LODGIAN, INC.

-----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, Vpe7zzfHoA07vdjF20RDYExDG3tLR5fTzy4X1R5kvAoYPvqs3BPqrFdkJlOdsW35 bBA6OXlSO+B/ydSvFmVu3A== 0000950144-03-006972.txt : 20030515 0000950144-03-006972.hdr.sgml : 20030515 20030515163712 ACCESSION NUMBER: 0000950144-03-006972 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14537 FILM NUMBER: 03705363 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-Q 1 g82843e10vq.htm LODGIAN, INC. LODGIAN, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Period ended March 31, 2003

o 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 incorporation or organization)		(I.R.S. Employer Identification No.)

3445 Peachtree Road, N.E., Suite 700, Atlanta, GA		30326

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (404) 364-9400

(Former name, former address and former fiscal year, if changed since last report): Not applicable

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 o

Indicate by check mark whether the registrant is an accelerated filer as defined by section 12-b – 2 of the Act. Yes o No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.


Class		Outstanding as of May 9, 2003

Common		6,682,667

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II – OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Form of Sarbanes-Oxley Section 302 (a) Certification
Form of Sarbanes-Oxley Section 302 (a) Certification
INDEX TO EXHIBITS
EX-10.56 ORDER FOR IMPAC PLAN OF REORGANIZATION
EX-10.57 IMPAC PLAN OF REORGANIZATION
EX-10.58 DISCLOSURE STATEMENT FOR IMPAC PLAN
EX-99.1 SECTION 906 CETIFICATION OF THE CEO
EX-99.2 SECTION 906 CETIFICATION OF THE CFO

LODGIAN, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


		Page

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 (unaudited)		1
	Condensed Consolidated Statements of Operations for the Successor Three Months Ended March 31, 2003 and the Predecessor Three months Ended March 31, 2002 (unaudited)		2
	Condensed Consolidated Statement of Stockholders’ Equity for the Successor Three Months Ended March 31, 2003 (unaudited)		3
	Condensed Consolidated Statements of Cash Flows for the Successor Three Months Ended March 31, 2003 and the Predecessor Three Months Ended March 31, 2002 (unaudited)		4
	Notes to Condensed Consolidated Financial Statements (unaudited)		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures about Market Risk			22
Item 4. Controls and Procedures			22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			23
Item 2. Changes in Securities			23
Item 6. Exhibits and Reports on Form 8-K			24
Signatures			25
Certifications			26

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


				March 31, 2003			December 31, 2002

				(Unaudited in thousands,
				except per share data)
ASSETS
Current assets:
	Cash and cash equivalents			$	9,952		$	10,875
	Cash, restricted				11,797			19,384
	Accounts receivable (net of allowances: 2003 - $1,629; 2002 - $1,594)				12,549			10,681
	Inventories				6,586			7,197
	Prepaid expenses and other current assets				11,670			15,118

			Total current assets		52,554			63,255
Property and equipment, net					652,756			664,565
Deposits for capital expenditures					15,133			21,309
Other assets					13,257			13,535

				$	733,700		$	762,664

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Liabilities not subject to compromise
	Current liabilities:
		Accounts payable		$	13,703		$	12,380
		Other accrued liabilities			38,977			44,125
		Advance deposits			3,002			1,786
		Current portion of long-term debt			14,618			14,550

			Total current liabilities		70,300			72,841
Long-term debt					386,356			387,424
Liabilities subject to compromise					76,994			93,816

			Total liabilities		533,650			554,081
Minority interests					3,760			3,616
Commitments and contingencies
Mandatorily redeemable 12.25% cumulative preferred stock					130,286			126,510
Stockholders’ equity (deficit):
	Common stock, $.01 par value, 30,000,000 shares authorized; 7,000,000 issued and outstanding				70			70
	Additional paid-in capital				89,223			89,223
	Accumulated deficit				(23,696	)		(10,836	)
	Accumulated other comprehensive income				407			—

			Total stockholders’ equity		66,004			78,457

				$	733,700		$	762,664

See notes to condensed consolidated financial statements.

LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


			Three months ended

			March 31, 2003			March 31, 2002

			(Unaudited in thousands,
			except per share data)
			Successor			Predecessor
Revenues:
	Rooms		$	62,994		$	66,143
	Food and beverage			18,951			19,436
	Other			3,564			4,240

				85,509			89,819

Operating expenses:
	Direct:
		Rooms		18,639			18,496
		Food and beverage		13,734			14,493
		Other		2,530			2,735

				34,903			35,724

		Gross contribution		50,606			54,095
General, administrative and other				42,519			39,398
Depreciation and amortization				8,870			13,460

		Other operating expenses		51,389			52,858

				(783	)		1,237
Other income (expenses):
	Interest income and other			83			181
	Interest expense and other (contractual interest: $7.7 million and $16.5 million for the three months ended March 31, 2003 and 2002, respectively)			(6,937	)		(8,962	)

Loss before income taxes and reorganization items				(7,637	)		(7,544	)
Reorganization items				(1,237	)		(5,827	)

Loss before income taxes — continuing operations				(8,874	)		(13,371	)
Provision for income taxes — continuing operations				(76	)		(75	)

Loss — continuing operations				(8,950	)		(13,446	)

Discontinued operations:
	Loss from discontinued operations before income taxes			(134	)		(984	)
	Income tax provision			—			—

	Loss from discontinued operations after income taxes			(134	)		(984	)

Net loss				(9,084	)		(14,430	)
Preferred stock dividend				(3,776	)		—

Net loss attributable to common stock			$	(12,860	)	$	(14,430	)

Basic and diluted loss per common share:
Net loss attributable to common stock			$	(1.84	)	$	(0.51	)

Upon emergence from Chapter 11, the Company adopted fresh start reporting. As a result, all assets and liabilities were restated to reflect their fair values. The consolidated financial statements of the new reporting entity (the “Successor”) are not comparable to the reporting entity prior to the Company’s emergence from Chapter 11 (the “Predecessor”).

See notes to condensed consolidated financial statements.

LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


											ACCUMULATED
											OTHER
		COMMON STOCK				ADDITIONAL					COMPREHENSIVE		TOTAL
						PAID-IN		ACCUMULATED			LOSS		STOCKHOLDERS'
		SHARES		AMOUNT		CAPITAL		DEFICIT			(net of tax)		EQUITY

				(Unaudited in thousands, except share data)
Balance, December 31, 2002			7,000,000		70		89,223		(10,836	)		—		78,457
Comprehensive loss:
	Net loss		—		—		—		(9,084	)		—		(9,084	)
	Currency translation adjustments, net of tax of $ nil		—		—		—		—			407		407

Total comprehensive loss			—		—		—		—			—		(8,677	)
Preferred dividends accrued (not declared)			—		—		—		(3,776	)		—		(3,776	)

			7,000,000	$	70	$	89,223	$	(23,696	)	$	407	$	66,004

The comprehensive loss for the three months ended March 31, 2002 was $14.5 million.

See notes to condensed consolidated financial statements.

LODGIAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


				Three months ended

				March 31, 2003			March 31, 2002

				(Unaudited in thousands)
				Successor			Predecessor
Operating activities:
	Loss — continuing operations			$	(8,950	)	$	(13,446	)
	Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
		Depreciation and amortization			8,870			13,491
		Minority interests			148			473
		Write-off and amortization of deferred financing costs			652			—
		Other			342			98
		Net changes in operating assets and liabilities:
			Accounts receivable, net of allowances		(2,385	)		(3,054	)
			Inventories		41			(6	)
			Prepaid expenses, other assets and restricted cash		10,603			(3,379	)
			Accounts payable		185			7,698
			Other accrued liabilities		(3,881	)		6,152
			Advance deposits		1,276			918

Net cash provided by operating activities					6,901			8,945

Investing activities:
	Capital improvements				(10,309	)		(2,694	)
	Withdrawals (deposits) for capital expenditures				5,767			(1,243	)
	Other				(357	)		—

Net cash used in investing activities					(4,899	)		(3,937	)

Financing activities:
	Principal payments on long-term obligations				(2,396	)		(678	)
	Payments of deferred loan costs				(352	)		—

Net cash used in financing activities					(2,748	)		(678	)

Cash flows from discontinued operations:
Net cash provided by discontinued operations					(177	)		—

Net (decrease) increase in cash and cash equivalents					(923	)		4,330
Cash and cash equivalents at beginning of period					10,875			14,007

					9,952			18,337
Less: cash of discontinued operations					—			(173	)

Cash and cash equivalents at end of period				$	9,952		$	18,164

Supplemental cash flow information:
Cash paid during the period for:
	Interest, net of amount capitalized			$	6,432		$	6,162

	Income taxes, net of refunds			$	—		$	—

Supplemental disclosure of non-cash investing and financing activities:
	Preferred stock dividend accrued			$	3,776		$	—

	Net non-cash debt decrease			$	15,922		$	—

Operating cash payments resulting from Chapter 11 proceedings				$	1,050		$	2,853

See notes to condensed consolidated financial statements.

LODGIAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. General

The condensed consolidated financial statements include the accounts of Lodgian, Inc., its wholly-owned subsidiaries and four joint ventures in which Lodgian owns at least a 50% interest and exercises control (collectively “Lodgian” or the “Company”). Lodgian believes it has control of the joint ventures when the Company manages and has control of the joint ventures’ assets and operations. One unconsolidated entity (the “Unconsolidated Entity”) which owns one hotel is accounted for using the equity method of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accounting policies followed for quarterly financial reporting are the same as those disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2002.

As previously indicated in the Company’s Form 10-K for the year ended December 31, 2002, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code on December 20, 2001 in the Southern District of New York. The Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) on November 5, 2002, and on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease.

Of the Company’s 97 hotel portfolio, 18 hotels (the “Impac Hotels”) are owned by two subsidiaries (the “Impac Debtors”) which were not part of the Joint Plan of Reorganization and remain in Chapter 11. The Impac Hotels represent approximately 19% of the Company’s total hotel properties and 14% of the Company’s total hotel rooms as of May 12, 2003. The Impac Hotels contributed approximately 12% and 13% of the Successor revenues for the three months ended March 31, 2003 and the Predecessor revenues for the three months ended March 31, 2002, respectively. All of the Impac Hotels received financing prior to the bankruptcy filing from one lender which has a secured claim of $109.0 million against the Impac Debtors secured by the Impac Hotels. The Company and the Impac Debtors reached an agreement on October 21, 2002 (approved by the Bankruptcy Court on October 31, 2002) with such lender which provides for a release of the hotel collateral in exchange for the payment by the Impac Debtors of an agreed amount (the “Impac Settlement Amount”) by a date no later than May 31, 2003. If the agreed amount is not paid by May 31, 2003, the Impac Hotels will, consensually, be returned to the lender or disposed of at the secured lender’s direction. On April 24, 2003, the plan of reorganization for the Impac Debtors (the “Impac Plan of Reorganization”) was confirmed by the Bankruptcy Court pursuant to the terms of which the Company and the Impac Debtors, through 18 newly-formed subsidiaries, will obtain financing from Lehman Brothers Holdings Inc. (the “Lehman Financing”), which is to be used to pay the Impac Settlement Amount. Although there can be no assurance, the Company is hopeful that the Lehman Financing will be successfully completed on or before May 31, 2003 and, accordingly, that the Company will be able to retain the Impac Hotels.

The effects of the Joint Plan of Reorganization were recorded in accordance with the American Institute of Certified Public Accountant’s Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” effective November 22, 2002. SOP 90-7 required the application of Fresh Start Accounting. As a result, the Consolidated Financial Statements subsequent to the Company’s emergence from Chapter 11 are those of a new reporting entity (the “Successor”) and are not comparable with the financial statements of the Company prior to the effective date of the Joint Plan of Reorganization (the “Predecessor”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting primarily of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2003, the results of its operations for the three months ended March 31, 2003 (Successor) and 2002 (Predecessor) and its cash flows for the three months ended March 31, 2003 (Successor) and 2002 (Predecessor). The results for interim periods are not

necessarily indicative of the results for the entire year. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Form 10-K for the year ended December 31, 2002.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. Discontinued operations

Pursuant to the terms of the Joint Plan of Reorganization, eight wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease.

In accordance with Statement of Financial Standards (“SFAS”) No. 144, the results of operations of these hotels are reported separately as Discontinued Operations for the three months ended March 31, 2003 and 2002. There was no gain or loss on this transaction.

The following condensed table summarizes the assets and liabilities of these hotels at December 31, 2002:


					December 31, 2002

					(In thousands)
ASSETS
Current assets:
		Cash and cash equivalents			$	177
		Accounts receivable, net				517
		Inventories				570
		Prepaid expenses and other current assets				432

				Total current assets		1,696
Property and equipment, net						15,649
Deposits for capital expenditures						904
Other assets						20

					$	18,269

LIABILITIES
Liabilities not subject to compromise
	Current liabilities:
			Accounts payable		$	330
			Other accrued liabilities			1,267
			Advance deposits			60

			Total current liabilities			1,657
Long-term debt subject to compromise						15,922

			Total liabilities		$	17,579

The results of operations of these hotels at March 31, 2003 and 2002 were as follows:


			Three months ended

			March 31, 2003			March 31, 2002

			(Unaudited in thousands)
			Successor			Predecessor
Revenues:
	Rooms		$	153		$	3,642
	Food and beverage			16			1,095
	Other			—			184

				169			4,921

Operating expenses:
	Direct:
		Rooms		19			1,304
		Food and beverage		28			881
		Other		13			157

				60			2,342

		Gross contribution		109			2,579
General, administrative and other				243			2,759
Depreciation and amortization				—			804

		Other operating expenses		243			3,563

Loss before income taxes				(134	)		(984	)
Provision for income taxes				—			—

Net loss			$	(134	)	$	(984	)

3. Liabilities subject to compromise

Liabilities subject to compromise refers to known liabilities incurred prior to the commencement of the Chapter 11 cases, including those considered by the Bankruptcy Court to be pre-petition claims. These liabilities consist primarily of amounts outstanding under long-term debt and also include accounts payable. These amounts represent the Company’s estimate of known or potential claims to be resolved in the Chapter 11 cases. Such claims remain subject to future adjustments. Adjustments may result from (1) negotiations; (2) actions of the Bankruptcy Court; (3) further development with respect to disputed claims; (4) proofs of claim; or (5) other events.

The principal categories of claims classified as liabilities subject to compromise in the Chapter 11 Cases as of March 31, 2003 and December 31, 2002, are identified below (amounts in thousands):


	March 31, 2003		December 31, 2002

Long-term debt	$	74,599	$	91,421
Accounts payable		2,395		2,395

	$	76,994	$	93,816

4. Cash, restricted

Restricted cash as of March 31, 2003 consists of amounts reserved for letter of credit collateral, debt service, taxes, insurance and other lender-restricted cash balances.

5. Property and equipment, net

As previously disclosed, pursuant to the terms of the Joint Plan of Reorganization, eight wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease. As a result, property and equipment with a carrying value of $15.6 million were surrendered. The results of operations for the surrendered hotels are presented in these Condensed Consolidated Statement of Operations as Discontinued Operations.

6. Earnings per share

The following table sets forth the computation of basic and diluted earnings per share:


			Three months ended

			March 31, 2003			March 31, 2002

			(Unaudited in thousands, except
			per share data)
			Successor			Predecessor
Numerator:
	Loss — continuing operations		$	(8,950	)	$	(13,446	)
	Loss from discontinued operations			(134	)		(984	)

	Net loss			(9,084	)		(14,430	)
	Preferred stock dividend			(3,776	)		—

	Net loss attributable to common stock			(12,860	)		(14,430	)

	Loss — continuing operations			(8,950	)		(13,446	)
	Preferred stock dividend			(3,776	)		—

	Loss from continuing operations attributable to common stock before discontinued operations		$	(12,726	)	$	(13,446	)

Denominator:
		Denominator for basic and diluted loss per share — weighted-average shares		7,000			28,480

Basic and diluted loss per common share:
	Loss from continuing operations attributable to common stock before discontinued operations			(1.82	)		(0.47	)

	Loss — continuing operations			(1.28	)		(0.47	)
	Loss from discontinued operations			(0.02	)		(0.04	)

	Net loss			(1.30	)		(0.51	)

	Net loss attributable to common stock		$	(1.84	)	$	(0.51	)

The computation of diluted earnings per share for the Successor period ended March 31, 2003, as calculated above, did not include shares associated with the assumed conversion of the A and B warrants because their inclusion would have been antidilutive. The computation of diluted earnings per share for the Predecessor period ended March 31, 2002, 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.

7. Other accrued liabilities

At March 31, 2003 and December 31, 2002, other accrued liabilities consisted of the following:


	March 31, 2003		December 31, 2002

	(In thousands)
Salaries and related costs	$	15,822	$	17,293
Property and sales taxes		14,199		16,668
Provision for state income taxes		2,433		2,219
Franchise fee accrual		1,886		1,388
Accrued interest		1,376		1,524
Professional fees		538		807
Accrual for allowed claims		700		1,749
Other		2,023		2,477

	$	38,977	$	44,125

8. Long-term debt

On November 25, 2002, the effective date of the Joint Plan of Reorganization, loans approximating $83.5 million, secured by 20 hotel properties, were substantially reinstated on their original terms, except for the extension of certain maturities. The terms of one loan, in the amount of $2.5 million and secured by one hotel, were amended to provide for a new interest rate as well as a new maturity date.

In addition, the Company received exit financing of $309 million with and through Merrill Lynch Mortgage Lending, Inc. (“Merrill”), secured by 57 hotel properties. The exit financing was initially comprised of three separate components as follows:

• Senior debt of $224.0 million accruing interest at the rate of LIBOR plus 2.2442%, secured by, among other things, first mortgage liens on the fee simple and leasehold interests in 55 of the Company’s hotels;

• Mezzanine debt of $78.7 million accruing interest at the rate of LIBOR plus 9.00% secured by the equity interest in the subsidiaries of 56 hotels (the 55 which secure the Senior Debt and one additional hotel); and

• Canadian debt provided through Computershare Trust Company of Canada, a Canadian lender, of $10.0 million Canadian dollars (equated to approximately $6.3 million U.S. dollars at inception) maturing in December 2007 accruing interest at the rate of 7.879% (secured by a mortgage on the Windsor property).

In March 2003, as permitted by the terms of the Senior and Mezzanine debt agreements, Merrill exercised the right to “resize” the Senior and Mezzanine debt amounts, prior to the securitization of the mortgage loan. As a result, the principal amount of the Mortgage Loan was decreased from $223.5 million (initially $224.0 less $0.5 million of principal payments) to $218.1 million, and the initial principal amount of the Mezzanine Loan was increased from $78.7 million to $84.1 million. In connection with the resizing, the interest rates on the Senior and Mezzanine debts were also modified to LIBOR plus 2.36% and LIBOR plus 8.2546%, respectively.

The Senior and Mezzanine debts mature in November 2004. There are, however, three one-year options to renew which could extend the facility for an additional three years. The first option to extend the maturity date of the Senior and Mezzanine debts by one year (i.e. to November 2005) is available only if no events of default occur in respect of the payments of principal, interest and other required payments. The second and third extension terms are available only if no events of default (as defined by the agreement) exist and are subject to minimum Debt Service Coverage Ratio and Debt Yield requirements. Payments of principal and interest on all three portions of the facility are due monthly; however, the principal payments on the Senior and Mezzanine debts may be deferred during the first twelve months of the agreement.

The Senior and Mezzanine debt agreements provide that when either the Debt Yield (as defined) for the trailing 12-month period is below 12.75% during the first year of the loan ending November 2003

(13.25% during the second year) or the Debt Service Coverage Ratio (as defined) is below 1.20, excess cash flows (after payment of operating expenses, management fees, required reserves, principal and interest) produced by the 56 properties must be deposited in a special deposit account. These funds cannot be transferred to the parent company, but can be used for capital expenditures on these properties with lender’s approval, or for principal and interest payments. Funds placed into the special deposit account are released to the borrowers when the Debt Yield and the Debt Service Coverage Ratio are sustained above the minimum requirements for three consecutive months. As of March 31, 2003, the Debt Yield for the 56 properties was below the 12.75% threshold and, therefore, any excess cash produced by the 56 properties will be retained in the special deposit account until the Debt Yield increases above the minimum.

The Company through its wholly owned subsidiaries owes approximately $11.4 million under Industrial Revenue Bonds (“IRB’s”) issued on the Holiday Inn Lawrence, Kansas and Holiday Inn Manhattan, Kansas properties. The IRB’s require a minimum debt service coverage ratio (“DSCR”) (as defined). For the year ended December 31, 2002, the cash flows of the two properties were insufficient to meet the minimum DSCR requirements due in part to renovations that were being performed at the properties during 2002. The trustee of the IRB’s may give notice of default, at which time the Company could remedy the default by depositing with the trustee an amount currently estimated at less than $1 million. In the event a default is declared and not cured, the properties could be subject to foreclosure and the Company would be obligated pursuant to a partial guaranty in an amount not to exceed $1.4 million.

Substantially all of the Company’s property and equipment are pledged as collateral for long-term obligations. Certain of the mortgage notes are subject to a prepayment penalty if repaid prior to their maturity.

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 non-compliance with such agreements. In the past, management has cured most cases of non-compliance within the applicable cure periods and the events of non-compliance did not result in events of default under the respective loan agreements. However, in selected situations and based on economic evaluations, management may elect to not comply with the franchisor requirements. In such situations, the Company will either select an alternative franchisor or operate the property independent of any franchisor (See Note 10).

9. Income taxes

The Company recorded an income tax provision of $0.1 million for the three months ended March 31, 2003. The provision for the Predecessor period ended March 31, 2002 was also $0.1 million. Both related primarily to provisions for state income taxes.

10. Commitments and Contingencies

As of May 14, 2003, the Company had received termination notices from franchisors with respect to seven properties (this does not include two hotels for which the Company has met all of the requirements to “cure” but has not yet received the cure letter from the franchisor). Also, the Company was not in strict compliance with the terms of eleven other franchise agreements (this does not include four other hotels for which the Company has met all of the requirements to “cure” but has not yet received the cure letter from the franchisor). The Company has a capital improvement program to address the capital improvements required by the franchisors, the re-branding of several hotels and general renovation projects intended to ultimately improve the operations of the hotels. As of March 31, 2003, the anticipated expenditures for such projects during the two years ending December 2004 are approximately $61.6 million, with approximately $15.1 million escrowed for such improvements.

While it is the Company’s belief that it will cure any defaults under the franchise agreements before the applicable termination dates, there can be no assurance that it will be able to do so or be able to obtain additional time in which to cure any defaults. In the event of a franchise termination, management may seek to license the hotel with another nationally-recognized brand.

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.

As part of the Impac Plan of Reorganization, the Company has elected to reject its license agreement relating to its hotel in Cincinnati, Ohio and to cease operating this hotel as a Holiday Inn upon the effective date of the Impac Plan of Reorganization.

The Company is contingently liable with respect to three irrevocable letters of credit totaling $4.9 million issued as guarantees to Zurich American Insurance Company, Donlen Fleet Management Services and U.S. Food Services. The letters of credit expire in November 2003 but may require renewal beyond those dates.

The Company is self insured up to certain limits (deductibles) with respect to employee medical, employee dental, property insurance, general liability insurance, personal injury claims, workers’ compensation and auto liability. Should unanticipated events cause these claims to escalate beyond normal expectations, the Company’s financial condition and results of operations could be adversely affected.

The Company was a party in litigation with Hospitality Restoration and Builders, Inc. (“HRB”), a general contractor hired to perform work on six of the Company’s hotels. The litigation involved hotels in Texas (filed in the District Court of Harris County in October 1999), Illinois (in the United States District Court, Northern District of Illinois, Eastern Division in February 2000) and New York (filed in the Supreme Court, New York County in July 1999). In general, HRB claimed that the Company breached contracts to renovate the hotels by not paying for work performed. The Company contended that it was over-billed by HRB and that a significant portion of the completed work was defective. In July 2001, the parties agreed to settle the litigation pending in Texas and Illinois. In exchange for mutual dismissals and full releases, the Company paid HRB $750,000. With respect to the matter pending in the state of New York, HRB claimed that it was owed $10.7 million. The Company asserted a counterclaim of $7 million. In February 2003, the Company and HRB agreed to settle the litigation pending in the state of New York. In exchange for mutual dismissals and full releases, the Company agreed to pay HRB $625,000. The Company provided fully for this liability in its Consolidated Financial Statements for the year ended December 31, 2002.

The Company is 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. Certain of these claims are limited to the amounts available under the Company’s disputed claims reserve.

11. New Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”) which elaborates on the disclosures to be made by a guarantor in its financial statements. It also requires a guarantor to recognize a liability for the fair value of the obligation undertaken in issuing the guarantee at the inception of a guarantee. The disclosure requirements of FIN 45 were effective for the Company as of December 31, 2002. The recognition provisions of FIN 45 will be applied on a prospective basis to guarantees issued after December 31, 2002. The Company does not expect the requirements of FIN 45 to have a material impact on its financial position and results of operations.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 addresses consolidation by a business of variable interest entities in which it is the primary beneficiary. FIN 46 is effective immediately for certain disclosure requirements and variable interest entities created after January 31, 2003, and effective for periods beginning after June 15, 2003 for existing variable interest entities. At March 31, 2003, the Company had no variable interest entities and

therefore anticipates that the effects of adopting FIN 46 will not be material to its financial position and results of operations.

12. Related party transactions

Richard Cartoon, the Company’s Executive Vice President and Chief Financial Officer, is a principal in a business that the Company retained in October 2001 to provide Richard Cartoon’s services as Chief Financial Officer and other restructuring support and services. In addition to amounts paid for Richard Cartoon’s services, the Company was billed $52,000, including expenses, for other support and services provided by associates of Richard Cartoon, LLC for the three months ended March 31, 2003.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Chapter 11 proceedings

As previously discussed in the Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code on December 20, 2001. The Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) on November 5, 2002 and on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease.

Of the Company’s 97 hotel portfolio, 18 hotels (the “Impac Hotels”) are owned by two subsidiaries (the “Impac Debtors”) which were not part of the Joint Plan of Reorganization and remain in Chapter 11. The Impac Hotels represent approximately 19% of the Company’s total hotel properties and 14% of the Company’s total hotel rooms as of May 12, 2003. The Impac Hotels contributed approximately 12% and 13% of the Successor revenues for the three months ended March 31, 2003 and the Predecessor revenues for the three months ended March 31, 2002, respectively. All of the Impac Hotels received financing prior to the bankruptcy filing from one lender which has a secured claim of $109.0 million against the Impac Debtors secured by the Impac Hotels. The Company and the Impac Debtors reached an agreement on October 21, 2002 (approved by the Bankruptcy Court on October 31, 2002) with such lender which provides for a release of the hotel collateral in exchange for the payment by the Impac Debtors of an agreed amount (the “Impac Settlement Amount”) by a date no later than May 31, 2003. If the agreed amount is not paid by May 31, 2003, the Impac Hotels will, consensually, be returned to the lender or disposed of at the secured lender’s direction. On April 24, 2003, the plan of reorganization for the Impac Debtors (the “Impac Plan of Reorganization”) was confirmed by the Bankruptcy Court pursuant to the terms of which the Company and the Impac Debtors, through 18 newly-formed subsidiaries, will obtain financing from Lehman Brothers Holdings Inc. (the “Lehman Financing”), which is to be used to pay the Impac Settlement Amount. Although there can be no assurance, the Company is hopeful that the Lehman Financing will be successfully completed on or before May 31, 2003, and, accordingly, that the Company will be able to retain the Impac Hotels.

Forward-looking statements/risk factors

The following discussion should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and related notes thereto included elsewhere herein.

The discussion below and elsewhere in this Form 10-Q 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 management’s expectations with respect to the Chapter 11 filing, 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:

• Risks associated with the Company’s ability to maintain its existing franchise affiliations which could affect the Company’s revenue generating capabilities;

• The impact of potential litigation and/or governmental inquiries and investigation involving the Company;

• 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 to meet its obligations;

• The effectiveness of changes in management and the ability of the Company to retain qualified individuals to serve in senior management positions;

• The potential for additional impairment charges against earnings related to long-lived assets;

• Risks associated with reductions in hotel values which are dependent upon the successful operation of the hotels;

• Risks associated with increases in the cost of debt;

• Risks associated with the holders of the Company’s common stock exercising significant control over the Company and selling large blocks of shares;

• Risks as a result of the short time that the public market for the Company’s new securities has existed;

• Risks as a result of the Company not being able to meet the continuing listing requirements of the American Stock Exchange;

• Risks associated with self-insured claims escalating beyond expectations;

• Risks associated with the Company’s ability to finalize the Lehman financing by May 31, 2003;

• Risks associated with the Company’s short operating history since the effectiveness of its Joint Plan of Reorganization; and

• Risks associated with environmental, state and federal regulations.

Many of these factors are not within the Company’s control and readers are cautioned not to put undue reliance on these forward looking statements.

General Overview

Management believes that results of operations in the hotel industry are best explained by three key performance measures: occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”) levels. 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. RevPAR is derived by dividing room revenues by the number of available room nights for a given period or, alternatively, by multiplying the occupancy by the ADR.

The following table shows room data, occupancy, average daily rate and RevPAR by category of hotel for the quarter ended March 31, 2003 and 2002 (shown for those hotels owned and managed as of March 31, 2003):


		Quarter ended			Quarter ended
		March 31, 2003			March 31, 2002

Upper Upscale
	Number of properties		4			4
	Number of rooms		825			825
	Occupancy		61.5	%		60.7	%
	Average daily rate	$	92.50		$	94.57
	RevPAR	$	56.90		$	57.38
Upscale
	Number of properties		18			18
	Number of rooms		3,156			3,156
	Occupancy		66.0	%		66.1	%
	Average daily rate	$	86.41		$	87.52
	RevPAR	$	57.06		$	57.81
Midscale with Food and Beverage*
	Number of properties		60			60
	Number of rooms		11,895			11,895
	Occupancy		50.9	%		52.9	%
	Average daily rate	$	68.39		$	68.36
	RevPAR	$	34.82		$	36.17
Midscale without Food and Beverage
	Number of properties		8			10
	Number of rooms		1,047			1,282
	Occupancy		44.9	%		57.4	%
	Average daily rate	$	58.45		$	56.67
	RevPAR	$	26.25		$	32.51
Independent Hotels
	Number of properties		7			5
	Number of rooms		1,342			1,107
	Occupancy		38.8	%		41.6	%
	Average daily rate	$	73.40		$	89.30
	RevPAR	$	28.45		$	37.15
All Hotels
	Number of properties		97			97
	Number of rooms		18,265			18,265
	Occupancy		52.8	%		55.2	%
	Average daily rate	$	73.34		$	73.74
	RevPAR	$	38.70		$	40.67

In accordance with the Smith Travel Research Chain Scales, the segments include the following brands:

     Upper Upscale: Hilton and Marriott

     Upscale: Courtyard by Marriott, Crowne Plaza, Radisson and Residence Inn

     Midscale with Food and Beverage: Clarion, Doubletree Club, Four Points, Holiday Inn, Holiday Inn Select, Holiday Inn SunSpree Resort and Quality Inn

     Midscale without Food and Beverage: Fairfield Inn, Hampton Inn and Holiday Inn Express

*Includes one hotel in Cincinnati, Ohio which the Company has elected to cease operating as a Holiday Inn upon the effective date of the Impac Plan of Reorganization.

