<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. 1)
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:
--------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------
3 Filing Party:
--------------------------------------------------------------
4 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 important 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 9,287 rooms in 24 states. In
connection with the merger, Servico shareholders and the unitholders of Impac
will become the owners of a combined company to be called Lodgian, Inc. I will
be the Chief Executive Officer of Lodgian, and Robert Cole, the current
President and Manager of Impac, will be the President of Lodgian. The current
Board of Directors of Servico, along with Robert Cole, John Lang and an
additional director to be selected, will comprise Lodgian's initial Board of
Directors. 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. Subject to possible adjustment, the unitholders
of Impac will initially receive an aggregate of 6 million shares of Lodgian
common stock and, as five of Impac's hotels which are currently under
development are opened, an additional 1.4 million shares of Lodgian. Servico
shareholders and Impac unitholders would therefore own 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.
Your Board of Directors 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
ever competitive hotel industry. We believe Lodgian will enjoy increased
financial strength and strategic advantages including a broader franchise
portfolio, greater geographic diversity, a larger, stronger hotel and motel
operations and management business, cost savings derived from integrated,
coordinated and consolidated capabilities and resources, as well as greater
opportunities for earnings growth.
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.
<PAGE> 3
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.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
Sincerely yours,
David A. Buddemeyer,
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 4
- --------------------------------------------------------------------------------
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> 5
[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 Agreement and Plan of Merger, dated as of March 20,
1998 (the "Merger Agreement"), among Lodgian, Inc. ("Lodgian"), Servico, Impac
Hotel Group, L.L.C., a Georgia limited liability company ("Impac"), SHG-S Sub,
Inc., a Florida corporation and a wholly-owned subsidiary of Lodgian ("Servico
Merger Sub"), and SHG-I Sub, L.L.C., a Georgia limited liability company and a
wholly-owned subsidiary of Lodgian ("Impac Merger Sub"), which appears as
Appendix A to the accompanying Join Proxy Statement/Prospectus, providing for
the merger of Servico Merger Sub with and into Servico and the merger of Impac
Merger Sub with and into Impac, with Servico and Impac being the surviving
entities and 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.
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
<PAGE> 6
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
C. MICHAEL DIAZ
Secretary
West Palm Beach, Florida
_____________, 1998
<PAGE> 7
[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. I will be the President of
Lodgian and David Buddemeyer, the Chairman of the Board, Chief Executive Officer
and President of Servico, will serve as the Chief Executive Officer of Lodgian.
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 if the average closing price of Servico common stock over the ten
days prior to the merger is less than $14.00 per share (in which case you will
receive additional shares) or greater than $25.00 per share (in which case you
will receive fewer shares). 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 would thereafter 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.
I believe that this transaction will create a combined enterprise with
the financial strength, franchise base, global reach and expertise necessary to
excel in the ever competitive hotel industry. I believe Lodgian will enjoy
increased financial strength and strategic advantages including a broader
franchise portfolio; greater geographic diversity; a larger, stronger hotel and
motel operations and management business; cost savings derived from integrated,
coordinated and consolidated capabilities and resources; and greater
opportunities for earnings growth.
As the beneficial owner of approximately 20% of the outstanding Impac
units, 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 also
already agreed to vote their units in favor of the merger, will represent more
than 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.
Regardless of the number of Impac units you own, please complete, sign
and date your written consent form and promptly return it in the envelope
provided.
<PAGE> 8
Sincerely yours,
ROBERT S. COLE
Manager
[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 Agreement and Plan of Merger, dated as of March 20,
1998 (the "Merger Agreement") among Lodgian, Inc. ("Lodgian"), Servico, Inc., a
Florida corporation ("Servico"), Impac, SHG-S Sub, Inc., a Florida corporation
and a wholly-owned subsidiary of Lodgian ("Servico Merger Sub"), and SHG-I Sub,
L.L.C., a Georgia limited liability company and a wholly-owned subsidiary of
Lodgian ("Impac Merger Sub"), which appears as Appendix A to the accompanying
Joint Proxy Statement/Prospectus, providing for the merger of Impac Merger Sub
with and into Impac and the merger of Servico Merger Sub with and into Servico,
with Impac and Servico being the surviving entities and 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").
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> 9
TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE SERVICO/IMPAC TRANSACTION................................................................-vii-
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY..................................................................................-1-
The Companies ...................................................................................................-1-
Eligibility to Vote..............................................................................................-1-
Vote Required ...................................................................................................-1-
What You Will Receive in the Merger.............................................................................-2-
Reasons for the Merger...........................................................................................-2-
Recommendations .................................................................................................-2-
Opinions of Financial Advisors...................................................................................-3-
Conflicts of Interests of Certain Persons........................................................................-3-
Conditions to the Transaction ...................................................................................-3-
Termination of the Merger Agreement .............................................................................-4-
Termination Fees ................................................................................................-4-
Regulatory Approvals ............................................................................................-4-
Material U.S. Federal Income Tax Consequences ...................................................................-4-
No Appraisal Rights..............................................................................................-4-
Per Share Market Price Information ..............................................................................-4-
Listing of Lodgian Common Stock .................................................................................-5-
Lodgian Dividend Policy..........................................................................................-5-
Lodgian Plan Proposals ..........................................................................................-5-
Other Servico Annual Meeting Matters.............................................................................-5-
Cautionary Statement and Risk Factors............................................................................-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-
Risks Associated with High Levels of Debt.......................................................................-11-
Significant Amount of Debt.............................................................................-11-
No Limit on Additional Debt............................................................................-12-
Terms of Indebtedness Which Include Variable Rates and Prepayment Penalties............................-12-
Cross Default Provisions and Corporate Guarantees......................................................-12-
Inability to Expand.............................................................................................-14-
Unavailability of Additional Capital to Support Growth.................................................-14-
Competition for Acquisitions and Impact on Profitability...............................................-14-
Delays in Completion or Unanticipated Costs Associated with Development and Renovation
of Properties................................................................................................-14-
Illiquidity and Possible Declines in Value of Real Estate.......................................................-15-
Loss of Flexibility of Ownership of Real Estate with Others.....................................................-15-
Lodging Industry Risks..........................................................................................-15-
No Assurance of Profitability..........................................................................-15-
Competition for Customers..............................................................................-16-
Maintenance and Refurbishment Expenses.................................................................-16-
Liability and Unavailability or Increased Costs of Insurance...........................................-16-
</TABLE>
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<TABLE>
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Seasonal Fluctuations in Operating Results.............................................................-16-
Increasing Costs and Decreased Profitability Associated with Inflation.................................-16-
Limitations and Restrictions of Franchise Agreements............................................................-16-
Costs of Compliance with Environmental Laws.....................................................................-17-
No Intention to Pay Dividends...................................................................................-17-
Cost of Compliance with Governmental Regulations................................................................-18-
Substantial Reliance on Key Personnel...........................................................................-18-
Anti-Takeover Provisions........................................................................................-18-
SERVICO ANNUAL MEETING...................................................................................................-20-
Date, Time and Place and Purpose................................................................................-20-
Record Date for Eligibility to Vote............................................................................-20-
Voting of Proxies...............................................................................................-20-
Revocability of Proxies.........................................................................................-21-
Votes Required; Shares Held by Certain Persons..................................................................-21-
Solicitation of Proxies.........................................................................................-21-
MATTERS TO BE VOTED UPON AT THE SERVICO ANNUAL MEETING...................................................................-22-
Approval of the Merger ........................................................................................-22-
Approval of Each of the Lodgian Plans...........................................................................-22-
Amendment of Servico Stock Option Plan..........................................................................-22-
Election of Directors .........................................................................................-22-
SOLICITATION OF IMPAC UNITHOLDER CONSENTS................................................................................-23-
Purpose .......................................................................................................-23-
Unitholders Entitled to Vote....................................................................................-23-
Submission of Written Consent...................................................................................-23-
Revocability of Consent.........................................................................................-23-
Consent Required; Voting Agreements.............................................................................-23-
Solicitation of Consents........................................................................................-24-
THE MERGER...............................................................................................................-24-
General .......................................................................................................-24-
The Merger......................................................................................................-24-
Background of the Merger........................................................................................-25-
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...................................................................................-31-
Material Federal Income Tax Consequences........................................................................-40-
Accounting Treatment............................................................................................-43-
Anti-Trust Approval.............................................................................................-43-
No Appraisal Rights.............................................................................................-43-
Stock Exchange Listing..........................................................................................-43-
Delisting and Deregistration of Servico Common Stock............................................................-43-
Securities Law Restrictions.....................................................................................-43-
THE MERGER AGREEMENT.....................................................................................................-44-
General .......................................................................................................-44-
Consideration to be Received in the Merger......................................................................-44-
Exchange of Shares..............................................................................................-46-
Lodgian Following the Merger....................................................................................-46-
Certain Representations and Warranties..........................................................................-47-
Certain Covenants...............................................................................................-47-
Restrictions on Solicitation of Alternative Transactions........................................................-49-
Certain Benefits Matters........................................................................................-50-
Indemnification and Insurance...................................................................................-50-
Certain Conditions..............................................................................................-51-
Amendment and Waiver............................................................................................-52-
Termination.....................................................................................................-52-
</TABLE>
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<TABLE>
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Termination Fees; Expenses......................................................................................-53-
Impac Voting Agreements.........................................................................................-54-
Registration Rights Agreement...................................................................................-54-
CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER..................................................................-56-
Certain Arrangements Regarding Management and Directors of Lodgian..............................................-56-
Arrangements with Executive Officers............................................................................-56-
Development Agreements..........................................................................................-58-
Registration Rights Agreement...................................................................................-58-
Indemnification and Insurance...................................................................................-58-
Release of Guarantees...........................................................................................-58-
MARKET PRICE AND DIVIDEND DATA...........................................................................................-59-
Servico.........................................................................................................-59-
Impac...........................................................................................................-59-
LODGIAN, INC. UNAUDITED PRO FORMA COMBINED CONSOLIDATED
FINANCIAL STATEMENTS.....................................................................................................-61-
LODGIAN, INC. UNAUDITED PRO FORMA COMBINING CONSOLIDATED
BALANCE SHEET MARCH 31, 1998.............................................................................................-62-
SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT
OF INCOME FOR THE OFFERING, EXCLUDING THE MERGER........................................................................-67-
SERVICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE
SHEETS MARCH 31, 1998....................................................................................................-68-
SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT
OF INCOME YEAR ENDED DECEMBER 31, 1997...................................................................................-69-
SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT
OF INCOME THREE MONTHS ENDED MARCH 31, 1998..............................................................................-70-
SERVICO, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA
STATEMENT OF INCOME......................................................................................................-71-
IMPAC HOTEL GROUP, L.L.C. AND SUBSIDIARIES UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS EXCLUDING THE MERGER.............................................................................-73-
IMPAC HOTEL GROUP, L.L.C. AND SUBSIDIARIES UNAUDITED PRO FORMA
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997.....................................................................-74-
IMPAC HOTEL GROUP, L.L.C. AND SUBSIDIARIES NOTES TO UNAUDITED
PRO FORMA STATEMENT OF OPERATIONS .......................................................................................-75-
DESCRIPTION OF LODGIAN...................................................................................................-76-
Directors And Management of Lodgian Following The Merger; Compensation..........................................-76-
Stock Ownership of Directors, Executive Officers and Five Percent Shareholders..................................-78-
DESCRIPTION OF SERVICO...................................................................................................-83-
General .......................................................................................................-83-
Information Relating to Directors and Executive Officers of Servico.............................................-83-
Servico Employment Agreements and Termination of Employment.....................................................-88-
Report of the Compensation Committee on Executive Compensation..................................................-89-
</TABLE>
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<TABLE>
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Performance Graph...............................................................................................-91-
Security Ownership of Certain Beneficial Owners and Management ................................................-92-
BUSINESS OF IMPAC........................................................................................................-95-
** 1 General....................................................................................................-95-
Organization...................................................................................................-95-
Investment Strategy.............................................................................................-96-
Acquisition and Development Strategy............................................................................-96-
Operating Strategy..............................................................................................-97-
Properties......................................................................................................-98-
Hotel Operations................................................................................................-99-
Franchise Affiliation..........................................................................................-100-
Development Agreements.........................................................................................-102-
Compensation Paid to Impac Manager.............................................................................-102-
Employees......................................................................................................-102-
Legal Proceedings..............................................................................................-102-
SELECTED HISTORICAL FINANCIAL DATA - IMPAC..............................................................................-103-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - IMPAC.......................................................................................-104-
* 1 moved from here; text not shown
General.................................................................................................................-104-
Results of Operations..........................................................................................-104-
Liquidity and Capital Resources................................................................................-107-
Existing Financing Arrangements................................................................................-108-
Refinancing Commitment.........................................................................................-112-
DESCRIPTION OF LODGIAN CAPITAL STOCK....................................................................................-113-
Authorized Capital Stock.......................................................................................-113-
Lodgian Common Stock...........................................................................................-113-
Lodgian Preferred Stock........................................................................................-114-
Transfer Agent and Registrar...................................................................................-114-
COMPARISON OF CERTAIN RIGHTS OF THE HOLDERS OF SERVICO
COMMON STOCK AND IMPAC UNITS............................................................................................-114-
Comparison of Current Servico Shareholder Rights and Lodgian Shareholder Rights
Following the Merger.........................................................................................-114-
Comparison of Current Impac Unitholder Rights and Lodgian Shareholder Rights
Following the Merger.........................................................................................-119-
LODGIAN PLAN PROPOSALS..................................................................................................-126-
The Lodgian 1998 Short-Term Incentive Compensation Plan........................................................-126-
Federal Income Tax Consequences................................................................................-128-
The Lodgian 1998 Stock Incentive Plan..........................................................................-128-
Federal Income Tax Consequences................................................................................-131-
The Lodgian Non-Employee Directors' Stock Plan.................................................................-132-
Federal Income Tax Consequences................................................................................-133-
PROPOSAL TO AMEND THE SERVICO STOCK OPTION PLAN.........................................................................-134-
Description of the Servico Stock Option Plan...................................................................-134-
Federal Income Tax Consequences................................................................................-135-
Options Granted Under the Plan.................................................................................-136-
Amendment to the Plan..........................................................................................-136-
LEGAL MATTERS...........................................................................................................-137-
EXPERTS ...............................................................................................................-137-
</TABLE>
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<TABLE>
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SHAREHOLDER PROPOSALS...................................................................................................-137-
WHERE YOU CAN FIND MORE INFORMATION.....................................................................................-137-
INDEX TO FINANCIAL STATEMENTS............................................................................................-F1-
</TABLE>
-v-
<PAGE> 14
<TABLE>
<CAPTION>
APPENDICES PAGE
----
<S> <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 - Restated Certificate of Incorporation of Lodgian
APPENDIX H - Restated Bylaws of Lodgian
APPENDIX I - Form of Servico Proxy
APPENDIX J - Form of Impac Consent
</TABLE>
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<PAGE> 15
QUESTIONS AND ANSWERS
ABOUT THE SERVICO/IMPAC TRANSACTION
Q. WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A. This merger means that you will have a stake in Lodgian, one of the
largest independent, multi-brand owners and operators of full service
hotels in the United States. Lodgian will own or manage 140 hotels,
including six hotels under development, with approximately 26,698 rooms
in 35 states and Canada. There are also risks that the potential
benefits of the merger will not be achieved. See "Risk Factors" on page
___ and "Cautionary Statement and Risk Factors Concerning Forward
Looking Statements" on page ___. To review the reasons for the
transaction in greater detail , and related uncertainties, see pages
_____ and pages _____.
Q. WHEN ARE THE MEETINGS?
A. The Servico meeting will take place on ___________, 1998. No meeting of
Impac unitholders will be held. Impac unitholders are being asked to
mail in their consent.
Q. WHAT DO I NEED TO DO NOW?
A. First, read the proxy statement-prospectus carefully. Then you should
vote.
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 C. Michael
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:
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<PAGE> 16
Servico shareholders will receive one share of Lodgian common stock for
each share of Servico common stock that they own.
Impac Unitholders:
Impac unitholders 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. 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 will
receive a total of 6.0 million shares of Lodgian common stock. Based on
the number of Impac Units outstanding, that means that you will receive
approximately 0.519 of a share of Lodgian common stock for each Impac
Unit you own. 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 the Impac unitholders will receive will be adjusted. In
addition, Impac unitholders will receive a pro rata portion of an
aggregate of 1.4 million additional shares of Lodgian common stock as
each of five hotels that are currently under development is opened.
This means that you could receive a total of approximately 0.121
additional shares of Lodgian common stock for each Impac Unit you own
assuming the opening of all five hotels.
Q. WHEN WILL THE ADDITIONAL 1.4 MILLION SHARES OF LODGIAN COMMON STOCK BE
ISSUED TO IMPAC UNITHOLDERS?
A. The additional shares will be issued to Impac unitholders upon receipt
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 delivered to Impac unitholders upon each hotel
opening, based upon an allocated value for each hotel, whether or not
the unitholders 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 .
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<PAGE> 17
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.
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 hope 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.
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<PAGE> 18
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 six under development)
containing approximately 9,287 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 both Servico and Impac after the Merger.
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.
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<PAGE> 19
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 prior 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.
Robert Cole, the President and Manager of Impac, certain entities
controlled by Mr. Cole or members of his family, and entities controlled by
ProTrust Capital, Inc. and its affiliates (collectively, "ProTrust"), who
collectively own or control more than 51% of Impac's outstanding Units, have
already 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.
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:
Impac unitholders 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. 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 will receive a total of 6.0 million shares of
Lodgian common stock. Based on the number of Impac Units outstanding, that means
that you will receive approximately 0.519 of a share of Lodgian common stock for
each Impac Unit you own. If the average price of the Servico common stock is
less than $14.00 per share, the Impac unitholders 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. The number of shares of Lodgian common stock you will
receive for each Impac Unit you own can then be determined by dividing the total
number of shares to be delivered to the Impac unitholders by 11,559,527.20
(which is the total number of Impac Units currently outstanding). In addition,
Impac unitholders will receive an incremental portion of an aggregate of 1.4
million shares of Lodgian common stock upon the opening of each of five hotels
that are currently under development. This means that you may receive
approximately 0.121 of additional shares of Lodgian common stock for each Impac
Unit you own.
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:
- Lodgian will own or manage 140 hotels, including six hotels under
development, with approximately 26,698 rooms.
- Lodgian will have greater geographic diversity with hotels in 35
states and Canada.
- 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:
- Servico expects the Merger to contribute to earnings (before
one-time merger-related
-2-
<PAGE> 20
charges) in the first year of combined operations.
- 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.
- The Merger will add a number of upscale hotels in major markets
where Servico currently does not hold properties.
However, the following principal risks and uncertainties should be
considered by both Servico shareholders and Impac unitholders:
- the risk that the contemplated benefits of the Merger will not be
achieved;
- the challenges of integrating the two companies including
potential personnel changes and costs associated with moving
Servico's offices to Atlanta;
- the risks associated with the high amount of indebtedness of the
combined company; and
- Impac unitholders will no longer receive distributions on their
Units and Lodgian's business does not contemplate the disposition
of the properties.
