be paid if the minimum established thresholds are not met. A maximum ceiling
is also established for awards under the bonus program which is determined after
consideration of Servico's competitive position in the industry, assessment of
long-term goals and business performance considerations. Under the 1997 bonus
awards program, Servico agreed to allocate to a bonus pool an amount equal to a
percentage of the amount by which actual and annual cash flow (as defined)
exceeded budgeted cash flow for each quarter subject to a calculation based on
the number of shares of Servico Common Stock outstanding at the time the bonus
is determined. As a consequence of Servico's successful secondary offering of
11.5 million shares of Servico Common Stock in July, 1997 no bonus was payable
under the 1997 plan notwithstanding Servico's strong results in 1997 and the
benefits to Servico of successfully consummating its Common Stock offering.
Accordingly, the Compensation Committee made a determination, in its discretion,
to award bonuses of an aggregate of $270,000 to the executive officers of
Servico including a $120,000 bonus to Mr. Buddemeyer, the Chief Executive
Officer of Servico.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. Servico's long-term
executive compensation incentives are in the form of Stock Option awards and
Stock Appreciation Rights. The Stock Option Committee believes that Stock Option
awards and Stock Appreciation Rights are an effective means of advancing the
long-term interests of Servico's shareholders by integrating executive
compensation with the long-term value of Servico Common Stock. Awards are
granted at the prevailing market price on the date of grant and are valuable to
executives only if Servico Common Stock appreciates. During 1997, the Stock
Option Committee awarded options to purchase an aggregate of 587,500 shares of
Servico Common Stock and Stock Appreciation Rights relating to an aggregate of
150,000 shares identified in the "Stock Option Grants in Fiscal Year 1997"
table. All of such options were granted with an exercise price equal to $16.75
per share, the market price on the date of grant. The Stock Option Committee
also awarded options to purchase shares of Servico Common Stock to various
non-executive employees of Servico during 1997. All of such options and rights
were granted with an exercise or base price equal to $16.75 per share, the
market price on the date of grant. In determining whether (and to what extent)
to grant stock options or rights to executives and employees of Servico, the
Stock Option Committee considered numerous factors, including, among others,
those factors listed under "Base Compensation."
CHIEF EXECUTIVE OFFICER. Like the other executive officers listed in
the "Summary Compensation Table," compensation for 1997 for David Buddemeyer,
Servico's Chairman of the Board, President and Chief Executive Officer,
consisted primarily of a base salary and a discretionary bonus based on
corporate performance. The Compensation Committee determined Mr. Buddemeyer's
compensation for 1997 after considering many factors, including those factors
described above under Base Compensation applicable to all executives.
Additionally, the Compensation Committee focused on Mr. Buddemeyer's role in the
continuing profitability of Servico and the demand for executives with similar
successful track records in the hospitality industry. In establishing Mr.
Buddemeyer's compensation, the Compensation Committee also took particular note
of the continued improvement in Servico's financial condition, Servico's
successful secondary offering and Servico's growth during 1997. Servico reported
revenues of $276.6 million and earnings before interest, tax, depreciation and
amortization ("EBITDA") of $69.6 million for the year ended December 31, 1997,
as compared to revenues of $239.5 million and EBITDA of $57.9 million for the
year ended December 31, 1997. Based on Mr. Buddemeyer's contribution to Servico
and Servico's reliance on Mr. Buddemeyer, the Compensation and Stock Option
Committees granted to Mr. Buddemeyer options to acquire 300,000 shares of
Servico Common Stock and Stock Appreciation Rights with respect to an additional
100,000 shares based on the market price of Servico's Common Stock on the date
of grant.
SECTION 162(M) DEDUCTIBILITY. The Compensation and Stock Option
Committees continue to review the $1 million cap on tax deductible compensation
and is advised that its stock option plan meets the requirements
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<PAGE> 112
for deductibility. The Stock Appreciation Rights and bonuses payable may have
not met all requirements for deductibility under Section 162(m) of the Code.
However, unless the amounts involved become material, the Compensation and Stock
Option Committees believe that it is more important to preserve its flexibility
under the plan to craft appropriate incentive awards. The Committees continue to
believe that this is not a currently significant issue.
Submitted by,
Joseph C. Calabro Peter R. Tyson Richard H. Weiner
PERFORMANCE GRAPH
Set forth below is a graph comparing the cumulative total shareholder
return on Servico's Common Stock with the Dow Jones Equity Market Index and the
Dow Jones Lodging Index. The Servico Common Stock traded on the American Stock
Exchange under the symbol "SER" from August 18, 1992 until June 18, 1997 and
thereafter traded on the NYSE. The graph assumes an investment of $100.00 on
August 18, 1992 in (i) Servico's Common Stock, (ii) the stocks comprising the
Dow Jones Equity Market Index and (iii) the Dow Jones Lodging Index.
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<PAGE> 113
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership
of Servico Common Stock as of March 25, 1998, by (i) each person known to
Servico to be the beneficial owner of more than 5% of the issued and outstanding
Servico Common Stock as of June 30, 1998, (ii) each of the members of Servico's
Board of Directors, (iii) each of Servico's current executive officers named in
the "Summary Compensation Table" under "Executive Compensation" above, and (iv)
all directors and executive officers of Servico as a group. All shares were
owned directly with sole voting and investment power unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
NAME AND ADDRESS COMMON STOCK COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
BENEFICIAL OWNERS OF 5% OR MORE OF
OUTSTANDING SERVICO COMMON STOCK:
- ----------------------------------
Heitman/PRA Securities Advisors, Inc. 1,307,000(2) 6.1%
180 North LaSalle Street, Suite 3600
Chicago, IL 60601
Eagle Asset Management 1,301,815(3) 6.1%
880 Carillon Parkway
St. Petersburg, FL 33716
Prudential Insurance Company of America 1,111,000(4) 5.2%
751 Broad Street
Newark, NJ 07102-3777
DIRECTORS:
David Buddemeyer 202,219(5) *
1601 Belvedere Road
West Palm Beach, FL 33406
Joseph C. Calabro 261,100(6) 1.2%
868 Lancaster Avenue
Devon, PA 19333
Michael A. Leven 25,000(7) *
13 Corporate Square
Suite 250
Atlanta, GA 30329
Peter R. Tyson 55,600(8) *
135 E. State Street
Kennett Square, PA 19348
Richard H. Weiner 55,100(8) *
39 N. Pearl St.
Albany, NY 12207
</TABLE>
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<PAGE> 114
<TABLE>
<CAPTION>
<S> <C> <C>
NON-DIRECTOR EXECUTIVE OFFICERS:
Warren M. Knight 116,111(9) *
1601 Belvedere Road
West Palm Beach, FL 33406
Karyn Marasco 22,500(10) *
1601 Belvedere Road
West Palm Beach, FL 33406
Peter J. Walz 25,500(11) *
1601 Belvedere Road
West Palm Beach, FL 33406
All directors and executive officers as a 769,365(12) 3.6%
group (nine persons)
</TABLE>
- ----------------------
* Represents less than 1%
(1) Ownership percentages are based on 21,565,795 shares of Servico Common
Stock outstanding as of March 25, 1998 and shares of Servico Common
Stock subject to outstanding stock options which are exercisable by the
named individual or group.
(2) Heitman/PRA Securities Advisors, Inc. filed a Schedule 13G dated
February 12, 1998, with the SEC reporting ownership of 1,307,000 shares
of Servico Common Stock with sole voting power with respect to
1,231,000 shares, sole dispositive power with respect to 1,284,400 and
shared dispositive power with respect to 22,600.
(3) Eagle Asset Management, Inc. filed a Schedule 13G dated January 31,
1998, with the SEC reporting ownership of 1,301,815 shares of Servico
Common Stock with sole voting and dispositive power.
(4) The Prudential Insurance Company of America filed a Schedule 13G dated
February 10, 1998, with the SEC reporting ownership of 1,111,000 shares
of Servico Common Stock with shared voting and dispositive power with
respect to 414,600 shares.
(5) Includes currently exercisable options to purchase 172,400 shares.
(6) Includes currently exercisable options to purchase 55,000 shares. Mr.
Calabro has sole voting and dispositive power with respect to 203,100
of such shares and shares voting and dispositive power with respect to
3,000 shares with his wife.
(7) Includes currently exercisable options to purchase 25,000 shares.
(8) Includes currently exercisable options to purchase 55,000 shares.
(9) Includes currently exercisable options to purchase 112,400 shares.
(10) Includes currently exercisable options to purchase 22,500 shares.
(11) Includes currently exercisable options to purchase 23,500 shares.
(12) Includes 526,800 shares of Servico Common Stock which may be acquired
pursuant to currently exercisable options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The following parties
had a direct or indirect material interest in transactions with Servico since
the beginning of its most recently completed fiscal year and such transactions
are described below.
ENERGY MANAGEMENT CORPORATION. In April 1994, Servico issued
one million shares of its Common Stock to EMC in connection with a merger
between wholly owned subsidiaries of Servico and EMC pursuant to that certain
Stock Acquisition and Standstill Agreement, as amended, (the "EMC Acquisition
Agreement") and the related Agreement and Plan of Merger, each dated April 13,
1994. The sole asset of the EMC subsidiary acquired by Servico was $7 million in
cash, which Servico agreed would be utilized for general working capital,
capital expenditures, possible acquisitions and other general corporate purposes
and not for the redemption of any of Servico's capital stock or for the payment
of dividends by Servico. In connection with the transaction Servico agreed,
during the term of the EMC Acquisition Agreement, to cause the nomination of one
designee of EMC to Servico's Board of Directors. EMC designated Mr. John W.
Adams to be its representative. Mr. Adams was appointed to Servico's Board of
Directors on April 29, 1994, and was named Chairman of the Board on December 21,
1995. Mr. Adams resigned from the Board in August, 1997.
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<PAGE> 115
Pursuant to the EMC Acquisition Agreement, EMC also agreed to
certain standstill provisions generally prohibiting it from acquiring voting
securities of Servico with voting rights of 30% or more of the voting rights of
all outstanding voting securities of Servico and to provisions which restrict
the amount and manner by which it may transfer any Servico Common Stock owned by
it. On May 5, 1994, Servico filed with the SEC on behalf of EMC, and at EMC's
expense, a registration statement on Form S-3, relating to the proposed sale
from time to time by EMC of all or any portion of its shares of Servico Common
Stock on the NYSE.
PENGO SECURITIES CORP. In March 1995, Servico issued 800,000
shares of its Common Stock to Pengo, which is affiliated with EMC, for $8
million, or $10 a share, pursuant to that certain Stock Acquisition and
Standstill Agreement dated March 23, 1995, as amended (the "Pengo Acquisition
Agreement"). Additionally, in connection with this transaction, an affiliate of
Pengo agreed to make an additional $8 million equity investment in partnerships
or joint ventures with Servico for the purpose of acquiring hotel properties.
Pursuant to the Pengo Acquisition Agreement, Pengo also agreed to standstill
provisions substantially identical to those contained in the EMC Acquisition
Agreement. Servico also agreed to file with the SEC on behalf of Pengo, and at
Pengo's expense, a registration statement on Form S-3, relating to the proposed
sale from time to time by Pengo of all or any portion of its shares of Servico
Common Stock.
LIMITED PARTNERSHIPS WITH AFFILIATED ENTITIES. Subsidiaries of
Servico have entered into partnership agreements in connection with the
formation of partnerships for the purpose of owning hotel properties with
SOLVation Inc., Spire Realty Group, Worcester Hospitality Company, Inc. and
Wolverine Hospitality Company, Inc. (the "EMC/Pengo Affiliates"), all of which
are affiliated with either EMC or Pengo, who were then principal shareholders of
Servico and with John W. Adams, who was then Servico's Chairman of the Board.
The partnerships own the following properties with Servico owning 51% and the
EMC/Pengo Affiliates owning 49% of outstanding partnership interests:
HOTEL
-----
Holiday Inn, Augusta, Georgia
Holiday Inn, Fort Wayne, Indiana
Hilton Hotel, Sioux City, Iowa
Crowne Plaza, Worcester, Massachusetts
Crowne Plaza, Saginaw, Michigan
Holiday Inn, Richfield, Ohio
During 1997, Servico purchased all of the minority interests held by
the EMC/Pengo Affiliates in the three partnerships which owned the Holiday Inn
Select, Phoenix, AZ, the Holiday Inn, Manhattan, KS and the Holiday Inn,
Lawrence, KS for approximately $11,800,000. EMC/Pengo Affiliates also have
certain rights after May 31, 1998 to require the sale of the hotel properties
held by the six remaining partnerships, subject to certain rights of first
refusal in favor of Servico.
Subsidiaries of Servico serve as the General Partner for each of the
partnerships. Additionally, Servico receives management fees from the
partnerships with respect to each of these hotels. During 1997, such fees were
approximately $1,042,000.
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<PAGE> 116
BUSINESS OF IMPAC
GENERAL
Impac is one of the largest private, fully integrated hotel companies
in the United States. Impac owns or manages primarily upscale or mid-market full
service hotels, most of which have been renovated or developed within the last
five years. Impac currently operates (or is developing) 55 hotels containing
approximately 9,266 rooms located in 24 states. Impac's hotels include 51 wholly
owned hotels, one partially owned hotel and two managed hotels. Impac's hotels
are flagged with premium brands such as Marriott, Doubletree and Holiday Inn.
Impac has successfully implemented its acquisition and development
based growth strategy by acquiring or developing 46 hotels from January 1995 to
July 1998 including five hotels which are currently under construction. Revenues
have increased from approximately $56 million to $120 million and EBITDA (as
defined) has increased from approximately $12 million to $16 million for the
period from the year ended December 1995 to the year ended December 1997. During
1997, Impac acquired or developed and opened 18 hotels and had 25 properties
under major renovation. Impac had 18 properties under major renovation during
each of the quarters ended March 31, 1997 and 1998. As a result, Impac's
management believes that the full revenue and EBITDA growth potential of these
properties had yet to be realized as of March 31, 1998. Revenue growth is
adversely affected by the renovation of newly acquired properties.
Management seeks to achieve external growth through the acquisition of
underperforming hotels in cases in which management believes it can improve
operating results through significant renovation of physical facilities and, if
appropriate, changes in franchise affiliation. Additionally, management seeks to
develop new properties in strategic locations. Impac believes that internal
growth can be realized through a focused upgrading strategy which generates
increases in RevPAR and operating efficiencies through expense control.
ORGANIZATION
Impac is a limited liability company organized in the State of Georgia
on February 26, 1997 through a reorganization of predecessor entities and the
purchase of minority interests. Impac's sole Manager is Robert S. Cole, who is
responsible for handling Impac's affairs and operating its business. Impac is
organized as set forth below:
[INSERT ORGANIZATIONAL CHART]
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INVESTMENT STRATEGY
Historically, Impac's strategy has been to invest in underperforming
properties, significantly renovate them, operate them efficiently so that they
maximize cash flow, stabilize the operations and revenue stream and then seek to
sell selected properties for prices that produce significant gains.
GAINS PRODUCED ON SALE OF HOTEL PROPERTIES. Impac sold seven hotels
during 1996 and three during 1995. The realized gains on sales in 1996 and 1995
were $19.4 million and $5.4 million, respectively. Impac did not sell any
properties during 1997. Sixteen properties were acquired in 1997.
NEW DEVELOPMENT. Impac is also involved in the development of upscale
properties. Impac believes that it is able to develop properties at costs below
those of its competitors through its in-house acquisition and construction
departments. Impac's historical objective has been to develop each property as
cost efficiently as possible, efficiently operate the property through its
in-house management team and to maximize current cash flow. Impac has developed
nine properties since 1995 that are currently operating. As of May 1998, Impac
had an additional six upscale properties under construction, including two full
service Marriotts, one Residence Inn, two Hilton Gardens and one Courtyard by
Marriott.
DIVIDENDS PAID. Impac has paid dividends to its unitholders each year.
See "Market Price and Dividend Data--Impac." In 1997, 1996 and 1995, Impac
distributed $6 million, $29.4 million and $10.4 million, respectively, to its
unitholders.
AWARD WINNING PRODUCT. Impac prides itself on the recognition it has
received from its franchisors. These awards include, among others: (i) Best New
Hotel Opening for 1997 from the Courtyard by Marriott; (ii) President's Award
for five hotels for 1998 from Marriott International; (iii) Modernization Award
for the last three consecutive years from Holiday Hospitality; and (iv)
Torchbearer Award from Holiday Hospitality. Impac was also named as the Best New
Franchisee by Marriott International in 1995.
PORTFOLIO STATUS. Twenty-five of Impac's properties were under
significant renovation during 1997. Impac purchased 16 properties and opened
three newly constructed properties during 1997. As discussed more fully below,
the renovation process greatly affects the operating performance of the hotel
while it is underway. Revenues are significantly reduced while fixed expenses
remain substantially constant. The majority of Impac's portfolio has been
completely renovated or developed leaving Impac substantially with a portfolio
of new or recently renovated hotels. Impac currently has six hotels under
development. These hotels are expected to be completed during 1998 and 1999.
Based on the foregoing, management believes that Impac's portfolio is positioned
for improved operational performance in the areas of revenue growth, revenue per
available room (RevPAR) and EBITDA.
ACQUISITION AND DEVELOPMENT STRATEGY
Impac has developed an acquisition strategy based on the hotel and
market criteria described below. Since January 1995, management has implemented
this strategy through the acquisition or development of 46 upscale or
mid-market, full service hotels (six of which are currently under construction).
Impac has attempted to position itself to absorb such rapid growth by investing
heavily in its management team and systems and infrastructure during the latter
part of 1996 and all of 1997.
HOTEL CRITERIA
FOCUS ON SINGLE HOTEL AND SMALL PORTFOLIO ACQUISITIONS. Impac has
historically targeted the acquisition of single hotels or small portfolios.
Impac believes such acquisitions generally are more conducive to the rapid
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and effective implementation of hotel-level improvements and allow Impac to be
geographically and market selective.
ACQUISITION AND RENOVATION OF SUBSTANTIALLY UNDERPERFORMING HOTELS.
Impac has historically sought to purchase substantially underperforming hotels
and to significantly renovate and efficiently operate such hotels after
acquisition in order to achieve significant operating gains. Impac has sought to
acquire properties with the potential for highly attractive returns through
significant strategic repositioning, operational improvements, renovation
enhancements and, if appropriate, changes in brand affiliations. Impac's
management believes that there has generally been less competition to purchase
these hotels than other hotel properties because of (i) the level of expertise
and amount of capital required to effectively purchase and turnaround such
hotels, (ii) construction difficulties encountered during the renovation phase,
and (iii) the negative impact on earnings and cash flows during the
repositioning period.
DEVELOPMENT OF STRATEGICALLY LOCATED HOTELS. Impac has also
historically sought growth through the development of hotels in strategically
located cities with primarily Marriott and Hilton brands. Locations chosen by
Impac have typically been in the suburbs of large metropolitan areas that are
experiencing significant demand. Hotels have generally been developed by Impac
through in-house resources rather than relying on outside construction
management firms. In certain instances, Impac has retained a third party
contractor to construct certain hotels under the supervision of Impac's
personnel. Impac believes that its development activity has the potential to
result in significant gains because the cost and expertise required of building
such assets generally limits access to the marketplace and Impac is in a
position to manage the construction process and potentially realize significant
savings through its construction efforts.
OPPORTUNISTIC USE OF MULTIPLE BRANDING STRATEGY. Because Impac is not
bound by a single franchise brand, Impac believes that it is in a position to
choose a franchise relationship that will maximize a hotel's performance in its
particular market.
OPERATING STRATEGY
EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. The members of Impac's
senior management have an average of 15 years of experience in all segments of
the lodging industry. Impac's general and group managers participate with senior
management in Impac's bonus plans. Certain members of senior management also
have significant equity investments in Impac.
EFFECTIVE CENTRALIZED CONTROLS AND SUPPORT. Impac has implemented
centralized controls which seek to provide corporate and group support services
while promoting flexibility and encouraging employees to develop innovative
solutions. Impac's proprietary Information Technology systems seek to monitor
hotel-level performance in such areas as room yield utilization, revenue and
expense forecasting, labor and cash management, expense variances and other
items on a daily and weekly basis. Impac also provides centralized corporate
support services and other programs in accounting, payroll, data processing,
interior design, and sales, marketing, advertising and vendor purchases, but
empowers hotel general managers to make day-to-day decisions with respect to the
operation of the hotels.
CENTRALIZED RESERVATION SYSTEMS. Impac believes, through its Impac
Revenue Center, that it is the first independent owner/operator operating a
centralized reservation system. The Impac Revenue Center is adding Impac hotels
to its systems as adequate staff is available and thoroughly trained at the
Revenue Center. The Impac Revenue Center is located in Baton Rouge, Louisiana
and once fully operational, will provide the following services to each of
Impac's hotels:
INDIVIDUAL RESERVATIONS. The Impac Revenue Center is designed
to provide the transfer of customers calling to make reservations from the local
Impac hotel to a centralized Revenue Center. This allows hotel associates more
time to focus on the guests which are at the hotel rather than taking
reservations. Impac
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<PAGE> 119
believes that the Impac Revenue Center has historically generated a higher
conversion ratio per call at higher rates resulting in increased revenues.
Revenue Management Specialists at the Impac Revenue Center price each room
taking into consideration market demand, inventory supply and competitor
strategies. At May 31, 1998, 23 Impac hotels were using this system.
TELE-PROSPECTING. Prospecting and Qualification Specialists at
the Impac Revenue Center seek to identify potential new business and then
provide the information developed to the marketing department at each hotel.
Impac management believes that this permits local hotel associates to spend more
time developing relationships with existing and potential clients rather than
tele-prospecting. At May 31, 1998, 26 hotels were using this system.
GROUP SALES CENTER. Personnel at the Impac Revenue Center
provide Event Sales, Event Communication and Event Planning in one central
location. Local hotel staff are charged only with executing the event. At May
31, 1998, six Impac hotels were using this system.
The Impac Revenue Center is fully operational for the functions and the
number of properties described above. Additional Impac properties will be added
as people are hired and fully trained at the Impac Revenue Center.
PROPERTIES
ACQUISITIONS.
IDENTIFICATION OF ACQUISITION CANDIDATES. Since January 1995, Impac has
successfully completed the acquisition or development of 46 upscale or
mid-market, full service hotels (five of which are currently under
construction). Information regarding potential acquisitions is sourced at every
level of Impac's management, including its general managers, group managers and
senior management. Extensive industry association contacts also feed Impac's
pipeline of potential acquisitions. Further, management believes that its
established track record for consummating acquisitions provides it with a high
degree of credibility when approaching sellers and negotiating acquisition
agreements.
ADHERENCE TO DEFINED GROWTH STRATEGY. Impac believes that its growth has
been the result of (i) focusing on upscale or mid-market full-service hotels in
secondary metropolitan markets or in suburban areas of major cities, (ii)
acquiring hotels where it believes it can make a meaningful improvement in
operating results through significant renovation and repositioning of the
acquired properties, and (iii) developing hotels in strategic locations.
SIGNIFICANT RENOVATIONS AND REPOSITIONING. Impac has significantly renovated
or developed substantially all of its hotels within the last five years.
Twenty-five of these properties were just completing renovation during 1997 and
early 1998 and their operations have yet to become stabilized. Renovations
typically disrupt a hotel's operations but once the renovation is complete, the
hotel is generally positioned for significant growth in operating performance.
CONSTRUCTION SERVICES. Through its in-house construction subsidiary, Impac
believes that it has historically been in a position to renovate and develop
properties on a more cost efficient basis than its competitors. Significant
resources have been devoted to this service and Impac has significantly reduced
its reliance on outside construction firms. By directly engaging in construction
services, Impac believes it is able to better control the construction costs and
directly monitor the quality of work being performed.
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<PAGE> 120
HOTEL OPERATIONS
Impac's organizational structure emphasizes direct accountability
through vertical integration in order to maintain Impac's standards for guest
services and hotel operations throughout its hotel system. Impac has established
certain uniform productivity standards and skill requirements for hotel
employees which Impac believes increase operating efficiencies by enhancing
Impac's ability to measure performance and to interchange certain employees
within its hotel system.
HOTEL MANAGEMENT. The day-to-day operations of each hotel are managed
by a general manager who is assisted by additional on-site employees who
specialize in the areas of food and beverage, marketing, budgeting, housekeeping
and maintenance. The actual size of each hotel's on-site management personnel
varies depending on the hotel's size and business volume and the guest amenities
which are offered. Impac extensively trains each general manager through an
in-house training program to understand the financial aspects of hotel
operations, as well as quality, sales and marketing and human resource programs.
General managers and certain other on-site employees also participate in
incentive programs. Management believes that financial accountability at the
property level and performance-based compensation help to achieve the
appropriate balance between providing high quality guest services and generating
strong returns.
CENTRALIZED REVENUE CENTER. The Impac Revenue Center (once fully
operational) will provide a centralized location for reservations, yield
management, tele-prospecting, group sales and bid management. Impac management
believes the Revenue Center results in a higher conversion ratio for all calls
at a higher yield and additionally permits hotel staff to focus on the needs of
the guests in-house.
GROUP OPERATIONS. Impac's general managers each report directly to one
of three Vice Presidents of Operations who, in turn, report to Impac's Senior
Vice President of Operations. Impac divides its operations into three groups
based upon brand diversity and hotel amenities offered. These teams provide
management support and direction to the general managers and their staff,
coordinate communications between the hotels and Impac's centralized corporate
departments and assist in establishing and administering corporate policies,
procedures and standards.
CENTRALIZED CORPORATE SERVICES AND INFORMATION SYSTEMS. Impac has a
centralized corporate staff located in Atlanta, Georgia that provides a variety
of managerial and support services to its hotels. Impac's corporate management
team provides assistance in all areas of hotel operations, including accounting
and finance, payroll, data processing and Information Technology, interior
design, product renovation, purchasing, food and beverage services, human
resources, recruiting and training, corporate sales and marketing, advertising,
insurance and telecommunications. Impac's systems provide its senior management
and hotel-level employees with comprehensive hotel operations data on a daily,
weekly or monthly basis, including occupancy and rate information, yield
management data, cost and labor variance analysis, and budget tracking for both
hospitality and food and beverage operations. Each individual hotel's operating
performance is regularly reviewed by general and corporate managers.
BUDGETING PROCESS. Intensive hotel-level budgeting is undertaken by
Impac on an annual basis for all of the owned hotels. These plans are reviewed
and monitored by group managers and corporate staff. Impac's business plans seek
to customize marketing, staffing, capital investment and yield enhancement
programs on an individual property basis. Revenue and cost targets are based on
historical operating performance, planned renovations, operational efficiencies
and changing competitive trends and local market conditions. In addition,
capital budgets are developed with a view toward enhancing a hotel's guest
appeal, attracting new customers and generating increased revenue and cash flow.
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<PAGE> 121
FRANCHISE AFFILIATION
In recent years, operators of hotels not owned or managed by major lodging
companies have affiliated their hotels with national hospitality franchisors as
a means of remaining competitive with hotels owned by or affiliated with
national lodging companies. Franchisors provide a number of services to hotel
operators that can generate additional occupancy and contribute to the improved
financial performance of their properties, including national reservation
systems, marketing and advertising programs and direct sales programs. Impac
believes that hotel franchisors with larger numbers of hotels enjoy greater
brand awareness among potential hotel guests than those with fewer numbers of
hotels. As an independent hotel owner and operator, Impac believes that it is in
a position to choose the franchise that will best position each hotel in its
particular market.
As of July, 1998, all of Impac's owned properties, except for the French
Quarter Suites Hotel (105 rooms) and the Mayfair House Hotel (179 rooms), were
subject to franchise agreements with nationally recognized franchisors under the
brand names set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF NUMBER OF
FRANCHISOR BRAND NAME HOTELS ROOMS
---------- ---------- --------- -----------
<S> <C> <C> <C>
Marriott International, Inc. Courtyard by
Marriott 7 761
Fairfield Inn 5 572
Residence Inn 2 177
Holiday Hospitality, Inc. Holiday Inn 16 3,021
Holiday Inn Select 4 1,047
Holiday Inn Suites 1 195
Holiday Inn Express 1 210
Holiday Inn
Sunspree 1 133
Crowne Plaza 1 298
Doubletree Hotel Systems, Doubletree Club 3 748
Inc.
Choice Hotels Franchising Comfort Inn/Suites 3 407
Super 8 Motels, Inc. Super 8 2 166
---- -----
Total 46 7,735
Hotels Under Construction
Marriott International, Inc. Marriott (Full
Service) 2 487
Courtyard by
Marriott 1 122
Hilton Hotels, Inc. Hilton Garden Inn 2* 310*
--- -----
Total 5 919
</TABLE>
* To be executed as construction is completed.
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<PAGE> 122
OWNED AND MANAGED PROPERTIES. The following table sets forth certain
information relating to each of Impac's owned and managed properties:
<TABLE>
<CAPTION>
HOTEL APPROXIMATE YEAR DATE OF LAST
LOCATION NAME # OF ROOMS ACQUIRED YEAR BUILT RENOVATION
-------- ---- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Anchorage, AK Holiday Inn 252 1997 1971 In Process
Birmingham, AL Holiday Inn 166 1995 1964 1996
Bentonville, AR Courtyard by Marriott 90 1996 1996 New Build
Hollywood, CA Doubletree 161 1996 mid 1960's 1998
Riverside, CA Holiday Inn Select 296 1997 1989 1998
Miami, FL Holiday Inn 98 1997 1969 1998
Miami, FL Mayfair House Hotel 179 1997 1980 1998
Augusta, GA Fairfield Inn 117 1997 1990 In Process
Atlanta, GA (Buckhead) Courtyard by Marriott 181 1996 1996 New Build
Macon, GA Holiday Inn - Crowne 298 1997 1974 1998
Plaza
Marietta, GA (Atlanta area) Holiday Inn 195 1993 1975 1996
Valdosta, GA Fairfield Inn 108 1991 1963 1997
Valdosta, GA Holiday Inn 173 1991 1963 1997
Boise, ID Holiday Inn 266 1997 1968 1998
Florence, KY (Cincinnati area) Courtyard 78 1995 1995 New Build
Florence, KY (Cincinnati area) Holiday Inn 106 1996 1967 1997
Ft. Mitchell, KY
(Cincinnati area) Holiday Inn 214 1997 1967 1998
Hazard, KY Super 8 86 1991 1990 1997
Louisville, KY Doubletree 399 1992 1969 1997
Paducah, KY Courtyard by Marriott 100 1997 1997 New Build
Prestonsburg, KY Super 8 80 1991 1991 1997
LaFayette, LA Courtyard by Marriott 90 1997 1997 New Build
Revere, MA Comfort Suites 120 1998 1989 In Progress
</TABLE>
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<PAGE> 123
<TABLE>
<CAPTION>
HOTEL APPROXIMATE YEAR DATE OF LAST
LOCATION NAME # OF ROOMS ACQUIRED YEAR BUILT RENOVATION
-------- ---- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Saint Louis, MO Holiday Inn Airport 249 1993 1967 In Process
West
St. Louis, MO Holiday Inn North 391 1995 1958 1996
Airport
Merrimack, NH Fairfield Inn 116 1997 1981 In Process
Hamburg, NY Holiday Inn 128 1997 1968 1998
Syracuse, NY Holiday Inn 153 1996 1969 1997
Cincinnati, OH (Downtown) Holiday Inn 246 1997 1968 1998
Strongsville, OH
(Cleveland area) Holiday Inn Select 299 1995 1972 1996
Tulsa, OK Courtyard by Marriott 122 1997 1997 New Build
Wilsonville, OR
(Portland area) Holiday Inn 170 1997 1974 1998
Philadelphia, PA Doubletree 188 1996 1973 1997
Greenville, SC Comfort Suites 85 1996 1996 New Build
Chattanooga, TN Radisson 238 (1) (1) (1)
Tifton, GA Courtyard by Marriott 90 (1) (1) (1)
Myrtle Beach, SC Holiday Inn Sunspree 133 1994 1978 In Process
Jackson, TN Fairfield Inn 105 1997 1990 In Process
Memphis, TN French Quarter Suites 105 1991 1984 1997
Memphis, TN Holiday Inn Express 175 1997 1976 1998
Nashville, TN Holiday Inn Express 210 1995 1959 1996
Abilene, TX Courtyard by Marriott 100 1996 1996 New Build
Dallas, TX
(DFW Airport North) Holiday Inn Select 282 1996 1976 1997
San Antonio, TX Comfort Inn 202 1992 1975 1997
Burlington, VT Fairfield Inn 117 1997 1991 In Process
Clarksburg, WV (Bridgeport area) Holiday Inn 160 1996 1974 1997
Fairmont, WV Holiday Inn 106 1996 late 1960's 1997
Morgantown, WV Holiday Inn 147 1996 1975 1997
Little Rock, AK Residence Inn 96 1998 1998 New Build
</TABLE>
- -----------------
(1) Third party owned.
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<PAGE> 124
The following properties are currently under construction.
<TABLE>
<CAPTION>
APPROXIMATE EXPECTED
LOCATION HOTEL NAME # OF ROOMS COMPLETION DATE
-------- ---------- ----------- ---------------
<S> <C> <C> <C>
Dedham, MA Residence Inn 81 1998
Denver, CO (Airport) Marriott 238 1999
Livermore, CA (San Francisco area) Courtyard by Marriott 122 1999
Portland, OR (Downtown) Marriott 249 1999
Rio Rancho, NM Hilton Garden Inn 129 1999
Lake Oswego, OR (Portland area) Hilton Garden Inn 181 1999
</TABLE>
DEVELOPMENT AGREEMENTS
IHD provided acquisition and property development services to Impac for
a development fee of 4% of the total project cost of each hotel acquired or
developed. The shareholders of IHD are Robert Cole, Charles Cole and Robert
Flanders. Impac has agreed to terminate this agreement prior to the consummation
of the Merger so that Impac and its subsidiaries have no further obligations
under the agreement after such closing date other than the payment of up to a 4%
development fee (not to exceed $2.5 million in the aggregate) in the event
Lodgian acquires any of the previously identified hotels or properties. IHD has
assigned its right to these future payments to a newly formed entity owned by
its shareholders.
COMPENSATION PAID TO IMPAC MANAGER
The following table sets forth, on a historical and pro forma basis,
the compensation and distributions made by Impac and its Predecessors to Robert
Cole, the Manager of Impac, and his affiliates over the past three years and for
the three months ended March 31, 1998 and to be made by Lodgian:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------- THREE MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
TYPE OF ---------------------- ------------------------ ---------------------- -----------------------
PAYMENT HISTORICAL PROFORMA* HISTORICAL PROFORMA* HISTORICAL PROFORMA* HISTORICAL PROFORMA*
------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $873,482 $ 873,482 $1,787,086 $1,787,086 $209,047 $209,047 $ - $ -
Management 21,458 21,458 - - - - - -
Fees
Development 14,167 14,167 590,000 590,000 306,983 306,983 150,000 150,000
Fees
Salary - 300,000 28,600 300,000 185,339 300,000 58,846 75,000
-------- ---------- ---------- ---------- -------- -------- -------- --------
Total $909,107 $1,209,107 $2,405,686 $2,677,086 $701,369 $816,030 $208,846 $225,000
======== ============= ========== ========== ======== ======== ======== ========
</TABLE>
- --------------------------
* Reflects compensation and distributions that would have been paid had Mr.
Cole's employment agreement with Lodgian been in place during the indicated
periods and assuming that the Management Fees and Development Fees were not
reduced or eliminated based on receipt of compensation under the Employment
Agreement. The foregoing does not reflect potential bonuses payable by Lodgian
representing a maximum of 100% of Mr. Cole's annual salary, as such bonuses are
discretionary in nature, or the value of options granted to Mr. Cole, as the
value of such options depends on the market price of the Lodgian Common Stock in
the future.
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<PAGE> 125
As of the Effective Time, Mr. Cole will be the President and Co-Chairman of the
Board of Directors of Lodgian. For additional information regarding Mr. Cole's
employment agreement with Lodgian, see "Interests of Certain Persons in the
Merger--Arrangements with Executive Officers."
EMPLOYEES
As of March 31, 1998, Impac and its subsidiaries employed approximately
2,800 full-time and approximately 1,200 part-time employees. As of March 31,
1998, labor unions represented employees at the Anchorage and Philadelphia
properties. No other employees of Impac or its subsidiaries are represented by a
collective bargaining agreement.
LEGAL PROCEEDINGS
Impac is a party to legal proceedings, including employment related
claims, arising in the ordinary course of its business, the impact of which
would not, either individually or in the aggregate, in Impac management's
opinion, based upon the facts known by Impac's management and the advice of
counsel, have a material adverse effect on Impac's financial condition or
results of operations.
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<PAGE> 126
SELECTED HISTORICAL FINANCIAL DATA - IMPAC
The following table presents selected consolidated financial data
derived from Impac's and IHD's historical financial statements for the years
ended December 31, 1993 through 1997 and for the three months ended March 31,
1997 and 1998. This financial data should be read in conjunction with Impac's
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated and combined financial statements, related
notes and other financial information included and incorporated by reference in
this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ------------------
1993 1994 1995 1996 1997(a) 1997 1998(d)
---- ---- ---- ---- ------- ---- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $23,927 $41,615 $ 55,576 $ 67,813 $119,859 $ 22,306 $ 34,571
(Loss) income before extraordinary
items (b) (457) (64) 5,619 14,064 (16,089)(c) (3,762)(d) (4,707)
End of period:
Total assets $48,143 $71,875 $116,248 $191,666 $417,780 $266,142 $433,781
Long-term obligations 42,615 61,754 92,849 155,851 355,236 222,495 377,427
Total members'/partners' equity 3,284 5,375 13,408 19,760 36,970 30,006 31,356
</TABLE>
- ------------------------
(a) On March 12, 1997, Impac was formed through a reorganization of the
Predecessors. The formation of Impac was accounted for as a
reorganization of entities under common control with the purchase of
minority interest. The operations and financial position of the
Predecessors prior to the reorganization are presented on a combined
basis. The principal activity of IHD is to analyze prospective hotel
acquisitions for Impac. IHD was not acquired by Impac in the
above-described reorganization.
(b) Impac is a limited liability company and is not subject to income
taxes. The Predecessors and IHD were each either general or limited
partnerships or S-corporations and were similarly not subject to income
taxes. The results of these entities operations are included in the tax
returns of the unitholders, partners or S-corporation shareholders.
(c) Twenty-five of Impac's properties were under significant renovation
during 1997. Impac purchased 16 properties and opened three newly
constructed properties during 1997. The renovation process greatly
affects the operating performance of a hotel while it is underway.
Revenues are significantly reduced while fixed expenses remain
substantially constant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Impac".
(d) Impac opened or acquired six hotels during the quarter ended March 31,
1997. During the quarter ended March 31, 1998, Impac had 18 hotels
under renovation. Impac also had 18 hotels under renovation during the
first quarter of 1997. Although revenues have increased substantially
during the first quarter of 1998 compared to the first quarter of 1997,
revenues have been adversely affected by the renovations which remained
ongoing during the first quarter ended March 31, 1998. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Impac".
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - IMPAC
GENERAL
Impac owns or manages primarily upscale or mid-market full service
hotels, including 51 wholly owned hotels, one partially owned hotel and two
managed hotels. Prior to March 12, 1997, Impac consisted of 22 partnerships and
four corporations, each of which owned between one and six hotels (the "Initial
Hotels"), and two operating corporations, Impac Hotel Management, Inc. ("Impac,
Inc.") and Impac Development & Construction, Inc. ("IDC"). The principals of
Impac, Inc. and their affiliates owned an aggregate of approximately 23% of the
Initial Hotels, while various other investors owned the remaining interests. On
February 26, 1997, Impac was formed for the purpose of acquiring, either
directly or indirectly, the outstanding ownership interests in the Initial
Hotels. On March 12, 1997, Impac acquired all of the Initial Hotels through the
issuance of Impac Units in exchange for all of the limited partnership interests
or shares, as applicable, of the limited partnerships and corporations that
owned the Initial Hotels. In addition, Impac acquired, in exchange for Impac
Units, all of the assets of Impac, Inc. and IDC. See Note 1 of the Notes to the
Consolidated and Combined Financial Statements of Impac.
Beginning in late 1996, Impac began to invest significantly in
additional professional staff and corporate infrastructure and systems and
incurred significant costs in order to position itself to both acquire and
develop hotel properties. From January 1995 through July 1998, Impac acquired 31
hotels and developed 15 hotels (five of which are currently under construction).
The acquired hotels underwent significant renovations and therefore revenue
trends are not comparable to revenues which would be realized had these
properties been stabilized. Thus, the historical financial statements for the
years ended December 31, 1997, 1996 and 1995 reflect differing numbers of owned
hotels throughout the periods. In addition, during the fiscal years ended
December 31, 1996 and 1995, Impac sold seven and three hotels, respectively. Due
to the timing and magnitude of the acquisitions made during these years, it is
difficult to compare results of the periods either to each other or to prior
years.
The discussion that follows is derived from Impac's Consolidated
Financial Statements and the notes thereto contained elsewhere in this Joint
Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 (THE "1998 QUARTER") AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1997 (THE "1997 QUARTER"). As of March 31,
1998, Impac owned and operated 45 hotels and managed two hotels for third-party
owners. One hotel was partially owned. This compared to 32 hotels owned and
operated at March 1997. Two hotels were managed for third-party owners. Seven
hotels were under construction at March 1998. For calendar 1997, Impac developed
and opened three hotels and acquired 16 others. Six of these properties were
opened or acquired during the 1997 Quarter. During the 1998 Quarter, 18 hotels
were under renovation.
Revenues for the 1998 Quarter were $34.6 million as compared to $22.3
million for the 1997 Quarter. The revenue increase primarily is attributable to
the inclusion of a full quarter of revenue in the 1998 Quarter for the six
hotels that were opened or purchased during the 1997 Quarter. During the 1997
Quarter, 18 properties were under renovation. The renovation of a majority of
these properties was completed in late 1997. Accordingly, revenues are
increasing as the properties return to full operating capacity. Revenue growth
in both the 1998 Quarter and the 1997 Quarter was adversely effected by the 18
properties that were under renovation during the 1998 Quarter and the 1997
Quarter.
Total operating expenses before depreciation and amortization rose to
$28.9 million for the 1998 Quarter as compared to $19.9 million for the 1997
Quarter. As a percentage of revenue, operating expenses were 84% for the 1998
Quarter and 89% for the 1997 Quarter. The percentage decrease is attributable to
properties
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coming out of renovation in late 1997 and early 1998 which had been under
renovation or recently purchased in the 1997 Quarter. Operating efficiencies
also contributed to the decrease.
Depreciation and amortization costs increased by 67% to $3.7 million
for the 1998 Quarter versus $2.2 million in the 1997 Quarter. The increase is
attributable to Impac's increased investment in hotel properties.
Income from operations increased to $1.9 million in the 1998 Quarter
versus $182,000 in the 1997 Quarter. The increase is attributable to the factors
discussed above.
Interest expense rose to $6.8 million in the 1998 Quarter as compared
to $4.0 million in the 1997 Quarter. The increase is attributable to increased
debt levels associated with the addition of the hotels described above.
Extraordinary losses related to costs incurred in the early
extinguishment of indebtedness of $13.3 million were incurred during the 1997
Quarter. As described in Note 1 to Impac's and IHD's Consolidated and Combined
Financial Statements, Impac completed a reorganization of its partnerships and
corporations into one entity during March 1997. Individual partnership debt from
numerous lenders was replaced with a facility from one lender. Accordingly, the
debt previously existing was retired at a cost of $8.6 million. Approximately
$4.7 million in assets previously capitalized to obtain the former debt were
written off.
A net loss of $4.7 million was recorded for the 1998 Quarter as
compared to a net loss of $17.1 million for the 1997 Quarter. EBITDA increased
to $5.6 million for the 1998 Quarter compared to $2.4 million for the 1997
Quarter.
YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996 ("1996"). As of December 31, 1997, Impac owned 45 hotels and
managed two hotels for third-party owners. One hotel was partially owned. This
compares with 26 hotels and two managed for third parties at December 31, 1996.
Additionally, six hotels were under construction at December 31, 1997. Impac
developed 3 hotels during 1997 and acquired 16 others. Impac significantly
renovated 25 hotels during 1997 and early 1998. Nine of these properties were
purchased in 1996 and significant renovations were completed during 1997.
Revenues for 1997 were $119.9 million as compared to $67.8 million for
1996. The revenue increase was a result of the acquisition and development of 19
hotels as well as the inclusion of a full year of revenues in 1997 for the 14
properties added in 1996. Revenue growth is adversely affected by the renovation
of properties which were newly acquired. Typically, a significant renovation
lasts over six months and approximately one-third of each property's rooms are
taken out of service during this period. Upon completion of the renovation, the
revenue stream generally does not stabilize for 18 to 24 months. The renovation
process adversely affects net income and EBITDA as a consequence of decreased
revenue.
Total operating expenses before depreciation and amortization were
$104.0 million in 1997. This compares to $55.8 million in 1996. As a percentage
of revenues, operating expenses were 87% for 1997 and 82% for 1996. This
percentage increase is also the result of significant renovations. Revenue
levels during renovation are lower than would normally be expected during a
period of stabilization. However, fixed operating costs for properties under
renovation remain constant. Expenses also increased as a result of the addition
of the new properties described above and the inclusion of expenses for a full
year for properties acquired in 1996. Finally, Impac has been investing
significant amounts in staffing and corporate infrastructure since 1996. Impac
made significant investments in staffing for Impac's in-house construction
department, Revenue Center, accounting, hotel operations and information
technology functions. Accordingly, overhead costs increased during a time period
when numerous rooms were taken out of service for renovation. These additional
costs will not be offset until renovation and development activity is complete
and property revenues stabilize.
Depreciation and amortization costs increased by 92% to $11.1 million
as compared to $5.8 million for 1996. The increase is attributable to the
increased investment in hotel properties described above and to the step-up of
the
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asset basis resulting from the reorganization completed in 1997. See Note 2 of
the Notes to the Consolidated and Combined Financial Statements of Impac for
further discussion.
As a result of the factors described above, income from operations
decreased to $4.7 million as compared to $6.2 million for 1996.
Interest expense rose to $21.3 million for 1997 from $11.8 million in
1996. The increase is attributable to increased debt levels associated with
additional investments in hotel properties.
Other income for 1997 decreased to $300,000 as compared to $19.7
million in 1996. Seven properties were sold in 1996, resulting in the
substantial gain. No properties were sold in 1997. See "Business of
Impac--Investment Strategy" for further discussion.
Extraordinary losses related to costs incurred in the early
extinguishment of indebtedness of $13.3 million were incurred during 1997. As
described in Note 1 to Impac's Consolidated and Combined Financial Statements,
Impac completed a reorganization of its partnerships and corporations into one
entity during March 1997. Individual partnership-level debt from numerous
lenders was replaced with a facility from one lender. Accordingly, the debt
previously existing was retired early at a cost of $8.6 million. Approximately
$4.7 million in assets previously capitalized to obtain the former debt was
written off.
A net loss of $29.4 million was recorded for 1997 as compared to income
of $14.1 million for 1996. EBITDA increased to $15.8 million as compared to
$12.0 million for 1996.
YEAR ENDED DECEMBER 31, 1996 ("1996") COMPARED TO THE YEAR ENDED
DECEMBER 31, 1995 ("1995"). As of December 31, 1996, Impac owned 26 hotels. This
compares with 19 hotels which were owned as of December 1995. Five (5) of the
hotels owned as of December 1995 were sold during 1996. Two hotels acquired
during 1996 were sold in 1996. Impac acquired or developed 14 hotels during
1996. Significant renovations were underway for each newly acquired property as
of December 1996.
Revenues for 1996 totaled $67.8 million versus $55.6 million for 1995.
The increase resulted from the acquisition and development of the hotels
described above and the inclusion of a full year of revenue for five properties
which became a part of the portfolio during 1995. Although the increase in
revenues is significant, it is offset by the costs associated with the
renovation of the newly acquired hotels. Renovations significantly affect the
revenues generated at a property as approximately one third of each property's
rooms are taken out of service for a period of approximately six months while
the renovation process is underway. The revenue stream for a newly renovated
property generally does not stabilize until approximately 18 to 24 months after
the renovation is complete.
Operating expenses before depreciation and amortization were $55.8
million in 1996 (82% of revenue) compared with $43.8 million (79% of revenue)
for 1995. The increase in operating expenses as a percentage of revenues is a
result of the effect of lower revenues than would normally be realized for 14
hotels which were under renovation during 1996. Fixed operating costs for
properties under renovation typically are not reduced. Additionally, Impac began
a substantial investment in staffing and corporate infrastructure and systems in
1996. Examples include (i) the staffing of an in-house construction department
to oversee the renovation and development of new properties and (ii) the
staffing of the corporate office in areas that needed additional investment to
support the expected growth of the company, including accounting, hotel
operations and information technology. Significant costs were added to Impac's
overhead while numerous rooms were taken out of service during the renovation
process.
Depreciation and amortization expense in 1996 was $5.8 million, an
increase over 1995 depreciation and amortization expense of $4 million. This
increase is a result of the acquisition and development of additional hotel
properties during 1996 and the inclusion of a full year of expense for
properties added during 1995.
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As a result of the above, income from operations for 1996 was $6.2
million, a decrease of 21% over 1995 income from operations of $7.8 million.
Interest expense (net of interest income) was $11.8 million for 1996, a
$4.6 million increase over the $7.2 million of interest expense for 1995. During
1996, Impac's borrowings increased $83 million as a result of the newly acquired
and developed properties.
Other income of $19.7 million in 1996 resulted from the gain on the
sale of seven hotels. Three hotels were sold in 1995 for a gain of $5 million.
See "Business of Impac--Investment Strategy" for further discussion.
Impac had net income of $14.1 million for 1996 and $5.6 million for
1995. EBITDA was $12.0 million in 1996 versus $11.8 million in 1995 despite the
negative effects the properties under renovation caused to revenues and
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Impac's principal sources of liquidity historically have been existing
cash balances, cash flow from operations and credit facilities and equity
raises. Impac had EBITDA for 1997 of $15.8 million. This represents a 32%
increase over the $12.0 million for 1996 and a 34% increase over the $11.8
million for 1995. The increase of EBITDA for 1997 compared to 1996 was a result
of the acquisition of 16 hotels and the opening of 3 newly developed properties.
EBITDA is a widely regarded industry measure of lodging performance used in the
assessment of hotel property values, although EBITDA is not indicative of and
should not be used as an alternative to net income or net cash provided by
operations as specified by generally accepted accounting principles.
As of March 31, 1998, Impac's working capital deficit was $4.5 million.
Impac had a slightly positive working capital balance at December, 1997. Impac's
ratio of current assets to current liabilities at March 31, 1998 and December
31, 1997, was 0.8-to-1 and 1-to-1, respectively. This compares to a working
capital deficit of $7.6 million and a ratio of current assets to current
liabilities of 0.5 to 1 at December 31, 1996.
Impac added 19 hotels to its portfolio during 1997. Sixteen properties
were purchased while three were developed. The aggregate purchase price was $107
million for the properties acquired. The development costs for the new
properties were $50 million. Impac distributed $6.0 million to its investors in
1997.
During 1996, Impac purchased or developed 14 hotels. The aggregate
purchase price and development costs were approximately $64 million.
During 1996 and 1995, Impac distributed $29.4 million and $10.4
million, respectively, to its unitholders.
Management believes that cash on hand and cash generated from
operations will be sufficient to support Impac's capital improvement program and
satisfy working capital requirements for the foreseeable future. However, Impac
will be required to obtain additional debt or equity financing to pursue its
planned acquisition strategy. Impac has obtained the credit facilities and
refinancing commitments described below. There is no assurance that additional
debt or equity financing will be available.
EXISTING FINANCING ARRANGEMENTS
Impac has entered into a series of financing arrangements with BancOne
Capital Partners III, Ltd. ("Banc One") and NACC in order to finance its
operations and capital improvement program. The principal terms of these
arrangements are described below.
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BANC ONE FINANCING. Banc One agreed to make an unsecured loan to Impac
in an amount not to exceed $78.5 million (the "Banc One Loan") pursuant to an
Amended and Restated Loan Agreement (as amended, the "Banc One Loan Agreement")
between Impac and Banc One. As of March 31, 1998, approximately $74.5 million of
the Banc One Loan had been funded. Since the Merger would not be permitted under
the terms of the Banc One Loan, it is anticipated that the Banc One Loan will be
prepaid in full contemporaneously with the Merger. The Banc One Loan is freely
prepayable without penalty or premium. In addition to having to prepay the
outstanding principal of the Banc One Loan, Impac will have to pay accrued and
unpaid fixed return since the most recent monthly interest payment date at the
rate of 10% per annum, plus a variable return based upon a percentage of net
cash flow of certain Impac properties, certain percentages of any net proceeds
resulting from the Merger, and additional amounts (to the extent available from
net cash flow) required to ensure that Banc One receives a minimum cumulative
internal rate of return of 15% per annum. Based on the foregoing, if the Banc
One indebtedness was repaid as of the date of this Joint Proxy
Statement/Prospectus, approximately an additional $4 million would be due Banc
One. It is expected that the cash required to prepay the Banc One Loan as
described above will come from the proceeds of a refinancing commitment to be
obtained prior to the consummation of the Merger.
IMPAC I FINANCING. In connection with the March 1997 roll-up
transaction described in Note 1 to Impac's Consolidated and Combined Financial
Statements (the "Roll-up"), NACC made a $132.459 million term loan (the "Impac I
Loan") to an affiliate of Impac's, Impac Hotels I, L.L.C. ("Impac I"), to
refinance existing debt on the 21 hotel properties acquired by Impac I in the
Roll-up (the "Impac I Properties") and to pay certain costs of the Roll-Up and
the Impac I Loan. The Impac I Loan was made pursuant to a Loan Agreement dated
as of March 12, 1997 (as amended, the "Impac I Loan Agreement") between Impac I
and NACC.
INTEREST. Prior to the Impac I Adjustment Date (as defined
below), the Impac I Loan bears interest at a floating interest rate that
fluctuates monthly, equal to 30-day LIBOR plus 2.25%. From and after the Impac I
Adjustment Date, interest converts to a fixed rate equal to the sum of (a) the
implied yield on a 10-year U.S. Treasury note determined as of the earlier of
(i) the date on which the benchmark Treasury rate is locked pursuant to an
interest rate management agreement among Impac, Impac I and NACC (the "Impac I
Interest Rate Agreement"), and (ii) the third business day prior to the Impac I
Adjustment Date (the "Impac I Benchmark Treasury Rate"), plus (b) a spread based
on the debt service coverage ratio ("DSCR") of the Impac I Properties (which
spread ranges from a low of 1.925% to a high of 3.025%), plus (c), until the
Impac I Optional Prepayment Date (as defined below), the Additional Impac I
Spread (as defined below), plus (d) from and after the Impac I Optional
Prepayment Date, the Additional Impac I Hyperamortization Spread (as defined
below). The "Additional Impac I Hyperamortization Spread" is 2.00% for the first
monthly debt service period after the Impac I Optional Prepayment Date, and
5.00% thereafter.
The Impac I Adjustment Date will be the earlier of (y) March
11, 1999, and (z) with respect to any portion of the Impac I Loan that becomes a
Split Impac I Loan (as defined below), the date on which such portion of the
Impac I Loan becomes a Split Impac I Loan. Impac I has the right to extend the
March 11, 1999 adjustment date for six months by giving 30 days' notice to NACC
and paying NACC an extension fee equal to 0.5% of the principal amount of the
Impac I Loan then outstanding.
INTEREST RATE PROTECTION. Impac I may from time to time lock
the Impac I Benchmark Treasury Rate to be used in calculating the base rate on
all or a portion of the Impac I Loan. In addition, if prior to the Impac I
Adjustment Date the implied yield of the 10-year Treasury note two years forward
exceeds certain pre-determined levels, Impac I must elect either to lock the
Impac I Benchmark Treasury Rate on a portion of the Impac I Loan or prepay a
portion of the Impac I Loan. NACC also can lock the Impac I Benchmark Treasury
Rate if it exceeds 7.80%, or at any time following the occurrence and during the
continuation of an "event of default" under the Impac I Loan. If NACC determines
prior to the Impac I Adjustment Date that it will incur or has incurred losses
on its interest rate hedge positions relating to the rate-locked portion of the
Impac I Loan in excess of 25% of the net equity of Impac I in the Impac I
Properties, Impac I or Impac are required to pay to NACC an amount of cash
collateral sufficient to reduce NACC's losses to no more than 20% of the net
equity of Impac I in the Impac I Properties. Such collateral is returned to
Impac I if it converts the rate-locked portion of the Impac I Loan to a fixed
rate loan, or to the extent
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such collateral exceeds actual hedging losses. Impac I is required to pay a
monthly maintenance fee equal to eight basis points on the principal amount of
the Impac I Loan on which the Impac I Benchmark Treasury Rate is locked. Of that
fee, two basis points are due and payable on a current basis, and the remainder
(together with accrued interest thereon) will be recovered by NACC by adding an
additional spread (the "Additional Impac I Spread") to the base rate from and
after the Impac I Adjustment Date and prior to the Impac I Optional Prepayment
Date. In addition to the other collateral described herein, the obligations of
Impac and Impac I under the Impac I Interest Rate Agreement are secured by a
pledge of Impac's 99% membership interest in Impac I.
REPAYMENT OF PRINCIPAL. Interest-only payments on the Impac I
Loan are due and payable monthly prior to the Impac I Adjustment Date. After the
Impac I Adjustment Date, the Impac I Loan is repayable in equal, monthly
installments of principal and interest based on a 20-year amortization schedule.
If the Impac I Loan or any Split Impac I Loan has not been prepaid in full by
the tenth anniversary of the applicable Impac I Adjustment Date (the "Impac I
Optional Prepayment Date"), excess cash flow from the Impac I Properties
financed by the Impac I Loan or the applicable Split Impac I Loan will be
applied monthly to reduce outstanding principal, in addition to the scheduled
installments of principal and interest. The final maturity date of the Impac I
Loan is March 11, 2019.
PREPAYMENT. The Impac I Loan may be prepaid in whole or in
part without penalty or premium on or after the Impac I Optional Prepayment
Date. Prior to the Impac I Adjustment Date, up to 40% of the Impac I Loan may be
prepaid from the proceeds of the issuance of additional equity by Impac or from
the proceeds of sale of one or more Impac I Properties, subject to a scale of
increasing premiums ranging from 0% to 3% of the principal so prepaid. If the
DSCR of the remaining Impac I Properties as of the Impac I Adjustment Date is
less than 1.40, the Impac I Loan must be prepaid in the amount necessary to
bring the DSCR up to 1.40. No prepayment of the Impac I Loan or any Split Impac
I Loans is permitted after the Impac I Adjustment Date and prior to the Optional
Impac I Prepayment Date; however, Impac I may obtain the release of one or more
Impac I Properties from the applicable mortgage(s) securing the Impac I Loan or
the applicable Split Impac I Loan by defeasing the portion of such loan
allocated to each such Impac I Property. Defeasance is achieved by using equity
proceeds or proceeds from the sale of each such Impac I Property to acquire U.S.
Treasury securities in an amount equal to 125% of the allocated loan amount (or,
upon the release of the last Impac I Property, 100% of the allocated loan
amount), which securities are delivered to the servicer of the Impac I Loan or
such Split Impac I Loan as replacement collateral for the released Impac I
Properties.
SPLIT LOANS. The term "Split Impac I Loans" refers to any
refinancing loan made by NACC pursuant to the Impac I Loan Agreement to a
bankruptcy-remote affiliate of Impac to which Impac I has transferred a
segregated pool of Impac I Properties for the purposes of effectively fixing the
interest rate on a portion of the Impac I Loan and facilitating the
securitization thereof by NACC.
COLLATERAL. The Impac I Loan is secured by first-priority
mortgages on each Impac I Property (the "Impac I Mortgages") and by a general
security interest in all personal property and fixtures of Impac I. The Impac I
Mortgages are cross-collateralized and cross-defaulted with each other and with
Banc One.