The following table shows room data, occupancy, average daily rate and RevPAR by geographic region for the quarter ended March 31, 2003 and 2002 (shown for those hotels owned and managed as of March 31, 2003):


		Quarter ended			Quarter ended
		March 31, 2003			March 31, 2002

Northeast Region
	Number of properties		37			37
	Number of rooms		7,011			7,011
	Occupancy		51.1	%		51.4	%
	Average daily rate	$	75.94		$	74.62
	RevPAR	$	38.80		$	38.34
Southeast Region
	Number of properties		34			34
	Number of rooms		5,794			5,794
	Occupancy		53.7	%		56.8	%
	Average daily rate	$	67.31		$	69.74
	RevPAR	$	36.16		$	39.62
Midwest Region
	Number of properties		19			19
	Number of rooms		4,141			4,141
	Occupancy		49.6	%		53.5	%
	Average daily rate	$	70.89		$	70.70
	RevPAR	$	35.14		$	37.86
West Region
	Number of properties		7			7
	Number of rooms		1,319			1,319
	Occupancy		67.4	%		73.0	%
	Average daily rate	$	89.67		$	91.08
	RevPAR	$	60.45		$	66.47
All Hotels
	Number of properties		97			97
	Number of rooms		18,265			18,265
	Occupancy		52.8	%		55.2	%
	Average daily rate	$	73.34		$	73.74
	RevPAR	$	38.70		$	40.67

The regions are defined as follows:

     Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York, Ohio, Pennsylvania, Vermont, West Virginia

     Southeast: Alabama, Florida, Georgia, Kentucky, Louisiana, South Carolina, Tennessee

     Midwest: Arkansas, Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Oklahoma, Texas

     West: Arizona, California, Colorado, New Mexico

Revenues. Revenues are comprised of room, 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, hotel catering and meeting room rentals. Other revenues include charges for guests’ long-distance telephone service, laundry and parking.

Operating Expenses. Operating expenses are comprised of direct, general and administrative, other 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 variable with available rooms and occupancy rates, but also have a small fixed component, which can be leveraged with increases in revenues. General, administrative and other expenses primarily represent property level expenses related to general operations such as marketing, utilities, repairs and maintenance and other property administrative costs. General, administrative and other expenses also include corporate overheads (such as accounting services, legal and professional fees, information technology and executive

management) which are generally fixed. Also included in general, administrative and other expenses for the three months ended March 31, 2003 are expenses relating to the reorganization proceedings for the hotels that have emerged from Chapter 11.

Results of Operations

The discussion of results of operations, income taxes, liquidity and capital resources that follows is derived from the Company’s unaudited Condensed Consolidated Financial Statements set forth in “Item I. Financial Statements” included in this Form 10-Q and should be read in conjunction with such financial statements and notes thereto.

Three Months Ended March 31, 2003 (“First Quarter 2003”) Compared to the Three Months Ended March 31, 2002 (“First Quarter 2002”)

Revenues

At March 31, 2003, the Company owned 96 hotels and had a minority interest in one hotel. At March 31, 2002, the Company owned 105 hotels and had a minority interest in one hotel. The reduction in hotels is a result of the return of eight hotels to the lender and one hotel to the lessor of a capital lease. The revenues and operating expenses for the nine disposed properties are reported as Discontinued Operations in the Condensed Consolidated Statement of Operations.

Revenues for the Company were $85.5 million for the First Quarter 2003, a 4.8% decrease from revenues of $89.8 million for the First Quarter 2002. RevPAR for hotels owned at the end of the First Quarter 2003 declined 4.8% from the First Quarter 2002 primarily due to a reduction in occupancy (occupancy declined by 4.3%). Revenues and RevPAR for the First Quarter 2003 were adversely impacted by business declines related to the conflict in Iraq and a continuing soft U.S. economy.

Operating Expenses

Direct operating expenses for the Company were $34.9 million (40.8% of direct revenues) for the First Quarter 2003 and $35.7 million (39.8% of direct revenues) for the First Quarter 2002. The $0.8 million decrease is primarily due to the reduction in revenues.

General, administrative and other expenses were $42.5 million (49.7% of direct revenues) for the First Quarter 2003 and $39.4 million (43.9% of direct revenues) for the First Quarter 2002. Of the $3.1 million increase, $2.2 million is due to post-emergence expenses related to the Chapter 11 filing for the 78 hotels that emerged from Chapter 11 in November 2002 and the nine properties that were disposed of in early January 2003. These expenses include legal and professional fees related to the claims reconciliation process as well as fees payable to the United States Trustee of the Department of Justice, which are required as part of the reorganization process. These expenses were reported as reorganization items for the First Quarter 2002. General, administrative and other expenses were also higher for the First Quarter 2003 due to higher utility and insurance costs.

Depreciation and amortization expense was $8.9 million in the First Quarter 2003 and $13.5 million in the First Quarter 2002. The $4.6 million decrease is a result of the write-down of fixed assets recorded on the implementation of fresh start reporting on November 22, 2002.

Other Income and Expenses

Interest expense and other was $6.9 million in the First Quarter 2003 and $9.0 million in the First Quarter 2002. This decrease is primarily attributable to a reduction in the cost of debt. Average LIBOR was 1.40% and 1.89% for the First Quarter 2003 and 2002, respectively. Also, the interest spread on the Company’s variable rate debt in the First Quarter 2003 was approximately 2% less than it was for the First Quarter 2002. In addition, as previously reported in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2002, where the estimated value of the underlying collateral in respect of certain debt was considered to be less than the debt obligation, the Company ceased accruing interest on those debts. Contractual interest expense in respect of these debts that was not recorded

approximated $0.9 million for the First Quarter of 2003 and approximated $7.9 million for the First Quarter of 2002.

Reorganization items were $1.2 million for the First Quarter of 2003 compared to $5.8 million for the First Quarter of 2002. For the First Quarter of 2003, reorganization items included only those Chapter 11 legal and professional costs directly attributable to the Impac Debtors, as well as extension fees paid to the secured lender of the Impac Debtors pursuant to the settlement agreement. For the First Quarter 2002, the Company recorded all costs incurred as a result of the Chapter 11 filing (mainly legal and professional fees) as reorganization items.

Discontinued Operations

Pursuant to the terms of the Joint Plan of Reorganization, on January 3, 2003, eight wholly-owned hotels were returned to the lender in satisfaction of outstanding debt obligations, and on January 15, 2003, one hotel (also wholly-owned) was returned to the lessor of a capital lease. The First Quarter 2003 loss from discontinued operations was $0.1 million, a decrease of $0.9 million from the First Quarter 2002 loss of $1.0 million. The reduced loss is due to the disposition of the properties early in the First Quarter 2003.

Income Taxes

As of December 31, 2002, Lodgian had net operating loss carry-forwards of approximately $206 million for federal income tax purposes, which expire in 2004 through 2021. Under the Joint Plan of Reorganization, substantial amounts of net operating losses were utilized to offset income from debt cancellations. The Company’s ability to use the remaining net operating loss carry-forwards to offset future income is subject to limitations which could increase over time. Due to these limitations, a portion or all of these net operating loss carry-forwards could expire unused. In addition, the Company recorded an income tax provision of $0.1 million for the First Quarter 2003, which related primarily to provisions for state income taxes.

Liquidity and Capital Resources

Lodgian utilizes its cash flows for operating expenses, capital expenditures and debt service. Currently, the Company’s principal sources of liquidity consist of existing cash balances and cash flow from operations.

As more fully discussed above, the Bankruptcy Court confirmed the Company’s Joint Plan of Reorganization on November 5, 2002 and on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11.

Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease. As a result of the surrender of these nine hotels, property and equipment with a carrying value of $15.6 million was surrendered and long-term debt approximating $15.9 million was extinguished. The results of operations for these nine hotels have been presented as Discontinued Operations in the Condensed Consolidated Statements of Operations. For the First Quarter 2002, these nine hotels contributed management fees of approximately $0.2 million (negligible for the First Quarter 2003) towards the Company’s corporate overheads.

Eighteen hotels owned by two wholly-owned subsidiaries of the Company were not part of the Joint Plan of Reorganization. However, on April 24, 2003, the plan of reorganization for these two subsidiaries was confirmed by the Bankruptcy Court pursuant to the terms of which the Company and the Impac Debtors, through 18 newly-formed subsidiaries, will obtain financing from Lehman Brothers Holdings Inc.. The Impac Plan will become effective on the finalization of the Lehman Financing, which will be utilized primarily to repay the claim of the secured lender of these subsidiaries. If the Lehman Financing is not finalized by May 31, 2003, the eighteen hotels will, consensually, be returned to the secured lender or disposed of at the secured lender’s direction.

The Impac Hotels represent approximately 19% of the Company’s total hotel properties and 14% of the Company’s total hotel rooms as of May 12, 2003. The Impac Hotels contributed approximately 12% and 13% of the Successor revenues for the three months ended March 31, 2003 and the Predecessor

revenues for the three months ended March 31, 2002, respectively. In addition, these eighteen hotels contributed management fees of approximately $0.3 million towards corporate overheads for the First Quarter 2003 (approximately the same amount for the First Quarter 2002). Although there can be no assurance, the Company is hopeful that the Lehman Financing will be successfully completed and, accordingly, that the Company will be able to retain the Impac Hotels.

As more fully discussed in Note 8 in the Notes to the Condensed Consolidated Financial Statements, on November 25, 2002, the effective date of the Joint Plan of Reorganization, loans approximating $83.5 million, secured by 20 hotel properties, were substantially reinstated on their original terms, except for the extension of certain maturities. The terms of one loan, in the amount of $2.5 million and secured by one hotel, were amended to provide for a new interest rate as well as a new maturity date.

In addition, the Company received exit financing of $309 million arranged with and through Merrill Lynch Mortgage Lending, Inc (“Merrill”), secured by 57 hotel properties. The agreement relating to the Senior and Mezzanine portion of the exit financing which together approximated $302.7 million at origination ($302.2 million at March 31, 2003) provides that when either the Debt Yield (as defined) for the trailing 12-month period is below 12.75% during the first year of the loan ending November 2003 (13.25% during the second year) or the Debt Service Coverage Ratio (as defined) is below 1.20, excess cash flows (after payment of operating expenses, management fees, required reserves, principal and interest) produced by the 56 properties must be deposited in a special deposit account. These funds cannot be transferred to the parent company, but can be used for capital expenditures on these properties with lender’s approval, or for principal and interest payments. Funds placed into the special deposit account are released to the borrowers when the Debt Yield and the Debt Service Coverage Ratio are sustained above the minimum requirements for three consecutive months. As of March 31, 2003, the Debt Yield for the 56 properties was below the 12.75% threshold and, therefore, any excess cash produced by the 56 properties will be retained in the special deposit account until the Debt Yield increases above the minimum.

The Company through its wholly owned subsidiaries owes approximately $11.4 million under Industrial Revenue Bonds (“IRB’s”) issued on the Holiday Inn Lawrence, Kansas and Holiday Inn Manhattan, Kansas properties. The IRB’s require a minimum debt service coverage ratio (“DSCR”) (as defined). For the year ended December 31, 2002, the cash flows of the two properties were insufficient to meet the minimum DSCR requirements due in part to renovations that were being performed at the properties during 2002. The trustee of the IRB’s may give notice of default at which time the Company could remedy the default by depositing with the trustee an amount currently estimated at less than $1 million. In the event a default is declared and not cured, the properties could be subject to foreclosure and the Company would be obligated pursuant to a partial guaranty in an amount not to exceed $1.4 million. The total revenues for these two hotels approximated $1.7 million and $1.5 million for the First Quarter 2003 and 2002, respectively. The total approximate contribution to corporate overheads, from management fees, approximated $69,000 and $60,000 for the First Quarter 2003 and 2002, respectively.

The Company’s ability to make scheduled principal payments, to pay interest, or to refinance its indebtedness depends on its future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the hotel and vacation industry and to the general economic, political, financial, competitive, legislative and regulatory environment. These factors, including the severity and duration of the current economic downturn, are beyond the Company’s control.

The terms of the Company’s franchise agreements require each hotel to meet certain quality and guest satisfaction standards. In addition, as part of the reorganization process, the Company entered into stipulations with each of its major franchisors setting forth a timeline as to completion of certain capital expenditures. As of May 14, 2003, the Company had received termination notices from franchisors with respect to seven properties (this does not include two hotels for which the Company has met all of the requirements to “cure” but has not yet received the cure letter from the franchisor). Also, the Company

was not in strict compliance with the terms of eleven other franchise agreements (this does not include four other hotels for which the Company has met all of the requirements to “cure” but has not yet received the cure letter from the franchisor).

The Company has a capital improvement program to address the capital improvements required by the franchisors, the re-branding of several hotels and general renovation projects intended to ultimately improve the operations of the hotels. As of March 31, 2003, the anticipated expenditures for such projects during the two years ending December 2004 are approximately $61.6 million, with approximately $15.1 million escrowed for such improvements. The Company expects to fund its capital expenditures from a combination of amounts escrowed for such expenditures, its current cash position and cash from operations.

The Company intends to use its cash for ongoing operations, debt service and capital expenditures and does not anticipate paying dividends on the new common stock in the near future. The dividends on the preferred stock due November 25, 2003 will be paid via the issuance of additional shares of preferred stock. For the First Quarter 2003, the Company accrued $3.8 million of the total preferred stock dividends due November 25, 2003. Net cash provided by operating activities for the First Quarter 2003 totaled $6.9 million compared to net cash provided by operating activities of $8.9 million for the First Quarter 2002.

Until the claims distribution process is complete and the remaining entities exit Chapter 11, the Company will continue to make payments in respect of cash claims, professional costs relating to the entities in Chapter 11 and professional fees relating to the distribution of shares.

For the First Quarter 2003, cash flows used in investing activities approximated $4.9 million compared to $3.9 million for the First Quarter 2002. Investing activities for both quarters consisted primarily of capital expenditures on the Company’s properties ($10.3 million and $2.7 million for the First Quarter 2003 and 2002, respectively). The investment in capital expenditure for the First Quarter 2003 was offset by net withdrawals from capital expenditure escrows of $5.8 million while the investing activities for the First Quarter 2002 were increased by net additions to capital expenditure escrows of $1.2 million. Other investing activities for the First Quarter 2003 ($0.4 million) consisted of other deposits and payments of franchise application fees net of refunds.

Cash flows used in financing activities were $2.7 million for the First Quarter 2003 and $0.7 million for the First Quarter 2002. Financing activities for both quarters consisted primarily of payment of long term obligations ($2.4 million and $0.7 million for the First Quarter 2003 and 2002, respectively). For the First Quarter 2003, investing activities also included $0.4 million representing payments of deferred loan fees.

At March 31, 2003, the Company had a working capital deficit of $17.7 million compared with $9.6 million at December 31, 2002.

There can be no assurance that the Company will have sufficient liquidity to be able to meet its capital expenditure or other requirements, and the Company could lose the right to operate certain hotels under nationally recognized brand names. Furthermore, the termination of one or more franchise agreements could trigger a default under certain loan agreements as well as obligations to pay liquidated damages under the franchise agreements. However, management believes that the combination of its current cash position, cash flows from operations, capital expenditure escrows and opportunistic asset sales will be sufficient to meet its liquidity needs. Any projections of future financial needs and sources of working capital are subject to uncertainty. See “Results of Operations” and “Forward-Looking Statements” for further discussion of conditions that could adversely affect management’s estimates of future financial needs and sources of working capital.

Inflation

The Company cannot determine the precise impact of inflation. However, the Company believes that the rate of inflation has not had a material effect on its revenues or expenses in recent years. It is difficult to predict whether inflation will have a material effect on the Company’s results in the long-term.

Changes in Accounting Standards

See Note 11 in the Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q for a discussion of changes in accounting standards.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The accounting policies followed for quarterly reporting are the same as those disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2002. The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from these estimates. The Company believes the following to be its critical accounting policies:

Capitalization and depreciable lives of assets

Capital improvements are capitalized when they extend the useful lives of the related asset. Management estimates the depreciable lives of the Company’s fixed assets. All items considered to be repair and maintenance items are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets (buildings and improvements 10-40 years; furnishings and equipment 3-10 years). 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.

Revenue recognition

Revenues are recognized when the services are rendered. Revenues are comprised 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, hotel catering and meeting room rentals. Other revenues include charges for guests’ long-distance telephone service, laundry and parking.

Asset impairment evaluation

Under GAAP, real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. As required by GAAP, the Company periodically evaluates its real estate assets to determine if there has been any impairment in carrying value and records impairment losses if there are indicators of impairment and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In connection with the Company’s emergence from Chapter 11, and the application of fresh start reporting, the Company recorded a net write-down of $222.1 million.

Income taxes

The Company accounts for income taxes under Statement of Financial Accounting Standards (“SFAS”) 109 “Accounting for Income Taxes,” which requires the use of the liability method of accounting for deferred income taxes. As a result of the Company’s history of losses, the Company has provided a full valuation allowance against its deferred tax asset as it is more likely than not that the deferred tax asset will not be realized.

Liabilities subject to compromise

The list of critical accounting policies above is not intended to be a comprehensive list of all of the Company’s accounting policies. In many cases, the treatment of a particular transaction is specifically determined by generally accepted accounting principles with no need for management’s judgment in selecting from alternatives which would provide different results.

ITEM 3. 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. There have been no meaningful changes in the Company’s market risk sensitive instruments since the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

a) Within the 90 days of the filing date of this report, certain of the Company’s management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 and Rule 15d – 14. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic reports to the Securities and Exchange Commission.

b) There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As previously indicated in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, the Company and substantially all of its subsidiaries which owned hotel properties filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code on December 20, 2001 in the United States Bankruptcy Court for the Southern District of New York. The Bankruptcy Court confirmed the Company’s First Amended Joint Plan of Reorganization (the “Joint Plan of Reorganization”) on November 5, 2002 and on November 25, 2002, the Company and entities owning 78 hotels officially emerged from Chapter 11. Pursuant to the terms of the Joint Plan of Reorganization, eight other wholly-owned hotels were returned to the lender in early January 2003 in satisfaction of outstanding debt obligations and one hotel (also wholly-owned) was returned to the lessor of a capital lease.

Of the Company’s 97 hotel portfolio, 18 hotels (the “Impac Hotels”) are owned by two subsidiaries (the “Impac Debtors”) which were not part of the Joint Plan of Reorganization and remain in Chapter 11. The Impac Hotels represent approximately 19% of the Company’s total hotel properties and 14% of the Company’s total hotel rooms as of May 12, 2003. The Impac Hotels contributed approximately 12% and 13% of the Successor revenues for the three months ended March 31, 2003 and the Predecessor revenues for the three months ended March 31, 2002, respectively. All of the Impac Hotels received financing prior to the bankruptcy filing from one lender which has a secured claim of $109.0 million against the Impac Debtors secured by the Impac Hotels. The Company and the Impac Debtors reached an agreement on October 21, 2002 (approved by the Bankruptcy Court on October 31, 2002) with such lender which provides for a release of the hotel collateral in exchange for the payment by the Impac Debtors of an agreed amount (the “Impac Settlement Amount”) by a date no later than May 31, 2003. If the agreed amount is not paid by May 31, 2003, the Impac Hotels will, consensually, be returned to the lender or disposed of at the secured lender’s direction. On April 24, 2003, the plan of reorganization for the Impac Debtors (the “Impac Plan of Reorganization”) was confirmed by the Bankruptcy Court pursuant to the terms of which the Company and the Impac Debtors, through 18 newly-formed subsidiaries, will obtain financing from Lehman Brothers Holdings Inc. (the “Lehman Financing”), which is to be used to pay the Impac Settlement Amount. Although there can be no assurance, the Company is hopeful that the Lehman Financing will be successfully completed on or before May 31, 2003, and, accordingly, that the Company will be able to retain the Impac Hotels.

ITEM 2. CHANGES IN SECURITIES

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

A list of the exhibits required to be filed as part of this Report on Form 10-Q, is set forth in the “Exhibit Index” which immediately precedes such exhibits, and is incorporated herein by reference.

(b) Reports on Form 8-K

A report on Form 8-K was filed on January 28, 2003 relating to a press release, announcing that Lodgian, Inc.’s new common and preferred stocks had been approved for listing on the American Stock Exchange.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	LODGIAN, INC.

Date: May 15, 2003	By:	/s/ DAVID E. HAWTHORNE

		DAVID E. HAWTHORNE President and Chief Executive Officer

Date: May 15, 2003	By:	/s/ RICHARD CARTOON

		RICHARD CARTOON Executive Vice President and Chief Financial Officer

Form of Sarbanes-Oxley Section 302 (a) Certification

I, David Hawthorne, certify that:

1) I have read this quarterly report on Form 10-Q of Lodgian, Inc;

2) based on my knowledge, this quarterly report does not contain any untrue statement of a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3) based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of the issuer as of, and for, the periods presented in this quarterly report;

4) the registrant’s other certifying officers and I:

a) are responsible for establishing and maintaining disclosure controls and procedures (as defined by Exchange Act Rules 13a – 14 and 15d – 14) of the registrant

b) have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which the quarterly report is being prepared

c) have evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

d) have presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date

5) the registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and to the audit committee of the board of directors:

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6) the registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: May 15, 2003	By:	/s/ DAVID E. HAWTHORNE

		DAVID E. HAWTHORNE President and Chief Executive Officer

Form of Sarbanes-Oxley Section 302 (a) Certification

I, Richard Cartoon, certify that:

5) the registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and to the audit committee of the board of directors:


Date: May 15, 2003	By:	/s/ RICHARD CARTOON

		RICHARD CARTOON Executive Vice President and Chief Financial Officer

INDEX TO EXHIBITS


EXHIBIT
NO.		DESCRIPTION

10.56	—	Post Confirmation Order and Notice for Joint Plan of Reorganization of Impac Hotels II, L.L.C., and Impac hotels III, L.L.C Together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
10.57	—	Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. Together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
10.58	—	Disclosure Statement for Joint Plan of Reorganization of Impac Hotels II, L.L.C. and Impac Hotels III, L.LC, Together with the Official Committee of Unsecured Creditors Under Chapter 11 of the Bankruptcy Code.
99.1	—	Sarbanes – Oxley Section 906 certification by the CEO
99.2	—	Sarbanes – Oxley Section 906 certification by the CFO