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
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 a "Change of Control" of Lodgian, as
defined, 2.5 times their base salary plus bonus and other benefits. Mr. Cole's
agreement also provides for the grant of options with respect to 185,000 shares
of Lodgian Common Stock at a 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:
- obtaining the approval by the shareholders of Servico and
unitholders of Impac;
- there being no law, litigation or court order that prohibits the
Merger;
- clearance from U.S. antitrust agencies;
- receipt of opinions from our respective tax counsel that the
Merger will qualify as a tax-free transaction for Federal income
tax purposes;
- receipt of a commitment to restructure the indebtedness of Impac
and its subsidiaries;
- the representations and warranties of the respective parties
being true and correct in all material respects;
- there being no material adverse change in the businesses of
either Impac or Servico.
The Servico
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<PAGE> 21
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:
- the Merger is not completed by July 31, 1998;
- any governmental authority, such as a court, prohibits the
Merger;
- the Servico shareholders do not approve the Merger;
- Servico's Board withdraws or changes its recommendation of the
Merger;
- Servico chooses to pursue an alternative acquisition transaction;
- 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;
- 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 ____)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 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 under the
Hart-Scott-Rodino Act will terminate. 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 _______)
We have structured the Merger so that neither Servico nor Impac nor our
respective shareholders or unitholders will recognize gain or loss for federal
income tax purposes , except for taxes payable on cash received by Impac
unitholders instead of fractional shares and Impac unitholders who will
recognize gain equal to the excess of their share of Impac's liabilities over
their basis in their Impac Units. The tax consequences of the transaction to
shareholders of Servico and unitholders of Impac 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 nor Impac unitholders 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.
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<PAGE> 22
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.
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:
- amendment of Servico's existing Stock Option Plan to increase the
number of shares of common stock issuable under the Plan;
- 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.
CAUTIONARY STATEMENT AND RISK FACTORS
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, there may be changes in
business strategy or development plans which impact future results and the
forward looking statements contained herein.
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<PAGE> 23
ORGANIZATIONAL CHART
EXISTING ENTITIES
<TABLE>
<S> <C> <C>
UNITHOLDERS PUBLIC
SHAREHOLDERS
IMPAC HOTEL SERVICO, INC.
GROUP, LLC
THE MERGER
LODGIAN, INC.
SHG-I, Sub, LLC SHG-S Sub, Inc.
merges into merges into
IMPAC HOTEL SERVICO, INC.
GROUP, LLC
RESULTING STRUCTURE
FORMER IMPAC
UNITHOLDERS
AND
FORMER SERVICO
SHAREHOLDERS
LODGIAN, INC.
IMPAC HOTEL SERVICO, INC.
GROUP, LLC
</TABLE>
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<PAGE> 24
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 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 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 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 DECEMBER 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".
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<PAGE> 25
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 $ 55,400 $ 67,813 $119,859 $ 22,306 $ 34,571
(Loss) income before extraordinary
items (b) (457) (64) 6,088 15,055 (13,078)(c) (3,498)(c) (4,328)
End of period:
Total assets $48,143 $66,834 $120,735 $196,567 $431,298 $274,700 $447,302
Long-term obligations 42,615 60,184 92,849 155,851 355,236 222,496 377,427
Total members'/partners' equity 3,284 3,315 15,747 24,371 48,824 38,088 44,589
</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
reorganization was accounted for under the purchase method of
accounting. The operations and financial position of the Predecessors
prior to the reorganization are presented on a combined basis.
(b) Impac 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 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."
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 by Servico 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
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<PAGE> 26
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.
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 (6,853) (2,602) 8,527
Earnings per common share:
Income (loss) before extraordinary
items $ .86 -- $ .32
Earnings per common share
assuming dilution:
Income (loss) before extraordinary
items $ .84 -- $ .31
Basic weighted average shares 20,918 -- 26,918
Diluted weighted average shares 21,375 -- 27,375
End of period:
Total assets $630,346 $ 431,298 $104,176 $1,165,820
Long-term obligations 154,845 355,236 -- 510,081
Preferred redeemable securities 175,000 -- -- 175,000
Total stockholders'/members' equity 237,237 48,824 59,176 347,237
</TABLE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
THREE MONTHS ENDED MARCH 31, 1998
<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 $ 82,881 $ 34,571 $ -- $ 117,452
Income (loss) before extraordinary
items 3,247 (4,328) (1,128) 47
Earnings per common share:
Income (loss) before extraordinary
items $ .15 -- --
Earnings per common share
assuming dilution:
Income (loss) before extraordinary
items $ .15 -- --
Basic weighted average shares 20,989 26,989
Diluted weighted average shares 21,437 27,437
End of period:
Total assets $697,800 $447,302 $108,411 $1,253,513
Long-term obligations 208,318 377,427 -- 585,745
Preferred redeemable securities 175,000 -- -- 175,000
Total stockholders'/members' equity 241,292 44,589 63,411 349,292
</TABLE>
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<PAGE> 27
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
Servico Impac Pro Forma Pro Forma
Historical Historical Combined Equivalent
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Book value per common share/unit assuming dilution:
December 31, 1997 ................................ $15.32 $ 4.90 $12.70 $ 9.45
March 31, 1998 ................................... 11.36 3.86 12.73 7.43
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 (1.31) .32 (2.53)
Three months ended March 31, 1998 ................ .14 (0.37) -- (0.72)
Diluted:
Year ended December 31, 1997 ..................... .80 (1.31) .31 (2.53)
Three months ended March 31, 1998 ................ .14 (0.37) -- (0.72)
</TABLE>
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<PAGE> 28
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.
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<PAGE> 29
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 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.
Finally, Impac has certain other third-party indebtedness in the
approximate principal amount of $74.5 million 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
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<PAGE> 30
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
securities, and the trust securities will become convertible into shares of
Lodgian Common Stock at the same conversion price and on the same terms.
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<PAGE> 31
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.
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<PAGE> 32
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 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 and (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
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<PAGE> 33
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
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 expense 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 RESTRICTIONS 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 generally contain specific standards for, and restrictions
and limitations on, the operation and maintenance of a hotel in order to
maintain uniformity within the franchisor
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<PAGE> 34
system. Those limitations may be contrary to the planned expenditures and
priorities set by the companies' business plans. Further, such standards are
often subject to change over time, in some cases at the discretion of the
franchisor, and may restrict a franchisee's ability to make improvements or
modifications to a hotel without the consent of the franchisor. In addition,
compliance with such standards could require a franchisee to incur significant
expenses or capital expenditures. In connection with changing the franchise
affiliation of a hotel, Lodgian may be required to incur additional expenses or
capital expenditures. Franchise agreements are typically terminable by the
franchisor for failure of the franchisee to maintain specified operating
standards or to make payments due under the applicable agreements in a timely
fashion. In addition, such agreements may be subject to termination at the end
of their stated term. The termination of a franchise agreement relating to a
hotel may have an adverse impact on the operations and underlying value of such
hotel because of the loss of associated name recognition, marketing support and
centralized reservation systems provided by the franchisor. Franchise 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. The time
required to obtain such approvals and the potential cost of doing so could
materially adversely affect a franchisee's business, financial condition and
results of operations. 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, 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. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Furthermore, a person that arranges for the
disposal of a hazardous substance at another property or transports a hazardous
substance for disposal or treatment at another property may be liable for the
costs of removal or remediation of hazardous substances at that property,
regardless of whether that person owns or operates that property. The costs of
any such remediation or removal may be substantial, and the presence of any such
substance, or the failure promptly to remediate any such substance, may
adversely affect the property owner's ability 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 owners and
operators certain requirements regarding conditions and activities that may
affect human health or the environment. These conditions and activities include,
for example, the presence of lead in drinking water, the presence of
lead-containing paint in occupied structures, and the ownership or operation of
underground storage tanks. Failure to comply with applicable requirements could
result in difficulty in the lease or sale of any affected property or the
imposition of monetary penalties, in addition to the costs required to achieve
compliance and potential liability to third parties. Any liability resulting
from non-compliance or other claims relating to environmental matters 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.
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<PAGE> 35
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 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,
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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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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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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 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. 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.
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
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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.
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
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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 through the merger of Servico
Merger Sub, Lodgian's wholly-owned subsidiary, with and into Servico (the
"Servico Merger") and the merger of Impac Merger Sub, Lodgian's wholly-owned
subsidiary, with and into Impac (the "Impac Merger"). Therefore, as a result of
the Merger, Servico and Impac will both be owned by Lodgian. The Effective Time
means the later of the time that the Articles of Merger relating to the Servico
Merger are filed with the Department of State of the State of Florida and the
Articles or Certificate of Merger relating to the Impac Merger are filed with
the Secretary of State of the State of Georgia.
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 and Impac
Units. 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 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. 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 will receive a total of 6.0 million shares of Lodgian Common Stock.
Based on the number of Impac Units outstanding, each Impac unitholder will
receive approximately 0.519 of a share of Lodgian Common Stock for each Impac
Unit owned. If the average price of the Servico Common Stock is less than $14.00
per share, the Impac unitholders 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. The number of shares of Lodgian Common Stock each Impac
unitholder will receive
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for each Impac Unit owned can then be determined by dividing the total number of
shares to be delivered to the Impac unitholders by 11,559,527.20 (which is the
total number of Impac Units currently outstanding).
Issuance of Impac Additional Shares. As five of Impac's hotels that
are currently under development are opened, holders of Impac Units 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 Attributable to
Hotel Completion Date Additional Shares Additional Shares*
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marriott, Portland, Oregon First Quarter, 1999 490,000 $8,820,000
- ------------------------------------------------------------------------------------------------------------------------------
Marriott, Denver, Colorado First Quarter, 1999 350,000 $6,300,000
- ------------------------------------------------------------------------------------------------------------------------------
Hilton Garden Inn, Lake Oswego,
Oregon Third Quarter, 1999 238,000 $4,284,000
- ------------------------------------------------------------------------------------------------------------------------------
Courtyard by Marriott, Livermore,
California First Quarter, 1999 168,000 $3,024,000
- ------------------------------------------------------------------------------------------------------------------------------
Hilton Garden Inn, Rio Ranch,
New Mexico First Quarter, 1999 154,000 $2,772,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
* Based upon the price of Servico's Common Stock on _________, 1998. The
number of 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 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 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 at the time of the Merger, regardless of whether they continue to
hold the Lodgian shares issued to them in connection with the Merger. Cash will
be paid in lieu of fractional shares.
BACKGROUND OF THE MERGER
The first contact between representatives of Impac and Servico
occurred in May 1997, when 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.
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In August 1997, Mr. Cole indicated 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, 1997, 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, 1997, 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 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.
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.
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<PAGE> 44
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, (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.
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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. 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 HAS DETERMINED 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;
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(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;
(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.
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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.
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 such 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 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.
Potential Benefits of the Merger vs. Liquidation. Impac's
Manager did not consider a liquidation of Impac as a viable alternative
to the Merger based on his belief that Impac's Unitholders would
realize a better return on their investment as a result of the Merger
than from a one-time liquidation distribution following the disposition
of all of Impac's properties and other assets in separate transactions.
In the Manager's view, if Impac were selling all of its properties in
connection with a liquidation, the sale price of the properties would
likely be lower than would otherwise be available given the likely
increased supply of properties on the market without a corresponding
increase in demand for such properties. In view of the foregoing, the
Manager determined that the Impac Exchange Ratio would represent a
better return than Impac's Unitholders would receive in connection with
a liquidation distribution.
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.
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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 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.
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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 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; (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 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
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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 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.
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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 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
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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.
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-
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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.
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
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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 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.
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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.
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
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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.
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
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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.
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
COMMISSION 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, 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 Servico shares or Impac Units pursuant to the exercise of options or
similar derivative securities or otherwise as compensation. This discussion
assumes that Servico 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 Internal Revenue Code of 1986, as amended (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
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Goldstein, that the Impac 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 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. Both opinions of counsel are based, in part, upon certain covenants,
assumptions, and representations contained in certificates of officers of
Servico and Impac. 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 and Impac believe, based on the
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 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 and Impac, including assumptions and representations
regarding the operations of Lodgian and the new ownership of Lodgian's Common
Stock by Servico's 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.
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 Common Stock or Impac Units who exchange their Servico
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
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 shareholder or
Impac unitholder as a result of the Merger will include the period during which
such shareholder or unitholder held the Servico 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 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 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. 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 $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
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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, Servico Merger Sub and
Impac Merger Sub. No gain or loss will be recognized for federal income tax
purposes by Lodgian, Servico, Impac, 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. The Antitrust
Division 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 and Impac Units are not entitled to
appraisal rights in connection with the Merger under the Florida Business
Corporation Act (the "FBCA") or the Georgia Limited Liability Company Act (the
"GLLCA"), respectively.
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
["______"] 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 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
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 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 or
Impac, as the case may be (generally, certain executive officers, directors and
principal shareholders or unitholders).
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
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<PAGE> 61
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 1% 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 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 twelve 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 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. The Merger will become effective upon the
filing of Articles of Merger relating to the Servico Merger with the Department
of State of the State of Florida and of Articles or a Certificate of Merger
relating to the Impac Merger with the Secretary of State of the State of Georgia
or at such later time as may be set forth in such documents. At the Effective
Time, Servico and Impac 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 or any wholly-owned subsidiary
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of Servico or Impac, but including any shares held by any Impac employee benefit
plan), 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 7,400,000 (the "Base Number") and 1,400,000, divided by (ii)
the outstanding Impac Units; 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 period 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 Base Number will 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 the Trading Period Average, or (ii) greater than $25.00 per share, the
Base Number will be equal to the product of the 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 share of Servico Common
Stock owned by Impac or any wholly-owned subsidiary of Servico or Impac and each
Impac Unit owned by Servico or any wholly-owned subsidiary of Servico or Impac
will be canceled and retired, (d) each share of Lodgian Common Stock held by
Servico will be canceled and retired, (e) each Class B Ordinary Membership
Interest of Impac (the "Class B Interest") will be canceled and retired, and (f)
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 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 and Impac Units for Lodgian Common Stock (the "Exchange Agent"), as
escrow agent, to be held and delivered to the holders of Impac Units 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.
Accordingly, assuming that there is no adjustment of the Base Number of
shares to be issued to Impac Unitholders and the release of the Impac Additional
Shares, 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 0.519 Marriott, Portland, OR 1st Quarter 1999 0.042
Marriott, Denver, CO 1st Quarter 1999 0.030
Hilton Garden Inn, Lake
Oswego, OR 3rd Quarter 1999 0.021
Courtyard by Marriott,
Livermore, CA 1st Quarter 1999 0.015
Hilton Garden Inn, Rio
Rancho, NM 1st Quarter 1999 0.013
Upon Completion of
All Hotels 0.121
</TABLE>
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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 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 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 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 or Impac Units. For each fractional share that would
otherwise be issued, the Exchange Agent will pay to holders of Servico 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 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 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
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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."
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 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
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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 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.
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
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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 Coopers & Lybrand 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 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 Impac Hotel Development, Inc.
("Development"), dated March 10, 1998, prior to the closing date of the Merger
so that Impac and its subsidiaries have no further obligation to Development
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, Impac will not (nor will it 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
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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 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
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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
Coopers & Lybrand L.L.P., Impac's 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 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 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 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) Impac
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, and a certificate of
the Secretary of State of the State of Georgia and each other state in which
Impac or its subsidiaries are qualified to do business, as to the good standing
of 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
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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. The obligations of
Impac 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 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, 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.
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 July 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
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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 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 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 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.
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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.
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 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
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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.
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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 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. Mr. Cole will also receive
nonqualified stock options to purchase that number of shares equal to 2.5% of
the Base Number of shares issued by Lodgian pursuant to the Merger Agreement 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
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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 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
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<PAGE> 75
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.
DEVELOPMENT AGREEMENTS
Mr. Cole is one of three shareholders of Impac Hotel Development, Inc.
("IHD"), which provides acquisition and property development services to Impac
for a development fee of 4% of the total project cost of each property acquired
or developed. 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 hotels or properties identified in the
Merger Agreement as 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 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 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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<PAGE> 76
MARKET PRICE AND DIVIDEND DATA
As of March 31, 1998, there were approximately 3,000 holders of record
of Servico Common Stock. As of March 31, 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)
<S> <C> <C>
1996
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 (through June 11, 1998)........................ 22 1/2 15 1/16
</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) __________, 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.
IMPAC
The Impac units are not reported on any national quotation system and
there is no established public trading market thereon.
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<PAGE> 77
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.............................................................. 13,890
Third Quarter............................................................... 11,320
Fourth Quarter.............................................................. 1,144
-------
Total.................................................................. $29,430
1997
First Quarter............................................................... $257
Second Quarter.............................................................. 1,994
Third Quarter............................................................... --
Fourth Quarter.............................................................. 3,788
-------
Total.................................................................. $ 6,039
1998
First Quarter............................................................... $ --
</TABLE>
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<PAGE> 78
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 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 (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 financial statements of
Servico and Impac including the notes thereto, the pro forma financial
statements of Servico and Impac (excluding the Merger) and other financial
information of Servico and Impac 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 (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 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.
-61-
<PAGE> 79
LODGIAN, INC.
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
MARCH 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Servico, Inc. Historical
and Impac Hotel Pro Forma Pro Forma
Subsidiaries Group, L.L.C. Adjustments(A) Combined
------------ ------------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,167 $ 1,494 $ -- $ 16,661
Cash, restricted -- 3,590 -- 3,590
Accounts receivable, net of allowances 15,378 10,687 -- 26,065
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 20,174 1,960 70,879
Property and equipment, net 576,175 413,304 120,051 (B) 1,109,530
Deposits for capital expenditures 38,605 -- -- 38,605
Investment in unconsolidated entities 1,018 -- -- 1,018
Other assets, net 33,257 13,824 (13,600)(B) 33,481
$697,800 $447,302 $108,411 $1,253,513
LIABILITIES AND STOCKHOLDERS'
AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 10,640 $ 15,885 $ -- $ 26,525
Accrued liabilities 32,023 9,166 -- 41,189
Current portion of long-term obligations 5,530 -- -- 5,530
Total current liabilities 48,193 25,051 -- 73,244
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 -- 44,589 (44,589)(B) --
Total stockholders' and members' equity 241,292 44,589 63,411 349,292
$697,800 $447,302 $108,411 $1,253,513
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
-62-
<PAGE> 80
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 9,509 -- 18,482
Other 110,222 51,363 -- 161,585
Depreciation and amortization 26,663 12,173 4,337 (C) 43,173
277,655 127,556 4,337 409,548
Income from operations 56,685 12,074 (4,337) 64,422
Other income (expenses):
Interest income and other 1,869 227 -- 2,096
Interest expense (15,006) (23,985) -- (38,991)
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 (11,421) (4,337) 14,217
Provision for or (benefit from)
income taxes 11,993 (4,568) (1,735)(D) 5,690
Income (loss) before extraordinary item $ 17,982 $ (6,853) $ (2,602) $ 8,527
Earnings per common share (E):
Income (loss) before extraordinary item $ .86 $ .32
Earnings per common share-assuming dilution (E):
Income (loss) before extraordinary item $ .84 $ .31
Basic weighted average shares 20,918 26,918
Diluted weighted average shares 21,375 27,375
</TABLE>
-63-
<PAGE> 81
Lodgian, Inc.
