-----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, Bru43RQth7V68jkWMZ9sV/DGiKIvm2o6yq0cr3IC+TxDZOdDm//nVGQg4jCxwrRk mHzAn0N+ZbJDWmyAimG9bw== 0000950144-98-008499.txt : 19980720 0000950144-98-008499.hdr.sgml : 19980720 ACCESSION NUMBER: 0000950144-98-008499 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19980717 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LODGIAN INC CENTRAL INDEX KEY: 0001066138 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-59315 FILM NUMBER: 98668047 BUSINESS ADDRESS: STREET 1: 1601 BELVEDERE RD CITY: WEST PALM BEACH STATE: FL ZIP: 33406 BUSINESS PHONE: 5616899970 MAIL ADDRESS: STREET 1: 1601 BELVEDERE RD CITY: WEST PALM BEACH STATE: FL ZIP: 33406 S-4 1 LODGIAN, INC. FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998. Registration No. 333-_____ - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- LODGIAN, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter)
DELAWARE 7011 TO BE APPLIED FOR -------- ---- ----------------- (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
1601 BELVEDERE ROAD WEST PALM BEACH, FLORIDA 33406 (561) 689-9970 -------------------------------------------- (Address, including Zip Code, and telephone number, including area code, of registrant's principal executive offices) DAVID A. BUDDEMEYER 1601 BELVEDERE ROAD WEST PALM BEACH, FLORIDA 33406 (561) 689-9970 ------------------------------------------ (Name, address, including Zip Code, and telephone number, including area code, of agent for service) Please send copies of all communications to:
ALISON W. MILLER, ESQ. KEN HARRIGAN, ESQ. STEVEN D. RUBIN, ESQ. POWELL, GOLDSTEIN, FRAZER & MURPHY LLP STEARNS WEAVER MILLER WEISSLER 191 PEACHTREE STREET, N.E., SUITE 1600 ALHADEFF & SITTERSON, P.A. ATLANTA, GEORGIA, 30303 150 WEST FLAGLER STREET, SUITE 2200 (404) 572-6744 MIAMI, FLORIDA 33130 (305) 789-3200
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered in connection with the formation of a holding compnay and there is compliance with General Instruction G, check the following box |_|. CALCULATION OF REGISTRATION FEE
================================================================================================================================ Title of each class Proposed maximum Proposed maxi- Amount of of securities to be Amount to be offering price per mum aggregate registration registered retistered Share offering price(1) fee - -------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share 29,951,695(2) $12.73 $381,205,867 $112,456 ================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) based on (i) $15.1875, the average of the high and low per share sale price of the Common Stock, par value $.01 per share (the "Servico Common Stock"), of Servico, Inc., a Florida corporation, on the New York Stock Exchange on July 13, 1998, and (ii) $5.23, the book value of the Class A Ordinary Membership Units (the "Impac Units") of Impac Hotel Group, L.L.C., a Georgia limited liability company ("Impac"), on March 31, 1998. The proposed maximum offering price is equal to (i) the per share market value of the Servico Common Stock multiplied by the maximum number of shares of Servico Common Stock which may be converted in the Mergers described herein (the "Mergers") for shares of the Common Stock, par value $.01 per share (the "Lodgian Common Stock"), of Lodgian, Inc., a Delaware corporation, plus (ii) the per unit book value of the Impac Units multiplied by the maximum number of Impac Units which may be converted in the Mergers for shares of Lodgian Common Stock (2) Assumes that all shares of Lodgian Common Stock issuable to unitholders of Impac are issued pursuant to the terms of the Agreement and Plan of Merger described herein. -------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 2 [SERVICO LOGO] SERVICO, INC. 1601 Belvedere Road West Palm Beach, Florida 33406 _____________, 1998 Dear Fellow Shareholders: You are cordially invited to attend the Annual Meeting of Shareholders to be held at ________, on _____________, 1998, at _____ a.m., Eastern Time. At this meeting, you will be asked to approve a merger between Servico and Impac Hotel Group, L.L.C., a private hotel ownership, management and development company. Impac owns, manages or has under development 55 hotels, with approximately 9,266 rooms in 24 states. In the merger, Servico shareholders and the unitholders of Impac will become the owners of a combined company to be called Lodgian, Inc., with Servico shareholders and Impac unitholders owning approximately 74% and 26%, respectively, of Lodgian's outstanding common stock. The accompanying Joint Proxy Statement/Prospectus provides a detailed description of the merger and its effect on Servico and on you as shareholders of Servico. The purpose of the merger is to create a combined enterprise with the increased financial strength, franchise base and the expertise necessary to excel in the increasingly competitive and consolidating hotel industry. However, the combined company will be subject to significant potential risks including : o Inability to successfully consolidate the business, operations and personnel of the two companies; o High levels of debt which subject the combined company to a greater risk of default and foreclosure in economic downturns; o Unavailability of capital for growth through the acquisition, development or renovation of hotel properties; o Increased competition for customers and hotel acquisition opportunities; and o Illiquidity of real estate and exposure to general economic downturns in the lodging industry. At the Annual Meeting, you will also be asked to approve the Lodgian 1998 Short-Term Incentive Compensation Plan, the Lodgian 1998 Stock Incentive Plan and the Lodgian Non-Employee Directors' Stock Plan and an amendment to Servico's existing Stock Option Plan to increase the number of shares in the Servico Stock Option Plan. The Lodgian Plans will replace the Servico Stock Option Plan if the merger is approved. Servico shareholders will also vote on the election of one director to serve until the earlier of the year 2001 or the completion of the merger. YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF SERVICO AND ITS SHAREHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AND FOR EACH OF THE LODGIAN PLANS. YOUR BOARD OF DIRECTORS ALSO RECOMMENDS THAT YOU VOTE FOR ITS NOMINEE FOR DIRECTOR AND FOR APPROVAL OF THE AMENDMENT TO SERVICO'S EXISTING STOCK OPTION PLAN. Whether or not you plan to attend the Annual Meeting and regardless of the number of shares you own, please complete, sign and date your proxy card and promptly return it in the envelope provided. If you attend the Annual Meeting you may vote in person, even if you previously returned a proxy. 3 Sincerely yours, David A. Buddemeyer, Chairman of the Board, President and Chief Executive Officer The Securities and Exchange Commission and state securities regulations have not approved the transaction described in this Joint Proxy Statement/Prospectus or the shares of Lodgian common stock to be issued in the transaction, and they have not determined if this Joint Proxy Statement/Prospectus is truthful or complete. Furthermore, the Securities and Exchange Commission has not determined the fairness or merits of the transaction. Any representation to the contrary is a criminal offense. SEE "RISK FACTORS" BEGINNING ON PAGE ___ FOR MATERIAL RISKS YOU SHOULD CONSIDER. This Joint Proxy Statement/Prospectus is dated _________, 1998 and is first being mailed to shareholders and unitholders on or about _____, 1998. 4 [SERVICO LOGO] SERVICO, INC. 1601 Belvedere Road West Palm Beach, Florida 33406 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON ______________, 1998, AT __ A.M. To Our Shareholders: Notice is hereby given that the Annual Meeting of Shareholders (the "Annual Meeting") of Servico, Inc., a Florida corporation ("Servico"), will be held at _____________, on ___________, 1998, commencing at ____ a.m. Eastern Time, and at any adjournments or postponements thereof, for the following purposes: 1. To approve the Amended and Restated Agreement and Plan of Merger, dated as of July ___, 1998 (the "Merger Agreement"), among Lodgian, Inc. ("Lodgian"), Servico, Impac Hotel Group, L.L.C., a Georgia limited liability company ("Impac"), P-Burg Lodging Associates, Inc., a Kentucky corporation ("P-Burg"), Hazard Lodging Associates, Inc., a Kentucky corporation ("Hazard"), Memphis Lodging Associates, Inc., a Florida corporation ("Memphis"), Delk Lodging Associates, Inc., a Delaware corporation ("Delk"), Impac Hotel Development, Inc., a Delaware corporation ("IHD"), Impac Design and Construction, Inc., a Delaware corporation ("IDC"), Impac Hotel Group, Inc., a Florida corporation ("IHG") (P-Burg, Hazard, Memphis, Delk, IHD, IDC and IHG referred to collectively as the "Impac Affiliated Companies") and certain acquisition subsidiaries providing for mergers which will result in Servico, Impac and each of the Impac Affiliated Companies becoming wholly-owned subsidiaries of Lodgian (together referred to as the "Merger"); 2. To approve the Lodgian 1998 Short-Term Incentive Compensation Plan, which appears as Appendix D to the accompanying Joint Proxy Statement/Prospectus; 3. To approve the Lodgian 1998 Stock Incentive Plan, which appears as Appendix E to the accompanying Joint Proxy Statement/Prospectus; 4. To approve the Lodgian Non-Employee Directors' Stock Plan, which appears as Appendix F to the accompanying Joint Proxy Statement/Prospectus (the Lodgian 1998 Short-Term Incentive Compensation Plan, the Lodgian 1998 Stock Incentive Plan and the Lodgian Non-Employee Directors' Stock Plan being referred to as the "Lodgian Plans"); 5. To elect one director to the Board of Directors of Servico to serve until the earlier of the year 2001 or the consummation of the Merger; 6. To approve an amendment of the Servico Stock Option Plan to increase the number of shares issuable pursuant to the Plan; and 7. To transact such other business that may properly come before the Annual Meeting or any adjournment or postponement thereof. 5 Only shareholders of record on __________, 1998 will be entitled to notice of and to vote at the Annual Meeting and any adjournments thereof. The presence, either in person or by proxy, of the holders of a majority of the issued and outstanding shares of common stock of Servico, par value $.01 per share (the "Servico Common Stock"), is necessary to constitute a quorum at the Annual Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Servico Common Stock is required to approve the Merger. The affirmative vote of a majority of the shares of Servico Common Stock voting in person or by proxy at the Annual Meeting is required to approve each of the Lodgian Plans and the amendment of the Servico Stock Option Plan. The nominee will be elected as a director upon receipt of a plurality of the votes cast. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID REPLY ENVELOPE PROVIDED. THE PROMPT RETURN OF YOUR PROXY WILL ASSIST US IN PREPARING FOR THE ANNUAL MEETING. SHAREHOLDERS WHO ATTEND THE ANNUAL MEETING IN PERSON MAY REVOKE THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE. YOU MAY ALSO REVOKE YOUR PROXY BY SIGNING AND RETURNING A LATER DATED PROXY WITH RESPECT TO THE SAME SHARES OR BY FILING WITH THE SECRETARY OF SERVICO A DULY EXECUTED LETTER OF REVOCATION. IF YOU SIGN AND RETURN YOUR PROXY CARD WITHOUT SPECIFYING HOW YOU WOULD LIKE YOUR SHARES VOTED, EACH OF YOUR SHARES WILL BE VOTED FOR THE APPROVAL OF THE MERGER, FOR THE APPROVAL OF THE EACH OF THE LODGIAN PLANS, FOR THE AMENDMENT OF THE SERVICO STOCK OPTION PLAN AND FOR THE ELECTION OF THE NOMINEE AS DIRECTOR. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER, EACH OF THE LODGIAN PLANS, THE AMENDMENT TO THE SERVICO STOCK OPTION PLAN AND THE NOMINEE FOR DIRECTOR. By Order Of The Board Of Directors CHARLES M. DIAZ SECRETARY West Palm Beach, Florida _____________, 1998 6 [IMPAC LOGO] IMPAC HOTEL GROUP, L.L.C. Two Live Oak Center 3445 Peachtree Road, N.E. Suite 700 Atlanta, Georgia 30326 _____________, 1998 Dear Fellow Unitholders: I am writing to you to solicit your consent to two very important matters that directly affect your interest as unitholders of Class A Ordinary Membership Interests of Impac Hotel Group, L.L.C. The first matter involves a merger with Servico, Inc., a New York Stock Exchange listed company which owns or manages 89 hotels with approximately 17,937 rooms in 24 states. As a result of the merger, Servico shareholders and Impac unitholders will become the owners of a combined company to be called Lodgian, Inc., with Impac unitholders and Servico shareholders owning approximately 26% and 74%, respectively, of Lodgian's outstanding common stock. Unitholders of Impac will receive an aggregate of 6 million shares of Lodgian common stock or 0.519 shares for each unit owned (subject to adjustment based on the average closing price of Servico common stock over the ten days prior to the merger). In addition, as five of Impac's hotels that are currently under development are opened, the Impac unitholders will receive up to an aggregate of 1.4 million additional shares of Lodgian common stock representing an additional 0.121 shares of Lodgian common stock for each Impac unit. Impac unitholders and Servico shareholders will then own approximately 26% and 74% respectively of Lodgian's outstanding common stock. You are also being asked to approve the Lodgian 1998 Short-Term Incentive Compensation Plan, the Lodgian 1998 Stock Incentive Plan and the Lodgian Non-Employee Directors' Stock Plan. The plans are intended to provide Lodgian's directors and employees with incentives that are aligned with your interests as a Lodgian shareholder going forward. The accompanying Joint Proxy Statement/Prospectus provides a detailed description of the merger and its effect on Impac and on you as unitholders of Impac. The purpose of the merger is to create a combined enterprise with the increased financial strength, franchise base, global reach and expertise necessary to excel in the increasingly competitive and consolidating hotel industry. However, the merger will be subject to significant potential risks including: o Inability to successfully consolidate the business, operations and personnel of the two companies; o High levels of debt which subject the combined company to a greater risk of default and foreclosure in economic downturns; o Unavailability of capital for growth through the acquisition, development or renovation of hotel properties; o Increased competition for customers and hotel acquisition opportunities; and o Illiquidity of real estate and exposure to general economic downturns in the lodging industry. I strongly believe in the merger and have agreed to vote my Impac units in favor of the merger. My vote, together with the vote of others who have already agreed to vote their units in favor of the merger, will represent more than 7 a majority of the outstanding units, thus assuring the approval of the merger and the Lodgian benefit plans by the Impac unitholders. AS MANAGER, I HAVE CAREFULLY REVIEWED THE TERMS AND CONDITIONS OF THE MERGER AND BELIEVE THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF IMPAC AND ITS UNITHOLDERS AND RECOMMEND THAT YOU CONSENT TO THE MERGER AND TO THE ADOPTION OF EACH OF THE LODGIAN BENEFIT PLANS. Please complete, sign and date your written consent form and promptly return it in the envelope provided. Sincerely yours, ROBERT S. COLE MANAGER The Securities and Exchange Commission and state securities regulations have not approved the transaction described in this Joint Proxy Statement/Prospectus or the shares of Lodgian common stock to be issued in the transaction, and they have not determined if this Joint Proxy Statement/Prospectus is truthful or complete. Furthermore, the Securities and Exchange Commission has not determined the fairness or merits of the transaction. Any representation to the contrary is a criminal offense. SEE "RISK FACTORS" BEGINNING ON PAGE ___ FOR MATERIAL RISKS YOU SHOULD CONSIDER. This Joint Proxy Statement/Prospectus is dated _______, 1998 and is first being mailed to shareholders and unitholders on or about _____, 1998. 8 [IMPAC LOGO] IMPAC HOTEL GROUP, L.L.C. Two Live Oak Center 3445 Peachtree Road, N.E. Suite 700 Atlanta, Georgia 30326 SOLICITATION OF WRITTEN CONSENT OF UNITHOLDERS To Our Unitholders: Pursuant to Section 5.5(b)(i) of the Second Amended and Restated Operating Agreement of Impac Hotel Group, L.L.C. ("Impac"), the consent of the holders of the Class A Ordinary Membership Interests (the "Units") is solicited in order to take the following actions: 1. To approve the Amended and Restated Agreement and Plan of Merger, dated as of July ___, 1998 (the "Merger Agreement"), among Lodgian, Inc. ("Lodgian"), Servico, Impac Hotel Group, L.L.C., a Georgia limited liability company ("Impac"), P-Burg Lodging Associates, Inc., a Kentucky corporation ("P-Burg"), Hazard Lodging Associates, Inc., a Kentucky corporation ("Hazard"), Memphis Lodging Associates, Inc., a Florida corporation ("Memphis"), Delk Lodging Associates, Inc., a Delaware corporation ("Delk"), Impac Hotel Development, Inc., a Delaware corporation ("IHD"), Impac Design and Construction, Inc., a Delaware corporation ("IDC"), Impac Hotel Group, Inc., a Florida corporation ("IHG") (defined collectively as the "Impac Affiliated Companies") and certain acquisition subsidiaries providing for mergers which will result in Servico, Impac and each of the Impac Affiliated Companies becoming wholly-owned subsidiaries of Lodgian (together referred to as the "Merger"); 2. To approve the Lodgian 1998 Short-Term Incentive Compensation Plan, which appears as Appendix D to the accompanying Joint Proxy Statement/Prospectus; 3. To approve the Lodgian 1998 Stock Incentive Plan, which appears as Appendix E to the accompanying Joint Proxy Statement/Prospectus; and 4. To approve the Lodgian Non-Employee Directors' Stock Plan, which appears as Appendix F to the accompanying Joint Proxy Statement/Prospectus (the Lodgian 1998 Short-Term Incentive Compensation Plan, the Lodgian 1998 Stock Incentive Plan and the Lodgian Non-Employee Directors' Stock Plan being referred to as the "Lodgian Plans"). 9 The written consent of the holders of a majority of the outstanding Units of Impac is required to approve the Merger and each of the Lodgian Plans. Please sign, date and return promptly the enclosed form of written consent in the postage-paid reply envelope provided. You may revoke your consent by filing with the Secretary of Impac a duly executed letter of revocation prior to completion of the Merger. THE MANAGER RECOMMENDS THAT UNITHOLDERS CONSENT TO THE MERGER AND THE ADOPTION OF EACH OF THE LODGIAN PLANS. ROBERT S. COLE MANAGER Atlanta, Georgia _____________, 1998 10 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE SERVICO/IMPAC TRANSACTION..........................................................vi JOINT PROXY STATEMENT/PROSPECTUS SUMMARY............................................................................1 The Companies .............................................................................................1 What You Will Receive in the Merger........................................................................1 Reasons for the Merger.....................................................................................2 Summary of Risk Factors ...................................................................................2 Recommendations ...........................................................................................2 Opinions of Financial Advisors.............................................................................2 Conflicts of Interests of Certain Persons..................................................................3 Conditions to the Transaction .............................................................................3 Termination of the Merger Agreement .......................................................................3 Termination Fees ..........................................................................................3 Regulatory Approvals ......................................................................................3 Material U.S. Federal Income Tax Consequences .............................................................3 No Appraisal Rights........................................................................................4 Per Share Market Price Information ........................................................................4 Listing of Lodgian Common Stock ...........................................................................4 Lodgian Dividend Policy....................................................................................4 Lodgian Plan Proposals ....................................................................................4 Other Servico Annual Meeting Matters.......................................................................4 Eligibility to Vote........................................................................................4 Vote Required .............................................................................................4 Cautionary Statement.......................................................................................5 Organizational Chart.......................................................................................6 SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION...............................................................7 Selected Historical Financial Information - Servico........................................................7 Selected Historical Financial Information - Impac..........................................................8 Selected Unaudited Pro Forma Financial Information.........................................................8 Comparative Per Share Information.........................................................................10 RISK FACTORS.......................................................................................................11 Inability to Successfully Integrate Operations............................................................11
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Risks Associated with High Levels of Debt.................................................................11 Inability to Expand.......................................................................................13 Illiquidity and Possible Declines in Value of Real Estate.................................................13 Delays in Completion or Unanticipated Costs Associated with Development and Renovation of Properties..............................................................................13 Loss of Flexibility of Ownership of Real Estate with Others...............................................14 Lodging Industry Risks....................................................................................14 Limitations and Requirements of Franchise Agreements......................................................15 Costs of Compliance with Environmental Laws...............................................................16 No Intention to Pay Dividends.............................................................................16 Cost of Compliance with Governmental Regulations..........................................................16 Substantial Reliance on Key Personnel.....................................................................17 Anti-Takeover Provisions..................................................................................17 SERVICO ANNUAL MEETING.............................................................................................18 Date, Time and Place and Purpose..........................................................................18 Record Date for Eligibility to Vote.......................................................................18 Voting of Proxies.........................................................................................18 Revocability of Proxies...................................................................................19 Votes Required; Shares Held by Certain Persons............................................................19 Solicitation of Proxies...................................................................................19 MATTERS TO BE VOTED UPON AT THE SERVICO ANNUAL MEETING.............................................................20 Approval of the Merger ..................................................................................20 Approval of Each of the Lodgian Plans.....................................................................20 Amendment of Servico Stock Option Plan....................................................................20 Election of Directors ...................................................................................21 SOLICITATION OF IMPAC UNITHOLDER CONSENTS..........................................................................21 Purpose .................................................................................................21 Unitholders Entitled to Vote..............................................................................21 Submission of Written Consent.............................................................................21 Revocability of Consent...................................................................................21 Consent Required; Voting Agreements.......................................................................21 Solicitation of Consents..................................................................................22 THE MERGER.........................................................................................................22 General .................................................................................................22 The Merger................................................................................................22 Background of the Merger..................................................................................24 Opinion of Financial Advisors.............................................................................30 Material Federal Income Tax Consequences..................................................................40 Accounting Treatment......................................................................................42 Anti-Trust Approval.......................................................................................43 No Appraisal Rights.......................................................................................43 Stock Exchange Listing....................................................................................43 Delisting and Deregistration of Servico Common Stock......................................................43
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Securities Law Restrictions...............................................................................43 THE MERGER AGREEMENT...............................................................................................44 General .................................................................................................44 Consideration to be Received in the Merger................................................................44 Exchange of Shares........................................................................................47 Lodgian Following the Merger..............................................................................48 Certain Representations and Warranties....................................................................49 Certain Covenants.........................................................................................49 Restrictions on Solicitation of Alternative Transactions..................................................51 Certain Benefits Matters..................................................................................52 Indemnification and Insurance.............................................................................52 Certain Conditions........................................................................................53 Amendment and Waiver......................................................................................54 Termination...............................................................................................54 Termination Fees; Expenses................................................................................55 Impac Voting Agreements...................................................................................56 Registration Rights Agreement.............................................................................56 CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER.............................................................57 Certain Arrangements Regarding Management and Directors of Lodgian........................................57 Arrangements with Executive Officers......................................................................57 Development Agreements....................................................................................59 Registration Rights Agreement.............................................................................59 Indemnification and Insurance.............................................................................59 Release of Guarantees.....................................................................................59 MARKET PRICE AND DIVIDEND DATA.....................................................................................61 Servico .................................................................................................61 Impac .................................................................................................61 LODGIAN, INC. UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS...............................................................................................63 LODGIAN, INC. UNAUDITED PRO FORMA COMBINING BALANCE SHEET MARCH 31, 1998.....................................................................................................64 SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA FINANCIAL STATEMENTS FOR THE OFFERING, EXCLUDING THE MERGER.................................................................69 SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1998.........................................................................70 SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1997.............................................................................71 SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 1998........................................................................72
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SERVICO, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME................................................................................................73 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS EXCLUDING THE MERGER...............................................................................................75 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997.......................................................................................76 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS......................................................................................................77 DESCRIPTION OF LODGIAN.............................................................................................78 Directors And Management of Lodgian Following The Merger; Compensation....................................78 Stock Ownership of Directors, Executive Officers and Five Percent Shareholders............................80 DESCRIPTION OF SERVICO.............................................................................................85 General .................................................................................................85 Information Relating to Directors and Executive Officers of Servico.......................................85 Servico Employment Agreements and Termination of Employment...............................................90 Report of the Compensation Committee on Executive Compensation............................................91 Performance Graph.........................................................................................93 Security Ownership of Certain Beneficial Owners and Management ..........................................94 BUSINESS OF IMPAC..................................................................................................97 General .................................................................................................97 Organization..............................................................................................97 Investment Strategy.......................................................................................98 Acquisition and Development Strategy......................................................................98 Operating Strategy........................................................................................99 Properties...............................................................................................100 Hotel Operations.........................................................................................101 Franchise Affiliation....................................................................................102 Development Agreements...................................................................................104 Compensation Paid to Impac Manager.......................................................................104 Employees................................................................................................105 Legal Proceedings........................................................................................105 SELECTED HISTORICAL FINANCIAL DATA - IMPAC........................................................................106 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - IMPAC.................................................................................107 General ................................................................................................107 Results of Operations....................................................................................107 Liquidity and Capital Resources..........................................................................110 Existing Financing Arrangements..........................................................................110 Refinancing Commitment...................................................................................115 DESCRIPTION OF LODGIAN CAPITAL STOCK..............................................................................116 Authorized Capital Stock.................................................................................116
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Lodgian Common Stock.....................................................................................116 Lodgian Preferred Stock..................................................................................117 Transfer Agent and Registrar.............................................................................117 COMPARISON OF CERTAIN RIGHTS OF THE HOLDERS OF SERVICO COMMON STOCK AND IMPAC UNITS.............................................................................................117 Comparison of Current Servico Shareholder Rights and Lodgian Shareholder Rights Following the Merger.....................................................................................117 Comparison of Current Impac Unitholder Rights and Lodgian Shareholder Rights Following the Merger.....................................................................................122 LODGIAN PLAN PROPOSALS............................................................................................129 The Lodgian 1998 Short-Term Incentive Compensation Plan..................................................129 Federal Income Tax Consequences..........................................................................131 The Lodgian 1998 Stock Incentive Plan....................................................................131 Federal Income Tax Consequences..........................................................................134 The Lodgian Non-Employee Directors' Stock Plan...........................................................135 Federal Income Tax Consequences..........................................................................136 PROPOSAL TO AMEND THE SERVICO STOCK OPTION PLAN...................................................................137 Description of the Servico Stock Option Plan.............................................................137 Federal Income Tax Consequences..........................................................................138 Options Granted Under the Plan...........................................................................139 Amendment to the Plan....................................................................................139 LEGAL MATTERS.....................................................................................................140 EXPERTS .........................................................................................................140 SHAREHOLDER PROPOSALS.............................................................................................140 WHERE YOU CAN FIND MORE INFORMATION...............................................................................140 INDEX TO FINANCIAL STATEMENTS.....................................................................................F-1
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APPENDICES PAGE APPENDIX A - Agreement and Plan of Merger APPENDIX B - Opinion of Lehman Brothers APPENDIX C - Opinion of Allen & Company APPENDIX D - Lodgian 1998 Short-Term Incentive Compensation Plan APPENDIX E - Lodgian 1998 Stock Incentive Plan APPENDIX F - Lodgian Non-Employee Directors' Stock Plan APPENDIX G - Form of Restated Certificate of Incorporation of Lodgian APPENDIX H - Form of Restated Bylaws of Lodgian
-vi- 16 QUESTIONS AND ANSWERS ABOUT THE SERVICO/IMPAC TRANSACTION Q. WHEN ARE THE MEETINGS? A. The Servico meeting will take place on ___________, 1998. No meeting of Impac unitholders will be held. If you are an Impac unitholder, you should mail in your consent indicating your vote. Q. WHAT DO I NEED TO DO NOW? A. First, read the proxy statement-prospectus carefully. Then you should vote. Q. HOW DO I VOTE? A. IF YOU ARE A SERVICO SHAREHOLDER, please mail your signed proxy card in the enclosed postage prepaid return envelope as soon as possible, so that your shares may be represented and voted at the Annual Meeting, which is scheduled to take place on _____, 1998. Since a majority of the outstanding shares of Servico must approve the Merger, it is especially important that Servico shareholders return their signed proxy cards. YOUR VOTE IS VERY IMPORTANT. IF YOU ARE AN IMPAC UNITHOLDER, please mail your signed written consent form in the enclosed postage prepaid return envelope as soon as possible. Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE OR REVOKE MY CONSENT AFTER I HAVE MAILED MY PROXY CARD OR CONSENT FORM? A. IF YOU ARE A SERVICO SHAREHOLDER, there are three ways in which you may revoke your proxy. First, you may submit a written notification stating that you would like to revoke your proxy. Second, you may complete and submit a new proxy card. If you choose either of these methods, you should send your notice of revocation or new proxy card to Charles M. Diaz, Corporate Secretary of Servico at the address on the cover of this Joint Proxy Statement/Prospectus. Third, you may attend the Servico Annual Meeting and vote in person. If you hold your shares in "street name" or through a nominee or broker, you must follow directions received from your broker to cast or change your vote. IF YOU ARE AN IMPAC UNITHOLDER, you may revoke your consent by submitting a written notification stating that you would like to revoke your consent. You should send your notice of revocation to the Secretary of Impac at the address shown on the cover of this Joint Proxy Statement/Prospectus. Q. SHOULD I SEND IN MY STOCK OR UNITS NOW? A. No. If the merger is completed, you will receive written instructions for exchanging your shares or units for certificates representing Lodgian common stock. Q. PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER. A. SERVICO SHAREHOLDERS: Servico shareholders will receive one share of Lodgian common stock for each share of Servico common stock that they own. IMPAC UNITHOLDERS AND IMPAC AFFILIATED COMPANY SHAREHOLDERS: Impac unitholders and Impac Affiliated Company Shareholders will receive a number of shares of Lodgian common stock that will be determined based on the -vii- 17 average price of Servico common stock during a specified ten-day period prior to the merger. If the average price of Servico common stock is at least $14.00 per share and not more than $25.00 per share, then the Impac unitholders and the Impac Affiliated Company Shareholders will receive a total of 6.0 million shares of Lodgian common stock. Approximately 0.519 of a share of Lodgian common stock will be issued for each Impac Unit outstanding prior to the Merger. If the average price of the Servico common stock is less than $14.00 per share or more than $25.00 per share, the number of Lodgian shares to be issued will be adjusted. An aggregate of an additional 1.4 million shares of Lodgian common stock will be issued as each of five Impac hotels that are currently under development is opened. This means approximately 0.121 additional shares of Lodgian common stock could be issued for each Impac Unit outstanding prior to the Merger assuming the opening of all five hotels. IMPAC AFFILIATED COMPANY SHAREHOLDERS: For federal income tax planning purposes, the Impac Affiliated Companies, which are all Impac unitholders, will each merge directly with newly formed subsidiaries of Lodgian and the shareholders of the Impac Affiliated Companies will acquire Lodgian common stock directly in the Merger based upon the number of Impac units held by the respective Impac Affiliated Company and each shareholder's respective holdings in the Impac Affiliated Company. Q. WHEN WILL THE ADDITIONAL 1.4 MILLION SHARES OF LODGIAN COMMON STOCK BE ISSUED? A. The additional shares will be issued to former Impac unitholders and former Impac Affiliated Company shareholders upon receipt by Lodgian of the certificates of occupancy and the initial opening for business of five Impac hotels that are currently under development. The hotels are expected to open in 1999 and the additional shares of Lodgian common stock will be issued to former Impac unitholders and former Impac Affiliated Company shareholders upon each hotel opening, based upon an allocated value for each hotel, whether or not the former unitholders or shareholders still own their Lodgian stock. Q. WILL LODGIAN ISSUE FRACTIONAL SHARES? A. No. Lodgian will not issue fractional shares. Instead, you will be paid cash based on the market value of any fractional shares of Lodgian common stock you would have otherwise received. Q. IF MY SERVICO SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME? A. If you are a Servico shareholder, your broker is not permitted to vote your shares of Servico common stock on the merger proposal or the proposals to approve each of the Lodgian Plans unless you provide instructions on how to vote. -viii- 18 All shareholders of Servico should instruct their brokers to vote their shares following directions provided by their brokers. Q. WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED? A. We expect to complete the merger during the third quarter of 1998. Q. WHOM SHOULD I CALL WITH QUESTIONS? A. If you have questions about the transaction, you should call: Georgeson & Company Inc. at 1-800-223-2064. -ix- 19 JOINT PROXY STATEMENT/PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE LEGAL TERMS OF THE MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" (PAGE _____). THE COMPANIES (PAGES _______) SERVICO, INC. 1601 Belvedere Road West Palm Beach, Florida 33406 (561) 689-9970 Servico is one of the largest owners and operators of full-service hotels in the United States. Servico currently owns or manages 89 hotels containing approximately 17,937 rooms located in 24 states and Canada. Servico's hotels are primarily mid-sized, with an average of approximately 202 rooms per hotel, and are primarily located in secondary metropolitan markets. Servico's full-service hotels offer food and beverage services and meeting and banquet facilities. Servico's hotels include 76 wholly owned hotels, 11 partially owned hotels and two managed hotels. Substantially all of Servico's hotels are affiliated with nationally recognized hospitality franchises, including Holiday Inn, Crowne Plaza, Hilton, Omni, Radisson, Sheraton and Westin. Servico operates 59 hotels under franchise agreements with Holiday Inn, making Servico the second largest Holiday Inn franchisee in the United States. IMPAC HOTEL GROUP, L.L.C. Two Live Oak Center 3445 Peachtree Road, N.E., Suite 700 Atlanta, Georgia 30326 (404) 364-9400 Impac is one of the largest private hotel companies in the United States. Impac owns or manages primarily upscale or mid-market full service hotels, most of which have been renovated or developed within the last five years. Impac currently owns or operates 55 hotels (including five under development) containing approximately 9,266 rooms located in 24 states. Impac's hotels include 52 wholly owned hotels, one partially owned hotel and two managed hotels. Impac's hotels are generally affiliated with internationally recognized brands including Marriott, Doubletree and Holiday Inn. Impac operates 24 hotels under franchise agreements with Holiday Inn. LODGIAN, INC. Lodgian, Inc. was formed by Servico in connection with the proposed Merger. Lodgian will own Servico, Impac and the Impac Affiliated Companies after the Merger. WHAT YOU WILL RECEIVE IN THE MERGER (PAGES _______) SERVICO SHAREHOLDERS: Servico shareholders will receive one share of Lodgian common stock for each share of Servico common stock that they own. IMPAC UNITHOLDERS AND IMPAC AFFILIATED COMPANY SHAREHOLDERS: Impac unitholders and Impac Affiliated Company shareholders will receive a number of shares of Lodgian common stock that will be determined based on the average price of Servico common stock during a specified ten-day period prior to the merger. o If the average price of Servico common stock is at least $14.00 per share and not more than $25.00 per share, then the Impac unitholders and Impac Affiliated Company shareholders will receive a total of 6.0 million shares of Lodgian common stock or approximately 0.519 of a share of Lodgian common stock for each Impac Unit. o If the average price of the Servico common stock is less than $14.00 per share, the number of shares of Lodgian common stock to be received will be determined by dividing $103.6 million by the average Servico common stock price during the specified ten-day period and then subtracting 1.4 million shares. o If the average price of Servico common stock is more than $25.00 per share, the number of shares of Lodgian common stock to be received will be determined by dividing $185 million by the average Servico common stock price during the specified ten day period and then subtracting 1.4 million shares. -1- 20 The number of shares of Lodgian common stock Impac unitholders and Impac Affiliated Company shareholders will receive for each Impac Unit outstanding can be determined by dividing the total number of Lodgian shares to be delivered to the Impac unitholders and Impac Affiliated Company shareholders by 11,559,527.20 (which is the total number of outstanding Impac Units). o In addition, Impac unitholders and Impac Affiliated Company shareholders will receive an incremental portion of an aggregate of an additional 1.4 million shares of Lodgian common stock upon the opening of each of five Impac hotels that are currently under development or approximately 0.121 of additional shares of Lodgian common stock for each Impac Unit outstanding prior to the Merger. The number of shares of Lodgian common stock each Impac Affiliated Company shareholder will receive will be based upon (i) the number of Impac units owned by the respective Impac Affiliated Company and (ii) the shareholder's ownership percentage in the respective Impac Affiliated Company. REASONS FOR THE MERGER (PAGES _______) If completed, the Merger will create one of the largest independent multi-brand owner and operator of hotels in the United States. Here are a few of the highlights of how Lodgian would look after the Merger: o Lodgian will own or manage 140 hotels, including six hotels under development, with approximately 26,698 rooms. o Lodgian will have greater geographic diversity with hotels in 35 states and Canada. o Based on historical results of the combined companies at December 31, 1997, Lodgian would have had combined annual revenues of approximately $474 million. Servico believes that the Merger meets its criteria for a strategic acquisition based on the following additional factors: o Servico expects the Merger to contribute to earnings (before one-time merger-related charges) in the first year of combined operations. o The Merger offers possible opportunities for cost savings including savings through the addition of Impac's development expertise, greater purchasing power and the elimination of duplicate administrative and accounting functions. o The Merger will add a number of upscale hotels in major markets where Servico currently does not hold properties. SUMMARY OF RISK FACTORS (PAGES ______) The following principal risks and uncertainties should be considered by both Servico shareholders and Impac unitholders and Impac Affiliated Company shareholders: o the risk that the contemplated benefits of the Merger will not be achieved; o the challenges of integrating the two companies including potential personnel changes and costs associated with moving Servico's offices to Atlanta as well as the fact that no cost savings or efficiencies will be achieved; o the risks associated with the high amount of indebtedness of the combined company including the increased possibility of default, foreclosure and loss of properties; o adverse changes in the economy generally or in the lodging industry in particular could materially negatively impact Lodgian; o Impac unitholders will no longer receive distributions on their Units and Lodgian's business plan does not contemplate the disposition of the properties; o Unlike Impac, Lodgian will not be a limited life entity; and o The Manager of Impac will be employed by Lodgian pursuant to a three-year employment agreement and will receive options to buy Lodgian stock which are benefits not enjoyed by other Impac unitholders. RECOMMENDATIONS (PAGES _______) SERVICO: The Servico Board believes that the terms of the Merger are fair to, and in the best interests of, Servico and its shareholders and unanimously recommends that the shareholders of Servico vote to approve the Merger, each of the Lodgian Plans and the amendment of the Servico Stock Option Plan and to elect the nominee as a director. IMPAC: The Manager of Impac has determined that the terms of the Merger are fair to, and in the best interests of, Impac and its unitholders and recommends that the unitholders of Impac consent to the Merger and to the adoption of each of the Lodgian Plans. OPINIONS OF FINANCIAL ADVISORS (PAGES ______) In deciding to approve the Merger, the Board of Directors of Servico and the Manager of Impac considered opinions from financial advisors as to the fairness of the consideration from a financial point of view. Servico received the opinion of its financial advisor, Lehman Brothers, Inc., and Impac received -2- 21 the opinion of its financial advisor, Allen & Company Incorporated. Their opinions are attached as Appendices B and C to this Joint Proxy Statement/Prospectus. We encourage you to read and consider these opinions. CONFLICTS OF INTERESTS OF CERTAIN PERSONS (PAGES __________) In considering the recommendations of the Servico Board and the Impac Manager, shareholders of Servico and unitholders of Impac should be aware that certain officers and directors of Servico and the Manager of Impac will receive certain benefits you will not receive. Messrs. Buddemeyer and Cole will receive employment agreements with Lodgian pursuant to which they will receive base compensation of $405,000 and $300,000, respectively, potential bonuses based on future performance and, in the event of certain changes of control of Lodgian, 2.5 times their base salary plus bonus and other benefits. The Merger Agreement also provides that Lodgian will assume an option that was previously granted by Impac to Mr. Cole. Pursuant to the Merger Agreement, this option will be converted into an option to purchase 185,000 shares of Lodgian Common Stock at an exercise price of $17.75 per share. CONDITIONS TO THE TRANSACTION (PAGES _______) The completion of the Merger depends upon meeting a number of conditions, including the following: o obtaining the approval by the shareholders of Servico and unitholders of Impac; o there being no law, litigation or court order that prohibits the Merger; o clearance from U.S. antitrust agencies; o receipt of opinions from our respective tax counsel that the Merger will qualify as a tax-free transaction for Federal income tax purposes; o receipt of a commitment to restructure the indebtedness of Impac and its subsidiaries; o the representations and warranties of the respective parties being true and correct in all material respects; o there being no material adverse change in the businesses of either Impac or Servico. The Servico Board or the Impac Manager may, exercising its or his fiduciary duty, respectively, choose to waive any of the last three of these conditions. TERMINATION OF THE MERGER AGREEMENT (PAGES _____) Servico and Impac can agree in writing to terminate the Merger Agreement at any time without completing the transaction. Either Servico or Impac may terminate the Merger Agreement if: o the Merger is not completed by December 31, 1998; o any governmental authority, such as a court, prohibits the Merger; o the Servico shareholders do not approve the Merger; o Servico's Board withdraws or changes its recommendation of the Merger; o Servico chooses to pursue an alternative acquisition transaction; o either Servico or Impac is negotiating with any third party or provides a third party for an alternative acquisition transaction with non-public information concerning its business; o the other party materially breaches its representations, warranties or obligations under the Merger Agreement. In addition, Impac may terminate the Merger Agreement if Servico determines to acquire more than $100 million of hotels and Impac reasonably believes that these acquisitions would be materially adverse to Servico or materially change the nature of Servico's business. TERMINATION FEES (PAGES ______) The Merger Agreement requires Servico or Impac to pay the other a termination fee if, under certain circumstances, the Merger Agreement is terminated. Depending on the date and circumstances of the termination, Servico may be obligated to pay Impac a termination fee ranging from $10 million to $15 million and Impac may be obligated to pay Servico a termination fee of $10 million. Additionally, Servico or Impac may become obligated to reimburse the other party for up to $2.5 million for costs and expenses incurred in connection with the transaction. REGULATORY APPROVALS (PAGE ____) Federal law required us to furnish certain information and materials to the Antitrust Division of the United States Department of Justice and the Federal Trade Commission and requires that a specified waiting period expire or be terminated before the Merger can be completed. On June 28, 1998, the waiting period terminated. Nevertheless, the Antitrust Division of the Department of Justice and the Federal Trade Commission will have the authority to challenge the transaction on antitrust grounds before or after the transaction is completed. MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (PAGES _______) The transaction has been structured so that neither Servico, Impac nor the Impac Affiliated Companies, nor their respective shareholders or unitholders will recognize gain or loss for federal income tax purposes as a result of the Merger, except for taxes payable on -3- 22 cash received in lieu of fractional shares and gain recognized equal to the excess of their share of Impac liabilities over their basis in their Impac Units. THE TAX CONSEQUENCES OF THE TRANSACTION TO SHAREHOLDERS OF SERVICO, UNITHOLDERS OF IMPAC AND SHAREHOLDERS OF ANY IMPAC AFFILIATED COMPANY WILL DEPEND ON THE FACTS OF EACH HOLDER'S SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE TRANSACTION TO YOU. NO APPRAISAL RIGHTS (PAGE _____) Neither Servico shareholders, Impac unitholders nor Impac Affiliated Company shareholders have any right to an appraisal of the value of their shares or units in connection with the Merger. PER SHARE MARKET PRICE INFORMATION (PAGES ______) Shares of Servico common stock are listed on the New York Stock Exchange. On March 20, 1998, the last full trading day of the New York Stock Exchange prior to the public announcement of the proposed Merger, Servico common stock closed at $17.75 per share. On ______, 1998, Servico common stock closed at $______ per share. Impac Units are not reported on any national quotation system nor is there any established public trading market for Impac Units. Assuming an exchange ratio for Impac of 0.519, the equivalent of an Impac Unit was $_____ on ____________, 1998. LISTING OF LODGIAN COMMON STOCK (PAGE _____) The shares of Lodgian common stock to be issued in connection with the Merger will be listed on the New York Stock Exchange and will trade under the symbol LOD. LODGIAN DIVIDEND POLICY Lodgian currently intends to retain future earnings for use in its business and does not intend to pay dividends on its common stock. LODGIAN PLAN PROPOSALS (PAGES ________) Because Lodgian is a new company, in addition to approving the Merger, the shareholders of Servico and unitholders of Impac are being asked to approve three incentive compensation plans for Lodgian. Servico and Impac currently have different incentive compensation plans. These new plans will replace those plans currently in effect with a package of incentive compensation plans for directors and employees of Lodgian. The new plans are the following: (i) a short-term incentive plan that provides for bonus compensation linked to performance over a fiscal year or other relatively short period; (ii) a stock incentive plan that provides for longer-term incentives in the form of stock options, stock appreciation rights or other equity-based compensation awards; and (iii) a stock plan for non-employee directors that provides for grants of stock options. For a more complete description of each of these plans, see pages ___ through ____. OTHER SERVICO ANNUAL MEETING MATTERS At the Servico Annual Meeting, Servico is also asking its shareholders to vote on the following annual meeting proposals: o amendment of Servico's existing Stock Option Plan to increase the number of shares of common stock issuable under the Plan; o the election of a director to Servico's Board. Approval by Servico shareholders of these matters is not a condition to completion of the Merger. Likewise, approval of the Merger is not a condition to the approval of these matters. ELIGIBILITY TO VOTE If you were the owner of record of shares of Servico common stock on the close of business on ___________, 1998, you are entitled to vote at the Servico Annual Meeting. At the Servico record date, [21,038,995] shares of Servico common stock were outstanding which were held by approximately 3,000 holders of record. All holders of Impac units will be entitled to vote on the Merger and the Lodgian benefit plans. VOTE REQUIRED (PAGES _____) SERVICO SHAREHOLDERS: You will have one vote for each share of Servico common stock that you owned on the record date. The favorable vote of the holders of at least a majority of the outstanding shares of Servico common stock is required to approve the Merger. ACCORDINGLY, YOUR FAILURE TO VOTE YOUR SHARES OF SERVICO COMMON STOCK WILL HAVE THE EFFECT OF A VOTE AGAINST THE MERGER. The favorable vote of the holders of at least a majority of the total number of eligible votes cast at the Servico Annual Meeting is required to approve each of the Lodgian Plans and the amendment to the Servico Stock Option Plan. A plurality of the votes cast will be required to elect the nominee as a director of Servico. IMPAC UNITHOLDERS: You will have one vote for each Impac Unit that you own. The written consent of the holders of at least a majority of the outstanding Impac Units is required to approve the Merger and to approve each of the Lodgian Plans. -4- 23 Robert Cole, the President and Manager of Impac, certain entities controlled by Mr. Cole or members of his family, and other Impac unitholders who collectively own or control more than 51% of Impac's outstanding Units, previously agreed to vote in favor of the Merger and the Lodgian Plans, thus assuring the approval of the Merger and the Lodgian Plans by the Impac unitholders. CAUTIONARY STATEMENT This document and documents that are incorporated herein by reference include various forward-looking statements about Servico, Impac and Lodgian that are subject to risks and uncertainties. Forward-looking statements include the information concerning anticipated future results of operations of Servico, Impac and Lodgian. Also, statements including the words "expects," "anticipates," "intends," "plans," "believes," "estimates," or similar expressions are forward-looking statements. Shareholders and unitholders should note that many factors, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference, could cause the actual results of Servico, Impac or Lodgian to differ materially from the anticipated results set forth in or contemplated by such forward-looking statements. You are cautioned that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Servico, Impac or Lodgian to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors may affect Servico's, Impac's or Lodgian's operations, markets and services. Such factors and risks include: adverse changes in general economic and business conditions, including changes in local real estate markets; changes in interest rates and in the availability, cost and terms of financing; rates of inflation and the performance of financial markets which can impact not only operations but the availability of capital; changes in domestic and foreign laws, regulations and taxes which can require additional expenditures, decrease profitability, increase liability or delay or impede property development or renovation; the significant levels of indebtedness of Servico and Impac and Lodgian's ability to service such indebtedness or to reference such indebtedness and to satisfy the financial covenants required by outstanding indebtedness; integration of the operations of Servico and Impac, including the failure to realize the benefits from the transaction; increased competition in the hospitality industry generally or in specific markets or overbuilding in the hotel industry as a whole; the loss of any franchises; availability of additional capital to support growth; construction and renovation cost overruns and delays; seasonal fluctuations; and an adverse change in the level of tourism or business related travel; and other factors discussed under "Risk Factors" or elsewhere herein or in the documents that are incorporated by reference herein. Further, changes in business strategy or development plans could impact future results and the forward-looking statements contained herein. -5- 24 ORGANIZATIONAL CHART EXISTING ENTITIES
UNITHOLDERS PUBLIC (INCLUDING IMPAC SHAREHOLDERS AFFILIATED COMPANIES) IMPAC HOTEL SERVICO, INC. GROUP, LLC THE MERGER LODGIAN, INC. SHG-I Sub, LLC IMPAC AFFILIATED SUBS SHG-S Sub, Inc. (Impac Merger Sub) (Servico Merger Sub) merges into merge into merges into IMPAC HOTEL IMPAC AFFILIATED SERVICO, INC. GROUP, LLC COMPANIES RESULTING STRUCTURE FORMER IMPAC UNITHOLDERS, SHAREHOLDERS OF IMPAC AFFILIATED COMPANIES AND FORMER SERVICO SHAREHOLDERS LODGIAN, INC. IMPAC HOTEL IMPAC AFFILIATED SERVICO, INC. GROUP, LLC COMPANIES
-6- 25 SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following financial information is provided to assist you in the analysis of the financial aspects of the Merger. This information was derived from the audited consolidated financial statements of Servico for the years ended December 31, 1993 through 1997 and the unaudited consolidated financial statements of Servico for the three months ended March 31, 1998 and the unaudited consolidated and combined financial statements of Impac and IHD for the years ended December 31, 1993 and 1994, the audited consolidated and combined financial statements of Impac for the years ended December 31, 1995 through 1997 and the unaudited consolidated and combined financial statements of Impac and IHD for the three months ended March 31, 1998. The summary financial information for the three months ended March 31, 1997 and 1998 is unaudited. The information is only a summary and should be read in conjunction with the Unaudited Pro Forma Combined Consolidated Financial Statements on pages _____ and the accompanying notes, the historical financial statements of Impac and IHD on page F-5 and the historical financial statements of Servico contained in Servico's annual reports and other information that Servico has filed with the Securities and Exchange Commission, and any other financial information included and incorporated by reference in this Joint Proxy Statement/Prospectus. See "Where You Can Find More Information" on page _____. SELECTED HISTORICAL FINANCIAL INFORMATION - SERVICO
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ----------------------- -------------- 1993 1994 1995 1996 1997 1997 1998 ---- ---- ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues $128,998 $149,683 $178,480 $239,526 $276,657 $ 62,647 $82,881 Income before extraordinary items, net of taxes 1,777 2,781 3,909 8,548 12,570 310 2,996 Earnings per common share (a): Income before extraordinary items, net of taxes $ .25 $ .36 $ .45 $ .92 $ .83 $ .03 $ .14 Earnings per common share-assuming dilution: Income before extraordinary items, net of taxes $ .25 $ .33 $ .42 $ .88 $ .80 $ .03 $ .14 Basic weighted average shares 7,061 7,827 8,651 9,295 15,183 9,389 20,989 Diluted weighted average shares 7,131 8,335 9,319 9,751 15,640 9,926 21,437 Cash dividends per common share - - - - - - - End of period: Total assets $191,270 $228,900 $ 324,202 $439,786 $627,651 $445,170 $694,854 Long-term obligations 114,841 143,830 210,242 284,880 323,320 285,237 376,793 Total stockholders' equity 35,008 46,740 62,820 74,738 239,535 75,315 243,439
- --------------------- (a) All prior-period earnings per share amounts have been restated to conform to Financial Accounting Standards Board Statement No. 128 "Earnings per Share". -7- 26 SELECTED HISTORICAL FINANCIAL INFORMATION - IMPAC
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ----------------------- --------------- 1993 1994 1995 1996 1997(a) 1997 1998(d) ---- ---- ---- ---- ------- ---- ------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (Unaudited) (IN THOUSANDS) Revenues $23,927 $41,615 $ 55,576 $ 67,813 $119,859 $ 22,306 $ 34,571 (Loss) income before extraordinary items (b) (457) (64) 5,619 14,064 (16,089)(c) (3,762)(d) (4,707) End of period: Total assets $48,143 $71,875 $116,248 $191,666 $417,780 $266,142 $433,781 Long-term obligations 42,615 61,754 92,849 155,851 355,236 222,495 377,427 Total members'/partners' equity 3,284 5,375 13,408 19,760 36,970 30,006 31,356
- --------------------------- (a) On March 12, 1997, Impac was formed through the combination of 22 partnerships, 4 corporations and two operating companies (collectively, the "Predecessors") through a reorganization. The formation of Impac was accounted for as a reorganization of entities under common control with the purchase of minority interest. The operations and financial position of the Predecessors prior to the reorganization are presented on a combined basis. The principal activity of IHD is to analyze prospective hotel acquisitions for Impac. IHD was not acquired by Impac in the above-described reorganization. (b) Impac is a limited liability company and is not subject to income taxes. The Predecessors and IHD were each either general or limited partnerships or S-corporations and were similarly not subject to income taxes. The results of these entities operations are included in the tax returns of the unitholders, partners or S-corporation shareholders. (c) Twenty-five of Impac's properties were under significant renovation during 1997. Impac purchased 16 properties and opened three newly constructed properties during 1997. The renovation process greatly affects the operating performance of a hotel while it is underway. Revenues are significantly reduced while fixed expenses remain substantially constant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Impac". (d) Impac opened or acquired six hotels during the quarter ended March 31, 1997. During the quarter ended March 31, 1998, Impac had 18 hotels under renovation. Impac also had 18 hotels under renovation during the first quarter of 1997. Although revenues have increased substantially during the first quarter of 1998 compared to the first quarter of 1997, revenues have been adversely affected by the renovations which remained ongoing during the first quarter ended March 31, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Impac." -8- 27 SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION The following selected unaudited pro forma financial information presents the combined condensed consolidated financial statements of Servico and Impac as if the Merger had occurred for the periods indicated. The Merger will be treated as a purchase for financial accounting purposes. You should read this together with the combined and consolidated financial statements and accompanying notes of Servico and Impac included elsewhere in this Joint Proxy Statement/Prospectus and in the documents described under "Where You Can Find More Information" and in the unaudited pro forma combined condensed financial statements and accompanying discussion and notes set forth under "Unaudited Pro Forma Combined Condensed Consolidated Financial Statements" included herein. The pro forma amounts in the table below are presented for your information and do not indicate what the financial position or the results of operations of Lodgian would have been had the Merger occurred as of the dates or for the periods presented. The pro forma amounts also do not indicate what the financial position or future results of operations of Lodgian will be. No adjustment has been included in the pro forma amounts for any cost savings or other synergies anticipated as a result of the Merger or any Merger-related expenses. -9- 28 Selected Unaudited Pro Forma Combined Condensed Consolidated Financial Information Year Ended December 31, 1997
PRO FORMA PRO FORMA PRO FORMA PRO FORMA SERVICO IMPAC ADJUSTMENTS COMBINED ---------- --------- ----------- --------- (In thousands, except per share data) Revenues $334,340 $139,630 $ - $ 473,970 Income (loss) before extraordinary items 17,982 (8,659) (2,591) 6,732 Earnings per common share: Income (loss) before extraordinary items $ .86 - $ .25 Earnings per common share assuming dilution: Income (loss) before extraordinary items $ .84 - $ .25 Basic weighted average shares 20,918 - 26,918 Diluted weighted average shares 21,375 - 27,375 End of period: Total assets $630,346 $417,780 $116,030 $1,164,156 Long-term obligations 154,845 355,236 - 510,081 Total stockholders'/members' equity 237,237 36,726 71,030 344,993
Selected Unaudited Pro Forma Combined Condensed Consolidated Financial Information Three Months Ended March 31, 1998
PRO FORMA HISTORICAL PRO FORM PRO FORMA SERVICO IMPAC ADJUSTMENTS COMBINED --------- ---------- ----------- --------- (In thousands, except per share data) Revenues $ 82,881 $ 34,571 $ - $ 117,452 Income (loss) before extraordinary items 3,247 (4,707) (1,282) (178) Earnings per common share: Income (loss) before extraordinary items $ .15 - (.01) Earnings per common share assuming dilution: Income (loss) before extraordinary items $ .15 - (.01) Basic weighted average shares 20,989 26,989 Diluted weighted average shares 21,437 27,437 End of period: Total assets $697,800 $433,781 $121,644 $1,253,225 Preferred redeemable securities $175,000 - - - Long-term obligations 208,318 377,427 - 585,745 Total stockholders'/members' equity 241,292 31,356 76,644 349,292
-10- 29 COMPARATIVE PER SHARE INFORMATION Certain of the above per share or per unit information has been summarized for the respective companies on a historical, pro forma combined and equivalent basis. The Servico per share equivalents are equal to the Unaudited Pro Forma Combined per share amounts because the Servico shareholders will receive one share of Lodgian common stock for each share of Servico common stock. The Impac per Unit equivalents are calculated by multiplying the outstanding Impac Units by approximately .519, the Impac Exchange Ratio, assuming the price of Servico common stock is greater than $14.00 per share and not more than $25.00 per share during the specified ten-day period prior to the Merger. As of the date of this Joint Proxy Statement/Prospectus, there were 11,559,527.20 Impac Units outstanding.
