-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gunp3KZ6hvZNCg5aDt3KTLpgPDyeYDrRK+X6ht6T/MY2SKym6qPemJMmI+4KYigz tdB5jsW/etHJrBzLmnH1Bg== 0000950144-01-004120.txt : 20010329 0000950144-01-004120.hdr.sgml : 20010329 ACCESSION NUMBER: 0000950144-01-004120 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LODGIAN INC CENTRAL INDEX KEY: 0001066138 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 522093696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14537 FILM NUMBER: 1582296 BUSINESS ADDRESS: STREET 1: 3445 PEACHTREE ROAD N E SUITE 700 CITY: ATLANTA STATE: CA ZIP: 30326 BUSINESS PHONE: 4043649400 MAIL ADDRESS: STREET 1: 3445 PEACHTREE ROAD N E SUITE 700 CITY: ATLANTA STATE: CA ZIP: 30326 10-K 1 g67746e10-k.txt LODGIAN, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NO. 1-14537 LODGIAN, INC. (Exact name of registrant as specified in its charter) DELAWARE 52-2093696 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3445 PEACHTREE ROAD N.E., SUITE 700 30326 ATLANTA, GA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (404) 364-9400 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $.01 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates of the registrant as of March 15, 2001, was $55,189,444 based on the closing price of $2.06 per share of the Common Stock as reported by the New York Stock Exchange on such date. The registrant has 28,139,481 shares of Common Stock, par value $.01, outstanding as of March 15, 2001. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS Lodgian, Inc. ("Lodgian" or the "Company") is a successor to Servico, Inc. ("Servico") as a result of Servico's merger (the "Merger") with Impac Hotel Group, LLC, a privately owned hotel ownership, management and development company ("Impac"). The Merger was completed on December 11, 1998. Because the Merger was accounted for under the purchase accounting method, Lodgian's results for the year ended 1998 reflect Impac's contributions only since December 11, 1998. GENERAL Lodgian is one of the largest owners and operators of full-service hotels in the United States. Lodgian owns or manages 113 hotels, containing 21,194 rooms located in 32 states and Canada as of December 31, 2000. The Company's hotels include 106 wholly-owned hotels, five hotels in which the Company has a 50% or greater equity interest, one hotel in which the Company has a minority equity interest, and one hotel managed for a third party. Lodgian's hotels are primarily full-service properties which offer food and beverage services, meeting space and banquet facilities and compete in the mid-price and upscale segments of the lodging industry. Lodgian believes that these segments have more consistent demand generators than other segments of the lodging industry and that they have recently experienced less development of new properties than other lodging segments, such as limited service, economy and budget segments. Substantially all of the Company's hotels (111) are affiliated with seven different nationally recognized hospitality franchises. The Company is one of the largest Holiday Inn franchisees and one of the largest Marriott franchisees nationally. Lodgian's success in managing, developing, renovating and repositioning its hotels has resulted in strong relationships with franchisors. The Company prides itself on the recognition and awards it has received from its franchisors. These awards include, among others: - Eight Modernization Awards over the past several years from Bass Hotels and Resorts; - Torchbearer Award and Quality Excellence Awards for several hotels from Bass Hotels and Resorts; - Chairman's Award for quality for the Courtyard by Marriott, Bentonville in 1998 and 1999, from Marriott International; - President's Award for quality for seven hotels in three years from Marriott International; - Best New Hotel Opening in 1997 for the Courtyard by Marriott, Tulsa and in 1998 for the Denver Airport Marriott in each case from Marriott International; - Best New Product in 1999 for the Marriott City Center, Portland, from Marriott International; - Hotel of the Year for the Club Hotel by Doubletree in Philadelphia from Hilton; and - "Best New Franchise" in 1995 from Marriott International. Lodgian was formed by Servico's merger with Impac in December 1998. Servico was incorporated in 1956 under the laws of the State of Delaware. From 1956 through 1990, the predecessor was engaged in the ownership and operation of hotels under a series of different ownerships. In September 1990, Servico filed for protection under Chapter 11 of the United States Bankruptcy Code. The predecessor emerged from a reorganization proceeding in August 1992 as Servico, Inc., a Florida corporation. FRANCHISE AFFILIATIONS Management believes that Lodgian's strong brand affiliations bring many benefits in terms of guest loyalty and market share premiums. With 79% of the Company's portfolio composed of Crowne Plaza, Holiday Inn and Marriott hotels, the Company believes that it is well-positioned to take advantage of superior brand equity, quality standards and reservation contribution. As a result of recent renovations and improvements, as well as improvements made by other franchisees under the "Holiday Inn Worldwide Core 1 3 Modernization" program, management believes that the Holiday Inn image will be greatly enhanced. In addition, management believes that Marriott continues to be a very strong name among travelers and in the industry, providing consistently high quality products and service. The Company's hotels also benefit from both franchisors' toll free reservation numbers, which contribute approximately 25% of the Company's total reservations for these brands. At December 31, 2000, substantially all of the Company's owned and managed hotels were affiliated with national franchisors, as set forth in the following table:
TOTAL ---------------------------- NO. OF HOTELS NO. OF ROOMS ------------- ------------ Bass Hotels and Resorts(1).................................. 72 14,699 Marriott International(2)................................... 17 1,982 Hilton(3)................................................... 7 1,206 Choice Hotel(4)............................................. 6 985 Starwood(5)................................................. 4 1,104 Radisson.................................................... 3 805 Cendant(6).................................................. 2 129 Other....................................................... 2 284 --- ------ Total Owned....................................... 113 21,194 === ======
- --------------- (1) Holiday Inn, Holiday Inn Select and Crowne Plaza brands. (2) Marriott, Courtyard by Marriott, Residence Inn and Fairfield Inn brands. (3) Hilton, Hampton Inn and Doubletree brands. (4) Comfort Inn and Suites, Quality Inn and Clarion brands. (5) Westin and Four Points brands. (6) Super 8 brand. Franchisors provide a number of services to hotel operators which can positively contribute to the improved financial performance of their properties, including national reservation systems, marketing and advertising programs and direct sales programs. The Company believes that noted franchisors with larger numbers of hotels enjoy greater brand awareness among potential hotel guests than those with fewer numbers of hotels. Hotels typically operate with highly fixed costs, and increases in revenues generated by affiliation with a national franchisor can, at times, contribute positively to a hotel's financial performance. The Company's license agreements with the national hotel franchisors typically authorize the operation of a hotel under the licensed name, at a specific location or within a specified area, and require that the hotel be operated in accordance with standards specified by the licensor. Generally, the license agreements require the Company to pay a royalty fee, an advertising/marketing fee, a fee for the use of the licensor's nationwide reservation system and certain ancillary charges. Royalty fees under various license agreements generally range from 3% to 6.5% of gross room revenues, while advertising/marketing fees provided for in agreements generally range from 1% to 4.5% of gross room revenues and reservation system fees generally range from 1% to 2% of gross room revenues. In the aggregate, royalty fees, advertising/marketing fees and reservation fees range from 6% to 9% of gross revenues. 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 license agreements generally have an original ten-year term, although certain license agreement provide for original 15 and 20-year terms. The majority of the Company's license agreements have five to ten years remaining on the term. The licensor may require the Company to upgrade facilities at any time to comply with the licensor's then current standards. The licensee may apply for a license renewal as existing licenses expire. In connection with license renewals, the licensor may require payment of a renewal fee, increased royalty and other recurring fees and substantial renovation of the facility or the licensor may elect not to renew the license. It is the Company's policy to review individual property franchise affiliations at the time of property acquisition and, thereafter, on a regular basis. These reviews may result in changes in such affiliations. 2 4 DEVELOPMENT VENTURE; MANAGEMENT AGREEMENTS In addition to operating the 106 hotels which the Company wholly owned at December 31, 2000, Lodgian operated five hotels owned in partnerships in which the Company has a 50% or greater equity interest and one hotel owned in partnership in which the Company has a minority equity interest. In each case in which a hotel is owned in partnership, to varying extents the Company shares decision making authority with its joint venture partners and may not have sole discretion with respect to a hotel's disposition. In addition to the hotels the Company owned or in which it had an ownership interest as of December 31, 2000, the Company managed one hotel for a third party: the Courtyard by Marriott in Tifton, Georgia. The Company's former Chief Executive Officer and President and currently a member of the Board of Directors has been an 8% limited partner in the partnership that owns the Courtyard by Marriott in Tifton, Georgia since 1996. This hotel is managed in accordance with a management agreement, which provides that the Company is paid a base fee calculated as a percentage of gross revenues, an accounting services fee and an incentive management fee. The base fee is 3% of gross revenues and the incentive fee is a percentage of the amount by which gross operating profit exceeds a negotiated amount. All operating and other expenses of the hotel are paid by the owner. This management agreement was terminated in March 2001. The Westin William Penn Hotel located in Pittsburgh, Pennsylvania, was sold by the Company in February 2001 and was managed by Starwood Hotels & Resorts, an unaffiliated third party. The terms of this management agreement provided for the manager to receive the greater of a base fee of 3% of gross revenues or an incentive fee based on profits available for debt service. The agreement also provided that the Company is responsible to make funds available for capital improvements. COMPETITION AND SEASONALITY The hotel business is highly competitive. The Company competes with other facilities on various bases, including room prices, quality, service, location and amenities customarily offered to the traveling public. The demand for accommodations and the resulting cash flow vary seasonally. The off-season tends to be the winter months for properties located in colder weather climates and the summer months for properties located in warmer weather climates. Levels of demand are dependant upon many factors including general and local economic conditions and changes in levels of tourism and business-related travel. The hotels depend upon both commercial and tourist travelers for revenues. Generally, the hotels operate in areas that contain numerous other competitive lodging facilities, including hotels associated with franchisors which may have more extensive reservation systems. Lodgian also competes with other hotel owners and operators with respect to: (1) licensing upscale and mid-priced franchises in targeted markets, (2) acquiring hotel properties to renovate and reposition; and (3) acquiring developmental sites for new hotel properties. The Company's competition is highly fragmented and is composed of relatively small, private owners and operators of hotel properties, public companies and private equity funds. EMPLOYEES At December 31, 2000, the Company had approximately 7,600 full-time and 1,800 part-time associates. The Company had 125 full time associates engaged in administrative and executive activities. The balance of associates manage, operate and maintain the Company's properties. At December 31, 2000, approximately 1,000 of the Company's full and part-time associates located at eight hotels were covered by collective bargaining agreements which expire between December 2001 and September 2003. The Company considers relations with its associates to be good. INSURANCE Lodgian maintains insurance covering liabilities for personal injuries and property damage. The Company also maintains, among other types of insurance coverage, real and personal property insurance, directors' and officers' liability insurance, liquor liability insurance, workers' compensation insurance, travel accident 3 5 insurance for certain employees, fiduciary liability insurance and business automobile insurance. Management believes it maintains sufficient insurance coverage for the operation of its business. REGULATION The Company's hotels are subject to certain federal, state and local regulations which require the Company to obtain and maintain various licenses and permits. All such licenses and permits must be periodically renewed and may be revoked or suspended for cause at any time. Certain of these licenses and permits are material to the Company's business and the loss of such licenses could have a material adverse effect on the Company's financial condition and results of operations. The Company is not aware of any reason why it should not be in a position to maintain its licenses. Lodgian is subject to certain federal and state labor laws and regulations such as minimum wage requirements, regulations relating to working conditions, laws restricting the employment of illegal aliens and the Americans with Disabilities Act. As a provider of restaurant services, the Company is also subject to certain federal, state and local health laws and regulations. The Company believes it complies with such laws and regulations in all material respects. Lodgian is also subject in certain states to dramshop statutes, which may give an injured person the right to recover damages from any establishment which wrongfully served alcoholic beverages to a person who, while intoxicated, caused the injury. Management believes that the Company's insurance coverage with respect to any such liquor liability is adequate. To date, federal and state environmental regulations have not had a material effect on the Company's operations. However, such laws potentially impose cleanup costs for hazardous waste contamination on property owners. If any material hazardous waste contamination problems do exist on any of the Company's properties, the Company may be exposed to liability for the costs associated with the cleanup of such sites. ITEM 2. PROPERTIES Lodgian owned or managed 113 hotels, containing 21,194 rooms located in 32 states and Canada at December 31, 2000. The Company's hotels include 106 wholly-owned hotels, five hotels in which the Company has a 50% or greater equity interest, one hotel in which the Company has a minority equity interest, and one hotel managed for a third party. DISPOSITIONS As discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources", the Company adopted strategic plans to reduce the size of the Company's non-core hotel portfolio and reduce the overall level of debt. With regard to these strategic plans, the Company has sold nineteen hotel properties and four other assets from January 1 to December 31, 2000. In addition, during February 2001 the Company sold two hotel properties. During 2001, the Company will continue to identify hotels to dispose of to meet the objectives of the strategic plans. PORTFOLIO The Company's hotel portfolio by franchisor is set forth below.
YEAR OF LAST RENOVATION OR FRANCHISOR/HOTEL NAME NO. OF HOTELS NO. OF ROOMS LOCATION CONSTRUCTION - --------------------- ------------- ------------ -------- ------------- BASS HOTELS AND RESORTS Crowne Plaza Albany............... 384 Albany, NY (6) Crowne Plaza Cedar Rapids......... 275 Cedar Rapids, IA 1998 Crowne Plaza Houston.............. 291 Houston, TX 1999 Crowne Plaza Macon(1)............. 297 Macon, GA 1998 Crowne Plaza Pittsburgh........... 193 Pittsburgh, PA (6) Crowne Plaza West Palm Beach(1)... 219 West Palm Beach, FL (7)
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YEAR OF LAST RENOVATION OR FRANCHISOR/HOTEL NAME NO. OF HOTELS NO. OF ROOMS LOCATION CONSTRUCTION - --------------------- ------------- ------------ -------- ------------- Crowne Plaza Worcester............ 243 Worcester, MA 1996 Holiday Inn Arden Hills........... 156 St. Paul, MN 1995 Holiday Inn Augusta............... 239 Augusta, GA 1998 Holiday Inn Austin (South)........ 210 Austin, TX 1994 Holiday Inn Belmont............... 135 Belmont, MD 2000 Holiday Inn Bloomington........... 186 Bloomington, IN 1992 Holiday Inn Brunswick............. 126 Brunswick, GA 1998 Holiday Inn BWI Airport........... 259 Baltimore, MD 2000 Holiday Inn Cincinnati............ 243 Cincinnati, OH 1998 Holiday Inn City Center(3)........ 240 Columbus, OH 1996 Holiday Inn Clarksburg............ 160 Clarksburg, WV 1997 Holiday Inn Cromwell Bridge....... 139 Cromwell Bridge, MD 2000 Holiday Inn Dothan................ 102 Dothan, AL 1996 Holiday Inn East Hartford......... 130 East Hartford, CT 2000 Holiday Inn Express Gadsden....... 141 Gadsden, AL 1997 Holiday Inn Express Palm Desert... 129 Palm Desert, CA 1992 Holiday Inn Express Pensacola..... 214 Pensacola, FL 1996 Holiday Inn Fairmont.............. 106 Fairmont, WV 1997 Holiday Inn Fayetteville.......... 198 Fayetteville, NC 1997 Holiday Inn Florence.............. 105 Florence, KY 1997 Holiday Inn Fort Mitchell......... 214 Fort Mitchell, KY 1997 Holiday Inn Fort Wayne............ 208 Fort Wayne, IN 1995 Holiday Inn Frederick............. 158 Frederick, MD 2000 Holiday Inn Frisco................ 217 Frisco, CO 1997 Holiday Inn Glen Burnie North..... 127 Glen Burnie, MD 2000 Holiday Inn Grand Island.......... 261 Grand Island, NY 2000 Holiday Inn Greentree............. 200 Pittsburgh, PA 2000 Holiday Inn Hamburg............... 130 Buffalo, NY 1998 Holiday Inn Hilton Head........... 201 Hilton Head, SC (7) Holiday Inn Inner Harbor.......... 375 Baltimore, MD 2000 Holiday Inn Jamestown............. 146 Jamestown, NY 1998 Holiday Inn Jekyll Island......... 199 Jekyll Island, GA 2000 Holiday Inn Lancaster (East)...... 189 Lancaster, PA 2000 Holiday Inn Lansing West.......... 244 Lansing, MI 1998 Holiday Inn Lawrence.............. 192 Lawrence, KS 1996 Holiday Inn Manhattan............. 197 Manhattan, KS 1996 Holiday Inn Marietta.............. 196 Marietta, GA 1996 Holiday Inn Market Center Dallas.......................... 246 Dallas, TX 1998 Holiday Inn McKnight Rd.(1)....... 147 Pittsburgh, PA 1995 Holiday Inn Meadow Lands.......... 138 Pittsburgh, PA 1996 Holiday Inn Melbourne(1).......... 295 Melbourne, FL 1996 Holiday Inn Memphis............... 173 Memphis, TN 1998 Holiday Inn Monroeville........... 189 Monroeville, PA 1998 Holiday Inn Morgantown............ 147 Morgantown, WV 1997 Holiday Inn Myrtle Beach.......... 133 Myrtle Beach, SC 1998 Holiday Inn North Miami........... 98 Miami, FL 1998 Holiday Inn Parkway East.......... 178 Pittsburgh, PA 1996 Holiday Inn Phoenix West.......... 144 Phoenix, AZ 1995 Holiday Inn Raleigh Downtown...... 202 Raleigh, NC 1994
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YEAR OF LAST RENOVATION OR FRANCHISOR/HOTEL NAME NO. OF HOTELS NO. OF ROOMS LOCATION CONSTRUCTION - --------------------- ------------- ------------ -------- ------------- Holiday Inn Richfield............. 217 Richfield, OH 1998 Holiday Inn Rolling Meadows....... 420 Rolling Meadows, IL 2000 Holiday Inn Santa Fe.............. 130 Santa Fe, NM 1992 Holiday Inn Select DFW............ 282 Dallas, TX 1997 Holiday Inn Select Niagara Falls........................... 397 Niagara Falls, NY 1999 Holiday Inn Select Phoenix Airport......................... 298 Phoenix, AZ 1995 Holiday Inn Select Strongsville... 302 Cleveland, OH 1996 Holiday Inn Select Windsor, Ontario......................... 214 Windsor, Ontario 1998 Holiday Inn Sheffield............. 201 Sheffield, AL 1998 Holiday Inn Silver Spring......... 231 Silver Spring, MD 1998 Holiday Inn St. Louis North....... 392 St. Louis, MO 1996 Holiday Inn Syracuse.............. 152 Syracuse, NY 1997 Holiday Inn University Mall....... 152 Pensacola, FL 1997 Holiday Inn Valdosta.............. 167 Valdosta, GA 1997 Holiday Inn Wichita............... 152 Wichita, KS 1998 Holiday Inn Winter Haven.......... 228 Winter Haven, FL 1998 Holiday Inn York (Arsenal Rd.).... 100 York, PA 2000 ------ SUBTOTAL................ 72 14,699 MARRIOTT INTERNATIONAL Courtyard by Marriott Abilene..... 99 Abilene, TX 1996 Courtyard by Marriott Bentonville..................... 90 Bentonville, AR 1996 Courtyard by Marriott Buckhead.... 181 Atlanta, GA 1996 Courtyard by Marriott Florence.... 78 Florence, KY 1995 Courtyard by Marriott Lafayette... 90 Lafayette, LA 1997 Courtyard by Marriott Paducah..... 100 Paducah, KY 1997 Courtyard by Marriott Revere...... 154 Revere, MA 1999 Courtyard by Marriott Tifton(2)... 90 Tifton, GA 1996 Courtyard by Marriott Tulsa....... 122 Tulsa, OK 1997 Fairfield Inn Augusta............. 117 Augusta, GA 1998 Fairfield Inn Colchester.......... 117 Colchester, VT 1998 Fairfield Inn Jackson............. 105 Jackson, TN 1998 Fairfield Inn Merrimack........... 116 Merrimack, NH 1998 Fairfield Inn Valdosta............ 108 Valdosta, GA 1997 Marriott Denver................... 238 Denver, CO 1998 Residence Inn Dedham.............. 81 Dedham, MA 1998 Residence Inn Little Rock......... 96 Little Rock, AR 1998 ------ SUBTOTAL................ 17 1,982 HILTON Doubletree Club Philadelphia...... 189 Philadelphia, PA 1997 Hampton Inn Dothan................ 113 Dothan, AL 1996 Hampton Inn Pensacola............. 124 Pensacola, FL 1995 Hilton Fort Wayne................. 244 Fort Wayne, IN 1996 Hilton Inn Columbia............... 152 Columbia, MD 1998 Hilton Inn Northfield............. 191 Troy, MI 1997 Hilton Inn Sioux City............. 193 Sioux City, IA 1994 ------ SUBTOTAL................ 7 1,206
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YEAR OF LAST RENOVATION OR FRANCHISOR/HOTEL NAME NO. OF HOTELS NO. OF ROOMS LOCATION CONSTRUCTION - --------------------- ------------- ------------ -------- ------------- CHOICE HOTEL Clarion Central Omaha(5).......... 212 Omaha, NE 1997 Clarion Council Bluffs(5)......... 89 Council Bluffs, IA 1997 Clarion Northwoods Atrium Inn(5).......................... 197 Charleston, SC 1994 Comfort Inn Roseville............. 118 Roseville, MN 1993 Quality Inn Birmingham(4)(5)...... 164 Birmingham, AL 1996 Quality Hotel & Conference Ctr. Metairie........................ 205 New Orleans, LA 1995 ------ SUBTOTAL................ 6 985 STARWOOD Four Points Niagara Inn........... 189 Niagara Falls, NY 1999 Four Points Omaha................. 163 Omaha, NE 1997 Four Points West Des Moines....... 157 West Des Moines, IA 1997 Westin William Penn Pittsburgh(4)................... 595 Pittsburgh, PA 1997 ------ SUBTOTAL................ 4 1,104 RADISSON Radisson Louisville............... 398 Louisville, KY 2000 Radisson New Orleans(1)........... 244 New Orleans, LA 1998 Radisson Phoenix Hotel............ 163 Phoenix, AZ 1995 SUBTOTAL................ 3 805 CENDANT Super 8 Hazard.................... 49 Hazard, KY 1997 Super 8 Prestonburg............... 80 Prestonburg, KY 1997 ------ SUBTOTAL................ 2 129 OTHER French Quarter Suites Memphis..... 105 Memphis, TN 1997 Mayfair House Coconut Grove....... 179 Miami, FL 1998 ------ SUBTOTAL................ 2 284 --- ------ TOTAL................... 113 21,194 === ======
- --------------- (1) These hotels are partially owned and consolidated. (2) This hotel is owned by third parties. (3) This hotel is partially owned and not consolidated. (4) These hotels were sold in February 2001. (5) These hotels were re-flagged as Clarion or Quality Inns in January and February 2001. (6) These hotels are currently under renovation and are expected to be completed in the second half of 2001. (7) These hotels are currently under renovation and are expected to be completed in the first half of 2001. Eleven of Lodgian's hotels are located on land subject to long-term leases. Generally, the leases are for terms in excess of the depreciable lives of the improvements or contain a purchase option and provide for fixed rents. In certain instances, additional rents, based on a percentage of revenue or cash flow, may be payable. The leases generally require the Company to pay the cost of repairs, insurance and real estate taxes. 7 9 ITEM 3. LEGAL PROCEEDINGS In July 1999, a contractor hired by Servico to perform work on hotels in New York, Illinois and Texas filed a complaint against the Company in the Supreme Court of the State of New York, claiming breach of contract, quantum meruit, and fraud, among other claims. The contractor seeks damages totaling $80 million, including $60 million for punitive damages. The Company answered the complaint asserting counterclaims aggregating $20 million and successfully filed a motion to dismiss the claims related to two properties located in Illinois and Texas. In October 1999, a subcontractor filed a lawsuit in Texas against the above contractor and the Company. The Company has filed an answer and cross-claim against the contractor in the amount of $2.8 million. In February 2000, the contractor filed a lawsuit in Texas claiming over $3 million in actual damages and an undisclosed amount of punitive damages. The Company answered the complaint and asserted a counterclaim. The Company has also filed a lawsuit against the contractor in Federal District Court in Illinois, seeking $2 million. The contractor has filed an answer and counterclaim aggregating $2.8 million in actual damages and $10 million in punitive damages. On March 1, 2001, a New York Court dismissed all of the contractor's claims based upon fraud, effectively reducing the plaintiff's outstanding claims by $40 million. The Company believes that it has valid defenses and counterclaims to the contractor's remaining claims and that the outcome will not have a material adverse effect on its financial position or results of operations. On October 13, 2000, Winegardner & Hammons, Inc. ("WH") filed an arbitration claim against the Company claiming breach of contract relating to a January 4, 1992 contract. WH claims entitlement to profit participation relating to the sale of certain hotel properties by an affiliate and predecessor of the Company. Although the Demand for Arbitration does not make a specific damages demand, it is believed that WH is claiming approximately $1,100,000 from the Company. Lodgian believes it has meritorious defenses to this matter and is defending it vigorously. In 1999 and 2000, a total of six class actions were filed in the Delaware Court of Chancery on behalf of all security holders of the Company. Named as defendants in each of the actions were the Company and six of the Company's directors and/or officers. The complaints alleged, among other things: (1) that the individual defendants breached their fiduciary duties in connection with an offer by Casuarina Cayman Holdings Ltd. ("Casuarina") to acquire all of the Company's outstanding common stock; (2) that the director defendants breached their fiduciary duties in connection with effecting certain changes to the size and composition of the Company's Board of Directors in connection with certain agreements entered into by the Company regarding a potential sale of the Company to Whitehall Street Real Estate Limited Partnership XIII and Whitehall Parallel Real Estate Limited Partnership XIII ("Whitehall") and (3) that the individual defendants breached their fiduciary obligations in connection with their consideration of certain conditional offers received by the Company regarding a potential sale of the Company. The complaints sought injunctive relief and compensatory damages in unspecified amounts. The Delaware court created one consolidated class action in November 2000 (the "Consolidated Action"). The defendants to the Consolidated Action are not obligated to respond to the complaint in the Consolidated Action until three weeks after the plaintiffs have requested such a response. As of this date, the plaintiffs have not requested a response from the defendants. In October 2000, a class action was filed in the Superior Court of the State of Georgia, Fulton County. Named as defendants are the Company, six of the Company's directors and/or officers, and Whitehall. The complaint alleges, among other things, that the individual defendants breached their fiduciary duties in connection with certain agreements entered into with Whitehall regarding a potential sale of the Company to those entities. The complaint also alleges that Whitehall aided and abetted the alleged breach of fiduciary duty by the individual defendants. Although the ultimate outcome of these class action litigations cannot be predicted with certainty, it is the opinion of management that the resolution of these class actions will not have a material adverse effect on the Company's financial position or results of operations. In 2000, several actions were filed in the Delaware Court of Chancery by Casuarina and Edgecliff Holdings, LLC ("Edgecliff"). Named as defendants were the Company and five of its directors and/or 8 10 officers. The complaints alleged, among other things: (1) that the defendant directors breached their fiduciary duties in connection with effecting certain changes to the size and composition of the Company's Board of Directors and sought declaratory and injunctive relief; and (2) that the Company had not timely scheduled its annual meeting of shareholders in accordance with Section 211 of the Delaware General Corporation Law. The complaints also challenged the Company's decision to postpone its annual meeting from October 12 to October 20, 2000 in response to the offer received by the Company from Whitehall. The court granted plaintiffs' motion for summary judgment to the limited extent that the court required the Company to hold the annual meeting on October 20, 2000, the rescheduled date on which the Company had planned to hold the meeting. The Company is a party to other legal proceedings arising in the ordinary course of business, the impact of which would not, either individually or in the aggregate, in management's opinion, have a material adverse effect on its financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Shareholders on October 20, 2000. The stockholders voted on (1) the election of directors to serve in Class II until the Annual Meeting of Stockholders for fiscal 2003 and (2) the adoption of a resolution repealing any amendment to the Company's By-Laws adopted by the Board of Directors of the Company without the approval of the Company's stockholders subsequent to March 9, 2000 and prior to the approval of said resolution. The votes cast on each of the above matters were as follows: ELECTION OF DIRECTORS NOMINEE VOTES FOR VOTES WITHHELD - ------------------------------ ------------------------------ ------------------------------ John M. Lang 11,682,801 513,241 Michael A. Leven 11,682,663 513,379 William J. Yung 10,846,843 152,054 Andrew R. Berger 10,756,962 241,935 BY-LAW RESOLUTION FOR AGAINST ABSTAIN - ------------------------------ ------------------------------ ------------------------------ 13,059,518 9,410,736 724,686
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Lodgian's common stock is listed on the New York Stock Exchange and its trading symbol is LOD. The following table sets forth the high and low sales prices of the Company's common stock on a quarterly basis for the past two years.
2000 1999 ----------------- ----------------- HIGH LOW HIGH LOW ------- ------- ------- ------- First Quarter............................................. $5.1250 $3.3750 $5.9375 $3.3750 Second Quarter............................................ 3.8750 1.8125 7.1250 4.3750 Third Quarter............................................. 3.8125 2.0000 6.6875 3.6875 Fourth Quarter............................................ 4.0000 2.5625 6.1250 3.5625
As of March 15, 2001, there were 777 shareholders of record of Lodgian common stock. In addition, there are 2,478 Servico shareholders who have not yet converted their shares into shares of the Company. When all Servico shareholders have converted their shares, the Company will have 3,255 shareholders. The Company has not paid any cash dividends since the Merger and has no current plans to initiate the payment of dividends and is currently prohibited under various credit agreements from paying any dividends. 9 11 The Company currently anticipates that it will retain any future earnings for use in its business. The Board of Directors of the Company will determine future dividend policies based on the Company's financial condition, profitability, cash flow, capital requirements and business outlook, among other factors. The Company's ability to pay dividends is restricted by the Indenture governing the Company's 12 1/4 % Senior Subordinated Notes Due 2009 (the "Notes"), the Company's credit agreement dated as of July 23, 1999 among the Company, Lodgian Financing Corp., certain other of the Company's subsidiaries and the banks named therein, and the Indenture governing the Company's Convertible Redeemable Equity Structured Trust Securities ("CRESTS"). Payment restrictions contained in the Company's Notes allowed the Company to defer dividend payments on the CRESTS beginning June 30, 2000. Pursuant to the terms of the instrument, the Company has the right to defer payment for up to twenty quarters (the "Extension Period"), during which Extension Period no interest shall be due and payable. The Company does not anticipate resumption of the quarterly dividend payments on the CRESTS in the near future. ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The following table presents selected financial data derived from the Company's historical financial statements for the years ended December 31, 1996 through 2000. This financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" included in this Form 10-K.
2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) Revenues......................... $ 580,897 $ 592,420 $ 395,214 $ 276,657 $ 239,526 (Loss) income before extraordinary items, net of taxes.......................... (87,955) (52,943) (3,145) 12,570 8,548 Extraordinary items, net of taxes.......................... -- (7,750) (2,076) (3,751) (348) Net (loss) income................ (87,955) (60,693) (5,221) 8,819 8,200 EBITDA, as adjusted(a)........... 138,884 147,087 98,225 69,559 57,915 Net cash provided by operating activities..................... 19,611 67,191 29,301 42,021 30,970 Net cash provided by (used in) investing activities........... 127,364 (90,957) (182,524) (220,266) (97,557) Net cash (used in) provided by financing activities........... (140,617) 19,225 157,165 174,415 74,659 Earnings per common share: (Loss) income before extraordinary items, net of taxes.......................... (3.12) (1.95) (0.16) 0.83 0.92 Net (loss) income................ (3.12) (2.23) (0.26) 0.58 0.88 Earnings per common share-assuming dilution: (Loss) income before extraordinary items, net of taxes.......................... (3.12) (1.95) (0.16) 0.80 0.88 Net (loss) income................ (3.12) (2.23) (0.26) 0.56 0.84 Basic weighted average shares.... 28,186,000 27,222,000 20,245,000 15,183,258 9,295,358 Diluted weighted average shares......................... 28,186,000 27,222,000 20,245,000 15,640,000 9,751,139 Total assets..................... $ 1,163,947 $ 1,421,996 $ 1,497,068 $ 627,651 $ 439,786 Long-term obligations............ 674,038 856,675 816,644 323,320 284,880 Total stockholders' equity....... 136,880 224,542 283,767 239,535 74,738
- --------------- (a) The Company has computed earnings before interest, taxes, depreciation and amortization ("EBITDA") without regard to the unusual items and one-time charges presented in the table below. EBITDA is a widely regarded industry measure of liquidity used in the assessment of hotel property values. EBITDA does not measure whether cash flow is sufficient to fund all of the Company's cash needs, including 10 12 principal amortization, capital expenditures, and distributions to shareholders. Additionally, EBITDA does not represent cash flows from operating, investing, or financing activities as defined by generally accepted accounting principles. EBITDA as calculated by Lodgian, may not be comparable to similarly titled measures reported by other companies and would be misleading unless all companies and analysts calculate EBITDA in the same manner.