Unaudited Pro Forma Combining Statement of Operations
Three Months Ended March 31, 1998
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Pro Forma Historical Pro Forma Pro Forma
Servico Impac 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 2,398 -- 4,785
Other 27,650 13,848 -- 41,498
Depreciation and amortization 7,207 3,681 1,005 (C) 11,893
70,400 32,243 1,005 103,648
Income from operations 12,481 2,328 (1,005) 13,804
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 (4,328) (1,005) 81
Provision for or (benefit from)
income taxes 2,167 -- (2,133)(D) 34
Income (loss) before extraordinary item $ 3,247 $(4,328) $ 1,128 $ 47
Earnings per common share (E):
Income (loss) before extraordinary item $ .15 $ --
Earnings per common share-assuming dilution (E):
Income (loss) before extraordinary item $ .15 $ --
Basic weighted average shares 20,989 26,989
Diluted weighted average shares 21,437 27,437
</TABLE>
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<PAGE> 82
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 or
incorporated by reference 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 $555,713 consisting of the issuance of 6,000,000 shares
of stock at $18 per share plus the assumption of $447,713 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 $ 22,134 $ 20,174 $ 1,960
Property and equipment 533,355 413,304 120,051
Other assets 224 13,824 (13,600)*
$555,713 $447,302 $108,411
Liabilities and equity:
Current liabilities $ 25,051 $ 25,051 $ --
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 -- 44,589 (44,589)
$555,713 $447,302 $108,411
</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):
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<PAGE> 83
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Numerator-basic and diluted per share:
Income before extraordinary items $ 47 $ 8,527
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 $ - $ .32
Diluted earnings per share $ - $ .31
</TABLE>
- ------------------
(a) Includes 6,000 shares issued in connection with the Merger.
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<PAGE> 84
SERVICO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
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.
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<PAGE> 85
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>
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<PAGE> 86
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>
-69-
<PAGE> 87
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 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>
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<PAGE> 88
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:
<TABLE>
<S> <C>
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
</TABLE>
- ------------------
(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):
-71-
<PAGE> 89
<TABLE>
<CAPTION>
THREE MONTHS YEAR
ENDED 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.
-72-
<PAGE> 90
IMPAC HOTEL GROUP, L.L.C. AND SUBSIDIARIES
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 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
financial statements and related notes thereto of Impac appearing elsewhere in
this Joint Proxy Statement/Prospectus.
-73-
<PAGE> 91
IMPAC HOTEL GROUP, L.L.C. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(In Thousands, Except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Impac Adjustments (A) Impac
---------- --------------- ---------
<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 9,323 1,186 10,509
Other 44,078 6,285 50,363
Depreciation and amortization 11,136 1,037 (B) 12,173
--------- --------- ---------
112,162 15,394 127,556
--------- --------- ---------
Income from operations 7,697 4,377 12,074
Other income (expenses):
Interest income and other 227 -- 227
Interest expense (21,222) (2,763)(C) (23,985)
Minority interests 220 43 263
--------- --------- ---------
(Loss) income before income taxes
and extraordinary item (13,078) 1,657 (11,421)
Benefit from income taxes -- 4,568 (D) 4,568
--------- --------- ---------
(Loss) income before extraordinary item $ (13,078) $ 6,225 $ (6,853)
========= ========= =========
Earnings per common share(E):
Loss before extraordinary item $ (1.14)
=========
Earnings per common share-assuming dilution:
Loss before extraordinary item $ (1.14)
=========
Basic weighted average shares(E) 6,000
Diluted weighted average shares 6,000
</TABLE>
-74-
<PAGE> 92
IMPAC HOTEL GROUP, L.L.C. AND SUBSIDIARIES
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:
<TABLE>
<S> <C>
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
</TABLE>
(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. The results of Impac's operations are included in the tax
returns of Impac's unitholders. 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%.
(E) In the Merger, 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 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.
In order to conform Impac's pro forma financial information to
Servico's financial information, a pro forma adjustment has been made
to reflect the initial issuance of 6,000,000 shares of Lodgian Common
Stock and report Impac's pro forma operating results, after giving
effect to the pro forma income tax adjustment in (D) above, on a per
share basis.
-75-
<PAGE> 93
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.
-76-
<PAGE> 94
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.
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<PAGE> 95
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.
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<PAGE> 96
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> 97
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
Twelve Months Ended
December 31, 1997
<TABLE>
<CAPTION>
AVERAGE
NUMBER NUMBER OF AVERAGE AVERAGE AVERAGE CAPITAL
GEOGRAPHIC AREA OF HOTELS ROOMS OCCUPANCY ADR REVPAR EXPENDITURES
--------------- --------- --------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Northeast 23 218 64.1% $80.09 $51.34 $19,187,765
Southeast 20 190 69.8% $62.64 $43.72 $14,115,566
Central 18 208 67.7% $64.98 $43.99 $23,480,280
Western 8 188 69.4% $82.19 $57.04 $ 4,224,960
Total 69 204 67.1% $71.74 $48.14 $61,008,571
Category
Luxury 9 294 68.4% $90.12 $61.64 $11,869,770
Upscale 7 228 64.5% $81.83 $52.78 $ 7,819,900
Midscale with
Food and Beverage 44 194 67.3% $67.05 $45.12 $38,201,951
Midscale without
Food and Beverage 8 145 66.1% $56.95 $37.64 $ 3,045,120
Economy 1 140 70.4% $49.75 $35.02 $ 71,830
Total 69 204 67.1% $71.74 $48.14 $61,006,571
</TABLE>
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<PAGE> 98
IMPAC
Twelve Months Ended
December 31, 1997
<TABLE>
<CAPTION>
AVERAGE
NUMBER NUMBER OF AVERAGE AVERAGE AVERAGE CAPITAL
GEOGRAPHIC AREA OF HOTELS ROOMS OCCUPANCY ADR REVPAR EXPENDITURES
--------------- --------- --------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Northeast 17 160 56.7% $ 66.00 $37.42 $27,631,874
Southeast 15 155 57.3% $ 71.72 $41.10 $23,122,453
Central 8 191 62.5% $ 65.97 $41.23 $18,625,210
Western 5 229 42.6% $ 59.60 $25.39 $19,676,662
Total 45 172 56.5% $ 67.15 $37.94 $89,056,199
Category
Luxury 1 179 43.8% $154.01 $67.46 $ 6,691,343
Upscale 5 230 48.5% $ 77.26 $37.47 $10,968,670
Midscale with
Food and Beverage 29 178 57.7% $ 66.98 $38.65 $61,881,237
Midscale without
Food and Beverage 3 166 61.7% $ 53.77 $33.18 $ 4,794,465
Economy 5 113 56.5% $ 46.60 $26.33 $ 4,060,774
Budget 2 83 63.7% $ 44.96 $28.64 $ 659,710
Total 45 172 56.5% $ 67.15 $37.94 $89,056,199
</TABLE>
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<PAGE> 99
LODGIAN
Twelve Months Ended
December 31, 1997
<TABLE>
<CAPTION>
AVERAGE
NUMBER NUMBER OF AVERAGE AVERAGE AVERAGE CAPITAL
GEOGRAPHIC AREA OF HOTELS ROOMS OCCUPANCY ADR REVPAR EXPENDITURES
--------------- --------- --------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Northeast 40 194 67.1% $75.15 $46.07 $ 46,819,639
Southeast 35 175 57.2% $65.82 $42.72 $ 37,238,019
Central 26 203 63.4% $65.33 $42.99 $ 42,105,490
Western 13 204 64.5% $42.99 $44.77 $ 23,901,622
Total 114 191 63.1% $44.27 $44.27 $150,064,770
Category
Luxury 10 283 67.1% $92.28 $61.92 $ 18,561,113
Upscale 12 229 57.2% $80.05 $45.79 $ 18,788,570
Midscale with
Food and Beverage 73 188 63.4% $67.02 $42.49 $100,083,188
Midscale without
Food and Beverage 11 151 64.5% $55.81 $36.00 $ 7,839,585
Economy 6 117 63.1% $48.26 $30.45 $ 4,132,604
Budget 2 83 63.7% $44.96 $28.64 $ 659,710
Total 114 191 63.1% $70.16 $44.27 $150,064,770
</TABLE>
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<PAGE> 100
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.
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<PAGE> 101
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> 102
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> 103
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> 104
STOCK OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
Potential
Realizable Value at
Individual Grants Assumed Annual
----------------- Rates of Stock
Price Appreciation
Number of for Option
Securities Percent of Total ----------
Underlying Options/SARs Exercise 5% ($) 10% ($)
Options/SARs Granted to Price Expiration ------ -------
Granted(#)(1) Employees (%) ($/Sh) Date
------------- ------------- ------ ----------
<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% $16.75 8/20/2007 1,053,398 2,669,519
</TABLE>
- ------------
(1) Approximately 410,000 of such options are subject to approval by
Servico's shareholders of an increase in the number of shares available
for grant under the Servico Plan.
(2) The options were granted at fair market value at the time of the grant
and generally vest in equal portions over a five year period.
The following table sets forth certain summary information concerning
exercised and unexercised options to purchase Servico Common Stock as of
December 31, 1997, under the Servico Plan held by the executive officers named
in the "Summary Compensation Table".
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<PAGE> 105
STOCK OPTION EXERCISES IN
FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS HELD AT OPTIONS/SARS(2)
FISCAL YEAR-END (#) AT FISCAL YEAR-END($)
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> 106
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 person 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> 107
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> 108
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> 109
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 March 25, 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> 110
<TABLE>
<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> 111
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 the ownership interests of
Servico and the EMC/Pengo Affiliates indicated:
<TABLE>
<CAPTION>
EMC/PENGO
SERVICO AFFILIATES
HOTEL INTEREST INTEREST
- ----- -------- --------
<S> <C> <C>
Holiday Inn, Augusta, Georgia 51% 49%
Holiday Inn, Fort Wayne, Indiana 51% 49%
Hilton Hotel, Sioux City, Iowa 51% 49%
Crowne Plaza, Worcester, Massachusetts 51% 49%
Crowne Plaza, Saginaw, Michigan 51% 49%
Holiday Inn, Richfield, Ohio 51% 49%
</TABLE>
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> 112
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 9,287 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 45 hotels from January 1995 to
April 1998 including six hotels which are currently under construction. Revenues
have increased from approximately $55 million to $120 million and EBITDA (as
defined) has increased from approximately $12 million to $19 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 as
adversely affected by the renovation of properties which are newly acquired.
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 consolidation of predecessor entities. 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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<PAGE> 113
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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<PAGE> 114
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> 115
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 45 upscale or
mid-market, full service hotels (six 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> 116
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> 117
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 April, 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 1 96
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 2 287
Super 8 Motels, Inc. Super 8 2 166
---- -----
Total 44 7,534
Hotels Under Construction
Marriott International, Inc. Marriott (Full
Service) 2 487
Residence Inn 1 81
Courtyard by
Marriott 1 122
Hilton Hotels, Inc. Hilton Garden Inn 2* 310*
--- -----
Total 6 1,000
</TABLE>
*To be executed as construction is completed.
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<PAGE> 118
Owned and Managed Properties. The following table sets forth certain
information relating to each of Impac's owned and managed properties:
<TABLE>
<CAPTION> APPROX-
IMATE #
BRAND OF ACQUISITION DATE OF LAST
LOCATION STREET ADDRESS NAME ROOMS DATE YEAR BUILT RENOVATION
-------- -------------- ---- ----- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Anchorage, AK 239 West 4th Ave. Holiday Inn 252 September 1997 1971 In Process
Birmingham, AL 1548 Montgomery Holiday Inn 166 June 1995 1964 March 1996
Highway
Bentonville, AR 1001 McClain Road Courtyard by 90 December 1996 1996 New Build
Marriott
Hollywood, CA 2005 N. Highland Doubletree 161 December 1996 mid 1960's April 1998
Avenue
Riverside, CA 3400 Market Street Holiday Inn 296 May 1997 1989 May 1998
Select
Miami, FL 12210 Biscayne Blvd. Holiday Inn 98 April 1997 1969 May 1998
Miami, FL 3000 Florida Avenue Mayfair House 179 June 1997 1980 February 1998
Hotel
Augusta, GA 201 Boy Scout Rd. Fairfield Inn 117 November 1997 1990 In Process
Atlanta, GA 3332 Peachtree Road, Courtyard by 181 July 1996 1996 New Build
(Buckhead) NE Marriott
Macon, GA 108 First Street Holiday Inn - 298 May 1997 1974 May 1998
Crowne Plaza
Marietta, GA I-75 & Delk Road Holiday Inn 195 July 1993 1975 June 1996
(Atlanta area)
Valdosta, GA 1309 St. Augustine Road Fairfield Inn 108 January 1991 1963 May 1997
Valdosta, GA 1309 St. Augustine Road Holiday Inn 173 January 1991 1963 July 1997
Boise, ID 3300 Vista Avenue Holiday Inn 266 January 1997 1968 January 1998
Florence, KY 46 Cavalier Boulevard Courtyard 78 October 1995 1995 New Build
(Cincinnati area)
Florence, KY 8050 Holiday Place Holiday Inn 106 October 1996 1967 March 1997
(Cincinnati area)
Ft. Mitchell, KY 2100 Dixie Highway Holiday Inn 214 January 1997 1967 February 1998
(Cincinnati area)
Hazard, KY 125 Village Lane Super 8 86 May 1991 1990 May 1997
Louisville, KY 9700 Bluegrass Parkway Doubletree 399 April 1992 1969 March 1997
Paducah, KY 3835 Technology Drive Courtyard by 100 February 1997 1997 New Build
Marriott
Prestonsburg, KY 550 South US 23 Super 8 80 April 1991 1991 April 1997
LaFayette, LA 214 East Kaliste Saloom Courtyard by 90 August 1997 1997 New Build
Road Marriott
Saint Louis, MO 3551 Pennridge Drive Holiday Inn 249 December 1993 1967 In Process
Airport West
St. Louis, MO 4545 N. Lindbergh Blvd. Holiday Inn 391 June 1995 1958 April 1996
North Airport
Merrimack, NH 4 Amhearst Road Fairfield Inn 116 November 1997 1981 In Process
Hamburg, NY 5440 Camp Road Holiday Inn 128 May 1997 1968 March 1998
Syracuse, NY State Fair Blvd. & Holiday Inn 153 October 1996 1969 April 1997
Farrell Road
Cincinnati, OH 800 West 8th Street Holiday Inn 246 January 1997 1968 February 1998
(Downtown)
Strongsville, OH 15471 Royalton Road Holiday Inn 299 October 1995 1972 July 1996
(Cleveland area) Select
Tulsa, OK 3340 S. 79th East Courtyard by 122 May 1997 1997 New Build
Marriott
Wilsonville, OR 25425 SW Boones Ferry Holiday Inn 170 January 1997 1974 January 1998
(Portland area) Road
Philadelphia, PA 9461 Roosevelt Blvd. Doubletree 188 March 1996 1973 April 1997
Greenville, SC 2681 Dry Pocket Road Comfort Suites 85 September 1996 1996 New Build
Chattanooga, TN 827 Broad Street Radisson 238 (1) (1) (1)
Tifton, GA 814 West 7th Street Courtyard by 90 (1) (1) (1)
Marriott
Myrtle Beach, SC 1601 N. Ocean Blvd. Holiday Inn 133 June 1994 1978 In Process
Sunspree
Jackson, TN 535 Wiley Parker Road Fairfield Inn 105 November 1997 1990 In Process
Memphis, TN 2144 Madison Avenue French Quarter 105 January 1991 1984 August 1997
Suites
Memphis, TN 6101 Shelby Oaks Drive Holiday Inn 175 January 1997 1976 January 1998
Express
Nashville, TN 981 Murfreesboro Road Holiday Inn 210 May 1995 1959 March 1996
Express
Abilene, TX 4350 Ridgemont Drive Courtyard by 100 March 1996 1996 New Build
Marriott
Dallas, TX (DFW 4441 Highway 114 @ Holiday Inn 282 October 1996 1976 March 1997
Airport North) Esters Blvd. Select
San Antonio, TX 2636 NE Loop 410 Comfort Inn 202 July 1992 1975 August 1997
Burlington, VT 15 South Park Drive Fairfield Inn 117 November 1997 1991 In Process
Clarksburg, WV 100 Lodgeville Road Holiday Inn 160 October 1996 1974 April 1997
(Bridgeport area)
Fairmont, WV 930 East Grafton Road Holiday Inn 106 October 1996 late 1960's March 1997
Morgantown, WV 1400 Saratoga Avenue Holiday Inn 147 October 1996 1975 October 1997
Little Rock, AK 1401 Shackleford Road Residence Inn 96 April 1998 1998 New Build
</TABLE>
------------------------
(1) Third party owned.
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The following properties are currently under construction.
<TABLE>
<CAPTION>
EXPECTED
COMPLETION
LOCATION BRAND NAME # OF ROOMS STREET ADDRESS DATE
-------- ---------- ---------- -------------- ----
<S> <C> <C> <C> <C>
Dedham, MA Residence Inn 81 259 Elm Street 1998
Denver, CO (Airport) Marriott 238 16455 East 40th Circle 1999
Livermore, CA (San Courtyard by 122 2929 Constitution Drive 1999
Francisco area), Marriott
Portland, OR Marriott 249 Broadway and Washington 1999
(Downtown)
Rio Rancho, NM Hilton Garden Inn 129 1771 Rio Rancho Boulevard 1999
Lake Oswego, OR Hilton Garden Inn 181 14850 Kruse Oaks Drive 1999
(Portland area)
</TABLE>
DEVELOPMENT AGREEMENTS
IHD provides 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 .