28 EX-10.56 3 g82843exv10w56.txt EX-10.56 ORDER FOR IMPAC PLAN OF REORGANIZATION EXHIBIT 10.56 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - --------------------------------x Chapter 11 In re: : Case No. 01-16345 (BRL) LODGIAN, INC., et al., : Jointly Administered Debtors. : - --------------------------------x POST CONFIRMATION ORDER AND NOTICE FOR JOINT PLAN OF REORGANIZATION OF IMPAC HOTELS II, L.L.C. AND IMPAC HOTELS III, L.L.C., TOGETHER WITH THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE WHEREAS, an order confirming the Joint Plan Of Reorganization Of Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. (collectively, the "Impac Debtors"),1 Together With The Official Committee Of Unsecured Creditors (the "Committee") Under Chapter 11 Of The Bankruptcy Code, dated as of March 3, 2003 (the "Impac Plan") was entered by this Court on April 24, 2003 (the "Confirmation Order"); and WHEREAS, it is the Impac Debtors' responsibility to inform the Court of the progress made toward (i) consummation of the Impac Plan under 11 U.S.C. Section 1101(2); (ii) entry of a final decree under Rule 3022 of the Federal Rules of Bankruptcy Procedure; and (iii) case closing under 11 U.S.C.Section350; it is therefore ORDERED that the Impac Debtors or such other party as the Court may direct (the "Responsible Party") shall comply with the following: (1) Periodic Status Reports. Subject to the requirements set forth in paragraph 5 of this Order and 11 U.S.C.Section1106(a)(7), the Responsible Party shall file, within 45 days after the date of this Order, a status report detailing the actions taken by the Responsible Party and the progress made toward the consummation - ---------- (1) From time to time during the chapter 11 cases, the Impac Debtors have been referred to as the "CCA Debtors." These terms are synonymous for all purposes. of the Impac Plan. Reports shall be filed thereafter every January 15th, April 15th, July 15th and October 15th until a final decree has been entered. (2) Notices. The Responsible Party shall mail a copy of the Confirmation Order and this Order to counsel for the Committee and all parties who have filed a notice of appearance with the Court in these Chapter 11 cases. (3) Clerk's Charges and Report Information. Within 15 days of the date of this Order, the Responsible Party shall submit a written request to the Clerk to obtain the amount of any notice and excess claim charges. The amount shall be paid in full not later than May 21, 2003. (4) Closing Report and Final Decree. Within 15 days following the distribution of any deposit required by the Impac Plan, or, if no deposit was required, upon the payment of the first distribution to all creditors as required by the Impac Plan, the Responsible Party shall file a closing report in accordance with Local Bankruptcy Rule 3022-1 and an application for a final decree. (5) Case Closing. Unless the Court orders otherwise, the Responsible Party shall submit the information described in paragraph 4 herein, including a final decree closing the case, within twelve (12) calendar months from the date of the Confirmation Order, which time may be extended at the option of the Impac Debtors for an additional six month period provided notice of such option is filed with the Court. If the Responsible Party fails to comply with this Order, the Clerk shall so inform the Judge and an order to show cause may be issued. Dated: April 24, 2003 New York, New York /s/Burton R. Lifland -------------------------------------- HONORABLE BURTON R. LIFLAND UNITED STATES BANKRUPTCY JUDGE -2- EX-10.57 4 g82843exv10w57.txt EX-10.57 IMPAC PLAN OF REORGANIZATION EXHIBIT 10.57 EXHIBIT B UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - --------------------------------------x In re : Chapter 11 LODGIAN, INC., et al., : Case No. 01-16345 (BRL) Debtors. : Jointly Administered - --------------------------------------x JOINT PLAN OF REORGANIZATION OF IMPAC HOTELS II, L.L.C. AND IMPAC HOTELS III, L.L.C., TOGETHER WITH THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE CADWALADER, WICKERSHAM CURTIS, MALLET-PREVOST, COLT & TAFT LLP & MOSLE LLP Attorneys for the Debtors and Co-Attorneys for the Debtors and Debtors-In-Possession Debtors-In-Possession 100 Maiden Lane 101 Park Avenue New York, New York 10038 New York, New York 10178 (212) 504-6000 (212) 696-6000 - and - DEBEVOISE & PLIMPTON Attorneys for the Official Committee of Unsecured Creditors 919 Third Avenue New York, New York 10022 (212) 909-6000 Dated: As of March 3, 2003 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS AND INTERPRETATION ....................... 1 A. Definitions ........................................ 1 1.1 Administrative Expense Claim ....................... 1 1.2 Allowed ............................................ 2 1.3 Amended Organizational Documents ................... 2 1.4 Bankruptcy Code .................................... 2 1.5 Bankruptcy Court ................................... 2 1.6 Bankruptcy Rules ................................... 2 1.7 Business Day ....................................... 2 1.8 Cash ............................................... 3 1.9 Catch-up Distribution .............................. 3 1.10 CCA ................................................ 3 1.11 CCA Agreements ..................................... 3 1.12 CCA Secured Claim .................................. 3 1.13 CCA Settlement Agreement ........................... 3 1.14 Chapter 11 Cases ................................... 3 1.15 Claim .............................................. 3 1.16 Class .............................................. 3 1.17 Class 3 Cash Pool .................................. 3 1.18 Class 3 Subclass ................................... 4 1.19 Collateral ......................................... 4 1.20 Commencement Date .................................. 4 1.21 Committee .......................................... 4 1.22 Confirmation Date .................................. 4 1.23 Confirmation Hearing ............................... 4 1.24 Confirmation Order ................................. 4 1.25 Confirmed Debtors .................................. 4 1.26 Convenience Claim .................................. 4 1.27 Debtors ............................................ 4 1.28 Disbursing Agent ................................... 5 1.29 Disputed Claim ..................................... 5 1.30 Disputed Claims Reserve ............................ 5 1.31 Distribution Record Date ........................... 5 1.32 Effective Date ..................................... 5 1.33 Equity Interest .................................... 6 1.34 Equity Security .................................... 6
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Page ---- 1.35 Estate ........................................................ 6 1.36 Exit Financing ................................................ 6 1.37 Exit Financing Agreements ..................................... 6 1.38 Exit Financing Borrowers ...................................... 6 1.39 Exit Financing Lender ......................................... 6 1.40 Final Distribution Date ....................................... 6 1.41 Final Order ................................................... 6 1.42 General Unsecured Claim ....................................... 7 1.43 Inter-Company Claim ........................................... 7 1.44 Mortgage Financing Agreements ................................. 7 1.45 Person ........................................................ 7 1.46 Plan .......................................................... 7 1.47 Plan Documents ................................................ 7 1.48 Plan Proponents ............................................... 7 1.49 Plan Supplement ............................................... 7 1.50 Priority Non-Tax Claim ........................................ 7 1.51 Priority Tax Claim ............................................ 8 1.52 Pro Rata Share ................................................ 8 1.53 Releasees ..................................................... 8 1.54 Reorganized Debtor ............................................ 8 1.55 Schedule of Assumed Contracts ................................. 8 1.56 Schedules ..................................................... 8 1.57 Secured Claim ................................................. 8 1.58 Settlement Amount ............................................. 8 1.59 Subclass ...................................................... 8 1.60 Subclass Debtor ............................................... 9 1.61 Subordinated Claim ............................................ 9 1.62 Tort Claim .................................................... 9 B. Interpretation; Application of Definitions and Rules of Construction ....................................... 9 SECTION 2. ADMINISTRATIVE EXPENSE CLAIMS AND PRIORITY TAX CLAIMS ......... 9 2.1 Administrative Expense Claims ................................. 9 2.2 Compensation and Reimbursement Claims. ........................ 10 2.3 Priority Tax Claims ........................................... 10 SECTION 3. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS .................... 10 3.1 Classes ....................................................... 11 3.2 Subclasses for Class 1 ........................................ 11
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Page ---- 3.3 Subclasses for Class 3 ........................................ 11 SECTION 4. TREATMENT OF CLAIMS AND EQUITY INTERESTS ........................ 12 4.1 Secured Claims (Class 1). ..................................... 12 4.2 Priority Non-Tax Claims (Class 2). ............................ 13 4.3 General Unsecured Claims (Class 3). ........................... 13 4.4 Intentionally Omitted ......................................... 13 4.5 Convenience Claims (Class 5). ................................. 13 4.6 Intentionally Omitted ......................................... 14 4.7 Intentionally Omitted ......................................... 14 4.8 Equity Interests (Cla ss 9) ................................... 14 4.9 Intentionally Omitted ......................................... 14 4.10 Subordinated Claims (Class 11) ................................ 14 SECTION 5. ACCEPTANCE OR REJECTION OF PLAN ................................. 14 5.1 Voting of Claims .............................................. 14 5.2 Acceptance by a Class ......................................... 14 5.3 Presumed Acceptance of Plan ................................... 14 5.4 Presumed Rejection of Plan. ................................... 15 SECTION 6. MEANS FOR IMPLEMENTATION ........................................ 15 6.1 Exit Financing ................................................ 15 6.2 Intentionally Omitted ......................................... 15 6.3 Intentionally Omitted ......................................... 15 6.4 Waiver of Subordination. ...................................... 15 6.5 Intentionally Omitted ......................................... 16 6.6 Intentionally Omitted ......................................... 16 6.7 Intentionally Omitted ......................................... 16 6.8 Intentionally Omitted ......................................... 16 6.9 Board of Directors and Executive Officers ..................... 16 6.10 Amended Organizational Documents. ............................. 16 6.11 Intentionally Omitted ......................................... 16 6.12 Authorization of Notes ........................................ 16 6.13 Intentionally Omitted ......................................... 17 SECTION 7. DISTRIBUTIONS ................................................... 17 7.1 Distribution Record Date. ..................................... 17 7.2 Date of Distributions ......................................... 17 7.3 Distributions to Classes ...................................... 17 7.4 Disbursing Agent. ............................................. 18
iii
Page ---- 7.5 Rights and Powers of Disbursing Agent ......................... 18 7.6 Intentionally Omitted ......................................... 18 7.7 Delivery of Distribut ions. ................................... 18 7.8 Manner of Payment Under Plan .................................. 19 7.9 Retention of Equity Interests ................................. 19 7.10 De Minimis Distributions. ..................................... 19 7.11 Setoffs. ...................................................... 19 7.12 Allocation of Plan Distribution Between Principal and Interest .................................................. 20 7.13 Withholding and Reporting Requirements. ....................... 20 7.14 Time Bar to Cash Payments ..................................... 20 7.15 Transactions on Business Days ................................. 20 7.16 Closing of Chapter 11 Cases ................................... 21 SECTION 8. PROCEDURES FOR RESOLVING AND TREATING DISPUTED CLAIMS ........... 21 8.1 Payments and Distributions with Respect to Disputed Claims .... 21 8.2 Preservation of Insurance ..................................... 22 8.3 Resolution of Disputed Claims. ................................ 22 8.4 Distributions After Allowance ................................. 23 8.5 Reserve Accounts for Class 3 Disputed Claims. ................. 23 8.6 Investment of Disputed Claims Reserves. ....................... 23 8.7 Release of Funds from Disputed Claims Reserves. ............... 24 8.8 Estimation of Claims .......................................... 24 8.9 No Recourse ................................................... 24 8.10 Mediation of Disputed Claims. ................................. 25 SECTION 9. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ........................ 26 9.1 General Treatment ............................................. 26 9.2 Cure of Defaults .............................................. 26 9.3 Assumptions and Assignments of Executory Contracts and Unexpired Leases .............................................. 27 9.4 Approval of Rejection of Executory Contracts and Unexpired Leases ........................................................ 27 9.5 Bar Date for Filing Proofs of Claim Relating to Executory Contracts and Unexpired Leases Rejected Pursuant to Plan ...... 27 9.6 Survival of Debtors' Corporate Indemnities .................... 27 SECTION 10. CONDITIONS PRECEDENT TO EFFECTIVE DATE ......................... 28 10.1 Conditions to Effective Date .................................. 28 10.2 Waiver of Conditions .......................................... 28
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Page ---- SECTION 11. EFFECT OF CONFIRMATION ................................ 28 11.1 Vesting of Assets. .................................... 28 11.2 Discharge of Claims ................................... 29 11.3 Discharge of Debtors. ................................. 29 11.4 Binding Effect ........................................ 29 11.5 Term of Injunctions or Stays .......................... 29 11.6 Injunction Against Interference with Plan. ............ 30 11.7 Exculpation. .......................................... 30 11.8 Rights of Action. ..................................... 30 11.9 Release by Debtors .................................... 30 11.10 Release of Releasees by Other Releasees. .............. 31 11.11 Claims of the United States Government ................ 31 SECTION 12. RETENTION OF JURISDICTION ............................. 31 SECTION 13. MISCELLANEOUS PROVISIONS .............................. 33 13.1 Retiree Benefits ...................................... 33 13.2 Deletion of Classes and Subclasses. ................... 33 13.3 Addition of Classes and Subclasses .................... 34 13.4 Committee ............................................. 34 13.5 Exemption from Transfer Taxes. ........................ 34 13.6 Substantial Consummation. ............................. 34 13.7 Payment of Statutory Fees. ............................ 34 13.8 Amendments. ........................................... 35 13.9 Revocation or Withdrawal of Plan ...................... 35 13.10 Cramdown. ............................................. 35 13.11 Severability. ......................................... 35 13.12 Request for Expedited Determination of Taxes .......... 36 13.13 Courts of Competent Jurisdiction. ..................... 36 13.14 Governing Law. ........................................ 36 13.15 Time. ................................................. 36 13.16 Headings .............................................. 36 13.17 Exhibits. ............................................. 37 13.18 Notices. .............................................. 37 EXHIBITS Exhibit A: List of Debtors
v UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ---------------------------------------------- x In re : Chapter 11 LODGIAN, INC., et al., : Case No. 01-16345 (BRL) Debtors. : Jointly Administered - ---------------------------------------------- x JOINT PLAN OF REORGANIZATION OF IMPAC HOTELS II, L.L.C. AND IMPAC HOTELS III, L.L.C., TOGETHER WITH THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. (the "Debtors" or "Impac Debtors"), debtors and debtors-in-possession in the above-captioned chapter 11 cases, together with the official committee of unsecured creditors appointed in these chapter 11 cases, propose the following joint chapter 11 plan of reorganization pursuant to section 1121(a) of title 11 of the United States Code. WHILE THIS IS A JOINT PLAN FOR EACH OF THE DEBTORS, IT DOES NOT PROVIDE THAT THESE CHAPTER 11 CASES WILL BE SUBSTANTIVELY CONSOLIDATED. ACCORDINGLY, TO THE EXTENT APPLICABLE TO A DEBTOR, ALL OF THE PROVISIONS OF THIS PLAN, INCLUDING WITHOUT LIMITATION THE DEFINITIONS AND DISTRIBUTIONS TO CREDITORS AND EQUITY INTEREST HOLDERS, SHALL APPLY TO THE RESPECTIVE ASSETS OF, CLAIMS AGAINST, AND EQUITY INTERESTS IN, SUCH DEBTOR'S SEPARATE ESTATE. SECTION 1. DEFINITIONS AND INTERPRETATION A. DEFINITIONS. The following terms used herein shall have the respective meanings defined below (such meanings to be equally applicable to both the singular and plural): 1.1 ADMINISTRATIVE EXPENSE CLAIM means any right to payment constituting a cost or expense of administration of the Chapter 11 Cases allowed under sections 503(b) and 507(a)(1) of the Bankruptcy Code, including, without limitation, any actual and necessary costs and expenses of preserving the applicable Debtor's Estate, any actual and necessary costs and expenses of operating the applicable Debtor's businesses, any indebtedness or obligations incurred or assumed by the applicable Debtor, as a debtor-in-possession, during the Chapter 11 Cases (including, without limitation, for the acquisition or lease of property or an interest in property or the rendition of services), any allowances of compensation and reimbursement of expenses to the extent allowed by a Final Order under section 330 or 503 of the Bankruptcy Code, and any fees or charges assessed against the Estate of the applicable Debtor under section 1930 of chapter 123 of title 28 of the United States Code. 1.2 ALLOWED means, with reference to any Claim, (i) any Claim against a Debtor which has been listed by such Debtor in the Schedules, as such Schedules may be amended by the applicable Debtor from time to time in accordance with Bankruptcy Rule 1009, as liquidated in amount and not disputed or contingent and for which no contrary proof of claim or equity interest has been filed, (ii) any timely filed Claim as to which no objection to allowance has been interposed in accordance with Section 8.3 hereof or such other applicable period of limitation fixed by the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court, or as to which any objection has been determined by a Final Order to the extent that such objection is determined in favor of the respective holder, or (iii) any Claim expressly allowed by a Final Order or hereunder. 1.3 AMENDED ORGANIZATIONAL DOCUMENTS means the corporate, partnership or limited liability company organizational documents, as applicable, of each Debtor as amended and adopted on the Effective Date as necessary to comply with the requirements of the Bankruptcy Code and effect the terms of this Plan (including the implementation of the Exit Financing), substantially in the form set forth in the Plan Supplement for Reorganized Debtors. 1.4 BANKRUPTCY CODE means title 11 of the United States Code, as amended from time to time, as applicable to the Chapter 11 Cases. 1.5 BANKRUPTCY COURT means the United States District Court for the Southern District of New York having jurisdiction over the Chapter 11 Cases and, to the extent of the reference of the Chapter 11 Cases pursuant to 28 U.S.C. Section 157(a), the United States Bankruptcy Court for the Southern District of New York. 1.6 BANKRUPTCY RULES means the Federal Rules of Bankruptcy Procedure as promulgated by the United States Supreme Court under section 2075 of title 28 of the United States Code, as amended from time to time, as applicable to the Chapter 11 Cases, and any Local Rules of the Bankruptcy Court. 1.7 BUSINESS DAY means any day other than a Saturday, a Sunday, or any other day on which banking institutions in New York, New York are required or authorized to close by law or executive order. -2- 1.8 CASH means legal tender of the United States of America. 1.9 CATCH-UP DISTRIBUTION means with respect to each holder of an Allowed Claim in Class 3, the difference between (i) the Pro Rata Share of the Class 3 Cash Pool that such holder would have received if the resolution of all Disputed Claims in Class 3 had been known on the Effective Date, and (ii) the Pro Rata Share of the Class 3 Cash Pool previously received by such holder. 1.10 CCA means The Capital Company of America LLC. 1.11 CCA AGREEMENTS means the Mortgage Financing Agreements dated as of August 31, 2000 between CCA and the following debtors: Impac Hotels II, L.L.C., Impac Hotels III, L.L.C., Impac Hotel Group, L.L.C. and Lodgian, Inc., as such agreements have been modified by the CCA Settlement Agreement. 1.12 CCA SECURED CLAIM means the Claim by CCA, as agreed to by the Impac Debtors and CCA under the CCA Settlement Agreement. 1.13 CCA SETTLEMENT AGREEMENT means the settlement agreement dated as of October 21, 2002, as approved by the Bankruptcy Court on October 31, 2002, which, inter alia, permits the Impac Debtors to fully discharge the CCA Secured Claim. 1.14 CHAPTER 11 CASES means individually, the voluntary case commenced by each Debtor under its respective case number as listed on Exhibit A, and collectively, the voluntary cases under chapter 11 of the Bankruptcy Code commenced by each Debtor on the Commencement Date in the United States Bankruptcy Court for Southern District of New York, styled In re Lodgian, Inc., et al., Case No. 01-16345 (BRL), which are currently pending before the Bankruptcy Court. 1.15 CLAIM means (i) any right to payment from any of the Debtors, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, known or unknown, or (ii) any right to an equitable remedy for breach of performance if such breach gives rise to a right of payment from any of the Debtors, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured, known or unknown. 1.16 CLASS means a class of Claims or Equity Interests established pursuant to Section 3. 1.17 CLASS 3 CASH POOL means the $302,484 in Cash which shall be reserved as the aggregate Cash pool to be used for a pro rata distribution to the holders of Allowed Claims in both Subclasses of Class 3. -3- 1.18 CLASS 3 SUBCLASS means the Subclass for each Debtor. 1.19 COLLATERAL means any property or interest in property of the Estate of any Debtor subject to a lien, charge or other encumbrance to secure the payment or performance of a Claim, which lien, charge or other encumbrance is not subject to avoidance under the Bankruptcy Code. 1.20 COMMENCEMENT DATE means December 20, 2001 with respect to the Debtors and the Confirmed Debtors; provided, however, that "Commencement Date" means (i) December 21, 2001 with respect to Worcester Hospitality, L.P., Lodgian Hotels, Inc., Brecksville Hospitality, L.P. and Sioux City Hospitality, L.P., and (ii) April 17, 2002 with respect to New Orleans Airport Motel Associates, L.P. 1.21 COMMITTEE means the official committee of general unsecured creditors appointed by the Office of the United States Trustee in the Chapter 11 Cases pursuant to section 1102 of the Bankruptcy Code, as the membership of such Committee may be altered from time to time. 1.22 CONFIRMATION DATE means the date on which the Clerk of the Bankruptcy Court enters the Confirmation Order. 1.23 CONFIRMATION HEARING means the hearing to be held by the Bankruptcy Court regarding confirmation of this Plan, as such hearing may be adjourned or continued from time to time. 1.24 CONFIRMATION ORDER means the order of the Bankruptcy Court confirming this Plan pursuant to section 1129 of the Bankruptcy Code. 1.25 CONFIRMED DEBTORS means the all of the debtors in these jointly administered above-captioned chapter 11 cases except the Impac Debtors. 1.26 CONVENIENCE CLAIM means (i) an Allowed General Unsecured Claim against either of the Debtors in an amount equal to $200 or less, (ii) the Allowed General Unsecured Claim against either of the Debtors of a holder that has irrevocably elected on its ballot to reduce such Claim against such Debtor(s) to the amount of $200, or (iii) a Disputed Claim against either of the Debtors that becomes an Allowed General Unsecured Claim of $200 or less with the consent of, and in the amount agreed to by, the applicable Debtor or pursuant to a Final Order. 1.27 DEBTORS means IMPAC Hotels II, L.L.C. and IMPAC Hotels III, L.L.C., including in their capacity as debtors and debtors in possession pursuant to sections 1101, 1107(a) and 1108 of the Bankruptcy Code in chapter 11 cases 01-16367 and 01-16375, respectively. -4- 1.28 DISBURSING AGENT means any entity (including any applicable Debtor if it acts in such capacity) in its capacity as a disbursing agent under Section 7.4 hereof. 1.29 DISPUTED CLAIM means any Claim which has not been Allowed pursuant to this Plan or a Final Order, and (a) if no proof of claim has been filed by the applicable deadline: (i) a Claim that has been or hereafter is listed on the Schedules as disputed, contingent or unliquidated; or (ii) a Claim that has been or hereafter is listed on the Schedules as other than disputed, contingent or unliquidated, but as to which the applicable Debtor(s) or the Reorganized Debtors or any other party in interest has interposed an objection or request for estimation which has not been withdrawn or determined by a Final Order; or (b) if a proof of claim or request for payment of an Administrative Expense Claim has been filed by the applicable deadline: (i) a Claim for which no corresponding Claim has been or hereafter is listed on the Schedules; (ii) a Claim for which a corresponding Claim has been or hereafter is listed on the Schedules as other than disputed, contingent or unliquidated, but for which the nature or amount of the Claim as asserted in the proof of claim varies from the nature and amount of such Claim as listed on the Schedules; (iii) a Claim for which a corresponding Claim has been or hereafter is listed on the Schedules as disputed, contingent or unliquidated and which has not been resolved by written agreement of the parties or a Final Order; (iv) a Claim for which a timely objection or request for estimation is interposed by the applicable Debtor(s) or the Reorganized Debtors or any other party in interest, which has not been withdrawn or determined by a Final Order; or (v) any Tort Claim. 1.30 DISPUTED CLAIMS RESERVE means, in the event there exists any Disputed Claim in Class 3 on or after the Effective Date, Cash to be set aside by the Debtors in an interest-bearing account, in amounts sufficient to pay all such Disputed Claims in Class 3 in accordance with the provisions of this Plan, if such Disputed Claims become Allowed Claims, and to be maintained under this Plan, as set forth more fully in section 8.5 of this Plan. The amount of Cash to be set aside by the Debtors on the Effective Date shall not exceed the amount of the Class 3 Cash Pool. 1.31 DISTRIBUTION RECORD DATE means the date fixed as the "Distribution Record Date" by order of the Bankruptcy Court approving, inter alia, procedures to solicit acceptances or rejections of this Plan. 1.32 EFFECTIVE DATE means a Business Day on or after the Confirmation Date specified by the Plan Proponents on which (i) no stay of the Confirmation Order is in effect and (ii) the conditions to the effectiveness of this Plan specified in Section 10.1 hereof have been satisfied or waived. -5- 1.33 EQUITY INTEREST means the rights of a holder of an Equity Security. 1.34 EQUITY SECURITY means, with respect to any Debtor, its authorized capital stock, membership interests, partnership interests or similar ownership interests, whether or not transferable, including any option, warrant or right, contractual or otherwise, to acquire any such interest. 1.35 ESTATE means, as to each Debtor, the estate created pursuant to section 541 of the Bankruptcy Code upon the commencement of such Debtor's Chapter 11 Case. 1.36 EXIT FINANCING means the loan provided to the Exit Financing Borrowers by the Exit Financing Lender pursuant to the Exit Financing Agreements. 1.37 EXIT FINANCING AGREEMENTS means the Mortgage Financing Agreements to be entered into on the Effective Date among, inter alia, the Exit Financing Lender and the Exit Financing Borrowers. 1.38 EXIT FINANCING BORROWERS means the eighteen single purpose entities, single member Delaware limited liability companies being formed in connection with the Exit Financing, each of which will own one of the Impac hotel properties and be wholly-owned by the applicable Impac Debtor. 1.39 EXIT FINANCING LENDER means the Person(s) named as the lender(s) under the Exit Financing Agreements. 1.40 FINAL DISTRIBUTION DATE means, in the event that there exist on the Effective Date any Disputed Claims, a date selected by the Plan Proponents, in their sole discretion, on which all such Disputed Claims have been resolved by Final Order. 1.41 FINAL ORDER means an order or judgment of the Bankruptcy Court entered by the Clerk of the Bankruptcy Court on the docket in the Chapter 11 Cases, which has not been reversed, vacated or stayed and as to which (i) the time to appeal, petition for certiorari or move for a new trial, reargument or rehearing has expired and as to which no appeal, petition for certiorari or other proceedings for a new trial, reargument or rehearing shall then be pending, or (ii) if an appeal, writ of certiorari, new trial, reargument or rehearing thereof has been sought, such order or judgment of the Bankruptcy Court shall have been affirmed by the highest court to which such order was appealed, or certiorari shall have been denied, or a new trial, reargument or rehearing shall have been denied or resulted in no modification of such order, and the time to take any further appeal, petition for certiorari or move for a new trial, reargument or rehearing shall have expired; provided, however, that the possibility that a motion under Rule 60 of the Federal Rules of Civil Procedure, or any analogous rule under the Bankruptcy Rules, may be filed relating to such order shall not cause such order to not be a Final Order. -6- 1.42 GENERAL UNSECURED CLAIM means any Claim against the applicable Debtor that (i) is not an Administrative Expense Claim, a Priority Tax Claim, a Secured Claim, a Priority Non-Tax Claim, or a Subordinated Claim, or (ii) is otherwise determined by the Bankruptcy Court to be a General Unsecured Claim. 1.43 INTER-COMPANY CLAIM means any General Unsecured Claim held by a Debtor against another Debtor and/or a Confirmed Debtor against a Debtor. 1.44 MORTGAGE FINANCING AGREEMENTS means, with respect to any financing arrangements secured by the interest of the Debtors or each of their subsidiaries in any hotel property (including any leasehold interest), the applicable loan agreements and all related agreements, instruments and other documents, including all promissory notes, mortgages (including leasehold mortgages), security agreements and assignments of leases and rents, as the same may be amended or modified from time to time. 1.45 PERSON means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, governmental unit or other entity of whatever nature. 1.46 PLAN means this joint chapter 11 plan of reorganization of the Debtors, to the extent applicable to any Debtor, including the Plan Supplement and the exhibits hereto and thereto, as the same may be amended or modified from time to time in accordance with the provisions of the Bankruptcy Code and the terms hereof. 1.47 PLAN DOCUMENTS means the documents to be executed, delivered, assumed or performed in conjunction with the consummation of this Plan on the Effective Date, including (i) the Amended Organizational Documents and (ii) the Exit Financing Agreements. Each of the Plan Documents to be entered into or adopted as of the Effective Date will be filed in draft form in the Plan Supplement. 1.48 PLAN PROPONENTS means each Debtor and the Committee. 1.49 PLAN SUPPLEMENT means a supplemental appendix to this Plan that will contain (i) the draft form of the Plan Documents to be entered into as of the Effective Date and (ii) the Schedule of Assumed Contracts as of the date of the Plan Supplement, to be filed seven (7) days before the date of the Confirmation Hearing. 1.50 PRIORITY NON-TAX CLAIM means any Claim other than an Administrative Expense Claim or a Priority Tax Claim, entitled to priority in payment as specified in section 507(a)(3), (4), (5), (6), (7) or (9) of the Bankruptcy Code. -7- 1.51 PRIORITY TAX CLAIM means any Claim of a governmental unit of the kind entitled to priority in payment as specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code. 1.52 PRO RATA SHARE means, with respect to an Allowed Claim in Class 3, a proportional share of the Class 3 Cash Pool equal to (x) the amount of such Allowed Claim divided by (y) the aggregate amount of Allowed Claims in Class 3. For purposes of determining a Pro Rata Share, the Claims (both Disputed Claims and Allowed Claims) in each Subclass of Class 3 shall be aggregated. 1.53 RELEASEES means, collectively, (i) any director, officer, agent or employee of each Debtor who was employed or otherwise serving in such capacity on the Confirmation Date, (ii) the Committee, and (iii) any member of the Committee, any member, director, officer, agent or employee of a member of the Committee, or each Debtor's or the Committee's attorneys or advisors, in each case who were acting, employed or otherwise serving in such capacity on the Confirmation Date. 1.54 REORGANIZED DEBTOR means each Debtor on or after the Effective Date. 1.55 SCHEDULE OF ASSUMED CONTRACTS means the schedule listing the executory contracts and unexpired leases to be assumed by each Debtor, to be filed in the Plan Supplement. 1.56 SCHEDULES means the schedules of assets and liabilities and the statement of financial affairs filed by each Debtor under section 521 of the Bankruptcy Code, Bankruptcy Rule 1007 and the Official Bankruptcy Forms of the Bankruptcy Rules, as such schedules and statements have been or may be supplemented or amended through the Confirmation Date. 1.57 SECURED CLAIM means a Claim to the extent (i) secured by Collateral, the amount of which is equal to or less than the value of such Collateral (A) as set forth in this Plan, (B) as agreed to by the holder of such Claim and the applicable Debtor(s), or (C) as determined by a Final Order in accordance with section 506(a) of the Bankruptcy Code, or (ii) secured by the amount of any rights of setoff of the holder thereof under section 553 of the Bankruptcy Code. 1.58 SETTLEMENT AMOUNT means the amount for which the CCA Secured Claim can be fully discharged, in accordance with the CCA Settlement Agreement. 1.59 SUBCLASS means a subclass of a Class of Claims or Equity Interests established pursuant to Section 3. -8- 1.60 SUBCLASS DEBTOR means, with respect to any Subclass of Claims or Equity Interests, the Debtor against or in which such Claims or Equity Interests are Allowed. 1.61 SUBORDINATED CLAIM means any Claim against a Debtor, whether secured or unsecured, for any fine, penalty, forfeiture, attorneys' fees (to the extent that such attorneys' fees are punitive in nature), or for multiple, exemplary or punitive damages, to the extent that such fine, penalty, forfeiture, attorneys' fees or damages are not compensation for actual pecuniary loss suffered by the holder of such Claim and not statutorily prescribed, and all claims against either of the Debtors of the type described in Section 510(b) of the Bankruptcy Code relating to equity interests (including all Equity Interests). 1.62 TORT CLAIM means any Claim related to personal injury, property damage, products liability, wrongful death, employment litigation or other similar Claims against either of the Debtors arising out of events that occurred, in whole or in part, prior to the Commencement Date, which have not previously been compromised and settled or otherwise resolved. B. INTERPRETATION; APPLICATION OF DEFINITIONS AND RULES OF CONSTRUCTION. Unless otherwise specified, all section or exhibit references in this Plan are to the respective section in, or exhibit to, this Plan, as the same may be amended, waived or modified from time to time. The words "herein," "hereof," "hereto," "hereunder," and other words of similar import refer to this Plan as a whole and not to any particular section, subsection or clause contained therein. A term used herein that is not defined herein shall have the meaning assigned to that term in the Bankruptcy Code. The rules of construction contained in section 102 of the Bankruptcy Code shall apply to this Plan. The headings in this Plan are for convenience of reference only and shall not limit or otherwise affect the provisions hereof. SECTION 2. ADMINISTRATIVE EXPENSE CLAIMS AND PRIORITY TAX CLAIMS 2.1 ADMINISTRATIVE EXPENSE CLAIMS. Except to the extent that the applicable Debtor and a holder of an Allowed Administrative Expense Claim agree to a different treatment, each Debtor shall pay to each holder of an Allowed Administrative Expense Claim against such Debtor, in full satisfaction of such Claim, Cash in an amount equal to such Claim on, or as soon thereafter as is reasonably practicable, the later of (i) the Effective Date and (ii) the first Business Day after the date that is thirty (30) calendar days after the date such -9- Administrative Expense Claim becomes an Allowed Administrative Expense Claim; provided, however, that Allowed Administrative Expense Claims representing liabilities incurred in the ordinary course of business by such Debtor, as a debtor-in-possession, or liabilities arising under loans or advances to or other obligations incurred by such Debtor, as debtor-in-possession, whether or not incurred in the ordinary course of business, shall be paid by such Debtor in the ordinary course of business, consistently with past practice and in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions. 2.2 COMPENSATION AND REIMBURSEMENT CLAIMS. All entities seeking an award by the Bankruptcy Court of compensation for services rendered or reimbursement of expenses incurred through and including the Confirmation Date under section 503(b)(2), 503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy Code (i) shall file their respective final applications for allowance of compensation for services rendered and reimbursement of expenses incurred by the date that is forty-five (45) days after the Effective Date, and (ii) shall be paid in full in such amounts as are allowed by the Bankruptcy Court (A) upon the later of (i) the Effective Date and (ii) the date upon which the order relating to any such Administrative Expense Claim is entered, or (B) upon such other terms as may be mutually agreed upon between the holder of such an Administrative Expense Claim and the Plan Proponents or, on and after the Effective Date, the Reorganized Debtors. Each Debtor is authorized to pay compensation for services rendered or reimbursement of expenses incurred after the Confirmation Date in the ordinary course of business and without the need for Bankruptcy Court approval. 2.3 PRIORITY TAX CLAIMS. Except to the extent that a holder of an Allowed Priority Tax Claim and the applicable Debtor agree to a different treatment, each holder of an Allowed Priority Tax Claim shall receive, in full satisfaction of such Claim, payment in Cash of the Allowed Amount of such Claim over a period not exceeding six (6) years after the date of assessment of such Claim, with interest at a rate equal to the Federal Judgment Rate as of the Confirmation Date, payable monthly, in periodic payments having a value, as of the Effective Date, equal to the amount of such Allowed Priority Tax Claim. All Allowed Priority Tax Claims that are not due and payable on or before the Effective Date shall be paid in the ordinary course of business as such obligations become due. SECTION 3. CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS This Plan constitutes a separate chapter 11 plan of reorganization for each Debtor. Except for Administrative Expense Claims and Priority Tax Claims, all Claims against and Equity Interests in a particular Debtor are placed in the following Classes for -10- each of the Debtors. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Expense Claims and Priority Tax Claims, as described in Section 2, have not been classified and thus are excluded from the following Classes. The following table designates the Classes of Claims against and Equity Interests in each Debtor (as and to the extent that such Class of Claims or Equity Interests is applicable to such Debtor) and specify which of those Classes are (i) impaired or unimpaired by this Plan and (ii) entitled to vote to accept or reject this Plan in accordance with section 1126 of the Bankruptcy Code or deemed to reject this Plan. 3.1 CLASSES.
CLASS DESIGNATION IMPAIRMENT ENTITLED TO VOTE ----- ----------- ---------- ---------------- CLASS 1 SUBCLASS 1-A CCA Secured Claim Unimpaired No (deemed to accept) SUBCLASS 1-B Miscellaneous Secured Claims Impaired Yes CLASS 2 Priority Non-Tax Claims Unimpaired No (deemed to accept) CLASS 3 General Unsecured Claims Impaired Yes CLASS 4 Intentionally Omitted CLASS 5 Convenience Claims Impaired Yes CLASS 6 Intentionally Omitted CLASS 6A CLASS 7 Intentionally Omitted CLASS 8 Intentionally Omitted CLASS 9 Equity Interests Unimpaired No (deemed to accept) CLASS 10 Intentionally Omitted CLASS 11 Subordinated Claims Impaired No (deemed to reject)
3.2 SUBCLASSES FOR CLASS 1. For convenience of identification, this Plan classifies the Allowed Claims in Class 1 as a single Class. This Class is actually a group of two Subclasses, the CCA Secured Claim Subclass and the Miscellaneous Secured Claims Subclass. The treatment of the Claims in the CCA Secured Claim Subclass is the contractual treatment as provided for in the CCA Settlement Agreement and, as such, Subclass 1-A is unimpaired. The treatment of the Miscellaneous Secured Claims Subclass depends upon the Collateral securing such Allowed Claims. Each Subclass is treated under this Plan as a separate class for voting and distribution purposes. 3.3 SUBCLASSES FOR CLASS 3. For convenience of identification, this Plan classifies the Allowed Claims in Class 3 as a single Class. This Class is actually a group of two Subclasses, one for the -11- Allowed Class 3 Claims against each Debtor. Although each Subclass is treated under this Plan as a separate class for voting purposes, each of the holders of claims in each Subclass will receive, as a distribution under this Plan, its Pro Rata Share from the aggregate amount of Cash in the Class 3 Cash Pool. SECTION 4. TREATMENT OF CLAIMS AND EQUITY INTERESTS In full satisfaction and discharge of all of the Claims against or Equity Interests in the Debtors: 4.1 SECURED CLAIMS (CLASS 1). (a) On or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Claim in a Class 1 Subclass shall receive (i) the treatment specified for such Subclass in the following table, except to the extent that a holder of an Allowed Claim in such Subclass and the applicable Debtor have agreed to a different treatment, or (ii) such other treatment as the Bankruptcy Court shall approve in connection with confirmation of applicable Debtor's Plan through a "cram down" of such Subclass under section 1129(b) of the Bankruptcy Code.
SUBCLASS DESIGNATION TREATMENT - -------- ----------- --------- 1-A CCA Secured Claim Satisfaction of Settlement Amount pursuant to the terms of the CCA Settlement Agreement. 1-B Miscellaneous Secured Claims At the election of the applicable Debtor, holder will receive (i) Cash equal to 100% of the amount of the Allowed Claim; (ii) the net proceeds of sale of collateral up to the amount of Allowed Claim; (iii) the collateral securing the Allowed Claim; (iv) a note with periodic Cash payments having a present value equal to the amount of the Allowed Claim and secured by the existing collateral; (v) such treatment that leaves unaltered the legal, equitable and contractual rights of the holder; or (vi) such other distribution as is necessary to satisfy the requirements of the Bankruptcy Code. In the event that a Debtor treats a Claim as described under clause (i) or (ii), the liens securing the Claim will be deemed released.