2000 1999 1998 1997 1996 -------- -------- ------- ------- ------- EBITDA................................. $ 64,621 $ 75,392 $94,825 $69,121 $56,618 Unusual Items: Impairment of long-lived assets...... 60,688 37,977 -- -- -- Write-off of goodwill................ -- 20,748 -- -- -- Other operating expenses(1).......... 12,073 12,470 -- -- -- Severance and other.................. 1,502 500 3,400 438 1,297 -------- -------- ------- ------- ------- EBITDA, as adjusted.................... $138,884 $147,087 $98,225 $69,559 $57,915 ======== ======== ======= ======= =======
- --------------- (1) See Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 14 to the Company's consolidated financial statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS The following discussion should be read in conjunction with the Company's financial statements and related notes thereto included elsewhere herein. The discussion below and elsewhere in this Form 10-K includes statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These include statements that describe anticipated revenues, capital expenditures and other financial items, statements that describe the Company's business plans and objectives, and statements that describe the expected impact of competition, government regulation, litigation and other factors on the Company's future financial condition and results of operations. The words "may", "should", "expect", "believe", "anticipate", "project", "estimate", and similar expressions are intended to identify forward-looking statements. Such risks and uncertainties, any one of which may cause actual results to differ materially from those described in the forward-looking statements, include or relate to, among other things: - The impact of pending or threatened litigation and/or governmental inquiries and investigation involving the Company. - The Company's ability to continue to improve its accounting systems and procedures. - The uncertainties relating to the Company's proposed strategic initiatives, including the willingness of prospective purchasers to purchase the hotels the Company has identified as divestiture candidates on terms the Company finds acceptable, the timing and terms on which such hotels may be sold, and other factors affecting the ability of prospective purchasers to consummate such transactions, including the availability of financing. - The effect of competition and the economy on the Company's ability to maintain margins on existing operations, including uncertainties relating to competition. - The Company's ability to generate sufficient cash flows from operations and asset sales to cover its cash needs, the Company's ability to obtain additional capital if needed and the possible default under credit facilities if cash flows are lower than expected or capital expenditures are greater than expected. - The effectiveness of changes in management and the ability of the Company to retain qualified individuals to serve in senior management positions. 11 13 - The potential for additional impairment charges against earnings related to long-lived assets, which may result from the Company's strategic initiatives to reduce the size of the hotel portfolio and reduce debt. - The impact of termination of letters of intent from prospective buyers of the Company as a whole. STRATEGIC PLANS During approximately the past fifteen months, the Company's Board of Directors has adopted strategic plans that are intended to enhance value for its shareholders. At the end of 1999, the Company adopted a strategic plan to reduce the size of the Company's non-core hotel portfolio. In 2000, the Company adopted a strategic plan to reduce the level of overall debt of the Company and retained an investment banker to review its strategic alternatives. As part of that review the Company was pursuing a sale of the Company. With regard to this strategic alternative, the Company received offers from Whitehall and Edgecliff to acquire the Company. On December 26, 2000, the Company entered into an Exclusivity Agreement with Edgecliff in which the Company granted Edgecliff an exclusive 60-day period during which the two parties attempted to negotiate a definitive merger agreement. During this period the Company gave Edgecliff and its representatives full access to the Company's books, records and personnel. The parties had made significant progress toward negotiating the terms of a definitive merger agreement, and the Company agreed to extend the exclusivity period. However, on February 28, 2001, Edgecliff informed the Company that it was unable to obtain the refinancing of the Company's high-yield bonds on acceptable terms from their holders and would not proceed with the acquisition. In addition, during the fourth quarter, the Company recorded a charge of $3.5 million relating to reimbursing Whitehall certain expenses it incurred in connection with evaluating and pursuing the transaction, as a definitive agreement for the sale was not consummated with Whitehall. This charge is recorded in the Company's statement of operations as acquisition termination fees. Currently, the Company is not in negotiations for the sale of the Company with any party. The Company is moving forward as an independent company and is exploring all avenues for maximization of shareholder value, including improving operations, capital structure and optimizing the value of the Company's assets. As discussed in "Item 10. Directors and Executive Officers of the Registrant", on February 9, 2001 the Company named a new president and chief executive officer. As discussed more fully in the Liquidity and Capital Resources section and in Notes 4 and 6 to the financial statements, with regard to the strategic plans to reduce the size of the Company's non-core hotel portfolio and reduce the level of overall debt, the Company sold twenty-one hotel properties and four other assets between January 1, 2000 and March 15, 2001. Gross sale price of these twenty-five properties was $275.0 million while the reduction of debt was $206.9 million. For the remainder of 2001, the Company will continue to identify properties to be sold to meet the objectives of these strategic plans. GENERAL OVERVIEW Management believes that results of operations in the hotel industry are best explained by four key performance measures: occupancy, average daily rate ("ADR"), revenue per available room ("RevPAR") levels and EBITDA margins. These measures are influenced by a variety of factors including national, regional and local economic conditions, the degree of competition with other hotels in the area and changes in travel patterns. The demand for accommodations is also affected by normally recurring seasonal patterns and most of the Company's hotels experience lower occupancy levels in the fall and winter months (November through February) which may result in lower revenues, lower net income and less cash flow during these months. Revenues. Revenues are composed of rooms, food and beverage and other revenues. Room revenues are derived from guest room rentals, whereas food and beverage revenues primarily include sales from hotel restaurants, room service and hotel catering. Other revenues include charges for guests' long-distance telephone service, laundry service and use of meeting facilities. Operating Expenses. Operating expenses are composed of direct, general and administrative, other hotel operating expenses and depreciation and amortization. Direct expenses, including rooms, food and beverage and other operations, reflect expenses directly related to hotel operations. These expenses are primarily 12 14 variable with available rooms and occupancy rates, but also have a small fixed component, which can be leveraged with increases in revenues. General and administrative expenses represent corporate salaries and other corporate operating expenses and are generally fixed. Other expenses include primarily property level expenses related to general operations such as marketing, utilities, repairs and maintenance and other property administrative costs. These expenses are primarily fixed. RESULTS OF OPERATIONS The significant number of dispositions in 2000 and the significant number of acquisitions and extensive renovation activity in 1999 and 1998 has materially impacted operating results. 2000 During 2000, the Company has sold nineteen hotel properties and four other assets. Gross sales price of these twenty-three properties was $208.8 million. In February 2000, the Company opened the Lake Oswego Hilton Garden. During 2000, the Company re-branded three hotels to flags which are more representative of its core focus. 1999 In June 1999, the Company sold its joint venture interest in its European hotel portfolio, which consisted of six hotels. The Company received approximately $7.5 million in net proceeds from the sale. In addition, during 1999 the Company sold four wholly-owned hotels and two land parcels in the United States receiving net proceeds of approximately $14.5 million, and, effective August 1, 1999, ceased managing one hotel for a third party. These transactions did not have a material effect on EBITDA or results of operations. In August 1999, the Company opened the Marriott Portland City Center in Portland, Oregon and in October 1999, opened the Courtyard by Marriott in Livermore, California. Also, in September 1999, the Company purchased for $10.2 million the 49% interest of its partner in six hotels. Further, in 1999 the company re-branded seven hotels to flags that are more representative of its core focus. 1998 In June 1998, Servico acquired AMI, an entity that owned and operated fourteen hotels, four of which were subsequently sold. In December 1998, Servico merged with Impac, an entity that owned or managed fifty-three hotels, three of which were under construction. Because these transactions were accounted for using the purchase accounting method, the results of AMI and Impac are included in the consolidated results of operations from the time they were acquired. This makes comparisons of historical operating results with prior periods less meaningful. The discussion of results of operations, income taxes, liquidity and capital resources that follows is derived from the Company's Audited Consolidated Financial Statements set forth in "Item 8. Financial Statements and Supplementary Data" included in this Form 10-K and should be read in conjunction with such financial statements and notes thereto. 1999 ACCOUNTING CHARGES AND IMPAIRMENT ADJUSTMENTS During the fourth quarter of 1999, the Company initiated an internal review of its accounting records. As discussed below and in Note 14 to the financial statements, the Company experienced significant difficulty in the integration and conversion of information and accounting systems subsequent to the Merger. In addition, the Company determined that a significant number of reconciliations involving cash, accounts receivable, fixed assets, accounts payable and other accounts had not been completed during 1999. As a result of these systems and reconciliation issues, the Company experienced a significant delay in preparing its 1999 annual financial statements. Certain charges were recorded in the fourth quarter of 1999 after the account reconciliation process was completed in 2000. 13 15 Also during the fourth quarter of 1999, the Company adopted a strategy to reduce the number of its non-core hotel portfolio. In connection therewith, the Company identified certain hotel assets for sale and reduced the carrying value of these assets to estimated fair value, net of estimated selling costs. Further, based on asset impairment indicators and market capitalization for the Company's stock, the Company wrote-off its goodwill in accordance with the market value method of accounting for impairment of goodwill arising from the Merger. The charges and adjustments described in the preceding paragraphs had a material effect on the Company's financial statements for the year ended December 31, 1999. The following is a summary of these charges and adjustments:
(IN THOUSANDS) -------------- Impairment of long-lived assets............................. $37,977 Write-off of goodwill....................................... 20,748 Other expenses (included in general, administrative and other expenses in the statement of operations)............ 12,470 Severance................................................... 500
Also, as previously reported in the Company's Form 10-K for the year ended December 31, 1999, the Company concluded, after consultation with its prior independent auditors that its internal controls for the preparation of interim financial information did not provide an adequate basis for its prior independent auditors to complete reviews of the 1999 quarterly financial information in accordance with standards established by the American Institute of Certified Public Accountants. The Company believes that certain charges, which were recorded in the fourth quarter of 1999 and were principally recognized in general, administrative and other expenses in the consolidated statements of operations may relate to individual prior quarters; however, the Company does not have sufficient information to identify all specific charges attributable to prior 1999 quarters. See Note 17 to the financial statements related to selected quarterly financial data. MATTERS RELATED TO INTERNAL CONTROLS In the opinion of management, the internal control weaknesses described above existed during the first and second quarters of 2000 and to a lesser extent in the third quarter of 2000. These internal control weaknesses caused a significant delay in preparing the Company's Form 10-Q's. The Company's March 31, 2000 and June 30, 2000 Form 10-Q's were filed on December 15, 2000 and the September 30, 2000 Form 10-Q was filed January 10, 2001. The Company has committed substantial resources to mitigate the previously identified control weaknesses including contracting with outside consulting accountants to ensure the Company has the corporate financial personnel needed to provide reasonable assurances that it can comply with the record keeping and internal control requirements applicable to SEC registrants. Management believes these efforts have enabled the Company to produce reliable interim and annual financial statements during 2000. The Company implemented a plan that enabled it to timely comply with the financial statement reporting requirements applicable to SEC registrants for its 2000 annual financial statements and, in management's opinion, has substantially developed and implemented an adequate control environment as of this date. As part of this plan, during the third and fourth quarters the Company implemented the following action steps; (i) developed and implemented numerous new controls and policies, (ii) implemented a process to insure that material transactions are recorded on a timely basis, (iii) implemented an account closing process so that all material accounts are reconciled and reviewed on a timely basis and (iv) reorganized and changed personnel in the accounting and finance functions to improve the accuracy and timeliness of the financial accounting processes. The Company believes the continued implementation of the plan will allow it to timely comply with the financial statement reporting requirements applicable to SEC registrants in the future. 14 16 HISTORICAL RESULTS OF OPERATIONS The following table presents for the periods indicated, the percentage relationship that the various statements of operations line items bear to operating revenues:
YEARS ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ Revenues: Rooms..................................................... 72.7% 71.7% 67.8% Food and beverage......................................... 22.6 23.5 27.2 Other..................................................... 4.7 4.8 5.0 ----- ----- ----- Total revenue..................................... 100.0 100.0 100.0 ----- ----- ----- Operating expenses: Direct: Rooms.................................................. 20.5 19.3 18.9 Food and beverage...................................... 16.3 17.2 20.7 Other.................................................. 2.9 2.9 2.8 General, administrative and other........................... 38.4 37.8 32.8 Depreciation and amortization............................... 11.2 10.0 7.9 Impairment of long-lived assets............................. 10.4 6.4 -- Write-off of goodwill....................................... -- 3.5 -- Severance and restructuring expenses........................ 0.3 0.1 0.9 ----- ----- ----- Total operating expenses.......................... 100.0 97.2 84.0 ----- ----- ----- -- 2.8 16.0 Other income (expenses): Interest income and other................................. 0.2 0.3 0.3 Interest expense.......................................... (16.8) (13.1) (7.6) Interest hedge break fee.................................. (0.7) -- -- Acquisition termination fees.............................. (0.6) -- -- Gain (loss) on asset dispositions......................... -- 0.2 (0.1) Settlement on swap transactions........................... -- -- (7.9) Minority interests: Preferred redeemable securities........................... (2.1) (2.2) (1.6) Other..................................................... (0.1) (0.2) (0.4) ----- ----- ----- Loss before income taxes and extraordinary item............. (20.1) (12.2) (1.3) Benefit for income taxes.................................... (4.9) (3.4) (0.5) ----- ----- ----- Loss before extraordinary item.............................. (15.2) (8.8) (0.8) Extraordinary item: Loss on early extinguishment of debt, net of income tax benefit................................................ -- (1.3) (0.5) ----- ----- ----- Net loss.......................................... (15.2)% (10.1)% (1.3)% ===== ===== =====
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999 REVENUES At December 31, 2000, the Company owned 111 hotels, had a minority interest in one hotel and managed one hotel for a third party owner compared with 132 hotels owned, a minority interest in one hotel and one hotel managed for a third party at December 31, 1999. Revenues for the Company were $580.9 million for 2000, a 1.9% decrease over revenues of $592.4 million for 1999. This decrease is primarily a result of the reduction of twenty-one hotels in the owned portfolio. RevPAR, however, was $49.62 for 2000, an increase of 5.5% over 1999, primarily due to the completion of several renovation projects in the latter part of 1999 and early 2000. 15 17 The following table summarizes certain operating data for the Company's hotels for the year ended December 31, 2000 and 1999:
HOTELS(1) ADR OCCUPANCY REVPAR - ---------- --------------- ----------- --------------- 2000 1999 2000 1999 2000 1999 2000 1999 - ---- ---- ------ ------ ---- ---- ------ ------ 111 132 $76.73 $74.58 64.6% 63.1% $49.62 $47.03
- --------------- (1) Excludes one hotel managed for a third party and one non-consolidated hotel. OPERATING EXPENSES Direct operating expenses for the Company were $230.9 million (39.7% of direct revenues) for 2000 and $233.9 million (39.4% of direct revenue) for 1999. This $3.0 million decrease was primarily attributable to the reduction of twenty-one hotels in the owned portfolio during 2000 and an improvement in the operating margins in the food and beverage area offset by a decrease in the operating margins for rooms. General, administrative and other expenses were $223.1 million (38.4% of direct revenues) in 2000 and $223.9 million (37.8% of direct revenues) in 1999. Included in general, administrative and other expenses are $12.1 million of unusual expenses in 2000 ($12.5 million in 1999). Of this amount, $7.5 million related to professional fees related to the completion of accounting, tax, systems and other merger integration matters. In addition, these expenses include $2.0 million related to certain legal matters, including legal and other costs associated with Whitehall, Edgecliff and certain hotel asset dispositions. The remaining $2.6 million relates principally to provisions for certain sales and other taxes and receivable write-offs. Depreciation and amortization expense was $64.8 million in 2000 and $59.3 million in 1999. The $5.5 million increase is primarily a result of the completion of a significant number of renovation projects and the opening of 3 hotels in the latter part of 1999 as well as in the first quarter of 2000, offset by a decrease in depreciation related to hotels sold. In addition, as of September 30, 2000 the Company recorded depreciation expense of $1.6 million representing nine months of expense related to the seven hotels previously considered held for sale as of December 31, 1999 and that were no longer being actively marketed for sale. Impairment of long-lived assets was $60.7 million in 2000. This comprises charges recorded throughout 2000 of $11.3 million related to revised estimates of fair value for properties held for sale at December 31, 1999, $3.5 million related to one property held for use, $56.6 million related to the ten hotels sold to Sunstone Investors, LLC on August 31, 2000, net of a recapture of $10.7 million of impairment charges recorded in 1999 and 2000 as seven hotels previously considered held for sale as of December 31, 1999 were no longer being actively marketed for sale. The impairment charge for 1999 was $38.0 million, principally related to hotels the Company had targeted for sale. OTHER INCOME AND EXPENSE Interest expense was $97.3 million in 2000 and $77.4 million in 1999. This increase is primarily attributable to an increase in the level of debt for the majority of 2000 as well as an increase in the cost of debt, primarily due to rising interest rates in early 2000, offset by approximately $155.9 million of debt repayments occurring in the latter half of 2000. During the third quarter the Company paid a $4.3 million interest hedge break fee to break the interest rate lock agreement on one of its credit facilities. Minority interest expense was $13.1 million in 2000 and $14.5 million in 1999. This $1.4 million decrease is partially attributable to lower net income levels for those hotels which the Company co-owns with its third-party-minority equity partners. 16 18 NET INCOME After a benefit for income taxes of $28.7 million in 2000 and of $20.1 million in 1999, the Company had a loss before extraordinary item of $88.0 million ($3.12 loss per share) in 2000 compared with $52.9 million ($1.95 per share) in 1999. In 1999 the Company had an extraordinary item, net of income tax benefit of $7.8 million ($.28 loss per share) from the loss on early extinguishment of debt. Net loss for 2000 amounted to $88.0 million ($3.12 loss per share) compared with net loss of $60.7 million ($2.23 per share) for 1999, for the reasons discussed above. Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998 REVENUES At December 31, 1999, the Company owned 132 hotels, had a minority interest in one hotel and managed one hotel for a third party owner compared with 141 hotels owned, a minority interest in one hotel and two hotels managed for third party owners at December 31, 1998. Revenues were $592.4 million for 1999, a 49.9% increase over revenues of $395.2 million for 1998. Of this $197.2 million increase, $194.0 million was attributable to AMI and the Merger. In addition, four newly constructed hotels that opened between November 1998 and October 1999 contributed approximately $8.2 million of the increase. The remaining change, a decrease in revenues of approximately $5.0 million was attributable to hotels that were sold in 1998 or 1999. The following table summarizes certain operating data for the Company's hotels for the year ended December 31, 1999 and 1998:
HOTELS(1) ADR OCCUPANCY REVPAR - ---------- --------------- ----------- --------------- 1999 1998 1999 1998 1999 1998 1999 1998 - ---- ---- ------ ------ ---- ---- ------ ------ 132 84 $74.58 $73.09 63.1% 64.1% $47.03 $46.86
- --------------- (1) Excludes one hotel managed for a third party and one non-consolidated hotel. All 1998 figures in the table exclude AMI (prior to acquisition date) and the Merger. OPERATING EXPENSES Direct operating expenses for the Company were $233.9 million (39.4% of direct revenues) for 1999 and $167.5 million (42.4% of direct revenue) for 1998. Of the $66.4 million increase, $70.9 million was attributable to the acquisition of AMI and the Merger. In addition, the four newly constructed hotels contributed approximately $3.9 million of the increase and hotels sold during 1998 and 1999 provided a $7.6 million decrease. The balance of the change is represented primarily by improved operating margins in the food and beverage area. General, administrative and other expenses were $223.9 million (37.8% of direct revenues) in 1999 and $129.5 million (32.8% of direct revenues) in 1998. Of the $94.4 million increase, approximately $75.6 million was attributable to the acquisition of AMI and the Merger. Approximately $1.5 million represented expenses associated with the expansion of the corporate sales and marketing staff at the regional offices. In addition, $2.6 million was attributable to the four newly constructed hotels and hotels sold during 1998 or 1999 provided a $1.6 million decrease. Further, $1.0 million was attributable to the Company's share of loss, essentially all of which was represented by depreciation, from an unconsolidated partnership. Also included in general, administrative and other operating expenses are $12.5 million of unusual expenses in 1999. Of this amount, $6.4 million related to the completion of accounting, systems and other Merger integration matters, including preparation for Year 2000. In addition, these expenses include $2.7 million of litigation expenses. Such expenses related to a provision for the estimated cost and expenses related to legal proceedings, including litigation settlement charges incurred during 1999 and cost associated with abandoned development projects. 17 19 Further, the Company recorded a $1.3 million provision for property audit matters. Finally, these expenses included franchise termination and other items that aggregated $2.1 million. Depreciation and amortization expense was $59.3 million for 1999 and $31.1 million for 1998. The $28.2 million increase was attributable to the acquisition of AMI, the Merger, the opening of four new hotels and the completion of renovation projects. During 1999, the Company recognized a $38.0 million charge for the impairment of long-lived assets, principally related to hotels the Company had targeted for sale. Also, in 1999 the Company wrote off $20.7 million of goodwill associated with the Merger in accordance with its policy of accounting for goodwill under the market value method. OTHER INCOME AND EXPENSE Interest expense was $77.4 million in 1999 and $30.4 million in 1998. This increase was primarily a result of an increase in the level of debt associated with the acquisition of AMI and the Merger. Additionally, the July 1999 recapitalization further raised the level of debt by approximately $30 million, increased the margin on floating rate obligations by .75% to 1.75% and included a $200 million, 12.25% fixed rate instrument. Minority interest expense related to the CRESTS was $13.2 million in 1999 and $6.5 million in 1998. The Company's CRESTS were issued in June 1998. During 1998, the Company recognized a $31.5 million loss as a result of two swap transactions that were entered into by the Company in an effort to manage the interest rate risk associated with its financing of the Merger. Also, in 1998 the Company incurred approximately $3.4 million of severance and other expenses in connection with the Merger. These expenses consisted primarily of costs associated with the closing and relocation of Servico's corporate headquarters and severance or relocation of certain employees. Other income (expense) for 1999 included a $1.2 million gain from the sale of assets compared with a $.4 million loss in 1998. During 1999, the Company repaid, prior to maturity, approximately $409.0 million in debt, and as a result recorded an extraordinary loss on early extinguishment of debt of approximately $7.8 million (net of income tax benefit of $4.9 million) relating to the write-off of unamortized loan costs associated with the debt. The Company recognized an extraordinary loss on early extinguishment of debt of $2.1 million, after a tax benefit of $1.4 million in 1998 that related to the refinancing of certain debt. NET INCOME After a benefit for income taxes of $20.1 million for 1999 and $2.1 million for 1998, the Company had a loss before extraordinary item of $52.9 million ($1.95 loss per share) in 1999 compared with $3.1 million ($.16 loss per share) in 1998. Net of an income tax benefit of $4.9 million for 1999 and $1.4 million for 1998, the Company had an extraordinary item attributable to loss on early extinguishment of debt, of $7.8 million ($.28 loss per share) in 1999 and $2.1 million ($.10 loss per share) in 1998. Net loss for 1999 amounted to $60.7 million ($2.23 loss per share) compared with $5.2 million ($.26 loss per share) for 1998. INCOME TAXES As of December 31, 2000, Lodgian had net operating loss carryforwards of approximately $194 million for federal income tax purposes, which expire in 2004 through 2020. The Company's ability to use these net operating loss carryforwards to offset future income is subject to limitations, and may be subject to additional limitations in the future. Due to these limitations, a portion or all of these net operating loss carryforwards could expire unused. 18 20 LIQUIDITY AND CAPITAL RESOURCES Lodgian's principal sources of liquidity consist of existing cash balances, cash flow from operations and financing. Additionally, the Company expects to generate cash from the disposition of hotels it has targeted for sale and that will be targeted for sale in the future. The majority of net proceeds from the sale of hotels is expected to be used to reduce long-term debt. The Company had earnings from operations before interest, taxes, depreciation and amortization ("EBITDA"), as adjusted in 2000 of $138.9 million, a 5.6% decrease from the $147.1 million in 1999. The Company has computed EBITDA without regard to the unusual items and one-time charges. During 2000 these items consisted of unusual costs, principally professional fees and restructuring costs, of $13.6 million and impairment charges of $60.7 million. The unusual charges for 1999 consisted of impairment charges of $38.0 million, goodwill write-off $20.8 million, severance of $0.5 million and other operating expenses (principally professional fees) of $12.5 million. 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. Net cash provided by operating activities in 2000 was $19.6 million as compared with $67.2 million in 1999. Cash flows provided by (used in) investing activities were $127.4 million and ($91.0) million in 2000 and 1999, respectively. The 2000 amount includes capital expenditures of $79.2 million, net proceeds from the sale of assets of $208.8 million and deposits for capital expenditure escrows of $2.2 million. The 1999 amount includes capital expenditures of $118.9 million, net proceeds from the sale of assets of $22.1 million, withdrawals from capital expenditure escrows of $18.0 million, additions of property and equipment of $1.9 million and purchase of minority interest of $10.2 million. Cash flows (used in) provided by financing activities were ($140.6) million and $19.2 million in 2000 and 1999, respectively. The 2000 and 1999 amounts consist primarily of the net proceeds from the issuance and repayment of long-term obligations. At December 31, 2000, the Company had a working capital deficit of $99.9 million as compared with a working capital deficit of $65.3 million at December 31, 1999. Excluding the current portion of long-term obligations, the Company had a working capital deficit of $20.0 million at December 31, 2000 compared with a working capital deficit of $29.9 million at December 31, 1999. At December 31, 2000, long-term obligations were $674.0 million. Long-term obligations were $856.7 million at December 31, 1999. Both periods exclude the CRESTS. The Company has a capital improvement program to address the capital improvements required at the hotels related to product improvement plans specified by license agreements with franchisors, re-branding of several hotels and general renovation projects intended to ultimately improve the operations of the hotels. As of December 31, 2000, the Company's anticipated expenditures for such projects are approximately $40 million and the Company has approximately $14.0 million escrowed for such improvements. Of the approximately $40 million, $31 million is expected to be spent in 2001 and the balance in 2002. In June 2000, the Company in an effort to reduce corporate overhead expenses instituted a plan to close four of its six regional offices, close the Company's reservation center located in Baton Rouge, Louisiana and eliminate certain positions in the corporate office. Approximately sixty-five employees were terminated in this restructuring. In 2000, the Company recognized a charge of approximately $1.5 million to implement this plan. Of the $1.5 million charge approximately $1.3 million was related to salary and benefits of the terminated employees and $.2 million related to the costs of closing the physical regional offices and the reservation center. As of December 31, 2000 all costs have been paid. In the future the Company anticipates approximately $5 million in annual savings from instituting this plan. With regard to the mortgage notes with an interest rate of 9%, on August 31, 2000 the Company sold one hotel, located in the Western United States, securing this facility and used the proceeds to reduce principal, 19 21 pay origination and extension fees of approximately $1.9 million, and exercised its option to extend the maturity date to November 2002 from November 2000. On July 23, 1999 the Company sold $200 million of 12.25% Senior Subordinated Notes due in 2009 (the "Notes"). In addition, the Company entered into a new, multi-tranche Senior Secured loan credit facility. The facility consisted of development loans with a maximum capacity of $75 million (the tranche A and C loans), a $240 million tranche B term loan and a $50 million revolving facility. The tranche A and C loans were to be used for hotel development projects. At December 31, 1999, $238.8 million was outstanding on the tranche B term loan and no amounts were outstanding from the tranche A and C portion of the loan credit facility. The tranche B loan, along with the proceeds from the Notes, were used to repay a substantial portion of the financing entered into to consummate the Merger and, in September 1999, a $132.5 million loan, part of the credit facilities. The Company was unable to deliver its 1999 annual audited and March 31, and June 30, 2000 quarterly unaudited financial statements to its Senior Secured loan facility lenders on a timely basis. The Company received a waiver for the late delivery of these financial statements and the time period for delivery of quarterly 2000 financial statements was extended. In addition, on July 31, 2000, the Company entered into an amendment to its Senior Secured loan credit facility which provides for a 0.5% increase in the interest rate, termination of the tranche A facility which reduces the maximum credit facility by $25 million and provides for additional amortization payment requirements for tranche B term loans of (i) $25 million on or prior to December 31, 2000, (ii) an additional $35 million on or prior to June 30, 2001 and (iii) an additional $40 million on or prior to December 31, 2001. Prior to the amendment, amortization payment requirements were effectively 1% per year of the outstanding tranche B term loans during that period. The amendment modifies various covenants and coverage ratios, which the Company is in compliance with as of December 31, 2000. The amendment provided for immediate access to the $25 million unused portion of the revolving credit facility and provided increased flexibility for the sale of hotel assets. The Company paid an amendment fee of approximately $1.4 million. As of December 31, 2000 the Company paid fully the $25 million required amortization payment due December 31, 2000 and as of March 15, 2001 has paid $28.6 million of the $35 million required amortization payment due June 30, 2001. On August 31, 2000, in conjunction with the sale of nine hotels, principally located in the Western United States, the Company and the lenders amended the terms of the credit facilities. Under this amendment two former credit facilities were amended into one new facility and the Company paid down approximately $106.2 million of the debt with proceeds from the sale, extended the maturity date to September 2003 after considering a one year option to extend and converted the remaining balance owed, approximately $108.7 million, to a floating rate facility. In addition, the Company paid approximately $4.3 million to "break" the interest rate lock agreement on $54 million related to this debt. In June 1998, the Company issued $175 million of CRESTS. The CRESTS bear interest at 7% and are convertible into shares of the Company's common stock at an initial conversion price of $21.42 per share. The sale of CRESTS generated $168.5 million in net proceeds, substantially, all of which were used to repay existing debt prior to maturity. Payment restrictions contained in the Company's Notes allowed the Company to defer the dividend payments on the CRESTS beginning June 30, 2000. Pursuant to the terms of the agreement the Company has the right to defer the dividend payment for up to twenty quarters. The Company does not anticipate resumption of the quarterly dividend payment on the CRESTS in the near future. As discussed previously, the Company has adopted strategic plans to reduce the size of the Company's non-core hotel portfolio and reduce the overall level of debt. With regard to these strategic plans the Company has sold nineteen hotel properties and four other assets during 2000. Gross sales price of these twenty-three properties was $208.8 million while the reduction of debt was $151.1 million. The balance was used primarily to support capital expenditures related to major renovation projects and the construction of one new hotel, which was subsequently sold prior to completion. During February 2001, the Company sold two hotels for a gross sales price of $66.2 million and used the net proceeds of $55.8 million to repay debt. The Company's total outstanding debt as of March 15, 2001 (excluding CRESTS) is approximately $713.1 million. Of this amount $60.5 million is due in 2001. As of 20 22 March 15, 2001, the Company's held for sale properties have an estimated fair value of approximately $44.2 million, which are encumbered by indebtedness of approximately $7.9 million due subsequent to 2001. The Company will continue to explore potential property sale transactions in addition to those discussed above. Certain of these transactions may include hotels other than those identified for sale currently. The discussions with potential purchasers are in various stages, including the execution of preliminary agreements in a few situations. Those transactions where preliminary agreements have been reached are subject to, among other things, buyer due diligence and financing and the cooperation of the Company's existing lenders. Accordingly, the Company is unable to predict whether any of the transactions being considered will result in an actual sale. The majority of the net proceeds from any completed sales will be used to reduce debt. In 2001, the Company will need to sell assets to meet its remaining $60.5 million amortization payment requirements in 2001 and its capital improvement program. Therefore, the Company may continue to identify properties to be classified as held for sale. Although the Company anticipates being able to sell sufficient assets to meet its obligations in 2001, there can be no assurances that the sales will occur or generate sufficient net proceeds to meet these obligations. The Company believes that the combination of its current cash position, cash flow from operations, availability on the revolving credit facility and net proceeds from property sales (both properties identified and to be identified) will provide sufficient liquidity to fund the Company's operating, capital expenditure and debt service obligations through December 31, 2001. INFLATION The rate of inflation has not had a material effect on the Company's revenues or costs and expenses in recent years and it is not anticipated that inflation will have a material effect on the Company in the near term. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The risk inherent in the Company's market risk sensitive instruments is the potential loss arising from adverse changes in interest rates. The Company does not purchase or hold any derivative financial instruments for trading purposes. Hotel owners and operators are inherently capital intensive, as the vast majority of assets are hotels, which are long-lived. Lodgian's exposure to market risk associated with changes in interest rates relates primarily to its debt obligations. The Company has significant exposure to changes in cash flows resulting from changes in interest rates as approximately 45% of its long-term debt carries floating rates of interest. For the balance of long-term debt, the nature of fixed rate obligations does not expose the Company to the risk of changes in the fair value of these instruments, except for the Company's Senior Subordinated Notes. The Company has outstanding debt of $753.9 million, including current maturities at December 31, 2000. The table below provides information about the Company's debt obligations. Weighted average rates are based on implied forward rates in the yield curve at March 15, 2001.