COMPENSATION PAID TO IMPAC MANAGER
Impac and its Predecessors have paid compensation and made
distributions to Robert Cole, the Manager of Impac, and his affiliates over the
past three years and for the three months ended March 31, 1998 as follows:
<TABLE>
<CAPTION>
TYPE OF PAYMENT YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, 1998
1995 1996 1997
<S> <C> <C> <C> <C>
Dividends $ 873,482 $1,787,086 $209,047 $ --
Management Fees 21,458 -- -- --
Development Fees 14,167 590,000 306,983 --
Salary -- 28,600 185,339 58,846
--------- ---------- -------- ---------
Total $ 909,107 $2,405,686 $701,369 $ 58,846
========= ========== ======== =========
</TABLE>
As of the Effective Time, Mr. Cole will be the President and Co-Chairman of the
Board of Directors of Lodgian. For 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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SELECTED HISTORICAL FINANCIAL DATA - IMPAC
The following table presents selected consolidated financial data
derived from Impac'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>
THREE MONTHS
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 $ 55,400 $ 67,813 $ 119,859 $ 22,306 $ 34,571
(Loss) income before extraordinary
items (b) (457) (64) 6,088 15,055 (13,078)(c) (3,498)(c) (4,328)
End of period:
Total assets $ 48,143 $ 66,834 $ 120,735 $ 196,567 $ 431,298 $ 274,700 $ 447,302
Long-term obligations 42,615 60,184 92,849 155,851 355,236 222,496 377,427
Total members'/partners' equity 3,284 3,315 15,747 24,371 48,824 38,088 44,589
</TABLE>
- ---------------------------
(a) On March 12, 1997, Impac was formed through a reorganization of the
Predecessors. The reorganization was accounted for under the purchase
method of accounting. The operations and financial position of the
Predecessors prior to the reorganization are presented on a combined
basis.
(b) Impac 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 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> 121
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 35 partnerships and
three corporations, each of which owned a hotel (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 1, 1995 through March 31, 1998, Impac
acquired 31 hotels and developed 15 hotels (six 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 these 18
properties that were under renovation during the 1998 Quarter and the 1997
Quarter.
Total operating expenses before depreciation and amortization rose to
$28.6 million for the 1998 Quarter as compared to $19.7 million for the 1997
Quarter. As a percentage of revenue, operating expenses were 83% for the 1998
Quarter and 88% for the 1997 Quarter. The percentage decrease is attributable to
properties coming out of
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<PAGE> 122
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 64% to $3.6 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 $2.3 million in the 1998 Quarter
versus $417,000 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 $3.9 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 Consolidated and Combined Financial
Statements, Impac completed a roll-up of its 35 partnerships and five
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 $4.3 million was recorded for the 1998 Quarter as
compared to a net loss of $16.8 million for the 1997 Quarter. EBITDA increased
to $6 million for the 1998 Quarter compared to $2.6 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
$101.0 million in 1997. This compares to $55 million in 1996. As a percentage of
revenues, operating expenses were 84% for 1997 and 81% 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.
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<PAGE> 123
Depreciation and amortization costs increased by 192% 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 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
increased to $7.7 million as compared to $7.0 million for 1996.
Interest expense rose to $21.2 million for 1997 from $11.7 million in
1996. The increase is attributable to increased debt levels associated with
additional investments in hotel properties.
Other income for 1997 decreased to $200,000 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 roll-up of its 35 partnerships and 5 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 $26.4 million was recorded for 1997 as compared to income
of $15.1 million for 1996. EBITDA increased to $18.8 million as compared to
$12.8 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 $55.4 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 $55.0
million in 1996 (81% of revenue) compared with $43.2 million (78% 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, (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, and (iii) the investment in the Revenue Center
technology and staffing. Significant costs were added to Impac's overhead while
numerous rooms were taken out of service during the renovation process.
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<PAGE> 124
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.
As a result of the above, income from operations for 1996 was $7.0
million, a decrease of 14.6% over 1995 income from operations of $8.2 million.
Interest expense (net of interest income) was $11.7 million for 1996, a
$4.5 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 results 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 $15.1 million for 1996 and $6.1 million for
1995. EBITDA was $12.8 million in 1996 versus $12.2 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 $18.8 million. This represents a 47%
increase over the $12.8 million for 1996 and a 55% increase over the $12.2
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 and December 31, 1997, Impac's working capital
deficit was $4.9 million and $1.8 million, respectively. Impac's ratio of
current assets to current liabilities at March 31, 1998 and December 31, 1997,
was 0.8 to 1 and 0.9 to 1, respectively. This compares to a working capital
deficit of $7.5 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.
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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.
Banc One Financing. Banc One agreed to make an unsecured loan to Impac
in an amount not to exceed $76.5 million (the "Banc One Loan") pursuant to an
Amended and Restated Loan Agreement dated as of December 16, 1997 (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. 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
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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
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
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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.
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.
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
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"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") 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.
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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%.
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 $76.5 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.
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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 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
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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 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.
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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 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
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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
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
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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 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
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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 benefitting the interested shareholder.
Lodgian's Restated Certificate and Restated Bylaws do not contain a provision
electing not to be governed by this statute.
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
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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 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.
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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 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.
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(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.
(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
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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 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
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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
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
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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 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.
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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.
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
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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.
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
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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 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.
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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 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
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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.
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.
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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.
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
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under the Lodgian 1998 Stock Incentive Plan is defined as it is defined for
purposes of the Lodgian 1998 Short-Term Incentive Compensation Plan.
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).
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<PAGE> 149
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 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
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<PAGE> 150
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.
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.
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<PAGE> 151
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.
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 490,000 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 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.
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<PAGE> 152
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 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.
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<PAGE> 153
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-Administration 111,000 18,500
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 569,900
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.
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<PAGE> 154
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 incorporate 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. 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 Coopers & Lybrand, 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."
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
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<PAGE> 155
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.
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<PAGE> 156
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
Consolidated and Combined Condensed Balance Sheets as of March 31, 1998
and December 31, 1997...........................................................................................F-17
Consolidated and Combined Condensed Statements of Operations
for the three months ended March 31, 1998 and 1997..............................................................F-18
Consolidated and Combined Condensed Statements of Equity for the years ended December 31, 1997, 1996 and
the three months ended March 31, 1998...........................................................................F-19
Consolidated and Combined Condensed Statements of Cash Flows for the three months ended
March 31, 1998 and 1997.........................................................................................F-20
Notes to Consolidated and Combined Condensed Financial Statements...............................................F-21
</TABLE>
F-1
<PAGE> 157
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> 158
LODGIAN, INC.
BALANCE SHEET
APRIL 17, 1998
<TABLE>
<S> <C>
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
=========
</TABLE>
See accompanying note.
F-3
<PAGE> 159
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> 160
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, 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 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 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.
Atlanta, Georgia /s/ COOPERS & LYBRAND, L.L.P.
April 10, 1998
F-5
<PAGE> 161
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS (NOTE 1)
CONSOLIDATED AND COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,728 $ 5,101
Cash, restricted.......................................... 5,271
Accounts receivable, net.................................. 5,909 3,058
Inventories............................................... 585 335
Other current assets...................................... 2,807 310
-------- --------
Total current assets.............................. 25,300 8,804
Property and equipment, net................................. 392,159 181,082
Other assets, net........................................... 13,839 6,681
-------- --------
$431,298 $196,567
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.......................................... $ 18,379 $ 9,558
Accrued liabilities....................................... 8,672 6,424
Current portion of long-term obligations.................. 363
-------- --------
Total current liabilities......................... 27,051 16,345
Long-term obligations, less current portion................. 355,236 155,851
Commitments and contingencies
Minority interests.......................................... 187
Equity:
Partners' and stockholders' equity........................ 24,371
Members' equity........................................... 48,824
-------- --------
Total equity...................................... 48,824 24,371
-------- --------
$431,298 $196,567
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-6
<PAGE> 162
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS (NOTE 1)
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenue:
Rooms..................................................... $ 90,139 $ 52,043 $42,442
Food and beverage......................................... 23,429 11,813 9,800
Other..................................................... 6,291 3,957 3,158
-------- -------- -------
Total revenue..................................... 119,859 67,813 55,400
-------- -------- -------
Operating expenses:
Direct:
Rooms.................................................. 28,303 16,840 12,965
Food and beverage...................................... 19,322 9,734 7,365
Other:
Administrative and general............................. 9,323 3,604 2,402
Property management.................................... 13,273 7,642 5,517
Advertising and promotion.............................. 9,064 3,415 2,880
Utilities.............................................. 7,143 4,140 3,286
Repairs and maintenance................................ 5,705 3,296 2,713
Depreciation and amortization.......................... 11,136 5,814 3,978
Property taxes and insurance........................... 4,779 2,957 2,214
Other.................................................. 4,114 3,338 3,836
-------- -------- -------
Total operating expenses.......................... 112,162 60,780 47,156
-------- -------- -------
Income from operations...................................... 7,697 7,033 8,244
-------- -------- -------
Other income (expenses):
Other income, primarily gain on sale of hotels............ 227 19,701 5,049
Minority interests........................................ 220 -- --
Interest expense.......................................... (21,222) (11,679) (7,205)
-------- -------- -------
Total other income (expenses)..................... (20,775) 8,022 (2,156)
-------- -------- -------
Income (loss) before extraordinary item..................... (13,078) 15,055 6,088
Extraordinary item:
Loss on extinguishment of indebtedness.................... (13,332)
-------- -------- -------
Net income (loss)........................................... $(26,410) $ 15,055 $ 6,088
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-7
<PAGE> 163
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS (NOTE 1)
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' AND
STOCKHOLDERS' MEMBERS'
EQUITY EQUITY
------------- --------
<S> <C> <C>
Balance at December 31, 1994................................ $ 5,282
Net income................................................ 6,088
Contributions, net........................................ 14,762
Distributions............................................. (10,385)
-------- --------
Balance at December 31, 1995................................ 15,747
Net income................................................ 15,055
Contributions, net........................................ 22,999
Distributions............................................. (29,430)
-------- --------
Balance at December 31, 1996................................ 24,371
Transfer of equity into Impac Hotel Group, L.L.C.......... (24,371) 24,371
Purchase of limited partners' interest.................... 22,700
Net loss.................................................. (26,410)
Issuance of membership units, net......................... 39,502
Distributions to members.................................. (6,039)
Membership units retired.................................. (5,300)
-------- --------
Balance at December 31, 1997................................ $ 0 $ 48,824
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-8
<PAGE> 164
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS (NOTE 1)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ (26,410) $ 15,055 $ 6,088
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization.......................... 11,136 5,814 3,978
Minority interest...................................... (220)
Gain on sales of hotel properties...................... (19,369) (5,354)
Loss on extinguishment of indebtedness................. 13,332
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable.................................. (2,851) 526 (478)
Inventories.......................................... (250) (66) (45)
Other assets......................................... (2,190) (45) (2,291)
Accounts payable and accrued expenses................ 11,830 3,870 6,651
--------- -------- --------
Net cash provided by operating activities......... 4,377 5,785 8,549
--------- -------- --------
Investing activities:
Acquisition and development of hotel properties........... (156,878) (63,578) (32,162)
Capital improvements...................................... (41,949) (50,463) (27,610)
Proceeds from sales of hotel properties................... 55,494 18,972
Cash, restricted.......................................... (5,271)
--------- -------- --------
Net cash used in investing activities............. (204,098) (58,547) (40,800)
--------- -------- --------
Financing activities:
Proceeds from issuance of long-term obligations........... 354,957 83,151 45,084
Payments of deferred loan costs........................... (12,391) (2,366) (1,451)
Payments of franchise fees and other deferred costs....... (453) (688) (197)
Capital contributions, net................................ 39,502 22,999 14,762
Equity distributions...................................... (6,039) (29,430) (10,385)
Repayment of long-term obligations........................ (156,695) (19,815) (13,245)
Retirement of membership units............................ (5,300)
Prepayment penalties...................................... (8,640)
Contribution by joint venture partner..................... 407
--------- -------- --------
Net cash provided by financing activities......... 205,348 53,851 34,568
--------- -------- --------
Net change in cash and cash equivalents..................... 5,627 1,089 2,317
Cash and cash equivalents at beginning of period............ 5,101 4,012 1,695
--------- -------- --------
Cash and cash equivalents at end of period.................. $ 10,728 $ 5,101 $ 4,012
========= ======== ========
Supplemental disclosures of cash flow information:
Cash payments for interest................................ $ 21,370 $ 12,633 $ 6,938
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-9
<PAGE> 165
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
The principal activity of Impac Hotel Group ("Impac") is to either acquire
and renovate or develop, and operate hotels. The Predecessors of Impac, prior to
the formation of Impac Hotel Group, L.L.C., consisted of 21 partnerships and
four corporations which each owned a hotel, ("Initial Hotels") and two operating
corporations, Impac Hotel Management, Inc. ("Impac, Inc.") and Impac Development
and Construction, Inc. ("IDC") (collectively, the "Predecessors"). The
principals of Impac Inc. and their affiliates owned, in total, approximately 23%
of the Initial Hotels, while various other investors owned the remaining
interests. 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. The
principals of Impac, Inc. and their affiliates had authority to make major
decisions including the selling or refinancing of hotels and, therefore, the
Initial Hotels were controlled by Impac Inc.'s principals and their affiliates.
The Principals and the affiliates of Impac, Inc. were the general partner of
the 21 partnerships and owned between 17% and 76% of each of the 21 partnerships
and four corporations. In addition, the Company 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 was completed on March
12, 1997. This transaction has been recorded as a purchase by the Impac
principals of the interests of the limited partners or shareholders of
Predecessor entities.
In accordance with the Company'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 fiscal years ended December 31,
1996 and 1995 the Predecessors of Impac sold seven and three hotels,
respectively.
Basis of Presentation
The accompanying consolidated and combined financial statements of Impac,
and its subsidiaries are prepared on the basis of generally accepted accounting
principles. 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 the Company. The combined financial statements include the
partnerships and corporations that were acquired by the Company 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.
The consolidated and combined financial statements do not include any other
entities that may be controlled by Impac, Inc. or its principles.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the company considers 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.
F-10
<PAGE> 166
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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. The
Company 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, the Company capitalized interest of
approximately $1,100,000, $1,200,000 and $300,000, respectively.
Management monitors the operating results of the Company'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, the
Company compares projected cash flows (undiscounted, without interest charges)
of the specific hotel property to its carrying amount. Should a shortfall
result, the Company would adjust the carrying amount of the property to the
present value of such projected cash flows with a corresponding charge to
earnings. The Company 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. The Company 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 were 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 the company and due to their short duration to maturity.
Accounts receivable are primarily from major credit card companies, airlines and
other travel related companies. The Company performs ongoing evaluations of its
significant customers and generally does not require collateral. The Company
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-11
<PAGE> 167
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (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:
At December 31, 1997 and 1996, property and equipment consisted of the
following (in thousands):
<TABLE>
<CAPTION>
USEFUL LIVES
(YEARS) 1997 1996
------------ -------- --------
<S> <C> <C> <C>
Land.................................................. $ 60,012 $ 30,961
Buildings and improvements............................ 35-39 245,665 117,251
Furnishings and equipment............................. 5-15 55,709 28,490
-------- --------
361,386 176,722
Less accumulated depreciation......................... (21,860) (11,410)
-------- --------
339,526 165,312
Construction in progress.............................. 52,633 15,770
-------- --------
$392,159 $181,082
======== ========
</TABLE>
At December 31, 1997, the Company had 6 hotels under development and 16
hotels which had been recently acquired and were under renovation. Construction
in progress consists of amounts expended to develop and renovate these hotels.
The Company developed and opened or began development on a total of 9 hotels
during 1997 for an approximate cost of approximately $50 million.
During the year ended December 31, 1997, the Company acquired and opened 18
hotels in various transactions and acquired one additional hotel through a joint
venture in which the Company acquired a 60% interest. The activities of the
joint venture were consolidated with the Company 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 of the Company on March 12, 1997, the
Company 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.
F-12
<PAGE> 168
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1997 1996
-------- --------
<S> <C> <C>
Revenues.................................................... $139,630 $114,096
Income (loss) before extraordinary item..................... (11,421) 13,079
Net income (loss)........................................... (24,753) 13,079
</TABLE>
3. ACCRUED LIABILITIES:
At December 31, 1997 and 1996, accrued liabilities consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Salaries and related costs.................................. $2,747 $1,955
Real estate taxes........................................... 1,486 468
Interest.................................................... 2,042 1,090
Advanced deposits........................................... 263 246
Sales taxes................................................. 1,813 1,751
Other....................................................... 321 914
------ ------
$8,672 $6,424
====== ======
</TABLE>
4. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following at December 31, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Credit facility with a financial institution................ $265,262 $ --
Subordinated promissory note payable to a bank.............. 71,018 --
Other mortgages and notes................................... 18,956 156,214
-------- --------
Less: current portion of long-term obligations.............. -- 363
-------- --------
$355,236 $155,851
======== ========
</TABLE>
Credit Facility
At December 31, 1997, the Company 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>
<S> <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
Loan, totaling $163.5 million, with interest at LIBOR plus
2.75%, maturing in 2000, and requiring interest only
payments to maturity...................................... 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
--------
$265,262
========
</TABLE>
Loan advances, not to exceed the maximum loan amounts, are to be made to
the Company for approved construction projects and acquisitions. The Company 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
F-13
<PAGE> 169
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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, the Company is required to pay a
securitization fee of 1% of the balance of the loans. The Company 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, restrictions on payment of dividends, 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
the Company 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.
Subordinated Promissory Note
The Company 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 the Company'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 the Company or the merger or reorganization of the Company).
Fixed and variable interest on the Note included in interest expense is
$4.3 million for the year ended December 31, 1997. The Company 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, restrictions on payment of dividends, certain reporting
requirements and other customary restrictions. In addition, 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 the Company was in compliance
with all debt covenants.
Other Debt
The Company has mortgage loans totaling $14.6 million and $156.2 million at
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 the
Company's mortgage loans vary and are either fixed or variable. At December 31,
1997, mortgage loan interest rates ranged from 2% to 8.5%.
The Company also has two promissory notes totaling $4.4 million at December
31, 1997 that bear interest at 14%. These notes require interest only payments
and mature in 2001.
F-14
<PAGE> 170
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company 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):
December 31,
---------------------
1997 1996
------- -------
Impac Hotel Group, L.L.C. and
Predecessors:
Member units 9,444,488 issued
and outstanding $48,824
Partners' and Stockholders' equity $24,371
------- -------
$48,824 $24,371
======= =======
6. COMMITMENTS AND CONTINGENCIES:
The Company 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 the Company 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, the Company 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. The Company 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. The Company believes that
the loss of a license for any individual hotel would not have a material adverse
effect on the Company's financial condition and results of operations. The
Company believes it will be able to renew its current licenses or obtain
replacements of a comparable quality.
The Company's hotels have noncancelable operating leases, mainly for
operating equipment, and the Company 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 Company 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 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 Company, 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 the Company's incremental
borrowing rate.
8. RELATED PARTY TRANSACTIONS:
The Company incurred fees of approximately $9.8 million, $4.1 million and
$1 million during the years ended December 31, 1997, 1996 and 1995,
respectively, to Impac Hotel Development, Inc. ("IHD"). IHD owns membership
units in the Company and IHD is owned by certain members of the Company. The
services that IHD provides to the Company consist of the identification and
analysis of prospective hotel acquisitions.
F-15
<PAGE> 171
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company pays fees to IHD based on the acquisition cost of any hotels which
it identifies and the Company purchases. All fees incurred are capitalized with
the cost of acquiring properties.