(b) Subclass 1-A Claims are unimpaired and the holder of such Claims in Subclass 1-A is deemed to accept the Plan. (c) Subclass 1-B Claims are impaired, and any holders of Allowed Claims in Subclass 1-B are entitled to vote to accept or reject this Plan. In the event that Subclass 1-B rejects this Plan, the applicable Subclass Debtor(s) reserves the right to request, pursuant to Section 13.10, confirmation of its Plan through a "cram down" of -12- such Subclass under section 1129(b) of the Bankruptcy Code and modification of the Plan to the extent, if any, confirmation under section 1129(b) requires modification. 4.2 PRIORITY NON-TAX CLAIMS (CLASS 2). On or as soon as reasonably practicable after the Effective Date, to the extent not already paid, each holder of an Allowed Claim in Class 2 shall receive Cash equal to the amount of the Allowed Claim, except to the extent that a holder of an Allowed Claim in Class 2 and the applicable Debtor have agreed to a different treatment. 4.3 GENERAL UNSECURED CLAIMS (CLASS 3). (a) On or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Claim in Class 3 (other than an Allowed Inter-Company Claim) shall receive its Pro Rata Share of the Class 3 Cash Pool. (b) No Class 3 distribution will be made on account of Allowed InterCompany Claims. Each holder of an Allowed Inter-Company Claim will be deemed to have contributed its Allowed Claim as part of the Class 9 treatment. (c) Any Tort Claim determined and liquidated pursuant to a judgment obtained in accordance with Section 8.1(b) and applicable non-bankruptcy law, which is no longer appealable or subject to review, shall be deemed an Allowed Claim in Class 3 against the applicable Debtor in such liquidated amount, provided that only the amount of such Allowed Claim that is less than or equal to the Debtor's self-insured retention or deductible in connection with the applicable insurance policy and is not satisfied from proceeds of insurance payable to the holder of such Allowed Claim under the Debtor's insurance policies shall be treated as an Allowed Claim for the purposes of distributions under this Plan. 4.4 INTENTIONALLY OMITTED 4.5 CONVENIENCE CLAIMS (CLASS 5). On or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Claim in Class 5 shall be paid an amount in Cash equal to one-hundred percent (100%) of such Allowed Claim; provided, however, that, in the sole discretion of the applicable Debtor, such Cash payment may be made by the Debtors in one or more installment payments over a period not to exceed twelve (12) months after the Effective Date. -13- 4.6 INTENTIONALLY OMITTED 4.7 INTENTIONALLY OMITTED 4.8 EQUITY INTERESTS (CLASS 9). Except as may otherwise be determined by the applicable Debtor, including, without limitation, the transfer of Equity Interests to affiliates of the Debtors, the legal, equitable and contractual rights of holders of Equity Interests in Class 9 shall remain unaltered. Such Equity Interests shall be unimpaired and reinstated under this Plan as of the Effective Date and shall not be deemed cancelled. 4.9 INTENTIONALLY OMITTED 4.10 SUBORDINATED CLAIMS (CLASS 11). No property will be distributed to or retained by the holders of Allowed Claims in Class 11 on account of such Allowed Claims. All Allowed Claims in Class 11 shall be discharged as of the Effective Date. SECTION 5. ACCEPTANCE OR REJECTION OF PLAN 5.1 VOTING OF CLAIMS. Each holder of an Allowed Claim in an impaired Class or Subclass of Claims (other than Class 11) shall be entitled to vote to accept or reject this Plan. For purposes of calculating the number of Allowed Claims in a Class of Claims that have voted to accept or reject this Plan under section 1126(c) of the Bankruptcy Code, all Allowed Claims in such Class held by one entity or any affiliate thereof (as defined in the Securities Act of 1933 and the rules and regulations promulgated thereunder) shall be aggregated and treated as one Allowed Claim in such Class. 5.2 ACCEPTANCE BY A CLASS. Consistent with section 1126(c) of the Bankruptcy Code and except as provided for in section 1126(e) of the Bankruptcy Code, a Class of Claims shall have accepted this Plan if it is accepted by at least two-thirds in dollar amount, and more than one-half in number of the holders, of Allowed Claims of such Class that have timely and properly voted to accept or reject this Plan. 5.3 PRESUMED ACCEPTANCE OF PLAN. Any Class that is unimpaired under this Plan is conclusively presumed to accept this Plan. -14- 5.4 PRESUMED REJECTION OF PLAN. In accordance with section 1126 of the Bankruptcy Code, holders of Allowed Claims in Class 11 are conclusively presumed to reject this Plan and the votes of such holders will not be solicited with respect to such Claims. SECTION 6. MEANS FOR IMPLEMENTATION 6.1 EXIT FINANCING. On the Effective Date, the Reorganized Debtors (and their designees, including the Exit Financing Borrowers and any other newly created borrowing entities) are authorized to enter into the Exit Financing Agreements, which authorization shall include, without limitation, the creation of the Exit Financing Borrowers and any other special purpose borrowing entities to enter into the Exit Financing Agreements in place of the Reorganized Debtors, and the transfer of assets to the Exit Financing Borrowers and any other newly created borrowing entities. All Cash necessary for the Reorganized Debtors to make payments pursuant to this Plan will be obtained from Lodgian, Inc., the cash balances, operations and borrowings under the Exit Financing Agreements of the Reorganized Debtors (and their designees, including the Exit Financing Borrowers and any other newly created borrowing entities). In furtherance of the transactions contemplated by this Plan and the Exit Financing Agreements, the Reorganized Debtors (and their designees, including the Exit Financing Borrowers and any other newly created borrowing entities) are authorized to sell one or more of their assets (including, without limitation, hotel properties). 6.2 INTENTIONALLY OMITTED 6.3 INTENTIONALLY OMITTED 6.4 WAIVER OF SUBORDINATION. The distributions under this Plan take into account the relative priority of the Claims in each Class in connection with any contractual, legal and equitable subordination rights or provisions relating thereto. Accordingly, the distributions under this Plan to any holder of an Allowed Claim shall not be subject to levy, garnishment, attachment or other legal process by any holder of indebtedness senior by reason of claimed contractual subordination rights to the indebtedness of the holders of such Allowed Claim. On the Effective Date, all creditors shall be deemed to have waived any and all contractual subordination rights which they may have with respect to distributions under this Plan to any holder of an Allowed Claim, and the Confirmation Order shall permanently enjoin, effective as of the Effective Date, all Persons from enforcing or attempting to enforce any such rights with respect to the distributions under this Plan. -15- 6.5 INTENTIONALLY OMITTED 6.6 INTENTIONALLY OMITTED 6.7 INTENTIONALLY OMITTED 6.8 INTENTIONALLY OMITTED 6.9 BOARD OF DIRECTORS AND EXECUTIVE OFFICERS. (a) Prior to the confirmation of this Plan, in accordance with section 1129(a)(5) of the Bankruptcy Code, the Debtors shall disclose (i) the identity and affiliations of any individual proposed to serve, after the Effective Date, as a director or officer of the Reorganized Debtors, and (ii) the identity of any "insider" (as such term is defined in section 101(31) of the Bankruptcy Code) who shall be employed and retained by the Reorganized Debtors and the nature of any compensation for such insider. (b) The Board of Directors and officers of the Debtors immediately before the Effective Date shall continue to serve immediately after the Effective Date in their respective capacities as directors and officers of the Reorganized Debtors. 6.10 AMENDED ORGANIZATIONAL DOCUMENTS. On the Effective Date, the Reorganized Debtors are authorized to, and shall, without the need for any further corporate action, adopt and, as applicable, file their respective Amended Organizational Documents with the applicable Secretary of State. The Amended Organizational Documents shall prohibit the issuance of nonvoting equity securities, as required by sections 1123(a) and (b) of the Bankruptcy Code, subject to further amendment as permitted by applicable law. 6.11 INTENTIONALLY OMITTED 6.12 AUTHORIZATION OF NOTES. On the Effective Date, the applicable Reorganized Debtors, the Exit Financing Borrowers, and any other any newly created subsidiaries are authorized to issue and execute and deliver all notes and related financing documents expressly required under this Plan, including without limitation, any such notes and documents relating to any Allowed Claims in Class 1-B without the need for any further corporate action. -16- 6.13 INTENTIONALLY OMITTED SECTION 7. DISTRIBUTIONS 7.1 DISTRIBUTION RECORD DATE. As of the close of business on the Distribution Record Date, the applicable Debtor's books and records for each of the Classes of Claims as maintained by such Debtor or its respective agent, shall be deemed closed, and there shall be no further changes in the record holders of any of the Claims. The applicable Debtor shall have no obligation to recognize any transfer of Claims occurring on or after the Distribution Record Date. The applicable Debtor shall be entitled to recognize and deal for all purposes hereunder only with those record holders stated in the books and records of the applicable Debtor or its respective agent, as of the close of business on the Distribution Record Date, to the extent applicable. 7.2 DATE OF DISTRIBUTIONS. Unless otherwise provided herein, any distributions and deliveries to be made hereunder shall be made on the Effective Date or as soon thereafter as is practicable. In the event that any payment or act under this Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on or as soon as reasonably practicable on the next succeeding Business Day, but shall be deemed to have been completed as of the initial due date. 7.3 DISTRIBUTIONS TO CLASSES. (a) The Disbursing Agent shall distribute to the applicable agent and/or recordholder for the individual holders of the applicable Allowed Claims the Cash allocable to Classes 1, 2, 3 and 5. For the purpose of calculating the Pro Rata Share of the Class 3 Cash Pool to be initially distributed to holders of Allowed Claims in Class 3, all Disputed Claims in Class 3 will be treated as though such Claims will be Allowed Claims in the amounts asserted, or as estimated by the Bankruptcy Court, as applicable. On the Final Distribution Date, each holder of an Allowed Claim in Class 3 shall receive, if applicable, a Catch-up Distribution. After the Effective Date but prior to the Final Distribution Date, the applicable Reorganized Debtor, in its sole discretion, may direct the Disbursing Agent to distribute a Pro Rata Share of the Class 3 Cash Pool to a holder of a Disputed Claim in a Class 3, which becomes an Allowed Claim after the Effective Date such that the holder of such Claim receives the Pro Rata Share that such holder would have received had its Claim been an Allowed Claim in such amount on the Effective Date. -17- 7.4 DISBURSING AGENT. (a) The source of the Cash to be distributed under this Plan shall be either (i) the proceeds of the Exit Financing, or (ii) a capital contribution from Lodgian, Inc. to each Debtor to allow such Debtor to discharge the Claims against it. (b) All distributions under this Plan shall be made by the applicable Reorganized Debtor as Disbursing Agent (or such other entity designated by the Reorganized Debtor as a Disbursing Agent on or after the Effective Date). (c) A Disbursing Agent shall not be required to give any bond or surety or other security for the performance of its duties unless otherwise ordered by the Bankruptcy Court, and, in the event that a Disbursing Agent is so otherwise ordered, all costs and expenses of procuring any such bond or surety shall be borne by the applicable Reorganized Debtor. 7.5 RIGHTS AND POWERS OF DISBURSING AGENT. The Disbursing Agent shall be empowered to (i) effect all actions and execute all agreements, instruments and other documents necessary to perform its duties under this Plan, (ii) make all distributions contemplated hereby, (iii) employ professionals to represent it with respect to its responsibilities and (iv) exercise such other powers as may be vested in the Disbursing Agent by order of the Bankruptcy Court, pursuant to this Plan, or as deemed by the Disbursing Agent to be necessary and proper to implement the provisions hereof. 7.6 INTENTIONALLY OMITTED 7.7 DELIVERY OF DISTRIBUTIONS. Distributions to holders of Allowed Claims shall be made at the address of each such holder as set forth on the Schedules filed with the Bankruptcy Court unless superseded by the address as set forth on the proofs of claim and equity interest filed by such holders or other writing notifying the applicable Reorganized Debtor of a change of address. If any holder's distribution is returned as undeliverable, notice shall be given to the Committee and no further distributions to such holder shall be made unless and until the applicable Reorganized Debtor is notified of such holder's then current address, at which time all missed distributions shall be made to such holder, without interest. All claims for undeliverable distributions shall be made on or before one hundred and twenty (120) days after the date such undeliverable distribution was initially made. After such date, all unclaimed property shall, in the applicable Reorganized Debtor's discretion, be used to satisfy the costs of administering and fully consummating this Plan or become property of the applicable Reorganized Debtor, and the holder of any such Claim shall -18- not be entitled to any other or further distribution under this Plan on account of such Claim. 7.8 MANNER OF PAYMENT UNDER PLAN. (a) All distributions of Cash to the holders of Allowed Claims against each of the Debtors under this Plan shall be made by, or on behalf of, the applicable Reorganized Debtor. Any distributions that revert to the applicable Reorganized Debtor or are otherwise canceled (such as pursuant to Section 7.7) shall revest solely in the applicable Reorganized Debtor. (b) At the option of the applicable Reorganized Debtor, any Cash payment to be made hereunder may be made by a check or wire transfer or as otherwise required or provided in applicable agreements. 7.9 RETENTION OF EQUITY INTERESTS. Upon the Effective Date, except as otherwise agreed by the applicable Debtor, the Class 9 Equity Interests shall be automatically reinstated as set forth in Section 4.8 above. As such, except as otherwise agreed by the applicable Debtor, no actions need be taken to implement the distributions of the reinstated Equity Interests of each of the Reorganized Debtors. 7.10 DE MINIMIS DISTRIBUTIONS. The applicable Reorganized Debtor as Disbursing Agent or such other entity designated by such Reorganized Debtor as a Disbursing Agent on or after the Effective Date will not be required to distribute Cash to the holder of an Allowed Claim in an impaired Class if the amount of Cash to be distributed on any distribution date under the Plan (including the Effective Date and the Final Distribution Date) on account of such Claim is less than $50. Any holder of an Allowed Claim on account of which the amount of Cash to be distributed is less than $50 will have its Claim for such distribution discharged and will be forever barred from asserting any such Claim against the Reorganized Debtors or their respective property. Any Cash not distributed pursuant to this Section 7.10 will become the property of the Reorganized Debtors, free of any restrictions thereon, and any such Cash held by a third-party Disbursing Agent will be returned to the Reorganized Debtors. 7.11 SETOFFS. Each Debtor may, in accordance with the provisions of this Plan, section 553 of the Bankruptcy Code and applicable non-bankruptcy law, set off against any Allowed Claim and the distributions to be made pursuant to this Plan on account of such Allowed Claim (before any distribution is made on account of such Allowed Claim), the -19- Claims, rights and causes of action of any nature that such Debtor may hold against the holder of such Allowed Claim; provided, however, that neither the failure to effect such a setoff nor the allowance of any Claim hereunder shall constitute a waiver or release by the applicable Debtor of any such Claims, rights and causes of action that the applicable Debtor may possess against such holder; and provided further, however, that any Claims of each Debtor arising before the Commencement Date shall first be setoff against Claims against such Debtor arising before the Commencement Date. 7.12 ALLOCATION OF PLAN DISTRIBUTION BETWEEN PRINCIPAL AND INTEREST. All distributions in respect of any Allowed Claim shall be allocated first to the principal amount of such Allowed Claim, as determined for federal income tax purposes, and thereafter, to the remaining portion of such Allowed Claim, if any. 7.13 WITHHOLDING AND REPORTING REQUIREMENTS. In connection with this Plan and all instruments issued in connection therewith and distributed thereon, the applicable Debtor shall comply with all applicable withholding and reporting requirements imposed by any federal, state or local taxing authority, and all distributions under this Plan shall be subject to any such withholding or reporting requirements. 7.14 TIME BAR TO CASH PAYMENTS. Checks issued by the Reorganized Debtors in respect of Allowed Claims shall be null and void if not negotiated within sixty (60) days after the date of issuance thereof. Requests for reissuance of any check shall be made to the applicable Reorganized Debtor by the holder of the Allowed Claim to whom such check originally was issued. Any Claim in respect of such a voided check shall be made on or before thirty (30) days after the expiration of the sixty day period following the date of issuance of such check. After such date, all funds held on account of such voided check shall, in the discretion of the applicable Reorganized Debtor, be used to satisfy the costs of administering and fully consummating this Plan or become property of the applicable Reorganized Debtor, and the holder of any such Allowed Claim shall not be entitled to any other or further distribution under this Plan on account of such Allowed Claim. 7.15 TRANSACTIONS ON BUSINESS DAYS. If the Effective Date or any other date on which a transaction may occur under this Plan shall occur on a day that is not a Business Day, the transactions contemplated by this Plan to occur on such day shall instead occur on the next succeeding Business Day. -20- 7.16 CLOSING OF CHAPTER 11 CASES. When all Disputed Claims filed against the Debtors have become Allowed Claims or have been disallowed by Final Order, and all distributions in respect of Allowed Claims have been made in accordance with this Plan, or at such earlier time as the Reorganized Debtors deem appropriate, the Reorganized Debtors shall seek authority from the Bankruptcy Court to close their respective Chapter 11 Cases in accordance with the Bankruptcy Code and the Bankruptcy Rules. SECTION 8. PROCEDURES FOR RESOLVING AND TREATING DISPUTED CLAIMS 8.1 PAYMENTS AND DISTRIBUTIONS WITH RESPECT TO DISPUTED CLAIMS. (a) Notwithstanding any other provision hereof, if any portion of a Claim is a Disputed Claim, no payment or distribution provided hereunder shall be made on account of such Claim unless and until such Disputed Claim becomes an Allowed Claim. (b) All Tort Claims are Disputed Claims. At the applicable Debtor's option, any unliquidated Tort Claim as to which a proof of claim was timely filed in the Chapter 11 Cases shall be determined and liquidated in the administrative or judicial tribunal(s) in which it is pending on the Effective Date or, if no action was pending on the Effective Date, in any administrative or judicial tribunal of appropriate jurisdiction. Notwithstanding the foregoing, at all times prior to or after the Effective Date, the Bankruptcy Court shall retain jurisdiction relating to Tort Claims, including the applicable Debtor's right to have such Claims determined and liquidated in the Bankruptcy Court. Any Tort Claim determined and liquidated pursuant to a judgment obtained in accordance with this Section 8.1(b) and applicable non-bankruptcy law which is no longer appealable or subject to review shall be deemed an Allowed Claim in Class 3 against the applicable Debtor in such liquidated amount, provided that only the amount of such Allowed Claim that is less than or equal to the Debtor's self-insured retention or deductible in connection with the applicable insurance policy and is not satisfied from proceeds of insurance payable to the holder of such Allowed Claim under the Debtors' insurance policies shall be treated as an Allowed Claim for the purposes of distributions under this Plan. Nothing contained in this Section 8.1(b) shall constitute or be deemed a waiver of any Claim, right or cause of action that the applicable Debtor may have against any Person in connection with or arising out of any Tort Claim, including, without limitation, any rights under section 157(b)(5) of title 28 of the United States Code. This entire Section 8.1(b) is subject to the applicable Debtor's right to elect to follow the procedures provided for in Section 8.5. -21- 8.2 PRESERVATION OF INSURANCE. Nothing in this Plan, including the discharge and release of the Debtors as provided in this Plan, shall diminish or impair the enforceability of any insurance policies that may cover Claims against either of the Debtors. 8.3 RESOLUTION OF DISPUTED CLAIMS. (a) Unless otherwise ordered by the Bankruptcy Court after notice and a hearing, and except as otherwise expressly provided for below, each Debtor, in coordination and consultation with the Committee, shall have the exclusive right (except as to applications for allowances of compensation and reimbursement of expenses under sections 330 and 503 of the Bankruptcy Code) to make and file objections to Claims and shall serve a copy of each objection upon the holder of the Claim to which the objection is made as soon as practicable, but in no event later than one hundred and twenty (120) days after the Effective Date; provided, however, that such one hundred and twenty (120) day period may be automatically extended by the applicable Debtor, without any further application to, or approval by, the Bankruptcy Court, for an additional thirty (30) days with the consent of the Committee (not to be unreasonably withheld). The foregoing deadlines for filing objections to Claims shall not apply to Tort Claims and, accordingly, no such deadline shall be imposed by this Plan. Notwithstanding any authority to the contrary, an objection to a Claim shall be deemed properly served on the holder thereof if the Debtors effect service in any of the following manners: (i) in accordance with Federal Rule of Civil Procedure 4, as modified and made applicable by Bankruptcy Rule 7004; (ii) to the extent that counsel for the holder is unknown, by first class mail, postage prepaid, on the signatory on the proof of claim or equity interest or other representative identified in the proof of claim or equity interest or any attachment thereto; or (iii) by first class mail, postage prepaid, on any counsel that has appeared on the holder's behalf in the Chapter 11 Cases. (b) Notwithstanding the foregoing, the Committee shall also have the right to make and file objections to Claims filed against any Debtor, which objections shall be made in consultation with such Debtor(s) and shall be made within the time frames provided for in this Section 8.3. From and after the Confirmation Date, subject to the Effective Date, all objections shall be litigated to a Final Order except to the extent that the applicable Debtor (with the consent of the Committee not to be unreasonably withheld) or the Committee (with the consent of the applicable Debtor not to be unreasonably withheld), as applicable, elects to withdraw any such objection or the applicable Debtor (with the consent of the Committee not to be unreasonably withheld) or the Committee (with the consent of the applicable Debtor not to be unreasonably withheld), as applicable, and the holder of the Disputed Claim elects to compromise, settle or otherwise resolve any such objection, in which event they may settle, compromise or otherwise resolve any such Disputed Claim without approval of the -22- Bankruptcy Court. At its option, upon the consent of the Committee, the applicable Debtor may make a single, lump sum payment of the settlement amount to the claimant. To the extent that an objection is filed by the Committee, at its option, the Committee, upon the consent of the applicable Debtor, may make a single, lump sum payment of the settlement amount to the claimant. The applicable Debtor shall prepare, issue and deliver to the Committee, within forty-five (45) days following the end of each month, a report with respect to the status of the resolution of Disputed Claims, in a form to be agreed upon by the professionals for the applicable Debtor and the Committee. 8.4 DISTRIBUTIONS AFTER ALLOWANCE. If, on or after the Effective Date, any Disputed Claim becomes, in whole or in part, an Allowed Claim, the applicable Reorganized Debtor shall distribute to the holder thereof the distributions, if any, to which such holder is then entitled under this Plan. Any Cash distributions shall be made as soon as practicable after the date that the order or judgment of the Bankruptcy Court allowing such Disputed Claim (or portion thereof) becomes a Final Order, but in no event more than thirty (30) days thereafter. Any Pro Rata Share of the Class 3 Cash Pool distributable to the holder of a Disputed Claim which becomes an Allowed Claim (in whole or in part) as a result of the entry of such order or judgment of the Bankruptcy Court allowing such Disputed Claim (or portion thereof) shall be made in accordance with the next scheduled distribution date to the holders of Allowed Claims. 8.5 RESERVE ACCOUNTS FOR CLASS 3 DISPUTED CLAIMS. On and after the Effective Date, the Debtors shall hold in the Disputed Claims Reserve, Cash in an aggregate amount sufficient to pay to each holder of a Disputed Claim in Class 3 the amount of Cash that such holder would have been entitled to receive under this Plan if such Claim had been an Allowed Claim on the Effective Date. Cash withheld and reserved for payments to holders of Disputed Claims in Class 3 shall be held and deposited by the Debtors in one or more segregated interest-bearing reserve accounts, as determined by the Plan Proponents, to be used to satisfy such Claims if and when such Disputed Claims in Class 3 become Allowed Claims, net of any taxes payable on, or attributable to, the interest income. To the extent that any portion of the net operating losses of the Confirmed Debtors are used to offset or satisfy any taxes otherwise attributable to any such interest, the Confirmed Debtors shall be reimbursed in the amount of the reduction in such taxes from the Disputed Claims Reserve. The amount of Cash to be held in the Disputed Claims Reserve shall not exceed the amount of the Class 3 Cash Pool. -23- 8.6 INVESTMENT OF DISPUTED CLAIMS RESERVES. The Plan Proponents shall be permitted, from time to time, in their discretion to invest all or a portion of the Cash in the Disputed Claims Reserve in United States Treasury Bills, interest-bearing certificates of deposit, tax exempt securities or investments permitted by section 345 of the Bankruptcy Code or otherwise authorized by the Bankruptcy Court, using prudent efforts to enhance the rates of interest earned on such Cash without inordinate credit risk or interest rate risk. All interest earned on such Cash shall be held in the Disputed Claims Reserve and, after satisfaction of any expenses incurred in connection with the maintenance of the Disputed Claims Reserve, including taxes payable on, or attributable to, such interest income shall be transferred out of the Disputed Claims Reserve and, in the discretion of the Debtors (in consultation with the Committee), be used to satisfy the costs of administering and fully consummating this Plan. To the extent that any portion of the net operating losses of the Confirmed Debtors are used to offset or satisfy any taxes otherwise attributable to any such interest, the Confirmed Debtors shall be reimbursed in the amount of the reduction in such taxes from the Disputed Claims Reserve. 8.7 RELEASE OF FUNDS FROM DISPUTED CLAIMS RESERVES. If at any time or from time to time after the Effective Date, there shall be Cash in the Disputed Claims Reserves in an amount in excess of the Debtors' maximum remaining payment obligations to the then existing holders of Disputed Claims in Class 3 against the Debtors under this Plan, such excess funds shall revert back to the Debtors. 8.8 ESTIMATION OF CLAIMS. The applicable Debtor or the Committee may, at any time, and in consultation with each other, request that the Bankruptcy Court estimate any contingent, unliquidated or Disputed Claim pursuant to section 502(c) of the Bankruptcy Code, regardless of whether the applicable Debtor previously objected to such Claim or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will retain jurisdiction to estimate any Claim at any time during litigation concerning any objection to any Claim, including, without limitation, during the pendency of any appeal relating to any such objection. In the event that the Bankruptcy Court estimates any contingent, unliquidated or Disputed Claim, the amount so estimated shall constitute either the allowed amount of such Claim or a maximum limitation on such Claim, as determined by the Bankruptcy Court. If the estimated amount constitutes a maximum limitation on the amount of such Claim, the applicable Debtor or the Committee may pursue supplementary proceedings to object to the allowance of such Claim. All of the aforementioned objection, estimation and resolution procedures are intended to be cumulative and not exclusive of one another. On and after the Confirmation Date, subject to the Effective Date, Claims which have been estimated may be subsequently -24- compromised, settled, withdrawn or otherwise resolved without further order of the Bankruptcy Court. 8.9 NO RECOURSE. No holder of any Disputed Claim that becomes an Allowed Claim in any applicable Class shall have recourse against any Disbursing Agent, the Debtors, the Confirmed Debtors, the Committee, the Reorganized Debtors or any other holder of an Allowed Claim in such Class, or any of their respective professional consultants, officers, directors or members of their successors or assigns, or any of their respective property, if the Cash allocated to such Class and not previously distributed is insufficient to provide a distribution to such holder in the same proportion to that received by other holders of Allowed Claims in such Class. However, nothing in this Plan shall modify any right of a holder of a Claim under section 502(j) of the Bankruptcy Code. 8.10 MEDIATION OF DISPUTED CLAIMS. The automatic stay of section 362 of the Bankruptcy Code shall remain in effect after the Effective Date with respect to all Disputed Claims. All holders of Disputed Claims (other than Tort Claims) shall comply with the following procedures: (a) At its option, the applicable Debtor may (i) request that the holder of a Disputed Claim provide documentation to evidence the validity and amount of such Claim, and/or (ii) submit a written counter-proposal to the holder of a Disputed Claim. In lieu of, or in addition to, the foregoing, the applicable Debtor may file an objection to such Disputed Claim. (b) The holder of a Disputed Claim may accept the applicable Debtor's counter-proposal at any time within fourteen (14) days of the applicable Debtor's mailing of such counter-proposal. (c) If no settlement is reached pursuant to paragraphs (a) and (b) above, the applicable Debtor, at its discretion (in consultation with the Committee), shall have the option to require the holder of a Disputed Claim to participate in a non-binding mediation process. All mediation pursuant to this Section 8.7 shall be conducted at the applicable Debtor's option in either Atlanta, Georgia or New York, New York, pursuant to the Local Bankruptcy Rules of the Bankruptcy Court. In the event that a mediation is scheduled and the holder of the Disputed Claim does not participate in the mediation, the Disputed Claim shall be disallowed in its entirety. (d) If the applicable Debtor and the holder of a Disputed Claim are unable to reach an agreement on a Claim amount pursuant to the procedures set forth above, the Disputed Claim shall be submitted to the Bankruptcy Court for resolution. If it is determined that the United States Bankruptcy Court for the Southern District of New -25- York does not have jurisdiction to resolve any Disputed Claim, then the Disputed Claim shall be submitted to the United States District Court for the Southern District of New York for resolution. (e) The applicable Debtor (with the consent of the Committee not to be unreasonably withheld) and the holder of a Disputed Claim may seek to settle, compromise or otherwise resolve any Disputed Claim at any time in accordance with this Plan or any order of the Bankruptcy Court approving a settlement procedure for Disputed Claims for the applicable Debtor and the Committee. (f) At its option, the applicable Debtor may require the holder of a Disputed Tort Claim to either (i) comply with the mediation procedures provided for in this Section 8.7 or (ii) comply with any other separate mediation and/or arbitration procedures approved in the Chapter 11 Cases relating to Tort Claims. SECTION 9. EXECUTORY CONTRACTS AND UNEXPIRED LEASES 9.1 GENERAL TREATMENT. On the Effective Date, all executory contracts and unexpired leases to which each Debtor is a party shall be deemed rejected as of the Effective Date, except for an executory contract or unexpired lease that (i) has been assumed or rejected pursuant to a Final Order of the Bankruptcy Court, (ii) is specifically designated as a contract or lease to be assumed on the Schedule of Assumed Contracts set forth in the Plan Supplement, provided however, that the Debtors reserve the right to amend the Plan Supplement at any time on or before the Effective Date to amend the Schedule of Assumed Contracts to add or delete any executory contract or unexpired lease, thus providing for its assumption, assumption and assignment, or rejection, or (iii) is the subject of a separate motion to assume, assume and assign, or reject filed under section 365 of the Bankrup tcy Code by the applicable Debtor on or before the Effective Date. 9.2 CURE OF DEFAULTS. (a) Except to the extent that a different treatment has been agreed to by the non-Debtor party or parties to any executory contract or unexpired lease to be assumed pursuant to Section 9.1 hereof, the applicable Debtor shall, pursuant to the provisions of sections 1123(a)(5)(G) and 1123(b)(2) of the Bankruptcy Code and consistently with the requirements of section 365 of the Bankruptcy Code, within thirty (30) days after the Effective Date, file and serve a pleading with the Bankruptcy Court listing the cure amounts of all executory contracts or unexpired leases to be assumed. The parties to such executory contracts or unexpired leases to be assumed by the applicable Debtor shall have fifteen (15) days from service to object to the cure amounts listed by the applicable Debtor. If there are any objections filed, the Bankruptcy Court -26- shall hold a hearing. The applicable Debtor shall retain its right to reject any of its executory contracts or unexpired leases, including contracts or leases that are subject to a dispute concerning amounts necessary to cure any defaults. Notwithstanding the foregoing, at all times through the date that is five (5) Business Days after the Bankruptcy Court enters an order resolving and fixing the amount of a disputed cure amount, the Debtors shall have the right to reject such executory contract or unexpired lease. (b) Subject to Section 9.1 of this Plan, the executory contracts and unexpired leases on the Schedule of Assumed Contracts shall be assumed by the respective Debtors as indicated on such Schedule. Except as may otherwise be ordered by the Bankruptcy Court, the Debtors shall have the right to cause any assumed executory contract or unexpired lease to vest in the Reorganized Debtor designated for such purpose by the Debtors. 9.3 ASSUMPTIONS AND ASSIGNMENTS OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES. In furtherance of the Exit Financing Agreements, pursuant to sections 365 and 1123(a)(5) of the Bankruptcy Code, the Debtors are authorized to assume and assign to one or more of the Exit Financing Borrowers or any other newly created borrowing entities one or more executory contracts and unexpired leases to be assumed under this Plan. Entry of the Confirmation Order shall constitute the approval of such assumptions and assignments pursuant to sections 365 and 1123(a)(5) of the Bankruptcy Code. Any provision in any such assumed and assigned contract and lease that prohibits, restricts or conditions such assignment is unenforceable under section 365(f) of the Bankruptcy Code. The requirements of section 365(b) of the Bankruptcy Code shall be deemed satisfied with respect to each such assumed and assigned contract and lease, and because each such assumption and assignment is a necessary part of the Debtors' Exit Financing, such assumptions and assignments are in the best interests of the Debtors and their Estates. 9.4 APPROVAL OF REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES. Entry of the Confirmation Order shall constitute the approval, pursuant to section 365(a) of the Bankruptcy Code, of the rejection of any executory contracts and unexpired leases to be rejected as and to the extent provided in Section 9.1 of this Plan. 9.5 BAR DATE FOR FILING PROOFS OF CLAIM RELATING TO EXECUTORY CONTRACTS AND UNEXPIRED LEASES REJECTED PURSUANT TO PLAN. Claims arising out of the rejection of an executory contract or unexpired lease pursuant to Section 9.1 of this Plan must be filed with the Bankruptcy Court no later than twenty (20) days after the Effective Date. Any Claims not filed within such time -27- period will be forever barred from assertion against either of the applicable Debtors and/or the Estates. 9.6 SURVIVAL OF DEBTORS' CORPORATE INDEMNITIES. Any obligations of any of the Debtors pursuant to the applicable Debtor's corporate charters and bylaws or agreements entered into any time prior to the Effective Date, to indemnify any Releasee, with respect to all present and future actions, suits and proceedings against such Debtor or such Releasee, based upon any act or omission for or on behalf of such Debtor, shall not be discharged or impaired by confirmation of this Plan. Such obligations shall be deemed and treated as executory contracts to be assumed by the applicable Debtor pursuant to this Plan, and shall continue as obligations of the applicable Reorganized Debtor. SECTION 10. CONDITIONS PRECEDENT TO EFFECTIVE DATE 10.1 CONDITIONS TO EFFECTIVE DATE. The following are conditions precedent to the Effective Date: (a) The Bankruptcy Court shall have entered the Confirmation Order in form and substance satisfactory to the Plan Proponents; (b) No stay of the Confirmation Order shall then be in effect; and (c) All documents, instruments and agreements, including, without limitation, the Exit Financing Agreements, in form and substance satisfactory to the Plan Proponents, provided for under or necessary to implement this Plan shall have been executed and delivered by the parties thereto, unless such execution or delivery has been waived by the parties benefited thereby. 10.2 WAIVER OF CONDITIONS. The Plan Proponents may waive the conditions to effectiveness of this Plan set forth in Section 10.1(c) of this Plan without leave of or notice to the Bankruptcy Court and without any formal action other than proceeding with confirmation of this Plan -28- SECTION 11. EFFECT OF CONFIRMATION 11.1 VESTING OF ASSETS. Upon the Effective Date, pursuant to sections 1141(b) and (c) of the Bankruptcy Code, except for leases and executory contracts that have not yet been assumed or rejected (which leases and contracts shall be deemed vested when and if assumed), all property of each Debtor's Estate shall vest in each of the applicable Exit Financing Borrowers and any other newly created subsidiaries of the Reorganized Debtors free and clear of all Claims, liens, encumbrances, charges and other interests, except as provided herein. Each Reorganized Debtor is authorized to execute the necessary documentation to effectuate the vesting of property in the Exit Financing Borrowers or any other newly created subsidiaries. Each Reorganized Debtor may operate its businesses and may use, acquire and dispose of property free of any restrictions of the Bankruptcy Code or the Bankruptcy Rules and in all respects as if there were no pending cases under any chapter or provision of the Bankruptcy Code, except as provided herein. 11.2 DISCHARGE OF CLAIMS. Except as otherwise provided herein or in the Confirmation Order, the rights afforded in this Plan and the entitlement to receive payments and distributions to be made hereunder shall discharge all existing Claims, of any kind, nature or description whatsoever against each of the Debtors or any of their assets or properties to the fullest extent permitted by section 1141 of the Bankruptcy Code. Except as provided in this Plan, on the Effective Date, all existing Claims against each of the Debtors shall be, and shall be deemed to be, discharged or canceled and all holders of Claims shall be precluded and enjoined from asserting against then Reorganized Debtors, or any of their assets or properties, any other or further Claim based upon any act or omission, transaction or other activity of any kind or nature that occurred prior to the Effective Date, whether or not such holder has filed a proof of claim or equity interest. 11.3 DISCHARGE OF DEBTORS. Upon the Effective Date and in consideration of the distributions to be made hereunder, except as otherwise expressly provided herein, each holder (as well as any trustees and agents on behalf of each holder) of a Claim of such holder shall be deemed to have forever waived, released and discharged each of the Debtors, to the fullest extent permitted by section 1141 of the Bankruptcy Code, of and from any and all Claims, Equity Interests, rights and liabilities that arose prior to the Effective Date. Upon the Effective Date, all such Persons shall be forever precluded and enjoined, pursuant to section 524 of the Bankruptcy Code, from prosecuting or asserting any such discharged Claim against each of the Debtors. -29- 11.4 BINDING EFFECT. Except as otherwise provided in section 1141(d)(3) of the Bankruptcy Code, on and after the Confirmation Date, and subject to the Effective Date, the provisions of this Plan shall bind any holder of a Claim against the applicable Debtor and its respective successors and assigns, whether or not the Claim of such holder is impaired under this Plan and whether or not such holder has accepted this Plan. 11.5 TERM OF INJUNCTIONS OR STAYS. Unless otherwise provided herein, all injunctions or stays arising under section 105 or 362 of the Bankruptcy Code, any order entered during the Chapter 11 Cases under section 105 or 362 of the Bankruptcy Code or otherwise, and in existence on the Confirmation Date, shall remain in full force and effect until the later of the Effective Date and the date indicated in such order. 11.6 INJUNCTION AGAINST INTERFERENCE WITH PLAN. Upon the entry of the Confirmation Order, all holders of Claims and other parties in interest, along with their respective present or former employees, agents, officers, directors or principals, shall be enjoined from taking any actions to interfere with the implementation or consummation of this Plan. 11.7 EXCULPATION. None of the Debtors nor any Releasee shall have or incur any liability to any holder of a Claim or Equity Interest for any act or omission (and in the case of any director, officer, agent or employee of any Debtor who was employed or otherwise serving in such capacity on the Confirmation Date, any claims against such Persons) in connection with, or arising out of, the Chapter 11 Cases, the pursuit of confirmation of this Plan, transactions or relationships with the applicable Debtor (either prior to or after the Commencement Date), the consummation of this Plan, the administration of this Plan or the property to be distributed under this Plan, except for willful misconduct or gross negligence, and, in all respects, the Plan Proponents and such Persons shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities during the Chapter 11 Cases and under this Plan. 11.8 RIGHTS OF ACTION. On and after the Effective Date, and except as may otherwise be agreed to by the Plan Proponents, the Reorganized Debtors will retain and have the exclusive right to enforce any and all present or future rights, claims or causes of action against any Person and rights of the Reorganized Debtors that arose before or after the Commencement Date, including, but not limited to, rights, claims, causes of action, -30- avoiding powers, suits and proceedings arising under sections 544, 545, 548, 549, 550 and 553 of the Bankruptcy Code. The Reorganized Debtors may pursue, abandon, settle or release any or all such rights of action, as they deem appropriate, without the need to obtain approval or any other or further relief from the Bankruptcy Court. The Reorganized Debtors may, in their discretion, offset any such claim held against a Person against any payment due such Person under this Plan; provided, however, that any claims of any of the Reorganized Debtors arising before the Commencement Date shall first be offset against Claims against any of the Reorganized Debtors arising before the Commencement Date. 11.9 RELEASE BY DEBTORS. From and after the Effective Date, the Releasees shall be released by each Debtor from any and all claims (as defined in section 101(5) of the Bankruptcy Code), obligations, suits, judgments, damages, rights, causes of action and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that any Debtor is entitled to assert in its own right or on behalf of the holder of any Claim or Equity Interest or other Person, based in whole or in part upon any act or omission, transaction, agreement, event or other occurrence taking place on or prior to the Effective Date in any way relating to any Debtor, the Chapter 11 Cases or the negotiation, formulation and preparation of this Plan or any related document, except for (i) claims or causes of action against any Releasee resulting from the willful misconduct or gross negligence of such Releasee and (ii) claims against or liabilities of directors, officers or employees of any Debtor in respect of any loan, advance or similar payment by any Debtor to any such Person or any contractual obligation owed by such Person to any Debtor. 