IMPAC II FINANCING. Also in connection with the Roll-up, NACC entered
into a loan facility (the "Impac II Loan") with another affiliate of Impac's,
Impac Hotels II, L.L.C. ("Impac II"), to refinance existing debt on 11 hotel
properties acquired by Impac II prior to March 12, 1997, to finance a portion of
the cost of acquiring, constructing and rehabilitating 18 additional hotel
properties throughout the continental United States (the "Impac II Properties"),
and to pay certain costs incurred in connection with the Impac II Loan. The
Impac II Loan was made pursuant to a Loan Agreement dated as of March 12, 1997
(as amended, the "Impac II Loan Agreement") between Impac II and NACC. The
original $150.0 million maximum amount of the Impac II Loan was later increased
to $163.5 million to accommodate additional hotel acquisitions. The entire Impac
II Loan has been committed to identified Impac II Properties, though portions of
the Impac II Loan have not yet been disbursed for on-going rehabilitation and
construction costs. All advances under the Impac II Loan Agreement must be made
and all construction and rehabilitation of the Impac II Hotels completed by
October 18, 1999.
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INTEREST. Prior to the Impac II Adjustment Date (as defined
below), the Impac II Loan bears interest at a floating interest rate that
fluctuates monthly, equal to 30-day LIBOR plus 2.75%. From and after the Impac
II Adjustment Date, interest converts to a fixed rate as described above in
"Impac I Financing--Interest", except that (i) the date on which the benchmark
Treasury rate is locked is pursuant to a separate interest rate management
agreement among Impac, Impac II and NACC (the "Impac II Interest Rate
Agreement"), and (ii) the spread based on the DSCR of the Impac II Properties
ranges from a low of 1.925% to a high of 3.250%.
The Impac II Adjustment Date will be the earlier of (y)
October 18, 2000, and (z) with respect to any portion of the Impac II Loan that
becomes a Split Impac II Loan (as defined below), the date on which such portion
of the Impac II Loan becomes a Split Impac II Loan. It is anticipated that NACC
will securitize the Impac II Loan and any Split Impac II Loan after the
applicable Impac II Adjustment Date.
INTEREST RATE PROTECTION. The Impac II Interest Rate Agreement
contains substantially similar terms as those set forth under "Impac I
Financing--Interest Rate Protection" above except that the Impac II Benchmark
Treasury Rate is based on a four-year forward rate rather than a two-year
forward rate, and the prepayment amounts differ in the event the Impac II
Benchmark Treasury Rate exceeds the pre-determined thresholds. Pursuant to the
terms of the Impac II Interest Rate Agreement, Impac II locked the Impac II
Benchmark Treasury Rate on $54 million of the Impac II Loan at 7.235% during
April, 1997. In the event that Lodgian determines that it is in its best
interest to "break" that interest rate lock, it would be required to pay a
significant fee to the lender.
REPAYMENT OF PRINCIPAL. Principal and interest payments are to
be made on the same terms as are described above under "Impac I
Financing--Repayment of Principal," except that the schedule refers to the Impac
II Adjustment Date and the Impac II Optional Prepayment Date (which is the tenth
anniversary of the Impac II Adjustment Date). The final maturity date of the
Impac II Loan is October 11, 2020.
PREPAYMENT. The Impac II Loan may be prepaid on the same terms
and under the same conditions as are described under "Impac I
Financing--Prepayment" above, except that all references to Impac I refer
instead to Impac II.
SPLIT LOANS. Prior to the scheduled Impac II Adjustment Date,
the Impac II Loan can be split at the option of Impac II in order effectively to
fix the interest rate thereon, similar to the concept of Split Impac I Loans
discussed under the heading "Impac I Financing--Split Loans" above (each portion
so split, a "Split Impac II Loan").
COLLATERAL. The Impac II Loan is secured by first-priority
mortgages on each Impac II Property (the "Impac II Mortgages") and by a general
security interest in all personal property and fixtures of Impac II. The Impac
II Mortgages are cross-collateralized and cross-defaulted with each other and
with Banc One.
GUARANTIES. Impac has guaranteed the repayment of the portion
of the Impac II Loan funding rehabilitation and construction costs (but not the
acquisition costs) of the Impac II Properties. Such guaranties expire upon
completion of rehabilitation or construction (as applicable). In addition, where
Impac II elected to increase the Impac II Loan for any particular Impac II
Property above 65% of the approved project costs (but not higher than 80%),
Impac has guaranteed repayment of such excess until the Impac II Properties in
question have achieved a trailing 12-month DSCR of not less than 1.20. Finally,
Impac has guaranteed payment of the entire Impac II Loans for the Mayfair House
Hotel in Coconut Grove, Florida, and the Marriott Hotel being constructed in
Portland, Oregon, pending satisfaction of certain conditions. After such
conditions are satisfied, Impac's guaranties on those projects will be limited
to the extent described in the first three sentences of this paragraph.
IMPAC III FINANCING. NACC entered into an additional $100 million loan
facility (the "Impac III Loan") to another affiliate of Impac's, Impac Hotels
III, L.L.C. ("Impac III"), to finance a portion of the cost of acquiring,
constructing and rehabilitating additional hotel properties throughout the
continental United States and Alaska (the "Impac III Properties") and to pay
certain costs incurred in connection with the Impac III Loan. The Impac III Loan
was made pursuant to a Loan Agreement dated as of October 29, 1997 (as amended,
the "Impac III Loan Agreement")
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between Impac III and NACC. As of March 31, 1998, approximately $68 million of
the Impac III Loan has been disbursed or committed to pay for certain
acquisition, rehabilitation and construction costs of eleven Impac III
Properties.
The terms and conditions of the Impac III Loan are in all material
respects essentially the same as those for the Impac II Loan, except as follows:
(a) the outside Impac III Adjustment Date is October 11, 2001, (b) all advances
under the Impac III Loan for the acquisition of an Impac III Property must be
made by October 31, 1998, (c) the rehabilitation and construction of the Impac
III Properties must be completed by October 31, 2000, (d) the Impac III Loan has
a final maturity date of November 11, 2021, (e) the maximum loan amount of the
Impac III Loan relating to any particular Impac III Property is 70% of
NACC-approved project costs, (f) there are no Impac payment guaranties, (g) the
entire Impac III Loan is subject to optional prepayment in whole or in part
prior to the Impac III Adjustment Date at premiums increasing from 0% to 4% of
the principal prepaid, and (h) the Impac III Loan is secured by mortgages and
security interests on the Impac III Properties. In addition, a portion of the
Impac III Loan is evidenced by a working capital note in the original principal
amount of approximately $1.65 million (the "Working Capital Note"), which does
not relate to any particular Impac III Property, but is cross-collateralized
with the project notes under the Impac III mortgages. Upon the acquisition of
each new Impac III Property, a ratable portion of the loan evidenced by the
Working Capital Note is prepaid with an advance under the applicable project
note. If not sooner paid, the Working Capital Note matures on the Impac III
Adjustment Date. In addition, the Working Capital Note must be prepaid in full
prior to making any new advance under the Impac III Loan relating to the
Courtyard by Marriott to be constructed on land owned by Impac III in Livermore,
California.
NACC MEZZANINE FINANCING. To the extent the DSCR of the remaining Impac
I Properties, the Impac II Properties or the Impac III Properties is less than
1.40 on the applicable Impac I Adjustment Date, Impac II Adjustment Date or
Impac III Adjustment Date, respectively (the "Applicable Adjustment Date"), and
the relevant Impac affiliate (the "Applicable Borrower") is obligated to prepay
a portion of the Impac I Loan, the Impac II Loan or the Impac III Loan as
hereinabove described (the "Applicable Loan"), to bring the applicable DSCR up
to 1.40. NACC has agreed to provide mezzanine financing to provide the proceeds
necessary to make such prepayments. NACC would be entitled to a fee equal to one
percent (1%) of such financing.
SENIOR NACC MEZZANINE FINANCING. In the absence of a default
under the Applicable Loan, and provided that the Applicable Borrower does not
repay the amount outstanding on the Applicable Loan by an amount equal to the
shortfall (the "Shortfall") from some other source, NACC has agreed to purchase
senior mezzanine financing (the "Senior NACC Mezzanine Financing") from the
Applicable Borrower in an amount equal to the lesser of (i) the Shortfall or
(ii) the amount based upon NACC's determination of the adjusted net operating
income such that 75% of excess cash flow from the remaining hotel properties of
the Applicable Borrower will (a) result in a DSCR of not less than 1.15, based
on a debt service coverage constant equal to the constant used in determining
the interest rate on the Applicable Loan, and (b) be sufficient to fully repay
the Senior NACC Mezzanine Financing within a five-year period, using 75% of
excess cash flow of the relevant properties.
SENIOR PREFERRED YIELD. The yield on all Senior NACC Mezzanine
Financing will accrue and be payable monthly at one-month U.S. Dollar
denominated LIBOR plus 6.00%, reset two business days prior to each payment
date. In the event that 50% of excess cash flow will be sufficient to fully
repay the Senior NACC Mezzanine Financing within a five-year period, the yield
on the Senior NACC Mezzanine Financing will accrue and be payable monthly at
one-month U.S. Dollar denominated LIBOR plus 4.00%.
JUNIOR NACC MEZZANINE FINANCING. At the Applicable Adjustment
Date, if the Senior NACC Mezzanine Financing is less than the Shortfall, NACC
will purchase Junior NACC Mezzanine Financing from the Applicable Borrower in an
amount equal to (i) the Shortfall minus (ii) the amount of Senior NACC Mezzanine
Financing.
JUNIOR PREFERRED YIELD. The yield on all Junior NACC Mezzanine
Financing will accrue and be payable at one-month U.S. Dollar denominated LIBOR
plus 7.50%.
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WARRANTS. As consideration for NACC making a Junior NACC
Mezzanine Financing, NACC would be entitled to receive warrants (the "Mezzanine
Warrants") exercisable into a percentage interest of the membership interests of
Impac. The equity percentage represented by each Warrant will equal the products
of (a) the Equity Value (as defined below) of the Applicable Borrower and (b)
the percentage derived by dividing the amount of the Junior NACC Mezzanine
Financing by the sum of (i) the Equity Value of the Applicable Borrower and (ii)
the amount of the Junior NACC Mezzanine Financing, and multiplying the result by
80%. The "Equity Value" of the Applicable Borrower will be determined by
dividing the net operating income of the subject properties (as determined by
NACC) by .10, subtracting the amount of the Applicable Loan and any related
Senior NACC Mezzanine Financing and Junior NACC Mezzanine Financing, and adding
the market value of any non-income producing assets of the Applicable Borrower.
It is currently not anticipated that the Junior NACC Mezzanine Financing will be
put in place and accordingly, it is not expected that the Mezzanine Warrants
will be issued.
ACCELERATED RETIREMENT. The Senior NACC Mezzanine Financing
and the Junior NACC Mezzanine Financing (collective, the "NACC Mezzanine
Financing") may be retired, at the election of the Applicable Borrower, at any
time, in whole or in part, without premium, provided, however, that until such
financing is fully redeemed, the holders of NACC Mezzanine Financing shall have
received (after applicable payments to the holder of the Applicable Loan) 100%
of (i) the net proceeds of any sale of any hotel property securing the
Applicable Loan, (ii) any proceeds resulting from a refinancing of the
Applicable Loan, (iii) any proceeds from a liquidation of the Applicable Loan,
and (iv) excess condemnation or casualty proceeds ("Minimum Redemption
Amounts"). The holder of the NACC Mezzanine Financing will have approval rights
with respect to any of the events described in (i) - (iii) of this paragraph.
SECURITY. The NACC Mezzanine Financing will be secured by an
assignment of excess cash flow, subordinate to any similar assignment to the
holder of the Applicable Loan. Depending on final sizing of the NACC Mezzanine
Financing and final determination of excess cash flow, NACC may require
additional collateral for the NACC Mezzanine Financing.
DEFAULT IN MONTHLY PAYMENTS. If the Applicable Borrower fails
to pay the Senior Preferred Yield, the Junior Preferred Yield or the required
Minimum Redemption Amount in full on any due date, for each succeeding due date,
100% of excess cash flow will be applied first to any unpaid Senior Preferred
Yield and Junior Preferred Yield (including any interest thereon) and then to
the NACC Mezzanine Financing amount, until all prior unpaid Minimum Redemption
Amounts have been paid, and Minimum Redemption Amounts have been paid on a
current basis for an additional three consecutive months.
REFINANCING COMMITMENT
As a condition to Servico's obligation to consummate the Merger, Impac
and Servico must receive a commitment, effective as of the Effective Time, to
restructure Impac's existing indebtedness. The restructuring contemplates the
prepayment of the $78.5 million Banc One Loan described above and a secured
refinancing loan, the proceeds of which will be used to repay Impac's other
existing indebtedness. Impac and Servico are in the process of negotiating the
terms of the refinancing commitment with prospective lenders and anticipate that
a commitment will be in place prior to the consummation of the Merger. Although
the definitive terms of the debt arrangements to be entered into in connection
with the refinancing have not been finalized as of the date of this Joint Proxy
Statement/Prospectus, Servico and Impac expect that such terms will include
significant operating and financial restrictions, such as limits on Lodgian's
ability to incur additional indebtedness or make capital expenditures,
restrictions on payment of dividends, negative pledge covenants and financial
ratio covenants. There can be no assurance that a commitment for such
refinancing can be obtained on terms acceptable to Servico and Impac.
FINANCINGS FOR MACON HOTEL. Impac owns a 60% joint venture interest in
Macon Hotel Associates, L.L.C., a Massachusetts limited liability company
("Macon Associates"), in which the other 40% equity interest is owned by an
unaffiliated entity, PCG/Macon Investment Corp. ("PCG"). Macon Associates owns a
Crowne Plaza hotel located in Macon, Georgia (the "Macon Hotel"). In connection
with the purchase of the Macon Hotel, Macon Associates
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obtained an eight million dollar purchase money loan from the Seller which is
secured by first mortgage on the Macon Hotel. The purchase money loan bears
interest at rates ranging from 2% per annum to 6.5% per annum and thereafter
subject to either a fixed rate or a prime-based rate which is adjusted annually.
Monthly payments of interest only are due until October 1, 1998, at which point
amortization commences based upon a 25-year amortization schedule, with a
balloon payment due on September 30, 2003, the final maturity date. In addition,
Macon Associates issued $4.375 million of its promissory notes (the "Macon
Mezzanine Notes") pursuant to a Securities Purchase Agreement dated as of May
21, 1997. The Macon Mezzanine Notes bear interest at a base rate of 14% per
annum, of which 7% per annum is due and payable monthly and the balance of such
base interest is payable on a current basis to the extent of available cash
flow. The holders of the Macon Mezzanine Notes are also entitled to receive
contingent interest from certain excess cash flow from the Macon Hotel to the
extent necessary to provide the holders with a monthly compounded return of 25%
per annum, and under some circumstances, to reduce the outstanding principal of
the Macon Mezzanine Notes. The holders of the Macon Mezzanine Notes are also
entitled to receive, as additional interest, a portion of the appreciation of
the Macon Hotel. The Macon Mezzanine Notes mature in May 2001. The Macon
Mezzanine Notes are nonrecourse to Macon Associates, subject to certain
exceptions for fraud, material misrepresentation, intentional misappropriation,
breaches of certain covenants in the documents and attempting to hinder the
holders in the exercise of their rights under the documents. Impac, PCG and the
principals of the PCG have guaranteed the recourse obligations, if any, of Macon
Associates to the holders of the Macon Mezzanine Notes, and such guarantees are
secured by a pledge of the equity interests that Impac and PCG respectively own
in Macon Associates.
DESCRIPTION OF LODGIAN CAPITAL STOCK
The terms of the capital stock of Lodgian will be governed by Lodgian's
Restated Certificate and Restated Bylaws. The summary of the terms of the
capital stock of Lodgian set forth below does not purport to be complete and is
subject to and qualified in its entirety by reference to the forms of Restated
Certificate and Restated Bylaws of Lodgian, to be adopted immediately prior to
the Effective Time, which are attached as Appendices G and H, respectively.
AUTHORIZED CAPITAL STOCK
Under the Restated Certificate, Lodgian has authority to issue
100,000,000 shares, of which 75,000,000 will be shares of Lodgian Common Stock,
and 25,000,000 will be shares of preferred stock, $.01 per share, of
Lodgian("Lodgian Preferred Stock").
The additional shares of authorized stock available for issuance may be
issued at any time and from time to time by the Lodgian Board, in most cases
without shareholder approval. The issuance in the future of additional shares of
Lodgian Common Stock and Lodgian Preferred Stock convertible into Lodgian Common
Stock could occur under circumstances which would have a dilutive effect on
earnings per share and on the equity ownership of the holders of Lodgian Common
Stock. The ability of the Lodgian Board to issue additional shares of stock
could make a change in control more difficult, and as a result deny shareholders
the potential to sell their shares at a premium over then existing market prices
and entrenching current management. See "Risk Factors --Anti-Takeover
Provisions."
LODGIAN COMMON STOCK
Subject to any preferential rights of series of Lodgian Preferred
Stock, holders of Lodgian Common Stock have equal, ratable rights to dividends
from funds legally available therefor, when, as and if declared by the Lodgian
Board and are entitled to share ratably in all of the assets of Lodgian
available for distribution to holders of Lodgian Common Stock upon the
liquidation, dissolution or winding-up of the affairs of Lodgian.
Holders of Lodgian Common Stock will be entitled to one vote per share
on all matters submitted to a vote of Lodgian's shareholders, and except as
otherwise required by law or except as provided under the terms of a series
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of Lodgian Preferred Stock, if any, the holders of Lodgian Common Stock will
possess all voting power. The Restated Certificate does not provide for
cumulative voting by shareholders.
Holders of Lodgian Common Stock do not have preemptive, subscription or
conversion rights. There are no redemption or sinking fund provisions in the
Restated Certificate of Lodgian.
The shares of Lodgian Common Stock, when issued to holders of Servico
Common Stock and Impac Units in connection with the Merger, will be validly
issued, fully paid and non-assessable.
LODGIAN PREFERRED STOCK
The Lodgian Board is authorized at any time and from time to time to
provide for the issuance of all or any shares of Lodgian Preferred Stock in one
or more classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof as are permitted by the
DGCL, including but not limited to, the determination of restrictions, if any,
on the issue or reissue of any additional shares of Lodgian Preferred Stock. The
Lodgian Board could, without first obtaining shareholder approval, authorize and
issue shares of Lodgian Preferred Stock with terms and conditions, and under
circumstances, which could discourage a takeover or render a contested merger,
the assumption of control by a third party or the removal of incumbent
management more difficult. See "Risk Factors -- Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Lodgian Common Stock after the
Merger will be First Union National Bank, Charlotte, North Carolina.
COMPARISON OF CERTAIN RIGHTS OF THE HOLDERS
OF SERVICO COMMON STOCK AND IMPAC UNITS
COMPARISON OF CURRENT SERVICO SHAREHOLDER RIGHTS AND LODGIAN SHAREHOLDER RIGHTS
FOLLOWING THE MERGER
As a result of the Merger, holders of shares of Servico Common Stock
will own shares of Lodgian Common Stock. Servico is a Florida corporation and
the rights of its shareholders are governed by the FBCA and Servico's Articles
of Incorporation and Restated Bylaws. Lodgian is a Delaware corporation and the
rights of its shareholders, including all former Servico shareholders, will be
governed by the DGCL and the Restated Certificate and Restated Bylaws of
Lodgian. The following summaries are not intended to be complete and are
qualified in their entirety by reference to the forms of the Restated
Certificate and Restated Bylaws attached hereto as Appendices G and H,
respectively.
AUTHORIZED CAPITAL. The total number of authorized shares of Servico
capital stock is 25,000,000, consisting of 25,000,000 shares of common stock,
par value $.01 per share. The authorized capital of Lodgian consists of
100,000,000 shares, consisting of 75,000,000 shares of common stock, par value
$.01 per share, and 25,000,000 shares of preferred stock, par value $.01 per
share. Lodgian's Restated Certificate grants Lodgian's Board the power to
provide for the issuance of one or more series of preferred stock and to
establish the number of shares of each series, as well as the voting rights,
dividend rights, redemption rights, conversion rights, exchange rights and
participation rights, and other preferences, qualifications, limitations and
restrictions, of such preferred stock.
SHAREHOLDER VOTING REQUIREMENTS; ACTION BY CONSENT. Under the FBCA and
the DGCL, directors are generally elected by a plurality of the votes cast by
the shareholders entitled to vote at a shareholders' meeting at which a quorum
is present. With respect to matters other than the election of directors, unless
a greater number of affirmative votes is required by the FBCA or a Florida
corporation's articles of incorporation (but not its bylaws), if
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a quorum exists, action on any matter generally is approved by the shareholders
if the votes cast by the holders of the shares represented at the meeting and
entitled to vote on the matter favoring the action exceed the votes cast
opposing the action. In the case of a merger, consolidation, or a sale, lease or
exchange of all or substantially all of the assets of a Florida corporation,
except in limited circumstances in which no shareholder vote is required, the
affirmative vote of the holders of a majority of the issued and outstanding
shares entitled to vote is required under the FBCA. Servico's Articles of
Incorporation require a greater vote on certain matters than required by the
FBCA. The affirmative vote of the holders of not less than eighty percent (80%)
of the outstanding voting stock of Servico is required for the approval or
authorization of any (i) plan of merger or share exchange which effects the
merger or consolidation of Servico with or into any other corporation or (ii)
sale, lease, exchange or other disposition of all or substantially all of the
assets of Servico; provided, however, that such eighty percent (80%) voting
requirement will not apply if the Servico Board approves the transaction by a
resolution adopted by not less than a majority of the Servico Board. In
addition, Servico's Articles and Restated Bylaws contain provisions requiring a
greater vote for amendments or alterations to such Articles or Bylaws as
discussed below.
Under the DGCL, unless otherwise provided by the DGCL or a Delaware
corporation's certificate of incorporation or bylaws, if a quorum exists, action
on a matter is approved by the affirmative vote of a majority of the shares
represented at a meeting and entitled to vote on the matter. In the case of a
merger, the affirmative vote of the holders of a majority of the issued and
outstanding shares entitled to vote is required by the DGCL. Lodgian's Restated
Certificate and Restated Bylaws do not contain a provision requiring a greater
vote on any matter than required by the DGCL, except upon amendments or
alterations to Lodgian's Restated Certificate and Restated Bylaws, as discussed
below.
Unless otherwise provided in a corporation's articles or certificate of
incorporation, the FBCA and DGCL generally permit shareholder action to be taken
without a meeting if written consents signed by holders having the requisite
number of votes necessary to take such action are delivered to the corporation.
Lodgian's Restated Certificate and Servico's Articles of Incorporation provide
that any action required or permitted to be taken by the shareholders of Lodgian
or Servico must be effected at a duly called annual meeting or special meeting
of such shareholders and may not be effected by any consent in writing by such
shareholders.
QUORUM FOR SHAREHOLDERS' MEETINGS. Under the FBCA, unless otherwise
provided in a corporation's articles of incorporation (but not its bylaws), a
majority of shares entitled to vote on a matter constitutes a quorum at a
meeting of shareholders, but in no event may a quorum consist of less than
one-third of the shares entitled to vote on such matter.
The DGCL is similar to the FBCA, except that under the DGCL a
corporation's certificate or bylaws may specify the percentage of votes which
constitutes a quorum at a meeting of shareholders, but in no event may a quorum,
as under the FBCA, consist of less than one-third of the shares entitled to vote
on such matter. Lodgian's Restated Certificate and Restated Bylaws do not
include a provision altering the shareholder quorum requirement.
SPECIAL MEETINGS OF THE SHAREHOLDERS. Under Servico's Articles, special
meetings may be called by the Chairman of the Board, the President or a majority
of directors acting with or without a meeting or the holders of at least 50% of
all votes entitled to be cast on any matter at the special meeting. Lodgian's
Restated Certificate and Restated Bylaws provide that a special meeting of the
shareholders may only be called by either the Chief Executive Officer or by a
majority of the board of directors. The shareholders of Lodgian will not (nor
will any other persons) have the right to call special meetings of the
shareholders.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS; VACANCIES. Servico's
Restated Bylaws provide that the Servico Board shall be comprised of not less
than eleven members, with the exact number determined from time to time by the
Servico Board. Servico currently has five directors, all of which are elected
for a three-year term in staggered years. Lodgian will initially have eight
directors which number, pursuant to Lodgian's Restated Bylaws, may be increased
or reduced by a resolution of the board of directors but will not be less than
six. The Lodgian Board, like the Servico Board, will be classified into three
classes. Lodgian's Restated Bylaws and Servico's Restated Bylaws
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provide that if the number of directors is changed, any increase or decrease
will be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, but in no case will a decrease in the
number of directors shorten the term of any incumbent directors.
Servico's Restated Bylaws provide that any vacancy occurring on the
board of directors, whether because of the resignation or removal of a director,
an increase in the number of directors or otherwise, may be filled by a majority
of the remaining directors, even though less than a quorum. A director elected
to fill a vacancy shall hold office until such director's successor is elected.
Lodgian's Restated Bylaws provide that any vacancy occurring on the Lodgian
Board, including a vacancy created by an increase in the number of directors,
may be filled by the shareholders or by the affirmative vote of a majority of
the remaining directors though less than a quorum of the Lodgian Board. A
director elected to fill a vacancy shall hold office only until the next
election of directors by the shareholders.
REMOVAL OF DIRECTORS. The FBCA provides that shareholders may remove
one or more directors with or without cause unless the articles of incorporation
provide otherwise. Servico's Articles and Restated Bylaws provide that a
director may not be removed by the shareholders without cause. Under the FBCA, a
director generally may be removed only if the number of votes cast to remove him
exceeds the number of votes cast not to remove him.
Consistent with the provisions of the DGCL concerning removal of
directors where the corporation's board is classified, Lodgian's Restated
Certificate provides that a director may be removed only for due cause, by the
holders of a majority of the shares entitled to vote thereon at a meeting of the
shareholders; PROVIDED, HOWEVER, that no such removal can be made unless the
notice thereof specifies such removal and the reasons therefor as one of the
matters to be considered at such meeting.
CONTROL SHARE ACQUISITIONS. The FBCA contains a control share
acquisition statute which provides that a person who acquires shares in an
issuing public corporation in excess of certain specified thresholds will
generally not have any voting rights with respect to such shares unless the
voting rights are approved by a majority of the shares entitled to vote,
excluding interested shares. The thresholds specified in the FBCA are the
acquisition of a number of shares representing: (i) 20% or more, but less than
33% of all voting power of the corporation, (ii) 33% or more but less than a
majority of all voting power of the corporation or (iii) a majority or more of
all voting power of the corporation. This statute does not apply to acquisitions
of shares of a corporation if, prior to the pertinent acquisition of shares, the
corporation's articles of incorporation or bylaws provide that the corporation
shall not be governed by the statute. This statute also permits a corporation to
adopt a provision in its articles of incorporation or bylaws providing for the
redemption by the corporation of such acquired shares in certain circumstances.
Unless otherwise provided in the corporation's articles of incorporation or
bylaws prior to the pertinent acquisition of shares, in the event that such
shares are accorded full voting rights by the shareholders of the corporation
and the acquiring shareholder acquires a majority of the voting power of the
corporation, all shareholders who did not vote in favor of according voting
rights to such acquired shares are entitled to dissenters' rights. Servico's
Articles of Incorporation and Restated Bylaws do not contain any provisions with
respect to this statute.
Delaware does not have a comparable statutory provision.
SUPERMAJORITY VOTE REQUIREMENT. Unless a specific section of the FBCA
or a Florida corporation's articles of incorporation require a greater vote, an
amendment to a Florida corporation's articles of incorporation generally must be
approved by a majority of the votes entitled to be cast on the amendment.
Servico's Articles of Incorporation provide that such Articles may be amended or
repealed only by an affirmative vote of holders of at least eighty percent (80%)
of the outstanding voting stock of Servico. Servico's Restated Bylaws provide
that such Bylaws may be amended or repealed, or new Bylaws may be adopted, by
action of either Servico's shareholders or its board of directors; provided,
however, that the section in Servico's Restated Bylaws concerning the
classification of its board of directors (which also includes provisions
concerning election of directors and the number of directors constituting the
Servico Board) may not be amended or repealed except by a unanimous vote of the
directors then in office or by the affirmative vote of the holders of not less
than 80% of the outstanding voting stock of Servico. The shareholders
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of Servico may from time to time specify certain provisions of the Bylaws which
may not be altered or repealed by the Servico Board. Also see "--Shareholder
Voting Requirements; Action by Consent" above.
Lodgian's Restated Certificate provides that certain amendments to the
Restated Certificate (including those sections relating to removal of directors,
amendments to Lodgian's Restated Bylaws, the classification of the board of
directors and the calling of special meetings of shareholders or the voting
requirements for amending the Restated Certificate) will require the affirmative
vote of the holders of at least 80% of the outstanding shares of stock entitled
to vote thereon. Lodgian's Restated Certificate and Restated Bylaws provide that
the Restated Bylaws may be amended, altered or repealed, or new bylaws may be
made (but only to the extent any such alteration, amendment, repeal or new bylaw
is not inconsistent with Servico's Articles) either by the number of directors
constituting a majority of the board of directors or by the shareholders of
Lodgian upon the affirmative vote of the holders of at least 80% of the
outstanding stock entitled to vote thereon.
AFFILIATED TRANSACTIONS. The FBCA contains an affiliated transactions
statute which provides that certain transactions involving a corporation and a
shareholder owning 10% or more of the corporation's outstanding voting shares
(an "affiliated shareholder") must generally be approved by the affirmative vote
of the holders of two-thirds of the voting shares other than those owned by the
affiliated shareholder. The transactions covered by the statute include, with
certain exceptions, (i) mergers and consolidations to which the corporation and
the affiliated shareholder are parties, (ii) sales or other dispositions of
substantial amounts of the corporation's assets to the affiliated shareholder,
(iii) issuances by the corporation of substantial amounts of its securities to
the affiliated shareholder, (iv) the adoption of any plan for the liquidation or
dissolution of the corporation proposed by or pursuant to an arrangement with
the affiliated shareholder, (v) any reclassification of the corporation's
securities which has the effect of substantially increasing the percentage of
the outstanding voting shares of the corporation beneficially owned by the
affiliated shareholder and (vi) the receipt by the affiliated shareholder of
certain loans or other financial assistance from the corporation. These special
voting requirements do not apply (i) if the transaction was approved by a
majority of the corporation's disinterested directors, (ii) if the corporation
did not have more than 300 shareholders of record at any time during the
preceding three years, (iii) if the affiliated shareholder has been the
beneficial owner of at least 80% of the corporation's outstanding voting shares
for the past five years, (iv) if the affiliated shareholder is the beneficial
owner of at least 90% of the corporation's outstanding voting shares, exclusive
of those acquired in a transaction not approved by a majority of disinterested
directors or (v) if the consideration received by each shareholder in connection
with the transaction satisfies the "fair price" provisions of the statute. This
statute applies to any Florida corporation unless the original articles of
incorporation or an amendment to the articles of incorporation or bylaws contain
a provision expressly electing not to be governed by this statute. Such an
amendment to the articles of incorporation or bylaws must be approved by the
affirmative vote of a majority of disinterested shareholders and is not
effective until 18 months after approval. Servico's Articles of Incorporation
and Restated Bylaws do not contain a provision electing not to be governed by
this statute.
The DGCL generally prohibits a shareholder owning 15% or more of a
Delaware corporation's outstanding voting stock (an "interested shareholder")
from engaging in certain business combinations involving the corporation during
the three years after the date the person became an interested shareholder
unless (i) prior to such date, the board of directors approved either the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder, (ii) upon the consummation of the
transaction which resulted in the shareholder becoming an interested
shareholder, the shareholder owned at least 85% of the voting stock outstanding
at the time the transaction commenced, (iii) on or subsequent to such date, the
transaction is approved by the board of directors and by the shareholders by a
vote of two-thirds of the disinterested outstanding voting stock, (iv) the
corporation's original certificate of incorporation provides that the
corporation shall not be governed by the statute or (v) a majority of shares
entitled to vote approve an amendment to the corporation's certificate of
incorporation or bylaws expressly electing not to be governed by the statute
(but such amendment may not be effective until one year after it was adopted and
may not apply to any business combination between the corporation and any person
who became an interested shareholder on or prior to such adoption). These
business combinations include, with certain exceptions, mergers, consolidations,
sales of assets and transactions benefitting the interested shareholder.
Lodgian's Restated Certificate and Restated Bylaws do not contain a provision
electing not to be governed by this statute.
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CONSIDERATION OF RELEVANT FACTORS. The FBCA provides that directors of
a Florida corporation, in discharging their duties to the corporation and in
determining what they believe to be in the best interests of the corporation,
may, in addition to considering the effects of any corporate action on the
shareholders and the corporation, consider the effects of the corporate action
on employees, suppliers and customers of the corporation or its subsidiaries and
the communities in which the corporation and its subsidiaries operate.
Delaware does not have a comparable statutory provision.
DISSENTERS' RIGHTS. A shareholder of a Florida corporation, with
certain exceptions, has the right to dissent from and obtain payment of the fair
value of his shares in the event of (i) a merger or consolidation to which the
corporation is a party, (ii) a sale or exchange of all or substantially all of
the corporation's property other than in the usual and regular course of
business, (iii) the approval of a control share acquisition, (iv) a statutory
share exchange to which the corporation is a party as the corporation whose
shares will be acquired, (v) an amendment to the articles of incorporation if
the shareholder is entitled to vote on the amendment and the amendment would
adversely affect the shareholder and (vi) any corporate action taken to the
extent that the articles of incorporation provide for dissenters' rights with
respect to such action. The FBCA provides that unless a corporation's articles
of incorporation provide otherwise, which Servico's Articles of Incorporation do
not, a shareholder does not have dissenters' rights with respect to a plan of
merger, share exchange or proposed sale or exchange of property if the shares
held by the shareholder are either registered on a national securities exchange
or held of record by 2,000 or more shareholders.
A shareholder of a Delaware corporation generally is entitled to
dissenters' rights in the event that the corporation is a party to certain
mergers or consolidations to which the shareholder neither voted in favor of nor
consented thereto in writing. Lodgian's Restated Certificate does not contain
such a provision. Similar to the FBCA, dissenters' rights do not apply to a
shareholder of a Delaware corporation if his shares are (i) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Security Dealers,
Inc. or (ii) held of record by more than 2,000 shareholders. Notwithstanding the
foregoing, however, under the DCGL, a shareholder does have dissenters' rights
with respect to such shares if the shareholder is required by the terms of the
agreement of merger or consolidation to accept anything for his shares other
than (i) shares of stock of the corporation surviving or resulting from the
merger or consolidation, (ii) shares of stock of any other corporation which is
also listed or designated or held of record by more than 2,000 shareholders,
(iii) cash in lieu of fractional shares or (iv) any combination of the
foregoing.
DIVIDENDS AND REPURCHASES. Under the FBCA, a corporation may make
distributions to shareholders (subject to any restrictions contained in the
corporation's articles of incorporation) as long as, after giving effect to the
distribution, (a) the corporation will be able to pay its debts as they become
due in the usual course of business and (b) the corporation's total assets will
not be less than the sum of its total liabilities plus (unless the articles of
incorporation permit otherwise) the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution. A Florida corporation may
purchase its own shares and, unless otherwise provided in the articles of
incorporation, shares repurchased remain authorized but unissued. However,
pursuant to the FBCA, a corporation's redemption of its own capital stock is
deemed to be a distribution. Servico's Articles do not alter these provisions.
A Delaware corporation may pay dividends out of "surplus" or, if there
is no surplus, out of net profits for the fiscal year in which the dividend is
declared or for the preceding fiscal year. Surplus is defined as the net assets
of the corporation over the corporation's capital. Under the DGCL, a corporation
may repurchase or redeem its shares only if the capital of the corporation is
not impaired and such repurchase does not impair the corporation's capital.
Lodgian's Restated Certificate does not alter these provisions.
LIABILITY OF DIRECTORS. Under the FBCA, a director is not personally
liable for monetary damages to the corporation or any other person for any
statement, vote, decision or failure to act, regarding corporate management or
policy, by a director unless the director breached or
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failed to perform his duties as a director and such breach or failure
constitutes: (a) a violation of criminal law unless the director had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (b) a transaction from which the director derived an
improper personal benefit; (c) a circumstance resulting in an unlawful
distribution; (d) in a proceeding by or in the right of the corporation to
procure a judgment in its favor or by or in the right of a shareholder,
conscious disregard for the best interests of the corporation or willful
misconduct; or (e) in a proceeding by or in the right of one other than the
corporation or a shareholder, recklessness or an act or omission which was
committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property.
The DGCL permits a Delaware corporation to include in its certificate
of incorporation a provision eliminating or limiting the personal liability of a
director to the corporation or its shareholders for monetary damages for
breaches of fiduciary duty, including conduct which could be characterized as
negligence or gross negligence. The DGCL expressly provides, however, that the
liability for (a) breaches of the director's duty of loyalty; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violation of the law; (c) an unlawful distribution; or (d) the receipt of
improper personal benefits cannot be eliminated or limited in this manner. The
DGCL further provides that no such provision will eliminate or limit the
liability of a director for any act or omission occurring prior to the date when
such provision becomes effective. Lodgian's Restated Certificate includes a
provision eliminating or limiting director liability for monetary damages for
breaches of fiduciary duty to the extent permitted by the DGCL.
SHAREHOLDER INSPECTION OF BOOKS AND RECORDS. Under the FBCA a
shareholder is entitled to inspect and copy the articles of incorporation,
bylaws, certain board and shareholder resolutions, certain written
communications to shareholders, a list of the names and business addresses of
the corporation's directors and officers, and the corporation's most recent
annual report during regular business hours if the shareholder gives at least
five business days' prior written notice to the corporation. In addition, a
shareholder of a Florida corporation is entitled to inspect and copy other books
and records of the corporation during regular business hours if the shareholder
gives at least five business days' prior written notice to the corporation and
(1) the shareholder's demand is made in good faith and for a proper purpose, (2)
the demand describes with particularity its purpose and the records to be
inspected or copied and (3) the requested records are directly connected with
such purpose. The FBCA also provides that a corporation may deny any demand for
inspection if the demand was made for an improper purpose or if the demanding
shareholder has, within two years preceding such demand, sold or offered for
sale any list of shareholders of the corporation or any other corporation, has
aided or abetted any person in procuring a list of shareholders for such purpose
or has improperly used any information secured through any prior examination of
the records of the corporation or any other corporation.
The provisions of the DGCL governing the inspection and copying of a
corporation's books and records are generally less restrictive than those of the
FBCA. Specifically, the DGCL permits any shareholder the right, during usual
business hours, to inspect and copy the corporation's stock ledger, shareholders
list and other books and records for any proper purpose upon written demand
under oath stating the purpose thereof.
COMPARISON OF CURRENT IMPAC UNITHOLDER RIGHTS AND LODGIAN SHAREHOLDER RIGHTS
FOLLOWING THE MERGER
As a result of the Merger, holders of Impac Units will own shares of
Lodgian Common Stock. Impac is a Georgia limited liability company ("LLC") and
the rights of its unitholders are governed by the GLLCA and the Articles of
Organization and the Operating Agreement of Impac. Lodgian is a Delaware
corporation and the rights of its shareholders, including all former holders of
Impac Units, will be governed by the DGCL and the Restated Certificate and
Restated Bylaws of Lodgian. A summary of the principal differences between the
current rights of Impac unitholders and their prospective rights as Lodgian
shareholders is set forth below.
AUTHORIZED CAPITAL. Impac is authorized to issue an unlimited number of
Units, which will be exchanged for shares of Lodgian Common Stock in the Merger
as described above, and one Class B Interest, which will be canceled in the
Merger. The Class B Interest was issued to BancOne in connection with the
BancOne financing described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Existing Financing Arrangements."
No other Class B Interest or any other class of interest with rights or benefits
senior thereto may be
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issued without the consent of the holder of the Class B Interest. The Class B
Interest will be retired upon the repayment of all amounts due and the
performance of all obligations under the note issued to BancOne (the "Note").
The authorized capital of Lodgian consists of 100,000,000 shares,
consisting of 75,000,000 shares of common stock, par value $.01 per share, and
25,000,000 shares of preferred stock, par value $.01 per share. Lodgian's
Restated Certificate grants Lodgian's Board the power to provide for the
issuance of one or more series of preferred stock and to establish the number of
shares of each series, as well as the voting rights, dividend rights, redemption
rights, conversion rights, exchange rights and participation rights, and other
preferences, qualifications, limitations and restrictions of such preferred
stock.
MANAGEMENT. Under the GLLCA, unless the articles of organization or
operating agreement (collectively, the "organizational documents") vests
management of the LLC in a manager or managers, management of the LLC will be
vested in the members. Impac's Operating Agreement provides that Impac will be
managed by a Manager and by officers appointed in the Operating Agreement.
Robert S. Cole serves as Impac's Manager and President, and Robert M. Flanders
serves as its Vice President, Secretary and Treasurer. As Manager and President,
Mr. Cole has complete authority over Impac's business and affairs and may take
any action on behalf of Impac without member approval except as indicated below
under "- Member and Shareholder Voting Requirements; Action by Written Consent."
Lodgian is managed by a Board of Directors and officers in accordance
with its Restated Certificate, Restated Bylaws and the provisions of the DGCL.
Lodgian will initially have eight directors, which number, pursuant to Lodgian's
Restated Bylaws, may be increased or reduced by a resolution of the Board of
Directors but will not be less than six. The Lodgian Board will be classified
into three classes. Lodgian's Restated Bylaws provide that if the number of
directors has changed, any increase or decrease will be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no case will a decrease in the number of directors shorten
the term of any incumbent director.
MEMBER AND SHAREHOLDER VOTING REQUIREMENTS; ACTION BY WRITTEN CONSENT.
Under the GLLCA, unless otherwise provided in the organizational documents, if
management is vested in a manager or managers, each manager will have one vote
with respect to, and the affirmative vote of a majority of managers will be
required to decide, any matter, except that the unanimous vote of the members
will be required to approve the dissolution or merger of the LLC, the
disposition of all or substantially all assets of the LLC, the admission of any
new member, amendments to the organizational documents, the redemption or
elimination of an obligation to make a capital contribution, distributions to
members or continuance of the LLC beyond its term. At a meeting of members,
unless otherwise provided in the organizational documents or as set forth above,
a quorum will consist of a majority of the members and approval of any matter
will require the vote of a majority of the members present at a meeting at which
a quorum is present. Unless otherwise provided, action may be taken by written
consent without a meeting by all (or a majority, if the organizational documents
so permit) of the votes entitled to be cast on the matter. If less than all of
the members approve a matter without a meeting, written notice of the action
must be served on the members who did not participate in taking the action no
more than 10 days after the action is taken.
Impac's Operating Agreement permits the Manager to take any action on
behalf of Impac without obtaining the approval of any of the members except in
the following cases:
ACTIONS REQUIRING UNANIMOUS WRITTEN CONSENT OF THE MEMBERS:
(i) Any action in contravention of the Operating Agreement or the
Articles of Organization.
(ii) Any action that would make it impossible to carry on the
ordinary business of Impac, except as contemplated by the
Operating Agreement.
(iii) The filing of a voluntary bankruptcy petition or consent to
the appointment of a receiver or similar action for the
benefit of the creditors of Impac.
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(iv) The possession of Impac's property or assignment of its rights
in specific property for other than a company purpose.
(v) The admission of a member except as is otherwise provided in
the Operating Agreement.
ACTIONS REQUIRING THE WRITTEN CONSENT OF A MAJORITY OF THE UNITS:
(i) Participation in a merger or similar transaction with any
other legal entity.
(ii) The sale or other disposition of substantially all of Impac's
assets and property.
(iii) The offering of any membership interest (or successor security
thereto) for sale to the public in an underwritten offering.
(iv) The offer of additional membership interests or admission of
additional members except as is otherwise permitted in the
Operating Agreement.
ACTIONS REQUIRING THE WRITTEN CONSENT OF THE HOLDER OF THE CLASS B
INTEREST:
(i) The incurrence of any indebtedness, guaranty, indemnity or
surety other than (A) guaranties required under the terms of
the NACC Loan Agreements (as defined in the Operating
Agreement), (B) guaranties of any Transaction Affiliate with
respect to any Identified Property or Project (as such terms
are defined in the Operating Agreement), (C) guaranties of any
Affiliate's indebtedness, provided that such indebtedness
shall not exceed 30% of any cash raised through the issuance
of additional membership interests and is invested in such
Affiliate and that all of such guarantied indebtedness of the
Affiliate shall not exceed $7 million, (D) the indemnification
arrangements with Messrs. Robert S. Cole, Charles Cole and
Robert M. Flanders described in the Operating Agreement, and
(E) the indemnification of Impac's managers and officers as
described in the Operating Agreement.
(ii) Distributions to members contrary to the terms of the Note or
the Operating Agreement.
(iii) The transfer by Impac or permitted transfer by any Transaction
Affiliate of an Identified Property or Project to any entity
other than a Transaction Affiliate or an entity contemplated
and permitted under the terms of NACC Loan Agreements.
(iv) The amendment or refinancing of any loan agreement, including
the NACC Loan Agreements, if such amendment or refinancing has
a material adverse affect on BancOne's rights, benefits or
obligations.
In all other cases, members of Impac are not permitted to vote on or
consent to any action that may be taken by Impac through its Manager(s) or
officers.
Under the DGCL and Lodgian's Restated Certificate and Restated Bylaws,
Lodgian's directors manage the corporation's overall business affairs and have
appointed officers to manage its day-to-day affairs, with a shareholder vote
being required to elect directors; approve certain mergers, dispositions of
assets or other change of control transactions; and approve certain amendments
to the Restated Certificate. Unless otherwise provided in a corporation's
articles of incorporation or bylaws, a majority of shares entitled to vote on a
matter constitutes a quorum at a meeting of shareholders, but in no event may a
quorum consist of least than one-third of the shares entitled to vote on such
matters. Lodgian's Restated Certificate and Restated Bylaws do not include a
provision altering the shareholder quorum requirement. Under the DGCL, directors
are generally elected by a plurality of the votes cast by the shareholders
entitled to vote at a shareholders' meeting at which a quorum is present. With
respect to matters other
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than the election of directors, unless otherwise provided by the DGCL or the
certificate of incorporation or bylaws, if a quorum is present, action on a
matter is approved by the affirmative vote of a majority of the shares
represented at a meeting and entitled to vote on the matter. In the case of a
merger, the affirmative vote of the holders of a majority of the issued and
outstanding shares entitled to vote is required by the DGCL. Lodgian's Restated
Certificate and Restated Bylaws do not contain a provision requiring a greater
vote on any matter than is required by the DGCL, except upon amendments or
alterations to Lodgian's Restated Certificate and Restated Bylaws as discussed
below.
Lodgian's Restated Certificate provides that certain amendments to the
Restated Certificate (including those sections relating to removal of directors,
amendments to Lodgian's Restated Bylaws, the classification of the Board of
Directors, the calling of special meetings of shareholders or the voting
requirements for amending the Restated Certificate) will require the affirmative
vote of the holders of at least 80% of the outstanding shares of stock entitled
to vote thereon. Lodgian's Restated Certificate and Restated Bylaws provide that
the Restated Bylaws may be amended, altered or repealed, or new bylaws may be
made (but only to the extent any such alteration, amendment, repeal or new bylaw
is not inconsistent with the Restated Certificate) either by the number of
directors constituting a majority of the Board of Directors or by the
shareholders of Lodgian upon the affirmative vote of the holders of at least 80%
of the outstanding stock entitled to vote thereon.
Unless otherwise provided in a corporation's certificate of
incorporation, the DGCL generally permits shareholder action to be taken without
a meeting if written consents signed by holders having the requisite number of
votes necessary to take such action are delivered to the corporation. Lodgian's
Restated Certificate provides that any action required or permitted to be taken
by shareholders must be effected at a duly called annual meeting or special
meeting of shareholders and may not be effected by any consent in writing by
such shareholders.
MEETINGS OF MEMBERS AND SHAREHOLDERS. Under the GLLCA, unless the
organizational documents provide otherwise, meetings of members may be called by
at least 25% of the members with two days' notice. Impac's Operating Agreement
does not authorize meetings of its member. If member consent to a particular
action is required, the consent must be obtained in writing.
Under the DGCL, special meetings of shareholders may be called by the
Board of Directors or by such person(s) as are authorized by the certificate of
incorporation or the bylaws. Lodgian's Restated Certificate and Restated Bylaws
provide that a special meeting of shareholders may only be called by either the
Chief Executive Officer or by a majority of the Board of Directors. Lodgian's
shareholders will not (nor will any other persons) have the right to call
special meetings of shareholders.
WITHDRAWAL AND REMOVAL OF MANAGER AND DIRECTORS. The GLLCA does not
address the removal of managers. Under Impac's Operating Agreement, Mr. Cole may
voluntarily withdraw as Manager only with the consent of the holder of the Class
B Interest. Other managers, if appointed, may voluntarily withdraw with 30 days'
prior written notice. If no other managers have been appointed, the holders of a
majority of the Units shall elect one or more new managers.
Mr. Cole can be removed for cause by the collective vote of the holders
of a majority of the Units and of the Class B Interest. Other managers, if any,
may be removed without cause by Mr. Cole upon 10 days' prior written notice or
for cause with the consent of the holders of a majority of the Units. If that
manager was elected by the holder of the Class B Interest as described below,
however, the consent of the holder of the Class B Interest will be required as
well. Notwithstanding the foregoing, the holder of the Class B Interest may, by
providing written notice to Impac's Manager(s), remove any Manager, including
Mr. Cole, and appoint one or more replacement managers if: (i) any action
requiring the consent of the holder of the Class B Interest was taken without
such consent; (ii) there is a breach of any material obligation of the
Manager(s) under the Operating Agreement that is not cured within 30 days after
written notice setting forth such breach is provided by the holder of the Class
B Interest (or within such additional period of time as may be reasonably
necessary to cure such breach up to 120 days after such written notice); (iii)
there is an event of default beyond applicable notice and cure periods under the
Note; or (iv) there is a default under any
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NACC loan that is not cured within the applicable cure or acceleration period
and prohibits the payment by Impac or requires the retention by NACC or its
agent of any amounts due under the Note.
Consistent with the provisions of the DGCL concerning removal of
directors where the corporation's board is classified, Lodgian's Restated
Certificate provides that a director may be removed only for due cause, by the
holders of a majority of the shares entitled to vote thereon at a meeting of the
shareholders; PROVIDED, HOWEVER, that no such removal can be made unless the
notice thereof specifies such removal and the reasons therefor as one of the
matters to be considered at such meeting.
CONFLICTING INTERESTS TRANSACTIONS. The GLLCA states that unless
otherwise provided in the organizational documents, a member's or manager's
conflicting interest transaction may not be set aside, enjoined or sanctioned on
such grounds if: (i) a majority of disinterested members approve the transaction
after disclosure of its terms in accordance with the provisions of the GLLCA; or
(ii) the transaction, judged in the circumstances at the time of commitment, is
established to have been fair to the LLC. Impac's Operating Agreement states
that the provisions discussed above will not apply to any member, manager,
officer or affiliate of Impac, and that such persons may engage in or possess an
interest in any other business or venture, regardless of whether it competes
with Impac, without having any obligation to offer any interest in such
activities to Impac or any of its members. The Operating Agreement requires
transactions with affiliates to be at arms length and requires the payment of
consideration at fair value for any property exchanged or services provided.
Under the DGCL, no transaction between a corporation and any of its
directors or officers or their affiliates will be void or voidable solely for
this reason if:
(i) the material facts as to the relationship or interest and as
to the transaction are disclosed or known to the Board of
Directors or committee acting upon the transaction, and the
Board or committee in good faith authorizes the contract or
transaction by the vote of a majority of the disinterested
directors, even if the disinterested directors constitute less
than a quorum;
(ii) the material facts as to the relationship or interest and as
to the contract or transaction are disclosed or known to the
shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of
the shareholders; or
(iii) the contract or transaction is fair to the corporation at the
time it is authorized, approved or ratified by the Board of
Directors, a committee or the shareholders.
Lodgian's Restated Certificate and Restated Bylaws do not contain any
provisions addressing this issue.
BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS. Except as discussed
under "--Conflicting Interests Transactions" above, neither the GLLCA nor
Impac's Operating Agreement contain any provisions restricting Impac's ability
to engage in business combinations or transactions with its members.
The DGCL generally prohibits a shareholder owning 15% or more of a
Delaware corporation's outstanding voting stock (an "interested shareholder")
from engaging in certain business combinations involving the corporation during
the three years after the date the person became an interested shareholder
unless (i) prior to such date, the board of directors approved either the
business combination or the transaction that resulted in the shareholder
becoming an interested shareholder, (ii) upon the consummation of the
transaction that resulted in the shareholder becoming an interested shareholder,
the shareholder owned at least 85% of the voting stock outstanding at the time
the transaction commenced, (iii) on or subsequent to such date, the transaction
is approved by the board of directors and by the shareholders by a vote of
two-thirds of the disinterested outstanding voting stock, (iv) the corporation's
original certificate of incorporation provides that the corporation shall not be
governed by the statute or (v) a majority of shares entitled to vote approve an
amendment to the corporation's certificate of incorporation or bylaws expressly
electing not to be governed by the statute (but such amendment may not be
effective until one year after it was adopted and
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may not apply to any business combination between the corporation and any person
who became an interested shareholder on or prior to such adoption). These
business combinations include, with certain exceptions, mergers, consolidations,
sales of assets and transactions benefiting the interested shareholder.
Lodgian's Restated Certificate and Restated Bylaws do not contain a provision
electing not to be governed by this statute.
DISSENTERS' RIGHTS. The GLLCA provides that unless otherwise provided
in the organizational documents, members of an LLC are entitled to dissent from,
and obtain payment of the fair value of their membership interests, in the event
of: (i) consummation of a plan of merger to which the LLC is a party if approval
of less than all of the members is required and the member is entitled to vote
on the merger; (ii) consummation of a sale, lease, exchange or other disposition
of all or substantially all of the LLC's property if approval of less than all
of the members is required and the member is entitled to vote on the
transaction; (iii) amendments to the articles of organization that materially
and adversely affect rights in respect of a dissenters' membership interests in
the LLC; or (iv) any action taken for which the organizational documents provide
for dissenters' rights. In Impac's Operating Agreement, however, the members
specifically waive the dissenters' rights provided above unless the action taken
is described either in clause (i) or (ii) above and is taken without the consent
of the members owning a majority of the Units as required under the Operating
Agreement.
A shareholder of a Delaware corporation generally is entitled to
dissenters' rights in the event that the corporation is a party to certain
mergers or consolidations to which the shareholder neither voted in favor of nor
consented thereto in writing. Dissenters' rights do not apply to a shareholder
of a Delaware corporation if his or her shares are (i) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Security Dealers,
Inc. or (ii) held of record by more than 2,000 shareholders. Notwithstanding the
foregoing, however, under the DGCL, a shareholders not have dissenters' rights
with respect to such shares if the shareholder is required by the terms of the
agreement of merger or consolidation to accept anything for his or her shares
other than (i) shares of stock of the corporation surviving or resulting from
the merger or consolidation, (ii) shares of stock of any other corporation that
is also listed or designated or held of record by more than 2,000 shareholders,
(iii) cash in lieu of fractional shares or (iv) any combination of the
foregoing.
DISTRIBUTIONS AND DIVIDENDS. The GLLCA provides that members will be
entitled to distributions from an LLC before its dissolution and winding up only
to the extent, and upon the occurrence of the events, specified in the
organizational documents or as otherwise approved by all of the members.
Distributions are to be shared in the manner provided in the organizational
documents, or if no provision is made, equally among the members. Members are
also entitled to receive the fair value of their interests in certain events of
dissociation from the LLC. A distribution will be prohibited if, giving effect
to the distribution, the LLC would not be able to pay its debts as they become
due in the usual course of business or its total assets would be less than its
total liabilities plus, unless the organizational documents provide otherwise,
the amount that would be needed to satisfy any preferential rights of members to
receive distributions upon dissolution.
Impac's Operating Agreement states that Impac intends to have the
Manager distribute to members on a quarterly basis Impac's Net Cash Flow (as
defined in the Operating Agreement) and within 30 days after any disposition of
its property, the Net Proceeds (as defined in the Operating Agreement) realized
by Impac as a result of such disposition, after reduction for any applicable
debt service and/or reserves that the Manager may reasonably determine to be
necessary for Impac's operations. Accordingly, the Manager may, in his
discretion as to timing, amount and source of funds, make distributions to
members holding Units pro rata based upon the number of Units owned by each
Member. No distribution may be made, however, if it is prohibited under the
terms of the NACC Loan Agreement or the Note.
A Delaware corporation may pay dividends out of "surplus" or, if there
is no surplus, out of net profits for the fiscal year in which the dividend is
declared or for the preceding fiscal year. Surplus is defined as the net assets
of the corporation over the corporation's capital. Lodgian's Restated
Certificate does not alter these provisions.
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REPURCHASES. Neither the GLLCA nor Impac's Operating Agreement
restricts the repurchase of membership interests. Under the DGCL, a corporation
may repurchase or redeem its shares only if the capital of the corporation is
not impaired and such repurchase does not impair the corporation's capital.
Lodgian's Restated Certificate does not alter these provisions.
LIMITATION OF LIABILITY OF MANAGERS AND DIRECTORS. The GLLCA allows an
LLC's organizational documents to expand, restrict or eliminate a member's or
manager's liabilities for actions taken in such capacity, except that no such
provision will eliminate or limit liability for intentional misconduct or a
knowing violation of law or for any transaction in which the person received a
personal benefit in violation of any provision of the operating agreement.
Impac's Operating Agreement states that neither the Manager nor any officer
shall be liable for any act or omission committed in good faith on behalf of
Impac and in a manner reasonably believed by such person to be within the scope
of his or her authority granted under the Operating Agreement. No limitation of
liability applies, however, to actions involving fraud, gross negligence or
willful misfeasance.
The DGCL permits a Delaware corporation to include in its certificate
of incorporation a provision eliminating or limiting the personal liability of a
director to the corporation or its shareholders for monetary damages for
breaches of fiduciary duty, including conduct that could be characterized as
negligence or gross negligence. The DGCL expressly provides, however, that the
liability for (a) breaches of the director's duty of loyalty; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violation of the law; (c) an unlawful distribution; or (d) the receipt of
improper personal benefits cannot be eliminated or limited in this manner. The
DGCL further provides that no such provision will eliminate or limit the
liability of a director for any act or omission occurring prior to the date when
such provision becomes effective. Lodgian's Restated Certificate includes a
provision eliminating or limiting director liability for monetary damages for
breaches of fiduciary duty to the extent permitted by the DGCL.
RESTRICTIONS ON TRANSFER OF SECURITIES. The GLLCA states that LLC
interests are freely assignable unless the organizational documents provide
otherwise. The Impac Operating Agreement states that membership interests may be
transferred if: (i) the transferee, if an individual, is at least 21 years of
age; (ii) the transferee agrees in writing to be bound by the Operating
Agreement; and (iii) the Manager consents to the transfer. Such consent may be
withheld if the transfer would impair Impac's ability to be taxed as partnership
or would violate federal or state securities laws. Notwithstanding the
foregoing, the Class B Interest may be transferred only to a subsequent
purchaser of the Note in its entirety. The consent and approval provisions
described above will not be required in order to transfer the Class B Interest.
Impac also has a right of first refusal with respect to the disposition of
Units. If a member receives an offer to purchase any or all of his or her Units,
the member must offer Impac the opportunity to repurchase any or all of such
Units on the same terms and conditions as are contained in the offer. Impac has
three business days after its receipt of the offer to purchase any or all of
such Units. If Impac does not exercise its right of first refusal, the Units may
be sold to any person.