The Company owed IHD approximately $2.3 million and $1.1 million as of
December 31, 1997 and 1996, respectively, and such amounts are included in
accounts payable.
9. SUBSEQUENT EVENT:
On March 20, 1998, the Company signed a definitive agreement with Servico,
Inc., a publicly owned hotel company, to merge and form a new publicly owned
company. 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 in July 1998 subject to customary
conditions, including regulatory approvals and approval by the Company's
unitholders and Servico, Inc.'s shareholders. The merger may be terminated by
either party with the terminating party obligated to pay termination fees, as
defined in the merger agreement.
Upon completion of the transaction, the merged company intends to
renegotiate the terms of Impac's long-term obligations. The merged company's
management intends to raise additional capital through a preferred stock
offering which proceeds will be used to satisfy a portion of Impac's long-term
obligations. As a result of this renegotiation, penalty, yield maintenance
payments, and participation payments will be made to the Company's current
lenders.
F-16
<PAGE> 172
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS (NOTE 1)
CONSOLIDATED AND COMBINED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,494 $ 10,728
Cash, restricted 3,590 5,271
Accounts receivable, net 10,687 5,909
Inventories 607 585
Other current assets 3,796 2,807
-------- --------
Total current assets 20,174 25,300
Property and equipment, net 413,304 392,159
Other assets, net 13,824 13,839
-------- --------
$447,302 $431,298
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 15,885 $ 18,379
Accrued liabilities 9,166 8,672
-------- --------
Total current liabilities 25,051 27,051
Long-term obligations 377,427 355,236
Commitments and contingencies
Minority interests 235 187
Equity
Members' equity 44,589 48,824
-------- --------
$447,302 $431,298
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
CONDENSED FINANCIAL STATEMENTS.
F-17
<PAGE> 173
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS (NOTE 1)
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
Revenue:
Rooms $ 25,892 $ 16,760
Food and beverage 6,861 4,565
Other 1,818 981
-------- --------
Total revenue 34,571 22,306
-------- --------
Operating expenses:
Direct:
Rooms 6,815 4,328
Food and beverage 5,501 3,686
Other:
Administrative and general 2,398 1,466
Depreciation and amortization 3,681 2,205
Other 13,848 10,203
-------- --------
Total operating expenses 32,243 21,888
-------- --------
Income from operations 2,328 418
-------- --------
Other income (expenses):
Interest income 143 7
Minority interests (48) 0
Interest expense (6,751) (3,923)
-------- --------
Total other income (expenses) (6,656) (3,916)
-------- --------
Loss before extraordinary item (4,328) (3,498)
Extraordinary item
Loss on extinguishment of indebtedness 0 (13,332)
-------- --------
Net loss $ (4,328) $(16,830)
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
CONDENSED FINANCIAL STATEMENTS.
F-18
<PAGE> 174
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS (NOTE 1)
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' AND
STOCKHOLDERS' MEMBERS'
EQUITY EQUITY
<S> <C> <C>
Balance at December 31, 1996 $ 24,371
Transfer of equity into Impac Hotel Group, L.L.C (24,371) $ 24,371
Purchase of limited partners' interest 22,700
Net loss (26,410)
Issuance of membership units, net 39,502
Distributions to members (6,039)
Membership units retired (5,300)
-------- --------
Balance at December 31, 1997 48,824
Net loss (4,328)
Issuance of membership units 93
-------- --------
Balance at March 31, 1998 $ 0 $ 44,589
======== ========
</TABLE>
The data for the three months ended March 31, 1998 is unaudited.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
CONDENSED FINANCIAL STATEMENTS.
F-19
<PAGE> 175
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS (NOTE 1)
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
Net cash used by operating activities $ (8,388) $ (7,707)
--------- ---------
Investing activities:
Acquisition and development of hotel properties (8,345) (34,200)
Capital improvements (16,291) (16,413)
Cash, restricted 1,681
--------- ---------
Net cash used in investing activities (22,955) (50,613)
--------- ---------
Financing activities:
Proceeds from issuance of long-term obligations 22,191 222,496
Payments of deferred loan costs (8,400)
Payments of franchise fees and other deferred costs (175)
Capital contributions, net 93 12,382
Repayment of long-term obligations (156,214)
Retirement of membership units (4,535)
Prepayment penalties (8,640)
--------- ---------
Net cash provided by financing activities 22,109 57,089
--------- ---------
Net change in cash and cash equivalents (9,234) (1,231)
Cash and cash equivalents at beginning of period 10,728 5,101
--------- ---------
Cash and cash equivalents at end of period $ 1,494 $ 3,870
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED
CONDENSED FINANCIAL STATEMENTS.
F-20
<PAGE> 176
IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The principal activity of Impac Hotel Group, L.L.C. ("Impac" or the
"Company") is to either acquire and renovate or develop, and operate
hotels.
The accompanying consolidated financial statements of Impac and its
subsidiaries are prepared on the basis of generally accepted accounting
principles. All material intercompany balances are eliminated in the
consolidation. The accounts of two hotels which the Company manages for
third-party owners are not included in the financial statements. However,
management fee income received from these hotels is included in other
revenues.
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 the Company. The combined financial statements
include the partnerships and corporations that were acquired by the
Company as well as the financial position and results of operation of
Hotel properties that were sold prior to the reorganization but were
under the common control of Impac, Inc. during the periods presented. The
consolidated and combined condensed financial statements do not include
any other entities that may be controlled by Impac, Inc. or its
principles.
The accounting policies followed for financial reporting purposes of
these condensed financial statements are the same as those disclosed in
Note 1 of the Company's notes to the Consolidated and Combined Financial
Statements as of December 31, 1997 and 1996.
In the opinion of management, the accompanying unaudited consolidated and
combined condensed financial statements contain all adjustments,
consisting primarily of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of March 31,
1998, the results of its operations and cash flows for the three months
ended March 31, 1998 and 1997, and its change in equity for the three
months ended March 31, 1998. While management believes that the
disclosures presented are adequate to make the information not
misleading, these financial statements should be read in conjunction with
the consolidated and combined financial statements for the years ended
December 31, 1997 and 1996.
F-21
<PAGE> 177
IMPAC HOTEL GROUP, L.L.C AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED
CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
2. REORGANIZATION:
On February 26, 1997, Impac Hotel Group, L.L.C. was formed as a limited
liability company for the initial purpose of acquiring, either directly
or indirectly, the ownership interests of 35 hotels and three operating
entities through the issuance of membership units in the Company in
exchange for either all of the interests in limited partnerships or all
of the shares of corporations which owned the hotels and operating
entities. The Initial Hotels were controlled by the principals of Impac,
Inc. This reorganization was completed on March 12, 1997, and recorded as
a purchase by the Impac principals of the interests of the limited
partners or shareholders of predecessor entities. In connection with the
reorganization, the company recorded a step-up of land and building,
reflecting an increase in their basis of approximately $4.8 million and
$17.9 million, respectively.
In accordance with the Company's Operating Agreement, profits and losses,
as defined, are allocated among the members in proportion to their
ownership interests.
3. DEFERRED COSTS:
Deferred costs of $13.6 million and $13.5 million at March 31, 1998 and
December 31, 1997, which are included in other assets, primarily consist
of deferred loan costs, franchise fees and other deferred costs, net of
accumulated amortization of approximately $849,000 and $660,000 at March
31, 1998 and December 31, 1997, 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.
4. 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 were 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.
F-24
<PAGE> 178
IMPAC HOTEL GROUP, L.L.C AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED
CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
5. LONG-TERM OBLIGATIONS:
During the three months ended March 31, 1997, the Company refinanced its
mortgage loans and obtained additional financing through a $396 million
credit facility (balance of $277.3 and $265.3 million at March 31, 1998
and December 31, 1997, respectively) and a $76.5 million subordinated
promissory note with a bank (balance of $74.5 and $71.0 million at March
31, 1998 and December 31, 1997, respectively). In addition, the Company
has other mortgages and notes outstanding at March 31, 1998 and December
31, 1997 totaling $25.6 and $19.0 million, respectively. The Company has
no long-term debt maturing during the next twelve months.
In connection with the previously described refinancing in Note 5, the
Company incurred prepayment penalties of $ 8.6 million upon the
retirement of the mortgages and the write-off of remaining deferred loan
costs associated with the satisfied mortgage notes of approximately $4.7
million. This transaction was recorded as an extraordinary loss in the
accompanying consolidated and combined statement of operations for the
three months ended March 31, 1997.
6. COMMITMENTS AND CONTINGENCIES:
The Company is a party to legal proceedings 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
facts currently known by it and the advice of counsel, have a material
adverse effect on the Company's financial condition or results of
operations.
7. RELATED PARTY TRANSACTION:
The Company incurred fees of approximately $8.5 million during the year
ended December 31, 1997, to Impac Hotel Development, Inc. ("IHD"), a
related party, for the identification and analysis of prospective hotel
acquisitions. No such fees were incurred during the three months ended
March 31, 1998. All fees incurred are capitalized in property and
equipment as the cost of acquiring properties.
The Company owed IHD approximately $0.9 and $2.3 million as of March 31,
1998 and December 31, 1997, respectively, and such amounts are included
in accounts payable.
F-25
<PAGE> 179
IMPAC HOTEL GROUP, L.L.C AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED
CONDENSED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
8. PROPOSED MERGER:
On March 20, 1998, the Company signed a definitive agreement with
Servico, Inc., a publicly owned hotel company, to merge and form a new
publicly-owned company. 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 in June 1998 subject to
customary conditions, including regulatory approvals and approval by the
Company's unitholders 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.
F-26
<PAGE> 180
Appendix A
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
SERVICO HOTEL GROUP, INC.,
SERVICO, INC.,
IMPAC HOTEL GROUP, L.L.C.,
SHG-S SUB, INC.
AND
SHG-I SUB, L.L.C.
DATED AS OF MARCH 20, 1998
================================================================================
<PAGE> 181
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I The Mergers.......................................................................2
1.1 Formation of Merger Subsidiaries..................................................2
1.2 The Mergers.......................................................................2
1.3 Closing...........................................................................2
1.4 Effective Time....................................................................2
1.5 Effect of the Mergers.............................................................3
1.6 Articles of Incorporation; Articles of Organization; Bylaws;
Operating Agreement; Directors and Officers of
the Surviving Corporations........................................................3
1.7 Restated Certificate of Incorporation and Restated Bylaws of SHG..................4
ARTICLE II Conversion of Securities; Exchange of Certificates................................4
2.1 Conversion of Securities..........................................................4
2.2 Conversion of Shares..............................................................4
2.3 Cancellation of Certain Shares and of Outstanding SHG Common Stock................5
2.4 Conversion of Common Stock and Membership Interests of
Servico Merger Sub and Impac Merger Sub into Common Stock
or Membership Interests of the Surviving Corporations.............................5
2.5 Exchange of Shares Other than Treasury Shares.....................................6
2.6 Stock Transfer Books..............................................................6
2.7 No Fractional Share Certificates..................................................7
2.8 Options to Purchase Servico Common Stock..........................................8
2.9 Certain Adjustments...............................................................9
ARTICLE III Representations and Warranties of Servico.........................................9
3.1 Organization, Standing and Power..................................................9
3.2 Legal, Valid and Binding Agreement................................................9
3.3 Authority to do Business..........................................................9
3.4 No Violation or Conflict..........................................................9
3.5 Governmental Consents............................................................10
3.6 Exchange Act Reports; Financial Statements.......................................10
3.7 Compliance with Laws.............................................................11
3.8 Legal Proceedings................................................................12
3.9 Brokers..........................................................................12
3.10 Absence of Material Adverse Changes..............................................12
3.11 Capitalization...................................................................12
3.12 Tax Matters......................................................................13
3.13 Title to Personal Property and Condition of Assets...............................13
3.14 Real Property....................................................................13
3.15 Opinion of Financial Advisor.....................................................13
3.16 Disclosure.......................................................................14
ARTICLE IV Representations and Warranties of Impac..........................................14
4.1 Organization, Standing and Power.................................................14
4.2 Members' Interest................................................................14
4.3 Legal, Valid and Binding Agreement...............................................14
4.4 Authority to do Business.........................................................14
</TABLE>
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<PAGE> 182
<TABLE>
<S> <C>
4.5 Articles of Organization and Operating Agreement.................................15
4.6 Subsidiaries.....................................................................15
4.7 No Violation or Conflict.........................................................15
4.8 Governmental Consents............................................................15
4.9 Impac Statements.................................................................16
4.10 Compliance with Laws.............................................................16
4.11 Legal Proceedings................................................................17
4.12 Brokers..........................................................................17
4.13 Absence of Material Adverse Changes..............................................17
4.14 Capitalization...................................................................17
4.15 Rights, Warrants, Options........................................................18
4.16 Title to Personal Property and Condition of Assets...............................18
4.17 Real Property....................................................................18
4.18 Intangible Property..............................................................19
4.19 Governmental Authorizations......................................................20
4.20 Insurance........................................................................20
4.21 Employment Matters...............................................................20
4.22 Material Agreements..............................................................22
4.23 List of Accounts.................................................................23
4.24 Related Party Transactions.......................................................23
4.25 Tax Matters......................................................................23
4.26 Qualifying Transaction...........................................................24
4.27 Affiliates.......................................................................24
4.28 Opinion of Financial Advisor.....................................................24
4.29 Disclosure.......................................................................24
ARTICLE V Covenants........................................................................24
5.1 Interim Operations of Impac......................................................24
5.2 Interim Operations of Servico....................................................26
5.3 Access...........................................................................26
5.4 Consents.........................................................................27
5.5 Reasonable Efforts...............................................................27
5.6 Notification.....................................................................27
5.7 No Solicitation..................................................................27
5.8 Confidentiality..................................................................28
5.9 Publicity........................................................................28
5.10 Letters of Accountants...........................................................28
5.11 Plan of Reorganization...........................................................29
5.12 Registration Statement; Joint Proxy Statement....................................29
5.13 Special Meetings.................................................................30
5.14 Employee Benefits Matters........................................................31
5.15 Executive Officers...............................................................32
5.16 Affiliates.......................................................................32
5.17 Headquarters.....................................................................32
5.18 Post-Merger SHG Board of Directors...............................................32
5.19 Stock Exchange Listings..........................................................32
5.20 Indemnification..................................................................33
5.21 Guarantees.......................................................................33
5.22 Registration Rights..............................................................33
5.23 Termination of Development Agreement; Use of Affiliated Names....................34
</TABLE>
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<PAGE> 183
<TABLE>
<S> <C>
ARTICLE VI Additional Agreements............................................................34
6.1 Survival of the Representations and Warranties...................................34
6.2 Investigation....................................................................34
ARTICLE VII Conditions Precedent.............................................................34
7.1 Mutual Conditions Precedent......................................................34
7.2 Conditions Precedent to the Obligations of Servico...............................35
7.3 Conditions Precedent to the Obligations of Impac.................................36
7.4 Termination......................................................................37
ARTICLE VIII Miscellaneous....................................................................39
8.1 Further Assurances...............................................................39
8.2 Notices..........................................................................39
8.3 Entire Agreement.................................................................39
8.4 Assignment.......................................................................39
8.5 Waiver...........................................................................40
8.6 No Third Party Beneficiary.......................................................40
8.7 Severability.....................................................................40
8.8 Fees and Expenses................................................................40
8.9 Section Headings.................................................................42
8.10 Counterparts.....................................................................42
8.11 Time of Essence..................................................................42
8.12 Litigation; Prevailing Party.....................................................42
8.13 Remedies Cumulative..............................................................42
8.14 Injunctive Relief................................................................43
8.15 Governing Law....................................................................43
8.16 Jurisdiction and Venue...........................................................43
8.17 Certain Definitions..............................................................43
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.)