11.10 RELEASE OF RELEASEES BY OTHER RELEASEES. From and after the Effective Date, the Releasees shall release each other from any and all claims (as defined in section 101(5) of the Bankruptcy Code), obligations, suits, judgments, damages, rights, causes of action and liabilities whatsoever, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that any Releasee is entitled to assert against any other Releasee, based in whole or in part upon any act or omission, transaction, agreement, event or occurrence taking place on or before the Effective Date in any way relating to any Debtor, the Chapter 11 Cases or the negotiation, formulation and preparation of this Plan or any related document, except for claims or causes of actions against any Releasee resulting from the willful misconduct or gross negligence of such Releasee. -31- 11.11 CLAIMS OF THE UNITED STATES GOVERNMENT. Nothing in this Plan shall effect a release of any non-Debtor from any claim by the United States Government or any of its agencies; nor shall anything in this Plan enjoin the United States from bringing any claim, suit, action or other proceeding against any non-Debtor; provided, however, that this Section 11.11 shall in no way affect or limit the discharge granted to any Debtor under Chapter 11 of the Bankruptcy Code. SECTION 12. RETENTION OF JURISDICTION On and after the Effective Date, the Bankruptcy Court shall retain jurisdiction over all matters arising in, arising under, or related to the Chapter 11 Cases and this Plan for, among other things, the following purposes: (a) To hear and determine motions for the assumption or rejection of executory contracts or unexpired leases and the allowance of Claims resulting therefrom; (b) To hear and determine motions for the sale of all or any part of the Debtors' or Reorganized Debtors' assets, free and clear of all liens, claims and encumbrances in accordance with sections 363 and 1123(a)(5) of the Bankruptcy Code; (c) To determine any motion, adversary proceeding, application, contested matter, and other litigated matter pending on or commenced after the Confirmation Date; (d) To ensure that distributions to holders of Allowed Claims are accomplished as provided herein; (e) To consider Claims or the allowance, classification, priority, compromise, estimation or payment of any Claim, Administrative Expense Claim, or Disputed Claim; (f) To enter, implement or enforce such orders as may be appropriate in the event that the Confirmation Order is for any reason stayed, reversed, revoked, modified or vacated; (g) To issue injunctions, enter and implement other orders, and take such other actions as may be necessary or appropriate to restrain interference by any Person with the consummation, implementation or enforcement of this Plan, the Confirmation Order or any other order of the Bankruptcy Court; (h) To hear and determine any application to modify this Plan in accordance with section 1127 of the Bankruptcy Code, to remedy any defect or omission or reconcile any inconsistency in this Plan, the disclosure statement for this Plan, or any -32- order of the Bankruptcy Court, including the Confirmation Order, in such a manner as may be necessary to carry out the purposes and effects thereof; (i) To hear and determine all applications under sections 330, 331 and 503(b) of the Bankruptcy Code for awards of compensation for services rendered and reimbursement of expenses incurred prior to the Confirmation Date; (j) To hear and determine disputes arising in connection with the interpretation, implementation or enforcement of this Plan, the Confirmation Order, any transactions or payments contemplated hereby, or any agreement, instrument, or other document governing or relating to any of the foregoing; (k) To take any action and issue such orders as may be necessary to construe, enforce, implement, execute and consummate this Plan or to maintain the integrity of this Plan following consummation; (l) To hear any disputes arising out of, and to enforce, the order approving alternative dispute resolution procedures to resolve personal injury, employment litigation and similar Claims pursuant to section 105(a) of the Bankruptcy Code; (m) To determine such other matters and for such other purposes as may be provided in the Confirmation Order; (n) To hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy Code (including any requests for expedited determinations under section 505(b) of the Bankruptcy Code filed, or to be filed, with respect to tax returns for any and all taxable periods ending after the Commencement Date through, and including, the Final Distribution Date); (o) To hear and determine any other matters related hereto and not inconsistent with the Bankruptcy Code and title 28 of the United States Code; (p) To recover all assets of any of the Debtors and property of the applicable Debtor's Estate, wherever located; and (q) To enter a final decree closing the Chapter 11 Cases. SECTION 13. MISCELLANEOUS PROVISIONS 13.1 RETIREE BENEFITS. On and after the Effective Date, pursuant to section 1129(a)(13) of the Bankruptcy Code, the applicable Reorganized Debtors shall continue to pay any applicable retiree benefits of such Debtors (within the meaning of section 1114 of the -33- Bankruptcy Code), at any such level established in accordance with section 1114 of the Bankruptcy Code, at any time prior to the Confirmation Date, for the duration of the period for which the applicable Debtor had obligated itself to provide any such benefits. 13.2 DELETION OF CLASSES AND SUBCLASSES. Any Class or Subclass of Claims that does not contain as an element thereof an Allowed Claim or a Claim temporarily allowed under Bankruptcy Rule 3018 as of the date of the commencement of the confirmation hearing shall be deemed deleted from this Plan for purposes of voting to accept or reject this Plan and for purposes of determining acceptance or rejection of this Plan by such Class or Subclass under section 1129(a)(8) of the Bankruptcy Code. 13.3 ADDITION OF CLASSES AND SUBCLASSES. In the event that Class 1-B would contain as elements thereof two or more Secured Claims collateralized by different properties or interests in property or collateralized by liens against the same property or interest in property having different priority, such Claims shall be divided into separate Subclasses of Class 1-B. 13.4 COMMITTEE. (a) The Committee shall continue in existence from and after the Effective Date. In addition to the powers and duties ascribed to the Committee in this Plan, from and after the Effective Date, the Committee may perform such other functions as are consistent with discharging its duties to the holders of General Unsecured Claims. (b) References herein to the "Committee" shall include the Committee from and after the Effective Date. 13.5 EXEMPTION FROM TRANSFER TAXES. Pursuant to section 1146(c) of the Bankruptcy Code, neither (i) the issuance, transfer or exchange of any security under, in furtherance of, or in connection with, this Plan, nor (ii) the assignment or surrender of any lease or sublease, or the delivery of any deed or other instrument of transfer or of any mortgage, deed of trust or other instrument of encumbrance under, in furtherance of, or in connection with, this Plan, including any deeds, bills of sale or assignments executed in connection with any disposition of assets contemplated by this Plan (including real and personal property) or the disposition and/or encumbrance of assets in connection with the Exit Financing Agreements (including any subsequent sale of property under section 6.1 of this Plan), shall be subject to any stamp, real estate transfer, mortgage recording sales, use or other similar tax. -34- 13.6 SUBSTANTIAL CONSUMMATION. On the Effective Date, this Plan shall be deemed to be substantially consummated under sections 1101 and 1127(b) of the Bankruptcy Code. 13.7 PAYMENT OF STATUTORY FEES. All fees payable pursuant to chapter 123 of title 28, United States Code, as determined by the Bankruptcy Court on the Confirmation Date, shall be paid on the Effective Date. Any statutory fees accruing after the Confirmation Date shall constitute Administrative Expense Claims and be paid in accordance with SECTION 2.1 of this Plan. 13.8 AMENDMENTS. The Plan Proponents reserve the right, in accordance with the Bankruptcy Code and the Bankruptcy Rules, to amend or modify this Plan at any time prior to the entry of the Confirmation Order. After the entry of the Confirmation Order, the Plan Proponents may, upon order of the Bankruptcy Court, amend or modify this Plan, in accordance with section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in this Plan in such manner as may be necessary to carry out the purpose and intent of this Plan. A holder of an Allowed Claim that is deemed to have accepted this Plan shall be deemed to have accepted this Plan as modified if the proposed modification does not materially and adversely change the treatment of the Claim of such holder. 13.9 REVOCATION OR WITHDRAWAL OF PLAN. The Plan Proponents may withdraw or revoke this Plan at any time prior to the Confirmation Date. If the Plan Proponents revoke or withdraw this Plan prior to the Confirmation Date, or if the Confirmation Date does not occur, then this Plan shall be deemed null and void. In such event, nothing contained herein shall be deemed to constitute a waiver or release of any Claim by or against the respective Debtor or any other Person or to prejudice in any manner the rights of the respective Debtor or any other Person in any further proceedings involving the respective Debtor. 13.10 CRAMDOWN. The Plan Proponents request confirmation of the Plan under section 1129(b) of the Bankruptcy Code with respect to any Class that is deemed to have not accepted this Plan pursuant to section 1126(g) of the Bankruptcy Code. The Plan Proponents reserve the right to (i) request confirmation of this Plan under section 1129(b) of the Bankruptcy Code with respect to any Class or Subclass that does not accept this Plan pursuant to section 1126 of the Bankruptcy Code and (ii) to modify this Plan to the -35- extent, if any, that confirmation of this Plan under section 1129(b) of the Bankruptcy Code requires modification. 13.11 SEVERABILITY. In the event that the Bankruptcy Court determines, prior to the Confirmation Date, that any provision of this Plan is invalid, void or unenforceable, the Bankruptcy Court shall, with the consent of the Plan Proponents, have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistently with the original purpose of the term or provision held to be invalid, void or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any such holding, alteration or interpretation, the remainder of the terms and provisions of this Plan shall remain in full force and effect and shall in no way be affected, impaired or invalidated by such holding, alteration or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of this Plan, as it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms. 13.12 REQUEST FOR EXPEDITED DETERMINATION OF TAXES. Each Debtor shall have the right to request an expedited determination under section 505(b) of the Bankruptcy Code with respect to tax returns filed, or to be filed, for any and all taxable periods ending after the Commencement Date through and including the Final Distribution Date. 13.13 COURTS OF COMPETENT JURISDICTION. If the Bankruptcy Court abstains from exercising, or declines to exercise, jurisdiction or is otherwise without jurisdiction over any matter arising out of this Plan, such abstention, refusal or failure of jurisdiction shall have no effect upon and shall not control, prohibit or limit the exercise of jurisdiction by any other court having competent jurisdiction with respect to such matter. 13.14 GOVERNING LAW. Except to the extent that the Bankruptcy Code or Bankruptcy Rules are applicable, or to the extent that an Exhibit hereto or a Schedule in the Plan Supplement provides otherwise, the rights, duties and obligations arising under this Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without giving effect to the principles of conflict of laws thereof. -36- 13.15 TIME. In computing any period of time prescribed or allowed by this Plan, unless otherwise set forth herein or determined by the Bankruptcy Court, the provisions of Bankruptcy Rule 9006 shall apply. 13.16 HEADINGS. Headings are used in this Plan for convenience and reference only and shall not constitute a part of this Plan for any other purpose. 13.17 EXHIBITS. All Exhibits and Schedules to this Plan are incorporated into and are a part of this Plan as if set forth in full herein. 13.18 NOTICES. Any notices to or requests of the Plan Proponents by parties in interest under or in connection with this Plan shall be in writing and served either by (i) certified mail, return receipt requested, postage prepaid, (ii) hand delivery or (iii) reputable overnight delivery service, all charges prepaid, and shall be deemed to have been given when received by the following parties: Impac Hotels II, L.L.C. Impac Hotels III, L.L.C. c/o Lodgian, Inc. 3445 Peachtree Road - Suite 700 Atlanta, Georgia 30326 Attn: Daniel E. Ellis, Esq. with copies to: CADWALADER, WICKERSHAM & TAFT LLP Attorneys for the Debtors and Debtors-In-Possession 100 Maiden Lane New York, New York 10038 (212) 504-6000 Attn: Adam C. Rogoff, Esq. -and- -37- CURTIS, MALLET-PREVOST, COLT & MOSLE, LLP Co-Attorneys for the Debtors and Debtors-In-Possession 101 Park Avenue New York, New York 10178 (212) 696-6000 Attn: Steven J. Reisman, Esq. -and- DEBEVOISE & PLIMPTON Attorneys for the Official Committee of Unsecured Creditors 919 Third Avenue New York, New York 10022 (212) 909-6000 Attn: George E.B. Maguire, Esq. -38- Dated: New York, New York As of March 3, 2003 Respectfully submitted, IMPAC HOTELS II, L.L.C. By: /s/ Daniel E. Ellis -------------------------------------- Name: Daniel E. Ellis Title: Authorized Officer IMPAC HOTELS III, L.L.C. By: /s/ Daniel E. Ellis -------------------------------------- Name: Daniel E. Ellis Title: Authorized Officer OFFICIAL COMMITTEE OF UNSECURED CREDITORS By: Debevoise & Plimpton, its counsel By: /s/ George E.B. Maguire -------------------------------------- Name: George E.B. Maguire -39- EXHIBIT A
CLASS 3 SUBCLASS DEBTOR CASE NO. ----------------------- -------- ~~Impac Hotels II, L.L.C. 01-16367 Impac Hotels III, L.L.C. 01-16375~~
EX-10.58 5 g82843exv10w58.txt EX-10.58 DISCLOSURE STATEMENT FOR IMPAC PLAN EXHIBIT 10.58 EXHIBIT A UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - --------------------------------- In re: CHAPTER 11 LODGIAN, INC., et al., Case No. 01-16345 (BRL) Debtors. Jointly Administered - --------------------------------- DISCLOSURE STATEMENT FOR JOINT PLAN OF REORGANIZATION OF IMPAC HOTELS II, L.L.C. AND IMPAC HOTELS III, L.L.C. TOGETHER WITH THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE This is not a solicitation of acceptances or rejections of the Impac Debtors' Joint Plan of Reorganization under chapter 11 of the Bankruptcy Code, which is annexed as Exhibit B to the Impac Disclosure Statement (the "Impac Plan"). Acceptances or rejections with respect to the Impac Plan may not be solicited until a disclosure statement has been approved by the United States Bankruptcy Court for the Southern District of New York. The Impac Disclosure Statement is being submitted for approval, but has not yet been approved, by the Bankruptcy Court. Any such approval by the Bankruptcy Court of the Impac Disclosure Statement as containing "adequate information" will not constitute endorsement of the Impac Plan. Information contained in the Impac Disclosure Statement is subject to completion or amendment. CADWALADER, WICKERSHAM CURTIS, MALLET-PREVOST, COLT & TAFT LLP & MOSLE LLP Attorneys for the Debtors and Co-Attorneys for the Debtors and Debtors-In-Possession Debtors-In-Possession 100 Maiden Lane 101 Park Avenue New York, New York 10038 New York, New York 10178 (212) 504-6000 (212) 696-6000 DEBEVOISE & PLIMPTON Attorneys for the Official Committee of Unsecured Creditors 919 Third Avenue New York, New York 10022 (212) 909-6000 Dated: As of March 3, 2003 THE DEADLINE BY WHICH EACH HOLDER OF AN IMPAIRED CLAIM MUST CAST A PROPERLY COMPLETED AND DELIVERED BALLOT FOR ITS VOTE TO ACCEPT OR REJECT THE IMPAC PLAN TO BE COUNTED IS APRIL 17, 2003, AT 5:00 P.M. (PACIFIC TIME), UNLESS EXTENDED. IMPORTANT NOTICE The Impac Disclosure Statement and its related documents are the only documents authorized by the Bankruptcy Court to be used in connection with the solicitation of votes to accept the Impac Plan. No representations have been authorized by the Bankruptcy Court concerning the Impac Debtors, their business operations or the value of their assets, except as explicitly set forth herein. Please refer to the Glossary and the Impac Plan for definitions of the capitalized terms used but not defined in the Impac Disclosure Statement. The Impac Debtors reserve the right to file an amended Impac Plan and Impac Disclosure Statement from time to time. The Impac Debtors urge you to read the Impac Disclosure Statement carefully for a discussion of voting instructions, recovery information, Classification of Claims and Equity Interests, the history of the Impac Debtors and the Impac Debtors' Chapter 11 cases, the Impac Debtors' businesses, properties and results of operations, historical and projected financial results and a summary and analysis of the Impac Plan. The Impac Debtors also have attached the Lodgian Disclosure Statement (as defined in section V.A.2), annexed hereto as Exhibit A, for further information regarding the history and businesses of the Lodgian Group. The Impac Disclosure Statement contains only a summary of the Impac Plan. The Impac Disclosure Statement is not intended to replace the careful and detailed review and analysis of the Impac Plan, only to aid and supplement such review. The Impac Disclosure Statement is qualified in its entirety by reference to the Impac Plan, the Plan Supplement and the exhibits attached thereto and the agreements and documents described therein. If there is a conflict between the Impac Plan and the Impac Disclosure Statement, the provisions of the Impac Plan will govern. You are encouraged to review the full text of the Impac Plan and Plan Supplement and to read carefully the entire Impac Disclosure Statement, including all exhibits, before deciding how to vote with respect to the Impac Plan. Except as otherwise indicated, the statements in the Impac Disclosure Statement are made as of the date indicated on the cover and the delivery of the Impac Disclosure Statement will not imply that the information contained in the Impac Disclosure Statement is correct at any time after that date. Estimates of Claims in the Impac Disclosure Statement may vary from the final amounts of Claims allowed by the Bankruptcy Court. You should not construe the Impac Disclosure Statement as providing any legal, business, financial or tax advice. You should, therefore, consult with your own legal, business, financial or tax advisors as to any such matters in connection with the Impac Plan, the solicitation of votes on the Impac Plan and the transactions contemplated by the Impac Plan. As to any contested matters, adversary proceedings or other actions or threatened actions, the Impac Disclosure Statement is not, and is in no event to be construed as, an admission or stipulation. Instead, the Impac Disclosure Statement is, and is for all purposes to be construed as, solely and exclusively a statement made in settlement negotiations. The settlements and compromises described in the Impac Plan and the Impac Disclosure Statement remain subject to ongoing negotiations with the respective parties. FORWARD-LOOKING INFORMATION The Impac Disclosure Statement includes forward-looking statements based largely on the Impac Debtors' current expectations and projections about future events and financial trends affecting the financial condition of the Impac Debtors' or the Reorganized Impac Debtors' businesses. These include management's expectations with respect to the Impac Debtors' Chapter 11 cases, statements that describe anticipated revenues, capital expenditures and other financial items, statements that describe the Reorganized Impac Debtors' business plans and objectives, and statements that describe the expected impact of competition, government regulation, litigation and other factors on the Reorganized Impac Debtors' 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. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in section VIII, "Risk Factors," of the Impac Disclosure Statement. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in the Impac Disclosure Statement may not occur and actual results could differ materially from those anticipated in the forward-looking statements. None of the Impac Debtors, the Reorganized Impac Debtors nor any other person undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. TABLE OF CONTENTS
PAGE # I. INTRODUCTION.............................................................. 2 II. TREATMENT OF CREDITORS AND SHAREHOLDERS UNDER THE IMPAC PLAN............. 2 A. New Capital Structure of the Reorganized Impac Debtors........... 2 B. Summary of Classification and Treatment.......................... 2 C. Description of the Classes....................................... 2 1. CCA Secured Claim (Class 1-A).................................. 2 2. Miscellaneous Secured Claims (Class 1-B)....................... 2 3. Priority Non-Tax Claims (Class 2).............................. 2 4. General Unsecured Claims (Class 3)............................. 2 5. Convenience Claims (Class 5)................................... 2 6. Equity Interests (Class 9)..................................... 2 7. Subordinated Claims (Class 11)................................. 2 D. Administrative Expenses of the Impac Debtors..................... 2 E. Reservation of "Cram Down" Rights................................ 2 III. VOTING PROCEDURES AND REQUIREMENTS...................................... 2 A. Vote Required for Acceptance by a Class.......................... 2 B. Voting........................................................... 2 IV. FINANCIAL INFORMATION AND PROJECTIONS.................................... 2 A. Operating Performance............................................ 2 B. Three-Year Projections of the Reorganized Impac Debtors.......... 2 V. BUSINESS DESCRIPTION AND SALIENT EVENTS DURING REORGANIZATION............. 2 A. Historical Background............................................ 2 1. Background to the Chapter 11 Filings........................... 2 2. Confirmation of the Lodgian Plan............................... 2 3. Significant Events Concerning the Impac Debtors................ 2 VI. GOVERNANCE OF THE REORGANIZED IMPAC DEBTORS.............................. 2 A. Boards of Directors of the Reorganized Impac Debtors............. 2 B. Senior Management of the Reorganized Impac Debtors............... 2 VII. OTHER ASPECTS OF THE IMPAC PLAN......................................... 2 A. Distributions Under the Impac Plan............................... 2 1. Disbursing Agent............................................... 2 2. Timing and Conditions of Distributions......................... 2 3. Procedures for Treating Disputed Claims Under the Impac Plan... 2 B. Treatment of Executory Contracts and Unexpired Leases............ 2 1. Contracts and Leases Not Expressly Assumed Are Rejected........ 2 2. Cure of Defaults............................................... 2 3. Rejection Claims............................................... 2 4. Franchise Agreements........................................... 2
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PAGE # C. Effect of Confirmation............................................ 2 1. Discharge of Claims............................................. 2 2. Indemnification................................................. 2 D. Miscellaneous Provisions.......................................... 2 VIII. RISK FACTORS............................................................ 2 A. Certain Bankruptcy Considerations................................. 2 1. General Risks Relating to Confirmation and Consummation......... 2 2. Matters Affecting Recoveries.................................... 2 3. of Franchise Agreements......................................... 2 4. No Assurance of Feasibility..................................... 2 B. Financing Risks................................................... 2 1. Post-Reorganization Obligations................................. 2 2. Limited Access to Working Capital............................... 2 C. Risks Associated with the Businesses.............................. 2 IX. CONFIRMATION OF THE IMPAC PLAN............................................ 2 A. Confirmation Hearing.............................................. 2 B. General Requirements of Section 1129.............................. 2 C. Interests Tests................................................... 2 D. Liquidation Analysis.............................................. 2 E. Feasibility....................................................... 2 F. Section 1129(b)................................................... 2 1. No Unfair Discrimination........................................ 2 2. Fair and Equitable Test......................................... 2 X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE IMPAC PLAN.................. 2 A. Consequences to Holders of General Unsecured Claims............... 2 B. Distributions in Discharge of Accrued Interest.................... 2 C. Market Discount................................................... 2 D. Information Reporting and Withholding............................. 2 XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE IMPAC PLAN........... 2 A. Liquidation Under Chapter 11...................................... 2 B. Alternative Plan(s)............................................... 2 XII. CONCLUSION............................................................... 2
-ii- EXHIBITS Exhibit A Lodgian Disclosure Statement Exhibit B Impac Debtors' Joint Plan of Reorganization Exhibit C Projections -iii- GLOSSARY The terms in the following table are used in the Impac Disclosure Statement and, in most cases, the Impac Plan. The definitions given below of terms used in the Impac Plan are summaries. Please refer to the Impac Plan for the complete definitions of those terms and other defined terms used throughout the Impac Disclosure Statement. Unless otherwise specified, all section references in the Impac Disclosure Statement refer to sections of the Impac Disclosure Statement. Administrative Expense Claim Any expense relating to the administration of an Impac Debtor's Chapter 11 Case, including actual and necessary costs and expenses of preserving the respective Impac Debtor's estate and operating the Impac Debtor's businesses, any indebtedness or obligations incurred or assumed during the applicable Chapter 11 Case, allowances for compensation and reimbursement of expenses to the extent allowed by the Bankruptcy Court, and certain statutory fees chargeable against the Impac Debtors' estates. Allowed Claim or Equity Interest A Claim against, or Equity Interest in, an Impac Debtor which the Impac Debtor agrees, or in the event of a dispute, which the Bankruptcy Court determines pursuant to a Final Order, to be a valid obligation of the Impac Debtor in the amount so agreed or determined. Allowed Tax Claim Any Allowed Claim of a governmental unit of the kind entitled to priority in payment as specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code. Bankruptcy Code Title 11 of the United States Code, as amended. Bankruptcy Court The United States Bankruptcy Court for the Southern District of New York. Bar Date June 3, 2002, which is the date fixed by the Bankruptcy Court as the last date upon which proofs of Claim and Equity Interests can be filed against the Impac Debtors' estates. Cash Legal tender of the United States of America. CCA The Capital Company of America LLC. CCA Secured Claim The Claim by CCA, as agreed to by the Impac Debtors and CCA under the Settlement Agreement. Claim Either (i) any right to payment from any of the Impac Debtors, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, known or unknown, or (ii) any right to an equitable remedy for breach of performance if such breach gives rise to a right of payment from any of the Impac Debtors, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured, known or unknown. Commencement Date The date the Impac Debtors' Chapter 11 cases were commenced was December 20, 2001. Committee The Official Committee of General Unsecured Creditors appointed in the jointly administered Chapter 11 cases of Lodgian and its debtor-subsidiaries, including the Impac Debtors. Disputed Claim A Claim that is not an Allowed Claim. Effective Date A business day selected by the Plan Proponents on or after the date of confirmation of the Impac Plan, on which all conditions to the effectiveness of the Impac Plan have been satisfied or waived and there is no stay of the order confirming the Impac Plan. The Plan Proponents may select different Effective Dates for each of the Impac Debtors. Equity Interest The rights of a holder of an Impac Debtor's capital stock, membership or partnership interests, or similar ownership interests, including any right to acquire such an interest. Exit Financing Borrowers The newly formed special purpose entities to be named as the borrowers under the Exit Financing Facility. Exit Financing Facility The financing agreements to be entered into on the Effective Date among a lender (as discussed in section V.A.3(b)), and the Exit Financing Borrowers. Final Order An order or judgment of the Bankruptcy Court entered by the Clerk of the Bankruptcy Court on the docket in the Chapter 11 Cases, which has not been reversed, vacated or stayed and as to which (i) the time to appeal, petition for certiorari or move for a new trial, reargument or rehearing has expired and as to which no appeal, petition for certiorari or other proceedings for a new trial, reargument or rehearing shall then be pending, or (ii) if an appeal, writ of certiorari, new trial, reargument or rehearing thereof has been sought, such order or judgment of the Bankruptcy Court shall have been affirmed by the highest court to which such order was appealed, or certiorari shall have been denied, or a new trial, reargument or rehearing shall have been denied or resulted in no modification of such order, and the time to take any further appeal, petition for certiorari or move for a new trial, reargument or rehearing shall have expired; provided, however, that the possibility that a motion under Rule 60 of the Federal Rules of Civil Procedure, or any analogous rule under the Bankruptcy Rules, may be filed relating to such order shall not cause such order to not be a Final Order. -2- General Unsecured Claim Any Claim against the applicable Impac Debtor that (i) is not an Administrative Expense Claim, a Priority Tax Claim, a Secured Claim, a Priority Non-Tax Claim, or a Subordinated Claim, or (ii) is otherwise determined by the Bankruptcy Court to be a General Unsecured Claim. Impac Debtors IMPAC Hotels II, L.L.C. and IMPAC Hotels III, L.L.C., as debtors and debtors-in-possession in Chapter 11 cases 01-16367 and 01-16375, respectively. Impac Disclosure Statement This document together with the annexed exhibits. Impac Hotel Properties As applicable, the respective interests of the Impac Debtors in the hotel properties (including leasehold interests) described in section V.A.3. Impac Plan The Impac Debtors' Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, annexed as Exhibit B to the Impac Disclosure Statement. Inter-Company Claims Any General Unsecured Claim held by the Impac Debtors or a member of the Lodgian Group (as is defined in section V.A.3 of the Impac Disclosure Statement) against the other, as well as any General Unsecured Claim held by one of the Impac Debtors against the other Impac Debtor. Lodgian Lodgian, Inc. Plan Proponents The Impac Debtors and the Committee. Plan Supplement A supplemental appendix to the Impac Plan that will contain: (i) the draft form of the Plan Documents to be entered into as of the Effective Date and (ii) the Schedule of Assumed Contracts as of the date of the Plan Supplement, to be filed seven (7) days before the date of the Confirmation Hearing. Projections The projections in the Impac Disclosure Statement, included in Exhibit C. Reinstated Equity Security The Equity Interests in the Impac Debtors as reinstated pursuant to the Impac Plan. Reorganized Impac Debtors The Impac Debtors as reorganized as of the Effective Date in accordance with the Impac Plan. Settlement Agreement The agreement approved by the Bankruptcy Court on October 31, 2002, which, inter alia, permits the Impac Debtors to fully discharge the CCA Secured Claim. Settlement Amount The amount for which the CCA Secured Claim can be fully discharged, in accordance with the Settlement Agreement. Subclass A subclass of a Class of Claims established pursuant to Section 3 of the Impac Plan. -3- I. INTRODUCTION The Plan Proponents are soliciting votes to accept or reject the Impac Plan. The overall purpose of the Impac Plan is to provide for the restructuring of the Impac Debtors' liabilities in a manner designed to maximize recoveries to all stakeholders and avoid liquidation or turnover of the Impac Hotel Properties. The Impac Plan provides for the continued operation of the Reorganized Impac Debtors. A copy of the Impac Plan is attached as Exhibit B to the Impac Disclosure Statement. Please refer to the Glossary, as well as the Impac Plan for definitions of terms used but not defined in the Impac Disclosure Statement. Although the Impac Plan is proposed as a joint plan of reorganization of the Impac Debtors, the Impac Plan is a separate plan for each Impac Debtor. As such, the Impac Plan does not provide for substantive consolidation of the assets or liabilities of the Impac Debtors. The purpose of the Impac Disclosure Statement is to provide sufficient information to enable the creditors of each Impac Debtor that are entitled to vote to make an informed decision on whether to accept or reject the Impac Plan. The Impac Disclosure Statement describes: O the new capital structures of the Reorganized Impac Debtors and how the holders of Allowed Claims and Equity Interests are treated (section II); O how to vote on the Impac Plan and who is entitled to vote (section III); O certain financial information about the Impac Debtors, including three-year consolidated cash flow projections of the Reorganized Impac Debtors (section IV); O the businesses of the Impac Debtors, the events that led to the commencement of their Chapter 11 cases and significant events that have occurred in the Chapter 11 cases (section V); O how the Reorganized Impac Debtors will be governed when the Impac Plan becomes effective (section VI); O how distributions under the Impac Plan will be made and the manner in which Disputed Claims will be resolved (section VII.A); O certain factors that creditors should consider before voting (section VIII); O the procedure and requirements for confirming the Impac Plan (section IX); O certain federal income tax consequences of confirmation of the Impac Plan (section X); and O alternatives to the Impac Plan (section XI). -4- Additional financial information, such as historical profit and loss statements, can be found in the Projections located in Exhibit C of the Impac Disclosure Statement. Financial information about Lodgian can be found in the periodic reports of Lodgian, filed with the Securities and Exchange Commission, including: Lodgian's annual report on Form 10-K for the fiscal year ended December 31, 2001, and quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2002, June 30, 2002, and September 30, 2002. The December 31, 2002 Form 10-K will be filed on or before March 31, 2003. Copies of these filings may be obtained on the Internet at www.sec.gov or www.freeedgar.com. The Plan Supplement will contain material documents to be entered into in connection with the implementation of the Impac Plan, including, among others, organizational documents of the Reorganized Impac Debtors. The Impac Disclosure Statement, the attached exhibits, the Impac Plan and the Plan Supplement are the only materials that you should use in determining whether to vote to accept or reject the Impac Plan. The summaries of the Impac Plan and other documents related to the restructuring of the Impac Debtors are qualified in their entirety by the Impac Plan, its exhibits, and the documents and exhibits contained in the Plan Supplement. -------------------------------------------------------------------- ENTITLEMENT TO VOTE ON THE IMPAC PLAN O Classes 1-B, 3 and 5 are impaired under the Impac Plan and are entitled to vote under the Impac Plan. O Classes 1-A, 2, and 9 are unimpaired under the Impac Plan, are deemed to have accepted the Impac Plan and will not be entitled to vote on the Impac Plan. O Class 11 will not receive any distribution under the Impac Plan, is deemed to have rejected the Impac Plan and will not be entitled to vote on the Impac Plan. See section II.B for a description of the Classes of Claims and Equity Interests and their treatment under the Impac Plan. (1) -------------------------------------------------------------------- The Bankruptcy Code provides that only Claims actually voted will be counted for purposes of determining whether the requisite acceptances of the Impac Plan are received. Failure to timely deliver a properly completed ballot with respect to any Claim entitled to vote will constitute an abstention and that Claim will not be counted for the purpose of approving the Impac Plan. - ---------- (1) The Impac Plan is based upon the confirmed Joint Plan of Reorganization of Lodgian, Inc., et al., and provisions that do not apply to the Impac Debtors were intentionally omitted. Consequently, the numbering of the classes in the Impac Plan is not consecutive. -5- -------------------------------------------------------------------- VOTING DEADLINE AND RECORD DATE THE LAST DAY TO VOTE TO ACCEPT OR REJECT THE IMPAC PLAN IS APRIL 17, 2003. ALL VOTES MUST BE RECEIVED BY THE VOTING AGENT BY 5:00 P.M. (PACIFIC TIME) ON THAT DAY. THE RECORD DATE FOR DETERMINING WHICH CREDITORS MAY VOTE ON THE IMPAC PLAN IS MARCH 20, 2003. -------------------------------------------------------------------- The Impac Plan is based on extensive negotiations with holders of the various Claims against the Impac Debtors. Importantly, the Impac Plan (and the Exit Financing Facility providing the means for its implementation) enables the Impac Debtors to reorganize their businesses and avoid liquidation, pursuant to the Impac Debtors' rights as previously negotiated in the Settlement Agreement. The Plan Proponents believe that approval of the Impac Plan provides the best opportunity for each Impac Debtor to avoid an immediate liquidation and emerge from Chapter 11, returning its business to profitability. The Committee fully supports, and is a co-proponent of, the Impac Plan. The Committee, which is the single committee of unsecured creditors appointed in the jointly administered chapter 11 cases of Lodgian and its debtor-subsidiaries, including the Impac Debtors, does not include creditors of the Impac Debtors. The majority of the Committee presently holds equity interests of Lodgian, which they received as pre-petition creditors of Lodgian and its debtor-subsidiaries (other than the Impac Debtors) pursuant to the previously confirmed plan of reorganization of those entities. However, as discussed elsewhere in this Impac Disclosure Statement, the Committee and its professionals participated fully in the negotiation of the Settlement Agreement which was heavily negotiated prior to confirmation of the Confirmed Debtors' plan of reorganization and the conversion of the Committee members' allowed claims to equity interests of reorganized Lodgian under that chapter 11 plan. -------------------------------------------------------------------- VOTING RECOMMENDATIONS The Plan Proponents believe that confirmation of the Impac Plan is the best opportunity for creditors and Equity Interest holders of the respective Impac Debtors to avoid an immediate liquidation and maximize their recoveries and for the on-going business operations of the Impac Debtors. Each of the Impac Debtors encourages its creditors entitled to vote to accept the Impac Plan. -------------------------------------------------------------------- -6- Please contact the Voting Agent with any questions relating to voting on the Impac Plan. Additional copies of the Impac Disclosure Statement and, when filed, copies of the Plan Supplement are available upon request made to the Voting Agent, at the following address: ---------------------------------------------------------------------------- IF BY OVERNIGHT OR HAND DELIVERY: IF BY STANDARD MAILING: POORMAN-DOUGLAS CORPORATION POORMAN-DOUGLAS CORPORATION 10300 S.W. ALLEN BOULEVARD P.O. BOX 4230 BEAVERTON, OREGON 97005 PORTLAND, OREGON 97208-4230 ATTN: LODGIAN/IMPAC ATTN: LODGIAN/IMPAC BALLOTING CENTER BALLOTING CENTER ---------------------------------------------------------------------------- II. TREATMENT OF CREDITORS AND SHAREHOLDERS UNDER THE IMPAC PLAN The Impac Plan governs the treatment of Claims against and Equity Interests in the Impac Debtors. This section summarizes the new capital structures of the Reorganized Impac Debtors, describes the Claims and Equity Interests in each Class established under the Impac Plan and summarizes the treatment of each Class. A. NEW CAPITAL STRUCTURE OF THE REORGANIZED IMPAC DEBTORS The Impac Plan provides for the continued operation of the Reorganized Impac Debtors, which through their newly formed subsidiaries (the Exit Financing Borrowers), will continue in operation if the Impac Plan is confirmed. In order to maximize the value of the business of the Reorganized Impac Debtors, by virtue of the reorganization, the Reinstated Equity Securities of the Reorganized Impac Debtors will be left unimpaired and will continue to be one hundred percent (100%) directly or indirectly owned by Lodgian, in exchange for substantial contributions of new value. The new value contributions will consist of certain InterCompany Claims at approximately $32.7 million, which will be contributed as equity under the Impac Plan and will not receive a creditor distribution. Further material contributions consist of Cash to fund the Class 3 Cash Pool (discussed in section II.C.4) as well as financial accommodations in connection with the Exit Financing Facility, such as extending a guarantee under the Exit Financing Facility and the payment of Extension Fees (as defined in the Settlement Agreement). In particular, the Exit Financing Facility is expressly conditioned upon Lodgian's agreement to guaranty certain obligations of the Exit Financing Borrowers, including, under certain circumstances, repayment of the entire loan. Absent the Lodgian guarantee, there would be no Exit Financing Facility and, in turn, no reorganization of the Impac Debtors. The Impac Debtors have explored multiple options for reorganization, including sale of the Impac Hotel Properties or alternative exit financing options, and believe that the current structure provides the best recovery on all Claims given the facts and circumstances of the Impac Debtors' bankruptcy cases. As set forth below in section V.A.3, the Settlement -7- Agreement provides that the Impac Debtors may fully discharge the CCA pre-petition Claims by payment of the Settlement Amount on or before the Outside Closing Date. Given that if the Settlement Amount is not timely paid, the Impac Hotel Properties will be transferred to CCA pursuant to foreclosure and/or deed in lieu of foreclosure documents executed and presently held in escrow (to the detriment of all other claimholders of the Impac Debtors), the Settlement Agreement effectively limits the types of structures the Impac Debtors can employ in their reorganization. The only viable option for the Impac Debtors, outside of the currently proposed Impac Plan, is liquidation. If liquidation occurs, in accordance with the Settlement Agreement, it is highly probable that CCA will obtain the Impac Hotel Properties, either through deed in lieu documents or through foreclosure, leaving no unencumbered assets for distribution to other claimants. Therefore, a reorganization with payment of the Settlement Amount in satisfaction of the CCA Secured Claim provides a greater recovery to all other Claims of the Impac Debtors. B. SUMMARY OF CLASSIFICATION AND TREATMENT -------------------------------------------------------------------- IMPORTANT NOTE ON ESTIMATES The estimates of recovery amounts and percentages in the following tables and elsewhere in the Impac Disclosure Statement may differ from actual distributions if the Impac Debtors' estimates of Allowed Claims prove to be inaccurate. The Impac Debtors' estimates of Allowed Claims reflect the Impac Debtors' reasonable judgment based on current information as of the date of the Impac Disclosure Statement and the Impac Debtors make no representation as to the accuracy of these amounts. -------------------------------------------------------------------- The Impac Plan constitutes a separate Chapter 11 plan of reorganization for each Impac Debtor. Except for Administrative Expense Claims and Priority Tax Claims, all Claims against, and Equity Interests in a particular Impac Debtor are placed in the following Classes for each of the Impac Debtors. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Expense Claims and Priority Tax Claims have not been classified and thus are excluded from the following Classes. The following table designates the Classes of Claims against and Equity Interests in each Impac Debtor (as and to the extent that such Class of Claims or Equity Interests is applicable to such Impac Debtor) and specifies which of those Classes are (i) impaired or unimpaired by the Impac Plan and (ii) entitled to vote to accept or reject the Impac Plan in accordance with section 1126 of the Bankruptcy Code or deemed to reject the Impac Plan. -8- Treatment of Claims and Equity Interests