The DGCL permits a corporation to place restrictions on the transfer of
its securities. Members of Impac who are not affiliates of Impac, Servico or
Lodgian will receive freely tradeable Lodgian Common Stock as a result of the
Merger. Affiliates of Impac, Servico and Lodgian will be bound by certain
provisions of federal securities laws with respect to the transfer of their
Lodgian Common Stock. See "The Merger--Securities Law Restrictions."
INSPECTION OF BOOKS AND RECORDS. The GLLCA permits members to inspect
and copy, at their own expense, any LLC records upon reasonable request during
ordinary business hours and to obtain from time to time upon reasonable demand
business and financial information about the LLC, copies of tax returns and
other reasonable information about the LLC and its affairs. Impac's Operating
Agreement allows members to inspect and copy, at their own expense during normal
business hours at Impac's principal office: (i) the names and addresses of all
members; (ii) copies of the Articles of Organization and any amendments thereto;
(iii) copies of tax returns for the four most recent fiscal years; (iv) copies
of the Operating Agreement; (v) any merger agreement in which Impac is the
surviving entity; and (vi) financial statements for the four most recent fiscal
years.
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The DGCL permits any shareholder the right, during usual business
hours, to inspect and copy the corporation's stock ledger, shareholder lists and
other books and records for any proper purpose upon written demand
under oath stating the purpose thereof. Lodgian's Restated Certificate and
Restated Bylaws contain no provisions regarding shareholder inspection rights.
LODGIAN PLAN PROPOSALS
In addition to approving the Merger, because Lodgian is a new company,
the shareholders of Servico and the unitholders of Impac are being asked to
approve three incentive plans for Lodgian. Servico currently has in effect the
Servico Plan. These new plans will replace the Servico Plan currently in effect
with a unified package of incentive compensation plans applicable to directors
and employees of Lodgian. The new plans are the following: (i) a short-term
incentive plan that provides for bonus compensation linked to performance over a
fiscal year or other relatively short period, (ii) a stock incentive plan that
provides for longer-term incentives in the form of stock options, stock
appreciation rights or other equity-based compensation awards and (iii) a stock
plan for non-employee directors that provides for grants of both stock and stock
options and allows directors to voluntarily defer payment of a portion of their
director fees.
THE LODGIAN 1998 SHORT-TERM INCENTIVE COMPENSATION PLAN
The Lodgian Board and Impac Manager have recommended the Lodgian 1998
Short-Term Incentive Compensation Plan for approval by their respective
shareholders and unitholders.
The Lodgian 1998 Short-Term Incentive Compensation Plan was authorized
by the Servico Board on [date], and by the Impac Manager on [date] and is
subject to approval by their respective shareholders. A copy of the Lodgian 1998
Short-Term Incentive Compensation Plan is attached hereto as Appendix D and the
following summary is qualified in its entirety by reference hereto.
PURPOSES AND ELIGIBILITY. The purposes of the Lodgian 1998 Short-Term
Incentive Compensation Plan are to increase the profitability of Lodgian and its
subsidiaries by providing the opportunity for key executives to earn incentive
payments for outstanding achievement and company performance and to fulfill
Lodgian's objective of offering a fully competitive total compensation package
to its key employees, thus enabling Lodgian to attract and retain executives of
the highest caliber and ability. The Lodgian 1998 Short-Term Incentive
Compensation Plan authorizes the payment of certain bonus awards (the "Bonus
Awards") to key executives of Lodgian whose decisions and actions have a
significant effect on Lodgian's growth and profitability (the "Participants").
As of [date], 1998, Lodgian estimates that there will be approximately [___]
Participants.
Section 162(m) of the Code limits the deductibility of compensation in
excess of $1,000,000 paid to the chief executive officer and the four other most
highly compensated officers of a public company as determined pursuant to the
rules of the SEC (the "Covered Employees") unless the payments are made under
qualifying performance-based plans and upon the attainment of certain
performance goals. The Lodgian 1998 Short-Term Incentive Compensation Plan
contains special provisions governing compensation paid to Covered Employees
that are intended to ensure that such compensation will be considered
performance-based and hence fully deductible. In order for the requirements of
Section 162(m) to be met for compensation paid under the Lodgian 1998 Short-Term
Incentive Compensation Plan, the Plan must be approved by the shareholders of
Servico and the unitholders of Impac.
SHARES AVAILABLE AND BONUS AWARD LIMITS UNDER THE LODGIAN 1998
SHORT-TERM INCENTIVE COMPENSATION PLAN. An aggregate of 1,000,000 shares of
Lodgian Common Stock are authorized for issuance under the Lodgian 1998
Short-Term Incentive Compensation Plan, which amount will be proportionately
adjusted in the event of certain changes in Lodgian's capitalization, a merger,
or a similar transaction. Such shares may be either treasury shares or newly
issued shares or a combination thereof. In addition to this overall limit, the
Lodgian 1998 Short-Term Incentive
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Compensation Plan contains limits on the amount of the Bonus Award that may be
paid in respect of any performance period to any Participant to $1,000,000.
ADMINISTRATION. The Compensation Committee of the Lodgian Board (the
"Committee") will administer the Lodgian 1998 Short-Term Incentive Compensation
Plan. The Committee will interpret the Lodgian 1998 Short-Term Incentive
Compensation Plan and establish the rules and regulations governing its
administration; select the Participants; approve the performance objectives upon
which the percentage of payment of Bonus Awards is based; determine the degree
of the attainment of the performance objectives; and determine the size of
individual Bonus Awards and payments to Participants.
PERFORMANCE OBJECTIVES AND TARGETS. Performance objectives under the
Lodgian 1998 Short-Term Incentive Compensation Plan will be established by the
Committee for each applicable performance period, which performance period may
be a calendar year or a multi-year cycle. Performance objectives for each
Participant may consist of financial objectives, individual objectives, or a
combination thereof, except that with respect to Covered Employees, the
performance objectives will consist of financial objectives only. Financial
objectives will be established by the Committee each performance period based
upon one or more of the following performance measures: (i) net revenue, (ii)
net earnings, (iii) operating earnings or income, (iv) absolute and/or relative
return on equity or assets, (v) earnings per share, (vi) cash flow, (vii) pretax
profits, (viii) earnings growth, (ix) revenue growth, (x) book value per share,
(xi) stock price and (xii) performance relative to peer companies, each of which
may be established on a corporate-wide basis or established with respect to one
or more operating units, divisions, acquired businesses, minority investments,
partnerships or joint ventures. At the same time, a "range" of achievements for
financial objectives ranging from zero to target to maximum levels will be
established by the Committee. The Committee may alter or adjust financial
objectives during the course of a performance period, or alter or adjust the
financial results otherwise reported or achieved by Lodgian during such
performance period, except with respect to the Covered Employees, for whom the
Committee shall have no discretion to increase, but may decrease, the amount of
a Bonus Award payable based upon the range of achievement of the financial
objectives.
OTHER AWARD CRITERIA. Except with respect to Covered Employees, the
Committee may also, as to a Participant, make a portion of the award opportunity
subject to qualitative or quantitative individual goals to be achieved.
Individual objectives may be altered or amended during any performance period to
properly reflect changed business conditions and priorities, subject to approval
by the President and Chief Executive Officer or his delegate.
PAYMENT OF BONUS AWARDS. Payment of earned Bonus Awards is made as soon
as practicable after the end of the performance period in which such Bonus Award
is earned. Bonus Award payments will be paid in cash, shares of Lodgian Common
Stock, or in a combination of cash and shares as determined by the Committee. If
a Bonus Award is paid in Lodgian Common Stock, such stock will be valued at its
fair market value on the date of payment. No Bonus Award is earned with respect
to a financial objective at or below the zero level of achievement; achievement
between the zero and the target levels and the target and maximum levels will
result in a Bonus Award payment in accordance with the established range of the
achievement payment schedule. An amount larger than the target Bonus Award
opportunity for each financial objective can be earned by a Participant (other
than a Covered Employee) for exceeding that target.
If a Participant's employment is terminated because of death,
disability or retirement, or if employment is otherwise terminated and the
Committee approves, the Participant will receive a pro rata Bonus Award payment
based on the portion of the year the Participant was employed by Lodgian in an
eligible position while the Bonus Award was outstanding and the degree to which
during such year the performance objectives were achieved. No Bonus Award will
be payable to any Participant who voluntarily resigns his or her employment
prior to the payment date for such Bonus Award.
CHANGE IN CONTROL. In the event of a Change in Control of Lodgian,
except as the Committee otherwise determines, Lodgian will pay to each
Participant the pro rata amount of the Participant's target Bonus Award for the
then-current year. A Change in Control will generally be deemed to occur if: (i)
any person becomes the owner of
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40% or more of Lodgian's voting securities; (ii) directors who constitute the
Lodgian Board at the beginning of any two-year period, and any new directors
whose election or nomination for election was approved by a vote of at least a
majority of the directors then in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved, cease to constitute at least a majority of the Lodgian
Board; (iii) the shareholders of Lodgian approve a merger or consolidation in
which Lodgian's voting securities do not continue to represent at least a
majority of the surviving entity; or (iv) the shareholders approve a
reorganization, liquidation, or sale of all or substantially all of Lodgian's
assets.
AMENDMENT. The Lodgian 1998 Short-Term Incentive Compensation Plan may
be amended by the Lodgian Board upon a recommendation of the Committee, except
that, without approval of the shareholders, the Board or Committee may not
change (i) the performance measures with respect to Bonus Awards to Covered
Employees, (ii) the individuals or class of individuals eligible to participate
or (iii) the maximum amount payable to a Covered Employee under the Plan.
EFFECTIVENESS. If the Plan is approved by the shareholders, it will be
effective in the form approved with respect to Bonus Awards to be earned during
1998 and thereafter.
NEW PLAN BENEFITS. With the exception of Bonus Awards to Covered
Employees, Bonus Awards under the Lodgian 1998 Short-Term Incentive Compensation
Plan will be authorized by the Committee in its sole discretion. For this
reason, it is not possible to determine the benefits or amounts that will be
received by any particular employee or group of employees in the future. In
addition, because Bonus Awards made under the Lodgian 1998 Short-Term Incentive
Compensation Plan to Covered Employees for any particular fiscal year will be
determined using performance targets that are determined by the Committee at the
beginning of that fiscal year, and the amount, if any, payable to any Covered
Employee will depend on the extent to which such performance targets are
satisfied, it is not possible to determine the benefits or amounts that will be
received by any particular Covered Employee for the current fiscal year or any
fiscal year in the future.
FEDERAL INCOME TAX CONSEQUENCES
BONUS AWARDS. The payment of a Bonus Award, whether such Bonus Award is
paid in cash or shares of Lodgian Common Stock, will result in immediate
recognition of ordinary income by an employee in an amount equal to the amount
of such Award, and Lodgian will receive a tax deduction equal to the amount of
such income. If a Bonus Award is paid in Lodgian Common Stock, such stock will
be valued at its fair market value on the date of payment. Gain or loss upon a
subsequent sale of any shares of Lodgian Common Stock that are paid as a Bonus
Award will be taxed as capital gain or loss (long-term or short-term, depending
upon the holding period of the stock sold).
THE BOARD OF SERVICO AND THE IMPAC MANAGER RECOMMEND THAT THEIR
RESPECTIVE SHAREHOLDERS AND UNITHOLDERS VOTE FOR APPROVAL
OF THE LODGIAN 1998 SHORT-TERM INCENTIVE COMPENSATION PLAN
THE LODGIAN 1998 STOCK INCENTIVE PLAN
The Servico Board and Impac Manager have recommended the Lodgian 1998
Stock Incentive Plan for approval by their respective shareholders.
The Lodgian 1998 Stock Incentive Plan was authorized by the Servico
Board on [_______] and by the Impac Manager on [__________], 1998 and is subject
to approval by their respective shareholders and unitholders. A copy of the
Lodgian 1998 Stock Incentive Plan is attached hereto as Appendix E and the
following summary is qualified in its entirety by reference thereto.
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PURPOSES AND ELIGIBILITY. The purposes of the Lodgian 1998 Stock
Incentive Plan are to attract, retain and motivate officers and other key
employees and consultants of Lodgian and its subsidiaries, to compensate them
for their contributions to the growth and profits of Lodgian and to encourage
ownership by them of stock of Lodgian. The Lodgian 1998 Stock Incentive Plan
authorizes the issuance of certain awards ("Awards") to such individuals
(referred to in the Lodgian 1998 Stock Incentive Plan as "Eligible
Individuals"). As of [_________]. 1998, Lodgian estimates that there will be
approximately [______] Eligible Individuals.
SHARES AVAILABLE UNDER THE LODGIAN 1998 STOCK INCENTIVE PLAN. An
aggregate of 3,000,000 shares of Lodgian Common Stock are authorized for
issuance under the Lodgian 1998 Stock Incentive Plan, which amount will be
proportionately adjusted in the event of certain changes in Lodgian's
capitalization, a merger, or a similar transaction. Such shares may be treasury
shares or newly issued shares or a combination thereof.
In addition to this overall limit, in accordance with the requirements
of Section 422 of the Code, the Lodgian 1998 Stock Incentive Plan limits the
number of shares that may be subject to incentive stock options to 3,000,000
shares. In accordance with the requirements of the regulations under Section
162(m) of the Code, the Lodgian 1998 Stock Incentive Plan limits the number of
shares that may be granted to an individual participant in any fiscal year of
Lodgian to 250,000 shares.
ADMINISTRATION. The Committee or other committee appointed by the
Lodgian Board will administer the Lodgian 1998 Stock Incentive Plan, approve the
Eligible Individuals who will receive Awards, determine the form and terms of
the Awards and have the power to fix and accelerate vesting periods. Subject to
certain limitations, the Committee may from time to time delegate some or all of
its authority to an administrator consisting of one or more members of the
Committee or one or more officers of Lodgian.
AWARDS - GENERAL. The Lodgian 1998 Stock Incentive Plan authorizes a
broad array of Awards based on Lodgian's Common Stock, including (i) stock
awards consisting of one or more shares of Lodgian Common Stock granted or
offered for sale to Eligible Individuals ("Stock Awards"), (ii) stock options
("Stock Options"), (iii) stock appreciation rights ("SARs"), which may be
granted in tandem with or independently of Stock Options, (iv) conditional
awards which may be earned upon the satisfaction of certain specified
performance criteria ("Performance Share Awards") and (v) other forms of
equity-based or equity-related awards which the Committee determines to be
consistent with the purposes of the Lodgian 1998 Stock Incentive Plan and the
interests of Lodgian ("Other Awards"). Such Other Awards may also include cash
payments which may be based on one or more criteria determined by the Committee
which are unrelated to the value of Lodgian's Common Stock.
The vesting, exercisability, payment and other restrictions applicable
to an Award (which may include, without limitation, restrictions on
transferability or provision for mandatory resale to Lodgian) shall be
determined by the Committee. The Committee may accelerate (i) the vesting or
payment of any Award, (ii) the lapse of restrictions on any Award or (iii) the
date on which any Stock Option or SAR first becomes exercisable. The Committee
shall also have a full authority to determine the effect, if any, that a
participant's termination of employment will have on the vesting,
exercisability, payment or lapse of restrictions applicable to an outstanding
Award.
Lodgian may require a participant to pay a sum to Lodgian as may be
necessary to cover any taxes or other charges imposed on Lodgian with respect to
property or income received by a participant pursuant to the Lodgian 1998 Stock
Incentive Plan. Lodgian may offer loans to participants to satisfy withholding
requirements on such terms as the Committee may determine.
No Awards shall be made under the Lodgian 1998 Stock Incentive Plan
after the tenth anniversary of the date on which the Lodgian 1998 Stock
Incentive Plan is approved by the shareholders of Servico and unitholders of
Impac.
AWARDS - STOCK AWARDS. Recipients of Stock Awards are entitled to
exercise voting rights and receive dividends with respect to the shares of
Lodgian Common Stock underlying such Awards upon receipt of such Awards.
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AWARDS - STOCK OPTIONS. An award of Stock Options may consist of either
nonqualified stock options or incentive stock options. A Stock Option entitles
the participant to acquire a specified number of shares of Lodgian Common Stock
at an exercise price determined by the Committee, which generally may not be
less than the fair market value of the shares on the date of award of the Stock
Option. The exercise price may be paid in cash or previously owned stock or a
combination thereof. In addition, Lodgian intends to establish a "cashless
exercise" procedure that will afford participants the opportunity to sell
immediately some or all of the shares underlying the exercised portion of a
Stock Option in order to generate sufficient cash to pay the exercise price
and/or to satisfy withholding tax obligations related to the Stock Option. Stock
Options expire no later than ten years from the date of grant.
AWARDS - STOCK APPRECIATION RIGHTS. Recipients of SARs are entitled to
receive an amount, if any, equal to the fair market value of a share of Lodgian
Common Stock on the date of exercise over the SAR exercise price specified in
the applicable award agreement. At the discretion of the Committee, payments to
a participant upon exercise of an SAR may be made in shares, cash or a
combination thereof. An SAR may be granted alone or in addition to other Awards,
or in tandem with a Stock Option.
AWARDS - PERFORMANCE SHARE AWARDS. A Performance Share Award will
entitle a participant to receive a specified number of shares, an equivalent
amount of cash or a combination thereof upon satisfaction of certain specified
performance criteria. Payment in settlement of a Performance Share Award shall
be made as soon as practicable following the conclusion of the applicable
performance period, or at another time determined by the Committee.
AWARDS TO SECTION 162(M) OFFICERS. Section 162(m) of the Code limits
the deductibility of compensation in excess of $1,000,000 paid to the chief
executive officer and the four other most highly compensated officers of a
public company, as determined pursuant to the rules of the SEC, unless the
payments are made under qualifying performance-based plans and upon the
attainment of certain performance goals. The Lodgian 1998 Stock Incentive Plan
contains special provisions that are intended to enable the Committee, if it so
chooses, to make Awards to Lodgian officers who are subject to Section 162(m) of
the Code ("Section 162(m) Officers") that will qualify as "qualified
performance-based compensation" for purposes of Section 162(m) of the Code.
Section 162(m) Awards may consist of Stock Options, SARs, Stock Awards,
Performance Share Awards or Other Awards the vesting, exercisability and/or
payment of which is conditioned upon the attainment for the applicable
performance period of specified performance targets related to designated
performance goals for such period selected by the Committee. Performance goals
will be selected from among the following performance criteria: (i) net revenue,
(ii) net earnings, (iii) operating earnings or income, (iv) absolute and/or
relative return on equity or assets, (v) earnings per share, (vi) cash flow,
(vii) pretax profits, (viii) earnings growth, (ix) revenue growth, (x) book
value per share, (xi) stock price and (xii) performance relative to peer
companies, each of which may be established on a corporate-wide basis or
established with respect to one or more operating units, divisions, acquired
businesses, minority investments, partnerships or joint ventures.
In addition to the foregoing, the Committee may also grant Section
162(m) Officers Stock Options or SARs which may, pursuant to the regulations
promulgated under Section 162(m), be qualified as performance-based compensation
for Section 162(m) purposes without regard to the foregoing.
CHANGE IN CONTROL. In the event of a Change in Control of Lodgian,
except as the Committee otherwise determines, all outstanding Stock Options and
SARs will become fully exercisable, all restrictions and conditions of all
outstanding Stock Awards will lapse, all Performance Share Awards will be deemed
to have been fully earned, and, in the case of a Change in Control in which
Lodgian does not survive or becomes a wholly owned subsidiary of another entity,
outstanding Stock Options that are not exercised as of the date of the Change in
Control will be converted into options to purchase common stock or similar
equity interests of the acquiror. A Change in Control under the Lodgian 1998
Stock Incentive Plan is defined as it is defined for purposes of the Lodgian
1998 Short-Term Incentive Compensation Plan.
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AMENDMENT. The Lodgian Board or the Committee may amend or terminate
the Lodgian 1998 Stock Incentive Plan at any time, except that shareholder
approval is required to increase the maximum number of shares issuable under the
Plan. No amendment or termination may adversely affect a participant's rights
with respect to previously granted Awards without his or her consent.
NEW PLAN BENEFITS. Awards under the Lodgian 1998 Stock Incentive Plan
will be authorized by the Committee in its sole discretion. For this reason it
is not possible to determine the benefits or amounts that will be received by
any particular employees or group of employees in the future.
FEDERAL INCOME TAX CONSEQUENCES
NONQUALIFIED STOCK OPTIONS. The grant of a nonqualified stock option
will not result in the recognition of taxable income by the participant or in a
deduction to Lodgian. Upon exercise, a participant will recognize ordinary
income in an amount equal to the excess of the fair market value of the Lodgian
Common Stock on the date of exercise over the exercise price. Lodgian is
required to withhold tax on the amount of income so recognized, and a tax
deduction is allowable equal to the amount of such income (subject to the
satisfaction of certain conditions in the case of Stock Options exercised by
Section 162(m) Officers). Gain or loss upon a subsequent sale of any Lodgian
Common Stock received upon the exercise of a nonqualified stock option generally
would be taxed as capital gain or loss (long-term or short-term, depending upon
the holding period of the stock sold). Certain additional rules apply if the
exercise price for an option is paid in shares previously owned by the
participant.
INCENTIVE STOCK OPTIONS. Upon the grant or exercise of an incentive
stock option within the meaning of Section 422 of the Code, no income will be
realized by the participant for federal income tax purposes and Lodgian will not
be entitled to any deduction. However, the excess of the fair market value of
the Lodgian Common Stock as of the date of exercise over the exercise price will
constitute an adjustment to taxable income for purposes of the alternative
minimum tax. If the shares of Lodgian Common Stock are not disposed of within
the one-year period beginning on the date of the transfer of such shares to the
participant, nor within the two-year period beginning on the date of grant of
the Stock Option, any profit realized by the participant upon the disposition of
such shares will be taxed as long-term capital gain and no deduction will be
allowed to Lodgian. If the shares of Lodgian Common Stock are disposed of within
the one-year period from the date of transfer of such shares to the participant
or within the two-year period from the date of grant of the Stock Option, the
excess of the fair market value of the shares upon the date of exercise or, if
less, the fair market value on the date of disposition over the exercise price
will be taxable as ordinary income of the participant at the time of
disposition, and a corresponding deduction will be allowable. Certain additional
rules apply if the exercise price for an option is paid in shares previously
owned by the participant. If a Stock Option intended to qualify as an incentive
stock option is exercised by a person who was not continually employed by
Lodgian or certain of its affiliates from the date of grant of such Stock Option
to a date not more than three months prior to such exercise (or one year if such
person is disabled), then such Stock Option will not qualify as an incentive
stock option and will instead be taxed as a nonqualified stock option, as
described above.
STOCK AWARDS. A participant who is awarded a Stock Award will not be
taxed at the time of award unless the participant makes a special election with
the IRS pursuant to Section 83(b) of the Code as discussed below. Upon lapse of
the risk of forfeiture or restrictions on transferability applicable to the
Lodgian Common Stock comprising the Stock Award, the participant will be taxed
at ordinary income tax rates on the then fair market value of the Lodgian Common
Stock and a corresponding deduction will be allowable (subject to the
satisfaction of certain conditions in the case of Stock Awards granted to
Section 162(m) Officers). In such case, the participant's basis in the Lodgian
Common Stock will be equal to the ordinary income so recognized. Upon subsequent
disposition of such Lodgian Common Stock, the participant will realize capital
gain or loss (long-term or short-term, depending upon the holding period of the
stock sold).
Pursuant to Section 83(b) of the Code, the participant may elect within
30 days of receipt of the Stock Award to be taxed at ordinary income tax rates
on the fair market value of the Lodgian Common Stock comprising such Stock Award
at the time of award (determined without regard to any restrictions which may
lapse). In that case, the
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participant will acquire a basis in such Lodgian Common Stock equal to the
ordinary income recognized by the participant at the time of award. No tax will
be payable upon lapse or release of the restrictions or at the time the Lodgian
Common Stock first becomes transferable, and any gain or loss upon subsequent
disposition will be a capital gain or loss. In the event of a forfeiture of
Lodgian Common Stock with respect to which a participant previously made a
Section 83(b) election, the participant will not be entitled to a loss
deduction.
PERFORMANCE SHARE AWARDS. A participant who receives a Performance
Share Award will be taxed at ordinary income tax rates on the then fair market
value of the shares of Lodgian Common Stock distributed at the time of payment
in settlement of such Performance Share Award and a corresponding deduction will
be allowable to Lodgian at that time (subject to the satisfaction of certain
conditions in the case of Performance Share Awards granted to Section 162(m)
Officers). The participant's basis in the shares of Lodgian Common Stock will be
equal to the amount taxed as ordinary income, and on subsequent disposition the
participant will realize capital gain or loss (long-term or short-term,
depending upon the holding period of the stock sold).
THE SERVICO BOARD AND THE IMPAC MANAGER RECOMMEND THAT THEIR
RESPECTIVE SHAREHOLDERS AND UNITHOLDERS VOTE FOR APPROVAL
OF THE LODGIAN 1998 STOCK INCENTIVE PLAN
THE LODGIAN NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Servico Board and Impac Manager have recommended the Lodgian
Non-Employee Directors' Stock Plan for approval by their respective shareholders
and unitholders.
The Lodgian Non-Employee Directors' Stock Plan was authorized by the
Servico Board on ___________, 1998 and by the Impac Manager on ___________ ,1998
and is subject to approval by their respective shareholders and unitholders. A
copy of the Lodgian Non-Employee Directors' Stock Plan is attached hereto as
Appendix F and the following summary is qualified in its entirety by reference
thereto.
PURPOSES AND ELIGIBILITY. The purposes of the Lodgian Non-Employee
Directors' Stock Plan are to help Lodgian retain as directors qualified persons
who are not employees of Lodgian or its subsidiaries and to secure for Lodgian
the inherent benefit of increased stock ownership by such directors. Only
directors who are not employees of Lodgian or any of its subsidiaries may
participate in the Lodgian Non-Employee Directors' Stock Plan.
SHARES AVAILABLE UNDER THE NON-EMPLOYEE DIRECTORS' STOCK PLAN. A total
of 300,000 shares of Lodgian Common Stock will be reserved for issuance under
the Non-Employee Directors' Stock Plan, which amount will be proportionately
adjusted in the event of certain changes in Lodgian's capitalization, a merger,
or a similar transaction. Shares issued pursuant to the Lodgian Non-Employee
Directors' Stock Plan may be either authorized but unissued shares, treasury
shares or a combination thereof.
ADMINISTRATION. The Lodgian Non-Employee Directors' Stock Plan will be
administered by a committee consisting exclusively of members of the Lodgian
Board who are not non-employee directors. The committee will have authority to
adopt such rules as it deems necessary to carry out the purposes of the Lodgian
Non-Employee Directors' Stock Plan and to construe and interpret the Plan.
DIRECTOR OPTION GRANTS. The Lodgian Non-Employee Directors' Stock Plan
provides for automatic, non- discretionary grants of nonqualified stock options
("Director Options") to non-employee directors. Each non-employee director will
receive, at each annual meeting of Lodgian stockholders commencing with the
annual meeting held in 1999, an option to purchase 5,000 shares of Lodgian
Common Stock. All Director Options will have a per share exercise price equal to
the fair market value of the shares on the date of award. Such exercise price
may be paid in cash or previously owned stock or a combination thereof. No
discretionary grants of stock options are permitted under the Lodgian
Non-Employee Directors' Stock Plan.
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All options granted pursuant to the Lodgian Non-Employee Directors'
Stock Plan will vest in equal installments on each of the first three annual
meetings following the date of grant. Notwithstanding this vesting schedule, a
Director Option will become fully vested and exercisable upon a non-employee
director's termination of service due to death, disability or retirement in
accordance with the retirement policy for non-employee directors then in effect.
All Director Options expire ten years from the date of grant. If a
non-employee director's service as a member of the board of directors terminates
due to death, disability or retirement, all Director Options must be exercised
within one year following such termination. If a non-employee director's service
as a member of the board of directors terminates for any other reason, such
non-employee director must exercise any Director Options that have vested as of
the date of such termination within the six month period following such
termination and all Director Options that have not vested as of the date of such
termination will immediately expire.
DIRECTOR SHARES. A non-employee director may elect to receive all or a
specific percentage of his or her cash fees payable for service on the Board or
any committee thereof in shares of Lodgian Common Stock (the "Director Shares"),
in lieu of cash compensation. The number of shares of Lodgian Common Stock so
awarded to each non-employee director will be determined by dividing the portion
of such non-employee director's fees to be paid in Lodgian Common Stock by the
fair market value of a share of Lodgian Common Stock on the date of award.
AMENDMENT. The Lodgian Board may amend or terminate the Lodgian
Non-Employee Directors' Stock Plan at any time, except that shareholder approval
is required to increase the maximum number of shares issuable under the Lodgian
Non-Employee Directors' Stock Plan. The consent of a non-employee director is
required to the extent that any amendment or termination would adversely affect
such non-employee director's rights with respect to any previously granted
Director Option or would result in the distribution of amounts credited to such
non-employee director's deferred compensation account or could reasonably be
expected to result in the immediate taxation of amounts deferred in a
non-employee director's deferred compensation account.
NEW PLAN BENEFITS. The Lodgian Non-Employee Directors' Stock Plan
provides for automatic option grants to each non-employee director with respect
to 5,000 shares of Lodgian Common Stock on the date of each annual meeting of
Lodgian shareholders commencing with the annual meeting held in 1999.
FEDERAL INCOME TAX CONSEQUENCES
DIRECTOR SHARES. A grant of Director Shares will result in the
recognition of taxable income by a non-employee director and in a deduction to
Lodgian. Gain or loss upon a subsequent sale of Director Shares will be taxed as
capital gain or loss (long-term or short-term, depending upon the holding period
of the stock sold).
DIRECTOR OPTION GRANTS. The grant of a stock option to a non-employee
director will not result in the recognition of taxable income by the
non-employee director or in a deduction to Lodgian. Upon exercise, a
non-employee director will recognize ordinary income in an amount equal to the
excess of the fair market value of the Lodgian Common Stock purchased over the
exercise price, and a tax deduction is allowable to Lodgian equal to the amount
of such income. Gain or loss upon a subsequent sale of any Lodgian Common Stock
received upon the exercise of a stock option generally would be taxed as capital
gain or loss (long-term or short-term, depending upon the holding period of the
stock sold). Certain additional rules apply if the exercise price for an option
is paid in shares previously owned by the non-employee director.
THE SERVICO BOARD AND THE IMPAC MANAGER RECOMMEND THAT THEIR
RESPECTIVE SHAREHOLDERS AND UNITHOLDERS VOTE FOR APPROVAL
OF THE LODGIAN NON-EMPLOYEE DIRECTORS' STOCK PLAN.
-138-
<PAGE> 157
PROPOSAL TO AMEND THE SERVICO STOCK OPTION PLAN
DESCRIPTION OF THE SERVICO STOCK OPTION PLAN
The Servico Plan was established by Servico in 1992 to provide Servico
with an effective means to attract, retain, and motivate employees of Servico.
Amendments to the Servico Plan were adopted by the Board of Directors in April
1994, February 1995 and April 1997 and approved by the shareholders of Servico
in June 1994, May 1995 and May 1997, respectively. Such amendments increased the
number of shares issuable pursuant to the Servico Plan from 1,000,000 to
1,675,000 shares, revised the Servico Plan in an attempt to meet the
requirements for deductibility under the Code, eliminated the automatic vesting
of options upon the occurrence of certain events and modified the provision
which provides for the automatic grant of options to non-employee directors of
Servico.
A maximum of 1,675,000 shares of Servico Common Stock were issuable
under the Servico Plan, and no shares currently remain available for issuance
under the Servico Plan. In August, 1997, Servico granted stock options with
respect to 590,000 shares to certain of its officers and directors which,
because the Servico Plan did not have enough shares available for issuance, were
granted subject to approval of an amendment to the Servico Plan. In the event
the Merger is approved, the Lodgian Plans are expected to replace the Servico
Plan and, in such case, no further options will be granted under the Servico
Plan. The outstanding options granted under the Servico Plan, including those
granted in August, 1997, if this Amendment is adopted, will automatically
convert into options to acquire Lodgian stock upon effectiveness of the Merger.
As described below, Servico shareholders are being asked to amend the Servico
Plan to increase the number of shares available for issuance under the Servico
Plan to 3,250,000. In the event the Merger is consummated, no further options
will be granted pursuant to the Servico Plan. The Board of Directors recommends
a vote "for" the amendment of the Servico Plan.
The Servico Plan is administered by the Stock Option Committee of
Servico's Board of Directors within the meaning of Section 162(m) of the Code.
The Stock Option Committee has the authority to interpret the provisions of the
Servico Plan and to make all determinations deemed necessary or advisable for
its administration.
The Servico Plan provides for the issuance of incentive stock options
within the meaning of Section 422 of the Code and nonqualified stock options not
intended to meet the requirements of Section 422 of the Code. Incentive stock
options may be granted to employees of Servico and its subsidiaries, and
non-qualified options may be granted to employees, directors, independent
contractors and agents of Servico and its subsidiaries. Subject to the terms of
the Servico Plan, the Stock Option Committee determines the employees to whom
grants are made and the vesting, timing, amounts and other terms of such grants.
Stock options exercisable in one calendar year for shares with a fair market
value on the date of grant in excess of $100,000 will not be treated as
incentive stock options. Additionally, the Servico Plan limits the number of
stock options (whether incentive stock options or non-qualified aggregate
option) which may be granted to any individual employee in any given year to
options covering not more than 125,000 shares of Servico Common Stock.
Pursuant to the terms of the Servico Plan, the exercise price of
options may not be less than the fair market value of the Servico Common Stock
on the date of grant, except that the exercise price of any incentive stock
option granted to the holder of more than 10% of the outstanding Servico Common
Stock may not be less than 110% of the fair market value of the Servico Common
Stock on the date of grant. The term of each option may not exceed ten years,
except the term of any incentive stock option granted to the holder of more than
10% of the outstanding Servico Common Stock may not exceed five years. The
option price may be paid in cash, promissory note, shares of Servico Common
Stock or any other consideration acceptable to the Stock Option Committee. The
Servico Plan sets forth additional provisions with respect to the exercise of
options by an optionee upon the termination of employment and upon death or
disability.
The Servico Plan provides for an automatic grant of non-qualified
options to acquire 5,000 shares of Servico Common Stock to non-employee
directors on the date such director's term of office commences and each year
thereafter on the day following any annual meeting of shareholders, so long as
such person's term as a director is
-139-
<PAGE> 158
continuing for the ensuing year. The exercise price of such options is equal to
the fair market value of the Servico Common Stock on the date of the grant, and
the number of options granted is subject to adjustment upon certain changes in
Servico's capitalization.
The number of shares of Servico Common Stock covered by outstanding
options, the number of shares of Servico Common Stock available for issuance
under the Servico Plan, and the exercise price per share of outstanding options,
will be proportionately adjusted for any increase or decrease in the number of
issued shares of Servico Common Stock resulting from a stock split or stock
dividend. Unless otherwise provided by the Stock Option Committee or the Board
of Directors, all outstanding options terminate immediately prior to the
consummation of a dissolution or liquidation of Servico, or sale of all or
substantially all of the assets of Servico, or the merger of Servico with or
into another corporation. Upon the occurrence of any of the events described in
the preceding sentence, the Stock Option Committee or the Board of Directors of
Servico may, in their discretion, grant optionees the right to exercise options
as to all or any part of the optioned stock, including shares which the option
would not otherwise be exercisable. The Merger Agreement provides that each
unexercised option outstanding under the Servico Plan will be assumed by Lodgian
in the Merger and converted into an option to purchase shares of Lodgian Common
Stock.
The Stock Option Committee may amend or terminate the Servico Plan,
except that shareholder approval is required to increase the number of shares of
Servico Common Stock subject to the Servico Plan, to change the class of persons
eligible to participate in the Servico Plan, or to materially increase the
benefits accruing to participants under the Servico Plan.
All employees, directors, independent contractors and agents of Servico
are eligible to receive stock options under the Servico Plan. As of March 31,
1998, Servico had four non-employee directors and approximately 4,860 full-time
employees.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option has no
immediate tax consequences to the optionee or to Servico. The exercise of an
incentive stock option generally has no immediate tax consequences to the
optionee (except to the extent it is an adjustment in computing alternative
minimum taxable income) or to Servico. If an optionee holds the shares acquired
pursuant to the exercise of an incentive stock option for the required holding
period, the optionee generally recognizes long-term capital gain or loss upon a
subsequent sale of the shares in the amount of the difference between the amount
realized upon the sale and the exercise price of the shares. In such a case,
Servico is not entitled to a deduction in connection with the grant or exercise
of the incentive stock option or the sale of shares acquired pursuant to such
exercise. If, however, an optionee disposes of the shares prior to the
expiration of the required holding period, the optionee recognizes ordinary
income equal to the excess of the fair market value of the shares on the date of
exercise (or the proceeds of disposition, if less) over the exercise price, and
Servico is entitled to a corresponding deduction if applicable withholding
requirements are satisfied. The required holding period is two years from the
date of grant and one year after the date the shares are issued.
NONQUALIFIED OPTIONS. The grant of a non-qualified stock option has no
immediate tax consequences to the optionee or Servico. Upon the exercise of a
non-qualified stock option, the optionee recognizes ordinary income in an amount
equal to the excess of the fair market value of the shares on the date of
exercise over the exercise price, and Servico is entitled to a corresponding
deduction if applicable withholding requirements are satisfied. The optionee's
tax basis in the shares is the exercise price plus the amount of ordinary income
recognized by the optionee, and the optionee's holding period will commence on
the date the shares are received. Upon a subsequent sale of the shares, any
difference between the optionee's tax basis in the shares and the amount
realized on the sale is treated as long-term or short-term capital gain or loss,
depending on the holding period of the shares and assuming the shares are held
as capital assets.
-140-
<PAGE> 159
OPTIONS GRANTED UNDER THE PLAN
As of March 31, 1998, options to purchase 1,512,700 shares of Servico
Common Stock were outstanding and exercisable at exercise prices ranging from
$4.00 per share to $16.81 per share (in each case equal to or in excess of the
fair market value of the Servico Common Stock as of the dates of grant). No
shares of Servico Common Stock are presently available for grant under the
Servico Plan. As of ________, 1998, the last reported sales price of the Servico
Common Stock on the NYSE composite tape was $_______.
The table below indicates, as of March 31, 1998, the aggregate number
of options granted under the Servico Plan since its inception to the persons and
groups indicated, and the number of outstanding options held by such persons and
groups as of such date.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR GROUP POSITION WITH SERVICO GRANTED OUTSTANDING
--------------------------- --------------------- ------- -----------
<S> <C> <C> <C>
David Buddemeyer President and Chief Executive 468,500 423,500
Officer
Karyn Marasco Executive Vice President and 112,500 112,500
Chief Operating Officer
Charles M. Diaz Vice President - Administration 30,000 29,000
and Secretary
Warren M. Knight Vice President-Finance and Chief 173,500 173,500
Financial Officer
Peter J. Walz Vice President-Acquisitions 102,500 102,500
Robert D. Ruffin Former Vice President - 111,000 18,500
Administration and Secretary
Joseph C. Calabro Director 35,000 35,000
Michael A. Leven Director 5,000 5,000
Peter R. Tyson Director 35,000 35,000
Richard H. Weiner Director 35,000 35,000
All Current Executive Officers 887,000 841,000
All Current Directors who are not 110,000 110,000
Executive Officers
All Current Employees, other than 522,200 495,600
Current Executive Officers
</TABLE>
AMENDMENT TO THE PLAN
On August 27, 1997, the Servico Board unanimously approved, subject to
the approval of Servico's shareholders, to amend the Servico Plan to increase
the number of shares issuable pursuant to the Servico Plan from 1,675,000 shares
to 3,250,000 shares. The purpose of increasing the number of shares available
for issuance under the Servico Plan is to authorize the issuance of 590,000
options previously granted and to ensure that Servico will continue to be able
to grant options as incentives to those individuals upon whose efforts Servico
relies for the continued success and development of its business.
-141-
<PAGE> 160
LEGAL MATTERS
The validity of the shares of Lodgian Common Stock to be issued in
connection with the Merger and the tax consequences of the Merger to Servico and
its shareholders will be passed upon by Stearns Weaver Miller Weissler Alhadeff
& Sitterson, P.A., Miami, Florida. The tax consequences of the Merger to Impac
and its unitholders will be passed upon by Powell Goldstein Frazer & Murphy,
LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of Servico, Inc. appearing in
Servico, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1997,
incorporated by reference in the Joint Proxy Statement/Prospectus of Servico,
Inc. and Impac Hotel Group., L.L.C., have been audited by Ernst & Young LLP,
independent certified public accountants, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
Additionally, the balance sheet of Lodgian, Inc. at April 17, 1998,
included in the Joint Proxy Statement/Prospectus of Servico, Inc. and Impac
Hotel Group, L.L.C., has been audited by Ernst & Young LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated and combined financial statements of Impac Hotel
Group, L.L.C. and its Predecessors and Impac Hotel Development, Inc. as of
December 31, 1997 and 1996 and for the three years ended December 31, 1997
included in this Joint Proxy Statement/Prospectus have been included herein in
reliance on the report of Pricewaterhouse Coopers L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
SHAREHOLDER PROPOSALS
Management of Servico knows of no other matters that may properly be,
or which are likely to be, brought before the Servico Annual Meeting. However,
if any other matters are properly brought before such Meeting, the persons named
in the enclosed proxy or their substitutes will vote the proxies in accordance
with the recommendations of management, unless such authority is withheld.
If the Merger is consummated as expected, Servico will not hold an
annual meeting in 1999. If the Merger is not approved by the holders of Servico
Common Stock or is not consummated for any other reason, proposals submitted by
shareholders for presentation at the 1999 annual meeting must be received by
Servico no later than _______, 1999 for inclusion, if appropriate, in Servico's
proxy statement and form of proxy relating to that annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
Servico files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information Servico files at the SEC's public reference
rooms in Washington, DC, New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Servico's SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
-142-
<PAGE> 161
Lodgian has filed a Registration Statement on Form S-4 (the
"Registration Statement") to register with the SEC the Lodgian Common Stock to
be issued to Servico shareholders and Impac unitholders in the Merger. This
Joint Proxy Statement/Prospectus is a part of the Registration Statement and
constitutes a prospectus of Lodgian in addition to being a proxy statement of
Servico for the Servico Annual Meeting and Impac for the solicitation of Impac
unitholder consents. As allowed by SEC rules, this Joint Proxy
Statement/Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement, which are
incorporated herein by reference.
The SEC allows Servico to "incorporate by reference" information into
this Joint Proxy Statement/Prospectus, which means that Servico can disclose
important information to you by referring to another document filed separately
with the SEC. The information incorporated by reference is deemed to be part of
this Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that Servico has previously filed with the SEC. These documents contain
important information about Servico and its finances.
<TABLE>
<CAPTION>
SERVICO SEC FILING (FILE NO. 1-11342) PERIOD OR DATE FILED
- ------------------------------------- --------------------
<S> <C>
Annual Report on Form 10-K, as amended Year ended December 31, 1997/
on Form 10-K/A 10-K/A filed on March 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1998
Current Report on Form 8-K, dated
March 20, 1998 Filed on March 26, 1998
Current Report on Form 8-K, dated
June 8, 1998 Filed on June 9, 1998
</TABLE>
Servico also incorporates by reference additional documents that it
files with the SEC between the date of this Joint Proxy Statement/Prospectus and
the date of the Servico Annual Meeting.
Servico has supplied all information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus relating to Servico and Impac
has supplied all information contained in this Joint Proxy Statement/Prospectus
relating to Impac.
If you are a shareholder of Servico, Servico may have sent you some of
the documents incorporated by reference, but you can obtain any of them through
Servico or the SEC. Documents incorporated by reference are available from
Servico without charge, excluding all exhibits unless such exhibits have been
specifically incorporated by reference in this Joint Proxy Statement/Prospectus.
Shareholders of Servico and unitholders of Impac may obtain documents
incorporated by reference in this Joint Proxy Statement/Prospectus by requesting
them in writing or by telephone from Mr. Warren M. Knight, Vice
President-Finance, Servico, Inc., 1601 Belvedere Road, West Palm Beach, Florida,
33406; telephone (561) 689-9970.
If you would like to request documents from Servico, please do so by
[ ], 1998 to receive them before the meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE PROPOSALS SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS. NEITHER SERVICO NOR IMPAC HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DATED ________, 1998. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF
ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR THE ISSUANCE OF LODGIAN COMMON STOCK IN THE MERGER
SHALL BE DEEMED TO CREATE ANY IMPLICATION TO THE CONTRARY.
-143-
<PAGE> 162
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Lodgian, Inc.
Report of Independent Certified Public Accountants........................................F-2
Balance Sheet as of April 17, 1998........................................................F-3
Note to Balance Sheet.....................................................................F-4
Impac Hotel Group, L.L.C.
Report of Independent Accountants.........................................................F-5
Consolidated and Combined Balance Sheets as of December 31, 1997 and 1996.................F-6
Consolidated and Combined Statements of Operations for the years ended
December 31, 1997, 1996 and 1995..........................................................F-7
Consolidated and Combined Statements of Equity for the years ended
December 31, 1997, 1996 and 1995..........................................................F-8
Consolidated and Combined Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995..........................................................F-9
Notes to Consolidated and Combined Financial Statements..................................F-10
Report of Independent Accountants........................................................F-18
Consolidated and Combined Balance Sheets as of March 31, 1998
and December 31, 1997....................................................................F-19
Consolidated and Combined Condensed Statements of Operations
for the three months ended March 31, 1998 and 1997.......................................F-20
Consolidated and Combined Condensed Statements of Equity for the years
ended December 31, 1997, 1996 and the three months ended March 31, 1998 and 1997.........F-21
Consolidated and Combined Condensed Statements of Cash Flows for the
three months ended March 31, 1998 and 1997...............................................F-22
Notes to Consolidated and Combined Condensed Financial Statements........................F-23
</TABLE>
F-1
<PAGE> 163
Report of Independent Certified Public Accountants
The Stockholder
Lodgian, Inc.
We have audited the accompanying balance sheet of Lodgian, Inc. (the
Company) as of April 17, 1998. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the balance
sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Lodgian, Inc. at April 17,
1998, in conformity with generally accepted accounting principles.
West Palm Beach, Florida /s/ ERNST & YOUNG, LLP
April 20, 1998
F-2
<PAGE> 164
LODGIAN, INC.
BALANCE SHEET
APRIL 17, 1998
Assets:
Cash....................................................... $ 1,000
=========
Stockholder's equity:
Preferred stock, $.01 par value 25,000,000
shares authorized, 0 issued and outstanding.............. $ --
Common stock, $.01 par value, 75,000,000
shares authorized, 1,000 issued and outstanding.......... 10
Additional paid-in capital................................. 990
---------
$ 1,000
=========
See accompanying note.
F-3
<PAGE> 165
LODGIAN, INC.
NOTE TO BALANCE SHEET
APRIL 17, 1998
1. ORGANIZATION AND BUSINESS
Lodgian, Inc. ("Lodgian" or the "Company") was incorporated under the laws of
the State of Delaware on February 11, 1998. The authorized capital stock of the
Company consists of 25,000,000 shares of preferred stock $.01 par value and
75,000,000 shares of common stock $.01 par value. There are 1,000 shares of
common stock issued and outstanding that are 100% owned by Servico, Inc.
("Servico").
On March 20, 1998, Servico signed a definitive agreement with Impac Hotel Group,
L.L.C.("Impac"), a privately owned hotel company, for both Servico and Impac to
merge into the Company. Under the terms of the agreement, Servico's existing
shareholders will receive one share of Lodgian common stock for each share of
Servico common stock held by them (approximately 21,000,000 shares). The owners
of Impac, will initially receive 6,000,000 shares of Lodgian common stock and
receive an additional 1,400,000 shares upon the completion of construction of
six hotels during 1999. Lodgian will initially own and manage 140 hotels (136 of
which will be owned) with more than 26,000 rooms and operate in 35 states and
one Canadian province. The merger will be accounted for under the purchase
method of accounting and is expected to close in June 1998 subject to customary
conditions, including regulatory approvals and approval by Servico's
shareholders and Impac's unitholders.
F-4
<PAGE> 166
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Impac Hotel Group, L.L.C.
We have audited the accompanying consolidated and combined balance sheets of
Impac Hotel Group, L.L.C. and its Predecessors and Impac Hotel Development,
Inc., as defined in Note 1, as of December 31, 1997 and 1996, and the related
consolidated and combined statements of operations, equity and cash flows for
each of the three years in the period ended December 31, 1997. These
consolidated and combined financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated and combined financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
and combined financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred to
above present fairly, in all material respects, the consolidated and combined
financial position of Impac Hotel Group L.L.C. and its Predecessors and Impac
Hotel Development, Inc. as of December 31, 1997 and 1996 and the consolidated
and combined results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ PricewaterhouseCoopers, LLC
Atlanta, Georgia
April 10, 1998, except
for Note 9 as to which
the date is July 7, 1998.
F-5
<PAGE> 167
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC. (NOTE 1)
CONSOLIDATED AND COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- ------------------------
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,572 $ 10,877 $ 5,199
Cash, restricted 3,590 5,271
Accounts receivable, net 10,733 5,886 2,583
Inventories 607 585 335
Other current assets 3,796 2,807 310
-------- -------- --------
Total current assets 20,298 25,426 8,427
Property and equipment, net 399,348 378,204 175,910
Other assets, net 14,135 14,150 7,329
-------- -------- --------
$433,781 $417,780 $191,666
======== ======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 15,358 $ 16,356 $ 8,463
Accrued liabilities 9,405 9,031 6,429
Current portion of long-term obligations 1,163
-------- -------- --------
Total current liabilities 24,763 25,387 16,055
Long-term obligations, less current portion 377,427 355,236 155,851
Commitments and contingencies
Minority interests 235 187
Equity:
Impac Hotel Group, L.L.C. and predecessors:
Partners' and stockholders' equity 21,220
Members' equity 37,324 41,559
Impac Hotel Development, Inc. -
Stockholders' deficit (5,968) (4,589) (1,460)
-------- -------- --------
Total equity 31,356 36,970 19,760
-------- -------- --------
$433,781 $417,780 $191,666
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS.
F-6
<PAGE> 168
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC. (NOTE 1)
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------
1998 1997 1997 1996 1995
--------- ----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Rooms $ 25,892 $ 16,760 $ 90,139 $ 52,043 $ 42,442
Food and beverage 6,861 4,565 23,429 11,813 9,800
Other 1,818 981 6,291 3,957 3,334
--------- --------- --------- --------- ---------
Total revenue 34,571 22,306 119,859 67,813 55,576
--------- --------- --------- --------- ---------
Operating expenses:
Direct:
Rooms 6,815 4,328 28,303 16,840 12,965
Food and beverage 5,501 3,686 19,322 9,734 7,365
Other:
Administrative and general 2,777 1,702 11,467 4,306 2,439
Property management 4,022 2,305 13,273 7,642 5,517
Advertising and promotion 3,080 1,854 9,064 3,415 2,880
Utilities 2,022 1,613 7,143 4,140 3,286
Repairs and maintenance 1,857 1,349 6,573 3,455 3,289
Depreciation and amortization 3,681 2,205 11,136 5,814 3,978
Property taxes and insurance 1,690 1,073 4,779 2,957 2,214
Other 1,177 2,009 4,114 3,338 3,836
--------- --------- --------- --------- ---------
Total operating expenses 32,622 22,124 115,174 61,641 47,769
--------- --------- --------- --------- ---------
Income from operations 1,949 182 4,685 6,172 7,807
--------- --------- --------- --------- ---------
Other income (expenses):
Other income, primarily gain
on sale of hotels 143 7 271 19,701 5,049
Minority interests (48) 220 -- --
Interest expense (6,751) (3,951) (21,265) (11,809) (7,237)
--------- --------- --------- --------- ---------
Total other income (expenses) (6,656) (3,944) (20,774) 7,892 (2,188)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary
item (4,707) (3,762) (16,089) 14,064 5,619
Extraordinary item -
Loss on extinguishment of
indebtedness (13,332) (13,332)
--------- --------- --------- --------- ---------
Net income (loss) $ (4,707) $ (17,094) $ (29,421) $ 14,064 $ 5,619
========= ========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS.
F-7
<PAGE> 169
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC. (NOTE 1)
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPAC HOTEL GROUP, L.L.C. IMPAC HOTEL
AND PREDECESSORs DEVELOPMENT, INC.
--------------------------- -----------------
PARTNERS' AND
STOCKHOLDERS' MEMBERS' STOCKHOLDERS'
EQUITY EQUITY EQUITY TOTAL
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Balance At December 31, 1994 $ 5,282 $ 95 $ 5,377
Net Income (loss) 6,088 (469) 5,619
Contributions, net 12,724 300 13,024
Distributions (10,385) (10,385)
Loans To Partners (227) (227)
-------- -------- ------- --------
Balance At December 31, 1995 13,709 (301) 13,408
Net Income (loss) 15,055 (991) 14,064
Contributions, Net 19,464 2,561 22,025
Distributions (29,430) 666 (28,764)
Loans To Partners (973) (973)
-------- -------- ------- --------
Balance At December 31, 1996 18,798 962 19,760
Transfer Of Equity Into Impac Hotel Group, L.L.C. (18,798) $ 18,798
Purchase Of Limited Partners' Interest 22,700 22,700
Net Loss (26,410) (3,011) (29,421)
Issuance Of Membership Units, Net 37,810 37,810
Distributions To Members (6,039) (1,580) (7,619)
Membership Units Retired (5,300) (5,300)
Loans To Members (960) (960)
-------- -------- ------- --------
Balance At December 31, 1997 41,559 (4,589) 36,970
Net Loss (4,328) (379) (4,707)
Issuance Of Membership Units, Net 93 93
Distributions To Members (1,000) (1,000)
-------- -------- ------- --------
Balance At March 31, 1998 (Unaudited) $ $ 37,324 $(5,968) $ 31,356
======== ======== ======= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS.
F-8
<PAGE> 170
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC. (NOTE 1)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- -------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss) $ (4,707) $ (17,094) $ (29,421) $ 14,064 $ 5,619
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 3,681 2,205 11,136 5,814 3,978
Minority interest 48 (220)
Gain on sales of hotel properties (19,369) (5,354)
Loss on extinguishment of indebtedness 13,332 13,332
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable (4,847) (4,260) (3,303) (109) 713
Inventories (22) (72) (250) (66) (45)
Other assets (989) (105) (1,853) (441) (2,543)
Accounts payable and accrued expenses (623) (1,251) 11,255 4,151 5,280
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities (7,459) (7,245) 676 4,044 7,648
--------- --------- --------- --------- ---------
Investing activities:
Acquisition and development of hotel properties (8,345) (30,584) (148,094) (60,860) (29,708)
Capital improvements (16,291) (16,413) (41,949) (50,463) (27,610)
Proceeds from sales of hotel properties 55,494 18,972
Cash, restricted 1,681 (5,271)
Loans to members (960)
Loans to partners (973) (227)
--------- --------- --------- --------- ---------
Net cash used in investing activities (22,955) (46,997) (196,274) (56,802) (38,573)
--------- --------- --------- --------- ---------
Financing activities:
Proceeds from issuance of long-term obligations 22,191 222,496 354,957 83,151 45,084
Payments of deferred loan costs (8,400) (12,391) (2,366) (1,451)
Payments of franchise fees and other deferred costs (175) (453) (688) (197)
Capital contributions, net 93 9,305 37,810 22,025 13,024
Equity distributions (1,000) (246) (7,619) (28,764) (10,385)
Repayment of long-term obligations (156,214) (156,695) (19,815) (13,245)
Retirement of membership units (4,535) (5,300)
Prepayment penalties (8,640) (8,640)
Contribution by joint venture partner 407
Loan from member 115
Repayment of related party loans (800) (800)
Proceeds from issuance of related party notes 400 400
--------- --------- --------- --------- ---------
Net cash provided by financing activities 21,109 53,081 201,276 53,943 33,230
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents (9,305) (1,161) 5,678 1,185 2,305
Cash and cash equivalents at beginning of period 10,877 5,199 5,199 4,014 1,709
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 1,572 $ 4,038 $ 10,877 $ 5,199 $ 4,014
========= ========= ========= ========= =========
Supplemental disclosures of cash flow information -
Cash payments for interest $ 6,905 $ 4,055 $ 21,370 $ 12,633 $ 6,938
========= ========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS.
F-9
<PAGE> 171
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
The principal activity of Impac Hotel Group, L.L.C. ("Impac") is to
either acquire and renovate or develop, and operate hotels. The
Predecessors of Impac ("Predecessors"), prior to the formation of Impac
Hotel Group, L.L.C., consisted of 22 limited partnerships and four
corporations which each owned between one and six hotels, ("Initial
Hotels") and two operating corporations, Impac Hotel Management, Inc.
("Impac, Inc.") and Impac Development and Construction, Inc. ("IDC")
(collectively, the "Predecessors"). Impac Inc., which managed all of the
Initial Hotels, was owned by Charles Cole, 25%; Robert Cole, 32.5%;
Robert Flanders, 32.5% and Nancy Wolff (a member of the Cole family),
10%. The principals of Impac Inc. (the Cole Family and Robert Flanders)
controlled each of the Predecessor entities by virtue of, in the case of
each of the limited partnerships, ownership of all of the outstanding
common stock of each of the sole corporate general partners, and in the
case of the four corporations, a majority of each of such corporation's
outstanding stock. By virtue of such ownership and management of the
Initial Hotels, the Cole family and Robert Flanders had authority to make
all major decisions including selling or refinancing the hotels. On
February 26, 1997 Impac Hotel Group, L.L.C. was formed as a limited
liability company under the laws of the state of Georgia for the initial
purpose of acquiring, either directly or indirectly, the ownership
interests in the Initial Hotels. All of the Initial Hotels were acquired
by Impac through the issuance of membership units in Impac in exchange
for either all of the interests in limited partnerships or all of the
shares of corporations. In addition, Impac acquired, in exchange for
membership interests, all of the assets of Impac, Inc. and IDC. Impac,
Inc. and IDC are engaged in the hotel management business and the hotel
design and construction business, respectively. This reorganization,
which was accounted for as a reorganization of entities under common
control, was completed on March 12, 1997. The acquisition of the 22
Partnerships was recorded as a purchase by Impac principals of the
minority interests of the limited partners of the Predecessor entities
and the acquisition of the four corporations which owned Initial Hotels,
Impac, Inc. and IDC has been recorded as a reorganization at historical
cost.
In accordance with Impac's Operating Agreement, profits and losses, as
defined, are allocated among the members in proportion to their ownership
interests.
Impac and its predecessors owned 45, 26 and 19 hotels as of December 31,
1997, 1996 and 1995, respectively. During the years ended December 31,
1996 and 1995 the Predecessors of Impac sold seven and three hotels,
respectively.
The principal activity of Impac Hotel Development, Inc. ("IHD") is to
analyze prospective hotel acquisitions for Impac Hotel Group, L.L.C. and
Predecessors. The principals of Impac, Inc. own all of the outstanding
stock of IHD. IHD was not acquired by Impac in the reorganization
previously described.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS.
F-10
<PAGE> 172
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
BASIS OF PRESENTATION
The accompanying consolidated and combined financial statements of Impac
and its subsidiaries and IHD ("Companies") are prepared on the basis of
generally accepted accounting principles. The accounts and activities of
Impac and IHD are presented on a combined basis due to their common
control and because the entities are subject to a merger as described in
Note 9. All material intercompany balances are eliminated in the
consolidation and combination.
The accompanying combined financial statements of the Predecessors are
presented on a combined basis due to the common control that existed
during those periods and because the entities were the subject of a
business combination with Impac. The combined financial statements
include the partnerships and corporations that were acquired by Impac as
well as the financial position and results of operations of Hotel
properties that were sold prior to the reorganization but were under the
common control of Impac, Inc. during the periods presented. All material
intercompany balances are eliminated in the combination.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Companies consider
highly liquid investments purchased with a maturity of three months or
less to be cash equivalents.