</TABLE>
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<PAGE> 184
<TABLE>
<CAPTION>
SCHEDULES
---------
<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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<PAGE> 185
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION DEFINED TERM SECTION
- ------------ ------- ------------ -------
<S> <C> <C> <C>
Additional Shares..........................ss.2.2(c) Impac Merger Sub............................Preamble
affiliate..................................ss.8.17(a) Impac Pension Plan..........................ss.4.21(d)
Agreement..................................Preamble Impac Plans.................................ss.4.21(d)
Allen & Company............................ss.4.12 Impac Related Parties.......................ss.4.24
Base Number................................ss.2.2(b) Impac Related Party.........................ss.4.24
Blue Sky Laws..............................ss.3.5 Impac Special Meeting.......................ss.5.13(a)
business day...............................ss.8.17(b) Impac Subsidiaries..........................ss.4.1
Change of Control..........................ss.8.8(d) Impac Surviving Corporation.................ss.1.2(b)
Closing....................................ss.1.3 Impac Unit..................................ss.2.2(b)
Code.......................................Preamble Impac Unit Trust............................ss.2.7(c)
Competing Transaction......................ss.5.7 Impac Voting Agreement......................Preamble
Construction Projects......................ss.4.17(b) Impac Welfare Plan..........................ss.4.21(d)
Designated Date............................ss.5.7(ii) Improvements................................ss.4.17(a)
Designated Person..........................ss.7.4(g) incentive stock options.....................ss.2.8
Designated Change of Control...............ss.8.8(e)(ii) Indemnified Parties.........................ss.5.21
Development................................ss.5.23 Joint Proxy Statement.......................ss.5.13(a)
Effective Time.............................ss.1.4 knowledge...................................ss.8.17(d)
employee pension benefit plan..............ss.4.21(d) Law.........................................ss.8.17(e)
employee welfare benefit plan..............ss.4.21(d) Lehman Brothers.............................ss.3.9
End Date...................................ss.7.4(c) Licenses....................................ss.4.19
Environmental Law..........................ss.3.7(b) Member......................................ss.4.2
Environmental Permit.......................ss.3.7(b) membership interest.........................ss.8.17(f)
ERISA......................................ss.4.21(d) Merger Subsidiaries.........................ss.1.1
Escrowed Consideration.....................ss.2.2(c) Mergers.....................................Preamble
Excess Shares..............................ss.2.7(b) Milestone Date..............................ss.2.2(c)
Exchange Agent.............................ss.2.5 multiemployer plan..........................ss.4.21(d)
Exchange Act...............................ss.3.5 New Impac Units.............................ss.2.4(b)
Exchange Fund..............................ss.2.5 New Servico Common Stock....................ss.2.4(a)
FBCA.......................................Preamble Nomura......................................ss.8.8(a)
GAAP.......................................ss.3.6(b) NYSE........................................ss.2.7(b)
GLLCA......................................Preamble Permitted Exceptions........................ss.4.17
Governmental Entity........................ss.3.5 Personal Property...........................ss.4.16
group......................................ss.8.8(c) person......................................ss.8.17(g)
group health plan..........................ss.4.21 Presurrender Dividends......................ss.2.5
Hazardous Material.........................ss.3.7(b) Real Property...............................ss.4.17(a)
HSR Act....................................ss.3.5 Registration Statement......................ss.5.13(a)
HW&E.......................................ss.3.9 Regulations.................................Preamble
Impac......................................Preamble Satisfaction Date...........................ss.1.3
Impac Affiliate............................ss.4.27 SEC.........................................ss.3.6
Impac Affiliate Letter.....................ss.5.17 Securities Act..............................ss.3.5
Impac Articles of Merger...................ss.1.4 Servico.....................................Preamble
Impac Director.............................ss.5.19 Servico Articles of Merger..................ss.1.4
Impac Exchange Ratio.......................ss.2.2(b) Servico Common Shares Trust.................ss.2.7(c)
Impac Financial Statements.................ss.4.9 Servico Common Stock........................Preamble
Impac Material Adverse Effect..............ss.8.17(c) Servico Constituents........................ss.3.2
Impac Material Agreements..................ss.4.22(a) Servico Director............................ss.5.19
Impac Merger...............................Preamble Servico Exchange Ratio......................ss.2.2(a)
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Servico Financial Statements......................ss.3.6(b) SHG Common Stock..................................ss.2.2(a)
Servico Material Adverse Effect...................ss.8.17(h) Special Meetings..................................ss.5.13(a)
Servico Merger....................................Preamble Stock Plans.......................................ss.5.15(b)
Servico Merger Sub................................Preamble subsidiaries......................................ss.8.17(i)
Servico Plans.....................................ss.5.15(a) subsidiary........................................ss.8.17(i)
Servico SEC Reports...............................ss.3.6(a) Surviving Corporation.............................ss.1.2(b)
Servico Shares....................................ss.2.2(e) Surviving Corporations............................ss.1.2(b)
Servico Special Meeting...........................ss.5.13(a) Tax...............................................ss.8.17(j)
Servico Subsidiaries..............................ss.3.1 Third Party.......................................ss.7.4(j)
Servico Surviving Corporation.....................ss.1.2(a) Trading Period Average............................ss.2.2(b)
Shares............................................ss.2.2(e) Transaction.......................................Preamble
SHG...............................................Preamble
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of the 20th day of March, 1998, by and among SERVICO, INC., a Florida
corporation ("Servico"), SERVICO HOTEL GROUP, 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") and SHG-I
SUB, L.L.C., a Georgia limited liability company and a wholly-owned subsidiary
of SHG ("Impac Merger Sub").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Servico 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") and the Georgia Limited Liability Company Act (the "GLLCA"), SHG will
acquire all of the common stock of Servico and all of the membership interests
of Impac through the merger of Servico Merger Sub with and into Servico (the
"Servico Merger") 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 of SHG as set forth herein;
WHEREAS, as a result of the Servico Merger and the Impac Merger
(collectively, the "Mergers"), (i) Servico will be a wholly-owned subsidiary of
SHG, (ii) Impac will be a wholly-owned subsidiary of SHG, (iii) the shareholders
of Servico will become shareholders of SHG and (iv) 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 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, concurrently with 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
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WHEREAS, for United States federal income tax purposes, it is intended
that the Servico Merger 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 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:
ARTICLE I
THE MERGERS
-----------
1.1 FORMATION OF MERGER SUBSIDIARIES. SHG has formed Servico Merger Sub
and Impac Merger Sub (collectively, the "Merger Subsidiaries") under the FBCA
and the GLLCA, respectively, 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 and Section 14-11-309 of the GLLCA, respectively,
as the sole shareholder and 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 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"; either of Servico
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, by filing articles of merger (the "Servico Articles of Merger") with the
Florida Department of State in such form as required by, and
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executed in accordance with the relevant provisions of, the FBCA, and (b) 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 shall be as provided in the applicable provisions of the FBCA,
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, and (b) 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:
(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) subject to the provisions of Section 5.15, the officers of
each of Servico and Impac 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 of
Incorporation and Bylaws or Articles of Organization and Operating Agreement, as
the case may be; and
(d) the directors of Servico 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 of Incorporation and Bylaws or Articles of
Organization and Operating Agreement, as the case may be.
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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. The Restated Certificate of Incorporation of SHG shall provide,
among other things, that the name of SHG shall be "Lodgian, Inc."
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
--------------------------------------------------
2.1 CONVERSION OF SECURITIES. The manner and basis of converting the
securities of Servico and Impac and each of Servico 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 common stock, par value $0.01 per share, of SHG ("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 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 7,400,000 (the "Base Number") and 1,400,000, divided by (ii) the number
of outstanding Impac Units; provided, however, that if the average of the
closing sale prices of Servico Common Stock on the NYSE over the ten consecutive
trading period preceding the Satisfaction Date (the "Trading Period Average") 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 the Trading Period Average, and (ii) if the Trading Period Average is
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 the Trading Period Average.
(c) 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 Impac
Units 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 holders of Impac Units 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
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<PAGE> 191
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 holders of Impac Units. 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.
(d) 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.
(e) 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") or Impac Units
(Impac Units together with 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.
(f) 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.
2.4 CONVERSION OF COMMON STOCK AND MEMBERSHIP INTERESTS OF SERVICO
MERGER SUB AND IMPAC 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, all membership interests of Impac
Merger Sub issued and outstanding immediately prior to the Effective Time, and
all rights in respect thereof, shall,
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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
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 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
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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 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 either 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 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 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 and Impac Units,
the Exchange Agent shall hold such proceeds in trust for the holders of Servico
Common Stock (the "Servico 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 or
the Impac Unit Trust, as the case may be, to which each holder of Servico 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 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 or Impac
Units, as the case may be, is entitled (after taking into account all shares of
Servico 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 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
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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 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 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.
(e) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Servico 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 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 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 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 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 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 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 and Servico
Merger Sub (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 as required by the FBCA). 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
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
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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 Servico Articles of Merger as
required by the FBCA and the Impac Articles of Merger as required by the GLLCA,
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,
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
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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
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,
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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 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
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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 from
constituting a transaction qualifying under Section 368(a) of the Code or would
prevent the Impac 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 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,
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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
---------------------------------------
Impac hereby represents and warrants to Servico as follows:
4.1 ORGANIZATION, STANDING AND POWER. Each of Impac and each subsidiary
of Impac (the "Impac Subsidiaries") 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 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 the consummation by Impac 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 are necessary to authorize this Agreement or to consummate such Mergers
(other than 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 as required by the
GLLCA). This Agreement has been duly executed and delivered by Impac and,
assuming the due authorization, execution and delivery by the other parties
hereto, constitutes the legal, valid and binding obligations of Impac,
enforceable against Impac and the Members in accordance with its terms. The
Members do not and will not have any dissenters' rights or other similar
statutory or contractual rights to be paid the fair value of their membership
interests in Impac by virtue of the Mergers.
4.4 AUTHORITY TO DO BUSINESS. Each of Impac 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 or any of
the Impac Subsidiaries manage or operate facilities and/or properties and (ii)
all jurisdictions in which Impac or any of the Impac Subsidiaries are qualified
to do business. Each of Impac and the Impac Subsidiaries is duly qualified or
licensed to transact business and is in good standing as a foreign limited
liability company
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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 (certified by the appropriate public official in the
State of Georgia) and the Operating Agreement of Impac, 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 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 and the Impac Subsidiaries from
its respective date of incorporation or organization to the date hereof.
4.6 SUBSIDIARIES. SCHEDULE 4.6 lists all Impac Subsidiaries, their
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 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.
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
consummation by Impac of the transactions contemplated hereby do not and will
not (i) conflict with or violate any provision of the Articles of Organization
or Operating Agreement of Impac or any equivalent organizational documents of
any Impac Subsidiary, (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 or any Impac Subsidiary or by which any property or
asset of Impac 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 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 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 Impac does not, and the performance by Impac of its obligations hereunder and
the consummation of the Mergers will not, require any consent, approval,
authorization or permit of, or filing by Impac with or notification by Impac 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 Impac Articles of Merger as required by the GLLCA; 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
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Adverse Effect. Neither Impac 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 and the Impac Subsidiaries as
of December 31, 1995 and 1996 and September 30, 1997, and the related statements
of income, cash flows and changes in member's equity of Impac and the Impac
Subsidiaries 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, pursuant to their audit of the financial records of Impac and the
Impac Subsidiaries (collectively, the "Impac Financial Statements"). The Impac
Financial Statements present fairly, in all material respects, Impac'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 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 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 and the Impac Subsidiaries or in the notes thereto,
prepared in accordance with GAAP, other than non-material liabilities,
commitments or obligations incurred since September 30, 1997 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
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 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,
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
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 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) Impac and the Impac Subsidiaries are in
compliance with all applicable Environmental Laws. All past
noncompliance of Impac or any Impac Subsidiary with
Environmental Laws or Environmental Permits has been resolved
without any pending, ongoing or future obligation, cost or
liability; and
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(ii) neither Impac 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 or any Impac Subsidiary in
violation of any Environmental Law.
4.11 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 4.11, neither
Impac 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. Impac 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 Impac or any Impac Subsidiary. Except as set forth on SCHEDULE 4.11,
neither Impac 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 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 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 nor any Impac Subsidiary shall
enter into any agreement with any financial advisor which would, following the
Closing, obligate Impac, 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 September 30, 1997: (i) each of Impac and the Impac
Subsidiaries has conducted its business only in the ordinary and usual course
and in a manner consistent with past practices; (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
material obligations pursuant to this Agreement and the consummation of the
Mergers by Impac; and (iv) neither Impac 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. All such membership interests and each of 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 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 or any Impac Subsidiary. All
Taxes required
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to be paid in connection with the issuance by Impac 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 or any Impac Subsidiary; (ii) options, warrants, subscriptions or other
rights to acquire capital stock or other equity or membership interests of Impac
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 or any
Impac Subsidiary, or the issuance or repurchase by Impac or any Impac Subsidiary
of any capital stock or other equity or membership interests of Impac or any
Impac Subsidiary, any such securities or instruments convertible into or
exchangeable for capital stock or other equity or membership interests of Impac
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 September 30, 1997 Impac
Financial Statements and to each item of material personal (movable) property,
tangible and intangible, acquired since September 30, 1997 (other than
non-material property disposed of in the ordinary course of business consistent
with past practice since September 30, 1997 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 September 30, 1997 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.
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
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
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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.
4.18 INTANGIBLE PROPERTY. Except as would not, individually or in the
aggregate, have an Impac Material Adverse Effect, Impac 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 and the Impac Subsidiaries as currently conducted
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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 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 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 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 and the Impac
Subsidiaries' properties for the existing construction of all Construction
Projects, and the operation of their 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 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. 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.
(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,
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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 or any Impac Subsidiary for any of their
managers, directors, officers, consultants, employees or former employees (the
"Impac Plans"). Neither Impac or 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, Servico, SHG or any
subsidiary thereof to any person other than 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 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 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 or any Impac Subsidiary, or any manager, director, officer
or employee of Impac 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
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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 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 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 of Impac 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 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 and the Impac Subsidiaries on a consolidated basis,
including, but not limited to, any: (i) contract, commitment, or agreement
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; (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 for other similar rights or agreements with
third parties involving annual royalty payments in excess of $250,000; (iv)
agreements which restrict Impac 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 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 or any Impac Subsidiary or
any affiliate of any manager, officer, director or employee of Impac or any
Impac Subsidiary involving in excess of $60,000; (vii) any indemnification,
contribution or similar agreement or arrangement pursuant to which Impac 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 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 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 or the applicable Impac Subsidiary which is
a party to same and, to Impac'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 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
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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 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 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 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
or 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 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 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 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 and the Impac
Subsidiaries or relating to or chargeable against any of their assets, revenues
or income through September 30, 1997, 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 and the Impac Subsidiaries.
(c) Except as set forth on SCHEDULE 4.25(c), none of Impac 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 and the
Impac Subsidiaries. Except as set forth on SCHEDULE 4.25(c), neither Impac nor
any of the Impac Subsidiaries is delinquent in the payment of any Tax. No
deficiencies for any Tax have been asserted against Impac 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 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.
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4.26 QUALIFYING TRANSACTION. To the knowledge of Impac, neither Impac
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
from constituting a transaction qualifying under Section 368(a) of the Code or
the Impac 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.
4.27 AFFILIATES. SCHEDULE 4.27 sets forth the names and addresses of
those persons who may be deemed to be "affiliates" of Impac 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 herein
(including the exhibits and schedules hereto), and no certificate furnished or
to be furnished by or on behalf of Impac 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. 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. 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, (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 the
prior written consent of Servico, which shall not be
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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 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 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 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
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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 shall: (i) afford to Servico and its
agents and representatives full access to the properties, books, records and
other information of Impac and the Impac 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 Impac's personnel,
without unreasonable disruption of normal business operations, to assist Servico
in its investigation of Impac 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 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.
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5.4 CONSENTS. Each of Impac 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 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 and
Servico represents and warrants to the other that such information, as amended
or supplemented, shall be true and not misleading. Each of Impac 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, Impac
shall not (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 or any
Impac Subsidiary, whether by merger, purchase of assets or otherwise (a
"Competing Transaction") and shall not, directly or indirectly:
(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 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 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 and any Impac Subsidiary,
afford to any person or entity (other than Servico and
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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 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 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
non-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 Coopers & Lybrand L.L.P., 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 from qualifying as a reorganization
under the provisions of Section 368(a) of the Code or the Impac 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.
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Following the Effective Time, and consistent with any such consent, neither of
the Surviving Corporations, Servico, Impac, 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
shareholders pursuant to the Servico Merger 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 or Impac, as the
case may be, shall furnish all information concerning Servico or Impac
(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 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 include 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. 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
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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 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, (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 or any Impac Subsidiary, or their respective
managers, officers or directors, should be discovered by Impac that should be
set forth in an amendment or a supplement to the Registration Statement or Joint
Proxy Statement, Impac shall promptly inform Servico.
(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 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.
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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 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
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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. Impac 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 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.
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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
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
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(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 Impac Hotel Development, Inc. ("Development"), dated
March 10, 1998, 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 Development after the Closing
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 Development 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 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, 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;
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and no judicial or administrative decision shall have been rendered; in each
case, which enjoins, prohibits or materially 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 and Impac, based upon customary representations of
Servico and Impac 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
and Impac, based upon customary representations of Servico and Impac and
customary assumptions, to the effect that the Impac Merger will be treated for
federal income tax purposes as a transfer of property described in Section 351
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 contained herein or in any certificate
or other 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. Impac 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.
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(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 their 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, 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 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 Subsidiary may be limited to issuances occurring after PGFM first acted as
legal counsel for Impac or any Impac Subsidiary.
(f) CERTIFICATES. Impac shall have delivered to Servico a
certificate executed by its Manager and 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 or Impac) have been fulfilled and (ii) attached to such certificate
is a true and correct copy of the resolutions or consents of the Members
authorizing the execution, delivery and performance of this Agreement by Impac.
Servico shall also have received (i) a certificate of Secretary as to the
incumbency and signatures of the officers of Impac executing this Agreement and
the Impac Articles of Merger, and (ii) a certificate issued by the Secretary of
State of Georgia and of each state in which Impac and any Impac Subsidiary is
qualified to do business, as of a date reasonably acceptable to Servico, as to
the good standing of Impac 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).
7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF IMPAC. The obligations
of Impac 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.
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(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.
(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, 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 July 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
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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 in this Agreement are not in all
material respects true and correct, or if Impac 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 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
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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.
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 or
SHG 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 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
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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.
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 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.
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(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 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 reimburse ment 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.
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<PAGE> 228
(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 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.
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,
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<PAGE> 229
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 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 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;
(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
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<PAGE> 230
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> 231
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: /s/ David A. Buddemeyer
-----------------------------------------
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: /s/ David A. Buddemeyer
-----------------------------------------
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: /s/ Robert S. Cole
-----------------------------------------
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: /s/ David A. Buddemeyer
-----------------------------------------
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
By: /s/ David A. Buddemeyer
-----------------------------------------
Name: David A. Buddemeyer
Title: Manager
Address: 1601 Belvedere Road
West Palm Beach, Florida 33406
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<PAGE> 232
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> 233
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> 234
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> 235
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> 236
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> 237
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> 238
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> 239
APPENDIX D
LODGIAN, INC.
1998 SHORT-TERM INCENTIVE
COMPENSATION PLAN
(ADOPTED AS OF APRIL ___, 1998)
<PAGE> 240
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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<PAGE> 241
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> 242
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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"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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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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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> 253
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,
<PAGE> 255
(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> 269
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.
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"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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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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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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(i) DEFINITION OF "CORPORATION". For purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article VI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(j) CERTAIN OTHER DEFINITIONS. For purposes of this Article VI,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves service by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation," as referred to in
this Article VI.
(k) CONTINUATION OF RIGHTS. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(l) REPEAL OR MODIFICATION. Any repeal or modification of this
Article VI by the stockholders of the Corporation shall not adversely affect any
rights to indemnification and to advancement of expenses that any person may
have at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
(m) ACTION AGAINST CORPORATION. Notwithstanding any provisions of
this Article VI to the contrary, no person shall be entitled to indemnification
or advancement of expenses under this Article VI with respect to any action,
suit or proceeding, or any claim therein, brought or made by him against the
Corporation.
ARTICLE VII
DIRECTORS
SECTION 7.1 DIRECTOR LIABILITY. (a) A director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve
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intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL or (iv) for any transaction from which the director derived any
improper personal benefit.
(b) If the DGCL is amended hereafter to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
authorized by the DGCL, as so amended, without further action by either the
Board of Directors or the stockholders of the Corporation.
(c) Any repeal or modification of this Article VII shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to or at
the time of such repeal or modification.
SECTION 7.2 REMOVAL. Any or all of the directors may be removed only
for due cause by vote of the record holders of a majority of the outstanding
shares of the Corporation entitled to vote thereon at a meeting of the
stockholders; PROVIDED, HOWEVER, that no such removal can be made at such
meeting unless the notice thereof specifies such removal and the reasons
therefor as one of the matters that shall be considered at such meeting.
ARTICLE VIII
MANAGEMENT OF THE AFFAIRS OF THE CORPORATION
SECTION 8.1 MANAGEMENT OF THE AFFAIRS OF THE CORPORATION. (a) The
business and affairs of the Corporation shall be managed by the Board of
Directors, which may exercise all the powers of the Corporation and do all such
lawful acts and things that are not conferred upon or reserved to the
stockholders by law, by this Restated Certificate of Incorporation or by the
bylaws of the Corporation (the "BYLAWS").
(b) Election of directors of the Corporation need not be by written
ballot, unless required by the Bylaws.
(c) The following provisions are inserted for the limitation and
regulation of the powers of the Corporation and of its directors and
stockholders:
(i) The Bylaws, or any of them, may be altered, amended 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 any
provision of this Restated Certificate of Incorporation as it may be
amended from time to time, either by the number of directors
constituting the majority of the Whole Board or by the stockholders of
the Corporation upon the affirmative vote of the holders of at least
80% of the outstanding capital stock entitled to vote thereon.