- ------------------------------------------------------------------------------------------------------------------- CLASS DESCRIPTION TREATMENT ENTITLED ESTIMATED TO VOTE RECOVERY - ------------------------------------------------------------------------------------------------------------------- 1-A CCA Secured Claim Satisfaction of Settlement Amount No (deemed 100% to accept) - ------------------------------------------------------------------------------------------------------------------- 1-B Miscellaneous Secured Claims Either (i) Cash equal to 100% of the Yes 100% Allowed Claim; (ii) net proceeds of sale of collateral up to the amount of the Allowed Claim; (iii) the collateral securing the Allowed Claim; (iv) a note with periodic cash payments having a present value equal to the amount of the Allowed Claim and secured by the existing collateral; (v) such treatment that leaves unaltered the legal, equitable and contractual rights of the holder; or (vi) such other distribution as is necessary to satisfy the requirements of the Bankruptcy Code - ------------------------------------------------------------------------------------------------------------------- 2 Priority Non-Tax Claims Paid in full No (deemed 100% to accept) - ------------------------------------------------------------------------------------------------------------------- 3 General Unsecured Claims Pro rata share of Class 3 Cash Pool Yes 15% - ------------------------------------------------------------------------------------------------------------------- 4 Reserved N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- 5 Convenience Claims Paid in full Yes 100% - ------------------------------------------------------------------------------------------------------------------- 6 Reserved N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- 7 Reserved N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- 8 Reserved N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- 9 Equity Interest Reinstated Equity Security No (deemed 100% to accept) - ------------------------------------------------------------------------------------------------------------------- 10 Reserved N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------- 11 Subordinated Claims No distribution No (deemed None to reject) - -------------------------------------------------------------------------------------------------------------------
For convenience of identification, the Impac Plan classifies the Allowed Claims in Class 1 as a single Class. This Class is actually a group of two Subclasses, the CCA Secured Claim Subclass and the Miscellaneous Secured Claims Subclass. The treatment of the Claims in the CCA Secured Claim Subclass is the contractual treatment as provided for in the Settlement Agreement and, as such, Subclass 1-A is unimpaired. The treatment of the Miscellaneous Secured Claims Subclass depends upon the Collateral securing such Allowed Claims. Each Subclass is treated under the Impac Plan as a separate class for voting and distribution purposes. -9- For convenience of identification, the Impac Plan classifies the Allowed Claims in Class 3 as a single Class. This Class is actually a group of two Subclasses, one for the Allowed Class 3 Claims against each Impac Debtor. Although each Subclass is treated under the Impac Plan as a separate class for voting purposes, the holders of claims in each Subclass will receive, as a distribution under the Impac Plan, its pro rata share from the aggregate amount of Cash in the Class 3 Cash Pool as provided in the Impac Plan. C. DESCRIPTION OF THE CLASSES Unless otherwise indicated, the characteristics and amount of the Claims or Equity Interests in the following Classes are based on the books and records of each of the applicable Impac Debtors.(2) Each Subclass is treated as a separate Class for purposes of the Impac Plan and the Bankruptcy Code. However, the following discussion may refer to a group of Subclasses as a single Class for ease of reference. -------------------------------------------------------------------- INTEREST WILL NOT ACCRUE AFTER COMMENCEMENT DATE Unless otherwise specified in the Impac Plan or by order of the Bankruptcy Court, no interest will accrue or be paid on an Allowed Claim, for any purpose, on or after the Commencement Date. -------------------------------------------------------------------- 1. CCA Secured Claim (Class 1-A) Description. The allowed claim held by CCA against the Impac Debtors pursuant to the Settlement Agreement. Treatment. The Class 1-A Claim is held by CCA and will be satisfied in full by payment of the Settlement Amount. Class 1-A Claim is unimpaired. 2. Miscellaneous Secured Claims (Class 1-B) Description. The Claims in Class 1-B consist of any Claims to the extent (i) secured by Collateral, the amount of which is equal to or less than the value of such Collateral (A) as set forth in the Impac Plan, (B) as agreed to by the holder of such Claim and the applicable Impac Debtor(s), or (C) as determined by a Final Order in accordance with section 506(a) of the Bankruptcy Code, or (ii) secured by the amount of any rights of setoff of the holder thereof under section 553 of the Bankruptcy Code Treatment. Class 1-B Claims are impaired, and any holders of Allowed Claims in Class 1-B are entitled to vote to accept or reject the Impac Plan. Class 1-B will receive (i) Cash equal to 100% of the Allowed Claim; (ii) net proceeds of sale of collateral up to the amount of the Allowed Claim; (iii) the collateral securing the Allowed Claim; (iv) a note with periodic cash payments having a present value equal to the amount of the Allowed Claim and secured by the - ---------- (2) Again, the Impac Plan is based upon the confirmed Joint Plan of Reorganization of Lodgian, Inc., et al. Provisions that do not apply to the Impac Debtors were intentionally omitted and, consequently, the numbering of the classes is intentionally not consecutive. -10- existing collateral; (v) such treatment that leaves unaltered the legal, equitable and contractual rights of the holder; or (vi) such other distribution as is necessary to satisfy the requirements of the Bankruptcy Code. In the event that Class 1-B rejects the Impac Plan, the applicable Impac Debtor(s) reserves the right to request, pursuant to section 13.10 of the Impac Plan, confirmation of its plan through a "cram down" of such Class under section 1129(b) of the Bankruptcy Code and modification of the plan to the extent, if any, confirmation under section 1129(b) requires modification. 3. Priority Non-Tax Claims (Class 2) Description. The Claims in Class 2 are the types of Claims identified in section 507(a) of the Bankruptcy Code that are entitled to priority in payment (other than Administrative Expense Claims and Priority Tax Claims). For each of the Impac Debtors, these Claims relate primarily to pre-petition wages and employee benefit plan contributions that had not yet been paid as of the Commencement Date. Each of the Impac Debtors believes that all of these Claims have already been paid pursuant to an order entered by the Bankruptcy Court on the Commencement Date. Treatment. Allowed Claims in Class 2 are unimpaired. To the extent that they have not already been paid, they will be paid in full on or as soon as is reasonably practicable after the Effective Date, except to the extent that the holders of such Claims agree to a different treatment. 4. General Unsecured Claims (Class 3) Description. Class 3 consists of the Claims of suppliers and other vendors, personal injury and other litigation claimants to the extent not covered by insurance, parties to executory contracts or unexpired leases with the respective Impac Debtors that are being rejected, any applicable Inter-Company Claims and other General Unsecured Claims. Class 3 includes Tort Claims that are covered in whole or in part by insurance maintained by the Impac Debtors. However, such Claims will share in the treatment of this Class only to the extent of the allowed amount of such Claims that is less than or equal to the Debtor's self-insured retention or deductible amount under the applicable insurance policy and not satisfied from proceeds of insurance payable to the holder of the Claim. For purposes of the initial distribution, and as part of the distribution mechanism under the Impac Plan for holders of Claims in Class 3, the applicable Impac Debtor will be required to estimate the total amount of Allowed Claims in Class 3. The aggregate amount of General Unsecured Claims (excluding Inter-Company Claims) filed or scheduled against the Impac Debtors on or before the Bar Date (adjusted to take into account Claims that have been otherwise satisfied as of the date hereof) was approximately $4.4 million.(3) However, the respective Impac Debtors estimate that, after deducting duplicate Claims, Claims not supported by the respective Impac Debtors' books and records, Claims that are (or will be) covered by insurance and Claims that are subject to other objections, the aggregate amount of Allowed Claims in Class 3 Subclasses will be approximately $2.0 million. - ---------- (3) This amount excludes any potential deficiency claims that holders of Allowed Secured Claims in Class 1-B may have. -11- For convenience of identification, the Impac Plan classifies the Allowed Claims in Class 3 as a single Class. Class 3 actually consists of two separate Subclasses, one for the allowed Class 3 Claims against each of the respective Impac Debtors. Each Subclass is treated under the Impac Plan as a separate class for purposes of voting. Treatment of Class 3 Claims against Impac Debtors. Class 3 Claims are impaired. In order to provide a recovery to holders of Class 3 Allowed Claims, Lodgian is contributing $ 302,484 in Cash to the Class 3 Cash Pool. The holders of Allowed Claims in each Class 3 Subclass will receive a pro rata share of the Cash in the Class 3 Cash Pool. Based upon present estimates of aggregate Claims, all holders of Allowed Class 3 Claims will receive approximately fifteen percent (15%) of their Allowed Claim. However, the actual percentage of the payout will be based upon the ultimate amount of all Allowed Claims, as the percentage recovery is based on a pro rata distribution of the fixed amount in the Class 3 Cash Pool. 5. Convenience Claims (Class 5) Description. Class 5 consists of (a) Allowed General Unsecured Claims of a holder in an amount equal to $200 or less, (b) Allowed General Unsecured Claims of a holder that has irrevocably elected on its ballot to reduce its Claims to the amount of $200, or (c) a disputed General Unsecured Claim that becomes an Allowed General Unsecured Claim of $200 or less with the consent of, and in the amount agreed to by, the applicable Impac Debtor or pursuant to a Final Order. Treatment. Class 5 is impaired. Class 5 Claims will receive Cash in an amount equal to the Allowed amount of their Claim on or as soon as reasonably practicable after the Effective Date. 6. Equity Interests (Class 9) Description. Class 9 consists of holders of Equity Interests. Treatment. Class 9 is unimpaired. Except as may otherwise be determined by the applicable Impac Debtor, including, without limitation, the transfer of Equity Interests to affiliates of the Impac Debtors, the legal, equitable and contractual rights of holders of Allowed Equity Interests in Class 9 shall remain unaltered. All holders of Equity Interests, and all instruments representing it, will be reinstated on the Effective Date. In consideration of the retention of the Reinstated Equity Securities, Lodgian is providing substantial new value consisting of Cash and other financial accommodations, as set forth in section II.A. 7. Subordinated Claims (Class 11) Description. Class 11 consists of any Claim against any of the Impac Debtors for any fine, penalty, forfeiture or attorneys' fees (but only to the extent such attorneys' fees are punitive in nature), or for multiple, exemplary or punitive damages, to the extent that such fine, penalty, forfeiture, attorneys' fees or damages are not compensation for actual pecuniary loss suffered by the holder of such Claim and not statutorily prescribed, and all claims against either -12- of the Debtors of the type described in Section 510(b) of the Bankruptcy Code relating to equity interests (including all Equity Interests). In general, punitive or exemplary damage Claims are intended to punish or make an example of a wrongdoer. However, in the context of an insolvent entity, such as each of the Impac Debtors, the enforcement of punitive Claims would have the effect of punishing unsecured creditors by diluting the ultimate recovery to all unsecured creditors. Moreover, punitive and exemplary damage Claims differ significantly from other General Unsecured Claims which are based upon pecuniary losses. For these reasons, such Claims have been classified separately from other unsecured Claims. The Debtors do not believe that there will be any Allowed Claims in this Class. Treatment. Class 11 is impaired. To the extent that there are any Allowed Claims in Class 11, they are subordinated to the Claims in other Classes. No property will be distributed to or retained by the holders of Allowed Claims in this Class on account of these Claims. Class 11 is therefore deemed to reject the Impac Plan and the Impac Debtors will not solicit their vote. D. ADMINISTRATIVE EXPENSES OF THE IMPAC DEBTORS In order to confirm the Impac Plan, Administrative Expense Claims and Allowed Tax Claims entitled to priority under the Bankruptcy Code must be paid in full or in a manner otherwise agreeable to the holders of those Claims. Administrative expenses are the actual and necessary costs and expenses of the Impac Debtors' Chapter 11 cases of each of the respective Impac Debtors. Those expenses include, but are not limited to, cure payments in connection with the assumption of certain contracts, post-petition salaries and other benefits for employees, post-petition rent for facilities and offices, amounts owed to vendors providing goods and services during the Impac Debtors' Chapter 11 cases, tax obligations incurred after the commencement of the Impac Debtors' Chapter 11 cases, and certain statutory fees and expenses. Other administrative expenses include the actual, reasonable and necessary professional fees and expenses of the professionals retained by each of the Impac Debtors and the Committee. Consistent with the requirements of the Bankruptcy Code, the Impac Plan generally provides for Allowed Administrative Expense Claims to be paid in full on the later of the Effective Date and the first business day after the date that is 30 days after the date such Administrative Expense Claim becomes Allowed, except for Administrative Expense Claims relating to ordinary course of business transactions or for money borrowed, both of which will be paid in accordance with the past practice of the applicable Impac Debtor and the terms of the agreements governing such obligations. Administrative Expense Claims relating to compensation of the professionals retained by the applicable Impac Debtors or the Committee or for the reimbursement of expenses of certain members of the Committee will, unless otherwise agreed by the claimant, be paid on the later of the Effective Date and the date on which an order allowing such Administrative Expense Claim is entered. Unless otherwise specified in the Impac Plan or by order of the Bankruptcy Court, no interest will accrue or be paid in connection with an Allowed Administrative Expense Claim for any purpose, on or after the Commencement Date. Allowed Tax Claims entitled to priority under the Bankruptcy Code will be paid over a period not exceeding six years from the date of assessment of the tax, with interest at a -13- fixed annual rate so that the periodic payments have a value, as of the Effective Date, equal to the Allowed amount of the Claim. E. RESERVATION OF "CRAM DOWN" RIGHTS The Bankruptcy Code permits the Bankruptcy Court to confirm a Chapter 11 plan over the dissent of any class of claims as long as the standards in section 1129(b) are met. This power to confirm a plan over dissenting classes - - often referred to as "cram down" - is an important part of the reorganization process. It assures that no single group (or multiple groups) of claims can block a restructuring that otherwise meets the requirements of the Bankruptcy Code and is in the interests of the other constituents in the case. Each of the Impac Debtors reserves the right to seek confirmation of the Impac Plan, notwithstanding the rejection of the Impac Plan by any Class entitled to vote. In the event that a Class votes to reject the Impac Plan, the applicable Impac Debtor may request the Bankruptcy Court to rule that the Impac Plan meets the requirements specified in section 1129(b) of the Bankruptcy Code with respect to such Class. The applicable Impac Debtor will also seek such a ruling with respect to each Class that is deemed to reject the Impac Plan. III. VOTING PROCEDURES AND REQUIREMENTS Detailed voting instructions are provided with the ballot accompanying the Impac Disclosure Statement. The following Classes are the only Classes entitled to vote to accept or reject the Impac Plan.
CLASS DESCRIPTION ----- ----------- ~~1-B Miscellaneous Secured Claims 3 General Unsecured Claims 5 Convenience Claims~~
If your Claim is not in one of these Classes, you are not entitled to vote. If your Claim is in one of these Classes, you should read your ballot and follow the listed instructions carefully. Please only use the ballot that accompanies the Impac Disclosure Statement. ---------------------------------------------- BALLOT INFORMATION NUMBER: (888) 697-3594 ---------------------------------------------- A. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS The Impac Debtors have filed a motion seeking entry of the Voting Procedures Order to set certain procedures in connection with voting on the Impac Plan. If the Voting Procedures Order is approved, it will set forth the procedures to be employed in tabulating acceptances and rejections of the Impac Plan. -14- -------------------------------------------------------------------- CLASS VOTE REQUIRED TO ACCEPT THE IMPAC PLAN Acceptance of the Impac Plan by a Class of Claims will be determined by calculating the number and the amount of Claims voting to accept, based only on the Claims in the Class actually voting. Acceptance by a Class of Claims requires an affirmative vote of a majority of the total Claims voting and two-thirds in amount of the total Claims in the Class voting. Any impaired Class that fails to achieve the specified majority vote will be deemed to have rejected the Impac Plan. -------------------------------------------------------------------- B. VOTING In order for your vote to be counted, your vote must be received by the Voting Agent at the following address before the voting deadline of 5:00 p.m., Pacific Time, on April 17, 2003: -------------------------------------------------------------------- IF BY OVERNIGHT OR HAND DELIVERY: IF BY STANDARD MAILING: POORMAN-DOUGLAS CORPORATION POORMAN-DOUGLAS CORPORATION 10300 S.W. ALLEN BOULEVARD P.O. BOX 4330 BEAVERTON, OREGON 97005 PORTLAND, OREGON 97208-4330 ATTN: LODGIAN/IMPAC ATTN: LODGIAN/IMPAC BALLOTING CENTER BALLOTING CENTER -------------------------------------------------------------------- If the instructions on your ballot require you to return the ballot to your bank, broker or other nominee, or to their agent, you must deliver your ballot to them in sufficient time for them to process it and return it to the Voting Agent before the voting deadline. If a ballot is damaged or lost, you may contact the Voting Agent at (888) 697-3594. Any ballot that is executed and returned but which does not indicate an acceptance or rejection of the Impac Plan will not be counted. IV. FINANCIAL INFORMATION AND PROJECTIONS This section provides summary information concerning the recent financial performance and three-year financial projections for the Impac Debtors. The projections are based on information available as of the date of the Impac Disclosure Statement. The significant assumptions underlying the projections and the basis of their preparation are discussed below. -15- A. OPERATING PERFORMANCE For a recent description of the operating performance of Impac Debtors on a consolidated basis, see the historical profit and loss statements, which can be found in the Projections in Exhibit C of the Impac Disclosure Statement. Financial information regarding the Impac Debtors on a consolidated basis with Lodgian and its subsidiaries can be found in the periodic reports of Lodgian (as discussed in section I). B. THREE-YEAR PROJECTIONS OF THE REORGANIZED IMPAC DEBTORS -------------------------------------------------------------------- IMPORTANT NOTE ON FINANCIAL PROJECTIONS The projections included in the Impac Disclosure Statement (the "Projections") are based on a number of important assumptions, which are subject to significant business, economic and competitive risks and uncertainties that are not within the Impac Debtors' control and could cause actual results to differ materially and adversely from the Projections. These factors include the impact of the Chapter 11 cases on the Impac Debtors' businesses and operations; the Debtors' ability to maintain their existing franchise affiliations, to confirm the Impac Plan in a timely manner, to access adequate financing and to generate cash flow from operations to meet their obligations; the effect of general economic conditions; and other factors. See section VIII, "Risk Factors." The Projections are not, and should not be regarded as, a representation that the Projections can or will be achieved. -------------------------------------------------------------------- As a condition to confirmation of a plan of reorganization, the Bankruptcy Code requires, among other things, that the Bankruptcy Court determine that confirmation is not likely to be followed by the liquidation or the need for further financial reorganization of the debtor. In connection with the development of the Impac Plan and for the purpose of determining whether the Impac Plan satisfies this feasibility standard, the Impac Debtors developed the Projections, including a pro forma balance sheet as of December 31, 2002 and certain income statement projections for the fiscal years 2003 through 2005 (the "Projection Period") for the Reorganized Impac Debtors. Projections for the Reorganized Impac Debtors, on a consolidated basis, including the principal assumptions on which they are based, are attached as Exhibit C hereto. Based on the Projections, the Impac Debtors believe that the Reorganized Impac Debtors will be able to make all payments required pursuant to the Impac Plan and, therefore, that confirmation of the Impac Plan is not likely to be followed by liquidation or the need for further reorganization. The Projections should be read in conjunction with the assumptions and notes set forth in Exhibit C. -16- V. BUSINESS DESCRIPTION AND SALIENT EVENTS DURING REORGANIZATION A. HISTORICAL BACKGROUND The following is a discussion of the background to the Chapter 11 filings, as well as pertinent events that have occurred during the Chapter 11 cases in connection with the overall restructuring of each of the Impac Debtors' financial obligations. 1. Background to the Chapter 11 Filings The Impac Debtors' business is cyclical, with the winter months tending to be the low points in terms of occupancy and cash flow, with the period of December 15th to January 15th being the lowest time period for the Impac Debtors, operationally. Demand is also dependent upon many factors, including general and local economic conditions and changes in levels of tourism and business-related travel. The Impac Debtors' hotels depend upon both commercial and tourist travelers for revenues and, generally, the Impac Debtors' hotels operate in areas that contain numerous other competitive lodging facilities. Notably, the Impac Debtors compete with other facilities on various bases, including room prices, quality, service, location and amenities customarily offered to the traveling public. The Impac Debtors' businesses have been negatively impacted by the general economic slowdown and, in particular, the dramatic decline in both business and leisure travel. On a comparative basis, occupancy of the Debtors' hotels declined from 57.3% to 57.1% over the twelve (12) months ending December 31, 2001 and December 31, 2002, respectively. The Average Daily Rate ("ADR") declined from $75.23 to $71.00 over the same period. The events of September 11, 2001 have exacerbated the pressure on the Impac Debtors' revenues because of a standstill in travel demand. Although travel and occupancy usage has increased since September 11, 2001, the Impac Debtors expect the negative impact on travel to continue for the foreseeable future. Business continues to be weak due to a soft economy, fears of terrorism, and uncertainty of a conflict in the Middle East. 2. Confirmation of the Lodgian Plan On the Commencement Date, Lodgian and its debtor-subsidiaries, including the Impac Debtors, commenced these voluntary cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On December 21, 2001, the Bankruptcy Court entered an Order Granting Joint Administration of the Impac Debtors' cases under the lead bankruptcy case, In re Lodgian, Inc., et al. (Case No.: 01-16345). Also on December 21, 2001, the Bankruptcy Court entered an interim order authorizing Lodgian and its debtor-subsidiaries, to borrow up to a maximum aggregate principal amount of $10 million, in accordance with the terms of the Revolving Credit and Guarantee Agreement Among Lodgian, Inc., as Borrower, the Subsidiaries of the Borrower, as Guarantors, and the Lender Parties, and Morgan Stanley Senior Funding, Inc., as Administrative Agent and Collateral Agent (the "DIP Credit Agreement"). Upon final hearing, the Bankruptcy Court -17- entered a final order authorizing Lodgian to borrow up to a maximum principal amount of $25 million, again in accordance with the terms of the DIP Credit Agreement. However, it should be noted that the Impac Debtors received no proceeds in connection with the DIP Credit Agreement. On January 8, 2002, pursuant to section 1102 of the Bankruptcy Code, the United States Trustee appointed the Committee. No trustee or examiner has been appointed in the Impac Debtors' Chapter 11 cases. On April 19, 2002, the Court entered an order extending the periods under section 1121(b) and 1121(c) of the Bankruptcy Code to file a Chapter 11 plan or plans of reorganization (the "Exclusive Filing Period") and solicit acceptances thereto (the "Exclusive Solicitation Period" and collectively, the "Exclusive Periods") for a period of six (6) months through and including July 18, 2002 and September 16, 2002, respectively. By order dated July 11, 2002, the Bankruptcy Court further extended the Exclusive Filing Period and the Exclusive Solicitation Period through and including October 21, 2002 and December 18, 2002, respectively (the "Lodgian Exclusivity Order"). On September 23, 2002, Lodgian and its debtor-subsidiaries, including the Impac Debtors, filed the Joint Plan of Reorganization of Lodgian, Inc., et al., together with the Official Committee of Unsecured Creditors under Chapter 11 of the Bankruptcy Code (the "Initial Lodgian Plan"), which contained provisions addressing the treatment of the Impac Debtors' estates and the Impac Debtors' creditors. At the September 24, 2002 hearing for the approval of the disclosure statement (the "Lodgian Disclosure Statement") relating to the Initial Lodgian Plan and upon the objection of CCA to the Lodgian Disclosure Statement, the Bankruptcy Court adjourned the hearing relating to the Lodgian Disclosure Statement to September 26, 2002. On September 25, 2002, Lodgian and its debtor-affiliates filed a modified plan (the "Lodgian Plan") which excluded the treatment of the Impac Debtors' estates from the Lodgian Plan. On September 26, 2002, the Bankruptcy Court approved the Lodgian Disclosure Statement. A copy of the Lodgian Disclosure Statement is annexed hereto as Exhibit A. Upon the confirmation hearing of November 5, 2002, the Court entered an order on November 5, 2002 confirming the Lodgian Plan which excluded the Impac Debtors. 3. Significant Events Concerning the Impac Debtors As set forth in greater detail in the Lodgian Disclosure Statement, Lodgian (together with its direct and indirect subsidiaries, the "Lodgian Group"), the parent company of the Impac Debtors, is one of the largest owners and operators of both full and limited-service hotels in the United States with 97 hotels containing approximately eighteen thousand rooms under Lodgian's ownership or management, located in thirty states, and with one hotel in Windsor, Canada. The Impac Debtors own eighteen (18) hotels located in eleven (11) states, seventeen (17) of which are operated under franchise agreements with Six Continents Hotels, Inc. ("Six Continents") and with Marriott International, Inc. ("Marriott"). There is one (1) hotel that is operated independently. Impac Hotels II, L.L.C.'s properties consist of the following thirteen (13) hotels: Marriott Hotel Denver, Colorado; Mayfair House, Florida; Holiday Inn North Miami, Florida; -18- Holiday Inn Florence, Kentucky; Holiday Inn Hamburg, New York; Holiday Inn Syracuse, New York; Holiday Inn Cincinnati Downtown, Ohio; Holiday Inn Ft. Mitchell, Kentucky; Courtyard by Marriott Tulsa, Oklahoma; Holiday Inn Memphis, Tennessee; Holiday Inn Fairmont, West Virginia; Holiday Inn Morgantown, West Virginia; and Holiday Inn Bridgeport, West Virginia. Impac Hotels III, L.L.C.'s properties consist of the following five (5) hotels: Fairfield Inn Augusta, Georgia; Courtyard by Marriott Lafayette, Louisiana; Fairfield Inn Merrimack, New Hampshire; Fairfield Inn Jackson, Tennessee; and Fairfield Inn Colchester, Vermont. (a) CCA's Claims Against the Impac Debtors Prior to the Commencement Date Prior to the Commencement Date, the Impac Debtors entered into separate loan agreements (the "Loan Agreements") with Nomura Asset Capital Corporation ("NACC"). Thereafter, NACC assigned its right under the Loan Agreements to CCA, an affiliate of NACC. Subsequent to such assignment, the Impac Debtors and CCA entered into a loan agreement which consolidated and restated the Loan Agreements (the "CCA Consolidated Loan Agreement"). On the Commencement Date, Lodgian and its debtors-subsidiaries, including the Impac Debtors, filed a motion (the "Cash Collateral Motion") to, inter alia, use cash collateral in which CCA claimed an interest (the "CCA Cash Collateral"). CCA filed an objection, but consented to the Impac Debtors' use of CCA's Cash Collateral based upon an agreement reached with CCA on January 9, 2002. The agreement provided for the limited use by the Impac Debtors of CCA Cash Collateral and that it would expire on or after the final hearing for approval of the Cash Collateral Motion on February 14, 2002. Thereafter, CCA agreed to extend the use of the CCA Cash Collateral until May 31, 2002 by entering into a stipulation and order and further agreed to the extended use of the CCA Cash Collateral from the period commencing June 1, 2002 through June 30, 2002 by entering into a second stipulation and order. On or about June 5, 2002, CCA filed proofs of claim against, among other parties, (i) Impac Hotels II, L.L.C., asserting a secured claim in the amount of $108,907,700, and (ii) Impac Hotels III, L.L.C., asserting a secured claim in the amount of $108,907,700. In anticipation of CCA's expected denial of the Impac Debtors' consensual use of cash collateral, on June 7, 2002, the Impac Debtors filed a Motion Pursuant to sections 105, 361, 363, 503, and 507 of the Bankruptcy Code and Rule 4001 of the Federal Rules of Bankruptcy Procedure for Entry of Order Approving the Use of Cash Collateral of The Capital Company of America LLC, which requested an order authorizing the Debtors to use the CCA Cash Collateral and provided assurance of adequate protection therewith (the "Second Cash Collateral Motion"). On June 24, 2002, CCA filed an objection to the Second Cash Collateral Motion. On June 27, 2002, without the need for litigation, Lodgian and its affiliated debtor-subsidiaries, including the Impac Debtors, and CCA entered into a third stipulation and order authorizing the use of CCA Cash Collateral from the period commencing July 1, 2002 through July 31, 2002. Thereafter, the parties entered into additional stipulations and orders allowing the Impac Debtors' continued use of the CCA Cash Collateral pursuant to a very restricted cash use agreement. -19- During this period, on May 30, 2002, CCA filed a motion for an Order (i) Pursuant to Section 1121(d) of the Bankruptcy Code Terminating the Exclusive Period Within Which Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C. May File and Solicit Acceptances to a Plan of Reorganization, and (ii) Authorizing The Capital Company of America LLC to File and Solicit Acceptances to a Plan of Reorganization (the "CCA Motion to Terminate Exclusivity"). On June 26, 2002, Lodgian and its affiliated debtor-subsidiaries, including the Impac Debtors, filed a second motion to extend the exclusive period within which the Debtors may file and solicit acceptances to a plan (or plans) of reorganization (the "Debtors' Second Exclusivity Motion"). On July 8, 2002, CCA filed an objection to the Debtors' Second Exclusivity Motion. Nevertheless, on July 11, 2002, upon the adjourned hearing on the CCA Motion to Terminate Exclusivity and upon the hearing of the Debtors' Second Exclusivity Motion, the Bankruptcy Court entered the Lodgian exclusivity order extending the Exclusive Filing Period and the Exclusive Solicitation Period. In addition, the Bankruptcy Court determined, sua sponte, and pursuant to section 2.2(B) of the Amended General Order Adopting Procedures Governing Mediation of Matters in Bankruptcy Cases and Adversary Proceedings, dated January 19, 1997, that Harvey R. Miller, Esq. be appointed as mediator (the "Mediator") to, inter alia, facilitate a resolution of various disputes between, inter alia, the Impac Debtors and CCA. As a result of extensive and intensive mediation sessions among representatives of Lodgian, the Impac Debtors, CCA, the Mediator, and other interested parties, an agreement in principle was reached resolving disputes between the Impac Debtors and CCA. By order dated October 31, 2002, the Bankruptcy Court approved the Settlement Agreement which, inter alia, provides that the Impac Debtors may fully discharge the CCA pre-petition Claims by payment of the Settlement Amount on or before the Outside Closing Date (as defined in the Settlement Agreement). The Outside Closing Date was initially February 28, 2003 but was extended to March 31, 2003 and may be further extended to May 31, 2003 upon satisfaction of the conditions provided in the Settlement Agreement. By order dated December 5, 2002, the Bankruptcy Court granted the Impac Debtors a further extension of the Exclusive Filing Period and the Exclusive Solicitation Period through and including February 28, 2003 and April 29, 2003, respectively. In addition, by order dated February 19, 2003, the Bankruptcy Court granted a further extension of the Exclusive Filing Period and the Exclusive Solicitation Period through and including June 2, 2003 and August 1, 2003, respectively. On February 20, 2003, the Impac Debtors notified CCA that it would be exercising its option to extend the Outside Closing Date to March 31, 2003. (b) The Impac Debtors' Efforts to Raise Capital to Exit Chapter 11 On January 3, 2003, Lodgian, at its own expense, engaged Hodges Ward Elliott, Inc. ("HWE") as its exclusive representative to seek to raise debt and equity capital on behalf of the Impac Debtors for the purpose of raising financing to pay the Settlement Amount in connection with the Impac Debtors continuing to own the 18-hotel portfolio (the "Portfolio"). HWE sought to effectuate a transaction of either (i) financing, mezzanine financing or equity investment, or other arrangement or transaction relating to a direct or indirect financing or equity interest, including partial interests of the Impac Debtors; or (ii) financing or other transaction, -20- directly or indirectly, with respect to a portion of the ownership interests of the entities which own the Impac Debtors. As part of its engagement, HWE prepared an analysis of the Portfolio, resulting in a marketing package that was used to secure the interest of multiple debt and equity investors, potential purchasers of the Impac Hotel Properties, and similar parties (the "HWE Financing Memorandum"). Without revealing the confidential information from the Settlement Agreement, HWE gave presentations on the Portfolio as well as distributed the HWE Financing Memorandum to numerous debt and equity investors. HWE simultaneously began negotiating confidentiality agreements with investors that expressed interest in the Portfolio, in preparation for releasing to such investors certain confidential information from the Settlement Agreement, such as the Settlement Amount. HWE based the confidentiality agreement on Exhibit P to the Settlement Agreement and, through counsel for Lodgian, negotiated any modifications to Exhibit P with counsel to CCA. Only when HWE had secured a signed confidentiality agreement from an interested investor, that was in form and substance acceptable to CCA, did HWE release confidential information from the Settlement Agreement to the interested investor. The HWE Financing Memorandum contained, among other things, an overview of the Portfolio, a summary of the borrower's investment strategy and detailed property summaries and financial data specific to each of the hotels in the Portfolio. The solicitation period for potential investors in the Portfolio lasted approximately one month. Though several investors expressed general interest in the Portfolio, Lehman Brothers Holdings Inc. ("Lehman Bros.") offered the most complete and timely package. Lehman Bros. proposed financing for the entire Portfolio, which was particularly attractive to the Impac Debtors given that they would not have to seek financing for a mezzanine portion. The terms of the Lehman Bros. proposal involve a two (2) year loan with an optional one (1) year extension, with interest rate spreads and fees that are market rate for similar transactions. Lehman Bros. also agreed to work to meet the Impac Debtors' goal to consummate the transaction before the end of May 2003. Final negotiation of the Exit Financing Facility is still pending, and as such, the Exit Financing Facility may ultimately be provided by Lehman Bros., any of its affiliates or subsidiaries, or such other third party as may be later be disclosed. Of importance, the proceeds of the Exit Financing Facility will be used, in part, to discharge in full the CCA Secured Claim under the Settlement Agreement, thereby allowing the Impac Debtors to avoid an immediate liquidation and surrender of collateral to CCA under the terms of the Settlement Agreement. The Exit Financing Facility is expressly conditioned upon Lodgian's agreement to guaranty certain obligations of the borrowers, including, under certain circumstances, repayment of the entire loan. Absent the Lodgian guarantee, there would be no Exit Financing Facility and, in turn, no reorganization of the Impac Debtors. Upon the Effective Date, all property of each Impac Debtor's estate shall vest in each of the applicable newly created subsidiaries of the Reorganized Impac Debtors pursuant to the Impac Plan. Each Reorganized Impac Debtor is authorized to execute the necessary documentation to effectuate the vesting of the property in the newly created subsidiaries as of the Effective Date. The Impac Plan provides that each Impac Debtor will assume and assign to the newly formed, wholly owned subsidiaries of each Reorganized Impac Debtor, as part of the Exit -21- Financing Agreement, each and every executory contract and unexpired lease to which the applicable Impac Debtor is a party. Each of the newly created subsidiaries will be required to have one independent director. VI. GOVERNANCE OF THE REORGANIZED IMPAC DEBTORS A. BOARDS OF DIRECTORS OF THE REORGANIZED IMPAC DEBTORS Prior to the confirmation of the Impac Plan, in accordance with section 1129(a)(5) of the Bankruptcy Code, the Impac Debtors shall disclose (i) the identity and affiliations of any individual proposed to serve, after the Effective Date, as a director or officer of the Reorganized Debtors, and (ii) the identity of any "insider" (as such term is defined in section 101(31) of the Bankruptcy Code) who shall be employed and retained by the Reorganized Debtors and the nature of any compensation for such insider. The Board of Directors and officers of the Debtors immediately before the Effective Date shall continue to serve immediately after the Effective Date in their respective capacities as directors and officers of the Reorganized Debtors. B. SENIOR MANAGEMENT OF THE REORGANIZED IMPAC DEBTORS The existing senior officers of the Impac Debtors will serve in their current capacities after the Effective Date. VII. OTHER ASPECTS OF THE IMPAC PLAN A. DISTRIBUTIONS UNDER THE IMPAC PLAN One of the key concepts under the Bankruptcy Code is that only Claims against, and Equity Interests in, a debtor that are "allowed" may receive distributions under a Chapter 11 plan. This term is used throughout the Impac Plan and the descriptions below. In general, an "allowed" Claim or "allowed" Equity Interest simply means that the debtor agrees, or in the event of a dispute, that the Bankruptcy Court determines, that the claim or equity interest, and the amount thereof, is in fact a valid obligation of the debtor. 1. Disbursing Agent Lodgian will contribute, among other valuable consideration, Cash to be distributed under the Impac Plan to each Impac Debtor as a capital contribution to allow such Impac Debtor to discharge the Claims against it. All distributions under the Impac Plan shall be made by the applicable Reorganized Impac Debtor as Disbursing Agent (or such other entity designated by the Reorganized Impac Debtor as a Disbursing Agent on or after the Effective Date). -22- 2. Timing and Conditions of Distributions (a) Date of Distribution Except as otherwise provided for in the Impac Plan, distributions on account of Allowed Claims will be made on or as soon as practicable after the later of the Effective Date or the date an order allowing a Disputed Claim becomes a Final Order. Disputed Claims will be treated as set forth below. (b) De Minimis Distributions The applicable Reorganized Impac Debtor as Disbursing Agent or such other entity designated by such Reorganized Impac Debtor as a Disbursing Agent on or after the Effective Date will not be required to distribute Cash to the holder of an Allowed Claim in an impaired Class if the amount of Cash to be distributed on any distribution date under the Impac Plan (including the Effective Date and the Final Distribution Date) on account of such Claim is less than $50. Any holder of an Allowed Claim on account of which the amount of Cash to be distributed is less than $50 will have its Claim for such distribution discharged and will be forever barred from asserting any such Claim against the Reorganized Impac Debtors or their respective property. Any Cash not distributed pursuant to this section VII.A.2.(b) will become the property of the Reorganized Impac Debtors, free of any restrictions thereon, and any such Cash held by a third-party Disbursing Agent will be returned to the Reorganized Impac Debtors. 