CASH, RESTRICTED
Cash, restricted consists of amounts reserved for capital improvements,
debt service, taxes, and insurance.
INVENTORIES
Inventories consist primarily of food and beverage, linens, china,
tableware, and glassware and are stated at the lower of cost (computed on
the first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Impac capitalizes interest costs incurred during the construction of
property and during major renovations upon the acquisition of hotels.
During the years ended December 31, 1997, 1996 and 1995, Impac
capitalized interest of approximately $1,100,000, $1,200,000 and
$300,000, respectively.
F-11
<PAGE> 173
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Management monitors the operating results of Impac's property and
equipment and periodically reviews the carrying value of each property to
determine if circumstances exist indicating an impairment other than
temporary in the carrying value of the assets or that depreciation
periods should be modified. If facts or circumstances indicate a
potential impairment exists, Impac compares projected cash flows
(undiscounted, without interest charges) of the specific hotel property
to its carrying amount. Should a shortfall result, Impac would adjust the
carrying amount of the property to the present value of such projected
cash flows with a corresponding charge to earnings. Impac does not
believe there are any factors or circumstances indicating impairment of
any of its investments in property and equipment.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of
property and equipment, the asset and related depreciation are removed
from the accounts and the gain or loss is included in operations.
DEFERRED COSTS
Deferred costs of $13.5 million and $6.4 million at December 31, 1997 and
1996, which are included in other assets, primarily consist of deferred
loan costs, franchise fees and other deferred costs, net of accumulated
amortization of approximately $660,000 and $290,000 at December 31, 1997
and 1996, respectively. Amortization of deferred costs is computed using
the straight-line method over the terms of the related loan, franchise,
or other agreement. The straight line method of amortizing deferred
financing costs approximates the effective interest method. Impac wrote
off approximately $4.7 million of deferred loan costs in connection with
the refinancing of its long-term obligations, which is included in loss
on extinguishment of indebtedness.
INCOME TAXES
Impac Hotel Group, L.L.C. is a limited liability company and is not
subject to income taxes. The Predecessors were each either general or
limited partnerships or S corporations and IHD is an S corporation and
similarly not subject to income taxes. The results of these entities
operations are included in the tax returns of the members, partners or S
corporation shareholders.
CONCENTRATION OF CREDIT RISK
Concentration of credit risk associated with cash and cash equivalents is
considered low due to the credit quality of the issuers of the financial
instruments held by Impac and due to their short duration to maturity.
Accounts receivable are primarily from major credit card companies,
airlines and other travel related companies. Impac performs ongoing
evaluations of its significant customers and generally does not require
collateral. Impac maintains an allowance for doubtful accounts at a level
which management believes is sufficient to cover potential credit losses.
At December 31, 1997 and 1996, these allowances were $548,000 and
$405,000, respectively.
F-12
<PAGE> 174
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
Useful Lives March 31, DECEMBER 31,
(years) ------------- -------------------------------
1998 1997 1996
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Land $ 60,012 $ 60,012 $ 30,981
Buildings and improvements 35 - 39 248,756 231,710 112,079
Furnishings and equipment 5 - 15 57,121 55,709 28,490
------------- ------------- ------------
365,889 347,431 171,550
Less accumulated depreciation (25,354) (21,860) (11,410)
------------- ------------- ------------
340,535 325,571 160,140
Construction in progress 58,813 52,633 15,770
------------- ------------- ------------
$ 399,348 $ 378,204 $ 175,910
============= ============= ============
</TABLE>
At December 31, 1997, Impac had 6 hotels under development and 18 hotels
which had been recently acquired and were under renovation. Construction
in progress consists of amounts expended to develop and renovate these
hotels. Impac developed and opened or began development on a total of 9
hotels during 1997 for an approximate cost of approximately $50 million.
F-13
<PAGE> 175
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
2. PROPERTY AND EQUIPMENT, CONTINUED:
During the year ended December 31, 1997, Impac acquired and opened 18
hotels in various transactions and acquired one additional hotel through
a joint venture in which Impac acquired a 60% interest. The activities of
the joint venture were consolidated with Impac for the period commencing
on the date the joint venture interests were acquired through December
31, 1997. Such acquisitions were each made for cash using newly
contributed equity and debt. The aggregate purchase price for these
hotels and the partnership interest was approximately $107 million.
In connection with the reorganization on March 12, 1997, Impac recorded a
step-up of land and building, reflecting an increase in their basis of
approximately $4.8 million and $17.9 million, respectively.
During the year ended December 31, 1996, the Predecessors acquired or
developed and opened 14 hotels in various transactions. Each of the
acquisitions were made for cash using newly contributed equity and debt.
The aggregate purchase price for these hotels was approximately $64
million.
Unaudited pro forma results of operations assuming the 1997 and 1996
acquisitions were completed on January 1, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 139,630 $ 114,096
Income (loss) before extraordinary item (14,432) 12,088
Net income (loss) (27,764) 12,088
</TABLE>
F-14
<PAGE> 176
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
3. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------- ---------------------------------
1998 1997 1996
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and related costs $2922,902 $ 2,750 $ 1,960
Real estate taxes 1,089 1,486 468
Interest 1,888 2,042 1,090
Advanced deposits 557 263 246
Sales taxes 1,707 1,813 1,751
Other 1,262 677 914
--------------- --------------- ---------------
$ 9,405 $ 9,031 $ 6,429
=============== =============== ===============
</TABLE>
4. LONG-TERM OBLIGATIONS:
Long-term obligations consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------- ---------------------------------
1998 1997 1996
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Credit facility with a financial institution $ 280,833 $ 265,262 $ -
Subordinated promissory note payable to a bank 74,540 71,018 -
Other mortgages and notes 22,054 18,956 156,214
Loans to a related party - - 800
--------------- --------------- ---------------
- 355,236 157,014
Less: current portion of long-term obligations - - 1,163
--------------- --------------- ---------------
$ 377,427 $ 355,236 $ 155,851
=============== =============== ===============
</TABLE>
F-15
<PAGE> 177
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM OBLIGATIONS, CONTINUED:
CREDIT FACILITY
At March 31, 1998 and December 31, 1997, Impac had a credit facility
("Facility") with a financial institution that consisted of the following
loans which are collateralized by substantially all of the Company's
hotel properties (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------
1998 1997
--------------- -----------------
(UNAUDITED)
<S> <C> <C>
Loan, totaling $132.5 million, with interest at LIBOR (6.00% at
December 31, 1997) plus 2.25%, maturing in
1999, and requiring interest only payments to maturity $ 132,459 $ 132,459
Loan, totaling $163.5 million, with interest at LIBOR plus 2.75%,
maturing in 2000, and requiring interest
only payments to maturity 123,298 107,727
Loan, totaling $100 million, with interest at LIBOR plus 2.75%,
maturing in 2001 and requiring interest
only payments to maturity 25,076 25,076
--------------- -----------------
$ 280,833 $ 265,262
=============== =================
</TABLE>
Loan advances, not to exceed the maximum loan amounts, are to be made to
Impac for approved construction projects and acquisitions. Impac is
required to pay a fee equal to 1% of funds advanced at the time of
advance. Each of the loans, upon maturity, converts to a term loan that
requires payments of interest and principal sufficient to amortize the
loan over a 20 year period. These loans will bear interest at a
predetermined fixed rate and will be collateralized by the hotel
properties securing the respective loans. Upon conversion of the loans to
term loans, Impac is required to pay a securitization fee of 1% of the
balance of the loans. Impac is required to fund 2% of its gross revenues
in restricted cash balances to be used for capital improvements.
The Facility contains certain covenants, including maintenance of certain
financial ratios, certain reporting requirements and other customary
restrictions, the violation of which could cause the amounts of
outstanding principal, interest and fees to be immediately due and
payable. In addition, the Facility does not allow distributions to be
made to the unitholders until after the payment of debt service payments
and the funding of certain reserve accounts including tax, insurance and
capital reserves. On December 31, 1997, management believes that Impac
was in compliance with all debt covenants.
The loans require payment of penalties and yield maintenance amounts when
certain payments of principal are made prior to specified dates.
F-16
<PAGE> 178
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM OBLIGATIONS, CONTINUED:
SUBORDINATED PROMISSORY NOTE
Impac has a subordinated promissory note ("Note") with a bank totaling
$76.5 million which is subordinated to the Facility agreement. Advances
on the Note, totaling $71 million at December 31, 1997, are used for the
acquisition and development of hotel properties. The Note is unsecured,
matures in March 2000, and bears interest at a fixed interest rate of
10%. Interest only payments are required to maturity. In addition,
variable interest payments are required to be made upon the achievement
of certain performance measures related to the cash flow of substantially
all of Impac's hotel properties, and upon the occurrence of certain
events (defined as "Participation Events" in the Note agreement,
including the sale or refinancing of properties, an equity offering by
Impac or the merger or reorganization of Impac).
Fixed and variable interest on the Note included in interest expense is
$4.3 million for the year ended December 31, 1997. Impac prepaid
approximately $660,000 in participation interest which is included in
other current assets.
Upon the occurrence of a Participation Event, if the fixed interest and
the variable interest are not sufficient to provide the holder of the
Note with a cumulative internal rate of return with respect to their
investment in the Note equal to 15% per annum, then additional payment of
interest shall be paid with respect to the Note in an amount sufficient
to provide the holder with a cumulative internal rate of return equal to
15%, provided that such additional payment of interest shall not exceed
100% of net cash flow from the operations of the Hotel properties, plus
100% of net proceeds from Participation Events. The members are not
required to make contributions in order for the holder to obtain a 15%
internal rate of return.
The Note contains certain covenants, including maintenance of certain
financial ratios, certain reporting requirements and other customary
restrictions. In addition, the Note does not allow distributions to
unitholders at any time that there is an event of default, as defined in
the Note Agreement, or if Impac fails to maintain a debt service coverage
ratio of at least 1.20. Any event of default under the terms of the
Facility constitute an event of default under the Note. On December 31,
1997, management believes that Impac was in compliance with all debt
covenants.
OTHER DEBT
Impac and Predecessors had mortgage loans totaling $17.7 million
(unaudited), $14.6 million and $156.2 million at March 31, 1998 and
December 31, 1997 and 1996, respectively. The mortgage loans outstanding
at December 31, 1997 require interest only payments and are due during
1998 and 1999. The mortgage loans will convert to amortizing term loans
which mature in 2020 through 2024. All mortgage loans outstanding at
December 31, 1996 were paid out with proceeds from the Facility and the
Note. Interest rates on Impac's mortgage loans vary and are either fixed
or variable. At December 31, 1997, mortgage loan interest rates ranged
from 2% to 8.5%.
F-17
<PAGE> 179
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM OBLIGATIONS, CONTINUED:
OTHER DEBT, CONTINUED
Impac also has two promissory notes totaling $4.4 million at March 31,
1998 and December 31, 1997 that bear interest at 14%. These notes require
interest only payments and mature in 2001.
Impac refinanced its long-term obligations in March, 1997. Prior to the
refinancing with the Facility and the Note, the Predecessors generally
financed each hotel with separate mortgage debt. Such debt was
collateralized by a single hotel without recourse to other entities or
the property owners. Interest rates on mortgage notes varied by lender
and were either fixed or variable. In connection with the previously
described refinancing, all separate mortgage debt was satisfied.
Prepayment penalties paid upon the retirement of the mortgages and the
write-off of remaining deferred loan costs associated with the satisfied
mortgage notes of approximately $13.3 million are included as an
extraordinary item in the accompanying statement of operations for the
year ended December 31, 1997.
5. EQUITY:
Equity consisted of the following (in thousands except share amounts):
<TABLE>
<CAPTION>
MARCH 31,
----------------- DECEMBER 31,
1998 1997 1996
----------------- ------------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
Impac Hotel Group, L.L.C. and
Predecessors:
Member units, 11,559,527 issued
and outstanding $ 37,324 $ 41,559
Partners' and Stockholders' equity $ 18,798
----------------- ------------------ -----------------
37,324 41,559 18,798
----------------- ------------------ -----------------
Impac Hotel Development, Inc.:
Common stock, no par value;
2,000 shares authorized, issued
and outstanding 299 299 299
Additional paid-in capital 153 1,153 3,323
Retained deficit (4,850) (4,471) (1,460)
Loans to members (1,570) (1,570)
Loans to partners (1,200)
----------------- ------------------ -----------------
(5,968) (4,589) 962
----------------- ------------------ -----------------
Total $ 31,356 $ 36,970 $ 19,760
================= ================== =================
</TABLE>
F-18
<PAGE> 180
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
6. COMMITMENTS AND CONTINGENCIES:
Impac has franchise and license agreements with various hotel chains
which require monthly payments for license fees, reservation services and
advertising fees. Such agreements are generally for periods from 10 to 20
years. A licensor may require Impac to upgrade its facilities at any time
to comply with the licensor's then current standards. Upon the expiration
of the term of a license, Impac may apply for a license renewal. In
connection with a renewal of a license, a licensor may require payment of
a renewal fee, increased license, reservation and advertising fees, as
well as substantial renovation of the hotel. Impac is required under its
franchise agreements to remit varying percentages of gross room revenue
generally ranging from 6% to 7.5% to the various franchisors for
franchising, royalties, reservations, sales and advertising services.
Additional sales and advertising costs are incurred at the local property
level.
The license agreements are subject to cancellation in the event of a
default, including the failure to operate the hotel in accordance with
the quality standards and specifications of the licensor. Impac believes
that the loss of a license for any individual hotel would not have a
material adverse effect on the Impac's financial condition and results of
operations. Impac believes it will be able to renew its current licenses
or obtain replacements of a comparable quality.
Impac's hotels have noncancelable operating leases, mainly for operating
equipment, and Impac leases certain office space. Lease expense for the
years ended December 31, 1997, 1996 and 1995 was approximately $625,000,
$350,000 and $600,000.
The Companies are a party to legal proceedings, including employment
related claims, arising in the ordinary course of its business, the
impact of which would not, either individually or in the aggregate, in
management's opinion, based upon the facts known by management and the
advice of counsel, have a material adverse effect on the Company's
financial condition or results of operations. The Companies, prior to
December 10, 1997, did not have insurance coverage, except for directors
and officers' insurance, in connection with the employment related
claims.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of accounts receivable and payable and accrued expenses
are assumed to be equal to their reported carrying amounts due to their
short maturity. The carrying amount of long-term obligations approximates
their fair value based on the rate of interest charged and Impac's
incremental borrowing rate.
F-19
<PAGE> 181
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
AND IMPAC HOTEL DEVELOPMENT, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED
8. RELATED PARTY TRANSACTIONS:
IHD loaned certain employees funds to purchase units in Impac. Such loans
are included as a component of stockholder's equity in the consolidated
and combined financial statements.
Certain of these loans to members of approximately $590,000 were
satisfied through a charge to incentive administrative and general
expenses during 1997.
IHD incurred fees of approximately $580,000, $160,000 and $575,000 during
the years ended December 31, 1997, 1996, and 1995 to a related party for
interior design consulting services and for equity placement fees in
connection with the acquisition of hotels. All fees are recorded as
operating expenses in the statement of operations.
9. SUBSEQUENT EVENT:
On March 20, 1998, Impac signed a definitive agreement with Servico,
Inc., a publicly owned hotel company, to merge and form a new publicly
owned company. During July, 1998, IHD verbally agreed to merge with
Servico although a definite agreement has not been executed. Under the
terms of the agreement, the Company's members will initially receive
6,000,000 shares of common stock of the merged company and an additional
1,400,000 shares upon the completion of construction of five hotels
during 1999. The existing shareholders of Servico, Inc. will receive one
share of the merged company's common stock for each share of Servico,
Inc. stock held by them (approximately 21,000,000 shares). The merged
company will own and manage 140 hotels, of which 136 will be owned, with
more than 26,000 rooms and operate in 35 states and Canada. The merger
will be accounted for under the purchase method of accounting and is
expected to close prior to December 31, 1998 subject to customary
conditions, including regulatory approvals and approval by Impac's
unitholders, IHD's shareholders and Servico, Inc.'s shareholders. The
merger may be terminated by either party, with the terminating party
obligated to pay certain termination fees as defined by the merger
agreement.
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APPENDIX A
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
LODGIAN, INC.,
SERVICO, INC.,
IMPAC HOTEL GROUP, L.L.C.,
SHG-S SUB, INC.,
SHG-I SUB, L.L.C.,
P-BURG LODGING ASSOCIATES, INC.,
SHG-II SUB, INC.,
HAZARD LODGING ASSOCIATES, INC.,
SHG-III SUB, INC.,
MEMPHIS LODGING ASSOCIATES, INC.,
SHG-IV SUB, INC.,
DELK LODGING ASSOCIATES, INC.,
SHG-V SUB, INC.,
IMPAC HOTEL DEVELOPMENT, INC.,
SHG-VI SUB, INC.,
IMPAC DESIGN AND CONSTRUCTIONS, INC.,
SHG-VII SUB, INC.,
IMPAC HOTEL GROUP, INC.
AND
SHG-VIII SUB, INC.
DATED AS OF JULY ___, 1998
===============================================================================
<PAGE> 183
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I The Mergers.....................................................................................3
1.1 Formation of Merger Subsidiaries................................................................3
1.2 The Mergers.....................................................................................3
1.3 Closing.........................................................................................4
1.4 Effective Time..................................................................................4
1.5 Effect of the Mergers...........................................................................5
1.6 Articles of Incorporation; Articles of Organization; Bylaws;
Operating Agreement; Directors and Officers of the Surviving Corporations.......................5
1.7 Restated Certificate of Incorporation and Restated Bylaws of SHG................................6
ARTICLE II Conversion of Securities; Exchange of Certificates..............................................6
2.1 Conversion of Securities........................................................................6
2.2 Conversion of Shares............................................................................7
2.3 Cancellation of Certain Shares and of Outstanding SHG Common Stock.............................10
2.4 Conversion of Common Stock and Membership Interests of
Servico Merger Sub, Impac Merger Sub and
Impac Affiliated Merger Sub into Common Stock
or Membership Interests of the Surviving Corporations..........................................11
2.5 Exchange of Shares Other than Treasury Shares..................................................13
2.6 Stock Transfer Books...........................................................................13
2.7 No Fractional Share Certificates...............................................................14
2.8 Options to Purchase Servico Common Stock.......................................................16
2.9 Options to Purchase Impac Units................................................................16
2.10 Certain Adjustments............................................................................16
ARTICLE III Representations and Warranties of Servico......................................................17
3.1 Organization, Standing and Power...............................................................17
3.2 Legal, Valid and Binding Agreement.............................................................17
3.3 Authority to do Business.......................................................................17
3.4 No Violation or Conflict.......................................................................18
3.5 Governmental Consents..........................................................................18
3.6 Exchange Act Reports; Financial Statements.....................................................18
3.7 Compliance with Laws...........................................................................19
3.8 Legal Proceedings..............................................................................20
3.9 Brokers........................................................................................20
3.10 Absence of Material Adverse Changes............................................................20
3.11 Capitalization.................................................................................21
3.12 Tax Matters....................................................................................21
3.13 Title to Personal Property and Condition of Assets.............................................21
3.14 Real Property..................................................................................21
3.15 Opinion of Financial Advisor...................................................................22
3.16 Disclosure.....................................................................................22
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE IV Representations and Warranties of Impac and the Impac Affiliated Companies.....................22
4.1 Organization, Standing and Power...............................................................22
4.2 Members' Interest..............................................................................22
4.3 Legal, Valid and Binding Agreement.............................................................23
4.4 Authority to do Business.......................................................................23
4.5 Articles of Organization and Operating Agreement...............................................23
4.6 Subsidiaries; Impac Affiliated Companies.......................................................24
4.7 No Violation or Conflict.......................................................................24
4.8 Governmental Consents..........................................................................24
4.9 Impac Statements...............................................................................25
4.10 Compliance with Laws...........................................................................25
4.11 Legal Proceedings..............................................................................26
4.12 Brokers........................................................................................26
4.13 Absence of Material Adverse Changes............................................................27
4.14 Capitalization.................................................................................27
4.15 Rights, Warrants, Options......................................................................27
4.16 Title to Personal Property and Condition of Assets.............................................28
4.17 Real Property..................................................................................28
4.18 Intangible Property............................................................................29
4.19 Governmental Authorizations....................................................................30
4.20 Insurance......................................................................................30
4.21 Employment Matters.............................................................................30
4.22 Material Agreements............................................................................32
4.23 List of Accounts...............................................................................33
4.24 Related Party Transactions.....................................................................33
4.25 Tax Matters....................................................................................34
4.26 Qualifying Transaction.........................................................................34
4.27 Affiliates.....................................................................................34
4.28 Opinion of Financial Advisor...................................................................35
4.29 Disclosure.....................................................................................35
ARTICLE V Covenants......................................................................................35
5.1 Interim Operations of Impac an the Impac Affiliated Companies..................................35
5.2 Interim Operations of Servico..................................................................36
5.3 Access.........................................................................................37
5.4 Consents.......................................................................................38
5.5 Reasonable Efforts.............................................................................38
5.6 Notification...................................................................................38
5.7 No Solicitation................................................................................38
5.8 Confidentiality................................................................................39
5.9 Publicity......................................................................................39
5.10 Letters of Accountants.........................................................................39
5.11 Plan of Reorganization.........................................................................40
5.12 Registration Statement; Joint Proxy Statement..................................................40
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
5.13 Special Meetings...............................................................................42
5.14 Employee Benefits Matters......................................................................42
5.15 Executive Officers.............................................................................43
5.16 Affiliates.....................................................................................43
5.17 Headquarters...................................................................................43
5.18 Post-Merger SHG Board of Directors.............................................................43
5.19 Stock Exchange Listings........................................................................44
5.20 Indemnification................................................................................44
5.21 Guarantees.....................................................................................45
5.22 Registration Rights............................................................................45
5.23 Termination of Development Agreement; Use of Affiliated Names..................................45
ARTICLE VI Additional Agreements..........................................................................46
6.1 Survival of the Representations and Warranties.................................................46
6.2 Investigation..................................................................................46
ARTICLE VII Conditions Precedent.................................................................................46
7.1 Mutual Conditions Precedent....................................................................46
7.2 Conditions Precedent to the Obligations of Servico.............................................47
7.3 Conditions Precedent to the Obligations of Impac and the
Impac Affiliated Companies.....................................................................49
7.4 Termination....................................................................................50
ARTICLE VIII Miscellaneous.......................................................................................51
8.1 Further Assurances.............................................................................51
8.2 Notices........................................................................................51
8.3 Entire Agreement...............................................................................52
8.4 Assignment.....................................................................................52
8.5 Waiver.........................................................................................52
8.6 No Third Party Beneficiary.....................................................................52
8.7 Severability...................................................................................52
8.8 Fees and Expenses..............................................................................52
8.9 Section Headings...............................................................................55
8.10 Counterparts...................................................................................55
8.11 Time of Essence................................................................................55
8.12 Litigation; Prevailing Party...................................................................55
8.13 Remedies Cumulative............................................................................55
8.14 Injunctive Relief..............................................................................55
8.15 Governing Law..................................................................................55
8.16 Jurisdiction and Venue.........................................................................55
8.17 Certain Definitions............................................................................56
</TABLE>
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EXHIBITS
EXHIBIT 1.7(a) Restated Certificate of Incorporation
EXHIBIT 1.7(b) Restated Bylaws of SHG
EXHIBIT 2.2(c) Escrow Agreement
EXHIBIT 5.16 Impac Affiliate Letter
EXHIBIT 5.22 Registration Rights Agreement
EXHIBIT 7.2(e) Opinion of Counsel (Powell, Goldstein, Frazer &
Murphy, LLP)
EXHIBIT 7.3(e) Opinion of Counsel (Stearns Weaver Miller Weissler
Alhadeff & Sitterson, P.A.)
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SCHEDULES
---------
<TABLE>
<CAPTION>
<S> <C>
Schedule 2.2(c) Additional Share Conditions and Calculations
Schedule 3.4 No Violation or Conflict (Servico)
Schedule 3.5 Governmental Contracts (Servico)
Schedule 3.6 Exchange Act Reports; Financial Statements
Schedule 3.7 Environmental Audits and Reports
Schedule 3.7(a) Compliance with Laws (Servico)
Schedule 3.8 Legal Proceedings
Schedule 3.10 Absence of Material Adverse Changes
Schedule 3.13 Title to Personal Property and Condition of Assets
Schedule 3.14 Real Property Owned or Leased by Servico
Schedule 3.14(a) Servico Improvements
Schedule 4.2 Members' Interest
Schedule 4.4 Authority to do Business
Schedule 4.6 Impac Subsidiaries
Schedule 4.7 No Violation or Conflict (Impac)
Schedule 4.8 Governmental Consents (Impac)
Schedule 4.9 Impac Statements
Schedule 4.10 Compliance with Laws (Impac)
Schedule 4.11 Legal Proceedings
Schedule 4.13 Absence of Material Adverse Changes
Schedule 4.15 Rights, Warrants, Options
Schedule 4.16 Title to Personal Property and Condition of Assets
Schedule 4.17(a) Real Property Owned or Leased by Impac or any Impac Subsidiary
Schedule 4.17(b) Construction Projects
Schedule 4.19 Governmental Authorizations
Schedule 4.20 Insurance Policies
Schedule 4.21(a) Labor Relations
Schedule 4.21(b) Environmental Policies
Schedule 4.21(c) Employment Agreements
Schedule 4.21(d) Employee Benefit Plans
Schedule 4.21(e) Names of all Managers and Officers of Impac, each Impac Affiliated
Company and each Impac Subsidiary
Schedule 4.22 Material Agreements
Schedule 4.23 List of Accounts
Schedule 4.24 Related Party Transactions
Schedule 4.24(a) Tax Matters
Schedule 4.25(c) Tax Liability
Schedule 4.27 Impac Affiliates
Schedule 5.1 Interim Operations of Impac
Schedule 5.2 Interim Operations of Servico
Schedule 5.23 Development Properties
Schedule 7.2(g) Debt Restructuring
Schedule 7.3(g) Employment Agreements
</TABLE>
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GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Additional Shareholders.................................................................ss.2.2
Additional Shares....................................................................ss.2.2(c)
affiliate...........................................................................ss.8.17(a)
Agreement...........................................................................Preamble
Allen & Company........................................................................ss.4.12
Base Number..........................................................................ss.2.2(b)
Blue Sky Laws...........................................................................ss.3.5
business day........................................................................ss.8.17(b)
Change of Control....................................................................ss.8.8(d)
Closing.................................................................................ss.1.3
Code................................................................................Preamble
Competing Transaction...................................................................ss.5.7
Construction Projects...............................................................ss.4.17(b)
Delk................................................................................Preamble
Delk Base Number.....................................................................ss.2.2(e)
Delk Certificate of Merger..............................................................ss.1.4
Delk Common Shares Trust.............................................................ss.2.7(c)
Delk Common Stock....................................................................ss.2.2(e)
Delk Exchange Ratio..................................................................ss.2.2(e)
Delk Merger.........................................................................Preamble
Delk Merger Sub.....................................................................Preamble
Delk Shares..........................................................................ss.2.2(l)
Delk Surviving Corporation...........................................................ss.1.2(e)
Designated Date.....................................................................ss.5.7(ii)
Designated Person....................................................................ss.7.4(g)
Designated Change of Control.....................................................ss.8.8(e)(ii)
DGCL................................................................................Preamble
Effective Time..........................................................................ss.1.4
employee pension benefit plan.......................................................ss.4.21(d)
employee welfare benefit plan.......................................................ss.4.21(d)
End Date.............................................................................ss.7.4(c)
Environmental Law....................................................................ss.3.7(b)
Environmental Permit.................................................................ss.3.7(b)
ERISA...............................................................................ss.4.21(d)
Escrowed Consideration...............................................................ss.2.2(c)
Excess Shares........................................................................ss.2.7(b)
Exchange Agent..........................................................................ss.2.5
Exchange Act............................................................................ss.3.5
Exchange Fund...........................................................................ss.2.5
FBCA................................................................................Preamble
GAAP.................................................................................ss.3.6(b)
GLLCA...............................................................................Preamble
Governmental Entity.....................................................................ss.3.5
group................................................................................ss.8.8(c)
group health plan......................................................................ss.4.21
Hazard..............................................................................Preamble
Hazard Articles of Merger...............................................................ss.1.4
Hazard Base Number...................................................................ss.2.2(c)
Hazard Common Shares Trust...........................................................ss.2.7(c)
Hazard Common Stock..................................................................ss.2.2(c)
Hazard Exchange Ratio................................................................ss.2.2(c)
Hazard Merger.......................................................................Preamble
Hazard Merger Sub...................................................................Preamble
Hazard Shares........................................................................ss.2.2(l)
Hazard Surviving Corporation.........................................................ss.1.2(c)
Hazardous Material...................................................................ss.3.7(b)
HSR Act.................................................................................ss.3.5
HW&E....................................................................................ss.3.9
IDC.................................................................................Preamble
IDC Base Number......................................................................ss.2.2(g)
IDC Certificate of Merger...............................................................ss.1.4
IDC Common Shares Trust..............................................................ss.2.7(c)
IDC Common Stock.....................................................................ss.2.2(g)
IDC Exchange Ratio...................................................................ss.2.2(g)
IDC Merger..........................................................................Preamble
IDC Merger Sub......................................................................Preamble
IDC Shares...........................................................................ss.2.2(l)
IDC Surviving Corporation............................................................ss.1.2(g)
IHD.................................................................................Preamble
IHD Assignee...........................................................................ss.5.23
IHD Base Number......................................................................ss.2.2(f)
IHD Certificate of Merger...............................................................ss.1.4
IHD Common Shares Trust.....................................................................
IHD Common Stock.....................................................................ss.2.2(f)
IHD Exchange Ratio...................................................................ss.2.2(f)
IHD Merger..........................................................................Preamble
IHD Merger Sub......................................................................Preamble
IHD Shares...........................................................................ss.2.2(l)
IHD Surviving Corporation............................................................ss.1.2(f)
IHG.................................................................................Preamble
IHG Articles of Merger..................................................................ss.1.4
IHG Base Number......................................................................ss.2.2(h)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
IHG Common Shares Trust..............................................................ss.2.7(c)
IHG Common Stock.....................................................................ss.2.2(h)
IHG Exchange Ratio...................................................................ss.2.2(h)
IHG Merger..........................................................................Preamble
IHG Merger Sub......................................................................Preamble
IHG Shares...........................................................................ss.2.2(l)
IHG Surviving Corporation............................................................ss.1.2(f)
Impac...............................................................................Preamble
Impac Affiliate........................................................................ss.4.27
Impac Affiliate Letter.................................................................ss.5.17
Impac Affiliated Companies..........................................................Preamble
Impac Affiliated Merger Subs........................................................Preamble
Impac Affiliated Mergers............................................................Preamble
Impac Articles of Merger................................................................ss.1.4
Impac Base Number....................................................................ss.2.2(i)
Impac Director.........................................................................ss.5.19
Impac Exchange Ratio.................................................................ss.2.2(i)
Impac Financial Statements..............................................................ss.4.9
Impac Material Adverse Effect.......................................................ss.8.17(c)
Impac Material Agreements...........................................................ss.4.22(a)
Impac Merger........................................................................Preamble
Impac Merger Sub....................................................................Preamble
Impac Pension Plan..................................................................ss.4.21(d)
Impac Plans.........................................................................ss.4.21(d)
Impac Related Parties..................................................................ss.4.24
Impac Related Party....................................................................ss.4.24
Impac Special Meeting...............................................................ss.5.13(a)
Impac Subsidiaries......................................................................ss.4.1
Impac Surviving Corporation..........................................................ss.1.2(i)
Impac Unit...........................................................................ss.2.2(i)
Impac Unit Trust.....................................................................ss.2.7(c)
Impac Voting Agreement..............................................................Preamble
Impac Welfare Plan..................................................................ss.4.21(d)
Improvements........................................................................ss.4.17(a)
incentive stock options.................................................................ss.2.8
Indemnified Parties....................................................................ss.5.21
Joint Proxy Statement...............................................................ss.5.13(a)
KBCA........................................................................................
knowledge...........................................................................ss.8.17(d)
Law.................................................................................ss.8.17(e)
Lehman Brothers.........................................................................ss.3.9
Licenses...............................................................................ss.4.19
Member..................................................................................ss.4.2
membership interest.................................................................ss.8.17(f)
Memphis.............................................................................Preamble
Memphis Articles of Merger..............................................................ss.1.4
Memphis Base Number..................................................................ss.2.2(d)
Memphis Common Shares Trust..........................................................ss.2.7(c)
Memphis Common Stock.................................................................ss.2.2(d)
Memphis Exchange Ratio...............................................................ss.2.2(d)
Memphis Merger......................................................................Preamble
Memphis Merger Sub..................................................................Preamble
Memphis Shares.......................................................................ss.2.2(l)
Memphis Surviving Corporation........................................................ss.1.2(d)
Merger Subsidiaries.....................................................................ss.1.1
Mergers.............................................................................Preamble
Milestone Date.......................................................................ss.2.2(c)
multiemployer plan..................................................................ss.4.21(d)
New Delk Common Stock................................................................ss.2.4(e)
New Hazard Common Stock..............................................................ss.2.4(c)
New IDC Common Stock.................................................................ss.2.4(g)
New IHD Common Stock.................................................................ss.2.4(f)
New IHG Common Stock.................................................................ss.2.4(h)
New Impac Units......................................................................ss.2.4(i)
New Memphis Common Stock.............................................................ss.2.4(d)
New P-Burg Common Stock..............................................................ss.2.4(b)
New Servico Common Stock.............................................................ss.2.4(a)
Nomura...............................................................................ss.8.8(a)
NYSE.................................................................................ss.2.7(b)
P-Burg..............................................................................Preamble
P-Burg Articles of Merger...............................................................ss.1.4
P-Burg Base Number...................................................................ss.2.2(b)
P-Burg Common Shares Trust...........................................................ss.2.7(c)
P-Burg Common Stock..................................................................ss.2.2(b)
P-Burg Exchange Ratio................................................................ss.2.2(b)
P-Burg Merger.......................................................................Preamble
P-Burg Merger Sub...................................................................Preamble
P-Burg Shares........................................................................ss.2.2(l)
P-Burg Surviving Corporation .........................................ss.1.2(b)
Permitted Exceptions...................................................................ss.4.17
Personal Property......................................................................ss.4.16
person..............................................................................ss.8.17(g)
Presurrender Dividends..................................................................ss.2.5
Real Property.......................................................................ss.4.17(a)
Registration Statement..............................................................ss.5.13(a)
Regulations.........................................................................Preamble
Satisfaction Date.......................................................................ss.1.3
SEC.....................................................................................ss.3.6
Securities Act..........................................................................ss.3.5
Servico............................................................................ Preamble
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Servico Articles of Merger..............................................................ss.1.4
Servico Common Shares Trust..........................................................ss.2.7(c)
Servico Common Stock............................................................... Preamble
Servico Constituents....................................................................ss.3.2
Servico Director.......................................................................ss.5.19
Servico Exchange Ratio...............................................................ss.2.2(a)
Servico Financial Statements.........................................................ss.3.6(b)
Servico Material Adverse Effect.....................................................ss.8.17(h)
Servico Merger......................................................................Preamble
Servico Merger Sub..................................................................Preamble
Servico Plans.......................................................................ss.5.15(a)
Servico SEC Reports..................................................................ss.3.6(a)
Servico Shares.......................................................................ss.2.2(e)
Servico Special Meeting.............................................................ss.5.13(a)
Servico Subsidiaries....................................................................ss.3.1
Servico Surviving Corporation........................................................ss.1.2(a)
Shares...............................................................................ss.2.2(e)
SHG................................................................................ Preamble
SHG Common Stock....................................................................Preamble
Special Meetings....................................................................ss.5.13(a)
Stock Plans.........................................................................ss.5.15(b)
subsidiaries........................................................................ss.8.17(i)
subsidiary..........................................................................ss.8.17(i)
Surviving Corporation................................................................ss.1.2(b)
Surviving Corporations...............................................................ss.1.2(b)
Tax.................................................................................ss.8.17(j)
Third Party..........................................................................ss.7.4(j)
Trading Period Average...............................................................ss.2.2(b)
Transaction.........................................................................Preamble
</TABLE>
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the
"Agreement") is made and entered into as of the ____ day of July, 1998, by and
among SERVICO, INC., a Florida corporation ("Servico"), LODGIAN, INC., a
Delaware corporation and a wholly-owned subsidiary of Servico ("SHG"), SHG-S
SUB, INC., a Florida corporation and a wholly-owned subsidiary of SHG ("Servico
Merger Sub"), IMPAC HOTEL GROUP, L.L.C., a Georgia limited liability company
("Impac"), SHG-I SUB, L.L.C., a Georgia limited liability company and a
wholly-owned subsidiary of SHG ("Impac Merger Sub"), P-BURG LODGING ASSOCIATES,
INC., a Kentucky corporation ("P-Burg"), SHG-II SUB, INC., a Kentucky
corporation and a wholly-owned subsidiary of SHG ("P-Burg Merger Sub"), HAZARD
LODGING ASSOCIATES, INC., a Kentucky corporation ("Hazard"), SHG-III SUB, INC.,
a Kentucky corporation and a wholly-owned subsidiary of SHG ("Hazard Merger
Sub"), MEMPHIS LODGING ASSOCIATES, INC., a Florida corporation ("Memphis"),
SHG-IV SUB, INC., a Florida corporation and a wholly-owned subsidiary of SHG
("Memphis Merger Sub"), DELK LODGING ASSOCIATES, INC., a Delaware corporation
("Delk"), SHG-V SUB, INC., a Delaware corporation and a wholly-owned subsidiary
of SHG ("Delk Merger Sub"), IMPAC HOTEL DEVELOPMENT, INC., a Delaware
corporation ("IHD"), SHG-VI SUB, INC., a Delaware corporation and a wholly-owned
subsidiary of SHG ("IHD Merger Sub"), IMPAC DESIGN AND CONSTRUCTION, INC., a
Delaware corporation ("IDC"), SHG-VII SUB, INC., a Delaware corporation and a
wholly-owned subsidiary of SHG ("IDC Merger Sub"), IMPAC HOTEL GROUP, INC., a
Florida corporation ("IHG"), SHG-VIII SUB, INC., a Florida corporation and a
wholly-owned subsidiary of SHG ("IHG Merger Sub"), IHG, P-Burg, Hazard, Memphis,
Delk, IHD and IDC are sometimes collectively referred to as the "Impac
Affiliated Companies", P-Burg Merger Sub, Hazard Merger Sub, Memphis Merger Sub,
Delk Merger Sub, IHD Merger Sub, IDC Merger Sub and IHG Merger Sub, are
sometimes collectively referred to as the "Impac Affiliated Merger Subs".
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Servico and the Impac Affiliated
Companies and the Manager of Impac have determined that it is in the best
interests of their respective companies, shareholders and members to combine
their respective businesses in a merger transaction to be effected as set forth
in this Agreement (the "Transaction");
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Business Corporation Act of the State of Florida (the
"FBCA") , the Delaware General Corporation Law ("DGCL"), the Kentucky Business
Corporation Act ("KBCA"), and the Georgia Limited Liability Company Act (the
"GLLCA"), SHG will acquire all of the common stock of Servico and each of the
Impac Affiliated Companies and all of the membership interests of Impac through
the merger of Servico Merger Sub with and into Servico (the "Servico Merger"),
the merger of P-Burg Merger Sub with and into P-Burg (the "P-Burg Merger"), the
merger of Hazard Merger Sub with and into Hazard (the "Hazard Merger"), the
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merger of Memphis Merger Sub with and into Memphis (the "Memphis Merger"), the
merger of Delk Merger Sub with and into Delk (the "Delk Merger"), the merger of
IHD Merger Sub with and into IHD (the "IHD Merger"), the merger of IDC Merger
Sub with and into IDC (the "IDC Merger") and the merger of IHG Merger Sub with
and into IHG (the "IHG Merger", and, collectively with the P-Burg Merger, the
Hazard Merger, the Memphis Merger, the Delk Merger, the IHD Merger and the IDC
Merger, the "Impac Affiliated Mergers"), and the merger of Impac Merger Sub with
and into Impac (the "Impac Merger") and the shareholders and members of Servico
and Impac, respectively, will receive shares of common stock, par value $.01 per
share, of SHG ("SHG Common Stock") as set forth herein;
WHEREAS, as a result of the Servico Merger, the Impac Affiliated
Mergers and the Impac Merger (collectively, the "Mergers"), (i) Servico, each of
the Impac Affiliated Companies and Impac will each be a wholly-owned subsidiary
of SHG, (ii) the shareholders of Servico and each of the Impac Affiliated
Companies, will become shareholders of SHG and (iii) the members of Impac will
become shareholders of SHG;
WHEREAS, in furtherance of the Transaction, the Board of Directors of
Servico has adopted this Agreement and the Mergers as contemplated by this
Agreement and has recommended that the holders of common stock, par value $.01
per share, of Servico ("Servico Common Stock") vote to approve this Agreement
and the terms of the Mergers as contemplated by this Agreement;
WHEREAS, in furtherance of the Transaction, the Board of Directors and
shareholders of each of the Impac Affiliated Companies has adopted and approved
this Agreement and the Mergers as contemplated by this Agreement;
WHEREAS, in furtherance of the Transaction, the Manager of Impac has
approved this Agreement and the Mergers as contemplated by this Agreement and
has recommended that the members of Impac vote to approve this Agreement and the
terms of the Mergers as contemplated by this Agreement;
WHEREAS, prior to the execution of this Agreement and as an inducement
to Servico to enter into this Agreement, certain members of Impac, representing
in excess of fifty-one percent (51%) of the outstanding Class A Ordinary
Membership Interests of Impac have entered into a voting agreement (the "Impac
Voting Agreement") pursuant to which the Members, among other things, have
agreed to vote in favor of the approval of this Agreement and the Mergers
contemplated hereby, upon the terms and subject to the conditions set forth
therein; and
WHEREAS, for United States federal income tax purposes, it is intended
that the Servico Merger and each of the Impac Affiliated Mergers (except the IHD
Merger) each qualify as a reorganization under the provisions of Sections 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code"), and
the Treasury Regulations thereunder (the "Regulations"), and it is further
intended that the Impac Merger and the IHD Merger each qualify as a transfer of
property described in Section 351 of the Code and the Regulations thereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
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ARTICLE I
THE MERGERS
1.1 FORMATION OF MERGER SUBSIDIARIES. SHG has formed Servico Merger
Sub, each of the Impac Affiliated Merger Subs and Impac Merger Sub
(collectively, the "Merger Subsidiaries") under the FBCA, the DGCL, the KBCA or
the GLLCA, as the case may be, as wholly-owned subsidiaries of SHG. Each of the
Merger Subsidiaries has been formed solely to facilitate the Mergers and shall
conduct no business or activity other than in connection with the Mergers. SHG
shall, and Servico shall cause SHG to, execute formal written consents under
Section 607.0704 of the FBCA, Section 228 of the DGCL, Section 271B.7- 040 of
the KBCA, or Section 14-11-309 of the GLLCA, as the case may be, as the sole
shareholder and/or member of each of the Merger Subsidiaries, approving the
execution, delivery and performance of this Agreement by each of the Merger
Subsidiaries.
1.2 THE MERGERS.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the FBCA, at the Effective Time (as
defined herein), Servico Merger Sub shall be merged with and into Servico. As a
result of the Servico Merger, the separate corporate existence of Servico Merger
Sub shall cease and Servico shall continue as the surviving corporation of the
Servico Merger as a wholly-owned subsidiary of SHG (the "Servico Surviving
Corporation").
(b) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the KBCA, at the Effective Time, P-Burg
Merger Sub shall be merged with and into P- Burg. As a result of the P-Burg
Merger, the separate corporate existence of P-Burg Merger Sub shall cease and
P-Burg shall continue as the surviving corporation of the P-Burg Merger as a
wholly-owned subsidiary of SHG (the "P-Burg Surviving Corporation").
(c) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the KBCA, at the Effective Time, Hazard
Merger Sub shall be merged with and into Hazard. As a result of the Hazard
Merger, the separate corporate existence of Hazard Merger Sub shall cease and
Hazard shall continue as the surviving corporation of the Hazard Merger as a
wholly-owned subsidiary of SHG (the "Hazard Surviving Corporation").
(d) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the FBCA, at the Effective Time, Memphis
Merger Sub shall be merged with and into Memphis. As a result of the Memphis
Merger, the separate corporate existence of Memphis Merger Sub shall cease and
Memphis shall continue as the surviving corporation of the Memphis Merger as a
wholly-owned subsidiary of SHG (the "Memphis Surviving Corporation").
(e) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, at the Effective Time, Delk
Merger Sub shall be merged with and into Delk. As a result of the Delk Merger,
the separate corporate existence of Delk Merger Sub shall cease and Delk shall
continue as the surviving corporation of the Delk Merger as a wholly-owned
subsidiary of SHG (the "Delk Surviving Corporation").
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(f) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, at the Effective Time, IHD
Merger Sub shall be merged with and into IHD. As a result of the IHD Merger, the
separate corporate existence of IHD Merger Sub shall cease and IHD shall
continue as the surviving corporation of the IHD Merger as a wholly-owned
subsidiary of SHG (the "IHD Surviving Corporation").
(g) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, at the Effective Time, IDC
Merger Sub shall be merged with and into IDC. As a result of the IDC Merger, the
separate corporate existence of IDC Merger Sub shall cease and IDC shall
continue as the surviving corporation of the IDC Merger as a wholly-owned
subsidiary of SHG (the "IDC Surviving Corporation").
(h) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, at the Effective Time, IHG
Merger Sub shall be merged with and into IHG. As a result of the IHG Merger, the
separate corporate existence of IHG Merger Sub shall cease and IHG shall
continue as the surviving corporation of the IHG Merger as a wholly-owned
subsidiary of SHG (the "IHG Surviving Corporation").
(i) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the GLLCA, at the Effective Time, Impac
Merger Sub shall be merged with and into Impac. As a result of the Impac Merger,
the separate corporate existence of Impac Merger Sub shall cease and Impac shall
continue as the surviving corporation of the Impac Merger as a wholly owned
subsidiary of SHG (the "Impac Surviving Corporation"; any of Servico Surviving
Corporation, P-Burg Surviving Corporation, Hazard Surviving Corporation, Memphis
Surviving Corporation, Delk Surviving Corporation, IHD Surviving Corporation,
IDC Surviving Corporation, IHG Surviving Corporation, or Impac Surviving
Corporation being separately referred to as a "Surviving Corporation" and
collectively referred to as the "Surviving Corporations").
1.3 CLOSING. Unless this Agreement shall have been terminated and the
Mergers shall have been abandoned pursuant to Section 7.4 and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
consummation of the Transaction shall take place as promptly as practicable (and
in any event within three business days) after satisfaction or waiver of the
conditions set forth in Article VII, at a closing (the "Closing") to be held at
the offices of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 150
West Flagler Street, Suite 2200, Miami, Florida, 33130, unless another date,
time or place is agreed to by Servico and Impac. The date on which all
conditions set forth in Article VII have been satisfied or waived shall be
referred to as the "Satisfaction Date."
1.4 EFFECTIVE TIME. At the time of the Closing, the parties shall cause
the Mergers to be consummated concurrently, (a) in the case of the Servico
Merger, the Memphis Merger and the IHG Merger, by filing articles of merger
(respectively, the "Servico Articles of Merger," the "Memphis Articles of
Merger" and the "IHG Articles of Merger") with the Florida Department of State
in such form as required by, and executed in accordance with the relevant
provisions of, the FBCA, (b) in the case of the P-Burg Merger and the Hazard
Merger, by filing articles of merger (respectively, the "P-Burg Articles of
Merger" and the "Hazard Articles of Merger") with the Kentucky Department of
State in such form as required by, and executed in accordance with the relevant
provisions of, the KBCA, (c) in the case of the
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Delk Merger, the IHD Merger and the IDC Merger, by filing a certificate of
merger (respectively, the "Delk Certificate of Merger," the "IHD Certificate of
Merger" and the "IDC Certificate of Merger"), with the Secretary of State of the
State of Delaware in such form as required by, and executed in accordance with
the relevant provisions of, the DGCL, and (d) in the case of the Impac Merger,
by filing articles of merger (the "Impac Articles of Merger") with the Secretary
of State of the State of Georgia in such form as required by, and executed in
accordance with the relevant provisions of, the GLLCA (the date and time of such
filings, or such later date or time as set forth therein, being the "Effective
Time").
1.5 EFFECT OF THE MERGERS. At the Effective Time, the effect of the
Servico Merger, the Memphis Merger and the IHG Merger shall be as provided in
the applicable provisions of the FBCA, the effect of the P-Burg Merger and the
Hazard Merger shall be as provided in the applicable provisions of the KBCA, the
effect of the Delk Merger, the IHD Merger and the IDC Merger shall be as
provided in the applicable provisions of the DGCL, and the effect of the Impac
Merger shall be as provided in the applicable provisions of the GLLCA. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, (a) all the property, rights,
privileges, powers and franchises of Servico and Servico Merger Sub shall vest
in Servico as the Servico Surviving Corporation, and all debts, liabilities and
duties of Servico and Servico Merger Sub shall become the debts, liabilities and
duties of Servico as the Servico Surviving Corporation, (b) all the property,
rights, privileges, powers and franchises of P-Burg and P-Burg Merger Sub shall
vest in P-Burg as the P-Burg Surviving Corporation, and all debts, liabilities
and duties of P-Burg and P-Burg Merger Sub shall become the debts, liabilities
and duties of P-Burg as the P-Burg Surviving Corporation, (c) all the property,
rights, privileges, powers and franchises of Hazard and Hazard Merger Sub shall
vest in Hazard as the Hazard Surviving Corporation, and all debts, liabilities
and duties of Hazard and Hazard Surviving Corporation shall become the debts,
liabilities and duties of Hazard as the Hazard Surviving Corporation, (d) all
the property, rights, privileges, powers and franchises of Memphis and Memphis
Merger Sub shall vest in Memphis as the Memphis Surviving Corporation, and all
debts, liabilities and duties of Memphis and Memphis Merger Sub shall become the
debts, liabilities and duties of Memphis as the Memphis Surviving Corporation,
(e) all the property, rights, privileges, powers and franchises of Delk and Delk
Merger Sub shall vest in Delk as the Delk Surviving Corporation, and all debts,
liabilities and duties of Delk and Delk Merger Sub shall become the debts,
liabilities and duties of Delk as the Delk Surviving Corporation, (f) all the
property, rights, privileges, powers and franchises of IHD and IHD Merger Sub
shall vest in IHD as the IHD Surviving Corporation, and all debts, liabilities
and duties of IHD and IHD Merger Sub shall become the debts, liabilities and
duties of IHD as the IHD Surviving Corporation, (g) all the property, rights,
privileges, powers and franchises of IHG and IHG Merger Sub shall vest in IHG as
the IHG Surviving Corporation, and all debts, liabilities and duties of IHD and
IHD Merger Sub shall become the debts, liabilities and duties of IHD as the IHD
Surviving Corporation, and (h) all the property, rights, privileges, powers and
franchises of Impac and Impac Merger Sub shall vest in Impac as the Impac
Surviving Corporation, and all debts, liabilities and duties of Impac and Impac
Merger Sub shall become the debts, liabilities and duties of Impac as the Impac
Surviving Corporation. As of the Effective Time, each of the Surviving
Corporations shall be a wholly-owned subsidiary of SHG.
1.6 ARTICLES OF INCORPORATION; ARTICLES OF ORGANIZATION; BYLAWS;
OPERATING AGREEMENT; DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATIONS.
Unless otherwise agreed by Servico and Impac before the Effective Time, at the
Effective Time:
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(a) the Articles of Incorporation and the Bylaws of Servico as
the Servico Surviving Corporation shall be the Articles of Incorporation and the
Bylaws of Servico Merger Sub, as in effect immediately prior to the Effective
Time, until thereafter amended as provided by such Articles of Incorporation or
Bylaws;
(b) the Articles of Organization and the Operating Agreement
of Impac as the Impac Surviving Corporation shall be the Articles of
Organization and the Operating Agreement of Impac Merger Sub, as in effect
immediately prior to the Effective Time, until thereafter amended as provided by
such Articles of Organization or Operating Agreement (the Operating Agreement of
Impac in effect prior to the Effective Time being amended and restated in
connection with and by virtue of the Impac Merger);
(c) the Articles or Certificate of Incorporation and Bylaws of
each of the Impac Affiliated Companies as the respective Surviving Corporations
in the Impac Affiliated Mergers shall be the Articles or Certificate of
Incorporation of each respective Impac Affiliated Merger Sub, as in effect
immediately prior to the Effective Time, until thereafter amended as provided by
such Articles or Certificate of Incorporation or Bylaws;
(d) subject to the provisions of Section 5.15, the officers of
each of the Surviving Corporations shall be (i) David Buddemeyer, Chief
Executive Officer, (ii) Robert Cole, President and (iii) David Buddemeyer and
Robert Cole shall hold the positions of Co-Chairmen of the Board of Directors,
each of whom shall serve in their respective offices of each of the respective
Surviving Corporations from and after the Effective Time, together with such
additional officers as may be elected from time to time, in each case until
their successors are elected or appointed and qualified or until their
resignation or removal in accordance with each Surviving Corporation's Articles
or Certificate of Incorporation and Bylaws or Articles of Organization and
Operating Agreement, as the case may be; and
(e) the directors of each of Servico Merger Sub, P-Burg Merger
Sub, Hazard Merger Sub, Delk Merger Sub, Memphis Merger Sub, IHD Merger Sub, IDC
Merger Sub and IHG Merger Sub, and the managers of Impac Merger Sub immediately
prior to the Effective Time shall continue to serve as the directors and
managers of their respective Surviving Corporations from and after the Effective
Time, in each case until their successors are elected or appointed and qualified
or until their resignation or removal in accordance with the Surviving
Corporation's Articles or Certificate of Incorporation and Bylaws or Articles of
Organization and Operating Agreement, as the case may be.
1.7 RESTATED CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS OF SHG.
Immediately prior to the Effective Time, SHG and Servico shall cause the
Certificate of Incorporation and Bylaws of SHG to be amended and restated to
read substantially in the form attached hereto as Exhibits 1.7(a) and (b),
respectively.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.1 CONVERSION OF SECURITIES. The manner and basis of converting the
securities of Servico, P- Burg, Hazard, Memphis, Delk, IHD, IDC, IHG, and Impac
and each of Servico Merger Sub, P-Burg
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Merger Sub, Hazard Merger Sub, Delk Merger Sub, Memphis Merger Sub, IHD Merger
Sub, IDC Merger Sub, IHG Merger Sub, and Impac Merger Sub, respectively, at the
Effective Time, by virtue of the Mergers, shall be as hereinafter set forth in
this Article II.
2.2 CONVERSION OF SHARES.
(a) Each share of Servico Common Stock issued and outstanding
immediately before the Effective Time (excluding those owned by Impac or any
wholly owned subsidiary of Servico or Impac) and all rights in respect thereof,
shall, at the Effective Time, without any action on the part of any holder
thereof, forthwith cease to exist and be converted into and become exchangeable
for 1.000 shares of SHG Common Stock; such ratio of shares of Servico Common
Stock to shares of SHG Common Stock being referred to as the "Servico Exchange
Ratio").
(b) Each share of P-Burg Common Stock, no par value per share
(the "P-Burg Common Stock"), issued and outstanding immediately before the
Effective Time and all rights in respect thereof, shall, at the Effective Time,
without any action on the part of any holder thereof, forthwith cease to exist
and be converted into and become exchangeable for a number of shares of SHG
Common Stock as determined below (such ratio of shares of P-Burg Common Stock to
shares of SHG Common Stock being referred to as the "P-Burg Exchange Ratio").
For purposes hereof, the P-Burg Exchange Ratio shall be equal to the quotient of
(i) the difference between 135,580.25 (the "P-Burg Base Number") and 25,650.32
divided by (ii) the number of outstanding shares of P-Burg Common Stock;
provided, however, that if the average of the closing sale prices of Servico
Common Stock on the NYSE over the ten consecutive trading periods preceding the
Satisfaction Date (the "Trading Period Average") is (i) less than $14.00, the
P-Burg Base Number shall be equal to the product of the P-Burg Base Number and a
fraction, the numerator of which is $14.00 and the denominator of which is the
Trading Period Average, and (ii) if the Trading Period Average is greater than
$25.00, the P-Burg Base Number shall be equal to the product of the P-Burg Base
Number and a fraction, the numerator of which is $25.00 and the denominator of
which is the Trading Period Average.
(c) Each share of Hazard Common Stock, no par value per share
(the "Hazard Common Stock"), issued and outstanding immediately before the
Effective Time and all rights in respect thereof, shall, at the Effective Time,
without any action on the part of any holder thereof, forthwith cease to exist
and be converted into and become exchangeable for a number of shares of SHG
Common Stock as determined below (such ratio of shares of Hazard Common Stock to
shares of SHG Common Stock being referred to as the "Hazard Exchange Ratio").
For purposes hereof, the Hazard Exchange Ratio shall be equal to the quotient of
(i) the difference between 71,358.72 (the "Hazard Base Number") and 13,500.30
divided by (ii) the number of outstanding shares of Hazard Common Stock;
provided, however, that if the Trading Period Average is (i) less than $14.00,
the Hazard Base Number shall be equal to the product of the Hazard Base Number
and a fraction, the numerator of which is $14.00 and the denominator of which is
the Trading Period Average, and (ii) if the Trading Period Average is greater
than $25.00, the Hazard Base Number shall be equal to the product of the Hazard
Base Number and a fraction, the numerator of which is $25.00 and the denominator
of which is the Trading Period Average.
(d) Each share of Memphis Common Stock, par value $.01 per
share (the "Memphis Common Stock"), issued and outstanding immediately before
the Effective Time and all rights in respect
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thereof, shall, at the Effective Time, without any action on the part of any
holder thereof, forthwith cease to exist and be converted into and become
exchangeable for a number of shares of SHG Common Stock as determined below
(such ratio of shares of Memphis Common Stock to shares of SHG Common Stock
being referred to as the "Memphis Exchange Ratio"). For purposes hereof, the
Memphis Exchange Ratio shall be equal to the quotient of (i) the difference
between 98,382.79 (the "Memphis Base Number") and 18,612.96 divided by (ii) the
number of outstanding shares of Memphis Common Stock; provided, however, that if
the Trading Period Average is (i) less than $14.00, the Memphis Base Number
shall be equal to the product of the Memphis Base Number and a fraction, the
numerator of which is $14.00 and the denominator of which is the Trading Period
Average, and (ii) if the Trading Period Average is greater than $25.00, the
Memphis Base Number shall be equal to the product of the Memphis Base Number and
a fraction, the numerator of which is $25.00 and the denominator of which is the
Trading Period Average.
(e) Each share of Delk Common Stock, no par value per share
(the "Delk Common Stock"), issued and outstanding immediately before the
Effective Time and all rights in respect thereof, shall, at the Effective Time,
without any action on the part of any holder thereof, forthwith cease to exist
and be converted into and become exchangeable for a number of shares of SHG
Common Stock as determined below (such ratio of shares of Delk Common Stock to
shares of SHG Common Stock being referred to as the "Delk Exchange Ratio"). For
purposes hereof, the Delk Exchange Ratio shall be equal to the quotient of (i)
the difference between 46,997.66 (the "Delk Base Number") and 8,891.45 divided
by (ii) the number of outstanding shares of Delk Common Stock; provided,
however, that if the Trading Period Average is (i) less than $14.00, the Delk
Base Number shall be equal to the product of the Delk Base Number and a
fraction, the numerator of which is $14.00 and the denominator of which is the
Trading Period Average, and (ii) if the Trading Period Average is greater than
$25.00, the Delk Base Number shall be equal to the product of the Delk Base
Number and a fraction, the numerator of which is $25.00 and the denominator of
which is the Trading Period Average.