LODGIAN IMPAC PRO SERVICO IMPAC PRO FORMA FORMA HISTORICAL HISTORICAL COMBINED EQUIVALENT ---------- ---------- --------- ---------- Book value per common share/unit assuming dilution: December 31, 1997....................................... $ 15.32 $ 3.71 $ 12.70 $ 7.16 March 31, 1998.......................................... 11.36 2.71 12.73 5.23 Cash dividends per common share/unit: Year ended December 31, 1997............................ - - - - Three months ended March 31, 1998....................... - - - - Income (loss) per common share/unit from continuing operations: Primary: Year ended December 31, 1997............................ .83 (1.64) .32 (3.11) Three months ended March 31, 1998....................... .14 (.41) - (.78) Diluted: Year ended December 31, 1997........................... .80 (1.64) .31 (3.11) Three months ended March 31, 1998...................... .14 (.41) - (.78)
-11- 30 RISK FACTORS SHAREHOLDERS OF SERVICO AND UNITHOLDERS OF IMPAC SHOULD CONSIDER ALL OF THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE FOLLOWING FACTORS: INABILITY TO SUCCESSFULLY INTEGRATE OPERATIONS The Merger involves the integration of two separate companies that previously operated independently. Lodgian may encounter difficulties in integrating the operations of Servico and Impac and the benefits and operating synergies anticipated from the Merger may not be realized. Lodgian's growth and profitability will be impacted by its ability to consolidate the business, operations and personnel of the two companies including its ability to eliminate duplicative functions and to achieve anticipated cost savings. Any delays or unexpected costs incurred in connection with such integration could have a material adverse effect on Lodgian's business, financial condition and results of operations. No assurance can be given that Lodgian will be able to accomplish the consolidation and cost savings in a timely or profitable manner or that any savings will be realized. If the Merger is approved, Servico's operations will be moved from West Palm Beach, Florida to Atlanta, Georgia. Additional costs will be incurred in connection with such move including not only the cost and disruption associated with the move but also any severance costs associated with Servico employees who do not move to Atlanta. RISKS ASSOCIATED WITH HIGH LEVELS OF DEBT SIGNIFICANT AMOUNT OF DEBT. Substantially all of Servico's and Impac's hotels and properties are subject to mortgage financing, which at March 31, 1998, totaled approximately $372.0 and $377.4 million, respectively. Additionally, in June 1998 Servico issued $175 million of 7% Convertible Junior Subordinated Debentures Due 2010 in connection with a private offering of convertible trust preferred securities. "See "-Recent Convertible Trust Security Offering." Substantially all of the indebtedness of Servico and Impac is, and Lodgian's indebtedness will likely continue to be, secured by mortgages on all, or substantially all, of the hotels, and by the equity of subsidiaries. Lodgian may not in the future be able to meet its debt service obligations and if it cannot, there is a risk of loss of some or all of its assets, including hotels, to foreclosure. Further, adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, if additional capital is required to repay indebtedness in accordance with its terms or otherwise, it may be necessary to liquidate one or more investments in hotels at times which may not permit realization of the maximum return on such investments. Servico's and Impac's leverage poses certain risks for Lodgian's future operations, including the risk that sufficient cash flow will not be generated to service the indebtedness; that additional financing or refinancing may be unavailable in the future; that, to the extent Lodgian is significantly more leveraged than its competitors, Lodgian may be placed at a competitive disadvantage and that its ability to respond to market conditions may be adversely affected. Lodgian's ability to service its debt will depend on its future performance, which in turn will largely depend on prevailing economic and competitive conditions. NO LIMIT ON ADDITIONAL DEBT. Lodgian's Certificate of Incorporation and Bylaws will not limit the amount of indebtedness that Lodgian may incur. Subject to any limitations in its debt instruments, Lodgian may incur additional debt in the future to finance acquisitions and renovations. Substantial indebtedness could increase Lodgian's vulnerability to general economic and lodging industry conditions (including increases in interest rates) and could limit Lodgian's ability to obtain additional financing in the future and to take advantage of business opportunities that may arise. TERMS OF INDEBTEDNESS WHICH INCLUDE VARIABLE RATES AND PREPAYMENT PENALTIES. Impac's and Servico's indebtedness bears interest at both fixed and variable rates. To the extent that Servico or Impac has or Lodgian incurs additional debt bearing interest at variable rates, economic conditions could result in increased debt service requirements and could reduce the amount of cash available for other corporate purposes. Such economic conditions could also result in an increase of the U.S. Treasury benchmark rate at which Impac fixes a significant portion of its -12- 31 variable rate indebtedness. To the extent Impac has not previously locked in a lower benchmark Treasury rate, this would result in higher interest rates for the remaining term of those loans. Further, certain of the loans prohibit or limit prepayment during certain years, impose prepayment penalties during certain later years, restrict the ability to utilize the cash generated by the hotels if the hotels fail to meet certain financial covenants, and in certain events may accelerate the repayment of the loans. Certain of the mortgages and related loan documents evidencing Impac's indebtedness contain provisions that would require the borrower to prepay such financing within the near future if specified conditions are not met. With respect to the Impac indebtedness, there can be no assurance that such conditions will be met, that prepayments will not be required, or that any such prepayment will not have an adverse effect on Impac's or Lodgian's business, financial condition and results of operations. Further, Impac's indebtedness, with Nomura Asset Capital Corporation ("NACC"), provides that in the event the NACC indebtedness is to be repaid in connection with a merger, reorganization or sale of Impac, NACC will negotiate in good faith an appropriate prepayment premium, making due allowance for among other things the expected profits that NACC could reasonably have been expected to have received if the loans had not been prepaid, including profits associated with the securitization of the indebtedness. Servico and NACC are currently negotiating the amount of the payment which would be due to NACC in the event of a prepayment but it is anticipated that such prepayment penalty would be substantial. Finally, Impac has certain other third-party indebtedness in the approximate principal amount of $78.5 million (which is included in the total indebtedness of $377.4 million described above) which is subordinated to the NACC indebtedness. The terms of such indebtedness require that Impac either obtain the consent of the holder thereof to the Merger or that Impac prepay such indebtedness in full on the effective date of the Merger. Depending upon certain factors, including whether the source of proceeds used to make such prepayment is treated as equity or debt at the Impac level (and if debt, whether it is to be subordinated to the NACC loans), Impac may need to obtain NACC's consent to the prepayment of such subordinated debt prior to satisfaction in full of Impac's obligations to NACC. No assurance can be given that NACC's consent, if required, could be obtained. If NACC's consent is required but cannot be obtained, Impac will be unable to prepay such indebtedness and will be required to obtain the consent of the holder of the subordinated indebtedness to the Merger. No request for any such consents have yet been made, and no assurance can be given as to the likelihood of receiving such consents or the terms or conditions upon which any such consents could be obtained. CROSS DEFAULT PROVISIONS AND CORPORATE GUARANTEES. Certain of the mortgages and related loan documents evidencing Servico and Impac's indebtedness contain provisions which, among other things, cross-collateralize and cross-default each of the mortgages granted by the same borrower. Further, at March 31, 1998, approximately $210 million and $25.1 million of the outstanding financing is guaranteed by Servico and Impac, respectively, excluding amounts which may be guaranteed from time to time in connection with the construction or renovation of hotels. Each of Servico's and Impac's guarantees of mortgage financing generally provide for direct recourse by the lender without requiring the lender to seek recourse against either the applicable subsidiary or the hotel property securing the mortgage financing. As a consequence, if payments under mortgage financing guaranteed by Servico or Impac are not timely made, Servico or Impac may be required to make payments in accordance with its guarantees. Lodgian may be required to guarantee debt in the future in connection with the refinancing or assumption of debt. RECENT CONVERTIBLE TRUST SECURITY OFFERING. In June 1998, Servico issued $175 million of 7% Convertible Junior Subordinated Debentures Due 2010 to a newly created wholly owned trust which, in turn, sold convertible trust preferred securities to qualified institutional buyers in a private offering. The Debentures and the trust securities bear interest at a rate of 7% per annum, payable quarterly in arrears, commencing September 30, 1998. The trust will utilize the payments under the Debentures to make corresponding payments under the trust securities. The trust securities are convertible, in whole or in part, at any time beginning in September 1998 through June 2010, at the option of the holders thereof, into shares of Servico Common Stock at an initial conversion price of $21.42 per share of Servico Common Stock. In the event the Merger is completed, Lodgian will assume all of Servico's obligations with respect to the Debentures and the related trust -13- 32 securities, and the trust securities will become convertible into shares of Lodgian Common Stock at the same conversion price and on the same terms. Additionally, in the event the Merger Agreement is terminated or the Merger has not been completed by December 31, 1998, holders of the trust securities will have the right to require Servico to repurchase any of their trust securities for cash at a purchase price equal to 101% of the aggregate liquidation amount thereof plus accrued and unpaid interest. In such event, Servico may not have sufficient financial resources, or may not be able to arrange financing, to repay the required purchase price for all the trust securities tendered. INABILITY TO EXPAND UNAVAILABILITY OF ADDITIONAL CAPITAL TO SUPPORT GROWTH. As part of Lodgian's business strategy, Lodgian intends to seek to continue to grow through the identification, acquisition, repositioning and renovation of additional hotel properties. In order to pursue this strategy, Lodgian will be required to obtain additional capital. Capital may be raised by the issuance of additional equity or the incurrence of indebtedness. In addition, in appropriate situations, Lodgian may seek financing from other sources or enter into joint ventures and other collaborative arrangements in connection with the acquisition of hotel properties. Lodgian may not be successful in obtaining additional capital in a timely manner, on favorable terms or at all. Insufficient capital may cause Lodgian to delay, scale back or abandon some or all of its property acquisition plans or opportunities. COMPETITION FOR ACQUISITIONS AND IMPACT ON PROFITABILITY. Servico and Impac currently compete and Lodgian will compete for the acquisition of hotels with numerous entities, some of which have greater financial resources than Lodgian, Servico or Impac. The recent economic recovery in the lodging industry and the resulting increase in funds available for hotel acquisitions has attracted additional investors to enter the hotel acquisition market, which in turn has caused the cost of hotel acquisitions to increase and the number of attractive hotel acquisition opportunities to decrease. To successfully implement a growth strategy, Lodgian must be able to continue to successfully acquire hotels on attractive terms and to integrate the acquired hotels into its existing operations. The failure of Lodgian to consolidate the management and operations and integrate the systems and procedures of the combined operations of Servico and Impac and of acquired hotels into Lodgian's operations in a timely and profitable manner could have a material adverse effect on Lodgian's business, financial condition and results of operations. There can be no assurance that Lodgian will be in a position to grown or to achieve operating results in its newly acquired hotels comparable to Servico's or Impac's historical performance. ILLIQUIDITY AND POSSIBLE DECLINES IN VALUE OF REAL ESTATE Servico and Impac are, and Lodgian will be, subject to varying degrees of risk generally incident to the ownership of real estate. These risks include changes in national, regional and local economic conditions, changes in local real estate market conditions, changes in interest rates and in the availability, cost and terms of financing, the potential for uninsured casualty and other losses, the impact of present or future environmental legislation and adverse changes in zoning laws and other regulations. Many of these risks are beyond the control of the companies. In addition, real estate investments are relatively illiquid, resulting in a limited ability of such companies to vary their portfolio of hotels or motels in response to changes in economic and other conditions. The market value of any one of, or all of, the properties owned by the companies may decrease in the future. Moreover, there can be no assurance that Servico, Impac or Lodgian will be able to dispose of an investment when it finds dispositions advantageous or necessary or that the sales price of any disposition will exceed the company's investment in the property. DELAYS IN COMPLETION OR UNANTICIPATED COSTS ASSOCIATED WITH DEVELOPMENT AND RENOVATION OF PROPERTIES Both Servico and Impac are, and Lodgian will be, involved in the renovation and development of hotels as contemplated by their business plans or as may be required by their franchisors. The development and renovation of hotels involves all of the risks associated with the construction and renovation of real property including cost overruns and delays associated with regulatory compliance, inclement weather and labor and material shortages and cash flow limitations. Such risks also include delays or the inability to obtain necessary zoning, the need for and costs associated with the accessibility of utilities necessary to develop the property or expand operations, the availability of and costs associated with obtaining the permits, approvals, or licenses necessary to develop or renovate the property, and the costs of environmental compliance. Any unanticipated delays or expenses in connection with the development or renovation of hotels could have a material adverse effect on Lodgian's business, financial condition and results of operations. -14- 33 LOSS OF FLEXIBILITY OF OWNERSHIP OF REAL ESTATE WITH OTHERS Ten of the hotels owned by Servico are owned in partnerships with other parties. Servico does not have sole control over decisions regarding sale and refinancing of these hotels as the partnership agreements provide certain protective provisions or the non-Servico partners which make sale or refinancing subject to such partners' consent although such consent may not be unreasonably withheld. Servico's investments in these joint ventures may, under certain circumstances, involve risks not otherwise present in property ownership, including (i) Servico's partner in a joint venture may become bankrupt, (ii) buy/sell rights that exist with respect to certain of such hotels may result in the disposition of the property, (iii) Servico's partner may have economic or other business interests or goals that are inconsistent with the business interests or goals of Servico, and (iv) the partner(s) may be in a position to veto actions which may be inconsistent with Servico's objectives or policies. Impac faces similar risks as a party to a joint venture arrangement involving one of its hotels. LODGING INDUSTRY RISKS Risks generally inherent in investments in hotel facilities may cause operating results for hotels to vary more than for investments in other types of properties. These factors include the following: NO ASSURANCE OF PROFITABILITY. Servico and Impac are, and Lodgian will be, subject to risks generally incident to the lodging industry. Cash flow will vary based on seasonal fluctuations and individual property performance which in turn is impacted by changes in both general and local economic conditions. Further, periodic over-building in the hotel industry or over-building in a specific market; and competition from existing hotels, motels and recreational properties has and may in the future make it difficult to maintain hotel occupancy levels and room rates. Additionally, changes in levels of tourism or business-related travel and changes in travel patterns will impact hotel performance. Labor unavailability and disruptions could increase costs and if significant in scope could make it impossible to operate a property. Travel disruptions could also result in a loss of a property's customer base. Further, there is also a recurring need for renovation, refurbishment and improvement of hotel properties (including furniture, fixtures and equipment) so as to attract customers and maintain franchises and this results in a continuing need for funds available for this purpose and disruption of cash flow during renovations. The operation of hotels also involves required compliance with governmental regulations which influence or determine wages, interest rates and construction procedures and the application of health and beverage laws. Hotel operations could also be negatively impacted by losses due to personal injuries, fire, earthquake, collapse or structural defects. Many of the factors which could impact operations are beyond the control of Servico and Impac and will be beyond the control of Lodgian. In addition, due to the level of fixed costs required to operate full-service hotels, certain significant expenditures necessary for the operation of hotels generally cannot be reduced when circumstances cause a reduction in revenue. COMPETITION FOR CUSTOMERS. The hotel industry is highly competitive in nature. While there is no single competitor or small group of competitors that are dominant in the industry, competition within the industry has recently resulted in consolidations and other ownership changes among major hotel companies. Servico's and Impac's hotels generally operate in areas that contain numerous other competitive lodging facilities, some of which have greater financial resources than either Servico or Impac or those which Lodgian will have. Each of the companies competes with and Lodgian will compete with such companies and facilities on various bases, including room rates and quality, brand name recognition, location and other services and amenities offered. New or existing competitors could significantly lower rates or offer greater conveniences, services or amenities or significantly expand, improve or -15- 34 introduce new facilities, thereby adversely affecting Servico and Impac's operations and Lodgian's future operations. MAINTENANCE AND REFURBISHMENT EXPENSES. For hotels to remain competitive, they must be maintained and refurbished on an ongoing basis and these renovations and refurbishments increase the need for funds for capital improvements (whether from reserves, current cash flow or financing). Moreover, operating revenues may decrease as facilities are removed from service from time to time during such renovations. See "Risk Factors--Development and Renovation Risks" above. LIABILITY AND UNAVAILABILITY OR INCREASED COSTS OF INSURANCE. Hotels have extensive assets, require more employees, rely more on suppliers and serve more customers than many other types of real estate properties. Hotels are also subject in certain states to dram shop statutes which may give an injured person the right to recover damages from any establishment which wrongfully served alcoholic beverages to the person who, while intoxicated, caused the injury. As a result, hotels may have greater exposure to liability for, among other things, theft of property and other casualty and property loss, labor difficulties and personal injuries. In this respect, many businesses, including those in the lodging industry, have experienced recent increases in the cost of, and contraction in the availability of, insurance, resulting in cost escalation and reductions in amounts of coverage available. The continuation of this trend could render certain types of desired coverage unavailable with the attendant possibility that certain claims may exceed coverage. SEASONAL FLUCTUATIONS IN OPERATING RESULTS. The hotel industry is seasonal in nature. Generally, hotel revenues are greater in the second and third quarters than in the first and fourth quarters. This seasonality can be expected to cause quarterly fluctuations in the revenues of Servico and Impac. Quarterly earnings also may be adversely affected by events beyond Servico's or Impac's control, such as extreme weather conditions, economic factors and other considerations affecting travel. Poor weather conditions will generally result in decreased revenues at the affected hotel. INCREASING COSTS AND DECREASED PROFITABILITY ASSOCIATED WITH INFLATION. Inflationary pressures could have the effect of increasing operating expenses, including labor and energy costs (and, indirectly, property taxes) above expected levels at a time when it may not be possible to increase room rates to offset such higher operating expenses. In addition, inflation could have a secondary effect upon occupancy rates by increasing the cost or decreasing the availability of travel by potential guests. Although the inflation rate has been low recently, there is no assurance that it will not increase in the future. LIMITATIONS AND REQUIREMENTS OF FRANCHISE AGREEMENTS Servico's and Impac's hotels are, and Lodgian's hotels will be, operated pursuant to franchise agreements with major hotel chains. Each of the franchise agreements contain specific standards for, and restrictions and limitations on, the operation and maintenance of a hotel. The requirements may be contrary to the planned expenditures and priorities set by Servico, Impac or Lodgian. Further, such requirements are often subject to change over time, in some cases at the discretion of the franchisor, and may restrict the ability of Servico, Impac or Lodgian to make improvements or modifications to a hotel without the consent of the franchisor. In addition, compliance with such requirements could require Servico, Impac or Lodgian to incur significant expenses or capital expenditures. Additionally, in connection with changing the franchise affiliation of a hotel in the future, Lodgian may be required to incur additional expenses or capital expenditures. Franchise agreements are terminable by the franchisor upon the failure to maintain specified operating standards or to make payments due under the applicable agreements in a timely fashion or at the end of its term. If Servico, Impac or Lodgian lose a franchise, this may have an adverse impact on the operations and underlying value of the affected hotel because of the loss of name recognition, marketing support and centralized reservation systems provided by the franchisor. Franchise -16- 35 agreements often define transactions such as the Merger as a "change of control" that require the franchisor's approval and in some cases the payment of certain fees. It is anticipated that approximately $1 million to $2.5 million could be payable to franchisors in connection with the Merger under such provisions. A majority of the hotels owned by Servico and Impac are affiliated with Holiday Inn and any deterioration in the relationship with or the benefits associated with being a franchisee of Holiday Inn could have a material adverse effect on Lodgian's business, financial condition and results of operations. COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS Under federal, state, and local environmental laws, ordinances and regulations, Servico, Impac or Lodgian as a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. The law often imposes liability whether or not Servico, Impac or Lodgian knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of any remediation or removal of hazardous or toxic substances discovered by Servico, Impac or Lodgian may be substantial, and the presence of any such substance, or the failure promptly to remediate any such substance, may adversely affect the ability of Servico, Impac or Lodgian to sell or lease the property, to use the property for its intended purpose, or to borrow using the property as collateral. Other federal, state and local laws, ordinances and regulations require abatement or removal of certain asbestos-containing materials in connection with demolition or certain renovations or remodeling, impose certain worker protection and notification requirements, and govern emissions of and exposure to asbestos fibers in the air. Additionally, federal, state and local laws, ordinances and regulations and the common law impose on Servico and Impac and will impose on Lodgian requirements regarding conditions and activities that may affect human health or the environment, such as the presence of lead in drinking water or lead-containing paint in occupied structures, and the ownership or operation of underground storage tanks. Failure to comply with requirements could, in addition to making it difficult for Servico, Impac or Lodgian to lease, sell or finance any affected property, result in the imposition of monetary penalties, expenditures necessary to bring the property into compliance and potential liability to third parties. Hotels acquired by Servico and Impac have in the past contained asbestos which was handled as required by applicable regulations and additional hotels may be acquired in the future which contain asbestos requiring removal or remediation. While there are currently no material environmental issues known to Servico or Impac, any liability resulting from non-compliance or other claims relating to environmental matters in the future could have a material adverse effect on Lodgian's business, financial condition and results of operations. NO INTENTION TO PAY DIVIDENDS Servico has not paid any dividends since its reorganization in 1992 and has no current plans to initiate the payment of dividends. Impac has historically paid dividends to its unitholders each year and its Operating Agreement provides for quarterly distributions based on cash flow and distributions upon the sale of properties. It is currently anticipated that Lodgian will retain future earnings for business use and does not expect to declare or pay any dividends in the foreseeable future. The Board of Directors of Lodgian will determine future dividend policies based on Lodgian's financial condition, profitability, cash flow and capital requirements, among other factors, and subject to any applicable restrictions on the payment of dividends. COST OF COMPLIANCE WITH GOVERNMENTAL REGULATIONS A number of states regulate the licensing of hotels and restaurants, including liquor license grants, by requiring registration, disclosure statements and compliance with specific standards of conduct. Each of Servico and Impac -17- 36 believes that it is substantially in compliance with these requirements. Managers of hotels are also subject to laws governing their relationships with hotel employees, including minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could reduce the revenue and profitability of the hotels and could otherwise adversely affect Lodgian's business, financial condition and results of operations. Under the Americans with Disabilities Act (the "ADA"), all public accommodations are required to meet certain requirements related to access and use by disabled persons. These requirements became effective in 1992. Although significant amounts have been and continue to be invested in ADA-required upgrades to Servico's and Impac's hotels, a determination that Servico, Impac or Lodgian is not in compliance with the ADA could result in a judicial order requiring compliance, imposition of fines or an award of damages to private litigants which could increase expenses and reduce earnings. SUBSTANTIAL RELIANCE ON KEY PERSONNEL Lodgian will place substantial reliance on the hotel industry knowledge and experience and the continued services of its senior management, led by Mr. David Buddemeyer, Servico's Chairman, President and Chief Executive Officer and Mr. Robert Cole, the Manager and President of Impac. Lodgian's future success and its ability to manage future growth depends in large part upon the efforts of these persons and on its ability to attract and retain other highly qualified personnel. Competition for such personnel is intense, and there can be no assurance that Lodgian will be successful in attracting and retaining such personnel. The loss of the services of Mr. Buddemeyer or Mr. Cole or the inability to attract and retain other highly qualified personnel may adversely affect Lodgian's business, financial condition and the results of operations. ANTI-TAKEOVER PROVISIONS Lodgian's Certificate and Bylaws, which have been filed hereto as Appendices G and H, respectively, contain provisions that could prevent or delay an acquisition of Lodgian by means of a tender offer, a proxy contest or otherwise and may adversely affect prevailing market prices for Lodgian common stock. These provisions, among other things, provide: (i) for a classified board of directors with each class of directors consisting of one-third of the total number of directors of Lodgian and serving for a term of one to three years; (ii) that the Lodgian Board may designate the terms of any new series of preferred stock of Lodgian; (iii) that any shareholder who wishes to propose any business or to nominate a person or persons for election as a director at any annual meeting may only do so if advance notice is given to the Secretary of Lodgian; (iv) that no shareholder action may be effected by written consent; (v) that a director may be removed only for due cause and upon majority shareholder vote; and (vi) that only a majority of the directors or the Chief Executive Officer may call special meetings of the shareholders. In addition, Lodgian is also subject to Section 203 of the Delaware General Corporation Law ("DGCL"), which generally limits transactions between a publicly held company and "interested shareholders" (generally, those shareholders who, together with their affiliates and associates, own 15% or more of Lodgian's outstanding voting stock) and which generally prohibits such "interested shareholders" from engaging in certain business combinations involving Lodgian during the three-year period after the date the person became an interested shareholder unless the transaction or business combination is generally approved by the board of directors or a majority of the shares entitled to vote, excluding interested shares. See "Description of Lodgian Capital Stock" and "Comparison of Certain Rights of the Holders of Servico Common Stock and Impac Units." Additionally, the terms of Servico's recently issued convertible trust securities provide for certain adjustments to the conversion price in the event of a sale of Servico (or after completion of the Merger, a sale of Lodgian) which could deter a possible acquisition of the company or increase the costs of such acquisition. Such provisions may also adversely affect prevailing market prices for Servico (or Lodgian) common stock. -18- 37 SERVICO ANNUAL MEETING DATE, TIME AND PLACE AND PURPOSE The Annual Meeting of Shareholders of Servico will be held at [time], on [day], [month and date], 1998, at the [place], [address]. At the Servico Annual Meeting, the holders of Servico common stock, par value $.01 per share (the "Servico Common Stock"), will consider and vote upon (1) the approval of the Merger, (2) the approval of each of the Lodgian Plans, (3) an amendment of the Servico Stock Option Plan (the "Servico Plan") to increase the number of shares issuable thereunder, and (4) the election of one director to serve until 2001 or the date on which the Merger is completed. The Lodgian Plans will replace the Servico Plan in the event the Merger is approved and in such case, no further options will be granted under the Servico Plan. RECORD DATE FOR ELIGIBILITY TO VOTE The Servico Board has fixed the close of business on __________, 1998, as the record date (the "Record Date") for the determination of shareholders entitled to notice of and to vote at the Servico Annual Meeting. At the Servico Record Date, there were [21,038,995] shares of Servico Common Stock outstanding which were held by approximately 3,000 holders of record. VOTING OF PROXIES Shares of Servico Common Stock represented by properly executed proxies received by Servico prior to the vote at the Servico Annual Meeting will be voted at the Servico Annual Meeting in the manner directed on the proxy card, unless such proxy is revoked in advance of such vote. All shares represented by a properly executed proxy on which no choice is specified will be voted by the persons named on the proxy, to the extent applicable, (i) FOR approval of the Merger, (ii) FOR approval of each of the Lodgian Plans, (iii) FOR the amendment to the Servico Plan, (iv) FOR the election of the nominee as director, and (v) at the discretion of the proxy holder, as to any other matter which may properly come before the Servico Annual Meeting or any adjournments or postponements thereof. Such adjournments may be for the purpose of soliciting additional proxies for a shareholder vote on any proposal. Shares represented by proxies voting for the approval of the Merger will be voted for any proposal to adjourn the Servico Annual Meeting for the purpose of soliciting additional proxies for a shareholder vote on such proposal. Shares represented by proxies voting against the approval of the Merger will be voted against a proposal to adjourn the Servico Annual Meeting for the purpose of soliciting additional proxies. Servico currently does not intend to seek an adjournment of its Annual Meeting. Servico knows of no reason why Michael A. Leven, the nominee for election as a director, would be unable to serve. Nevertheless, should the nominee become unable to serve, all proxies, except where a contrary instruction has been given, will be voted in accordance with the best judgment of the persons named as proxies. Under the New York Stock Exchange (the "NYSE") rules, brokers who hold shares in "street name" for customers are precluded from exercising voting discretion with respect to the approval of non-routine matters such as the proposal to approve the Merger, the approval of each of the Lodgian Plans and the amendment to the Servico Plan. Accordingly, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote such shares with respect to the approval of such proposals. Since the affirmative vote of a majority of the aggregate voting power of Servico is required for approval of the Merger, a "broker non-vote" with respect to the Merger will have the effect of a vote against the Merger. "Broker non-votes" will have no effect on the proposals to approve each of the Lodgian Plans, amend the Servico Plan or the election of a Servico director. -19- 38 REVOCABILITY OF PROXIES A proxy may be revoked by the record owner by delivering written notice to the Secretary of Servico prior to the vote at the Servico Annual Meeting, or by filing a duly executed proxy bearing a later date with the Secretary of Servico prior to the vote at the Servico Annual Meeting. Attendance at the Servico Annual Meeting will not in itself operate to revoke a proxy. A holder of Servico Common Stock who attends the Servico Annual Meeting may, if he wishes, vote by ballot and such vote will cancel any proxy previously given. VOTES REQUIRED; SHARES HELD BY CERTAIN PERSONS Holders of record of Servico Common Stock on the Servico Record Date are entitled to one vote for each share held by them on any matter that may properly come before the Servico Annual Meeting. The presence, either in person or by proxy, at the Servico Annual Meeting of holders of a majority of the issued and outstanding shares of Servico Common Stock on the Servico Record Date is necessary to constitute a quorum for the transaction of business at the Servico Annual Meeting. The affirmative vote of the holders of a majority of the outstanding Servico Common Stock as of the Servico Record Date is required for the approval of the Merger. Abstentions may be specified with respect to the approval of the Merger by properly marking the "ABSTAIN" box on the proxy for such proposal, and will be counted as present for the purpose of determining the existence of a quorum but will have the effect of a negative vote, due to the requirement for the affirmative vote of the holders of a majority of the outstanding Servico Common Stock to approve the Merger. In addition, the failure of a Servico shareholder to return a proxy will have the effect of a vote against the Merger. Approval of each of the Lodgian Plans and amendment of the Servico Plan each requires the affirmative vote of a majority of the shares present in person or by proxy at the Servico Annual Meeting and entitled to vote thereon. An abstention from voting on any of such proposals, by properly marking the "ABSTAIN" box on the proxy for such proposal, will have the same effect as a vote cast against such proposal. In the election of the nominee as a director for a three-year term in the event the Merger is not consummated, the director will be elected by a plurality of the shares of Servico Common Stock voting in person or by proxy at the Servico Annual Meeting. The nominee for director receiving the highest number of votes will be elected to Servico's Board. An abstention from voting for the nominee by properly marking the "WITHHOLD" box on the proxy will be tabulated as a vote withheld in the election of directors and will have no influence on the voting results. As of the Servico Record Date, directors and executive officers of Servico beneficially owned (excluding currently exercisable options) an aggregate of approximately 770,000 shares of Servico Common Stock, representing approximately 3.6% of the issued and outstanding shares of Servico Common Stock. The directors and executive officers of Servico have indicated their intention to vote their shares of Servico Common Stock in favor of the approval of the Merger, for the approval of each of the Lodgian Plans, for the amendment of the Servico Plan and for the election of the nominee to Servico's Board. SOLICITATION OF PROXIES Servico will bear the costs of the solicitation of proxies from its shareholders. In addition to soliciting proxies by mail, directors, officers and selected other employees of Servico may solicit proxies in person, by telephone, by telegram or by similar means of communication. Directors, officers and any other employees of Servico who solicit proxies will not be specially compensated for such services, but may be reimbursed for out-of-pocket expenses incurred in connection therewith. Arrangements have also been made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of shares of Servico Common Stock held of record by such persons. Servico will reimburse the persons with whom these arrangements have been made for reasonable out-of-pocket expenses incurred by them in connection with this solicitation in accordance with -20- 39 applicable rules. Servico has retained Georgeson & Company Inc. to aid in the solicitation of proxies and to verify certain records relating to the solicitation at a fee of $____________ plus expenses. MATTERS TO BE VOTED UPON AT THE SERVICO ANNUAL MEETING APPROVAL OF THE MERGER The Servico Board has determined that the terms of the Merger Agreement and the transactions contemplated thereby are fair to, and in the best interests of, Servico and its shareholders. The Servico Board believes that the Merger, which will create one of the largest independent, multi-brand owners and operators of full service hotels in the United States, will result in a combined enterprise with the financial strength, franchise base and the expertise necessary to excel in the hotel industry. Accordingly, the Servico Board has unanimously approved the Merger Agreement and the Merger. THE SERVICO BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE MERGER. APPROVAL OF EACH OF THE LODGIAN PLANS In addition to approving the Merger, because Lodgian is a new company, the shareholders of Servico and unitholders of Impac are being asked to approve three incentive compensation plans for Lodgian. Servico currently has in effect the Servico Plan. The Lodgian Plans will replace the Servico Plan in the event the Merger is approved and, in such case, no further options will be granted under the Servico Plan. The Lodgian Plans are intended to provide Lodgian's directors and employees with incentives which align the interests of the Lodgian directors and employees going forward with the interests of Lodgian shareholders. THE SERVICO BOARD RECOMMENDS A VOTE FOR THE PROPOSALS TO APPROVE EACH OF THE LODGIAN PLANS. AMENDMENT OF SERVICO STOCK OPTION PLAN The proposed amendment would increase the number of shares of Servico Common Stock available for issuance under the Plan from 1,675,000 shares to 3,250,000. The Servico Plan was established by Servico in 1992 to provide Servico with an effective means to attract, retain, and motivate employees of Servico. Currently, 1,675,000 shares of Servico Common Stock are issuable under the Servico Plan and no shares remain available for grant under the Plan. In August, 1997, Servico granted stock options with respect to 590,000 shares, to certain of its officers and employees (including options granted to acquire 240,000 shares to David Buddemeyer, 70,000 shares to Peter Walz and 50,000 shares each to Karen Marasco, Warren Knight and Don Shouldice) which, because the Servico Plan did not then have sufficient shares available for issuance, were granted subject to approval by Servico's shareholders of an amendment to the Servico Plan. Approval of this proposal will enable Servico to issue the options previously awarded to employees under the Plan. The Servico Board believes that awards made under the Servico Plan have enabled Servico to better compete for qualified personnel, to retain such personnel in the employ of Servico and to motivate such personnel and align their long-term interests with those of Servico's shareholders. In the event the Merger is approved, the Lodgian Plans are expected to replace the Servico Plan and, in such case, no further options will be granted under the Servico Plan. Any options outstanding under the Servico Plan will convert into options to acquire shares of Lodgian Common Stock after the Merger. -21- 40 THE SERVICO BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE SERVICO STOCK OPTION PLAN. ELECTION OF DIRECTORS Servico's Bylaws provide that the number of directors of the Company shall not be less than one nor more than eleven and shall be determined from time to time by resolution of the Servico Board or by shareholders at an annual meeting. The number of directors is currently set at five, divided into three classes. The holders of Servico Common Stock elected all current directors, other than Mr. Michael A. Leven, who was elected by the Servico Board at its August 1997 meeting and is standing for election at the Servico Annual Meeting. The Servico Bylaws also provide that directors elected by the holders of Servico Common Stock shall be elected for three-year terms and that one class of such directors shall be elected at each annual meeting of shareholders. At the Servico Annual Meeting, Mr. Leven, as the sole member of the class of directors whose term expires at that time, shall be elected for a term expiring at the Annual Meeting of Servico shareholders held in 2001. In the event the Merger is completed as expected, Mr. Leven's term as a director of Servico will end and Mr. Leven will become a director of Lodgian. THE SERVICO BOARD RECOMMENDS A VOTE FOR THE ELECTION OF MR. LEVEN TO SERVICO'S BOARD. SOLICITATION OF IMPAC UNITHOLDER CONSENTS PURPOSE In accordance with Section 5.5(b)(i) of Impac's Second Amended and Restated Operating Agreement (the "Operating Agreement"), the Manager of Impac is soliciting the consent of the holders of Impac Units to: (i) the Merger and all other transactions contemplated by the Merger Agreement; and (ii) the adoption of each of the Lodgian Plans. UNITHOLDERS ENTITLED TO VOTE All holders of Impac Units as of the date of this Joint Proxy Statement/Prospectus will have the opportunity to consent to the matters presented to the Impac unitholders herein. SUBMISSION OF WRITTEN CONSENT To consent to any of the matters described above, holders of Impac Units must deliver their signed written consent forms to the Secretary of Impac prior to the consummation of the Merger. All Units represented by a properly executed written consent form will be voted as specified on such form. REVOCABILITY OF CONSENT Holders of Impac Units may revoke their consent to any of the matters presented for their approval by submitting to the Secretary of Impac, prior to consummation of the Merger, a written notification of intent to revoke their consent. CONSENT REQUIRED; VOTING AGREEMENTS Holders of Impac Units as of the date of this Joint Proxy Statement/Prospectus are entitled to one vote for each Unit held by them on the matters presented for their approval. The consent of the holders of a majority of the outstanding Impac Units is required for approval of the Merger and each of the Lodgian Plans. -22- 41 Pursuant to Voting Agreements between Servico and Robert Cole, the President and Manager of Impac, and entities that Mr. Cole or his family control (the "Cole Entities"), and other Impac unitholders who, together with the Cole Entities, own approximately 55.9% of the outstanding Impac Units (the "Impac Voting Agreements"), the parties thereto have agreed (i) subject to certain exceptions, not to sell or transfer Impac Units held by them during the term of the Merger Agreement and (ii) to vote such Impac Units in favor of the Merger and against any competing transaction during the term of the Merger Agreement and for a one-year period after termination of the Merger Agreement under certain circumstances. Certain Impac unitholders executing the Impac Voting Agreements have the limited right to transfer Impac Units to their partners or equity holders during the term of the Impac Voting Agreements so long as such transferees agree to be bound by the terms of the Impac Voting Agreements. The vote of the Cole Entities and the other Impac unitholders bound by the Impac Voting Agreements in favor of the Merger is sufficient to approve the Merger without any action on the part of any other holder of Impac Units. SOLICITATION OF CONSENTS Impac will bear the costs of the solicitation of consents from its unitholders. In addition to soliciting consents by mail, managers, officers and selected other employees of Impac may solicit consents in person, by telephone, by telegram or by similar means of communication. Manager, officers and any other employees of Impac who solicit consents will not be specially compensated for such services, but may be reimbursed for out-of-pocket expenses incurred in connection therewith. THE MERGER GENERAL The Merger contemplates a transaction pursuant to which the businesses of Servico and Impac will be combined under the ownership of Lodgian. At the Effective Time (as defined below), Lodgian will acquire all of the issued and outstanding Servico Common Stock and Impac Units and all the issued and outstanding capital stock of each Impac Affiliated Company (the "Impac Affiliated Company Common Stock") through the merger of Servico Merger Sub, Lodgian's wholly-owned subsidiary, with and into Servico (the "Servico Merger"), the merger of Impac Merger Sub, Lodgian's wholly-owned subsidiary, with and into Impac (the "Impac Merger") and the merger of each newly-formed acquisition subsidiary of Lodgian (each an "Impac Affiliated Sub"), with and into the respective Impac Affiliated Company (collectively, the "Impac Affiliated Merger"). Therefore, as a result of the Merger, Servico, Impac and the Impac Affiliated Companies will all be owned by Lodgian. The Effective Time means the later of the time that the Articles or Certificate of Merger relating to the Servico Merger, the Impac Merger or the Impac Affiliated Mergers are filed with the Secretary of State of the applicable state of incorporation or organization for each of the merging entities. The discussion in this Joint Proxy Statement/Prospectus of the Merger and the description of the principal terms of the Merger are subject to and qualified in their entirety by reference to the Merger Agreement, a copy of which is attached to this Joint Proxy Statement/Prospectus as Appendix A, and which is incorporated herein by reference. THE MERGER INITIAL ISSUANCE OF SHARES. At the Effective Time, Lodgian will acquire all of the issued and outstanding shares of Servico Common Stock, Impac Units and Impac Affiliated Company Common Stock. Pursuant to the Merger, each share of Servico Common Stock issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of common stock of Lodgian, par value $.01 per share (the "Lodgian Common Stock"), and each Impac Unit and each share of Impac Affiliated Company Common Stock -23- 42 issued and outstanding immediately prior to the Effective Time will be converted into the right to receive a certain number of shares of Lodgian Common Stock equal to a formula based on the average price of Servico Common Stock during a specified ten-day period prior to the Merger. Throughout this discussion and throughout this Joint Proxy Statement/Prospectus, reference to Impac unitholders will be deemed to exclude the Impac Affiliated Companies whose shareholders will directly receive Lodgian shares based on the number of Impac Units held by each of the Impac Affiliated Companies. If the average price of the Servico Common Stock is at least $14.00 per share and not more than $25.00 per share, then the Impac unitholders and Impac Affiliated Company shareholders will receive a total of 6.0 million shares of Lodgian Common Stock. Based on the number of Impac Units outstanding immediately prior to the Merger, approximately 0.519 of a share of Lodgian Common Stock will be issued for each Impac Unit owned. If the average price of the Servico Common Stock is less than $14.00 per share, the Impac unitholders and Impac Affiliated Company shareholders will receive a total number of shares of Lodgian Common Stock determined by dividing $103.6 million by the average Servico Common Stock price during the specified ten-day period and then subtracting 1.4 million. If the average price of Servico Common Stock is more than $25.00 per share, the Impac unitholders will receive a total number of shares of Lodgian Common Stock determined by dividing $185 million by the average Servico Common Stock price during the specified ten-day period and then subtracting 1.4 million. SHARES ALLOCABLE TO IMPAC UNITHOLDERS. The number of shares of Lodgian Common Stock each Impac unitholder will receive for each of his Impac Units can be determined by dividing the total number of shares to be delivered based on the Impac Units outstanding prior to the Merger by 11,559,527.20 (which is the total number of outstanding Impac Units). SHARES ALLOCABLE TO IMPAC AFFILIATED COMPANIES. For federal income tax planning purposes, the Impac Affiliated Companies will each merge directly into the Impac Affiliated Subs and, accordingly, each share of Impac Affiliated Company Common Stock will, pursuant to the Merger, be converted into the right to receive a number of shares of Lodgian Common Stock based upon the number of Impac Units owned by the respective Impac Affiliated Companies. The number of Impac Units owned by each of the Impac Affiliated Companies is set forth below:
APPROXIMATE NUMBER OF SHARES OF LODGIAN COMMON PERCENTAGE OF STOCK INITIALLY NUMBER OF IMPAC OUTSTANDING IMPAC RECEIVED IN THE IMPAC AFFILIATED COMPANY UNITS OWNED UNITS MERGER(1) ------------------------ --------------- ----------------- ------------------- P-Burg Lodging Associates, Inc. 211,789.68 1.83% 109,929 Hazard Lodging Associates, Inc. 111,469.33 0.96% 57,858 Memphis Lodging Associates, Inc. 153,683.58 1.33% 79,769 Delk Lodging Associates, Inc. 73,414.96 0.64% 38,106 Impac Hotel Development, Inc. 1,281,957.39 11.09% 665,403 Impac Design and Construction, Inc. 74,786.85 0.65% 38,818 Impac Hotel Company, Inc. 124,644.77 1.08% 64,697 ------------ ----- --------- Total 2,031,746.56 17.58% 1,054,580
- -------------------------- (1) Based upon an Impac Exchange Ratio of 0.519. The Impac Exchange Ratio will be adjusted in the event the price of Servico Common Stock is less than $14.00 per share or greater than $25.00 per share during the specified 10-day period prior to the Merger. Does not include Impac Additional Shares (as defined) and does not provide for the issuance of cash in lieu of fractional shares. -24- 43 ISSUANCE OF IMPAC ADDITIONAL SHARES. As five of Impac's hotels that are currently under development are opened, holders of Impac Units and Impac Affiliated Company Common Stock will receive up to an aggregate of 1.4 million additional shares of Lodgian Common Stock (the "Impac Additional Shares"). The following incremental portions of the Impac Additional Shares (which will not be subject to change) will be issued following the opening of each of the following development hotels:
Dollar Value Anticipated Additional Shares Attributable to Hotel Completion Date per Impac Unit* Additional Shares** ----- --------------- ----------------- ------------------- Marriott, Portland, Oregon First Quarter, 1999 490,000(.042) $ 8,820,000 Marriot, Denver, Colorado Fourth Quarter, 1998 350,000(.030) $ 6,300,000 Hilton Garden Inn, Lake Oswego, Fourth Quarter, 1999 238,000(.021) $ 4,284,000 Oregon Courtyard by Marriott, Livermore, First Quarter, 1999 168,000(.95) $ 3,024,000 California Hilton Garden Inn, Rio Ranch, First Quarter, 1999 154,000(.015) $ 2,772,000 New Mexico TOTAL: 1,400,000(.121) $25,200,000
- ---------------- * Assumes 11,559,527.20 Impac Units outstanding at the time of the Merger. The holders of Impac Affiliated Company Common Stock will receive a number of Impac Additional Shares based upon the number of Impac Units owned by the respective Impac Affiliated Companies. ** Based upon the price of Servico's Common Stock on _________, 1998. The number of Impac Additional Shares will not be adjusted in the event of any increase or decrease in the price of Servico Common Stock. The price of Servico Common Stock at the Effective Time (and thus the Dollar Value Attributable to Impac Additional Shares shown in the above table) may be higher or lower than its price at the date of this Joint Proxy Statement/Prospectus. Each of the hotels is currently under construction and is expected to open in 1999. The number of Impac Additional Shares attributable to each property will be placed in escrow with the Exchange Agent when the Merger is consummated and subsequently distributed pro rata to persons and entities that were holders of Impac Units or Impac Affiliated Company Common Stock at the time of the Merger based upon the number of Impac Units or shares of Impac Affiliated Company Common Stock they held immediately prior to consummation of the Merger, regardless of whether they continue to hold the Lodgian shares issued to them in connection with the Merger and regardless of whether they received cash in lieu of fractional shares in connection with the Merger. No additional action needs to be taken by former Impac Members or former Impac Affiliated Company shareholders to receive their pro rata share of the Impac Additional Shares unless there is a change of address, in which case the Escrow Agent should be advised of any such change. However, at the time the Impac Additional Shares are issued, cash will again be paid in lieu of fractional shares. BACKGROUND OF THE MERGER Since its inception, Impac has raised an aggregate of $125 million in capital which includes the appraised value of the assets acquired from Impac's predecessor entities. Substantially all of this capital is invested in hotel properties in accordance with Impac's investment objectives which are described in "Business of Impac-Investment Strategy" with the balance used to fund short-term working capital requirements. -25- 44 No representative of Impac had any significant discussions or negotiations with any party regarding a potential change of control of Impac until May 1997 when the first contact between representatives of Impac and Servico occurred. At that time the parties met for the purpose of discussing the retention of Impac in connection with the renovation of certain Servico hotel properties. Thereafter, in June 1997, Mark Elliott of Hodges, Ward & Elliott, a consulting firm who had previously had independent dealings with both Impac and Servico as a hotel broker, spoke with Peter Walz, Vice President of Servico, regarding Servico's interest in discussing a potential business combination with representatives of Impac and called Robert Cole, the Manager of Impac, to inquire whether Mr. Cole would be interested in meeting with representatives of Servico to discuss a possible combination. Following Mr. Elliot's introduction, David Buddemeyer and Peter Walz of Servico met with Mr. Cole in July 1997 to discuss each company's strategy, portfolio and acquisition/development activities. In August 1997, Mr. Cole initiated the Merger discussions with Servico on behalf of Impac by indicating that he would be interested in pursuing further discussions with Servico and thereafter Messrs. Buddemeyer, Walz and Cole met to discuss the possible business combination and specific valuation issues relating to Impac. In September 1997, Mr. Cole asked Allen & Company Incorporated ("Allen & Company") to assist Impac in its review of a potential business combination with Servico. On September 23, 1997, representatives of Impac and Servico, their financial advisors (Allen & Company and Lehman Brothers, Inc. ("Lehman Brothers"), respectively) and their counsel met to discuss the issues raised by such a business combination and the potential advantages and synergies that could be realized by such a combination. The parties discussed various business points, the appropriate corporate structure for the combined entity, tax and accounting issues including the impact of accounting for the transaction as a purchase or pooling of interests, the terms of Impac's indebtedness, potential refinancing options and the composition of the Board of Directors of the combined entity. In October, 1997, representatives of Impac and Servico and their respective financial advisors, attorneys and independent accountants met to discuss alternative accounting and transaction structures, refinancing alternatives, financial results, the structure of the combined entity, the process and schedule for the completion of Impac's audit and a possible timetable for pursuing the transaction. Thereafter, drafts of a proposed form of Merger Agreement were circulated and negotiation of the terms of the Agreement commenced. In December, 1997, representatives of Impac and Servico and their respective financial advisors, attorneys and independent accountants met to discuss the terms of a proposed credit facility for the combined entity and the status of Impac's audit. The parties also discussed outstanding issues relating to the proposed Merger Agreement, including the scope of Impac's representations and warranties and the operation of Servico's and Impac's business during the period after the execution of an agreement and before closing. In January and February, 1998, the parties continued to negotiate the terms of the transaction including, in particular, issues relating to valuations, the accretiveness of the transaction and the stock price collar, issues relating to the appropriate accounting treatment of the transaction, the impact on the transaction of the inclusion of the development properties, the responsibility for costs and break up fees in the event the transaction is not consummated, and the positions and terms of employment of Messrs. Buddemeyer and Cole. On January 28, 1998, Impac delivered to Servico audited financial statements for the period ended September 30, 1997 and the parties continued to negotiate the timing and number of Lodgian shares to be issued to Impac unitholders in connection with the transaction. In February 1998, Impac retained Bear Stearns & Company, Inc. as a co-advisor to assist in the execution of the business strategy following the signing of the Merger Agreement. In March 1998, representatives of Impac and Servico and their respective attorneys and financial advisors continued to negotiate the terms of the definitive Merger Agreement. While Servico's Board of Directors reviewed the proposed terms of the transaction and the status of negotiations at each of the seven Board meetings commencing with their meeting in September, 1997, on March 11, 1998, Servico's directors, after reviewing the material terms of the transaction and the proposed form of Merger Agreement and after a full discussion of the potential benefits as -26- 45 well as risks associated with the transaction, approved the transaction and authorized David Buddemeyer to execute the Merger Agreement on behalf of Servico. Impac's Manager approved the Merger Agreement on March 20, 1998. The parties executed the Merger Agreement on March 20, 1998 and issued a press release announcing the transaction on March 23, 1998. In July 1998, Servico and Impac amended and restated the Merger Agreement to, among other things, extend the termination date from July 31, 1998 to December 31, 1998, and to permit the direct merger of the Impac Affiliated Companies into newly-formed subsidiaries of Lodgian so that the shareholders of the Impac Affiliated Companies could receive shares of Lodgian directly in a tax free reorganization. SERVICO--RECOMMENDATION OF SERVICO'S BOARD OF DIRECTORS. THE SERVICO BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, SERVICO AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF SERVICO VOTE FOR APPROVAL OF THE MERGER. SERVICO--REASONS FOR THE MERGER. The Servico Board believes that the Merger offers the unique opportunity to combine two successful and financially sound companies to form Lodgian. The Servico Board considered the significant benefits associated with combining Servico's business and Impac's business in light of the Servico Board's belief that the Merger represents an excellent fit of the two companies' respective strategic advantages in operating and owning hotels, including opportunities for efficiencies and earnings growth. The Merger adds a number of upscale properties to Servico's portfolio, including the Marriott at the Denver Airport, the Marriott Downtown Portland and the four star and four diamond Mayfair Hotel in the Coconut Grove section of Miami. Servico should also benefit from the improved geographic diversity with the addition of hotels in 11 new states, including entry into major markets such as Atlanta, Boston, Denver, Los Angeles, Miami, Portland and San Francisco. Servico's existing hotels will also potentially benefit from the resources offered by Impac's "Revenue Center", which centralizes certain of Impac's reservations, sales and marketing functions at one location in Louisiana, and Impac's management information systems, which track guest satisfaction daily. Further, Impac's development and construction expertise will potentially give the combined company a significant competitive advantage in connection with the renovation of properties and in pursuing the strategic development of upscale, premium branded properties. The Servico Board believes that Impac's development properties, together with both companies' substantial recent growth, represent a built-in pipeline of substantial internal growth through 1999. In arriving at its determination, the Servico Board considered a number of factors, including the material factors described below: (i) The current state of the hospitality industry and economic and market conditions, including in particular the intensification of competition within the hotel industry and the recent consolidation trend within the industry; (ii) The Merger will add scale and geographic diversification to Servico's existing business; (iii) The Merger will create one of the largest independent, multi-brand owners and operators of full service hotels in the United States, helping Servico to achieve its objective of strategic growth; (iv) The Merger will enable Servico to add individuals to its management from Impac's management who can help grow the combined businesses; (v) The Merger should permit operational efficiencies by (a) providing renovation and development expertise, (b) creating greater purchasing power, (c) eliminating duplicate administrative and accounting functions, -27- 46 (d) integrating information systems and related personnel, and (e) utilizing Impac's Revenue Center, which will centralize the companies' reservations and sales and marketing functions at one location and track guest satisfaction; (vi) That based upon the advice of its tax counsel, the Merger will be a tax-free transaction from the perspective of Servico's shareholders; (vii) The opinion of Lehman Brothers to the effect that, as of the date of such opinion and based upon, and subject to, certain matters stated therein, the consideration to be paid in the Merger was fair, from a financial point of view, to Servico; (viii) The financial and other information concerning Impac that was provided to Servico and Impac's representatives as part of Servico's due diligence investigation, including, among other things, information regarding Impac's business, properties, operations, financial condition and future prospects; and (ix) The terms of the Merger Agreement. SERVICO--NEGATIVE CONSIDERATIONS AND POTENTIAL DISADVANTAGES OF THE MERGER. The Servico Board evaluated the advantages, opportunities and general considerations in light of certain risks or other considerations associated with the Merger, including, without limitation, the following: (i) The challenges and costs inherent in combining two businesses of the size of Servico and Impac and the resulting diversion of management's attention for an extended period of time; (ii) The risk that the benefits sought in the Merger would not be obtained; (iii) The effect of the public announcement of the Merger and the proposed relocation of Servico's corporate headquarters from West Palm Beach, Florida, to Atlanta, Georgia, on relationships with franchisors, operating results and Servico's ability to retain employees, and the possible negative effect of the announcement on the trading price of Servico Common Stock; (iv) The possibility that certain provisions of the Merger Agreement might have the effect of discouraging other business combinations or strategic alternatives with other companies; (v) The terms and amount of Impac's outstanding indebtedness and when combined with Servico's outstanding indebtedness, the effect on the combined company of high levels of indebtedness, including the ability to generate sufficient cash flow from operations to service the debt, the ability to obtain additional financing or refinancing in the future and the increased vulnerability to adverse changes in general economic conditions; and (vi) The risks inherent in the construction and completion of Impac's hotels currently under development, including the possibility of construction cost overruns and delays and the resulting impact on the combined company's results of operations and financial condition. CONCLUSION. In view of the wide variety of factors considered by the Servico Board in connection with the evaluation of the Merger and the complexity of such matters, the Servico Board did not consider it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weight to the specific factors it considered in reaching its decision. The Servico Board relied on the experience and expertise of its financial advisors for quantitative analysis of the financial terms of the Merger. See "The Merger--Opinion of Lehman Brothers." In addition, the Servico Board did not undertake to make any specific determination as to whether any particular factor (or any aspect of any particular factor) was determinative in its ultimate decision, but rather conducted a discussion of the factors described above, including asking questions of Servico's management and legal, financial and accounting advisors, and reached a general consensus that the Merger was advisable and in the best interests of Servico and the Servico shareholders. -28- 47 In considering the factors described above, individual members of the Servico Board may have given different weight to different factors. The foregoing discussion of the information and factors considered and given weight by Servico's Board is not intended to be exhaustive but includes the material factors considered. RECOMMENDATION OF IMPAC'S MANAGER. THE MANAGER OF IMPAC REASONABLY BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT, ARE FAIR TO, AND IN THE BEST INTERESTS OF, IMPAC AND ITS UNITHOLDERS AND RECOMMENDS THAT THE HOLDERS OF IMPAC UNITS CONSENT TO THE MERGER. IMPAC--REASONS FOR THE MERGER. Impac's Manager believes the combination of Servico and Impac constitutes a strategic opportunity for Impac and that the terms of the Merger Agreement are fair and in the best interests of Impac's unitholders. In reaching this determination, Impac's Manager considered the following material factors: (i) The value of the consideration to be received by the holders of Impac Units in the Merger; (ii) The combined operational efficiencies expected to be realized by the entity resulting from the Merger including, but not limited to, (a) greater purchasing power, (b) elimination of duplicate administrative and accounting functions, (c) the integration of information systems and related personnel, and (d) economies of scale in Impac's Revenue Center; (iii) The increased managerial, operational and financial resources that will be available to the combined entity, and the belief that, as a result of its greater financial resources, the combined entity may be expected to have enhanced access to capital on more favorable terms than were previously available to Impac as a private company; (iv) The size and market capitalization of the combined entity, which is expected to: (a) increase liquidity for the holders of Impac Units, who would otherwise have no public market for their Units; (b) increase the market visibility of the company's combined operations; and (c) decrease the cost of debt and equity capital; (v) That, based upon the advice of its tax counsel, the Merger will be a tax-free transaction from the perspective of Impac's unitholders except for those Impac unitholders who will recognize gain equal to the excess of their share of Impac liabilities over their basis in their Impac Units; (vi) The opinion of Allen & Company to the effect that, as of the date of such opinion and based upon, and subject to, certain matters stated therein, the Impac Exchange Ratio was fair, from a financial point of view, to the holders of Impac Units; (vii) The financial and other information concerning Servico that was provided to the Manager and other representatives of Impac as part of Impac's due diligence investigation, including, among other things, information regarding Servico's business, properties, operations, financial condition and future prospects; (viii) The geographic diversity of the combined hotel portfolio, which is expected to mitigate risks relating to the geographic concentration presented by Impac's existing portfolio; and (ix) The terms of the Merger Agreement. IMPAC--NEGATIVE CONSIDERATIONS AND POTENTIAL DISADVANTAGES OF THE MERGER. Impac's Manager evaluated the advantages, opportunities and general considerations associated with the Merger in light of certain risks or other considerations associated with the Merger, including, without limitation, the following: (i) The risk that the benefits sought in the Merger will not be obtained; -29- 48 (ii) The terms and amount of Impac's outstanding indebtedness, the risk that the entity resulting from