EXPECTED MATURITY DATE ----------------------------------------------------- 2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE ------- ------- -------- ------- -------- ---------- -------- ---------- (DOLLARS IN THOUSANDS) Fixed Rate.................. $12,538 $66,372 $ 35,849 $26,583 $ 3,864 $272,027 $417,233 $401,233 Average interest rate..... 10.8% 10.6% 10.6% 10.7% 10.8% Floating Rate............... $67,305 $ 2,525 $118,589 $44,200 $104,029 $ -- $336,648 $336,648 Average interest rate..... 10.4% 10.2% 10.2% 10.3% 10.4%
At December 31, 2000 the Company had approximately $336.6 million of debt instruments outstanding that are subject to changes in the LIBOR or PRIME rate. Without regard to additional borrowings under those instruments or scheduled amortization, the annualized effect of each twenty five basis point increase in the LIBOR rate would be a reduction in income before income taxes in 2001 by approximately $.8 million. 21 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... 23 Report of Independent Auditors.............................. 24 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... 25 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998.......................... 26 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998.............. 27 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.......................... 28 Notes to Consolidated Financial Statements.................. 29
22 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Lodgian, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheet of Lodgian, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lodgian, Inc. and subsidiaries as of December 31, 2000, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Atlanta, Georgia March 15, 2001 23 25 REPORT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors Lodgian, Inc. We have audited the accompanying consolidated balance sheet of Lodgian, Inc. (formerly known as Servico, Inc.) and subsidiaries as of December 31, 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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. The selected quarterly financial data included in Note 17 contains information that we did not audit, and, accordingly, we do not express an opinion on that data. We attempted, but were unable, to review the quarterly financial data for the interim periods within 1999 in accordance with standards establish by the American Institute of Certified Public Accountants because we believe that the Company's internal controls for the preparation of interim financial information did not provide an adequate basis to enable us to complete such a review. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lodgian, Inc. (formerly known as Servico, Inc.) and subsidiaries at December 31, 1999, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Atlanta, Georgia July 14, 2000 24 26 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------- 2000 1999 ---------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 21,002 $ 14,644 Cash, restricted.......................................... 2,237 2,692 Accounts receivable, net of allowances.................... 20,624 26,520 Inventories............................................... 7,805 9,190 Prepaid expenses and other current assets................. 9,261 9,984 ---------- ---------- Total current assets.............................. 60,929 63,030 Property and equipment, net................................. 1,059,048 1,314,141 Deposits for capital expenditures........................... 14,005 12,357 Other assets, net........................................... 29,965 32,468 ---------- ---------- $1,163,947 $1,421,996 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 25,088 $ 34,332 Accrued interest.......................................... 16,795 13,390 Other accrued liabilities................................. 37,203 42,783 Advance deposits.......................................... 1,854 2,384 Current portion of long-term obligations.................. 79,843 35,404 ---------- ---------- Total current liabilities......................... 160,783 128,293 Long-term obligations, less current portion................. 674,038 856,675 Deferred income taxes....................................... 3,603 33,082 Minority interests: Preferred redeemable securities (including related accrued interest).............................................. 184,349 175,000 Other..................................................... 4,294 4,404 ---------- ---------- Total liabilities................................. 1,027,067 1,197,454 Commitments and contingencies............................... -- -- Stockholders' equity: Common stock, $.01 par value, 75,000,000 shares authorized; 28,290,424 and 28,130,325 shares issued and outstanding at December 31, 2000 and 1999, respectively........................................... 282 281 Additional paid-in capital................................ 263,320 262,760 Accumulated deficit....................................... (125,542) (37,587) Accumulated other comprehensive loss...................... (1,180) (912) ---------- ---------- Total stockholders' equity........................ 136,880 224,542 ---------- ---------- $1,163,947 $1,421,996 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 25 27 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------- 2000 1999 1998 ---------- --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) Revenues: Rooms..................................................... $ 422,475 $424,530 $267,862 Food and beverage......................................... 131,333 139,474 107,334 Other..................................................... 27,089 28,416 20,018 --------- -------- -------- 580,897 592,420 395,214 Operating expenses: Direct: Rooms.................................................. 119,159 114,590 74,812 Food and beverage...................................... 94,950 102,045 81,631 Other.................................................. 16,829 17,312 11,023 General, administrative and other........................... 223,148 223,856 129,523 Depreciation and amortization............................... 64,794 59,317 31,114 Impairment of long-lived assets............................. 60,688 37,977 -- Write-off of goodwill....................................... -- 20,748 -- Severance and restructuring expenses........................ 1,502 500 3,400 --------- -------- -------- Total operating expenses.......................... 581,070 576,345 331,503 --------- -------- -------- (173) 16,075 63,711 Other income (expenses): Interest income and other................................. 1,374 1,579 1,260 Interest expense.......................................... (97,306) (77,409) (30,378) Interest hedge break fee.................................. (4,294) -- -- Acquisition termination fees.............................. (3,500) -- -- Gain (loss) on asset dispositions......................... 298 1,242 (432) Settlement on swap transactions........................... -- -- (31,492) Minority interests: Preferred redeemable securities........................... (12,412) (13,224) (6,475) Other..................................................... (665) (1,300) (1,436) --------- -------- -------- Loss before income taxes and extraordinary item............. (116,678) (73,037) (5,242) Benefit for income taxes.................................... (28,723) (20,094) (2,097) --------- -------- -------- Loss before extraordinary item.............................. (87,955) (52,943) (3,145) Extraordinary item: Loss on extinguishment of indebtedness, net of income tax benefit of $4,914 and $1,384 in 1999 and 1998, respectively........................................... -- (7,750) (2,076) --------- -------- -------- Net loss.................................................... $ (87,955) $(60,693) $ (5,221) ========= ======== ======== Loss per common share basic and diluted: Loss before extraordinary item............................ $ (3.12) $ (1.95) $ (0.16) Extraordinary item........................................ -- (0.28) (0.10) --------- -------- -------- Net loss per common share................................. $ (3.12) $ (2.23) $ (0.26) ========= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 26 28 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
RETAINED ACCUMULATED ADDITIONAL EARNINGS OTHER TOTAL COMMON STOCK PAID-IN (ACCUMULATED COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT) LOSS EQUITY ---------- ------ ---------- ------------ ------------- ------------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance at December 31, 1997....................... 20,974,852 $210 $211,577 $ 28,327 $ (579) $239,535 Issuance of common stock in connection with purchase of Impac................ 9,400,000 94 82,626 -- -- 82,720 401(k) Plan contribution... 88,205 -- 430 -- -- 430 Exercise of stock options................. 134,900 1 1,143 -- -- 1,144 Tax benefit from exercise of stock options........ -- -- 245 -- -- 245 Purchase of common stock... (2,660,900) (27) (34,045) -- -- (34,072) Net loss................... -- -- -- (5,221) -- (5,221) Currency translation adjustments............. -- -- -- -- (1,014) (1,014) -------- Comprehensive loss......... -- -- -- -- -- (6,235) ---------- ---- -------- --------- ------- -------- Balance at December 31, 1998....................... 27,937,057 278 261,976 23,106 (1,593) 283,767 ---------- ---- -------- --------- ------- -------- 401(k) Plan contribution... 143,160 2 547 -- -- 549 Exercise of stock options................. 30,000 1 119 -- -- 120 Tax benefit from exercise of stock options........ -- -- 20 -- -- 20 Director compensation...... 20,108 -- 98 -- -- 98 Net loss................... -- -- -- (60,693) -- (60,693) Currency translation adjustments............. -- -- -- -- 681 681 -------- Comprehensive loss......... -- -- -- -- -- (60,012) ---------- ---- -------- --------- ------- -------- Balance at December 31, 1999....................... 28,130,325 281 262,760 (37,587) (912) 224,542 ---------- ---- -------- --------- ------- -------- 401(k) Plan contribution... 144,131 1 504 -- -- 505 Director compensation...... 15,968 -- 56 -- -- 56 Net loss................... -- -- -- (87,955) -- (87,955) Currency translation adjustments............. -- -- -- -- (268) (268) -------- Comprehensive loss......... -- -- -- -- -- (88,223) ---------- ---- -------- --------- ------- -------- Balance at December 31, 2000....................... 28,290,424 $282 $263,320 $(125,542) $(1,180) $136,880 ========== ==== ======== ========= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 27 29 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 --------- --------- --------- (IN THOUSANDS) Operating activities: Net loss.................................................. $ (87,955) $ (60,693) $ (5,221) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........................... 64,794 59,317 31,114 Impairment of long-lived assets......................... 60,688 37,977 -- Write-off of goodwill................................... -- 20,748 -- Loss on extinguishment of indebtedness.................. -- 12,664 3,460 Deferred income taxes................................... (30,063) (25,008) (726) Minority interests -- other............................. 10,014 1,300 1,436 401(k) Plan contributions............................... 505 549 430 Compensation in stock issued to directors............... 56 98 -- Equity in income of unconsolidated entities............. (84) (278) (782) (Gain) loss on sale of assets........................... (298) (1,242) 432 Other................................................... (1,132) -- (361) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable................................... 5,896 (1,022) (6,563) Inventories........................................... 1,385 73 (1,883) Other assets.......................................... 1,013 37,705 (18,412) Accounts payable...................................... (2,974) (22,921) 14,913 Accrued liabilities................................... (2,234) 7,924 11,464 --------- --------- --------- Net cash provided by operating activities.......... 19,611 67,191 29,301 Investing activities: Acquisitions of property and equipment.................... -- (1,929) (67,717) Capital improvements, net................................. (79,241) (118,925) (118,667) Purchase of minority interests............................ -- (10,200) -- Proceeds from sale of assets.............................. 208,789 22,068 -- (Deposits) withdrawals for capital expenditures........... (2,184) 18,029 3,860 --------- --------- --------- Net cash provided by (used in) investing activities....................................... 127,364 (90,957) (182,524) Financing activities: Proceeds from issuance of long-term obligations........... 32,326 487,521 600,284 Proceeds from issuance of common stock.................... -- 120 1,144 Principal payments of long-term obligations............... (168,868) (448,220) (390,026) Payments of deferred loan costs........................... (3,300) (18,479) (20,165) Distributions to minority interests....................... (775) (1,717) -- Payments for repurchase of common stock................... -- -- (34,072) --------- --------- --------- Net cash (used in) provided by financing activities....................................... (140,617) 19,225 157,165 --------- --------- --------- Net increase (decrease) in cash and cash equivalents........ 6,358 (4,541) 3,942 Cash and cash equivalents at beginning of year.............. 14,644 19,185 15,243 --------- --------- --------- Cash and cash equivalents at end of year.................... $ 21,002 $ 14,644 $ 19,185 ========= ========= ========= Supplemental cash flow information Cash paid during year for: Interest, net of amount capitalized....................... $ 88,247 $ 69,574 $ 31,512 ========= ========= ========= Income taxes paid, net of refunds......................... $ 584 $ 3,810 $ 5,210 ========= ========= ========= Supplemental disclosure of non cash investing and financing activities: Non cash acquisition and related financing of property and equipment............................................... $ -- $ -- $ 696,851 ========= ========= ========= Issuance of stock in connection with acquisition of Impac................................................... $ -- $ -- $ 82,700 ========= ========= ========= Net non cash debt reduction............................... $ 1,656 $ -- $ -- ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 28 30 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business On December 11, 1998 Servico, Inc. (Servico) merged with Impac Hotel Group, LLC (Impac), pursuant to which Servico and Impac formed a new company Lodgian, Inc. ("Lodgian" or the "Company"). This transaction (the "Merger") has been accounted for under the purchase method of accounting, whereby Servico was considered the acquiring company. For further discussion of the Merger see Note 3. As of December 31, 2000, Lodgian, its wholly owned subsidiaries and consolidated partnerships (collectively, the "Company"), own or manage 113 hotels in 32 states and Canada. At December 31, 1999 and 1998, the Company owned, either wholly or partially, or managed 134 and 144 hotels, respectively. Principles of Consolidation The financial statements consolidate the accounts of Lodgian, its wholly-owned subsidiaries and five partnerships in which Lodgian exercises control. Lodgian believes it has control of partnerships when the Company manages and has control of the partnerships' assets and operations, has the ability and authority to enter into financing agreements on behalf of the entity or to sell the assets of the entity within reasonable business guidelines. An unconsolidated entity (owning 1 hotel) is accounted for on the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories Inventories consist primarily of food and beverage, linens, china, tableware and glassware and are valued at the lower of cost (computed on the first-in, first-out method) or market. Minority Interests -- Other Minority interests represent the minority interests' proportionate share of equity of partnerships that are accounted for by the Company on a consolidated basis. The Company generally allocates to minority interests their share of any profits or losses in accordance with the provisions of the applicable agreements. However, if the loss applicable to a minority interest exceeds its total investment and advances, such excess is charged to the Company. Minority Interests -- Preferred Redeemable Securities Minority interests-preferred redeemable securities, represents Convertible Redeemable Equity Structure Trust Securities ("CRESTS"). The CRESTS bear interest at 7% and are convertible into shares of the Company's common stock. For further discussion of CRESTS, see Note 6. Property and Equipment Property and equipment is stated at cost, less reserves for impairment, where applicable. Capital improvements are capitalized when they extend the useful lives of the related asset. All repair and maintenance items are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Property under capital leases is amortized using the straight line method over the shorter of the estimated useful lives of the assets or the lease term. The Company capitalizes interest costs incurred during the renovation and construction of capital assets. During the years ended December 31, 2000, 1999 and 1998, the Company capitalized $747,000, $8,428,000 and $3,499,000 of interest, respectively. 29 31 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Management periodically evaluates the Company's property and equipment to determine if there has been any impairment in the carrying value of the assets in accordance with Financial Accounting Standards Board Statement ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." SFAS 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Impairment losses for assets held for sale are recognized when the assets' carrying values are greater than the fair value less estimated selling costs. See Note 4 and Note 14 for further discussion of the Company's charges for asset impairment. Goodwill Goodwill was being amortized over twenty years. Impairment of enterprise level goodwill arising from the Merger is accounted for under the market value method. Deferred Costs Deferred franchise, financing, and other deferred costs of $28,982,000 and $31,211,000 at December 31, 2000 and 1999, respectively, are included in other assets, net of accumulated amortization of $11,738,000 and $6,300,000 at December 31, 2000 and 1999, respectively. Deferred franchise and other costs are amortized using the straight-line method over the terms of the related franchise or other agreements, while deferred financing costs are amortized using the interest method. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Restricted cash consists of amounts reserved for capital improvements, debt service, taxes and insurance. Fair Values of Financial Instruments The fair values of current assets and current liabilities are assumed equal to their reported carrying amounts. The fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. In the opinion of management, the carrying value of long-term debt approximates market value as of December 31, 2000 and 1999. Based on quoted market prices, the fair market value of the Company's Senior Subordinated notes was $184 million and $198 million at December 31, 2000 and 1999, respectively. The fair market value of the Company's CRESTS was $53.4 million and $87.5 million at December 31, 2000 and 1999, respectively, based on quoted market prices. 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, 2000 and 1999, these allowances were $1,400,000 and $1,126,000, respectively. 30 32 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Earnings Per Common and Common Equivalent Share The Company adopted SFAS 128 "Earnings Per Share" effective for the year ended December 31, 1998. Basic earnings per share is calculated based on the weighted average number of common shares outstanding during the periods and include common stock contributed or to be contributed by the Company to its employees 401(k) Plan (the "401(k)"). Dilutive earnings per common share include the Company's outstanding stock options and shares convertible under the Company's CRESTS, if dilutive. See Note 11 for computation of basic and diluted earnings per share. Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations. Under APB 25, because the exercise price of the Company's employee stock options is equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. Under SFAS 123, "Accounting for Stock-Based Compensation", compensation cost is measured at the grant date based on the value of the award and is recognized over the service (or vesting) period. The Financial Accounting Standards Board issued an interpretation of APB 25 (the "Interpretation") in March 2000. One of the key areas affected by the interpretation is the accounting for stock option repricings. The interpretation is applied prospectively to transactions that occur after December 15, 1998 commencing on the effective date of July 1, 2000. The Interpretation requires that once an option granted to an employee is repriced, that option would be accounted for as if it were a variable plan, giving rise to compensation expense for the subsequent changes in stock price, from the date the option is repriced to the date it is exercised. Under the interpretation, no compensation expense is recorded on the date of the repricing. However, compensation expense is recorded quarterly through the date of exercise to the extent that the fair market value of the common stock is in excess of the exercise price of the options adjusted for the repricing. The interpretation requires, in measuring compensation expense, the use of the higher of the repriced exercise price of the options or the fair market value of the stock on the date the interpretation is effective. On December 18, 1998, the Company repriced options totaling 997,800, net of forfeitures, that were subject to these requirements. There was no impact on the Company's operating results for the years ended December 31, 2000 and 1999. Revenue Recognition Revenues are recognized when the services are rendered. Revenues are composed of rooms, food and beverage and other revenues. Room revenues are derived from guest room rentals, whereas food and beverage revenues primarily include sales from hotel restaurants, room service and hotel catering. Other revenues include charges for guests' long-distance telephone service, laundry service and use of meeting facilities. Advertising Expense The cost of advertising is expensed as incurred. The Company incurred $3,492,000, $3,997,000 and $2,162,000 in advertising cost during 2000, 1999 and 1998, respectively. Foreign Currency Translation The financial statements of foreign subsidiaries have been translated into U.S. dollars in accordance with SFAS 52. "Foreign Currency Translation." All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet dates. Income statement amounts have been translated using the 31 33 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) average rate for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported in other comprehensive income. The effects on the statements of operations of transaction gains and losses is insignificant for all years presented. Business Segments The Company's only business segment is the ownership and management of hotels. 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 in assets and liabilities 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. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and derivatives used for hedging purposes. SFAS No. 133 requires that entities recognize all derivative financial instruments as either assets or liabilities in the statement of financial position and measure those instruments at their fair value. SFAS No. 133, as amended by SFAS No. 137 and 138, is effective for the Company in its first fiscal quarter 2001. The Company believes that the adoption of SFAS No. 133 will not have a significant effect on its financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial Statements," which addresses revenue recognition issues. SAB 101 was required to be adopted for the quarter ending December 31, 2000. The Company assessed the types of transactions that could be impacted by this pronouncement and determined that the effect on the financial statements of the Company was not material. In November 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 100 ("SAB 100") "Restructuring and Impairment Charges". This statement summarizes certain staff views in applying generally accepted accounting principles to, among other things, asset impairment and goodwill. See Notes 4 and 14 for a discussion of the Company's charges in 2000 and 1999 for the impairment of long-lived assets and enterprise level goodwill. Reclassifications Certain reclassifications have been made to prior year financial statements in order to conform to the current year presentation. 2. STRATEGIC PLANS During approximately the past fifteen months, the Company's Board of Directors has adopted strategic plans that are intended to enhance value for its shareholders. At the end of 1999, the Company adopted a strategic plan to reduce the size of the Company's non-core hotel portfolio. In 2000, the Company adopted a strategic plan to reduce the level of overall debt of the Company and retained an investment banker to review its strategic alternatives. As part of that review the Company was pursuing a sale of the Company. With regard to this strategic alternative, the Company received offers from Whitehall Street Real Estate Limited Partnership XIII and Whitehall Parallel Real Estate Limited Partnership XIII ("Whitehall") and Edgecliff 32 34 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Holdings, LLC ("Edgecliff") to acquire the Company. On December 26, 2000, the Company entered into an Exclusivity Agreement with Edgecliff in which the Company granted Edgecliff an exclusive 60-day period during which the two parties attempted to negotiate a definitive merger agreement. During this period the Company gave Edgecliff and its representatives full access to the Company's books, records and personnel. The parties had made significant progress toward negotiating the terms of a definitive merger agreement, and the Company agreed to extend the exclusivity period. However, on February 28, 2001, Edgecliff informed the Company that it was unable to obtain the refinancing of the Company's high-yield bonds on acceptable terms from their holders and would not proceed with the acquisition. In addition, during the fourth quarter, the Company recorded a charge of $3.5 million relating to reimbursing Whitehall certain expenses it incurred in connection with evaluating and pursuing the transaction, as a definitive agreement for the sale was not consummated with Whitehall. This is recorded in the Company's statement of operations as acquisition termination fees. Currently, the Company is not in negotiations for the sale of the Company with any party. The Company is moving forward as an independent company and is exploring all avenues for maximization of shareholder value, including improving operations, capital structure and optimizing the value of the Company's assets. On February 9, 2001 the Company named a new president and chief executive officer. As discussed more fully in Notes 4 and 6, with regard to the strategic plans to reduce the size of the Company's non-core hotel portfolio and reduce the level of overall debt, the Company sold twenty one hotel properties and four other assets between January 1, 2000 and March 15, 2001. Gross sale price of these twenty five properties was $275.0 million while the reduction of debt was $206.9 million. For the remainder of 2001, the Company will continue to identify properties to be sold to meet the objectives of these strategic plans. 3. MERGER, ACQUISITIONS AND RELATED ITEMS On December 11, 1998, Servico merged with Impac (the "Merger") in a transaction accounted for under the purchase method of accounting, pursuant to APB 16, "Business Combinations," whereby Servico was considered the acquiring company. The operations of Impac are included in the consolidated statements of operations from the date of acquisition. Under the terms of the Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"), Servico's existing shareholders received one share of Lodgian common stock for each share of Servico stock held by them (approximately 18,440,000 million shares). The purchase price of Impac approximated $104,367,000, consisting of $15 million in cash, the issuance of 9.4 million shares of common stock of Lodgian at $8.80. The purchase price was allocated to the fair value of net assets acquired as follows:
(IN THOUSANDS) Cash........................................................ $ 7,027 Inventory................................................... 2,859 Accounts receivable......................................... 12,239 Property and equipment...................................... 610,708 Goodwill and other assets................................... 22,214 Accounts payable............................................ (61,694) Long term obligations....................................... (429,466) Deferred income taxes....................................... (47,900) Accrued liabilities......................................... (11,620) --------- Total purchase price.............................. $ 104,367 =========
In connection with the purchase of Impac, the Company allocated approximately $20.7 million to goodwill. See Note 14 for further discussion of goodwill charges. 33 35 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In connection with the Merger, Servico incurred approximately $3,400,000 of expenses primarily associated with the closing and relocation of Servico's corporate headquarters and termination and relocation of certain Servico employees. Severance expenses in 1999 were $500,000. These costs have been expensed as incurred and are included in severance and restructuring expenses in the consolidated statements of operations for 1999 and 1998. See Note 14 for further discussion of Merger and other related expenses. On June 1, 1998, the Company acquired the issued and outstanding units of AMI Operating Partners, L.P. (AMI), in a transaction accounted for under the purchase method of accounting. The purchase price of AMI approximated $74 million which included cash of $16 million and the assumption of $58 million in debt. The operations of AMI are included in the consolidated statements of operations from the date of acquisition. The purchase price was principally allocated to the 14 hotel properties acquired. The pro forma unaudited results of operations for the year ended December 31, 1998, assuming the Merger had been consummated on January 1, 1998, follows:
1998 -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues.................................................... $545,794 Net (loss) before extraordinary item........................ (21,146) Net (loss).................................................. (19,070) Net (loss) per common share: Basic and diluted......................................... (0.75)
During November 1998, the President and Chief Executive Officer of Servico announced his resignation effective the date of the merger with Impac. In connection with his resignation, the Chief Executive was provided a severance package approximating $1.3 million. This amount was expensed during the fourth quarter of 1998 and is included in severance and restructuring expenses in the 1998 consolidated statement of operations. Approximately $164,000 of this amount relates to compensation expense associated with the extension terms of his stock options, pursuant to APB 25. 4. PROPERTY AND EQUIPMENT At December 31, 2000 and 1999, property and equipment consisted of the following:
USEFUL LIVES (YEARS) 2000 1999 ------- ---------- ---------- (IN THOUSANDS) Land.................................................. -- $ 127,749 $ 161,313 Buildings and improvements............................ 10-40 920,351 1,012,826 Furnishings and equipment............................. 3-10 212,936 215,150 ---------- ---------- 1,261,036 1,389,289 Less accumulated depreciation and amortization........ (206,599) (156,370) Construction in progress.............................. 4,611 81,222 ---------- ---------- $1,059,048 $1,314,141 ========== ==========
Included in property and equipment is $39.8 million (10 properties) and $156.0 million (26 properties) related to properties identified as held for sale at December 31, 2000 and 1999, respectively. As discussed in Notes 2 and 6, the Company has adopted strategic plans to reduce the size of the Company's non-core hotel portfolio and reduce the level of overall debt of the Company. In this regard, the 34 36 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company identified in 1999 and 2000 and may continue to identify throughout 2001, properties that will be classified as held for sale to meet these objectives. Impairment charges were $60.7 million and 38.0 million in 2000 and 1999, respectively. During the third quarter 2000 the Company recaptured $10.7 million of impairment charges recorded in 1999 and 2000, as seven hotels previously identified as held for sale as of December 31, 1999 were no longer being actively marketed for sale. Included in the 2000 impairment charges of $60.7 million is $55.8 million related to one transaction involving the sale of a group of ten hotels on August 31, 2000 and $3.5 million related to one property held for use. The remaining charges relate to write-downs on individual properties held for sale. The following unaudited pro forma results of operations for 2000 and 1999 are presented as if the Company had completed the sale of the ten hotels, discussed above, as of January 1, 1999. In management's opinion, all adjustments necessary to reflect the effect of this transaction have been made. These unaudited pro forma results of operations are not necessarily indicative of what the actual results of operations would have been for the years ended December 31, 2000 and 1999, nor do they purport to represent the results of operations for future periods. No pro forma balance sheet is presented as the effects of the transaction are reflected in the accompanying consolidated balance sheet as of December 31, 2000.