3. Procedures for Treating Disputed Claims Under the Impac Plan (a) Disputed Claims Disputed Claims include those Claims (i) listed by each Impac Debtor in such respective Impac Debtor's schedules of assets and liabilities, as may be amended from time to time, as not liquidated in amount or contingent or disputed, (ii) to which an objection or request for estimation has been filed and not withdrawn or determined, (iii) for which a proof of claim has been filed and with respect to which no corresponding Claim is listed in the schedules or the corresponding Claim is listed as other than contingent, disputed, or unliquidated but for which the nature or amount of the Claim as filed differs from that listed in the schedules, or (iv) asserting Tort Claims. (b) Objections to Claims Each of the Impac Debtors shall be entitled to object to all Claims. Any objections to Claims shall be served and filed on or before one hundred twenty (120) days after the Effective Date or such later date as may be fixed by the Bankruptcy Court provided, however, that such one hundred and twenty (120) day period may be automatically extended by the applicable Impac Debtor, without any further application to, or approval by, the Bankruptcy Court, for an additional thirty (30) days with the consent of the Committee (not to be unreasonably withheld). Notwithstanding the foregoing, the Committee shall also have the right to make and file objections to Claims filed against any Impac Debtor, which objections shall be made in consultation with such Impac Debtor(s) and shall be made within the above time frames. From and after the Confirmation Date, subject to the Effective Date, all objections shall be -23- litigated to a Final Order except to the extent that the applicable Impac Debtor (with the consent of the Committee not to be unreasonably withheld) or the Committee (with the consent of the applicable Impac Debtor not to be unreasonably withheld), as applicable, elects to withdraw any such objection or the applicable Impac Debtor (with the consent of the Committee not to be unreasonably withheld) or the Committee (with the consent of the applicable Impac Debtor not to be unreasonably withheld), as applicable, and the holder of the Disputed Claim elects to compromise, settle or otherwise resolve any such objection, in which event they may settle, compromise or otherwise resolve any such Disputed Claim without approval of the Bankruptcy Court. At its option, upon the consent of the Committee, the applicable Impac Debtors may make a single, lump sum payment of the settlement amount to the claimant. To the extent that an objection is filed by the Committee, at its option, the Committee, upon the consent of the applicable Impac Debtor, may make a single, lump sum payment of the settlement amount to the claimant. (c) No Distributions Pending Allowance If any portion of a Claim is a Disputed Claim, no payment or distribution shall be made on account of the Claim until the disputed portion of the Claim becomes an Allowed Claim or is otherwise resolved. Pending the allowance or disallowance of the Disputed Claims, the applicable Impac Debtor shall withhold from the distributions made pursuant to the Impac Plan to the holders of Allowed Claims the distributions allocable to the Disputed Claims as if the Disputed Claims had been Allowed Claims. (d) Distributions After Allowance If, on or after the Effective Date, any Disputed Claim becomes, in whole or in part, an Allowed Claim, the applicable Reorganized Impac Debtor shall distribute to the holder thereof the distributions, if any, to which such holder is then entitled under the Impac Plan. Any Cash distributions shall be made as soon as practicable after the date that the order or judgment of the Bankruptcy Court allowing such Disputed Claim (or portion thereof) becomes a Final Order, but in no event more than thirty (30) days thereafter. Any pro rata share of the Class 3 Cash Pool distributable to the holder of a Disputed Claim which becomes an Allowed Claim (in whole or in part) as a result of the entry of such order or judgment of the Bankruptcy Court (and which is a Final Order) allowing such Disputed Claim (or portion thereof) shall be made in accordance with the next scheduled distribution date to the holders of Allowed Claims. (e) No Recourse With Respect to Disputed Claims Notwithstanding that the Allowed amount of any particular Disputed Claim is reconsidered under the applicable provisions of the Bankruptcy Code and Bankruptcy Rules, no Claim holder will have recourse against the Disbursing Agent, the Impac Debtors, the Committee, the Reorganized Impac Debtors, or any of their professional consultants, officers, directors or members or their successors or assigns, or any of their property. However, nothing in the Impac Plan will modify any right of a holder of a Claim under section 502(j) of the Bankruptcy Code. -24- B. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES 1. Contracts and Leases Not Expressly Assumed Are Rejected On the Effective Date, all executory contracts and unexpired leases to which each Impac Debtor is a party shall be deemed rejected as of the Effective Date, except for an executory contract or unexpired lease that (i) has been assumed or rejected pursuant to a Final Order of the Bankruptcy Court, (ii) is specifically designated as a contract or lease to be assumed on the Schedule of Assumed Contracts set forth in the Plan Supplement, provided however, that the Impac Debtors reserve the right to amend the Plan Supplement at any time on or before the Effective Date to amend the Schedule of Assumed Contracts to add or delete any executory contract or unexpired lease, thus providing for its assumption, assumption and assignment, or rejection, or (iii) is the subject of a separate motion to assume, assume and assign, or reject filed under section 365 of the Bankruptcy Code by the applicable Impac Debtor on or before the Effective Date. 2. Cure of Defaults Generally, if there has been a default (other than a default specified in section 365(b)(2) of the Bankruptcy Code) under an executory contract or unexpired lease, the debtor can assume the contract or lease only if the debtor cures the default. Accordingly, a condition to the assumption of an executory contract or unexpired lease is that any default under an executory contract or unexpired lease that is to be assumed pursuant to the Impac Plan will be cured in a manner consistent with the Bankruptcy Code and as set forth in the Impac Plan. 3. Rejection Claims If an entity with a claim for damages arising from the rejection of an executory contract or unexpired lease under the Impac Plan has not filed a proof of claim for such damages within twenty (20) days after the Effective Date, that Claim shall be barred and shall not be enforceable against any of the Impac Debtors or the Reorganized Impac Debtors. 4. Franchise Agreements At the present time, the Impac Debtors intend to continue operating each of their respective Impac Hotel Properties under the Impac Plan and, with one exception, intend to assume and assign to the applicable Exit Financing Borrowers any franchise agreements relating to those Impac Hotel Properties. However, with respect to the franchise agreement in connection with the Holiday Inn Cincinnati Downtown, Ohio hotel property (the "Cincinnati Hotel Property"), the applicable Impac Debtor has advised Six Continents that it intends to reject this franchise agreement. Upon rejection, the Cincinnati Hotel Property shall be operated as an independent hotel. The applicable Impac Debtors hope to reach consensual resolution with each applicable franchisor on the terms of the assumption of its franchise agreement. In the event that the applicable Impac Debtor and franchisor are unable to reach an agreement over such terms, including the cure of any defaults as and to the extent required by section 365 of the Bankruptcy Code, then the applicable Impac Debtor shall request that the Bankruptcy Court resolve such disputes. -25- C. EFFECT OF CONFIRMATION 1. Discharge of Claims Except as otherwise provided in the Impac Plan, confirmation of the Impac Plan will discharge all existing debts and Claims of any kind, nature or description whatsoever, against or in each of the Impac Debtors or any of their assets or properties, to the full extent permitted by section 1141 of the Bankruptcy Code. All holders of existing Claims against the Impac Debtors will be enjoined from asserting against the Reorganized Impac Debtors, or any of their assets or properties, any other or further Claim based upon any act or omission, transaction, or other activity that occurred prior to the Effective Date, whether or not such holder has filed a proof of claim. In addition, upon the Effective Date, each holder of a Claim against the Impac Debtors shall be forever precluded and enjoined from prosecuting or asserting any discharged Claim against the Impac Debtors or the Reorganized Impac Debtors. 2. Indemnification The Impac Plan provides for the assumption and continuation of normal corporate indemnification provisions related to the protection of officers and directors. D. MISCELLANEOUS PROVISIONS The Impac Plan contains provisions relating to corporate actions, the Disbursing Agent, delivery of distributions, manner of payment, vesting of assets, binding effect, term of injunctions or stays, injunction against interference with the Impac Plan, payment of statutory fees, recognition of guaranty rights, substantial consummation, compliance with tax requirements, severability, revocation and amendment of the Impac Plan, governing law, and timing. For more information regarding these items, see the Impac Plan attached hereto as Exhibit B. VIII. RISK FACTORS Holders of Claims against the Impac Debtors should read and consider carefully the following risk factors and the other information in the Impac Disclosure Statement, the Impac Plan, the Plan Supplement and the other documents delivered or incorporated by reference in the Impac Disclosure Statement and the Impac Plan, before voting to accept or reject the Impac Plan. These risk factors should not, however, be regarded as constituting the only risks involved in connection with the Impac Plan and its implementation. Additional risks and other information about Lodgian and the Impac Debtors can be found in Lodgian's annual report on Form 10-K for the fiscal year ended December 31, 2001, and quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2002, June 30, 2002 and September 30, 2002, and its other filings from time to time with the Securities and Exchange Commission, which are incorporated into the Impac Disclosure Statement by reference. -26- A. CERTAIN BANKRUPTCY CONSIDERATIONS 1. General Risks Relating to Confirmation and Consummation Although each of the Impac Debtors believes that the Impac Plan will satisfy all requirements necessary for confirmation by the Bankruptcy Court, there can be no assurance that the Bankruptcy Court will reach the same conclusion. Moreover, there can be no assurance that modifications of the Impac Plan will not be required for confirmation or that such modifications would not necessitate the resolicitation of votes. In addition, although each of the Impac Debtors believes that the Effective Date will occur soon after the Confirmation Date, there can be no assurance as to such timing. The Bankruptcy Court may confirm the Impac Plan if at least one impaired Class votes to accept the Impac Plan (with such acceptance being determined without including the vote of any "insider" in such Class). Thus, for the Impac Plan to be confirmed, one of the impaired Classes must vote to accept the Impac Plan. As to each impaired Class that has not accepted the Impac Plan, the Impac Plan may be confirmed if the Bankruptcy Court determines that the Impac Plan "does not discriminate unfairly" and is "fair and equitable" with respect to these Classes. Each of the Impac Debtors believes that the Impac Plan satisfies these requirements. 2. Matters Affecting Recoveries The estimates of recovery amounts and percentages in the Impac Disclosure Statement are based on a number of assumptions, including the Impac Debtors' estimates of Allowed Claims in each Class. Actual recoveries may differ from such estimates if the Impac Debtors' estimates of Allowed Claims prove to be inaccurate. The Impac Debtors' estimates of Allowed Claims reflect the Impac Debtors' reasonable judgment based on current information as of the date of the Impac Disclosure Statement and the Impac Debtors make no representation as to the accuracy of these amounts. 3. Loss of Franchise Agreements If any of the Impac Debtors were required to terminate or reject any of their franchise agreements on a non-consensual basis, and if such franchisor were to assert a claim against such Impac Debtor, then any Allowed Claim relating to such termination or rejection could reduce recoveries to the holders of Allowed General Unsecured Claims against such Impac Debtors. The Plan Proponents do not believe that such risks are any greater than that attendant to the resolution of Disputed Claims generally. By order dated, November 4, 2002, the Bankruptcy Court approved the stipulation entered into between Lodgian and certain of its debtor-subsidiaries, including the Impac Debtors, and Marriott resolving the status of certain franchise agreements (the "Marriott Stipulation"). Pursuant to the Marriott Stipulation, with respect to certain of the Impac Hotel Properties, the Impac Debtors agreed to, inter alia, (i) rectify the status of default under Marriott's Quality Assurance Programs by June 30, 2003; and (ii) comply with certain requirements relating to capital improvements of certain of the Impac Hotel Properties. There exists a risk that the Impac -27- Debtors will not have rectified any default within the time period proscribed by the Marriott Stipulation. 4. No Assurance of Feasibility The Impac Debtors cannot give assurance that the Reorganized Impac Debtors will be able to achieve the revenue or cash flow levels reflected in the Projections, which the Impac Debtors have relied on to project their future business prospects. If either or both of the Reorganized Impac Debtors do not achieve the revenue or cash flow levels reflected in the Projections, such Impac Debtor may lack sufficient liquidity to continue operating as planned after the Effective Date. Failure to meet specified financial results would be likely to result in an event of default under the Exit Financing Facility. The Projections represent management's view as of the date of the Impac Disclosure Statement, based on current known facts as to the projected operations of the Reorganized Impac Debtors and the assumptions stated in section IV. However, while management believes that the assumptions underlying the Projections are reasonable, the Projections do not attempt to demonstrate the viability of the business in a "worst case" environment. Additionally, approximately 475 proofs of claim were filed as of the Bar Date against the Impac Debtors. As of the date of the Impac Disclosure Statement, the Impac Debtors have completed a preliminary review of these Claims, including reconciliation to their own books and records. However, due to the number and amount of Claims in dispute, as well as the risk of error inherent in reconciling such a large number of proofs of claim with the books and records of the Impac Debtors, it is possible that the actual amount of Allowed Claims may differ materially from the Impac Debtors' estimates. The Impac Debtors continue to seek to resolve Disputed Claims and further refine their claims analysis. Because distributions under the Impac Plan and the Projections are linked to the amount and value of the Allowed Claims, any change in the Impac Debtors' estimates of Allowed Claims resulting from further analysis of the proofs of claim filed as of the Bar Date could impact the Projections. Claim estimates for purposes of effectuating the reserve for Disputed Claims will ultimately be established, after notice and hearing, by the Bankruptcy Court. Moreover, the Projections may not adequately account for continuing or unforeseen effects on the Reorganized Impac Debtors' operations that may result from the terrorist attacks that occurred on September 11, 2001, including the current crisis with the Republic of Iraq, or from extended weakening in the U.S. economy. The long-term effects of these events on the overall global and U.S. economies, the Impac Debtors' areas of business and the Impac Debtors' operations cannot be predicted. Further, the Projections do not take into account any changes in interest rates during the Projection Period. Though each of the Impac Debtors believes that the assumptions underlying the Projections are reasonable, the impact, if any, that the Chapter 11 cases may have on the operations of the Reorganized Impac Debtors cannot be accurately predicted or quantified. If confirmation and consummation of the Impac Plan do not occur expeditiously, the Chapter 11 cases could further adversely affect the Impac Debtors' relationships with their customers, employees and suppliers. However, even expedited Chapter 11 cases could have a detrimental -28- impact on future sales and patronage due to the possibility that the Chapter 11 cases may have created a negative image of the Impac Debtors in the eyes of their customers and suppliers. B. FINANCING RISKS 1. Post-Reorganization Obligations The Reorganized Impac Debtors may not be able to meet their post-reorganization debt obligations, operating expenses, working capital and other capital expenditures. The Impac Debtors are currently highly leveraged. The Reorganized Impac Debtors will be substantially less leveraged. However, the Impac Debtors cannot provide assurance that the operating cash flow of the Reorganized Impac Debtors will be adequate to pay the principal and interest payments under their post-reorganization indebtedness when due, as well as to fund all capital expenditures contemplated in the cash flow Projections. 2. Limited Access to Working Capital The Reorganized Impac Debtors' businesses are expected to require certain amounts of working capital. While the Projections assume that sufficient funds to meet their working capital needs for the foreseeable future will be available from the Cash generated by the businesses of the Reorganized Impac Debtors and from the proceeds of the Exit Financing Facility, the ability of the Reorganized Impac Debtors to gain access to additional capital, if needed, cannot be assured, particularly in view of competitive factors, industry conditions and the terms of the Exit Financing Facility. The Impac Debtors expect that the Exit Financing Facility will contain restrictive financial and operating covenants and prohibitions, including provisions that will limit the ability of the Reorganized Impac Debtors to make capital expenditures. Restrictions on capital investment are expected to be more restrictive if the Reorganized Impac Debtors' cash flow is lower than projected. As noted above, failure to make necessary capital expenditures could have an adverse effect on the ability of the Reorganized Impac Debtors to remain competitive. C. RISKS ASSOCIATED WITH THE BUSINESSES The following categories of risks associated with the businesses of the Impac Debtors are set forth in the Lodgian Registration Statement on Form S-4 filed with the Securities and Exchange Commission on August 13, 1999 (as amended on September 7, 1999): Risk Associated With The Lodging Industry - Economic Conditions, Oversupply, Travel Patterns and Other Conditions Beyond the Debtors' Control and Risk Related to Development of New Projects, Acquisitions and Renovations. Please refer to such filing for further discussion on this topic. -29- IX. CONFIRMATION OF THE IMPAC PLAN A. CONFIRMATION HEARING -------------------------------------------------------------------- CONFIRMATION HEARING The Court will hold the confirmation hearing at the following time and place: DATE AND TIME: commencing at 10:00 a.m. (Eastern time), on April 24, 2003. PLACE: The United States Bankruptcy Court, Southern District of New York, Alexander Hamilton Custom House, One Bowling Green, New York, New York 10004. JUDGE: The Honorable Burton R. Lifland. The confirmation hearing may be adjourned from time to time by the respective Impac Debtors or the Bankruptcy Court without further notice except for an announcement of the adjourned date made at the confirmation hearing or any subsequent adjourned confirmation hearing. -------------------------------------------------------------------- Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to confirmation of a plan. Any objection to confirmation of the Impac Plan must be in writing, state the name and address of the objecting party and the nature of the Claim of such party, provide a concise statement of the basis for such objection or proposed modification, including, if applicable: (i) the specific page number of the Impac Plan to which the objection refers; (ii) the specific language proposed to be deleted, if a deletion is sought; (iii) a draft of the precise language that the objecting party proposes be added or substituted; and (iv) the reasons and statutory or other authority therefor and be filed, together with proof of service, with the Bankruptcy Court (with a copy to the chambers of the Honorable Judge Burton R. Lifland), and must further be served upon the following parties: (1) Cadwalader, Wickersham & Taft LLP, 100 Maiden Lane, New York, New York 10038, Attn: Adam C. Rogoff, Esq., counsel to the Debtors and Debtors-in-Possession; (2) Curtis, Mallet-Prevost, Colt & Mosle LLP, 101 Park Avenue, New York, New York 10178, Attn: Steven J. Reisman, Esq., co-counsel to the Debtors and Debtors-in-Possession; (3) Debevoise & Plimpton, 919 Third Avenue, New York, New York 10022, Attn: George E.B. Maguire, Esq., counsel for the Committee; and (4) Lodgian, Inc., 3445 Peachtree Road, Suite 700, Atlanta, Georgia 30326, Attn: Daniel Ellis, Esq., in each case SO AS TO BE ACTUALLY RECEIVED NO LATER THAN 4 P.M. (EASTERN TIME) ON APRIL 17, 2003. Objections to confirmation of the Impac Plan are governed by Rule 9014 of the Federal Rules of Bankruptcy Procedure. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT. -30- B. GENERAL REQUIREMENTS OF SECTION 1129 At the confirmation hearing, the Bankruptcy Court will determine whether the following confirmation requirements specified in section 1129 of the Bankruptcy Code have been satisfied: 1. The Impac Plan complies with the applicable provisions of the Bankruptcy Code. 2. Each of the Impac Debtors has complied with the applicable provisions of the Bankruptcy Code. 3. The Impac Plan has been proposed in good faith and not by any means proscribed by law. 4. Any payment made or promised by each of the Impac Debtors or by a person issuing securities or acquiring property under the Impac Plan for services or for costs and expenses in, or in connection with, the Chapter 11 cases, or in connection with the Impac Plan and incident to the Chapter 11 cases, has been disclosed to the Bankruptcy Court, and any such payment made before the confirmation of the Impac Plan is reasonable or if such payment is to be fixed after confirmation of the Impac Plan, such payment is subject to the approval of the Bankruptcy Court as reasonable. 5. Each of the Impac Debtors has disclosed the identity and affiliations of any individual proposed to serve, after confirmation of the Impac Plan, as a director, officer or voting trustee of the respective Impac Debtors, affiliates of each of the Impac Debtors participating in the Impac Plan with each of the Impac Debtors, or a successor to each of the Impac Debtors under the Impac Plan, and the appointment to, or continuance in, such office of such individual is consistent with the interests of creditors and equity holders and with public policy, and each of the Impac Debtors has disclosed the identity of any insider that will be employed or retained by each of the Impac Debtors, and the nature of any compensation for such insider. 6. With respect to each Class of Claims, each holder of an impaired Claim either has accepted the Impac Plan or will receive or retain under the Impac Plan, on account of such holder's Claim, property of a value, as of the Effective Date, that is not less than the amount such holder would receive or retain if the applicable Impac Debtor was liquidated on the Effective Date under Chapter 7 of the Bankruptcy Code. See discussion of "Best Interests Test" below. 7. Except to the extent that the Impac Plan meets the requirements of section 1129(b) of the Bankruptcy Code (discussed below), each Class of Claims has either accepted the Impac Plan or is not impaired under the Impac Plan. 8. Except to the extent that the holder of a particular Claim has agreed to a different treatment of such Claim, the Impac Plan provides that Administrative Expense Claims and Priority Non-Tax Claims will be paid in full on the Effective Date and -31- that Priority Tax Claims will receive on account of such Claims deferred cash payments, over a period not exceeding six (6) years after the date of assessment of such Claims, of a value, as of the Effective Date, equal to the Allowed amount of such Claims. 9. At least one Class of impaired Claims has accepted the Impac Plan, determined without including any acceptance of the Impac Plan by any insider holding a Claim in such Class. 10. Confirmation of the Impac Plan is not likely to be followed by the liquidation or the need for further financial reorganization of any of the Impac Debtors or any successor to the Impac Debtors under the Impac Plan, unless such liquidation or reorganization is proposed in the Impac Plan. See discussion of "Feasibility" below. C. BEST INTERESTS TESTS As described above, the Bankruptcy Code requires that each holder of an impaired Claim either (i) accept the Impac Plan or (ii) receive or retain under the Impac Plan property of a value, as of the Effective Date, that is not less than the value such holder would receive if the applicable Impac Debtor was liquidated under Chapter 7 of the Bankruptcy Code. The first step in determining whether this test has been satisfied is to determine the dollar amount that would be generated from the liquidation of the applicable Impac Debtor's assets and properties in the context of a Chapter 7 liquidation case. The gross amount of Cash that would be available for satisfaction of Claims would be the sum consisting of the proceeds resulting from the disposition of the unencumbered assets and properties of the applicable Impac Debtor, augmented by the unencumbered Cash held by the applicable Impac Debtor at the time of the commencement of the liquidation case. The next step is to reduce that gross amount by the costs and expenses of liquidation and by such additional administrative and priority Claims that might result from the termination of the applicable Impac Debtor's business and the use of Chapter 7 for the purposes of liquidation. Any remaining net Cash would be allocated to creditors and shareholders in strict priority, in accordance with section 726 of the Bankruptcy Code. Finally, the present value of such allocations (taking into account the time necessary to accomplish the liquidation) are compared to the value of the property that is proposed to be distributed under the Impac Plan on the Effective Date. The applicable Impac Debtor's costs of liquidation under Chapter 7 would include the fees payable to a trustee in bankruptcy, as well as those fees that might be payable to attorneys and other professionals that such a trustee might engage. Other liquidation costs include the expenses incurred during the Chapter 11 cases that are Allowed Claims in the Chapter 7 case, such as compensation for attorneys, financial advisors, appraisers, accountants and other professionals for the applicable Impac Debtor and the Committee, and costs and expenses of members of the Committee, as well as other compensation Claims. In addition, Claims would arise by reason of the breach or rejection of obligations incurred and leases and -32- executory contracts assumed or entered into by the applicable Impac Debtor during the pendency of the Chapter 11 cases. Generally, the foregoing types of Claims, costs, expenses, fees and such other Claims that may arise in a liquidation case would be paid in full from the liquidation proceeds before the balance of those proceeds would be made available to pay pre-petition secured, priority and unsecured Claims. EACH OF THE IMPAC DEBTORS BELIEVES THAT IN A CHAPTER 7 CASE, CLASS 3 (GENERAL UNSECURED CLAIMS), CLASS 5 (CONVENIENCE CLAIMS) AND CLASS 9 (EQUITY INTERESTS) WOULD RECEIVE NO DISTRIBUTION OF PROPERTY, PARTICULARLY GIVEN THAT THE SETTLEMENT AGREEMENT WOULD OBLIGATE THE IMPAC DEBTORS TO TRANSFER EACH OF THE IMPAC HOTEL PROPERTIES TO CCA, IN ACCORDANCE WITH THE SETTLEMENT AGREEMENT. After consideration of the effects that a Chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors in the Chapter 11 cases, including (i) the increased costs and expenses of a liquidation under Chapter 7, arising from fees payable to a trustee in bankruptcy and professional advisors to such trustee, (ii) additional costs associated with the transfer of the Impac Hotel Properties, pursuant to the Settlement Agreement, and (iii) the substantial increases in Claims that would be satisfied on a priority basis, each of the Impac Debtors has determined that confirmation of the Impac Plan will provide each holder of an Allowed Claim with a recovery that is not less than such holder would receive pursuant to liquidation of each of the Impac Debtors under Chapter 7. Each of the Impac Debtors also believes that the value of any distributions to each Class of Allowed Claims in a Chapter 7 case, including all secured Claims, would be less than the value of distributions under the Impac Plan because such distributions in a Chapter 7 case would not occur for a substantial period of time. In this regard, it is possible that distribution of the proceeds of the liquidation could be delayed for one year or more after the completion of such liquidation in order to resolve Claims and prepare for distributions. In the event that litigation was necessary to resolve Claims asserted in a Chapter 7 case, the delay could be prolonged and administrative expenses increased. D. LIQUIDATION ANALYSIS Typically a liquidation analysis reflects the projected outcome of a hypothetical, orderly liquidation under chapter 7 of the Bankruptcy Code. However, as set forth in section XI.A, if no Chapter 11 plan can be confirmed for any of the Impac Debtors by the Outside Closing Date, the Impac Debtors' applicable Chapter 11 cases would be administered pursuant to the Settlement Agreement. Pursuant to the Settlement Agreement, each of the Impac Debtors believes that implementation of the Settlement Agreement would result in no distributions being made to the respective holders of Claims and Equity Interests because of (i) the likelihood that other assets of each of the Impac Debtors would have to be sold or otherwise disposed of in accordance with the Settlement Agreement, (ii) additional administrative expenses attendant to fees and expenses of attorneys and other professionals, and (iii) additional expenses and Claims, some of which would be entitled to priority, which would be generated during the implementation of the Settlement Agreement and from other executory contracts in connection with a cessation of each of the Impac Debtors' operations. As no funds would remain, the estates of the Impac Debtors would, at this point, be administratively insolvent. -33- E. FEASIBILITY As a condition to confirmation of the Impac Plan, the Bankruptcy Code requires, among other things, that the Bankruptcy Court determine that confirmation is not likely to be followed by the liquidation or the need for further financial reorganization of the Impac Debtors. In connection with the development of the Impac Plan and for the purpose of determining whether the Impac Plan satisfies this feasibility standard, the Impac Debtors developed the Projections, which include certain income statement, cash flows and balance sheet projections for the Projection Period consisting of the fiscal years 2003 through 2005 for the Reorganized Impac Debtors on a consolidated basis. The Projections, together with a discussion of the assumptions underlying the Projections, are included in section IV above, and Exhibit C, "Projections." Based on the Projections, the Impac Debtors believe that the Reorganized Impac Debtors will be able to make all payments required pursuant to the Impac Plan and, therefore, that confirmation of the Impac Plan is not likely to be followed by liquidation or the need for further reorganization. F. SECTION 1129(b) The Bankruptcy Court may confirm the Impac Plan over the rejection or deemed rejection of the Impac Plan by a Class of Claims if the Impac Plan "does not discriminate unfairly" and is "fair and equitable" with respect to such Class. 1. No Unfair Discrimination This test applies to Classes of Claims that are of equal priority and are receiving different treatment under the Impac Plan. The test does not require that the treatment be the same or equivalent, but that such treatment be "fair." 2. Fair and Equitable Test This test applies to Classes of different priority and status (e.g., secured versus unsecured) and includes the general requirement that no Class of Claims receive more than 100% of the amount of the Allowed Claims in such Class. As to the dissenting Class, the test sets different standards, depending on the type of Claims in such Class: O Secured Creditors. Each holder of an impaired Secured Claim either (i) retains its liens on the property to the extent of the amount of its Allowed Secured Claim and receives deferred cash payments having a value, as of the effective date, of at least the amount of such Allowed Claim, (ii) has the right to credit bid the amount of its Claim if its property is sold and retains its liens on the proceeds of the sale or (iii) receives the "indubitable equivalent" of its Allowed Secured Claim. O Unsecured Creditors. Either (i) each holder of an impaired unsecured Claim receives or retains under the plan property of a value equal to the amount of its Allowed Claim, or (ii) the holders of Claims and Equity Interests that are junior to the Claims of the dissenting Class will not receive any property under the plan. -34- These requirements are in addition to other requirements established by case law interpreting the statutory requirement. Each of the Impac Debtors believes that the Impac Plan will satisfy the "fair and equitable" requirement, because no junior Class to those not paid in full will receive or retain any property, in the absence of new value issued, on account of the Claims or Equity Interests in such Class. In addition, in consideration of the retention of the Reinstated Equity Securities, Lodgian is providing substantial new value consisting of Cash and other financial accommodations, as set forth in section II.A. X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE IMPAC PLAN The following discussion summarizes certain federal income tax consequences of the implementation of the Impac Plan to certain holders of General Unsecured Claims. The following summary does not address the federal income tax consequences to (i) holders whose Claims are entitled to reinstatement or payment in full in cash, or are otherwise unimpaired under the Impac Plan, and (ii) holders of Claims which are extinguished without a distribution in exchange therefor. In addition, because no Equity Interests will be distributed to holders of Claims, the following summary does not address the federal income tax consequences of the implementation of the Impac Plan to the Impac Debtors. The following summary is based on the Internal Revenue Code of 1986, as amended (the "Tax Code"), Treasury Regulations promulgated thereunder, judicial decisions, and published administrative rules and pronouncements of the Internal Revenue Service ("IRS") as in effect on the date hereof. Changes in such rules or new interpretations thereof may have retroactive effect and could significantly affect the federal income tax consequences described below. Certain federal income tax consequences of the Impac Plan are complex and are subject to significant uncertainties. None of the Impac Debtors have requested or will request a ruling from the IRS or an opinion of counsel with respect to any of the tax aspects of the Impac Plan. Thus, no assurance can be given as to the interpretation that the IRS will adopt. In addition, this summary does not address foreign, state or local tax consequences of the Impac Plan, nor does it purport to address all federal income tax consequences of the Impac Plan that may be relevant to specific taxpayers in light of their particular circumstances or to special classes of taxpayers (such as foreign taxpayers, broker-dealers, mutual funds, insurance companies, financial institutions, small business investment companies, regulated investment companies, tax-exempt organizations, investors in pass-through entities, dealers in securities, U.S. expatriates or persons who have acquired the Claims as part of a straddle, hedge, conversion transaction or other integrated investment). Furthermore, the following discussion does not necessarily apply to holders who have claims in more than one class relating to the same underlying obligation (such as where the underlying obligation is classified as partially secured and partially unsecured). Such holders -35- should consult their tax advisors regarding the effect of such dual status obligations on the federal income tax consequences of the Impac Plan to them. ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A HOLDER OF A CLAIM. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM OF THE IMPLEMENTATION OF THE IMPAC PLAN. A. CONSEQUENCES TO HOLDERS OF GENERAL UNSECURED CLAIMS In general, holders of General Unsecured Claims would recognize gain or loss in an amount equal to the difference between (i) the amount of cash (less any portion of such cash required to be treated as imputed interest as a result of any such cash being distributed after the Effective Date) received by the holder in satisfaction of its claim (other than any claim for accrued but unpaid interest) and (ii) the holder's adjusted tax basis in its claim (other than any claim for accrued but unpaid interest). For a discussion of the tax consequences of any claims for accrued interest, see section X.B, below. Due to the possibility that a holder of a General Unsecured Claim may receive a distribution of cash subsequent to the Effective Date in respect of any subsequently allowed disputed claims, the imputed interest provisions of the Tax Code may apply to treat a portion of the distribution to such holders as imputed interest. With respect to certain holders, such imputed interest may accrue over time using the constant interest method, in which case such holders may be required to include such imputed interest in income prior to the actual distribution. In addition, because distributions of cash to such holders may be made after the Effective Date, recognition of any loss, and a portion of any gain, realized by a holder in satisfaction of its claim may be deferred until all such subsequent distributions are made. Such holders are urged to consult their tax advisors regarding the possible application of (or ability to elect out of) the "installment method" of reporting any gain that may be recognized by such holder with respect to its claim. Where gain or loss is recognized by a holder, the character of such gain or loss as long-term or short-term capital gain or loss or as ordinary income or loss will be determined by a number of factors, including the tax status of the holder, whether the claim constitutes a capital asset in the hands of the holder and how long it has been held, whether the claim was acquired with market discount, and whether and to what extent the holder had previously claimed a bad debt deduction. B. DISTRIBUTIONS IN DISCHARGE OF ACCRUED INTEREST Pursuant to the Impac Plan, all distributions in respect of an allowed claim will be allocated first to the principal amount of the claim, with any excess allocated to the remaining portion of the claim. However, there is no assurance that such allocation would be respected by the IRS for federal income tax purposes. In general, to the extent that any amount received by a holder of a debt is treated as received in satisfaction of accrued interest during its holding period, -36- such amount will be taxable to the holder as interest income (if and to the extent not previously included in the holder's gross income). Conversely, a holder would generally recognize a deductible loss to the extent any accrued interest claimed was previously included in its gross income and is not paid in full. Each holder of a claim is urged to consult its tax advisor regarding the allocation of consideration and the deductibility of unpaid interest for tax purposes. C. MARKET DISCOUNT A holder that purchased its claim from a prior holder with market discount will be subject to the market discount rules of the Tax Code. Under those rules, assuming that the holder has made no election to amortize the market discount into income on a current basis with respect to any market discount instrument, any gain recognized on the exchange of its claim (subject to a de minimis rule) generally would be characterized as ordinary income to the extent of the accrued market discount on such claim as of the date of the exchange. D. INFORMATION REPORTING AND WITHHOLDING All distributions to holders of allowed claims under the Impac Plan are subject to any applicable withholding (including employment tax withholding). Under federal income tax law, interest, dividends, and other reportable payments may, under certain circumstances, be subject to "backup withholding" (currently at a rate of 30% and not to exceed 31%). Backup withholding generally applies if the holder (i) fails to furnish its social security number or other taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii) fails properly to report interest or dividends, or (iv) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number, that it is not subject to backup withholding, and that it is a U.S. person. Backup withholding is not an additional tax but merely an advance payment of tax, which may be refunded to the extent it results in an overpayment of tax. Certain persons are exempt from backup withholding, including, in certain circumstances, corporations and financial institutions. THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES APPLICABLE UNDER THE IMPAC PLAN. XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE IMPAC PLAN A. LIQUIDATION UNDER CHAPTER 11 If no Chapter 11 plan can be confirmed for any of the Impac Debtors by the Outside Closing Date, the Impac Debtors' applicable Chapter 11 cases would be administered pursuant to the Settlement Agreement and liquidated under Chapter 11 of the Bankruptcy Code with either a structured dismissal or alternative arrangement acceptable to CCA and the Bankruptcy Court. A discussion of the effect that a Chapter 11 liquidation would have on the recoveries of holders of Claims is set forth in sections IX.C and IX.D, above. Pursuant to the -37- Settlement Agreement, each of the Impac Debtors believes that implementation of the Settlement Agreement would result in no distributions being made to the respective holders of Claims and Equity Interests because of (i) the likelihood that other assets of each of the Impac Debtors would have to be sold or otherwise disposed of in accordance with the Settlement Agreement, (ii) additional administrative expenses attendant to fees and expenses of attorneys and other professionals, and (iii) additional expenses and Claims, some of which would be entitled to priority, which would be generated during the implementation of the Settlement Agreement and from other executory contracts in connection with a cessation of each of the Impac Debtors' operations. AS NO FUNDS WOULD REMAIN, THE ESTATES OF THE IMPAC DEBTORS WOULD, AT THIS POINT, BE ADMINISTRATIVELY INSOLVENT. EACH OF THE IMPAC DEBTORS BELIEVES THAT THERE WOULD BE NO DISTRIBUTION TO HOLDERS OF CLAIMS IN CLASS 3 (GENERAL UNSECURED CLAIMS), CLASS 5 (CONVENIENCE CLAIMS) AND CLASS 9 (EQUITY INTERESTS) IF THE IMPAC PLAN IS NOT CONFIRMED AND THE IMPAC HOTEL PROPERTIES ARE DISPOSED OF BY CCA UNDER THE SETTLEMENT AGREEMENT. B. ALTERNATIVE PLAN(S) If the Impac Plan is not confirmed, the possibility that each of the Impac Debtors or any other party in interest (if the applicable Impac Debtor's exclusive period in which to file a plan has expired) could attempt to formulate a different plan would be highly unlikely given that the Impac Hotel Properties would more than likely be sold, or returned to CCA, in accordance with the Settlement Agreement. On the other hand, the Impac Plan allows the Reorganized Impac Debtors to take advantage of their unique position in the lodging industry, including strong relationships with vendors, extended credit terms, and other benefits associated with combined management efforts provided by the Lodgian Group. The employees and vendors of the Impac Debtors, as well as the management team, have expended substantial and valuable resources into the formulation of the Impac Plan, which would be lost if the Impac Debtors are required by CCA to dispose of the Impac Hotel Properties under the Settlement Agreement. This adverse result can be avoided if the current Impac Plan is confirmed. XII. CONCLUSION Each of the Impac Debtors believes that the Impac Plan is in the best interests of all of its creditors and equity holders and urges the holders of impaired Claims in Classes 1, 3, 5 and 9 to vote to accept the Impac Plan and to evidence such acceptance by returning their Ballots so that they will be received by the Voting Agent NOT LATER THAN 5:00 P.M. (PACIFIC TIME) ON APRIL 17, 2003. -38- Dated: As of March 3, 2003 Respectfully submitted, IMPAC HOTELS II, L.L.C. By: /s/ Daniel E. Ellis ---------------------------------------- Name: Daniel E. Ellis Title: Authorized Officer IMPAC HOTELS III, L.L.C. By: /s/ Daniel E. Ellis ---------------------------------------- Name: Daniel E. Ellis Title: Authorized Officer OFFICIAL COMMITTEE OF UNSECURED CREDITORS By: Debevoise & Plimpton, its counsel By: /s/ George E.B. Maguire ----------------------------------- Name: George E.B. Maguire Title: Attorneys for the Committee -39- EX-99.1 6 g82843exv99w1.txt EX-99.1 SECTION 906 CETIFICATION OF THE CEO Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Lodgian, Inc., (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David E.Hawthorne, the Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and after reasonable inquiry: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. LODGIAN, INC. By: /s/ DAVID E. HAWTHORNE ------------------------------- DAVID E. HAWTHORNE President and Chief Executive Officer EX-99.2 7 g82843exv99w2.txt EX-99.2 SECTION 906 CETIFICATION OF THE CFO Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Lodgian, Inc., (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard Cartoon, the Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and after reasonable inquiry: 3. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 4. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. LODGIAN, INC. By: /s/ RICHARD CARTOON ------------------------------- RICHARD CARTOON Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