(f) Each share of IHD Common Stock, no par value per share
(the "IHD Common Stock"), issued and outstanding immediately before the
Effective Time and all rights in respect thereof, shall, at the Effective Time,
without any action on the part of any holder thereof, forthwith cease to exist
and be converted into and become exchangeable for a number of shares of SHG
Common Stock as determined below (such ratio of shares of IHD Common Stock to
shares of SHG Common Stock being referred to as the "IHD Exchange Ratio"). For
purposes hereof, the IHD Exchange Ratio shall be equal to the quotient of (i)
the difference between 820,663.73 (the "IHD Base Number") and 155,260.71 divided
by (ii) the number of outstanding shares of IHD Common Stock; provided, however,
that if the Trading Period Average is (i) less than $14.00, the IHD Base Number
shall be equal to the product of the IHD Base Number and a fraction, the
numerator of which is $14.00 and the denominator of which is the Trading Period
Average, and (ii) if the Trading Period Average is greater than $25.00, the IHD
Base Number shall be equal to the product of the IHD Base Number and a fraction,
the numerator of which is $25.00 and the denominator of which is the Trading
Period Average.
(g) Each share of IDC Common Stock, no par value per share
(the "IDC Common Stock"), issued and outstanding immediately before the
Effective Time and all rights in respect thereof, shall, at the Effective Time,
without any action on the part of any holder thereof, forthwith cease to exist
and be converted into and become exchangeable for a number of shares of SHG
Common Stock as determined below (such ratio of shares of IDC Common Stock to
shares of SHG Common Stock being
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referred to as the "IDC Exchange Ratio"). For purposes hereof, the IDC Exchange
Ratio shall be equal to the quotient of (i) the difference between 47,875.89
(the "IDC Base Number") and 9,057.60 divided by (ii) the number of outstanding
shares of IDC Common Stock; provided, however, that if the Trading Period
Average is (i) less than $14.00, the IDC Base Number shall be equal to the
product of the IDC Base Number and a fraction, the numerator of which is $14.00
and the denominator of which is the Trading Period Average, and (ii) if the
Trading Period Average is greater than $25.00, the IDC Base Number shall be
equal to the product of the IDC Base Number and a fraction, the numerator of
which is $25.00 and the denominator of which is the Trading Period Average.
(h) Each share of IHG Common Stock, par value $1.00 per share
(the "IHG Common Stock"), issued and outstanding immediately before the
Effective Time and all rights in respect thereof, shall, at the Effective Time,
without any action on the part of any holder thereof, forthwith cease to exist
and be converted into and become exchangeable for a number of shares of SHG
Common Stock as determined below (such ratio of shares of IHG Common Stock to
shares of SHG Common Stock being referred to as the "IHG Exchange Ratio"). For
purposes hereof, the IHG Exchange Ratio shall be equal to the quotient of (i)
the difference between 79,793.17 (the "IHG Base Number") and 15,096.00 divided
by (ii) the number of outstanding shares of IHG Common Stock; provided, however,
that if the Trading Period Average is (i) less than $14.00, the IHG Base Number
shall be equal to the product of the IHG Base Number and a fraction, the
numerator of which is $14.00 and the denominator of which is the Trading Period
Average, and (ii) if the Trading Period Average is greater than $25.00, the IHG
Base Number shall be equal to the product of the IHG Base Number and a fraction,
the numerator of which is $25.00 and the denominator of which is the Trading
Period Average.
(i) Except as provided in Section 2.3(c) below, each Class A
Ordinary Membership Interest of Impac (an "Impac Unit") issued and outstanding
immediately before the Effective Time and all rights in respect thereof, shall,
at the Effective Time, without any action on the part of any holder thereof,
forthwith cease to exist and be converted into and become exchangeable for a
number of shares of SHG Common Stock as determined below (such ratio of shares
of Impac Units to shares of SHG Common Stock being referred to as the "Impac
Exchange Ratio"). For purposes hereof, the Impac Exchange Ratio shall be equal
to the quotient of (i) the difference between 6,099,347.79 (the "Impac Base
Number") and 1,153,930.66, divided by (ii) the number of outstanding Impac Units
minus the number of Impac Units owned by P-Burg, Hazard, Delk, Memphis, IHD, IDC
and IHG; provided, however, that if the Trading Period Average is (i) less than
$14.00, the Impac Base Number shall be equal to the product of the Impac Base
Number and a fraction, the numerator of which is $14.00 and the denominator of
which is the Trading Period Average, and (ii) if the Trading Period Average is
greater than $25.00, the Impac Base Number shall be equal to the product of the
Impac Base Number and a fraction, the numerator of which is $25.00 and the
denominator of which is the Trading Period Average.
(j) Upon satisfaction of the conditions and milestones set
forth on SCHEDULE 2.2(C), an aggregate of an additional 1,400,000 shares of SHG
Common Stock (the "Additional Shares") shall be issuable to the holders of
P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common
Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock and Impac Units
(collectively, the "Additional Shareholders") in accordance with the methodology
set forth on SCHEDULE 2.2(C). Certificates representing the Additional Shares
shall be delivered at the Closing to the Exchange Agent (as hereinafter
defined), as Escrow Agent, to be held and delivered to the Additional
Shareholders
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upon satisfaction of the conditions and milestones set forth on SCHEDULE 2.2(C)
in accordance with an Escrow Agreement substantially in the form attached hereto
as Exhibit 2.2(c). The Escrow Agreement will provide for the Additional Shares
to be released from escrow from time to time upon satisfaction of such
conditions and milestones (each of such milestone dates being hereafter referred
to as a "Milestone Date"). The parties agree and acknowledge that the Additional
Shares will be held in escrow pending solely the satisfaction of the milestones
and conditions set forth on SCHEDULE 2.2(C) and any breach of any
representation, warranty or covenant by Impac contained in this Agreement will
have no effect on SHG's obligation to issue the Additional Shares to the
Additional Shareholders. The parties hereto hereby agree and acknowledge that
the parties have been advised that the Additional Shares will not be treated as
outstanding for purposes of calculating earnings per share under applicable
accounting rules and guidelines as applied by the SEC or otherwise.
(k) At the Effective Time, each Class B Ordinary Membership
Interest of Impac shall be canceled and retired and no shares of stock or other
securities of SHG or either of the Surviving Corporations or any other person
shall be issuable, and no payment or other calculation shall be made with
respect thereto.
(l) Commencing immediately after the Effective Time, each
certificate which, immediately prior to the Effective Time, represented issued
and outstanding shares of Servico Common Stock ("Servico Shares"), P-Burg Common
Stock ("P-Burg Shares"), Hazard Common Stock ("Hazard Shares"), Memphis Common
Stock ("Memphis Shares"), Delk Common Stock ("Delk Shares"), IHD Common Stock
("IHD Shares"), IDC Common Stock ("IDC Shares"), IHG Common Stock, ("IHG
Shares"), Impac Units (Impac Units, together with P-Burg Shares, Hazard Shares,
Memphis Shares, Delk Shares, IHD Shares, IDC Shares, IHG Shares, and Servico
Shares, the "Shares"), shall evidence ownership of SHG Common Stock on the basis
hereinbefore set forth, but subject to the limitations set forth in Sections
2.3, 2.5, 2.7, 2.8 and 2.9 hereof.
(m) For all purposes of this Agreement, unless otherwise
specified, all shares held by employee benefit plans of Servico (i) shall be
deemed to be issued and outstanding, (ii) shall not be deemed to be held in the
treasury of Servico, and (iii) shall be converted into shares of SHG Common
Stock in accordance with the Servico Exchange Ratio.
2.3 CANCELLATION OF CERTAIN SHARES AND OF OUTSTANDING SHG COMMON
STOCK.
(a) At the Effective Time, each share of Servico Common Stock
owned by Impac or any wholly-owned subsidiary of Impac immediately prior to the
Effective Time, shall be canceled and retired and no shares of stock or other
securities of SHG or either of the Surviving Corporations or any other person
shall be issuable, and no payment or other consideration shall be made, with
respect thereto.
(b) At the Effective Time, the shares of SHG Common Stock held
by Servico shall be canceled and retired and no shares of stock or other
securities of SHG or either of the Surviving Corporations or any other person
shall be issuable, and no payment or other consideration shall be made, with
respect thereto.
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(c) At the Effective Time, all Impac Units held by P-Burg,
Hazard, Memphis, Delk, IHD, IDC and IHG shall be cancelled and retired and no
shares of stock or other securities of SHG (including any Additional Shares) or
any of the Surviving Corporations or any other person shall be issuable, and no
payment or other consideration shall be made, with respect thereto.
2.4 CONVERSION OF COMMON STOCK AND MEMBERSHIP INTERESTS OF SERVICO
MERGER SUB, IMPAC MERGER SUB AND IMPAC AFFILIATED MERGER SUB INTO COMMON STOCK
OR MEMBERSHIP INTERESTS OF THE SURVIVING CORPORATIONS.
(a) At the Effective Time, each share of common stock, par
value $0.01 per share, of Servico Merger Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of SHG, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of Servico Surviving Corporation (the "New Servico Common
Stock"). Immediately after the Effective Time and upon surrender by SHG of the
certificate representing the shares of the common stock of Servico Merger Sub,
Servico Surviving Corporation shall deliver to SHG an appropriate certificate or
certificates representing the New Servico Common Stock created by conversion of
the common stock of Servico Merger Sub owned by SHG.
(b) At the Effective Time, each share of common stock, par
value $0.01 per share, of P-Burg Merger Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of SHG, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of P-Burg Surviving Corporation (the "New P-Burg Common
Stock"). Immediately after the Effective Time and upon surrender by SHG of the
certificate representing the shares of the common stock of P-Burg Merger Sub,
P-Burg Surviving Corporation shall deliver to SHG an appropriate certificate or
certificates representing the New P-Burg Common Stock created by conversion of
the common stock of P-Burg Merger Sub owned by SHG.
(c) At the Effective Time, each share of common stock, par
value $0.01 per share, of Hazard Merger Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of SHG, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of Hazard Surviving Corporation (the "New Hazard Common
Stock"). Immediately after the Effective Time and upon surrender by SHG of the
certificate representing the shares of the common stock of Hazard Merger Sub,
Hazard Surviving Corporation shall deliver to SHG an appropriate certificate or
certificates representing the New Hazard Common Stock created by conversion of
the common stock of Hazard Merger Sub owned by SHG.
(d) At the Effective Time, each share of common stock, par
value $0.01 per share, of Memphis Merger Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of SHG, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of Memphis Surviving Corporation (the "New Memphis Common
Stock"). Immediately after the Effective Time and upon surrender by SHG of the
certificate representing the shares of the common stock of
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Memphis Merger Sub, Memphis Surviving Corporation shall deliver to SHG an
appropriate certificate or certificates representing the New Memphis Common
Stock created by conversion of the common stock of Memphis Merger Sub owned by
SHG.
(e) At the Effective Time, each share of common stock, par
value $0.01 per share, of Delk Merger Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of SHG, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of Delk Surviving Corporation (the "New Delk Common
Stock"). Immediately after the Effective Time and upon surrender by SHG of the
certificate representing the shares of the common stock of Delk Merger Sub, Delk
Surviving Corporation shall deliver to SHG an appropriate certificate or
certificates representing the New Delk Common Stock created by conversion of the
common stock of Delk Merger Sub owned by SHG.
(f) At the Effective Time, each share of common stock, par
value $0.01 per share, of IHD Merger Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of SHG, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of IHD Surviving Corporation (the "New IHD Common
Stock"). Immediately after the Effective Time and upon surrender by SHG of the
certificate representing the shares of the common stock of IHD Merger Sub, IHD
Surviving Corporation shall deliver to SHG an appropriate certificate or
certificates representing the New IHD Common Stock created by conversion of the
common stock of IHD Merger Sub owned by SHG.
(g) At the Effective Time, each share of common stock, par
value $0.01 per share, of IDC Merger Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of SHG, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of IDC Surviving Corporation (the "New IDC Common
Stock"). Immediately after the Effective Time and upon surrender by SHG of the
certificate representing the shares of the common stock of IDC Merger Sub, IDC
Surviving Corporation shall deliver to SHG an appropriate certificate or
certificates representing the New IDC Common Stock created by conversion of the
common stock of IDC Merger Sub owned by SHG.
(h) At the Effective Time, each share of common stock, par
value $0.01 per share, of IHG Merger Sub issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall, without
any action on the part of SHG, forthwith cease to exist and be converted into
one validly issued, fully paid and nonassessable share of common stock, par
value $0.01 per share, of IHG Surviving Corporation (the "New IHG Common
Stock"). Immediately after the Effective Time and upon surrender by SHG of the
certificate representing the shares of the common stock of IHG Merger Sub, IHG
Surviving Corporation shall deliver to SHG an appropriate certificate or
certificates representing the New IHG Common Stock created by conversion of the
common stock of IHG Merger Sub owned by SHG.
(i) At the Effective Time, all membership interests of Impac
Merger Sub issued and outstanding immediately prior to the Effective Time, and
all rights in respect thereof, shall, without any action on the part of SHG,
forthwith cease to exist and be converted into equivalent membership interests
of Impac Surviving Corporation (the "New Impac Units"). Immediately after the
Effective Time and upon surrender by SHG of the certificate representing the
membership interests of Impac Merger Sub, Impac
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Surviving Corporation shall deliver to SHG an appropriate certificate or
certificates representing the New Impac Units.
2.5 EXCHANGE OF SHARES OTHER THAN TREASURY SHARES. Subject to the terms
and conditions hereof, at or prior to the Effective Time, SHG shall appoint an
exchange agent to effect the exchange of Shares for SHG Common Stock in
accordance with the provisions of this Article II (the "Exchange Agent"). From
time to time after the Effective Time, SHG shall deposit, or cause to be
deposited, certificates representing SHG Common Stock for conversion of Shares
in accordance with the provisions of Section 2.2 hereof (such certificates,
together with any dividends or distributions with respect thereto, being herein
referred to as the "Exchange Fund"). Commencing immediately after the Effective
Time and until the appointment of the Exchange Agent shall be terminated, each
holder of a certificate or certificates theretofore representing Shares may
surrender the same to the Exchange Agent, and, after the appointment of the
Exchange Agent shall be terminated, any such holder may surrender any such
certificate to SHG. Such holder shall be entitled upon such surrender to receive
in exchange therefor a certificate or certificates representing the number of
full shares of SHG Common Stock into which the Shares theretofore represented by
the certificate or certificates so surrendered shall have been converted in
accordance with the provisions of Section 2.2 hereof, together with a cash
payment in lieu of fractional shares, if any, in accordance with Section 2.7
hereof, and all such shares of SHG Common Stock shall be deemed to have been
issued at the Effective Time, it being agreed and acknowledged, however, that
the Additional Shares shall not be deemed to be issued or outstanding until
issuable on the applicable Milestone Date in accordance with the provisions of
SCHEDULE 2.2(C). Until so surrendered and exchanged, each outstanding
certificate which, prior to the Effective Time, represented issued and
outstanding Shares shall be deemed for all corporate purposes of SHG, other than
the payment of dividends and other distributions, if any, to evidence ownership
of the number of full shares of SHG Common Stock into which the Shares
theretofore represented thereby shall have been converted at the Effective Time.
Unless and until any such certificate theretofore representing Shares is so
surrendered, no dividend or other distribution, if any, payable to the holders
of record of SHG Common Stock as of any date subsequent to the Effective Time
shall be paid to the holder of such certificate in respect thereof. Upon the
surrender of any such certificate theretofore representing Shares, however, the
record holder of the certificate or certificates representing shares of SHG
Common Stock issued in exchange therefor shall receive from the Exchange Agent
or from SHG, as the case may be, payment of the amount of dividends and other
distributions, if any, which as of any date subsequent to the Effective Time
(or, with respect to the Additional Shares, subsequent to the Milestone Date)
and until such surrender shall have become payable with respect to such number
of shares of SHG Common Stock ("Presurrender Dividends"). No interest shall be
payable with respect to the payment of Presurrender Dividends upon the surrender
of certificates theretofore representing Shares. After the appointment of the
Exchange Agent shall have been terminated, such holders of SHG Common Stock who
have not received payment of Presurrender Dividends shall look only to SHG for
payment thereof. Notwithstanding the foregoing provisions of this Section 2.5,
risk of loss and title to such certificates representing Shares shall pass only
upon proper delivery of such certificates to the Exchange Agent, and neither the
Exchange Agent nor any party hereto shall be liable to a holder of Shares for
any SHG Common Stock or dividends or distributions thereon delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law
or to a transferee pursuant to Section 2.6 hereof.
2.6 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer
books of Servico with respect to Servico Shares, the stock transfer books of
P-Burg with respect to P-Burg Shares, the stock
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transfer books of Hazard with respect to Hazard Shares, the stock transfer books
of Memphis with respect to Memphis Shares, the stock transfer books of Delk with
respect to Delk Shares, the stock transfer books of IHD with respect to IHD
Shares, the stock transfer books of IDC with respect to IDC Shares, the stock
transfer books of IHG with respect to IHG Shares and the transfer books of Impac
with respect to Impac Units shall each be closed, and there shall be no further
registration of transfers of Shares thereafter on the records of any such
transfer books. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of Servico, P-Burg, Hazard, Memphis, Delk,
IHD, IDC, IHG or Impac, as the case may be, at the Effective Time, a certificate
or certificates representing the number of full shares of SHG Common Stock into
which such Shares shall have been converted shall be issued to the transferee
together with a cash payment in lieu of fractional shares, if any, in accordance
with Section 2.7 hereof, and a cash payment in the amount of Presurrender
Dividends, if any, in accordance with Section 2.5 hereof, if the certificate or
certificates representing such Shares is or are surrendered as provided in
Section 2.5 hereof, accompanied by all documents required to evidence and effect
such transfer and by evidence of payment of any applicable transfer tax.
2.7 NO FRACTIONAL SHARE CERTIFICATES.
(a) No scrip or fractional share certificate for SHG Common
Stock shall be issued upon the surrender for exchange of certificates evidencing
Shares, and an outstanding fractional share interest shall not entitle the owner
thereof to vote, to receive dividends or to any rights of a shareholder of SHG
or a shareholder or member of any of the Surviving Corporations with respect to
such fractional share interest.
(b) As promptly as practicable following the Effective Time
and following the applicable Milestone Date, the Exchange Agent shall determine
the excess of (i) the number of full shares of SHG Common Stock to be issued and
delivered to the Exchange Agent pursuant to Section 2.5 hereof over (ii) the
aggregate number of full shares of SHG Common Stock to be distributed to holders
of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis
Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common
Stock and Impac Units pursuant to Section 2.5 hereof (such excess being herein
called the "Excess Shares"). Following the Effective Time and following the
applicable Milestone Date, the Exchange Agent, as agent for the holders of
Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common
Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock
and Impac Units , shall sell the Excess Shares at then prevailing prices on the
New York Stock Exchange, Inc. (the "NYSE"), all in the manner provided in
subsection (c) of this Section 2.7.
(c) The sale of the Excess Shares by the Exchange Agent shall
be executed on the NYSE through one or more member firms of such exchange and
shall be executed in round lots to the extent practicable. The Exchange Agent
shall use all reasonable efforts to complete the sale of the Excess Shares as
promptly following the Effective Time or the applicable Milestone Date, as the
case may be, as, in the Exchange Agent's reasonable judgment, is practicable
consistent with obtaining the best execution of such sales in light of
prevailing market conditions. Until the net proceeds of such sale or sales have
been distributed to the holders of each of Servico Common Stock, P-Burg Common
Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common
Stock, IDC Common Stock, IHG Common Stock and Impac Units, the Exchange Agent
shall hold such proceeds in trust for the
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holders of Servico Common Stock (the "Servico Common Shares Trust"), P-Burg
Common Stock (the "P-Burg Common Shares Trust"), Hazard Common Stock (the
"Hazard Common Shares Trust"), Memphis Common Stock (the "Memphis Common Shares
Trust"), Delk Common Stock (the "Delk Common Shares Trust"), IHD Common Stock
(the "IHD Common Shares Trust"), IDC Common Stock (the "IDC Common Shares
Trust"), IHG Common Stock (the "IHG Common Shares Trust") and Impac Units (the
"Impac Unit Trust"). SHG shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with such sale of Excess Shares. The
Exchange Agent shall determine the portion of the Servico Common Shares Trust,
the P-Burg Common Shares Trust, the Hazard Common Shares Trust, the Memphis
Common Shares Trust, the Delk Common Shares Trust, the IHD Common Shares Trust,
the IDC Common Shares Trust, the IHG Common Shares Trust or the Impac Unit
Trust, as the case may be, to which each holder of Servico Common Stock, P-Burg
Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD
Common Stock, IDC Common Stock, IHG Common Stock or Impac Units shall be
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Servico Common Shares Trust, the P-Burg Common Shares Trust, the
Hazard Common Shares Trust, the Memphis Common Shares Trust, the Delk Common
Shares Trust, the IHD Common Shares Trust, the IDC Common Shares Trust, the IHG
Common Shares Trust or the Impac Unit Trust, respectively, by a fraction the
numerator of which is the amount of fractional share interests to which such
holder of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock,
Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG
Common Stock or Impac Units, as the case may be, is entitled (after taking into
account all shares of Servico Common Stock, P-Burg Common Stock, Hazard Common
Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common
Stock, IHG Common Stock or Impac Units, respectively, held at the Effective Time
by such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Servico Common Stock, P-Burg
Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD
Common Stock, IDC Common Stock, IHG Common Stock or Impac Units, respectively,
are entitled.
(d) Notwithstanding the provisions of subsections (b) and (c)
of this Section 2.7, Servico may, in lieu of the issuance and sale of Excess
Shares and the making of the payments contemplated in such subsections, cause
SHG to pay to the Exchange Agent an amount in cash sufficient for the Exchange
Agent to pay each holder of Servico Common Stock, P-Burg Common Stock, Hazard
Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC
Common Stock, IHG Common Stock and/or Impac Units an amount in cash equal to the
product obtained by multiplying (i) the fractional share interest to which such
holder would otherwise be entitled (after taking into account all shares of
Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common
Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock
and/or Impac Units , as the case may be, held at the Effective Time by such
holder) by (ii) the closing price for a share of SHG Common Stock on the NYSE
Composite Transaction Tape on the first business day immediately following the
Effective Time or the applicable Milestone Date, as the case may be, and, in
such case, all references herein to the cash proceeds of the sale of the Excess
Shares and similar references shall be deemed to mean and refer to the payments
calculated as set forth in this subsection (d). In such event, Excess Shares
shall not be issued or otherwise transferred to the Exchange Agent pursuant to
Section 2.5 hereof.
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(e) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Servico Common Stock, P-Burg
Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD
Common Stock, IDC Common Stock, IHG Common Stock or Impac Units with respect to
any fractional share interests, the Exchange Agent shall make available such
amounts, net of any required withholding, to such holders of Servico Common
Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk
Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac
Units, subject to and in accordance with the terms of Section 2.5 hereof.
(f) Any portion of the Exchange Fund, the Servico Common
Shares Trust, the P-Burg Common Shares Trust, the Hazard Common Shares Trust,
the Memphis Common Shares Trust, the Delk Common Shares Trust, the IHD Common
Shares Trust, the IDC Common Shares Trust, the IHG Common Shares Trust or the
Impac Unit Trust which remains undistributed for six months after the latest
Milestone Date shall be delivered to SHG, and any holder of Servico Common
Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk
Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac
Units who has not theretofore complied with the provisions of this Article II
shall thereafter look only to SHG for satisfaction of their claims for SHG
Common Stock or any cash in lieu of fractional shares of SHG Common Stock and
any Presurrender Dividends.
2.8 OPTIONS TO PURCHASE SERVICO COMMON STOCK. At the Effective Time,
each option or warrant granted by Servico to purchase shares of Servico Common
Stock which is outstanding and unexercised immediately prior to the Effective
Time, shall be assumed by SHG and converted into an option or warrant to
purchase shares of SHG Common Stock in such number and at such exercise price as
provided below and otherwise having the same terms and conditions as in effect
immediately prior to the Effective Time (except to the extent that such terms,
conditions and restrictions may be altered in accordance with their terms as a
result of the Mergers contemplated hereby):
(a) the number of shares of SHG Common Stock to be subject to
the new option or warrant shall be equal to the product of (x) the number of
shares of Servico Common Stock subject to the original option or warrant and (y)
the Servico Exchange Ratio;
(b) the exercise price per share of SHG Common Stock under the
new option or warrant shall be equal to (x) the exercise price per share of the
Servico Common Stock under the original option or warrant divided by (y) the
Servico Exchange Ratio; and
(c) upon each exercise of options or warrants by a holder
thereof, the aggregate number of shares of SHG Common Stock deliverable upon
such exercise shall be rounded down, if necessary, to the nearest whole share
and the aggregate exercise price shall be rounded up, if necessary, to the
nearest cent.
The adjustments provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be effected in a
manner consistent with the requirements of Section 424(a) of the Code.
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2.9 OPTIONS TO PURCHASE IMPAC UNITS. At the Effective Time, the option
granted by Impac to Robert Cole to purchase Impac Units, which option is set
forth on Schedule 2.9, shall be assumed by SHG and converted into an option to
purchase shares of SHG Common Stock in such number and at such exercise price as
provided below, and as otherwise having the same terms and conditions as in
effect immediately prior to the Effective Time (except to the extent that such
terms, conditions, and restrictions may be altered in accordance with their
terms as a result of the Mergers contemplated hereby):
(a) the number of shares of SHG Common Stock to be subject to the
new option shall be equal to the product of (x) the number of shares of Servico
Common Stock subject to the original option and (y) .64;
(b) the exercise price per share of SHG Common Stock under the new
option shall be equal to (x) the exercise price per unit of the Impac Unit
under the original option divided by (y) .64; and
(c) upon exercise of the option by Cole, the aggregate number of
shares of SHG Common Stock deliverable upon such exercise shall be rounded down,
if necessary, to the nearest whole share and the aggregate exercise price shall
be rounded up, if necessary, to the nearest cent.
2.10 CERTAIN ADJUSTMENTS. If between the date of this Agreement and the
Effective Time, the outstanding shares of Servico Common Stock shall be changed
into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock, or other securities shall be declared thereon with a record
date within such period, the Impac Exchange Ratio established pursuant to the
provisions of Section 2.2(b) hereof shall be adjusted accordingly to provide to
the holders of Impac Units, P-Burg Common Stock, Hazard Common Stock, Memphis
Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock and IHG
Common Stock the same economic effect as contemplated by this Agreement prior to
such reclassification, recapitalization, split-up, combination, exchange or
dividend.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SERVICO
Servico hereby represents and warrants to Impac and the Impac
Affiliated Companies as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Servico and each direct
or indirect subsidiary (including the Servico Constituents (as defined herein))
of Servico (the "Servico Subsidiaries") has been duly organized and is validly
existing and in good standing under the laws of its state of incorporation or
organization, as the case may be, and has all requisite right, power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby.
3.2 LEGAL, VALID AND BINDING AGREEMENT. The execution, delivery and
performance of this Agreement by Servico, SHG, Impac Merger Sub, Servico Merger
Sub and each of the Impac Affiliated Merger Subs (collectively, the "Servico
Constituents") and the consummation by Servico and the Servico Constituents of
the Mergers contemplated hereby have been duly and effectively authorized by all
requisite corporate action and no other corporate proceedings on the part of
Servico or the Servico Constituents are necessary to authorize this Agreement or
to consummate such Mergers (other than the approval of this Agreement and the
Mergers contemplated hereby by the holders of a majority of the outstanding
shares of Servico Common Stock entitled to vote with respect thereto at the
Servico Special Meeting and the filing and recordation of the Servico Articles
of Merger, the Impac Articles of Merger, the P-Burg Articles of Merger, the
Hazard Articles of Merger, the Memphis Articles of Merger, the Delk Certificate
of Merger, the IHD Certificate of Merger, the IDC Certificate of Merger and the
IHG Certificate of Merger, as required by the FBCA, the GLLCA, the KBCA and the
DGCL, as applicable). This Agreement has been duly executed and delivered by
Servico and each of the Servico Constituents and, assuming the due
authorization, execution and delivery by the other parties hereto, constitutes
the legal, valid and binding obligations of Servico and each of the Servico
Constituents, enforceable against Servico and the Servico Constituents in
accordance with its terms.
3.3 AUTHORITY TO DO BUSINESS. Each of Servico and the Servico
Subsidiaries has the corporate power and authority and all necessary
governmental approvals to own, operate and lease its properties and assets and
to conduct its business as presently conducted, and is duly qualified or
licensed to transact business in all jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification or license, except where the failure to have such power, authority
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and governmental approvals or to be so qualified or licensed, individually or in
the aggregate, would not have a Servico Material Adverse Effect.
3.4 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 3.4, the
execution, delivery and performance of this Agreement by Servico and each of the
Servico Constituents and the consummation by Servico and each of the Servico
Constituents of the transactions contemplated hereby do not and will not (i)
conflict with or violate any provision of the Articles of Incorporation or
Bylaws of Servico or any equivalent organizational documents of any Servico
Subsidiary, (ii) assuming that all consents, approvals, authorizations and
permits described in Section 3.5 have been obtained and all filings and
notifications described in Section 3.5 have been made, violate or conflict with
any Law applicable to Servico or any Servico Subsidiary or by which any property
or asset of Servico or any Servico Subsidiary is bound or effected, and (iii)
with or without the passage of time or the giving of notice, result in the
breach of, or constitute a default under, cause the acceleration of performance
of, permit the unilateral modification or termination of, or require any consent
under, or result in the creation of any liens or other encumbrance upon any
property or assets of Servico or any Servico Subsidiary pursuant to any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other obligation, except, with respect to clauses (ii) and (iii),
for any such conflicts, violations, breaches, defaults or other occurrences
which would neither, individually or in the aggregate, (A) have a Servico
Material Adverse Effect nor (B) prevent or materially delay the performance by
Servico or any Servico Constituent of its material obligations pursuant to this
Agreement or the consummation of the Mergers.
3.5 GOVERNMENTAL CONSENTS. The execution and delivery of this Agreement
by Servico and each of the Servico Constituents does not, and the performance by
Servico and each of the Servico Constituents of its obligations hereunder and
the consummation of the Mergers will not, require any consent, approval,
authorization or permit of, or filing by Servico or any Servico Constituent with
or notification by Servico or any Servico Constituent to, any United States
federal, state or local or any foreign governmental, regulatory or
administrative authority, agency or commission or any court, tribunal or
arbitral body (a "Governmental Entity"), except (i) applicable requirements of
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), the Securities Act of
1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"), state securities or "blue sky" laws ("Blue
Sky Laws"), the rules and regulations of the NYSE, state takeover laws, the
premerger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act"), the filing and recordation of the respective Articles or
Certificates of Merger as referenced in Section 3.2 above, and as set forth on
SCHEDULE 3.5, and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
(A) prevent or materially delay the performance by Servico or any Servico
Constituent of its material obligations pursuant to this Agreement and the
consummation of the Mergers, or (B) individually or in the aggregate have a
Servico Material Adverse Effect.
3.6 EXCHANGE ACT REPORTS; FINANCIAL STATEMENTS.
(a) Since January 1, 1995, Servico has timely filed all
reports and other documents required to be filed by it with the United States
Securities and Exchange Commission (the "SEC") under each of the Securities Act
and the Exchange Act and the respective rules and regulations thereunder,
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including but not limited to proxy statements and reports on Form 10-K, Form
10-Q and Form 8-K (collectively, the "Servico SEC Reports"). As of the
respective dates they were filed with the SEC, the Servico SEC Reports,
including all documents incorporated by reference into such reports, complied in
all material respects with the rules and regulations of the SEC and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements (the "Servico
Financial Statements") of Servico included in the Servico SEC Reports, as of the
dates thereof and for the periods covered thereby, present fairly, in all
material respects, the financial position, results of operations, and cash flows
of Servico and the Servico Subsidiaries on a consolidated basis (subject, in the
case of unaudited statements, to normal recurring year-end audit adjustments
which were not and are not expected, individually or in the aggregate, to have a
Servico Material Adverse Effect). Any supporting schedules included in the
Servico SEC Reports present fairly, in all material respects, the information
required to be stated therein. Such Servico Financial Statements and supporting
schedules were prepared: (A) in accordance with the requirements of Regulation
S-X promulgated by the SEC; and (B) except as otherwise noted in the Servico SEC
Reports, in conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis. Other than as disclosed by the Servico Financial
Statements included in the Servico SEC Reports or on SCHEDULE 3.6 hereto,
neither Servico nor any of the Servico Subsidiaries has any liabilities,
commitments or obligations of any nature whatsoever, whether accrued, contingent
or otherwise that would be required to be reflected on, or reserved against in,
a balance sheet or in notes thereto, prepared in accordance with GAAP, other
than liabilities, commitments or obligations incurred since December 31, 1996 in
the ordinary course of business that would not, individually or in the
aggregate, have a Servico Material Adverse Effect.
3.7 COMPLIANCE WITH LAWS.
(a) Each of Servico and the Servico Subsidiaries is in
compliance with all federal, state, local and foreign laws, ordinances,
regulations, judgments, rulings, orders and other legal requirements applicable
to it, its operations or its properties, including without limitation those
relating to employment, building and zoning, safety and health, and
environmental matters, except where the failure to so comply, individually or in
the aggregate, would not have a Servico Material Adverse Effect. Except as set
forth on SCHEDULE 3.7(A) or as would not reasonably be expected to have a
Servico Material Adverse Effect, neither Servico nor any Servico Subsidiary has
received notification from any Governmental Entity asserting that it may not be
in compliance with, or may have violated, any of the Laws which said
Governmental Entity enforces, or threatening to revoke any authorization,
consent, approval, franchise, license or permit, and neither Servico nor any
Servico Subsidiary is subject to any agreement or consent decree with any
Governmental Entity arising out of previously asserted violations.
(b) Without limiting the generality of Section 3.7(a), except
as disclosed by the environmental audits and reports listed on SCHEDULE 3.7,
copies of which have heretofore been delivered to Impac, or as otherwise set
forth on SCHEDULE 3.7, or as will not, individually or in the aggregate, have a
Servico Material Adverse Effect:
(i) Servico and the Servico Subsidiaries are in
compliance with all applicable Environmental Laws. All past
noncompliance of Servico or any Servico Subsidiary with
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Environmental Laws or Environmental Permits has been resolved
without any pending, ongoing or future obligation, cost or
liability; and
(ii) neither Servico nor any Servico Subsidiary has
released a Hazardous Material at, or transported a Hazardous
Material to or from, any real property currently or formerly
owned, leased or occupied by Servico or any Servico Subsidiary
in violation of any Environmental Law.
For purposes of this Agreement:
"ENVIRONMENTAL LAW" means any federal, state or local statute,
law, ordinance, regulation, rule, code or order of the United States or
any other jurisdiction and any enforceable judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment, relating to pollution or protection of the
environmental or natural resources, including, without limitation,
those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in
effect as of the date of this Agreement.
"ENVIRONMENTAL PERMIT" means any permit, approval,
identification number, license or other authorization required under or
issued pursuant to any applicable Environmental Law.
"HAZARDOUS MATERIAL" means (i) any petroleum, petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls or (ii) any
chemical, material or substance defined or regulated as toxic or
hazardous or as a pollutant or contaminant or waste under any
applicable Environmental Law.
3.8 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 3.8 or the
Servico SEC Reports, neither Servico nor any of the Servico Subsidiaries is a
party to any pending or, to the knowledge of Servico, threatened, legal,
administrative or other proceeding, arbitration or investigation, that is or
would be reasonably expected to, either individually or in the aggregate, result
in a Servico Material Adverse Effect. Servico has no knowledge of any set of
facts which would reasonably be expected to result in any such legal,
administrative or other proceeding, arbitration or investigation involving
Servico or any Servico Subsidiary. Except as set forth on SCHEDULE 3.8, neither
Servico nor any of the Servico Subsidiaries is subject to any order, injunction
or other judgment of any court or governmental authority which, individually or
in the aggregate, could reasonably be expected to have a Servico Material
Adverse Effect.
3.9 BROKERS. Other than Lehman Brothers, Inc. ("Lehman Brothers") and
Hodges Ward & Elliot ("HW&E"), neither Servico nor any of the Servico
Subsidiaries has employed any financial advisor, broker or finder and has not
incurred and none will incur any broker's, finder's, investment banking or
similar fees, commissions or expenses to any other party in connection with the
transactions contemplated by this Agreement. Servico has provided to Impac
complete and correct copies of all agreements between Servico and Lehman
Brothers pursuant to which such firm would be entitled to any payment related to
the Mergers.
3.10 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as disclosed on
SCHEDULE 3.10 or in the Servico SEC Reports, since December 31, 1996 each of
Servico and the Servico Subsidiaries has conducted its businesses only in the
ordinary and usual course and in a manner consistent with past
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practices. Except as disclosed on SCHEDULE 3.10: (i) there has not been any
Servico Material Adverse Effect; (ii) neither Servico nor any Servico Subsidiary
has engaged or agreed to engage in any of the actions described in Section
5.2(a) (except as otherwise specifically permitted therein); and (iii) there has
not been any event that would reasonably be expected to prevent or materially
delay the performance of Servico's material obligations pursuant to this
Agreement and the consummation of the Mergers by Servico.
3.11 CAPITALIZATION. The authorized capital stock of Servico consists
of 25 million shares of Servico Common Stock, of which 21,038,995 shares were
issued and outstanding as of March 20, 1998. The authorized capital stock of SHG
is 75 million shares of common stock and 25 million shares of preferred stock,
and the authorized capital stock of Servico Sub and Impac Sub is 1,000 shares
and 100 membership interests, respectively, of which 1,000 shares and 100
membership interests, respectively, are issued and outstanding as of the date
hereof. All shares of Servico's and each Servico Subsidiary's outstanding
capital stock have been duly authorized, are validly issued and outstanding, and
are fully paid and nonassessable. No securities issued by Servico or any Servico
Subsidiary from the date of its organization or incorporation to the date hereof
were issued in violation of any statutory or common law preemptive rights or the
rules and regulations of the Securities Act or any Blue Sky Laws.
3.12 TAX MATTERS. To the knowledge of Servico, neither Servico nor any
of its affiliates has taken or agreed to take any action (other than actions
contemplated by this Agreement) that would prevent the Servico Merger or any of
the Impac Affiliated Mergers (except the IHD Merger) from constituting a
transaction qualifying under Section 368(a) of the Code or would prevent the
Impac Merger or the IHD Merger from constituting a transaction qualifying under
Section 351 of the Code. Servico is not aware of any agreement, plan or other
circumstance that would prevent the Mergers from so qualifying under Section
368(a) or Section 351 of the Code.
3.13 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS. Servico and
the Servico Subsidiaries have good title to each item of personal (movable)
property, tangible and intangible, to the extent reflected on the Servico
Financial Statements and to each material item of material personal (movable)
property, tangible and intangible, acquired since December 31, 1996 (other than
property disposed of in the ordinary course of business consistent with past
practice since December 31, 1996), free and clear of any liens or other
encumbrances, except as set forth on the Servico Financial Statements or in
SCHEDULE 3.13 hereto and except for liens arising by operation of law in favor
of carriers, warehousemen, repairmen or landlords or other like liens which
arise in the ordinary course of business for amounts which are not due and
payable (all such personal property being hereinafter referred to as the
"Servico Personal Property"). All equipment, machinery, fixtures and other
Servico Personal Property owned or utilized by Servico or any Servico Subsidiary
are in an operating condition and a state of maintenance and repair adequate for
the conduct of their respective businesses.
3.14 REAL PROPERTY. SCHEDULE 3.14 sets forth a true and complete list
of all real property owned or leased by Servico or any Servico Subsidiary and a
description of all structures, fixtures or improvements ("Servico Improvements")
thereon has been made available to Impac (such real property and Servico
Improvements, collectively, the "Servico Real Property"). Servico and/or any
Servico Subsidiary has such title to the Servico Real Property as shown or
described on title insurance policies or commitments made available to Impac and
listed on SCHEDULE 3.14. To the knowledge of Servico, except as disclosed in
engineering reports made available to Impac or disclosed on SCHEDULE 3.14, all
Servico Improvements are
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in good structural condition, free of any structural or other defect or
impairment which could reasonably be expected to impair in any material respect
the value, utility or life expectancy of such Servico Improvements, or which
might otherwise adversely affect, in any material respect, the operation
thereof. Except as disclosed on SCHEDULE 3.14, neither the whole nor any portion
of the Servico Real Property is being condemned or otherwise taken by any public
authority, nor is any such condemnation or taking, to the knowledge of Servico,
threatened or contemplated. Servico has no information or knowledge of (a) any
change contemplated in any Law, (b) any judicial or administrative action, (c)
any action by adjacent landowners, or (d) any other fact or condition of any
kind or character which would materially adversely affect the current use or
operation of the Servico Real Property.
3.15 OPINION OF FINANCIAL ADVISOR. Lehman Brothers has delivered to the
Board of Directors its opinion to the effect that, as of March 11, 1998, the
Servico Exchange Ratio to be offered to the shareholders of Servico in the
proposed Servico Merger is fair to such shareholders from a financial point of
view. Lehman Brothers has authorized the inclusion of its opinion in the Joint
Proxy Statement.
3.16 DISCLOSURE. No representation or warranty of Servico herein
(including the exhibits and schedules hereto), and no certificate or notice
furnished or to be furnished by or on behalf of Servico to Impac or its agents
pursuant to this Agreement, contains or will, at the time it is made, contain
any untrue statement of a material fact or omits or will, at the time it is
made, omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading, in light of the circumstances under
which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF IMPAC AND THE IMPAC AFFILIATED COMPANIES
Impac and the Impac Affiliated Companies hereby jointly and severally
represent and warrant to Servico as follows:
4.1 ORGANIZATION, STANDING AND POWER. Each of Impac, each subsidiary of
Impac (the "Impac Subsidiaries") and each Impac Affiliated Company is a limited
liability company, limited partnership or corporation duly organized, validly
existing and in good standing under the laws of the state of its organization or
incorporation, as the case may be, and has all requisite right, power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby.
4.2 MEMBERS' INTEREST. SCHEDULE 4.2 sets forth the name and state of
residence of each record and beneficial member of Impac (a "Member"), along with
the number of Impac Units each Member owns. The amount of cash and a description
and statement of the agreed value of the other property or services contributed
by each Member and which each Member has agreed to contribute to Impac is also
set forth on SCHEDULE 4.2. Except as set forth on SCHEDULE 4.2, no Member of
Impac has agreed to contribute any additional cash, property or services to the
capital of Impac. The Members own beneficially and of record 100% of the
outstanding Impac Units, representing all of the membership interests in Impac
except for the one Class B Ordinary Membership Interest owned by Banc One
Capital Partners III, Ltd.. Except as also set forth on SCHEDULE 4.2 hereto, to
the knowledge of Impac no written or oral agreement or understanding
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with Impac exists with respect to the disposition by any Member of the Impac
Units, or any portion thereof, or any rights attendant or relating thereto,
exists, other than this Agreement.
4.3 LEGAL, VALID AND BINDING AGREEMENT. The execution, delivery and
performance of this Agreement by Impac and each Impac Affiliated Company and the
consummation by Impac and each Impac Affiliated Company of the Mergers
contemplated hereby have been duly and effectively authorized by all requisite
action and no other corporate or company proceedings on the part of Impac or any
Impac Affiliated Company are necessary to authorize this Agreement or to
consummate such Mergers (other than, with respect to Impac, the approval of this
Agreement and the Mergers contemplated hereby by Members owning a majority of
the Impac Units at the Impac Special Meeting entitled to vote with respect
thereto at the Impac Special Meeting and the filing and recordation of the Impac
Articles of Merger, the P-Burg Articles of Merger, the Hazard Articles of
Merger, the Memphis Articles of Merger, the Delk Certificate of Merger, the IHD
Certificate of Merger, the IDC Certificate of Merger and the IHG Certificate of
Merger as required by the GLLCA, the FBCA, the KBCA and the DGCL, as
applicable). This Agreement has been duly executed and delivered by Impac and
each of the Impac Affiliated Companies and, assuming the due authorization,
execution and delivery by the other parties hereto, constitutes the legal, valid
and binding obligations of Impac and each of the Impac Affiliated Companies,
enforceable against Impac, each of the Impac Affiliated Companies and the
Members in accordance with its terms. Neither the Members nor any of the
shareholders of the Impac Affiliated Companies will have, nor will any of them
have exercised or perfected, any dissenters' rights or other similar statutory
or contractual rights to be paid the fair value of their membership interests in
Impac or any Impac Affiliated Company by virtue of the Mergers.
4.4 AUTHORITY TO DO BUSINESS. Each of Impac, the Impac Affiliated
Companies and the Impac Subsidiaries has all requisite power and authority and
all necessary governmental approvals to own, operate and lease its properties
and assets and to conduct its business as presently conducted, except where the
failure to have such approvals, individually or in the aggregate, would not have
an Impac Material Adverse Effect. SCHEDULE 4.4 sets forth (i) those
jurisdictions in which Impac, any of the Impac Affiliated Companies or any of
the Impac Subsidiaries manage or operate facilities and/or properties and (ii)
all jurisdictions in which Impac, any of the Impac Affiliated Companies or any
of the Impac Subsidiaries are qualified to do business. Each of Impac, the Impac
Affiliated Companies and the Impac Subsidiaries is duly qualified or licensed to
transact business and is in good standing as a foreign limited liability company
or foreign corporation, as the case may be, in all jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification or license, except where the failure to be so qualified or
licensed, individually or in the aggregate, would not have an Impac Material
Adverse Effect.
4.5 ARTICLES OF ORGANIZATION AND OPERATING AGREEMENT. Copies of the
Articles of Organization and Articles or Certificate of Incorporation (certified
by the appropriate public official in the state of organization or
incorporation) and the Operating Agreement and Bylaws of Impac and each Impac
Affiliated Company, in each case as in effect on the date hereof, have been
delivered to Servico and are complete and correct as of the date hereof. The
corporate minutes, written consents and records of Impac, the Impac Affiliated
Companies and the Impac Subsidiaries have been delivered to Servico and are
complete and correct as of the date hereof and reflect all material actions
taken by the Managers, Members, Board of Directors, any committee thereof,
incorporators and shareholders of each of Impac, the Impac
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Affiliated Companies and the Impac Subsidiaries from its respective date of
incorporation or organization to the date hereof.
4.6 SUBSIDIARIES; IMPAC AFFILIATED COMPANIES.
(a) SCHEDULE 4.6(A) lists all Impac Affiliated Companies and
all Impac Subsidiaries, their respective jurisdictions of incorporation or
organization, the number of shares of their respective capital stock or other
equity or membership interests issued and outstanding, and the record owners and
the amounts and percentage of ownership of such shares of capital stock or
equity or membership interests. Except as set forth on SCHEDULE 4.6, neither
Impac, any Impac Affiliated Company nor any Impac Subsidiary has any equity
investment in any other corporation, limited liability company, association,
partnership, joint venture or other entity. Except as set forth on SCHEDULE 4.6,
all of the outstanding membership interests or shares of capital stock of each
Impac Subsidiary are owned by either Impac or another Impac Subsidiary, free and
clear of all liens or other encumbrances.
(b) Except as described on SCHEDULE 4.6(B), the sole assets of
the Impac Affiliated Companies are Impac Units and none of the Impac Affiliated
Companies have any liabilities whatsoever. None of the Impac Affiliated
Companies presently conduct any business or operations and, from the date
hereof, none of the Impac Affiliated Companies shall conduct any business or
commence any operations whatsoever other than passive ownership of Impac Units.
None of the Impac Affiliated Companies are subject to and there is no basis for
assertion against any Impac Affiliated Company of, any claim, liability,
commitment or obligation of any nature, whether absolute, accrued, contingent or
otherwise.
4.7 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 4.7, the
execution, delivery and performance of this Agreement by Impac and the Impac
Affiliated Companies and the consummation by Impac and the Impac Affiliated
Companies of the transactions contemplated hereby do not and will not (i)
conflict with or violate any provision of the Articles of Organization, Articles
or Certificate of Incorporation, Operating Agreement or Bylaws of Impac, any
Impac Affiliated Company or any equivalent organizational documents of any Impac
Subsidiary or any Impac Affiliated Company, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 4.8 have been
obtained and all filings and notifications described in Section 4.8 have been
made, violate or conflict with any Law applicable to Impac, any Impac Affiliated
Company or any Impac Subsidiary or by which any property or asset of Impac, any
Impac Affiliated Company or any Impac Subsidiary is bound or effected, and (iii)
with or without the passage of time or the giving of notice, result in the
breach of, or constitute a default, cause the acceleration of performance,
permit the unilateral modification or termination of, or require any consent
under, or result in the creation of any liens or other encumbrance upon any
property or assets of Impac, any Impac Affiliated Company or any Impac
Subsidiary pursuant to any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other obligation, except, with respect to
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which would neither, individually or in the aggregate, (A)
have an Impac Material Adverse Effect nor (B) prevent or materially delay the
performance by Impac or any Impac Affiliated Company of its obligations pursuant
to this Agreement or the consummation of the Mergers.
4.8 GOVERNMENTAL CONSENTS. The execution and delivery of this Agreement
by each of Impac and the Impac Affiliated Companies does not, and the
performance by each of Impac and the Impac
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Affiliated Companies of its obligations hereunder and the consummation of the
Mergers will not, require any consent, approval, authorization or permit of, or
filing by Impac or any Impac Affiliated Company with or notification by Impac or
any Impac Affiliated Company to, any Governmental Entity, except (i) as set
forth on SCHEDULE 4.8; (ii) the premerger notification requirements of the HSR
Act and the filing and recordation of the respective Articles and Certificates
of Merger as referenced in Section 4.3 above; and (iii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not (A) prevent or materially delay the performance by
Impac of its obligations pursuant to this Agreement and the consummation of the
Mergers or (B) individually or in the aggregate, have an Impac Material Adverse
Effect. Neither Impac, any Impac Affiliated Company nor any Impac Subsidiary is
subject to the periodic reporting requirements of the Exchange Act or required
to file any form, report or other document with the SEC, any stock exchange or
any other comparable Governmental Entity.
4.9 IMPAC STATEMENTS. Impac has previously delivered to Servico a true
and complete copy of the balance sheets of Impac, IHD and the Impac Subsidiaries
as of December 31, 1995, 1996 and 1997 and March 31, 1998, and the related
statements of income, cash flows and changes in member's equity of Impac, IHD
and the Impac Subsidiaries for the fiscal years ended December 31, 1995, 1996
and 1997, including any related notes, certified, without qualification, by
Pricewaterhouse Coopers LLP, Impac's independent public accountants, pursuant to
their audit of the financial records of Impac, IHD and the Impac Subsidiaries
(collectively, the "Impac Financial Statements"). The Impac Financial Statements
present fairly, in all material respects, Impac's, IHD's and the Impac
Subsidiaries' combined financial condition, assets, liabilities, equity, results
of operations and cash flows at the dates and for the periods specified in those
statements and the financial condition, assets, liabilities and equity of each
of the Impac Affiliated Companies (other than IHD) at the dates specified in
those statements in accordance with GAAP applied on a consistent basis. Other
than as disclosed by the Impac Financial Statements or on SCHEDULE 4.9, neither
Impac, any of the Impac Affiliated Companies, nor any of the Impac Subsidiaries
has any liabilities, commitments or obligations of any nature whatsoever,
whether accrued, contingent or otherwise that would be required to be reflected
on, or reserved against in, a combined balance sheet of Impac, IHD and the Impac
Subsidiaries or in separate balance sheets of each of the Impac Affiliated
Companies or in the notes thereto, prepared in accordance with GAAP, other than
non-material liabilities, commitments or obligations incurred by Impac or the
Impac Subsidiaries, since March 31, 1998 in the ordinary course of business
consistent with past practices to persons other than Managers, Members or other
affiliates of Impac, or any material unrealized or anticipated losses from any
commitments of Impac or the Impac Subsidiaries and, to Impac's knowledge, there
is no reasonable basis for assertion against Impac, any of the Impac Affiliated
Companies or any of the Impac Subsidiaries of any such liability, commitment,
obligation or loss. The Impac Financial Statements included in the Registration
Statement of SHG and Joint Proxy Statement of Servico and Impac will satisfy the
requirements of Regulation S-X promulgated by the SEC.
4.10 COMPLIANCE WITH LAWS.
(a) Except as set forth on SCHEDULE 4.10(A), each of Impac,
the Impac Affiliated Companies and the Impac Subsidiaries is in compliance with
all federal, state, local and foreign laws, ordinances, regulations, judgments,
rulings, orders and other legal requirements applicable to it, its operations or
its properties, including, without limitation, those relating to employment,
building, zoning,
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safety and health, and environmental matters, except where the failure to so
comply, individually or in the aggregate, would not have an Impac Material
Adverse Effect. Except as set forth on SCHEDULE 4.10(A) or as would not
reasonably be expected to have an Impac Material Adverse Effect, neither Impac,
any Impac Affiliated Company, nor any Impac Subsidiary has received notification
from any Governmental Entity asserting that it may not be in compliance with, or
may have violated, any of the Laws which said Governmental Entity enforces, or
threatening to revoke any authorization, consent, approval, franchise, license
or permit, and neither Impac, any Impac Affiliated Company, nor any Impac
Subsidiary is subject to any agreement or consent decree with any Governmental
Entity arising out of previously asserted violations.
(b) Without limiting the generality of Section 4.10(a), except
as disclosed by the environmental audits and reports listed on SCHEDULE 4.10,
copies of which have heretofore been delivered to Servico, or as otherwise set
forth on SCHEDULE 4.10, or as would not, individually or in the aggregate, have
an Impac Material Adverse Effect:
(i) Each of Impac, the Impac Affiliated Companies and
the Impac Subsidiaries are in compliance with all applicable
Environmental Laws. All past noncompliance of Impac, any Impac
Affiliated Company or any Impac Subsidiary with Environmental
Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability; and
(ii) neither Impac, any Impac Affiliated Company nor
any Impac Subsidiary has released a Hazardous Material at, or
transported a Hazardous Material to or from, any real property
currently or formerly owned, leased or occupied by Impac, any
Impac Affiliated Company or any Impac Subsidiary in violation
of any Environmental Law.
4.11 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 4.11, neither
Impac, any Impac Affiliated Company nor any Impac Subsidiary is a party to any
pending or, to the knowledge of Impac, threatened, legal, administrative or
other proceeding, arbitration or investigation, that is or would be reasonably
expected to, individually or in the aggregate, result in an Impac Material
Adverse Effect. Neither Impac nor any Impac Affiliated Company has any knowledge
of any set of facts which would reasonably be expected to result in any such
legal, administrative or other proceeding, arbitration or investigation
involving Impac, any Impac Affiliated Company or any Impac Subsidiary. Except as
set forth on SCHEDULE 4.11, neither Impac, any Impac Affiliated Company nor any
Impac Subsidiary is subject to any order, writ, injunction, decree, judgment,
stipulation, determination or award entered by or with any Governmental Entity
which could, individually or in the aggregate, reasonably be expected to have an
Impac Material Adverse Effect.
4.12 BROKERS. Other than Allen & Company Incorporated ("Allen &
Company"), Bear, Stearns & Co. Inc. and HW&E, neither Impac, any Impac
Affiliated Company nor any Impac Subsidiary has employed any financial advisor,
broker or finder in connection with the transactions contemplated by this
Agreement and has not incurred and none will incur any broker's, finder's,
investment banking or similar fees, commissions or expenses to any other party
in connection with the transactions contemplated by this Agreement. Impac has
provided to Servico complete and correct copies of all agreements between Impac
and Allen & Company pursuant to which such firm would be entitled to any payment
related to the
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Mergers. Notwithstanding the foregoing, Impac may retain another financial
advisor to advise it in connection with the transactions contemplated by this
Agreement provided (i) the aggregate amount of all fees, commissions or expenses
owing to all financial advisors and brokers engaged by Impac or any Impac
Subsidiary in connection with the transactions contemplated by this Agreement
shall in no event exceed $3.6 million and (ii) neither Impac, any Impac
Affiliated Company nor any Impac Subsidiary shall enter into any agreement with
any financial advisor which would, following the Closing, obligate Impac, any
Impac Affiliated Company, any Impac Subsidiary, their respective successors and
assigns, Servico or SHG to utilize such financial advisor or its affiliates in
connection with any other transactions.
4.13 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth on
SCHEDULE 4.13, since March 31, 1998: (i) each of Impac, IHD and the Impac
Subsidiaries has conducted its business only in the ordinary and usual course
and in a manner consistent with past practices and the business of each of the
Impac Affiliated Companies (other than IHD) has been limited to the passive
ownership of Impac Units or Holdings Units; (ii) there has not been any Impac
Material Adverse Effect, (iii) there has not been any event that would
reasonably be expected to prevent or materially delay the performance of Impac's
or any Impac Affiliated Company's material obligations pursuant to this
Agreement and the consummation of the Mergers by Impac and the Impac Affiliated
Companies; and (iv) neither Impac, any Impac Affiliated Company nor any Impac
Subsidiary has engaged or agreed to engage in any of the actions described in
Section 5.1 (except as otherwise specifically permitted in Section 5.1).
4.14 CAPITALIZATION. The only membership interests in Impac are the
Class A Ordinary Membership Interests and one Class B Ordinary Membership
Interest. The authorized capital stock of P- Burg consists of 200 shares of
P-Burg Common Stock, of which 200 shares are issued and outstanding; the
authorized capital stock of Hazard consists of 2,000 shares of Hazard Common
Stock, of which 2,000 shares are issued and outstanding; the authorized capital
stock of Memphis consists of 100,000 shares of Memphis Common Stock, of which
100,000 shares are issued and outstanding; the authorized capital stock of Delk
consists of 100 shares of Delk Common Stock, of which 100 shares are issued and
outstanding; the authorized capital stock of IHD consists of 2,000 shares of IHD
Common Stock, of which 2,000 shares are issued and outstanding; the authorized
capital stock of IDC consists of 2,000 shares of IDC Common Stock, of which
2,000 shares are issued and outstanding; and the authorized capital stock of IHG
consists of 100 shares of IHG Common Stock, of which 100 shares are issued and
outstanding. All such membership interests and each of the Impac Affiliated
Companies' and Impac's Subsidiaries' membership interests, partnership interests
or outstanding capital stock have been duly authorized, are validly issued and
outstanding, and are fully paid and nonassessable. No interests or securities
issued by Impac, any Impac Affiliated Company or any Impac Subsidiary from the
date of its organization or incorporation to the date hereof were issued in
violation of any statutory or common law preemptive rights or the rules and
regulations of the Securities Act or any Blue Sky Laws. There are no dividends
or distributions which have accrued or been declared but are unpaid on the
membership interests or capital stock of Impac, any Impac Affiliated Company or
any Impac Subsidiary. All Taxes required to be paid in connection with the
issuance by Impac, any Impac Affiliated Company or any Impac Subsidiary of its
respective membership interests or capital stock have been paid.
4.15 RIGHTS, WARRANTS, OPTIONS. Except as set forth on SCHEDULE 4.15,
there are no outstanding: (i) securities or instruments convertible into or
exercisable for any of the capital stock or other equity or membership interests
of Impac, any Impac Affiliated Company or any Impac Subsidiary; (ii) options,
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warrants, subscriptions or other rights to acquire capital stock or other equity
or membership interests of Impac, any Impac Affiliated Company or any Impac
Subsidiary; (iii) debt securities with any voting rights or convertible into
securities with voting rights; or (iv) commitments, agreements or understandings
of any kind, including employee benefit arrangements, relating to any capital
stock or other equity or membership interests of Impac, any Impac Affiliated
Company or any Impac Subsidiary, or the issuance or repurchase by Impac, any
Impac Affiliated Company or any Impac Subsidiary of any capital stock or other
equity or membership interests of Impac, any Impac Affiliated Company or any
Impac Subsidiary, any such securities or instruments convertible into or
exchangeable for capital stock or other equity or membership interests of Impac,
any Impac Affiliated Company or any Impac Subsidiary or any such options,
warrants or rights.