2000 1999 ----------- ----------- (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenues.............................................. $543,310 $550,591 Net loss before extraordinary item.......................... (51,465) (51,267) Net loss after extraordinary item........................... (51,465) (59,017) Net loss per common share, before extraordinary item, basic and diluted............................................... (1.83) (1.89) Net loss per common share, basic and diluted................ (1.83) (2.17)
Summary results of operations included in the Statement of Operations with respect to the properties identified as held for sale at December 31, 2000 and 1999 are as follows (in thousands):
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Revenues........................................ $24,198 $ 25,426 ======= ======== Loss before income taxes........................ $(3,787)(1) $(10,983)(1) ======= ========
- --------------- (1) Includes impairment charges of $8.8 million and $14.3 million in 2000 and 1999, respectively. The Company may incur additional impairment charges in 2001 as it continues to identify properties to be considered held for sale to meet the objectives described above. 35 37 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. OTHER ACCRUED LIABILITIES At December 31, 2000 and 1999, other accrued liabilities consisted of the following:
2000 1999 ------- ------- (IN THOUSANDS) Salaries and related costs.................................. $15,874 $14,825 Property and sales taxes.................................... 13,649 13,839 Professional fees........................................... 1,289 4,011 Other....................................................... 6,391 10,108 ------- ------- $37,203 $42,783 ======= =======
6. LONG-TERM OBLIGATIONS AND PREFERRED REDEEMABLE SECURITIES Long-term obligations consisted of the following at December 31:
2000 1999 -------- -------- (IN THOUSANDS) Mortgage notes payable with interest at LIBOR (6.64% at December 31, 2000) plus 4.5%. See Senior Secured Loan credit facility description below. The notes are payable through 2005.............................................. $195,219 $238,800 Credit facilities with interest at LIBOR plus 2.75% maturing 2003. See description of August 31, 2000 amendment below..................................................... 108,652 212,790 Mortgage notes with an interest rate of 9% maturing 2002.... 54,565 62,000 Mortgage notes with fixed rates ranging from 7.9% to 10.7% payable through 2010...................................... 139,346 142,902 Senior Subordinated notes payable with interest at 12.25% due in 2009............................................... 200,000 200,000 Revolving credit facility with interest at LIBOR plus 4.5%, maturing 2004............................................. 25,000 -- Other....................................................... 31,099 35,587 -------- -------- 753,881 892,079 Less current portion of long-term obligations............... (79,843) (35,404) -------- -------- $674,038 $856,675 ======== ========
Substantially, all the Company's property and equipment are pledged as collateral for long-term obligations of which approximately $497 million has been guaranteed by Lodgian, Inc. Certain of the mortgage notes are subject to a prepayment penalty if repaid prior to their maturity. With regard to the mortgage notes with an interest rate of 9%, on August 31, 2000 the Company sold one hotel, located in the western United States, securing this facility and used the proceeds to reduce principal, pay origination and extension fees of approximately $1.9 million, and exercised its option to extend the maturity date to November 2002 from November 2000. On July 23, 1999 the Company sold $200 million of 12.25% Senior Subordinated Notes due in 2009 (the "Notes"). In addition, the Company entered into a new, multi-tranche Senior Secured loan credit facility. The facility consisted of development loans with a maximum capacity of $75 million (the tranche A and C loans), a $240 million tranche B term loan and a $50 million revolving facility. The tranche A and C loans were to be used for hotel development projects. At December 31, 1999, $238.8 million was outstanding on the tranche B term loan and no amounts were outstanding from the tranche A and C portion of the loan credit facility. The tranche B loan, along with the proceeds from the Notes, were used to repay a substantial portion of the financing entered into to consummate the Merger and, in September 1999, a $132.5 million loan, part of the credit facilities. 36 38 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company was unable to deliver its 1999 annual audited and March 31, and June 30, 2000 quarterly unaudited financial statements to its Senior Secured loan facility lenders on a timely basis. The Company received a waiver for the late delivery of these financial statements and the time period for delivery of quarterly 2000 financial statements was extended. In addition, on July 31, 2000, the Company entered into an amendment to its Senior Secured loan credit facility which provides for a 0.5% increase in the interest rate, termination of the tranche A facility which reduces the maximum credit facility by $25 million and provides for additional amortization payment requirements for tranche B term loans of (i) $25 million on or prior to December 31, 2000, (ii) an additional $35 million on or prior to June 30, 2001 and (iii) an additional $40 million on or prior to December 31, 2001. Prior to the amendment, amortization payment requirements were effectively 1% per year of the outstanding tranche B term loans during that period. The amendment modifies various covenants and coverage ratios, which the Company is in compliance with as of December 31, 2000. The amendment provided for immediate access to the $25 million unused portion of the revolving credit facility and provided increased flexibility for the sale of hotel assets. The Company paid an amendment fee of approximately $1.4 million. As of December 31, 2000 the Company paid fully the $25 million required amortization payment due December 31, 2000 and as of March 15, 2001 has paid $28.6 million of the $35 million required amortization payment due June 30, 2001. On August 31, 2000, in conjunction with the sale of nine hotels, principally located in the Western United States, the Company and the lenders amended the terms of the credit facilities. Under this amendment two former credit facilities were amended into one new facility and the Company paid down approximately $106.2 million of the debt with proceeds from the sale, extended the maturity date to September 2003 after considering a one year option to extend and converted the remaining balance owed, approximately $108.7 million, to a floating rate facility. In addition, the Company paid approximately $4.3 million to "break" the interest rate lock agreement on $54 million related to this debt. In June 1998, the Company issued $175 million of CRESTS. The CRESTS bear interest at 7% and are convertible into shares of the Company's common stock at an initial conversion price of $21.42 per share. The sale of CRESTS generated $168.5 million in net proceeds, substantially, all of which were used to repay existing debt prior to maturity. Payment restrictions contained in the Company's Notes allowed the Company to defer the dividend payments on the CRESTS beginning June 30, 2000. Pursuant to the terms of the agreement the Company has the right to defer the dividend payment for up to twenty quarters. The Company does not anticipate resumption of the quarterly dividend payment on the CRESTS in the near future. The Company is subject to certain property maintenance and quality standard compliance requirements under its franchise agreements. The Company periodically receives notifications from its franchisors of events of noncompliance with such agreements. Management has the intention and believes they have the ability to cure all such instances of noncompliance within the applicable cure periods and that these events of noncompliance will not result in events of default under the respective loan agreements during 2001. Management has not been notified of nor does it believe it is in noncompliance with any of its loan agreements as a result of noncompliance with its franchise agreements as of December 31, 2000. As discussed in Notes 2 and 6, the Company has adopted strategic plans to reduce the size of the Company's non-core hotel portfolio and reduce the overall level of debt. With regard to these strategic plans the Company has sold nineteen hotel properties and four other assets during 2000. Gross sales price of these twenty-three properties was $208.8 million while the reduction of debt was $151.1 million. The balance was used primarily to support capital expenditures related to major renovation projects and the construction of one new hotel, which was subsequently sold prior to completion. During February 2001, the Company sold two hotels for a gross sales price of $66.2 million and used the net proceeds of $55.8 million to repay debt. The Company's total outstanding debt as of March 15, 2001 (excluding CRESTS) is approximately $713.1 million. Of this amount $60.5 million is due in 2001. As of 37 39 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) March 15, 2001, the Company's held for sale properties have an estimated fair value of approximately $44.2 million, which are encumbered by indebtedness of approximately $7.9 million due subsequent to 2001. The Company will continue to explore potential property sale transactions in addition to those discussed above. Certain of these transactions may include hotels other than those identified for sale currently. The discussions with potential purchasers are in various stages, including the execution of preliminary agreements in a few situations. Those transactions where preliminary agreements have been reached are subject to, among other things, buyer due diligence and financing and the cooperation of the Company's existing lenders. Accordingly, the Company is unable to predict whether any of the transactions being considered will result in an actual sale. The majority of the net proceeds from any completed sales will be used to reduce debt. In 2001, the Company will need to sell assets to meet its remaining $60.5 million amortization payment requirements in 2001 and its capital improvement program. Therefore, the Company may continue to identify properties to be classified as held for sale. Although the Company anticipates being able to sell sufficient assets to meet its obligations in 2001, there can be no assurances that the sales will occur or generate sufficient net proceeds to meet these obligations. Maturities of long-term obligations for each of the five years after December 31, 2000 and thereafter, are as follows:
(IN THOUSANDS) -------------- 2001...................................................... $ 79,843 2002...................................................... 68,897 2003...................................................... 154,438 2004...................................................... 70,783 2005...................................................... 107,893 Thereafter................................................ 272,027 -------- $753,881 ========
7. DERIVATIVE TRANSACTIONS On August 31, 2000, the Company paid $4.3 million to "break" the interest rate lock agreement on $54 million of debt related to its credit facilities. As of December 31, 2000 the Company is not party to any interest rate derivative agreements. During August 1998, the Company entered into a treasury rate lock transaction with notional amounts of $75 million and $200 million (collectively, the "Swaps") with a lender for the purpose of hedging their interest rate exposure on two anticipated financing transactions. During September 1998, the Company determined that it was not probable that it would consummate the anticipated transactions and recognized a loss in the consolidated statement of operations of $31.5 million related to the settlement of the Swaps. 8. STOCKHOLDERS' EQUITY During 1998, in accordance with previously announced share buyback programs, the Company repurchased in open market transactions and retired 2,660,900 shares of its common stock. The Company is currently prohibited under various credit agreements from paying any dividends on its common stock. 38 40 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. INCOME TAXES Provision (benefit) for income taxes for the Company is as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------ ------------------------------ ---------------------------- CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL -------- -------- -------- -------- -------- -------- ------- -------- ------- (IN THOUSANDS) Federal........................ $ -- $(28,187) $(28,187) $ -- $(16,329) $(16,329) $(1,140) $ (481) $(1,621) State and local................ 1,340 (1,876) (536) -- (3,765) (3,765) (423) (53) (476) -------- -------- -------- -------- -------- -------- ------- -------- ------- $ 1,340 $(30,063) $(28,723) $ -- $(20,094) $(20,094) $(1,563) $ (534) $(2,097) ======== ======== ======== ======== ======== ======== ======= ======== =======
The components of the cumulative effect of temporary differences in the deferred income tax (liability) and asset balances at December 31, 2000 and 1999 are as follows:
2000 1999 -------------------------------- -------------------------------- CURRENT NON-CURRENT CURRENT NON-CURRENT TOTAL ASSET LIABILITY TOTAL ASSET LIABILITY -------- ------- ----------- -------- ------- ----------- (IN THOUSANDS) Property and equipment.............. $(65,659) $ -- $(65,659) $(73,162) $ -- $(73,162) Net operating loss carryforward..... 75,318 -- 75,318 39,227 -- 39,227 Legal and workers' compensation reserves.......................... 3,096 1,984 1,112 1,255 1,255 -- AMT and FICA credit carryforwards... 1,966 -- 1,966 1,615 -- 1,615 Other operating accruals............ 1,619 1,619 -- 1,764 1,764 -- Miscellaneous other................. (268) -- (268) (762) -- (762) -------- ------ -------- -------- ------ -------- Total..................... 16,072 3,603 12,469 (30,063) 3,019 (33,082) Less valuation allowance............... (16,072) -- (16,072) -- -- -- -------- ------ -------- -------- ------ -------- $ -- $3,603 $ (3,603) $(30,063) $3,019 $(33,082) ======== ====== ======== ======== ====== ========
The difference between income taxes using the effective income tax rate and the federal income tax statutory rate of 34% is as follows:
YEAR ENDED DECEMBER 31, ----------------------------- 2000 1999 1998 -------- -------- ------- (IN THOUSANDS) Federal income tax (benefit) at statutory federal rate.................................................. $(39,670) $(24,833) $(1,782) State income tax (benefits), net........................ (5,601) (2,485) (315) Non-deductible items.................................... 476 7,224 -- Change in valuation allowance........................... 16,072 -- -- -------- -------- ------- $(28,723) $(20,094) $(2,097) ======== ======== =======
In 1999, non-deductible items consist primarily of the write-off of goodwill. A $16.1 million valuation allowance was established in 2000 to reduce the deferred tax assets to the amount estimated by the Company that will more likely than not be realized. At December 31, 2000, the Company has available net operating loss carry forwards of approximately $194,000,000 for federal income tax purposes, which expire in years 2004 through 2020. 10. RELATED PARTY TRANSACTIONS The Company's former Chief Executive Officer and President and currently member of the Board of Directors was a minority shareholder of Impac Hotel Development ("IHD"), which provided acquisition and property development services to Impac for a development fee of four percent of the total project cost of each 39 41 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) property acquired or developed. Impac agreed to terminate this agreement prior to the consummation of the Merger so that Impac and its subsidiaries will have no further obligations under the agreement after the Merger other than the payment of up to a four percent development fee (not to exceed $2.5 million in the aggregate) in the event Lodgian acquires or develops any of the hotels or properties identified in the Merger Agreement as Impac's acquisition and development pipeline. During 1999, the Company paid $1.0 million in connection with this arrangement. Of this amount, the Company's former Chief Executive Officer and President received $225,000. No payments were made in 2000 to IHD or the Company's former Chief Executive Officer and President under this agreement. Any future contingent development fee obligations ceased in March 2001 based on an agreement with the Company's former Chief Executive Officer and President. IHD had contracted with Elegant Interiors, LLC ("Elegant"), an entity wholly owned by Sheila Lang (the spouse of John M. Lang, a member of the Board of Directors) to provide interior design consulting services. In the event IHD, or its assignee, receives payment of the above-reference development fees, IHD, or its assignee, will pay Elegant accrued consulting fees (not to exceed $250,000) with respect to any of the hotels or properties identified in the merger agreement as being in Impac's acquisition and development pipeline. On January 3, 2000, Impac Design Company, LLC, the assignee of IHD satisfied its obligations under this agreement. The Company's former Chief Executive Officer and President and currently member of the Board of Directors has been an 8% limited partner in the partnership that owns the Courtyard by Marriott in Tifton, Georgia since 1996. The Company manages this hotel in accordance with a management agreement, which provides that the Company is paid a base fee calculated as a percentage of gross revenues, an accounting services fee and an incentive management fee. The base fee is 3% of gross revenues and the incentive fee is a percentage of the amount by which gross operating profit exceeds a negotiated amount. The Company earned fees of $71,400, $69,300 and $60,000 during 2000, 1999, and 1998, respectively. The management agreement was terminated in March 2001. On December 15, 2000 the Company sold a partially constructed hotel located in Richmond, Virginia to an entity controlled by a shareholder who is a 10.9% beneficial owner of the Company's common stock. The Company received net proceeds of approximately $12.3 million from the sale and recorded a loss on the sale of approximately $.5 million. In addition, the Company entered into a separate management contract with the purchaser to provide construction management oversight until completion of the project. 11. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
2000 1999 1998 ------------ ------------ ----------- Numerator: Loss before extraordinary item.............. $(87,955,000) $(52,943,000) $(3,145,000) Extraordinary item.......................... -- (7,750,000) (2,076,000) ------------ ------------ ----------- Net loss............................ $(87,955,000) $(60,693,000) $(5,221,000) ============ ============ =========== Denominator: Denominator for basic and diluted loss per share -- weighted-average shares......... 28,186,000 27,222,000 20,245,000 ============ ============ =========== Basic and diluted loss per share: Loss before extraordinary item.............. $ (3.12) $ (1.95) $ (.16) Extraordinary item.......................... -- (.28) (.10) ------------ ------------ ----------- Net loss............................ $ (3.12) $ (2.23) $ (.26) ============ ============ ===========
40 42 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The computation of diluted EPS as calculated above did not include shares associated with the assumed conversion of the CRESTS (8,169,935 shares) or stock options because their inclusion would have been antidilutive. 12. COMMITMENTS AND CONTINGENCIES Sixteen of the Company's hotels are subject to long-term ground leases, parking and other leases expiring from 2002 through 2075 which provide for minimum payments as well as incentive rent payments. In addition, most of the Company's hotels have noncancellable operating leases, mainly for operating equipment. For the years ended December 31, 2000, 1999 and 1998, lease expense for the noncancellable ground, parking and other leases was approximately $3,646,000, $3,400,000 and $2,400,000, respectively. At December 31, 2000, the future minimum commitments for noncancellable ground, parking and other leases were as follows:
(IN THOUSANDS) -------------- 2001........................................................ $ 3,683 2002........................................................ 3,337 2003........................................................ 2,913 2004........................................................ 2,337 2005........................................................ 2,333 Thereafter.................................................. 69,703 ------- $84,306 =======
The Company has entered into license agreement with various hotel chains which require annual payments for license fees, reservation services and advertising fees. The license agreements generally have an original ten year term. The majority of the Company's license agreements have five to ten years remaining on the term. The licensors 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 the renewal of a license, the licensor may require payment of a renewal fee, increase license, reservation and advertising fees, as well as substantial renovation of the facility. Costs incurred in connection with these agreements totaled approximately $34,904,000, $31,833,000 and $19,268,000 for the years ended December 31, 2000, 1999, and 1998, respectively. 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 specification of the licensors. 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. Twenty-nine hotels, which the Company owns, are operated under license agreements that require the Company to make certain capital improvements in accordance with a specified time schedule. The Company estimates its remaining obligations under these commitments to be approximately $40 million and the Company has approximately $14 million escrowed for such improvements. Of the approximately $40 million, $31 million is expected to be spent in 2001 and the balance in 2002. The Company has maintenance agreements, primarily on a one to three year basis, which resulted in expenses of approximately $5,473,000, $5,026,000, and $3,557,000 for the years ended December 31, 2000, 1999 and 1998, respectively. In July 1999, a contractor hired by Servico to perform work on hotels in New York, Illinois and Texas filed a complaint against the Company in the Supreme Court of the State of New York, claiming breach of contract, quantum meruit, and fraud, among other claims. The contractor seeks damages totaling $80 million, including $60 million for punitive damages. The Company answered the complaint asserting counterclaims 41 43 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) aggregating $20 million and successfully filed a motion to dismiss the claims related to two properties located in Illinois and Texas. In October 1999, a subcontractor filed a lawsuit in Texas against the above contractor and the Company. The Company has filed an answer and cross-claim against the contractor in the amount of $2.8 million. In February 2000, the contractor filed a lawsuit in Texas claiming over $3 million in actual damages and an undisclosed amount of punitive damages. The Company answered the complaint and asserted a counterclaim. The Company has also filed a lawsuit against the contractor in Federal District Court in Illinois, seeking $2 million. The contractor has filed an answer and counterclaim aggregating $2.8 million in actual damages and $10 million in punitive damages. On March 1, 2001, a New York Court dismissed all of the contractor's claims based upon fraud, effectively reducing plaintiff's outstanding claims by $40 million. The Company believes that it has valid defenses and counterclaims to the contractor's remaining claims and that the outcome will not have a material adverse effect on its financial position or results of operations. On October 13, 2000, Winegardner & Hammons, Inc. ("WH") filed an arbitration claim against the Company claiming breach of contract relating to a January 4, 1992 contract. WH claims entitlement to profit participation relating to the sale of certain hotel properties by an affiliate and predecessor of the Company. Although the Demand for Arbitration does not make a specific damages demand, it is believed that WH is claiming approximately $1,100,000 from the Company. Management believes it has meritorious defenses to this matter and is defending it vigorously. The Company and individual Company officers and directors are parties to various class action lawsuits filed by Company shareholders. The complaints claim, among other things, that the defendants breached certain fiduciary duties in connection with various offers to acquire the Company and in effecting certain changes to the size and composition of the Company's Board of Directors. Although the ultimate outcome of these class action lawsuits cannot be predicted with certainty, it is the opinion of management that the resolution of these class action lawsuits will not have a material adverse effect on its financial position or results of operations. The Company is a party to other legal proceedings arising in the ordinary course of business, the impact of which would not, either individually or in the aggregate, in management's opinion, have a material adverse effect on its financial position or results of operations. 13. EMPLOYEE BENEFITS PLANS AND STOCK OPTION PLAN The Company makes contributions to several multi-employer pension plans for employees of various subsidiaries covered by collective bargaining agreements. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. Certain withdrawal penalties may exist, the amount of which are not determinable at this time. The cost of such contributions during the years ended December 31, 2000, 1999 and 1998, was approximately $503,000, $580,000 and $500,000, respectively. The Company adopted the 401(k) for the benefit of its non-union employees under which participating employees may elect to contribute up to 10% of their compensation. The Company may match an employee's elective contributions to the 401(k) , subject to certain conditions, with shares of the Company's common stock equal to up to 100% of the amount of such employee's elective contributions. These employer contributions vest at a rate of 20% per year beginning in the third year of employment. The cost of these contributions during the years ended December 31, 2000, 1999 and 1998, was $505,000, $549,000 and $430,000, respectively. The 401(k) does not require a contribution by the Company. The Company has also adopted the Lodgian, Inc. Stock Option Plan, as amended, (the "Option Plan"). In accordance with the Option Plan, options to acquire up to 3,250,000 shares of common stock may be granted to employees, directors, independent contractors and agents as determined by a committee appointed 42 44 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) by the Board of Directors. Options may be granted at an exercise price not less than fair market value on the date of grant. These options will generally vest over five years. On February 9, 2001 the Company named a new president and chief executive officer. As part of the employment agreement the Company granted the executive options to acquire 2,000,000 shares of common stock, which will vest equally over four years. The exercise price of the options is derived from a formula that will yield an exercise price that is less than the fair market value of the stock on the date of grant. The options granted to the executive were granted outside of the Option Plan. In addition, in October 2000 and June 1999 each non-employee director was awarded an option to acquire 5,000 shares of common stock at an exercise price equal to the fair market price on date of grant. Such options became exercisable upon date of grant and were granted under the Company's Non-Employee Directors' Stock Plan. On December 18, 1998, the Company re-priced its options. See discussion of impact of accounting pronouncement related to stock option repricings in Note 1. Presented below is a summary of the stock option plan activity for the years shown:
WEIGHTED AVERAGE OPTIONS EXERCISE PRICE --------- ---------------- Balance, December 31, 1997................................. 1,777,700 $5.64 Granted.................................................. 755,000 6.13 Exercised................................................ (134,900) 4.44 Forfeited................................................ (27,900) 6.13 --------- Balance, December 31, 1998................................. 2,369,900 5.80 Granted.................................................. 690,000 5.42 Exercised................................................ (30,000) 4.00 Forfeited................................................ (425,900) 5.72 --------- Balance, December 31, 1999................................. 2,604,000 4.14 Granted.................................................. 60,000 3.39 Exercised................................................ -- -- Forfeited................................................ (528,900) 5.98 --------- Balance, December 31, 2000................................. 2,135,100 $5.56 =========
Options exercisable and the weighted average exercise price of these options at December 31, 1998, 1999 and 2000 were 851,560 and $5.21, 1,118,420 and $5.58 and 1,664,100 and $5.45, respectively. The following table summarizes information for options outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE RANGE OF EXERCISE PRICES NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE - ------------------------ --------- ---------------- ---------------- --------- ---------------- $2.63 to 3.50......... 25,000 10 yrs $2.63 -- $ -- 3.51 to 4.50......... 322,500 3 yrs 3.99 312,500 3.98 4.51 to 5.50......... 445,000 8 yrs 4.99 433,000 4.99 5.51 to 6.50......... 1,262,600 7 yrs 6.14 884,600 6.14 6.51 to 7.13......... 80,000 8 yrs 6.98 34,000 6.93 --------- --------- $2.50 to 7.13......... 2,135,100 7 yrs $5.56 1,664,100 $5.45 ========= =========
43 45 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The income tax benefit, if any, associated with the exercise of stock options is credited to additional paid-in capital. Also at December 31, 2000, there were 125,000 Stock Appreciation Rights exercisable at $6.13 per right. Had compensation cost of the Company's Stock Option Plan been recognized under SFAS 123, based on the fair market value at grant dates, the Company's pro forma net loss and net loss per share would have been reflected as follows:
2000 1999 1998 -------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Loss before extraordinary item: As reported........................................... $(87,955) $(52,943) $(3,145) Pro forma............................................. (91,048) (56,546) (5,005) Net loss: As reported........................................... (87,955) (60,693) (5,221) Pro forma............................................. (91,048) (64,296) (7,081) Loss per common share: Loss before extraordinary item: As reported........................................... $ (3.12) $ (1.95) $ (.16) Pro forma............................................. (3.23) (2.08) (.25) Net loss: As reported........................................... (3.12) (2.23) (.26) Pro forma............................................. (3.23) (2.36) (.35)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for those options granted in 2000, 1999 and 1998:
2000 1999 1998 ----- ----- ----- Expected life of option 5 yrs 5 yrs 5 yrs Risk free interest rate..................................... 6.7% 6.3% 6.3% Expected volatility......................................... 47.4% 45.3% 42.0% Expected dividend yield..................................... -- -- --
The fair value of options granted during 2000, 1999 and 1998 is as follows:
2000 1999 1998 ------ -------- -------- Weighted average fair value of options granted............ $ 1.70 $ 2.61 $ 2.82 Total number of options granted (in thousands)............ 60.0 690.0 755.0 Total fair value of all options granted (in thousands).... $102.1 $1,802.1 $2,129.1
14. 1999 SIGNIFICANT FOURTH QUARTER EVENTS During the fourth quarter of 1999, the Company initiated an internal review of its accounting records. As discussed below, the Company experienced significant difficulty in the integration and conversion of information and accounting systems subsequent to the Merger. In addition, the Company determined that a significant number of reconciliations involving cash, accounts receivable, fixed assets, accounts payable, payroll and other accounts had not been completed during 1999. As a result of these systems and reconciliation issues, the Company experienced a significant delay in accurately preparing its 1999 annual financial statements. Certain charges were recorded in the fourth quarter of 1999 after the account reconciliation process was completed in 2000. 44 46 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Also during the fourth quarter of 1999, the Company adopted a strategy to reduce the number of its non-core hotel portfolio. In connection therewith, the Company identified certain hotel assets for sale and reduced the carrying value of these assets to estimated fair value, net of estimated selling costs. Further, based on asset impairment indicators and market capitalization for the Company's common stock, the Company wrote off its goodwill in accordance with the market value method of accounting for impairment of goodwill arising from the Merger. The charges and adjustments described in the preceding paragraphs had a material effect on the Company's financial statements for the year ended December 31, 1999. The following is a summary of these charges and adjustments:
(IN THOUSANDS) -------------- Impairment of long-lived assets............................. $37,977 Write-off of goodwill....................................... 20,748 Other expenses (included in general, administrative and other operating expenses in the statement of operations)............................................... 12,470 Severance................................................... 500
Asset Impairment. In connection with the adoption of a strategy to reduce its non-core hotel portfolio, the Company identified 26 hotels which were designated held for sale. In accordance with the requirements of SFAS 121 the Company had recorded a non-cash charge of $38.0 million to reduce the carrying value of these assets to estimated fair value, net of estimated selling costs. For this purpose fair value has been determined to be the amount a willing buyer would pay a willing seller for the individual assets in a current transaction that is other than a forced or liquidation sale. Goodwill. The Company initially recorded approximately $11.0 million of goodwill in connection with the Merger based on its preliminary allocation of the purchase price of Impac. During 1999, the Company revised and finalized its preliminary allocation, resulting in (among other adjustments) a net increase of $9.7 million to the preliminary estimate of goodwill arising from the Merger. In addition, since the Company did not have goodwill prior to the Merger, it had not previously adopted an accounting policy for measuring impairment of goodwill prior to the Merger. The Company selected the market value approach to measuring goodwill. Based on asset impairment indicators and market capitalization for the Company's common stock, the Company selected the market value method of accounting for goodwill and recorded a non-cash charge of $20.7 million to write-off the adjusted balance of goodwill. Included in general, administrative and other operating expenses in the statement of operations are $12.5 million of unusual expenses as described following: Accounting, Systems and Merger Integration. During the fourth quarter the Company incurred substantial incremental fees and expenses primarily related to the final phase of integration of accounting systems from legacy systems used by Servico and Impac to the financial systems used by Lodgian. The total amount either incurred or accrued at December 31, 1999, including severance and a significant provision for increased professional fees, approximated $6.4 million. This amount also includes expenses associated with ensuring compliance in the "Y2K" matter. Litigation Costs. At December 31, 1999, the Company accrued litigation costs to be incurred related to several of the legal matters described in Note 12. Additionally, the Company incurred other litigation settlement charges during 1999. The aggregate litigation costs either incurred or accrued for these matters aggregated approximately $2.7 million for 1999. Audit Matters. During the fourth quarter an unclaimed property audit was initiated by the State of Florida. Additionally, several audits of the Company's compliance with ERISA requirements were in various 45 47 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) stages of completion. The provision recorded in the fourth quarter for these and other audit matters was approximately $1.3 million. Other. Other expenses, including significant payments to terminate the franchise agreements on two hotels, were approximately $2.1 million. The Company, after consultation with its prior independent auditors, concluded that its internal controls for the preparation of interim financial information did not provide an adequate basis for its prior independent auditors to complete reviews of the quarterly financial data for the quarters during 1999. The Company believes that certain charges that were recorded in the fourth quarter of 1999 may relate to individual prior 1999 quarters; however the Company does not have sufficient information to identify all specific charges attributable to prior 1999 quarters. See Note 17 related to selected quarterly financial data. 15. SHAREHOLDERS RIGHTS PLAN On March 30, 1999, the board of directors adopted a Shareholder Rights Plan and declared one Right on each outstanding share of the Company's common stock. The dividend was paid on April 19, 1999 to stockholders of record on April 14, 1999. Initially the Rights will trade with the common stock of the Company and will not be exercisable. The Right will separate from the common stock and become exercisable upon the occurrence of events typical of shareholder rights plans. In general, such separation will occur when any person or group of affiliated persons acquire 15% or more of the Company's common stock. Thereafter, separate Right Certificates will be distributed and each Right will entitle its holder to purchase one-hundredth of a share of the Company's Participating Preferred Stock for an exercise price of $25. Each one-hundredth of a share of Preferred Stock has economic and voting terms equivalent to those of one share of the Company's common stock. 16. SUPPLEMENTAL GUARANTOR INFORMATION In connection with the Company's sale of Notes, certain of the Company's subsidiaries (the "Subsidiary Guarantors") have guaranteed the Company's obligations to pay principal and interest with respect to the Notes. Each Subsidiary Guarantor is wholly-owned and management has determined that separate financial statements for the Subsidiary Guarantors are not material to investors. The subsidiaries of the Company that are not Subsidiary Guarantors are referred to in this note as the "Non-Guarantor Subsidiaries." As discussed in Note 14, during the fourth quarter of 1999, the Company recorded charges to the respective Parent, Subsidiary Guarantors and Non-Guarantor Subsidiaries financial statements. However, net charges of $580,000 were recorded at Lodgian's Management Company, which is part of the Non-Guarantor Subsidiaries financial statements because the Company does not have sufficient information to allocate these net charges to specific subsidiaries. The Company considers these net amounts to be immaterial to the financial statements herein. The following supplemental consolidating financial statements present balance sheets as of December 31, 2000 and 1999 and statements of operations and cash flows for the years ended December 31, 2000, 1999 and 1998. In the consolidating financial statements, Lodgian, Inc. (the "Parent") accounts for its investments in wholly-owned subsidiaries using the equity method. 46 48 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEET DECEMBER 31, 2000
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ---------- ------------- ------------ ------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents.......... $ 6 $ 20,653 $ 343 $ -- $ 21,002 Cash, restricted................... -- -- 2,237 -- 2,237 Accounts receivable, net of allowances...................... -- 8,031 12,593 -- 20,624 Inventories........................ -- 3,609 4,196 -- 7,805 Prepaid expenses and other current assets.......................... 3,603 110 5,548 -- 9,261 --------- --------- --------- -------- ---------- Total current assets....... 3,609 32,403 24,917 -- 60,929 Property and equipment, net.......... 553,941 505,107 -- 1,059,048 Deposits for capital expenditures.... -- 917 13,088 -- 14,005 Investment in consolidated entities........................... (295,521) -- -- 295,521 -- Due from (to) affiliates............. 437,585 (233,776) (203,809) -- -- Other assets, net.................... -- 16,501 13,464 -- 29,965 --------- --------- --------- -------- ---------- $ 145,673 $ 369,986 $ 352,767 $295,521 $1,163,947 ========= ========= ========= ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................... $ -- $ 9,107 $ 15,981 $ -- $ 25,088 Accrued interest................... -- 15,200 1,595 -- 16,795 Other accrued liabilities.......... -- 9,095 28,108 -- 37,203 Advance deposits................... -- 855 999 -- 1,854 Current portion of long-term obligations..................... -- 67,190 12,653 -- 79,843 --------- --------- --------- -------- ---------- Total current liabilities.............. -- 101,447 59,336 -- 160,783 Long-term obligations, less current portion............................ 4,010 353,213 316,815 -- 674,038 Deferred income taxes................ 3,603 -- -- -- 3,603 Minority interests: Preferred redeemable securities (including related accrued interest)....................... -- -- 184,349 -- 184,349 Other.............................. -- -- 4,294 -- 4,294 --------- --------- --------- -------- ---------- Total liabilities.......... 7,613 454,660 564,794 -- 1,027,067 Commitments and contingencies........ -- -- -- -- -- Stockholders' equity: Common stock....................... 282 33 441 (474) 282 Additional paid-in capital......... 263,320 22,619 (41,337) 18,718 263,320 Accumulated deficit................ (125,542) (106,146) (171,131) 277,277 (125,542) Accumulated other comprehensive loss............................ -- (1,180) -- -- (1,180) --------- --------- --------- -------- ---------- Total stockholders' equity (deficit)................ 138,060 (84,674) (212,027) 295,521 136,880 --------- --------- --------- -------- ---------- $ 145,673 $ 369,986 $ 352,767 $295,521 $1,163,947 ========= ========= ========= ======== ==========