(ii) The Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number
of directors constituting the entire Board of Directors. The term of
the
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initial Class I directors shall terminate on the date of the 1999
annual meeting of stockholders; the term of the initial Class II
directors shall terminate on the date of the 2000 annual meeting of
stockholders; and the term of the initial Class III directors shall
terminate on the date of the 2001 annual meeting of stockholders. At
each annual meeting of stockholders, beginning with the 1999 annual
meeting of stockholders, 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
shall 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. 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 stockholders 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 Board of Directors 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.
Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation
shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of
such directorships shall be governed by the terms of this Restated
Certificate of Incorporation or the resolution or resolutions adopted
by the Board of Directors pursuant to Section 4.2 of Article IV hereof
applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Section 8.1(c) unless expressly provided
by such terms.
(iii) Subject to the rights, if any, of the holders of shares
of Preferred Stock then outstanding and the notice provisions set forth
in Section 7.2 of Article VII, any or all of the directors of the
Corporation 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 the Corporation entitled to vote generally in the election of
directors, considered for purposes of this paragraph as one class.
(iv) Special meetings of the stockholders of the Corporation
for any purpose or purposes may be called at any time by a majority of
the members of the Board of Directors or Chief Executive Officer of the
Corporation. A special meeting of the stockholders of the Corporation
may not be called by any other person or persons.
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ARTICLE IX
PRIVATE PROPERTY
SECTION 9.1 PRIVATE PROPERTY. The private property of the
stockholders of the Corporation shall not be subject to the payment of corporate
debts to any extent whatsoever.
ARTICLE X
SHAREHOLDER CONSENT
SECTION 10.1 NO STOCKHOLDERS' CONSENT IN LIEU OF MEETING. Any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual meeting or special meeting of such stockholders
and may not be effected by any consent in writing by any such stockholders.
ARTICLE XI
AMENDMENT
SECTION 11.1 AMENDMENTS. Notwithstanding anything contained in this
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 80% of the outstanding shares of capital stock of the
Corporation entitled to vote thereon shall be required to amend, repeal, or
adopt any provision inconsistent with, Section 7.2 of Article VII, Section
8.1(c) of Article VIII or this Article XI of this Restated Certificate of
Incorporation.
ARTICLE XII
EFFECTIVE DATE
SECTION 12.1 EFFECTIVE DATE. This Restated Certificate of
Incorporation shall become effective upon filing with the Secretary of State of
the State of Delaware.
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APPENDIX H
===============================================================================
RESTATED
BYLAWS
OF
LODGIAN, INC.
===============================================================================
<PAGE> 289
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I OFFICES............................................................................-1-
SECTION 1. Registered Office in Delaware......................................................-1-
SECTION 2. Other Offices......................................................................-1-
ARTICLE II MEETINGS OF STOCKHOLDERS...........................................................-1-
SECTION 1. Annual Meeting.....................................................................-1-
SECTION 2. Special Meetings...................................................................-1-
SECTION 3. Notice of Meetings.................................................................-1-
SECTION 4. Waiver of Notice...................................................................-2-
SECTION 5. Adjournments.......................................................................-2-
SECTION 6. Quorum.............................................................................-2-
SECTION 7. Voting.............................................................................-3-
SECTION 8. Proxies............................................................................-3-
SECTION 9. Organization.......................................................................-3-
SECTION 10. Advance Notice of Business to Be Transacted at Annual Meetings.....................-3-
ARTICLE III BOARD OF DIRECTORS.................................................................-4-
SECTION 1. General Powers.....................................................................-4-
SECTION 2. Number and Term of Holding Office..................................................-5-
SECTION 3. Nomination of Directors and Advance Notice Thereof.................................-5-
SECTION 4. Resignation........................................................................-6-
SECTION 5. Vacancies..........................................................................-6-
SECTION 6. Meetings...........................................................................-6-
SECTION 7. Action by Consent..................................................................-7-
SECTION 8. Meetings by Conference Telephone, etc..............................................-7-
SECTION 9. Compensation.......................................................................-8-
ARTICLE IV COMMITTEES.........................................................................-8-
SECTION 1. Committees.........................................................................-8-
ARTICLE V OFFICERS...........................................................................-9-
SECTION 1. Officers...........................................................................-9-
SECTION 2. Authority and Duties...............................................................-9-
SECTION 3. Term of Office, Resignation and Removal............................................-9-
SECTION 4. Vacancies..........................................................................-9-
SECTION 5. The Chairman.......................................................................-9-
SECTION 6. The Chief Executive Officer.......................................................-10-
SECTION 7. The President.....................................................................-10-
SECTION 8. Vice Presidents...................................................................-10-
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 9. The Secretary.....................................................................-10-
SECTION 10. Assistant Secretaries.............................................................-10-
SECTION 11. Chief Financial Officer...........................................................-11-
SECTION 12. The Treasurer.....................................................................-11-
SECTION 13. Assistant Treasurers..............................................................-11-
SECTION 14. Additional Officers...............................................................-11-
ARTICLE VI DIVIDENDS, CHECKS, DRAFTS, NOTES AND PROXIES......................................-11-
SECTION 1. Dividends.........................................................................-11-
SECTION 2. Checks, Drafts and Notes..........................................................-11-
SECTION 3. Execution of Proxies..............................................................-12-
ARTICLE VII SHARES AND TRANSFER OF SHARES.....................................................-12-
SECTION 1. Certificates of Stock.............................................................-12-
SECTION 2. Record............................................................................-12-
SECTION 3. Transfer of Stock.................................................................-12-
SECTION 4. Addresses of Stockholders.........................................................-12-
SECTION 5. Lost, Destroyed or Mutilated Certificates.........................................-13-
SECTION 6. Facsimile Signatures..............................................................-13-
SECTION 7. Regulations.......................................................................-13-
SECTION 8. Record Date.......................................................................-13-
SECTION 9. Registered Stockholders...........................................................-14-
ARTICLE VIII BOOKS AND RECORDS.................................................................-14-
SECTION 1. Books and Records.................................................................-14-
ARTICLE IX SEAL..............................................................................-14-
SECTION 1. Seal..............................................................................-14-
ARTICLE X FISCAL YEAR.......................................................................-14-
SECTION 1. Fiscal Year.......................................................................-14-
ARTICLE XI INDEMNIFICATION...................................................................-14-
SECTION 1. Indemnification...................................................................-14-
ARTICLE XII AMENDMENTS........................................................................-17-
SECTION 1. Amendments........................................................................-17-
</TABLE>
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RESTATED BYLAWS
OF
LODGIAN, INC.
----------------------------------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE IN DELAWARE. The address of the
registered office of Lodgian, Inc. (hereinafter called the "CORPORATION") in the
State of Delaware shall be The Corporation Trust Company, 1209 Orange Street, in
the City of Wilmington, County of New Castle, Delaware 19801, and the registered
agent in charge thereof shall be The Corporation Trust Company.
SECTION 2. OTHER OFFICES. The Corporation may also have an
office or offices at any other place or places within or without the State of
Delaware as the Board of Directors of the Corporation (the "BOARD") may from
time to time determine or the business of the Corporation may from time to time
require. Notwithstanding the foregoing, the corporate headquarters of the
Corporation shall be initially located in Atlanta, Georgia.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held at such place within or
without the State of Delaware, and at such date and hour, as shall be designated
by the Board and set forth in the notice or in a duly executed waiver of notice
thereof.
SECTION 2. SPECIAL MEETINGS. A special meeting of the
stockholders for any purpose or purposes may be called at any time by a majority
of the members of the Board or by the Chief Executive Officer of the Corporation
(the "CEO"). A special meeting of stockholders of the Corporation may not be
called by any other person or persons. Any such meeting shall be held at such
place within or without the State of Delaware, and at such date and hour, as
shall be designated in the notice or in a duly executed waiver of notice of such
meeting. Only such business as is stated in the written notice of a special
meeting may be acted upon thereat.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided by
law, written notice of each annual or special meeting of stockholders stating
the place, date and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is held,
<PAGE> 292
shall be given personally or by first class mail to each stockholder entitled to
vote at such meeting, not less than 10 nor more than 60 calendar days before the
date of the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. If, prior to the time of mailing, the Secretary shall have received
from any stockholder entitled to vote a written request that notices intended
for such stockholder are to be mailed to an address other than the address that
appears on the records of the Corporation, notices intended for such stockholder
shall be mailed to the address designated in such request.
Notice of a special meeting may be given by the person or
persons calling the meeting, or, upon the written request of such person or
persons, by the Secretary of the Corporation on behalf of such person or
persons. If the person or persons calling a special meeting of stockholders
gives notice thereof, such person or persons shall forward a copy thereof to the
Secretary. Every request to the Secretary for the giving of notice of a special
meeting of stockholders shall state the purpose or purposes of such meeting.
SECTION 4. WAIVER OF NOTICE. Notice of any annual or special
meeting of stockholders need not be given to any stockholder entitled to vote at
such meeting who files a written waiver of notice with the Secretary, duly
executed by the person entitled to notice, whether before or after the meeting.
Neither the business to be transacted at, nor the purpose of, any meeting of
stockholders need be specified in any written waiver of notice. Attendance of a
stockholder at a meeting, in person or by proxy, shall constitute a waiver of
notice of such meeting, except as provided by law.
SECTION 5. ADJOURNMENTS. When a meeting is adjourned to
another date, hour or place, notice need not be given of the adjourned meeting
if the date, hour and place thereof are announced at the meeting at which the
adjournment is taken. If the adjournment is for more than 30 calendar days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting. At the adjourned meeting any business
may be transacted which might have been transacted at the original meeting.
When any meeting is convened, the presiding officer, if
directed by the Board, may adjourn the meeting if (a) no quorum is present for
the transaction of business, or (b) the Board determines that adjournment is
necessary or appropriate to enable the stockholders (i) to consider fully
information which the Board determines has not been made sufficiently or timely
available to stockholders or (ii) otherwise to exercise effectively their voting
rights.
SECTION 6. QUORUM. Except as otherwise provided by law or the
Restated Certificate of Incorporation of the Corporation (the "RESTATED
CERTIFICATE OF INCORPORATION"), whenever a class of stock of the Corporation is
entitled to vote as a separate class, or whenever classes of stock of the
Corporation are entitled to vote together as a single class, on any matter
brought before any meeting of the stockholders, whether annual or special,
holders of shares entitled
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to cast a majority of the votes entitled to be cast by all the holders of the
shares of stock of such class voting as a separate class, or classes voting
together as a single class, as the case may be, outstanding and entitled to vote
thereon, present in person or by proxy, shall constitute a quorum entitled to
take action with respect to that vote on that matter at any such meeting of the
stockholders. If, however, such quorum shall not be present or represented, the
stockholders entitled to vote thereon may adjourn the meeting with respect to
that matter from time to time in accordance with Section 5 of this Article II
until a quorum shall be present or represented.
SECTION 7. VOTING. Unless otherwise provided in the Restated
Certificate of Incorporation, each stockholder represented at a meeting of
stockholders shall be entitled to cast one vote for each share of capital stock
entitled to vote thereat held by such stockholder. Except as otherwise provided
by law or the Restated Certificate of Incorporation or these Bylaws, when a
quorum is present with respect to any matter brought before any meeting of the
stockholders, the vote of the holders of stock casting a majority of the votes
present in person or represented by proxy and entitled to be cast on the matter
shall decide any such matter. Votes need not be by written ballot, unless the
Board, in its discretion, requires any vote or votes cast at such meeting to be
cast by written ballot.
SECTION 8. PROXIES. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for such
stockholder by proxy. Such proxy shall be filed with the Secretary before such
meeting of stockholders at such time as the Board may require. No proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period.
SECTION 9. ORGANIZATION. Meetings of stockholders of the
Corporation shall be presided over by the CEO in accordance with Article V,
Section 6, or in the absence of the CEO, by the President, or in the absence of
the President by a director chosen by a majority of the directors present at
such meeting. The Secretary of the Corporation (the "SECRETARY"), or in the
absence of the Secretary an Assistant Secretary, shall act as secretary of the
meeting, but in the absence of the Secretary and any Assistant Secretary the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 10. ADVANCE NOTICE OF BUSINESS TO BE TRANSACTED AT
ANNUAL MEETINGS. (a) To be properly brought before the annual meeting of
stockholders, business must be either (i) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board (or any duly
authorized committee thereof), (ii) otherwise properly brought before the
meeting by or at the direction of the Board (or any duly authorized committee
thereof) or (iii) otherwise properly brought before the meeting by any
stockholder of the Corporation (A) who is a stockholder of record on the date of
the giving of the notice provided for in this Section 10 and on the record date
for the determination of stockholders entitled to vote at such meeting and (B)
who complies with the notice procedures set forth in this Section 10. In
addition to any other applicable requirements, including but not limited to the
requirements of Rule 14a-8 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
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ACT"), for business to be properly brought before an annual meeting by a
stockholder pursuant to clause (iii) of this Section 10(a), such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
(b) To be timely, a stockholder's notice to the Secretary
pursuant to clause (iii) of Section 10(a) must be delivered to or mailed and
received at the principal executive offices of the Corporation, not less than 60
days nor more than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; PROVIDED, HOWEVER, that in the event
that the annual meeting is called for a date that is not within 30 days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received no later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting is
mailed or such public disclosure of the date of the annual meeting is made,
whichever first occurs.
(c) To be in proper written form, a stockholder's notice to
the Secretary pursuant to clause (iii) of Section 10(a) must set forth as to
each matter such stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
record address of such stockholder, (iii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, together with evidence reasonably satisfactory to
the Secretary of such beneficial ownership, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
(d) Notwithstanding anything in these Bylaws to the contrary,
no business shall be conducted at the annual meeting of stockholders except
business brought before such meeting in accordance with the procedures set forth
in this Section 10; PROVIDED, HOWEVER, that, once business has been properly
brought before such meeting in accordance with such procedures, nothing in this
Section 10 shall be deemed to preclude discussion by any stockholder of any such
business. If the chairman of such meeting determines that business was not
properly brought before the meeting in accordance with the foregoing procedures,
the chairman shall declare to the meeting that the business was not properly
brought before the meeting and such business shall not be transacted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property, business and affairs
of the Corporation shall be managed by the Board, which may exercise all such
powers of the Corporation
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and do all such lawful acts and things as are not by law or by the Restated
Certificate of Incorporation directed or required to be exercised or done by the
stockholders.
SECTION 2. NUMBER AND TERM OF HOLDING OFFICE. The Board of the
Corporation shall consist of not less than six members, the exact number to be
determined from time to time by resolution adopted by the affirmative vote of a
majority of all directors of the Corporation then holding office at any special
or regular meeting. Any such resolution increasing or decreasing the number of
directors shall have the effect of creating or eliminating a vacancy or
vacancies, as the case may be, provided that no such resolution shall reduce the
number of directors below the number then holding office. Except as provided in
Section 5 of this Article III, directors shall be elected by a plurality of the
votes cast at annual meetings of stockholders, and each director so elected
shall hold office as provided by Article VIII of the Restated Certificate of
Incorporation. None of the directors need be stockholders of the Corporation.
SECTION 3. NOMINATION OF DIRECTORS AND ADVANCE NOTICE THEREOF.
(a) Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors of the Corporation, except as may be
otherwise provided in the Restated Certificate of Incorporation with respect to
the right of holders of preferred stock of the Corporation to nominate and elect
a specified number of directors in certain circumstances. Nominations of persons
for election to the Board may be made at any annual meeting of stockholders, or
at any special meeting of stockholders called for the purpose of electing
directors, (i) by or at the direction of the Board (or any duly authorized
committee thereof) or (ii) by any stockholder of the Corporation (A) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 3 and on the record date for the determination of stockholders
entitled to vote at such meeting and (B) who complies with the notice procedures
set forth in this Section 3. In addition to any other applicable requirements,
for a nomination to be made by a stockholder pursuant to clause (ii) of this
Section 3(a), such stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation.
(b) To be timely, a stockholder's notice to the Secretary
pursuant to clause (ii) of Section 3(a) must be delivered to or mailed and
received at the principal executive offices of the Corporation (i) in the case
of an annual meeting, not less than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
PROVIDED, HOWEVER, that in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice by
the stockholder in order to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the annual meeting is mailed or such public disclosure of the date of
the annual meeting is made, whichever first occurs, or (ii) in the case of a
special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth day following the day on which
notice of the date of the special meeting is mailed or public disclosure of the
date of the special meeting is made, whichever first occurs.
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(c) To be in proper written form, a stockholder's notice to
the Secretary pursuant to clause (ii) of Section 3(a) must set forth (i) as to
each person whom the stockholder proposes to nominate for election as a
director, (A) the name, age, business address and residence address of the
person, (B) the principal occupation or employment of the person, (C) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by the person and (D) any other information
relating to the person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Exchange Act
and the rules and regulations promulgated thereunder; and (ii) as to the
stockholder giving the notice, (A) the name and record address of such
stockholder, (B) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
together with evidence reasonably satisfactory to the Secretary of such
beneficial ownership, (C) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such stockholder, (D) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the persons named in its
notice and (E) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
(d) No person shall be eligible for election as a director of
the Corporation unless nominated in accordance with the procedures set forth in
this Section 3. If the chairman of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the chairman of the
meeting shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
SECTION 4. RESIGNATION. Any director may resign at any time by
giving written notice to the Board, the CEO, the President or the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, then it shall take effect when accepted by action of the Board. Except
as aforesaid, acceptance of such resignation shall not be necessary to make it
effective.
SECTION 5. VACANCIES. Any vacancy occurring in the Board,
including a vacancy created by an increase in the number of directors, may be
filled by the stockholders or by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board. A director elected
to fill a vacancy shall hold office only until the next election of directors by
the stockholders. If there are no remaining directors, the vacancy shall be
filled by the stockholders.
SECTION 6. MEETINGS. (a) ANNUAL MEETINGS. As soon as
practicable after each annual election of directors, the Board shall meet for
the purpose of organization and the transaction
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of other business, unless it shall have transacted all such business by written
consent pursuant to Section 7 of this Article III.
(b) OTHER MEETINGS. Other meetings of the Board shall be held
at such times as the Board shall from time to time determine or upon call by the
Chairman, the CEO, the President or any two directors.
(c) NOTICE OF MEETINGS. Regular meetings of the Board may be
held without notice. The Secretary of the Corporation shall give notice to each
director of each special meeting, including the time and place of such special
meeting. Notice of each such meeting shall be given to each director either by
mail, at least two days before the day on which such meeting is to be held, or
by telephone, telegram, facsimile, telex or cable not later than the day before
the day on which such meeting is to be held or on such shorter notice as the
person or persons calling such meeting may deem necessary or appropriate in the
circumstances. Notice of any meeting shall not be required to be given to any
director who shall attend such meeting. A waiver of notice by the person
entitled thereto, whether before or after the time of any such meeting, shall be
deemed equivalent to adequate notice.