4.16 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS. Impac and the
Impac Subsidiaries have good title to each item of personal (movable) property,
tangible and intangible, to the extent reflected on the March 31, 1998 Impac
Financial Statements and to each item of material personal (movable) property,
tangible and intangible, acquired since March 31, 1998 (other than non-material
property disposed of in the ordinary course of business consistent with past
practice since March 31, 1998 to persons who are not Managers or Members or
other affiliates of Impac), free and clear of any liens or other encumbrances,
except as set forth on the March 31, 1998 Impac Financial Statements or in
SCHEDULE 4.16 hereto and except for liens arising by operation of law in favor
of carriers, warehousemen, repairmen or landlords or other like liens which
arise in the ordinary course of business for amounts which are not due and
payable (all such personal property being hereinafter referred to as the
"Personal Property"). All equipment, machinery, fixtures and other Personal
Property owned or utilized by Impac or any Impac Subsidiary are in an operating
condition and in a state of maintenance and repair adequate for the conduct of
their respective businesses. Except for leasehold interests and other leased
properties specifically identified in either SCHEDULE 4.16 or 4.17 hereto, and
except for equipment leases or other personal property leases with annual lease
payments of less than $20,000 or which are terminable by Impac or any Impac
Subsidiary without penalty or payment of any additional consideration upon less
than 90 days notice, there are no assets owned by any third party which are used
in the operations or the business of Impac or any Impac Subsidiary, as presently
conducted or proposed to be conducted. The Impac Affiliated Companies do not own
or lease any real or personal property or other assets, other than Impac Units
or Holdings Units, all of which are held free and clear of any liens or other
encumbrances.
4.17 REAL PROPERTY.
(a) SCHEDULE 4.17(A) hereto sets forth a true and complete
list of all real property owned or leased by Impac or any Impac Subsidiary,
together with a brief description of all structures, fixtures or improvements
("Improvements") thereon (such real property and Improvements, collectively, the
"Real Property"). Impac and/or an Impac Subsidiary owns good and marketable
title to the Real Property, free and clear of all liens, mortgages, security
interests, pledges, liens, conditional sales agreements, claims, restrictions,
reservations, covenants, encumbrances, charges, restraints on transfer, or any
other material title defect of any nature, other than liens for real property
taxes not yet due and other than those matters specifically disclosed on
SCHEDULE 4.17(A) or any title insurance policies or commitments provided to
Servico and listed on SCHEDULE 4.17(A), which matters, individually or in the
aggregate, do not adversely impair, in any material respect, the marketability
of the Real Property as it is now used by Impac or any Impac Subsidiary (the
"Permitted Exceptions"). Except as disclosed on SCHEDULE 4.17(A), all
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Improvements are in good structural condition, free of any structural or other
defect or impairment which might impair in any material respect the value,
utility, or life expectancy of such Improvements, or which might otherwise
adversely affect, in any material respect, the operation thereof. Except as
disclosed on any surveys delivered to Servico or in title commitments listed on
SCHEDULE 4.17(A), none of the Improvements encroach onto adjoining land or onto
any easements and there is no encroachment of improvements from adjoining land
onto any of the Real Property. To the knowledge of Impac, except as specifically
disclosed on the title insurance policies, commitments or surveys listed on
SCHEDULE 4.17(A), (i) none of the Real Property is located in an area identified
by any Governmental Entity as having special flood or mud slide hazards or
wetlands and (ii) there are no soil or geological conditions which might impair
or adversely affect in any material respect the current use of any of the Real
Property. Except as disclosed on SCHEDULE 4.17(A), neither the whole nor any
portion of the Real Property is being condemned or otherwise taken by any public
authority, nor is any such condemnation or taking, to the knowledge of Impac,
threatened or contemplated. Except as disclosed on SCHEDULE 4.17(A), no portion
of any of the Real Property is affected by any outstanding special assessments
or impact fees imposed by any Governmental Entity. Except for any Permitted
Exceptions, no commitments relating to the Real Property have been made to any
Governmental Entity, utility company, school board, church or other religious
body or any homeowner or homeowners association, merchant's association or any
other organization, group or individual which would impose an obligation upon
Impac or any Impac Subsidiary or its successors or assigns to make any
contribution or dedication of money or land or to construct, install or maintain
any improvements of a public or private nature on or off the Real Property; and
no Governmental Entity has imposed any requirement that any owner of the Real
Property pay directly or indirectly any special fees or contributions or incur
any expenses or obligations in connection with the Real Property. Impac has no
information or knowledge of (a) any change contemplated in any Law, (b) any
judicial or administrative action, (c) any action by adjacent landowners, or (d)
any other fact or condition of any kind or character which would materially
adversely affect the current use or operation of the Real Property. Neither any
Manager or Member nor any of their affiliates owns or leases, directly or
indirectly, any adjacent property to the Real Property. Except as disclosed on
SCHEDULE 4.17(A), neither the air rights over the Real Property nor any other
"development rights" with respect to the Real Property have been assigned,
transferred, leased or encumbered.
(b) SCHEDULE 4.17(B) hereto sets forth a true and complete
list of those portions of the Real Property whereon Impac or any Impac
Subsidiary is constructing new hotel projects (the "Construction Projects"),
together with a brief description of the Improvements to be constructed thereon,
the stage of completion, and projected completion date. SCHEDULE 4.17(B) further
sets forth a true and complete list of all construction contracts (including all
material amendments thereto) with respect to each of the Construction Projects
(the "Construction Contracts"). Except as set forth on SCHEDULE 4.17(B) all of
the Construction Contracts are in full force and effect as of the date hereof;
there are no material defaults thereunder; to the knowledge of Impac, all of the
contractors under the Construction Contracts are duly licensed in the states
where such Construction Contracts are being performed; there are full payment
and performance bonds for each Construction Contract, and as of the date hereof
no claims have been made against any surety under such payment and performance
bonds; all payments currently due have been made under the Construction
Contracts; and Impac or an Impac Subsidiary has available through existing
credit lines or other existing financing or equity, the funds necessary to
complete each of the Construction Projects and to pay the balance due under each
of the respective Construction Contracts.
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4.18 INTANGIBLE PROPERTY. Except as would not, individually or in the
aggregate, have an Impac Material Adverse Effect, Impac, the Impac Affiliated
Companies and the Impac Subsidiaries own or possess adequate licenses or other
valid rights to use all patents, patent rights, trademarks, trademark rights,
trade names, trade dress, trade name rights, copyrights, service marks, trade
secrets, applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with the
respective businesses of Impac, the Impac Affiliated Companies and the Impac
Subsidiaries as currently conducted and Impac is unaware of any assertion or
claim challenging the validity of any of the foregoing. The conduct of the
respective businesses of Impac, the Impac Affiliated Companies and the Impac
Subsidiaries as currently conducted does not conflict in any way with any
patent, patent right, license, trademark, trademark right, trade dress, trade
name, trade name right, service mark or copyright of any third party that,
individually or in the aggregate, would have an Impac Material Adverse Effect.
To the knowledge of Impac, there are no infringements of any proprietary rights
owned by or licensed by or to Impac, the Impac Affiliated Companies or any Impac
Subsidiary that, individually or in the aggregate, would have an Impac Material
Adverse Effect.
4.19 GOVERNMENTAL AUTHORIZATIONS. Except as disclosed on SCHEDULE 4.19,
Impac, the Impac Affiliated Companies and the Impac Subsidiaries have in full
force and effect all authorizations, consents, approvals, franchises,
certificates, operating authorities, licenses and permits required under
applicable Law (collectively referred to as "Licenses") for the ownership of
Impac's, the Impac Affiliated Companies' and the Impac Subsidiaries' respective
properties, for the existing construction of all Construction Projects, and the
operation of their respective businesses as presently operated, except where the
failure to have any such Licenses would not reasonably be expected to have an
Impac Material Adverse Effect.
4.20 INSURANCE. SCHEDULE 4.20 sets forth a list and description of all
insurance policies existing as of the date hereof providing insurance coverage
of any nature to Impac, any Impac Affiliated Company or any Impac Subsidiary.
All such policies are in full force and effect, are valid and enforceable in
accordance with their terms and are sufficient for compliance with all Impac
Material Agreements, except where the failure to so comply would not have an
Impac Material Adverse Effect.
4.21 EMPLOYMENT MATTERS.
(a) LABOR RELATIONS. Except as set forth on SCHEDULE 4.21(A),
none of the managers or employees of Impac or any Impac Subsidiary is
represented by any labor union, and neither Impac nor any Impac Subsidiary is
subject to any labor or collective bargaining agreement. None of the Impac
Affiliated Companies have any employees. Except as set forth on SCHEDULE
4.21(A), none of the managers or employees of Impac or any Impac Subsidiary is
known by Impac to be engaged in organizing any labor union or other employee
group that is seeking recognition as a bargaining unit. Impac and the Impac
Subsidiaries have not experienced any material strike, work stoppage or labor
disturbance with any group of employees or managers, and to Impac's knowledge,
no set of facts exists which would reasonably be expected to lead to any of the
foregoing events.
(b) EMPLOYMENT POLICIES. Except as set forth on SCHEDULE
4.21(B), Impac has provided to Servico all of Impac's and the Impac
Subsidiaries' employee policies (written or otherwise), employee manuals or
other written statements of rules or policies concerning employment.
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(c) EMPLOYMENT AGREEMENTS. Except as set forth on SCHEDULE
4.21(C) and except for agreements that have terms of less than one year
involving less than $75,000 or annual payments of less than $75,000, there are
no employment, consulting, severance or indemnification agreements, or to the
knowledge of Impac, material understandings or arrangements between Impac or any
Impac Subsidiary and any manager, officer, director, consultant or employee.
Except as set forth on SCHEDULE 4.21(C), the terms of employment or engagement
of all managers, employees, agents, consultants and professional advisors
of Impac or any Impac Subsidiary are such that their employment or engagement
may be terminated by not more than two weeks' notice given at any time without
liability for payment of compensation or damages, except as required by
applicable Law.
(d) EMPLOYEE BENEFIT PLANS. Except as set forth on SCHEDULE
4.21(D), there are no pension, retirement, stock or equity purchase, stock or
equity bonus, stock or equity ownership, stock or equity option, profit sharing,
savings, medical, disability, hospitalization, insurance, deferred compensation,
bonus, incentive, welfare or any other employee benefit plan, policy, agreement,
commitment or arrangement maintained by or binding upon Impac, any Impac
Affiliated Company or any Impac Subsidiary for any of their managers, directors,
officers, consultants, employees or former employees (the "Impac Plans").
Neither Impac, any Impac Affiliated Company nor any Impac Subsidiary maintains
any funded welfare plans. SCHEDULE 4.21(D) also identifies each Impac Plan which
constitutes an "employee pension benefit plan" ("Impac Pension Plan") or an
"employee welfare benefit plan" ("Impac Welfare Plan"), as such terms are
defined in the Employee Retirement Income Security Act of 1974, as amended, and
the rules and regulations promulgated thereunder ("ERISA"). None of the Impac
Plans is a "multiemployer plan," as such term is defined in ERISA, or is subject
to Title IV of ERISA.
Impac has delivered to Servico current, accurate and complete copies of
each Impac Plan (including all other instruments relating thereto) and, to the
extent applicable, summary plan descriptions therefor and, to the extent
applicable, copies of their most recent (i) Internal Revenue Service
determination letter and any outstanding request for a determination letter;
(ii) Form 5500 and attached Schedule B (including any related actuarial
valuation report) with respect to the last three plan years for each Impac Plan;
(iii) certified financial statements; (iv) attorney's response to an auditor's
request for information; (v) collective bargaining agreements or other such
contracts; (vi) ruling letter and any outstanding request for a ruling letter
with respect to the tax-exempt status of any voluntary employees' beneficiary
association which is implementing such Impac Plan; and (vii) general
notification to employees of their rights under Code Section 4980B and form of
letter(s) distributed upon the occurrence of a qualifying event described in
Code Section 4980B, in the case of a Impac Plan that is a "group health plan" as
defined in Code Section 5000(b)(1).
Each Impac Pension Plan has been determined to be qualified under
Section 401(a) of the Code and, except as disclosed on SCHEDULE 4.21(D) to
Impac's knowledge, no facts or circumstances exist which could result in the
revocation of such qualification. Except as disclosed on SCHEDULE 4.21(D), each
Impac Plan has been administered in all material respects in accordance with its
terms and the Code, and each Impac Pension Plan and Impac Welfare Plan has been
administered in all material respects in accordance with ERISA. The assets of
each Impac Pension Plan are at least equal in value to the present value of the
accrued benefits of participants of such Plan. Except as disclosed on SCHEDULE
4.21(D), no facts or circumstances exist which could reasonably be expected to
give rise to any liability of any Impac Plan, Impac, any Impac Affiliated
Company, Servico, SHG or any subsidiary thereof to any person other than
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routine claims for benefits and for the fees and expenses of third parties
arising in the ordinary course of business which were incurred in connection
with the maintenance of such plans. Impac has paid all amounts required under
applicable Law, any Impac Pension Plan and any Impac Welfare Plan to be paid as
a contribution to each Impac Pension Plan and Impac Welfare Plan through the
date hereof. Except as disclosed on SCHEDULE 4.21(D), neither Impac, any Impac
Affiliated Company, any Impac Subsidiary, nor, to the knowledge of Impac, any
other person has engaged in any transaction or taken any other action with
respect to any Impac Plan which would subject Impac, Servico, SHG, any Impac
Affiliated Company or any subsidiary thereof to: (i) any Tax, penalty or
liability for prohibited transactions under ERISA or the Code; (ii) any Tax
under Code Sections 4971, 4972, 4976, 4977 or 4979; or (iii) a penalty under
ERISA Sections 502(c) or 502(l). None of Impac, any Impac Affiliated Company or
any Impac Subsidiary, or any manager, director, officer or employee of Impac,
any Impac Affiliated Company or any Impac Subsidiary, to the extent it or he is
a fiduciary with respect to any Impac Pension Plan or Impac Welfare Plan, has
breached any of its or his responsibilities or obligations imposed upon
fiduciaries under ERISA or the Code or which could result in any claim being
made under, by or on behalf of any Impac Pension Plan or Impac Welfare Plan or
any participant or beneficiary thereof which would reasonably be expected to
result in an Impac Material Adverse Effect. Each Impac Welfare Plan which is a
group health plan within the meaning of Code Section 5000(b)(1) complies in all
material respects with and in each and every case has complied in all material
respects with the applicable requirements of Code Section 4980B and Part 6 of
Title I of ERISA and does not benefit retirees, except as otherwise required by
law. As of the date thereof, there was no accrued vacation or sick leave payable
to any person by Impac, any Impac Affiliated Company or any Impac Subsidiary
which is not reflected in the Impac Financial Statements. None of the items
disclosed on Schedule 4.21(d) could reasonably be expected to have an Impac
Material Adverse Effect.
(e) PERSONNEL. SCHEDULE 4.21(E) sets forth: (i) the names of
all managers and officers of Impac, each Impac Affiliated Company and each Impac
Subsidiary; and (ii) the names and job designations of all employees of Impac
and each Impac Subsidiary whose salary (including bonuses) exceeds $100,000 per
annum. Except as disclosed in the Impac Financial Statements and except for
unpaid base compensation accrued in the ordinary course of business consistent
with past practice since September 30, 1997, there are no material sums due to
any employees, officers, directors or managers of Impac, any Impac Affiliated
Company or any Impac Subsidiary.
4.22 MATERIAL AGREEMENTS.
(a) SCHEDULE 4.22 sets forth a list of the following written
and oral agreements, arrangements or commitments (collectively, the "Impac
Material Agreements") to which either Impac, any Impac Affiliated Company or any
Impac Subsidiary is a party or by which it or any of its respective assets are
bound which are or would reasonably be expected to be material to the financial
position or results of operations of Impac, IHD and the Impac Subsidiaries on a
consolidated basis, including, but not limited to, any: (i) contract,
commitment, or agreement (a) resulting in a commitment for expenditure or other
obligation, or which provides for the receipt of amounts involving in excess of
$250,000, or a series or related contracts, commitments or agreements that in
the aggregate give rise to rights or liabilities exceeding such amounts or (b)
binding any Impac Affiliated Entity or any of its respective assets, regardless
of amount; (ii) indenture, mortgage, promissory note, loan agreement, guarantee
or other agreement or commitment relating to the borrowing of money, encumbrance
of assets or guaranty of any obligation in excess of $250,000; (iii) licensing,
franchise or royalty agreements or agreements providing
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for other similar rights or agreements with third parties involving annual
royalty payments in excess of $250,000; (iv) agreements which restrict Impac,
any Impac Affiliated Company or any Impac Subsidiary from engaging in any line
of business or from competing with any other person or entity anywhere in the
world; (v) agreements or arrangements for the sale of any of the assets,
property or rights of Impac, any Impac Affiliated Company or any Impac
Subsidiary or requiring the consent of any party to the transfer and assignment
of such assets, property and rights, except for agreements or arrangements to
sell products or services in the ordinary course of business consistent with
past practices; (vi) agreement, contract or arrangement with any affiliate of
Impac, any Impac Affiliated Company or any Impac Subsidiary or any affiliate of
any manager, officer, director or employee of Impac, any Impac Affiliated
Company or any Impac Subsidiary involving in excess of $60,000; (vii) any
indemnification, contribution or similar agreement or arrangement pursuant to
which Impac, any Impac Affiliated Company or any Impac Subsidiary may be
required to make any indemnification or contribution to any other person except
to the extent provided in the Articles of Organization or Operating Agreement of
Impac as in effect on the date hereof; or (viii) any other material contract,
agreement or instrument which cannot be terminated without penalty to Impac, any
Impac Affiliated Company or any Impac Subsidiary, upon the provision of not
greater than 30 days notice. True and correct copies of all written agreements
listed on SCHEDULE 4.22 have been furnished or made available to Servico.
(b) Except as set forth on SCHEDULE 4.22 or SCHEDULE 4.24, all
Impac Material Agreements have been entered into on an "arms-length" basis with
parties who are not affiliates of Impac, any Impac Affiliated Company or any
Impac Subsidiary. The Impac Material Agreements are each in full force and
effect and are the valid and legally binding obligations of Impac, the
applicable Impac Affiliated Company or the applicable Impac Subsidiary which is
a party to same and, to Impac's or any Impac Affiliated Company's knowledge,
have not been breached by any of the other parties thereto, except for those
breaches which would not, individually or in the aggregate, reasonably be
expected to have an Impac Material Adverse Effect, and are valid and binding
obligations of the other parties thereto. Neither Impac, any Impac Affiliated
Company nor any Impac Subsidiary is in default under its Articles of
Organization or Articles of Incorporation or Operating Agreement or Bylaws or in
material default or alleged material default under any Impac Material Agreement
to which it is a party, and, to the knowledge of Impac, no event has occurred
which with the giving of notice or lapse of time or both would constitute such a
default.
4.23 LIST OF ACCOUNTS. SCHEDULE 4.23 sets forth, as of the date hereof:
(i) the name of each bank or other institution in which Impac, any Impac
Affiliated Company or any Impac Subsidiary maintains an account (cash,
securities or other) or safe deposit box; and (ii) the account number of the
relevant account and a description of the type of account.
4.24 RELATED PARTY TRANSACTIONS. Except as set forth on SCHEDULE 4.22
OR 4.24 or reflected in the Impac Financial Statements, no director, officer,
manager, or other affiliate of Impac, any Impac Affiliated Company or any Impac
Subsidiary, (individually an "Impac Related Party" and collectively the "Impac
Related Parties") or any affiliate of any Impac Related Party: (i) owns,
directly or indirectly, any interest in any person which is a competitor of
Impac, any Impac Affiliated Company or any Impac Subsidiary, except for the
ownership of not more than 5% of the outstanding stock of any company listed by
a national stock exchange or the Nasdaq National Market; (ii) owns, directly or
indirectly, in whole or in part, any material property, asset (other than cash)
or right, real, personal or mixed, tangible or intangible, which is associated
with or necessary in the operation of the business of Impac, any Impac
Affiliated Company or
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any Impac Subsidiary, as presently conducted; or (iii) has an interest in or is,
directly or indirectly, a party to any contract, agreement, lease or arrangement
to which Impac, any Impac Affiliated Company or any Impac Subsidiary is bound or
is a party.
4.25 TAX MATTERS.
(a) Except as set forth on SCHEDULE 4.25(A), all federal,
state, local and foreign Tax returns and Tax reports, if any, required to be
filed with respect to the business or assets of Impac, the Impac Affiliated
Companies and the Impac Subsidiaries have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports are
required to be filed; all of the foregoing as filed are true, correct and
complete, and reflect accurately all liability for Taxes of Impac, the Impac
Affiliated Companies and the Impac Subsidiaries for the periods for which such
returns relate; and all amounts shown as owing thereon have been paid. Except as
set forth on SCHEDULE 4.25(A), none of such returns or reports have been audited
by any governmental authority.
(b) All Taxes, if any, payable by Impac, the Impac Affiliated
Companies and the Impac Subsidiaries or relating to or chargeable against any of
their assets, revenues or income through March 31, 1998, were fully paid by such
date or provided for by adequate reserves in the Impac Financial Statements, and
all similar items due through the Closing will have been fully paid by that date
or provided for by adequate reserves on the books of Impac, the Impac Affiliated
Companies and the Impac Subsidiaries.
(c) Except as set forth on SCHEDULE 4.25(C), none of Impac,
any of the Impac Affiliated Companies nor any of the Impac Subsidiaries will
have any liability with respect to any such Taxes including, but not limited to,
interest and/or penalties, in excess of the amount so paid or the reserves so
established on the books of Impac, the Impac Affiliated Companies and the Impac
Subsidiaries. Except as set forth on SCHEDULE 4.25(C), neither Impac, any of the
Impac Affiliated Companies nor any of the Impac Subsidiaries is delinquent in
the payment of any Tax. No deficiencies for any Tax have been asserted against
Impac, any of the Impac Affiliated Companies or any of the Impac Subsidiaries
with respect to any Taxes which have not been paid, settled or adequately
provided for and there exists no basis for the making of any such deficiency,
assessment or charge. None of the items disclosed on Schedule 4.25(c) could
reasonably be expected to have an Impac Material Adverse Effect.
(d) Except as set forth on SCHEDULE 4.25(D), neither Impac,
any of the Impac Affiliated Companies nor any of the Impac Subsidiaries has
waived any restrictions on assessment or collection of Taxes or consented to the
extension of any statute of limitations relating to federal, state, local or
foreign taxation.
4.26 QUALIFYING TRANSACTION. To the knowledge of Impac, neither Impac,
any of the Impac Affiliated Companies nor any of their respective affiliates has
taken or agreed to take any action (other than actions contemplated by this
Agreement) that would prevent the Servico Merger, or any of the Impac Affiliated
Mergers (except the IHD Merger) from constituting a transaction qualifying under
Section 368(a) of the Code or would prevent the Impac Merger or the IHD Merger
from constituting a transaction qualifying under Section 351 of the Code. Impac
is not aware of any agreement, plan or other circumstance that would prevent the
Mergers from so qualifying under Section 368(a) and Section 351 of the Code.
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4.27 AFFILIATES. SCHEDULE 4.27 sets forth the names and addresses of
those persons who may be deemed to be "affiliates" of Impac or any of the Impac
Affiliated Companies within the meaning of Rule 145 of the rules and regulations
promulgated under the Securities Act (each such person, an "Impac Affiliate").
4.28 OPINION OF FINANCIAL ADVISOR. Allen & Company has delivered to the
Manager its opinion to the effect that the Impac Exchange Ratio is fair to the
Members from a financial point of view. Allen & Company has authorized the
inclusion of its opinion in the Joint Proxy Statement.
4.29 DISCLOSURE. No representation or warranty of Impac or any Impac
Affiliated Company herein (including the exhibits and schedules hereto), and no
certificate furnished or to be furnished by or on behalf of Impac or any Impac
Affiliated Company to Servico or its agents pursuant to this Agreement, contains
or will, at the time it is made, contain any untrue statement of a material fact
or omits or will, at the time it is made, omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading, in light of the circumstances under which they were made.
ARTICLE V
COVENANTS
5.1 INTERIM OPERATIONS OF IMPAC AN THE IMPAC AFFILIATED COMPANIES.
During the period from the date of this Agreement to the Effective Time, Impac
shall, and shall cause each Impac Subsidiary to, operate its business only in
the usual and ordinary course consistent with past practices and (i) use
reasonable good faith efforts to preserve intact its business organization and
goodwill in all material respects, (ii) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof, and (iii) use reasonable good faith efforts to maintain its
relationships with franchisors, licensors, distributors, suppliers and others
with which it has business relations. During such period, none of the Impac
Affiliated Companies shall conduct any business or commence any operations other
than the passive ownership of Impac Units. Except as otherwise expressly
contemplated herein (including the provisions of Section 4.12) or set forth on
SCHEDULE 5.1, without the written consent of Servico, which consent shall not be
unreasonably withheld or delayed, Impac shall not, nor shall it cause or permit
any Impac Subsidiary to, and no Impac Affiliated Company shall (i) amend or
otherwise change its Articles of Organization or Articles or Certificate of
Incorporation or Operating Agreement or Bylaws or other charter documents; (ii)
issue, sell or authorize for issuance or sale, any membership interests or
shares of any class of its securities (including, but not limited to, by way of
stock split or dividend) or other equity interests or any subscriptions,
options, warrants, rights or convertible securities or enter into any agreements
or commitments of any character obligating it to issue or sell any such
membership interests, securities or other equity interests; (iii) redeem,
purchase or otherwise acquire, directly or indirectly, any of its membership
interests or any shares of capital stock or other equity interests or any
option, warrant or other right to purchase or acquire any such shares,
membership interests or other equity interests or return all or any portion of
any capital contributions; (iv) enter into any commitment or transaction
(including, but not limited to, any capital expenditure or sale of assets),
other than in the ordinary course of business consistent with past practices;
provided, however, that no commitment or transaction involving the receipt or
potential receipt of in excess of Five Hundred Thousand Dollars ($500,000) or
payment or potential payment of in excess of Five Hundred Thousand Dollars
($500,000) shall be entered into without
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the prior written consent of Servico, which shall not be unreasonably withheld
or delayed; (v) create, incur or assume any long-term indebtedness or short-term
indebtedness or indebtedness for borrowed money (including purchase money
financing), except in the ordinary course of business consistent with past
practices under an existing loan availability (but in no event in an aggregate
amount exceeding Two Hundred Fifty Thousand Dollars ($250,000) more than is
currently owed and outstanding as of the date hereof) and except for
indebtedness in the amounts and for the purposes indicated on SCHEDULE 5.1, or
any lien, pledge, mortgage or other encumbrance affecting any of its assets;
(vi) pay, discharge or satisfy claims, liabilities or obligations (absolute,
accrued, contingent or otherwise) which involve payments or commitments to make
payments which exceed normal business operating requirements, consistent with
past practice; (vii) cancel any debts or waive any claims or rights other than
the cancellation of immaterial debts or waiver of immaterial claims, in the
ordinary course of business and consistent with past practice, of persons who
would not be deemed affiliates of Impac or any Impac Subsidiary; (viii) make any
loans, advances or capital contributions to, or investments in financial
instruments of, any person or entity other than capital contributions to Impac
Subsidiaries consistent with past practices; (ix) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity other than
immaterial assumptions, guarantees or endorsements made in the ordinary course
of business and consistent with past practice in favor of persons who would not
be deemed affiliates of Impac or any Impac Subsidiary; (x) grant any increase in
the compensation payable or to become payable to any of its managers, officers,
employees or consultants or establish, adopt or increase any bonus, insurance or
other employee benefit plan, payment or arrangement made to, for or with any
such persons or pay any bonus to any manager, officer, director or employee,
other than increases in the compensation or bonuses payable to such persons
(other than Robert Cole or Robert Flanders), in the ordinary course of business
and consistent with past practice; (xi) enter into any employment agreement or
grant any severance or termination pay with or to any manager, officer or
director or, except in the ordinary course of business consistent with past
practices, any employee; (xii) declare or pay any dividend or other distribution
(whether in cash, stock, membership interests or other property) with respect to
is membership interests or capital stock; (xiii) alter in any material way the
manner of keeping its books, accounts or records or its accounting practices
therein reflected; (xiv) enter into any agreement which would be an Impac
Material Agreement or terminate or materially amend any existing Impac Material
Agreement; (xv) enter into any indemnification, contribution or similar
agreement requiring it to indemnify any other person or entity or make
contributions to any other person or entity other than immaterial
indemnification, contribution or similar agreements made in the ordinary course
of business and consistent with past practice with persons who would not be
deemed affiliates of Impac, any Impac Affiliated Company or any Impac
Subsidiary; (xvi) do any act, or omit to do any act, or permit, to the extent
within Impac's control, any act or omission to act which would cause a material
violation or breach of any of the representations, warranties or covenants of
Impac or any Impac Affiliated Company set forth in this Agreement; (xvii) enter
into any agreement or take any action which could have an Impac Material Adverse
Effect (financial or otherwise); or (xviii) agree, whether in writing or
otherwise, to do any of the foregoing.
5.2 INTERIM OPERATIONS OF SERVICO.
(a) During the period from the date of this Agreement to the
Effective Time, Servico shall, and shall cause each Servico Subsidiary to,
operate its business only in the usual and ordinary course consistent with past
practices and shall (i) use reasonable good faith efforts to preserve intact its
business
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organization and goodwill in all material respects, (ii) continuously maintain
insurance coverage substantially equivalent to the insurance coverage in
existence on the date hereof, and (iii) use reasonable good faith efforts to
maintain its relationships with franchisors, licensors, distributors, suppliers
and others with which it has business relations. Except as otherwise expressly
contemplated herein or set forth on SCHEDULE 5.2, without the written consent of
Impac, which consent shall not be unreasonably withheld or delayed, Servico and
the Servico Subsidiaries shall not (i) do any act, or omit to do any act, or
permit, to the extent within Servico's control, any act or omission to act which
could cause a material violation or breach of any of the representations,
warranties or covenants of Servico set forth in this Agreement; (ii) enter into
any agreement or take any action which could have a Servico Material Adverse
Effect (financial or otherwise); (iii) enter into any commitment or transaction
which would be dilutive to Servico's earnings per share in the fiscal year in
which such transaction is consummated; (iv) enter into any commitment or
transaction outside of the ordinary course of Servico's business requiring the
payment of in excess of Two Million Dollars ($2,000,000) or create, incur or
assume indebtedness in excess of Five Million Dollars ($5,000,000) other than in
connection with or related to the acquisition, operation or renovation of hotel
or hotel related properties; (v) issue or sell any shares of its Common Stock or
securities convertible into its Common Stock other than either pursuant to or in
connection with (A) options granted to directors or employees or shares issued
pursuant to currently outstanding options or warrants and (B) transactions
involving shares representing no more than ten percent (10%) of Servico's
outstanding Common Stock; or (vi) agree, whether in writing or otherwise, to do
any of the foregoing.
(b) During the period from the date of this Agreement to the
Effective Time, in the event that Servico determines to acquire hotels and
related properties for an aggregate purchase price of more than One Hundred
Million Dollars ($100,000,000) (excluding any hotels currently under contract
such as the AMI Operating Partners, L.P. properties), then Servico shall
promptly notify Impac. If Impac reasonably determines that such acquisitions
will result in a Material Adverse Effect or materially change the nature of
Servico's operations, then Impac may exercise its right to terminate this
Agreement pursuant to Section 7.4(i) of this Agreement.
5.3 ACCESS.
(a) SERVICO ACCESS. Servico shall: (i) afford to Impac and its
agents and representatives reasonable access to the properties, books, records
and other information of Servico and the Servico Subsidiaries, provided that
such access shall be granted upon reasonable notice and at reasonable times
during normal business hours in such a manner as to not unreasonably interfere
with normal business operations; (ii) use its reasonable efforts to cause
Servico's personnel, without unreasonable disruption of normal business
operations, to assist Impac in its investigation of Servico and the Servico
Subsidiaries pursuant to this Section 5.3(a); and (iii) furnish promptly to
Impac all information and documents concerning the business, assets,
liabilities, properties and personnel of Servico and Servico Subsidiaries as
Impac may from time to time reasonably request. In addition, from the date of
this Agreement until the Closing, Servico shall cause one or more of its
officers to confer on a regular basis with the Manager of Impac and to report on
the general status of Servico's ongoing operations.
(b) IMPAC ACCESS. Impac and each Impac Affiliated Company
shall: (i) afford to Servico and its agents and representatives full access to
the properties, books, records and other information of Impac, the Impac
Affiliated Companies and the Impac Subsidiaries, provided that such
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access shall be granted upon reasonable notice and at reasonable times during
normal business hours in such a manner as to not unreasonably interfere with
normal business operations; (ii) use its reasonable efforts to cause Impac's
personnel, without unreasonable disruption of normal business operations, to
assist Servico in its investigation of Impac, the Impac Affiliated Companies and
the Impac Subsidiaries pursuant to this Section 5.3(b); and (iii) furnish
promptly to Servico all information and documents concerning the business,
assets, liabilities, properties and personnel of Impac, the Impac Affiliated
Companies and the Impac Subsidiaries as Servico may from time to time reasonably
request. In addition, from the date of this Agreement until the Closing, Impac
shall cause one or more of its managers or officers to confer on a regular basis
with officers of Servico and to report on the general status of Impac's ongoing
operations.
5.4 CONSENTS. Each of Impac, the Impac Affiliated Companies and Servico
agrees to cooperate with each other, file, submit or request promptly after the
date of this Agreement and to prosecute diligently any and all applications or
notices required to be filed or submitted to any Governmental Entity, including
those specified in Sections 3.5 and 4.8. Each of Impac, the Impac Affiliated
Companies and Servico shall promptly make available to the other such
information as each of them may reasonably request relating to its business,
assets, liabilities, properties and personnel as may be required by each of them
to prepare and file or submit such applications and notices and any additional
information requested by any Governmental Entity, and shall update by amendment
or supplement any such information given in writing. Each of Impac, the Impac
Affiliated Companies, on the one hand, and Servico, on the other hand,
represents and warrants to the other that such information, as amended or
supplemented, shall be true and not misleading. Each of Impac, the Impac
Affiliated Companies and Servico shall promptly provide the other with copies of
all filings made with Governmental Entities in connection with this Agreement.
5.5 REASONABLE EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties shall use its reasonable efforts in good faith to
take or cause to be taken as promptly as practicable all reasonable actions that
are within its control to cause to be fulfilled those conditions precedent to
its obligations to consummate the Merger. The parties shall use reasonable
efforts to obtain all consents and approvals required in connection with the
consummation of the transactions contemplated by this Agreement.
5.6 NOTIFICATION. Each party to this Agreement shall promptly notify
the other parties in writing of the occurrence, or threatened occurrence, of (i)
any event that, with the lapse of time or notice or both, would constitute a
violation or breach of this Agreement by such party, (ii) any event that would
cause any representation or warranty made by such party in this Agreement to be
false or misleading in any respect; and (iii) any other matter which may occur
from and after the date of this Agreement which, if existing on the date of such
Agreement, would have been required to be disclosed herein. The updating of any
schedule pursuant to this Section 5.6 shall not be deemed to release any party
for the breach of any representation, warranty or covenant hereunder or of any
other liability arising hereunder.
5.7 NO SOLICITATION. Except for the transactions contemplated by this
Agreement, unless and until this Agreement shall have been terminated, neither
Impac nor any Impac Affiliated Company shall (nor shall it permit any of its
managers, officers, directors, agents or affiliates to) enter into a binding
agreement to sell all or substantially all of the business, assets or capital
stock or membership units of Impac, any Impac Affiliated Company or any Impac
Subsidiary, whether by merger, purchase of assets or otherwise (a "Competing
Transaction") and shall not, directly or indirectly:
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(i) from the period from the date of this Agreement to May 1,
1998, except as required by Law or under an appropriate confidentiality
agreement, disclose any non-public information or any other information not
customarily disclosed to any person or entity concerning the business or assets
of Impac, any Impac Affiliated Company and any Impac Subsidiary or afford to any
person or entity (other than Servico and its designees) access to the books or
records of Impac or any Impac Subsidiary; and
(ii) after May 1, 1998 or such later date during which Servico
is actively negotiating with any Designated Person or enters into active
negotiations with any other third party with respect to any offer or proposal
regarding a Change of Control (such date being hereinafter referred to as the
"Designated Date"), solicit, encourage, initiate or participate in any
negotiations or discussions with respect to any offer or proposal to acquire all
or substantially all of the business, assets or capital stock or membership
interests of Impac, any Impac Affiliated Company or any Impac Subsidiary,
whether by merger, purchase of assets or otherwise, or, except as required by
Law, disclose any nonpublic information or any other information not customarily
disclosed to any person or entity concerning the business and assets of Impac,
any Impac Affiliated Company and any Impac Subsidiary, afford to any person or
entity (other than Servico and its designees) access to the books or records of
Impac, any Impac Affiliated Company or any Impac Subsidiary or otherwise assist
or encourage any person or entity in connection with any of the foregoing. In
the event Impac or any Impac Affiliated Company shall receive or become aware of
any offer or proposal of the type referred to in the foregoing provision, Impac
shall promptly inform Servico as to any such offer or proposal.
5.8 CONFIDENTIALITY. The parties acknowledge that all confidential or
proprietary information with respect to the business and operations of the other
party and their respective subsidiaries is valuable, special and unique. The
parties shall not disclose, directly or indirectly, to any person or entity, or
use or purport to authorize any person or entity to use any confidential or
proprietary information with respect to the other party or any of their
respective subsidiaries, without the prior written consent of the other party,
including without limitation, information as to the financial condition, results
of operations, customers, suppliers, proposed projects, projects under
development, services, services under development, inventions, sources, leads or
methods of obtaining new business or projects, pricing methods or formulas,
costs, marketing strategies or any other information relating to Impac, any
Impac Affiliated Company or Servico or any of their respective subsidiaries,
which could reasonably be regarded as confidential or proprietary, but not
including information which (i) is or shall become generally available to the
public, other than as a result of an unauthorized disclosure by any of the
parties or any of its affiliates, (ii) becomes available to the other party on a
nonconfidential basis from a source other than a party to this Agreement,
provided such source is not in violation of a confidentiality agreement with the
party providing such information or (iii) is required to be disclosed by law or
by the rules and regulations of the NYSE. The covenants of the parties contained
in this Section 5.8 shall survive any termination of this Agreement.
5.9 PUBLICITY. The parties agree to consult and cooperate with each
other in issuing any press release or other public announcement or making any
governmental filing concerning this Agreement or the transactions contemplated
hereby. Nothing contained herein shall prevent any party from at any time
furnishing any information to any Governmental Entity which it is by Law or
pursuant to the rules and regulations of the NYSE so obligated to disclose or
from making any disclosure which its independent outside counsel (which may be
such party's regularly engaged outside counsel) deems (in the case of
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governmental filings, in writing) necessary in order to fulfill such party's
disclosure obligations under applicable law, or the rules and regulations of the
NYSE.
5.10 LETTERS OF ACCOUNTANTS. Each of Servico and Impac shall use all
reasonable efforts to cause to be delivered to the other a "comfort" letter of
each of Ernst & Young L.L.P. and Pricewaterhouse Coopers LLP, respectively, each
such letter dated and delivered as of the date the Registration Statement shall
have become effective and as of the Effective Time, and addressed to Servico and
Impac, respectively, in form and substance reasonably satisfactory to the
recipient thereof and reasonably customary in scope and substance for letters
delivered by independent public accountants in connection with mergers such as
those contemplated by this Agreement.
5.11 PLAN OF REORGANIZATION. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date of this
Agreement, each party hereto shall use all reasonable efforts to cause the
Mergers to qualify, and shall not, without the prior written consent of the
other parties hereto, knowingly take any actions or cause any actions to be
taken which could prevent the Servico Merger or any of the Impac Affiliated
Mergers (except the IHD Merger) from qualifying as a reorganization under the
provisions of Section 368(a) of the Code or the Impac Merger or the IHD Merger
as a transfer of property described in Section 351 of the Code. In the event
that the Mergers shall fail to qualify as transactions under the provisions of
Section 351 and 368(a) of the Code, as the case may be, then the parties hereto
agree to negotiate in good faith to restructure the Mergers in order that they
shall qualify as tax-free transactions under the Code. Following the Effective
Time, and consistent with any such consent, none of the Surviving Corporations,
Servico, Impac, the Impac Affiliated Companies, SHG nor any of their affiliates
shall knowingly take any action or knowingly cause any action to be taken which
would cause the Mergers to fail to qualify as a reorganization under Section
368(a) of the Code or as a transfer of property described in Section 351 of the
Code, as the case may be.
5.12 REGISTRATION STATEMENT; JOINT PROXY STATEMENT.
(a) As promptly as practicable after the execution of this
Agreement, Servico and Impac shall jointly prepare and SHG shall file with the
SEC a document or documents that will constitute (i) the prospectus forming part
of the registration statement on Form S-4 of SHG (together with all amendments
thereto, the "Registration Statement"), in connection with the registration
under the Securities Act of (A) the SHG Common Stock to be issued to Servico's
and each of the Impac Affiliated Companies' shareholders pursuant to the Servico
Merger and the Impac Affiliated Mergers and (B) the SHG Common Stock to be
issued to Impac's Members pursuant to the Impac Merger, and (ii) the Joint Proxy
Statement with respect to the Mergers relating to the special meeting of each of
Servico's shareholders (the "Servico Special Meeting") and Impac's Members (the
"Impac Special Meeting" and, together with the Servico Special Meeting, the
"Special Meetings") to be held to consider the approval of this Agreement and
the Mergers contemplated hereby (such document, together with any amendments
thereto, the "Joint Proxy Statement"). Copies of the Joint Proxy Statement shall
be provided to the NYSE in accordance with the rules of such exchange. Each of
the parties hereto shall use all reasonable efforts to cause the Registration
Statement to become effective as promptly as practicable, and, prior to the
effective date of the Registration Statement, the parties hereto shall take all
action required under any applicable Laws in connection with the issuance of
shares of SHG Common Stock pursuant to the Mergers. Servico, Impac or the Impac
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Affiliated Companies, as the case may be, shall furnish all information
concerning Servico, Impac or the Impac Affiliated Companies (including updated
financial information as required by Regulation S-X) as the other party may
reasonably request in connection with such actions and the preparation of the
Registration Statement and Joint Proxy Statement. As promptly as practicable
after the effective date of the Registration Statement, the Joint Proxy
Statement shall be mailed to the shareholders of Servico and the Impac
Affiliated Companies and the Members of Impac. Each of the parties hereto shall
cause the Joint Proxy Statement to comply as to form and substance in all
material respects with the applicable requirements of (i) the Exchange Act, (ii)
the NYSE, (iii) the Securities Act and (iv) the FBCA and the GLLCA.
(b) (i) The Joint Proxy Statement shall include the adoption
of the Mergers and recommendation of the Board of Directors of Servico to
Servico's shareholders that they vote in favor of approval of this Agreement and
the Mergers contemplated hereby. In addition, the Joint Proxy Statement shall
include the opinion of Lehman Brothers referred to in Section 3.15.
(ii) The Joint Proxy Statement shall reflect (A) the
approval of the Mergers and recommendation of the Manager of Impac to Impac's
Members that they vote in favor of approval of this Agreement and the Mergers
contemplated hereby and (B) the adoption and approval of the Mergers by the
Board of Directors and the requisite percentage of the shareholders of each of
the Impac Affiliated Companies. In addition, the Joint Proxy Statement shall
include the opinion of Allen & Company referred to in Section 4.28.
(c) No amendment or supplement to the Joint Proxy Statement or
the Registration Statement shall be made without the approval of Servico and
Impac, which approval shall not be unreasonably withheld or delayed. Each of the
parties hereto shall advise the other parties hereto, promptly after it receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, of the issuance of any stop
order, of the suspension of the qualification of the SHG Common Stock issuable
in connection with the Mergers for offering or sale in any jurisdiction, or of
any request by the SEC or the NYSE for amendment of the Joint Proxy Statement or
the Registration Statement or comments thereon and responses thereto or requests
by the SEC for additional information.
(d) The information supplied by Impac or any Impac Affiliated
Company for inclusion in the Registration Statement and the Joint Proxy
Statement shall not, at (i) the time the Registration Statement is filed with
the SEC, (ii) if different, the time the Registration Statement is declared
effective, (iii) the time the Joint Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the Members of Impac and the shareholders
of Servico and the Impac Affiliated Companies, (iv) the time of the Impac
Special Meeting, (v) the time of the Servico Special Meeting and (vi) the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. If at any time prior to the Effective Time any event or
circumstance relating to Impac, any Impac Affiliated Company or any Impac
Subsidiary, or their respective managers, officers or directors, should be
discovered by Impac or any Impac Affiliated Company that should be set forth in
an amendment or a supplement to the Registration Statement or Joint Proxy
Statement, Impac shall promptly inform Servico.
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(e) The information supplied by Servico for inclusion in the
Registration Statement and the Joint Proxy Statement shall not, at (i) the time
the Registration Statement is filed with the SEC, (ii) if different, the time
the Registration Statement is declared effective, (iii) the time the Joint Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the shareholders of Servico and the Impac Affiliated Companies and the Members
of Impac, (iv) the time of the Impac Special Meeting, (v) the time of the
Servico Special Meeting and (vi) the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If, at any time
prior to the Effective Time, any event or circumstance relating to Servico or
any Servico Subsidiary, or their respective officers or directors, should be
discovered by Servico that should be set forth in an amendment or a supplement
to the Registration Statement or Joint Proxy Statement, Servico shall promptly
inform Impac.
5.13 SPECIAL MEETINGS. Impac shall call and hold the Impac Special
Meeting and Servico shall call and hold the Servico Special Meeting as promptly
as practicable for the purpose of voting upon the approval of this Agreement
pursuant to the Joint Proxy Statement and the Mergers contemplated hereby, and
each of Servico and Impac shall use its reasonable efforts to hold the Special
Meetings on the same day and as soon as practicable after the date on which the
Registration Statement becomes effective. Impac shall use its reasonable efforts
to solicit from its Members, proxies in favor of the approval of this Agreement
and the Mergers contemplated hereby pursuant to the Joint Proxy Statement and
shall take all other action necessary or advisable to secure the vote or consent
of Members required by the GLLCA. Servico shall use its reasonable efforts to
solicit from its shareholders proxies in favor of the approval of this Agreement
and the Mergers contemplated hereby pursuant to the Joint Proxy Statement, and
shall take all other action necessary or advisable to secure the vote or consent
of its shareholders required by the FBCA or applicable stock exchange
requirements to obtain such approval. Each of the parties hereto shall take all
other action necessary or, in the opinion of the other parties hereto, advisable
to promptly and expeditiously secure any vote or consent of shareholders or
Members required by applicable Law and such party's Articles of Incorporation or
Articles of Organization and Bylaws or Operating Agreement to effect the
Mergers.
5.14 EMPLOYEE BENEFITS MATTERS.
(a) Except as otherwise provided herein, each benefit plan of
Servico (the "Servico Plans") and the Impac Plans in effect as of the Effective
Time shall be maintained in effect with respect to the employees or former
employees of Servico and the Servico Subsidiaries, on the one hand, and of Impac
and the Impac Subsidiaries, on the other hand, respectively, who are covered by
such benefit plans immediately prior to the Closing until SHG otherwise
determines after the Effective Time; PROVIDED, HOWEVER, that nothing contained
herein shall limit any reserved right in any Servico Plan or Impac Plan to
amend, modify, suspend, revoke or terminate any such plan.
(b) With respect to any Servico Plan or benefit plan of SHG
under which the delivery of Servico Common Stock or SHG Common Stock, as the
case may be, is required upon payment of benefits, grant of awards or exercise
of options (the "Stock Plans"), SHG shall take all corporate action necessary or
appropriate to (i) obtain shareholder approval with respect to such plan to the
extent such approval is required for purposes of the Code or other applicable
law, or to enable such plan to comply
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with Rule 16b-3 promulgated under the Exchange Act, (ii) reserve for issuance
under such plan or otherwise provide a sufficient number of shares of SHG Common
Stock for delivery upon payment of benefits, grant of awards or exercise of
options under such plan and (iii) as soon as practicable after the Effective
Time, file registration statements on Form S-3 or Form S-8, as appropriate (or
any successor or other appropriate forms), with respect to the shares of SHG
Common Stock subject to such plan to the extent such registration statement is
required under applicable law, and SHG shall use its best efforts to maintain
the effectiveness of such registration statements (and maintain the current
status of the prospectuses contained therein) for so long as such benefits and
grants remain payable and such options remain outstanding. Further, SHG shall
reserve for issuance under a stock option plan approved by the Board of
Directors of SHG, that number of shares of SHG Common Stock which equals seven
and one-half percent (7-1/2%) of the Base Number, such options to be granted to
certain employees of Impac or any Impac Subsidiary. SHG agrees that such options
shall be granted to such employees effective as of the Closing and in the names
and respective allocations determined by the Board of Directors of SHG after
consideration of recommendations from Robert Cole and the grants of stock
options made to employees in comparable positions at Servico and the Servico
Subsidiaries. With respect to those individuals who subsequent to the Mergers
will be subject to the reporting requirements under Section 16(a) of the
Exchange Act, SHG shall administer the Stock Plans, where applicable, in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act.
(c) Without limiting the applicability of the foregoing or of
Section 2.8 hereof, each of the parties hereto shall take all actions as are
necessary to ensure that Servico and Impac shall not be, at the Effective Time,
bound by any options, stock or equity appreciation rights, warrants or other
rights or agreements which would entitle any person, other than SHG, to own any
capital stock or interests of the Surviving Corporations or to receive any
payment in respect thereof, and all Servico Plans conferring any rights with
respect to shares or other capital stock or interests of Servico shall be deemed
hereby to be amended to be in conformity with this Section 5.14.
5.15 EXECUTIVE OFFICERS. At the Effective Time, subject to the Bylaws
of SHG and each of the Surviving Corporations (i) David A. Buddemeyer shall hold
the position of Chief Executive Officer of SHG and each of the Surviving
Corporations, (ii) Robert S. Cole shall hold the position of President of SHG
and each of the Surviving Corporations and (iii) David Buddemeyer and Robert
Cole shall hold the positions of Co-Chairmen of the Board of Directors of SHG
and each of the Surviving Corporations. If any of such persons is unable or
unwilling to hold such offices as set forth above, his successor shall be
selected by the Board of Directors of SHG or the Surviving Corporations in
accordance with their respective Bylaws.
5.16 AFFILIATES. Each of Impac and the Impac Affiliated Companies shall
use its reasonable efforts to deliver or cause to be delivered to Servico, prior
to the Effective Time, an affiliate letter in the form attached hereto as
Exhibit 5.16 (the "Impac Affiliate Letter"), executed by each of the Impac
Affiliates identified in SCHEDULE 4.27. The foregoing notwithstanding, SHG shall
be entitled to place legends in the form specified in the Impac Affiliate Letter
on the certificates evidencing any of the SHG Common Stock to be received by (i)
any Impac Affiliate or (ii) any person Servico reasonably identifies (by written
notice to Impac) as being a person who may be deemed an "affiliate" within the
meaning of Rule 145 of the rules and regulations of the Securities Act and to
issue appropriate stop transfer instructions to the transfer agent for the SHG
Common Stock, consistent with the terms provided for in
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the Impac Affiliate Letter, regardless of whether such person has executed an
Impac Affiliate Letter and regardless of whether such person's name and address
appear on SCHEDULE 4.27.
5.17 HEADQUARTERS. The corporate headquarters of SHG shall initially be
located in Atlanta, Georgia.
5.18 POST-MERGER SHG BOARD OF DIRECTORS. At the Effective Time, the
total number of persons serving on the Board of Directors of SHG shall be eight
(unless otherwise agreed in writing by Servico and Impac prior to the Effective
Time), five of whom shall be Servico Directors, two of whom shall be Impac
Directors and one of whom shall be selected by both Impac and Servico. The
initial directors of SHG and the initial allocations of the directors among the
three classes of directors shall, at the Effective Time, be as follows: The
Board of Directors shall be divided into three classes, designated as Class I to
initially serve for one year, Class II to initially serve for two years and
Class III to initially serve for three years. The initial directors of SHG shall
allocate the directors among the three classes as follows: (i) Class I shall
consist of two directors, comprised of Peter R. Tyson and the person mutually
selected as provided above; (ii) Class II shall consist of three directors,
comprised of Joseph C. Calabro, Michael Levin and John Lang; and (iii) Class III
shall consist of three directors, comprised of David Buddemeyer, Robert S. Cole
and Richard H. Weiner. Such directors shall serve as the directors of SHG from
and after the Effective Time in accordance with the Restated Certificate of
Incorporation and Bylaws of SHG until their successors are elected or appointed
and qualified or until their resignation or removal. In the event that, prior to
the Effective Time, any person so selected to serve on the Board of Directors of
SHG is unable or unwilling to serve in such position, the company that selected
such person shall designate another person to serve in such person's stead. From
and after the Effective Time, the composition of the Board of Directors shall be
determined in accordance with the Restated Certificate of Incorporation and
Bylaws of SHG. The term "Impac Director" means any person serving as a Manager
or executive officer of Impac on the date hereof who become a director of SHG at
the Effective Time; and the term "Servico Director" means any person serving as
a director or executive officer of Servico on the date hereof who is designated
by Servico become a director of SHG at the Effective Time.
5.19 STOCK EXCHANGE LISTINGS. Each of the parties hereto shall use its
reasonable efforts to obtain, prior to the Effective Time, the approval for
listing on the NYSE, effective upon official notice of issuance, of the shares
of SHG Common Stock into which the Shares will be converted pursuant to Article
II hereof and which will be issuable upon exercise of options pursuant to
Section 2.8 hereof.
5.20 INDEMNIFICATION.
(a) From and after the Effective Time, SHG agrees that it
will, and will cause the Surviving Corporations to, indemnify and hold harmless
each present and former director, manager, member, officer and agent of Servico
and Impac (the "Indemnified Parties"), against any costs or expenses (including
attorneys' fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that Servico or Impac, as the
case may be, would have been permitted under Florida or Georgia law, as the case
may be, and its articles of incorporation, articles of organization, operating
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agreement or bylaws in effect on the date hereof to indemnify such Indemnified
Party (and SHG and the Surviving Corporations shall also advance expenses as
incurred to the fullest extent permitted under applicable Law, provided the
Indemnified Party to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such Indemnified Party is not
entitled to indemnification).
(b) For a period of six (6) years after the Effective Time,
SHG shall maintain or shall cause the Surviving Corporations to maintain (to the
extent available in the market) in effect a directors' and officers' liability
insurance policy covering those persons who are currently covered by Servico or
Impac directors' and officers' liability insurance policy (copies of which have
been heretofore delivered by Servico and Impac to each other ) with coverage in
amount and scope at least as favorable as Servico's or Impac's existing
coverage; provided that in no event shall SHG or the Surviving Corporations be
required to expend in the aggregate in excess of 200% of the annual premium
currently paid by Servico or Impac for such coverage; and if such premium would
at any time exceed 200% of such amount, then SHG or the Surviving Corporations
shall maintain insurance policies which provide the maximum and best coverage
available at an annual premium equal to 200% of such amount.
(c) The provisions of this Section 5.20 are intended to be an
addition to the rights otherwise available to the current officers, directors
and managers of Servico and Impac by law, charter, statute, bylaw or agreement,
and shall operate for the benefit of, and shall be enforceable by, each of the
Indemnified Parties, their heirs and their representatives.
5.21 GUARANTEES. SHG shall use its reasonable efforts (without the
requirement to pay any fee or adversely modify the terms of any agreement) to
obtain a release of any individuals from liability as guarantor of Impac's or
any Impac Subsidiary's obligations to third parties under those franchise
agreements and related documentation identified on SCHEDULE 5.21. In any event,
SHG shall indemnify and hold harmless each such individual guarantor from and
against any liability such guarantor may incur after the Effective Time under
such guarantees as a result of Impac's or any Impac Subsidiary's failure to
satisfy its obligations under such franchise agreements or related
documentation.
5.22 REGISTRATION RIGHTS. Pursuant to, and subject to the provisions
of, a Registration Rights Agreement, the form of which is set forth as Exhibit
5.22 hereto, SHG shall grant certain "piggy-back" registration rights to those
Members of Impac who receive SHG Common Stock in the Mergers and who (i) as a
result of the Mergers, become subject to the restrictions on the sale of such
SHG Common Stock pursuant to Rule 145 of the rules and regulations of the
Securities Act and (ii) would be prohibited from selling, over a twelve month
period, all of their respective shares of SHG Common Stock so received in the
Mergers by virtue of the volume limitations set forth in paragraph (d)(i) of
Rule 145 incorporating paragraph (e) of Rule 144 promulgated by the SEC under
the Securities Act.
5.23 TERMINATION OF DEVELOPMENT AGREEMENT; USE OF AFFILIATED NAMES.
Impac shall, prior to Closing, cause the termination of that certain Development
Agreement between Impac and IHD, dated March 10, 1998, as assigned by IHD to a
newly-formed corporation owned by the shareholders of IHD (the "IHD Assignee")
without any cost or liability of any kind to Impac and shall take all other
action necessary to ensure that, after the Closing, neither Impac nor any Impac
Subsidiary has any further obligation of any kind, contingent or otherwise,
including any payment obligation, to the IHD Assignee after the Closing
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other than the payment of up to a 4% development fee upon the acquisition by
SHG, after the Closing of any of the hotels or properties identified on SCHEDULE
5.23; provided, however, that in no event shall the aggregate amount of
development fees payable to the IHD Assignee exceed $2.5 million. Additionally,
Impac shall cause all affiliates of Impac (other than any Impac Subsidiary) and
all affiliates of each Impac Subsidiary to, within sixty (60) days after the
Closing, cease using any and all tradenames and any other names, trademarks,
logos or tradedress containing the word "Impac" and, as applicable, to file an
appropriate amendment to its charter documents changing its name to a name which
does not use or include the name "Impac" or any similar name.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 SURVIVAL OF THE REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Impac, the Impac Affiliated Companies and Servico contained in
this Agreement shall terminate at the Closing.
6.2 INVESTIGATION. Notwithstanding any provisions contained herein to
the contrary, the representations, warranties, covenants and agreements of this
Agreement shall not be affected or diminished in any way by the receipt of any
notice pursuant to Section 5.6 or by any investigation (or failure to
investigate) at any time by or on behalf of the party for whose benefit such
representations, warranties, covenants and agreements were made. All statements
contained herein or in any schedule, certificate or exhibit delivered pursuant
hereto or in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties for purposes of this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 MUTUAL CONDITIONS PRECEDENT. The respective obligations of the
parties to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) GOVERNMENTAL CONSENTS. All material consents and approvals
required by Governmental Entities for the consummation of the transactions
contemplated by this Agreement shall have been obtained, including without
limitation, the expiration or termination of any notice and waiting period under
the HSR Act. All of such consents and approvals shall have been obtained without
the imposition of any conditions which would materially adversely affect SHG's
ability to operate Servico, any Impac Affiliated Company, Impac or any of their
subsidiaries following the Closing.
(b) NO LITIGATION. No litigation, arbitration or other
proceeding shall be pending or, to the knowledge of the parties, threatened by
or before any court, arbitration panel or governmental authority; no law or
regulation shall have been enacted after the date of this Agreement; and no
judicial or administrative decision shall have been rendered; in each case,
which enjoins, prohibits or materially
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restricts, or seeks to enjoin, prohibit or materially restrict, the consummation
of the transactions contemplated by this Agreement.
(c) REGISTRATION STATEMENT. The Registration Statement shall
have been declared effective by the SEC under the Securities Act and no stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceeding for that purpose shall have been initiated
by the SEC and not concluded or withdrawn.