the Merger might not be able to generate sufficient cash flow from operations to service the debt and the risk that such indebtedness could not be restructured or refinanced on terms satisfactory to Impac or the combined entity; (iii) The management time required to integrate Servico's operations with those of Impac and the additional costs that would be incurred in connection with that process; (iv) The fact that Lodgian does not intend to pay dividends on its Common Stock and unitholders will, therefore, no longer receive distributions with respect to their Units; and (v) The risks inherent in the construction and completion of Impac's hotels that are under development, including the possibility of cost overruns and delays and the adverse consequences to Impac unitholders of the failure to open certain of such hotels in a timely manner so as to entitle such unitholders to receive up to an aggregate of 1.4 million additional shares of Lodgian Common Stock. IMPAC--ALTERNATIVES CONSIDERED BY THE MANAGER. The Manager also considered the relative material potential risks and benefits of the Merger as compared to those presented by: (i) Impac's continued status as a stand-alone, private entity and (ii) a liquidation of Impac. The risks and benefits considered relating to such alternatives are summarized below. VALUE OF THE MERGER CONSIDERATION COMPARED TO THE VALUE OF UNITS OF IMPAC AS A CONTINUING STAND-ALONE ENTITY. As is shown in "Opinion of Financial Advisors-Opinion of Allen & Company," Impac's projected 1999 implied private market equity value, based upon projected 1999 net income ($9.1 million), the multiple of market price to estimated 1999 earnings per share for a group of comparable public companies and a liquidity discount of 20%, is approximately $122.3 million (or approximately $10.58 per Unit). Impac's projected 1998 implied private market equity value, based upon projected 1998 net income ($3.5 million), the multiple of market price to estimated 1998 earnings per share for a group of comparable public companies and a liquidity discount of 20%, is approximately $57.7 million (or approximately $4.99 per Unit). Assuming the average price of Servico Common Stock during a specified 10-day period prior to the Merger is between $14.00 and $25.00 per share, the value of the Merger Consideration to be received by Impac unitholders in the Merger (assuming all of the Additional Shares are issued) will equal between $103.6 million and $185 million (or $9.00 to $16.00 per Unit, respectively). See "The Merger Agreement." However, there is no assurance that either the foregoing value of Impac as a stand-alone entity or the value of the Merger Consideration will ultimately be realized. POTENTIAL BENEFITS OF THE MERGER VS. OPERATION AS A CONTINUING STAND-ALONE ENTITY. A significant benefit to the Impac unitholders as a result of the Merger will be liquidity for unitholders who do not currently have liquidity as securityholders of a privately held company. There is no public market for the Units. Further, Lodgian will be much larger in size and have a greater market capitalization than Impac, thus increasing market visibility of the combined entities. Additionally, although not certain, combined operational efficiencies are expected to be realized by Lodgian including, but not limited to, greater purchasing power, elimination of duplicative administrative and accounting functions, integration of information systems and related personnel and achievement of economies of scale through the use of Impac's Revenue Center. Increased managerial, operational and financial resources are expected to have enhanced access to capital on more favorable terms than were previously available to Impac as a private company. Finally, geographic diversity of Lodgian's hotel portfolio is expected to mitigate risks relating to the geographic concentration presented by Impac's existing portfolio. POTENTIAL RISKS PRESENTED BY THE MERGER VS. CONTINUED OPERATION AS A STAND-ALONE ENTITY. Impac's Manager also considered the following material risks associated with the Merger as compared to remaining a stand-alone entity. He considered that Lodgian will have increased indebtedness and accordingly, might not be able to generate sufficient cash flow from operations to service the combined debt of Impac and Servico and might not be able to restructure or refinance such indebtedness on terms satisfactory to Lodgian. Additionally, because the Merger will involve the integration of two large companies that have previously -30- 49 operated independently, Lodgian could encounter difficulties in integrating the respective operations of Servico and Impac and the operation of Impac as a smaller stand-alone company might ultimately have proven more viable. Further, Lodgian does not intend to pay dividends on its common stock and, as a result, Impac unitholders will no longer receive distributions with respect to their investment upon consummation of the Merger. Finally, there are risks inherent in the construction and completion of Impac's hotels that are under development, including the possibility of cost overruns and delays, all of which could preclude or delay Impac from opening such hotels and would preclude or delay Impac unitholders from receiving up to an aggregate of 1.4 million additional shares of Lodgian. VALUE OF THE MERGER CONSIDERATION COMPARED TO THE LIQUIDATION VALUE OF IMPAC UNITS. In the event of a liquidation, Impac would be required to sell all of its hotels and other assets in a series of separate transactions and distribute the proceeds to its unitholders in accordance with the terms of its Operating Agreement. Impac's Manager noted that a liquidation analysis does not reflect that Impac (i) is being operated as a going concern, (ii) has not obtained current appraisals of its properties and (iii) would, as a consequence of its outstanding debt, be restricted in the disposition of the hotels which in the aggregate serve as collateral for the debt. However, if all of Impac's properties were sold for management's best estimate of their fair market value, the net proceeds of such sales would be approximately $115 million to $140 million (or approximately $10.00 to $12.00 per Unit) which would potentially be available for distribution to the Impac holders upon liquidation. The Manager believes that the amount that would ultimately be distributed to the Impac unitholders upon liquidation would be affected by the following factors: (i) there would likely be an increased supply of properties on the market without a corresponding demand for such properties; (ii) a present liquidation value would likely be less than a future liquidation value because the present value would not reflect the stabilization of income and expenses relating to the operation of properties in Impac's development and renovation pipeline and (iii) Impac would be required to pay significant prepayment penalties in the event of a liquidation. Further, the liquidation and distribution of proceeds would be taxable to unitholders. The approximate value of the Merger Consideration to be received by the Impac unitholders in the Merger will range from approximately $103.6 million to $185 million (or $9.00 to $16.00 per Unit), assuming the average price of the Servico Common Stock during a specified ten-day period prior to the Merger is between $14.00 and $25.00 per share and assuming issuance of all of the Additional Shares. POTENTIAL BENEFITS OF THE MERGER VS. LIQUIDATION. Impac's Manager did not consider a liquidation of Impac as a viable alternative to the Merger for the reasons set forth in the preceding paragraph. Impac's Manager believes that the restrictions on Impac's ability to dispose of hotels serving as collateral for Impac's debt, coupled with the potential prepayment penalties described above, would reduce significantly any proceeds which might otherwise be received on the sale of Impac's properties. No assurance can be given, however, that this would be the case, given the unpredictable nature of the real estate market and the impossibility of predicting reliably the proceeds or potential gain that might be realized upon the sale of Impac's properties. The Manager also compared the tax consequences of the Merger to those of a liquidation. The Merger was structured to be tax-free with respect to Impac and to have no material tax consequences to the Impac unitholders, while a liquidation would result in an immediate payment of capital gains or ordinary income taxes on the gain resulting from the distribution. Consequently, the Manager determined that from a tax standpoint, the Merger would be more advantageous to Impac and its unitholders than a liquidation. POTENTIAL RISKS PRESENTED BY THE MERGER VS. LIQUIDATION. The risks discussed above under "-Potential Risks Presented by the Merger vs. Continued Operation as a Stand-Alone Entity" apply equally to a determination of the relative risks presented by the Merger as opposed to a liquidation of Impac. If any of these risks are realized, the value of the Lodgian common stock that would be held by Impac unitholders as a result of the Merger could have a value that would be less than the value of the distribution they would otherwise have received in the event of a liquidation of Impac. Further, in the event that there is a significant decline in real estate values in the future, a current liquidation might result in greater returns currently than may be available in the future. CONCLUSION. In view of the variety and complexity of the factors considered in the evaluation of the Merger, the Manager of Impac did not consider it practicable to, nor did he attempt to, quantify, rank or otherwise assign -31- 50 relative weight to the specific factors he considered in reaching his decision. The Manager relied on the experience and expertise of Impac's financial advisor for quantitative analysis of the financial terms of the Merger. However, the Manager did not retain any unaffiliated representative to act on behalf of other unitholders for purposes of negotiating the terms of the Merger. See "The Merger--Opinion of Allen & Company." In addition, the Manager did not undertake to make any specific determination as to whether any particular factor (or any aspect of any particular factor) was determinative in his ultimate decision or assign any particular weight to any factor, but instead asked questions of other members of Impac's management team and its legal, financial and accounting advisors in determining that the Merger was in the best interests of Impac and its unitholders. The foregoing discussion of the information and factors considered and given weight by Impac's Manager is not intended to be exhaustive but includes the material factors considered. OPINION OF FINANCIAL ADVISORS OPINION OF LEHMAN BROTHERS In connection with its role as financial advisor to Servico in connection with the Merger, on March 11, 1998, Lehman Brothers rendered its oral opinion, which was subsequently confirmed in a written opinion, dated March 12, 1998, that as of such dates, and based upon and subject to various qualifications and assumptions described therein, the consideration to be paid in the Merger was fair to the Company, from a financial point of view. THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS, DATED MARCH 12, 1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS CONSIDERED IN, AND THE LIMITATIONS ON, THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH OPINION, IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. No instructions were given to Lehman Brothers by Servico and no limitations were imposed by Servico on the scope of Lehman Brothers' investigation or the procedures to be followed by Lehman Brothers in rendering its opinion. Lehman Brothers was not requested to and did not make any recommendation to the Servico Board as to the form or amount of consideration to be received by Servico shareholders in the Merger, which was determined through arm's-length negotiations between Servico and Impac and their legal and financial advisors. In arriving at its opinion, Lehman Brothers did not ascribe a range of value to Servico, but rather made its determination as to the fairness to Servico, from a financial point of view, of the consideration to be paid in the Merger (the "Proposed Transaction") on the basis of financial and comparative analyses described below. Lehman Brothers' opinion is for the use and benefit of the Servico Board in connection with its consideration of the Proposed Transaction and does not constitute a recommendation to any shareholder of Servico as to how such shareholder should vote with respect to the Proposed Transaction. Lehman Brothers was not requested to opine as to, and its opinion does not in any manner address, Servico's underlying business decision to proceed with or effect the Proposed Transaction. Lehman Brothers' analysis did not result in any specific factors which did not support its fairness opinion. In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i) the Agreement and the specific terms of the Proposed Transaction; (ii) publicly available information concerning Servico that Lehman Brothers believed to be relevant to its analysis, including Servico's annual report on Form 10-K for the year ended December 31, 1996 and quarterly reports on Form 10-Q for the quarters ended March 31, June 30; (iii) financial statements for Impac and it subsidiaries, including balance sheets as of December 31, 1995 and 1996 and the related statements of income, cash flow and changes in members' equity for the fiscal years ended December 31, 1994, 1995 and 1996, including any related notes, audited and reported on, without qualification, by PricewaterhouseCoopers LLP, Impac's independent public accountants and financial information for the nine months ended September 30, 1997; (iv) financial and operating information with respect to the business, operations and prospects of Servico and Impac furnished to Lehman Brothers by Servico and Impac, respectively; (v) a comparison of the historical financial results -32- 51 and present financial condition of Servico with those of other companies that Lehman Brothers deemed relevant; (vi) the trading history of Servico's Common Stock from January 1996 to March 1997 and a comparison of that trading history with those of other companies that Lehman Brothers deemed relevant; (vii) the potential pro forma impact of the Proposed Transaction on Servico, including the cost savings, operating synergies and strategic benefits expected by the management of Servico to result from a combination of the applicable businesses; (viii) a comparison of the relative contribution of Impac to the financial results of Lodgian following the Proposed Transaction to the Impac ownership interest in Lodgian following the Proposed Transaction; and (ix) a comparison of the financial terms of the Proposed Transaction with the financial terms of certain other recent transactions that Lehman Brothers deemed relevant. In addition, Lehman Brothers had discussions with the management of Servico and Impac concerning their respective businesses, operations, assets, financial condition and prospects and undertook such other studies, analyses and investigations as Lehman Brothers deemed appropriate. In arriving at its opinion, Lehman Brothers assumed and relied upon the accuracy and completeness of the financial and other information used by it without assuming any responsibility for independent verification of such information and further relied upon the assurances of the management of Servico and Impac that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections of Servico and Impac, upon advice of Servico and Impac, Lehman Brothers assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Servico and Impac as to the future financial performance of Servico and Impac, respectively, and that Servico and Impac will perform substantially in accordance with such projections. In arriving at its opinion, Lehman Brothers did not conduct a physical inspection of the properties and facilities of Servico or Impac and did not make or obtain any evaluations or appraisals of the assets or liabilities of Servico or Impac. In addition, Servico did not authorize Lehman Brothers to solicit, and Lehman Brothers did not solicit, any indications of interest from any third party with respect to the purchase of all or a part of Servico's business. Upon advice of Servico, Impac and their respective legal and accounting advisors, Lehman Brothers assumed that the Proposed Transaction will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), with respect to Servico, and therefore as a tax-free transaction to the shareholders of Servico. Lehman Brothers' opinion necessarily is based upon market, economic and other conditions as they existed on, and can be evaluated as of, the date of its opinion. It is not a requirement of the transaction that Lehman Brothers update its opinion prior to the Merger. Accordingly, it is possible that if it were redetermined based upon information as of a later date, that an event could occur which could alter that fairness determination. However, Servico is not aware of any significant event occurring after the date of Lehman Brothers fairness opinion which would have altered Lehman Brother's determination. In the event that an amendment is made to the Merger Agreement which the Board, after consultation with Lehman Brothers determines is material to the opinion rendered by Lehman Brothers, the Board will seek to obtain a revised fairness opinion in connection with such amendment. PRO FORMA MERGER ANALYSIS. Lehman Brothers performed an accretion and dilution analysis to shareholders of Servico under a "stand-alone" basis and "merged company" basis using certain projections provided by Servico and Impac management. The analysis performed under the stand-alone basis assumed that Servico would not merge with Impac but would instead operate as a separate company, whereas the analysis performed under the merged company basis assumed the merger of Servico and Impac pursuant to the Merger Agreement. In evaluating the estimated earnings per share ("EPS") of the stand-alone and combined company, Lehman Brothers utilized certain projections provided by Servico and Impac management. The analysis indicated that the merged company basis, when compared to the stand-alone basis, would be accretive to Servico's EPS in both 1998 and 1999. CONTRIBUTION ANALYSIS. Lehman Brothers analyzed the respective contributions of EBITDA, equity market capitalization and total market capitalization by Servico and Impac to Lodgian on a pro forma basis after taking into account certain of the possible benefits that may be realized following the Merger. The review was based on Servico's and Impac's current operating characteristics and existing hotel portfolios and assumed no future acquisitions would be made. The analysis showed that: (i) Servico would contribute 64% of Lodgian's 1998 EBITDA and that Impac would contribute 36%; (ii) Servico would contribute 59% of Lodgian's 1999 EBITDA and that Impac would contribute -33- 52 41%; (iii) Servico would contribute 78% of Lodgian's equity market capitalization as of March 11, 1998 and that Impac would contribute 22%; and (iv) Servico would contribute 57% of Lodgian's total market capitalization (calculated with estimated net debt as of June 30, 1998 for both Servico and Impac) as of March 11, 1998 and that Impac would contribute 43%. On a pro forma basis, Impac unitholders will own 26% of the combined company. Estimates of Servico's 1998 and 1999 EBITDA were derived from published research, and estimates of Impac's 1998 and 1999 EBITDA were based on projections of Impac management. TARGET PRICE ANALYSIS. Using Lehman Brothers' published research and Impac management projections for 1998 EBITDA and pro forma average net debt outstanding in 1998, Lehman Brothers analyzed the theoretical value per share to Servico shareholders of Servico on both a stand-alone and merged company basis based on a target 1998 EBITDA multiple of 9.5x. The analysis indicated that on a stand-alone and merged company basis, the per share target price of Servico was approximately $25.50 and $26.60, respectively. Lehman Brothers made no assurance or representation that either the shares of Servico or Lodgian at any time will trade in the range of the above-mentioned target prices. SELECTED TRANSACTION ANALYSIS. Lehman Brothers reviewed certain publicly available information relating to the financial terms of certain recent transactions in the lodging industry (the "Comparable Transactions"). The Comparable Transactions were Promus/Doubletree, Bass PLC/Intercontinental, Meditrust/La Quinta, Patriot American/Interstate, Starwood Lodging/ITT, Starwood Lodging/Westin, Patriot American/Wyndham and Marriott International/Renaissance. For each such Comparable Transaction, Lehman Brothers reviewed, among other things, the total transaction value as a multiple of forward EBITDA and the implied price per room. Estimates of forward EBITDA were derived from published research and, in certain cases, from internal corporate projections of parties to certain of the Comparable Transactions. The analysis indicated that, for the Comparable Transactions: (i) the forward EBITDA multiples had a range of 7.6x to 14.3x, compared to a multiple, as of March 11, 1998, of 9.4x Impac's 1998 estimated EBITDA; and (ii) an implied price per room of $52,000 to $211,000, compared to, as of March 11,1998, $57,300 for Impac's hotels. Comparable Transactions were selected, in part, based upon brand similarity, size and geographic considerations, and form of consideration. Because the market conditions, rationale and circumstances surrounding each of the transactions analyzed were specific to each transaction and because of the inherent differences between the businesses, operations and prospects of Servico and the entities comprising the Comparable Transactions analyzed, Lehman Brothers believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the analysis, and accordingly, also made qualitative judgments concerning differences between the characteristics of these transactions and the Merger that would affect the values inherent in the Merger and the Comparable Transactions. In particular, Lehman Brothers considered the size and desirability of the assets and the markets of operation relative to those of Impac, the strategic fit of the acquired assets with the acquiring company, the form of consideration offered to the seller and the tax characteristics of the transaction. These qualitative judgments do not lead to specific conclusions regarding Impac's value, but rather were part of Lehman Brothers' evaluation of the relevancy of this comparative analysis under the particular circumstances of the Merger. COMPARABLE COMPANY ANALYSIS. Lehman Brothers reviewed and compared certain financial information, ratios and public market multiples relating Servico to corresponding financial information, ratios and public market multiples for selected publicly traded companies in the hotel and lodging industry. The selected companies were Bristol Hotels, La Quinta Inns, Prime Hospitality and John Q. Hammons (collectively, the "Comparable Companies"). The Comparable Companies were chosen because they are publicly-traded companies with operations that, for the purpose of Lehman Brothers' analysis, are similar to those aspects of Servico to which they were compared. For the comparable company analysis, the estimates for Servico and the Comparable Companies were based on research published by selected investment banking firms and market valuations as of March 4, 1998. With respect to the Comparable Companies, Lehman Brothers considered: (i) 1997 and 1998 EBITDA multiples (based on March 4, 1998 closing share prices and research analysts' EBITDA estimates) that ranged from -34- 53 6.9x to 11.2x for 1997 and 6.5x to 8.8x for 1998; and (ii) net debt-to-total market capitalization ratios that ranged from 32.5% to 92.4%. For Servico, Lehman Brothers observed that: (i) 1997 and 1998 EBITDA multiples were 10.3x and 7.7x, respectively; and (ii) the 1998 net debt-to-total market capitalization ratio was 49.5%. Because of the lack of a sufficient number of independent comparable companies and the inherent difference between the businesses, operations and prospects of Servico and the businesses, operations and prospects of the companies included as Comparable Companies, Lehman Brothers believed that a purely quantitative comparable company analysis would not be particularly meaningful in the context of the Merger. Lehman Brothers believed that an appropriate use of a comparable company analysis in this instance would involve qualitative judgments concerning differences between the financial and operating characteristics of Servico and the companies included as Comparable Companies that would affect the public trading values of Servico and such Comparable Companies. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial and comparative analysis and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Furthermore, in arriving at its opinion, Lehman Brothers did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Lehman Brothers believes that is analyses must be considered as a whole and that considering any portion of such analyses and factors, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying its opinion. In its analyses, Lehman Brothers made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Servico and Impac. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth therein. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses actually may be sold. Lehman Brothers is an internationally recognized investment banking firm. Lehman Brothers, as part of its investment banking business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Servico Board retained Lehman Brothers based upon Lehman Brothers' experience and expertise and its familiarity with Servico. Lehman Brothers has performed various investment banking services for Servico, including as a lead managing underwriter of Servico's Common Stock Offering in June, 1997 and has acted, and is currently acting, as a lender to Servico (with an outstanding amount owed by Servico of approximately $200 million) and has received customary fees for such services. In connection with such services, excluding fees relating to the Merger, during the past two years Servico has paid Lehman Brothers fees totaling approximately $20.1 million. In the ordinary course of its business, Lehman Brothers actively trades in the securities of Servico for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. Pursuant to an engagement letter between Lehman Brothers and Servico, Lehman Brothers is entitled to a fee of $500,000 upon delivery of its opinion and is entitled to an additional fee of $3.1 million upon consummation of the Merger. Servico has agreed to reimburse Lehman Brothers for its reasonable expenses in connection with its engagement and to indemnify Lehman Brothers against certain liabilities, including certain liabilities under federal securities laws. OPINION OF ALLEN & COMPANY On March 19, 1998, Allen & Company delivered to the Manager of Impac its oral opinion (subsequently confirmed in writing) to the effect that, as of such date, the Impac Exchange Ratio contemplated by the Merger Agreement was fair to holders of Impac Units from a financial point of view. -35- 54 The full text of the written opinion of Allen & Company, dated March 19, 1998, is set forth as Appendix C to this Joint Proxy Statement/Prospectus and describes the assumptions made, matters considered and limits on the review undertaken. The holders of Impac Units are urged to read the opinion in its entirety. Allen & Company's opinion is directed only to the fairness, from a financial point of view, of the Impac Exchange Ratio and does not constitute a recommendation of the Merger over other courses of action that may be available to Impac or constitute a recommendation to any holder of Impac Units concerning how such holder should vote with respect to the Merger. The summary of the opinion of Allen & Company set forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by reference to the full text of such opinion. In arriving at its opinion, Allen & Company: (i) reviewed the terms and conditions of the Merger Agreement and related documents; (ii) analyzed historical business and financial information relating to Impac and management's forecasts prepared by Impac, as presented in documents provided to Allen & Company by Impac; (iii) analyzed publicly available historical business and financial information relating to Servico, as presented in documents filed with the Securities and Exchange Commission (the "SEC"); (iv) reviewed Impac's and Servico's respective operations and considered the views of professional analysts covering Servico; (v) reviewed certain limited non-public information relating to Servico, including financial and operating results of Servico and management's forecasts prepared by Servico; (vi) conducted discussions with certain members of the senior management of Impac and Servico with respect to the financial condition, business, operations, strategic objectives and prospects of Impac and Servico, respectively; (vii) reviewed and analyzed public information, including certain stock market data and financial information relating to selected public companies which Allen & Company deemed generally comparable to Impac and Servico; (viii) reviewed the trading history of the Servico Common Stock, including such stock's performance in comparison to market indices and to selected companies in comparable businesses; (ix) considered multiples paid in merger and acquisition transactions Allen & Company deemed to be comparable to the Merger; and (x) conducted such other financial analyses and investigations and reviewed such other materials as Allen & Company deemed necessary or appropriate for the purposes of the opinion expressed therein. In connection with its review, Allen & Company assumed and relied on the accuracy and completeness of the information it reviewed for the purpose of its opinion and did not assume any responsibility for independent verification of such information or for any independent evaluation or appraisal of the assets of Impac or Servico. With respect to Impac's and Servico's financial forecasts, Allen & Company assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Impac and Servico, respectively, and Allen & Company expressed no opinion with respect to such forecasts or the assumptions on which they were based. Allen & Company's opinion was necessarily based upon business, market, economic and other conditions as they existed on, and could be evaluated as of, the date of its opinion. Allen & Company's opinion does not imply any conclusion as to the likely trading range of Lodgian Common Stock following the consummation of the Merger, which may vary depending on, among other factors, changes in interest rates, dividend rates, market conditions, general economic conditions and other factors that generally influence the price of securities. No limitations were imposed by Impac, nor did Allen & Company receive any specific instructions from Impac, on the scope of Allen & Company's analyses or the procedures to be followed by Allen & Company in rendering its opinion. Allen & Company was not requested to and did not make any recommendation to Impac as to the form or amount of consideration to be received by the holders of Impac Units, which was determined by arm's-length negotiations between Impac and Servico and their legal and financial advisors. Allen & Company's analyses did not result in any specific factors which did not support its fairness opinion. Allen & Company's engagement by Impac does not contemplate the issuance by Allen & Company of an additional or supplemental fairness opinion at the closing of the Merger. Impac's Manager has indicated that he may request an additional or supplemental opinion at such time, if any, as consideration is given to any amendment of the material terms of the Merger. Allen & Company's fairness determination was made as of the date of its opinion. Accordingly, it is possible that if it were redetermined based upon information as of a later date, that an event could occur which could alter that fairness determination. However, Impac is not aware of any significant events occurring since the rendering of Allen & Company's fairness opinion on March 19, 1998 which would have altered Allen & Company's determination. -36- 55 The following is a summary of the presentation made by Allen & Company to the Manager of Impac in connection with the rendering of Allen & Company's fairness opinion: TRANSACTION OVERVIEW AND ANALYSIS. Allen & Company presented an overview of the proposed transaction, noting the strategic fit of combining two leading hotel companies, each of which possesses an experienced management team. The transaction, structured as a tax free exchange of stock and accounted for as a purchase, would permit the holders of Impac Units the ability to continue their investment in the combined company resulting from the Merger and would also provide such holders with the liquidity present in owning shares of a public company. Allen & Company also noted that the combined operations of Impac and Servico would likely benefit from the ability to capitalize on synergies such as economies of scale in operations, information systems and purchasing power. Allen & Company analyzed the total enterprise value (the recent value of all equity securities plus long-term debt less cash) of Impac (both before and after giving effect to the issuance of the Impac Additional Shares and the incurrence of debt associated with the five Impac hotels currently under development, the opening of which will result in the issuance of the Impac Additional Shares (the "Additional Hotel Debt")) and Servico based on the closing price of Servico Common Stock ($17.75) on March 18, 1998, the day preceding the delivery of Allen & Company's oral opinion to the Manager of Impac. This analysis indicated an enterprise value of Impac of approximately $445.9 million (based upon debt outstanding at December 31, 1997) without giving effect to the Impac Additional Shares and Additional Hotel Debt, approximately $538.6 million after giving effect to the Impac Additional Shares and Additional Hotel Debt and approximately $580.3 million after giving effect to the Impac Additional Shares, the Additional Hotel Debt and additional debt associated with the renovation of certain of Impac's existing hotels. Allen & Company noted that this analysis also indicated an enterprise value of Servico of approximately $709.0 million. Allen & Company also noted that the enterprise value of Impac as a multiple of total hotel rooms before and after giving effect to the Impac Additional Shares and Additional Hotel Debt was estimated to be $56,450 and $61,080, representing 66% and 72%, respectively, of the replacement value per room. Allen & Company reviewed the pro forma balance sheet for the combined company resulting from the Merger and the projected 1998 and 1999 pro forma financial results for the combined company after giving effect to certain anticipated synergies resulting from the Merger. The analysis was performed utilizing stand-alone earnings projected for calendar years 1998 and 1999 for Impac and Servico based on certain financial projections for Impac prepared by Impac's management and certain estimates of financial results for Servico based upon certain industry analysts' estimates. Based on such analysis, the Merger is expected to result in the combined company having a higher projected EPS than Servico is projected to have on a stand-alone basis for 1998 ($1.10 for the combined company versus $0.99 for Servico) and 1999 ($1.38 for the combined company versus $1.16 for Servico). Allen & Company also calculated the enterprise value of the combined company based on the closing sale price of the Servico Common Stock on March 18, 1998 before ($1,154.8 million) and after ($1,247.5 million) giving effect to the Impac Additional Shares and the Additional Hotel Debt. Allen & Company analyzed the enterprise value of the combined company as multiples of various financial performance criteria and compared such implied multiples to multiples of such financial performance measures for a group of public companies that Allen & Company deemed to be comparable to the combined company (the "Comparables Group"): Bristol Hotels, Capstar, Interstate Hotels and Prime Hospitality. The companies in the Comparables Group were chosen because they are publicly traded companies with operations that Allen & Company deemed to be similar to those of Servico and Impac. To calculate the trading multiples for the Comparables Group, Allen & Company used publicly available information concerning historical and estimated financial information for the Comparables Group. The multiple of enterprise value to sales for the last twelve months ("LTM") for the Comparables Group ranged from 2.6x to 4.3x with an average of 3.5x as compared to implied multiples of enterprise value to 1997 revenue for the combined company of 2.9x and 3.1x before and after giving effect to the Impac Additional Shares and Additional Hotel Debt, respectively. The multiple of enterprise value to LTM EBITDA for the Comparables Group ranged from 11.0x to 16.0x with an average of 12.4x as compared to implied multiples of enterprise value to 1997 EBITDA for the combined company of 13.0x and 14.1x before and after giving effect to the Impac Additional Shares and Additional Hotel Debt, respectively. The multiple of enterprise value to LTM EBIT for the Comparables Group ranged from 14.8x to 21.4x with an average of 17.0x -37- 56 as compared to implied multiples of enterprise value to 1997 EBIT for the combined company of 21.3x and 23.0x before and after giving effect to the Impac Additional Shares and Additional Hotel Debt, respectively. Allen & Company calculated the implied per share valuation of the combined company resulting from the Merger based upon the multiple of market price to estimated 1998 and 1999 EPS for the Comparables Group and the projected 1998 EPS ($1.10) and 1999 EPS ($1.38) for the combined company. This analysis yielded an implied per share valuation for the combined company of $23.32 and $23.87, representing a premium of 31.4% and 34.5%, respectively, to the $17.75 market price of Servico Common Stock on March 18, 1998. Allen & Company also calculated the implied per share valuation of the combined company based upon the multiple of enterprise value to estimated 1999 EBITDA for the Comparables Group and the projected 1999 EBITDA ($189 million) for the combined company. This analysis yielded an implied per share valuation for the combined company of $22.73, representing a premium of 28.1% to the $17.75 market price of Servico Common Stock on March 18, 1998. Allen & Company also noted that such $17.75 market price represented a multiple of 12.9x of projected 1999 pro forma EPS for the combined entity as compared to the 17.3x average multiple of price to estimated 1999 EPS at which the Comparables Group traded. Allen & Company reviewed and analyzed certain financial, operating and stock market information relating to selected merger transactions occurring in the lodging industry between January 1, 1996 and March 18, 1998 (the "Lodging Transactions"). The Lodging Transactions were Bally/Hilton, Red Lions/Doubletree, Holiday Inns/Bristol, Studio Plus/Extended Stay, Wyndam/Patriot American, Doubletree/Promus, Chartwell/Whitehall, Interstate/Patriot American and LaQuinta/Meditrust, and were selected by Allen & Company because they were recent transactions in the lodging industry involving companies with operations that Allen & Company deemed similar to those of Impac and Servico. Allen & Company also analyzed the enterprise value of Impac as implied by the Merger as multiples of various financial performance criteria and compared such implied multiples to multiples paid in such Lodging Transactions. Allen & Company noted that the enterprise value as a multiple of LTM sales ranged from 2.8x to 11.3x and averaged 3.9x for the Lodging Transactions as compared to the multiple of Impac's enterprise value to LTM sales of 3.7x and 4.5x, before and after giving effect to the Impac Additional Shares and Additional Hotel Debt, respectively. Allen & Company noted that the enterprise value as a multiple of LTM EBITDA ranged from 7.1x to 28.4x and averaged 14.1x for the Lodging Transactions as compared to the multiple of Impac's enterprise value to LTM EBITDA of 23.6x and 28.5x, before and after giving effect to the Impac Additional Shares and Additional Hotel Debt, respectively. Allen & Company noted that the enterprise value as a multiple of LTM EBIT ranged from 9.8x to 41.5x and averaged 20.6x for the Lodging Transactions as compared to the multiple of Impac's enterprise value to LTM EBITDA of 57.9x and 69.9x, before and after giving effect to the Impac Additional Shares and Additional Hotel Debt, respectively. Allen & Company also noted that the enterprise value of the combined entity as a multiple of total hotel rooms before and after giving effect to the Impac Additional Shares and Additional Hotel Debt was estimated to be $46,612 and $48,552, respectively, representing 58% and 61%, respectively, of the replacement value per room. Allen & Company analyzed and compared the pro forma contributions made by each of Impac and Servico to the combined company's projected 1998 operations based upon a comparison of certain stock market and financial information and projections for each company on a stand-alone basis. Accordingly, this analysis does not take into account any cost savings or revenue enhancements that may result from the Merger. This analysis indicated that on a pro forma basis Impac and Servico would account for approximately 31.8% and 68.2%, respectively, of the combined company's projected 1998 pro forma revenues ($554 million), approximately 34.0% and 66.0%, respectively, of the combined company's projected 1998 pro forma EBITDA ($151 million), and approximately 14.2% and 85.8%, respectively, of the combined company's projected 1998 pro forma net income ($24.7 million). Allen & Company considered these projected contributions in light of the Impac Exchange Ratio which would result in the holders of the Impac Units owning approximately 21.8% of the common stock of the combined entity before giving effect to the Impac Additional Shares, which is expected to occur in 1999 upon the opening of five Impac hotels currently under development. -38- 57 OVERVIEW OF IMPAC. Allen & Company presented an overview of Impac's business operations. Allen & Company also reviewed Impac's balance sheet as of December 31, 1997, its historical operating results for the three years ended December 31, 1997 and its projected operating results for the six months ending December 31, 1998 and the year ending December 31, 1999. Allen & Company also calculated the implied private market equity value of Impac based upon projected 1998 net income ($3.5 million) and 1999 net income ($9.1 million) for Impac and based upon the multiple of market price to estimated 1998 and 1999 EPS for a group of public companies that Allen & Company deemed to be comparable to Impac (the "Impac Comparables"): Servico, Bristol Hotels, Capstar, Interstate Hotels and Prime Hospitality. This analysis yielded an implied private market equity value for Impac of approximately $57.7 million and $122.3 million, respectively. Allen & Company also calculated the implied private market equity value of Impac based upon the projected 1999 EBITDA ($72.3 million) for Impac and based upon the multiple of enterprise value to estimated 1999 EBITDA for the Impac Comparables. This analysis yielded an implied private market equity value for Impac of approximately $121.8 million. Allen & Company calculated the implied private market equity value of Impac based upon Impac's LTM sales, LTM EBITDA and LTM EBIT and based upon the multiple of enterprise value to LTM sales, LTM EBITDA and LTM EBIT for the Lodging Transactions. This analysis yielded an implied private market equity value for Impac of approximately $128.2 million based on LTM sales, $52.3 million based on LTM EBITDA and a negative value for Impac based on LTM EBIT. In calculating the private market valuations above, Allen & Company utilized a 20% private market (liquidity) discount. In addition, Allen & Company calculated the implied private market equity value of Impac by utilizing certain common industry percentages of enterprise value to replacement value (per room). OVERVIEW OF SERVICO. Allen & Company presented an overview of Servico's business operations. Allen & Company also reviewed Servico's balance sheet as of December 31, 1997 and its historical operating results for the four years ended December 31, 1997. Allen & Company also reviewed stock price and trading volume data for the Servico Common Stock and compared Servico's general trading patterns to those of the S&P 500 Index, the S&P Lodging Index and to each of the companies included in the Comparables Group. Allen & Company also reviewed certain industry analysts' perspectives on the Servico Common Stock. Allen & Company also compared selected multiples derived from the recent price of Servico Common Stock to multiples derived from recent trading prices of the companies included in the Comparables Group. The multiples compared included enterprise value to estimated 1998 EBITDA (which was 7.2x for Servico compared to an average of 8.6x for the Comparables Group) and market price to estimated 1998 EPS (which was 17.9x for Servico compared to an average of 21.2x for the Comparables Group). Allen & Company also calculated the implied per share valuation of Servico based upon 1998 and 1999 EPS for Servico obtained from industry analysts' estimates and based upon the multiples of market price to estimated 1998 and 1999 EPS for the Comparables Group. This analysis yielded an implied per share valuation for Servico of $20.99 and $20.24, respectively, representing a premium of 18.2% and 14.0%, respectively, to the $17.75 market price of Servico Common Stock on March 18, 1998. Allen & Company also calculated the implied per share valuation of Servico based upon the estimated 1998 EBITDA for Servico and based upon the multiple of enterprise value to estimated 1998 EBITDA for the Comparables Group. This analysis yielded an implied per share valuation for Servico of $24.61, representing a premium of 38.7% to the $17.75 market price of Servico Common Stock on March 18, 1998. Allen & Company also noted that the enterprise value of Servico as a multiple of total hotel rooms was estimated to be $41,812, representing 56% of the replacement value per room. No company used in the comparable company analyses summarized above is identical to Impac or Servico, and no transaction used in the comparable transaction analysis summarized above is identical to the Merger. Accordingly, any such analysis of the value of the consideration to be received by the holders of Impac Units pursuant to the Merger involves complex considerations and judgments concerning differences in the potential financial and operating characteristics of the comparable companies and transactions and other factors in relation to the trading and acquisition values of the comparable companies. -39- 58 The preparation of a fairness opinion is not susceptible to partial analysis or summary description. Allen & Company believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the processes underlying the analysis set forth in its opinion. Allen & Company has not indicated that any of the analyses which it performed had a greater significance than any other. In determining the appropriate analyses to conduct and when performing those analyses, Allen & Company made numerous assumptions with respect to industry performance, general business, financial, market and economic conditions and other matters, many of which are beyond the control of Impac or Servico. The analyses which Allen & Company performed are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Allen & Company's analysis of the fairness, from a financial point of view, of the Impac Exchange Ratio to the holders of Impac Units. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future. Allen & Company's opinion does not constitute a recommendation with respect to whether any unitholder of Impac should, upon the consummation of the Merger, continue its investment in the Lodgian Common Stock received as consideration in the Merger or sell such shares of Lodgian Common Stock immediately or at any time. Allen & Company did not specifically analyze the impact on any individual holder of Impac Units of continuing its investment in the Lodgian Common Stock after the Merger because it is believed that Impac unitholders would make such decision only after careful consideration of their respective tax consequences affecting such decision. Allen & Company is a nationally recognized investment banking firm that is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Impac retained Allen & Company based on such qualifications as well as its familiarity with Impac. In addition, as a part of its investment banking and securities trading business, Allen & Company may hold positions in and trade in the securities of Servico from time to time. Impac entered into a letter agreement with Allen & Company as of March 19, 1998 (the "Engagement Letter"), pursuant to which Allen & Company agreed to act as Impac's financial advisor in connection with the Merger and to render an opinion as to the fairness from a financial point of view of the Impac Exchange Ratio to the holders of the Impac Units. Pursuant to the Engagement Letter, Impac agreed to pay Allen & Company a fee of $350,000 earned upon the delivery of its oral fairness opinion to the Manager and payable upon the earlier to occur of July 1, 1998 and the closing of the Merger and $1,900,000 earned and payable upon the closing of the Merger. Whether or not the Merger is consummated, Impac has agreed, pursuant to the Engagement Letter, to reimburse Allen & Company for all its reasonable out-of-pocket expenses, including the fees and disbursements of its counsel, incurred in connection with its engagement by Impac and to indemnify Allen & Company against certain liabilities and expenses in connection with its engagement. Pursuant to the Engagement Letter, if the Merger is not consummated, Impac shall pay to Allen & Company $750,000 if Impac receives a termination fee and $500,000 if Impac receives an expense reimbursement (but not a termination fee), subject in each case for a credit for any portion of the $350,000 which theretofore may have been paid to Allen & Company with respect to Allen & Company's submission of its fairness opinion. If Impac does not consummate the Merger in contemplation of, or due to, Impac's entering into an alternative business combination transaction with a party other than Servico (a "Third Party"), and either (a) Impac enters, at any time, into such alternative transaction or (b) Impac enters, within 120 days of the termination of the Merger Agreement, into an alternative transaction with a party other than the Third Party, then Impac shall pay to Allen & Company in cash a full investment banking fee with respect to such alternative transaction payable upon the closing of such transaction. Impac and Allen & Company have agreed to negotiate a mutually agreeable fee in respect thereof. -40- 59 CAUTIONARY STATEMENT REGARDING IMPAC PROJECTED FINANCIAL INFORMATION. Impac does not make, as a matter of course, public forecasts or projections as to future performance or earnings. However, in connection with ongoing budgetary and financing activities, management of Impac periodically prepares projections for internal use. Certain of such projections relating to Impac were provided to Allen & Company and Lehman Brothers in connection with the Merger. Such projections were not prepared for, or with a view toward, dissemination to the public. SUCH PROJECTIONS WERE NOT PREPARED IN ACCORDANCE WITH PUBLISHED GUIDELINES OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OR THE SEC REGARDING PROJECTIONS AND FORECASTS, NOR HAVE SUCH PROJECTIONS BEEN AUDITED, EXAMINED OR OTHERWISE REVIEWED BY INDEPENDENT PUBLIC AUDITORS OF IMPAC. In addition, such projections are based upon a variety of assumptions and estimates and are inherently subject to significant economic and competitive uncertainties and contingencies, many of which are beyond the control of management of Impac. Accordingly, actual results may be materially higher or lower than those projected. The inclusion of such projections herein should not be regarded as a representation by Impac, Servico or Lodgian or any other person that the projections will prove to be correct. None of Lehman Brothers, Allen & Company or any party to whom any of these projections were provided assumes any responsibility for the accuracy of such information. MATERIAL FEDERAL INCOME TAX CONSEQUENCES In the opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. ("Stearns Weaver"), counsel to Servico, and Powell, Goldstein, Frazer & Murphy LLP ("Powell Goldstein"), counsel to Impac and the Impac Affiliated Companies, the following is a discussion of the material federal income tax consequences of the Merger and is based on the Code, the regulations promulgated thereunder, existing administrative interpretations and court decisions. Future legislation, regulations, administrative interpretations or court decisions could significantly change such authorities either prospectively or retroactively. The discussion does not address all aspects of federal income taxation that may be important to a shareholder or unitholder in light of such shareholder's or unitholder's particular circumstances or to shareholders or unitholders subject to special rules, such as shareholders or unitholders who are not citizens or residents of the United States, financial institutions, tax-exempt organizations, insurance companies, dealers in securities or shareholders or unitholders who acquired their shares of Servico or of one of the Impac Affiliated Companies, or Impac Units pursuant to the exercise of options or similar derivative securities or otherwise as compensation. This discussion assumes that Servico or any Impac Affiliated Company shareholders and Impac unitholders hold their respective shares of stock or units as capital assets within the meaning of Section 1221 of the Code. In the opinion of Stearns Weaver, the Servico Merger will (a) qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code and (ii) Lodgian and Servico will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code with respect to the Servico Merger. In the opinion of Powell Goldstein, each of the Impac Affiliated Companies Mergers, except the IHD Merger, will (a) qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code and (b) Lodgian and each of the Impac Affiliated Companies will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code with respect to the Impac Affiliated Companies Mergers; and that the Impac Merger and the IHD Merger (x) will be considered part of an integrated plan that includes the Servico Merger and, as such, (y) the exchange of Impac Units by the Impac Unitholders and IHD Common Stock by IHD shareholders for Lodgian Common Stock will be considered to be a transfer to a controlled corporation within the meaning of Section 351(a) of the Code. The opinions of counsel are based, in part, upon certain covenants, assumptions, and representations contained in certificates of officers of Servico, Impac and Impac Affiliated Companies. In addition, it is a condition to the obligations of Servico and Impac under the Merger Agreement that the companies receive similar opinions as of the date the Merger is consummated. Neither Servico nor Impac intends to secure a ruling from the Internal Revenue Service (the "IRS") with respect to the tax consequences of the Merger. Servico, Impac and the Impac Affiliated Companies believe, based on the -41- 60 opinions of Stearns Weaver and Powell Goldstein, that the Merger will have the federal income tax consequences discussed below. The opinions of counsel to be delivered on the date the Merger is consummated will assume the absence of changes in existing facts and may rely on assumptions, representations and covenants including those contained in certificates of officers of Servico, Impac, Impac Affiliated Companies and others. The tax opinions neither bind nor preclude the IRS from adopting a contrary position. Rather, an opinion of counsel only sets forth such counsel's legal judgment and has no binding effect or official status of any kind, and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court if the issues are litigated. Further, it must be emphasized that Stearns Weaver's and Powell Goldstein's opinions each will be based upon certain assumptions and will be conditioned upon certain representations as to factual matters made by the managements of Servico, Impac, and Impac Affiliated Companies, including assumptions and representations regarding the operations of Lodgian and the new ownership of Lodgian's Common Stock by Servico's and Impac Affiliated Companies' shareholders and Impac's unitholders after the Merger. In the event that the representations are inaccurate or the assumptions upon which the opinions are based prove incorrect, the opinions could be rendered invalid. Copies of Stearns Weaver's and Powell Goldstein's opinions will be transmitted promptly without charge to Servico shareholders and Impac Members, respectively, upon written request, to: In the case of Servico: In the case of Impac: Charles M. Diaz, Secretary Robert M. Cole, Manager Servico, Inc. Two Live Oak Center 1601 Belvedere Road 3445 Peachtree Road, N.E., Suite 700 West Palm Beach, Florida 33406 Atlanta, Georgia 30326 TAX IMPLICATIONS TO SERVICO SHAREHOLDERS AND IMPAC UNITHOLDERS. In general, (a) no gain or loss will be recognized for federal income tax purposes by holders of Servico or Impac Affiliated Companies Common Stock or Impac Units who exchange their Servico or Impac Affiliated Companies Common Stock or Impac Units for Lodgian Common Stock pursuant to the Merger except, as discussed below, to the extent that an Impac unitholder's allocable share of Impac indebtedness exceeds such unitholder's adjusted basis in his Impac Units at the time of the Merger and except to the extent of cash received in lieu of fractional shares, and (b) the aggregate tax basis of Lodgian Common Stock received by a shareholder or unitholder as a result of the Merger will be the same as the shareholder's or unitholder's adjusted tax basis in the Servico or Impac Affiliated Companies Common Stock or Impac Units surrendered in the Merger (reduced by any such tax basis allocable to fractional shares for which cash is received). The holding period of the Lodgian Common Stock held by each former Servico or Impac Affiliated Companies shareholder or Impac unitholder as a result of the Merger will include the period during which such shareholder or unitholder held the Servico or Impac Affiliated Companies Common Stock or Impac Units exchanged. If a shareholder or unitholder has differing bases and/or holding periods in respect of its shares of Servico or Impac Affiliated Companies Common Stock or Impac Units, he should consult his own tax advisor prior to the Merger with regard to identifying the bases and/or holding periods of the particular shares of Lodgian Common Stock received in the Merger. Cash received by a holder of Impac Units or shareholders of Impac Affiliated Companies in lieu of a fractional share interest in Lodgian Common Stock will result in the recognition of gain or loss for federal income tax purposes, measured by the difference between the amount of cash received and the portion of the tax basis of a share of an Impac Unit allocable to such fractional share interest. Such gain or loss will be capital gain or loss and will be long-term capital gain or loss if such Impac Unit has been held for more than one year at the Effective Time. As stated above, an Impac unitholder will recognize gain as a result of the Impac Merger if the unitholder's allocable share of Impac indebtedness immediately prior to the Impac Merger exceeds such unitholder's adjusted basis in his Impac Units at such time. Lodgian will advise Impac unitholders in writing by mail of their allocable share of Impac indebtedness, together with all other information required to file their tax returns within the time period required by the Code and the regulations promulgated thereunder. The amount of such gain will be equal to the excess of such share of allocable indebtedness over such unitholder's basis in his Units. For example, if an Impac unitholder's allocable share of Impac indebtedness immediately prior to the Impac Merger is $45,000 and the unitholder's basis in his Impac Units is $30,000 at such time, then the Impac unitholder will recognize gain equal to -42- 61 $15,000 (the excess of $45,000, the unitholder's allocable share of indebtedness, over $30,000, the unitholder's basis in the Impac units) as a result of the Merger. A determination of the amount of gain that might be recognized by an Impac unitholder as a result of the Merger cannot be made with complete accuracy prior to the Merger because each unitholder's allocable share of Impac indebtedness as of the time of the Merger cannot be determined currently. The most recent determination of each unitholder's allocable share of Impac indebtedness was made as of December 31, 1997, and was reported to the unitholders on the 1997 IRS Schedule K-1 issued to the unitholders by Impac. In addition, an Impac unitholder's basis is a determination that must be made by each unitholder and cannot be made by Impac. A unitholder, most likely, would have needed to determine his basis in his Units in connection with the preparation of his federal 1997 income tax return. In order for a unitholder to determine his basis in his Impac Units at the time of the Merger, the unitholder would need to adjust his basis, if so determined as of December 31, 1997, for his allocable share of Impac income or loss for the period January 1, 1998 through the date of the Merger, distributions made to the unitholder by Impac during such period, and for such other items as may be taken into account in determining a unitholder's basis in his Impac units. The character of such gain will be capital gain, assuming that an Impac unitholder holds his Impac Units as a capital asset, except to the extent that the gain is attributable to unrealized receivables (including depreciation recapture gain, if any, computed as if Impac had sold its properties at their fair market values) and inventory items of Impac, which gain will be taxed as ordinary income. In addition, an Impac unitholder will not need to compute the amount of gain recognized in connection with the Merger separately with respect to each block of Impac Units exchanged in the Merger, even if the unitholder acquired the Impac Units in separate transactions and would have a different basis with respect to each set of Impac Units so acquired. A member that holds more than one interest in a limited liability company that is treated as a partnership for federal income tax purposes is considered to have a single interest in the entity, with a basis in the interest equal to the aggregate of the bases of all the individual interests in the limited liability company, for purposes of computing any gain recognized with respect to such member's allocable share of limited liability company indebtedness that is in excess of basis. Any gain recognized by an Impac unitholder that is capital gain will be considered long-term capital gain, taxed at a maximum federal rate of 28%, so long as the Impac unitholder has held his Impac Units for more than one (1) year. If the Impac unitholder has held his Impac units for more than 18 months, any capital gain recognized by the Impac unitholder will be subject to the maximum federal capital gains tax rate of 20%. Any gain recognized that is other than long-term capital gain will be taxed at federal income tax rates of up to 39.6%. BACKUP WITHHOLDING. Unless a holder or unitholder complies with certain reporting and certification procedures or is an "exempt recipient" (i.e., in general, corporations and certain other entities), the holder may be subject to withholding tax of 31% with respect to any cash payments received pursuant to the Merger. TAX IMPLICATIONS TO LODGIAN, SERVICO, IMPAC, IMPAC AFFILIATED COMPANIES, SERVICO MERGER SUB AND IMPAC MERGER SUB. No gain or loss will be recognized for federal income tax purposes by Lodgian, Servico, Impac, Impac Affiliated Companies, Servico Merger Sub or Impac Merger Sub as a result of the formation of either Lodgian, Servico Merger Sub or Impac Merger Sub or as a result of the Merger. THE DISCUSSION SET FORTH ABOVE UNDER "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY, AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. IN ADDITION, THE FOREGOING DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER. THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE MERGER. ACCORDINGLY, EACH SHAREHOLDER OR UNITHOLDER IS STRONGLY URGED TO CONSULT WITH SUCH SHAREHOLDER'S OR UNITHOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER OR UNITHOLDER. -43- 62 ACCOUNTING TREATMENT Lodgian will account for the Merger by the purchase method of accounting under generally accepted accounting principles ("GAAP"). Under GAAP, Servico is the accounting acquirer with Lodgian being the successor in interest to Servico. Servico's values will be carried over to Lodgian and the excess of Servico's cost of acquisition of Impac over the fair value of Impac's assets and liabilities to be acquired in the Merger, if any, will be recorded as goodwill and amortized over a period not to exceed 40 years. It is anticipated that upon consummation of the Merger, the fiscal year of Lodgian will be the calendar year. ANTI-TRUST APPROVAL Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules promulgated thereunder by the Federal Trade Commission (the "FTC"), the Merger may not be consummated until notifications have been given and certain information has been furnished to the FTC and the Antitrust Division of the United States Department of Justice (the "Antitrust Division") and specified waiting period requirements have been satisfied. Servico and Impac filed notification and report forms under the HSR Act with the FTC and the Antitrust Division on May 29, 1998 and on June 28, 1998 the above-referenced waiting period expired. The Antitrust Division nevertheless has the authority to challenge the Merger on antitrust grounds before or after the Merger is completed. NO APPRAISAL RIGHTS Holders of Servico Common Stock, Impac Affiliated Company Common Stock and Impac Units are not entitled to appraisal rights in connection with the Merger under applicable state laws. STOCK EXCHANGE LISTING Lodgian will file an application to list the shares of Lodgian Common Stock to be issued in connection with the Merger on the NYSE, subject to approval of the Merger Agreement by Servico's shareholders and Impac's unitholders and official notice of issuance. It is anticipated that the shares of Lodgian Common Stock will be traded on the NYSE under the ticker symbol "LOD" or another symbol selected by Lodgian. DELISTING AND DEREGISTRATION OF SERVICO COMMON STOCK If the Merger is consummated, the shares of Servico Common Stock will be delisted from the NYSE and will be deregistered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). SECURITIES LAW RESTRICTIONS The shares of Lodgian Common Stock to be issued to shareholders of Servico, shareholders of the Impac Affiliated Companies and unitholders of Impac in connection with the Merger have been registered under the Securities Act of 1933, as amended (the "Securities Act"). All shares of Lodgian Common Stock received by holders of Servico Common Stock, Impac Affiliated Company Common Stock and Impac Units upon consummation of the Merger will be freely transferable under the Securities Act, except for such shares of Lodgian Common Stock received by persons who are deemed to be "Affiliates" of Servico, any Impac Affiliated Company or Impac, respectively, for purposes of Rule 145 under the Securities Act at the time of the Servico Annual Meeting and the effective date of the consent of the Impac unitholders, as the case may be. "Affiliates" are generally defined as persons who control, are controlled by, or are under common control with, Servico, any Impac Affiliated Company or Impac, as the case may be (generally, certain executive officers, directors and principal shareholders or unitholders). -44- 63 Shares of Lodgian Common Stock acquired by Affiliates in connection with the Merger may be resold by such Affiliates only in transactions permitted under Rule 145 or as otherwise permitted under the Securities Act. In general, under Rule 145, for two years following the Effective Time, an Affiliate (together with certain related persons) would be entitled to sell shares of Lodgian Common Stock acquired in connection with the Merger only through unsolicited "broker transactions" or in transactions directly with a "market maker," as such terms are defined in Rule 144 under the Securities Act. Additionally, the number of shares to be sold by an Affiliate (together with certain related persons and certain persons acting in concert) within any three-month period for purposes of Rule 145 may not exceed the greater of one percent of the outstanding shares of Lodgian Common Stock or the average weekly trading volume of such stock during the four calendar weeks preceding such sale. Rule 145 would only remain available, however, to Affiliates if Lodgian remained current with its informational filings with the SEC under the Exchange Act. Two years after the Effective Time, an Affiliate would be able to sell his shares without any restrictions so long as such Affiliate had not been an Affiliate of Lodgian for at least three months prior thereto. Impac has agreed in the Merger Agreement to use its best efforts to deliver or cause to be delivered to Servico a letter executed by each person identified as an Affiliate of Impac and each other person, who may be deemed an Affiliate of Impac. Lodgian will place a legend on the certificates representing shares of its Common Stock received by such person in the Merger, to the effect that such shares may be sold, transferred or conveyed only in accordance with Rule 145(d), pursuant to an effective registration statement under the Securities Act, or pursuant to an exemption from registration under the Securities Act and such legend may be placed on the certificates regardless of whether such person has executed and delivered a letter to Servico or Impac. Lodgian will also be entitled to issue stop transfer instructions to its transfer agent in accordance with the restrictions set forth on such legends. Such restrictions will apply to all purported sales, transfers or conveyances of shares of Lodgian Common Stock received in exchange for Servico Common Stock or Impac Units by such persons. In connection with the above, Lodgian will grant certain "piggy-back" registration rights pursuant to a Registration Rights Agreement to those unitholders of Impac and shareholders of the Impac Affiliated Companies who receive Lodgian Common Stock in the Merger and who (i) as a result of the Merger, become subject to the restrictions on the sale of such Lodgian Common Stock pursuant to Rule 145 discussed above and (ii) would be prohibited from selling, over a 12 month period, all of their respective shares of Lodgian Common Stock received in the Merger by virtue of the volume limitations set forth in Rule 145. See "The Merger Agreement -- Registration Rights Agreement." THE FOLLOWING DESCRIPTION OF CERTAIN TERMS OF THE MERGER AGREEMENT IS ONLY A SUMMARY DESCRIBING THE MATERIAL TERMS OF SUCH AGREEMENT BUT DOES NOT PURPORT TO BE COMPLETE. THE FOLLOWING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX A AND INCORPORATED BY REFERENCE HEREIN. CAPITALIZED TERMS USED IN THIS SECTION AND NOT OTHERWISE DEFINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE MERGER AGREEMENT. THE MERGER AGREEMENT GENERAL Servico has formed Lodgian and Servico Merger Sub and Impac Merger Sub as wholly-owned subsidiaries of Lodgian. The Merger Agreement contemplates the merger of Servico Merger Sub with and into Servico, with Servico being the surviving entity, and the merger of Impac Merger Sub with and into Impac, with Impac being the surviving entity and the merger of each of the Impac Affiliated Subs into the respective Impac Affiliated Companies, with each of the Impac Affiliated Companies being the surviving entity. The Merger will become effective upon the filing of Articles or Certificates of Merger relating to each of the various mergers with the Secretary of State of the State of incorporation or organization of the -45- 64 merger entities or at such later time as may be set forth in such documents. At the Effective Time, Servico, Impac and each of the Impac Affiliated Companies will become wholly-owned subsidiaries of Lodgian. CONSIDERATION TO BE RECEIVED IN THE MERGER At the Effective Time: (a) each issued and outstanding share of Servico Common Stock (excluding shares owned by Impac or any wholly-owned subsidiary of Servico or Impac, but including any shares held by any Servico employee benefit plan) and all rights in respect thereof, will be converted into one share of Lodgian Common Stock; (b) each issued and outstanding Impac Unit (excluding Impac Units owned by Servico, Holdings, any Impac Affiliated Company or any wholly-owned subsidiary of Servico or Impac), and all rights in respect thereof, will be converted into a certain number of shares of Lodgian Common Stock equal to the quotient of (i) the difference between 6,099,347.79 (the "Impac Base Number") and 1,153,930.66 divided by (ii) the number of outstanding Impac Units (excluding Impac Units owned by Servico, Holdings, any Impac Affiliated Company or any wholly-owned subsidiary of Servico or Impac); provided, however, that if the average of the closing sale prices per share of Servico Common Stock on the NYSE over the ten consecutive trading periods preceding the date on which all conditions precedent to the Merger have been satisfied (the "Trading Period Average") is (i) less than $14.00 per share, the Impac Base Number will be equal to the product of the Impac Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, or (ii) greater than $25.00 per share, the Impac Base Number will be equal to the product of the Impac Base Number and a fraction, the numerator of which $25.00 and the denominator of which is the Trading Period Average (such ratio of Impac Units to shares of Lodgian Common Stock being referred to as the "Impac Exchange Ratio"); (c) each issued and outstanding share of P-Burg Common Stock and all rights in respect thereof, will be converted into a certain number of shares of Lodgian Common Stock equal to the quotient of (i) the difference between 135,580.25 (the "P-Burg Base Number") and 25,650.32 divided by (ii) the number of outstanding shares of P-Burg Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the P-Burg Base Number shall be equal to the product of the P-Burg Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the P-Burg Base Number shall be equal to the product of the P-Burg Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average; (d) each issued and outstanding share of Hazard Common Stock and all rights in respect thereof will be converted into a certain number of shares of Lodgian Common Stock equal to the quotient of (i) the difference between 71,358.72 (the "Hazard Base Number") and 13,500.30 divided by (ii) the number of outstanding shares of Hazard Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the Hazard Base Number shall be equal to the product of the Hazard Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the Hazard Base Number shall be equal to the product of the Hazard Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average; -46- 65 (e) each issued and outstanding share of Memphis Common Stock and all rights in respect thereof will be converted into a certain number of shares of Lodgian Common Stock equal to the quotient of (i) the difference between 98,382.79 (the "Memphis Base Number") and 18,612.96 divided by (ii) the number of outstanding shares of Memphis Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the Memphis Base Number shall be equal to the product of the Memphis Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the Memphis Base Number shall be equal to the product of the Memphis Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average; (f) each issued and outstanding share of Delk Common Stock and all rights in respect thereof will be converted into a certain number of shares of Lodgian Common Stock equal to the quotient of (i) the difference between 46,997.66 (the "Delk Base Number") and 8,891.45 divided by (ii) the number of outstanding shares of Delk Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the Delk Base Number shall be equal to the product of the Delk Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the Delk Base Number shall be equal to the product of the Delk Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average; (g) each issued and outstanding share of IHD Common Stock and all rights in respect thereof will be converted into a certain number of shares of Lodgian Common Stock equal to the quotient of (i) the difference between 820,663.73 (the "IHD Base Number") and 155,260.71 divided by (ii) the number of outstanding shares of IHD Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the IHD Base Number shall be equal to the product of the IHD Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the IHD Base Number shall be equal to the product of the IHD Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average; (h) each issued and outstanding share of IDC Common Stock and all rights in respect thereof will be converted into a certain number of shares of Lodgian Common Stock equal to the quotient of (i) the difference between 47,875.89 (the "IDC Base Number") and 9,057.60 divided by (ii) the number of outstanding shares of IDC Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the IDC Base Number shall be equal to the product of the IDC Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the IDC Base Number shall be equal to the product of the IDC Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average; (i) each issued and outstanding share of IHG Common Stock and all rights in respect thereof will be converted into a certain number of shares of Lodgian Common Stock equal to the quotient of (i) the difference between 79,793.17 (the "IHG Base Number") and 15,096.00 divided by (ii) the number of outstanding shares of IHG Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the IHG Base Number shall be equal to the product of the IHG Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the IHG Base Number shall be equal to the product of the IHG Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average; The sum of the Impac Base Number, the P-Burg Base Number, the Hazard Base Number, the Memphis Base Number, the Delk Base Number, the IHD Base Number, the IDC Base Number and the IHG Base Number shall be referred to as the "Base Number." -47- 66 Additionally, (a) each share of Servico Common Stock owned by Impac or any wholly-owned subsidiary of Servico or Impac and each Impac Unit owned by Servico, Holdings, any Impac Affiliated Company or any wholly-owned subsidiary of Servico or Impac will be canceled and retired; (b) each share of Lodgian Common Stock held by Servico will be canceled and retired, (c) each Class B Ordinary Membership Interest of Impac (the "Class B Interest") will be canceled and retired, and (d) each outstanding and unexercised option or warrant granted by Servico to purchase shares of Servico Common Stock immediately prior to the Effective Time will be assumed by Lodgian and converted into an option or warrant to purchase shares of Lodgian Common Stock. See "Interests of Certain Persons in the Merger -- Arrangements with Executive Officers." Additionally, upon the opening of five of Impac's hotels currently under development, the Impac unitholders and the Impac Affiliated Company shareholders will receive as an "earn-out" the Impac Additional Shares as described below. A pro rated portion of the Impac Additional Shares will be issued following the opening of each development hotel. Certificates representing the Impac Additional Shares will be delivered at the closing date of the Merger to the exchange agent, which is appointed by Lodgian to effect the exchange of Servico Common Stock, Impac Affiliated Company Common Stock and Impac Units for Lodgian Common Stock (the "Exchange Agent"), as escrow agent, to be held and delivered to the former holders of Impac Units and former shareholders of the Impac Affiliated Companies upon the opening of Impac's hotels. The escrow agreement will provide for the Impac Additional Shares to be released from escrow from time to time upon the opening of each hotel (the "Milestone Date") in accordance with the following schedule: (i) Marriott, Portland, Oregon - 490,000 shares; (ii) Marriott, Denver, Colorado - 350,000 shares; (iii) Hilton Garden Inn, Lake Oswego, Oregon - - 238,000 shares; (iv) Courtyard by Marriott, Livermore, California - 168,000 shares; and (v) Hilton Garden Inn, Rio Rancho, New Mexico - 154,000 shares. Assuming that there is no adjustment of the Base Number of Shares to be issued, the following table reflects the shares of Lodgian common stock to be issued in connection with the Merger to each holder of an Impac Unit and each holder of one share of Servico Common Stock:
UPON OPENING EACH OF THE DEVELOPMENT HOTELS LODGIAN ANTICIPATED SHARES UPON COMPLETION NUMBER MERGER NAME OF HOTEL DATE OF SHARES ----------- ------------- ----------- --------- Servico Common Stock 1 N/A N/A 0 --- Impac Unit Total Upon Merger 0.519 Marriott, Portland, OR 1st Quarter 1999 0.042 Marriot, Denver, CO 4th Quarter 1998 0.030 Hilton Garden Inn, Lake 4th Quarter 1999 0.021 Oswego, OR Courtyard by Marriott, 1st Quarter 1999 0.015 Livermore, CA Hilton Garden Inn, Rio 1st Quarter 1999 0.013 Rancho, NM Total Upon Opening of Development Hotels 0.121 Impac Total 0.640
-48- 67 If the Trading Period Average of Servico Common Stock is less than $14.00 or more than $25.00, the Base Number of Lodgian shares will be adjusted. If the Trading Period Average is less than $14.00 per share, the Base Number will be determined by dividing $103.6 million by the Trading Period Average. If the Trading Period Average is more than $25.00 per share, the Base Number will be determined by dividing $185 million by the Trading Period Average. The following table reflects the affect on the Impac Exchange Ratio of an adjustment of the Base Number at selected Trading Period Averages assuming the full release of all Impac Additional Shares (0.121 Lodgian Shares per Unit). TRADING LODGIAN SHARES PERIOD AVERAGE UPON MERGER -------------- -------------- $13.00 0.689 $13.25 0.676 $13.50 0.664 $13.75 0.652 $14.00-25.00 0.640 $25.25 0.634 $25.50 0.628 $25.75 0.621 $26.00 0.615 EXCHANGE OF SHARES Subject to the terms and conditions of the Merger Agreement, at or prior to the Effective Time, an Exchange Agent will be appointed by Lodgian to effect the exchange of certificates representing the Servico Common Stock, Impac Affiliated Company Common Stock and the Impac Units for certificates representing shares of Lodgian Common Stock. Lodgian will from time to time deposit certificates representing shares of Lodgian Common Stock with the Exchange Agent for the conversion of shares as described above in "--Consideration to be Received in the Merger." Commencing immediately after the Effective Time and until the appointment of the Exchange Agent shall be terminated, each holder of Servico Common Stock, Impac Affiliated Company Common Stock or Impac Units may submit his or her certificates to the Exchange Agent (or directly to Lodgian if the appointment of the Exchange Agent has been terminated), together with a duly signed letter of transmittal. In exchange for such share certificates, each holder will receive certificates representing the number of shares of Lodgian Common Stock to which such holder is entitled. All such shares of Lodgian Common Stock will be deemed to have been issued at the Effective Time; provided, however, that the Impac Additional Shares will not be deemed to be issued or outstanding until issuable on the applicable Milestone Date. Until their shares are surrendered, holders of unexchanged shares of Servico Common Stock, Impac Affiliated Company Common Stock or Impac Units will not be entitled to receive any dividends or other distributions payable by Lodgian. Upon surrender, however, subject to applicable laws, such holders will receive accumulated dividends and distributions, without interest. No fractional shares of Lodgian Common Stock will be issued to holders of Servico Common Stock, Impac Affiliated Company Common Stock or Impac Units. For each fractional share that would otherwise be issued, the Exchange Agent will pay to holders of Servico Common Stock, Impac Affiliated Company Common Stock and Impac Units an amount equal to either (a) a pro rata portion of the proceeds of the sale by the Exchange Agent of shares of Lodgian Common Stock representing the aggregate of all such fractional shares, such sale to be executed by the Exchange Agent at then prevailing prices on the NYSE, as promptly after the Effective Time (or Milestone -49- 68 Date, as applicable) as, in the Exchange Agent's reasonable judgment, is consistent with obtaining the best execution of such sales in light of prevailing market conditions, or (b) at the option of Servico, an amount equal to the product obtained by multiplying (i) the fractional share interest to which such holder would otherwise be entitled (after taking into account all shares of Servico Common Stock, Impac Affiliated Company Common Stock and the Impac Units held at the Effective Time by such holder) by (ii) the closing price for a share of Lodgian Common Stock on the NYSE Composite Transaction Tape on the first business day immediately following the Effective Time or the applicable Milestone Date, as the case may be. LODGIAN FOLLOWING THE MERGER HEADQUARTERS. The Restated Bylaws of Lodgian provide that the initial headquarters of Lodgian will be located in Atlanta, Georgia. BOARD. The Merger Agreement provides that, at the Effective Time, the Lodgian Board will consist of eight members (unless otherwise agreed to in writing by Servico and Impac), five of whom will be Servico Directors, two of whom will be Impac Directors, and one of whom will be selected by both Impac and Servico. The term "Servico Director" means any person who is designated by Servico to become a director of Lodgian at the Effective Time in accordance with the terms of the Merger Agreement, and the term "Impac Director" means any person who is designated by Impac to become a director of Lodgian at the Effective Time. The Lodgian Board will be divided into three classes, designated as Class I, Class II and Class III. The initial directors of Lodgian and initial allocations of the directors among the three classes is as follows: (a) Class I will consist of two directors, comprised of Peter R. Tyson, a Servico Director, and one director selected by both Servico and Impac; (b) Class II will consist of three directors, comprised of two Servico Directors, Joseph C. Calabro and Michael Leven, and one Impac Director, John Lang; and (c) Class III will consist of three directors, comprised of David A. Buddemeyer and Richard H. Weiner, both of whom are Servico Directors, and Robert S. Cole, an Impac Director. Such directors shall serve as the directors of Lodgian from and after the Effective Time in accordance with the Restated Certificate and Restated Bylaws of Lodgian until their successors are elected or appointed and qualified or until their resignation or removal. In the event that, prior to the Effective Time, any person so selected to serve on the Board of Directors of Lodgian is unable or unwilling to serve in such position, the company that selected such person shall designate another person to serve in such person's stead. From and after the Effective Time, the composition of the Board of Directors shall be determined in accordance with the Restated Certificate and Restated Bylaws of Lodgian. EXECUTIVE OFFICERS. At the Effective Time, subject to the Bylaws of Lodgian and each of the Surviving Entities, (i) David A. Buddemeyer will hold the position of Chief Executive Officer of Lodgian and each of the Surviving Entities, (ii) Robert S. Cole will hold the position of President of Lodgian and each of the Surviving Entities, and (iii) David Buddemeyer and Robert Cole will hold the positions of Co-Chairmen of the Board of Directors of Lodgian and each of the Surviving Entities. If any of such persons is unable or unwilling to hold such offices as set forth above, his successor shall be selected by the Board of Directors of Lodgian or the Surviving Entities in accordance with their respective Bylaws. FUTURE OPERATIONS. As indicated in the Pro Forma Combined Condensed Consolidated Financial Information, it is anticipated that as a result of the Merger each of Impac and Servico will be part of a combined company with increased revenues, increased expenses and increased indebtedness. Assuming no savings associated with the elimination of duplicative functions or from operating synergies, the combined company would have recognized income before extraordinary items of approximately $8.5 million for the year ended 1997 and income before extraordinary items of approximately $47,000 for the quarter ended March 31, 1998. As discussed throughout this Joint Proxy Statement/Prospectus, Servico and Impac anticipate that their liquidity and capital resources will be improved as a consequence of the Merger by virtue of the greater geographic diversity of the combined company's properties and by its increased revenues and size. See "Risk Factors-Risks Associated with High Levels of Debt," "The Merger-Reasons for the Merger; Negative Considerations and Potential Disadvantages of the Merger; Recommendation of Servico's Board and Impac's Manager;" and "Lodgian, Inc. Unaudited Pro Forma Combined Consolidated Financial Statements". -50- 69 DIVIDENDS. Pursuant to the Restated Bylaws of Lodgian, dividends will be declared only out of any assets or funds of Lodgian legally available for the payment of dividends at such times as the Lodgian Board directs. It is currently anticipated that Lodgian will retain future earnings for business use and does not expect to declare or pay any dividends in the foreseeable future. CERTAIN REPRESENTATIONS AND WARRANTIES The Merger Agreement contains certain representations and warranties of Servico, the Impac Affiliated Companies and Impac as to, among other things, due organization and good standing, capitalization, ownership of subsidiaries, corporate authority to enter into the contemplated transactions, the accuracy of recent reports filed by Servico with the SEC and the financial statements contained therein and of Impac, tax matters, regulatory matters, the absence of contractual defaults, title to real and personal property and condition of assets, the absence of material adverse changes or events, litigation, compliance with laws, environmental matters, required board, manager, shareholder and unitholder approvals, accounting matters and conflicts with organizational documents and material agreements. CERTAIN COVENANTS The Merger Agreement also provides that, prior to the Effective Time, Servico and Impac and their respective subsidiaries will, subject to specified exceptions, each conduct their respective businesses in the ordinary course consistent with past practices and will use all reasonable good faith efforts to preserve intact their business organization and goodwill in all material respects, to continuously maintain insurance coverage substantially equivalent to the insurance coverage in existence prior to the Effective Time and to preserve their present relationships with franchisors, licensors, distributors, suppliers and others with whom each has business relationships. Without limiting the foregoing, the Merger Agreement places specific restrictions on the ability of Impac and its subsidiaries to: (i) amend or otherwise change its Articles of Organization, Articles or Certificate of Incorporation, Operating Agreement, Bylaws or other charter documents; (ii) issue, sell or authorize for issuance or sale, any membership interests or shares of any class of its securities (including, but not limited to, by way of stock split or dividend) or other equity interests or any subscriptions, options, warrants, rights or convertible securities or enter into any agreements or commitments obligating it to issue or sell any such membership interests, securities or other equity interests; (iii) redeem, purchase or otherwise acquire, directly or indirectly, any of its membership interests or any shares of capital stock or other equity interests or any option, warrant or other right to purchase or acquire any such shares, membership interests or other equity interests or return all or any portion of any capital contributions; (iv) enter into any commitment or transaction (including, but not limited to, any capital expenditure or sale of assets), other than in the ordinary course of business consistent with past practices; provided, however, if the commitment or transaction involves the receipt (or potential receipt) or payment (or potential payment) of in excess of Five Hundred Thousand Dollars ($500,000), Servico's consent will be required; (v) create, incur or assume any indebtedness (including purchase money financing), except in the ordinary course of business consistent with past practices under an existing loan availability (but in no event in an aggregate amount exceeding Two Hundred Fifty Thousand Dollars ($250,000) more than is currently owed), and certain other identified indebtedness, or any lien, pledge, mortgage or other encumbrance affecting any of its assets; (vi) pay, discharge or satisfy claims, liabilities or obligations which involve payments or commitments to make payments which exceed normal business operating requirements, consistent with past practice; (vii) cancel any debts or waive any claims or rights other than immaterial debts or claims, in the ordinary course of business and consistent with past practice, of persons who would not be deemed affiliates of Impac or its subsidiaries; (viii) make any loans, advances or capital contributions to, or investments in financial instruments of, any person or entity other than capital contributions to subsidiaries of Impac consistent with past practices; (ix) assume, guarantee, endorse or otherwise become liable or responsible for the obligations of any other person or entity other than immaterial assumptions, guarantees or endorsements made in the ordinary course of business consistent with past practice in favor of persons who would not be deemed affiliates of Impac or its subsidiaries; (x) grant any increase in the compensation payable or pay any bonus to any of its managers, officers, employees, directors or consultants or establish, adopt or increase any bonus, insurance or other employee benefit plan, payment or arrangement made to or for any such persons other than increases in the compensations or bonuses payable to such persons other than Robert Cole or Robert -51- 70 Flanders in the ordinary course of business consistent with past practice; (xi) enter into any employment agreement or grant any severance or termination pay with or to any manager, officer or director or, except in the ordinary course of business, any employee; (xii) declare or pay any dividend or other distribution with respect to its membership interests or capital stock; (xiii) alter in any material way the manner of keeping its books, accounts or records or its accounting practices therein reflected; (xiv) enter into any agreement which would be a material agreement or arrangement or terminate or materially amend any existing material agreement or arrangement of Impac or its subsidiaries; (xv) enter into any indemnification, contribution or similar agreement requiring it to indemnify any other person or entity or make contributions to any other person or entity other than immaterial indemnification, contribution or similar agreements made in the ordinary course of business consistent with past practices with persons who would not be deemed affiliates of Impac or its subsidiaries; (xvi) do any act, or omit to do any act, or permit, to the extent within Impac's control, any act or omission to act which would cause a material violation or breach of any of the representations, warranties or covenants of Impac set forth in the Merger Agreement; (xvii) enter into any agreement or take any action which could have a material adverse effect on Impac (financial or otherwise, an "Impac Material Adverse Effect"); or (xviii) agree, whether in writing or otherwise, to do any of the foregoing. Prior to the Effective Time, the Impac Affiliated Companies are prohibited from conducting any business or commencing any operations other than the passive ownership of Impac Units. The Merger Agreement also places restrictions on the ability of Servico and its subsidiaries to: (i) do any act, or omit to do any act, or permit, to the extent within Servico's control, any act or omission to act which could cause a material violation or breach of any of the representations, warranties or covenants of Servico set forth in the Merger Agreement; (ii) enter into any agreement or take any action which could have a material adverse effect on Servico (financial or otherwise, a "Servico Material Adverse Effect"); (iii) enter into any commitment or transaction which would be dilutive to Servico's earnings per share in the fiscal year in which such transaction is consummated; (iv) enter into any commitment or transaction outside of the ordinary course of Servico's business requiring the payment of in excess of Two Million Dollars ($2,000,000) or create, incur or assume indebtedness in excess of Five Million Dollars ($5,000,000) other than in connection with or related to the acquisition, operation or renovation of hotel or hotel related properties; (v) issue or sell any shares of Servico Common Stock or securities convertible into Servico Common Stock other than either pursuant to or in connection with (A) options granted to directors or employees or shares issued pursuant to currently outstanding options or warrants and (B) transactions involving shares representing no more than ten percent (10%) of the outstanding Servico Common Stock; or (vi) agree, whether in writing or otherwise, to do any of the foregoing. If prior to the Effective Time, Servico determines to acquire hotels and related properties for an aggregate purchase price of more than One Hundred Million Dollars ($100,000,000) (excluding any hotels currently under contract such as the AMI Operating Partners, L.P. properties), then Servico shall promptly notify Impac. If Impac reasonably determines that such acquisitions will result in a material adverse effect or materially change the nature of Servico's operations, then Impac may exercise its right to terminate the Merger Agreement. See "The Merger Agreement -- Termination." Servico and Impac also have agreed to cooperate and consult with each other and will use their reasonable efforts to (i) take all reasonable action within their control to consummate the Merger, (ii) obtain any necessary consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained in connection with the authorization, execution and delivery of the Merger Agreement and consummation of the Merger, (iii) notify the other of the occurrence or threatened occurrence of any event that would either constitute a violation or breach of the Merger Agreement or cause any representation or warranty made by any party in the Merger Agreement to be false or misleading or any matter which would be required to be disclosed, (iv) refrain from disclosing any confidential or proprietary information with respect to the other party, (v) cause to be delivered to the other a "comfort" letter of each of Ernst & Young L.L.P. and PricewaterhouseCoopers LLP, (vi) prepare and file the Registration Statement on Form S-4 of Lodgian in connection with the registration under the Securities Act of the Lodgian Common Stock to be issued in the Merger and this Joint Proxy Statement/Prospectus and to call the meetings to vote upon the approval of the Merger Agreement and the Merger contemplated thereby, (vii) make all necessary filings and any additional submissions required under the rules or regulations of the NYSE, the Securities Act, the Exchange Act or any other applicable federal or state securities law, the HSR Act and any other applicable law, and (viii) obtain a -52- 71 release of any individuals from liability as guarantor of Impac's or its subsidiaries' obligations to third parties under franchise agreements and other related documentation and indemnify each such individual guarantor from and against any liability such guarantor may incur after the Effective Time under such guarantees as a result of Impac's or its subsidiaries' failure to satisfy its obligations under such franchise agreements or related documentation. Impac will cause the termination of a certain Development Agreement between Impac and IHD, dated March 10, 1998, prior to the closing date of the Merger so that Impac and its subsidiaries have no further obligation to IHD or its assigns of its rights under the agreement after such closing date, other than the payment of up to a 4% development fee (not to exceed $2.5 million in the aggregate) in the event and only in the event Lodgian acquires any of the twenty hotels or nine properties identified in the Merger Agreement as in Impac's acquisition pipeline. Impac will also cause all affiliates of Impac or its subsidiaries to cease using any and all tradenames, trademarks, logos or other names containing the word "Impac" or change its name to a name which does not use or include the name "Impac." The Merger Agreement provides that, prior to the Effective Time, Servico and Impac will use their reasonable efforts to obtain the approval for listing on the NYSE the shares of Lodgian Common Stock to be issued upon consummation of the Merger. RESTRICTIONS ON SOLICITATION OF ALTERNATIVE TRANSACTIONS The Merger Agreement provides that unless and until the Merger Agreement is terminated, neither Impac nor any Impac Affiliated Company will (nor will either permit any of its managers, officers, directors, agents or affiliates to) enter into a Competing Transaction (as defined below) and will not, directly or indirectly: (i) from the period commencing on the date of the Merger Agreement and ending on May 1, 1998 (unless required by law or an appropriate confidentiality agreement), disclose any non-public information or any other information not customarily disclosed to any person or entity concerning the business or assets, or afford to any person or entity (other than Servico and its designees) access to the books and records, of Impac or its subsidiaries; and (ii) after May 1, 1998 or such later date during which Servico is actively negotiating with any other third party with respect to any offer or proposal regarding a Change of Control (as defined below), solicit, encourage, initiate or participate in any negotiations or discussions with respect to any offer or proposal to enter into a Competing Transaction, or, except as required by law, disclose any nonpublic information or any other information not customarily disclosed to any person or entity concerning the business and assets of Impac and any Impac subsidiary, afford to any person or entity (other than Servico and its designees) access to the books or records of Impac or any Impac subsidiary or otherwise assist or encourage any person or entity in connection with any of the foregoing. In the event Impac shall receive or become aware of any offer or proposal of the type referred to in the foregoing sentence, Impac shall promptly inform Servico as to any such offer or proposal. The term "Competing Transaction" means the entering into by Impac of a binding agreement to sell all or substantially all of the business, assets, capital stock or Units of Impac or its subsidiaries, whether by merger, purchase of assets or otherwise. The term "Change of Control" means either (a) a consensual merger, consolidation, share exchange, business combination or similar consensual transaction pursuant to which any person, or any "group" (as defined under Section 13(d) of the Exchange Act) acquires more than 28% of the outstanding shares of Servico Common Stock or (b) a sale, lease, exchange, transfer or other disposition of all or substantially all of Servico's business in a single transaction or series of related transactions. CERTAIN BENEFITS MATTERS Except as specifically set forth in the Merger Agreement, the employee benefit plans of Servico and Impac covering employees or former employees in effect as of the Effective Time will remain in effect, subject to their terms, until Lodgian otherwise determines after the Effective Time. With respect to any Servico Plan or benefit plan of Lodgian under which the delivery of Servico Common Stock or Lodgian Common Stock, as the case may be, is required upon payment of benefits, grant of awards or exercise of options (the "Stock Plans"), Lodgian will take all corporate action necessary or appropriate to (i) obtain shareholder approval with respect to such plan to the extent such approval is required for purposes of the Code or other applicable law, or to enable such plan to comply with Rule 16b- 3 of the Exchange Act, (ii) reserve for issuance under such plan or otherwise provide a sufficient number of shares -53- 72 of Lodgian Common Stock for delivery upon payment of benefits, grant of awards or exercise of options under such plan and (iii) as soon as practicable after the Effective Time, file registration statements on Form S-3 or Form S-8, as appropriate (or any successor or other appropriate forms), with respect to the shares of Lodgian Common Stock subject to such plan to the extent such registration statement is required under applicable law. Lodgian will also reserve for issuance under the Lodgian 1998 Stock Incentive Plan that number of shares of Lodgian Common Stock which equals seven and one-half percent (7 1/2%) of the Base Number. Additionally, Mr. Cole will receive options to purchase two and one-half percent (2 1/2%) of the Base Number pursuant to his employment agreement with Lodgian. See "Interests of Certain Persons in the Merger." Such options will be granted to employees of Impac or its subsidiaries effective as of the closing date of the Merger Agreement and in the names and respective allocations determined by the Lodgian Board after consideration of recommendations from Robert Cole and the grants of stock options made to employees in comparable positions at Servico and its subsidiaries. With respect to those individuals who subsequent to the Merger will be subject to the reporting requirements under Section 16(a) of the Exchange Act, Lodgian will administer the Stock Plans, where applicable, in a manner that complies with Rule 16b-3 promulgated under the Exchange Act. INDEMNIFICATION AND INSURANCE After the Effective Time, Lodgian will, and will cause the Surviving Entities to, indemnify and hold harmless each present and former director, manager, member, officer and agent of Servico and Impac (the "Indemnified Parties"), against any costs or expenses (including attorneys' fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in settlement incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, to the fullest extent that Servico or Impac would have been permitted under Florida or Georgia law, as the case may be, and its articles of incorporation, articles of organization, operating agreement or bylaws in effect on the date hereof to indemnify such Indemnified Party (and Lodgian and the Surviving Entities will also advance expenses as incurred to the fullest extent permitted under applicable law, provided the Indemnified Party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Indemnified Party is not entitled to indemnification). For a period of six (6) years after the Effective Time, Lodgian will maintain or cause the Surviving Entities to maintain (to the extent available in the market) in effect a directors' and officers' liability insurance policy covering those persons who are currently covered by a Servico or Impac directors' and officers' liability insurance policy with coverage in amount and scope at least as favorable as Servico's or Impac's existing coverage; provided, however, in no event will Lodgian or the Surviving Entities be required to expend in the aggregate in excess of 200% of the annual premium currently paid by Servico or Impac for such coverage; and if such premium would at any time exceed 200% of such amount, then Lodgian or the Surviving Entities will maintain insurance policies which provide the maximum and best coverage available at an annual premium equal to 200% of such amount. CERTAIN CONDITIONS CONDITIONS OF EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE MERGER. The obligations of each party to the Merger Agreement to consummate the Merger are subject to the following: (a) the Registration Statement of which this Joint Proxy Statement/Prospectus is a part shall have become effective and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no proceedings therefor shall have been initiated by the SEC and not concluded or withdrawn, (b) the Merger Agreement and the Merger shall have been duly approved by the requisite vote of shareholders of Servico and unitholders of Impac in accordance with applicable law, (c) no judicial or administrative decision shall have been rendered, no law or regulation shall have been enacted, and no litigation, arbitration or other proceeding shall be pending or threatened, which enjoins, prohibits or materially restricts the Merger or the transaction contemplated in the Merger Agreement, (d) any waiting period applicable to the Merger under the HSR Act, or similar law shall have elapsed, (e) all material governmental consents, approvals and authorizations required to be obtained to consummate the Merger shall have been obtained, (f) each of Ernst & Young L.L.P., Servico's independent public accountants, and PricewaterhouseCoopers LLP, Impac's -54- 73 independent public accountants, shall have delivered their "comfort" letters to Servico and Impac, and (g) the shares of Lodgian Common Stock to be issued pursuant to the Merger Agreement shall have been authorized for listing on the NYSE, subject to official notice of issuance. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SERVICO. The obligations of Servico to effect the Merger are further subject to all the following conditions: (i) all representations and warranties of Impac and the Impac Affiliated Companies contained in the Merger Agreement shall be true and correct in all material respects as of the Effective Time (except for changes contemplated or permitted by the Merger Agreement), (ii) Impac and the Impac Affiliated Companies shall have performed or complied in all material respects with all of the agreements, covenants and obligations required by the Merger Agreement on or before the Effective Time, (iii) an Impac Material Adverse Effect shall not have occurred (except as permitted by the Merger Agreement), (iv) Servico shall have received an opinion from its counsel that the Merger will be treated for federal income tax purposes as a reorganization qualifying under the provisions of Section 368(a) of the Code, and that each of Servico, Servico Merger Sub and Lodgian shall be a party to the reorganization within the meaning of Section 368(b) of the Code, which opinion shall not have been withdrawn or modified in any material respect, (v) Servico shall have received from Powell Goldstein, legal counsel to Impac, an opinion letter with respect to certain matters relating to the Merger and an opinion that no membership interests or other securities issued by any Impac Affiliated Company, Impac or its subsidiaries from the date of its organization to the date of the Merger were issued in violation of the rules and regulations of the Securities Act or any blue sky laws, (vi) each of Impac and the Impac Affiliated Companies shall have delivered to Servico a certificate executed by its Manager and President, certifying, among other things, that the conditions specified in (i) and (ii) of this paragraph have been fulfilled and a Certificate of Secretary as to the incumbency and signatures of the officers of Impac of each Impac Affiliated Company, and a certificate of the Secretary of State of the State of Georgia and each other state in which any Impac Affiliated Company, Impac or its subsidiaries are qualified to do business, as to the good standing of each Impac Affiliated Company, Impac and its subsidiaries, (vii) Impac shall have obtained all other material authorizations, consents, waivers and approvals required to consummate the Merger and enable the business and operations of Impac after consummation of the Merger to continue to be conducted in the same manner currently conducted, and (viii) Servico and Impac shall have received a commitment, effective as of the closing date of the Merger Agreement, to restructure the indebtedness of Impac and its subsidiaries. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF IMPAC AND THE IMPAC AFFILIATED COMPANIES. The obligations of Impac and the Impac Affiliated Companies to effect the Merger are further subject to all the following conditions: (i) all representations and warranties of Servico contained in the Merger Agreement shall be true and correct in all material respects as of the Effective Time (except for changes contemplated or permitted by the Merger Agreement), (ii) Servico shall have performed or complied in all material respects with all of the agreements, covenants and obligations required by the Merger Agreement on or before the Effective Time, (iii) a Servico Material Adverse Effect shall not have occurred (except as permitted by the Merger Agreement), (iv) Impac and the Impac Affiliated Companies shall have received an opinion from its counsel that the Merger will be treated for federal income tax purposes as a transfer of property described in Section 351 of the Code, with respect to Impac and the IHD Merger, and, with respect to each of the Impac Affiliated Companies except for IHD, as a reorganization qualifying under the provisions of Section 368(a) of the Code, and that each of the Impac Affiliated Companies, the Impac Affiliated Subs and Lodgian shall be a party to the reorganization within the meaning of Section 368(b) of the Code, which opinion shall not have been withdrawn or modified in any material respect, (v) Impac shall have received from Stearns Weaver an opinion letter with respect to certain matters relating to the Merger, (vi) Servico shall have delivered to Impac a certificate executed by its Chairman and President, certifying, among other things, that the conditions specified in clauses (i) and (ii) of this paragraph have been fulfilled and a Certificate of Secretary as to the incumbency and signatures of the officers of Servico, (vii) Servico shall have obtained all other material authorizations, consents, waivers and approvals required to consummate the Merger and enable the business and operations of Servico after consummation of the Merger to continue to be conducted in the same manner as currently conducted, and (viii) David A. Buddemeyer and Robert S. Cole shall have been offered employment with Lodgian on designated terms. -55- 74 AMENDMENT AND WAIVER The Merger Agreement may be amended in writing by the parties, by action taken or authorized by Servico's Board of Directors or Impac's Manager, but after approval by Servico shareholders and Impac unitholders, respectively, no amendment shall be made which, by law, requires further approval without such further approval. At any time prior to the Merger, Servico (with respect to Servico and Lodgian) or Impac by action taken or authorized by their respective Boards of Directors or Manager may, to the extent legally allowed, (i) extend the time for performance of any of the obligations or other acts of such party, (ii) waive any inaccuracies in the representations and warranties contained in the Merger Agreement or any document delivered pursuant thereto, and (iii) waive compliance with any of the agreements or conditions contained therein, provided such waiver or extension is set forth in a written instrument signed on behalf of such party. In the event that either Impac or Servico has the right to terminate the Merger Agreement for any reason, the Servico Board or the Impac Manager, as the case may be, may, in the exercise of its or his fiduciary duty, make a determination whether to terminate the Merger Agreement or to waive the condition that gives rise to such right to terminate the Merger Agreement and proceed to the consummation of the Merger. If a determination is made to waive the condition giving rise to such right to terminate and proceed to the consummation of the Merger, the Servico Board or the Impac Manager, as the case may be, will make a determination consistent with its or his legal obligations and fiduciary duties as to whether or not to resolicit the approval of the Servico shareholders or Impac unitholders. However, neither the Servico Board nor the Impac Manager will waive any of the conditions included under "Conditions of Each Party's Obligations to Consummate the Merger" or the receipt of a tax opinion relating to the tax-free nature of the Merger. TERMINATION Prior to the Effective Time, the Merger Agreement may be terminated (i) by Servico and Impac by mutual written consent, (ii) by either of Servico or Impac, if (a) the Merger is not consummated on or before December 31, 1998 (the "End Date") provided that the party wishing to terminate has not prevented such consummation by failing to fulfill any of its obligations under the Merger Agreement prior to the closing date, (b) any governmental, regulatory or administrative authority or any court or arbitral body enters any order, decree or ruling or takes any other action enjoining, restraining or otherwise prohibiting the consummation of the Merger and such action is final and nonappealable,(c) the requisite vote of the shareholders of Servico in favor of the approval of the Merger is not obtained at the Servico Annual Meeting (including any adjournments thereof), (d) a proposal for a Change of Control of Servico is publicly announced and Servico's Board of Directors withdraws or adversely modifies its recommendation to Servico's shareholders that they vote in favor of the approval of the Merger (an "Adverse Recommendation") or Servico chooses to enter into a definitive agreement for a Change of Control (the "Change of Control Agreement"), or (e) after May 1, 1998, if the non-terminating party (A) enters into active negotiations with any third party with respect to any offer or proposal regarding a Change of Control of Servico or a Competing Transaction with respect to Impac or (B) provides any third party with non-public information concerning its business or assets with respect to any offer or proposal described in (A) above, (iii) by Servico, if Impac or any Impac Affiliated Company breaches or fails to comply in any material respect with any of its obligations under the Merger Agreement or any representation or warranty made by Impac or any Impac Affiliated Company in the Merger Agreement is not true or correct in all material respects and such breach or misrepresentation is not cured within fifteen (15) business days after notice thereof, but in any event prior to the End Date, or (iv) by Impac, if (a) Servico breaches or fails to comply in any material respect with any of its obligations under the Merger Agreement or any representation or warranty made by Servico in the Merger Agreement is not true or correct in all material respects and such breach or misrepresentation is not cured within fifteen (15) business days after notice thereof, but in no event prior to the End Date, or (b) from the date of the Merger Agreement until the Effective Time, Servico notifies Impac that it has determined to acquire hotels and related properties for an aggregate purchase price of more than $100 million and Impac reasonably determines that Servico's proposed acquisitions will result in a Servico Material Adverse Effect or materially change the nature of Servico's operations taken as a whole (provided that Impac so notifies Servico -56- 75 of its election to terminate within ten days after receipt of Servico's notice), or (c) after May 1,1998, Servico is actively engaged in negotiating with any person with which it has exchanged any non-public information under a confidentiality agreement (a "Designated Person") during the period from January 1, 1998 to the date of the Merger Agreement with respect to any offer or proposal involving a Change of Control of Servico. TERMINATION FEES; EXPENSES TERMINATION FEE PAYABLE BY SERVICO. The Merger Agreement obligates Servico to pay to Impac (i) an amount equal to all reasonable costs and out-of-pocket expenses (including reasonable attorneys' and advisors' fees) (the "Transaction Expenses") of up to $2.5 million incurred by Impac in connection with the Merger if the Merger Agreement is terminated pursuant to (A) an intentional or willful breach of any representation, warranty or covenant contained in the Merger Agreement (a "Willful Breach") by Servico, or (B) clause (iv)(c) of the preceding paragraph; provided, however, that if, within twelve (12) months after such termination of the Merger Agreement, Servico consummates a Designated Change of Control (as defined below), then Servico will pay Impac an amount equal to $15 million, in any such case, less any amounts previously paid to Impac for Transaction Expenses described above; (ii) an amount equal to $10 million if the Merger Agreement is terminated pursuant to clause (ii)(d) of the preceding paragraph as a result of an Adverse Recommendation by the Servico Board or Servico entering into a Change of Control Agreement, and within twelve (12) months after such termination, such Change of Control is consummated; and (iii) an amount equal to the Designated Change of Control Fee Structure if the Merger Agreement is terminated by Servico pursuant to clauses (ii)(a) or (c) or clause (iii) of the preceding paragraph (except for incorrect representations or warranties or breaches which have or could reasonably result in an Impac Material Adverse Effect, in which case no amount would be due), or by Impac pursuant to clauses (ii)(c) or (iv)(a) (for a Willful Breach) or clause (ii)(d) of the preceding paragraph, and, within twelve (12) months after such termination, a Designated Change of Control is consummated. The term "Designated Change of Control" means a Change of Control transaction involving a Designated Person or its affiliates. A Designated Change of Control will not exist if, at the time of termination, any event or condition has occurred which results in or could reasonably be expected to result in an Impac Material Adverse Effect. TERMINATION FEE PAYABLE BY IMPAC. The Merger Agreement obligates Impac to pay to Servico an amount equal to all Transaction Expenses of up to $2.5 million incurred by Servico in connection with the Merger if the Merger Agreement is terminated as the result of a Willful Breach by Impac; provided, however, that if, within twelve (12) months after such termination of the Merger Agreement, Impac or its subsidiaries consummate a Competing Transaction with any party with or to which, prior to such termination, Impac or its subsidiaries, directly or indirectly, (i) engaged in negotiations or discussions regarding a potential Competing Transaction or (ii) provided (or provided access to) non-public information concerning its business or assets, then Impac will pay Servico an amount equal to $10 million, less any Transaction Expenses previously paid to Servico. TERMINATION FEE PAYABLE BY IMPAC OR SERVICO. The Merger Agreement obligates either Servico or Impac, if the non-terminating party, to pay to the terminating party an amount equal to the Transaction Expenses incurred by the terminating party of up to $2.5 million, if the Merger Agreement is terminated pursuant to clause (ii)(e) of the paragraph above under the caption "Termination" (unless prior to such termination, the terminating party has also provided non-public information concerning its business or assets to any third party, in which case no reimbursement will be made); provided, however, that if, within twelve (12) months after such termination (A) Impac or its subsidiaries consummate a Competing Transaction with a third party, then Impac will pay to Servico an amount equal to $10 million, and (B) if Servico consummates a Change of Control with a third party, then Servico will pay to Impac $10 million, in each case, less any amounts previously paid to such party for reimbursement of Transaction Expenses as described above. EXPENSES. Except as provided in the preceding two paragraphs, each of Servico and Impac will bear its own costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby, except that any fee required to be paid in connection with the filing of premerger notifications under the HSR Act will be shared equally by Servico and Impac. -57- 76 IMPAC VOTING AGREEMENTS Pursuant to the Impac Voting Agreements among Servico and each of the Cole Entities and other Impac unitholders, dated as of March 20, 1998, the parties thereto, together owning approximately 55.9% of the outstanding Impac Units, have agreed (i) subject to certain exceptions, not to sell or transfer Impac Units held by them during the term of the Merger Agreement and (ii) to vote such shares in favor of the Merger Agreement and the Merger and against any Competing Transaction during the term of the Merger Agreement and for a one-year period after termination of the Merger Agreement, if the Merger Agreement is terminated by Servico as a result of a Willful Breach by Impac of any representation, warranty or covenant contained in the Merger Agreement. Certain Impac unitholders executing the Impac Voting Agreements have the limited right to transfer Impac Units to their partners or equity holders during the term of the Impac Voting Agreements so long as such transferees agree to be bound by the terms of such Voting Agreements. REGISTRATION RIGHTS AGREEMENT Pursuant to a Registration Rights Agreement, Lodgian will grant certain "piggy-back" registration rights to those unitholders of Impac and those shareholders of the Impac Affiliated Companies who receive Lodgian Common Stock in the Merger and who (i) as a result of the Merger, become subject to the restrictions on the sale of such Lodgian Common Stock pursuant to Rule 145 of the rules and regulations of the Securities Act and (ii) would be prohibited from selling, over a twelve (12) month period, all of their respective shares of Lodgian Common Stock so received in the Merger by virtue of the volume limitations of Rule 145 (the "Affected Members"). The Registration Rights Agreement provides that, if at any time prior to the date which is two years from the closing date of the Merger Agreement, Lodgian proposes to register any of its Lodgian Common Stock for its own account under the Securities Act, in connection with an underwritten public offering, Lodgian will give prompt written notice to the Affected Members of its intention to effect such a registration. Upon written request of the Affected Members, given within ten (10) days after receipt from Lodgian of such notice, Lodgian will, subject to certain limitations, use its best efforts to cause the number of shares of Lodgian Common Stock issued to the Affected Members in connection with the Merger (the "Registerable Securities") referred to in the request (which may not exceed 40% of the number of Registerable Securities then held by such Affected Member) to be included in such registration statement. The obligations of Lodgian to register any Registerable Securities are subject to certain limitations, which include, among others, that Lodgian is not required to register Registerable Securities in an amount in excess of 10% of the aggregate number of shares of Lodgian Common Stock being offered in the registration, any Affected Member participating in the offering must enter into an underwriting agreement and Lodgian may withdraw or abandon any registration statement it has filed in which Affected Members have requested to participate at any time. Lodgian will indemnify any Affected Members from liabilities or claims against the Affected Members as a result of any untrue statement in the registration statement, prospectus or amendment thereof. The Affected Members have the same indemnification obligation to Lodgian with respect to information concerning such Members. CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER In considering the respective recommendations of the Servico Board and the Impac Manager with respect to the Merger, shareholders of Servico and unitholders of Impac should be aware that certain officers and directors of Servico, the Manager and certain officers and unitholders of Impac have interests in the Merger that are different from, or in addition to, the interests of the shareholders of Servico and the unitholders of Impac generally. CERTAIN ARRANGEMENTS REGARDING MANAGEMENT AND DIRECTORS OF LODGIAN MANAGEMENT OF LODGIAN. The Merger Agreement provides that at the Effective Time, subject to the Restated Bylaws of Lodgian, Mr. Buddemeyer will hold the position of Chief Executive Officer of Lodgian and each of the Surviving Entities, Mr. Cole will hold the position of President of Lodgian and each of the Surviving Entities, and Mr. Buddemeyer and Mr. Cole will hold the positions of Co-Chairmen of the Board of Directors of Lodgian and each of -58- 77 the Surviving Entities. All officers and agents appointed by the Lodgian Board will be subject to removal, with or without cause, at any time by the Lodgian Board or by action of the holders of a majority of the shares of Lodgian entitled to vote thereon. BOARD OF DIRECTORS. At the Effective Time, eight persons will serve on the Lodgian Board, five of whom will be Servico Directors, two of whom will be Impac Directors and one of whom will be selected by both Impac and Servico. The Lodgian Board will be divided into three classes of directors as described above in "The Merger Agreement--Lodgian Following the Merger." ARRANGEMENTS WITH EXECUTIVE OFFICERS Lodgian will enter into an employment agreement with each of Mr. Buddemeyer, Servico's Chairman and President, and Mr. Cole, Impac's Manager, as described below (collectively, the "Employment Agreements" and individually, the "Employment Agreement"). EMPLOYMENT AGREEMENTS. Pursuant to Employment Agreements of Messrs. Buddemeyer and Cole (the "Executives"), each will be required to devote his full business time during normal business hours to the affairs of Lodgian with exceptions made for personal, financial and legal affairs as well as participation on corporate, civic or charitable boards or committees. COMPENSATION. Messrs. Buddemeyer and Cole will receive annual base salaries of $405,000 and $300,000, respectively, payable in equal bi-weekly installments, subject to periodic increases. In addition, the Executives will be eligible to participate in an annual bonus plan (which the parties intend to be the Lodgian 1998 Short-Term Incentive Compensation Plan) providing each with the opportunity to earn 100% of his base salary upon Lodgian achieving certain financial targets. The Executives shall also be entitled to benefits provided other executives, including (i) paid vacation, holidays and sick leave, (ii) reimbursement of business expenses, and (iii) health, pension, welfare and other benefits in accordance with Lodgian's policies. Lodgian will also assume an option that was previously granted by Impac to Mr. Cole. Pursuant to the Merger Agreement this option will be converted into an option to purchase 185,000 shares of Lodgian Common Stock to Impac Unitholders at an exercise price of $17.75 per share (representing the market price of Servico Common Stock on the date immediately preceding announcement of the Merger) vesting in annual increments of 20% beginning on the first anniversary of the date of his Employment Agreement and exercisable for a period of ten years. TERMINATION OF EMPLOYMENT. Each of the Executives' employment will terminate automatically upon his death. Lodgian may terminate an Executive's employment upon his Disability (as defined below) by giving 90 days' prior written notice. Under each Employment Agreement, Disability means (i) the Executive's inability to perform his duties for a period of 90 days due to accident, illness, or physical or mental incapacity; (ii) the inability to work due to an impairment that may result in death or be of long duration; or (iii) the Executive's entitlement to disability benefits under the Social Security Act or Lodgian's long-term disability plan. Lodgian may also terminate an Executive's employment either with or without "Cause". Under each Employment Agreement, Cause means: (i) a failure or refusal by the Executive to perform his duties under the Employment Agreement (other than a Disability), if such refusal has lasted for at least 10 days after the delivery of a written demand by Lodgian; (ii) the engagement by the Executive in willful misconduct or an act of moral turpitude which is materially injurious to Lodgian; or (iii) the conviction of the Executive or his entry of a plea of NOLO CONTENDERE with respect to a felony. Each Executive may terminate his employment for a "Good Reason," which means: (i) Lodgian's diminution of his position and authority or assignment to him of any responsibilities inconsistent with his position; (ii) a reduction in his base salary or bonus, unless implemented across the board to all senior executives; (iii) a relocation of the Executive's place of employment of more than 50 miles; (iv) failure by Lodgian to pay any portion of the Executive's compensation or provide agreed upon benefits; or (v) any termination of the Executive's employment if not done with proper notice. The Executive may also terminate his employment due to medical reasons which are made dangerous by the Executive's duties, and the failure of Lodgian to comply with any material provision of the -59- 78 Employment Agreement (which failure has not been cured within ten (10) days after written notice of such noncompliance). The Executive may also terminate his employment for any reason other than Good Reason by giving 60 days' written notice and cooperating with Lodgian to assure a smooth transition. COMPENSATION UPON TERMINATION. In the event an Executive's employment is terminated by Lodgian for Cause or by the Executive for other than Good Reason or due to medical reasons which are made dangerous by the Executive's duties, the Executive shall be paid only his base salary through the date of termination. If the Executive's employment is terminated after a Change in Control of Lodgian either by Lodgian without Cause or by the Executive for Good Reason or as a result of Lodgian's failure to comply with a material provision of the Employment Agreement, then Lodgian shall pay the Executive: (i) his base salary through the date of termination; (ii) a lump sum payment of two and one-half times the base salary; (iii) the greater of the annual bonus owed and the average annual bonuses earned over the past three years; (iv) for a period of one year, life insurance, medical, health and similar welfare plan benefits, other than group disability benefits, reduced by any amount of benefits provided by a later employer; and (v) the vesting of any outstanding stock options. Under the Employment Agreement, a Change in Control includes: (i) acquisition by any person of at least 40% of the total number of votes that may be cast in an election for directors of Lodgian; (ii) shareholder approval of certain business combinations or sales of assets; or (iii) if, within any 24-month period, the persons who were directors of Lodgian immediately prior to the beginning of such period no longer constitute the majority of the board. CONFIDENTIALITY AND NON-SOLICITATION COVENANTS. The Executives will be subject to covenants with regard to maintaining confidential information. Each Executive will also be subject to covenants prohibiting his solicitation of Lodgian's prospective and existing business, clients or employees for his own or competing business' benefit during his employment and for one year following his termination. TAX REIMBURSEMENT. Lodgian will pay each Executive an amount to pay taxes on any amount or benefit paid to the Executive which becomes subject to the tax imposed under Section 4999 of the Code (the "Excise Tax"). Determining which amounts or benefits shall be subject to reimbursement will be done by Lodgian's accountants in accordance with Section 280G of the Code. This determination shall be subject to adjustments due to subsequent events affecting the calculation of the amount of taxes owed. STOCK OPTIONS AND OTHER EQUITY AWARDS. The Merger Agreement provides that, at the Effective Time, each stock option granted by Servico to purchase shares of Servico Common Stock which is outstanding and unexercised immediately prior to the Effective Time will be assumed by Lodgian and converted into an option to purchase shares of Lodgian Common Stock in such amount and at such exercise price as provided below and otherwise having the same terms and conditions as are in effect immediately prior to the Effective Time (except to the extent that such terms, conditions and restrictions may be altered in accordance with their terms as a result of the Merger). No outstanding option to purchase Servico Common Stock or other equity compensation award will accelerate as a result of the Merger. The number of shares of Lodgian Common Stock to be subject to the new option will be equal to the number of shares subject to the original option. The exercise price per share of Lodgian Common Stock under the new option will be equal to the exercise price per share of the original option. In addition, at the Effective Time, each outstanding stock appreciation right issued by Servico which is outstanding will be assumed by Lodgian and converted into a stock appreciation right with respect to shares of Lodgian Common Stock otherwise having the same terms, conditions and restrictions as are in effect immediately prior to the Effective Time (except to the extent that such terms, conditions and restrictions may be altered in accordance with their terms as a result of the Merger). The Merger Agreement provides that Lodgian will reserve for issuance, under the Lodgian 1998 Stock Incentive Plan, options to acquire approximately 555,000 shares of Lodgian Common Stock, which will be granted to certain employees of Impac or its subsidiaries. Such options will be granted effective as of the closing date of the Merger based on allocations determined by the Lodgian Board after consideration of recommendations from Mr. Cole and the stock options held by employees in comparable positions at Servico and its subsidiaries. -60- 79 DEVELOPMENT AGREEMENTS Mr. Cole was one of three shareholders of IHD, which provided acquisition and property development services to Impac for a development fee of four percent of the total project cost of each property acquired or developed. Impac agreed to terminate this agreement prior to the consummation of the Merger so that Impac and its subsidiaries will have no further obligations under the agreement after the Merger other than the payment of up to a four percent development fee (not to exceed $2.5 million in the aggregate) in the event Lodgian acquires any of the hotels or properties identified in the Merger Agreement as Impac's acquisition pipeline. IHD assigned this right to a newly formed entity controlled by its three shareholders. IHD has contracted with Elegant Interiors, LLC ("Elegant"), an entity wholly owned by Sheila Lang (the spouse of John Lang) to provide interior design consulting services. Since January 1, 1997, IHD has paid approximately $642,000 to Elegant, and in the event IHD, or its assignee, receives payment of the above-referenced development fees, Elegant will be paid accrued consulting fees (not to exceed $250,000) with respect to any of the hotels or properties identified in the Merger Agreement as being in Impac's acquisition pipeline. REGISTRATION RIGHTS AGREEMENT Pursuant to a Registration Rights Agreement, Lodgian will grant certain "piggy-back" registration rights to those unitholders of Impac and shareholders of the Impac Affiliated Companies who receive Lodgian Common Stock in the Merger and who (i) as a result of the Merger, become subject to the restrictions on the sale of such Lodgian Common Stock pursuant to Rule 145 of the rules and regulations of the Securities Act and (ii) would be prohibited from selling, over a 12 month period, all of their respective shares of Lodgian Common Stock so received in the Merger by virtue of the volume limitations set forth in Rule 145. See "The Merger Agreement -- Registration Rights Agreement." INDEMNIFICATION AND INSURANCE Lodgian is required by the Merger Agreement to provide indemnification and liability insurance for officers and directors of Servico and Impac. See "The Merger Agreement -- Indemnification and Insurance." RELEASE OF GUARANTEES Lodgian is required by the Merger Agreement to use its reasonable efforts (without the requirement to pay any fee or adversely modify the terms of any agreement) to obtain a release of any individuals from liability as a guarantor of Impac's or any Impac subsidiary's obligations to third parties under certain franchise agreements. In any event, Lodgian has agreed to indemnify and hold harmless each such individual guarantor from and against any liability such guarantor may incur after the Effective Time under such guarantees as a result of Impac's or any Impac subsidiary's failure to satisfy its obligations under such franchise agreements or related documentation. -61- 80 MARKET PRICE AND DIVIDEND DATA As of June 30, 1998, there were approximately 3,000 holders of record of Servico Common Stock. As of June 30, 1998, there were approximately 121 unitholders of record of the Impac Units. There was one holder of record as of such date of the Class B Interest of Impac, which will be canceled upon the consummation of the Merger. The market prices for Servico Common Stock shown below are historical market prices for such Common Stock and are not indicative of the market value of Lodgian or the trading prices for Lodgian Common Stock following the Merger. Lodgian is a newly formed company with no operating history and no securities of Lodgian have previously been publicly traded. Consequently, there has been no trading activity with regard to Lodgian Common Stock. Application will be made to list the shares of Lodgian Common Stock on the NYSE. It is currently anticipated that Lodgian will retain any future earnings for use in its business. The Board of Directors of Lodgian will determine future dividend policies based on Lodgian's financial condition, profitability, cash flow and capital requirements, among other factors, and subject to any applicable restrictions on the payment of dividends. SERVICO Servico Common Stock is listed and principally traded on the NYSE. Its ticker symbol is "SER". The table below sets forth, for the calendar quarters indicated, the high and low sale prices of Servico Common Stock as reported on the NYSE.
SERVICO COMMON STOCK --------------------- HIGH LOW ---- --- ($ PER SHARE) 1996 - ---- First Quarter.................................................. 13 7/8 10 1/2 Second Quarter................................................. 16 1/2 11 3/4 Third Quarter.................................................. 17 13 1/2 Fourth Quarter................................................. 17 1/4 14 1/2 1997 - ---- First Quarter.................................................. 20 1/2 16 Second Quarter................................................. 17 5/8 13 3/4 Third Quarter.................................................. 18 3/8 14 1/4 Fourth Quarter................................................. 19 14 1998 - ---- First Quarter.................................................. 21 1/4 15 1/4 Second Quarter................................................. 22 1/2 15 1/16 Third Quarter (through July __, 1998)..........................
The last sale price of Servico Common Stock as reported on the NYSE on (i) March 20, 1998, the last full trading day prior to Servico's and Impac's public announcement of the execution of the Merger Agreement, was $17.75 per share and (ii) July __, 1998, the last full trading day prior to the date of this Joint Proxy Statement/Prospectus, was $___________ per share. YOU ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SERVICO COMMON STOCK. Servico has not paid any dividends since its reorganization in 1992 and has no current plans to initiate the payment of dividends. -62- 81 IMPAC The Impac units are not reported on any national quotation system and there is no established public trading market thereon. The table below sets forth, for the calendar quarters indicated, the aggregate distributions paid by the predecessors of Impac to their respective shareholders and partners and Impac to its unitholders from available cash flow and proceeds from the sale of properties. Distributions per Impac Unit is not necessarily comparable to dividends/distributions to predecessors, shareholders and partners because of changes in the composition of the predecessors from year to year and the fact that the timing and nature of distributions were specific to each predecessor and its respective operations.