(d) PLACE OF MEETINGS. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board may from
time to time by resolution determine or as shall be designated in the respective
notices or waivers of notice thereof.
(e) QUORUM AND MANNER OF ACTING. Except as otherwise provided
by law, the Restated Certificate of Incorporation or these Bylaws, a majority of
the total number of directors then in office shall be necessary at any meeting
of the Board in order to constitute a quorum for the transaction of business at
such meeting, and the affirmative vote of a majority of those directors present
at any such meeting at which a quorum is present shall be necessary for the
passage of any resolution or act of the Board. In the absence of a quorum for
any such meeting, a majority of the directors present thereat may adjourn such
meeting from time to time until a quorum shall be present thereat. Notice of any
adjourned meeting need not be given.
(f) MINUTES OF MEETINGS. The Secretary or, in the case of his
absence, any person (who shall be an Assistant Secretary, if an Assistant
Secretary is present) whom the chairman of the meeting shall appoint shall act
as secretary of such meeting and keep the minutes thereof.
SECTION 7. ACTION BY CONSENT. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent or consents thereto is signed by all
members of the Board or such committee, as the case may be, and such written
consent or consents are filed with the minutes of the proceedings of the Board
or such committee.
SECTION 8. MEETINGS BY CONFERENCE TELEPHONE, ETC. Any one or
more members of the Board, or of any committee thereof, may participate in a
meeting of the Board, or of such
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committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting by such means shall constitute presence in person
at such meeting.
SECTION 9. COMPENSATION. Each director, in consideration of
his serving as such, shall be entitled to receive from the Corporation such
amount per annum, if any, or such fees, if any, for attendance at meetings of
the Board or of any committee thereof, or both, as the Board shall from time to
time determine. The Board may likewise provide that the Corporation shall
reimburse each director or member of a committee for any expenses incurred by
him on account of his attendance at any such meeting. Nothing contained in this
Section 9 shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
SECTION 1. COMMITTEES. The Board, by resolution passed by a
majority of the number of directors constituting the whole Board, may designate
members of the Board to constitute one or more committees which shall in each
case consist of such number of directors, not fewer than two, and, to the extent
permitted by law and provided in the resolution establishing such committee,
shall have and exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified members at any meeting of any such committee.
In the absence or disqualification of a member of a committee, and in the
absence of a designation by the Board of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any absent or disqualified member. A majority of all the
members of any such committee may fix its rules of procedure, determine its
action and fix the time and place, whether within or without the State of
Delaware, of its meetings and specify what notice thereof, if any, shall be
given, unless the Board shall otherwise by resolution provide. The Board, upon
approval of a majority of the number of directors constituting the whole Board,
shall have 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. Each committee shall keep regular minutes and report
to the Board when required.
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ARTICLE V
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be
the CEO, the President, the Secretary and a Treasurer and may include one or
more Vice Presidents and one or more Assistant Secretaries and one or more
Assistant Treasurers. The Board of Directors from time to time may elect a
Chairman or Co-Chairmen of the Board. Any two or more offices may be held by the
same person.
SECTION 2. AUTHORITY AND DUTIES. All officers shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these Bylaws or, to the extent not so provided, by resolution of the
Board.
SECTION 3. TERM OF OFFICE, RESIGNATION AND REMOVAL. (a) Each
officer shall be appointed by the Board and shall hold office for such term as
may be determined by the Board. Each officer shall hold office until his
successor has been appointed and qualified or his earlier death or resignation
or removal in the manner hereinafter provided. The Board may require any officer
to give security for the faithful performance of his duties.
(b) Any officer may resign at any time by giving written
notice to the Board, the CEO, the President or the Secretary. Such resignation
shall take effect at the time specified in such notice or, if the time be not
specified, upon receipt thereof by the Board, the CEO, the President or the
Secretary, as the case may be. Unless otherwise specified therein, acceptance of
such resignation shall not be necessary to make it effective.
(c) All officers and agents appointed by the Board shall be
subject to removal, with or without cause, at any time by the Board or by the
action of the recordholders of a majority of the Shares entitled to vote
thereon.
SECTION 4. VACANCIES. Any vacancy occurring in any office of
the Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 3 hereof, any officer appointed by the Board
to fill any such vacancy shall serve only until such time as the unexpired term
of his predecessor expires unless reappointed by the Board.
SECTION 5. THE CHAIRMAN. The Chairman of the Board of
Directors shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors. The Board of Directors may appoint more than one
person to serve as Co-Chairmen of the Board of Directors. If the Chairman or any
Co-Chairman is not available to preside over a meeting of the Board, a director
chosen by a majority of the directors present shall preside over the meeting.
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SECTION 6. THE CHIEF EXECUTIVE OFFICER. The CEO shall be the
senior officer of the Corporation and, subject to the control of the Board of
Directors, shall have general and active management and control of the business
and affairs of the Corporation and over its several officers, and shall see that
all orders and resolutions of the Board are carried into effect. The CEO shall
have the power to call special meetings of stockholders and call special
meetings of the Board, shall preside over meetings of the stockholders of the
Corporation. The CEO shall have such additional duties specified in any
Employment Agreement between the Corporation and such officer in effect from
time to time.
SECTION 7. THE PRESIDENT. The President shall have the power
to call special meetings of the Board. If the CEO is not present at a meeting of
the stockholders, the President shall preside, and if the President is not
present at such meeting, a director or officer chosen by a majority of the
directors present shall preside over the meeting. The President shall exercise
supervision over the business of the Corporation and over its several officers,
subject to the oversight of the CEO. The President shall have such additional
duties specified in any Employment Agreement between the Corporation and such
officer in effect from time to time.
SECTION 8. VICE PRESIDENTS. Vice Presidents, if any, in such
order as may be determined by the Board, shall generally assist the CEO and the
President and perform such other duties as the Board, the CEO, or the President
shall prescribe.
The Board shall have the right to appoint a Vice President of
Finance who shall assist the President with respect to financing and capital
raising activities.
SECTION 9. THE SECRETARY. The Secretary shall, to the extent
practicable, attend all meetings of the Board and all meetings of stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board or the CEO and shall act
under the supervision of the CEO. He shall keep in safe custody the seal of the
Corporation and affix the same to any instrument that requires that the seal be
affixed to it and which shall have been duly authorized for signature in the
name of the Corporation and, when so affixed, the seal shall be attested by his
signature or by the signature of the Treasurer of the Corporation (the
"TREASURER") or an Assistant Secretary or Assistant Treasurer of the
Corporation. He shall keep in safe custody the certificate books and stockholder
records and such other books and records of the Corporation as the Board or the
CEO may direct and shall perform all other duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the CEO.
SECTION 10. ASSISTANT SECRETARIES. Assistant Secretaries of
the Corporation ("ASSISTANT SECRETARIES"), if any, in order of their seniority
or in any other order determined by the Board, shall generally assist the
Secretary and perform such other duties as the Board of the
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Secretary shall prescribe, and, in the absence or disability of the Secretary,
shall perform the duties and exercise the powers of the Secretary.
SECTION 11. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall exercise supervision over all of the financial affairs of the
Corporation, shall perform such other duties as may be prescribed by the Board
or the CEO and shall act under the supervision of the CEO.
SECTION 12. THE TREASURER. The Treasurer shall have the care
and custody of all the funds of the Corporation and shall deposit such funds in
such banks or other depositories as the Board, or any officer or officers, or
any officer and agent jointly, duly authorized by the Board, shall, from time to
time, direct or approve. He shall disburse the funds of the Corporation under
the direction of the Board and the CEO. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board or the CEO shall so
request. He shall perform all other necessary actions and duties in connection
with the administration of the financial affairs of the Corporation and shall
generally perform all the duties usually appertaining to the office of treasurer
of a corporation. When required by the Board, he shall give bonds for the
faithful discharge of his duties in such sums and with such sureties as the
Board shall approve.
SECTION 13. ASSISTANT TREASURERS. Assistant Treasurers of the
Corporation ("ASSISTANT TREASURERS"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
SECTION 14. ADDITIONAL OFFICERS. The Board or the CEO may
appoint such other officers and assistant officers and agents as it or he shall
deem necessary, who shall hold their offices for such terms and shall have
authority and exercise such powers and perform such duties as shall be
determined from time to time by the Board, by resolution not inconsistent with
these Bylaws, or by the CEO.
ARTICLE VI
DIVIDENDS, CHECKS, DRAFTS, NOTES AND PROXIES
SECTION 1. DIVIDENDS. Dividends shall be declared only out of
any assets or funds of the Corporation legally available for the payment of
dividends at such times as the Board shall direct. Dividends shall be paid to
holders of the stock of the Corporation in U.S. dollars.
SECTION 2. CHECKS, DRAFTS AND NOTES. All checks, drafts and
other orders for the payment of money, notes and other evidences of indebtedness
issued in the name of the Corporation
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shall be signed by such officer or officers, agent or agents of the Corporation
and in such manner as shall be determined, from time to time, by resolution of
the Board.
SECTION 3. EXECUTION OF PROXIES. The CEO or, in the absence or
disability of the CEO, the President or any Vice President, may authorize, from
time to time, the execution and issuance of proxies to vote shares of stock or
other securities of other corporations held of record by the Corporation and the
execution of consents to action taken or to be taken by any such corporation.
All such proxies and consents, unless otherwise authorized by the Board, shall
be signed in the name of the Corporation by the CEO, the President or any Vice
President.
ARTICLE VII
SHARES AND TRANSFER OF SHARES
SECTION 1. CERTIFICATES OF STOCK. Every owner of shares of
stock of the Corporation shall be entitled to have a certificate evidencing the
number of shares of stock of the Corporation owned by him or it and designating
the class of stock to which such shares belong, which shall otherwise be in such
form as the Board shall prescribe. Each such certificate shall bear the
signature (or a facsimile thereof) of the CEO, the President or any Vice
President and of the Treasurer or any Assistant Treasurer or the Secretary or
any Assistant Secretary of the Corporation.
SECTION 2. RECORD. A record shall be kept of the name of the
person, firm or corporation owning the stock represented by each certificate
evidencing stock of the Corporation issued, the number of shares represented by
each such certificate, and the date thereof, and, in the case of cancellation,
the date of cancellation. Except as otherwise expressly required by law, the
person in whose name shares of stock stand on the books of the Corporation shall
be deemed the owner thereof for all purposes as regards the Corporation.
SECTION 3. TRANSFER OF STOCK. (a) The transfer of shares of
stock and the certificates evidencing such shares of stock of the Corporation
shall be governed by Article 8 of Subtitle I of Title 6 of the Delaware Code
(the Uniform Commercial Code), as amended from time to time.
(b) Registration of transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation upon request of
the registered holder thereof, or of his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary of the Corporation, and
upon the surrender of the certificate or certificates evidencing such shares
properly endorsed or accompanied by a stock power duly executed.
SECTION 4. ADDRESSES OF STOCKHOLDERS. Each stockholder shall
designate to the Secretary of the Corporation an address at which notices of
meetings and all other corporate notices may be served or mailed to him, and, if
any stockholder shall fail to so designate such an address,
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corporate notices may be served upon him by mail directed to him at his post
office address, if any, as the same appears on the share record books of the
Corporation or at his last known post office address.
SECTION 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. A holder
of any shares of stock of the Corporation shall promptly notify the Corporation
of any loss, destruction or mutilation of any certificate or certificates
evidencing all or any such shares of stock. The Board may, in its discretion,
cause the Corporation to issue a new certificate in place of any certificate
theretofore issued by it and alleged to have been mutilated, lost, stolen or
destroyed, upon the surrender of the mutilated certificate or, in the case of
loss, theft or destruction of the certificate, upon satisfactory proof of such
loss, theft or destruction, and the Board may, in its discretion, require the
owner of the lost, stolen or destroyed certificate or his legal representative
to give the Corporation a bond sufficient to indemnify the Corporation against
any claim made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate.
SECTION 6. FACSIMILE SIGNATURES. Any or all of the signatures
on a certificate evidencing shares of stock of the Corporation may be
facsimiles.
SECTION 7. REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with the Restated
Certificate of Incorporation or these Bylaws, concerning the issue, transfer and
registration of certificates evidencing stock of the Corporation. It may
appoint, or authorize any principal officer or officers to appoint, one or more
transfer agents and one or more registrars, and may require all certificates of
stock to bear the signature or signatures (or a facsimile or facsimiles thereof)
of any of them. The Board may at any time terminate the employment of any
transfer agent or any registrar of transfers. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall cease to be such officer, transfer agent or registrar,
whether because of death, resignation, removal or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed or whose
facsimile signature has been placed upon such certificate or certificates had
not ceased to be such officer, transfer agent or registrar.
SECTION 8. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than 60 nor less than 10 days before the
date of such meeting, nor more than 60 days prior to any other such action. A
determination of stockholders entitled to notice of, or to vote at, any meeting
of stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board may fix a new record date for the adjourned meeting.
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SECTION 9. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its records
as the owner of shares of stock to receive dividends and to vote as such owner,
shall be entitled to hold liable for calls and assessments a person registered
on its records as the owner of shares of stock, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares of
stock on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
ARTICLE VIII
BOOKS AND RECORDS
SECTION 1. BOOKS AND RECORDS. The books and records of the
Corporation may be kept at such place or places within or without the State of
Delaware as the Board may from time to time determine.
ARTICLE IX
SEAL
SECTION 1. SEAL. The Board shall provide a corporate seal
which shall bear the full name of the Corporation.
ARTICLE X
FISCAL YEAR
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed, and shall be subject to change from time to time, by the Board.
ARTICLE XI
INDEMNIFICATION
SECTION 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
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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 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.
(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
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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 directors designated by 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 XI. Such expenses (including
attorneys' fees) incurred by former directors and officers or other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
deems appropriate.
(g) RIGHTS NOT EXCLUSIVE. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of this
Article XI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, by-law, 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 General Corporation Law of
the State of Delaware.
(i) DEFINITION OF "CORPORATION". For purposes of this Article
XI, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article XI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
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(j) CERTAIN OTHER DEFINITIONS. For purposes of this Article
XI, references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves service by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation," as referred to in
this Article XI.
(k) CONTINUATION OF RIGHTS. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article XI
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(l) REPEAL OR MODIFICATION. Any repeal or modification of this
Article XI by the stockholders of the Corporation shall not adversely affect any
rights to indemnification and to advancement of expenses that any person may
have at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
(m) ACTION AGAINST CORPORATION. Notwithstanding any provisions
of this Article XI to the contrary, no person shall be entitled to
indemnification or advancement of expenses under this Article XI with respect to
any action, suit or proceeding, or any claim therein, brought or made by him
against the Corporation.
ARTICLE XII
AMENDMENTS
SECTION 1. AMENDMENTS. These Bylaws, or any of them, may be
altered, amended 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 any
provision of the Certificate of Incorporation, either by a majority of the
number of directors constituting the whole Board or by the stockholders of the
Corporation upon the affirmative vote of the holders of 80% of the outstanding
shares of capital stock of the Corporation entitled to vote thereon.
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Appendix I
PROXY
SERVICO, INC.
ANNUAL MEETING OF SHAREHOLDERS - ___________ 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Servico, Inc. ("Servico") hereby
appoints David Buddemeyer and Warren M. Knight, and each of them, the
undersigned's proxies, with full power of substitution, to vote all shares of
Common Stock of Servico which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Shareholders to be held on
___________, 1998 at 10:00 A.M. local time, at the Omni Hotel, 1601 Belvedere
Road, West Palm Beach, Florida 33406 and at any adjournments or postponements
thereof, to the same extent and with the same power as if the undersigned was
personally present at said meeting or such adjournments or postponements thereof
and, without limiting the generality of the power hereby conferred, the proxy
nominees named above and each of them are specifically directed to vote as
indicated below.
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL
BE VOTED AS SPECIFIED. IF NO CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR THE MERGER, FOR EACH OF THE LODGIAN PLANS, FOR THE
ELECTION OF THE NOMINEE LISTED IN ITEM NO. 5 AND FOR THE ADOPTION OF THE
PROPOSAL TO AMEND SERVICO'S STOCK OPTION PLAN AS SET FORTH IN ITEM NO. 6.
If there are amendments or variations to the matters proposed at the
meeting or at any adjournments or postponements thereof, or if any other
business properly comes before the meeting, this proxy confers discretionary
authority on the proxy nominees named herein and each of them to vote on such
amendments, variations or other business.
(Continued, and to be signed and dated on the other side.)
<TABLE>
<S> <C>
1. Approval of the Agreement and Plan 6. Proposal to Amend Servico's Stock
of Merger pursuant to which Servico, Option Plan to increase the number
Inc. and Impac Hotel Group, L.L.C. of shares issuable pursuant to
will become wholly owned subsidiaries the Plan
of Lodgian, Inc.
FOR AGAINST ABSTAIN
FOR AGAINST ABSTAIN [ ] [ ] [ ]
[ ] [ ] [ ]
2. Approval of the Lodgian 1998 Short-Term The undersigned acknowledges receipt of the
Incentive Compensation Plan accompanying Notice of Annual Meeting of
Shareholders and the Proxy Statement for the
FOR AGAINST ABSTAIN ___________, 1998 meeting.
[ ] [ ] [ ]
Dated: _________________________, 1998
3. Approval of the Lodgian 1998 Stock
Incentive Plan
FOR AGAINST ABSTAIN -----------------------------------------------------
[ ] [ ] [ ] Signature of Stockholder(s)
4. Approval of the Lodgian Non-Employee
Directors' Stock Plan
-----------------------------------------------------
FOR AGAINST ABSTAIN Print Name(s) Here
[ ] [ ] [ ]
(Please sign exactly as name or names appear hereon.
Full title of one signing in representative capacity
5. Election of Michael Leven as a Class I should be clearly designated after signature. Names
Director of all joint holders should be written even if signed
by only one.)
FOR the nominee WITHHOLD AUTHORITY
listed to vote for the PLEASE COMPLETE, DATE, SIGN AND MAIL
nominee listed THIS PROXY IN THE ENVELOPE PROVIDED
[ ] [ ]
</TABLE>
<PAGE> 309
Appendix J
IMPAC HOTEL GROUP, L.L.C.
MEMBER CONSENT FORM
The undersigned member of Impac Hotel Group, L.L.C. ("Impac" or the
"Company") hereby acknowledges receipt of the Joint Statement/Prospectus of
Servico, Inc. ("Servico") and Impac Hotel Group, L.L.C. ("Impac") dated
, 1998 and consents to and approves the terms of the Agreement and Plan
of Merger, dated as of March 20, 1998 among Lodgian, Inc., Servico, Impac, SHG-S
Sub, Inc. and SHG-I Sub, L.L.C. and all transactions contemplated thereby.
-------------------------------------------
Authorized Signature
-------------------------------------------
Printed Name of Member
(Name in which Impac Units are Held)
-----------------------------------------
Social Security/Tax Identification Number
-----------------------------------------
Date