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	•		Senior debt of $224.0 million accruing interest at the rate of LIBOR plus 2.2442%, secured by, among other things, first mortgage liens on the fee simple and leasehold interests in 55 of the Company’s hotels;

	•		Mezzanine debt of $78.7 million accruing interest at the rate of LIBOR plus 9.00% secured by the equity interest in the subsidiaries of 56 hotels (the 55 which secure the Senior Debt and one additional hotel); and

	•		Canadian debt provided through Computershare Trust Company of Canada, a Canadian lender, of $10.0 million Canadian dollars (equated to approximately $6.3 million U.S. dollars at inception) maturing in December 2007 accruing interest at the rate of 7.879% (secured by a mortgage on the Windsor property).

	•		Risks associated with the Company’s ability to maintain its existing franchise affiliations which could affect the Company’s revenue generating capabilities;

	•		The impact of potential litigation and/or governmental inquiries and investigation involving the Company;

	•		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 to meet its obligations;

	•		The effectiveness of changes in management and the ability of the Company to retain qualified individuals to serve in senior management positions;

	•		The potential for additional impairment charges against earnings related to long-lived assets;

	•		Risks associated with reductions in hotel values which are dependent upon the successful operation of the hotels;

	•		Risks associated with increases in the cost of debt;

	•		Risks associated with the holders of the Company’s common stock exercising significant control over the Company and selling large blocks of shares;

	•		Risks as a result of the short time that the public market for the Company’s new securities has existed;

	•		Risks as a result of the Company not being able to meet the continuing listing requirements of the American Stock Exchange;

	•		Risks associated with self-insured claims escalating beyond expectations;

	•		Risks associated with the Company’s ability to finalize the Lehman financing by May 31, 2003;

	•		Risks associated with the Company’s short operating history since the effectiveness of its Joint Plan of Reorganization; and

	•		Risks associated with environmental, state and federal regulations.


	Upper Upscale: Hilton and Marriott

	Upscale: Courtyard by Marriott, Crowne Plaza, Radisson and Residence Inn

	Midscale with Food and Beverage: Clarion, Doubletree Club, Four Points, Holiday Inn, Holiday Inn Select, Holiday Inn SunSpree Resort and Quality Inn

	Midscale without Food and Beverage: Fairfield Inn, Hampton Inn and Holiday Inn Express


	Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York, Ohio, Pennsylvania, Vermont, West Virginia

	Southeast: Alabama, Florida, Georgia, Kentucky, Louisiana, South Carolina, Tennessee

	Midwest: Arkansas, Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Oklahoma, Texas

	West: Arizona, California, Colorado, New Mexico

	a)		Within the 90 days of the filing date of this report, certain of the Company’s management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 and Rule 15d – 14. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic reports to the Securities and Exchange Commission.

	b)		There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

1)		I have read this quarterly report on Form 10-Q of Lodgian, Inc;

2)		based on my knowledge, this quarterly report does not contain any untrue statement of a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3)		based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of the issuer as of, and for, the periods presented in this quarterly report;

4)		the registrant’s other certifying officers and I:

	a)		are responsible for establishing and maintaining disclosure controls and procedures (as defined by Exchange Act Rules 13a – 14 and 15d – 14) of the registrant

	b)		have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which the quarterly report is being prepared

	c)		have evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	d)		have presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and