IMPAC DIVIDENDS/ DISTRIBUTIONS (IN THOUSANDS) --------------- 1995 - ---- First Quarter............................................................... $ 1,322 Second Quarter.............................................................. 6,924 Third Quarter............................................................... 1,022 Fourth Quarter.............................................................. 1,117 ------- Total.................................................................. $10,385 1996 - ---- First Quarter............................................................... $ 3,076 Second Quarter.............................................................. 13,224 Third Quarter............................................................... 11,320 Fourth Quarter.............................................................. 1,144 ------- Total.................................................................. $28,764 1997 - ---- First Quarter............................................................... $ 257 Second Quarter.............................................................. 1,994 Third Quarter............................................................... 1,580 Fourth Quarter.............................................................. 3,788 ------- Total.................................................................. $ 7,619 1998 - ---- First Quarter............................................................... $ - Second Quarter.............................................................. $ -
-63- 82 LODGIAN, INC. UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma combined consolidated financial statements of Lodgian give effect to the offering by Servico of the $175 million of convertible trust preferred securities (the "Offering") and the Merger with Servico acquiring Impac and IHD using the purchase method of accounting, after giving effect to the pro forma adjustments described in the accompanying notes and in the pro forma financial statements and accompanying notes thereto of Servico and Impac and IHD (excluding the Merger) set forth or incorporated by reference in this Joint Proxy Statement/Prospectus. The unaudited pro forma combined consolidated financial statements have been prepared in accordance with GAAP and should be read in conjunction with the historical consolidated and combined financial statements of Servico and Impac and IHD including the notes thereto, the pro forma financial statements of Servico and Impac and IHD (excluding the Merger) and other financial information of Servico and Impac and IHD included elsewhere in or incorporated by reference in this Joint Proxy Statement/Prospectus. The accompanying unaudited pro forma information is presented for illustrative purposes only and is based on certain assumptions and adjustments described in the pro forma financial statements of Servico and Impac and IHD (excluding the Merger). Such information is not necessarily indicative of the operating results or financial position that would have occurred had the Merger been consummated at the dates indicated, nor is it necessarily indicative of future operating results or financial position of the combined companies. No effect has been given in the unaudited pro forma combined consolidated financial statements for operating and synergistic benefits that may be realized through the Merger. In addition, the unaudited pro forma combined consolidated financial statements do not reflect any of the initial, non-recurring costs associated with the Merger, which costs are not currently estimatable. In the Merger, each issued and outstanding share of Servico Common Stock will be converted into the right to receive one share of Lodgian Common Stock and each issued and outstanding Impac Unit will be converted into the right to initially receive .519 shares of Lodgian Common Stock, assuming the average price of Servico Common Stock is at least $14.00 per share and not more than $25.00 per share during the specified ten-day period prior to the Merger and the same number of Units remain outstanding at the Effective Time. Additionally, Impac unitholders and Impac Affiliated Company shareholders will receive an incremental portion of an aggregate of 1.4 million shares of Lodgian Common Stock which will be released from escrow upon the achievement of certain events as described in the Merger Agreement. See "The Merger--Consideration to be Received in the Merger." The accompanying unaudited Pro Forma Combined Consolidated Balance Sheet gives effect to the Offering and the Merger as if they had occurred on March 31, 1998, combining the pro forma consolidated balance sheet of Servico and the historical balance sheet of Impac at March 31, 1998. The accompanying unaudited Pro Forma Combined Consolidated Statement of Operations gives effect to the Offering and the Merger as if they had occurred on January 1, 1997. THE UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS DO NOT PURPORT TO REPRESENT WHAT THE FINANCIAL POSITION OR RESULTS OF OPERATIONS OF LODGIAN, SERVICO OR IMPAC WOULD ACTUALLY HAVE BEEN IF THE OFFERING OR THE MERGER HAD IN FACT OCCURRED ON THE DATES INDICATED OR TO PROJECT THE FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD. -64- 83 LODGIAN, INC. UNAUDITED PRO FORMA COMBINING BALANCE SHEET MARCH 31, 1998 (IN THOUSANDS)
HISTORICAL IMPAC HOTEL PRO FORMA GROUP, L.L.C. SERVICO, INC. AND AND IMPAC HOTEL PRO FORMA PRO FORMA SUBSIDIARIES DEVELOPMENT, INC. ADJUSTMENTS(A) COMBINED ------------ ----------------- ----------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 15,167 $ 1,572 $ - $ 16,739 Cash, restricted - 3,590 - 3,590 Accounts receivable, net of allowances 15,378 10,733 - 26,111 Other receivables 1,988 - - 1,988 Inventories 4,931 607 1,960 (B) 7,498 Deferred income taxes 2,254 - - 2,254 Other current assets 9,027 3,796 - 12,823 -------- --------- --------- ---------- Total current assets 48,745 20,298 1,960 71,003 Property and equipment, net 576,175 399,348 133,284 (B) 1,108,807 Deposits for capital expenditures 38,605 - - 38,605 Investment in unconsolidated entities 1,018 - - 1,018 -------- --------- --------- ---------- Other assets, net 33,257 14,135 (13,600) (B) 33,792 -------- --------- --------- ---------- $697,800 $433,781 $ 121,644 $1,253,225 ======== ========= ========= ========== LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY Current liabilities: Accounts payable $ 10,640 $ 15,358 $ - $ 25,998 Accrued liabilities 32,023 9,405 - 41,428 Current portion of long-term obligations 5,530 - - 5,530 -------- --------- --------- ---------- Total current liabilities 48,193 24,763 - 72,956 Long-term obligations, less current portion 208,318 377,427 - 585,745 Deferred income taxes 11,116 - 45,000 (B) 56,116 Commitments and contingencies Minority interests 13,881 235 - 14,116 Minority interest-preferred redeemable securities 175,000 - - 175,000 Stockholders' and members' equity: Common stock 210 - 60 (B) 270 Additional paid-in capital 211,906 - 107,940 (B) 319,846 Retained earnings 29,176 - - 29,176 Members' equity 31,356 (31,356) (B) - -------- --------- --------- ---------- Total stockholders' and members' equity 241,292 31,356 76,644 349,292 -------- --------- --------- ---------- $697,800 $433,781 $ 121,644 $1,253,225 ======== ========= ========= ==========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. -65- 84 LODGIAN, INC. UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA PRO FORMA PRO FORMA SERVICO IMPAC ADJUSTMENTS(A) COMBINED --------- --------- -------------- -------- Revenues: Rooms $220,754 $105,716 $ - $326,470 Food and beverage 94,774 26,545 - 121,319 Other 18,812 7,369 - 26,181 -------- -------- ------- -------- 334,340 139,630 - 473,970 Operating expenses: Direct: Rooms 59,651 32,414 - 92,065 Food and beverage 72,146 22,097 - 94,243 General and administrative 8,973 12,653 - 21,626 Other 110,222 51,231 - 161,453 Depreciation and amortization 26,663 12,173 4,319 (C) 43,155 -------- -------- ------- -------- 277,655 130,568 4,319 412,542 Income from operations 56,685 9,062 (4,319) 61,428 Other income (expenses): Interest income and other 1,869 271 - 2,140 Interest expense (15,006) (24,028) - (39,034) Minority interests-preferred redeemable securities (12,794) - - (12,794) Minority interests-other (779) 263 - (516) -------- -------- ------- -------- Income (loss) before income taxes and extraordinary item 29,975 (14,432) (4,319) 11,224 Provision for or (benefit from) income taxes 11,993 (5,773) (1,728) (D) 4,492 Income (loss) before extraordinary item $ 17,982 $ (8,659) $(2,591) $ 6,732 -------- -------- ------- -------- Earnings per common share(E): Income (loss) before extraordinary item $ .86 $ .25 ======== ======== Earnings per common share- assuming dilution (E): Income (loss) before extraordinary item $ .84 $ .25 ======== ======== Basic weighted average shares 20,918 26,918 Diluted weighted average shares 21,375 27,375
-64- 85 LODGIAN, INC. UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA IMPAC AND PRO FORMA PRO FORMA SERVICO IHD ADJUSTMENTS(A) COMBINED --------- ---------- -------------- --------- Revenues: Rooms $55,833 $25,892 $ - $ 81,725 Food and beverage 22,146 6,861 - 29,007 Other 4,902 1,818 - 6,720 ------- ------- ------- -------- 82,881 34,571 - 117,452 Operating expenses: Direct: Rooms 15,509 6,815 - 22,324 Food and beverage 17,647 5,501 - 23,148 General and administrative 2,387 2,777 - 5,164 Other 2,760 13,848 - 41,498 Depreciation and amortization 7,207 3,681 1,001 (C) 11,889 ------- ------- ------- -------- 70,400 32,622 1,001 104,023 Income from operations 12,481 1,949 (1,001) 13,429 Other income (expenses): Interest income and other 454 143 - 597 Interest expense (4,229) (6,751) - (10,980) Minority interests-preferred redeemable securities (3,198) - - (3,198) Minority interests-other (94) (48) - (142) Income (loss) before income taxes and extraordinary item 5,414 (4,707) (1,001) (294) Provision for or (benefit from) income taxes 2,167 - (2,283) (D) (116) ------- ------- ------- -------- Income (loss) before extraordinary item $ 3,247 $(4,707) $ 1,282 $ (178) ======= ======= ======= ======== Earnings per common share(E): Income (loss) before extraordinary item $ .15 $ (.01) ======= ======== Earnings per common share-assuming dilution (E): Income (loss) before extraordinary item $ .15 $ (.01) ======= ======== Basic weighted average shares 20,989 26,989 Diluted weighted average shares 21,437 27,437
-67- 86 LODGIAN, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (A) The unaudited pro forma balance sheet of Servico as of March 31, 1998 and the unaudited pro forma statements of income of Servico for the year ended December 31, 1997 and the three months ended March 31, 1998, were derived from Servico's pro forma financial information provided herein. The unaudited historical balance sheet of Impac as of March 31, 1998, the unaudited pro forma statement of operations of Impac for the year ended December 31, 1997 and the unaudited historical statement of operations of Impac for the three months ended March 31, 1998, were derived from Impac's financial information provided herein in this Joint Proxy Statement/Prospectus. The pro forma adjustments to the balance sheet assume the Offering and the Merger were completed on March 31, 1998, and the pro forma adjustments to the statements of operations assume the Offering and the Merger had occurred on January 1, 1997. (B) The preliminary purchase price of Impac to be paid by Servico is estimated to be $555,425 consisting of the issuance of 6,000,000 shares of stock at $18 per share plus the assumption of $447,425 of existing Impac debt and deferred income taxes. The allocation of the preliminary purchase price is as follows (in thousands):
HISTORICAL PRO FORMA FAIR VALUE IMPAC ADJUSTMENTS ---------- ---------- ----------- ASSETS: Current assets $ 22,258 $ 20,298 $ 1,960 Property and equipment 532,632 399,348 133,284 Other assets 535 14,135 (13,600)* -------- -------- -------- $555,425 $433,781 $121,644 ======== ======== ======== LIABILITIES AND EQUITY: Current liabilities $ 24,763 $ 24,763 $ - Long-term obligations 377,427 377,427 - Deferred income taxes 45,000 - 45,000 Minority interests 235 235 - Common stock 60 - 60 Additional paid-in capital 107,940 - 107,940 Members' equity - 31,356 (31,356) -------- -------- -------- $555,425 $433,781 $121,644 ======== ======== ========
- -------------------- * Primarily deferred loan costs. (C) Depreciation expense is recorded to reflect the costs associated with the acquired assets. The allocation of the cost of acquired assets between land, buildings and furnishings and equipment is based on the assets' estimated fair value. Depreciation expense of buildings and furnishings and equipment is based upon an estimated life of 40 and 7 years, respectively. Depreciation expense is calculated on a straight line basis. (D) Benefit from income taxes in the pro forma adjustments is recorded using Servico's effective tax rate of 40%. (E) The following table sets forth the pro forma computation of basic and diluted earnings per share (in thousands, except per share data): -68- 87
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- Numerator-basic and diluted per share: Income before extraordinary items $ (178) $ 6,732 ------- ------- Denominator: Denominator for basic earnings per share- weighted average shares(a) 26,989 26,918 Effect of dilutive securities: Employee stock options 448 457 Denominator for diluted earnings per share- adjusted weighted average shares and assumed conversions 27,437 27,375 ======= ======= Basic earnings per share $ (.01) $ .25 Diluted earnings per share $ (.01) $ .25
- ------------------ (a) Includes 6,000 shares issued in connection with the Merger. -69- 88 SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA FINANCIAL STATEMENTS FOR THE OFFERING, EXCLUDING THE MERGER The accompanying unaudited pro forma balance sheet is presented as if the Offering had occurred on March 31, 1998. The accompanying unaudited pro forma statements of income are presented as if the Offering and the hotels acquired by Servico in 1997 and the shares of Common Stock issued by Servico in a public underwriting offering completed in June 1997, had occurred on January 1, 1997. All of Servico's acquisitions have been accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed have been recorded at their estimated fair values based on their purchase price and other analyses. The pro forma statements of income do not purport to present the financial position or results of operations of Servico had the transactions and events assumed therein occurred on the dates specified, nor is it necessarily indicative of the results of operations that may be achieved in the future. The pro forma statements of income do not reflect cost savings and revenue enhancements which management believes have been and may continue to be realized following the hotel acquisitions. These cost savings and revenue enhancements have been and are expected to be realized primarily through the restructuring of operations. No assurances can be made as to the amount of cost savings or revenue enhancements, if any, that actually will be realized. The pro forma statements of income are based on certain assumptions and adjustments described in the Notes to Unaudited Pro Forma Financial Statements and should be read in conjunction therewith and with the consolidated financial statements and related notes thereto of Servico incorporated by reference in this Joint Proxy/Prospectus Statement. -70- 89 SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
HISTORICAL PRO FORMA PRO FORMA SERVICO ADJUSTMENTS(A) SERVICO ---------- -------------- --------- ASSETS Current assets: Cash and cash equivalents $ 15,167 $ - $ 15,167 Accounts receivable, net of allowances 15,378 - 15,378 Other current assets 18,200 - 18,200 -------- --------- -------- Total current assets 48,745 - 48,745 Property and equipment, net 576,175 - 576,175 Deposits for capital expenditures 38,605 - 38,605 Other assets, net 31,329 2,946 34,275 -------- --------- -------- $694,854 $ 2,946 $697,800 ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,640 $ - $ 10,640 Accrued liabilities 33,455 (1,432) 32,023 Current portion of long-term obligations 5,530 - 5,530 Total current liabilities 49,625 (1,432) 48,193 Long-term obligations, less current portion 376,793 (168,475) 208,318 Deferred income taxes 11,116 - 11,116 Commitments and contingencies Minority interests-other 13,881 - 13,881 Minority interests-preferred redeemable securities - 175,000 175,000 Stockholders' equity: Common stock, $.01 par value--25,000,000 shares authorized; 21,074,872 shares and 20,974,852 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively 210 - 210 Additional paid-in capital 211,906 - 211,906 Retained earnings 31,323 (2,147) 29,176 -------- -------- -------- Total stockholders' equity 243,439 (2,147) 241,292 -------- -------- -------- $694,854 $ 2,946 $697,800 ======== ======== ========
-71 90 SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA PRO FORMA SERVICO ADJUSTMENTS(B) SERVICO ---------- -------------- --------- Revenues: Rooms $179,956 $ 40,798 $220,754 Food and beverage 80,335 14,439 94,774 Other 16,366 2,446 18,812 -------- -------- -------- 276,657 57,683 334,340 Operating expenses: Direct: Rooms 49,608 10,043 59,651 Food and beverage 60,919 11,227 72,146 General and administrative 8,973 - 8,973 Other 88,036 22,186 110,222 Depreciation and amortization 23,023 3,640 (C) 26,663 -------- -------- -------- 230,559 47,096 277,655 -------- -------- -------- Income from operations 46,098 10,587 56,685 Other income (expenses): Interest income and other 1,720 149 1,869 Interest expense (25,909) 10,903 (D) (15,006) Minority interests-preferred redeemable securities - (12,794) (E) (12,794) Minority interests-other (960) 181 (779) -------- -------- -------- Income before income taxes and extraordinary item 20,949 9,026 29,975 Provision for income taxes 8,379 3,614 (F) 11,993 -------- -------- -------- Income before extraordinary item $ 12,570 $ 5,412 $ 17,982 ======== ======== ======== Earnings per common share(G): Income before extraordinary item $ .83 $ .86 ======== ======== Earnings per common share-assuming dilution(G): Income before extraordinary item $ .80 $ .84 ======== ======== Basic weighted average shares 15,183 20,918 Diluted weighted average shares 15,640 21,375
-72- 91 SERVICO, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA PRO FORMA SERVICO ADJUSTMENTS(B) SERVICO ---------- -------------- --------- Revenues: Rooms $ 55,833 $ - $ 55,833 Food and beverage 22,146 - 22,146 Other 4,902 - 4,902 -------- -------- -------- 82,881 - 82,881 Operating expenses: Direct: Rooms 15,509 - 15,509 Food and beverage 17,647 - 17,647 General and administrative 2,387 - 2,387 Other 27,650 - 27,650 Depreciation and amortization 7,207 - 7,207 -------- -------- -------- 70,400 - 70,400 -------- -------- -------- Income from operations 12,481 - 12,481 Other income (expenses): Interest income and other 454 - 454 Interest expense (7,846) 3,617 (H) (4,229) Minority interests-preferred redeemable securities - (3,198) (E) (3,198) Minority interests-other (94) - (94) -------- -------- -------- Income before income taxes 4,995 419 5,414 Provision for income taxes 1,999 168 (F) 2,167 Net income $ 2,996 $ 251 $ 3,247 ======== ======== ======== Income per common share(G) $ .14 $ .15 ======== ======== Income per common share-assuming dilution (G) $ .14 $ .15 ======== ======== Basic weighted average shares 20,989 20,989 Diluted weighted average shares 21,437 21,437
-73- 92 SERVICO, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME (A) The Offering of $175 million of preferred redeemable securities will generate $168.5 million of net proceeds which will be used to repay, prior to maturity, $168.5 million of existing long-term obligations. In connection with the early extinguishment of this debt the Company will write off $3.5 million of deferred loan costs and record, as an extraordinary item, a loss of $2.1 million, net of a benefit from income taxes of $1.4 million. The discounts, commissions and estimated costs to be paid by the Company relating to the Offering totaling $6.5 million will be amortized over the life of the securities and recorded as additional interest expense. (B) The historical statement of income of Servico for the year ended December 31, 1997 includes the operations of the various properties that it acquired during 1997 from the date of the acquisition through December 31, 1997, and the effect of the common stock offering Servico completed in June 1997. The pro forma adjustments include operations of the acquired properties from the beginning of 1997 through the date of acquisition as follows: Holiday Inn Select, Phoenix February 28 (i) Holiday Inn, Manhattan February 28 (i) Holiday Inn, Lawrence February 28 (i) Crowne Plaza, Cedar Rapids May 29 Holiday Inn, Dallas July 15 Sheraton, Concord September 24 Holiday Inn Select, Windsor October 3 Comfort Inn, Roseville October 17 Holiday Inn, Jamestown November 7 Hilton, Columbia November 7 Ramada, Houston November 21 Sheraton, West Palm Beach November 21 Holiday Inn, Silver Spring November 21 Holiday Inn, Rolling Meadows November 21 Holiday Inn, Winter Haven November 21 - ---------------------------- (i) Ownership percentage increased from 51% to 100% (C) Depreciation expense is recorded to reflect the costs associated with the acquired assets. The allocation of the cost of acquired assets between land and building is based on the asset's estimated fair value. (D) Interest expense of $5.8 million is based upon actual debt levels incurred to purchase each property offset by $5.6 million relating to debt extinguishment on 21 hotels using the proceeds of the common stock offering and $8.3 million relating to the existing debt being repaid with the proceeds of the Offering.. In addition, interest expense has been reduced by $2.8 million representing amortized loan costs which would have been written off at the beginning of the year. (E) Minority interests - preferred redeemable securities represents interest on the $175 million at 7.0% plus amortization of the Offering costs. (F) To record the provision for income taxes relating to the pro forma adjustments using Servico's effective tax rate of 40%. (G) The following table sets forth the pro forma computation of basic and diluted earnings per share (in thousands, except per share data): -74- 93
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- Numerator - basic and diluted per share: Income before extraordinary items $ 3,247 $17,982 Denominator: Denominator for basic earnings per share- weighted average shares 20,989 20,918 Effect of dilutive securities: Employee stock options 448 457 Denominator for diluted earnings per share- adjusted weighted average shares and assumed conversions 21,437 21,375 Basic earnings per share $ .15 $ .86 Diluted earnings per share $ .15 $ .84
(H) Interest expense for the three months ended March 31, 1998 is reduced by $3.3 million relating to the existing debt being repaid with the proceeds of the Offering and $.3 million relating to amortized loan costs which would have been written off prior to 1998. -75- 94 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS EXCLUDING THE MERGER The accompanying unaudited pro forma statement of operations is presented as if the hotels acquired by Impac during 1997 had occurred on January 1, 1997. All of Impac's acquisitions have been accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed have been recorded at their estimated fair values based on their purchase price and other analyses, with appropriate recognition given to the effect of current interest rates. The pro forma statement of operations does not purport to present the financial position or results of operations of Impac and IHD had the transactions and events assumed therein occurred on the dates specified, nor is it necessarily indicative of the results of operations that may be achieved in the future. The pro forma statement of operations does not reflect cost savings and revenue enhancements that management believes have been and may continue to be realized following the hotel acquisitions. These cost savings and revenue enhancements have been and are expected to be realized primarily through the restructuring of operations. No assurances can be made as to the amount of cost savings or revenue enhancements, if any, that actually will be realized. The pro forma statement of operations is based on certain assumptions and adjustments described in the Notes to the Unaudited Pro Forma Statement of Operations and should be read in conjunction therewith and with the consolidated and combined financial statements and related notes thereto of Impac and IHD appearing elsewhere in this Joint Proxy Statement/Prospectus. -76- 95 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA PRO FORMA IMPAC ADJUSTMENTS(A) IMPAC ---------- -------------- --------- Revenues: Rooms $ 90,139 $ 15,577 $105,716 Food and beverage 23,429 3,116 26,545 Other 6,291 1,078 7,369 -------- -------- -------- 119,859 19,771 139,630 Operating expenses: Direct: Rooms 28,303 4,111 32,414 Food and beverage 19,322 2,775 22,097 General and administrative 11,467 1,186 12,653 Other 44,946 6,285 51,231 Depreciation and amortization 11,136 1,037 (B) 12,173 -------- -------- -------- 115,174 15,394 130,568 -------- -------- -------- Income from operations 4,685 4,377 9,062 Other income (expenses): Interest income and other 271 - 271 Interest expense (21,265) (2,763) (C) (24,028) Minority interests 220 43 263 -------- -------- -------- (Loss) income before income taxes and extraordinary item (16,089) 1,657 (14,432) Benefit from income taxes - 5,773 (D) 5,773 -------- -------- -------- (Loss) income before extraordinary item $(16,089) $ 7,430 $ (8,659) ======== ======== ========
-77- 96 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (A) The historical statement of operations of Impac includes the operations of the various properties that it acquired during 1997 from the date of the acquisition through December 31, 1997. Impac has not presented a pro forma balance sheet at March 31, 1998 or a pro forma statement of operations for the three months ended March 31, 1998, as no pro forma adjustments are needed to the historical financial statements for these periods. The pro forma adjustments include operations of the acquired properties from the beginning of 1997 through the date of acquisition as follows: Holiday Inn, Anchorage September 30 Fairfield Inn, Augusta October 30 Holiday Inn, Boise January 15 Fairfield Inn, Burlington October 30 Holiday Inn, Cincinnati January 15 Holiday Inn, Ft. Mitchell January 15 Holiday Inn, Hamburg April 15 Fairfield Inn, Jackson October 30 Crowne Plaza, Macon May 20 Mayfair House, Miami June 11 Howard Johnson, Miami April 10 Holiday Inn, Memphis January 15 Fairfield Inn, Merrimack October 30 Holiday Inn, Riverside May 16 Fairfield Inn, Valdosta May 20 Holiday Inn, Wilsonville January 30 (B) Depreciation expense is recorded to reflect the costs associated with the acquired assets. The allocation of the cost of acquired assets between land and building is based on the asset's estimated fair value. (C) Interest expense is based upon the debt levels that would have been incurred to purchase each property under the terms and conditions that are available to Impac. The interest rate is based on the rate that would have been charged at the time of each acquisition by Impac's credit facility. (D) Impac is a limited liability corporation and is not subject to income taxes. IHD is an S_Corporation and is not subject to income taxes. The results of Impac's and IHD's operations are included in the tax returns of Impac's unitholders and IHD's shareholders. In order to conform Impac's pro forma financial information to Servico's financial information, a pro forma adjustment has been made to record a tax benefit to Impac based on Servico's effective tax rate of 40%. -78- 97 DESCRIPTION OF LODGIAN Lodgian was incorporated on February 11, 1998 as a corporation under the laws of the State of Delaware for the purpose of facilitating the Merger. Lodgian has not conducted any activities other than in connection with its organization and in connection with the Merger. After the consummation of the Merger, Servico and Impac will be wholly-owned subsidiaries of Lodgian. Lodgian's fiscal year will end on December 31. Following consummation of the Merger, Lodgian intends to combine and coordinate the respective equity, management, resources and administrative operations of Servico and Impac and their respective subsidiaries. While management believes that the Merger will create a combined entity with the resources to compete more effectively in the hotel industry, Lodgian will continue to be subject to the competitive factors described under "Risk Factors--Risks Associated with Expansion--Competition." Management will review the operations of Impac and Servico and, upon completion of such review, will develop plans or proposals regarding, among other things, the integration or combination of the management, resources, facilities and other operations of Impac and Servico. DIRECTORS AND MANAGEMENT OF LODGIAN FOLLOWING THE MERGER; COMPENSATION DIRECTORS. The Merger Agreement provides that, immediately following the consummation of the Merger, the Lodgian Board will have eight members, five of whom will be Servico Directors, two of whom will be Impac Directors and one of whom will be selected by Impac and Servico. The Restated Bylaws of Lodgian provide that the Lodgian Board will consist of not less than six members, the exact number to be determined by resolution adopted by the affirmative vote of a majority of all directors of Lodgian. Directors will be elected by a plurality of the votes cast at annual meetings of its shareholders, except that any vacancy created by an increase in the number of directors may be filled either by the shareholders or by the affirmative vote of a majority of the remaining directors. See "The Merger Agreement - Lodgian Following the Merger." At the Effective Time, the initial directors of Lodgian will allocate the directors among three classes as follows: (i) Class I, to initially serve for one year, will consist of two directors, comprised of Peter R. Tyson and a person mutually selected by both Impac and Servico, (ii) Class II, to initially serve for two years, will consist of three directors, comprised of Joseph C. Calabro, Michael Leven and John Lang; and (iii) Class III, to initially serve for three years, will consist of three directors, comprised of David Buddemeyer, Robert Cole and Richard H. Weiner. Such directors shall serve as the directors of Lodgian from and after the Effective Time in accordance with the Restated Certificate and Restated Bylaws of Lodgian until their successors are elected or appointed and qualified or until their resignation or removal. In the event that, prior to the Effective Time, any person so selected to serve on the Lodgian Board is unable or unwilling to serve in such position, the company that selected such person shall designate another person to serve in such person's stead. At each annual meeting of shareholders, beginning with the 1999 annual meeting, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. The term of a director elected by shareholders to fill a newly created directorship or other vacancy shall expire at the same time as the terms of the other directors of the class for which the new directorship is created or in which the vacancy occurred. Any director elected by the Lodgian Board to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. Any or all of the directors of Lodgian may be removed from office at any time only for cause by the affirmative vote of holders of a majority of the outstanding shares of Lodgian entitled to vote generally in the election of directors. -79- 98 COMMITTEES OF THE BOARD OF DIRECTORS. Pursuant to the Restated Bylaws, the Lodgian Board, by resolution passed by a majority of the number of directors constituting the whole Board, may designate members of the Lodgian Board to constitute one or more committees, which committee will consist of not fewer than two directors. The Lodgian Board, upon approval of a majority of the directors, will have the power to change the members of any such committee at any time, to fill vacancies therein and to discharge any such committee, either with or without cause, at any time. COMPENSATION OF DIRECTORS. Directors who are employees of Lodgian will not receive any additional compensation for service on the Lodgian Board. The annual meeting and committee meeting fees to be paid to non-employee directors of Lodgian have not yet been determined. In order to align more closely the interests of non-employee directors of Lodgian and its shareholders, it is expected that a significant portion of the total compensation to be paid to non-employee directors of Lodgian will be based in stock. Pursuant to the terms of the Lodgian Non- Employee Directors' Stock Plan, which is being submitted for shareholder approval herewith, each non-employee director will receive an annual grant of options with respect to 5,000 shares of Lodgian Common Stock on the date of each annual meeting of Lodgian's shareholders, commencing with the annual meeting held in 1999. Director options will vest in equal installments on each of the three annual meetings following the date of grant. For a detailed description of the Lodgian Non-Employee Directors' Stock Plan, see "Lodgian Plan Proposals--The Lodgian Non- Employee Directors' Stock Plan." Each director, in consideration of his serving as such, will be entitled to receive from Lodgian such amount per annum, if any, or such fees, if any, for attendance at meetings of the Lodgian Board or of any committee thereof, or both, as the Board determines. SENIOR EXECUTIVE OFFICERS. As of the Effective Time, David A. Buddemeyer will be the Chief Executive Officer of Lodgian and each of the Surviving Entities, Robert S. Cole will be President of Lodgian and each of the Surviving Entities, and David Buddemeyer and Robert Cole will be the Co-Chairmen of the Board of Directors of Lodgian and each of the Surviving Entities. David Buddemeyer, 40, has been the Chairman of the Servico Board since August 1997, its Chief Executive Officer since December 1995, a director of Servico since April 1994 and Servico's President since May 1993. Mr. Buddemeyer served as the Chief Operating Officer of Servico from May 1993 to December 1995 and its Executive Vice President from June 1990 to May 1993. Prior to such time, from 1987 to June 1990, Mr. Buddemeyer served as Vice President-Operations of Prime Motors Inns, Inc., a hotel management company. Robert S. Cole, 36, began his career in the hospitality business in 1984 and held a variety of general manager positions in hotels throughout the United States. He formed Impac's predecessor in 1990 and has since served as the President of Impac, its predecessors and affiliates. If any of such persons is unable or unwilling to hold such offices as set forth above, his successor shall be selected by the Lodgian Board or the Surviving Entities in accordance with their respective Bylaws. To date, Servico and Impac have not decided who, in addition to Messrs. Buddemeyer and Cole, will be designated to serve as executive officers of Lodgian. It is expected that the other executive officers of Lodgian will be appointed after the Effective Time. EXECUTIVE COMPENSATION. The Lodgian Board will rely on its compensation committee, which will be composed of non-employee directors, to recommend the form and amount of compensation to be paid to Lodgian's executive officers. For information regarding employment agreements with Messrs. Buddemeyer and Cole, see "Interests of Certain Persons in the Merger--Arrangements with Executive Officers." ARRANGEMENTS REGARDING TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL. Lodgian has adopted a severance policy which provides for payments to its executive officers in an amount equal to two and one-half times their annual base compensation, less any other cash severance payments contractually owed to them by Lodgian, in the event that there is either a change in the majority of the Board of Directors or the acquisition by any individual or group of in excess of 40% of Lodgian's outstanding voting securities and the duties or responsibilities of such executive officers are materially diminished within 24 months thereafter. -80- 99 STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND FIVE PERCENT SHAREHOLDERS LODGIAN COMMON STOCK OWNERSHIP BY 5% SHAREHOLDERS. The following table sets forth, based on the number of shares of Servico Common Stock outstanding on the Servico Record Date and the number of Impac Units outstanding on the date of this Joint Proxy Statement/Prospectus, the percentage ownership of Lodgian Common Stock by the persons whom Lodgian believes will own beneficially more than 5% of its outstanding Common Stock other than directors and executive officers listed in the table set forth below, assuming an Impac Exchange Ratio of 0.519:
NUMBER OF SHARES NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT ------------------------------------ ------------------ ------- Jeffery J. Neal (1) 1,437,955 5.3% Bret N. Bearup (2) 1,437,955 5.3%
(1) 5575 DTC Parkway, Suite 320, Englewood, CO 80111. Jeffery J. Neal is a member and manager of ProTrust Properties, LLC which, upon consummation of the liquidation of ProTrust Properties I, Ltd. and ProTrust Properties III, Ltd., will hold approximately 120,431 shares of Lodgian Common Stock; is a member and manager of ProTrust Holdings, LLC which, upon consummation of the liquidation of ProTrust Properties IV, Ltd., will hold approximately 38,690 shares of Lodgian Common Stock; is an executive officer and shareholder of ProTrust Capital, Inc., which is the general partner of B.C.M. of Myrtle Beach, Ltd. and B.C.M. of St. Louis, Ltd., the beneficial owner of an aggregate of 49,255 shares of Lodgian Common Stock and accordingly, ProTrust Capital, Inc. may be attributed beneficial ownership of the shares owned by B.C.M. of Myrtle Beach, Ltd. and B.C.M. of St. Louis, Ltd.; is an executive officer and shareholder of B & N Corporate Plaza, Inc., which owns 79,771 shares of Lodgian Common Stock; is a member and manager of ProTrust Holdings II, LLC, which is the general partner of ProTrust Properties V, Ltd., the beneficial owner of 725,072 shares of Lodgian Common Stock and accordingly, ProTrust Holdings II, LLC may be attributed beneficial ownership of the shares owned by ProTrust Properties V, Ltd.; is a member and manager of Hotel Investors, LLC, which is the general partner of Hotel Investors, L.P., the beneficial owner of 305,949 shares of Lodgian Common Stock and accordingly, Hotel Investors, LLC may be attributed beneficial ownership of the shares owned by Hotel Investors, L.P.; and is a member and manager of ProTrust Equity Partners, LLC, which is the general partner of ProTrust Equity Growth Fund I, L.P., the beneficial owner of 108,055 shares of Lodgian Common Stock and accordingly, ProTrust Equity Partners, LLC may be attributed beneficial ownership of the shares owned by ProTrust Equity Growth Fund I, L.P. The other member and manager of ProTrust Properties, LLC is Bret N. Bearup and the other executive officer and shareholder of ProTrust Capital, Inc. and B & N Corporate Plaza, Inc. is Bret N. Bearup. The other members and managers of ProTrust Holdings, LLC, ProTrust Holdings II, LLC and Hotel Investors, LLC are John M. Lang and Bret N. Bearup and the other members and managers of ProTrust Equity Partners, LLC are John M. Lang, Bret N. Bearup and Mark S. Cooley. Mr. Neal disclaims beneficial ownership of such shares beyond his ownership in ProTrust Properties, LLC, ProTrust Holdings, LLC, ProTrust Capital, Inc., B & N Corporate Plaza, Inc., ProTrust Holdings II, LLC, Hotel Investors, LLC and ProTrust Equity Partners, LLC. (2) 3399 Peachtree Road, N.E., Suite 2050, Atlanta, Georgia 30326. Bret N. Bearup is a member and manager of ProTrust Properties, LLC which, upon consummation of the liquidation of ProTrust Properties I, Ltd. and ProTrust Properties III, Ltd., will hold approximately 120,431 shares of Lodgian Common Stock; is a member and manager of ProTrust Holdings, LLC which, upon consummation of the liquidation of ProTrust Properties IV, Ltd., will hold approximately 38,690 shares of Lodgian Common Stock; is an executive officer and shareholder of ProTrust Capital, Inc., which is the general partner of B.C.M. of Myrtle Beach, Ltd. and B.C.M. of St. Louis, Ltd., the beneficial owner of an aggregate of 49,255 shares of Lodgian Common Stock and accordingly, ProTrust Capital, Inc. may be attributed beneficial ownership of the shares owned by B.C.M. of Myrtle Beach, Ltd. and B.C.M. of St. Louis, Ltd.; is an executive officer and shareholder of B & N Corporate Plaza, Inc., which owns 79,771 shares of Lodgian Common Stock; is a member and manager of ProTrust Holdings II, LLC, which is the general partner of ProTrust Properties V, Ltd., the beneficial owner of 725,072 shares of Lodgian Common Stock and accordingly, ProTrust Holdings II, LLC may be attributed beneficial ownership of the shares owned by ProTrust Properties V, Ltd.; is a member and manager of Hotel Investors, LLC, which is the general partner of Hotel Investors, L.P., the beneficial owner of 305,949 shares of Lodgian Common Stock and accordingly, Hotel Investors, LLC may be attributed beneficial ownership of the shares owned by Hotel Investors, L.P.; and is a member and manager of ProTrust Equity Partners, LLC, which is the general partner of ProTrust Equity Growth Fund I, L.P., the beneficial owner of 108,055 shares of Lodgian Common Stock and accordingly, ProTrust Equity Partners, LLC may be attributed beneficial ownership of the shares owned by ProTrust Equity Growth Fund I, L.P. The other member and manager of ProTrust Properties, LLC is Jeffery J. Neal and the other executive officer and shareholder of ProTrust Capital, Inc. and B & N Corporate Plaza, Inc. is Jeffery J. Neal. The other members and managers of ProTrust Holdings, LLC, ProTrust Holdings II, LLC and Hotel Investors, LLC are John M. Lang and Jeffery J. Neal and the other members and managers of ProTrust Equity Partners, LLC are John M. Lang, Jeffery J. Neal and Mark S. Cooley. Mr. Bearup disclaims beneficial ownership of such shares beyond his ownership in ProTrust Properties, LLC, ProTrust Holdings, LLC, ProTrust Capital, Inc., B & N Corporate Plaza, Inc., ProTrust Holdings II, LLC, Hotel Investors, LLC and ProTrust Equity Partners, LLC. -81- 100 LODGIAN COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth the expected beneficial ownership of Lodgian Common Stock by all directors and each of the executive officers of Lodgian (and by all directors and executive officers as a group) based on the number of shares of Servico Common Stock or Impac Units owned by such individuals on March 25, 1998 and assuming an Impac Exchange Ratio of 0.519.
NUMBER OF SHARES NAME OF BENEFICIAL OWNER POSITION AT LODGIAN BENEFICIALLY OWNED(1) PERCENT(2) - ------------------------ ------------------- --------------------- ---------- David Buddemeyer(2) Chief Executive Officer, 202,219 * Co-Chair of the Board Robert S. Cole(3) President, Co-Chair of the 1,205,075 4.5% Board Joseph C. Calabro(2)(4) Director 261,100 * Michael A. Leven(2) Director 25,000 * Peter R. Tyson(2) Director 55,600 * Richard H. Weiner (2) Director 55,100 * John Lang(5) Director 1,377,617 5.1% All directors and executive officers 3,181,711 11.6% as a group (7 persons)
- ---------------------- * Represents less than 1%. (1) The calculation of the number of shares and the percentage ownership of each of the shareholders of Lodgian is based upon, as a result of the Merger, each Servico shareholder receiving one share of Lodgian Common Stock per share of Servico Common Stock and each Impac unitholder receiving 0.519 of a share of Lodgian Common Stock per Impac Unit and shares of Common Stock subject to outstanding stock options which are exercisable by the named individual or group. Therefore, the number of shares of Lodgian Common Stock outstanding is 27,588,795. (2) The amounts shown include shares owned by options exercisable within 60 days of June __, 1998, as follows: David Buddemeyer - 172,400 shares; Joseph C. Calabro - 55,000 shares; Michael A. Leven - 25,000 shares; Peter R. Tyson - 55,000 shares; and Richard H. Weiner - 55,000 shares. (3) Includes the following number of shares to be owned of record by the indicated entities, which may be deemed to be controlled by Mr. Cole: 38,102 shares held by Delk Lodging Associates, Inc.; 57,852 shares held by Hazard Lodging Associates, Inc.; 38,814 shares held by Impac Design & Construction, Inc.; 667,918 shares held by Impac Hotel Development, Inc.; 64,691 shares held by Impac Hotel Group, Inc.; 109,919 shares held by P-Burg Lodging Associates, Inc.; 79,762 shares held by Memphis Lodging Associates, Inc.; 24,644 shares held by Valdosta Lodging Associates, Inc.; and 29,944 shares held by Buckhead Lodging Associates, L.P. (4) Mr. Calabro has sole voting and dispositive power with respect to 203,100 of such shares and shares voting and dispositive power with respect to 3,000 shares with his wife. (5) John M. Lang is a member and manager of ProTrust Holdings, LLC, which, upon consummation of the liquidation of ProTrust Properties IV, Ltd., will hold approximately 38,690 shares of Lodgian Common Stock; is the sole member and member of P.T. Partners, LLC, which owns 144,012 shares of Lodgian Common Stock; is a member and manager of ProTrust Holdings II, LLC, which is the general partner of ProTrust Properties V, Ltd., the beneficial owner of 725,072 shares of Lodgian Common Stock and accordingly, ProTrust Holdings II, LLC may be attributed beneficial ownership of the shares owned by ProTrust Properties V, Ltd.,; is a member and manager of Hotel Investors, LLC, which is the general partner of Hotel Investors, L.P., the beneficial owner of 305,949 shares of Lodgian Common Stock and accordingly, Hotel Investors, LLC may be attributed beneficial ownership of the shares owned by Hotel Investors, L.P.; and is a member and manager of ProTrust Equity Partners, LLC, which is the general partner of ProTrust Equity Growth Fund I, L.P., the beneficial owner of 108,055 shares of Lodgian Common Stock and accordingly, ProTrust Equity Partners, LLC may be attributed beneficial ownership of the shares owned by ProTrust Equity Growth Fund I, L.P. The other members and managers of ProTrust Holdings, LLC, ProTrust Holdings II, LLC and Hotel Investors, LLC are Jeffery J. Neal and Bret N. Bearup and the other members and managers of ProTrust Equity Partners, LLC are Jeffery J. Neal, Bret N. Bearup and Mark S. Cooley. Mr. Lang disclaims beneficial ownership of such shares beyond his ownership in ProTrust Holdings, LLC, P.T. Partners, LLC, ProTrust Holdings II, LLC, Hotel Investors, LLC and ProTrust Equity Partners, LLC. -82- 101 SUMMARY INFORMATION REGARDING PROPERTIES FOLLOWING THE MERGER The following tables set forth certain information related to hotels owned by Servico, Impac and Lodgian (on a pro forma basis after the Merger) by category of hotel and by geographic region: SERVICO
TWELVE MONTHS ENDED DECEMBER 31, 1997 ------------------------------------------------------------ AVERAGE TOTAL NUMBER NUMBER OF CAPITAL AVERAGE AVERAGE AVERAGE GEOGRAPHIC AREA OF HOTELS ROOMS EXPENDITURES OCCUPANCY ADR REVPAR --------------- --------- ----- ------------ --------- ------- ------- Northeast 23 218 $19,187,765 64.1% $80.09 $51.34 Southeast 20 190 $14,115,566 69.8% $62.64 $43.72 Central 18 208 $23,480,280 67.7% $64.98 $43.99 Western 8 188 $ 4,224,960 69.4% $82.19 $57.04 =============== ================ ================== =============== ============ ============== Total 69 204 $61,008,571 67.1% $71.74 $48.14 CATEGORY Luxury 9 294 $11,869,770 68.4% $90.12 $61.64 Upscale 7 228 $ 7,819,900 64.5% $81.83 $52.78 Midscale with Food and Beverage 44 194 $38,201,951 67.3% $67.05 $45.12 Midscale without Food and Beverage 8 145 $ 3,045,120 66.1% $56.95 $37.64 Economy 1 140 $ 71,830 70.4% $49.75 $35.02 =============== ================ ================== =============== ============ ============== Total 69 204 $61,006,571 67.1% $71.74 $48.14
-83- 102 IMPAC
TWELVE MONTHS ENDED DECEMBER 31, 1997 ------------------------------------------------------------ AVERAGE TOTAL NUMBER NUMBER OF CAPITAL AVERAGE AVERAGE AVERAGE GEOGRAPHIC AREA OF HOTELS ROOMS EXPENDITURES OCCUPANCY ADR REVPAR --------------- --------- ----- ------------ --------- ------- ------- Northeast 17 160 $27,631,874 56.7% $ 66.00 $37.42 Southeast 15 155 $23,122,453 57.3% $ 71.72 $41.10 Central 8 191 $18,625,210 62.5% $ 65.97 $41.23 Western 5 229 $19,676,662 $ 59.60 $25.39 ============= ============== ================== ======= ============== ================ 42.6% Total 45 172 $89,056,199 56.5% $ 67.15 $37.94 CATEGORY Luxury 1 179 $ 6,691,343 43.8% $154.01 $67.46 Upscale 5 230 $10,968,670 48.5% $ 77.26 $37.47 Midscale with Food and Beverage 29 178 $61,881,237 57.7% $ 66.98 $38.65 Midscale without Food and Beverage 3 166 $ 4,794,465 61.7% $ 53.77 $33.18 Economy 5 113 $ 4,060,774 56.5% $ 46.60 $26.33 Budget 2 83 $ 659,710 $ 44.96 $28.64 ============== =============== ================== ======= ============== ================ 63.7% Total 45 172 $89,056,199 56.5% $ 67.15 $37.94
-84- 103 LODGIAN
TWELVE MONTHS ENDED DECEMBER 31, 1997 ------------------------------------------------------------ AVERAGE TOTAL NUMBER NUMBER OF CAPITAL AVERAGE AVERAGE AVERAGE GEOGRAPHIC AREA OF HOTELS ROOMS EXPENDITURES OCCUPANCY ADR REVPAR --------------- --------- ----- ------------ --------- ------- ------- Northeast 40 194 $ 46,819,639 67.1% $75.15 $46.07 Southeast 35 175 $ 37,238,019 57.2% $65.82 $42.72 Central 26 203 $ 42,105,490 63.4% $65.33 $42.99 Western 13 204 $ 23,901,622 64.5% $42.99 $44.77 =============== ================ ================== ================= ============== ========== Total 114 191 $150,064,770 63.1% $44.27 $44.27 CATEGORY Luxury 10 283 $ 18,561,113 67.1% $92.28 $61.92 Upscale 12 229 $ 18,788,570 57.2% $80.05 $45.79 Midscale with Food and Beverage 73 188 $100,083,188 63.4% $67.02 $42.49 Midscale without Food and Beverage 11 151 $ 7,839,585 64.5% $55.81 $36.00 Economy 6 117 $ 4,132,604 63.1% $48.26 $30.45 Budget 2 83 659,710 63.7% $44.96 $28.64 =============== ================ ================== ================= ============== ========== Total 114 191 $150,064,770 63.1% $70.16 $44.27
-85- 104 DESCRIPTION OF SERVICO GENERAL Servico is one of the largest owners and operators of full-service hotels in the United States. Servico currently owns or manages 89 hotels containing approximately 17,937 rooms located in 24 states and Canada. Servico's hotels are primarily mid-sized, with an average of approximately 202 rooms per hotel, and are primarily located in secondary metropolitan markets. Servico's full-service hotels offer food and beverage services and meeting and banquet facilities. Servico's hotels include 76 wholly-owned hotels, 11 partially owned hotels and 2 managed hotels. Fourteen of the hotels are subject to long-term ground or building leases. Substantially all of Servico's hotels are affiliated with nationally recognized hospitality franchises, including Holiday Inn, Crowne Plaza, Hilton, Omni, Radisson, Sheraton and Westin. Servico operates 59 hotels under franchise agreements with Holiday Inn, making Servico the second largest Holiday Inn franchisee in the United States. INFORMATION RELATING TO DIRECTORS AND EXECUTIVE OFFICERS OF SERVICO The table below sets forth certain information with respect to the one candidate for election as a director at Servico's Annual Meeting, and the remaining four directors whose terms do not expire this year and the executive officers of Servico.
NAME AGE POSITION WITH SERVICO ---- --- --------------------- DIRECTOR WHOSE TERM EXPIRES IN 1998: Michael A. Leven 60 Director DIRECTORS WHOSE TERMS EXPIRE IN 1999: David Buddemeyer 40 Chairman of the Board, President and Chief Executive Officer Peter R. Tyson 51 Director Richard H. Weiner 48 Director DIRECTOR WHOSE TERM EXPIRES IN 2000: Joseph C. Calabro 47 Director EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS: Karyn Marasco 40 Executive Vice President and Chief Operating Officer Charles M. Diaz 30 Vice President-Administration and Secretary Warren M. Knight 51 Vice President-Finance and Chief Financial Officer Peter J. Walz 54 Vice President-Acquisitions
DAVID BUDDEMEYER has been the Chairman of the Board of Servico since August 1997, its Chief Executive Officer since December 1995, a director since April 1994 and its President since May 1993. Mr. Buddemeyer served as the Chief Operating Officer of Servico from May 1993 to December 1995 and its Executive Vice President from June 1990 to May 1993. Prior to such time, from 1987 to June 1990, he served as Vice President- Operations of Prime Motor Inns, Inc., a hotel management company. -86- 105 JOSEPH C. CALABRO has been a director of Servico since August 1992. Mr. Calabro has been a principal of Joseph C. Calabro, C.P.A., a Devon, Pennsylvania accounting firm, since 1982. Mr. Calabro has also been an officer and director of Bibsy Corporation, which previously owned and operated a Holiday Inn hotel in Bensalem, Pennsylvania, since 1971. MICHAEL A. LEVEN has been a director of Servico since August 1997. Mr. Leven is President and Chief Executive Officer of US Franchise Systems, Inc. Prior to joining US Franchise Systems, Inc., Mr. Leven was President and Chief Operating Officer of Holiday Inn Worldwide. PETER R. TYSON has been a director of Servico since August 1992. From December 1990 to the present, Mr. Tyson has been President of Peter R. Tyson & Associates, Inc., a firm offering consulting services to clients in the hospitality industry. Prior to forming Peter R. Tyson & Associates, Inc., Mr. Tyson was the partner-in-charge of the hospitality industry consulting practice in the Philadelphia office of the accounting and consulting firm of Laventhol & Horwath, with which he was associated for 20 years. RICHARD H. WEINER has been a director of Servico since August 1992. Mr. Weiner is a senior partner in the Albany, New York law firm of Cooper, Erving, Savage, Nolan & Heller, where he has practiced law since 1975. KARYN MARASCO has been Executive Vice President and Chief Operating Officer since May 1997. Prior to such time, Ms. Marasco was affiliated with Westin Hotels and Resorts for 18 years. Most recently, Ms. Marasco served Westin as Area Managing Director, based in Chicago. CHARLES M. DIAZ has been Vice President-Administration and Secretary of Servico since December 1997. Mr. Diaz joined Servico in March 1993 and has held positions in the construction and operations areas of Servico. WARREN M. KNIGHT has been Vice President-Finance and Chief Financial Officer of Servico since December 1991. Prior to such time, from March 1988 to November 1991, Mr. Knight served as Director of Finance for W.A. Taylor & Co., an importer of distilled spirits into the United States. PETER J. WALZ has been Vice President-Acquisitions of Servico since February 1996. Prior to such time, from December 1994 to January 1996, he was a consultant to Servico. From October 1993 to November 1994, Mr. Walz was an executive officer of Hospitality Investment Trust, Inc., a development stage lodging real estate investment trust. Prior to such time, from April 1987 to September 1993, Mr. Walz was Executive Vice President of CMS Development, Inc., a developer of office buildings, condominiums and hotels. DIRECTOR COMPENSATION. During 1997, Servico paid non-employee directors an annual retainer of $18,000, as well as a fee per board meeting or board committee meeting of $1,000. Mr. John Adams, who served as Chairman of the Board until his resignation from the Board, received compensation of $58,333 for serving as Chairman from January to August 1997, but received no retainer, meeting or committee fees. Servico also reimbursed directors other than Mr. Adams for expenses associated with attending Board and committee meetings. Under the Servico Plan, each non-employee director is automatically granted, on the date such director's term of office commences and each year thereafter on the day following any annual meeting of shareholders (as long as such director's term as a director is continuing for the ensuing year), an option to acquire 5,000 shares of Servico Common Stock at an exercise price equal to the fair market value of the Servico Common Stock on the date of grant. All options granted to non-employee directors become exercisable upon grant. In addition, in August 1997 each non-employee director was awarded an option to acquire 20,000 shares of Servico Common Stock at an exercise price equal to the fair market price on the date of grant. Such options became exercisable upon the date of grant and were granted outside of the Servico Plan. -87- 106 MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS. Servico's Board of Directors held ten meetings during the last fiscal year. No director attended fewer than 75% of the total aggregate number of meetings of the Board of Directors and any committee of the Board of Directors on which such director served during his or her tenure as a director or committee member. The Board of Directors of Servico currently has three standing committees -- the Audit Committee, the Compensation Committee and the Stock Option Committee. The full Board of Directors currently serves as the Nominating Committee. The principal functions of the Audit Committee are to review Servico's financial statements and management's disclosures, recommend to the Board of Directors the appointment of independent public accountants to be employed by Servico, confer with the independent public accountants concerning the scope of their audit and, on completion of their audit, review the accountants' findings and recommendations, review the adequacy of Servico's systems of internal accounting controls, review areas of possible conflicts of interest and sensitive payments and consider such other matters as the committee deems appropriate. The Audit Committee held two formal meetings during the last fiscal year. The present members of the Audit Committee are Joseph C. Calabro, Peter R. Tyson and Richard H. Weiner. The principal functions of the Compensation Committee are to approve or, in some cases, to recommend to the Board of Directors, remuneration arrangements and compensation plans involving Servico's directors and executive officers, review bonus criteria and bonus recommendations and review compensation of directors. The Compensation Committee held one formal meeting during the last fiscal year. The present members of the Compensation Committee are Joseph C. Calabro, Peter R. Tyson and Richard H. Weiner. The principal function of the Stock Option Committee is to administer the Servico Plan. The Stock Option Committee held one formal meeting during the last fiscal year. The present members of the Stock Option Committee are Joseph C. Calabro and Peter R. Tyson. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934. Section 16(a) of the Exchange Act requires Servico's directors, executive officers and 10% shareholders to file reports of ownership and reports of changes in ownership of Servico Common Stock and other equity securities with the SEC and the NYSE. Directors, executive officers and 10% shareholders are required to furnish Servico with copies of all Section 16(a) forms they file. Based on a review of the copies of such reports furnished to it, Servico believes that during 1997 Servico's directors, executive officers and 10% shareholders complied with all Section 16(a) filing requirements applicable to them, except with respect to the Form 4s required to be filed with respect to the August 1997 stock option grants to directors which were not timely filed. EXECUTIVE COMPENSATION. The following table sets forth certain summary information concerning compensation paid or accrued by Servico, to or on behalf of the Chief Executive Officer and to each of Servico's four most highly compensated executive officers other than the Chief Executive Officer during the year ended December 31, 1997. -88- 107 SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ----------------------------------------- ----------------------------------- SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS(5) COMPENSATION($)(6) - --------------------------- ---- --------- -------- --------------- --------------- ------------------ David Buddemeyer, 1997 385,000 120,000 - 400,000 2,948 Chairman of the Board, 1996 350,000 96,745 - 13,500 4,726 President and Chief Executive 1995 275,000 70,905 - 5,000 4,733 Officer Karyn Marasco, 1997 137,269 60,000 - 125,000 - Executive Vice President and Chief Operating Officer(1) Warren M. Knight, 1997 188,000 60,000 - 75,000 3,556 Vice President-Finance 1996 170,000 46,990 - 13,500 4,844 and Chief Financial Officer 1995 150,000 38,675 - 5,000 3,921 Robert D. Ruffin(2) 1997 168,000 - - - 3,712 1996 160,000 44,227 - 13,500 5,192 1995 150,000 38,675 - 5,000 4,279 Peter J. Walz, 1997 150,000 - 174,700(4) 100,000 3,793 Vice President-Acquisitions(2) 1996 122,596 - 139,438(4) 15,500 2,375 1995 - - 348,730(4) - -
- ------------------ (1) Ms. Marasco's employment with Servico began in May 1997. (2) Mr. Ruffin served as Vice President-Administration and Secretary until his resignation on December 31, 1997. (3) Mr. Walz's employment with Servico began in January 1996. (4) Represents commission payments made to Mr. Walz. (5) Represents the number of shares of Servico Common Stock underlying the options/SARs. (6) Each item included in this column represents a contribution made by Servico under its 401(k) plan on behalf of the named executive based on such executive's annual elective pre-tax deferred contribution (included under Salary) to such plan. STOCK OPTION PLAN. The Servico Plan provides for the issuance of incentive stock options within the meaning of Section 422A of the Code and non-qualified stock options not intended to meet the requirements of Section 422A of the Code. The Servico Plan is administered by a committee of the Board of Directors which, subject to the terms of the Plan, determines to whom grants are made and the vesting, timing and amounts of such grants. The following table sets forth information concerning stock option grants made during 1997 to the executive officers named in the "Summary Compensation Table", including the potential realizable value of each grant assuming that the market value of the Servico Common Stock appreciates from the date of grant to the expiration of the option at annualized rates of 5% and 10%, in each case compounded annually over the term of the option. These assumed rates of appreciation have been specified by the SEC for illustration purposes only and are not intended to predict future prices of Servico Common Stock. The actual future value of the options will depend on the market value of the Servico Common Stock. -89- 108 STOCK OPTION GRANTS IN FISCAL YEAR 1997
POTENTIAL INDIVIDUAL GRANTS REALIZABLE VALUE AT ----------------------------------------- ASSUMED ANNUAL NUMBER OF RATES OF STOCK SECURITIES PERCENT OF TOTAL PRICE APRECIATION UNDERLYING OPTIONS/SARS EXERCISE FOR OPTION OPTIONS/SARS GRANTED TO PRICE EXPIRATION ------------------------ GRANTED(#)(1) EMPLOYEES(%) ($/Sh) DATE 5%($) 10%($) ------------- ------------ ----- ---------- ----- ----- David Buddemeyer 400,000 35.27% $16.75 8/27/2007 4,213,594 10,678,074 Karyn Marasco 50,000 4.41% $15.25 5/06/2007 479,532 1,215,229 Karyn Marasco 75,000 6.61% $16.75 8/27/2007 790,049 2,002,139 Warren M. Knight 75,000 6.61% $16.75 8/20/2007 790,049 2,002,139 Peter J. Walz 100,000 8.82% $16.75 8/20/2007 1,053,398 2,669,519
- ---------------------- (1) Approximately 410,000 of such options are subject to approval by Servico's shareholders of an increase in the number of shares available for grant under the Servico Plan. (2) The options were granted at fair market value at the time of the grant and generally vest in equal portions over a five year period. The following table sets forth certain summary information concerning exercised and unexercised options to purchase Servico Common Stock as of December 31, 1997, under the Servico Plan held by the executive officers named in the "Summary Compensation Table". -90- 109 STOCK OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/SARS HELD AT OPTIONS/SARS(2) FISCAL YEAR-END (#) AT FISCAL YEAR-END($) NAME AND POSITION ACQUIRED ON VALUE ------------------------------ ---------------------------- DURING 1997 FISCAL YEAR EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ----------------------- ------------ ------------ ----------- ------------- ----------- ------------- David Buddemeyer, Chairman of the Board, President and Chief Executive Officer - - 189,700 333,800 1,393,163 128,275 Karyn Marasco, Executive Vice President and Chief Operating Officer(1) - - 25,000 100,000 18,125 72,500 Warren M. Knight, Vice President-Finance and Chief Financial Officer - - 112,400 73,800 1,224,100 95,775 Robert D. Ruffin(1) - - 60,700 12,800 746,788 80,900 Peter J. Walz, Vice President- Acquisitions - - 23,000 92,000 20,875 83,500
- ----------------- (1) Mr. Ruffin served as Vice President-Administration and Secretary until his resignation on December 31, 1997. (2) The value of unexercised in-the-money options/SARs represents the number of options/SARs held at year-end 1997 multiplied by the difference between the exercise price and $16.875, the closing price of Servico Common Stock at year-end 1997. SERVICO EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT EMPLOYMENT AGREEMENTS. David Buddemeyer entered into an employment agreement with Servico relating to his employment as President and Chief Operating Officer as of May 14, 1993. Effective December 21, 1995, Mr. Buddemeyer was elected Chief Executive Officer of Servico. The employment agreement provides for a base salary subject to increases and bonuses, in each case, at the discretion of the Board of Directors. The base salary paid to Mr. Buddemeyer during 1997 was $385,000 and the base salary to be paid Mr. Buddemeyer during 1998 is $405,000. Mr. Buddemeyer is also entitled to receive paid health insurance, paid disability insurance and is entitled to participate, to the extent he is eligible, under any benefit plans provided to other executives of Servico. Mr. Buddemeyer is entitled to a minimum of four weeks paid vacation annually. The employment agreement is terminable by either party upon 30 days written notice. However, in the event that Mr. Buddemeyer is terminated other than "for cause", as defined, Servico will be required to pay him his base salary and other benefits under this agreement for a period of one year. See "Interests of Certain Persons in the Merger- -Arrangements with Executive Officers" for a discussion of the employment agreement to be offered to Mr. Buddemeyer by Lodgian and which will replace Mr. Buddemeyer's employment agreement with Servico. Karyn Marasco entered into a three-year employment agreement with Servico relating to her employment as Executive Vice President and Chief Operating Officer of Servico on May 1, 1997. The employment agreement provides for a base salary of $215,000 subject to increases and bonuses in the discretion of the Board. Ms. Marasco is also entitled to receive the benefits offered other executive officers. Pursuant to the terms of the Employment Agreement, Ms. Marasco was granted options to acquire 50,000 shares of Servico Common Stock with options with respect to 10,000 of such shares vesting immediately and 10,000 vesting annually. The Employment Agreement is terminable upon thirty days notice but in the event Ms. Marasco is terminated other than "for cause", as defined, she will be entitled to her base salary and benefits under the agreement for the greater of the unexpired term or one year. Lodgian will assume Ms. Marasco's employment agreement. -91- 110 ARRANGEMENTS REGARDING TERMINATION OF EMPLOYMENT AND CHANGES OF CONTROL. Servico has adopted a severance policy which provides for payments to its executive officers in an amount equal to two and one-half times their annual base compensation, less any other cash severance payments contractually owed to them by Servico, in the event that there is either a change in the majority of the Board of Directors or the acquisition by any individual or group of in excess of 50% of Servico's outstanding Common Stock and the duties or responsibilities of such executive officers are materially diminished within 24 months thereafter. The Merger will not result in any liability under these provisions. REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The compensation of Servico's executive officers, including its Chief Executive Officer, is determined by the Compensation Committee of Servico's Board of Directors (the "Compensation Committee"), except for decisions regarding the Servico Plan, which are made by the Stock Option Committee of the Board of Directors (the "Stock Option Committee"). During 1997, the Compensation Committee was comprised of the three non-employee directors, Joseph C. Calabro, Peter R. Tyson and Richard H. Weiner. The current members of the Stock Option Committee are Mr. Calabro and Mr. Tyson. Servico's executive compensation policies are designed to provide competitive levels of compensation that integrate pay with Servico's short-term and long-term performance goals, reward corporate performance and recognize individual initiative and achievement. It is anticipated that these policies will help Servico to continue to attract and retain quality personnel and thereby enhance Servico's long-term profitability and share value. Executive compensation ranges have been designed to be competitive with amounts paid to senior executives at companies in the hospitality industry which compete with Servico, companies which are similar in size and profitability to Servico and companies with which Servico competes for senior executives. Within this framework, individual executive compensation is based on personal and corporate achievement and the individual's level of responsibility and experience. However, in any particular year, Servico's executives may be paid more or less than executives in peer companies depending upon Servico's performance. BASE COMPENSATION. The base salaries of Servico's executive officers are based in part on comparative industry data and on various quantitative and qualitative considerations regarding corporate and individual performance. An executive's base salary is determined only after an assessment of his or her sustained performance, current salary in relation to the target salary for the job responsibilities and his or her experience and potential for advancement. Further, in establishing base salaries for Servico's executive officers, numerous other factors, including the following, are considered: i. Industry compensation trends. ii. Cost-of-living and other local and geographic considerations. iii. Consultation with other Servico executives. iv. Hospitality industry and job-specific skills and knowledge. v. Historical and expected contributions to Servico's performance. vi. Level, complexity, breadth and difficulty of duties. In establishing the base salaries of the executive officers, the Compensation Committee was cognizant of the roles of each executive officer in the operations of Servico. The Compensation Committee specifically recognized the improvements achieved in Servico's results of operations and financial condition during the prior fiscal year and the roles and responsibilities of each of the executive officers. BONUS PROGRAM. An annual bonus program has been implemented at Servico. The objective of the bonus program is to motivate and reward the accomplishment of corporate objectives; reinforce a strong performance orientation; provide a direct link between corporate performance and executive compensation; and provide a fully competitive compensation package which will attract, reward and retain individuals of the highest quality. As a performance-based plan, cash bonus awards are required to be paid under the plan only upon the achievement of preestablished corporate performance objectives on a quarterly and annual basis and no bonuses are required -92- 111 to be paid if the minimum established thresholds are not met. A maximum ceiling is also established for awards under the bonus program which is determined after consideration of Servico's competitive position in the industry, assessment of long-term goals and business performance considerations. Under the 1997 bonus awards program, Servico agreed to allocate to a bonus pool an amount equal to a percentage of the amount by which actual and annual cash flow (as defined) exceeded budgeted cash flow for each quarter subject to a calculation based on the number of shares of Servico Common Stock outstanding at the time the bonus is determined. As a consequence of Servico's successful secondary offering of 11.5 million shares of Servico Common Stock in July, 1997 no bonus was payable under the 1997 plan notwithstanding Servico's strong results in 1997 and the benefits to Servico of successfully consummating its Common Stock offering. Accordingly, the Compensation Committee made a determination, in its discretion, to award bonuses of an aggregate of $270,000 to the executive officers of Servico including a $120,000 bonus to Mr. Buddemeyer, the Chief Executive Officer of Servico. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. Servico's long-term executive compensation incentives are in the form of Stock Option awards and Stock Appreciation Rights. The Stock Option Committee believes that Stock Option awards and Stock Appreciation Rights are an effective means of advancing the long-term interests of Servico's shareholders by integrating executive compensation with the long-term value of Servico Common Stock. Awards are granted at the prevailing market price on the date of grant and are valuable to executives only if Servico Common Stock appreciates. During 1997, the Stock Option Committee awarded options to purchase an aggregate of 587,500 shares of Servico Common Stock and Stock Appreciation Rights relating to an aggregate of 150,000 shares identified in the "Stock Option Grants in Fiscal Year 1997" table. All of such options were granted with an exercise price equal to $16.75 per share, the market price on the date of grant. The Stock Option Committee also awarded options to purchase shares of Servico Common Stock to various non-executive employees of Servico during 1997. All of such options and rights were granted with an exercise or base price equal to $16.75 per share, the market price on the date of grant. In determining whether (and to what extent) to grant stock options or rights to executives and employees of Servico, the Stock Option Committee considered numerous factors, including, among others, those factors listed under "Base Compensation." CHIEF EXECUTIVE OFFICER. Like the other executive officers listed in the "Summary Compensation Table," compensation for 1997 for David Buddemeyer, Servico's Chairman of the Board, President and Chief Executive Officer, consisted primarily of a base salary and a discretionary bonus based on corporate performance. The Compensation Committee determined Mr. Buddemeyer's compensation for 1997 after considering many factors, including those factors described above under Base Compensation applicable to all executives. Additionally, the Compensation Committee focused on Mr. Buddemeyer's role in the continuing profitability of Servico and the demand for executives with similar successful track records in the hospitality industry. In establishing Mr. Buddemeyer's compensation, the Compensation Committee also took particular note of the continued improvement in Servico's financial condition, Servico's successful secondary offering and Servico's growth during 1997. Servico reported revenues of $276.6 million and earnings before interest, tax, depreciation and amortization ("EBITDA") of $69.6 million for the year ended December 31, 1997, as compared to revenues of $239.5 million and EBITDA of $57.9 million for the year ended December 31, 1997. Based on Mr. Buddemeyer's contribution to Servico and Servico's reliance on Mr. Buddemeyer, the Compensation and Stock Option Committees granted to Mr. Buddemeyer options to acquire 300,000 shares of Servico Common Stock and Stock Appreciation Rights with respect to an additional 100,000 shares based on the market price of Servico's Common Stock on the date of grant. SECTION 162(M) DEDUCTIBILITY. The Compensation and Stock Option Committees continue to review the $1 million cap on tax deductible compensation and is advised that its stock option plan meets the requirements -93- 112 for deductibility. The Stock Appreciation Rights and bonuses payable may have not met all requirements for deductibility under Section 162(m) of the Code. However, unless the amounts involved become material, the Compensation and Stock Option Committees believe that it is more important to preserve its flexibility under the plan to craft appropriate incentive awards. The Committees continue to believe that this is not a currently significant issue. Submitted by, Joseph C. Calabro Peter R. Tyson Richard H. Weiner PERFORMANCE GRAPH Set forth below is a graph comparing the cumulative total shareholder return on Servico's Common Stock with the Dow Jones Equity Market Index and the Dow Jones Lodging Index. The Servico Common Stock traded on the American Stock Exchange under the symbol "SER" from August 18, 1992 until June 18, 1997 and thereafter traded on the NYSE. The graph assumes an investment of $100.00 on August 18, 1992 in (i) Servico's Common Stock, (ii) the stocks comprising the Dow Jones Equity Market Index and (iii) the Dow Jones Lodging Index. -94- 113 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding ownership of Servico Common Stock as of March 25, 1998, by (i) each person known to Servico to be the beneficial owner of more than 5% of the issued and outstanding Servico Common Stock as of June 30, 1998, (ii) each of the members of Servico's Board of Directors, (iii) each of Servico's current executive officers named in the "Summary Compensation Table" under "Executive Compensation" above, and (iv) all directors and executive officers of Servico as a group. All shares were owned directly with sole voting and investment power unless otherwise indicated.