47 49 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ---------- ------------- ------------ ------------ (IN THOUSANDS) Revenues: Rooms............................... $ -- $189,963 $232,512 $ -- $ 422,475 Food and beverage................... -- 56,898 74,435 -- 131,333 Other............................... -- 10,904 16,185 -- 27,089 --------- -------- -------- -------- --------- -- 257,765 323,132 -- 580,897 Operating expenses: Direct: Rooms............................ -- 54,366 64,793 -- 119,159 Food and beverage................ -- 41,175 53,775 -- 94,950 Other............................ -- 7,634 9,195 -- 16,829 General, administrative and other... -- 93,223 129,925 -- 223,148 Depreciation and amortization....... -- 26,530 38,264 -- 64,794 Impairment of long-lived assets..... -- 3,576 57,112 -- 60,688 Write-off of goodwill............... -- -- -- -- -- Severance and restructuring expenses......................... -- -- 1,502 -- 1,502 --------- -------- -------- -------- --------- Total operating expenses.... -- 226,504 354,566 -- 581,070 --------- -------- -------- -------- --------- -- 31,261 (31,434) -- (173) Other income (expenses): Interest income and other........... -- -- 1,374 -- 1,374 Interest expense.................... -- (56,308) (40,998) -- (97,306) Interest hedge break fee............ -- (4,294) -- (4,294) Acquisition termination fees........ -- -- (3,500) -- (3,500) Gain (loss) on asset dispositions... -- 459 (161) -- 298 Equity in loss of consolidated subsidiaries..................... (116,678) -- -- 116,678 -- Minority interests: Preferred redeemable securities..... -- -- (12,412) -- (12,412) Other............................... -- -- (665) -- (665) --------- -------- -------- -------- --------- Loss before income taxes.............. (116,678) (24,588) (92,090) 116,678 (116,678) Benefit for income taxes.............. (28,723) (8,360) (20,363) 28,723 (28,723) --------- -------- -------- -------- --------- Net loss.................... $ (87,955) $(16,228) $(71,727) $ 87,955 $ (87,955) ========= ======== ======== ======== =========
48 50 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000
PARENT AND SUBSIDIARY NON-GUARANTOR TOTAL ELIMINATIONS GUARANTORS SUBSIDIARIES CONSOLIDATED ------------ ---------- ------------- ------------ (IN THOUSANDS) Operating activities: Net loss...................................... $ -- $(16,228) $ (71,727) $ (87,955) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization.............. -- 26,530 38,264 64,794 Impairment of long-lived assets............ -- 3,576 57,112 60,688 Deferred income tax benefits............... (30,063) -- -- (30,063) Minority interests -- other................ -- -- 10,014 10,014 401(k) plan contributions.................. 505 -- -- 505 Compensation in stock issued to directors................................ 56 -- -- 56 Equity in income of unconsolidated entities................................. (84) -- -- (84) (Gain) loss on sale of assets.............. -- (459) 161 (298) Other...................................... 457 1,369 (2,958) (1,132) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable...................... -- 226 5,670 5,896 Inventories.............................. -- 507 878 1,385 Other assets............................. (496) (46) 1,555 1,013 Accounts payable......................... -- (2,182) (792) (2,974) Accrued liabilities...................... -- 6,070 (8,304) (2,234) -------- -------- --------- --------- Net cash (used in) provided by operating activities................ (29,625) 19,363 29,873 19,611 Investing activities: Capital improvements, net..................... -- (50,123) (29,118) (79,241) Proceeds from sale of assets and withdrawals (deposits) for capital expenditures........ -- 76,314 130,291 206,605 -------- -------- --------- --------- Net cash provided by investing activities.......................... -- 26,191 101,173 127,364 Financing activities: Proceeds from issuance of long-term obligations................................ -- 30,000 2,326 32,326 Proceeds received from (paid to) related parties.................................... 29,572 (14,653) (14,919) -- Principal payments of long-term obligations... -- (48,758) (120,110) (168,868) Payments of deferred loan costs............... -- (1,400) (1,900) (3,300) Distributions to minority interests........... -- -- (775) (775) -------- -------- --------- --------- Net cash provided by (used in) financing activities................ 29,572 (34,811) (135,378) (140,617) -------- -------- --------- --------- Net (decrease) increase in cash and cash equivalents................................... (53) 10,743 (4,332) 6,358 Cash and cash equivalents at beginning of period........................................ 59 9,910 4,675 14,644 -------- -------- --------- --------- Cash and cash equivalents at end of period...... $ 6 $ 20,653 $ 343 $ 21,002 ======== ======== ========= =========
49 51 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEET DECEMBER 31, 1999
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ---------- -------------- ------------ ------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents......... $ 59 $ 9,910 $ 4,675 $ -- $ 14,644 Cash, restricted.................. -- -- 2,692 -- 2,692 Accounts receivable, net of allowances..................... -- 8,257 18,263 -- 26,520 Inventories....................... -- 4,116 5,074 9,190 Prepaid expenses and other current assets......................... 3,107 64 6,813 -- 9,984 --------- --------- --------- -------- ---------- Total current assets...... 3,166 22,347 37,517 -- 63,030 Property and equipment, net......... -- 610,854 703,287 -- 1,314,141 Deposit for capital expenditures.... 551 11,806 -- 12,357 Investment in consolidated entities.......................... (195,910) -- -- 195,910 -- Due from (to) affiliates............ 454,833 (236,216) (218,617) -- -- Other assets, net................... 136 18,211 14,121 -- 32,468 --------- --------- --------- -------- ---------- $ 262,225 $ 415,747 $ 548,114 $195,910 $1,421,996 ========= ========= ========= ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................. $ -- $ 13,471 $ 20,861 $ -- $ 34,332 Accrued interest.................. -- 10,673 2,717 -- 13,390 Other accrued liabilities......... -- 7,319 35,464 -- 42,783 Advance deposits.................. -- 1,088 1,296 -- 2,384 Current portion long-term obligations.................... -- 27,400 8,004 -- 35,404 --------- --------- --------- -------- ---------- Total current liabilities............. -- 59,951 68,342 -- 128,293 Long-term obligations, less current portion........................... 3,689 411,761 441,225 -- 856,675 Deferred income taxes............... 33,082 -- -- -- 33,082 Minority interests: Preferred redeemable securities... -- -- 175,000 -- 175,000 Other............................. -- -- 4,404 -- 4,404 --------- --------- --------- -------- ---------- Total liabilities......... 36,771 471,712 688,971 -- 1,197,454 Commitments and contingencies....... -- -- -- -- -- Stockholders' equity: Common stock...................... 281 33 440 (473) 281 Additional paid-in capital........ 262,760 22,619 (41,893) 19,274 262,760 Retained earnings (accumulated deficit)....................... (37,587) (77,705) (99,404) 177,109 (37,587) Accumulated other comprehensive loss........................... -- (912) -- -- (912) --------- --------- --------- -------- ---------- Total stockholders' equity (deficit)............... 225,454 (55,965) (140,857) 195,910 224,542 --------- --------- --------- -------- ---------- $ 262,225 $ 415,747 $ 548,114 $195,910 $1,421,996 ========= ========= ========= ======== ==========
50 52 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ---------- ------------- ------------ ------------ (IN THOUSANDS) Revenues: Rooms................................ $ -- $195,863 $228,667 $ -- $424,530 Food and beverage.................... -- 61,353 78,121 -- 139,474 Other................................ -- 12,501 15,915 -- 28,416 -------- -------- -------- ------- -------- -- 269,717 322,703 -- 592,420 Operating expenses: Direct: Rooms............................. -- 52,839 61,751 -- 114,590 Food and beverage................. -- 44,260 57,785 -- 102,045 Other............................. -- 8,351 8,961 -- 17,312 General, administrative and other.... -- 96,128 127,728 -- 223,856 Depreciation and amortization........ -- 25,560 33,757 -- 59,317 Impairment of long-lived assets...... -- 26,428 11,549 -- 37,977 Write-off of goodwill................ -- -- 20,748 -- 20,748 Severance and other expenses......... -- -- 500 -- 500 -------- -------- -------- ------- -------- Total operating expenses..... -- 253,566 322,779 -- 576,345 -------- -------- -------- ------- -------- -- 16,151 (76) -- 16,075 Other income (expenses): Interest income and other............ -- -- 1,579 -- 1,579 Interest expense..................... -- (36,939) (40,470) -- (77,409) Gain on asset dispositions........... -- -- 1,242 -- 1,242 Equity in loss of consolidated subsidiaries...................... (73,037) -- -- 73,037 -- Minority interests: Preferred redeemable securities...... -- -- (13,224) -- (13,224) Other................................ -- -- (1,300) -- (1,300) -------- -------- -------- ------- -------- Loss before income taxes and extraordinary item................... (73,037) (20,788) (52,249) 73,037 (73,037) Benefit for income taxes............... (20,094) (8,066) (12,028) 20,094 (20,094) -------- -------- -------- ------- -------- Loss before extraordinary item......... (52,943) (12,722) (40,221) 52,943 (52,943) Extraordinary item net of tax.......... (7,750) (6,543) (1,207) 7,750 (7,750) -------- -------- -------- ------- -------- Net loss..................... $(60,693) $(19,265) $(41,428) $60,693 $(60,693) ======== ======== ======== ======= ========
51 53 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999
PARENT AND SUBSIDIARY NON-GUARANTOR TOTAL ELIMINATIONS GUARANTORS SUBSIDIARIES CONSOLIDATED ------------ ---------- ------------- ------------ (IN THOUSANDS) Operating activities: Net loss..................................... $ -- $ (19,265) $(41,428) $ (60,693) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization............. -- 25,560 33,757 59,317 Impairment of long-lived assets........... -- 26,428 11,549 37,977 Write-off of goodwill..................... -- -- 20,748 20,748 Loss on extinguishment of indebtedness.... -- -- 12,664 12,664 Deferred income tax benefits.............. (25,008) -- -- (25,008) Minority interests -- other............... -- -- 1,300 1,300 401(k) plan contributions................. 549 -- -- 549 Compensation in stock issued to directors............................... 98 -- -- 98 Equity in income of unconsolidated entities................................ -- -- (278) (278) (Gain) loss on sale of assets............. -- -- (1,242) (1,242) Changes in operating assets and liabilities: Accounts receivable..................... -- (978) (44) (1,022) Inventories............................. -- (1,074) 1,147 73 Other assets............................ (84) 35,017 2,772 37,705 Accounts payable........................ (132) (19,349) (3,440) (22,921) Accrued liabilities..................... -- 5,288 2,636 7,924 -------- --------- -------- --------- Net cash (used in) provided by operating activities............... (24,577) 51,627 40,141 67,191 Investing activities: Acquisitions of property and equipment....... -- -- (1,929) (1,929) Capital improvements, net.................... -- (101,768) (17,157) (118,925) Purchase of minority interests............... -- -- (10,200) (10,200) Proceeds from sale of assets and withdrawals (deposits) for capital expenditures....... -- (551) 40,648 40,097 -------- --------- -------- --------- Net cash (used in) provided by investing activities............... -- (102,319) 11,362 (90,957) Financing activities: Proceeds from issuance of long-term obligations............................... -- 452,600 34,921 487,521 Proceeds from issuance of common stock....... 120 -- -- 120 Proceeds received from (paid to) related parties................................... 26,901 34,234 (61,135) -- Principal payments of long-term obligations............................... (4,033) (416,010) (28,177) (448,220) Payments of deferred loan costs.............. -- (17,362) (1,117) (18,479) Distributions to minority interests.......... -- -- (1,717) (1,717) -------- --------- -------- --------- Net cash provided by (used in) financing activities............... 22,988 53,462 (57,225) 19,225 -------- --------- -------- --------- Net (decrease) increase in cash and cash equivalents.................................. (1,589) 2,770 (5,722) (4,541) Cash and cash equivalents at beginning of period....................................... 1,648 7,140 10,397 19,185 -------- --------- -------- --------- Cash and cash equivalents at end of period..... $ 59 $ 9,910 $ 4,675 $ 14,644 ======== ========= ======== =========
52 54 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998
SUBSIDIARY NON-GUARANTOR TOTAL PARENT GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------- ---------- ------------- ------------ ------------ (IN THOUSANDS) Revenues: Rooms................................. $ -- $180,688 $ 87,174 $ -- $267,862 Food and beverage..................... -- 57,922 49,412 -- 107,334 Other................................. -- 12,714 7,304 -- 20,018 ------- -------- -------- ------ -------- -- 251,324 143,890 -- 395,214 Operating expenses: Direct: Rooms.............................. -- 51,003 23,809 -- 74,812 Food and beverage.................. -- 44,175 37,456 -- 81,631 Other.............................. -- 8,289 2,734 -- 11,023 General, administrative and other..... -- 109,112 20,411 -- 129,523 Depreciation and amortization......... -- 12,596 18,518 -- 31,114 Impairment of long-lived assets....... -- -- -- -- -- Write-off of goodwill................. -- -- -- -- -- Severance and other expenses.......... -- -- 3,400 -- 3,400 ------- -------- -------- ------ -------- Total operating expenses...... -- 225,175 106,328 -- 331,503 ------- -------- -------- ------ -------- -- 26,149 37,562 -- 63,711 Other income (expenses): Interest income and other............. -- -- 1,260 -- 1,260 Interest expense...................... -- (18,487) (11,891) -- (30,378) Gain (loss) on asset dispositions..... -- (659) 227 -- (432) Settlement on swap transactions....... -- (29,033) (2,459) -- (31,492) Equity in loss of consolidated subsidiaries....................... (5,242) -- -- 5,242 -- Minority interests: Preferred redeemable securities....... -- -- (6,475) -- (6,475) Other................................. -- -- (1,436) -- (1,436) ------- -------- -------- ------ -------- (Loss) income before income taxes and extraordinary item.................... (5,242) (22,030) 16,788 5,242 (5,242) (Benefit) provision for income taxes.... (2,097) 2,801 (4,898) 2,097 (2,097) ------- -------- -------- ------ -------- (Loss) income before extraordinary item.................................. (3,145) (24,831) 21,686 3,145 (3,145) Extraordinary item net of tax........... (2,076) (4,351) 2,275 2,076 (2,076) ------- -------- -------- ------ -------- Net loss...................... $(5,221) $(29,182) $ 23,961 $5,221 $ (5,221) ======= ======== ======== ====== ========
53 55 LODGIAN, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998
PARENT AND SUBSIDIARY NON-GUARANTOR TOTAL ELIMINATIONS GUARANTORS SUBSIDIARIES CONSOLIDATED ------------ ---------- ------------- ------------ (IN THOUSANDS) Operating activities: Net loss..................................... $ -- $ -- $ (5,221) $ (5,221) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization............. -- 15,026 16,088 31,114 Loss on extinguishment of indebtedness.... -- -- 3,460 3,460 Loss on sale of assets.................... -- -- 432 432 Deferred income tax benefits.............. (726) -- -- (726) Minority interests -- other............... -- -- 1,436 1,436 401(k) plan contributions................. 430 -- -- 430 Equity in income of unconsolidated entities................................ -- -- (782) (782) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable..................... -- 228 (6,791) (6,563) Inventories............................. -- (1,148) (735) (1,883) Other assets............................ (679) 1,369 (19,463) (18,773) Accounts payable........................ 132 17,057 (2,276) 14,913 Accrued liabilities..................... -- (1,757) 13,221 11,464 -------- --------- --------- --------- Net cash (used in) provided by operating activities............... (843) 30,775 (631) 29,301 Investing activities: Acquisitions of property and equipment....... -- -- (67,717) (67,717) Capital improvements, net.................... -- (96,653) (22,014) (118,667) Proceeds from sale of assets and withdrawals (deposits) for capital expenditures....... -- 620 3,240 3,860 -------- --------- --------- --------- Net cash used in investing activities......................... -- (96,033) (86,491) (182,524) Financing activities: Proceeds from issuance of long-term obligations............................... 6,736 251,662 341,886 600,284 Proceeds from issuance of common stock....... 1,144 -- -- 1,144 Proceeds received from (paid to) related parties................................... 28,183 (18,651) (9,532) -- Principal payments of long-term obligations............................... -- (162,937) (227,089) (390,026) Payments of deferred loan costs.............. -- -- (20,165) (20,165) Payments for repurchase of common stock...... (34,072) -- -- (34,072) -------- --------- --------- --------- Net cash provided by financing activities......................... 1,991 70,074 85,100 157,165 -------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents.................................. 1,148 4,816 (2,022) 3,942 Cash and cash equivalents at beginning of period....................................... 500 2,324 12,419 15,243 -------- --------- --------- --------- Cash and cash equivalents at end of period..... $ 1,648 $ 7,140 $ 10,397 $ 19,185 ======== ========= ========= =========
54 56 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 17. SELECTED QUARTERLY FINANCIAL DATA, UNAUDITED In the opinion of management, the 1999 internal control weaknesses discussed in Note 14 existed during the first and second quarters of 2000 and to a lesser extent in the third quarter of 2000. These internal control weaknesses caused a significant delay in preparing the Company's Form 10-Q's. The Company's March 31, 2000 and June 30, 2000 Form 10-Q's were filed on December 15, 2000 and the September 30, 2000 Form 10-Q was filed January 10, 2001. The Company has committed substantial resources to mitigate the previously identified control weaknesses including contracting with outside consulting accountants to ensure the Company has the corporate financial personnel needed to provide reasonable assurances that it can comply with the record keeping and internal control requirements applicable to SEC registrants. Management believes these efforts have enabled the Company to produce reliable interim and annual financial statements during 2000. The Company implemented a plan that enabled it to timely comply with the financial statement reporting requirements applicable to SEC registrants for its 2000 annual financial statements and, in management's opinion, has substantially developed and implemented an adequate control environment as of this date. As part of this plan, during the third and fourth quarters the Company implemented the following action steps: (i) developed and implemented numerous new controls and policies, (ii) implemented a process to insure that material transactions are recorded on a timely basis, (iii) implemented an account closing process so that all material accounts are reconciled and reviewed on a timely basis and (iv) reorganized and changed personnel in the accounting and finance functions to improve the accuracy and timeliness of the financial accounting processes. The Company believes the continued implementation of the plan will allow it to timely comply with the financial statement reporting requirements applicable to SEC registrants in the future. The following table summarizes unaudited financial data:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) Year Ended December 31, 2000 - ------------------------------------------------------ Revenues.............................................. $138,435 $161,123 $155,204 $126,135 Operating expenses(1)................................. 136,919 193,073 123,145 127,933 (Loss) income before income taxes..................... (25,519) (60,891) 802 (31,070) Net (loss) income..................................... (16,842) (40,188) 527 (31,452) (Loss) earnings per share, basic and diluted: Net (loss) income........................... (0.60) (1.43) 0.02 (1.11)
- --------------- (1) Operating expenses include impairment of long-lived asset charges (recapture) of $9,613, $56,549, $(10,712) and $5,238 in the first, second, third and fourth quarters, respectively. The Company's prior independent auditors' report on the 1999 financial statements indicates they do not believe that during 1999 the Company's internal controls for the preparation of interim financial information were sufficient to provide them an adequate basis to complete a review in accordance with standards established by the American Institute of Certified Public Accountants of the selected 1999 quarterly financial data, set forth below. As discussed in Note 14, the Company completed a reconciliation process in the fourth quarter 1999 that resulted in a net charge of approximately $15.5 million. Of this $15.5 million, the Company believes that approximately $7.2 million of the net charges are appropriately recorded in the fourth quarter. 55 57 LODGIAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The remaining $8.3 million relates to previous quarters; however, the Company does not have sufficient information to determine the applicable quarter.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) Year Ended December 31, 1999 - ------------------------------------------------------ Revenues.............................................. $135,804 $159,863 $156,020 $140,733 Operating expenses(1)................................. 117,191 122,698 123,541 212,915 (Loss) income before income taxes and extraordinary item................................................ (4,070) 15,402 10,419 (94,788) (Loss) income before extraordinary item............... (2,442) 9,241 6,252 (65,994) Loss on early extinguishment of debt, net of income taxes of $4,914..................................... -- -- (6,336) (1,414) Net (loss) income..................................... (2,442) 9,241 (84) (67,408) (Loss) earnings per share: (Loss) income before extraordinary item............. $ (0.09) $ 0.34 $ 0.23 $ (2.37) Extraordinary item.................................. -- -- (0.23) (.05) Net (loss) income........................... (0.09) 0.34 -- (2.42) Earnings (loss) per share -- assuming dilution: (Loss) income before extraordinary item............. $ (.09) $ 0.32 $ 0.23 $ (2.37) Extraordinary item.................................. -- -- (0.23) (.05) -------- -------- -------- -------- Net (loss) income........................... $ (.09) $ 0.32 $ -- $ (2.42) ======== ======== ======== ========
- --------------- (1) As discussed in Note 14, included in fourth quarter operating expenses of $212,915, is $37,977 related to impairment of long-lived assets and $20,748 related to the write-off of goodwill and $12,470 of unusual expenses. 18. SEVERANCE AND RESTRUCTURING EXPENSES In June 2000, the Company in an effort to reduce corporate overhead expenses instituted a plan to close four of its six regional offices, close the Company's reservation center located in Baton Rouge, Louisiana and eliminate certain positions in the corporate office. Approximately 65 employees were terminated in this restructuring. In 2000, the Company recognized a charge of approximately $1.5 million to implement this plan. Of the $1.5 million charge approximately $1.3 million was related to salary and benefits of the terminated employees and $.2 million related to the costs of closing the physical regional offices and the reservation center. As of December 31, 2000 all costs have been paid. As discussed in Note 3 and 14, in connection with the Merger, Servico incurred approximately $3.4 million of expenses in 1998 primarily associated with the closing and relocation of Servico's corporate headquarters and termination and relocation of certain Servico employees. Severance expenses in 1999 were $.5 million. 56 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The table below sets forth the names and ages of the directors and executive officers of the Company, as well as the positions and offices held by such persons. A summary of the background and experience of each of these individuals is set forth after the table.
NAME AGE POSITION WITH LODGIAN - ---- --- --------------------- DIRECTORS WHOSE TERMS EXPIRE IN 2001: Robert S. Cole 39 Director Richard H. Weiner 51 Director DIRECTORS WHOSE TERMS EXPIRE IN 2002: Peter R. Tyson 54 Director Joseph C. Calabro 49 Director and Chairman of the Office of the Chairman of the Board DIRECTORS WHOSE TERMS EXPIRE IN 2003: John M. Lang 46 Director and Member of the Office of the Chairman of the Board Michael A. Leven 63 Director and Member of the Office of the Chairman of the Board Thomas Arasi 43 Director, Chief Executive Officer and President EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS: Karyn Marasco 43 Chief Operating Officer and Executive Vice President Thomas R. Eppich 48 Chief Financial Officer
THOMAS ARASI has been Chief Executive Officer and President of the Company since February 9, 2001. Mr. Arasi was also appointed to the Board of Directors as a Class II director effective February 9, 2001. From December 2000 to his employment at Lodgian, Mr. Arasi was President of Harbinger Advisors, L.L.C., an Atlanta based investment advisory company active in the hospitality industry. Harbinger engaged in diversified investment activities including acquisition and development of lodging properties and the growth and restructuring of operating companies. From June 1997 through November 2000, Mr. Arasi was a member of the management committee and held several top operating positions with Bass Hotels & Resorts ("BHR"), one of the leading international owners, operators, franchisors of hotels, including the Inter-Continental, Crowne Plaza, Holiday Inn, Holiday Inn Express, and Staybridge Suites. Most recently, Mr. Arasi was President, Bass Hotel & Resorts -- The Americas, a division consisting of 256 hotels and 66,000 guestrooms in 21 countries. In that capacity, Mr. Arasi had full operating, marketing, brand, development, and asset management responsibilities for Inter-Continental and Crowne Plaza in North and Latin America and for the Holiday Inn, Holiday Inn Express and Staybridge Suites in Latin America. He, furthermore, had responsibility for all company owned and managed hotels for all five brands in the Americas, totaling approximately 150 properties. Prior to May 1999, Mr. Arasi was President, Bass Hotels & Resorts -- Development and Asset Management with global oversight of development of the company's five hotel brands and for BHR's investment and asset management activities including its $3.5 billion real estate portfolio. Mr. Arasi joined 57 59 BHR in June 1997 as Global Brand President of Crowne Plaza Hotels and Resorts where he was responsible for the company's brand strategy and operations and embarked on a major expansion program globally. In that capacity, he also had responsibility for BHR's Worldwide Sales and Reservations operations. From January 1992 to May 1997, Mr. Arasi was employed by Tishman Hotel Corporation, the hotel real estate, management and advisory subsidiary of Tishman Realty and Construction Company, Inc. Mr. Arasi's last position at Tishman Hotel Corporation was President. Prior to joining Tishman, he was Vice President, Lodging Industry Specialist in the investment banking division of Salomon Brothers, Inc., having served in New York, Tokyo and Los Angeles. In addition, Mr. Arasi has held positions with Sheraton, Westin and HVS International. ROBERT S. COLE was Chief Executive Officer and President of the Company from the Merger until February 9, 2001. From 1990 until the Merger, Mr. Cole was the President of Impac and its predecessors and affiliates. During his tenure at Impac, the Company grew from one to fifty-five hotels, including becoming one of Marriott International and Bass Hotels and Resorts largest franchisee. Prior to that time, he held a variety of general manager positions in hotels throughout the United States. KARYN MARASCO has been Chief Operating Officer and Executive Vice President of Lodgian since the Merger. From 1997 until the Merger, Ms. Marasco was the Chief Operating Officer and Executive Vice President of Servico. Prior to such time, Ms. Marasco was affiliated with Westin Hotels & Resorts for 18 years. Most recently, Ms. Marasco served as Westin's Area Managing Director, based in Chicago. THOMAS R. EPPICH has been the Chief Financial Officer for Lodgian since June 1, 2000. Mr. Eppich is also currently affiliated with Jay Alix & Associates, a turnaround and restructuring financial consulting firm. During 1997 and 1998, Mr. Eppich was affiliated with Questor Management Company and during 1995 and 1996 was Vice President of Questor Management Company. Questor Management Company manages the Questor Partners Funds, which invest in troubled and underperforming companies. Mr. Eppich possesses more than 25 years of public accounting, auditing and financial consulting experience. JOSEPH C. CALABRO has been a director of Lodgian since the Merger, is currently Chairman of the Office of the Chairman of the Board and was a director of Servico from August 1992 until the Merger. 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. JOHN M. LANG has been a director of Lodgian since the Merger. Mr. Lang is the President of Lang Capital Partners, LLC, a private venture investment firm based in Atlanta, Georgia. From June 1996 until May 1998, Mr. Lang served as Chief Executive Officer of ProTrust Capital, Inc., an investment firm based in Atlanta, Georgia. Prior to 1996, Mr. Lang, an attorney, was the managing partner of an Atlanta law firm. MICHAEL A. LEVEN has been a director of Lodgian since the Merger and was a director of Servico from August 1997 until the Merger. From October 1995 until June 2000, Mr. Leven served as President, Chairman and Chief Executive Officer of US Franchise Systems, Inc., which sells franchises for Hawthorne Suites, Best Inns and Microtel Inn hotel brands. Since June 2000, Mr. Leven has been Chairman and Chief Executive Officer of US Franchise Systems, Inc. From October 1990 until September 1995, Mr. Leven was President and Chief Operating Officer of Holiday Inn Worldwide. PETER R. TYSON has been a director of Lodgian since the Merger and was a director of Servico from August 1992 until the Merger. 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 Lodgian since the Merger and was a director of Servico from August 1992 until the Merger. 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. 58 60 A. Director Compensation Lodgian pays non-executive Board members a $24,000 total annual retainer, as well as fees of $1,500 per board meeting, $1,000 per board committee meeting, and $500 per telephonic board or board committee meeting. This amount is payable in either cash or stock of the Company or a combination of both at the discretion of the Director. In addition, Mr. Joseph C. Calabro, in lieu of the normal annual retainer and per meeting fees, is receiving annual director compensation of $100,000 for services rendered to Lodgian in his capacity as Chairman of the Office of the Chairman of the Board. During 2000, Mr. Robert Cole, as an executive officer of the Company, received no compensation for serving as a member of Lodgian's Board. During 2001, Mr. Thomas Arasi, as an executive officer of the Company, will receive no compensation for serving as a member of Lodgian's Board. Lodgian also reimbursed directors for expenses associated with attending Board and committee meetings of the Company. Under the Company's Non-Employee Directors' Stock Plan, each non-employee director is automatically granted, on the date such director's term of office commences, and each year thereafter on the day following any annual meeting of stockholders (as long as such director's term as a director is continuing for the ensuing year), an option to acquire 5,000 shares of Common Stock at an exercise price equal to the fair market value of the Common Stock on the date of grant. All options granted to non-employee directors become exercisable upon grant. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain summary information concerning compensation paid or accrued by the Company, to or on behalf of the Chief Executive Officer and to each of the Company's executive officers other than the Chief Executive Officer for the three years ended December 31, 2000.
COMPENSATION ANNUAL COMPENSATION AWARDS -------------------------------------- --------------- OTHER SECURITIES ANNUAL UNDERLYING ALL OTHER YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS(4) COMPENSATIONS(5) ---- --------- -------- --------------- --------------- ---------------- Robert S. Cole(1).................. 2000 302,349 -- -- -- -- Chief Executive Officer and 1999 293,524 -- -- -- -- President 1998 17,308 -- -- 185,000 -- Karyn Marasco(2)................... 2000 284,840 75,000 -- -- -- Chief Operating Officer and 1999 257,862 121,000 -- -- -- Executive Vice President 1998 235,000 100,000 -- -- 20,106 Kenneth R. Posner(3)............... 2000 173,078 250,000 -- -- -- Chief Financial Officer and 1999 159,812 180,000 -- 400,000 4,791 Executive Vice President
- --------------- (1) Mr. Cole has served as Chief Executive Officer and President from December 11, 1998 to February 9, 2001. (2) Ms. Marasco's employment with Servico began in May 1997. (3) Mr. Posner served as Executive Vice President and Chief Financial Officer of Lodgian from April 27, 1999 until June 1, 2000. He continued to serve as Executive Vice President from June 1, 2000 until July 30, 2000. (4) Represents the number of shares of common stock underlying the options/SARs. (5) Each item included in this column represents a contribution made by Lodgian 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, except for Ms. Marasco, whose figure also includes a relocation allowance of $19,687 and Mr. Posner whose figure includes a relocation allowance of $4,791. 59 61 B. Stock Option Plan The Company's Stock Option Plan provides for the issuance of incentive stock options within the meaning of Section 422A of the Internal Revenue Code of 1986 ("The Internal Revenue Code") and non-qualified stock options not intended to meet the requirements of Section 422A of the Internal Revenue Code. The plan is administered by a committee of the Board of Directors which, subject to the terms of the plan, determines to whom grants are made and the vesting, timing and amounts of such grants. There were no stock option grants made during 2000 to the executive officers named in the "Summary Compensation Table". Accordingly, the table of "Stock Option Grants in Fiscal Year 2000" has not been included. The following table sets forth certain summary information concerning exercised and unexercised stock options to purchase the Company's Common Stock as of March 15, 2001, under Lodgian's Stock Option Plan held by executive officers named in the "Summary Compensation Table." STOCK OPTION EXERCISES IN FISCAL YEAR 2000 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN- OPTIONS/SARS HELD AT THE-MONEY OPTIONS/SARS FISCAL YEAR END(#) AT FISCAL YEAR-END($)(1) NAME AND POSITION ACQUIRED ON VALUE --------------------------- --------------------------- DURING 2000 FISCAL YEAR EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ----------------------- ----------- ----------- ----------- ------------- ----------- ------------- Robert S. Cole........................ -- -- 74,000 111,000 -- -- President and Chief Executive Officer Karyn Marasco......................... -- -- 114,500 40,500 -- -- Chief Operating Officer and Executive Vice President Kenneth R. Posner..................... -- -- 400,000 -- -- -- Chief Financial Officer and Executive Vice President
- --------------- (1) The value of unexercised in-the-money options/SARs represents the number of options/SARs held at year-end 2000 multiplied by the difference between the exercise price and $3.31, the closing price of Lodgian's Common Stock at year-end 2000. C. Employment Agreements and Termination of Employment Employment Agreements THOMAS ARASI entered into an employment agreement with Lodgian relating to his employment as President and Chief Executive Officer, as of February 9, 2001. This employment agreement is for an initial term of three years with a base salary of not less that $550,000. Annual increases are at the discretion of the Board of Directors. During the initial three year term Mr. Arasi is eligible to receive an annual bonus of up to 100% of base salary. During the first, second and third year of the employment period $325,000, $275,000 and $225,000, respectively, of the annual bonus will be guaranteed and paid quarterly. The remainder of the annual bonus will be determined based on the achievement of performance objectives that are mutually agreed to by the Compensation Committees of the Board of Directors and Mr. Arasi. Mr. Arasi receives paid health insurance, paid disability insurance, paid life insurance, a company car and is entitled to participate, to the extent eligible, under any benefit plans provided to other executives of Lodgian. Mr. Arasi is entitled to a minimum of four weeks vacation annually. Mr. Arasi was granted options to acquire 2,000,000 shares of Lodgian's Common Stock, which will vest equally over a period of four years. The term of the options will be ten years. The exercise price of the options is derived from a formula that will yield an exercise price that is less than the fair market value of the stock on the date of grant. The options granted to Mr. Arasi 60 62 were granted outside of the Company's Stock Option Plan. Mr. Arasi's employment agreement contains provisions for payments to Mr. Arasi in the event of termination or change of control as described more fully under "Arrangements Regarding Termination of Employment and Change of Control". ROBERT COLE entered into an employment agreement with Lodgian relating to his employment as President and Chief Executive Officer, as of December 11, 1998. This employment agreement provided 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. Cole during 2000 was $302,349. Mr. Cole also receives paid health insurance, paid disability insurance and is entitled to participate, to the extent eligible, under any benefit plans provided to other executives of Lodgian. Mr. Cole is entitled to a minimum of three weeks paid vacation annually. On February 9, 2001, Mr. Cole and Lodgian entered into a Separation Agreement. On this date Mr. Cole, with the Company's consent, resigned his position as President and Chief Executive Officer and continued as a non-officer employee through March 2, 2001. Mr. Cole received a severance payment of $750,000 in full settlement of all amounts due Mr. Cole by reason of the termination of his employment agreement. During the period March 3, 2001 to March 31, 2002 Mr. Cole will provide transition assistance and strategic and financial advisory services to Lodgian. Mr. Cole received $750,000 for his consulting services. The Company and Mr. Cole released one another from all claims rising out of Mr. Cole's employment with the Company. 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 2, 1997. On November 24, 1998, the agreement was extended for a period of one year and on July 28, 2000 was extended through September 2002. The employment agreement provides for a base salary of $257,862 subject to increases and bonuses at the discretion of the Board. Ms. Marasco is also entitled to receive the benefits offered other executive officers. Pursuant to the terms of her employment agreement, Ms. Marasco was granted options to acquire 50,000 shares of Lodgian Common Stock, with 10,000 of such shares vesting immediately and 10,000 vesting annually. The employment agreement is terminable upon 30 days notice but in the event Ms. Marasco is terminated other than "for Cause," as defined in the agreement, she will be entitled to her base salary and benefits under the agreement for the greater of the unexpired term or one year. KENNETH R. POSNER entered into an agreement with Lodgian relating to his employment as an Executive Vice President and Chief Financial Officer as of April 9, 1999 and effective as of April 27, 1999. The employment agreement provides for a base salary of $250,000. For the calendar year of 1999, Mr. Posner was guaranteed a bonus equal to one hundred percent (100%) of his prorated base salary. Thereafter, any bonus payments are at the discretion of the Board of Directors. Mr. Posner is also entitled to receive the benefits offered to other executive officers. Pursuant to the terms of his employment agreement, Mr. Posner was granted options to acquire 400,000 shares of Lodgian Common Stock. The options vest twenty percent (20%) per year over five years. In the event Mr. Posner is terminated other than "for Cause", as defined in the agreement, he will be entitled to receive his base salary, plus a percentage of his bonus, under the agreement for the greater of the unexpired term or one year. On June 30, 2000 Mr. Posner entered into an Amendment to Employment Agreement and Release with Lodgian, whereby Mr. Posner agreed to resign as Executive Vice President as of July 30, 2000. Mr. Posner also agreed to complete work on the 1999 Form 10-K for the Company. The Company agreed to pay Mr. Posner his salary through July 30, 2000 and thereafter pay Mr. Posner $250,000. All unvested options granted to Mr. Posner on April 9, 1999 vested on July 30, 2000. The Company and Mr. Posner released one another from all claims arising out of Mr. Posner's employment with the Company. Arrangements Regarding Termination of Employment and Changes of Control The employment agreement between Lodgian and Mr. Arasi provides for payments to Mr. Arasi in the event of termination by the Company without cause or by Mr. Arasi for good reason. The terms of the payments are as follows; (i) three times his annual base compensation and the maximum amount of annual bonus that could have been paid; (ii) continuation of health, life and disability benefits for three years; and (iii) all unvested options shall vest. Mr. Arasi's change of control provisions vary depending on the 61 63 circumstances that lead to a change of control. The maximum payable under the change of control provisions are approximately the same as described above. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding ownership of Common Stock as of March 15, 2001, by (i) each person known to the Company to be the beneficial owner of more than 5% of the issued and outstanding Common Stock as of March 15, 2001, (ii) each of the members of the Company's Board of Directors, (iii) each of the Company's current executive officers named in the "Summary Compensation Table" under "Executive Compensation" and (iv) all directors and executive officers of the Company as a group. All shares were owned directly with sole voting and investment power unless otherwise indicated.