(d) LISTING OF EXCHANGE SHARES. SHG shall have obtained
approval for listing on the NYSE of the shares of SHG Common Stock to be issued
in the Mergers.
(e) CORPORATE APPROVALS. The shareholders of Servico and the
Members of Impac shall have approved this Agreement and the Mergers in
accordance with the FBCA and the GLLCA, respectively.
(f) OPINION OF SERVICO'S TAX COUNSEL. Stearns Weaver Miller
Weissler Alhadeff & Sitterson, P.A. shall have issued its opinion, such opinion
dated on or about the date hereof and on or about the date of the Closing,
addressed to SHG, Servico, Impac and the Impac Affiliated Companies, based upon
customary representations of Servico, Impac and the Impac Affiliated Companies
and customary assumptions, to the effect that the Servico Merger will be treated
for federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code and that each of Servico, Servico
Merger Sub and SHG shall be a party to the reorganization within the meaning of
Section 368(b) of the Code, which opinion shall not have been withdrawn or
modified in any material respect;
(g) OPINION OF IMPAC'S TAX COUNSEL. Powell, Goldstein, Frazer
& Murphy, LLP shall have issued its opinion, such opinion dated on or about the
date hereof and on or about the date of the Closing, addressed to SHG, Servico,
Impac and the Impac Affiliated Companies, based upon customary representations
of Servico, Impac and the Impac Affiliated Companies and customary assumptions,
to the effect that the Impac Merger and the IHD Merger will be treated for
federal income tax purposes as a transfer of property described in Section 351
of the Code, and each of the Impac Affiliated Mergers (except the IHD Merger)
will be treated for federal income tax purposes as a reorganization qualifying
under Section 368(a) of the Code and that each of the Impac Affiliated Companies
(except IHD), each of the Impac Affiliated Merger Subs (except IHD Merger Sub)
and SHG shall be a party to a reorganization within the meaning of Section
368(b) of the Code, which opinion shall not have been withdrawn or modified in
any material respect;
(h) COMFORT LETTERS. Each of Coopers & Lybrand and Ernst &
Young shall have delivered the comfort letters referred to in Section 5.10.
7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SERVICO. The obligations
of Servico to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each of the
representations and warranties of Impac and the Impac Affiliated Companies
contained herein or in any certificate or other document
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delivered pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects (except for such representations and warranties qualified by
materiality which shall be true and correct in all respects) on and as of the
Closing with the same force and effect as though made on and as of such date.
(b) PERFORMANCE. Each of Impac and the Impac Affiliated
Companies shall have performed and complied in all material respects with all of
the agreements, covenants and obligations required under this Agreement to be
performed or complied with by if prior to or at the Closing.
(c) NO MATERIAL ADVERSE EFFECT. There shall not have occurred
any event or condition which has adversely affected or may adversely affect in
any material respect the condition (financial or otherwise) of Impac and the
Impac Subsidiaries, taken as a whole or, or any of the Impac Affiliated
Companies or their respective assets, liabilities (whether absolute, accrued,
contingent or otherwise), earnings, business, prospects or operations.
(d) CONSENTS. Impac shall have obtained all material
authorizations, consents, waivers and approvals as may be required in connection
with the consummation of the transactions contemplated hereby, including,
without limitation, any consents required to be obtained in connection with
those instruments and agreements listed on SCHEDULE 4.7 hereto and consents
necessary to enable the business and operations of Impac after consummation of
the transactions contemplated hereby to continue to be conducted in the same
manner as currently conducted. Each such consent shall have been obtained
without the imposition of any adverse terms or conditions or without the
imposition of any significant cost.
(e) OPINION OF COUNSEL. Servico shall have received from
Powell, Goldstein, Frazer & Murphy, LLP ("PGFM"), legal counsel to Impac and
each of the Impac Affiliated Companies, an opinion letter, dated the Closing
Date, in form and substance reasonably satisfactory to Servico, with respect to
the matters set forth in Exhibit 7.2(e) to this Agreement, including an opinion
that no membership interests or other securities issued by Impac, any Impac
Affiliated Company or any Impac Subsidiary from the date of its organization or
incorporation to the date hereof were issued in violation of the rules and
regulations of the Securities Act or Blue Sky Laws. The opinion of PGFM
regarding the issuance of membership interests or other securities of any Impac
Affiliated Company or any Impac Subsidiary may be limited to issuances occurring
after PGFM first acted as legal counsel for Impac, any Impac Affiliated Company
or any Impac Subsidiary.
(f) CERTIFICATES. Each of Impac and the Impac Affiliated
Companies shall have delivered to Servico a certificate executed by its Manager
or President, dated as of the Closing, certifying in such detail as Servico may
reasonably request, that (i) the conditions specified in Sections 7.2(a) and (b)
(insofar as they are to be performed by Impac or any Impac Affiliated Company)
have been fulfilled and (ii) attached to such certificate is a true and correct
copy of the resolutions or consents of the shareholders of each of the Impac
Affiliated Companies and the Members authorizing and approving the execution,
delivery and performance of this Agreement by Impac and the Impac Affiliated
Companies, respectively. Servico shall also have received (i) a certificate of
Secretary as to the incumbency and signatures of the officers of each of Impac
and the Impac Affiliated Companies executing this Agreement and the Articles and
Certificates of Merger of each of Impac and the Impac Affiliated Companies with
respect to the Impac Merger and each of the Impac Affiliated Mergers, and (ii) a
certificate issued by the
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secretary of state of the applicable state of organization or incorporation of
each state in which Impac, any Impac Affiliated Company or any Impac Subsidiary
is qualified to do business, as of a date reasonably acceptable to Servico, as
to the good standing of Impac, each of the Impac Affiliated Companies and the
Impac Subsidiaries in those states.
(g) DEBT RESTRUCTURING. Impac and Servico shall have received
a commitment, effective as of the Closing, to restructure the indebtedness of
Impac and the Impac Subsidiaries substantially in accordance with the terms
described on SCHEDULE 7.2(G).
(h) IMPAC AFFILIATED COMPANIES' FINANCIAL STATEMENTS. Servico
shall have received a balance sheet for each of the Impac Affiliated Companies
(other than IHD) as of June 30, 1998, certified without qualification, by
Pricewaterhouse Coopers LLP, pursuant to their audit of the financial records of
such Impac Affiliated Companies. Such balance sheets shall present fairly, in
all material respects, the financial condition, assets, liabilities and equity
of each of such Impac Affiliated Companies at June 30, 1998, and shall reflect
that none of such Impac Affiliated Companies have any liabilities, commitments
or obligations of any nature whatsoever whether accrued, contingent or
otherwise.
7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF IMPAC AND THE IMPAC
AFFILIATED COMPANIES. The obligations of Impac and the Impac Affiliated
Companies to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each of the
representations and warranties of Servico contained herein or in any certificate
or document delivered pursuant to the provisions hereof or in connection with
the transactions contemplated hereby shall be true and correct in all material
respects (except for such representations and warranties qualified by
materiality which shall be true and correct in all respects) on and as of the
Closing with the same force and effect as though made on and as of such date.
(b) PERFORMANCE. Servico shall have performed and complied in
all material respects with all of the agreements, covenants and obligations
required under this Agreement to be performed or complied with by them prior to
or at the Closing.
(c) NO MATERIAL ADVERSE EFFECT. There shall not have occurred
any event or condition which has adversely affected or may adversely affect in
any material respect the condition (financial or otherwise) of Servico and the
Servico Subsidiaries, taken as a whole, or their assets, liabilities (whether
absolute, accrued, contingent or otherwise), earnings, business, prospects or
operations.
(d) CONSENTS. Servico shall have obtained all material
authorizations, consents, waivers and approvals as may be required in connection
with the consummation of the transactions contemplated hereby, including,
without limitation, any consents required to be obtained in connection with
those instruments and agreements listed on SCHEDULE 3.4 hereto and consents
necessary to enable the business and operations of Servico after consummation of
the transactions contemplated hereby to continue to be conducted in the same
manner as currently conducted. Each such consent shall have been obtained
without imposition of any adverse terms or conditions or without the imposition
of any significant costs.
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(e) OPINION OF COUNSEL. Impac shall have received from Stearns
Weaver Miller Weissler Alhadeff & Sitterson, P.A., legal counsel to Servico, an
opinion letter, dated the Closing, in form and substance reasonably satisfactory
to Impac, with respect to the matters set forth in Exhibit 7.3(e) to this
Agreement.
(f) SERVICO'S CERTIFICATES. Servico shall have delivered to
Impac a certificate executed by its Chairman and President, dated as of the
Closing, certifying in such detail as Impac may reasonably request, that: (i)
the conditions specified in Sections 7.3(a) and (b) (insofar as they are to be
performed by Servico) have been fulfilled; and (ii) attached to such certificate
is a true and correct copy of the resolutions of the Board of Servico
authorizing the execution, delivery and performance of this Agreement by
Servico. Impac shall have also received a certificate of Secretary as to the
incumbency and signatures of the officers of Servico executing this Agreement
and the Servico Articles of Merger.
(g) EMPLOYMENT AGREEMENTS. Each of those persons listed on
SCHEDULE 7.3(G) shall have been offered employment by SHG substantially upon the
terms described in SCHEDULE 7.3(G).
7.4 TERMINATION. This Agreement may be terminated and the Mergers may
be abandoned at any time prior to the Effective Time, notwithstanding any
requisite adoption and approval of this Agreement (with Impac in each case
acting on behalf of itself and the Impac Affiliated Companies), as follows:
(a) by mutual written consent of Servico and Impac;
(b) by either Servico or Impac, if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Mergers, and
such order, decree, ruling or other action shall have become final and
nonappealable;
(c) by either Servico or Impac, after the End Date, if the
Mergers have not been consummated on or before December 31, 1998 (such date or
such later date mutually agreed to in writing by the parties hereto referred to
as the "End Date") (other than due to the failure of the party seeking to
terminate this Agreement to perform its obligations under this Agreement
required to be performed at or prior to the Closing);
(d) by either Servico or Impac, if at the Servico Special
Meeting (including any adjournment or postponement thereof), the requisite vote
of the shareholders of Servico in favor of approval of the adoption of this
Agreement and the Mergers shall not have been obtained;
(e) by Servico at any time in its sole discretion if any of
the representations or warranties of Impac or any Impac Affiliated Company in
this Agreement are not in all material respects true and correct, or if Impac or
any Impac Affiliated Company breaches in any material respect any covenant
contained in this Agreement, provided that if such misrepresentation or breach
is curable, it is not cured within fifteen (15) business days after notice
thereof, but in any event prior to the End Date;
(f) by Impac at any time in its sole discretion if any of the
representations or warranties of Servico in this Agreement are not in all
material respects true and correct, or if Servico breaches in any
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material respect any covenant contained in this Agreement, provided that if such
misrepresentation or breach is curable, it is not cured within fifteen (15)
business days after notice thereof, but in any event prior to the End Date;
(g) by Impac, if after May 1, 1998, Servico shall be actively
engaged in negotiating with any person or entity with which it has exchanged any
non-public information under a confidentiality agreement during the period from
January 1, 1998 to the date of this Agreement (a "Designated Person"), with
respect to any offer or proposal involving a Change of Control of Servico;
(h) by Impac or Servico, if a proposal for a Change of Control
of Servico shall have been publicly announced and Servico's Board of Directors
shall have withdrawn or adversely modified their recommendation to Servico's
shareholders that they vote in favor of the approval of this Agreement and the
Mergers contemplated hereby or Servico chooses to enter into a definitive
agreement for a Change of Control;
(i) by Impac, if since the date of this Agreement, Servico
shall have provided Impac a notice pursuant to Section 5.2(b) and Impac
reasonably determines that Servico's proposed acquisitions will result in a
Servico Material Adverse Effect or materially change the nature of Servico's
operations taken as a whole; provided that Impac so notifies Servico of its
election to terminate hereunder within ten days after receipt of the notice
delivered by Servico pursuant to Section 5.2(b); or
(j) by Impac or Servico after May 1, 1998, if the
non-terminating party (i) has entered into active negotiations with any third
party (other than a Designated Person) with respect to any offer or proposal
regarding a Change of Control (with respect to Servico) or a Competing
Transaction (with respect to Impac) or (ii) provides (or provides access to) any
third party (other than a Designated Person) with non-public information
concerning its business or assets with respect to any offer or proposal
involving a Change of Control (with respect to) Servico or a Competing
Transaction (with respect to Impac), as the case may be (any such third party
referred to in this Section 7.4(j) with which Servico or Impac engages in such
negotiations or provides (or provides access to) any such non-public information
prior to the termination of this Agreement being hereafter referred to as a
"Third Party").
If this Agreement is terminated pursuant to this Section 7.4, written
notice thereof shall promptly be given by the party electing such termination to
the other party and, subject to the expiration of the cure periods provided in
clauses (e) and (f) above, if any, this Agreement shall terminate without
further actions by the parties and no party shall have any further obligations
under this Agreement except to the extent provided in Section 8.8.
Notwithstanding the termination of this Agreement, the respective obligations of
the parties under SECTIONS 5.8 (Confidentiality), 8.8 (Fees and Expenses), 8.12
(Litigation; Prevailing Party), 8.14 (Injunctive Relief), 8.15 (Governing Law)
and 8.16 (Jurisdiction and Venue) shall survive the termination of this
Agreement. Subject to Section 5.8 hereof, upon termination of this Agreement,
each party shall return all documents and other materials of any other party
relating to the transactions contemplated by this Agreement, whether so obtained
before or after the execution of this Agreement, to the party furnishing the
same.
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ARTICLE VIII
MISCELLANEOUS
8.1 FURTHER ASSURANCES. The parties hereto shall deliver any and all
other instruments or documents required to be delivered pursuant to, or
necessary or proper in order to give effect to, all of the terms and provisions
of this Agreement including, without limitation, all necessary stock powers and
such other instruments of transfer as may be necessary or desirable to transfer
ownership.
8.2 NOTICES. Any notice or other communication under this Agreement
shall be in writing and shall be delivered personally or sent by registered
mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid
overnight courier to the parties at the addresses set forth below their names on
the signature pages of this Agreement (or at such other addresses as shall be
specified by the parties by like notice). Such notices, demands, claims and
other communications shall be deemed given when actually received or (a) in the
case of delivery by overnight service with guaranteed next day delivery, the
next day or the day designated for delivery, (b) in the case of registered U.S.
mail, five days after deposit in the U.S. mail, or (c) in the case of facsimile,
the date upon which the transmitting party received confirmation of receipt by
facsimile, telephone or otherwise. A copy of any notices delivered to Servico,
SHG or Holdings shall also be sent to Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A., 150 West Flagler Street, Suite 2200, Miami, Florida 33130,
Attention: Alison W. Miller, Esq. A copy of any notices delivered to Impac or
any Impac Affiliated Company shall also be sent to Powell, Goldstein, Frazer &
Murphy LLP, 191 Peachtree Street, N.E., Suite 1600, Atlanta, Georgia, 30303,
Attention: Ken Harrigan, Esquire.
8.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto and supersedes all prior agreements, understandings,
negotiations and discussions, both written and oral, among the parties hereto
with respect to the subject matter hereof. This Agreement may not be amended or
modified in any way except by a written instrument executed by all of the
parties hereto.
8.4 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder may be assigned by any party without the written
consent of the other parties hereto (whether by operation of Law or otherwise).
Subject to the preceding sentence, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
heirs, personal representatives, legal representatives, and permitted assigns.
8.5 WAIVER. At any time prior to the Effective Time, any
representation, warranty, covenant, term or condition of this Agreement which
may legally be waived, may be waived, or the time of performance thereof
extended, at any time by the party hereto entitled to the benefit thereof, and
any term, condition or covenant hereof may be amended by the parties hereto at
any time. Any such waiver, extension or amendment shall be evidenced by an
instrument in writing duly executed on behalf of the appropriate party by a
person who has been authorized by its Board of Directors or Manager, as the case
may be, to execute waivers, extensions or amendments on its behalf. No waiver by
any party hereto, whether express or implied, of its rights under any provision
of this Agreement shall constitute a waiver of such party's rights under such
provisions at any other time or a waiver of such party's rights under any other
provision of this Agreement or any other agreement. No failure by any party
hereto to take any action against any breach of this Agreement or default by
another party shall constitute a waiver of the former party's right to enforce
any provision of this Agreement or to take action against such breach or default
or any subsequent breach or default by such other party.
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8.6 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.
8.7 SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force and
effect, and such invalid, void or unenforceable provision shall be interpreted
as closely as possible to the manner in which it was written.
8.8 FEES AND EXPENSES.
(a) Except as set forth in Section 8.8(a) and (b) below, all
fees and expenses incurred in connection with the Mergers, this Agreement and
the transactions contemplated by this Agreement shall be paid by the party
incurring such fees or expenses, except that the fees for filing under the HSR
Act and any termination or other fees payable to Nomura Asset Capital
Corporation ("Nomura") pursuant to that certain $200 million loan commitment
from Nomura, shall be shared equally between Impac and Servico, it being
specifically agreed and acknowledged that if Nomura or any of its affiliates
waives any portion of such fees, the benefit of such waiver shall inure equally
to Servico and Impac.
(b) If this Agreement shall be terminated pursuant to Section
7.4(e) as the result of an intentional or willful breach by Impac or any Impac
Affiliated Company of any representation, warranty or covenant contained herein,
then Impac shall pay Servico an amount equal to all reasonable costs and
out-of-pocket expenses (including reasonable attorneys' and advisors' fees) of
up to $2.5 million incurred by Servico in connection with this Agreement and the
transactions contemplated by this Agreement; provided, however, that if, within
twelve (12) months after such termination of this Agreement Impac or any Impac
Subsidiary shall consummate a Competing Transaction with any party with which or
to which, prior to such termination, Impac or any Impac Subsidiary, directly or
indirectly, (i) had negotiations or discussions regarding a potential Competing
Transaction or (ii) provided (or provided access to) non-public information
concerning its business or assets, then Impac shall pay Servico an amount equal
to $10 million, less any amounts previously paid to Servico pursuant to this
Section 8.8(b) for costs and expenses.
(c) If this Agreement shall be terminated pursuant to Section
7.4(f) as the result of an intentional or willful breach by Servico of any
representation, warranty or covenant contained herein, or terminated pursuant to
Section 7.4(i) then Servico shall pay Impac an amount equal to all reasonable
costs and out-of-pocket expenses (including reasonable attorneys' and advisors'
fees) of up to $2.5 million incurred by Impac in connection with this Agreement
and the transactions contemplated by this Agreement.
(d) If this Agreement shall be terminated pursuant to Section
7.4(g), then Servico shall pay Impac an amount equal to all reasonable costs and
out-of-pocket expenses (including reasonable attorneys' and advisors' fees) of
up to $2.5 million incurred by Impac in connection with this Agreement and the
transactions contemplated by this Agreement; provided, however, that if, within
twelve (12) months after such termination of this Agreement, Servico shall
consummate a Designated Change of Control (as hereafter defined), then Servico
shall pay Impac an amount equal to $7.5 million, if the termination shall occur
on or before April 10, 1998, $10 million if the termination shall occur after
April
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10, 1998 and on or before May 15, 1998, or $15 million if the termination
shall occur after May 15, 1998, in any such case, less any amounts previously
paid to Impac pursuant to this Section 8.8(d) for costs and expenses.
(e) (i) If this Agreement shall be terminated pursuant to
Section 7.4(h) and within twelve months after such termination of this Agreement
such Change of Control shall have been consummated, then Servico shall pay Impac
an amount equal to $10 million. For purposes of this Agreement, "Change of
Control" shall mean either (A) a consensual merger, consolidation, share
exchange, business combination or similar consensual transaction involving
Servico pursuant to which any person, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act) acquire more than 28% of the
outstanding shares of Servico Common Stock; or (B) a sale, lease, exchange,
transfer or other disposition of all or substantially all of Servico's business
in a single transaction or series of related transactions. The provisions of
this Section 8.8(e)(i) shall not apply to a Designated Change of Control (as
defined in Section 8.8(e)(ii) below).
(ii) If this Agreement shall be terminated by Servico
pursuant to Section 7.4(c), 7.4(d) or 7.4(e) (except for incorrect
representations or warranties or breaches which have resulted in, or could
reasonably be expected to result in, an Impac Material Adverse Effect, in which
case no amount would be due hereunder), or by Impac pursuant to Section 7.4(d),
7.4(f) (and such breach is intentional or willful), or 7.4(h) and, within twelve
(12) months after such termination of this Agreement a Designated Change of
Control (as hereafter defined) shall have been consummated, then Servico shall
pay Impac an amount equal to $7.5 million, if the termination shall occur on or
before April 10, 1998, $10 million if the termination shall occur after April
10, 1998, and on or before May 15, 1998, or $15 million if the termination shall
occur after May 15, 1998. For purposes of this Agreement, "Designated Change of
Control" shall mean a Change of Control transaction involving a Designated
Person or its affiliates. In no event will a Designated Change of Control be
deemed to exist for purposes of this Section 8.8(e) if, at the time of
termination of this Agreement, there shall have occurred any event or condition
which has resulted in, or could reasonably be expected to result in, an Impac
Material Adverse Effect.
(f) If this Agreement shall be terminated pursuant to Section
7.4(j), then the non-terminating party shall, unless, prior to such
termination, the terminating party has also provided non-pubic information
concerning its business or assets to any Third Party (in which case, no
reimbursement for expenses incurred shall be made), pay the terminating party an
amount equal to all reasonable costs and out-of-pocket expenses (including
reasonable attorneys' and advisors' fees) of up to $2.5 million incurred by the
terminating party in connection with this Agreement and the transactions
contemplated by this Agreement; provided, however, that if, within twelve months
after such termination of this Agreement, (i) Impac or any Impac Subsidiary
shall consummate a Competing Transaction with a Third Party, then Impac shall
pay Servico an amount equal to $10 million, less any amounts previously paid to
Servico pursuant to this Section 8.8(f) for reimbursement of costs and expenses
and (ii) if Servico consummates a Change of Control with a Third Party, then
Servico shall pay Impac an amount equal to $10 million, less any amounts
previously paid to Impac pursuant to this Section 8.8(f) for reimbursement of
costs and expenses.
(g) Each party agrees that the actual damages accruing from
termination of this Agreement pursuant to the termination provisions referenced
in Section 8.8(b), (c), (d), (e) or (f) are
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<PAGE> 245
incapable of precise estimation and would be difficult to prove, and that the
damages stipulated herein bear a reasonable relationship to the potential injury
likely to be sustained in the event of termination pursuant to such occurrence.
The payments stipulated in Section 8.8(b), (c), (d), (e) or (f) are intended by
the parties to provide just compensation in the event of termination pursuant to
said termination provision referenced in Section 8.8(b), (c), (d), (e) or (f),
and are not intended to compel performance or to constitute a penalty for
nonperformance.
(h) Any payment required to be made pursuant to Section
8.8(b), (c), (d), (e) or (f) shall be made not later than five business days
after the occurrence of the event for which a party is entitled to payment and
delivery by such party to the other party of a notice of demand for payment,
provided that such notice shall include an itemization setting forth in
reasonable detail all expenses of such party for which it is entitled to
reimbursement hereunder (which itemization may be supplemented and updated from
time to time by such party until the sixtieth day after such party delivers such
notice of demand for payment). All payments required to be made pursuant to this
Section 8.8 shall be made by wire transfer of immediately available funds to an
account designated by such party in the notice of demand for payment delivered
pursuant to this Section 8.8(h).
(i) In the event a party shall fail to make any payment
required pursuant to Section 8.8(b), (c), (d), (e) or (f), the amount of any
such required payment shall be increased to include the costs and expenses
actually incurred or accrued by the other party (including, without limitation,
fees and expenses of counsel) in connection with the collection under and
enforcement of this Section 8.8, together with interest on such unpaid amounts
commencing on the date that such payment under Section 8.8(b), (c), (d), (e) or
(f) became due, at a rate equal to the rate of interest publicly announced by
Citibank, N.A., from time to time, in The City of New York, from time to time,
as such bank's base rate plus 2.00%.
8.9 SECTION HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
8.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the several parties hereto in separate counterparts, each of
which shall be deemed to be one and the same instrument.
8.11 TIME OF ESSENCE. Wherever time is specified for the doing or
performance of any act or the payment of any funds, time shall be considered of
the essence.
8.12 LITIGATION; PREVAILING PARTY. In the event of any litigation with
regard to this Agreement, the prevailing party shall be entitled to receive from
the non-prevailing party and the non-prevailing party shall pay upon demand all
reasonable fees and expenses of counsel for the prevailing party.
8.13 REMEDIES CUMULATIVE. No remedy made available by any of the
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity.
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<PAGE> 246
8.14 INJUNCTIVE RELIEF. It is possible that remedies at law may be
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies in addition to all other remedies provided hereunder or
available to the parties hereto at law or in equity.
8.15 GOVERNING LAW. This Agreement has been entered into and shall be
construed and enforced in accordance with the laws of the State of Florida
without reference to the choice of law principles thereof.
8.16 JURISDICTION AND VENUE. This Agreement shall be subject to the
exclusive jurisdiction and venue of the courts of Palm Beach County, Florida.
The parties to this Agreement agree that any breach of any term or condition of
this Agreement shall be deemed to be a breach occurring in the State of Florida
by virtue of a failure to perform an act required to be performed in the State
of Florida and irrevocably and expressly agree to submit to the jurisdiction of
the courts of the State of Florida for the purpose of resolving any disputes
among the parties relating to this Agreement or the transactions contemplated
hereby. The parties irrevocably waive, to the fullest extent permitted by law,
any objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in Palm Beach County,
Florida, and further irrevocably waive any claim that any suit, action or
proceeding brought in Palm Beach County, Florida has been brought in an
inconvenient forum.
8.17 CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms have the following meanings:
(a) "AFFILIATE" has the meaning specified in Rule 144
promulgated by the SEC under the Securities Act;
(b) "BUSINESS DAY" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized by law or executive order to close in the City of New
York, USA;
(c) "IMPAC MATERIAL ADVERSE EFFECT" means any change in or
effect on the business of Impac, the Impac Affiliated Companies and the Impac
Subsidiaries that is, or is reasonably likely to be, materially adverse to the
business, assets (including intangible assets), liabilities (contingent or
otherwise), condition (financial or otherwise) or results of operations of
Impac, and the Impac Subsidiaries taken as a whole;
(d) "KNOWLEDGE" means, with respect to any matter in question,
that the executive officers and Manager of Impac, each Impac Affiliated Company
or Servico, as the case may be, (i) have actual knowledge of such matter or (ii)
after due investigation, should have known of such matter;
(e) "LAW" means any federal, state or local statute, law,
ordinance, regulation, rule, code, order or other requirement or rule of law of
the United States or any other jurisdiction;
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(f) "MEMBERSHIP INTEREST" means a member's rights in the
subject limited liability company, collectively, including the member's share of
the profits and losses of the limited liability company, the right to receive
distributions of the limited liability company's assets, and any right to vote
or participate in management;
(g) "PERSON" means an individual, corporation, partnership,
limited partnership, limited liability company, syndicate, person (including,
without limitation, a "PERSON" as defined in Section 13(d)(3) of the Exchange
Act), trust, association, entity or government or political subdivision, agency
or instrumentality of a government;
(h) "SERVICO MATERIAL ADVERSE EFFECT" means any change in or
effect on the business of Servico and the Servico Subsidiaries that is, or is
reasonably likely to be, materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise), condition (financial
or otherwise) or results of operations of Servico and the Servico Subsidiaries
taken as a whole;
(i) "SUBSIDIARY" or "SUBSIDIARIES" of any person means any
corporation, limited liability company, partnership, joint venture or other
legal entity of which such person (either alone or through or together with any
other subsidiary of such person) owns, directly or indirectly, more than fifty
percent of the stock or other equity interests, the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity; and
(j) "TAX" means any federal, state, local or foreign income,
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, transportation, transportation excise, registration, value
added, documentary stamp, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax or
governmental charge, of any kind whatsoever, including any interest, penalties
or additions to tax or additional amounts in respect of the foregoing; the
foregoing shall include any transferee or secondary liability for a Tax and any
liability assumed by agreement or arising as a result of being (or ceasing to
be) a member of any affiliated group (or being included (or required to be
included) in any tax return relating thereto).
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<PAGE> 248
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Agreement as of the day and year first above written.
SERVICO, INC., a Florida
corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: President and Chief Executive Officer
Address: 1601 Belvedere Road
West Palm Beach, Florida 33406
SERVICO HOTEL GROUP, INC.,
a Delaware corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: Chief Executive Officer
Address: 1601 Belvedere Road
West Palm Beach, Florida 33406
IMPAC HOTEL GROUP, L.L.C.,
a Georgia limited liability company
By:
-----------------------------------------------
Name: Robert S. Cole
Title: President and Manager
Address: 3445 Peachtree Road, N.E.
Suite 7800
Atlanta, Georgia 30326
SHG-S SUB, INC.,
a Florida corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: President
Address: 1601 Belvedere Road
West Palm Beach, Florida 33406
SHG-I SUB, L.L.C.,
a Georgia limited liability company
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<PAGE> 249
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: Manager
Address: 1601 Belvedere Road
West Palm Beach, Florida 33406
P-BURG LODGING ASSOCIATES, INC.,
a Kentucky corporation
By:
-----------------------------------------------
Name:
Title:
Address:
SHG-II SUB, INC., a Kentucky corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: President
Address: 1601 Belvedere Road
West Palm Beach, FL 33406
HAZARD LODGING ASSOCIATES, INC.,
a Kentucky corporation
By:
-----------------------------------------------
Name:
Title:
Address:
SHG-III SUB, INC., a Kentucky corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: President
Address: 1601 Belvedere Road
West Palm Beach, FL 33406
MEMPHIS LODGING ASSOCIATES, INC.,
a Florida corporation
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<PAGE> 250
By:
-----------------------------------------------
Name:
Title:
Address:
SHG-IV SUB, INC., a Florida corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: President
Address: 1601 Belvedere Road
West Palm Beach, FL 33406
DELK LODGING ASSOCIATES, INC.,
a Delaware corporation
By:
-----------------------------------------------
Name:
Title:
Address:
SHG-V SUB, INC., a Delaware corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: President
Address: 1601 Belvedere Road
West Palm Beach
IMPAC HOTEL DEVELOPMENT, INC.,
a Delaware corporation
By:
-----------------------------------------------
Name:
Title:
Address:
SHG-VI SUB, INC., a Delaware corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
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<PAGE> 251
Title: President
Address: 1601 Belvedere Road
West Palm Beach, FL 33406
IMPAC DESIGN AND
CONSTRUCTION, INC.,
a Delaware corporation
By:
-----------------------------------------------
Name:
Title:
Address:
SHG-VII SUB, INC., a Delaware corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: President
Address: 1601 Belvedere Road
West Palm Beach, FL 33406
IMPAC HOTEL GROUP, INC.,
a Florida corporation
By:
-----------------------------------------------
Name:
Title:
Address:
SHG-VIII SUB, INC., a Florida corporation
By:
-----------------------------------------------
Name: David A. Buddemeyer
Title: President
Address: 1601 Belvedere Road
West Palm Beach, FL 33406
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<PAGE> 252
APPENDIX B
LEHMAN BROTHERS
March 12, 1998
Board of Directors
Servico, Inc.
1601 Belvedere Road
West Palm Beach, FL 33406
Members of the Board:
We understand that Servico, Inc. ("SER" or the "Company") has entered into
an Agreement and Plan of Merger (the "Agreement") by and among Servico Hotel
Group, Inc. (which subsequently changed its name to Lodgian, Inc. "Lodgian"),
the Company, Impac Hotel Group, L.L.C. ("Impac"), SHG-S Sub, Inc. ("Servico
Merger Sub") and SHG-I Sub, L.L.C. ("Impac Merger Sub"), pursuant to which (i)
Lodgian, a wholly-owned subsidiary of the Company, formed two wholly-owned
merger subsidiaries, Servico Merger Sub and Impac Merger Sub, (ii) Servico
Merger Sub will be merged with and into SER and Impac Merger Sub will be merged
with and into Impac, with SER and Impac continuing as surviving entities and
wholly-owned by Lodgian, (iii) each issued and outstanding share of common stock
of the Company will be exchangeable for one share of common stock of Lodgian,
and (iv) Impac's membership interests will be exchangeable for an aggregate of
7.4 million shares of common stock of Lodgian (the "Base Number"), 1.4 million
shares of which will be reserved for future issuance to Impac's current members
upon the satisfaction of certain conditions and milestones as set forth in more
detail in the Agreement; provided, however, that if the ten day trading average
of SER's common stock is (i) less than $14.00, the Base Number shall be equal to
the product of the Base Number and a fraction, the numerator of which is $14.00
and the denominator of which is such ten day trading average, or (ii) greater
than $25.00, the Base Number shall be equal to the product of the Base Number
and a fraction, the numerator of which is $25.00 and the denominator of which is
such ten day trading average (the "Proposed Transaction"). We further understand
that, in connection with the Proposed Transaction, SER will assume approximately
$406 million of indebtedness of Impac. The terms and conditions of the Proposed
Transaction are set forth in more detail in the Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company of the consideration to be paid in the Proposed Transaction. We have not
been requested to opine as to, and our opinion does not in any manner address,
the Company's underlying business decision to proceed with or effect the
Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction; (2) publicly available
information concerning the Company that we believe to be relevant to our
analysis, including its annual report on Form 10-K for the year ended December
31, 1996 and quarterly reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1997; (3) financial statements for Impac and it
subsidiaries, including balance sheets as of December 31, 1995 and 1996 and
September 30, 1997, and the related statements of income, cash flow and changes
in member's equity for the fiscal years ended December 31, 1994, 1995 and 1996
and the nine months ended September 30, 1997, including any related notes,
certified, without qualification, by Coopers & Lybrand L.L.P., Impac's
independent public accountants; (4) financial and operating
information with respect to
<PAGE> 253
the business, operations and prospects of the Company and Impac furnished to us
by the Company and Impac, respectively; (5) a comparison of the historical
financial results and present financial condition of the Company with those of
other companies that we deemed relevant; (6) the trading history of the
Company's common stock from January 1996 to the present and a comparison of that
trading history with those of other companies that we deemed relevant; (7) the
potential pro forma impact of the Proposed Transaction on the Company, including
the cost savings, operating synergies and strategic benefits expected by the
management of the Company to result from a combination of the applicable
businesses; (8) a comparison of the relative contribution of Impac to the
financial results of Lodgian following the consummation of the Proposed
Transaction to the Impac ownership interest in Lodgian following the Proposed
Transaction; and (9) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other recent transactions that
we deemed relevant. In addition, we have had discussions with the management of
the Company and Impac concerning their respective businesses, operations,
assets, financial conditions and prospects and have undertaken such other
studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company and Impac that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of the Company and Impac, upon advice of the Company and Impac we have assumed
that such projections have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company and Impac as to the future financial performance of the Company and
Impac, respectively, and that the Company and Impac will perform substantially
in accordance with such projections. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the Company
and Impac and have not made or obtained any evaluations or appraisals of the
assets or liabilities of the Company or Impac. In addition, you have not
authorized us to solicit, and we have not solicited, any indications of interest
from any third party with respect to the purchase of all or a part of the
Company's business. Upon advice of the Company, Impac and their respective legal
and accounting advisors, we have assumed that the Proposed Transaction will
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and therefore as a tax-free transaction to the
stockholders of the Company. Our opinion necessarily is based upon market,
economic and other conditions as they exist on, and can be evaluated as of, the
date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be paid
in the Proposed Transaction is fair to the Company.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services a portion of which
is contingent upon the consummation of the Proposed Transaction. In addition,
the Company has agreed to indemnify us for certain liabilities that may arise
out of the rendering of this opinion. We also have performed various investment
banking services for the Company in the past and have received customary fees
for such services. In addition, an affiliate of Lehman Brothers currently acts
as a lender to the Company, with an outstanding amount owed by the Company to
such affiliate of approximately $200 million. In the ordinary course of our
business, we actively trade in the equity securities of the Company for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
<PAGE> 254
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
<PAGE> 255
APPENDIX C
ALLEN & COMPANY INCORPORATED
March 19, 1998
Impac Hotel Group, L.L.C.
Two Live Oak Center
3445 Peachtree Road, NE
Suite 700
Atlanta, Georgia 30326
Attn: Mr. Robert Cole
President
Dear Sirs:
You have requested our opinion, as of this date, as to the
fairness, from a financial point of view, to the holders (the "Members") of
Class A Ordinary Membership Interests of Impac Hotel Group, L.L.C., a Georgia
limited liability company (the "Company") of the Impac Exchange Ratio (as
defined below).
Pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), to be entered into by and between the Company, Servico, Inc., a
Delaware corporation ("Servico"), Lodgian, Inc. ("Lodgian"), SHG-S Sub, Inc. and
SHG-I Sub, the Company will enter into a business combination transaction with
Servico pursuant to which as a result of the merger of SHG-I Sub, Inc. with and
into the Company (the "Impac Merger") and the merger of SHG-S Sub, Inc. with and
into Servico (the "Servico Merger"), each effected pursuant to the Merger
Agreement, (i) the Company will be a wholly-owned subsidiary of Lodgian, (ii)
Servico will be a wholly-owned subsidiary of Lodgian, (iii) the Members will
become shareholders of Lodgian, and (iv) the shareholders of Servico will become
shareholders of Lodgian (the "Proposed Transaction"). Pursuant to the terms of
the Merger Agreement, each Class A Ordinary Membership Interest of the Company
will be converted into such number of shares of common stock, par value $0.01
per share, of Lodgian, in accordance with the exchange ratio specified in the
Merger Agreement (such ratio, as the same may be adjusted pursuant to the Merger
Agreement, the "Impac Exchange Ratio"). We understand that the Impac Merger has
been structured as a transfer of property pursuant to Section 351 of the
Internal Revenue Code or 1986, as amended (the "Code"), and the regulations
thereunder, and that the Servico Merger
<PAGE> 256
Impac Hotel Group, L.L.C.
March 19, 1998
Page 2
has been structured as a reorganization pursuant to Section 368(a) of the Code
and the regulations thereunder.
We understand that all approvals required for the consummation
of the Proposed Transaction have been or, prior to consummation of the Proposed
Transaction, will be obtained. As you know, pursuant to its agreement with the
Company, Allen & Company Incorporated ("Allen") will receive a fee for its
services to the Company.
In arriving at our opinion, we have among other things:
(i) reviewed the terms and conditions of the Merger
Agreement and related documents;
(ii) analyzed historical business and financial
information relating to the Company and management's
forecasts prepared by the Company, as presented in
documents provided to us by the Company;
(iii) analyzed publicly available historical business and
financial information relating to Servico, as
presented in documents filed with the Securities and
Exchange Commission;
(iv) reviewed the Company's and Servico's respective
operations and considered the views of professional
analysts covering Servico;
(v) reviewed certain limited non-public information
relating to Servico, including financial and
operating results of Servico and management's
forecasts prepared by Servico;
(vi) conducted discussions with certain members of the
senior management of the Company and Servico with
respect to the financial condition, business,
operations, strategic objectives and prospects of the
Company and Servico, respectively;
(vii) reviewed and analyzed public information, including
certain stock market data and financial information
relating to selected public companies which we deemed
generally comparable to the Company and Servico;
<PAGE> 257
Impac Hotel Group, L.L.C.
March 19, 1998
Page 3
(viii) reviewed the trading history of the common stock of
Servico, including such stock's performance in
comparison to market indices and to selected
companies in comparable businesses;
(ix) considered multiples paid in merger and acquisition
transactions we deemed to be comparable to the
Proposed Transaction; and
(x) conducted such other financial analyses and
investigations and reviewed such other materials as
we deemed necessary or appropriate for the purposes
of the opinion expressed herein.
In rendering our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information respecting the
Company and Servico and any other information provided to us, and we have not
assumed any responsibility for any independent verification of such information
or any independent valuation or appraisal of any of the assets of the Company or
Servico. With respect to the financial forecasts referred to above, we have
assumed that they have been reasonably prepared on a basis reflecting the best
currently available judgments of the management of the Company and Servico as to
the future financial performance of the Company and Servico, respectively.
In addition to our review and analysis of the specific
information set forth above, our opinion herein reflects and gives effect to our
assessment of general economic, monetary and market conditions existing as of
the date hereof as they may affect the business and prospects of the Company and
Servico.
The opinion rendered herein does not constitute a
recommendation of the Proposed Transaction over any other alternative
transactions which may be available to the Company. Our engagement and the
opinion expressed herein are solely for the benefit of the Members and are not
intended to confer rights or remedies upon Servico or any of its shareholders.
Furthermore, the opinion rendered herein does not constitute a recommendation by
Allen as to the manner in which any security holder of the Company should vote
with respect to any security holder action required to approve the Proposed
Transaction. Allen consents to the inclusion of the text of this opinion in any
notification or appropriate disclosure to the Company's security holders and in
any filing the Company is required by applicable law to make, or include in
documents filed, with the Securities and Exchange Commission.
<PAGE> 258
Impac Hotel Group, L.L.C.
March 19, 1998
Page 4
Based on and subject to the foregoing, we are of the opinion
that, as of this date, the Impac Exchange Ratio is fair to the Members from a
financial point of view.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ Paul A. Gould
--------------------------------
Paul A. Gould
Managing Director
<PAGE> 259
APPENDIX D
LODGIAN, INC.
1998 SHORT-TERM INCENTIVE
COMPENSATION PLAN
(ADOPTED AS OF APRIL ___, 1998)
<PAGE> 260
LODGIAN, INC.
1998 SHORT-TERM INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
<S> <C> <C>
1. Purpose........................................................................1
2. Definitions....................................................................1
3. Effective Date.................................................................4
4. Administration.................................................................4
5. Eligibility....................................................................6
6. Maximum Amount of Award per Participant........................................6
7. Target Awards..................................................................6
8. Performance Objectives.........................................................6
9. Notice of Target Award.........................................................7
10. Final Award Determination......................................................7
11. Payment of Final Awards........................................................8
12. Shares of Stock Subject to the Plan............................................8
13. Termination of Employment......................................................8
14. Transfer.......................................................................9
15. Amendment, Suspension or Termination of Plan...................................9
16. Non-Transferability............................................................9
17. Recapitalization or Reorganization.............................................9
18. Change in Control.............................................................10
19. Miscellaneous.................................................................10
</TABLE>
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LODGIAN, INC.
1998 SHORT-TERM INCENTIVE
COMPENSATION PLAN
1. PURPOSE. The Lodgian, Inc. 1998 Short-Term Incentive Compensation
Plan (the "Plan") is intended to increase the profitability of LODGIAN, INC., a
Delaware corporation (the "Company"), and its Subsidiaries (as hereinafter
defined) by providing the opportunity for key executives to earn incentive
payment for outstanding achievement and performance. The Plan has the further
purpose of fulfilling the Company's objective of offering a fully competitive
total compensation package to its key employees, thus enabling the Company to
attract and retain executives of the highest caliber and ability.
2. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as follows:
"ADMINISTRATOR" means the individual or individuals to whom the
Committee delegates authority under the Plan in accordance with Section 4(d).
"AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed to
such terms in Rule 12b-2 promulgated under the Exchange Act.
"AWARD" means the right of a Participant to receive a payment under the
Plan subject to the terms and conditions hereof, including satisfaction of the
Participant's Performance Objectives during the applicable Performance Period.
"BENEFICIAL OWNER" has the meaning ascribed to such term in Rule 13d-3
promulgated under the Exchange Act.
"BOARD" means the Board of Directors of the Company.
"CEO" means the Chief Executive Officer of the Company.
A "CHANGE IN CONTROL" of the Company shall be deemed to have occurred
when:
(a) any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any person or
entity organized, appointed or established by the Company or
any Subsidiary of the Company for or pursuant to the terms of
any such plan), alone or together with its Affiliates and
Associates (collectively, an "ACQUIRING PERSON"), shall become
the Beneficial Owner of 40 percent or more of the then
outstanding shares of Common Stock or the Combined Voting
Power of the Company,
(b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the
Board, and any new director (other than a director who is a
representative or nominee of an Acquiring Person) whose
election
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<PAGE> 262
by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of
the directors then still in office who either were directors
at the beginning of the period or whose election or nomination
for election was previously so approved (collectively, the
"CONTINUING DIRECTORS"), cease for any reason to constitute a
majority of the Board,
(c) the shareholders of the Company approve a merger
or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity of such merger or consolidation (the
"SURVIVING ENTITY") or any Parent of such Surviving Entity) at
least a majority of the Combined Voting Power of the Company,
such Surviving Entity or the Parent of such Surviving Entity
outstanding immediately after such merger or consolidation, or
(d) the shareholders of the Company approve a plan of
reorganization (other than a reorganization under the United
States Bankruptcy Code) or complete liquidation of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets;
PROVIDED, HOWEVER, that a Change in Control shall not be deemed to have occurred
in the event of
(i) a sale or conveyance in which the Company
continues as a holding company of an entity or entities that
conduct all or substantially all of the business or businesses
formerly conducted by the Company, or
(ii) any transaction undertaken for the purpose of
incorporating the Company under the laws of another
jurisdiction, if such transaction does not materially affect
the beneficial ownership of the Company's capital stock.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations thereunder.
"COMBINED VOTING POWER" means the combined voting power of the
Company's or other relevant entity 's then outstanding voting securities.
"COMMITTEE" means the Compensation Committee of the Board, any
successor committee thereto or any other Committee appointed by the Board to
administer the Plan.
"COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company.
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"COVERED EMPLOYEE" means, for a given fiscal year of the Company, any
Participant designated by the Committee by not later than 90 days following the
start of such year as a Participant (or such other time as may be required or
permitted by Section 162(m) of the Code) whose compensation for such fiscal year
may be subject to the limit on deductible compensation imposed by Section 162(m)
of the Code.
"DISABILITY" means eligibility for disability benefits under the terms
of the Company's long-term disability plan in effect at the time the Participant
becomes disabled.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the applicable filings and regulations thereunder.
"FAIR MARKET VALUE" means, in the event the Common Stock is traded on a
recognized securities exchange or quoted by the National Association of
Securities Dealers Automated Quotations on National Market Issues, an amount
equal to the average of the high and low prices of the Common Stock on such
exchange or such quotation on the date set for valuation or, if no sales of
Common Stock were made on said exchange or so quoted on that date, the average
of the high and low prices of the Common Stock on the next preceding day on
which sales were made on such exchange or quotations; or, if the Common Stock is
not so traded or quoted, that value determined, in its sole discretion, by the
Committee.
"FINAL AWARD" means the amount determined pursuant to Section 10 as
payable to a Participant under the Plan in respect of a Performance Period.
"MANAGEMENT" means the Co-Chairmen of the Board and the CEO, and such
other member of the Company's management as they may from time to time designate
to take action with respect to the Plan.
"PARENT" means any corporation which is a "parent corporation" within
the meaning of Section 424(e) of the Code with respect to the relevant entity.
"PARTICIPANT" means a key executive of the Company whose decisions and
actions significantly affect the Company 's growth and profitability and who
receives an Award opportunity under the Plan as determined by the Committee.
"PERFORMANCE OBJECTIVES" means significant financial or individual
objectives to be achieved by the Participant during the Performance Period and
upon which the payment of the Award shall be based.
"PERFORMANCE PERIOD" means each calendar year or multi-year cycle as
determined by the Committee.
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<PAGE> 264
"PERSON" means any person, entity or "group" within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.
"RETIREMENT" means retirement at normal retirement age, as defined in
the retirement plan applicable to a Participant, or under the early retirement
provisions of such plan.
"SUBSIDIARY" means (i) any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with respect to
the Company or (ii) any other corporation or other entity in which the Company,
directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for the purposes of the Plan.
"TARGET AWARD" means the amount established pursuant to Section 7 with
respect to a Participant. Target Awards shall be denominated in cash.
3. EFFECTIVE DATE. The Plan shall be effective as of the date (the
"EFFECTIVE DATE") of either (i) the consummation of the proposed reorganization
pursuant to which Servico, Inc. and Impac Hotel Group, L.L.C. will become
wholly-owned subsidiaries of the Company, contingent upon its prior approval by
the shareholders of Servico, Inc. and unitholders of Impac Hotel Group, Inc., or
(ii) following such reorganization, on the date of its approval by the
shareholders of the Company. If, in either case, shareholder approval is not
obtained at or prior to the first annual meeting of the shareholders of the
Company to occur after the adoption of the Plan by the Board, the Plan and any
Awards thereunder shall terminate as AB INITIO and be of no further force and
effect. Subject to compliance with all applicable legal requirements and the
foregoing, the first fiscal year of the Company beginning on or after January 1,
1998 shall be the first Performance Period of the Plan. No Award shall be made
with respect to Performance Periods ending after December 31, 2002, unless the
Plan is extended by the Board.
4. ADMINISTRATION.
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be
administered by the Committee, which shall have full power and authority,
subject to the express provisions hereof:
(i) to select Participants,
(ii) to make Awards in accordance with the Plan,
(iii) to determine the amount of each Target Award,
(iv) to determine the terms and conditions of each
Award, including, without limitation, those related to vesting, forfeiture and
payment, and the effect, if any, of a Participant's termination of employment
with the Company or, subject to Section 18 hereof, of a Change in Control on the
Award made to such Participant, and including the authority to amend the
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<PAGE> 265
terms and conditions of an Award after the making thereof to a Participant in a
manner that is not prejudicial to the rights of such Participant in such Award
and not otherwise prohibited by the Plan,
(v) to determine Performance Objectives applicable to
each Award,
(vi) to determine the degree of the attainment of the
Performance Objectives,
(vii) to determine the amount of Final Awards and the
form of payments to Participants,
(viii) to prescribe, amend and rescind rules and
procedures relating to the Plan,
(ix) to vary the terms of Awards to take account of tax,
securities law and other regulatory requirements of foreign jurisdictions,
(x) subject to the provisions of the Plan and subject to
such additional limitations and restrictions as the Committee may impose, to
delegate to one or more officers of the Company some or all of its authority
under the Plan, and
(xi) to make all other determinations and to formulate
such procedures as may be necessary or advisable for the administration of the
Plan. In reaching its decisions, the Committee shall consider recommendations
made by Management. In addition, the Committee is authorized to use the services
of independent auditors to determine the level of achievement of Performance
Objectives, subject to the certification of the Committee with respect to the
achievement of the Performance Objectives for the Covered Employees.
(b) PLAN CONSTRUCTION AND INTERPRETATION. The Committee shall
have all power and authority, subject to the express provisions hereof, to
construe and interpret the Plan.
(c) DETERMINATIONS OF COMMITTEE FINAL AND BINDING. All
determinations by the Committee in carrying out and administering the Plan and
in construing and interpreting the Plan shall be final, binding and conclusive
for all purposes and upon all persons interested herein.
(d) DELEGATION OF AUTHORITY. The Committee may, but need not,
from time to time delegate some or all of its authority under the Plan to an
Administrator consisting of one or more members of the Committee or of one or
more officers of the Company; PROVIDED, HOWEVER, that the Committee may not
delegate its authority (i) to make Awards to Participants (A) who are Covered
Employees or (B) who are officers of the Company who are delegated authority by
the Committee hereunder, or (ii) under Sections 4(b)and 15 of the Plan. Any
delegation hereunder shall be subject to the restrictions and limitations that
the Committee specifies at the time of such delegation or thereafter. Nothing in
the Plan shall be construed as obligating the Committee to delegate authority
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<PAGE> 266
to an Administrator, and the Committee may at any time rescind the authority
delegated to an Administrator appointed hereunder or appoint a new
Administrator. At all times, the Administrator appointed under this Section 4(d)
shall serve in such capacity at the pleasure of the Committee. Any action
undertaken by the Administrator in accordance with the Committee's delegation of
authority shall have the same force and effect as if undertaken directly by the
Committee, and any reference in the Plan to the Committee shall, to the extent
consistent with the terms and limitations of such delegation, be deemed to
include a reference to the Administrator.
(e) LIABILITY OF COMMITTEE. No member of the Committee shall
be liable for anything whatsoever in connection with the administration of the
Plan except such person's own willful misconduct. Under no circumstances shall
any member of the Committee be liable for any act or omission of any other
member of the Committee. In the performance of its functions with respect to the
Plan, the Committee shall be entitled to rely upon information and advice
furnished by the Company's officers, the Company's accountants, the Company's
counsel and any other party the Committee deems necessary, and no member of the
Committee shall be liable for any action taken or not taken in reliance upon any
such advice.
5. ELIGIBILITY. The Committee shall select Participants based on
recommendations of Management. Selection as a Participant shall be limited to
those officers or other key employees or consultants of the Company or a
Subsidiary who, by virtue of their positions, have a demonstrable impact on
either the profitability of a major business unit of the Company, or upon the
overall profitability of the Company. An individual's status as a member of the
Committee will not affect his or her eligibility to participate in the Plan. No
Participant or employee of the Company shall have any right to be awarded an
Award or to receive an actual payment under the Plan.
6. MAXIMUM AMOUNT OF AWARD PER PARTICIPANT. The maximum Award that may
be earned by any Participant in respect of any Performance Period shall equal
$1,000,000.
7. TARGET AWARDS. The Target Award for each Participant shall be
determined by the Committee at or near the start of the applicable Performance
Period based upon Management's recommendation. The Target Award for any
Participant shall not exceed the amount specified in Section 6 as the maximum
Award that may be earned by any Participant. For Covered Employees, the Target
Award, the related award schedule and the Performance Objective(s) shall be
established within 90 days of the beginning of the Performance Period (or such
other time as may be required or permitted by Section 162(m) of the Code). Each
individual Target Award shall be for a stated dollar amount, but Final Awards
may be paid in cash, in shares of Common Stock (valued at their Fair Market
Value as of the date of payment) or in a combination of cash and shares as the
Committee shall determine.
8. PERFORMANCE OBJECTIVES. Performance Objectives for each Participant
shall be established as provided in this section at demanding levels so that
their achievement reflects commendable performance by the Participant. The
Performance Objectives may consist of Financial Objectives, Individual
Objectives or a combination of Financial and Individual Objectives. With
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respect to Covered Employees, the Performance Objectives shall consist of
Financial Objectives only. Financial and Individual Objectives are defined as
follows:
(a) FINANCIAL OBJECTIVES. Financial Objectives shall be
expressed in terms of one or more of the following performance measures
established by the Committee for each Performance Period: (i) net revenue, (ii)
net earnings, (iii) operating earnings or income, (iv) absolute and/or relative
return on equity or assets, (v) earnings per share, (vi) cash flow, (vii) pre
profits, (viii) earnings growth, (ix) revenue growth, (x) book value per share,
(xi) stock price and (xii) performance relative to peer group companies, each of
which may be established on a Company-wide basis or established with respect to
one or more operating units, divisions, acquired businesses, minority
investments, partnerships or joint ventures. At the same time, a "range" of
achievement for financial objectives ranging from "zero" to "target" (100% of
Target Award relating to Financial Objectives) to "maximum" shall be
established. The Committee shall have the authority to alter or adjust Financial
Objectives during the course of a Performance Period, or to alter or adjust the
financial results otherwise reported or achieved by the Company during such
Performance Period, if it is deemed appropriate to do so, except with respect to
the Covered Employees who are subject to the terms of the last sentence of
Section 10(b).
(b) INDIVIDUAL OBJECTIVES. Individual Objectives, if
appropriate for a Participant, shall be expressed in terms of significant
qualitative or quantitative individual goals to be achieved during the
Performance Period. Individual Objectives usually shall be established jointly
by the Participant and the Participant's immediate superior, subject to approval
by the CEO, or his delegate. A Participant's Individual Objectives may be
altered or amended during a Performance Period, if necessary, to properly
reflect changed business conditions and priorities, subject to approval by the
CEO or his delegate.
9. NOTICE OF TARGET AWARD. Except as may otherwise be determined by the
Committee, a Participant shall be notified in writing on or near the start of
the Performance Period of the amount of the Participant's Target Award and the
Performance Objectives.
10. FINAL AWARD DETERMINATION. As soon as practicable following the
completion of each Performance Period, the level of achievement of Performance
Objectives for each Participant and the amount of the Final Award payment shall
be determined by Management. With respect to Covered Employees, the Committee
shall review such determination and shall certify in writing as to such level of
achievement. The level of achievement of the Performance Objectives shall be
determined in the following manner:
(a) FINANCIAL OBJECTIVES. For performance at or below the
"zero" level of achievement, there shall be no payment. Performance between the
"zero" level of achievement and the "target" level shall result in a payment in
accordance with the established range of achievement payment schedule.
Performance between the "target" and the "maximum" level of achievement shall
result in a payment in accordance with the established range of achievement
payment schedule.
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(b) ADJUSTMENTS IN FINANCIAL CALCULATIONS. Except as provided
below with respect to Covered Employees, the Committee in its sole discretion
has the authority to effect adjustments from time to time in connection with
determining the degree of achievement of the Financial Objectives for the
Company or a business unit of the Company for the applicable year in question,
and to make any other determinations, as it deems equitable, fair or advisable
for the purpose of ascertaining the amount of any payments under this Plan. With
respect to Covered Employees, the Committee shall have no discretion to
increase, but may decrease, the amount of the Final Award based on the range of
achievement of the Financial Objectives established under Sections 7 and 8
hereof.
(c) INDIVIDUAL OBJECTIVES. The attainment of Individual
Objectives shall be determined by the Participant's superior, subject to review
by Management and the Committee for consistent and equitable evaluations and
judgments.
(d) MAXIMUM AWARDS. Where one or more objectives (but not
necessarily all) have been clearly and demonstrably exceeded, a Participant
(other than a Covered Employee) may be paid an amount in excess of the portion
of the Target Award related to such objectives.
11. PAYMENT OF FINAL AWARDS. Final Award payments shall be made, less
required tax and other applicable withholdings, as soon as practicable after the
determination and final approval of such payments as provided in Section 10.
Final Awards shall be paid in cash, in shares of Common Stock (valued at their
Fair Market Value as of the date of payment) or in a combination of cash and
shares as the Committee shall determine. With respect to Final Awards that are
paid in Common Stock, the Committee may establish at or prior to the time of
payment such restrictions on the transferability and/or vesting requirements, if
any, as the Committee considers appropriate.
12. SHARES OF STOCK SUBJECT TO THE PLAN. Subject to adjustment as
provided in Section 17(b) hereof, the number of shares of Common Stock that may
be issued under the Plan in payment of Final Awards shall not exceed, in the
aggregate, 1,000,000 shares. Such shares may be either authorized but unissued
shares, treasury shares or any combination thereof.
13. TERMINATION OF EMPLOYMENT. If a Participant's employment with the
Company terminates during a Performance Period because of death, Disability or
Retirement or with the approval of the Committee, the Participant (or the
Participant's designated beneficiary or estate in the absence of a surviving
designated beneficiary) shall receive a pro rata payment based on the number of
full months during which the Participant was employed during the Performance
Period and the degree to which during such Performance Period the Performance
Objectives were judged to have been achieved. A Participant whose employment
with the Company terminates during a Performance Period for any reason other
than death, Disability or Retirement (including without limitation by voluntary
resignation or termination by the Company with or without cause) shall not be
eligible for any payment for such Performance Period. A leave of absence, if
approved by the Committee, shall not be deemed to be a termination of employment
for purposes of this Plan, and may warrant the payment of a full or pro rata
Award as determined by the Committee.
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14. TRANSFER. If a Participant is transferred within the Company during
a Performance Period to a position that is not considered as eligible for
participation in the Plan, the Committee may, in its sole and absolute
discretion, authorize a pro rata payment based on the number of full months
during the Performance Period during which the Participant was employed and the
degree to which during such Performance Period the Performance Objectives were
judged to have been achieved.
15. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN. The Board or
Committee may at any time and from time to time terminate, modify, suspend, or
amend the Plan in whole or in part; PROVIDED, HOWEVER, that without shareholder
approval, the Board or Committee shall not change (i) the performance measures
listed in Section 8(a) with respect to Covered Employees, (ii) the individuals
or class of individuals eligible to participate in the Plan, or (iii) the
maximum amount payable to a Participant under the Plan. No termination,
modification, suspension or amendment of the Plan shall, without the consent of
a Participant to whom any Awards shall previously have been awarded, adversely
affect his or her rights under such Awards.
16. NON-TRANSFERABILITY. No Award made under the Plan or any rights or
interests therein shall be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of except by will or by the laws of descent and
distribution or pursuant to a "qualified domestic relations order" ("QDRO") as
defined in the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder. In the event of a
Participant's death, the payment of the Award as provided in the Plan, if any,
shall be made to the Participant's designated beneficiary, or estate in the
absence of a surviving beneficiary.
17. RECAPITALIZATION OR REORGANIZATION.
(a) AUTHORITY OF THE COMPANY AND SHAREHOLDERS. The existence
of the Plan and the Awards granted hereunder shall not affect or restrict in any
way the right or power of the Company or the shareholders of the Company to make
or authorize any adjustment, recapitalization, reorganization or other change in
the Company's capital structure or its business, any merger or consolidation of
the Company, any issue of stock or of options, warrants or rights to purchase
stock or of bonds, debentures, preferred or prior preference stocks whose rights
are superior to or affect the Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or Proceeding, whether of a
similar character or otherwise.
(b) CHANGE IN CAPITALIZATION. Notwithstanding any provision of
the Plan, in the event of any change in the outstanding Common Stock by reason
of a stock dividend, recapitalization, reorganization, merger, consolidation,
stock split, combination or exchange of shares or any other significant
corporate event affecting the Common Stock, the Committee, in its discretion,
may make (i) such proportionate adjustments it considers appropriate (in the
form determined by the Committee in its sole discretion) to prevent diminution
or enlargement of the
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rights of Participants under the Plan with respect to the aggregate number of
shares of Common Stock for which Awards in respect thereof may be granted under
the Plan, the number of shares of Common Stock covered by each outstanding
Award, and the exercise or Award prices in respect thereof and/or (ii) such
other adjustments as it deems appropriate. The Committee's determination as to
what, if any, adjustment shall be made shall be final and binding on the
Company and all Participants.
18. CHANGE IN CONTROL. In the event of a Change in Control, and except
as the Committee (as constituted immediately prior to such Change in Control)
may otherwise determine in its sole discretion, the Company shall pay to each
Participant the pro rata amount of such Participant's Target Award for said
Performance Period, determined by the ratio which the number of months during
the applicable Performance Period during which the Award had been outstanding
(including the month in which the Change in Control occurred) bears to number of
full months in the Performance Period.
19. MISCELLANEOUS.
(a) TAX WITHHOLDING. No later than the date as of which an
amount first becomes includable in the gross income of the Participant for
applicable income tax purposes with respect to any Award under the Plan, the
Participant shall pay to the Company or make arrangements satisfactory to the
Committee regarding the payment of any federal, state or local taxes of any kind
required by law to be withheld with respect to such amount. Unless otherwise
determined by the Committee, in accordance with rules and procedures established
by the Committee, the minimum required withholding obligations may be settled
with Common Stock, including Common Stock that is part of the Award that gives
rise to the withholding requirement. The obligations of the Company under the
Plan shall be conditioned upon such payment or arrangements and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.
(b) NO RIGHT TO AWARDS OR EMPLOYMENT. No Participant shall
have any claim or right to receive Awards under the Plan. Nothing in the Plan
shall confer upon any employee of the Company or any Subsidiary any right to
continued employment with the Company or any Subsidiary, as the case may be, or
interfere in any way with the right of the Company or a Subsidiary to terminate
the employment of any of its employees at any time, with or without cause.
(c) UNFUNDED PLAN. The Plan is intended to constitute an
unfunded plan for incentive compensation. With respect to any payments not yet
made to a Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor of
the Company. In its sole discretion, the Committee may authorize the creation of
this or other arrangement to meet the obligations created under the Plan to
deliver Common Stock or payments in lieu thereof with respect to Awards
hereunder.
(d) SECURITIES LAW RESTRICTIONS. The Committee may require
each Participant acquiring shares of Common Stock pursuant to an Award to
represent to and agree with the
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Company in writing that such Participant is acquiring the shares for investment
and not with a view to the distribution thereof. All certificates for shares of
Common Stock delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and Exchange
Commission, the New York Stock Exchange or any other exchange upon which the
Common Stock is then listed, and any applicable federal or state securities law,
and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. No shares of
Common Stock shall be issued hereunder unless the Company shall have determined
that such issuance is in compliance with, or pursuant to an exemption from, all
applicable federal and state securities laws.
(e) EXPENSES. The costs and expenses incurred in administering
the Plan, including any Committee fees, charges by the Company's independent
auditors, or other costs, shall be borne by the Company.
(f) APPLICABLE LAW. Except as to matters of federal law, the
Plan and all actions taken thereunder shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to
conflicts of law principles.
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APPENDIX E
LODGIAN, INC.
1998 STOCK INCENTIVE PLAN
ADOPTED AS OF APRIL ___, 1998
<PAGE> 273
LODGIAN, INC.
1998 STOCK INCENTIVE PLAN
-------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Purpose.........................................................................1
2. Definitions.....................................................................1
3. Administration of the Plan......................................................4
4. Duration of Plan................................................................5
5. Shares of Stock Subject to the Plan.............................................6
6. Eligible Individuals............................................................6
7. Awards Generally................................................................7
8. Stock Options...................................................................7
9. Stock Appreciation Rights.......................................................8
10. Stock Awards....................................................................9
11. Performance Share Awards........................................................9
12. Other Awards....................................................................9
13. Section 162(m) Awards...........................................................9
14. Non-Transferability............................................................10
15. Recapitalization or Reorganization.............................................10
16. Change in Control..............................................................11
17. Amendment of the Plan..........................................................11
18. Miscellaneous..................................................................12
</TABLE>
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LODGIAN, INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE. The purposes of the Lodgian, Inc. 1998 Stock
Incentive Plan (the "PLAN") are to attract, retain and motivate officers and
other key employees and consultants of LODGIAN, INC., a Delaware corporation
(the "COMPANY"), and its Subsidiaries (as hereinafter defined), to compensate
them for their contributions to the growth and profits of the Company and to
encourage ownership by them of stock of the Company.
2. DEFINITIONS. For purposes of the Plan, the following terms
shall be defined as follows:
"ADMINISTRATOR" means the individual or individuals to whom
the Committee delegates authority under the Plan in accordance with
Section 3(d).
"AFFILIATE" and "ASSOCIATE" have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
"AWARD" means an award made pursuant to the terms of the Plan
to an Eligible Individual in the form of Stock Options, Stock
Appreciation Rights, Stock Awards, Performance Share Awards, Section
162(m) Awards or other awards determined by the Committee.
"AWARD AGREEMENT" means a written agreement or certificate
granting an Award. An Award Agreement shall be executed by an officer
on behalf of the Company and shall contain such terms and conditions as
the Committee deems appropriate and that are not inconsistent with the
terms of the Plan. The Committee may in its discretion require that an
Award Agreement be executed by the Participant to whom the relevant
Award is made.
"BENEFICIAL OWNER" has the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.
"BOARD" means the Board of Directors of the Company.
A "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred when:
(a) any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company, or any person or
entity organized, appointed or established by the Company or
any Subsidiary of the Company for or pursuant to the terms of
any such plan), alone or together with its Affiliates and
Associates (collectively, an "ACQUIRING PERSON"), shall become
the Beneficial Owner of 40 percent or more of the then
outstanding shares of Common Stock or the Combined Voting
Power of the Company,
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(b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the
Board, and any new director (other than a director who is a
representative or nominee of an Acquiring Person) whose
election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least a
majority of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved
(collectively, the "CONTINUING DIRECTORS"), cease for any
reason to constitute a majority of the Board,
(c) the shareholders of the Company approve a merger
or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the Surviving Entity (as defined in Section 16 hereof or any
Parent of such Surviving Entity) at least a majority of the
Combined Voting Power of the Company, such Surviving Entity or
the Parent of such Surviving Entity outstanding immediately
after such merger or consolidation, or
(d) the shareholders of the Company approve a plan of
reorganization (other than a reorganization under the United
States Bankruptcy Code) or complete liquidation of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets;
PROVIDED, HOWEVER, that a Change in Control shall not be deemed to have occurred
in the event of
(i) a sale or conveyance in which the Company
continues as a holding company of an entity or entities that
conduct all or substantially all of the business or businesses
formerly conducted by the Company, or
(ii) any transaction undertaken for the purpose of
incorporating the Company under the laws of another
jurisdiction, if such transaction does not materially affect
the beneficial ownership of the Company's capital stock.
"CODE" means the Internal Revenue Code of 1986, as amended,
and the applicable rulings and regulations thereunder.
"COMBINED VOTING POWER" means the combined voting power of the
Company's or other relevant entity's then outstanding voting
securities.
"COMMITTEE" means the Compensation Committee of the Board, any
successor committee thereto or any other committee appointed by the
Board to administer the Plan.
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"COMMON STOCK" means the Common Stock, par value $.01 per
share, of the Company.
"ELIGIBLE INDIVIDUALS" means the individuals described in
Section 6 who are eligible for Awards under the Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the applicable rulings and regulations thereunder.
"FAIR MARKET VALUE" means, in the event the Common Stock is
traded on a recognized securities exchange or quoted by the National
Association of Securities Dealers Automated Quotations on National
Market Issues, an amount equal to the average of the high and low
prices of the Common Stock on such exchange or such quotation on the
date set for valuation or, if no sales of Common Stock were made on
said exchange or so quoted on that date, the average of the high and
low prices of the Common Stock on the next preceding day on which sales
were made on such exchange or quotations; or, if the Common Stock is
not so traded or quoted, that value determined, in its sole discretion,
by the Committee.
"INCENTIVE STOCK OPTION" means a Stock Option which is an
"incentive stock option" within the meaning of Section 422 of the Code
and designated by the Committee as an Incentive Stock Option in an
Award Agreement.
"NONQUALIFIED STOCK OPTION" means a Stock Option which is not
an Incentive Stock Option.
"PARENT" means any corporation which is a "parent corporation"
within the meaning of Section 424(e) of the Code with respect to the
relevant entity.
"PARTICIPANT" means an Eligible Individual to whom an Award
has been granted under the Plan.
"PERFORMANCE PERIOD" means a fiscal year of the Company or
such other period that may be specified by the Committee in connection
with the grant of a Section 162(m) Award.
"PERFORMANCE SHARE AWARD" means a conditional Award of shares
of Common Stock granted to an Eligible Individual pursuant to Section
11 hereof.
"PERSON" means any person, entity or "group" within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.
"SECTION 162(M) PARTICIPANT" means, for a given fiscal year of
the Company, any Participant designated by the Committee by not later
than 90 days following the start of such year as a Participant (or such
other time as may be required or permitted by Section 162(m)
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of the Code) whose compensation for such fiscal year may be subject to
the limit on deductible compensation imposed by Section 162(m) of the
Code.
"STOCK APPRECIATION RIGHT" means an Award to receive all or
some portion of the appreciation on shares of Common Stock granted to
an Eligible Individual pursuant to Section 9 hereof.
"STOCK AWARD" means an Award of shares of Common Stock granted
to an Eligible Individual pursuant to Section 10 hereof.
"STOCK OPTION" means an Award to purchase shares of Common
Stock granted to an Eligible Individual pursuant to Section 8 hereof.
"SUBSIDIARY" means (i) any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with
respect to the Company or (ii) any other corporation or other entity in
which the Company, directly or indirectly, has an equity or similar
interest and which the Committee designates as a Subsidiary for the
purposes of the Plan.
"SUBSTITUTE AWARD" means an Award granted upon assumption of,
or in substitution for, outstanding awards previously granted by a
company or other entity in connection with a corporate transaction,
such as a merger, combination, consolidation or acquisition of property
or stock.
3. ADMINISTRATION OF THE PLAN.
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be
administered by the Committee, which shall have full power and
authority, subject to the express provisions hereof, (i) to select
Participants from the Eligible Individuals, (ii) to make Awards in
accordance with the Plan, (iii) to determine the number of Shares
subject to each Award or the cash amount payable in connection with an
Award, (iv) to determine the terms and conditions of each Award,
including, without limitation, those related to vesting, forfeiture,
payment and exercisability, and the effect, if any, of a Participant's
termination of employment with the Company or, subject to Section 16
hereof, of a Change in Control on the outstanding Awards granted to
such Participant, and including the authority to amend the terms and
conditions of an Award after the granting thereof to a Participant in a
manner that is not prejudicial to the rights of such Participant in
such Award, (v) to specify and approve the provisions of the Award
Agreements delivered to Participants in connection with their Awards,
(vi) to construe and interpret any Award Agreement delivered under the
Plan, (vii) to prescribe, amend and rescind rules and procedures
relating to the Plan, (viii) to vary the terms of Awards to take
account of tax, securities law and other regulatory requirements of
foreign jurisdictions, (ix) subject to the provisions of the Plan and
subject to such additional limitations and restrictions as the
Committee may impose, to delegate to one or more officers
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of the Company some or all of its authority under the Plan, and (x) to
make all other determinations and to formulate such procedures as may
be necessary or advisable for the administration of the Plan.
(b) PLAN CONSTRUCTION AND INTERPRETATION. The Committee shall
have full power and authority, subject to the express provisions
hereof, to construe and interpret the Plan.
(c) DETERMINATIONS OF COMMITTEE FINAL AND BINDING. All
determinations by the Committee in carrying out and administering the
Plan and in construing and interpreting the Plan shall be final,
binding and conclusive for all purposes and upon all persons interested
herein.
(d) DELEGATION OF AUTHORITY. The Committee may, but need not,
from time to time delegate some or all of its authority under the Plan
to an Administrator consisting of one or more members of the Committee
or of one or more officers of the Company; PROVIDED, HOWEVER, that the
Committee may not delegate its authority (i) to make Awards to Eligible
Individuals (A) who are Section 162(m) Participants or (B) who are
officers of the Company who are delegated authority by the Committee
hereunder, or (ii) under Sections 3(b) and 17 of the Plan. Any
delegation hereunder shall be subject to the restrictions and limits
that the Committee specifies at the time of such delegation or
thereafter. Nothing in the Plan shall be construed as obligating the
Committee to delegate authority to an Administrator, and the Committee
may at any time rescind the authority delegated to an Administrator
appointed hereunder or appoint a new Administrator. At all times, the
Administrator appointed under this Section 3(d) shall serve in such
capacity at the pleasure of the Committee. Any action undertaken by the
Administrator in accordance with the Committee's delegation of
authority shall have the same force and effect as if undertaken
directly by the Committee, and any reference in the Plan to the
Committee shall, to the extent consistent with the terms and
limitations of such delegation, be deemed to include a reference to the
Administrator.
(e) LIABILITY OF COMMITTEE. No member of the Committee shall
be liable for anything whatsoever in connection with the administration
of the Plan except such person's own willful misconduct. Under no
circumstances shall any member of the Committee be liable for any act
or omission of any other member of the Committee. In the performance of
its functions with respect to the Plan, the Committee shall be entitled
to rely upon information and advice furnished by the Company's
officers, the Company's accountants, the Company's counsel and any
other party the Committee deems necessary, and no member of the
Committee shall be liable for any action taken or not taken in reliance
upon any such advice.
4. DURATION OF PLAN. The Plan shall remain in effect until terminated
by the Board of Directors and thereafter until all Awards granted under the Plan
are satisfied by the issuance of shares of Common Stock or the payment of cash
or are terminated under the terms of the Plan or under the Award Agreement
entered into in connection with the grant thereof. Notwithstanding the
foregoing,
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no Awards may be granted under the Plan after the tenth anniversary of the
Effective Date (as defined in Section 18(k)).
5. SHARES OF STOCK SUBJECT TO THE PLAN. Subject to adjustment as
provided in Section 15(b) hereof, the number of shares of Common Stock that may
be issued under the Plan pursuant to Awards shall not exceed, in the aggregate,
3,000,000 shares (the "SECTION 5 LIMIT"), of which the number of shares of
Common Stock that may be issued under the Plan pursuant to Incentive Stock
Options may not exceed, in the aggregate, 3,000,000 shares. Such shares may be
either authorized but unissued shares, treasury shares or any combination
thereof. For purposes of determining the number of shares that remain available
for issuance under the Plan, the following rules shall apply:
(a) the number of Shares subject to outstanding Awards shall
be charged against the Section 5 Limit; and
(b) the Section 5 Limit shall be increased by:
(i) the number of shares subject to an Award (or
portion thereof) which lapses, expires or is otherwise
terminated without the issuance of such shares or is settled
by, the delivery of consideration other than shares,
(ii) the number of shares tendered to pay the
exercise price of a Stock Option or other Award, and
(iii) the number of shares withheld from any Award to
satisfy a Participant's tax withholding obligations or, if
applicable, to pay the exercise price of a Stock Option or
other Award.
In addition, any shares underlying Substitute Awards shall not be counted
against the Section 5 Limit set forth in the first sentence of this Section 5.
6. ELIGIBLE INDIVIDUALS.
(a) ELIGIBILITY CRITERIA. Awards may be granted by the
Committee to individuals ("ELIGIBLE INDIVIDUALS") who are officers or
other key employees or consultants of the Company or a Subsidiary with
the potential to contribute to the future success of the Company or its
Subsidiaries. An individual's status as an Administrator or a member of
the Committee will not affect his or her eligibility to participate in
the Plan.
(b) MAXIMUM NUMBER OF SHARES PER ELIGIBLE INDIVIDUAL. In
accordance with the requirements under Section 162(m) of the Code, no
Eligible Individual shall receive grants of Awards with respect to an
aggregate of more than 250,000 shares of Common Stock in respect of any
fiscal year of the Company. For purposes of the preceding sentence, any
Award that is made as bonus compensation, or is made in lieu of
compensation that otherwise
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would be payable to an Eligible Individual, shall be considered made in
respect of the fiscal year to which such bonus or other compensation
relates or otherwise was earned.
7. AWARDS GENERALLY. Awards under the Plan may consist of Stock
Options, Stock Appreciation Rights, Stock Awards, Performance Share Awards,
Section 162(m) Awards or other awards determined by the Committee. The terms and
provisions of an Award shall be set forth in a written Award Agreement approved
by the Committee and delivered or made available to the Participant as soon as
practicable following the date of the award. The vesting, exercisability,
payment and other restrictions applicable to an Award (which may include,
without limitation, restrictions on transferability or provision for mandatory
resale to the Company) shall be determined by the Committee and set forth in the
applicable Award Agreement. Notwithstanding the foregoing, the Committee may
accelerate (i) the vesting or payment of any Award, (ii) the lapse of
restrictions on any Award or (iii) the date on which any Option or Stock
Appreciation Right first becomes exercisable. The date of a Participant's
termination of employment for any reason shall be determined in the sole
discretion of the Committee. The Committee shall also have full authority to
determine and specify in the applicable Award Agreement the effect, if any, that
a Participant's termination of employment for any reason will have on the
vesting, exercisability, payment or lapse of restrictions applicable to an
outstanding Award.
8. STOCK OPTIONS.
(a) TERMS OF STOCK OPTIONS GENERALLY. Subject to the terms of
the Plan and the applicable Award Agreement, each Stock Option shall
entitle the Participant to whom such Stock Option was granted to
purchase the number of shares of Common Stock specified in the
applicable Award Agreement and shall be subject to the terms and
conditions established by the Committee in connection with the Award
and specified in the applicable Award Agreement. Upon satisfaction of
the conditions to exercisability specified in the applicable Award
Agreement, a Participant shall be entitled to exercise the Stock Option
in whole or in part and to receive, upon satisfaction or payment of the
exercise price or an irrevocable notice of exercise in the manner
contemplated by Section 8(d) below, the number of shares of Common
Stock in respect of which the Stock Option shall have been exercised.
Stock Options may be either Nonqualified Stock Options or Incentive
Stock Options.
(b) EXERCISE PRICE. The exercise price per share of Common
Stock purchasable under a Stock Option shall be determined by the
Committee at the time of grant and set forth in the Award Agreement,
PROVIDED, that the exercise price per share shall be no less than 100%
of the Fair Market Value per share on the date of grant.
Notwithstanding the foregoing, the exercise price per share of a Stock
Option that is a Substitute Award may be less than the Fair Market
Value per share on the date of award, provided that the excess of:
(i) the aggregate Fair Market Value (as of the date
such Substitute Award is granted) of the shares subject to the
Substitute Award, over
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(ii) the aggregate exercise price thereof, does not
exceed the excess of:
(iii) the aggregate fair market value (as of the time
immediately preceding the transaction giving rise to the
Substitute Award, such fair market value to be determined by
the Committee) of the shares of the predecessor entity that
were subject to the award assumed or substituted for by the
Company, over
(iv) the aggregate exercise price of such shares.
(c) OPTION TERM. The term of each Stock Option shall be fixed
by the Committee and set forth in the Award Agreement; PROVIDED,
HOWEVER, that a Stock Option shall not be exercisable after the
expiration of ten (10) years after the date the Stock Option is
granted.
(d) METHOD OF EXERCISE. Subject to the provisions of the
applicable Award Agreement, the exercise price of a Stock Option may be
paid in cash or previously owned shares or a combination thereof. In
accordance with the rules and procedures established by the Committee
for this purpose, the Stock Option may also be exercised through a
"cashless exercise" procedure approved by the Committee involving a
broker or dealer approved by the Committee, that affords Participants
the opportunity to sell immediately some or all of the shares
underlying the exercised portion of the Stock Option in order to
generate sufficient cash to pay the Stock Option exercise price and/or
to satisfy withholding tax obligations related to the Stock Option.
When payment of the exercise price for a Stock Option consists of
shares of the Company's capital stock, such shares will not be accepted
as payment unless the Participant has held such shares for the
requisite period necessary to avoid a charge to the Company's earnings
for financial reporting purposes.
9. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights shall be
subject to the terms and conditions established by the Committee in connection
with the Award thereof and specified in the applicable Award Agreement. Upon
satisfaction of the conditions to the payment specified in the applicable Award
Agreement, each Stock Appreciation Right shall entitle a Participant to an
amount, if any, equal to the Fair Market Value of a share of Common Stock on the
date of exercise over the Stock Appreciation Right exercise price specified in
the applicable Award Agreement. At the discretion of the Committee, payments to
a Participant upon exercise of a Stock Appreciation Right may be made in Shares,
cash or a combination thereof. A Stock Appreciation Right may be granted alone
or in addition to other Awards, or in tandem with a Stock Option. If granted in
tandem with a Stock Option, a Stock Appreciation Right shall cover the same
number of shares of Common Stock as covered by the Stock Option (or such lesser
number of shares as the Committee may determine) and shall be exercisable only
at such time or times and to the extent the related Stock Option shall be
exercisable, and shall have the same term and exercise price as the related
Stock Option. Upon exercise of a Stock Appreciation Right granted in tandem with
a Stock Option, the related Stock Option shall be cancelled automatically to the
extent of the number of shares covered
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by such exercise; conversely, if the related Stock Option is exercised as to
some or all of the shares covered by the tandem grant, the tandem Stock
Appreciation Right shall be cancelled automatically to the extent of the number
of shares covered by the Stock Option exercised.
10. STOCK AWARDS. Stock Awards shall consist of one or more shares of
Common Stock granted or offered for sale to an Eligible Individual, and shall be
subject to the terms and conditions established by the Committee in connection
with the Award and specified in the applicable Award Agreement. The shares of
Common Stock subject to a Stock Award may, among other things, be subject to
vesting requirements or restrictions on transferability.
11. PERFORMANCE SHARE AWARDS. Performance Share Awards shall be
evidenced by an Award Agreement in such form and containing such terms and
conditions as the Committee deems appropriate and which are not inconsistent
with the terms of the Plan. Each Award Agreement shall set forth the number of
shares of Common Stock to be earned by a Participant upon satisfaction of
certain specified performance criteria and subject to such other terms and
conditions as the Committee deems appropriate. Payment in settlement of a
Performance Share Award shall be made as soon as practicable following the
conclusion of the applicable performance period, or at such other time as the
Committee shall determine, in shares of Common Stock, in an equivalent amount of
cash or in a combination of Common Stock and cash, as the Committee shall
determine.
12. OTHER AWARDS. The Committee shall have the authority to specify the
terms and provisions of other forms of equity-based or equity-related Awards not
described above which the Committee determines to be consistent with the purpose
of the Plan and the interests of the Company, which Awards may provide for cash
payments based in whole or in part on the value or future value of Common Stock,
for the acquisition or future acquisition of Common Stock, or any combination
thereof. Other Awards shall also include cash payments (including the cash
payment of dividend equivalents) under the Plan which may be based on one or
more criteria determined by the Committee which are unrelated to the value of
Common Stock and which may be granted in tandem with, or independent of, other
Awards under the Plan.
13. SECTION 162(M) AWARDS.
(a) TERMS OF SECTION 162(M) AWARDS GENERALLY. In addition to
any other Awards under the Plan, the Company may make Awards that are
intended to qualify as "qualified performance-based compensation" for
purposes of Section 162(m) of the Code ("SECTION 162(M) AWARDS").
Section 162(m) Awards may consist of Stock Options, Stock Appreciation
Rights, Stock Awards, Performance Share Awards or Other Awards the
vesting, exercisability and/or payment of which is conditioned upon the
attainment for the applicable Performance Period of specified
performance targets related to designated performance goals for such
period selected by the Committee from among the performance goals
specified in Section 13(b) below. Section 162(m) Awards will be made in
accordance with the procedures specified in applicable treasury
regulations for compensation intended to be "qualified
performance-based compensation."
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(b) PERFORMANCE GOALS. For purposes of this Section 13,
performance goals shall be limited to one or more of the following: (i)
net revenue, (ii) net earnings, (iii) operating earnings or income,
(iv) absolute and/or relative return on equity or assets, (v) earnings
per share, (vi) cash flow, (vii) pretax profits, (viii) earnings
growth, (ix) revenue growth, (x) book value per share, (xi) stock price
and (xii) performance relative to peer companies, each of which may be
established on a corporate-wide basis or established with respect to
one or more operating units, divisions, acquired businesses, minority
investments, partnerships or joint ventures.
(c) OTHER PERFORMANCE-BASED COMPENSATION. The Committee's
decision to make, or not to make, Section 162(m) Awards within the
meaning of this Section 13 shall not in any way prejudice the
qualification of any other Awards as performance based compensation
under Section 162(m). In particular, Awards of Stock Options may,
pursuant to applicable regulations promulgated under Section 162(m), be
qualified as performance-based compensation for Section 162(m) purposes
without regard to this Section 13.
14. NON-TRANSFERABILITY. No Award granted under the Plan or any rights
or interests therein shall be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of except by will or by the laws of descent and
distribution or pursuant to a "qualified domestic relations order" ("QDRO") as
defined in the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder; PROVIDED, HOWEVER,
that the Committee may, subject to such terms and conditions as the Committee
shall specify, permit the transfer of an Award to a Participant's family members
or to one or more trusts established in whole or in part for the benefit of one
or more of such family members; PROVIDED, HOWEVER, that the restrictions in this
sentence shall not apply to the shares received in connection with an Award
after the date that the restrictions on transferability of such shares set forth
in the applicable Award Agreement have lapsed. During the lifetime of a
Participant, a Stock Option or Stock Appreciation Right shall be exercisable
only by, and payments in settlement of Awards shall be payable only to, the
Participant or, if applicable, the "alternate payee" under a QDRO or the family
member or trust to whom such Stock Option, Stock Appreciation Right or other
Award has been transferred in accordance with the previous sentence.
15. RECAPITALIZATION OR REORGANIZATION.
(a) AUTHORITY OF THE COMPANY AND SHAREHOLDERS. The existence
of the Plan, the Award Agreements and the Awards granted hereunder
shall not affect or restrict in any way the right or power of the
Company or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options,
warrants or rights to purchase stock or of bonds, debentures, preferred
or prior preference stocks whose rights are superior to or affect the
Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or
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business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
(b) CHANGE IN CAPITALIZATION. Notwithstanding any provision of
the Plan or any Award Agreement, in the event of any change in the
outstanding Common Stock by reason of a stock dividend,
recapitalization, reorganization, merger, consolidation, stock split,
combination or exchange of shares or any other significant corporate
event affecting the Common Stock, the Committee, in its discretion, may
make (i) such proportionate adjustments it considers appropriate (in
the form determined by the Committee in its sole discretion) to prevent
diminution or enlargement of the rights of Participants under the Plan
with respect to the aggregate number of shares of Common Stock for
which Awards in respect thereof may be granted under the Plan, the
number of shares of Common Stock covered by each outstanding Award, and
the exercise or Award prices in respect thereof and/or (ii) such other
adjustments as it deems appropriate. The Committee's determination as
to what, if any, adjustments shall be made shall be final and binding
on the Company and all Participants.
16. CHANGE IN CONTROL. In the event of a Change in Control, (i) all
Stock Options or Stock Appreciation Rights then outstanding shall become fully
exercisable as of the date of the Change in Control, whether or not then
exercisable, (ii) all restrictions and conditions of all Stock Awards then
outstanding shall lapse as of the date of the Change in Control, (iii) all
Performance Share Awards shall be deemed to have been fully earned as of the
date of the Change in Control, and (iv) in the case of a Change in Control
involving a merger of, or consolidation involving, the Company in which the
Company is (A) not the surviving corporation (the "SURVIVING ENTITY") or (B)
becomes a wholly owned subsidiary of the Surviving Entity or any Parent thereof,
each outstanding Stock Option granted under the Plan and not exercised (a
"PREDECESSOR OPTION") will be converted into an option (a "SUBSTITUTE OPTION")
to acquire common stock of the Surviving Entity or its Parent, which Substitute
Option will have substantially the same terms and conditions as the Predecessor
Option, with appropriate adjustments as to the number and kind of shares and
exercise prices.
17. AMENDMENT OF THE PLAN. The Board or Committee may at any time and
from time to time terminate, modify, suspend or amend the Plan in whole or in
part; PROVIDED, HOWEVER, that no such termination, modification, suspension or
amendment shall be effective without shareholder approval if such approval is
required to comply with any applicable law or stock exchange rule; and PROVIDED,
HOWEVER, that the Board or Committee may not, without shareholder approval,
increase the maximum number of shares issuable under the Plan. No termination,
modification, suspension or amendment of the Plan shall, without the consent of
a Participant to whom any Awards shall previously have been granted, adversely
affect his or her rights under such Awards. Notwithstanding any provision herein
to the contrary, the Board or Committee shall have broad authority to amend the
Plan or any Stock Option to take into account changes in applicable tax laws,
securities laws, accounting rules and other applicable state and federal laws.
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18. MISCELLANEOUS.
(a) TAX WITHHOLDING. No later than the date as of which an
amount first becomes includable in the gross income of the Participant
for applicable income tax purposes with respect to any award under the
Plan, the Participant shall pay to the Company or make arrangements
satisfactory to the Committee regarding the payment of any federal,
state or local taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
in accordance with rules and procedures established by the Committee,
the minimum required withholding obligations may be settled with Common
Stock, including Common Stock that is part of the award that gives rise
to the withholding requirement. The obligation of the Company under the
Plan shall be conditioned upon such payment or arrangements and the
Company shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the
Participant.
(b) LOANS. On such terms and conditions as shall be approved
by the Committee, the Company may directly or indirectly lend money to
a Participant to accomplish the purposes of the Plan, including to
assist such Participant to acquire or carry shares of Common Stock
acquired upon the exercise of Stock Options granted hereunder, and the
Committee may also separately lend money to any Participant to pay
taxes with respect to any of the transactions contemplated by the Plan.
(c) NO RIGHT TO GRANTS OR EMPLOYMENT. No Eligible Individual
or Participant shall have any claim or right to receive grants of
Awards under the Plan. Nothing in the Plan or in any Award or Award
Agreement shall confer upon any employee of the Company or any
Subsidiary any right to continued employment with the Company or any
Subsidiary, as the case may be, or interfere in any way with the right
of the Company or a Subsidiary to terminate the employment of any of
its employees at any time, with or without cause.
(d) UNFUNDED PLAN. The Plan is intended to constitute an
unfunded plan for incentive compensation. With respect to any payments
not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those
of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver Common Stock or
payments in lieu thereof with respect to awards hereunder.
(e) OTHER EMPLOYEE BENEFIT PLANS. Payments received by a
Participant under any Award made pursuant to the provisions of the Plan
shall not be included in, nor have any effect on, the determination of
benefits under any other employee benefit plan or similar arrangement
provided by the Company.
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(f) SECURITIES LAW RESTRICTIONS. The Committee may require
each Eligible Individual purchasing or acquiring shares of Common Stock
pursuant to a Stock Option or other Award under the Plan to represent
to and agree with the Company in writing that such Eligible Individual
is acquiring the shares for investment and not with a view to the
distribution thereof. All certificates for shares of Common Stock
delivered under the Plan shall be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and
Exchange Commission, the New York Stock Exchange or any other exchange
upon which the Common Stock is then listed, and any applicable federal
or state securities law, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions. No shares of Common Stock shall be
issued hereunder unless the Company shall have determined that such
issuance is in compliance with, or pursuant to an exemption from, all
applicable federal and state securities laws.
(g) COMPLIANCE WITH RULE 16B-3.
(i) The Plan is intended to comply with Rule 16b-3
under the Exchange Act or its successors under the Exchange
Act and the Committee shall interpret and administer the
provisions of the Plan or any Award Agreement in a manner
consistent therewith. To the extent any provision of the Plan
or Award Agreement or any action by the Committee fails to so
comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.
Moreover, in the event the Plan or an Award Agreement does not
include a provision required by Rule 16b-3 to be stated
therein, such provision (other than one relating to
eligibility requirements, or the price and amount of Awards)
shall be deemed automatically to be incorporated by reference
into the Plan or such Award Agreement insofar as Participants
subject to Section 16 of the Exchange Act are concerned.
(ii) Notwithstanding anything contained in the Plan
or any Award Agreement to the contrary, if the consummation of
any transaction under the Plan would result in the possible
imposition of liability on a Participant pursuant to Section
16(b) of the Exchange Act, the Committee shall have the right,
in its sole discretion, but shall not be obligated, to defer
such transaction to the extent necessary to avoid such
liability.
(h) AWARD AGREEMENT. In the event of any conflict or
inconsistency between the Plan and any Award Agreement, the Plan shall
govern, and the Award Agreement shall be interpreted to minimize or
eliminate any such conflict or inconsistency.
(i) EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company.
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(j) APPLICABLE LAW. Except as to matters of federal law, the
Plan and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Delaware without
giving effect to conflicts of law principles.
(k) EFFECTIVE DATE. The Plan shall be effective as of the date
(the "EFFECTIVE DATE") of either (i) the consummation of the proposed
reorganization pursuant to which Servico, Inc. and Impac Hotel Group,
L.L.C. will become wholly-owned subsidiaries of the Company, contingent
upon its prior approval by the shareholders of Servico, Inc. and the
unitholders of Impac Hotel Group, L.L.C. or (ii) following such
reorganization, on the date of its approval by the shareholders of the
Company. If, in either case, shareholder approval is not obtained at or
prior to the first annual meeting of the shareholders of the Company to
occur after the adoption of the Plan by the Board, the Plan and any
Awards thereunder shall terminate AB INITIO and be of no further force
and effect.
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APPENDIX F
LODGIAN, INC.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
(ADOPTED AS OF __________, 1998)
<PAGE> 289
LODGIAN, INC.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
<TABLE>
<CAPTION>
<S> <C> <C>
1. Definitions..................................................................1
2. Purposes.....................................................................3
3. Administration...............................................................3
4. Shares Available.............................................................3
5. Director Shares .............................................................4
6. Options......................................................................4
7. Recapitalization or Reorganization...........................................7
8. Termination and Amendment of the Plan........................................7
9. Miscellaneous................................................................8
</TABLE>
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LODIGIAN, INC.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. DEFINITIONS.
"AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed to
such terms in Rule 12b-2 promulgated under the Exchange Act.
"ANNUAL FEES" means the cash portion of (i) any annual fee payable to a
Non-Employee Director for service on the Board, (ii) any other fee determined on
an annual basis and payable for service on, or for acting as chairperson of, any
committee of the Board and (iii) any similar annual fee payable in respect of
service on the board of directors of any Subsidiary or any committee of any such
board of directors.
"ANNUAL MEETING" means an annual meeting of the Company's stockholders.
"BENEFICIAL OWNER" has the meaning ascribed to such term in Rule 13d-3
promulgated under the Exchange Act.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMBINED VOTING POWER" means the combined voting power of the
Company's or other relevant entity's then outstanding voting securities.
"COMMITTEE" means the committee appointed by the Board to administer
the Plan, which shall be composed exclusively of members of the Board who are
not Non-Employee Directors.
"COMMON STOCK" means the Common Stock of the Company, par value $.01
per share.
"COMPANY" means LODGIAN, Inc., a Delaware corporation, or any successor
to substantially all of its business.
"DIRECTOR'S FEES" means the aggregate of a Non-Employee Director's
Annual Fees and Meeting Fees.
"DIRECTOR SHARES" means shares of Common Stock granted to a
Non-Employee Director, which shall be subject to such terms and conditions as
are set forth in Section 5 below.
"DISABILITY" means eligibility for disability benefits under the terms
of the Company's long-term disability plan in effect at the time the
Non-Employee Director becomes disabled.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE> 291
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, in the event the Common Stock is traded on a
recognized securities exchange or quoted by the National Association of
Securities Dealers Automated Quotations on National Market Issues, an amount
equal to the average of the high and low prices of the Common Stock on such
exchange or such quotation on the date set for valuation or, if no sales of
Common Stock were made on said exchange or so quoted on that date, the average
of the high and low prices of the Common Stock on the next preceding day on
which sales were made on such exchange or quotations; or, if the Common Stock is
not so traded or quoted, that value determined, in its sole discretion, by the
Committee.
"MEETING FEES" means (i) any meeting fee payable in respect of
attendance at or participation in meetings of the Board or any committee of the
Board or any meeting of the stockholders of the Company and (ii) any similar
meeting fee payable in respect of service on the board of directors of any
Subsidiary or any committee of any such board of directors.
"MERGER" means the proposed reorganization pursuant to which Servico,
Inc. and Impac Hotel Group, L.L.C. will become wholly-owned Subsidiaries of the
Company.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
employee of the Company or any of its Subsidiaries.
"OPTION" means an option to purchase shares of Common Stock awarded to
a Non-Employee Director pursuant to the Plan, which option shall not be intended
to qualify, and shall not be treated, as an "incentive stock option" within the
meaning of Section 422 of the Code.
"PARENT" means any corporation which is a "parent corporation" within
the meaning of Section 424 of the Code with respect to the relevant entity.
"PERSON" means any person, entity, or "group" within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.
"PLAN" means the Lodgian, Inc. Non-Employee Directors' Stock Plan.
"RETIREMENT" means a Non-Employee Director ceasing to be a member of
the Board as a result of retirement from the Board in accordance with the
retirement Policy then applicable to Board members.
"SUBSIDIARY" means (i) any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with respect to
the Company or (ii) any other corporation or other entity in which the Company,
directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for the purposes of the Plan.
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2. PURPOSES. The purposes of the Plan are to retain the services of
qualified individuals who are not employees of the Company to serve as members
of the Board and to secure for the Company the benefits of the incentives
inherent in increased Common Stock ownership by such individuals by awarding
such individuals Options to purchase shares of Common Stock.
3. ADMINISTRATION.
(a) AUTHORITY. The Committee will be responsible for
administering the Plan. The Committee will have authority to adopt such
rules as it may deem appropriate to carry out the purposes of the Plan,
and shall have authority to interpret and construe the provisions of
the Plan and any agreements and notices under the Plan and to make
determinations pursuant to any Plan provision. The Committee shall also
have the authority to adjust the number of shares subject to an Option
related to each Annual Award pursuant to Section 6(a) at any time and
from time to time. Each interpretation, determination or other action
made or taken by the Committee pursuant to the Plan shall be final and
binding on all Persons. No member of the Committee shall be liable for
any action or determination made in good faith, and the members of the
Committee shall be entitled to indemnification and reimbursement in the
manner provided in the Company's Restated Certificate of Incorporation
as it may be amended from time to time.
(b) DELEGATION. The Committee may designate a committee
composed of one or more members of the Board to carry out its
responsibilities under such conditions as it may set.
4. SHARES AVAILABLE. Subject to the provisions of Section 12 of the
Plan, the maximum number of shares of Common Stock which may be issued under the
Plan shall not exceed 300,000 shares (the "SECTION 4 LIMIT"). Either authorized
and unissued shares of Common Stock or treasury shares may be delivered pursuant
to the Plan. For purposes of determining the number of shares that remain
available for issuance under the Plan, the following rules shall apply:
(a) the number of shares subject to awards granted under the
Plan shall be charged against the Section 4 Limit; and
(b) the Section 4 Limit shall be increased by:
(i) the number of shares subject to an Option which
lapses, expires or is otherwise terminated without the
issuance of such shares,
(ii) the number of shares tendered to pay the
exercise price of an Option, and
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(iii) the number of shares withheld to satisfy any
tax withholding obligations of a Non-Employee Director with
respect to any shares or other payments hereunder.
5. DIRECTORS SHARES.
(a) DIRECTOR SHARE AWARDS. A Non-Employee Director may elect
to receive all or a specified percentage of his or her Director Fees
for each year of service on the Board in Director Shares, in lieu of
cash compensation for such portion thereof, rounded up or down to the
next whole share in the event of fractional amounts. The number of
Director Shares so awarded to each Non-Employee Director shall be
determined by dividing the portion of such Non-Employee Director's
Director Fees to be paid in Director Shares by the Fair Market Value of
a share of Common Stock on the date of award.
(b) TERMS OF DIRECTOR SHARE AWARDS. At the time Director
Shares are granted to a Non-Employee Director, share certificates
representing the appropriate number of Director Shares shall be
registered in the name of the Non-Employee Director and shall be
delivered to the Non-Employee Director. The Non-Employee Director shall
have all the rights and privileges of a stockholder as to such shares,
including the right to receive dividends and the right to vote such
shares. The Director Shares shall be immediately vested upon grant,
shall not be forfeitable to the Company and shall not be subject to any
restrictions on transfer (other than those imposed under applicable law
or under any trading policy of the Company).
6. OPTIONS. In addition to the awards of Director Shares described
above in Section 5, each Non-Employee Director shall also receive awards of
Options under the Plan as follows:
(a) OPTION GRANTS. At each Annual Meeting, commencing with the
Annual Meeting held in 1999, each Non-Employee Director who will remain
on the Board following the date of such Annual Meeting shall receive as
of such date an award consisting of an Option to purchase 5,000 shares
of Common Stock (or such lesser number determined by multiplying 5,000
by a fraction, the numerator of which is the number of full or partial
months since the immediately preceding Annual Meeting during which such
individual served on the Board in the capacity of a Non-Employee
Director, and the denominator of which is the number of full or partial
months since the immediately preceding Annual Meeting). Such Option
shall have a per share exercise price equal to the Fair Market Value of
the Common Stock on the date of award and shall be subject to the
vesting schedule provided for in Section 6(b) and the other terms and
conditions provided for herein.
(b) VESTING SCHEDULE OF OPTIONS. Options awarded pursuant to
the Plan shall vest and become exercisable in equal installments as of
each of the first three Annual Meetings following the date of grant;
PROVIDED, HOWEVER, that an Option shall become fully vested and
exercisable upon a Non-Employee ceasing to be a member of the Board as
a result of death, Disability or Retirement.
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(c) EXERCISE OF OPTIONS FOLLOWING TERMINATION OF SERVICE.
(i) EXERCISE FOLLOWING TERMINATION OF SERVICE DUE TO
DEATH, DISABILITY OR RETIREMENT. If a Non-Employee Director
ceases to be a member of the Board by reason of death,
Disability, Retirement or in the event of his involuntary
termination of service on the Board other than for cause, all
Options awarded to such Non-Employee Director may be exercised
by such Non-Employee Director, or by his or her estate,
personal representative or beneficiary, as the case may be, at
any time within one year after the date of termination of
service. At the end of such one-year period the Options shall
expire.
(ii) EXERCISE FOLLOWING OTHER TERMINATIONS OF
SERVICE. If a Non-Employee Director ceases to be a member of
the Board for any reason other than as set forth above in
subsection (i) hereof, then (A) the Non-Employee Director
shall have the right, subject to the terms and conditions
hereof, to exercise the Option, to the extent it has vested as
of the date of such termination of service, at any time within
six months after the date of such termination, and (B) the
unvested portion of any Options awarded to the Non-Employee
Director shall be forfeited as of the date of termination of
service.
(d) TIME AND MANNER OF EXERCISE OF OPTIONS.
(i) NOTICE OF EXERCISE. Subject to the other terms
and conditions hereof, a Non-Employee Director may exercise
any Options, to the extent such Options are vested, by giving
written notice of exercise to the Company; PROVIDED, HOWEVER,
that in no event shall an Option be exercisable for a
fractional share. The date of exercise of an Option shall be
the later of (i) the date on which the Company receives such
written notice or (ii) the date on which the conditions
provided in Section 6(d)(ii) are satisfied.
(ii) PAYMENT. Prior to the issuance of a certificate
pursuant to Section 6(d)(v) hereof evidencing the shares of
Common Stock in respect of which all or a portion of an Option
shall have been exercised, a Non-Employee Director shall have
paid to the Company the exercise price of the Option for all
such shares purchased pursuant to the exercise of such Option.
Payment may be made by personal check, bank draft or postal or
express money order (such modes of payment are collectively
referred to as "cash") payable to the order of the Company in
U.S. dollars or in shares of Common Stock already owned by the
Non-Employee Director valued at their Fair Market Value as of
the last business day preceding the date of exercise, or in
any combination of cash or such shares as the Committee in its
sole discretion may approve. Payment of the exercise price in
shares of Common Stock shall be made by delivering to the
Company the share certificate(s) representing the required
number of shares, with the Non-Employee Director signing his
or her name on the
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<PAGE> 295
back, or by attaching executed stock powers (the signature of
the Non-Employee Director must be guaranteed in either case).
When payment of the exercise price for an Option consists of
shares of Common Stock, such shares will not be accepted as
payment unless the Non-Employee Director has held such shares
for the requisite period necessary to avoid a charge to the
Company's earnings for financial reporting purposes.
(iii) STOCKHOLDER RIGHTS. A Non-Employee Director
shall have no rights as a stockholder with respect to any
shares of Common Stock issuable upon exercise of an Option
until a certificate evidencing such shares shall have been
issued to the Non-Employee Director pursuant to Section
6(d)(v), and no adjustment shall be made for dividends or
distributions or other rights in respect of any share for
which the record date is prior to the date upon which the
Non-Employee Director shall become the holder of record
thereof.
(iv) LIMITATION ON EXERCISE. No Option shall be
exercisable unless the Common Stock subject thereto has been
registered under the Securities Act and qualified under
applicable state "blue sky" laws in connection with the offer
and sale thereof, or the Company has determined that an
exemption from registration under the Securities Act and from
qualification under such state "blue sky" laws is available.
(v) ISSUANCE OF SHARES. Subject to the foregoing
conditions, as soon as is reasonably practicable after its
receipt of a proper notice of exercise and payment of the
exercise price of the Option for the number of shares with
respect to which the Option is exercised, the Company shall
deliver to the Non-Employee Director (or following the
Non-Employee Director's death, such other Person entitled to
exercise the Option), at the principal office of the Company
or at such other location as may be acceptable to the Company
and the Non-Employee Director (or such other Person), one or
more stock certificates for the appropriate number of shares
of Common Stock issued in connection with such exercise. Such
shares shall be fully paid and nonassessable and shall be
issued in the name of the Non-Employee Director (or such other
Person).
(e) RESTRICTIONS ON TRANSFER. An Option may not be
transferred, pledged, assigned, or otherwise disposed of, except by
will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of
ERISA ("QDRO"); PROVIDED, HOWEVER, that the Committee may, subject to
such terms and conditions as the Committee shall specify, permit the
transfer of an Option to a Non-Employee Director's family members or
to one or more trusts established in whole or in part for the benefit
of one or more of such family members. The Option shall be exercisable,
during the Non-Employee Director's lifetime, only by the Non-Employee
Director or by the Person to whom the Option has been transferred in
accordance with the previous sentence. No
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<PAGE> 296
assignment or transfer of the Option, or of the rights represented
thereby, whether voluntary or involuntary, by operation of law or
otherwise, except by will or the laws of descent and distribution or
pursuant to a QDRO, shall vest in the assignee or transferee any
interest or right in the Option, but immediately upon any attempt to
assign or transfer the Option the same shall terminate and be of no
force or effect.
7. RECAPITALIZATION OR REORGANIZATION.
(a) AUTHORITY OF THE COMPANY AND STOCKHOLDERS. The existence
of the Plan shall not affect or restrict in any way the right or power
of the Company or the stockholders of the Company to make or authorize
any adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options,
warrants or rights to purchase stock or of bonds, debentures, preferred
or prior preference stocks whose rights are superior to or affect the
Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
(b) CHANGE IN CAPITALIZATION. Notwithstanding any other
provision of the Plan, in the event of any change in the outstanding
Common Stock by reason of a stock dividend, recapitalization,
reorganization, merger, consolidation, stock split, combination or
exchange of shares or any other significant corporate event affecting
the Common Stock, the Committee, in its discretion, may make (i) such
proportionate adjustments as it considers appropriate (in the form
determined by the Committee in its sole discretion) to prevent
diminution or enlargement of the rights of Non-Employee Directors under
the Plan with respect to the aggregate number of shares of Common Stock
authorized to be awarded under the Plan, the number of shares of Common
Stock covered by each outstanding Option and the exercise prices in
respect thereof, the number of shares of Common Stock covered by future
Option awards and the number of Phantom Stock Units credited to a
Non-Employee Director's Deferred Compensation Account and/or (ii) such
other adjustments as it deems appropriate. The Committee's
determination as to what, if any, adjustments shall be made shall be
final and binding on the Company and all Non-Employee Directors.
8. TERMINATION AND AMENDMENT OF THE PLAN.
(a) TERMINATION. The Plan shall terminate as of the tenth
anniversary of the Effective Date. Following the Effective Date, no
further awards of Director Shares or Options shall be granted pursuant
to the Plan.
(b) GENERAL POWER OF BOARD. Notwithstanding anything herein to
the contrary, the Board or the Committee may at any time and from time
to time terminate, modify, suspend or amend the Plan in whole or in
part (including by amending the Plan as provided
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in Section 3(a)); PROVIDED, HOWEVER, that no such termination,
modification, suspension or amendment shall be effective without
shareholder approval if such approval is required to comply with any
applicable law or stock exchange rule; and PROVIDED FURTHER, that the
Board may not, without shareholder approval, increase the maximum
number of shares issuable under the Plan except as provided in Section
7(b) above.
(c) WHEN NON-EMPLOYEE DIRECTORS' CONSENTS REQUIRED. The
Committee may not alter, amend, suspend, or terminate the Plan without
the consent of any Non-Employee Director to the extent that such action
would adversely affect his or her rights with respect to Director
Shares or Options that have previously been granted.
9. MISCELLANEOUS.
(a) TAX WITHHOLDING. No later than the date as of which an
amount first becomes includable in the gross income of the Non-Employee
Director for applicable income tax purposes with respect to any award
under the Plan, the Non-Employee Director shall pay to the Company or
make arrangements satisfactory to the Committee regarding the payment
of any federal, state or local taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by
the Committee, in accordance with rules and procedures established by
the Committee, the minimum required withholding obligations may be
settled with Common Stock, including Common Stock that is part of the
award that gives rise to the withholding requirement. The obligation of
the Company under the Plan shall be conditioned upon such payment or
arrangements and the Company shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind
otherwise due to the Non-Employee Director.
(b) LOANS. On such terms and conditions as shall be approved
by the Committee, the Company may directly or indirectly lend money to
a Non-Employee Director to accomplish the purposes of the Plan,
including to assist such Non-Employee Director to acquire or carry
shares of Common Stock acquired upon the exercise of Options granted
hereunder, and the Committee may also separately lend money to any
Non-Employee Director to pay taxes with respect to any of the
transactions contemplated by the Plan.
(c) NO RIGHT TO REELECTION. Nothing in the Plan shall be
deemed to create any obligation on the part of the Board to nominate
any of its members for reelection by the Company's stockholders, nor
confer upon any Non-Employee Director the right to remain a member of
the Board for any period of time, or at any particular rate of
compensation.
(d) UNFUNDED PLAN. This Plan is unfunded. Amounts payable
under the Plan will be satisfied solely out of the general assets of
the Company subject to the claims of the Company's creditors.
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(e) OTHER COMPENSATION ARRANGEMENTS. Payments received by a
Non-Employee Director under any award made pursuant to the provisions
of the Plan shall not be included in, nor have any effect on, the
determination of benefits under any other arrangement provided by the
Company.
(f) SECURITIES LAW RESTRICTIONS. The Committee may require
each Non-Employee Director purchasing or acquiring shares of Common
Stock pursuant to the Plan to agree with the Company in writing that
such Non-Employee Director is acquiring the shares for investment and
not with a view to the distribution thereof. All certificates for
shares of Common Stock delivered under the Plan shall be subject to
such stock-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements of
the Securities and Exchange Commission or any exchange upon which the
Common Stock is then listed, and any applicable federal or state
securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such
restrictions. No shares of Common Stock shall be issued hereunder
unless the Company shall have determined that such issuance is in
compliance with, or pursuant to an exemption from, all applicable
federal and state securities laws.
(g) COMPLIANCE WITH RULE 16B-3.
(i) The Plan is intended to comply with Rule 16b-3
under the Exchange Act or its successors under the Exchange
Act and the Committee shall interpret and administer the
provisions of the Plan in a manner consistent therewith. To
the extent any provision of the Plan or any action by the
Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by
the Committee. Moreover, in the event the Plan does not
include a provision required by Rule 16b-3 to be stated
therein, such provision (other than one relating to
eligibility requirements, or the price and amount of Options)
shall be deemed automatically to be incorporated by reference
into the Plan.
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(ii) Notwithstanding anything contained in the Plan
to the contrary, if the consummation of any transaction under
the Plan would result in the possible imposition of liability
on a Non-Employee Director pursuant to Section 16(b) of the
Exchange Act, the Committee shall have the right, in its sole
discretion, but shall not be obligated, to defer such
transaction to the extent necessary to avoid such liability.
(h) EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company.
(i) APPLICABLE LAW. Except as to matters of federal law, the
Plan and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Delaware without
giving effect to conflicts of law principles.
(j) EFFECTIVE DATE. The Plan shall be effective as of the date
(the "EFFECTIVE DATE") of either (i) the consummation of the Merger,
contingent upon its prior approval by the shareholders of Servico, Inc.
and the unitholders of Impac Hotel Group, L.L.C. or (ii) following the
Merger, on the date of its approval by the shareholders of the Company.
If, in either case, shareholder approval is not obtained at or prior to
the first Annual Meeting of the shareholders of the Company to occur
after the adoption of the Plan by the Board, the Plan and any awards
hereunder shall terminate AB INITIO and be of no further force and
effect.
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APPENDIX G
RESTATED
CERTIFICATE OF INCORPORATION
OF
LODGIAN, INC.
---------------------------------------
ARTICLE I
NAME
SECTION 1.1 NAME. The name of the Corporation is Lodgian, Inc.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
SECTION 2.1 OFFICE AND AGENT. The address of the registered
office of the Corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
the registered agent of the Corporation at such address is The Corporation Trust
Company.
ARTICLE III
CORPORATE PURPOSE
SECTION 3.1 PURPOSE. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law ("DGCL").
ARTICLE IV
CAPITALIZATION
SECTION 4.1 AUTHORIZED CAPITAL; SHARES. The total number of shares of
all classes of stock that the Corporation shall have authority to issue is One
Hundred Million (100,000,000), of which Seventy Five Million (75,000,000) shares
shall be shares of Common Stock, par value $0.01 per share ("COMMON STOCK"), and
Twenty Five Million (25,000,000) shares shall be shares of Preferred Stock, par
value $0.01 per share ("PREFERRED STOCK").
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SECTION 4.2 PREFERRED STOCK. Shares of Preferred Stock of the
Corporation may be issued from time to time in one or more classes or series,
each of which class or series shall have such distinctive designation or title
as shall be fixed by the affirmative vote of a majority of the whole Board of
Directors of the Corporation (the "BOARD OF DIRECTORS") prior to the issuance of
any shares thereof (the number of directors of the Corporation, as so determined
from time to time, being referred to herein as the "WHOLE BOARD"). Each such
class or series of Preferred Stock shall have such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions, including the dividend rate, redemption price and liquidation
preference, and may be convertible into, or exchangeable for, at the option of
either the holder or the Corporation or upon the happening of a specified event,
shares of any other class or classes or any other series of the same or any
other class or classes of capital stock, or any debt securities, of the
Corporation at such price or prices or at such rate or rates of exchange and
with such adjustments as shall be stated and expressed in this Restated
Certificate of Incorporation or in any amendment hereto or in such resolution or
resolutions providing for the issuance of such class or series of Preferred
Stock as may be adopted from time to time by the affirmative vote of the number
of directors constituting the majority of the Whole Board prior to the issuance
of any shares thereof pursuant to the authority hereby expressly vested in it,
all in accordance with the DGCL. The authority of the Board of Directors with
respect to each series shall also include, but not be limited to, the
determination of restrictions, if any, on the issue or reissue of any additional
shares of Preferred Stock.
SECTION 4.3 NO PREEMPTIVE RIGHTS. The holders of shares of Common
Stock shall have no preemptive or preferential rights of subscription to any
shares of any class of capital stock of the Corporation or any securities
convertible into or exchangeable for shares of any class of capital stock of the
Corporation.
ARTICLE V
COMPROMISE OR ARRANGEMENT
SECTION 5.1 COMPROMISE OR ARRANGEMENT. Whenever a compromise
or arrangement is proposed between the Corporation and its creditors or any
class of them and/or between the Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of Delaware may,
on the application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for the Corporation under the provisions of Section 291 of the DGCL or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of the DGCL, order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such a manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization, if sanctioned by the
court to which the said application has
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been made, shall be binding on all the creditors or the members of the class of
creditors, and/or on all the stockholders or the members of the class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNIFICATION. (a) GENERAL. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, to
the full extent authorized or permitted by law, as now or hereafter in effect,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person seeking indemnification did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) DERIVATIVE ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, to
the full extent authorized or permitted by law, as now or hereafter in effect,
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; PROVIDED, HOWEVER, that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) SUCCESSFUL DEFENSE. To the extent that a present or former
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of
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any action, suit or proceeding referred to in subsections (a) and (b) above, or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
(d) PROCEEDINGS INITIATED BY ANY PERSON. Notwithstanding anything to
the contrary contained in subsections (a) or (b) above, except for proceedings
to enforce rights to indemnification, the Corporation shall not be obligated to
indemnify any person in connection with a proceeding (or part thereof) initiated
by such person unless such proceeding (or part thereof) was authorized in
advance, or unanimously consented to, by the Board of Directors.
(e) PROCEDURE. Any indemnification under subsections (a) and (b)
above (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) above. Such determination shall be made with respect to
a person who is a director or officer at the time of such determination, (i) by
a majority vote of a quorum of the directors who are not parties to such action,
suit or proceeding, (ii) by a committee of such nonparty directors designated by
a majority vote of such directors, even though less than a quorum, (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iv) by the stockholders of the
Corporation.
(f) ADVANCEMENT OF EXPENSES. Expenses (including attorneys' fees)
incurred by a director or an officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking in form and substance satisfactory to
the Corporation by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the Corporation pursuant to this Article VI. Such expenses (including
attorneys' fees) incurred by former directors or officers or other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
(g) RIGHTS NOT EXCLUSIVE. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
(h) INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of the DGCL.
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