SHARES OF PERCENT OF NAME AND ADDRESS COMMON STOCK COMMON STOCK OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1) - ------------------------------------------------------------------------------------------------------- BENEFICIAL OWNERS OF 5% OR MORE OF OUTSTANDING SERVICO COMMON STOCK: - ---------------------------------- Heitman/PRA Securities Advisors, Inc. 1,307,000(2) 6.1% 180 North LaSalle Street, Suite 3600 Chicago, IL 60601 Eagle Asset Management 1,301,815(3) 6.1% 880 Carillon Parkway St. Petersburg, FL 33716 Prudential Insurance Company of America 1,111,000(4) 5.2% 751 Broad Street Newark, NJ 07102-3777 DIRECTORS: David Buddemeyer 202,219(5) * 1601 Belvedere Road West Palm Beach, FL 33406 Joseph C. Calabro 261,100(6) 1.2% 868 Lancaster Avenue Devon, PA 19333 Michael A. Leven 25,000(7) * 13 Corporate Square Suite 250 Atlanta, GA 30329 Peter R. Tyson 55,600(8) * 135 E. State Street Kennett Square, PA 19348 Richard H. Weiner 55,100(8) * 39 N. Pearl St. Albany, NY 12207
-95- 114
NON-DIRECTOR EXECUTIVE OFFICERS: Warren M. Knight 116,111(9) * 1601 Belvedere Road West Palm Beach, FL 33406 Karyn Marasco 22,500(10) * 1601 Belvedere Road West Palm Beach, FL 33406 Peter J. Walz 25,500(11) * 1601 Belvedere Road West Palm Beach, FL 33406 All directors and executive officers as a 769,365(12) 3.6% group (nine persons)
- ---------------------- * Represents less than 1% (1) Ownership percentages are based on 21,565,795 shares of Servico Common Stock outstanding as of March 25, 1998 and shares of Servico Common Stock subject to outstanding stock options which are exercisable by the named individual or group. (2) Heitman/PRA Securities Advisors, Inc. filed a Schedule 13G dated February 12, 1998, with the SEC reporting ownership of 1,307,000 shares of Servico Common Stock with sole voting power with respect to 1,231,000 shares, sole dispositive power with respect to 1,284,400 and shared dispositive power with respect to 22,600. (3) Eagle Asset Management, Inc. filed a Schedule 13G dated January 31, 1998, with the SEC reporting ownership of 1,301,815 shares of Servico Common Stock with sole voting and dispositive power. (4) The Prudential Insurance Company of America filed a Schedule 13G dated February 10, 1998, with the SEC reporting ownership of 1,111,000 shares of Servico Common Stock with shared voting and dispositive power with respect to 414,600 shares. (5) Includes currently exercisable options to purchase 172,400 shares. (6) Includes currently exercisable options to purchase 55,000 shares. Mr. Calabro has sole voting and dispositive power with respect to 203,100 of such shares and shares voting and dispositive power with respect to 3,000 shares with his wife. (7) Includes currently exercisable options to purchase 25,000 shares. (8) Includes currently exercisable options to purchase 55,000 shares. (9) Includes currently exercisable options to purchase 112,400 shares. (10) Includes currently exercisable options to purchase 22,500 shares. (11) Includes currently exercisable options to purchase 23,500 shares. (12) Includes 526,800 shares of Servico Common Stock which may be acquired pursuant to currently exercisable options. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The following parties had a direct or indirect material interest in transactions with Servico since the beginning of its most recently completed fiscal year and such transactions are described below. ENERGY MANAGEMENT CORPORATION. In April 1994, Servico issued one million shares of its Common Stock to EMC in connection with a merger between wholly owned subsidiaries of Servico and EMC pursuant to that certain Stock Acquisition and Standstill Agreement, as amended, (the "EMC Acquisition Agreement") and the related Agreement and Plan of Merger, each dated April 13, 1994. The sole asset of the EMC subsidiary acquired by Servico was $7 million in cash, which Servico agreed would be utilized for general working capital, capital expenditures, possible acquisitions and other general corporate purposes and not for the redemption of any of Servico's capital stock or for the payment of dividends by Servico. In connection with the transaction Servico agreed, during the term of the EMC Acquisition Agreement, to cause the nomination of one designee of EMC to Servico's Board of Directors. EMC designated Mr. John W. Adams to be its representative. Mr. Adams was appointed to Servico's Board of Directors on April 29, 1994, and was named Chairman of the Board on December 21, 1995. Mr. Adams resigned from the Board in August, 1997. -96- 115 Pursuant to the EMC Acquisition Agreement, EMC also agreed to certain standstill provisions generally prohibiting it from acquiring voting securities of Servico with voting rights of 30% or more of the voting rights of all outstanding voting securities of Servico and to provisions which restrict the amount and manner by which it may transfer any Servico Common Stock owned by it. On May 5, 1994, Servico filed with the SEC on behalf of EMC, and at EMC's expense, a registration statement on Form S-3, relating to the proposed sale from time to time by EMC of all or any portion of its shares of Servico Common Stock on the NYSE. PENGO SECURITIES CORP. In March 1995, Servico issued 800,000 shares of its Common Stock to Pengo, which is affiliated with EMC, for $8 million, or $10 a share, pursuant to that certain Stock Acquisition and Standstill Agreement dated March 23, 1995, as amended (the "Pengo Acquisition Agreement"). Additionally, in connection with this transaction, an affiliate of Pengo agreed to make an additional $8 million equity investment in partnerships or joint ventures with Servico for the purpose of acquiring hotel properties. Pursuant to the Pengo Acquisition Agreement, Pengo also agreed to standstill provisions substantially identical to those contained in the EMC Acquisition Agreement. Servico also agreed to file with the SEC on behalf of Pengo, and at Pengo's expense, a registration statement on Form S-3, relating to the proposed sale from time to time by Pengo of all or any portion of its shares of Servico Common Stock. LIMITED PARTNERSHIPS WITH AFFILIATED ENTITIES. Subsidiaries of Servico have entered into partnership agreements in connection with the formation of partnerships for the purpose of owning hotel properties with SOLVation Inc., Spire Realty Group, Worcester Hospitality Company, Inc. and Wolverine Hospitality Company, Inc. (the "EMC/Pengo Affiliates"), all of which are affiliated with either EMC or Pengo, who were then principal shareholders of Servico and with John W. Adams, who was then Servico's Chairman of the Board. The partnerships own the following properties with Servico owning 51% and the EMC/Pengo Affiliates owning 49% of outstanding partnership interests: HOTEL ----- Holiday Inn, Augusta, Georgia Holiday Inn, Fort Wayne, Indiana Hilton Hotel, Sioux City, Iowa Crowne Plaza, Worcester, Massachusetts Crowne Plaza, Saginaw, Michigan Holiday Inn, Richfield, Ohio During 1997, Servico purchased all of the minority interests held by the EMC/Pengo Affiliates in the three partnerships which owned the Holiday Inn Select, Phoenix, AZ, the Holiday Inn, Manhattan, KS and the Holiday Inn, Lawrence, KS for approximately $11,800,000. EMC/Pengo Affiliates also have certain rights after May 31, 1998 to require the sale of the hotel properties held by the six remaining partnerships, subject to certain rights of first refusal in favor of Servico. Subsidiaries of Servico serve as the General Partner for each of the partnerships. Additionally, Servico receives management fees from the partnerships with respect to each of these hotels. During 1997, such fees were approximately $1,042,000. -97- 116 BUSINESS OF IMPAC GENERAL Impac is one of the largest private, fully integrated hotel companies in the United States. Impac owns or manages primarily upscale or mid-market full service hotels, most of which have been renovated or developed within the last five years. Impac currently operates (or is developing) 55 hotels containing approximately 9,266 rooms located in 24 states. Impac's hotels include 51 wholly owned hotels, one partially owned hotel and two managed hotels. Impac's hotels are flagged with premium brands such as Marriott, Doubletree and Holiday Inn. Impac has successfully implemented its acquisition and development based growth strategy by acquiring or developing 46 hotels from January 1995 to July 1998 including five hotels which are currently under construction. Revenues have increased from approximately $56 million to $120 million and EBITDA (as defined) has increased from approximately $12 million to $16 million for the period from the year ended December 1995 to the year ended December 1997. During 1997, Impac acquired or developed and opened 18 hotels and had 25 properties under major renovation. Impac had 18 properties under major renovation during each of the quarters ended March 31, 1997 and 1998. As a result, Impac's management believes that the full revenue and EBITDA growth potential of these properties had yet to be realized as of March 31, 1998. Revenue growth is adversely affected by the renovation of newly acquired properties. Management seeks to achieve external growth through the acquisition of underperforming hotels in cases in which management believes it can improve operating results through significant renovation of physical facilities and, if appropriate, changes in franchise affiliation. Additionally, management seeks to develop new properties in strategic locations. Impac believes that internal growth can be realized through a focused upgrading strategy which generates increases in RevPAR and operating efficiencies through expense control. ORGANIZATION Impac is a limited liability company organized in the State of Georgia on February 26, 1997 through a reorganization of predecessor entities and the purchase of minority interests. Impac's sole Manager is Robert S. Cole, who is responsible for handling Impac's affairs and operating its business. Impac is organized as set forth below: [INSERT ORGANIZATIONAL CHART] -98- 117 INVESTMENT STRATEGY Historically, Impac's strategy has been to invest in underperforming properties, significantly renovate them, operate them efficiently so that they maximize cash flow, stabilize the operations and revenue stream and then seek to sell selected properties for prices that produce significant gains. GAINS PRODUCED ON SALE OF HOTEL PROPERTIES. Impac sold seven hotels during 1996 and three during 1995. The realized gains on sales in 1996 and 1995 were $19.4 million and $5.4 million, respectively. Impac did not sell any properties during 1997. Sixteen properties were acquired in 1997. NEW DEVELOPMENT. Impac is also involved in the development of upscale properties. Impac believes that it is able to develop properties at costs below those of its competitors through its in-house acquisition and construction departments. Impac's historical objective has been to develop each property as cost efficiently as possible, efficiently operate the property through its in-house management team and to maximize current cash flow. Impac has developed nine properties since 1995 that are currently operating. As of May 1998, Impac had an additional six upscale properties under construction, including two full service Marriotts, one Residence Inn, two Hilton Gardens and one Courtyard by Marriott. DIVIDENDS PAID. Impac has paid dividends to its unitholders each year. See "Market Price and Dividend Data--Impac." In 1997, 1996 and 1995, Impac distributed $6 million, $29.4 million and $10.4 million, respectively, to its unitholders. AWARD WINNING PRODUCT. Impac prides itself on the recognition it has received from its franchisors. These awards include, among others: (i) Best New Hotel Opening for 1997 from the Courtyard by Marriott; (ii) President's Award for five hotels for 1998 from Marriott International; (iii) Modernization Award for the last three consecutive years from Holiday Hospitality; and (iv) Torchbearer Award from Holiday Hospitality. Impac was also named as the Best New Franchisee by Marriott International in 1995. PORTFOLIO STATUS. Twenty-five of Impac's properties were under significant renovation during 1997. Impac purchased 16 properties and opened three newly constructed properties during 1997. As discussed more fully below, the renovation process greatly affects the operating performance of the hotel while it is underway. Revenues are significantly reduced while fixed expenses remain substantially constant. The majority of Impac's portfolio has been completely renovated or developed leaving Impac substantially with a portfolio of new or recently renovated hotels. Impac currently has six hotels under development. These hotels are expected to be completed during 1998 and 1999. Based on the foregoing, management believes that Impac's portfolio is positioned for improved operational performance in the areas of revenue growth, revenue per available room (RevPAR) and EBITDA. ACQUISITION AND DEVELOPMENT STRATEGY Impac has developed an acquisition strategy based on the hotel and market criteria described below. Since January 1995, management has implemented this strategy through the acquisition or development of 46 upscale or mid-market, full service hotels (six of which are currently under construction). Impac has attempted to position itself to absorb such rapid growth by investing heavily in its management team and systems and infrastructure during the latter part of 1996 and all of 1997. HOTEL CRITERIA FOCUS ON SINGLE HOTEL AND SMALL PORTFOLIO ACQUISITIONS. Impac has historically targeted the acquisition of single hotels or small portfolios. Impac believes such acquisitions generally are more conducive to the rapid -99- 118 and effective implementation of hotel-level improvements and allow Impac to be geographically and market selective. ACQUISITION AND RENOVATION OF SUBSTANTIALLY UNDERPERFORMING HOTELS. Impac has historically sought to purchase substantially underperforming hotels and to significantly renovate and efficiently operate such hotels after acquisition in order to achieve significant operating gains. Impac has sought to acquire properties with the potential for highly attractive returns through significant strategic repositioning, operational improvements, renovation enhancements and, if appropriate, changes in brand affiliations. Impac's management believes that there has generally been less competition to purchase these hotels than other hotel properties because of (i) the level of expertise and amount of capital required to effectively purchase and turnaround such hotels, (ii) construction difficulties encountered during the renovation phase, and (iii) the negative impact on earnings and cash flows during the repositioning period. DEVELOPMENT OF STRATEGICALLY LOCATED HOTELS. Impac has also historically sought growth through the development of hotels in strategically located cities with primarily Marriott and Hilton brands. Locations chosen by Impac have typically been in the suburbs of large metropolitan areas that are experiencing significant demand. Hotels have generally been developed by Impac through in-house resources rather than relying on outside construction management firms. In certain instances, Impac has retained a third party contractor to construct certain hotels under the supervision of Impac's personnel. Impac believes that its development activity has the potential to result in significant gains because the cost and expertise required of building such assets generally limits access to the marketplace and Impac is in a position to manage the construction process and potentially realize significant savings through its construction efforts. OPPORTUNISTIC USE OF MULTIPLE BRANDING STRATEGY. Because Impac is not bound by a single franchise brand, Impac believes that it is in a position to choose a franchise relationship that will maximize a hotel's performance in its particular market. OPERATING STRATEGY EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. The members of Impac's senior management have an average of 15 years of experience in all segments of the lodging industry. Impac's general and group managers participate with senior management in Impac's bonus plans. Certain members of senior management also have significant equity investments in Impac. EFFECTIVE CENTRALIZED CONTROLS AND SUPPORT. Impac has implemented centralized controls which seek to provide corporate and group support services while promoting flexibility and encouraging employees to develop innovative solutions. Impac's proprietary Information Technology systems seek to monitor hotel-level performance in such areas as room yield utilization, revenue and expense forecasting, labor and cash management, expense variances and other items on a daily and weekly basis. Impac also provides centralized corporate support services and other programs in accounting, payroll, data processing, interior design, and sales, marketing, advertising and vendor purchases, but empowers hotel general managers to make day-to-day decisions with respect to the operation of the hotels. CENTRALIZED RESERVATION SYSTEMS. Impac believes, through its Impac Revenue Center, that it is the first independent owner/operator operating a centralized reservation system. The Impac Revenue Center is adding Impac hotels to its systems as adequate staff is available and thoroughly trained at the Revenue Center. The Impac Revenue Center is located in Baton Rouge, Louisiana and once fully operational, will provide the following services to each of Impac's hotels: INDIVIDUAL RESERVATIONS. The Impac Revenue Center is designed to provide the transfer of customers calling to make reservations from the local Impac hotel to a centralized Revenue Center. This allows hotel associates more time to focus on the guests which are at the hotel rather than taking reservations. Impac -100- 119 believes that the Impac Revenue Center has historically generated a higher conversion ratio per call at higher rates resulting in increased revenues. Revenue Management Specialists at the Impac Revenue Center price each room taking into consideration market demand, inventory supply and competitor strategies. At May 31, 1998, 23 Impac hotels were using this system. TELE-PROSPECTING. Prospecting and Qualification Specialists at the Impac Revenue Center seek to identify potential new business and then provide the information developed to the marketing department at each hotel. Impac management believes that this permits local hotel associates to spend more time developing relationships with existing and potential clients rather than tele-prospecting. At May 31, 1998, 26 hotels were using this system. GROUP SALES CENTER. Personnel at the Impac Revenue Center provide Event Sales, Event Communication and Event Planning in one central location. Local hotel staff are charged only with executing the event. At May 31, 1998, six Impac hotels were using this system. The Impac Revenue Center is fully operational for the functions and the number of properties described above. Additional Impac properties will be added as people are hired and fully trained at the Impac Revenue Center. PROPERTIES ACQUISITIONS. IDENTIFICATION OF ACQUISITION CANDIDATES. Since January 1995, Impac has successfully completed the acquisition or development of 46 upscale or mid-market, full service hotels (five of which are currently under construction). Information regarding potential acquisitions is sourced at every level of Impac's management, including its general managers, group managers and senior management. Extensive industry association contacts also feed Impac's pipeline of potential acquisitions. Further, management believes that its established track record for consummating acquisitions provides it with a high degree of credibility when approaching sellers and negotiating acquisition agreements. ADHERENCE TO DEFINED GROWTH STRATEGY. Impac believes that its growth has been the result of (i) focusing on upscale or mid-market full-service hotels in secondary metropolitan markets or in suburban areas of major cities, (ii) acquiring hotels where it believes it can make a meaningful improvement in operating results through significant renovation and repositioning of the acquired properties, and (iii) developing hotels in strategic locations. SIGNIFICANT RENOVATIONS AND REPOSITIONING. Impac has significantly renovated or developed substantially all of its hotels within the last five years. Twenty-five of these properties were just completing renovation during 1997 and early 1998 and their operations have yet to become stabilized. Renovations typically disrupt a hotel's operations but once the renovation is complete, the hotel is generally positioned for significant growth in operating performance. CONSTRUCTION SERVICES. Through its in-house construction subsidiary, Impac believes that it has historically been in a position to renovate and develop properties on a more cost efficient basis than its competitors. Significant resources have been devoted to this service and Impac has significantly reduced its reliance on outside construction firms. By directly engaging in construction services, Impac believes it is able to better control the construction costs and directly monitor the quality of work being performed. -101- 120 HOTEL OPERATIONS Impac's organizational structure emphasizes direct accountability through vertical integration in order to maintain Impac's standards for guest services and hotel operations throughout its hotel system. Impac has established certain uniform productivity standards and skill requirements for hotel employees which Impac believes increase operating efficiencies by enhancing Impac's ability to measure performance and to interchange certain employees within its hotel system. HOTEL MANAGEMENT. The day-to-day operations of each hotel are managed by a general manager who is assisted by additional on-site employees who specialize in the areas of food and beverage, marketing, budgeting, housekeeping and maintenance. The actual size of each hotel's on-site management personnel varies depending on the hotel's size and business volume and the guest amenities which are offered. Impac extensively trains each general manager through an in-house training program to understand the financial aspects of hotel operations, as well as quality, sales and marketing and human resource programs. General managers and certain other on-site employees also participate in incentive programs. Management believes that financial accountability at the property level and performance-based compensation help to achieve the appropriate balance between providing high quality guest services and generating strong returns. CENTRALIZED REVENUE CENTER. The Impac Revenue Center (once fully operational) will provide a centralized location for reservations, yield management, tele-prospecting, group sales and bid management. Impac management believes the Revenue Center results in a higher conversion ratio for all calls at a higher yield and additionally permits hotel staff to focus on the needs of the guests in-house. GROUP OPERATIONS. Impac's general managers each report directly to one of three Vice Presidents of Operations who, in turn, report to Impac's Senior Vice President of Operations. Impac divides its operations into three groups based upon brand diversity and hotel amenities offered. These teams provide management support and direction to the general managers and their staff, coordinate communications between the hotels and Impac's centralized corporate departments and assist in establishing and administering corporate policies, procedures and standards. CENTRALIZED CORPORATE SERVICES AND INFORMATION SYSTEMS. Impac has a centralized corporate staff located in Atlanta, Georgia that provides a variety of managerial and support services to its hotels. Impac's corporate management team provides assistance in all areas of hotel operations, including accounting and finance, payroll, data processing and Information Technology, interior design, product renovation, purchasing, food and beverage services, human resources, recruiting and training, corporate sales and marketing, advertising, insurance and telecommunications. Impac's systems provide its senior management and hotel-level employees with comprehensive hotel operations data on a daily, weekly or monthly basis, including occupancy and rate information, yield management data, cost and labor variance analysis, and budget tracking for both hospitality and food and beverage operations. Each individual hotel's operating performance is regularly reviewed by general and corporate managers. BUDGETING PROCESS. Intensive hotel-level budgeting is undertaken by Impac on an annual basis for all of the owned hotels. These plans are reviewed and monitored by group managers and corporate staff. Impac's business plans seek to customize marketing, staffing, capital investment and yield enhancement programs on an individual property basis. Revenue and cost targets are based on historical operating performance, planned renovations, operational efficiencies and changing competitive trends and local market conditions. In addition, capital budgets are developed with a view toward enhancing a hotel's guest appeal, attracting new customers and generating increased revenue and cash flow. -102- 121 FRANCHISE AFFILIATION In recent years, operators of hotels not owned or managed by major lodging companies have affiliated their hotels with national hospitality franchisors as a means of remaining competitive with hotels owned by or affiliated with national lodging companies. Franchisors provide a number of services to hotel operators that can generate additional occupancy and contribute to the improved financial performance of their properties, including national reservation systems, marketing and advertising programs and direct sales programs. Impac believes that hotel franchisors with larger numbers of hotels enjoy greater brand awareness among potential hotel guests than those with fewer numbers of hotels. As an independent hotel owner and operator, Impac believes that it is in a position to choose the franchise that will best position each hotel in its particular market. As of July, 1998, all of Impac's owned properties, except for the French Quarter Suites Hotel (105 rooms) and the Mayfair House Hotel (179 rooms), were subject to franchise agreements with nationally recognized franchisors under the brand names set forth below:
APPROXIMATE NUMBER OF NUMBER OF FRANCHISOR BRAND NAME HOTELS ROOMS ---------- ---------- --------- ----------- Marriott International, Inc. Courtyard by Marriott 7 761 Fairfield Inn 5 572 Residence Inn 2 177 Holiday Hospitality, Inc. Holiday Inn 16 3,021 Holiday Inn Select 4 1,047 Holiday Inn Suites 1 195 Holiday Inn Express 1 210 Holiday Inn Sunspree 1 133 Crowne Plaza 1 298 Doubletree Hotel Systems, Doubletree Club 3 748 Inc. Choice Hotels Franchising Comfort Inn/Suites 3 407 Super 8 Motels, Inc. Super 8 2 166 ---- ----- Total 46 7,735 Hotels Under Construction Marriott International, Inc. Marriott (Full Service) 2 487 Courtyard by Marriott 1 122 Hilton Hotels, Inc. Hilton Garden Inn 2* 310* --- ----- Total 5 919
* To be executed as construction is completed. -103- 122 OWNED AND MANAGED PROPERTIES. The following table sets forth certain information relating to each of Impac's owned and managed properties:
HOTEL APPROXIMATE YEAR DATE OF LAST LOCATION NAME # OF ROOMS ACQUIRED YEAR BUILT RENOVATION -------- ---- ---------- -------- ---------- ---------- Anchorage, AK Holiday Inn 252 1997 1971 In Process Birmingham, AL Holiday Inn 166 1995 1964 1996 Bentonville, AR Courtyard by Marriott 90 1996 1996 New Build Hollywood, CA Doubletree 161 1996 mid 1960's 1998 Riverside, CA Holiday Inn Select 296 1997 1989 1998 Miami, FL Holiday Inn 98 1997 1969 1998 Miami, FL Mayfair House Hotel 179 1997 1980 1998 Augusta, GA Fairfield Inn 117 1997 1990 In Process Atlanta, GA (Buckhead) Courtyard by Marriott 181 1996 1996 New Build Macon, GA Holiday Inn - Crowne 298 1997 1974 1998 Plaza Marietta, GA (Atlanta area) Holiday Inn 195 1993 1975 1996 Valdosta, GA Fairfield Inn 108 1991 1963 1997 Valdosta, GA Holiday Inn 173 1991 1963 1997 Boise, ID Holiday Inn 266 1997 1968 1998 Florence, KY (Cincinnati area) Courtyard 78 1995 1995 New Build Florence, KY (Cincinnati area) Holiday Inn 106 1996 1967 1997 Ft. Mitchell, KY (Cincinnati area) Holiday Inn 214 1997 1967 1998 Hazard, KY Super 8 86 1991 1990 1997 Louisville, KY Doubletree 399 1992 1969 1997 Paducah, KY Courtyard by Marriott 100 1997 1997 New Build Prestonsburg, KY Super 8 80 1991 1991 1997 LaFayette, LA Courtyard by Marriott 90 1997 1997 New Build Revere, MA Comfort Suites 120 1998 1989 In Progress
-104- 123
HOTEL APPROXIMATE YEAR DATE OF LAST LOCATION NAME # OF ROOMS ACQUIRED YEAR BUILT RENOVATION -------- ---- ---------- -------- ---------- ---------- Saint Louis, MO Holiday Inn Airport 249 1993 1967 In Process West St. Louis, MO Holiday Inn North 391 1995 1958 1996 Airport Merrimack, NH Fairfield Inn 116 1997 1981 In Process Hamburg, NY Holiday Inn 128 1997 1968 1998 Syracuse, NY Holiday Inn 153 1996 1969 1997 Cincinnati, OH (Downtown) Holiday Inn 246 1997 1968 1998 Strongsville, OH (Cleveland area) Holiday Inn Select 299 1995 1972 1996 Tulsa, OK Courtyard by Marriott 122 1997 1997 New Build Wilsonville, OR (Portland area) Holiday Inn 170 1997 1974 1998 Philadelphia, PA Doubletree 188 1996 1973 1997 Greenville, SC Comfort Suites 85 1996 1996 New Build Chattanooga, TN Radisson 238 (1) (1) (1) Tifton, GA Courtyard by Marriott 90 (1) (1) (1) Myrtle Beach, SC Holiday Inn Sunspree 133 1994 1978 In Process Jackson, TN Fairfield Inn 105 1997 1990 In Process Memphis, TN French Quarter Suites 105 1991 1984 1997 Memphis, TN Holiday Inn Express 175 1997 1976 1998 Nashville, TN Holiday Inn Express 210 1995 1959 1996 Abilene, TX Courtyard by Marriott 100 1996 1996 New Build Dallas, TX (DFW Airport North) Holiday Inn Select 282 1996 1976 1997 San Antonio, TX Comfort Inn 202 1992 1975 1997 Burlington, VT Fairfield Inn 117 1997 1991 In Process Clarksburg, WV (Bridgeport area) Holiday Inn 160 1996 1974 1997 Fairmont, WV Holiday Inn 106 1996 late 1960's 1997 Morgantown, WV Holiday Inn 147 1996 1975 1997 Little Rock, AK Residence Inn 96 1998 1998 New Build
- ----------------- (1) Third party owned. -105- 124 The following properties are currently under construction.
APPROXIMATE EXPECTED LOCATION HOTEL NAME # OF ROOMS COMPLETION DATE -------- ---------- ----------- --------------- Dedham, MA Residence Inn 81 1998 Denver, CO (Airport) Marriott 238 1999 Livermore, CA (San Francisco area) Courtyard by Marriott 122 1999 Portland, OR (Downtown) Marriott 249 1999 Rio Rancho, NM Hilton Garden Inn 129 1999 Lake Oswego, OR (Portland area) Hilton Garden Inn 181 1999
DEVELOPMENT AGREEMENTS IHD provided acquisition and property development services to Impac for a development fee of 4% of the total project cost of each hotel acquired or developed. The shareholders of IHD are Robert Cole, Charles Cole and Robert Flanders. Impac has agreed to terminate this agreement prior to the consummation of the Merger so that Impac and its subsidiaries have no further obligations under the agreement after such closing date other than the payment of up to a 4% development fee (not to exceed $2.5 million in the aggregate) in the event Lodgian acquires any of the previously identified hotels or properties. IHD has assigned its right to these future payments to a newly formed entity owned by its shareholders. COMPENSATION PAID TO IMPAC MANAGER The following table sets forth, on a historical and pro forma basis, the compensation and distributions made by Impac and its Predecessors to Robert Cole, the Manager of Impac, and his affiliates over the past three years and for the three months ended March 31, 1998 and to be made by Lodgian:
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------- THREE MONTHS ENDED 1995 1996 1997 MARCH 31, 1998 TYPE OF ---------------------- ------------------------ ---------------------- ----------------------- PAYMENT HISTORICAL PROFORMA* HISTORICAL PROFORMA* HISTORICAL PROFORMA* HISTORICAL PROFORMA* ------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- Dividends $873,482 $ 873,482 $1,787,086 $1,787,086 $209,047 $209,047 $ - $ - Management 21,458 21,458 - - - - - - Fees Development 14,167 14,167 590,000 590,000 306,983 306,983 150,000 150,000 Fees Salary - 300,000 28,600 300,000 185,339 300,000 58,846 75,000 -------- ---------- ---------- ---------- -------- -------- -------- -------- Total $909,107 $1,209,107 $2,405,686 $2,677,086 $701,369 $816,030 $208,846 $225,000 ======== ============= ========== ========== ======== ======== ======== ========
- -------------------------- * Reflects compensation and distributions that would have been paid had Mr. Cole's employment agreement with Lodgian been in place during the indicated periods and assuming that the Management Fees and Development Fees were not reduced or eliminated based on receipt of compensation under the Employment Agreement. The foregoing does not reflect potential bonuses payable by Lodgian representing a maximum of 100% of Mr. Cole's annual salary, as such bonuses are discretionary in nature, or the value of options granted to Mr. Cole, as the value of such options depends on the market price of the Lodgian Common Stock in the future. The options will be assumed by Lodgian in connection with the Merger. The options, which vest over five years and are exercisable for 185,000 shares of Lodgian Common Stock, will be exercisable at a price of $17.75 per share (assuming an Impac Exchange Ratio of 0.519). Based on the current trading price of Servico ($15.187), the potential realizable value of these options assuming an annual stock price appreciation of five percent and 10%, respectively, would, in ten years be $1,292,935 and $4,003,856. -106- 125 As of the Effective Time, Mr. Cole will be the President and Co-Chairman of the Board of Directors of Lodgian. For additional information regarding Mr. Cole's employment agreement with Lodgian, see "Interests of Certain Persons in the Merger--Arrangements with Executive Officers." EMPLOYEES As of March 31, 1998, Impac and its subsidiaries employed approximately 2,800 full-time and approximately 1,200 part-time employees. As of March 31, 1998, labor unions represented employees at the Anchorage and Philadelphia properties. No other employees of Impac or its subsidiaries are represented by a collective bargaining agreement. LEGAL PROCEEDINGS Impac is a party to legal proceedings, including employment related claims, arising in the ordinary course of its business, the impact of which would not, either individually or in the aggregate, in Impac management's opinion, based upon the facts known by Impac's management and the advice of counsel, have a material adverse effect on Impac's financial condition or results of operations. -107- 126 SELECTED HISTORICAL FINANCIAL DATA - IMPAC The following table presents selected consolidated financial data derived from Impac's and IHD's historical financial statements for the years ended December 31, 1993 through 1997 and for the three months ended March 31, 1997 and 1998. This financial data should be read in conjunction with Impac's "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated and combined financial statements, related notes and other financial information included and incorporated by reference in this Joint Proxy Statement/Prospectus.
YEAR ENDED DECEMBER 31, ENDED MARCH 31, ----------------------- ------------------ 1993 1994 1995 1996 1997(a) 1997 1998(d) ---- ---- ---- ---- ------- ---- ------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (IN THOUSANDS) Revenues $23,927 $41,615 $ 55,576 $ 67,813 $119,859 $ 22,306 $ 34,571 (Loss) income before extraordinary items (b) (457) (64) 5,619 14,064 (16,089)(c) (3,762)(d) (4,707) End of period: Total assets $48,143 $71,875 $116,248 $191,666 $417,780 $266,142 $433,781 Long-term obligations 42,615 61,754 92,849 155,851 355,236 222,495 377,427 Total members'/partners' equity 3,284 5,375 13,408 19,760 36,970 30,006 31,356
- ------------------------ (a) On March 12, 1997, Impac was formed through a reorganization of the Predecessors. The formation of Impac was accounted for as a reorganization of entities under common control with the purchase of minority interest. The operations and financial position of the Predecessors prior to the reorganization are presented on a combined basis. The principal activity of IHD is to analyze prospective hotel acquisitions for Impac. IHD was not acquired by Impac in the above-described reorganization. (b) Impac is a limited liability company and is not subject to income taxes. The Predecessors and IHD were each either general or limited partnerships or S-corporations and were similarly not subject to income taxes. The results of these entities operations are included in the tax returns of the unitholders, partners or S-corporation shareholders. (c) Twenty-five of Impac's properties were under significant renovation during 1997. Impac purchased 16 properties and opened three newly constructed properties during 1997. The renovation process greatly affects the operating performance of a hotel while it is underway. Revenues are significantly reduced while fixed expenses remain substantially constant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Impac". (d) Impac opened or acquired six hotels during the quarter ended March 31, 1997. During the quarter ended March 31, 1998, Impac had 18 hotels under renovation. Impac also had 18 hotels under renovation during the first quarter of 1997. Although revenues have increased substantially during the first quarter of 1998 compared to the first quarter of 1997, revenues have been adversely affected by the renovations which remained ongoing during the first quarter ended March 31, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Impac". -108- 127 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - IMPAC GENERAL Impac owns or manages primarily upscale or mid-market full service hotels, including 51 wholly owned hotels, one partially owned hotel and two managed hotels. Prior to March 12, 1997, Impac consisted of 22 partnerships and four corporations, each of which owned between one and six hotels (the "Initial Hotels"), and two operating corporations, Impac Hotel Management, Inc. ("Impac, Inc.") and Impac Development & Construction, Inc. ("IDC"). The principals of Impac, Inc. and their affiliates owned an aggregate of approximately 23% of the Initial Hotels, while various other investors owned the remaining interests. On February 26, 1997, Impac was formed for the purpose of acquiring, either directly or indirectly, the outstanding ownership interests in the Initial Hotels. On March 12, 1997, Impac acquired all of the Initial Hotels through the issuance of Impac Units in exchange for all of the limited partnership interests or shares, as applicable, of the limited partnerships and corporations that owned the Initial Hotels. In addition, Impac acquired, in exchange for Impac Units, all of the assets of Impac, Inc. and IDC. See Note 1 of the Notes to the Consolidated and Combined Financial Statements of Impac. Beginning in late 1996, Impac began to invest significantly in additional professional staff and corporate infrastructure and systems and incurred significant costs in order to position itself to both acquire and develop hotel properties. From January 1995 through July 1998, Impac acquired 31 hotels and developed 15 hotels (five of which are currently under construction). The acquired hotels underwent significant renovations and therefore revenue trends are not comparable to revenues which would be realized had these properties been stabilized. Thus, the historical financial statements for the years ended December 31, 1997, 1996 and 1995 reflect differing numbers of owned hotels throughout the periods. In addition, during the fiscal years ended December 31, 1996 and 1995, Impac sold seven and three hotels, respectively. Due to the timing and magnitude of the acquisitions made during these years, it is difficult to compare results of the periods either to each other or to prior years. The discussion that follows is derived from Impac's Consolidated Financial Statements and the notes thereto contained elsewhere in this Joint Proxy Statement/Prospectus. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 (THE "1998 QUARTER") AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1997 (THE "1997 QUARTER"). As of March 31, 1998, Impac owned and operated 45 hotels and managed two hotels for third-party owners. One hotel was partially owned. This compared to 32 hotels owned and operated at March 1997. Two hotels were managed for third-party owners. Seven hotels were under construction at March 1998. For calendar 1997, Impac developed and opened three hotels and acquired 16 others. Six of these properties were opened or acquired during the 1997 Quarter. During the 1998 Quarter, 18 hotels were under renovation. Revenues for the 1998 Quarter were $34.6 million as compared to $22.3 million for the 1997 Quarter. The revenue increase primarily is attributable to the inclusion of a full quarter of revenue in the 1998 Quarter for the six hotels that were opened or purchased during the 1997 Quarter. During the 1997 Quarter, 18 properties were under renovation. The renovation of a majority of these properties was completed in late 1997. Accordingly, revenues are increasing as the properties return to full operating capacity. Revenue growth in both the 1998 Quarter and the 1997 Quarter was adversely effected by the 18 properties that were under renovation during the 1998 Quarter and the 1997 Quarter. Total operating expenses before depreciation and amortization rose to $28.9 million for the 1998 Quarter as compared to $19.9 million for the 1997 Quarter. As a percentage of revenue, operating expenses were 84% for the 1998 Quarter and 89% for the 1997 Quarter. The percentage decrease is attributable to properties -109- 128 coming out of renovation in late 1997 and early 1998 which had been under renovation or recently purchased in the 1997 Quarter. Operating efficiencies also contributed to the decrease. Depreciation and amortization costs increased by 67% to $3.7 million for the 1998 Quarter versus $2.2 million in the 1997 Quarter. The increase is attributable to Impac's increased investment in hotel properties. Income from operations increased to $1.9 million in the 1998 Quarter versus $182,000 in the 1997 Quarter. The increase is attributable to the factors discussed above. Interest expense rose to $6.8 million in the 1998 Quarter as compared to $4.0 million in the 1997 Quarter. The increase is attributable to increased debt levels associated with the addition of the hotels described above. Extraordinary losses related to costs incurred in the early extinguishment of indebtedness of $13.3 million were incurred during the 1997 Quarter. As described in Note 1 to Impac's and IHD's Consolidated and Combined Financial Statements, Impac completed a reorganization of its partnerships and corporations into one entity during March 1997. Individual partnership debt from numerous lenders was replaced with a facility from one lender. Accordingly, the debt previously existing was retired at a cost of $8.6 million. Approximately $4.7 million in assets previously capitalized to obtain the former debt were written off. A net loss of $4.7 million was recorded for the 1998 Quarter as compared to a net loss of $17.1 million for the 1997 Quarter. EBITDA increased to $5.6 million for the 1998 Quarter compared to $2.4 million for the 1997 Quarter. YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 ("1996"). As of December 31, 1997, Impac owned 45 hotels and managed two hotels for third-party owners. One hotel was partially owned. This compares with 26 hotels and two managed for third parties at December 31, 1996. Additionally, six hotels were under construction at December 31, 1997. Impac developed 3 hotels during 1997 and acquired 16 others. Impac significantly renovated 25 hotels during 1997 and early 1998. Nine of these properties were purchased in 1996 and significant renovations were completed during 1997. Revenues for 1997 were $119.9 million as compared to $67.8 million for 1996. The revenue increase was a result of the acquisition and development of 19 hotels as well as the inclusion of a full year of revenues in 1997 for the 14 properties added in 1996. Revenue growth is adversely affected by the renovation of properties which were newly acquired. Typically, a significant renovation lasts over six months and approximately one-third of each property's rooms are taken out of service during this period. Upon completion of the renovation, the revenue stream generally does not stabilize for 18 to 24 months. The renovation process adversely affects net income and EBITDA as a consequence of decreased revenue. Total operating expenses before depreciation and amortization were $104.0 million in 1997. This compares to $55.8 million in 1996. As a percentage of revenues, operating expenses were 87% for 1997 and 82% for 1996. This percentage increase is also the result of significant renovations. Revenue levels during renovation are lower than would normally be expected during a period of stabilization. However, fixed operating costs for properties under renovation remain constant. Expenses also increased as a result of the addition of the new properties described above and the inclusion of expenses for a full year for properties acquired in 1996. Finally, Impac has been investing significant amounts in staffing and corporate infrastructure since 1996. Impac made significant investments in staffing for Impac's in-house construction department, Revenue Center, accounting, hotel operations and information technology functions. Accordingly, overhead costs increased during a time period when numerous rooms were taken out of service for renovation. These additional costs will not be offset until renovation and development activity is complete and property revenues stabilize. Depreciation and amortization costs increased by 92% to $11.1 million as compared to $5.8 million for 1996. The increase is attributable to the increased investment in hotel properties described above and to the step-up of the -110- 129 asset basis resulting from the reorganization completed in 1997. See Note 2 of the Notes to the Consolidated and Combined Financial Statements of Impac for further discussion. As a result of the factors described above, income from operations decreased to $4.7 million as compared to $6.2 million for 1996. Interest expense rose to $21.3 million for 1997 from $11.8 million in 1996. The increase is attributable to increased debt levels associated with additional investments in hotel properties. Other income for 1997 decreased to $300,000 as compared to $19.7 million in 1996. Seven properties were sold in 1996, resulting in the substantial gain. No properties were sold in 1997. See "Business of Impac--Investment Strategy" for further discussion. Extraordinary losses related to costs incurred in the early extinguishment of indebtedness of $13.3 million were incurred during 1997. As described in Note 1 to Impac's Consolidated and Combined Financial Statements, Impac completed a reorganization of its partnerships and corporations into one entity during March 1997. Individual partnership-level debt from numerous lenders was replaced with a facility from one lender. Accordingly, the debt previously existing was retired early at a cost of $8.6 million. Approximately $4.7 million in assets previously capitalized to obtain the former debt was written off. A net loss of $29.4 million was recorded for 1997 as compared to income of $14.1 million for 1996. EBITDA increased to $15.8 million as compared to $12.0 million for 1996. YEAR ENDED DECEMBER 31, 1996 ("1996") COMPARED TO THE YEAR ENDED DECEMBER 31, 1995 ("1995"). As of December 31, 1996, Impac owned 26 hotels. This compares with 19 hotels which were owned as of December 1995. Five (5) of the hotels owned as of December 1995 were sold during 1996. Two hotels acquired during 1996 were sold in 1996. Impac acquired or developed 14 hotels during 1996. Significant renovations were underway for each newly acquired property as of December 1996. Revenues for 1996 totaled $67.8 million versus $55.6 million for 1995. The increase resulted from the acquisition and development of the hotels described above and the inclusion of a full year of revenue for five properties which became a part of the portfolio during 1995. Although the increase in revenues is significant, it is offset by the costs associated with the renovation of the newly acquired hotels. Renovations significantly affect the revenues generated at a property as approximately one third of each property's rooms are taken out of service for a period of approximately six months while the renovation process is underway. The revenue stream for a newly renovated property generally does not stabilize until approximately 18 to 24 months after the renovation is complete. Operating expenses before depreciation and amortization were $55.8 million in 1996 (82% of revenue) compared with $43.8 million (79% of revenue) for 1995. The increase in operating expenses as a percentage of revenues is a result of the effect of lower revenues than would normally be realized for 14 hotels which were under renovation during 1996. Fixed operating costs for properties under renovation typically are not reduced. Additionally, Impac began a substantial investment in staffing and corporate infrastructure and systems in 1996. Examples include (i) the staffing of an in-house construction department to oversee the renovation and development of new properties and (ii) the staffing of the corporate office in areas that needed additional investment to support the expected growth of the company, including accounting, hotel operations and information technology. Significant costs were added to Impac's overhead while numerous rooms were taken out of service during the renovation process. Depreciation and amortization expense in 1996 was $5.8 million, an increase over 1995 depreciation and amortization expense of $4 million. This increase is a result of the acquisition and development of additional hotel properties during 1996 and the inclusion of a full year of expense for properties added during 1995. -111- 130 As a result of the above, income from operations for 1996 was $6.2 million, a decrease of 21% over 1995 income from operations of $7.8 million. Interest expense (net of interest income) was $11.8 million for 1996, a $4.6 million increase over the $7.2 million of interest expense for 1995. During 1996, Impac's borrowings increased $83 million as a result of the newly acquired and developed properties. Other income of $19.7 million in 1996 resulted from the gain on the sale of seven hotels. Three hotels were sold in 1995 for a gain of $5 million. See "Business of Impac--Investment Strategy" for further discussion. Impac had net income of $14.1 million for 1996 and $5.6 million for 1995. EBITDA was $12.0 million in 1996 versus $11.8 million in 1995 despite the negative effects the properties under renovation caused to revenues and expenses. LIQUIDITY AND CAPITAL RESOURCES Impac's principal sources of liquidity historically have been existing cash balances, cash flow from operations and credit facilities and equity raises. Impac had EBITDA for 1997 of $15.8 million. This represents a 32% increase over the $12.0 million for 1996 and a 34% increase over the $11.8 million for 1995. The increase of EBITDA for 1997 compared to 1996 was a result of the acquisition of 16 hotels and the opening of 3 newly developed properties. EBITDA is a widely regarded industry measure of lodging performance used in the assessment of hotel property values, although EBITDA is not indicative of and should not be used as an alternative to net income or net cash provided by operations as specified by generally accepted accounting principles. As of March 31, 1998, Impac's working capital deficit was $4.5 million. Impac had a slightly positive working capital balance at December, 1997. Impac's ratio of current assets to current liabilities at March 31, 1998 and December 31, 1997, was 0.8-to-1 and 1-to-1, respectively. This compares to a working capital deficit of $7.6 million and a ratio of current assets to current liabilities of 0.5 to 1 at December 31, 1996. Impac added 19 hotels to its portfolio during 1997. Sixteen properties were purchased while three were developed. The aggregate purchase price was $107 million for the properties acquired. The development costs for the new properties were $50 million. Impac distributed $6.0 million to its investors in 1997. During 1996, Impac purchased or developed 14 hotels. The aggregate purchase price and development costs were approximately $64 million. During 1996 and 1995, Impac distributed $29.4 million and $10.4 million, respectively, to its unitholders. Management believes that cash on hand and cash generated from operations will be sufficient to support Impac's capital improvement program and satisfy working capital requirements for the foreseeable future. However, Impac will be required to obtain additional debt or equity financing to pursue its planned acquisition strategy. Impac has obtained the credit facilities and refinancing commitments described below. There is no assurance that additional debt or equity financing will be available. EXISTING FINANCING ARRANGEMENTS Impac has entered into a series of financing arrangements with BancOne Capital Partners III, Ltd. ("Banc One") and NACC in order to finance its operations and capital improvement program. The principal terms of these arrangements are described below. -112- 131 BANC ONE FINANCING. Banc One agreed to make an unsecured loan to Impac in an amount not to exceed $78.5 million (the "Banc One Loan") pursuant to an Amended and Restated Loan Agreement (as amended, the "Banc One Loan Agreement") between Impac and Banc One. As of March 31, 1998, approximately $74.5 million of the Banc One Loan had been funded. Since the Merger would not be permitted under the terms of the Banc One Loan, it is anticipated that the Banc One Loan will be prepaid in full contemporaneously with the Merger. The Banc One Loan is freely prepayable without penalty or premium. In addition to having to prepay the outstanding principal of the Banc One Loan, Impac will have to pay accrued and unpaid fixed return since the most recent monthly interest payment date at the rate of 10% per annum, plus a variable return based upon a percentage of net cash flow of certain Impac properties, certain percentages of any net proceeds resulting from the Merger, and additional amounts (to the extent available from net cash flow) required to ensure that Banc One receives a minimum cumulative internal rate of return of 15% per annum. Based on the foregoing, if the Banc One indebtedness was repaid as of the date of this Joint Proxy Statement/Prospectus, approximately an additional $4 million would be due Banc One. It is expected that the cash required to prepay the Banc One Loan as described above will come from the proceeds of a refinancing commitment to be obtained prior to the consummation of the Merger. IMPAC I FINANCING. In connection with the March 1997 roll-up transaction described in Note 1 to Impac's Consolidated and Combined Financial Statements (the "Roll-up"), NACC made a $132.459 million term loan (the "Impac I Loan") to an affiliate of Impac's, Impac Hotels I, L.L.C. ("Impac I"), to refinance existing debt on the 21 hotel properties acquired by Impac I in the Roll-up (the "Impac I Properties") and to pay certain costs of the Roll-Up and the Impac I Loan. The Impac I Loan was made pursuant to a Loan Agreement dated as of March 12, 1997 (as amended, the "Impac I Loan Agreement") between Impac I and NACC. INTEREST. Prior to the Impac I Adjustment Date (as defined below), the Impac I Loan bears interest at a floating interest rate that fluctuates monthly, equal to 30-day LIBOR plus 2.25%. From and after the Impac I Adjustment Date, interest converts to a fixed rate equal to the sum of (a) the implied yield on a 10-year U.S. Treasury note determined as of the earlier of (i) the date on which the benchmark Treasury rate is locked pursuant to an interest rate management agreement among Impac, Impac I and NACC (the "Impac I Interest Rate Agreement"), and (ii) the third business day prior to the Impac I Adjustment Date (the "Impac I Benchmark Treasury Rate"), plus (b) a spread based on the debt service coverage ratio ("DSCR") of the Impac I Properties (which spread ranges from a low of 1.925% to a high of 3.025%), plus (c), until the Impac I Optional Prepayment Date (as defined below), the Additional Impac I Spread (as defined below), plus (d) from and after the Impac I Optional Prepayment Date, the Additional Impac I Hyperamortization Spread (as defined below). The "Additional Impac I Hyperamortization Spread" is 2.00% for the first monthly debt service period after the Impac I Optional Prepayment Date, and 5.00% thereafter. The Impac I Adjustment Date will be the earlier of (y) March 11, 1999, and (z) with respect to any portion of the Impac I Loan that becomes a Split Impac I Loan (as defined below), the date on which such portion of the Impac I Loan becomes a Split Impac I Loan. Impac I has the right to extend the March 11, 1999 adjustment date for six months by giving 30 days' notice to NACC and paying NACC an extension fee equal to 0.5% of the principal amount of the Impac I Loan then outstanding. INTEREST RATE PROTECTION. Impac I may from time to time lock the Impac I Benchmark Treasury Rate to be used in calculating the base rate on all or a portion of the Impac I Loan. In addition, if prior to the Impac I Adjustment Date the implied yield of the 10-year Treasury note two years forward exceeds certain pre-determined levels, Impac I must elect either to lock the Impac I Benchmark Treasury Rate on a portion of the Impac I Loan or prepay a portion of the Impac I Loan. NACC also can lock the Impac I Benchmark Treasury Rate if it exceeds 7.80%, or at any time following the occurrence and during the continuation of an "event of default" under the Impac I Loan. If NACC determines prior to the Impac I Adjustment Date that it will incur or has incurred losses on its interest rate hedge positions relating to the rate-locked portion of the Impac I Loan in excess of 25% of the net equity of Impac I in the Impac I Properties, Impac I or Impac are required to pay to NACC an amount of cash collateral sufficient to reduce NACC's losses to no more than 20% of the net equity of Impac I in the Impac I Properties. Such collateral is returned to Impac I if it converts the rate-locked portion of the Impac I Loan to a fixed rate loan, or to the extent -113- 132 such collateral exceeds actual hedging losses. Impac I is required to pay a monthly maintenance fee equal to eight basis points on the principal amount of the Impac I Loan on which the Impac I Benchmark Treasury Rate is locked. Of that fee, two basis points are due and payable on a current basis, and the remainder (together with accrued interest thereon) will be recovered by NACC by adding an additional spread (the "Additional Impac I Spread") to the base rate from and after the Impac I Adjustment Date and prior to the Impac I Optional Prepayment Date. In addition to the other collateral described herein, the obligations of Impac and Impac I under the Impac I Interest Rate Agreement are secured by a pledge of Impac's 99% membership interest in Impac I. REPAYMENT OF PRINCIPAL. Interest-only payments on the Impac I Loan are due and payable monthly prior to the Impac I Adjustment Date. After the Impac I Adjustment Date, the Impac I Loan is repayable in equal, monthly installments of principal and interest based on a 20-year amortization schedule. If the Impac I Loan or any Split Impac I Loan has not been prepaid in full by the tenth anniversary of the applicable Impac I Adjustment Date (the "Impac I Optional Prepayment Date"), excess cash flow from the Impac I Properties financed by the Impac I Loan or the applicable Split Impac I Loan will be applied monthly to reduce outstanding principal, in addition to the scheduled installments of principal and interest. The final maturity date of the Impac I Loan is March 11, 2019. PREPAYMENT. The Impac I Loan may be prepaid in whole or in part without penalty or premium on or after the Impac I Optional Prepayment Date. Prior to the Impac I Adjustment Date, up to 40% of the Impac I Loan may be prepaid from the proceeds of the issuance of additional equity by Impac or from the proceeds of sale of one or more Impac I Properties, subject to a scale of increasing premiums ranging from 0% to 3% of the principal so prepaid. If the DSCR of the remaining Impac I Properties as of the Impac I Adjustment Date is less than 1.40, the Impac I Loan must be prepaid in the amount necessary to bring the DSCR up to 1.40. No prepayment of the Impac I Loan or any Split Impac I Loans is permitted after the Impac I Adjustment Date and prior to the Optional Impac I Prepayment Date; however, Impac I may obtain the release of one or more Impac I Properties from the applicable mortgage(s) securing the Impac I Loan or the applicable Split Impac I Loan by defeasing the portion of such loan allocated to each such Impac I Property. Defeasance is achieved by using equity proceeds or proceeds from the sale of each such Impac I Property to acquire U.S. Treasury securities in an amount equal to 125% of the allocated loan amount (or, upon the release of the last Impac I Property, 100% of the allocated loan amount), which securities are delivered to the servicer of the Impac I Loan or such Split Impac I Loan as replacement collateral for the released Impac I Properties. SPLIT LOANS. The term "Split Impac I Loans" refers to any refinancing loan made by NACC pursuant to the Impac I Loan Agreement to a bankruptcy-remote affiliate of Impac to which Impac I has transferred a segregated pool of Impac I Properties for the purposes of effectively fixing the interest rate on a portion of the Impac I Loan and facilitating the securitization thereof by NACC. COLLATERAL. The Impac I Loan is secured by first-priority mortgages on each Impac I Property (the "Impac I Mortgages") and by a general security interest in all personal property and fixtures of Impac I. The Impac I Mortgages are cross-collateralized and cross-defaulted with each other and with Banc One. IMPAC II FINANCING. Also in connection with the Roll-up, NACC entered into a loan facility (the "Impac II Loan") with another affiliate of Impac's, Impac Hotels II, L.L.C. ("Impac II"), to refinance existing debt on 11 hotel properties acquired by Impac II prior to March 12, 1997, to finance a portion of the cost of acquiring, constructing and rehabilitating 18 additional hotel properties throughout the continental United States (the "Impac II Properties"), and to pay certain costs incurred in connection with the Impac II Loan. The Impac II Loan was made pursuant to a Loan Agreement dated as of March 12, 1997 (as amended, the "Impac II Loan Agreement") between Impac II and NACC. The original $150.0 million maximum amount of the Impac II Loan was later increased to $163.5 million to accommodate additional hotel acquisitions. The entire Impac II Loan has been committed to identified Impac II Properties, though portions of the Impac II Loan have not yet been disbursed for on-going rehabilitation and construction costs. All advances under the Impac II Loan Agreement must be made and all construction and rehabilitation of the Impac II Hotels completed by October 18, 1999. -114- 133 INTEREST. Prior to the Impac II Adjustment Date (as defined below), the Impac II Loan bears interest at a floating interest rate that fluctuates monthly, equal to 30-day LIBOR plus 2.75%. From and after the Impac II Adjustment Date, interest converts to a fixed rate as described above in "Impac I Financing--Interest", except that (i) the date on which the benchmark Treasury rate is locked is pursuant to a separate interest rate management agreement among Impac, Impac II and NACC (the "Impac II Interest Rate Agreement"), and (ii) the spread based on the DSCR of the Impac II Properties ranges from a low of 1.925% to a high of 3.250%. The Impac II Adjustment Date will be the earlier of (y) October 18, 2000, and (z) with respect to any portion of the Impac II Loan that becomes a Split Impac II Loan (as defined below), the date on which such portion of the Impac II Loan becomes a Split Impac II Loan. It is anticipated that NACC will securitize the Impac II Loan and any Split Impac II Loan after the applicable Impac II Adjustment Date. INTEREST RATE PROTECTION. The Impac II Interest Rate Agreement contains substantially similar terms as those set forth under "Impac I Financing--Interest Rate Protection" above except that the Impac II Benchmark Treasury Rate is based on a four-year forward rate rather than a two-year forward rate, and the prepayment amounts differ in the event the Impac II Benchmark Treasury Rate exceeds the pre-determined thresholds. Pursuant to the terms of the Impac II Interest Rate Agreement, Impac II locked the Impac II Benchmark Treasury Rate on $54 million of the Impac II Loan at 7.235% during April, 1997. In the event that Lodgian determines that it is in its best interest to "break" that interest rate lock, it would be required to pay a significant fee to the lender. REPAYMENT OF PRINCIPAL. Principal and interest payments are to be made on the same terms as are described above under "Impac I Financing--Repayment of Principal," except that the schedule refers to the Impac II Adjustment Date and the Impac II Optional Prepayment Date (which is the tenth anniversary of the Impac II Adjustment Date). The final maturity date of the Impac II Loan is October 11, 2020. PREPAYMENT. The Impac II Loan may be prepaid on the same terms and under the same conditions as are described under "Impac I Financing--Prepayment" above, except that all references to Impac I refer instead to Impac II. SPLIT LOANS. Prior to the scheduled Impac II Adjustment Date, the Impac II Loan can be split at the option of Impac II in order effectively to fix the interest rate thereon, similar to the concept of Split Impac I Loans discussed under the heading "Impac I Financing--Split Loans" above (each portion so split, a "Split Impac II Loan"). COLLATERAL. The Impac II Loan is secured by first-priority mortgages on each Impac II Property (the "Impac II Mortgages") and by a general security interest in all personal property and fixtures of Impac II. The Impac II Mortgages are cross-collateralized and cross-defaulted with each other and with Banc One. GUARANTIES. Impac has guaranteed the repayment of the portion of the Impac II Loan funding rehabilitation and construction costs (but not the acquisition costs) of the Impac II Properties. Such guaranties expire upon completion of rehabilitation or construction (as applicable). In addition, where Impac II elected to increase the Impac II Loan for any particular Impac II Property above 65% of the approved project costs (but not higher than 80%), Impac has guaranteed repayment of such excess until the Impac II Properties in question have achieved a trailing 12-month DSCR of not less than 1.20. Finally, Impac has guaranteed payment of the entire Impac II Loans for the Mayfair House Hotel in Coconut Grove, Florida, and the Marriott Hotel being constructed in Portland, Oregon, pending satisfaction of certain conditions. After such conditions are satisfied, Impac's guaranties on those projects will be limited to the extent described in the first three sentences of this paragraph. IMPAC III FINANCING. NACC entered into an additional $100 million loan facility (the "Impac III Loan") to another affiliate of Impac's, Impac Hotels III, L.L.C. ("Impac III"), to finance a portion of the cost of acquiring, constructing and rehabilitating additional hotel properties throughout the continental United States and Alaska (the "Impac III Properties") and to pay certain costs incurred in connection with the Impac III Loan. The Impac III Loan was made pursuant to a Loan Agreement dated as of October 29, 1997 (as amended, the "Impac III Loan Agreement") -115- 134 between Impac III and NACC. As of March 31, 1998, approximately $68 million of the Impac III Loan has been disbursed or committed to pay for certain acquisition, rehabilitation and construction costs of eleven Impac III Properties. The terms and conditions of the Impac III Loan are in all material respects essentially the same as those for the Impac II Loan, except as follows: (a) the outside Impac III Adjustment Date is October 11, 2001, (b) all advances under the Impac III Loan for the acquisition of an Impac III Property must be made by October 31, 1998, (c) the rehabilitation and construction of the Impac III Properties must be completed by October 31, 2000, (d) the Impac III Loan has a final maturity date of November 11, 2021, (e) the maximum loan amount of the Impac III Loan relating to any particular Impac III Property is 70% of NACC-approved project costs, (f) there are no Impac payment guaranties, (g) the entire Impac III Loan is subject to optional prepayment in whole or in part prior to the Impac III Adjustment Date at premiums increasing from 0% to 4% of the principal prepaid, and (h) the Impac III Loan is secured by mortgages and security interests on the Impac III Properties. In addition, a portion of the Impac III Loan is evidenced by a working capital note in the original principal amount of approximately $1.65 million (the "Working Capital Note"), which does not relate to any particular Impac III Property, but is cross-collateralized with the project notes under the Impac III mortgages. Upon the acquisition of each new Impac III Property, a ratable portion of the loan evidenced by the Working Capital Note is prepaid with an advance under the applicable project note. If not sooner paid, the Working Capital Note matures on the Impac III Adjustment Date. In addition, the Working Capital Note must be prepaid in full prior to making any new advance under the Impac III Loan relating to the Courtyard by Marriott to be constructed on land owned by Impac III in Livermore, California. NACC MEZZANINE FINANCING. To the extent the DSCR of the remaining Impac I Properties, the Impac II Properties or the Impac III Properties is less than 1.40 on the applicable Impac I Adjustment Date, Impac II Adjustment Date or Impac III Adjustment Date, respectively (the "Applicable Adjustment Date"), and the relevant Impac affiliate (the "Applicable Borrower") is obligated to prepay a portion of the Impac I Loan, the Impac II Loan or the Impac III Loan as hereinabove described (the "Applicable Loan"), to bring the applicable DSCR up to 1.40. NACC has agreed to provide mezzanine financing to provide the proceeds necessary to make such prepayments. NACC would be entitled to a fee equal to one percent (1%) of such financing. SENIOR NACC MEZZANINE FINANCING. In the absence of a default under the Applicable Loan, and provided that the Applicable Borrower does not repay the amount outstanding on the Applicable Loan by an amount equal to the shortfall (the "Shortfall") from some other source, NACC has agreed to purchase senior mezzanine financing (the "Senior NACC Mezzanine Financing") from the Applicable Borrower in an amount equal to the lesser of (i) the Shortfall or (ii) the amount based upon NACC's determination of the adjusted net operating income such that 75% of excess cash flow from the remaining hotel properties of the Applicable Borrower will (a) result in a DSCR of not less than 1.15, based on a debt service coverage constant equal to the constant used in determining the interest rate on the Applicable Loan, and (b) be sufficient to fully repay the Senior NACC Mezzanine Financing within a five-year period, using 75% of excess cash flow of the relevant properties. SENIOR PREFERRED YIELD. The yield on all Senior NACC Mezzanine Financing will accrue and be payable monthly at one-month U.S. Dollar denominated LIBOR plus 6.00%, reset two business days prior to each payment date. In the event that 50% of excess cash flow will be sufficient to fully repay the Senior NACC Mezzanine Financing within a five-year period, the yield on the Senior NACC Mezzanine Financing will accrue and be payable monthly at one-month U.S. Dollar denominated LIBOR plus 4.00%. JUNIOR NACC MEZZANINE FINANCING. At the Applicable Adjustment Date, if the Senior NACC Mezzanine Financing is less than the Shortfall, NACC will purchase Junior NACC Mezzanine Financing from the Applicable Borrower in an amount equal to (i) the Shortfall minus (ii) the amount of Senior NACC Mezzanine Financing. JUNIOR PREFERRED YIELD. The yield on all Junior NACC Mezzanine Financing will accrue and be payable at one-month U.S. Dollar denominated LIBOR plus 7.50%. -116- 135 WARRANTS. As consideration for NACC making a Junior NACC Mezzanine Financing, NACC would be entitled to receive warrants (the "Mezzanine Warrants") exercisable into a percentage interest of the membership interests of Impac. The equity percentage represented by each Warrant will equal the products of (a) the Equity Value (as defined below) of the Applicable Borrower and (b) the percentage derived by dividing the amount of the Junior NACC Mezzanine Financing by the sum of (i) the Equity Value of the Applicable Borrower and (ii) the amount of the Junior NACC Mezzanine Financing, and multiplying the result by 80%. The "Equity Value" of the Applicable Borrower will be determined by dividing the net operating income of the subject properties (as determined by NACC) by .10, subtracting the amount of the Applicable Loan and any related Senior NACC Mezzanine Financing and Junior NACC Mezzanine Financing, and adding the market value of any non-income producing assets of the Applicable Borrower. It is currently not anticipated that the Junior NACC Mezzanine Financing will be put in place and accordingly, it is not expected that the Mezzanine Warrants will be issued. ACCELERATED RETIREMENT. The Senior NACC Mezzanine Financing and the Junior NACC Mezzanine Financing (collective, the "NACC Mezzanine Financing") may be retired, at the election of the Applicable Borrower, at any time, in whole or in part, without premium, provided, however, that until such financing is fully redeemed, the holders of NACC Mezzanine Financing shall have received (after applicable payments to the holder of the Applicable Loan) 100% of (i) the net proceeds of any sale of any hotel property securing the Applicable Loan, (ii) any proceeds resulting from a refinancing of the Applicable Loan, (iii) any proceeds from a liquidation of the Applicable Loan, and (iv) excess condemnation or casualty proceeds ("Minimum Redemption Amounts"). The holder of the NACC Mezzanine Financing will have approval rights with respect to any of the events described in (i) - (iii) of this paragraph. SECURITY. The NACC Mezzanine Financing will be secured by an assignment of excess cash flow, subordinate to any similar assignment to the holder of the Applicable Loan. Depending on final sizing of the NACC Mezzanine Financing and final determination of excess cash flow, NACC may require additional collateral for the NACC Mezzanine Financing. DEFAULT IN MONTHLY PAYMENTS. If the Applicable Borrower fails to pay the Senior Preferred Yield, the Junior Preferred Yield or the required Minimum Redemption Amount in full on any due date, for each succeeding due date, 100% of excess cash flow will be applied first to any unpaid Senior Preferred Yield and Junior Preferred Yield (including any interest thereon) and then to the NACC Mezzanine Financing amount, until all prior unpaid Minimum Redemption Amounts have been paid, and Minimum Redemption Amounts have been paid on a current basis for an additional three consecutive months. REFINANCING COMMITMENT As a condition to Servico's obligation to consummate the Merger, Impac and Servico must receive a commitment, effective as of the Effective Time, to restructure Impac's existing indebtedness. The restructuring contemplates the prepayment of the $78.5 million Banc One Loan described above and a secured refinancing loan, the proceeds of which will be used to repay Impac's other existing indebtedness. Impac and Servico are in the process of negotiating the terms of the refinancing commitment with prospective lenders and anticipate that a commitment will be in place prior to the consummation of the Merger. Although the definitive terms of the debt arrangements to be entered into in connection with the refinancing have not been finalized as of the date of this Joint Proxy Statement/Prospectus, Servico and Impac expect that such terms will include significant operating and financial restrictions, such as limits on Lodgian's ability to incur additional indebtedness or make capital expenditures, restrictions on payment of dividends, negative pledge covenants and financial ratio covenants. There can be no assurance that a commitment for such refinancing can be obtained on terms acceptable to Servico and Impac. FINANCINGS FOR MACON HOTEL. Impac owns a 60% joint venture interest in Macon Hotel Associates, L.L.C., a Massachusetts limited liability company ("Macon Associates"), in which the other 40% equity interest is owned by an unaffiliated entity, PCG/Macon Investment Corp. ("PCG"). Macon Associates owns a Crowne Plaza hotel located in Macon, Georgia (the "Macon Hotel"). In connection with the purchase of the Macon Hotel, Macon Associates -117- 136 obtained an eight million dollar purchase money loan from the Seller which is secured by first mortgage on the Macon Hotel. The purchase money loan bears interest at rates ranging from 2% per annum to 6.5% per annum and thereafter subject to either a fixed rate or a prime-based rate which is adjusted annually. Monthly payments of interest only are due until October 1, 1998, at which point amortization commences based upon a 25-year amortization schedule, with a balloon payment due on September 30, 2003, the final maturity date. In addition, Macon Associates issued $4.375 million of its promissory notes (the "Macon Mezzanine Notes") pursuant to a Securities Purchase Agreement dated as of May 21, 1997. The Macon Mezzanine Notes bear interest at a base rate of 14% per annum, of which 7% per annum is due and payable monthly and the balance of such base interest is payable on a current basis to the extent of available cash flow. The holders of the Macon Mezzanine Notes are also entitled to receive contingent interest from certain excess cash flow from the Macon Hotel to the extent necessary to provide the holders with a monthly compounded return of 25% per annum, and under some circumstances, to reduce the outstanding principal of the Macon Mezzanine Notes. The holders of the Macon Mezzanine Notes are also entitled to receive, as additional interest, a portion of the appreciation of the Macon Hotel. The Macon Mezzanine Notes mature in May 2001. The Macon Mezzanine Notes are nonrecourse to Macon Associates, subject to certain exceptions for fraud, material misrepresentation, intentional misappropriation, breaches of certain covenants in the documents and attempting to hinder the holders in the exercise of their rights under the documents. Impac, PCG and the principals of the PCG have guaranteed the recourse obligations, if any, of Macon Associates to the holders of the Macon Mezzanine Notes, and such guarantees are secured by a pledge of the equity interests that Impac and PCG respectively own in Macon Associates. DESCRIPTION OF LODGIAN CAPITAL STOCK The terms of the capital stock of Lodgian will be governed by Lodgian's Restated Certificate and Restated Bylaws. The summary of the terms of the capital stock of Lodgian set forth below does not purport to be complete and is subject to and qualified in its entirety by reference to the forms of Restated Certificate and Restated Bylaws of Lodgian, to be adopted immediately prior to the Effective Time, which are attached as Appendices G and H, respectively. AUTHORIZED CAPITAL STOCK Under the Restated Certificate, Lodgian has authority to issue 100,000,000 shares, of which 75,000,000 will be shares of Lodgian Common Stock, and 25,000,000 will be shares of preferred stock, $.01 per share, of Lodgian("Lodgian Preferred Stock"). The additional shares of authorized stock available for issuance may be issued at any time and from time to time by the Lodgian Board, in most cases without shareholder approval. The issuance in the future of additional shares of Lodgian Common Stock and Lodgian Preferred Stock convertible into Lodgian Common Stock could occur under circumstances which would have a dilutive effect on earnings per share and on the equity ownership of the holders of Lodgian Common Stock. The ability of the Lodgian Board to issue additional shares of stock could make a change in control more difficult, and as a result deny shareholders the potential to sell their shares at a premium over then existing market prices and entrenching current management. See "Risk Factors --Anti-Takeover Provisions." LODGIAN COMMON STOCK Subject to any preferential rights of series of Lodgian Preferred Stock, holders of Lodgian Common Stock have equal, ratable rights to dividends from funds legally available therefor, when, as and if declared by the Lodgian Board and are entitled to share ratably in all of the assets of Lodgian available for distribution to holders of Lodgian Common Stock upon the liquidation, dissolution or winding-up of the affairs of Lodgian. Holders of Lodgian Common Stock will be entitled to one vote per share on all matters submitted to a vote of Lodgian's shareholders, and except as otherwise required by law or except as provided under the terms of a series -118- 137 of Lodgian Preferred Stock, if any, the holders of Lodgian Common Stock will possess all voting power. The Restated Certificate does not provide for cumulative voting by shareholders. Holders of Lodgian Common Stock do not have preemptive, subscription or conversion rights. There are no redemption or sinking fund provisions in the Restated Certificate of Lodgian. The shares of Lodgian Common Stock, when issued to holders of Servico Common Stock and Impac Units in connection with the Merger, will be validly issued, fully paid and non-assessable. LODGIAN PREFERRED STOCK The Lodgian Board is authorized at any time and from time to time to provide for the issuance of all or any shares of Lodgian Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as are permitted by the DGCL, including but not limited to, the determination of restrictions, if any, on the issue or reissue of any additional shares of Lodgian Preferred Stock. The Lodgian Board could, without first obtaining shareholder approval, authorize and issue shares of Lodgian Preferred Stock with terms and conditions, and under circumstances, which could discourage a takeover or render a contested merger, the assumption of control by a third party or the removal of incumbent management more difficult. See "Risk Factors -- Anti-Takeover Provisions." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for Lodgian Common Stock after the Merger will be First Union National Bank, Charlotte, North Carolina. COMPARISON OF CERTAIN RIGHTS OF THE HOLDERS OF SERVICO COMMON STOCK AND IMPAC UNITS COMPARISON OF CURRENT SERVICO SHAREHOLDER RIGHTS AND LODGIAN SHAREHOLDER RIGHTS FOLLOWING THE MERGER As a result of the Merger, holders of shares of Servico Common Stock will own shares of Lodgian Common Stock. Servico is a Florida corporation and the rights of its shareholders are governed by the FBCA and Servico's Articles of Incorporation and Restated Bylaws. Lodgian is a Delaware corporation and the rights of its shareholders, including all former Servico shareholders, will be governed by the DGCL and the Restated Certificate and Restated Bylaws of Lodgian. The following summaries are not intended to be complete and are qualified in their entirety by reference to the forms of the Restated Certificate and Restated Bylaws attached hereto as Appendices G and H, respectively. AUTHORIZED CAPITAL. The total number of authorized shares of Servico capital stock is 25,000,000, consisting of 25,000,000 shares of common stock, par value $.01 per share. The authorized capital of Lodgian consists of 100,000,000 shares, consisting of 75,000,000 shares of common stock, par value $.01 per share, and 25,000,000 shares of preferred stock, par value $.01 per share. Lodgian's Restated Certificate grants Lodgian's Board the power to provide for the issuance of one or more series of preferred stock and to establish the number of shares of each series, as well as the voting rights, dividend rights, redemption rights, conversion rights, exchange rights and participation rights, and other preferences, qualifications, limitations and restrictions, of such preferred stock. SHAREHOLDER VOTING REQUIREMENTS; ACTION BY CONSENT. Under the FBCA and the DGCL, directors are generally elected by a plurality of the votes cast by the shareholders entitled to vote at a shareholders' meeting at which a quorum is present. With respect to matters other than the election of directors, unless a greater number of affirmative votes is required by the FBCA or a Florida corporation's articles of incorporation (but not its bylaws), if -119- 138 a quorum exists, action on any matter generally is approved by the shareholders if the votes cast by the holders of the shares represented at the meeting and entitled to vote on the matter favoring the action exceed the votes cast opposing the action. In the case of a merger, consolidation, or a sale, lease or exchange of all or substantially all of the assets of a Florida corporation, except in limited circumstances in which no shareholder vote is required, the affirmative vote of the holders of a majority of the issued and outstanding shares entitled to vote is required under the FBCA. Servico's Articles of Incorporation require a greater vote on certain matters than required by the FBCA. The affirmative vote of the holders of not less than eighty percent (80%) of the outstanding voting stock of Servico is required for the approval or authorization of any (i) plan of merger or share exchange which effects the merger or consolidation of Servico with or into any other corporation or (ii) sale, lease, exchange or other disposition of all or substantially all of the assets of Servico; provided, however, that such eighty percent (80%) voting requirement will not apply if the Servico Board approves the transaction by a resolution adopted by not less than a majority of the Servico Board. In addition, Servico's Articles and Restated Bylaws contain provisions requiring a greater vote for amendments or alterations to such Articles or Bylaws as discussed below. Under the DGCL, unless otherwise provided by the DGCL or a Delaware corporation's certificate of incorporation or bylaws, if a quorum exists, action on a matter is approved by the affirmative vote of a majority of the shares represented at a meeting and entitled to vote on the matter. In the case of a merger, the affirmative vote of the holders of a majority of the issued and outstanding shares entitled to vote is required by the DGCL. Lodgian's Restated Certificate and Restated Bylaws do not contain a provision requiring a greater vote on any matter than required by the DGCL, except upon amendments or alterations to Lodgian's Restated Certificate and Restated Bylaws, as discussed below. Unless otherwise provided in a corporation's articles or certificate of incorporation, the FBCA and DGCL generally permit shareholder action to be taken without a meeting if written consents signed by holders having the requisite number of votes necessary to take such action are delivered to the corporation. Lodgian's Restated Certificate and Servico's Articles of Incorporation provide that any action required or permitted to be taken by the shareholders of Lodgian or Servico must be effected at a duly called annual meeting or special meeting of such shareholders and may not be effected by any consent in writing by such shareholders. QUORUM FOR SHAREHOLDERS' MEETINGS. Under the FBCA, unless otherwise provided in a corporation's articles of incorporation (but not its bylaws), a majority of shares entitled to vote on a matter constitutes a quorum at a meeting of shareholders, but in no event may a quorum consist of less than one-third of the shares entitled to vote on such matter. The DGCL is similar to the FBCA, except that under the DGCL a corporation's certificate or bylaws may specify the percentage of votes which constitutes a quorum at a meeting of shareholders, but in no event may a quorum, as under the FBCA, consist of less than one-third of the shares entitled to vote on such matter. Lodgian's Restated Certificate and Restated Bylaws do not include a provision altering the shareholder quorum requirement. SPECIAL MEETINGS OF THE SHAREHOLDERS. Under Servico's Articles, special meetings may be called by the Chairman of the Board, the President or a majority of directors acting with or without a meeting or the holders of at least 50% of all votes entitled to be cast on any matter at the special meeting. Lodgian's Restated Certificate and Restated Bylaws provide that a special meeting of the shareholders may only be called by either the Chief Executive Officer or by a majority of the board of directors. The shareholders of Lodgian will not (nor will any other persons) have the right to call special meetings of the shareholders. SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS; VACANCIES. Servico's Restated Bylaws provide that the Servico Board shall be comprised of not less than eleven members, with the exact number determined from time to time by the Servico Board. Servico currently has five directors, all of which are elected for a three-year term in staggered years. Lodgian will initially have eight directors which number, pursuant to Lodgian's Restated Bylaws, may be increased or reduced by a resolution of the board of directors but will not be less than six. The Lodgian Board, like the Servico Board, will be classified into three classes. Lodgian's Restated Bylaws and Servico's Restated Bylaws -120- 139 provide that if the number of directors is changed, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case will a decrease in the number of directors shorten the term of any incumbent directors. Servico's Restated Bylaws provide that any vacancy occurring on the board of directors, whether because of the resignation or removal of a director, an increase in the number of directors or otherwise, may be filled by a majority of the remaining directors, even though less than a quorum. A director elected to fill a vacancy shall hold office until such director's successor is elected. Lodgian's Restated Bylaws provide that any vacancy occurring on the Lodgian Board, including a vacancy created by an increase in the number of directors, may be filled by the shareholders or by the affirmative vote of a majority of the remaining directors though less than a quorum of the Lodgian Board. A director elected to fill a vacancy shall hold office only until the next election of directors by the shareholders. REMOVAL OF DIRECTORS. The FBCA provides that shareholders may remove one or more directors with or without cause unless the articles of incorporation provide otherwise. Servico's Articles and Restated Bylaws provide that a director may not be removed by the shareholders without cause. Under the FBCA, a director generally may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. Consistent with the provisions of the DGCL concerning removal of directors where the corporation's board is classified, Lodgian's Restated Certificate provides that a director may be removed only for due cause, by the holders of a majority of the shares entitled to vote thereon at a meeting of the shareholders; PROVIDED, HOWEVER, that no such removal can be made unless the notice thereof specifies such removal and the reasons therefor as one of the matters to be considered at such meeting. CONTROL SHARE ACQUISITIONS. The FBCA contains a control share acquisition statute which provides that a person who acquires shares in an issuing public corporation in excess of certain specified thresholds will generally not have any voting rights with respect to such shares unless the voting rights are approved by a majority of the shares entitled to vote, excluding interested shares. The thresholds specified in the FBCA are the acquisition of a number of shares representing: (i) 20% or more, but less than 33% of all voting power of the corporation, (ii) 33% or more but less than a majority of all voting power of the corporation or (iii) a majority or more of all voting power of the corporation. This statute does not apply to acquisitions of shares of a corporation if, prior to the pertinent acquisition of shares, the corporation's articles of incorporation or bylaws provide that the corporation shall not be governed by the statute. This statute also permits a corporation to adopt a provision in its articles of incorporation or bylaws providing for the redemption by the corporation of such acquired shares in certain circumstances. Unless otherwise provided in the corporation's articles of incorporation or bylaws prior to the pertinent acquisition of shares, in the event that such shares are accorded full voting rights by the shareholders of the corporation and the acquiring shareholder acquires a majority of the voting power of the corporation, all shareholders who did not vote in favor of according voting rights to such acquired shares are entitled to dissenters' rights. Servico's Articles of Incorporation and Restated Bylaws do not contain any provisions with respect to this statute. Delaware does not have a comparable statutory provision. SUPERMAJORITY VOTE REQUIREMENT. Unless a specific section of the FBCA or a Florida corporation's articles of incorporation require a greater vote, an amendment to a Florida corporation's articles of incorporation generally must be approved by a majority of the votes entitled to be cast on the amendment. Servico's Articles of Incorporation provide that such Articles may be amended or repealed only by an affirmative vote of holders of at least eighty percent (80%) of the outstanding voting stock of Servico. Servico's Restated Bylaws provide that such Bylaws may be amended or repealed, or new Bylaws may be adopted, by action of either Servico's shareholders or its board of directors; provided, however, that the section in Servico's Restated Bylaws concerning the classification of its board of directors (which also includes provisions concerning election of directors and the number of directors constituting the Servico Board) may not be amended or repealed except by a unanimous vote of the directors then in office or by the affirmative vote of the holders of not less than 80% of the outstanding voting stock of Servico. The shareholders -121- 140 of Servico may from time to time specify certain provisions of the Bylaws which may not be altered or repealed by the Servico Board. Also see "--Shareholder Voting Requirements; Action by Consent" above. Lodgian's Restated Certificate provides that certain amendments to the Restated Certificate (including those sections relating to removal of directors, amendments to Lodgian's Restated Bylaws, the classification of the board of directors and the calling of special meetings of shareholders or the voting requirements for amending the Restated Certificate) will require the affirmative vote of the holders of at least 80% of the outstanding shares of stock entitled to vote thereon. Lodgian's Restated Certificate and Restated Bylaws provide that the Restated Bylaws may be amended, altered or repealed, or new bylaws may be made (but only to the extent any such alteration, amendment, repeal or new bylaw is not inconsistent with Servico's Articles) either by the number of directors constituting a majority of the board of directors or by the shareholders of Lodgian upon the affirmative vote of the holders of at least 80% of the outstanding stock entitled to vote thereon. AFFILIATED TRANSACTIONS. The FBCA contains an affiliated transactions statute which provides that certain transactions involving a corporation and a shareholder owning 10% or more of the corporation's outstanding voting shares (an "affiliated shareholder") must generally be approved by the affirmative vote of the holders of two-thirds of the voting shares other than those owned by the affiliated shareholder. The transactions covered by the statute include, with certain exceptions, (i) mergers and consolidations to which the corporation and the affiliated shareholder are parties, (ii) sales or other dispositions of substantial amounts of the corporation's assets to the affiliated shareholder, (iii) issuances by the corporation of substantial amounts of its securities to the affiliated shareholder, (iv) the adoption of any plan for the liquidation or dissolution of the corporation proposed by or pursuant to an arrangement with the affiliated shareholder, (v) any reclassification of the corporation's securities which has the effect of substantially increasing the percentage of the outstanding voting shares of the corporation beneficially owned by the affiliated shareholder and (vi) the receipt by the affiliated shareholder of certain loans or other financial assistance from the corporation. These special voting requirements do not apply (i) if the transaction was approved by a majority of the corporation's disinterested directors, (ii) if the corporation did not have more than 300 shareholders of record at any time during the preceding three years, (iii) if the affiliated shareholder has been the beneficial owner of at least 80% of the corporation's outstanding voting shares for the past five years, (iv) if the affiliated shareholder is the beneficial owner of at least 90% of the corporation's outstanding voting shares, exclusive of those acquired in a transaction not approved by a majority of disinterested directors or (v) if the consideration received by each shareholder in connection with the transaction satisfies the "fair price" provisions of the statute. This statute applies to any Florida corporation unless the original articles of incorporation or an amendment to the articles of incorporation or bylaws contain a provision expressly electing not to be governed by this statute. Such an amendment to the articles of incorporation or bylaws must be approved by the affirmative vote of a majority of disinterested shareholders and is not effective until 18 months after approval. Servico's Articles of Incorporation and Restated Bylaws do not contain a provision electing not to be governed by this statute. The DGCL generally prohibits a shareholder owning 15% or more of a Delaware corporation's outstanding voting stock (an "interested shareholder") from engaging in certain business combinations involving the corporation during the three years after the date the person became an interested shareholder unless (i) prior to such date, the board of directors approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder, (ii) upon the consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the shareholder owned at least 85% of the voting stock outstanding at the time the transaction commenced, (iii) on or subsequent to such date, the transaction is approved by the board of directors and by the shareholders by a vote of two-thirds of the disinterested outstanding voting stock, (iv) the corporation's original certificate of incorporation provides that the corporation shall not be governed by the statute or (v) a majority of shares entitled to vote approve an amendment to the corporation's certificate of incorporation or bylaws expressly electing not to be governed by the statute (but such amendment may not be effective until one year after it was adopted and may not apply to any business combination between the corporation and any person who became an interested shareholder on or prior to such adoption). These business combinations include, with certain exceptions, mergers, consolidations, sales of assets and transactions benefitting the interested shareholder. Lodgian's Restated Certificate and Restated Bylaws do not contain a provision electing not to be governed by this statute. -122- 141 CONSIDERATION OF RELEVANT FACTORS. The FBCA provides that directors of a Florida corporation, in discharging their duties to the corporation and in determining what they believe to be in the best interests of the corporation, may, in addition to considering the effects of any corporate action on the shareholders and the corporation, consider the effects of the corporate action on employees, suppliers and customers of the corporation or its subsidiaries and the communities in which the corporation and its subsidiaries operate. Delaware does not have a comparable statutory provision. DISSENTERS' RIGHTS. A shareholder of a Florida corporation, with certain exceptions, has the right to dissent from and obtain payment of the fair value of his shares in the event of (i) a merger or consolidation to which the corporation is a party, (ii) a sale or exchange of all or substantially all of the corporation's property other than in the usual and regular course of business, (iii) the approval of a control share acquisition, (iv) a statutory share exchange to which the corporation is a party as the corporation whose shares will be acquired, (v) an amendment to the articles of incorporation if the shareholder is entitled to vote on the amendment and the amendment would adversely affect the shareholder and (vi) any corporate action taken to the extent that the articles of incorporation provide for dissenters' rights with respect to such action. The FBCA provides that unless a corporation's articles of incorporation provide otherwise, which Servico's Articles of Incorporation do not, a shareholder does not have dissenters' rights with respect to a plan of merger, share exchange or proposed sale or exchange of property if the shares held by the shareholder are either registered on a national securities exchange or held of record by 2,000 or more shareholders. A shareholder of a Delaware corporation generally is entitled to dissenters' rights in the event that the corporation is a party to certain mergers or consolidations to which the shareholder neither voted in favor of nor consented thereto in writing. Lodgian's Restated Certificate does not contain such a provision. Similar to the FBCA, dissenters' rights do not apply to a shareholder of a Delaware corporation if his shares are (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Security Dealers, Inc. or (ii) held of record by more than 2,000 shareholders. Notwithstanding the foregoing, however, under the DCGL, a shareholder does have dissenters' rights with respect to such shares if the shareholder is required by the terms of the agreement of merger or consolidation to accept anything for his shares other than (i) shares of stock of the corporation surviving or resulting from the merger or consolidation, (ii) shares of stock of any other corporation which is also listed or designated or held of record by more than 2,000 shareholders, (iii) cash in lieu of fractional shares or (iv) any combination of the foregoing. DIVIDENDS AND REPURCHASES. Under the FBCA, a corporation may make distributions to shareholders (subject to any restrictions contained in the corporation's articles of incorporation) as long as, after giving effect to the distribution, (a) the corporation will be able to pay its debts as they become due in the usual course of business and (b) the corporation's total assets will not be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. A Florida corporation may purchase its own shares and, unless otherwise provided in the articles of incorporation, shares repurchased remain authorized but unissued. However, pursuant to the FBCA, a corporation's redemption of its own capital stock is deemed to be a distribution. Servico's Articles do not alter these provisions. A Delaware corporation may pay dividends out of "surplus" or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared or for the preceding fiscal year. Surplus is defined as the net assets of the corporation over the corporation's capital. Under the DGCL, a corporation may repurchase or redeem its shares only if the capital of the corporation is not impaired and such repurchase does not impair the corporation's capital. Lodgian's Restated Certificate does not alter these provisions. LIABILITY OF DIRECTORS. Under the FBCA, a director is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision or failure to act, regarding corporate management or policy, by a director unless the director breached or -123- 142 failed to perform his duties as a director and such breach or failure constitutes: (a) a violation of criminal law unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (b) a transaction from which the director derived an improper personal benefit; (c) a circumstance resulting in an unlawful distribution; (d) in a proceeding by or in the right of the corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interests of the corporation or willful misconduct; or (e) in a proceeding by or in the right of one other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. The DGCL permits a Delaware corporation to include in its certificate of incorporation a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breaches of fiduciary duty, including conduct which could be characterized as negligence or gross negligence. The DGCL expressly provides, however, that the liability for (a) breaches of the director's duty of loyalty; (b) acts or omissions not in good faith or involving intentional misconduct or knowing violation of the law; (c) an unlawful distribution; or (d) the receipt of improper personal benefits cannot be eliminated or limited in this manner. The DGCL further provides that no such provision will eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. Lodgian's Restated Certificate includes a provision eliminating or limiting director liability for monetary damages for breaches of fiduciary duty to the extent permitted by the DGCL. SHAREHOLDER INSPECTION OF BOOKS AND RECORDS. Under the FBCA a shareholder is entitled to inspect and copy the articles of incorporation, bylaws, certain board and shareholder resolutions, certain written communications to shareholders, a list of the names and business addresses of the corporation's directors and officers, and the corporation's most recent annual report during regular business hours if the shareholder gives at least five business days' prior written notice to the corporation. In addition, a shareholder of a Florida corporation is entitled to inspect and copy other books and records of the corporation during regular business hours if the shareholder gives at least five business days' prior written notice to the corporation and (1) the shareholder's demand is made in good faith and for a proper purpose, (2) the demand describes with particularity its purpose and the records to be inspected or copied and (3) the requested records are directly connected with such purpose. The FBCA also provides that a corporation may deny any demand for inspection if the demand was made for an improper purpose or if the demanding shareholder has, within two years preceding such demand, sold or offered for sale any list of shareholders of the corporation or any other corporation, has aided or abetted any person in procuring a list of shareholders for such purpose or has improperly used any information secured through any prior examination of the records of the corporation or any other corporation. The provisions of the DGCL governing the inspection and copying of a corporation's books and records are generally less restrictive than those of the FBCA. Specifically, the DGCL permits any shareholder the right, during usual business hours, to inspect and copy the corporation's stock ledger, shareholders list and other books and records for any proper purpose upon written demand under oath stating the purpose thereof. COMPARISON OF CURRENT IMPAC UNITHOLDER RIGHTS AND LODGIAN SHAREHOLDER RIGHTS FOLLOWING THE MERGER As a result of the Merger, holders of Impac Units will own shares of Lodgian Common Stock. Impac is a Georgia limited liability company ("LLC") and the rights of its unitholders are governed by the GLLCA and the Articles of Organization and the Operating Agreement of Impac. Lodgian is a Delaware corporation and the rights of its shareholders, including all former holders of Impac Units, will be governed by the DGCL and the Restated Certificate and Restated Bylaws of Lodgian. A summary of the principal differences between the current rights of Impac unitholders and their prospective rights as Lodgian shareholders is set forth below. AUTHORIZED CAPITAL. Impac is authorized to issue an unlimited number of Units, which will be exchanged for shares of Lodgian Common Stock in the Merger as described above, and one Class B Interest, which will be canceled in the Merger. The Class B Interest was issued to BancOne in connection with the BancOne financing described in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Existing Financing Arrangements." No other Class B Interest or any other class of interest with rights or benefits senior thereto may be -124- 143 issued without the consent of the holder of the Class B Interest. The Class B Interest will be retired upon the repayment of all amounts due and the performance of all obligations under the note issued to BancOne (the "Note"). The authorized capital of Lodgian consists of 100,000,000 shares, consisting of 75,000,000 shares of common stock, par value $.01 per share, and 25,000,000 shares of preferred stock, par value $.01 per share. Lodgian's Restated Certificate grants Lodgian's Board the power to provide for the issuance of one or more series of preferred stock and to establish the number of shares of each series, as well as the voting rights, dividend rights, redemption rights, conversion rights, exchange rights and participation rights, and other preferences, qualifications, limitations and restrictions of such preferred stock. MANAGEMENT. Under the GLLCA, unless the articles of organization or operating agreement (collectively, the "organizational documents") vests management of the LLC in a manager or managers, management of the LLC will be vested in the members. Impac's Operating Agreement provides that Impac will be managed by a Manager and by officers appointed in the Operating Agreement. Robert S. Cole serves as Impac's Manager and President, and Robert M. Flanders serves as its Vice President, Secretary and Treasurer. As Manager and President, Mr. Cole has complete authority over Impac's business and affairs and may take any action on behalf of Impac without member approval except as indicated below under "- Member and Shareholder Voting Requirements; Action by Written Consent." Lodgian is managed by a Board of Directors and officers in accordance with its Restated Certificate, Restated Bylaws and the provisions of the DGCL. Lodgian will initially have eight directors, which number, pursuant to Lodgian's Restated Bylaws, may be increased or reduced by a resolution of the Board of Directors but will not be less than six. The Lodgian Board will be classified into three classes. Lodgian's Restated Bylaws provide that if the number of directors has changed, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case will a decrease in the number of directors shorten the term of any incumbent director. MEMBER AND SHAREHOLDER VOTING REQUIREMENTS; ACTION BY WRITTEN CONSENT. Under the GLLCA, unless otherwise provided in the organizational documents, if management is vested in a manager or managers, each manager will have one vote with respect to, and the affirmative vote of a majority of managers will be required to decide, any matter, except that the unanimous vote of the members will be required to approve the dissolution or merger of the LLC, the disposition of all or substantially all assets of the LLC, the admission of any new member, amendments to the organizational documents, the redemption or elimination of an obligation to make a capital contribution, distributions to members or continuance of the LLC beyond its term. At a meeting of members, unless otherwise provided in the organizational documents or as set forth above, a quorum will consist of a majority of the members and approval of any matter will require the vote of a majority of the members present at a meeting at which a quorum is present. Unless otherwise provided, action may be taken by written consent without a meeting by all (or a majority, if the organizational documents so permit) of the votes entitled to be cast on the matter. If less than all of the members approve a matter without a meeting, written notice of the action must be served on the members who did not participate in taking the action no more than 10 days after the action is taken. Impac's Operating Agreement permits the Manager to take any action on behalf of Impac without obtaining the approval of any of the members except in the following cases: ACTIONS REQUIRING UNANIMOUS WRITTEN CONSENT OF THE MEMBERS: (i) Any action in contravention of the Operating Agreement or the Articles of Organization. (ii) Any action that would make it impossible to carry on the ordinary business of Impac, except as contemplated by the Operating Agreement. (iii) The filing of a voluntary bankruptcy petition or consent to the appointment of a receiver or similar action for the benefit of the creditors of Impac. -125- 144 (iv) The possession of Impac's property or assignment of its rights in specific property for other than a company purpose. (v) The admission of a member except as is otherwise provided in the Operating Agreement. ACTIONS REQUIRING THE WRITTEN CONSENT OF A MAJORITY OF THE UNITS: (i) Participation in a merger or similar transaction with any other legal entity. (ii) The sale or other disposition of substantially all of Impac's assets and property. (iii) The offering of any membership interest (or successor security thereto) for sale to the public in an underwritten offering. (iv) The offer of additional membership interests or admission of additional members except as is otherwise permitted in the Operating Agreement. ACTIONS REQUIRING THE WRITTEN CONSENT OF THE HOLDER OF THE CLASS B INTEREST: (i) The incurrence of any indebtedness, guaranty, indemnity or surety other than (A) guaranties required under the terms of the NACC Loan Agreements (as defined in the Operating Agreement), (B) guaranties of any Transaction Affiliate with respect to any Identified Property or Project (as such terms are defined in the Operating Agreement), (C) guaranties of any Affiliate's indebtedness, provided that such indebtedness shall not exceed 30% of any cash raised through the issuance of additional membership interests and is invested in such Affiliate and that all of such guarantied indebtedness of the Affiliate shall not exceed $7 million, (D) the indemnification arrangements with Messrs. Robert S. Cole, Charles Cole and Robert M. Flanders described in the Operating Agreement, and (E) the indemnification of Impac's managers and officers as described in the Operating Agreement. (ii) Distributions to members contrary to the terms of the Note or the Operating Agreement. (iii) The transfer by Impac or permitted transfer by any Transaction Affiliate of an Identified Property or Project to any entity other than a Transaction Affiliate or an entity contemplated and permitted under the terms of NACC Loan Agreements. (iv) The amendment or refinancing of any loan agreement, including the NACC Loan Agreements, if such amendment or refinancing has a material adverse affect on BancOne's rights, benefits or obligations. In all other cases, members of Impac are not permitted to vote on or consent to any action that may be taken by Impac through its Manager(s) or officers. Under the DGCL and Lodgian's Restated Certificate and Restated Bylaws, Lodgian's directors manage the corporation's overall business affairs and have appointed officers to manage its day-to-day affairs, with a shareholder vote being required to elect directors; approve certain mergers, dispositions of assets or other change of control transactions; and approve certain amendments to the Restated Certificate. Unless otherwise provided in a corporation's articles of incorporation or bylaws, a majority of shares entitled to vote on a matter constitutes a quorum at a meeting of shareholders, but in no event may a quorum consist of least than one-third of the shares entitled to vote on such matters. Lodgian's Restated Certificate and Restated Bylaws do not include a provision altering the shareholder quorum requirement. Under the DGCL, directors are generally elected by a plurality of the votes cast by the shareholders entitled to vote at a shareholders' meeting at which a quorum is present. With respect to matters other -126- 145 than the election of directors, unless otherwise provided by the DGCL or the certificate of incorporation or bylaws, if a quorum is present, action on a matter is approved by the affirmative vote of a majority of the shares represented at a meeting and entitled to vote on the matter. In the case of a merger, the affirmative vote of the holders of a majority of the issued and outstanding shares entitled to vote is required by the DGCL. Lodgian's Restated Certificate and Restated Bylaws do not contain a provision requiring a greater vote on any matter than is required by the DGCL, except upon amendments or alterations to Lodgian's Restated Certificate and Restated Bylaws as discussed below. Lodgian's Restated Certificate provides that certain amendments to the Restated Certificate (including those sections relating to removal of directors, amendments to Lodgian's Restated Bylaws, the classification of the Board of Directors, the calling of special meetings of shareholders or the voting requirements for amending the Restated Certificate) will require the affirmative vote of the holders of at least 80% of the outstanding shares of stock entitled to vote thereon. Lodgian's Restated Certificate and Restated Bylaws provide that the Restated Bylaws may be amended, altered or repealed, or new bylaws may be made (but only to the extent any such alteration, amendment, repeal or new bylaw is not inconsistent with the Restated Certificate) either by the number of directors constituting a majority of the Board of Directors or by the shareholders of Lodgian upon the affirmative vote of the holders of at least 80% of the outstanding stock entitled to vote thereon. Unless otherwise provided in a corporation's certificate of incorporation, the DGCL generally permits shareholder action to be taken without a meeting if written consents signed by holders having the requisite number of votes necessary to take such action are delivered to the corporation. Lodgian's Restated Certificate provides that any action required or permitted to be taken by shareholders must be effected at a duly called annual meeting or special meeting of shareholders and may not be effected by any consent in writing by such shareholders. MEETINGS OF MEMBERS AND SHAREHOLDERS. Under the GLLCA, unless the organizational documents provide otherwise, meetings of members may be called by at least 25% of the members with two days' notice. Impac's Operating Agreement does not authorize meetings of its member. If member consent to a particular action is required, the consent must be obtained in writing. Under the DGCL, special meetings of shareholders may be called by the Board of Directors or by such person(s) as are authorized by the certificate of incorporation or the bylaws. Lodgian's Restated Certificate and Restated Bylaws provide that a special meeting of shareholders may only be called by either the Chief Executive Officer or by a majority of the Board of Directors. Lodgian's shareholders will not (nor will any other persons) have the right to call special meetings of shareholders. WITHDRAWAL AND REMOVAL OF MANAGER AND DIRECTORS. The GLLCA does not address the removal of managers. Under Impac's Operating Agreement, Mr. Cole may voluntarily withdraw as Manager only with the consent of the holder of the Class B Interest. Other managers, if appointed, may voluntarily withdraw with 30 days' prior written notice. If no other managers have been appointed, the holders of a majority of the Units shall elect one or more new managers. Mr. Cole can be removed for cause by the collective vote of the holders of a majority of the Units and of the Class B Interest. Other managers, if any, may be removed without cause by Mr. Cole upon 10 days' prior written notice or for cause with the consent of the holders of a majority of the Units. If that manager was elected by the holder of the Class B Interest as described below, however, the consent of the holder of the Class B Interest will be required as well. Notwithstanding the foregoing, the holder of the Class B Interest may, by providing written notice to Impac's Manager(s), remove any Manager, including Mr. Cole, and appoint one or more replacement managers if: (i) any action requiring the consent of the holder of the Class B Interest was taken without such consent; (ii) there is a breach of any material obligation of the Manager(s) under the Operating Agreement that is not cured within 30 days after written notice setting forth such breach is provided by the holder of the Class B Interest (or within such additional period of time as may be reasonably necessary to cure such breach up to 120 days after such written notice); (iii) there is an event of default beyond applicable notice and cure periods under the Note; or (iv) there is a default under any -127- 146 NACC loan that is not cured within the applicable cure or acceleration period and prohibits the payment by Impac or requires the retention by NACC or its agent of any amounts due under the Note. Consistent with the provisions of the DGCL concerning removal of directors where the corporation's board is classified, Lodgian's Restated Certificate provides that a director may be removed only for due cause, by the holders of a majority of the shares entitled to vote thereon at a meeting of the shareholders; PROVIDED, HOWEVER, that no such removal can be made unless the notice thereof specifies such removal and the reasons therefor as one of the matters to be considered at such meeting. CONFLICTING INTERESTS TRANSACTIONS. The GLLCA states that unless otherwise provided in the organizational documents, a member's or manager's conflicting interest transaction may not be set aside, enjoined or sanctioned on such grounds if: (i) a majority of disinterested members approve the transaction after disclosure of its terms in accordance with the provisions of the GLLCA; or (ii) the transaction, judged in the circumstances at the time of commitment, is established to have been fair to the LLC. Impac's Operating Agreement states that the provisions discussed above will not apply to any member, manager, officer or affiliate of Impac, and that such persons may engage in or possess an interest in any other business or venture, regardless of whether it competes with Impac, without having any obligation to offer any interest in such activities to Impac or any of its members. The Operating Agreement requires transactions with affiliates to be at arms length and requires the payment of consideration at fair value for any property exchanged or services provided. Under the DGCL, no transaction between a corporation and any of its directors or officers or their affiliates will be void or voidable solely for this reason if: (i) the material facts as to the relationship or interest and as to the transaction are disclosed or known to the Board of Directors or committee acting upon the transaction, and the Board or committee in good faith authorizes the contract or transaction by the vote of a majority of the disinterested directors, even if the disinterested directors constitute less than a quorum; (ii) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (iii) the contract or transaction is fair to the corporation at the time it is authorized, approved or ratified by the Board of Directors, a committee or the shareholders. Lodgian's Restated Certificate and Restated Bylaws do not contain any provisions addressing this issue. BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS. Except as discussed under "--Conflicting Interests Transactions" above, neither the GLLCA nor Impac's Operating Agreement contain any provisions restricting Impac's ability to engage in business combinations or transactions with its members. The DGCL generally prohibits a shareholder owning 15% or more of a Delaware corporation's outstanding voting stock (an "interested shareholder") from engaging in certain business combinations involving the corporation during the three years after the date the person became an interested shareholder unless (i) prior to such date, the board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder, (ii) upon the consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the shareholder owned at least 85% of the voting stock outstanding at the time the transaction commenced, (iii) on or subsequent to such date, the transaction is approved by the board of directors and by the shareholders by a vote of two-thirds of the disinterested outstanding voting stock, (iv) the corporation's original certificate of incorporation provides that the corporation shall not be governed by the statute or (v) a majority of shares entitled to vote approve an amendment to the corporation's certificate of incorporation or bylaws expressly electing not to be governed by the statute (but such amendment may not be effective until one year after it was adopted and -128- 147 may not apply to any business combination between the corporation and any person who became an interested shareholder on or prior to such adoption). These business combinations include, with certain exceptions, mergers, consolidations, sales of assets and transactions benefiting the interested shareholder. Lodgian's Restated Certificate and Restated Bylaws do not contain a provision electing not to be governed by this statute. DISSENTERS' RIGHTS. The GLLCA provides that unless otherwise provided in the organizational documents, members of an LLC are entitled to dissent from, and obtain payment of the fair value of their membership interests, in the event of: (i) consummation of a plan of merger to which the LLC is a party if approval of less than all of the members is required and the member is entitled to vote on the merger; (ii) consummation of a sale, lease, exchange or other disposition of all or substantially all of the LLC's property if approval of less than all of the members is required and the member is entitled to vote on the transaction; (iii) amendments to the articles of organization that materially and adversely affect rights in respect of a dissenters' membership interests in the LLC; or (iv) any action taken for which the organizational documents provide for dissenters' rights. In Impac's Operating Agreement, however, the members specifically waive the dissenters' rights provided above unless the action taken is described either in clause (i) or (ii) above and is taken without the consent of the members owning a majority of the Units as required under the Operating Agreement. A shareholder of a Delaware corporation generally is entitled to dissenters' rights in the event that the corporation is a party to certain mergers or consolidations to which the shareholder neither voted in favor of nor consented thereto in writing. Dissenters' rights do not apply to a shareholder of a Delaware corporation if his or her shares are (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Security Dealers, Inc. or (ii) held of record by more than 2,000 shareholders. Notwithstanding the foregoing, however, under the DGCL, a shareholders not have dissenters' rights with respect to such shares if the shareholder is required by the terms of the agreement of merger or consolidation to accept anything for his or her shares other than (i) shares of stock of the corporation surviving or resulting from the merger or consolidation, (ii) shares of stock of any other corporation that is also listed or designated or held of record by more than 2,000 shareholders, (iii) cash in lieu of fractional shares or (iv) any combination of the foregoing. DISTRIBUTIONS AND DIVIDENDS. The GLLCA provides that members will be entitled to distributions from an LLC before its dissolution and winding up only to the extent, and upon the occurrence of the events, specified in the organizational documents or as otherwise approved by all of the members. Distributions are to be shared in the manner provided in the organizational documents, or if no provision is made, equally among the members. Members are also entitled to receive the fair value of their interests in certain events of dissociation from the LLC. A distribution will be prohibited if, giving effect to the distribution, the LLC would not be able to pay its debts as they become due in the usual course of business or its total assets would be less than its total liabilities plus, unless the organizational documents provide otherwise, the amount that would be needed to satisfy any preferential rights of members to receive distributions upon dissolution. Impac's Operating Agreement states that Impac intends to have the Manager distribute to members on a quarterly basis Impac's Net Cash Flow (as defined in the Operating Agreement) and within 30 days after any disposition of its property, the Net Proceeds (as defined in the Operating Agreement) realized by Impac as a result of such disposition, after reduction for any applicable debt service and/or reserves that the Manager may reasonably determine to be necessary for Impac's operations. Accordingly, the Manager may, in his discretion as to timing, amount and source of funds, make distributions to members holding Units pro rata based upon the number of Units owned by each Member. No distribution may be made, however, if it is prohibited under the terms of the NACC Loan Agreement or the Note. A Delaware corporation may pay dividends out of "surplus" or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared or for the preceding fiscal year. Surplus is defined as the net assets of the corporation over the corporation's capital. Lodgian's Restated Certificate does not alter these provisions. -129- 148 REPURCHASES. Neither the GLLCA nor Impac's Operating Agreement restricts the repurchase of membership interests. Under the DGCL, a corporation may repurchase or redeem its shares only if the capital of the corporation is not impaired and such repurchase does not impair the corporation's capital. Lodgian's Restated Certificate does not alter these provisions. LIMITATION OF LIABILITY OF MANAGERS AND DIRECTORS. The GLLCA allows an LLC's organizational documents to expand, restrict or eliminate a member's or manager's liabilities for actions taken in such capacity, except that no such provision will eliminate or limit liability for intentional misconduct or a knowing violation of law or for any transaction in which the person received a personal benefit in violation of any provision of the operating agreement. Impac's Operating Agreement states that neither the Manager nor any officer shall be liable for any act or omission committed in good faith on behalf of Impac and in a manner reasonably believed by such person to be within the scope of his or her authority granted under the Operating Agreement. No limitation of liability applies, however, to actions involving fraud, gross negligence or willful misfeasance. The DGCL permits a Delaware corporation to include in its certificate of incorporation a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breaches of fiduciary duty, including conduct that could be characterized as negligence or gross negligence. The DGCL expressly provides, however, that the liability for (a) breaches of the director's duty of loyalty; (b) acts or omissions not in good faith or involving intentional misconduct or knowing violation of the law; (c) an unlawful distribution; or (d) the receipt of improper personal benefits cannot be eliminated or limited in this manner. The DGCL further provides that no such provision will eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. Lodgian's Restated Certificate includes a provision eliminating or limiting director liability for monetary damages for breaches of fiduciary duty to the extent permitted by the DGCL. RESTRICTIONS ON TRANSFER OF SECURITIES. The GLLCA states that LLC interests are freely assignable unless the organizational documents provide otherwise. The Impac Operating Agreement states that membership interests may be transferred if: (i) the transferee, if an individual, is at least 21 years of age; (ii) the transferee agrees in writing to be bound by the Operating Agreement; and (iii) the Manager consents to the transfer. Such consent may be withheld if the transfer would impair Impac's ability to be taxed as partnership or would violate federal or state securities laws. Notwithstanding the foregoing, the Class B Interest may be transferred only to a subsequent purchaser of the Note in its entirety. The consent and approval provisions described above will not be required in order to transfer the Class B Interest. Impac also has a right of first refusal with respect to the disposition of Units. If a member receives an offer to purchase any or all of his or her Units, the member must offer Impac the opportunity to repurchase any or all of such Units on the same terms and conditions as are contained in the offer. Impac has three business days after its receipt of the offer to purchase any or all of such Units. If Impac does not exercise its right of first refusal, the Units may be sold to any person. The DGCL permits a corporation to place restrictions on the transfer of its securities. Members of Impac who are not affiliates of Impac, Servico or Lodgian will receive freely tradeable Lodgian Common Stock as a result of the Merger. Affiliates of Impac, Servico and Lodgian will be bound by certain provisions of federal securities laws with respect to the transfer of their Lodgian Common Stock. See "The Merger--Securities Law Restrictions." INSPECTION OF BOOKS AND RECORDS. The GLLCA permits members to inspect and copy, at their own expense, any LLC records upon reasonable request during ordinary business hours and to obtain from time to time upon reasonable demand business and financial information about the LLC, copies of tax returns and other reasonable information about the LLC and its affairs. Impac's Operating Agreement allows members to inspect and copy, at their own expense during normal business hours at Impac's principal office: (i) the names and addresses of all members; (ii) copies of the Articles of Organization and any amendments thereto; (iii) copies of tax returns for the four most recent fiscal years; (iv) copies of the Operating Agreement; (v) any merger agreement in which Impac is the surviving entity; and (vi) financial statements for the four most recent fiscal years. -130- 149 The DGCL permits any shareholder the right, during usual business hours, to inspect and copy the corporation's stock ledger, shareholder lists and other books and records for any proper purpose upon written demand under oath stating the purpose thereof. Lodgian's Restated Certificate and Restated Bylaws contain no provisions regarding shareholder inspection rights. LODGIAN PLAN PROPOSALS In addition to approving the Merger, because Lodgian is a new company, the shareholders of Servico and the unitholders of Impac are being asked to approve three incentive plans for Lodgian. Servico currently has in effect the Servico Plan. These new plans will replace the Servico Plan currently in effect with a unified package of incentive compensation plans applicable to directors and employees of Lodgian. The new plans are the following: (i) a short-term incentive plan that provides for bonus compensation linked to performance over a fiscal year or other relatively short period, (ii) a stock incentive plan that provides for longer-term incentives in the form of stock options, stock appreciation rights or other equity-based compensation awards and (iii) a stock plan for non-employee directors that provides for grants of both stock and stock options and allows directors to voluntarily defer payment of a portion of their director fees. THE LODGIAN 1998 SHORT-TERM INCENTIVE COMPENSATION PLAN The Lodgian Board and Impac Manager have recommended the Lodgian 1998 Short-Term Incentive Compensation Plan for approval by their respective shareholders and unitholders. The Lodgian 1998 Short-Term Incentive Compensation Plan was authorized by the Servico Board on [date], and by the Impac Manager on [date] and is subject to approval by their respective shareholders. A copy of the Lodgian 1998 Short-Term Incentive Compensation Plan is attached hereto as Appendix D and the following summary is qualified in its entirety by reference hereto. PURPOSES AND ELIGIBILITY. The purposes of the Lodgian 1998 Short-Term Incentive Compensation Plan are to increase the profitability of Lodgian and its subsidiaries by providing the opportunity for key executives to earn incentive payments for outstanding achievement and company performance and to fulfill Lodgian's objective of offering a fully competitive total compensation package to its key employees, thus enabling Lodgian to attract and retain executives of the highest caliber and ability. The Lodgian 1998 Short-Term Incentive Compensation Plan authorizes the payment of certain bonus awards (the "Bonus Awards") to key executives of Lodgian whose decisions and actions have a significant effect on Lodgian's growth and profitability (the "Participants"). As of [date], 1998, Lodgian estimates that there will be approximately [___] Participants. Section 162(m) of the Code limits the deductibility of compensation in excess of $1,000,000 paid to the chief executive officer and the four other most highly compensated officers of a public company as determined pursuant to the rules of the SEC (the "Covered Employees") unless the payments are made under qualifying performance-based plans and upon the attainment of certain performance goals. The Lodgian 1998 Short-Term Incentive Compensation Plan contains special provisions governing compensation paid to Covered Employees that are intended to ensure that such compensation will be considered performance-based and hence fully deductible. In order for the requirements of Section 162(m) to be met for compensation paid under the Lodgian 1998 Short-Term Incentive Compensation Plan, the Plan must be approved by the shareholders of Servico and the unitholders of Impac. SHARES AVAILABLE AND BONUS AWARD LIMITS UNDER THE LODGIAN 1998 SHORT-TERM INCENTIVE COMPENSATION PLAN. An aggregate of 1,000,000 shares of Lodgian Common Stock are authorized for issuance under the Lodgian 1998 Short-Term Incentive Compensation Plan, which amount will be proportionately adjusted in the event of certain changes in Lodgian's capitalization, a merger, or a similar transaction. Such shares may be either treasury shares or newly issued shares or a combination thereof. In addition to this overall limit, the Lodgian 1998 Short-Term Incentive -131- 150 Compensation Plan contains limits on the amount of the Bonus Award that may be paid in respect of any performance period to any Participant to $1,000,000. ADMINISTRATION. The Compensation Committee of the Lodgian Board (the "Committee") will administer the Lodgian 1998 Short-Term Incentive Compensation Plan. The Committee will interpret the Lodgian 1998 Short-Term Incentive Compensation Plan and establish the rules and regulations governing its administration; select the Participants; approve the performance objectives upon which the percentage of payment of Bonus Awards is based; determine the degree of the attainment of the performance objectives; and determine the size of individual Bonus Awards and payments to Participants. PERFORMANCE OBJECTIVES AND TARGETS. Performance objectives under the Lodgian 1998 Short-Term Incentive Compensation Plan will be established by the Committee for each applicable performance period, which performance period may be a calendar year or a multi-year cycle. Performance objectives for each Participant may consist of financial objectives, individual objectives, or a combination thereof, except that with respect to Covered Employees, the performance objectives will consist of financial objectives only. Financial objectives will be established by the Committee each performance period based upon one or more of the following performance measures: (i) net revenue, (ii) net earnings, (iii) operating earnings or income, (iv) absolute and/or relative return on equity or assets, (v) earnings per share, (vi) cash flow, (vii) pretax profits, (viii) earnings growth, (ix) revenue growth, (x) book value per share, (xi) stock price and (xii) performance relative to peer companies, each of which may be established on a corporate-wide basis or established with respect to one or more operating units, divisions, acquired businesses, minority investments, partnerships or joint ventures. At the same time, a "range" of achievements for financial objectives ranging from zero to target to maximum levels will be established by the Committee. The Committee may alter or adjust financial objectives during the course of a performance period, or alter or adjust the financial results otherwise reported or achieved by Lodgian during such performance period, except with respect to the Covered Employees, for whom the Committee shall have no discretion to increase, but may decrease, the amount of a Bonus Award payable based upon the range of achievement of the financial objectives. OTHER AWARD CRITERIA. Except with respect to Covered Employees, the Committee may also, as to a Participant, make a portion of the award opportunity subject to qualitative or quantitative individual goals to be achieved. Individual objectives may be altered or amended during any performance period to properly reflect changed business conditions and priorities, subject to approval by the President and Chief Executive Officer or his delegate. PAYMENT OF BONUS AWARDS. Payment of earned Bonus Awards is made as soon as practicable after the end of the performance period in which such Bonus Award is earned. Bonus Award payments will be paid in cash, shares of Lodgian Common Stock, or in a combination of cash and shares as determined by the Committee. If a Bonus Award is paid in Lodgian Common Stock, such stock will be valued at its fair market value on the date of payment. No Bonus Award is earned with respect to a financial objective at or below the zero level of achievement; achievement between the zero and the target levels and the target and maximum levels will result in a Bonus Award payment in accordance with the established range of the achievement payment schedule. An amount larger than the target Bonus Award opportunity for each financial objective can be earned by a Participant (other than a Covered Employee) for exceeding that target. If a Participant's employment is terminated because of death, disability or retirement, or if employment is otherwise terminated and the Committee approves, the Participant will receive a pro rata Bonus Award payment based on the portion of the year the Participant was employed by Lodgian in an eligible position while the Bonus Award was outstanding and the degree to which during such year the performance objectives were achieved. No Bonus Award will be payable to any Participant who voluntarily resigns his or her employment prior to the payment date for such Bonus Award. CHANGE IN CONTROL. In the event of a Change in Control of Lodgian, except as the Committee otherwise determines, Lodgian will pay to each Participant the pro rata amount of the Participant's target Bonus Award for the then-current year. A Change in Control will generally be deemed to occur if: (i) any person becomes the owner of -132- 151 40% or more of Lodgian's voting securities; (ii) directors who constitute the Lodgian Board at the beginning of any two-year period, and any new directors whose election or nomination for election was approved by a vote of at least a majority of the directors then in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved, cease to constitute at least a majority of the Lodgian Board; (iii) the shareholders of Lodgian approve a merger or consolidation in which Lodgian's voting securities do not continue to represent at least a majority of the surviving entity; or (iv) the shareholders approve a reorganization, liquidation, or sale of all or substantially all of Lodgian's assets. AMENDMENT. The Lodgian 1998 Short-Term Incentive Compensation Plan may be amended by the Lodgian Board upon a recommendation of the Committee, except that, without approval of the shareholders, the Board or Committee may not change (i) the performance measures with respect to Bonus Awards to Covered Employees, (ii) the individuals or class of individuals eligible to participate or (iii) the maximum amount payable to a Covered Employee under the Plan. EFFECTIVENESS. If the Plan is approved by the shareholders, it will be effective in the form approved with respect to Bonus Awards to be earned during 1998 and thereafter. NEW PLAN BENEFITS. With the exception of Bonus Awards to Covered Employees, Bonus Awards under the Lodgian 1998 Short-Term Incentive Compensation Plan will be authorized by the Committee in its sole discretion. For this reason, it is not possible to determine the benefits or amounts that will be received by any particular employee or group of employees in the future. In addition, because Bonus Awards made under the Lodgian 1998 Short-Term Incentive Compensation Plan to Covered Employees for any particular fiscal year will be determined using performance targets that are determined by the Committee at the beginning of that fiscal year, and the amount, if any, payable to any Covered Employee will depend on the extent to which such performance targets are satisfied, it is not possible to determine the benefits or amounts that will be received by any particular Covered Employee for the current fiscal year or any fiscal year in the future. FEDERAL INCOME TAX CONSEQUENCES BONUS AWARDS. The payment of a Bonus Award, whether such Bonus Award is paid in cash or shares of Lodgian Common Stock, will result in immediate recognition of ordinary income by an employee in an amount equal to the amount of such Award, and Lodgian will receive a tax deduction equal to the amount of such income. If a Bonus Award is paid in Lodgian Common Stock, such stock will be valued at its fair market value on the date of payment. Gain or loss upon a subsequent sale of any shares of Lodgian Common Stock that are paid as a Bonus Award will be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). THE BOARD OF SERVICO AND THE IMPAC MANAGER RECOMMEND THAT THEIR RESPECTIVE SHAREHOLDERS AND UNITHOLDERS VOTE FOR APPROVAL OF THE LODGIAN 1998 SHORT-TERM INCENTIVE COMPENSATION PLAN THE LODGIAN 1998 STOCK INCENTIVE PLAN The Servico Board and Impac Manager have recommended the Lodgian 1998 Stock Incentive Plan for approval by their respective shareholders. The Lodgian 1998 Stock Incentive Plan was authorized by the Servico Board on May 8, 1998 and by the Impac Manager on July 16, 1998, 1998 and is subject to approval by their respective shareholders and unitholders. A copy of the Lodgian 1998 Stock Incentive Plan is attached hereto as Appendix E and the following summary is qualified in its entirety by reference thereto. -133- 152 PURPOSES AND ELIGIBILITY. The purposes of the Lodgian 1998 Stock Incentive Plan are to attract, retain and motivate officers and other key employees and consultants of Lodgian and its subsidiaries, to compensate them for their contributions to the growth and profits of Lodgian and to encourage ownership by them of stock of Lodgian. The Lodgian 1998 Stock Incentive Plan authorizes the issuance of certain awards ("Awards") to such individuals (referred to in the Lodgian 1998 Stock Incentive Plan as "Eligible Individuals"). As of [_________]. 