SHARES OF COMMON PERCENT OF COMMON NAME OF BENEFICIAL OWNER AND STOCK STOCK ADDRESS OF 5% BENEFICIAL OWNER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (2) - ------------------------------ ---------------------- ---------------------- BENEFICIAL OWNERS OF 5% OR MORE OF OUTSTANDING COMMON STOCK: William J. Yung.......................................... 3,157,050(3) 10.9% 201 Grandview Drive Fort Mitchell, KY 41017 Dimensional Fund Advisors................................ 1,502,900(4) 5.2% 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 DIRECTORS: Thomas Arasi............................................. -- * Robert S. Cole........................................... 761,664(5) 2.6% Joseph C. Calabro........................................ 283,224(6) * John M. Lang............................................. 378,061(7) 1.3% Michael A. Leven......................................... 51,544(8) * Peter R. Tyson........................................... 70,164(9) * Richard H. Weiner........................................ 85,100(10) * NON DIRECTOR EXECUTIVE OFFICERS: Karyn Marasco............................................ 117,200(11) * Kenneth R. Posner........................................ 420,000(12) 1.5% All directors and executive officers as a group (nine persons)............................................... 2,166,957(13) 7.5%
- --------------- * Represents less than 1% (1) This number does not include those shares of Lodgian to be distributed upon conversion of Servico shares and Impac units pursuant to the Merger which have as yet not been converted. (2) Ownership percentages are based on 28,139,481 shares of Common Stock outstanding as of March 15, 2001 and options to purchase 828,500 shares of Common Stock currently exercisable by the named individual or group. (3) William J. Yung filed a Schedule 13D dated March 13, 2001 with the Securities and Exchange Commission ("SEC") reporting beneficial ownership of 3,157,050 shares of Common Stock. Mr. Yung may be deemed to be the indirect beneficial owner of and have shared voting and dispositive power with respect to (i) the 1,563,350 Shares held by Edgecliff Holdings, LLC by virtue of his indirect control of Edgecliff Holdings, LLC and (ii) the 1,593,750 Shares held by Casuarina Cayman Holding, Ltd. by virtue of his direct control of Casaurina. 62 64 (4) Dimensional Fund Advisors filed a Schedule 13G dated February 2, 2001 with the SEC reporting ownership of 1,502,900 shares of Common Stock with sole voting and dispositive power with respect to such shares. (5) Includes currently exercisable options to purchase 74,000 shares of Common Stock. (6) Includes currently exercisable options to purchase 65,000 shares of Common Stock. (7) The shares in this table above do not include: (i) shares beneficially held by ProTrust Properties IV, Ltd., ProTrust Properties V, Ltd., Hotel Investors, LP, and ProTrust Equity Growth Fund I, LP (collectively the "Entities"), from which, as of June 8, 1999, Mr. Lang resigned his position as manager, and the shares held by which were formerly deemed to be beneficially owned by him; and (iii) shares beneficially owned by Hotel Capital II, LLC, a limited liability company whose manager, with sole voting and dispositive power, is Robert H. Woods (a partner in Lang Capital Partners, LLC), with respect to which Mr. Lang is not a member or a manager, and does not have voting or dispositive power with respect to those shares; therefore, such shares are not included in Mr. Lang's beneficial ownership. Includes currently exercisable options to purchase 10,000 shares. (8) Includes currently exercisable options to purchase 35,000 shares of Common Stock and 5,700 shares owned by Mr. Leven's spouse. (9) Includes currently exercisable options to purchase 65,000 shares of Common Stock. (10) Includes currently exercisable options to purchase 65,000 shares of Common Stock. (11) Includes currently exercisable options to purchase 114,500 shares of Common Stock. (12) Includes currently exercisable options to purchase 400,000 shares of Common Stock. (13) Includes currently exercisable options to purchase 828,500 shares of Common Stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following parties have direct or indirect material interest in transactions with the Company since the beginning of its most recently completed fiscal year and such transactions are described below. Mr. Cole is a minority shareholder of Impac Hotel Development ("IHD"), which provided acquisition and property development services to Impac for a development fee of four percent of the total project cost of each property acquired or developed. Impac agreed to terminate this agreement prior to the consummation of the Merger so that Impac and its subsidiaries will have no further obligations under the agreement after the Merger other than the payment of up to a four percent development fee (not to exceed $2.5 million in the aggregate) in the event Lodgian acquires or develops any of the hotels or properties identified in the Merger Agreement as Impac's acquisition and development pipeline. During 1999, the Company paid $1.0 million in connection with this arrangement. Of this amount, the Company's former Chief Executive Officer and President received $225,000. No payments were made in 2000 to IHD or Mr. Cole. In connection with Mr. Cole's separation from the Company, any future contingent obligations related to this agreement have ceased. IHD had contracted with Elegant Interiors, LLC ("Elegant"), an entity wholly owned by Sheila Lang (the spouse of John M. Lang, a member of the Board of Directors) to provide interior design consulting service. In the event IHD, or its assignee, receives payment of the above-reference development fees, IHD, or its assignee, will pay Elegant accrued consulting fees (not to exceed $250,000) with respect to any of the hotels or properties identified in the merger agreement as being in Impac's acquisition and development pipeline. On January 3, 2000, Impac Design Company, LLC, the assignee of IHD satisfied its obligations under this agreement. Mr. Cole has been an 8% limited partner in the partnership that owns the Courtyard by Marriott in Tifton, Georgia since 1996. The Company manages this hotel in accordance with a management agreement, which provides that the Company is paid a base fee calculated as a percentage of gross revenues, an accounting services fee and an incentive management fee. The base fee is 3% of gross revenues and the incentive fee is a percentage of the amount by which gross operating profit exceeds a negotiated amount. The Company earned fees of $71,400, $69,300 and $60,000 during 2000, 1999, and 1998, respectively. The management agreement was terminated in March 2001. 63 65 On December 15, 2000 the Company sold a partially constructed hotel located in Richmond, Virginia to Columbia Sussex Corporation, an entity controlled by William J. Yung. Mr. Yung is a 10.9% beneficial owner of the Company's common stock. The Company received net proceeds of approximately $12.3 million from the sale and recorded a loss on the sale of approximately $.5 million. In addition, the Company entered into a separate management contract with the purchaser to provide construction management oversight until completion of the project. D. Compensation Committee Interlocks and Insider Participation During 2000, the following directors served on the Compensation Committee of the Board of Directors: John Lang, Michael A. Leven, Peter R. Tyson and Richard H. Weiner. None of such persons is or has been an executive officer of the Company, and no interlocking relationships exist between any such person and the directors or executive officers of any other Company. PART IV ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements: Report of Independent Public Accountants Report of Independent Auditors Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements (a) (2) Financial Statement Schedule: All Schedules are omitted because they are not applicable or required information shown in the consolidated financial statements or notes thereto. (a) (3) Exhibits: The information called for by this paragraph is contained in the Exhibits Index of this report, which is incorporated herein by reference. (b) Reports on Form 8-K: A report on Form 8-K/A was filed on October 17, 2000 relating to the Board of Directors' decision to seek the retention of new independent public accountants for the year ending December 31, 2000. A report on Form 8-K was filed on October 13, 2000 relating to the postponement of the Company's annual shareholders meeting to October 20, 2000. A report on Form 8-K was filed on October 20, 2000 relating to the certification of the shareholder vote at the October 20, 2000 annual shareholders meeting. A report on Form 8-K was filed on December 27, 2000 relating to the Exclusivity Agreement entered into with Edgecliff Holdings, LLC. A report on Form 8-K was filed on March 28, 2001 relating to proforma financial statements on the sale of ten hotels. 64 66 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 1.1 -- Purchase Agreement, dated June 9, 1998, by Lodgian Capital Trust I and NationsBanc Montgomery Securities LLC.(h) 2.1 -- Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") among Lodgian, Inc., Servico, Inc., Impac Hotel Group, L.L.C., SHG-S Sub, Inc., SHG-I Sub,L.L.C., P-Burg Lodging Associates, Inc., SHG-II Sub, Inc., Hazard Lodging Associates, Inc., SHG-III Sub, Inc., Memphis Lodging Associates, Inc., SHG-IV Sub, Inc., Delk Lodging Associates, Inc., SHG-V Sub, Inc., Impac Hotel Development, Inc., SHG-VI Sun, Inc., Impac Design and Construction, Inc., SHG-VII Sub, Inc., Impac Hotel Group, Inc., and SHG-VIII Sub, Inc., as of July 22, 1998.(a) 2.2 -- Amendment to the Merger Agreement, dated as of September 16, 1998.(j) 3.1.1 -- Restated Certificate of Incorporation of Lodgian, Inc.(a) 3.1.2 -- Amended Restated Bylaws of Lodgian, Inc.(e) 3.2.1 -- Certificate of Incorporation of Lodgian Financing Corp.(f) 3.2.2 -- Bylaws of Lodgian Financing Corp.(f) 3.3.1 -- Amended and Restated Articles of Incorporation of Dothan Hospitality 3053, Inc.(f) 3.3.2 -- Bylaws of Dothan Hospitality 3053, Inc.(f) 3.4.1 -- Amended and Restated Articles of Incorporation of Dothan Hospitality 3071, Inc.(f) 3.4.2 -- Bylaws of Dothan Hospitality 3071, Inc.(f) 3.5.1 -- Second Amended and Restated Articles of Incorporation of Gadsden Hospitality, Inc.(f) 3.5.2 -- Bylaws of Gadsden Hospitality, Inc.(f) 3.6.1 -- Fourth Amended and Restated Articles of Incorporation of Sheffield Motel Enterprises, Inc.(f) 3.6.2 -- Bylaws of Sheffield Motel Enterprises, Inc.(f) 3.7.1 -- Articles of Incorporation of Lodgian Anaheim, Inc.(f) 3.7.2 -- Bylaws of Lodgian Anaheim, Inc.(f) 3.8.1 -- Articles of Incorporation of Lodgian Ontario Inc.(f) 3.8.2 -- Bylaws of Lodgian Ontario Inc.(f) 3.9.1 -- Amended and Restated Articles of Incorporation of Servico Ft. Pierce, Inc.(f) 3.9.2 -- Bylaws of Servico Ft. Pierce, Inc.(f) 3.10.1 -- Amended and Restated Articles of Incorporation of Servico Pensacola 7200, Inc.(f) 3.10.2 -- Bylaws of Servico Pensacola 7200, Inc.(f) 3.11.1 -- Amended and Restated Articles of Incorporation of Servico Pensacola 7330, Inc.(f) 3.11.2 -- Bylaws of Servico Pensacola 7330, Inc.(f) 3.12.1 -- Amended and Restated Articles of Incorporation of Servico Pensacola, Inc.(f) 3.12.2 -- Bylaws of Servico Pensacola, Inc.(f) 3.13.1 -- Partnership Agreement of AMI Operating Partners, L.P., as amended.(f) 3.14.1 -- Second Amended and Restated Articles of Incorporation of Albany Hotel, Inc.(f) 3.14.2 -- Bylaws of Albany Hotel, Inc.(f) 3.15.1 -- Amended and Restated Articles of Incorporation of Servico Flagstaff, Inc.(f) 3.15.2 -- Bylaws of Servico Flagstaff, Inc.(f) 3.16.1 -- Amended and Restated Articles of Incorporation of Servico Northwoods, Inc.(f)
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EXHIBIT NO. DESCRIPTION - ------- ----------- 3.16.2 -- Bylaws of Servico Northwoods, Inc.(f) 3.17.1 -- Second Amended and Restated Articles of Incorporation of Servico Silver Spring, Inc.(f) 3.17.2 -- Bylaws of Servico Silver Spring, Inc.(f) 3.18.1 -- Second Amended and Restated Articles of Incorporation of Servico West Palm Beach, Inc.(f) 3.18.2 -- Bylaws of Servico West Palm Beach, Inc.(f) 3.19.1 -- Amended and Restated Articles of Incorporation of Servico Windsor, Inc.(f) 3.19.2 -- Bylaws of Servico Windsor, Inc.(f) 3.20.1 -- Amended and Restated Articles of Incorporation of Servico Winter Haven, Inc.(f) 3.20.2 -- Bylaws of Servico Winter Haven, Inc.(f) 3.21.1 -- Amended and Restated Articles of Incorporation of Brunswick Motel Enterprises, Inc.(f) 3.21.2 -- Bylaws of Brunswick Motel Enterprises, Inc.(f) 3.22.1 -- Operating Agreement of Atlanta-Hillsboro Lodging, LLC(f) 3.23.1 -- Operating Agreement of Lodgian Richmond, LLC(f) 3.24.1 -- Partnership Agreement of Little Rock Lodging Associates I, L.P.(f) 3.25.1 -- Amended and Restated Articles of Incorporation of Servico Cedar Rapids, Inc.(f) 3.25.2 -- Bylaws of Servico Cedar Rapids, Inc.(f) 3.26.1 -- Amended and Restated Articles of Incorporation of Servico Rolling Meadows, Inc.(f) 3.26.2 -- Bylaws of Servico Rolling Meadows, Inc.(f) 3.27.1 -- Second Amended and Restated Articles of Incorporation of Servico Metairie, Inc.(f) 3.27.2 -- Bylaws of Servico Metairie, Inc.(f) 3.28.1 -- Amended and Restated Articles of Incorporation of Servico Colesville, Inc.(f) 3.28.2 -- Bylaws of Servico Colesvilles, Inc.(f) 3.29.1 -- Amended and Restated Articles of Incorporation of Servico Columbia, Inc.(f) 3.29.2 -- Bylaws of Servico Columbia, Inc.(f) 3.30.1 -- Amended and Restated Articles of Incorporation of Servico Maryland, Inc.(f) 3.30.2 -- Bylaws of Servico Maryland, Inc.(f) 3.31.1 -- Amended and Restated Articles of Incorporation of NH Motel Enterprises, Inc.(f) 3.31.2 -- Bylaws of NH Motel Enterprises, Inc. (formerly RRCHR, Inc.)(f) 3.32.1 -- Amended and Restated Articles of Incorporation of Minneapolis Motel Enterprises, Inc.(f) 3.32.2 -- Bylaws of Minneapolis Enterprises, Inc.(f) 3.33.1 -- Amended and Restated Articles of Incorporation of Servico Roseville, Inc.(f) 3.33.2 -- Bylaws of Servico Roseville, Inc.(f) 3.34.1 -- Amended and Restated Articles of Incorporation of Lodgian Mount Laurel, Inc.(f) 3.34.2 -- Bylaws of Lodgian Mount Laurel, Inc.(f)
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EXHIBIT NO. DESCRIPTION - ------- ----------- 3.35.1 -- Restated Certificate of Incorporation of Servico Grand Island, Inc.(f) 3.35.2 -- Bylaws of Servico Grand Island, Inc.(f) 3.36.1 -- Restated Certificate of Incorporation of Servico Jamestown, Inc.(f) 3.36.2 -- Bylaws of Servico Jamestown, Inc.(f) 3.37.1 -- Restated Certificate of Incorporation of Servico New York, Inc.(f) 3.37.2 -- Bylaws of Servico New York, Inc.(f) 3.38.1 -- Restated Certificate of Incorporation of Servico Niagara Falls, Inc.(f) 3.38.2 -- Bylaws of Servico Niagara Falls, Inc.(f) 3.39.1 -- Amended and Restated Articles of Incorporation of Fayetteville Motel Enterprises, Inc.(f) 3.39.2 -- Bylaws of Fayetteville Motel Enterprises, Inc.(f) 3.40.1 -- Second Amended and Restated Articles of Incorporation of Apico Hills, Inc.(f) 3.40.2 -- Bylaws of Apico Inns of Green Tree, Inc.(f) 3.41.1 -- Second Amended and Restated Articles of Incorporation of Apico Inns of Green Tree, Inc.(f) 3.41.2 -- Bylaws of Apico Hills, Inc.(f) 3.42.1 -- Second Amended and Restated Articles of Incorporation of Servico Hilton Head, Inc.(f) 3.42.2 -- Bylaws of Servico Hilton Head, Inc.(f) 3.43.1 -- Amended and Restated Articles of Incorporation of Servico Austin, Inc.(f) 3.43.2 -- Bylaws of Servico Austin, Inc.(f) 3.44.1 -- Second Amended and Restated Articles of Incorporation of Servico Houston, Inc.(f) 3.44.2 -- Bylaws of Servico Houston, Inc.(f) 3.45.1 -- Second Amended and Restated Articles of Incorporation of Servico Market Center, Inc.(f) 3.45.2 -- Bylaws of Servico Market Center, Inc.(f) 3.46.1 -- Second Amended and Restated Articles of Incorporation of Palm Beach Motel Enterprises, Inc.(f) 3.46.2 -- Bylaws of Palm Beach Motel Enterprises, Inc.(f) 4.1.1 -- Indenture, dated as of July 23, 1999, by and among Lodgian Financing Corp., Lodgian, Inc., the subsidiary guarantors named therein and Bankers Trust Company, as Trustee.(f) 4.1.2 -- First Supplemental Indenture, dated as of September 13, 1999, among Lodgian Financing Corp., Lodgian, Inc., the subsidiary guarantors named therein, the subsidiary of the Company listed on Schedule A annexed thereto and Bankers Trust Company, as Trustee. 4.2 -- Indenture, dated as of June 17, 1998, between Servico, Inc., Lodgian, Inc., and Wilmington Trust Company, as Trustee.(a) 4.3 -- First Supplemental Indenture, dated as of June 17, 1998, between Servico, Inc., Lodgian, Inc., and Wilmington Trust Company, as Trustee.(a) 4.4 -- Registration Rights Agreement, dated as of June 17, 1998, among Lodgian Capital Trust I, Servico, Inc., and NationsBanc Montgomery Securities, LLC.(a) 4.5 -- Registration and Rights Agreement between Lodgian, Inc. and certain unitholders of Impac Hotel Group, LLC.(a) 4.6 -- Specimen Note.(f) 4.7 -- Specimen CRESTS.(a) 4.8 -- Specimen Convertible Debenture.(a)
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EXHIBIT NO. DESCRIPTION - ------- ----------- 10.1 -- Lodgian 1998 Short-Term, Incentive Compensation Plan.(a) 10.2 -- Lodgian 1998 Stock Incentive Plan.(a) 10.3 -- Lodgian Non-Employee Directors' Stock Plan.(a) 10.4 -- Guarantee Agreement, dated as of June 17, 1998, between Servico, Inc., Lodgian, Inc., and Wilmington Trust Company, as Guarantee Trustee.(a) 10.5 -- Amended and Restated Declaration of Trust of Lodgian Capital Trust I, dated as of June 17, 1998 between Servico, Inc., as Sponsor, David A. Buddemeyer, Charles M. Diaz and Phillip R. Hale, as Regular Trustees, and Wilmington Trust Company, as Delaware Trust and Property Trustee.(a) 10.6 -- Severance Agreement, dated November 10, 1998, between Servico, Inc., and David Buddemeyer.(g) 10.7 -- Severance Agreement, dated February 28, 1999, between Lodgian, Inc. and Warren M. Knight.(g) 10.8 -- Employment Agreement between Lodgian, Inc. and Robert S. Cole.(a) 10.9 -- Employment Agreement, dated May 2, 1997, between Karyn Marasco and Servico, Inc.(i) 10.10 -- Form of Employment Agreement, dated as of February 9, 2001 between the Lodgian, Inc. and Thomas Arasi. 10.11 -- Form of Separation Agreement, dated as of February 9, 2001 between Lodgian, Inc. and Robert S. Cole. 10.13 -- Voting Agreement, dated as of March 20, 1998, between Servico, Inc., and Certain Members of Impac.(c) 10.14 -- Voting Agreement, dated as of March 20, 1998, between Servico, Inc., and Certain Other Members of Impac.(c) 10.15 -- Credit Agreement, dated as of July 23, 1999, among Lodgian Financing Corp., Lodgian, Inc., Impac Hotel Group, LLC, Servico, Inc., and other affiliate guarantors party thereto and the initial lenders and initial issuing bank named therein and Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent, and Morgan Stanley Senior Funding, Inc., as Co-Lead Arranger and Joint-Book Manager and Syndication Agent, and Lehman Brothers, Inc., as Co-Lead Arranger and Joint-Book Manager.(f) 10.16 -- Security Agreement, dated July 23, 1999, from Lodgian Financing Corp., Sevico, Inc., Impac Hotel Group, LLC, and the other grantors referred to therein to Morgan Stanley Senior Funding, Inc., as Collateral Agent.(f) 10.17.1 -- Loan Agreement, dated December 8, 1998, Sheraton Concord, Inc., and Banc One Capital Funding Corporation.(f) 10.17.2 -- Guaranty and Indemnity Agreement, dated December 8, 1998, by Lodgian AMI, Inc., Penmoco, Inc., and Island Motel Enterprises, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.17.3 -- Limited Guaranty and Indemnity Agreement, dated December 8, 1998, by Lodgian, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.18.1 -- Loan Agreement, dated December 8, 1998, between Island Motel Enterprises, Inc., Penmoco, Inc., and Banc One Capital Funding Corporation.(f) 10.18.2 -- Guaranty and Indemnity Agreement, dated December 8, 1998, by Servico Concord, Inc., and Lodgian AMI, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.18.3 -- Limited Guaranty and Indemnity Agreement, dated December 8, 1998, by Lodgian, Inc., in favor of Banc One Capital Funding Corporation.(f)
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EXHIBIT NO. DESCRIPTION - ------- ----------- 10.19.1 -- Loan Agreement, dated December 8, 1998, between Lodgian AMI, Inc., and Banc One Capital Funding Corporation (relating to Holiday Inn -- Lancaster East).(f) 10.19.2 -- Guaranty and Indemnity Agreement, dated December 8, 1998, by Servico Concord, Inc., Penmoco Inc., and Island Motel Enterprises, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.19.3 -- Limited Guaranty and Indemnity Agreement, dated December 8, 1998, by Lodgian, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.20.1 -- Loan Agreement, dated December 8, 1998, between Lodgian AMI, Inc., and Banc One Capital Funding Corporation (relating to Holiday Inn -- International Airport).(f) 10.20.2 -- Guaranty and Indemnity Agreement, dated December 8, 1998, by Servico Concord, Inc., Penmoco Inc., and Island Motel Enterprises, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.20.3 -- Limited Guaranty and Indemnity Agreement, dated December 8, 1998, by Lodgian, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.21.1 -- Loan Agreement dated as of July 18, 1996, among GMAC Commercial Mortgage Corporation and Servico Council Bluffs, Inc., Servico West Des Moines, Inc., Servico Omaha, Inc., Servico Omaha Central, Inc., and Servico Wichita, Inc.(f) 10.21.2 -- Mortgage Note in the amount of $16.84 million, dated as of July 18, 1996, by Servico Council Bluffs, Inc., Servico West Des Moines, Inc., Servico Omaha, Inc., Servico Omaha Central, Inc., and Servico Wichita, Inc., in favor of GMAC Commercial Mortgage Corporation.(f) 10.22.1 -- Loan Agreement dated as of May 7, 1996, between GMAC Commercial Mortgage Corporation and Servico Lansing, Inc.(f) 10.22.2 -- Mortgage Note in the original amount of $5.687 million, dated as of May 7, 1996, by Servico Lansing, Inc., in favor of GMAC Commercial Mortgage Corporation.(f) 10.23.1 -- Loan Agreement dated as of January 17, 1996, among Loan Services,Inc., and Brecksville Hospitality, L.P., Sioux City Hospitality, L.P., and 1075 Hospitality, L.P.(f) 10.23.2 -- Mortgage Note in original amount of $12.91 million by Brecksville Hospitality, L.P., Sioux City Hospitality, L.P., and 1075 Hospitality, L.P., in favor of GMAC Commercial Mortgage Corporation.(f) 10.24.1 -- Loan Agreement dated as of January 31, 1995, by and among Column Financial, Inc., and Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc., and Moon Airport Hotel Inc.(f) 10.24.2 -- Promissory Note in original amount of $60.5 million, dated as of January 31, 1995, by Servico Fort Wayne, Inc., Washington Motel Enterprises, Inc., Servico Hotels I, Inc., Servico Hotels II, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc., New Orleans Airport Motels Associates, Ltd., Wilpen, Inc., Hilton Head Motels Enterprises, Inc., and Moon Airport Hotel Inc., in favor of Column Financial, Inc.(f) 10.25.1 -- Loan Agreement dated as of June 29, 1995, between Column Financial, Inc., and East Washington Hospitality Limited Partnership.(f) 10.25.2 -- Promissory Note in original amount of $11.0 million, dated as of June 29, 1995, by East Washington Hospitality Limited Partnership in favor Column Financial, Inc.(f)
69 71
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.26.1 -- Loan Agreement, dated as of January 31, 1995 and amended as of June 29, 1995, between Column Financial, Inc., and McKnight Motel, Inc.(f) 10.26.2 -- Promissory Note in original amount of $3.9 million, dated as of January 31, 1995 and amended as of June 29, 1995, by McKnight Motel, Inc., in favor of Column Financial, Inc.(f) 10.27.1 -- Loan Agreement, dated December 8, 1998, between Lodgian AMI, Inc., and Banc One Capital Funding Corporation (relating to Holiday Inn -- Glen Burnie).(f) 10.27.2 -- Guaranty and Indemnity Agreement, dated December 8, 1998 by Servico Concord, Inc., Penmoco Inc., and Island Motel Enterprises, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.27.3 -- Limited Guaranty and Indemnity Agreement, dated December 8, 1998, by Lodgian, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.28.1 -- Loan Agreement, dated December 8, 1998, between Lodgian AMI, Inc., and Banc One Capital Funding Corporation (relating to Holiday Inn -- Inner Harbor).(f) 10.28.2 -- Guaranty and Indemnity Agreement, dated December 8, 1998, by Servico Concord, Inc., Penmoco Inc., and Island Motel Enterprises, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.28.3 -- Limited Guaranty and Indemnity Agreement, dated December 8, 1998, by Lodgian, Inc., in favor of Banc One Capital Funding Corporation.(f) 10.29 -- Form of Amendment No. 1, Waiver and Consent to the Credit Agreement among Lodgian Financing Corp., Lodgian, Inc., Impac Hotel Group, LLC, Servico Inc., the other Affiliate Guarantors party hereto, the Lenders and Issuing Bank named herein, Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent, Morgan Stanley Senior Funding, Inc., as Co-Lead Arranger, Joint-Book Manager and Syndication Agent, Lehman Brothers Inc., as Co-Lead Arranger, Joint-Book Manager and Lehman Commercial Paper Inc., as Documentation Agent.(k) 10.30 -- Form of Consolidated, Amended and Restated Loan Agreement dated as of August 31, 2000 by and among Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. and the Capital Company of America LLC.(k) 12.1 -- Statement Regarding Computation of Earnings to Fixed Charges.(h) 21.1 -- Subsidiaries of Lodgian, Inc.
- --------------- (a) This exhibit is incorporated by reference to exhibits and appendices to the Company's Registration Statement on Form S-4, as amended, filed on July 17, 1998. (SEC File No. 333-59315) (b) This exhibit is incorporated by reference to Servico, Inc.'s Form 10-K for the year ended December 31, 1997, filed on March 31, 1998. (SEC File No. 001-11342) (c) This exhibit is incorporated by reference to Servico, Inc.'s Form 8-K dated March 20, 1998, filed on March 26, 1998. (SEC File No 00-11342) (d) This exhibit is incorporated by reference to the Company's Form 8-K dated December 11, 1998, filed on December 28, 1998. (SEC File No. 001-14537) (e) This exhibit is incorporated by reference to the Company's Form 8-K dated March 9, 2000, filed on March 9, 2000. (SEC File No. 001-14537) (f) This exhibit is incorporated by reference to exhibits and appendices to the Company's Registration Statement on Form S-4, as amended, filed on August 13, 1999. (SEC File No. 333-85235-01) (g) This exhibit is incorporated by reference to exhibits and appendices to the Company's Annual Report on Form 10-K, filed on March 31, 1999. (SEC File No. 001-14537) (h) This exhibit is incorporated by reference to exhibits and appendices to the Company's Registration Statement on Form S-1, as amended, filed on July 14, 1999. (SEC File No. 333-82859) 70 72 (i) This exhibit is incorporated by reference to Servico's Form 10-Q for the period ended June 30, 1997, filed on August 14, 1997, (SEC File No. 001-11342) (j) This exhibit is incorporated by reference to Servico's Form 8-K filed on September 17, 1998. (SEC File No. 001-11342) (k) This exhibit is incorporated by reference to the Company's Form 10-Q dated March 31, 2000, filed on December 15, 2000. (SEC File No. 001-14537) 71 73 SIGNATURES Pursuant to the requirement of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 28, 2001. LODGIAN, INC. By: /s/ THOMAS ARASI ------------------------------------ Thomas Arasi Chief Executive Officer, President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities indicated, on March 28, 2001.
SIGNATURE TITLE --------- ----- /s/ THOMAS ARASI Chief Executive Officer, President and - ----------------------------------------------------- Director Thomas Arasi /s/ THOMAS R. EPPICH Chief Financial Officer - ----------------------------------------------------- Thomas R. Eppich /s/ JOSEPH C. CALABRO Chairman of the Office of the Chairman of the - ----------------------------------------------------- Board of Directors Joseph. C. Calabro /s/ ROBERT S. COLE Director - ----------------------------------------------------- Robert S. Cole /s/ JOHN LANG Director - ----------------------------------------------------- John Lang /s/ MICHAEL A. LEVEN Director - ----------------------------------------------------- Michael A. Leven /s/ PETER R. TYSON Director - ----------------------------------------------------- Peter R. Tyson /s/ RICHARD H. WEINER Director - ----------------------------------------------------- Richard H. Weiner
72 EX-4.1.2 2 g67746ex4-1_2.txt FIRST SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.1.2 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE, dated as of September 13, 1999 (this "First Supplemental Indenture"), to the Indenture (as defined below), among Lodgian Financing Corp., a Delaware corporation (the "Company"), Lodgian, Inc., the Subsidiary Guarantors (as defined therein), the Subsidiary of the Company listed on Schedule A annexed hereto (the "Additional Guarantor") and Bankers Trust Company, as Trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company has issued its 12 1/4% Senior Subordinated Notes due 2009 (the "Securities") in the aggregate principal amount of $200,000,000 under and pursuant to the Indenture, dated as of July 23, 1999 (the "Indenture"), among the Company, the Guarantors listed therein and the Trustee; and WHEREAS, the Additional Guarantor has become a Restricted Subsidiary and pursuant to Section 4.20 of the Indenture is entering into this First Supplemental Indenture to thereby become a Guarantor as provided in Article Ten of the Indenture; and WHEREAS, pursuant to Section 9.01(5) of the Indenture, the Company, the Guarantors, the Additional Guarantor and the Trustee may enter into this First Supplemental Indenture without the consent of any Holder; and WHEREAS, all consents and notices required to be obtained and given as conditions to the execution of this First Supplemental Indenture pursuant to the Indenture and all other documents relating to the Securities have been obtained and given; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I AUTHORIZATION; DEFINITIONS Section 1.01. First Supplemental Indenture. This First Supplemental Indenture is supplemental to, and is entered into, in accordance with Section 9.01 of the Indenture, and except as modified, amended and supplemented by this First Supplemental Indenture, the provisions of the Indenture are in all respects ratified and confirmed and shall remain in full force and effect. Section 1.02. Definitions. Unless the context shall otherwise require, all terms which are defined in Section 1.01 of the Indenture shall have the same meanings, respectively, in this First Supplemental Indenture as such terms are given in said Section 1.01 of the Indenture. 2 ARTICLE II ADDITIONAL GUARANTOR Section 2.01. Additional Guarantor. Pursuant to Section 10.01 of the Indenture, the Additional Guarantor hereby expressly assumes the obligations of, and otherwise agrees to perform all of the duties of, a Guarantor under the Indenture, subject to the terms and conditions thereof, as of the date set forth opposite the name of such Additional Guarantor on Schedule A hereto. ARTICLE III MISCELLANEOUS Section 3.01. Effective Date. This First Supplemental Indenture shall become effective upon execution and delivery hereof. Section 3.02. Counterparts. This First Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 3.03. Acceptance. The Trustee accepts the Indenture, as supplemented by this First Supplemental Indenture, and agrees to perform the same upon the terms and conditions set forth therein as so supplemented. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this First Supplemental Indenture or the due execution by the Company, the Guarantors or the Additional Guarantor, or for or in respect of the recitals contained herein, all of which are made solely by the Company. Section 3.04. Successors and Assigns. All covenants and agreements in this First Supplemental Indenture, by the Company, the Guarantors, the Additional Guarantor or the Trustee shall bind its respective successors and assigns, whether so expressed or not. Section 3.05. Severability. In case any provision in this First Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.06. Governing Law. This First Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflict of laws. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this First Supplemental Indenture. Section 3.07. Incorporation into Indenture. All provisions of this First Supplemental Indenture shall be deemed to be incorporated in, and made part of, the Indenture, and the Indenture, as amended and supplemented by this First Supplemental Indenture, shall be read, taken and construed as one and the same instrument. 2 3 IN WITNESS WHEREOF, the parties have caused this First Supplemental Indenture to be duly executed as of the date first above written. LODGIAN FINANCING CORP. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President LODGIAN, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SHEFFIELD MOTEL ENTERPRISES, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President DOTHAN HOSPITALITY 3053, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President DOTHAN HOSPITALITY 3071, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President GADSDEN HOSPITALITY, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO FLAGSTAFF, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President LODGIAN ANAHEIM, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President 3 4 LODGIAN ONTARIO, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO PENSACOLA, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO PENSACOLA 7200, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO PENSACOLA 7330, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO FT. PIERCE, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President AMI OPERATING PARTNERS, L.P. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO WEST PALM BEACH, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO WINTER HAVEN, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President 4 5 SERVICO SILVER SPRING, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President ALBANY HOTEL, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO NORTHWOODS, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO WINDSOR, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President BRUNSWICK MOTEL ENTERPRISES, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President LITTLE ROCK LODGING ASSOCIATES I, L.P. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President ATLANTA-HILLSBORO LODGING, LLC By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President LODGIAN RICHMOND, L.L.C. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President 5 6 SERVICO ROLLING MEADOWS, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO CEDAR RAPIDS, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President: SERVICO METAIRIE, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO COLUMBIA, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO COLESVILLE, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO MARYLAND, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President NH MOTEL ENTERPRISES, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President MINNEAPOLIS MOTEL ENTERPRISES, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President 6 7 SERVICO ROSEVILLE, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President LODGIAN MOUNT LAUREL, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO JAMESTOWN, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO NEW YORK, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO NIAGARA FALLS, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO GRAND ISLAND, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO MARKET CENTER, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President SERVICO HOUSTON, INC. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President 7 8 IMPAC HOTELS I, L.L.C. By: /s/ Robert M. Flanders -------------------------------------- Name: Robert M. Flanders Title: President 8 9 IN WITNESS WHEREOF, the parties have caused this First Supplemental Indenture to be duly executed as of the date first above written. BANKERS TRUST COMPANY By: /s/ Susan Johnson -------------------------------------- Name: Susan Johnson Title: Assistant Vice President 9 10 SCHEDULE A ADDITIONAL GUARANTOR
NAME DATE - ---- ---- Impac Hotels I, L.L.C., a Georgia limited liability company............................. September 13, 1999
10 EX-10.10 3 g67746ex10-10.txt EMPLOYMENT AGREEMENT 1 EXHIBIT 10.10 ================================================================================ EMPLOYMENT AGREEMENT BETWEEN LODGIAN, INC. AND THOMAS ARASI Dated as of February 9, 2001 ================================================================================ 2 EMPLOYMENT AGREEMENT AGREEMENT (this "Agreement"), by and between Lodgian, Inc., a Delaware corporation (the "Company"), and Thomas Arasi (the "Executive"), dated as of February 9, 2001. Capitalized terms used in this Agreement that are not defined in the operative provisions shall have the meanings ascribed to them on Exhibit B hereto. 1. EMPLOYMENT PERIOD. The Company agrees to employ the Executive and the Executive agrees to be employed by the Company for the Employment Period, subject to the terms and conditions of this Agreement. The term "Employment Period" means the longer of (x) the period commencing on the date hereof and ending on the third anniversary of such date (the "Initial Term") or (y) the Initial Term plus such longer term as may be agreed by Executive and the Company pursuant to Section 2. 2. RENEWAL TERMS. (a) No later than one hundred twenty (120) days prior to the third anniversary of the date hereof, the Company may offer to renew this Agreement for an additional three (3) year term (the "Renewal Term") on the same terms and conditions as are set forth in this Agreement, except that: (i) The Base Salary will equal the greater of $692,000 or the Base Salary in effect on the third anniversary of the date hereof. The Executive's annual bonus during the Renewal Term will remain at up to 100% of Base Salary as such Base Salary is adjusted. $283,000 of the annual bonus will be guaranteed and the remainder will be based on the achievement of performance objectives that are mutually agreed to by the Executive and the Compensation Committee of the Company's Board of Directors (the "Committee") no later than ninety (90) days after the beginning of the Renewal Term and within the first ninety (90) days of each subsequent fiscal year beginning within the Renewal Term; and (ii) On the first day of the Renewal Term, the Company will grant the Executive options to acquire 2,000,000 shares of the Company's common stock at an exercise price equal to the fair market value of the Company's common stock on the date of such grant. 666,667 of such options will vest on the last day of each year of the Renewal Term and all such options will automatically vest upon consummation of a Change of Control that occurs following the grant of such options. (b) If the Company does not offer to extend the Initial Term as provided in Section 2(a): (i) no later than thirty (30) days after the expiration of the Initial Term, the Company will pay the Executive an amount equal to three times the sum of (x) the Base Salary in effect on the last day of the Initial Term and (y) the maximum amount of the annual bonus (as defined in Section 5(b)) that could have been paid with respect to the fiscal year in which the expiration of the Initial Term occurs; 3 (ii) all unvested options to acquire common stock of the Company will vest as of the last day of the Initial Term and remain exercisable for forty-two (42) months following expiration of the Initial Term; and (iii) the Executive, his spouse and dependent children will be entitled to continuation of the health, life and disability benefits set forth in Section 6(b)(iii) for three (3) years following expiration of the Initial Term on terms and conditions no less favorable than those in effect at the end of the Initial Term, but subject to the provisos set forth in Section 6(b)(iii). (c) If the Company does offer to extend the Initial Term as provided in Section 2(a) and Executive declines to renew the contract, no severance will be paid but all unvested options to acquire common stock of the Company will vest as of the last day of the Initial Term and remain exercisable for forty-two (42) months following expiration of the Initial Term. (d) If this Agreement is renewed at the end of the Initial Term for the Renewal Term, the parties will negotiate in good faith to renew this Agreement for a third term. If the parties do not reach agreement on such third term: (i) the Company will pay the Executive severance pay equal to two times the sum of (x) the Base Salary in effect on the last day of the Renewal Term and (y) the maximum amount of the annual bonus that could have been paid with respect to the fiscal year in which the expiration of the Renewal Term occurs; (ii) the Executive, his spouse and dependent children will be entitled to continuation of the health, life and disability benefits set forth in Section 6(b)(iii) for two (2) years following the expiration of the Initial Term on terms and conditions no less favorable than those in effect at the end of the Initial Term but subject to the provisos set forth in Section 6(b)(iii); and (iii) all unvested options to acquire common stock of the Company will vest as of the last day of the Renewal Term and remain exercisable for forty-two (42) months following expiration of the Renewal Term. (e) If either party does not intend to renew this Agreement at the end of the Initial Term or the Renewal Term, such party must give the other party notice to this effect no later than one hundred twenty (120) days prior to the end of the applicable term. 3. POSITION AND DUTIES. (a) Commencing on the date hereof and for the remainder of the Employment Period, the Executive shall serve as the President and Chief Executive Officer of the Company. The Executive shall report directly to the Board of Directors of the Company (the "Board") and shall have such duties and authority, consistent with his position as the President and Chief Executive Officer of the Company, as shall be assigned to him from time to time by the Board. The Executive's powers and authority shall be superior to those of any other officer or employee -2- 4 of the Company and all employees of the Company shall report to the Executive or his designees. (b) The Board shall appoint the Executive to the Board as a Class II director effective on the date hereof to hold office until the Company's 2003 annual meeting of stockholders or until his successor shall have been duly elected and qualified. The Board shall thereafter nominate and recommend the Executive for election to the Board, and shall use its best efforts to cause Executive to be elected and reelected to membership on the Board through the remainder of the Employment Period. The Executive shall serve on the Board for no additional compensation or fees. The Executive shall also serve, if requested by the Board, as an executive officer and director of subsidiaries and a director of associated companies of the Company for no additional compensation or fees. (c) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote his entire working time, attention and energies to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently such responsibilities. The Executive shall be entitled to not less than four (4) weeks of paid vacation during each calendar year of the Employment Period. (d) During the Employment Period, so long as such activities do not substantially interfere with the performance of his duties and responsibilities to the Company hereunder, the Executive may engage in activities relating to personal matters (including personal and financial matters) and in industry, civic and charitable activities, including membership on charitable boards of directors or trusteeships of non-affiliated companies and organizations. 4. PLACE OF PERFORMANCE. The Executive shall perform his duties and conduct his business at the principal executive offices of the Company, except for required travel on the Company's business. 5. COMPENSATION. As full and complete compensation for all services performed by the Executive and subject to the performance of the Executive's obligations in this Agreement the Executive shall be entitled to the compensation set forth in this Section 5: (a) Base Salary. During the Employment Period, the Company shall pay the Executive a base salary at the annual rate of not less than $550,000 ("Base Salary"). Base Salary shall be payable in accordance with the usual payment practices of the Company. The Company will review the Base Salary at least annually and in light of such review may increase (but not decrease) the Base Salary taking into account any change in the Executive's responsibilities, increases in compensation of other executives with comparable responsibilities, performance of the Executive and other pertinent factors, and such adjusted Base Salary shall then constitute "Base Salary" for purposes of this Agreement. (b) Annual Bonus. The Executive shall be eligible, for each fiscal year ending during the Employment Period, to receive an annual bonus of up to 100% of Base Salary (but not less than the guaranteed amount described in the following sentence). For the first, second and -3- 5 third year of the Employment Period, $325,000, $275,000 and $225,000, respectively, of the Annual Bonus will be guaranteed and paid quarterly, with the first payment made on March 31 of each respective year. The remainder of the annual bonus for each year of the Employment Period will be determined based on the achievement of performance objectives that are mutually agreed to by the Committee and the Executive. Performance objectives will be established no later than ninety (90) days after the date of this Agreement and within the first ninety (90) days of the beginning of the fiscal year for each subsequent year. If the Committee and the Executive are unable to agree on performance objectives, performance objectives will be determined by arbitration before a mutually agreed accounting firm or, absent agreement, whichever of PricewaterhouseCoopers LLP or Ernst & Young LLP is independent of the Company. A pro rata portion of the amount of the annual bonus for each fiscal year that is not guaranteed will be paid to the Executive if performance objectives are achieved in part. The maximum annual bonus will be subject to an automatic adjustment so as to remain equal to 100% of Base Salary. (c) Equity Incentives. (i) As further inducement for the Executive to enter into this Agreement and to continue in the employ of the Company, the Company will grant to the Executive options to acquire 2,000,000 shares of the Company's common stock. 500,000 of such options shall vest each year over a period of four (4) years. The exercise price per share of the options will equal the lowest of (x) $1.50 per share, (y) fifty percent (50%) of the average of the closing prices of the Company's common stock as reported on the New York Stock Exchange ("NYSE") for the twenty (20) trading days following announcement of the Executive's employment by the Company, or (z) fifty percent (50%) of the average of the closing prices of the Company's common stock as reported on the NYSE for the twenty (20) trading days following an announcement, prior to December 31, 2001, by (A) Edgecliff Holdings, LLC or any of its affiliates ("Edgecliff") that Edgecliff will not pursue a transaction with the Company or (B) the Company that the Company will not pursue a transaction with Edgecliff, provided, either such post-announcement period continues for at least twenty (20) days. The options described in this Section 5(c) shall be evidenced by an agreement to be entered between the Company and the Executive substantially in the form of Exhibit D hereto, subject however to this paragraph and the following: (A) Interest free or cashless exercise of the options shall be available to the Executive at the Executive's request to enable payment of taxes resulting from options exercised to facilitate the Executive's ability to hold stock for future appreciation. (B) The term of the options will be ten (10) years. All options shall remain exercisable for forty-two (42) months following the Executive's Date of Termination, except in the event of a Change of Control, in which event the Executive's options shall, at the Executive's election, be cashed-out or rolled-over at the price pursuant to the terms established by such Change of Control, unless the transaction is treated as a pooling transaction for accounting purposes. -4- 6 (C) In the event of any recapitalization, reclassification, spin-off, partial liquidation, stock dividend, split-up, distribution to stockholders or combination of the capital stock of the Company or other change in the Company's capital structure, Executive will be entitled to appropriate anti-dilution protection with respect to his options. (ii) During the Employment Period, the Board may, in its discretion, consider additional grants of equity incentives to the Executive. The Executive will not be precluded from negotiating for additional equity in connection with any renewal of this Agreement. (d) Benefits. Except as modified by this Agreement, throughout the Employment Period, the Executive shall be entitled to participate in Plans and to receive all benefits, perquisites and emoluments for which other executive officers of the Company are eligible under any Plan now or hereafter established and maintained by the Company to the fullest extent permissible under the general terms or provisions of such Plans and in accordance with the provisions thereof. The Executive shall also be provided a monthly automobile allowance and reimbursement of reasonable and documented cell phone and home office expenses. The Company shall also provide a life insurance policy covering Executive in a face amount equal to $3,300,000, naming such beneficiary as may be designated by the Executive, and a disability insurance policy covering Executive at an amount equal to the maximum available under standard underwriting practices. Nothing in this Agreement shall preclude the Company from terminating or amending, from time to time, any Plan. (e) No Other Compensation or Benefits. The Executive agrees that, except for the payments and benefits outlined in Sections 5, 6, 7 and 11, the Executive is not entitled to any other payments or benefits. 6. TERMINATION OF EMPLOYMENT. (a) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with this Agreement. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (b) Termination for Death, Disability or Retirement. The Executive's employment shall terminate upon his death, Disability or Retirement during the Employment Period. In the event of such termination: (i) the Company shall make a lump sum cash payment to the Executive (or, in the event that termination results from the death of the Executive, to his estate) within thirty (30) days after the Date of Termination in an amount equal to the sum of: (A) the Executive's Base Salary payable through the Date of Termination to the extent not already paid; -5- 7 (B) the maximum amount of the Executive's annual bonus that could have been paid with respect to the fiscal year in which the Date of Termination occurs, absent the termination of the Executive's employment, prorated for the portion of such fiscal year through the Date of Termination taking into account the number of complete months during such fiscal year through the Date of Termination; and (C) the Executive's actual earned annual bonus for any completed fiscal year or period not theretofore paid; (ii) the Executive shall retain options which shall have been vested as of the Date of Termination and shall forfeit options which have not been vested; and (iii) the Executive (and his spouse and dependent children) will be entitled to continuation of health, life and disability benefits under the Plans for a period of three years from the Date of Termination on terms and conditions no less favorable than those in effect on the Date of Termination; provided, that to the extent such benefits cannot be provided to the Executive under the terms of the Plans or the Plans cannot be so amended in any manner not adverse to the Company, the Company shall pay the Executive, on an after-tax basis, an amount necessary for the Executive to acquire such benefits from an independent insurance carrier; and provided further, that the obligations of the Company under this clause (iii) shall be terminated if, at any time after the Date of Termination, the Executive is employed by or is otherwise affiliated with a party that offers comparable health, life and disability benefits to the Executive. (c) Resignation by the Executive Without Good Reason. If the Executive shall resign his employment with the Company without Good Reason, the Executive shall provide the Company with a Notice of Termination at least one hundred twenty (120) days prior to the Date of Termination. In the event of such resignation: (i) the Company shall make a lump sum cash payment to the Executive within 30 days after the Date of Termination in an amount equal to the sum of: (A) the Executive's Base Salary payable through the Date of Termination to the extent not already paid; and (B) the Executive's actual earned annual bonus for any completed fiscal year or period not theretofore paid; (ii) upon providing the Company with a Notice of Termination and until the Date of Termination, the Executive shall cooperate fully with the Company in achieving a smooth transition of the Executive's duties and responsibilities to such person(s) as may be designated by the Company; and (iii) if the Executive's employment is terminated (1) before the second anniversary of the date hereof, there shall be no vesting of options and on the Date of Termination the Executive shall forfeit all options granted, whether or not vested, (2) after the second anniversary of the date hereof, the Executive shall retain only the -6- 8 options which shall have already vested as of the Date of Termination and shall forfeit the options which have not been vested. (d) Termination by the Company for Cause. If the Executive's employment shall be terminated for Cause during the Employment Period, the Employment Period shall terminate without further obligations to the Executive other than the obligation to pay him all payments and benefits due, in accordance with the Company's Plans through the Date of Termination. Upon a termination for Cause, the Executive shall retain all vested options and shall forfeit all unvested options. (e) Termination by the Company Without Cause or By the Executive for Good Reason. If the Executive's employment shall be terminated by the Company without Cause during the Employment Period, or by the Executive for Good Reason, then: (i) the Company shall make a lump sum cash payment to the Executive within thirty (30) days of the Date of Termination in an amount equal to the sum of: (A) three times the sum of (x) Base Salary in effect as of the Date of Termination and (y) the maximum amount of the annual bonus that could have been paid with respect to the fiscal year in which the Date of Termination occurs; (B) the Executive's Base Salary payable through the Date of Termination to the extent not already paid; and (C) the Executive's actual earned annual bonus for any completed fiscal year or period not theretofore paid; (ii) the Executive, his spouse and dependent children will be entitled to continuation of the health, life and disability benefits set forth in Section 6(b)(iii) for three (3) years following the Date of Termination on terms and conditions no less favorable than those in effect on the Date of Termination but subject to the provisos set forth in Section 6(b)(iii); and (iii) All unvested options held by the Executive shall vest on the Date of Termination. 7. OBLIGATIONS OF THE COMPANY RELATING TO A CHANGE OF CONTROL. Upon consummation of a Change of Control, then, notwithstanding anything to the contrary in this Agreement: (a) All unvested options held by the Executive shall vest upon consummation of a Change of Control, unless such Change of Control results from the acquisition of the Company by Edgecliff pursuant to a definitive agreement between the Company and Edgecliff executed before or at any time during the 120-day period following the date hereof between the Executive and the Company (the "120-Day Carve-Out") and the transaction contemplated by such definitive agreement with Edgecliff is consummated on or before December 31, 2001 (the "Edgecliff End Date"). If a definitive agreement is not executed with Edgecliff during the 120-Day Carve-Out and a Change of Control subsequently occurs with Edgecliff, or if a definitive -7- 9 agreement is executed with Edgecliff during the 120-Day Carve-Out but the transaction contemplated by such agreement is not consummated by the Edgecliff End Date and a Change of Control subsequently occurs with Edgecliff, all unvested options held by the Executive shall vest. If a Change of Control occurs as a result of a transaction with Edgecliff pursuant to a definitive agreement executed during the 120-Day Carve-Out and consummated by the Edgecliff End Date, 830,000 unvested options shall automatically vest upon consummation of such Change of Control, and any other unvested options shall be forfeited. The Executive will have the right to cause the Company to purchase such vested options at a price equal to the price per share at which the Company's common stock is acquired in such transaction minus the exercise price per option times the number of shares of stock underlying such options. (b) If a Change of Control occurs at a price that is less than $4.50 per share as a result of a transaction with Edgecliff pursuant to a definitive agreement executed during the 120-Day Carve-Out and consummated before the Edgecliff End Date, the number of options that would otherwise vest as provided in Section 7(a) will be increased so that upon consummation of the transaction the value of the options that will vest in a transaction at a price below $4.50 per share will equal the value of the options that would have vested at a price of $4.50 per share. (c) Provided the Company or the Executive terminates the Executive's employment following a Change of Control (other than a termination by the Company for Cause), the Company shall make a lump sum cash payment to the Executive in the amount equal to the sum of: (A) 2.99 times the sum of (x) the Base Salary in effect upon consummation of the Change of Control and (y) the maximum amount of the annual bonus that could have been paid with respect to the fiscal year in which the Change of Control occurs, unless such payment is payable due to a Change of Control which occurs as a result of a transaction with Edgecliff pursuant to a definitive agreement executed during the 120-Day Carve-Out and consummated before the Edgecliff End Date in which case the Company shall make a lump sum cash payment to the Executive in the amount equal to two times the sum of the sum of (x) the Base Salary in effect upon consummation of the Change of Control and (y) the maximum amount of the annual bonus that could have been paid with respect to the fiscal year in which the Change of Control occurs; (B) the Executive's Base Salary payable through the Date of Termination to the extent not already paid; and (C) the Executive's actual earned annual bonus for any completed fiscal year or period not theretofore paid; (d) The Executive, his spouse and dependent children will be entitled to continuation of the health, life and disability benefits set forth in Section 6(b)(iii) for three (3) years following consummation of a Change of Control on terms and conditions no less favorable than those in effect on the date of the Change of Control but subject to the provisos set forth in Section 6(b)(iii). -8- 10 8. OFFSET. The Company shall have the right to offset the amounts required to be paid to the Executive under this Agreement against any amounts owed by the Executive to the Company, and nothing in this Agreement shall prevent the Company from pursuing any other available remedies against the Executive. 9. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any Plan for which the Executive may qualify. Amounts that are vested benefits or that the Executive is otherwise entitled to receive under any Plan, contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such Plan, or contract or agreement except as explicitly modified by this Agreement. 10. FULL SETTLEMENT; LEGAL FEES. (a) No Obligation to Mitigate. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and, except as specifically provided in this Agreement, such amounts shall not be reduced whether or not the Executive obtains other employment. (b) Nature of Payments and Benefits. Any amounts and benefits due under Section 6, 7 or 11 are in nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. (c) Release. The Executive agrees that, as a condition to receiving the payments and benefits provided under Sections 6, 7 and 11 the Executive will execute, deliver and not revoke (within the time period permitted by applicable law) a Separation and Release Agreement substantially in the form of Exhibit A hereto. (d) Resignation. Upon the Date of Termination, Executive shall automatically be deemed to have resigned as an officer and director of the Company, any subsidiary and any affiliate and as a fiduciary of any benefit plan of any of the foregoing. The Executive shall execute any further documentation of such resignation as is reasonably requested by the Company and, if the Executive is to receive any payments from the Company, execution of such further documentation shall be a condition thereof. (e) Expenses of Contests. The following shall apply for any dispute arising hereunder: (i) Other than with respect to claims brought by the Executive against, or defenses by the Executive of any claim of, the Company with respect to this Agreement that were determined to have been made or asserted by the Executive in bad faith or frivolously, the Company agrees to pay all reasonable legal and professional fees and expenses that the Executive may reasonably incur as a result of any contest by the Executive, by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement). -9- 11 (ii) The Executive shall reimburse the Company for its reasonable legal and professional fees and expenses, to the extent there is a final determination that such fees or expenses relate to claims brought by the Executive against, or defenses by the Executive of any claim of, the Company with respect to this Agreement that were determined to have been made or asserted by the Executive in bad faith or frivolously. 11. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Anything in this Agreement to the contrary notwithstanding, in the event that any actual or constructive payment or distribution by the Company to or for the benefit of the Executive pursuant to Section 7 is subject to the excise tax imposed by Section 4999 of the Code or any successor provision of the Code (the "Excise Tax"), then the Company shall make the payments described on Exhibit C hereto. 12. RESTRICTIONS AND OBLIGATIONS OF THE EXECUTIVE. (a) Consideration for Restrictions and Covenants. The parties hereto acknowledge and agree that the principal consideration for the agreement to make the payments provided in Sections 5, 6, 7 and 11 hereof from the Company to the Executive and the grant to the Executive of the options of the Company as set forth herein is the Executive's compliance with the undertakings set forth in this Section 12. Specifically, the Executive agrees to comply with the provisions of this Section 12 irrespective of whether the Executive is entitled to receive any payments under Sections 5, 6, 7 or 11 of this Agreement. (b) Confidentiality. All Confidential Information and Trade Secrets (as defined below) and all physical embodiments thereof received or developed by the Executive while employed by the Company are confidential to and are and will remain the sole and exclusive property of the Company. Except to the extent necessary to perform the duties assigned to him by the Company, or as otherwise required by law, the Executive will hold such Confidential Information and Trade Secrets in trust and strictest confidence, and will not use, reproduce, distribute, disclose or otherwise disseminate the Confidential Information and Trade Secrets or any physical embodiments thereof nor take any action causing or fail to take the action necessary in order to prevent, any Confidential Information and Trade Secrets disclosed to or developed by the Executive to lose its character or cease to qualify as Confidential Information or Trade Secrets. As used herein, "Confidential Information" means data and information relating to the business of the Company (which does not rise to the status of a Trade Secret) which is or has been disclosed to the Executive or of which the Executive became aware as a consequence of or through its relationship to the Company and which has value to the Company and is not generally known to its competitors. Confidential Information shall not include any data or information that has been voluntarily disclosed to the public by the Company (except where public disclosure has been made by the Executive without authorization) or that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means. The provisions in this Agreement restricting the use of Confidential Information shall survive for a period of one (1) year following termination of this Agreement. As used herein, "Trade Secrets" means information including, but not limited to, technical or nontechnical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers which (i) derives economic value, actual or potential, from not being -10- 12 generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The provisions of this Agreement restricting the use of Trade Secrets shall survive termination of this Agreement for so long as is permitted by the Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767. (c) Return of Property. Upon request by the Company, and in any event upon termination of the employment of the Executive with the Company for any reason, the Executive will promptly deliver to the Company all property belonging to the Company, including, without limitation, all Confidential Information and Trade Secrets (and all embodiments thereof) then in the Executive's custody, control or possession. (d) Non-Solicitation. (i) During the Employment Period and for a one-year period following the Date of Termination, the Executive shall not, directly or indirectly solicit, encourage, cause or induce any officer of the Company or any of its subsidiaries to terminate such officer's employment with the Company or such subsidiary for the employment of another company without the prior written consent of the Company's Board. (ii) The Executive acknowledges that the provisions of this Agreement are reasonable and necessary for the protection of the businesses of the Company and that part of the compensation paid under this Agreement and the agreement to pay severance in certain instances is in consideration for the agreements in this Section 12(d). (e) Litigation Assistance. The Executive agrees to cooperate with the Company and its counsel in regard to any litigation presently pending or subsequently initiated involving matters of which the Executive has particular knowledge as a result of employment with the Company. Such cooperation shall consist of the Executive making himself available at reasonable times for consultation with officers of the Company and its counsel and for depositions or other similar activity should the occasion arise. Reasonable travel costs and out-of-pocket expenses in connection with such cooperation shall be reimbursed by the Company. The Executive shall not receive any additional compensation for providing assistance pursuant to this Section 12(e) following the Date of Termination. The obligations under this Section 12(e) shall survive for a five (5) year period following the Date of Termination (f) Equitable Relief; Severability; Survival. Without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by the Executive of the covenants contained in this Section 12, it is expressly agreed by the Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief, without the necessity of proving actual monetary loss, to prevent any such violation or any continuing violation thereof. Each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in this Section 12, any term, restriction, covenant or promise contained herein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it -11- 13 enforceable by such court or agency. The covenants contained in Section 12 shall survive the conclusion of the Executive's employment by the Company to the extent specified herein. 13. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 14. MISCELLANEOUS. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to principles of conflict of laws. (b) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. (c) Amendment. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (d) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (i) If to the Executive, to the address on file with the Company; and (ii) If to the Company, to it at Lodgian, Inc., 3445 Peachtree Road, N.E., Suite 700, Atlanta, Georgia, 30326, Attention: General Counsel; or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (e) Assistance to Company. At all times during and after the Employment Period and at the Company's expense for significant out-of-pocket expenses actually and reasonably incurred by the Executive in connection therewith, the Executive shall provide reasonable assistance to the Company in the collection of information and documents and shall make the Executive available when reasonably requested by the Company in connection with claims or actions brought by or against third parties or investigations by governmental agencies based upon events or circumstances concerning the Executive's duties, responsibilities and authority during the Employment Period. -12- 14 (f) Severability of Provisions. Each of the sections contained in this Agreement shall be enforceable independently of every other section in this Agreement, and the invalidity or nonenforceability of any section shall not invalidate or render unenforceable any other section contained in this Agreement. The Executive acknowledges that the restrictive covenants contained in Section 12 are a condition of this Agreement and are reasonable and valid in geographical and temporal scope and in all other respects. If any court or arbitrator determines that any of the covenants in Section 12, or any part of any of them, is invalid or unenforceable, the remainder of such covenants and parts thereof shall not thereby be affected and shall be given full effect, without regard to the invalid portion. If any court or arbitrator determines that any of such covenants, or any part thereof, is invalid or unenforceable because of the geographic or temporal scope of such provision, such court or arbitrator shall reduce such scope to the minimum extent necessary to make such covenants valid and enforceable. (g) Withholding. All payments made by the Company under this Agreement shall be reduced by any tax or other amounts required to be withheld by the Company under applicable law. (h) Waiver. The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (i) Dispute Resolution. (i) In the event of disputes between the parties with respect to the terms and conditions of this Agreement, such disputes shall be resolved by and through an arbitration proceeding to be conducted under the auspices of the American Arbitration Association ("AAA") (or any like organization successor thereto) in Atlanta, Georgia. Such arbitration proceeding shall be conducted pursuant to the commercial arbitration rules (formal or informal) of the AAA in as expedited a manner as is then permitted by such rules (the "Arbitration"). Both the foregoing agreement of the parties to arbitrate any and all such claims, and the results, determination, finding, judgment and/or award rendered through such Arbitration, shall be final and binding on the parties hereto and may be specifically enforced by legal proceedings. (ii) Such Arbitration may be initiated by written notice from either party to the other which shall be a compulsory and binding proceeding on each party. The Arbitration shall be conducted by an arbitrator selected in accordance with the procedures of the AAA. Time is of the essence of this arbitration procedure, and the arbitrator shall be instructed and required to render his or her decision within thirty (30) days following completion of the Arbitration. (iii) The costs of any such Arbitration, whether initiated by the Company or the Executive, shall be borne by the Company unless otherwise ordered by the Arbitrator pursuant to Section 10(e). -13- 15 (iv) Any action to compel arbitration hereunder shall be brought in the State Court of Georgia. -14- 16 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. LODGIAN, INC. By: -------------------------------------- Name: Title: THOMAS ARASI ----------------------------------------- -15- 17 EXHIBIT A SEPARATION AND RELEASE AGREEMENT This Separation and Release Agreement ("Agreement") is entered into as of this __ day of ___________________________, 20___, between LODGIAN, INC., a Delaware corporation, and any successor thereto (collectively, the "Company") and Thomas Arasi (the "Executive"). The Executive and the Company agree as follows: 1. The employment relationship between the Executive and the Company terminated on __________________________________ (the "Termination Date"). 2. In accordance with the Executive's Employment Agreement (the "Employment Agreement"), the Company has agreed to pay the Executive certain payments and to make certain benefits available after the Date of Termination. 3. In consideration of the above, the sufficiency of which the Executive hereby acknowledges, the Executive, on behalf of the Executive and the Executive's heirs, executors and assigns, hereby releases and forever discharges the Company and its stockholders, parents, affiliates, subsidiaries, divisions, any and all current and former directors, officers, employees, agents, and contractors and their heirs and assigns, from all claims, charges, or demands, in law or in equity, whether known or unknown, which may have existed or which may now exist from the beginning of time to the date of this agreement, including, without limitation, any claims the Executive may have arising from or relating to the Executive's employment or termination from employment with the Company, including a release of any rights or claims the Executive may have under Title VII of the Civil Rights Act of 1964, as amended, and the Civil Rights Act of 1991 (which prohibit discrimination in employment based upon race, color, sex, religion, and national origin); the Americans with Disabilities Act of 1990, as amended, and the Rehabilitation Act of 1973 (which prohibit discrimination based upon disability); the Family and Medical Leave Act of 1993 (which prohibits discrimination based on requesting or taking a family or medical leave); Section 1981 of the Civil Rights Act of 1866 (which prohibits discrimination based upon race); Section 1985(3) of the Civil Rights Act of 1871 (which prohibits conspiracies to discriminate); any other federal, state or local laws against discrimination; or any other federal, state, or local statute, or common law relating to employment, wages, hours, or any other terms and conditions of employment. This includes a release by the Executive of any claims for wrongful discharge, breach of contract, torts or any other claims in any way related to the Executive's employment with or resignation or termination from the Company. This release also includes a release of any claims for age discrimination under the Age Discrimination in Employment Act, as amended ("ADEA"). The ADEA requires that the Executive be advised to consult with an attorney before the Executive waives any claim under ADEA. In addition, the ADEA provides the Executive with at least 21 days to decide whether to waive claims under ADEA and seven days after the Executive signs the Agreement to revoke that waiver. A-1 18 4. This Agreement is not an admission by either the Executive or the Company of any wrongdoing or liability. 5. The Executive waives any right to reinstatement or future employment with the Company following the Executive's separation from the Company on the Date of Termination. 6. This Agreement shall not release any claim the Executive, his spouse or dependent children have or has to compensation or benefits under the Employment Agreement, or any other rights the Executive may have under the terms of the Employment Agreement, any claims under any employee pension benefit plan, or any employee welfare benefit plan, as those terms are defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended, to retirement, welfare or fringe benefits following termination of employment, nor any claims the Executive may have for workers' compensation benefits. 7. The Executive agrees not to engage in any act after execution of this Separation and Release Agreement that is intended to harm the reputation of the Company, its officers, directors, stockholders or employees. The Executive will take no action which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company. 8. The Executive shall continue to be bound by Section 12 of the Executive's Employment Agreement. 9. The Executive shall promptly return all the Company property in the Executive's possession, including, but not limited to, the Company keys, credit cards, cellular phones, computer equipment, software and peripherals and originals or copies of books, records, or other information pertaining to the Company business. The Executive shall return any leased or Company automobile. 10. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without reference to the principles of conflict of laws. Exclusive jurisdiction with respect to any legal proceeding brought concerning any subject matter contained in this Agreement shall be settled by arbitration as provided in the Executive's Employment Agreement. 11. This Agreement represents the complete agreement between the Executive and the Company concerning the subject matter in this Agreement and supersedes all prior agreements or understandings, written or oral. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 12. Each of the sections contained in this Agreement shall be enforceable independently of every other section in this Agreement, and the invalidity or nonenforceability of any section shall not invalidate or render unenforceable any other section contained in this Agreement. 13. It is further understood that for a period of seven (7) days following the execution of this Agreement in duplicate originals, the Executive may revoke this Agreement, A-2 19 and this Agreement shall not become effective or enforceable until the revocation period has expired. No revocation of this Agreement by the Executive shall be effective unless the Company has received within the seven (7) day revocation period, written notice of any revocation, all monies received by the Executive under this Agreement and all originals and copies of this Agreement. 14. This Agreement has been entered into voluntarily and not as a result of coercion, duress, or undue influence. The Executive acknowledges that the Executive has read and fully understands the terms of this Agreement and has been advised to consult with an attorney before executing this Agreement. Additionally, the Executive acknowledges that the Executive has been afforded the opportunity of at least twenty-one (21) days to consider this Agreement. The parties to this Agreement have executed this Agreement as of the day and year first written above. LODGIAN, INC. By: -------------------------------------- Name: Title: THOMAS ARASI -------------------------------------- A-3 20 EXHIBIT B Capitalized terms used in the Agreement that are not elsewhere defined in the Agreement have the definitions set forth below: "Cause" means (i) willful misconduct by the Executive with regard to the Company or its business resulting in material harm to the Company, monetarily or otherwise; (ii) substantial and continuing willful refusal by the Executive to attempt to perform the duties required of him hereunder (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which it is believed that the Executive has substantially and continually refused to attempt to perform his duties hereunder; (iii) the Executive being convicted of a felony (other than a felony involving traffic infraction); or (iv) the Executive's dishonesty, misappropriation or fraud with regard to the Company (other than good faith expense account disputes). No termination for Cause shall take effect unless the provisions of this paragraph shall have been complied with. The Board shall give the Executive at least ten days' written notice of its intention to terminate him for Cause, such notice to state in detail the particular circumstances that constitute the grounds on which the proposed termination for Cause is based. The Executive shall have ten (10) days, after receiving such special notice, to cure such grounds, to the extent such cure is possible. If the Executive fails to cure such grounds to the Board's satisfaction, the Executive shall then be entitled to a hearing by the Board, during which he may, at his election, be represented by counsel. If in the judgment of two-thirds of the Board (not including the Executive and any other member of the Board believed by the Board to be involved in the events leading the Board to terminate the Executive for Cause), grounds for a termination for Cause exist, the Executive shall thereupon be terminated for Cause. Nothing herein will limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. "Change of Control" means, after the date hereof: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company or any of its subsidiaries, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, (iii) any acquisition by any Person pursuant to a transaction that complies with clauses (i), (ii), (iii) and (iv) of subsection (c) below, or (iv) any acquisition by any entity in which the Executive has a material direct or indirect equity interest; B-1 21 (b) The cessation of the "Incumbent Board" for any reason to constitute at least a majority of the Board. "Incumbent Board" means the members of the Board on the date hereof and any member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, except that the Incumbent Board shall not include any member of the Board whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) The consummation of a merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless immediately following such Business Combination each of the following would be correct: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Person resulting from such Business Combination (including, without limitation, a Person which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (ii) no Person (excluding (A) any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, or such corporation resulting from such Business Combination or any Affiliate of such corporation, or (B) any entity in which the Executive has a material equity interest, or any "Affiliate" (as defined in Rule 405 under the Securities Act of 1933, as amended) of such entity) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; and (iv) Executive is the President and Chief Executive Officer of the corporation resulting from such Business Combination. Executive has duties and authorities, and compensation and benefits commensurate with the position of President and Chief B-2 22 Executive Officer of a corporation comparable to that resulting from the Business Combination, but no less favorable than those in effect immediately before such Business Combination, and the corporation resulting from such Business Combination is a publicly traded corporation; or (d) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be (although such Date of Termination shall retroactively cease to apply if the circumstances providing the basis of termination for Cause or Good Reason are cured in accordance with the Agreement), (ii) if the Executive's employment is terminated by the Company other than for Cause, the Date of Termination shall be the date so designated by the Company in its notification to the Executive of such termination, (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the effective date of the Disability, as the case may be, (iv) if the Executive's Employment is terminated by the Executive without Good Reason, the Date of Termination shall be the last day on which the Executive is employed by the Company as a regular employee, or (v) the last day of the Employment Period. "Disability" means (i) the inability of the Executive to perform his duties under this Agreement for (x) a period of one hundred twenty (120) calendar days within any three hundred sixty-five (365) calendar day period, or (y) ninety (90) consecutive calendar days, and if within thirty (30) calendar days after a notice of termination is provided to the Executive, he shall not have returned to the performance of the Executive's duties hereunder, or (ii) a disability of the Executive within the meaning of Section 72(m)(7) of the Internal Revenue Code, that is, the Executive is unable to engage in any substantial gainful activity with the Company or any other employer, by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration, or (iii) the Executive becomes entitled to disability retirement benefits under the Federal Social Security Act or receive benefits under any long-term disability plan or policy maintained by the Company. "Good Reason" means, without the Executive's prior written consent, the occurrence of any of the following, provided that the Executive delivers a Notice of Termination specifying such occurrence within six (6) months after Executive first has knowledge of such occurrence: (i) the assignment of the Executive to a position other than President and Chief Executive Officer; (ii) any failure by the Company to comply in any material respect with any of the provisions of the Agreement, other than failure not occurring in bad faith and that is remedied by the Company within a reasonable time after receipt of notice thereof given by the Executive; B-3 23 (iii) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including offices, titles, reporting requirements or responsibilities), authority or duties as contemplated by Section 3 of the Agreement, or any other action by the Company, which results in a diminution or other adverse changes in such position, authority or duties or in the status, responsibilities or perquisites of the Executive; (vi) failure of the Executive to be elected or reelected to membership on the Board; or (vii) the Company's requiring the Executive relocate his principal residence or to increase his commuting distance to the Company's offices by more than 35 miles. "Notice of Termination" means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the termination date. "Plans" means all employee compensation, benefit and welfare plans, policies and programs of the Company, which may include, without limitation, incentive, savings, retirement, stock option, restricted stock, supplemental executive retirement, pension, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans, vacation practices, fringe benefit practices and policies relating to the reimbursement of business expenses. "Retirement" shall have the meaning ascribed to that term in the Plan under which benefits are being sought by the Executive or, if such meaning is inapplicable, the term shall mean a termination of employment with the Company or a subsidiary on a voluntary basis after to the age of sixty. The term "Retirement" shall also include "early" retirement prior to the age of sixty provided that the Committee, in its sole discretion, consents in writing to accept such early retirement. B-4 24 EXHIBIT C TAX GROSS-UP (a) If required by Section 11 of the Agreement, in addition to the payments described in Section 7 of the Agreement (the "Section 7 Payments"), the Company shall pay to the Executive an additional amount (the "Gross-up") such that the portion of the Gross-up retained by the Executive, after deduction of any Excise Tax on the Gross-up and any Federal, state and local income taxes on the Gross-up, is sufficient to pay the Excise Tax imposed with respect to the Section 7 Payments. In addition, the Company shall indemnify and hold the Executive harmless on an after-tax basis from any Excise Tax imposed on or with respect to any such payment (including, without limitation, any interest, penalties and additions to tax payable in connection with any such Excise Tax). For purposes of determining the amount of any Gross-up or the amount required to make an indemnity payment on an after-tax basis, it shall be assumed that the Executive is subject to Federal, state and local income tax at the highest marginal statutory rates in effect for the relevant period after taking into account any deduction available in respect of any such tax (e.g., if state and local taxes are deductible for Federal income tax purposes in the relevant period, it shall be assumed that such taxes offset income that would otherwise be subject to Federal income tax at the highest marginal statutory rate in effect for such period) provided that the extent of any such deduction shall take into account, as determined by the accounting firm described in (b) below, any applicable limitation on itemized deductions imposed by federal law, calculated on the assumption that any such limitation applies proportionately to all itemized deductions on the Executive's federal tax return for the year in question. (b) Subject to the provisions of paragraph (c) of this Exhibit C, the determination of (i) whether a Gross-up is required and the amount of such Gross-up and (ii) the amount necessary to make any payment on an after-tax basis, shall be made in accordance with the assumptions set forth in paragraph (a) of this Exhibit C by a mutually agreed upon accounting firm, or, absent agreement, by whichever of Ernst & Young LLP or PricewaterhouseCoopers LLP is independent of the Company. (c) The Executive shall notify the Company as soon as practicable in writing of any claim by the Internal Revenue Service that, if successful, would require any additional Gross-up or indemnity payment beyond that initially calculated under (b) above. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall take all actions necessary to permit the Company to control all proceedings taken in connection with such contest. In that connection, the Company may, at its sole option, pursue or forgo any and all administrative appeals, proceedings, hearings and conferences in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner; provided, however, that the Company shall pay and indemnify the Executive from and against all costs and expenses incurred in connection with such contest; provided further, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the C-1 25 Executive on an interest-free basis and at no net after-tax cost to the Executive. If the Executive becomes entitled to receive any refund or credit with respect to such claim (or would be entitled to a refund or credit but for a counterclaim for taxes not indemnified hereunder), the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon) plus the amount of any tax benefit available to the Executive as a result of making such payment (any such benefit calculated based on the assumption that any deduction available to the Executive offsets income that would otherwise be taxed at the highest marginal statutory rates of Federal, state and local income tax for the relevant periods) provided that the extent of any such deduction shall take into account, as determined by the accounting firm described in (b) above, any applicable limitation on itemized deductions imposed by federal law, calculated on the assumption that any such limitation applies proportionately to all itemized deductions on the Executive's federal tax return for the year in question. C-2 26 EXHIBIT D STOCK OPTION AGREEMENT D-1 27 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT, dated as of February 9, 2001, between LODGIAN, INC., a Delaware corporation (the "Company"), and Thomas Arasi (the "Employee"). W I T N E S S E T H : WHEREAS, the Company desires to induce the Employee to enter into the Employment Agreement, by and between the Company and the Employee, dated as of February 9, 2001 (the "Employment Agreement") and to continue in the employ of the Company; WHEREAS, the Company desires to grant the Employee an option (the "Option") to acquire 2,000,000 shares of the Company's common stock (the "Shares") on the terms set forth in this agreement; NOW, THEREFORE, in consideration of the covenants set forth herein and for other good and valuable consideration, the parties agree as follows: 1. Definitions; Incorporation of Employment Agreement Provisions. This agreement is subject to the terms and conditions of the Employment Agreement and if there is any inconsistency between the terms of this agreement and the Employment Agreement, the Employment Agreement shall control. Capitalized terms used herein without definition shall have the same meanings used in the Employment Agreement. 2. Option Grant. Subject to and under the terms and conditions set forth in this Agreement, the Employee is hereby granted the Option to purchase from the Company 2,000,000 shares of the Company's common stock (the "Shares"). The exercise price per share will equal the lowest of (x) $1.50 per share, (y) fifty percent (50%) of the average of the closing prices of the Company's common stock as reported on the New York Stock Exchange ("NYSE") for the twenty (20) trading days following announcement of the Employee's employment by the Company, or (z) fifty percent (50%) of the average of the closing prices of the Company's common stock as reported on the NYSE for the twenty (20) trading days following an announcement (if any), prior to December 31, 2001, by (A) Edgecliff Holdings, LLC or any of its affiliates ("Edgecliff") that Edgecliff will not to pursue a transaction with the Company or (B) the Company that the Company will not to pursue a transaction with Edgecliff, provided, either such post-announcement period continues for at least twenty (20) days. 3. Vesting of Option. Subject to acceleration as set forth in the Employment Agreement, the Option shall vest with respect to 500,000 of the 2,000,000 Shares covered by the Option on the first anniversary of the date hereof, and with respect to an additional 500,000 shares on each of the next three anniversaries thereof. 4. Term and Expiration. The term of the Option will be ten (10) years. The Option shall remain exercisable for forty-two (42) months following the Employee's Date of Termination, except in the event of a Change of Control, in which event the Employee's Option 28 shall, at the Employee's election, be cashed-out or rolled-over at the price pursuant to the terms established by such Change of Control, unless the transaction is treated as a pooling transaction for accounting purposes 5. Exercise of Option and Payment of Purchase Price. At any time during the term of the Option, the Employee may exercise the Option to purchase all or any portion of the Shares with respect to which the Option is then vested. Any exercise of the Option shall be pursuant to (a) written notice to the Company accompanied by payment in full of the exercise price or (b) any other method of exercise from time to time permitted to be used by the Company in the administration of the Company's stock option plans. The exercise price may be paid (i) in cash or by check acceptable to the Company, (ii) by delivery (or attestation of ownership with such verification as the Company may reasonably request) to the Company of shares of the Company's common stock (excluding shares acquired from the Company less than six (6) months prior to such date pursuant to option exercises) having a market value on the date of such exercise equal to the exercise price, (iii) by use of a "cashless exercise" program through a broker designated for such purpose by the Company, (iv) through one or more loans (without interest) from the Company to the Employee, or (v) by a combination of the foregoing methods. Upon receipt of written notice of exercise and payment, the Company shall deliver to the Employee a certificate or certificates for such shares. It shall be a condition to the performance of the Company's obligation to issue or transfer common stock upon exercise of this Option that the Employee pay in addition to the exercise price, or make other provision satisfactory to the Company for the payment of (which may include a delivery of a lesser amount of shares of common stock and applying the remainder in satisfaction of legally required withholding taxes), any taxes which the Company is obligated to withhold or collect with respect to the issue or transfer of common stock upon such exercise. 6. Nontransferability of Option. The Option shall not be assignable or transferable by the Employee except by will or by the laws of descent and distribution, unless the prior written consent of the Board of Directors or compensation committee thereof is given. During the life of the Employee, the Option shall be exercisable by the Employee only. 7. Option not Incentive Stock Option. The Option is not intended to constitute an "incentive stock option", as that term is defined in section 422 of the Internal Revenue Code of 1986, as amended. 8. No Rights as Stockholder. Except as set forth in paragraph 4, the Employee shall have no rights as a stockholder with respect to any shares issuable upon exercise of the Option until the date a stock certificate is issued to the Employee for such shares. Except as otherwise expressly provided in this Agreement, no adjustment shall be made for cash dividends or rights for which the record date is prior to the date such stock certificate is issued. 9. Antidilution Adjustments. In the event of any recapitalization, reclassification, spin-off, partial liquidation, stock dividend, split-up, distribution to stockholders or combination of the capital stock of the Company or other change in the Company's capital structure, the number of Shares subject to the Option and the exercise price of the Option shall be 2 29 adjusted appropriately to prevent expansion or dilution of (i) the Employee's rights under the Option and (ii) the net value of the Option to Employee. 10. Regulatory Approvals. The Option shall be subject to the requirement that, if at any time the Board of Directors shall determine, in its discretion, that the listing, registration or qualification of the shares issuable upon exercise of the Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of the Option or the issue, transfer, or purchase of shares under the Option, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Company will use its best efforts to effect such listing, registration, qualification, consent, or approval and will incur all reasonable expenses related thereto. 11. Interpretation. The interpretation and decision with regard to any question arising under this Agreement or with respect to the Option shall be made pursuant to the dispute resolution provisions of Section 14(i) of the Employment Agreement. 12. Notices. All notices hereunder shall be sufficiently made if personally delivered to the Employee or sent by regular mail addressed (a) to the Employee at the Employee's address as set forth in the books and records of the Company or any subsidiary, or (b) to the Company or the Committee at the principal office of the Company clearly marked "Attention: Compensation Committee." 13. Successors. This Agreement shall be binding upon the Company and its successors and assigns. 3 30 IN WITNESS WHEREOF, this Agreement has been executed by the Company by one of its duly authorized officers as of the date specified above. LODGIAN, INC. By: ----------------------------------------- I hereby acknowledge receipt of the Option and agree to the provisions set forth in this Agreement. ----------------------------------------- Signature of Employee 4 EX-10.11 4 g67746ex10-11.txt SEPARATION AGREEMENT 1 EXHIBIT 10.11 SEPARATION AGREEMENT This Separation Agreement (the "Agreement") is made and entered into as of February 9, 2001, by and between Lodgian, Inc., a Delaware corporation with its principal offices located in Atlanta, Georgia (the "Company"), and Robert S. Cole, an individual resident of Georgia (the "Executive"). STATEMENT OF BACKGROUND INFORMATION A. Executive is employed as President and Chief Executive Officer and serves as a member of Company's Board of Directors, and Executive and Company are parties to an Employment Agreement dated as of December, 1998 (the "Employment Agreement"). B. Executive has, with Company's consent, resigned his position as President and Chief Executive Officer of Company, effective as of February 9, 2001 (the "Effective Date"). C. Company intends to retain Executive to perform certain services following the Effective Date under different terms of employment as set forth in this Agreement. D. Executive and Company desire to enter into this Agreement to settle fully and finally any differences that might arise under the Employment Agreement, Executive's employment and termination of employment with Company, and Executive's rendering of services to Company after the Effective Date. STATEMENT OF AGREEMENT In consideration of the mutual covenants and obligations set forth herein, the receipt and adequacy of which are expressly acknowledged, the parties to this Agreement, intending to be legally bound, hereby agree as follows: 1. Termination of Employment Agreement. (a) Termination Date. The Employment Agreement, and Executive's employment thereunder, shall terminate on the Effective Date. Executive shall continue to serve as a non-officer employee through March 2, 2001 (the "Employment Termination Date") and thereafter as a member of Company's Board of Directors and as a consultant providing transition assistance and strategic and financial advisory services to Company's Chief Executive Officer (the "Consulting Services"). (b) Severance Payment. Within ten (10) days following the Employment Termination Date, Company shall pay to Executive in immediately available funds the sum of $750,000, subject to applicable tax withholding requirements, in full settlement of all amounts due Executive by reason of the termination of the Employment Agreement (but excluding any amounts or benefits due under Company's benefit plans, including COBRA benefits and 401(k) plan benefits). 2. Consulting Arrangement. (a) Term of Engagement. Executive's Consulting Services to Company shall commence March 3, 2001, and shall continue until the first to occur of (i) Company's notification of Executive that Executive's Consulting Services are no longer 2 required by Company; (ii) Executive's death or incapacity; or (iii) March 31, 2002 (the "Consulting Period"). Throughout the Consulting Period, Executive shall be available in Atlanta, Georgia to perform the Consulting Services as Company may reasonably request, subject to reasonable advance notice. (b) Compensation for Consulting Services. As compensation in full for Executive's Consu lting Services, Company shall pay Executive in immediately available funds the sum of $750,000 on or before March 8, 2001 (the "Consulting Fee"). Employee shall be treated as an independent contractor for all purposes associated with the consulting arrangement contemplated by this Section 2, including employment and income tax purposes. Executive shall be reimbursed for any expenses, including travel costs, incurred at Company's request. (c) Office Facility. Company shall continue to provide through April 27, 2001, office space and administrative assistance to Executive at Company's principal office in Atlanta, Georgia at a level substantially equivalent to that provided immediately prior to the Effective Date, regardless of the duration of the Consulting Period. Thereafter, Executive shall be responsible for his own office and office expenses associated with the provision of the Consulting Services. (d) Director Compensation. Notwithstanding any provision of this Agreement, Executive will receive from Company the compensation and benefits accorded outside directors of Company for so long as Executive continues to serve as a director of Company. 3. Confidentiality and Non-Solicitation Covenants. Executive will comply with the provisions of Section 13 of the Employment Agreement (dealing with confidentiality and nondisclosure) in all respects as though the Employment Agreement terminated at the end of the Consulting Period, and Company shall continue to have all legal and equitable remedies available to it under the Employment Agreement to enforce Executive's compliance with such provisions. 4. Mutual Release. (a) Release of Company. Except for the obligations of Company under this Agreement and any benefits to which Executive is entitled under any employee benefit plan sponsored or maintained by Company, Executive, for himself, his successors, assigns, attorneys, and all those entitled to assert his rights, now and forever hereby releases and discharges Company and its respective officers, directors, stockholders, trustees, employees, agents, parent corporations, subsidiaries, affiliates, estates, successors, assigns and attorneys, (the "Released Parties") from any and all claims, actions, causes of action, sums of money due, suits, debts, liens, covenants, contracts, obligations, costs, expenses, damages, judgments, agreements, promises, demands, claims for attorney's fees and costs, or liabilities whatsoever, in law or in equity ("Claims"), which Executive ever had or now has against the Released Parties, including any Claims arising by reason of or in any way connected with any employment relationship or Employment Agreement which existed between Company, or any of its parents, subsidiaries, affiliates, or predecessors, and Executive. It is understood and agreed that this Agreement is intended to cover all Claims which may be traced either directly or indirectly to the aforesaid employment relationship, any change in Executive's position, title, or responsibility during that relationship, and the termination of that relationship, that Executive has, had, or purports to have, -2- 3 from the beginning of time to the present, whether known or unknown, that now exists, no matter how remotely they may be related to the aforesaid employment relationship, including, but not limited to, Claims for employment discrimination under federal or state law; Claims arising under Title VII of the Civil Rights Act, 42 U.S.C. ss. 2000(e), et seq., the Americans With Disabilities Act, 42 U.S.C. ss. 12101 et seq. or the Age Discrimination in Employment Act, 29 U.S.C. ss. 621, et seq.; Claims for statutory or common law wrongful discharge; Claims for attorney's fees, expenses and costs; Claims for defamation; Claims for intentional infliction of emotional distress; Claims for wages; and Claims for any contingent development fee obligations incurred by Company in connection with the Servico/Impac merger. (b) Release of Executive. Company, for itself, its successors, assigns, attorneys, and all those entitled to assert its rights, now and forever hereby releases and discharges Executive from any and all Claims which Company ever had or now has against Executive, including any Claims arising by reason of or in any way connected with Executive's employment relationship with Company, whether known or unknown. 5. Confidentiality and Non-Disparagement. Executive and Company covenant and warrant that they have not and will not disclose or publish, verbally, in writing or otherwise, to any person or entity the amount of consideration passing pursuant to this Agreement, or any other term or consideration passing pursuant to this Agreement. The parties specifically except from this limitation the following: as to Executive, his tax advisor(s), his immediate family, and the Internal Revenue Service; as to Company, its attorneys, accountants, directors, and only those employees determined to have a bona fide need to know the information, in Company's good faith determination, as well as any disclosures required by state or Federal law or stock exchange regulation, including but not limited to the Securities and Exchange Act of 1934 and New York Stock Exchange. Executive and Company further covenant and warrant that neither will make any statements or comments of a defamatory or disparaging nature to third parties, including Company's customers or potential employers of Executive, regarding Executive, Company or its directors, officers, personnel, or products. 6. Indemnification of Executive. Company shall not limit, restrict, rescind or otherwise modify its policies governing indemnification of Company's directors and officers in any manner that adversely affects Executive, and all indemnification obligations of Company to Executive, including those arising under the Employment Agreement and under the Amended and Restated Plan of Merger dated July 22, 1998 by and between Company, Servico, Inc., Impac Hotel Group, L.L.C. and the other parties thereto, shall survive in accordance with the terms in effect immediately prior to the Effective Date. 7. Legal Expenses. (a) Negotiation and Preparation. All reasonable costs and expenses, including fees and disbursements of counsel, incurred by Executive in the negotiation and preparation of this Agreement up to $10,000 shall be promptly paid on behalf of, or reimbursed to, Executive by Company. (b) Enforcement. If Executive incurs legal or other fees and expenses in an effort to secure, preserve or establish entitlement to compensation or benefits under this Agreement, Company shall reimburse Executive for such fees and expenses within ten (10) days after his request for reimbursement accompanied by evidence that the fees and expenses have -3- 4 been incurred. If Executive does not prevail (after exhaustion of all available judicial remedies) in respect of the claim asserted by Executive, and if Company establishes before a court of competent jurisdiction, by clear and convincing evidence, that Executive had no reasonable basis for such claim and acted in bad faith, no reimbursement of such fees and expenses incurred directly in respect of such claim shall be due Executive and Executive shall refund to Company any such amounts previously reimbursed with respect to such claim. 8. Entire Agreement. This Agreement embodies the entire agreement of the parties and supercedes any prior written or oral agreement between the parties, including, without limitation, the Employment Agreement. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. 9. Waiver. The waiver by Company of a breach of any provision of this Agreement by Executive shall not operate or be constituted as a waiver of any subsequent breach by him. The waiver by Executive of a breach of any provision of this Agreement by Company shall not operate or be construed as a waiver of any subsequent breach by Company. 10. Governing Law. This Agreement shall be subject to, and governed by, the internal laws of the State of Georgia, without regard to choice of law principles. 11. Assignability; Successors. The obligations of Executive may not be delegated and, Executive may not, without Company's written consent thereto, assign, transfer, convey, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any interest herein. Any such attempted delegation or disposition shall be null and void and without effect. Company and Executive agree that this Agreement and each of Company's rights and obligations hereunder shall be assumed by and binding upon any corporation or other business entity which succeeds to the assets or conducts the business of Company, whether directly or indirectly, by purchase, merger, consolidation or otherwise (a "Successor"). In the event that another corporation or other business entity becomes a Successor of Company, then the Successor shall, by an agreement in form and substance reasonably satisfactory to Executive, expressly assume and agree to perform this Agreement in the same manner and to the same extent as Company would be required to perform if there had been no Successor. 12. Construction and Enforcement. In construing and enforcing this Agreement, the following rules shall be followed: (a) Control of Drafting. Each provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against either party. No consideration shall be given to the fact or presumption that any party had a greater or lesser hand in drafting this Agreement. (b) Captions. In construing and enforcing this Agreement, no consideration shall be given to the captions of the articles, sections or subsections of this Agreement, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in its construction. (c) Including. The word "include" and its syntactical forms mean "include, but are not limited to," and corresponding syntactical forms. The principle of ejusdem generis -4- 5 shall not be used to limit the scope of the category of things illustrated by the items mentioned in a clause introduced by the word "including." (d) Definitions. A defined term has its defined meaning throughout this Agreement, regardless of where in this Agreement it is defined. (e) Internal Cross-References. Unless otherwise noted, reference to a Section means a section of this Agreement and may be understood to mean, for example, "Section 2 of this Agreement." The term Section is used variously to identify entire Sections (as in "Section 2," subsections (as in "Section 2(a)" and clauses (as in "Section 2(a)(i).") 13. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. 14. Time. Time is of the essence of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. LODGIAN, INC. By: --------------------------------------- Chairman Joseph C. Calabro --------------------------------------- Robert S. Cole -5- EX-21.1 5 g67746ex21-1.txt SUBSIDIARIES OF LODGIAN, INC. 1 EXHIBIT 21.1 LODGIAN, INC. AND ITS SUBSIDIARIES CORPORATION NAME 12801 NWF BEVERAGE, INC. 80 OPERATING COMPANY, INC. AMIOP ACQUISITION CORP. ALBANY HOTEL, INC. APICO HILLS INC. APICO INNS OF GREEN TREE, INC. APICO INNS OF PENNSYLVANIA, INC. APICO INNS OF PITTSBURGH, INC. APICO MANAGEMENT CORP. BRECKSVILLE HOSPITALITY, INC. BRUNSWICK MOTEL ENTERPRISES, INC. DEDHAM BEVERAGE MANAGEMENT CORP. DOTHAN HOSPITALITY 3053, INC. DOTHAN HOSPITALITY 3071, INC. EUROPEAN VENTURES, INC. FAYETTEVILLE MOTEL ENTERPRISES, INC. FORT LAUDERDALE MOTEL ASSOCIATES, INC. FOURTH STREET HOSPITALITY, INC. GADSDEN HOSPITALITY, INC. GREAT SOUTHERN MINING CO., INC. GROUPERS AND COMPANY SEAFOOD RESTAURANT HARRISBURG MOTEL ENTERPRISES, INC. HEARTLAND GARDEN GRILLE, INC. HILTON HEAD MOTEL ENTERPRISES, INC. IMPAC SPE #1, INC. IMPAC SPE #2, INC. IMPAC SPE #3, INC. IMPAC SPE #4, INC. IMPAC SPE #5, INC. IMPAC SPE #6, INC. ISLAND MOTEL ENTERPRISES, INC. KDS CORPORATION KINSER MOTEL ENTERPRISES, INC. LAFAYETTE BEVERAGE MANAGEMENT, INC. 2 LODGIAN, INC. AND ITS SUBSIDIARIES CORPORATION NAME LODGIAN ABILENE BEVERAGE CORP. LODGIAN AMI, INC. LODGIAN ANAHEIM, INC. LODGIAN AUSTIN BEVERAGE CORP. LODGIAN COCONUT GROVE, INC. LODGIAN DALLAS BEVERAGE CORP. LODGIAN FINANCING CORPORATION LODGIAN FLORIDA, INC. LODGIAN HOTELS, INC. LODGIAN MANAGEMENT CORP LODGIAN MARKET CENTER BEVERAGE CORP. LODGIAN MOUNT LAUREL LODGIAN ONTARIO, INC. LODGIAN RICHMOND SPE, INC. LODGIAN YORK MARKET STREET, INC. McKNIGHT MOTEL INC. MARKETING DESIGN FORCE, INC. MINNEAPOLIS MOTEL ENTERPRISES, INC. MOON AIRPORT MOTEL INC. MULLIGANS, INC. NEW ORLEANS AIRPORT MOTEL ENTERPRISES, INC. NH MOTEL ENTERPRISES, INC. PALM BEACH MOTEL ENTERPRISES, INC. PENMOCO, INC. POMPANO CLAIM SERVICE, INC. RALEIGH-DOWNTOWN ENTERPRISES, INC. RALEIGH MOTEL ENTERPRISES, INC. REPL, INC. ROYCE MANAGEMENT CORP OF GA SECOND FAYETTEVILLE MOTEL ENTERPRISES, INC. SECOND PALM BEACH MOTEL ENTERPRISES, INC. SERVICO ACQUISITION CORP. -2- 3 LODGIAN, INC. AND ITS SUBSIDIARIES CORPORATION NAME SERVICO AUSTIN, INC. SERVICO CEDAR RAPIDS, INC. SERVICO CHARLOTTESVILLE, INC. SERVICO COLESVILLE, INC. SERVICO COLUMBIA, INC. SERVICO COLUMBIA II, INC. SERVICO COLUMBUS, INC. SERVICO CONCORD, INC. SERVICO COUNCIL BLUFFS, INC. SERVICO EAST WASHINGTON, INC. SERVICO FLAGSTAFF, INC. SERVICO FORT WAYNE, INC. SERVICO FORT WAYNE II, INC. SERVICO FRISCO, INC. SERVICO FT. PIERCE, INC. SERVICO GRAND ISLAND, INC. SERVICO HILTON HEAD, INC. SERVICO HOSPITALITY, INC. SERVICO HOTELS I, INC. SERVICO HOTELS II, INC. SERVICO HOTELS III, INC. SERVICO HOTELS IV, INC. SERVICO HOUSTON, INC. SERVICO, INC. SERVICO JAMESTOWN, INC. SERVICO LANSING, INC. SERVICO LAWRENCE, INC. SERVICO LAWRENCE II, INC. SERVICO MANAGEMENT CORP. SERVICO MANAGEMENT CORPORATION (TEXAS) SERVICO MANHATTAN, INC. SERVICO MANHATTAN II, INC. SERVICO MARKET CENTER, INC. -3- 4 LODGIAN, INC. AND ITS SUBSIDIARIES CORPORATION NAME SERVICO MARYLAND, INC. SERVICO MELBOURNE, INC. SERVICO METAIRIE, INC. SERVICO NEW YORK, INC. SERVICO NIAGARA FALLS, INC. SERVICO NORTHWOODS, INC. SERVICO OMAHA, INC. SERVICO OMAHA CENTRAL, INC. SERVICO OPERATIONS CORPORATION SERVICO PENSACOLA, INC. SERVICO PENSACOLA 7200, INC. SERVICO PENSACOLA 7330, INC. SERVICO ROLLING MEADOWS, INC. SERVICO ROSEVILLE, INC. SERVICO SAGINAW, INC. SERVICO SILVER SPRING, INC. SERVICO SUMMERVILLE, INC. SERVICO TUCSON, INC. SERVICO WEST DES MOINES, INC. SERVICO WEST PALM BEACH, INC. SERVICO WICHITA, INC. SERVICO WINDSOR, INC. SERVICO WINTER HAVEN, INC. SERVICO WORCESTER, INC. SHARON MOTEL ENTERPRISES, INC. SHC OF DELAWARE, INC. SHG II SUB, INC. SHG III SUB, INC. SHG IV SUB, INC. SHG V SUB, INC. SHG VI SUB, INC. SHG VII SUB, INC. SHG VIII SUB, INC. SHEFFIELD MOTEL ENTERPRISES, INC. -4- 5 LODGIAN, INC. AND ITS SUBSIDIARIES CORPORATION NAME SIXTEEN HOTELS, INC. STEVENS CREEK HOSPITALITY, INC. WASHINGTON MOTEL ENTERPRISES, INC. WILPEN INC. W.V.B.M., INC. -5- 6 LODGIAN, INC. AND ITS SUBSIDIARIES LIMITED LIABILITY COMPANY NAME ATLANTA-HILLSBORO LODGING, L.L.C. ATLANTA-BOSTON HOLDINGS, L.L.C. ATLANTA-BOSTON LODGING, L.L.C. IMPAC DEVELOPMENT AND CONSTRUCTION, LLC. IMPAC HOLDINGS III, LLC IMPAC HOTEL GROUP, LLC IMPAC HOTEL MANAGEMENT, LLC IMPAC HOTELS I, LLC IMPAC HOTELS II, LLC IMPAC HOTELS III, LLC MACON HOTEL ASSOCIATES, LLC LODGIAN ACQUISITION, LLC. LODGIAN RICHMOND, LLC -6- 7 LODGIAN, INC. AND ITS SUBSIDIARIES PARTNERSHIP NAME 1075 HOSPITALITY, L.P. AMI OPERATING PARTNERS, L.P. BRECKSVILLE HOSPITALITY, L.P. COLUMBUS HOSPITALITY ASSOCIATES, L.P. DEDHAM LODGING ASSOCIATES I, L.P. EAST WASHINGTON ASSOCIATES, L.P. FORT WAYNE HOSPITALITY ASSOCIATES II, L.P. LAWRENCE HOSPITALITY ASSOCIATES, L.P. LITTLE ROCK LODGING ASSOCIATES I, L.P. MANHATTAN HOSPITALITY, L.P. MELBOURNE HOSPITALITY ASSOCIATES, L.P. NEW ORLEANS AIRPORT MOTEL ASSOCIATES, L.P. SAGINAW HOSPITALITY, L.P. SERVICO CENTRE ASSOCIATES LTD. SIOUX CITY HOSPITALITY, L.P. SOUTHFIELD HOTEL GROUP II, L.P. WORCHESTER HOSPITALITY ASSOCIATES, L.P. -7- -----END PRIVACY-ENHANCED MESSAGE-----