1998, Lodgian estimates that there will be approximately [______] Eligible Individuals. SHARES AVAILABLE UNDER THE LODGIAN 1998 STOCK INCENTIVE PLAN. An aggregate of 3,000,000 shares of Lodgian Common Stock are authorized for issuance under the Lodgian 1998 Stock Incentive Plan, which amount will be proportionately adjusted in the event of certain changes in Lodgian's capitalization, a merger, or a similar transaction. Such shares may be treasury shares or newly issued shares or a combination thereof. In addition to this overall limit, in accordance with the requirements of Section 422 of the Code, the Lodgian 1998 Stock Incentive Plan limits the number of shares that may be subject to incentive stock options to 3,000,000 shares. In accordance with the requirements of the regulations under Section 162(m) of the Code, the Lodgian 1998 Stock Incentive Plan limits the number of shares that may be granted to an individual participant in any fiscal year of Lodgian to 250,000 shares. ADMINISTRATION. The Committee or other committee appointed by the Lodgian Board will administer the Lodgian 1998 Stock Incentive Plan, approve the Eligible Individuals who will receive Awards, determine the form and terms of the Awards and have the power to fix and accelerate vesting periods. Subject to certain limitations, the Committee may from time to time delegate some or all of its authority to an administrator consisting of one or more members of the Committee or one or more officers of Lodgian. AWARDS - GENERAL. The Lodgian 1998 Stock Incentive Plan authorizes a broad array of Awards based on Lodgian's Common Stock, including (i) stock awards consisting of one or more shares of Lodgian Common Stock granted or offered for sale to Eligible Individuals ("Stock Awards"), (ii) stock options ("Stock Options"), (iii) stock appreciation rights ("SARs"), which may be granted in tandem with or independently of Stock Options, (iv) conditional awards which may be earned upon the satisfaction of certain specified performance criteria ("Performance Share Awards") and (v) other forms of equity-based or equity-related awards which the Committee determines to be consistent with the purposes of the Lodgian 1998 Stock Incentive Plan and the interests of Lodgian ("Other Awards"). Such Other Awards may also include cash payments which may be based on one or more criteria determined by the Committee which are unrelated to the value of Lodgian's Common Stock. The vesting, exercisability, payment and other restrictions applicable to an Award (which may include, without limitation, restrictions on transferability or provision for mandatory resale to Lodgian) shall be determined by the Committee. The Committee may accelerate (i) the vesting or payment of any Award, (ii) the lapse of restrictions on any Award or (iii) the date on which any Stock Option or SAR first becomes exercisable. The Committee shall also have a full authority to determine the effect, if any, that a participant's termination of employment will have on the vesting, exercisability, payment or lapse of restrictions applicable to an outstanding Award. Lodgian may require a participant to pay a sum to Lodgian as may be necessary to cover any taxes or other charges imposed on Lodgian with respect to property or income received by a participant pursuant to the Lodgian 1998 Stock Incentive Plan. Lodgian may offer loans to participants to satisfy withholding requirements on such terms as the Committee may determine. No Awards shall be made under the Lodgian 1998 Stock Incentive Plan after the tenth anniversary of the date on which the Lodgian 1998 Stock Incentive Plan is approved by the shareholders of Servico and unitholders of Impac. AWARDS - STOCK AWARDS. Recipients of Stock Awards are entitled to exercise voting rights and receive dividends with respect to the shares of Lodgian Common Stock underlying such Awards upon receipt of such Awards. -134- 153 AWARDS - STOCK OPTIONS. An award of Stock Options may consist of either nonqualified stock options or incentive stock options. A Stock Option entitles the participant to acquire a specified number of shares of Lodgian Common Stock at an exercise price determined by the Committee, which generally may not be less than the fair market value of the shares on the date of award of the Stock Option. The exercise price may be paid in cash or previously owned stock or a combination thereof. In addition, Lodgian intends to establish a "cashless exercise" procedure that will afford participants the opportunity to sell immediately some or all of the shares underlying the exercised portion of a Stock Option in order to generate sufficient cash to pay the exercise price and/or to satisfy withholding tax obligations related to the Stock Option. Stock Options expire no later than ten years from the date of grant. AWARDS - STOCK APPRECIATION RIGHTS. Recipients of SARs are entitled to receive an amount, if any, equal to the fair market value of a share of Lodgian Common Stock on the date of exercise over the SAR exercise price specified in the applicable award agreement. At the discretion of the Committee, payments to a participant upon exercise of an SAR may be made in shares, cash or a combination thereof. An SAR may be granted alone or in addition to other Awards, or in tandem with a Stock Option. AWARDS - PERFORMANCE SHARE AWARDS. A Performance Share Award will entitle a participant to receive a specified number of shares, an equivalent amount of cash or a combination thereof upon satisfaction of certain specified performance criteria. Payment in settlement of a Performance Share Award shall be made as soon as practicable following the conclusion of the applicable performance period, or at another time determined by the Committee. AWARDS TO SECTION 162(M) OFFICERS. Section 162(m) of the Code limits the deductibility of compensation in excess of $1,000,000 paid to the chief executive officer and the four other most highly compensated officers of a public company, as determined pursuant to the rules of the SEC, unless the payments are made under qualifying performance-based plans and upon the attainment of certain performance goals. The Lodgian 1998 Stock Incentive Plan contains special provisions that are intended to enable the Committee, if it so chooses, to make Awards to Lodgian officers who are subject to Section 162(m) of the Code ("Section 162(m) Officers") that will qualify as "qualified performance-based compensation" for purposes of Section 162(m) of the Code. Section 162(m) Awards may consist of Stock Options, SARs, Stock Awards, Performance Share Awards or Other Awards the vesting, exercisability and/or payment of which is conditioned upon the attainment for the applicable performance period of specified performance targets related to designated performance goals for such period selected by the Committee. Performance goals will be selected from among the following performance criteria: (i) net revenue, (ii) net earnings, (iii) operating earnings or income, (iv) absolute and/or relative return on equity or assets, (v) earnings per share, (vi) cash flow, (vii) pretax profits, (viii) earnings growth, (ix) revenue growth, (x) book value per share, (xi) stock price and (xii) performance relative to peer companies, each of which may be established on a corporate-wide basis or established with respect to one or more operating units, divisions, acquired businesses, minority investments, partnerships or joint ventures. In addition to the foregoing, the Committee may also grant Section 162(m) Officers Stock Options or SARs which may, pursuant to the regulations promulgated under Section 162(m), be qualified as performance-based compensation for Section 162(m) purposes without regard to the foregoing. CHANGE IN CONTROL. In the event of a Change in Control of Lodgian, except as the Committee otherwise determines, all outstanding Stock Options and SARs will become fully exercisable, all restrictions and conditions of all outstanding Stock Awards will lapse, all Performance Share Awards will be deemed to have been fully earned, and, in the case of a Change in Control in which Lodgian does not survive or becomes a wholly owned subsidiary of another entity, outstanding Stock Options that are not exercised as of the date of the Change in Control will be converted into options to purchase common stock or similar equity interests of the acquiror. A Change in Control under the Lodgian 1998 Stock Incentive Plan is defined as it is defined for purposes of the Lodgian 1998 Short-Term Incentive Compensation Plan. -135- 154 AMENDMENT. The Lodgian Board or the Committee may amend or terminate the Lodgian 1998 Stock Incentive Plan at any time, except that shareholder approval is required to increase the maximum number of shares issuable under the Plan. No amendment or termination may adversely affect a participant's rights with respect to previously granted Awards without his or her consent. NEW PLAN BENEFITS. Awards under the Lodgian 1998 Stock Incentive Plan will be authorized by the Committee in its sole discretion. For this reason it is not possible to determine the benefits or amounts that will be received by any particular employees or group of employees in the future. FEDERAL INCOME TAX CONSEQUENCES NONQUALIFIED STOCK OPTIONS. The grant of a nonqualified stock option will not result in the recognition of taxable income by the participant or in a deduction to Lodgian. Upon exercise, a participant will recognize ordinary income in an amount equal to the excess of the fair market value of the Lodgian Common Stock on the date of exercise over the exercise price. Lodgian is required to withhold tax on the amount of income so recognized, and a tax deduction is allowable equal to the amount of such income (subject to the satisfaction of certain conditions in the case of Stock Options exercised by Section 162(m) Officers). Gain or loss upon a subsequent sale of any Lodgian Common Stock received upon the exercise of a nonqualified stock option generally would be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). Certain additional rules apply if the exercise price for an option is paid in shares previously owned by the participant. INCENTIVE STOCK OPTIONS. Upon the grant or exercise of an incentive stock option within the meaning of Section 422 of the Code, no income will be realized by the participant for federal income tax purposes and Lodgian will not be entitled to any deduction. However, the excess of the fair market value of the Lodgian Common Stock as of the date of exercise over the exercise price will constitute an adjustment to taxable income for purposes of the alternative minimum tax. If the shares of Lodgian Common Stock are not disposed of within the one-year period beginning on the date of the transfer of such shares to the participant, nor within the two-year period beginning on the date of grant of the Stock Option, any profit realized by the participant upon the disposition of such shares will be taxed as long-term capital gain and no deduction will be allowed to Lodgian. If the shares of Lodgian Common Stock are disposed of within the one-year period from the date of transfer of such shares to the participant or within the two-year period from the date of grant of the Stock Option, the excess of the fair market value of the shares upon the date of exercise or, if less, the fair market value on the date of disposition over the exercise price will be taxable as ordinary income of the participant at the time of disposition, and a corresponding deduction will be allowable. Certain additional rules apply if the exercise price for an option is paid in shares previously owned by the participant. If a Stock Option intended to qualify as an incentive stock option is exercised by a person who was not continually employed by Lodgian or certain of its affiliates from the date of grant of such Stock Option to a date not more than three months prior to such exercise (or one year if such person is disabled), then such Stock Option will not qualify as an incentive stock option and will instead be taxed as a nonqualified stock option, as described above. STOCK AWARDS. A participant who is awarded a Stock Award will not be taxed at the time of award unless the participant makes a special election with the IRS pursuant to Section 83(b) of the Code as discussed below. Upon lapse of the risk of forfeiture or restrictions on transferability applicable to the Lodgian Common Stock comprising the Stock Award, the participant will be taxed at ordinary income tax rates on the then fair market value of the Lodgian Common Stock and a corresponding deduction will be allowable (subject to the satisfaction of certain conditions in the case of Stock Awards granted to Section 162(m) Officers). In such case, the participant's basis in the Lodgian Common Stock will be equal to the ordinary income so recognized. Upon subsequent disposition of such Lodgian Common Stock, the participant will realize capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). Pursuant to Section 83(b) of the Code, the participant may elect within 30 days of receipt of the Stock Award to be taxed at ordinary income tax rates on the fair market value of the Lodgian Common Stock comprising such Stock Award at the time of award (determined without regard to any restrictions which may lapse). In that case, the -136- 155 participant will acquire a basis in such Lodgian Common Stock equal to the ordinary income recognized by the participant at the time of award. No tax will be payable upon lapse or release of the restrictions or at the time the Lodgian Common Stock first becomes transferable, and any gain or loss upon subsequent disposition will be a capital gain or loss. In the event of a forfeiture of Lodgian Common Stock with respect to which a participant previously made a Section 83(b) election, the participant will not be entitled to a loss deduction. PERFORMANCE SHARE AWARDS. A participant who receives a Performance Share Award will be taxed at ordinary income tax rates on the then fair market value of the shares of Lodgian Common Stock distributed at the time of payment in settlement of such Performance Share Award and a corresponding deduction will be allowable to Lodgian at that time (subject to the satisfaction of certain conditions in the case of Performance Share Awards granted to Section 162(m) Officers). The participant's basis in the shares of Lodgian Common Stock will be equal to the amount taxed as ordinary income, and on subsequent disposition the participant will realize capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). THE SERVICO BOARD AND THE IMPAC MANAGER RECOMMEND THAT THEIR RESPECTIVE SHAREHOLDERS AND UNITHOLDERS VOTE FOR APPROVAL OF THE LODGIAN 1998 STOCK INCENTIVE PLAN THE LODGIAN NON-EMPLOYEE DIRECTORS' STOCK PLAN The Servico Board and Impac Manager have recommended the Lodgian Non-Employee Directors' Stock Plan for approval by their respective shareholders and unitholders. The Lodgian Non-Employee Directors' Stock Plan was authorized by the Servico Board on May 8, 1998 and by the Impac Manager on July 16, 1998 and is subject to approval by their respective shareholders and unitholders. A copy of the Lodgian Non-Employee Directors' Stock Plan is attached hereto as Appendix F and the following summary is qualified in its entirety by reference thereto. PURPOSES AND ELIGIBILITY. The purposes of the Lodgian Non-Employee Directors' Stock Plan are to help Lodgian retain as directors qualified persons who are not employees of Lodgian or its subsidiaries and to secure for Lodgian the inherent benefit of increased stock ownership by such directors. Only directors who are not employees of Lodgian or any of its subsidiaries may participate in the Lodgian Non-Employee Directors' Stock Plan. SHARES AVAILABLE UNDER THE NON-EMPLOYEE DIRECTORS' STOCK PLAN. A total of 300,000 shares of Lodgian Common Stock will be reserved for issuance under the Non-Employee Directors' Stock Plan, which amount will be proportionately adjusted in the event of certain changes in Lodgian's capitalization, a merger, or a similar transaction. Shares issued pursuant to the Lodgian Non-Employee Directors' Stock Plan may be either authorized but unissued shares, treasury shares or a combination thereof. ADMINISTRATION. The Lodgian Non-Employee Directors' Stock Plan will be administered by a committee consisting exclusively of members of the Lodgian Board who are not non-employee directors. The committee will have authority to adopt such rules as it deems necessary to carry out the purposes of the Lodgian Non-Employee Directors' Stock Plan and to construe and interpret the Plan. DIRECTOR OPTION GRANTS. The Lodgian Non-Employee Directors' Stock Plan provides for automatic, non- discretionary grants of nonqualified stock options ("Director Options") to non-employee directors. Each non-employee director will receive, at each annual meeting of Lodgian stockholders commencing with the annual meeting held in 1999, an option to purchase 5,000 shares of Lodgian Common Stock. All Director Options will have a per share exercise price equal to the fair market value of the shares on the date of award. Such exercise price may be paid in cash or previously owned stock or a combination thereof. No discretionary grants of stock options are permitted under the Lodgian Non-Employee Directors' Stock Plan. -137- 156 All options granted pursuant to the Lodgian Non-Employee Directors' Stock Plan will vest in equal installments on each of the first three annual meetings following the date of grant. Notwithstanding this vesting schedule, a Director Option will become fully vested and exercisable upon a non-employee director's termination of service due to death, disability or retirement in accordance with the retirement policy for non-employee directors then in effect. All Director Options expire ten years from the date of grant. If a non-employee director's service as a member of the board of directors terminates due to death, disability or retirement, all Director Options must be exercised within one year following such termination. If a non-employee director's service as a member of the board of directors terminates for any other reason, such non-employee director must exercise any Director Options that have vested as of the date of such termination within the six month period following such termination and all Director Options that have not vested as of the date of such termination will immediately expire. DIRECTOR SHARES. A non-employee director may elect to receive all or a specific percentage of his or her cash fees payable for service on the Board or any committee thereof in shares of Lodgian Common Stock (the "Director Shares"), in lieu of cash compensation. The number of shares of Lodgian Common Stock so awarded to each non-employee director will be determined by dividing the portion of such non-employee director's fees to be paid in Lodgian Common Stock by the fair market value of a share of Lodgian Common Stock on the date of award. AMENDMENT. The Lodgian Board may amend or terminate the Lodgian Non-Employee Directors' Stock Plan at any time, except that shareholder approval is required to increase the maximum number of shares issuable under the Lodgian Non-Employee Directors' Stock Plan. The consent of a non-employee director is required to the extent that any amendment or termination would adversely affect such non-employee director's rights with respect to any previously granted Director Option or would result in the distribution of amounts credited to such non-employee director's deferred compensation account or could reasonably be expected to result in the immediate taxation of amounts deferred in a non-employee director's deferred compensation account. NEW PLAN BENEFITS. The Lodgian Non-Employee Directors' Stock Plan provides for automatic option grants to each non-employee director with respect to 5,000 shares of Lodgian Common Stock on the date of each annual meeting of Lodgian shareholders commencing with the annual meeting held in 1999. FEDERAL INCOME TAX CONSEQUENCES DIRECTOR SHARES. A grant of Director Shares will result in the recognition of taxable income by a non-employee director and in a deduction to Lodgian. Gain or loss upon a subsequent sale of Director Shares will be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). DIRECTOR OPTION GRANTS. The grant of a stock option to a non-employee director will not result in the recognition of taxable income by the non-employee director or in a deduction to Lodgian. Upon exercise, a non-employee director will recognize ordinary income in an amount equal to the excess of the fair market value of the Lodgian Common Stock purchased over the exercise price, and a tax deduction is allowable to Lodgian equal to the amount of such income. Gain or loss upon a subsequent sale of any Lodgian Common Stock received upon the exercise of a stock option generally would be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). Certain additional rules apply if the exercise price for an option is paid in shares previously owned by the non-employee director. THE SERVICO BOARD AND THE IMPAC MANAGER RECOMMEND THAT THEIR RESPECTIVE SHAREHOLDERS AND UNITHOLDERS VOTE FOR APPROVAL OF THE LODGIAN NON-EMPLOYEE DIRECTORS' STOCK PLAN. -138- 157 PROPOSAL TO AMEND THE SERVICO STOCK OPTION PLAN DESCRIPTION OF THE SERVICO STOCK OPTION PLAN The Servico Plan was established by Servico in 1992 to provide Servico with an effective means to attract, retain, and motivate employees of Servico. Amendments to the Servico Plan were adopted by the Board of Directors in April 1994, February 1995 and April 1997 and approved by the shareholders of Servico in June 1994, May 1995 and May 1997, respectively. Such amendments increased the number of shares issuable pursuant to the Servico Plan from 1,000,000 to 1,675,000 shares, revised the Servico Plan in an attempt to meet the requirements for deductibility under the Code, eliminated the automatic vesting of options upon the occurrence of certain events and modified the provision which provides for the automatic grant of options to non-employee directors of Servico. A maximum of 1,675,000 shares of Servico Common Stock were issuable under the Servico Plan, and no shares currently remain available for issuance under the Servico Plan. In August, 1997, Servico granted stock options with respect to 590,000 shares to certain of its officers and directors which, because the Servico Plan did not have enough shares available for issuance, were granted subject to approval of an amendment to the Servico Plan. In the event the Merger is approved, the Lodgian Plans are expected to replace the Servico Plan and, in such case, no further options will be granted under the Servico Plan. The outstanding options granted under the Servico Plan, including those granted in August, 1997, if this Amendment is adopted, will automatically convert into options to acquire Lodgian stock upon effectiveness of the Merger. As described below, Servico shareholders are being asked to amend the Servico Plan to increase the number of shares available for issuance under the Servico Plan to 3,250,000. In the event the Merger is consummated, no further options will be granted pursuant to the Servico Plan. The Board of Directors recommends a vote "for" the amendment of the Servico Plan. The Servico Plan is administered by the Stock Option Committee of Servico's Board of Directors within the meaning of Section 162(m) of the Code. The Stock Option Committee has the authority to interpret the provisions of the Servico Plan and to make all determinations deemed necessary or advisable for its administration. The Servico Plan provides for the issuance of incentive stock options within the meaning of Section 422 of the Code and nonqualified stock options not intended to meet the requirements of Section 422 of the Code. Incentive stock options may be granted to employees of Servico and its subsidiaries, and non-qualified options may be granted to employees, directors, independent contractors and agents of Servico and its subsidiaries. Subject to the terms of the Servico Plan, the Stock Option Committee determines the employees to whom grants are made and the vesting, timing, amounts and other terms of such grants. Stock options exercisable in one calendar year for shares with a fair market value on the date of grant in excess of $100,000 will not be treated as incentive stock options. Additionally, the Servico Plan limits the number of stock options (whether incentive stock options or non-qualified aggregate option) which may be granted to any individual employee in any given year to options covering not more than 125,000 shares of Servico Common Stock. Pursuant to the terms of the Servico Plan, the exercise price of options may not be less than the fair market value of the Servico Common Stock on the date of grant, except that the exercise price of any incentive stock option granted to the holder of more than 10% of the outstanding Servico Common Stock may not be less than 110% of the fair market value of the Servico Common Stock on the date of grant. The term of each option may not exceed ten years, except the term of any incentive stock option granted to the holder of more than 10% of the outstanding Servico Common Stock may not exceed five years. The option price may be paid in cash, promissory note, shares of Servico Common Stock or any other consideration acceptable to the Stock Option Committee. The Servico Plan sets forth additional provisions with respect to the exercise of options by an optionee upon the termination of employment and upon death or disability. The Servico Plan provides for an automatic grant of non-qualified options to acquire 5,000 shares of Servico Common Stock to non-employee directors on the date such director's term of office commences and each year thereafter on the day following any annual meeting of shareholders, so long as such person's term as a director is -139- 158 continuing for the ensuing year. The exercise price of such options is equal to the fair market value of the Servico Common Stock on the date of the grant, and the number of options granted is subject to adjustment upon certain changes in Servico's capitalization. The number of shares of Servico Common Stock covered by outstanding options, the number of shares of Servico Common Stock available for issuance under the Servico Plan, and the exercise price per share of outstanding options, will be proportionately adjusted for any increase or decrease in the number of issued shares of Servico Common Stock resulting from a stock split or stock dividend. Unless otherwise provided by the Stock Option Committee or the Board of Directors, all outstanding options terminate immediately prior to the consummation of a dissolution or liquidation of Servico, or sale of all or substantially all of the assets of Servico, or the merger of Servico with or into another corporation. Upon the occurrence of any of the events described in the preceding sentence, the Stock Option Committee or the Board of Directors of Servico may, in their discretion, grant optionees the right to exercise options as to all or any part of the optioned stock, including shares which the option would not otherwise be exercisable. The Merger Agreement provides that each unexercised option outstanding under the Servico Plan will be assumed by Lodgian in the Merger and converted into an option to purchase shares of Lodgian Common Stock. The Stock Option Committee may amend or terminate the Servico Plan, except that shareholder approval is required to increase the number of shares of Servico Common Stock subject to the Servico Plan, to change the class of persons eligible to participate in the Servico Plan, or to materially increase the benefits accruing to participants under the Servico Plan. All employees, directors, independent contractors and agents of Servico are eligible to receive stock options under the Servico Plan. As of March 31, 1998, Servico had four non-employee directors and approximately 4,860 full-time employees. FEDERAL INCOME TAX CONSEQUENCES INCENTIVE STOCK OPTIONS. The grant of an incentive stock option has no immediate tax consequences to the optionee or to Servico. The exercise of an incentive stock option generally has no immediate tax consequences to the optionee (except to the extent it is an adjustment in computing alternative minimum taxable income) or to Servico. If an optionee holds the shares acquired pursuant to the exercise of an incentive stock option for the required holding period, the optionee generally recognizes long-term capital gain or loss upon a subsequent sale of the shares in the amount of the difference between the amount realized upon the sale and the exercise price of the shares. In such a case, Servico is not entitled to a deduction in connection with the grant or exercise of the incentive stock option or the sale of shares acquired pursuant to such exercise. If, however, an optionee disposes of the shares prior to the expiration of the required holding period, the optionee recognizes ordinary income equal to the excess of the fair market value of the shares on the date of exercise (or the proceeds of disposition, if less) over the exercise price, and Servico is entitled to a corresponding deduction if applicable withholding requirements are satisfied. The required holding period is two years from the date of grant and one year after the date the shares are issued. NONQUALIFIED OPTIONS. The grant of a non-qualified stock option has no immediate tax consequences to the optionee or Servico. Upon the exercise of a non-qualified stock option, the optionee recognizes ordinary income in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price, and Servico is entitled to a corresponding deduction if applicable withholding requirements are satisfied. The optionee's tax basis in the shares is the exercise price plus the amount of ordinary income recognized by the optionee, and the optionee's holding period will commence on the date the shares are received. Upon a subsequent sale of the shares, any difference between the optionee's tax basis in the shares and the amount realized on the sale is treated as long-term or short-term capital gain or loss, depending on the holding period of the shares and assuming the shares are held as capital assets. -140- 159 OPTIONS GRANTED UNDER THE PLAN As of March 31, 1998, options to purchase 1,512,700 shares of Servico Common Stock were outstanding and exercisable at exercise prices ranging from $4.00 per share to $16.81 per share (in each case equal to or in excess of the fair market value of the Servico Common Stock as of the dates of grant). No shares of Servico Common Stock are presently available for grant under the Servico Plan. As of ________, 1998, the last reported sales price of the Servico Common Stock on the NYSE composite tape was $_______. The table below indicates, as of March 31, 1998, the aggregate number of options granted under the Servico Plan since its inception to the persons and groups indicated, and the number of outstanding options held by such persons and groups as of such date.
NAME OF INDIVIDUAL OR GROUP POSITION WITH SERVICO GRANTED OUTSTANDING --------------------------- --------------------- ------- ----------- David Buddemeyer President and Chief Executive 468,500 423,500 Officer Karyn Marasco Executive Vice President and 112,500 112,500 Chief Operating Officer Charles M. Diaz Vice President - Administration 30,000 29,000 and Secretary Warren M. Knight Vice President-Finance and Chief 173,500 173,500 Financial Officer Peter J. Walz Vice President-Acquisitions 102,500 102,500 Robert D. Ruffin Former Vice President - 111,000 18,500 Administration and Secretary Joseph C. Calabro Director 35,000 35,000 Michael A. Leven Director 5,000 5,000 Peter R. Tyson Director 35,000 35,000 Richard H. Weiner Director 35,000 35,000 All Current Executive Officers 887,000 841,000 All Current Directors who are not 110,000 110,000 Executive Officers All Current Employees, other than 522,200 495,600 Current Executive Officers
AMENDMENT TO THE PLAN On August 27, 1997, the Servico Board unanimously approved, subject to the approval of Servico's shareholders, to amend the Servico Plan to increase the number of shares issuable pursuant to the Servico Plan from 1,675,000 shares to 3,250,000 shares. The purpose of increasing the number of shares available for issuance under the Servico Plan is to authorize the issuance of 590,000 options previously granted and to ensure that Servico will continue to be able to grant options as incentives to those individuals upon whose efforts Servico relies for the continued success and development of its business. -141- 160 LEGAL MATTERS The validity of the shares of Lodgian Common Stock to be issued in connection with the Merger and the tax consequences of the Merger to Servico and its shareholders will be passed upon by Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., Miami, Florida. The tax consequences of the Merger to Impac and its unitholders will be passed upon by Powell Goldstein Frazer & Murphy, LLP, Atlanta, Georgia. EXPERTS The consolidated financial statements of Servico, Inc. appearing in Servico, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1997, incorporated by reference in the Joint Proxy Statement/Prospectus of Servico, Inc. and Impac Hotel Group., L.L.C., have been audited by Ernst & Young LLP, independent certified public accountants, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. Additionally, the balance sheet of Lodgian, Inc. at April 17, 1998, included in the Joint Proxy Statement/Prospectus of Servico, Inc. and Impac Hotel Group, L.L.C., has been audited by Ernst & Young LLP, independent certified public accountants, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated and combined financial statements of Impac Hotel Group, L.L.C. and its Predecessors and Impac Hotel Development, Inc. as of December 31, 1997 and 1996 and for the three years ended December 31, 1997 included in this Joint Proxy Statement/Prospectus have been included herein in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. SHAREHOLDER PROPOSALS Management of Servico knows of no other matters that may properly be, or which are likely to be, brought before the Servico Annual Meeting. However, if any other matters are properly brought before such Meeting, the persons named in the enclosed proxy or their substitutes will vote the proxies in accordance with the recommendations of management, unless such authority is withheld. If the Merger is consummated as expected, Servico will not hold an annual meeting in 1999. If the Merger is not approved by the holders of Servico Common Stock or is not consummated for any other reason, proposals submitted by shareholders for presentation at the 1999 annual meeting must be received by Servico no later than _______, 1999 for inclusion, if appropriate, in Servico's proxy statement and form of proxy relating to that annual meeting. WHERE YOU CAN FIND MORE INFORMATION Servico files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information Servico files at the SEC's public reference rooms in Washington, DC, New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Servico's SEC filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov." -142- 161 Lodgian has filed a Registration Statement on Form S-4 (the "Registration Statement") to register with the SEC the Lodgian Common Stock to be issued to Servico shareholders and Impac unitholders in the Merger. This Joint Proxy Statement/Prospectus is a part of the Registration Statement and constitutes a prospectus of Lodgian in addition to being a proxy statement of Servico for the Servico Annual Meeting and Impac for the solicitation of Impac unitholder consents. As allowed by SEC rules, this Joint Proxy Statement/Prospectus does not contain all the information you can find in the Registration Statement or the exhibits to the Registration Statement, which are incorporated herein by reference. The SEC allows Servico to "incorporate by reference" information into this Joint Proxy Statement/Prospectus, which means that Servico can disclose important information to you by referring to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this Joint Proxy Statement/Prospectus, except for any information superseded by information in this Joint Proxy Statement/Prospectus. This Joint Proxy Statement/Prospectus incorporates by reference the documents set forth below that Servico has previously filed with the SEC. These documents contain important information about Servico and its finances.
SERVICO SEC FILING (FILE NO. 1-11342) PERIOD OR DATE FILED - ------------------------------------- -------------------- Annual Report on Form 10-K, as amended Year ended December 31, 1997/ on Form 10-K/A 10-K/A filed on March 31, 1998 Quarterly Report on Form 10-Q Quarter ended March 31, 1998 Current Report on Form 8-K, dated March 20, 1998 Filed on March 26, 1998 Current Report on Form 8-K, dated June 8, 1998 Filed on June 9, 1998
Servico also incorporates by reference additional documents that it files with the SEC between the date of this Joint Proxy Statement/Prospectus and the date of the Servico Annual Meeting. Servico has supplied all information contained or incorporated by reference in this Joint Proxy Statement/Prospectus relating to Servico and Impac has supplied all information contained in this Joint Proxy Statement/Prospectus relating to Impac. If you are a shareholder of Servico, Servico may have sent you some of the documents incorporated by reference, but you can obtain any of them through Servico or the SEC. Documents incorporated by reference are available from Servico without charge, excluding all exhibits unless such exhibits have been specifically incorporated by reference in this Joint Proxy Statement/Prospectus. Shareholders of Servico and unitholders of Impac may obtain documents incorporated by reference in this Joint Proxy Statement/Prospectus by requesting them in writing or by telephone from Mr. Warren M. Knight, Vice President-Finance, Servico, Inc., 1601 Belvedere Road, West Palm Beach, Florida, 33406; telephone (561) 689-9970. If you would like to request documents from Servico, please do so by [ ], 1998 to receive them before the meeting. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE PROPOSALS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS. NEITHER SERVICO NOR IMPAC HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED ________, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OF LODGIAN COMMON STOCK IN THE MERGER SHALL BE DEEMED TO CREATE ANY IMPLICATION TO THE CONTRARY. -143- 162 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Lodgian, Inc. Report of Independent Certified Public Accountants........................................F-2 Balance Sheet as of April 17, 1998........................................................F-3 Note to Balance Sheet.....................................................................F-4 Impac Hotel Group, L.L.C. Report of Independent Accountants.........................................................F-5 Consolidated and Combined Balance Sheets as of December 31, 1997 and 1996.................F-6 Consolidated and Combined Statements of Operations for the years ended December 31, 1997, 1996 and 1995..........................................................F-7 Consolidated and Combined Statements of Equity for the years ended December 31, 1997, 1996 and 1995..........................................................F-8 Consolidated and Combined Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995..........................................................F-9 Notes to Consolidated and Combined Financial Statements..................................F-10 Report of Independent Accountants........................................................F-18 Consolidated and Combined Balance Sheets as of March 31, 1998 and December 31, 1997....................................................................F-19 Consolidated and Combined Condensed Statements of Operations for the three months ended March 31, 1998 and 1997.......................................F-20 Consolidated and Combined Condensed Statements of Equity for the years ended December 31, 1997, 1996 and the three months ended March 31, 1998 and 1997.........F-21 Consolidated and Combined Condensed Statements of Cash Flows for the three months ended March 31, 1998 and 1997...............................................F-22 Notes to Consolidated and Combined Condensed Financial Statements........................F-23
F-1 163 Report of Independent Certified Public Accountants The Stockholder Lodgian, Inc. We have audited the accompanying balance sheet of Lodgian, Inc. (the Company) as of April 17, 1998. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on the balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Lodgian, Inc. at April 17, 1998, in conformity with generally accepted accounting principles. West Palm Beach, Florida /s/ ERNST & YOUNG, LLP April 20, 1998 F-2 164 LODGIAN, INC. BALANCE SHEET APRIL 17, 1998 Assets: Cash....................................................... $ 1,000 ========= Stockholder's equity: Preferred stock, $.01 par value 25,000,000 shares authorized, 0 issued and outstanding.............. $ -- Common stock, $.01 par value, 75,000,000 shares authorized, 1,000 issued and outstanding.......... 10 Additional paid-in capital................................. 990 --------- $ 1,000 ========= See accompanying note. F-3 165 LODGIAN, INC. NOTE TO BALANCE SHEET APRIL 17, 1998 1. ORGANIZATION AND BUSINESS Lodgian, Inc. ("Lodgian" or the "Company") was incorporated under the laws of the State of Delaware on February 11, 1998. The authorized capital stock of the Company consists of 25,000,000 shares of preferred stock $.01 par value and 75,000,000 shares of common stock $.01 par value. There are 1,000 shares of common stock issued and outstanding that are 100% owned by Servico, Inc. ("Servico"). On March 20, 1998, Servico signed a definitive agreement with Impac Hotel Group, L.L.C.("Impac"), a privately owned hotel company, for both Servico and Impac to merge into the Company. Under the terms of the agreement, Servico's existing shareholders will receive one share of Lodgian common stock for each share of Servico common stock held by them (approximately 21,000,000 shares). The owners of Impac, will initially receive 6,000,000 shares of Lodgian common stock and receive an additional 1,400,000 shares upon the completion of construction of six hotels during 1999. Lodgian will initially own and manage 140 hotels (136 of which will be owned) with more than 26,000 rooms and operate in 35 states and one Canadian province. The merger will be accounted for under the purchase method of accounting and is expected to close in June 1998 subject to customary conditions, including regulatory approvals and approval by Servico's shareholders and Impac's unitholders. F-4 166 REPORT OF INDEPENDENT ACCOUNTANTS To the Members of Impac Hotel Group, L.L.C. We have audited the accompanying consolidated and combined balance sheets of Impac Hotel Group, L.L.C. and its Predecessors and Impac Hotel Development, Inc., as defined in Note 1, as of December 31, 1997 and 1996, and the related consolidated and combined statements of operations, equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated and combined financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated and combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated and combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the consolidated and combined financial position of Impac Hotel Group L.L.C. and its Predecessors and Impac Hotel Development, Inc. as of December 31, 1997 and 1996 and the consolidated and combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ PricewaterhouseCoopers, LLP Atlanta, Georgia April 10, 1998, except for Note 9 as to which the date is July 7, 1998. F-5 167 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. (NOTE 1) CONSOLIDATED AND COMBINED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, ----------- ------------------------ 1998 1997 1996 ----------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,572 $ 10,877 $ 5,199 Cash, restricted 3,590 5,271 Accounts receivable, net 10,733 5,886 2,583 Inventories 607 585 335 Other current assets 3,796 2,807 310 -------- -------- -------- Total current assets 20,298 25,426 8,427 Property and equipment, net 399,348 378,204 175,910 Other assets, net 14,135 14,150 7,329 -------- -------- -------- $433,781 $417,780 $191,666 ======== ======== ======== LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 15,358 $ 16,356 $ 8,463 Accrued liabilities 9,405 9,031 6,429 Current portion of long-term obligations 1,163 -------- -------- -------- Total current liabilities 24,763 25,387 16,055 Long-term obligations, less current portion 377,427 355,236 155,851 Commitments and contingencies Minority interests 235 187 Equity: Impac Hotel Group, L.L.C. and predecessors: Partners' and stockholders' equity 21,220 Members' equity 37,324 41,559 Impac Hotel Development, Inc. - Stockholders' deficit (5,968) (4,589) (1,460) -------- -------- -------- Total equity 31,356 36,970 19,760 -------- -------- -------- $433,781 $417,780 $191,666 ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS. F-6 168 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. (NOTE 1) CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ---------------------- --------------------------------------- 1998 1997 1997 1996 1995 --------- ----------- ------------ ------------ ----------- (UNAUDITED) Revenue: Rooms $ 25,892 $ 16,760 $ 90,139 $ 52,043 $ 42,442 Food and beverage 6,861 4,565 23,429 11,813 9,800 Other 1,818 981 6,291 3,957 3,334 --------- --------- --------- --------- --------- Total revenue 34,571 22,306 119,859 67,813 55,576 --------- --------- --------- --------- --------- Operating expenses: Direct: Rooms 6,815 4,328 28,303 16,840 12,965 Food and beverage 5,501 3,686 19,322 9,734 7,365 Other: Administrative and general 2,777 1,702 11,467 4,306 2,439 Property management 4,022 2,305 13,273 7,642 5,517 Advertising and promotion 3,080 1,854 9,064 3,415 2,880 Utilities 2,022 1,613 7,143 4,140 3,286 Repairs and maintenance 1,857 1,349 6,573 3,455 3,289 Depreciation and amortization 3,681 2,205 11,136 5,814 3,978 Property taxes and insurance 1,690 1,073 4,779 2,957 2,214 Other 1,177 2,009 4,114 3,338 3,836 --------- --------- --------- --------- --------- Total operating expenses 32,622 22,124 115,174 61,641 47,769 --------- --------- --------- --------- --------- Income from operations 1,949 182 4,685 6,172 7,807 --------- --------- --------- --------- --------- Other income (expenses): Other income, primarily gain on sale of hotels 143 7 271 19,701 5,049 Minority interests (48) 220 -- -- Interest expense (6,751) (3,951) (21,265) (11,809) (7,237) --------- --------- --------- --------- --------- Total other income (expenses) (6,656) (3,944) (20,774) 7,892 (2,188) --------- --------- --------- --------- --------- Income (loss) before extraordinary item (4,707) (3,762) (16,089) 14,064 5,619 Extraordinary item - Loss on extinguishment of indebtedness (13,332) (13,332) --------- --------- --------- --------- --------- Net income (loss) $ (4,707) $ (17,094) $ (29,421) $ 14,064 $ 5,619 ========= ========= ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS. F-7 169 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. (NOTE 1) CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY (IN THOUSANDS)
IMPAC HOTEL GROUP, L.L.C. IMPAC HOTEL AND PREDECESSORs DEVELOPMENT, INC. --------------------------- ----------------- PARTNERS' AND STOCKHOLDERS' MEMBERS' STOCKHOLDERS' EQUITY EQUITY EQUITY TOTAL ------------- ------------ ------------- ----------- Balance At December 31, 1994 $ 5,282 $ 95 $ 5,377 Net Income (loss) 6,088 (469) 5,619 Contributions, net 12,724 300 13,024 Distributions (10,385) (10,385) Loans To Partners (227) (227) -------- -------- ------- -------- Balance At December 31, 1995 13,709 (301) 13,408 Net Income (loss) 15,055 (991) 14,064 Contributions, Net 19,464 2,561 22,025 Distributions (29,430) 666 (28,764) Loans To Partners (973) (973) -------- -------- ------- -------- Balance At December 31, 1996 18,798 962 19,760 Transfer Of Equity Into Impac Hotel Group, L.L.C. (18,798) $ 18,798 Purchase Of Limited Partners' Interest 22,700 22,700 Net Loss (26,410) (3,011) (29,421) Issuance Of Membership Units, Net 37,810 37,810 Distributions To Members (6,039) (1,580) (7,619) Membership Units Retired (5,300) (5,300) Loans To Members (960) (960) -------- -------- ------- -------- Balance At December 31, 1997 41,559 (4,589) 36,970 Net Loss (4,328) (379) (4,707) Issuance Of Membership Units, Net 93 93 Distributions To Members (1,000) (1,000) -------- -------- ------- -------- Balance At March 31, 1998 (Unaudited) $ $ 37,324 $(5,968) $ 31,356 ======== ======== ======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS. F-8 170 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. (NOTE 1) CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, -------------------------- ------------------------------------- 1998 1997 1997 1996 1995 ------------ ------------ ----------- ----------- ----------- (UNAUDITED) Operating activities: Net income (loss) $ (4,707) $ (17,094) $ (29,421) $ 14,064 $ 5,619 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 3,681 2,205 11,136 5,814 3,978 Minority interest 48 (220) Gain on sales of hotel properties (19,369) (5,354) Loss on extinguishment of indebtedness 13,332 13,332 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable (4,847) (4,260) (3,303) (109) 713 Inventories (22) (72) (250) (66) (45) Other assets (989) (105) (1,853) (441) (2,543) Accounts payable and accrued expenses (623) (1,251) 11,255 4,151 5,280 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (7,459) (7,245) 676 4,044 7,648 --------- --------- --------- --------- --------- Investing activities: Acquisition and development of hotel properties (8,345) (30,584) (148,094) (60,860) (29,708) Capital improvements (16,291) (16,413) (41,949) (50,463) (27,610) Proceeds from sales of hotel properties 55,494 18,972 Cash, restricted 1,681 (5,271) Loans to members (960) Loans to partners (973) (227) --------- --------- --------- --------- --------- Net cash used in investing activities (22,955) (46,997) (196,274) (56,802) (38,573) --------- --------- --------- --------- --------- Financing activities: Proceeds from issuance of long-term obligations 22,191 222,496 354,957 83,151 45,084 Payments of deferred loan costs (8,400) (12,391) (2,366) (1,451) Payments of franchise fees and other deferred costs (175) (453) (688) (197) Capital contributions, net 93 9,305 37,810 22,025 13,024 Equity distributions (1,000) (246) (7,619) (28,764) (10,385) Repayment of long-term obligations (156,214) (156,695) (19,815) (13,245) Retirement of membership units (4,535) (5,300) Prepayment penalties (8,640) (8,640) Contribution by joint venture partner 407 Loan from member 115 Repayment of related party loans (800) (800) Proceeds from issuance of related party notes 400 400 --------- --------- --------- --------- --------- Net cash provided by financing activities 21,109 53,081 201,276 53,943 33,230 --------- --------- --------- --------- --------- Net change in cash and cash equivalents (9,305) (1,161) 5,678 1,185 2,305 Cash and cash equivalents at beginning of period 10,877 5,199 5,199 4,014 1,709 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period $ 1,572 $ 4,038 $ 10,877 $ 5,199 $ 4,014 ========= ========= ========= ========= ========= Supplemental disclosures of cash flow information - Cash payments for interest $ 6,905 $ 4,055 $ 21,370 $ 12,633 $ 6,938 ========= ========= ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS. F-9 171 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION The principal activity of Impac Hotel Group, L.L.C. ("Impac") is to either acquire and renovate or develop, and operate hotels. The Predecessors of Impac ("Predecessors"), prior to the formation of Impac Hotel Group, L.L.C., consisted of 22 limited partnerships and four corporations which each owned between one and six hotels, ("Initial Hotels") and two operating corporations, Impac Hotel Management, Inc. ("Impac, Inc.") and Impac Development and Construction, Inc. ("IDC") (collectively, the "Predecessors"). Impac and IDC are engaged in the hotel management business and the hotel design and construction business, respectively. Impac, Inc., which managed all of the Initial Hotels, was owned by Charles Cole, 25%; Robert Cole, 32.5% and Nancy Wolff (a member of the immediate Cole Family), 10% and an employee, 32.5%. IDC, a construction company was also controlled by the Cole Family by virtue of its ownership of 50.4% of IDC's outstanding stock. The four hotel companies were controlled by the Cole Family by virtue of its ownership of between 52% and 65% of each hotel corporation's outstanding stock. The Cole Family also controlled each of the 22 corporate general partners of each of the 22 limited partnerships through the ownership of in excess of 66% of the outstanding stock of each general partner. Under the terms of each limited partnership agreement, the general partner of each partnership had control over the decisions of the limited partnerships including the operation, sale or financing of the partnerships' assets and the general partner could not be replaced by the limited partners. By virtue of such ownership and the management of the hotels, the Cole Family controlled each of the Predecessors. On February 26, 1997 Impac Hotel Group, L.L.C. was formed by the Cole Family, with Robert Cole as manager, as a limited liability company under the laws of the state of Georgia. As Manager, Mr. Cole had and continues to have authority over Impac's business and affairs. All of the Initial Hotels were acquired by Impac through the issuance of membership units in Impac in exchange for either all of the interests in limited partnerships or all of the assets (subject to all of the liabilities) of the corporations. In addition, Impac acquired, in exchange for membership interests, all of the assets of Impac, Inc. and IDC. This reorganization, which was accounted for as a reorganization of entities under common control, was completed on March 12, 1997. The acquisition of the 22 Partnerships was recorded as a purchase by the Cole Family of the minority interest of the Predecessors. The acquisition of the assets (subject to all of the liabilities) of the four corporations which owned Initial Hotels, Impac, Inc. and IDC has been recorded as a reorganization at historical cost. In accordance with Impac's Operating Agreement, profits and losses, as defined, are allocated among the members in proportion to their ownership interests. Impac and its predecessors owned 45, 26 and 19 hotels as of December 31, 1997, 1996 and 1995, respectively. During the years ended December 31, 1996 and 1995 the Predecessors of Impac sold seven and three hotels, respectively. The principal activity of Impac Hotel Development, Inc. ("IHD") is to analyze prospective hotel acquisitions for Impac Hotel Group, L.L.C. and Predecessors. The principals of Impac, Inc. own a majority of the outstanding stock of IHD. IHD was not acquired by Impac in the reorganization previously described. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS. F-10 172 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: BASIS OF PRESENTATION The accompanying consolidated and combined financial statements of Impac and its subsidiaries and IHD ("Companies") are prepared on the basis of generally accepted accounting principles. The accounts and activities of Impac and IHD are presented on a combined basis due to their common control and because the entities are subject to a merger as described in Note 9. All material intercompany balances are eliminated in the consolidation and combination. The accompanying combined financial statements of the Predecessors are presented on a combined basis due to the common control that existed during those periods and because the entities were the subject of a business combination with Impac. The combined financial statements include the partnerships and corporations that were acquired by Impac as well as the financial position and results of operations of Hotel properties that were sold prior to the reorganization but were under the common control of Impac, Inc. during the periods presented. All material intercompany balances are eliminated in the combination. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Companies consider highly liquid investments purchased with a maturity of three months or less to be cash equivalents. CASH, RESTRICTED Cash, restricted consists of amounts reserved for capital improvements, debt service, taxes, and insurance. INVENTORIES Inventories consist primarily of food and beverage, linens, china, tableware, and glassware and are stated at the lower of cost (computed on the first-in, first-out basis) or market. PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Impac capitalizes interest costs incurred during the construction of property and during major renovations upon the acquisition of hotels. During the years ended December 31, 1997, 1996 and 1995, Impac capitalized interest of approximately $1,100,000, $1,200,000 and $300,000, respectively. F-11 173 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: Management monitors the operating results of Impac's property and equipment and periodically reviews the carrying value of each property to determine if circumstances exist indicating an impairment other than temporary in the carrying value of the assets or that depreciation periods should be modified. If facts or circumstances indicate a potential impairment exists, Impac compares projected cash flows (undiscounted, without interest charges) of the specific hotel property to its carrying amount. Should a shortfall result, Impac would adjust the carrying amount of the property to the present value of such projected cash flows with a corresponding charge to earnings. Impac does not believe there are any factors or circumstances indicating impairment of any of its investments in property and equipment. Maintenance and repairs are charged to operations as incurred; major renewals and betterments are capitalized. Upon the sale or disposition of property and equipment, the asset and related depreciation are removed from the accounts and the gain or loss is included in operations. DEFERRED COSTS Deferred costs of $13.5 million and $6.4 million at December 31, 1997 and 1996, which are included in other assets, primarily consist of deferred loan costs, franchise fees and other deferred costs, net of accumulated amortization of approximately $660,000 and $290,000 at December 31, 1997 and 1996, respectively. Amortization of deferred costs is computed using the straight-line method over the terms of the related loan, franchise, or other agreement. The straight line method of amortizing deferred financing costs approximates the effective interest method. Impac wrote off approximately $4.7 million of deferred loan costs in connection with the refinancing of its long-term obligations, which is included in loss on extinguishment of indebtedness. INCOME TAXES Impac Hotel Group, L.L.C. is a limited liability company and is not subject to income taxes. The Predecessors were each either general or limited partnerships or S corporations and IHD is an S corporation and similarly not subject to income taxes. The results of these entities operations are included in the tax returns of the members, partners or S corporation shareholders. CONCENTRATION OF CREDIT RISK Concentration of credit risk associated with cash and cash equivalents is considered low due to the credit quality of the issuers of the financial instruments held by Impac and due to their short duration to maturity. Accounts receivable are primarily from major credit card companies, airlines and other travel related companies. Impac performs ongoing evaluations of its significant customers and generally does not require collateral. Impac maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. At December 31, 1997 and 1996, these allowances were $548,000 and $405,000, respectively. F-12 174 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: ADVERTISING EXPENSE The cost of advertising is expensed as incurred. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following (in thousands):
Useful Lives March 31, DECEMBER 31, (years) ------------- ------------------------------- 1998 1997 1996 ------------- ------------- ------------ (Unaudited) Land $ 60,012 $ 60,012 $ 30,981 Buildings and improvements 35 - 39 248,756 231,710 112,079 Furnishings and equipment 5 - 15 57,121 55,709 28,490 ------------- ------------- ------------ 365,889 347,431 171,550 Less accumulated depreciation (25,354) (21,860) (11,410) ------------- ------------- ------------ 340,535 325,571 160,140 Construction in progress 58,813 52,633 15,770 ------------- ------------- ------------ $ 399,348 $ 378,204 $ 175,910 ============= ============= ============
At December 31, 1997, Impac had 6 hotels under development and 18 hotels which had been recently acquired and were under renovation. Construction in progress consists of amounts expended to develop and renovate these hotels. Impac developed and opened or began development on a total of 9 hotels during 1997 for an approximate cost of approximately $50 million. F-13 175 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 2. PROPERTY AND EQUIPMENT, CONTINUED: During the year ended December 31, 1997, Impac acquired and opened 18 hotels in various transactions and acquired one additional hotel through a joint venture in which Impac acquired a 60% interest. The activities of the joint venture were consolidated with Impac for the period commencing on the date the joint venture interests were acquired through December 31, 1997. Such acquisitions were each made for cash using newly contributed equity and debt. The aggregate purchase price for these hotels and the partnership interest was approximately $107 million. In connection with the reorganization on March 12, 1997, Impac recorded a step-up of land and building, reflecting an increase in their basis of approximately $4.8 million and $17.9 million, respectively. During the year ended December 31, 1996, the Predecessors acquired or developed and opened 14 hotels in various transactions. Each of the acquisitions were made for cash using newly contributed equity and debt. The aggregate purchase price for these hotels was approximately $64 million. Unaudited pro forma results of operations assuming the 1997 and 1996 acquisitions were completed on January 1, 1996 are as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 ------------ ------------ Revenues $ 139,630 $ 114,096 Income (loss) before extraordinary item (14,432) 12,088 Net income (loss) (27,764) 12,088
F-14 176 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 3. ACCRUED LIABILITIES: Accrued liabilities consisted of the following (in thousands):
MARCH 31, DECEMBER 31, --------------- --------------------------------- 1998 1997 1996 --------------- --------------- --------------- (UNAUDITED) Salaries and related costs $2922,902 $ 2,750 $ 1,960 Real estate taxes 1,089 1,486 468 Interest 1,888 2,042 1,090 Advanced deposits 557 263 246 Sales taxes 1,707 1,813 1,751 Other 1,262 677 914 --------------- --------------- --------------- $ 9,405 $ 9,031 $ 6,429 =============== =============== ===============
4. LONG-TERM OBLIGATIONS: Long-term obligations consisted of the following (in thousands):
MARCH 31, DECEMBER 31, --------------- --------------------------------- 1998 1997 1996 --------------- --------------- --------------- (UNAUDITED) Credit facility with a financial institution $ 280,833 $ 265,262 $ - Subordinated promissory note payable to a bank 74,540 71,018 - Other mortgages and notes 22,054 18,956 156,214 Loans to a related party - - 800 --------------- --------------- --------------- - 355,236 157,014 Less: current portion of long-term obligations - - 1,163 --------------- --------------- --------------- $ 377,427 $ 355,236 $ 155,851 =============== =============== ===============
F-15 177 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 4. LONG-TERM OBLIGATIONS, CONTINUED: CREDIT FACILITY At March 31, 1998 and December 31, 1997, Impac had a credit facility ("Facility") with a financial institution that consisted of the following loans which are collateralized by substantially all of the Company's hotel properties (in thousands):
MARCH 31, DECEMBER 31, --------------- 1998 1997 --------------- ----------------- (UNAUDITED) Loan, totaling $132.5 million, with interest at LIBOR (6.00% at December 31, 1997) plus 2.25%, maturing in 1999, and requiring interest only payments to maturity $ 132,459 $ 132,459 Loan, totaling $163.5 million, with interest at LIBOR plus 2.75%, maturing in 2000, and requiring interest only payments to maturity 123,298 107,727 Loan, totaling $100 million, with interest at LIBOR plus 2.75%, maturing in 2001 and requiring interest only payments to maturity 25,076 25,076 --------------- ----------------- $ 280,833 $ 265,262 =============== =================
Loan advances, not to exceed the maximum loan amounts, are to be made to Impac for approved construction projects and acquisitions. Impac is required to pay a fee equal to 1% of funds advanced at the time of advance. Each of the loans, upon maturity, converts to a term loan that requires payments of interest and principal sufficient to amortize the loan over a 20 year period. These loans will bear interest at a predetermined fixed rate and will be collateralized by the hotel properties securing the respective loans. Upon conversion of the loans to term loans, Impac is required to pay a securitization fee of 1% of the balance of the loans. Impac is required to fund 2% of its gross revenues in restricted cash balances to be used for capital improvements. The Facility contains certain covenants, including maintenance of certain financial ratios, certain reporting requirements and other customary restrictions, the violation of which could cause the amounts of outstanding principal, interest and fees to be immediately due and payable. In addition, the Facility does not allow distributions to be made to the unitholders until after the payment of debt service payments and the funding of certain reserve accounts including tax, insurance and capital reserves. On December 31, 1997, management believes that Impac was in compliance with all debt covenants. The loans require payment of penalties and yield maintenance amounts when certain payments of principal are made prior to specified dates. F-16 178 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 4. LONG-TERM OBLIGATIONS, CONTINUED: SUBORDINATED PROMISSORY NOTE Impac has a subordinated promissory note ("Note") with a bank totaling $76.5 million which is subordinated to the Facility agreement. Advances on the Note, totaling $71 million at December 31, 1997, are used for the acquisition and development of hotel properties. The Note is unsecured, matures in March 2000, and bears interest at a fixed interest rate of 10%. Interest only payments are required to maturity. In addition, variable interest payments are required to be made upon the achievement of certain performance measures related to the cash flow of substantially all of Impac's hotel properties, and upon the occurrence of certain events (defined as "Participation Events" in the Note agreement, including the sale or refinancing of properties, an equity offering by Impac or the merger or reorganization of Impac). Fixed and variable interest on the Note included in interest expense is $4.3 million for the year ended December 31, 1997. Impac prepaid approximately $660,000 in participation interest which is included in other current assets. Upon the occurrence of a Participation Event, if the fixed interest and the variable interest are not sufficient to provide the holder of the Note with a cumulative internal rate of return with respect to their investment in the Note equal to 15% per annum, then additional payment of interest shall be paid with respect to the Note in an amount sufficient to provide the holder with a cumulative internal rate of return equal to 15%, provided that such additional payment of interest shall not exceed 100% of net cash flow from the operations of the Hotel properties, plus 100% of net proceeds from Participation Events. The members are not required to make contributions in order for the holder to obtain a 15% internal rate of return. The Note contains certain covenants, including maintenance of certain financial ratios, certain reporting requirements and other customary restrictions. In addition, the Note does not allow distributions to unitholders at any time that there is an event of default, as defined in the Note Agreement, or if Impac fails to maintain a debt service coverage ratio of at least 1.20. Any event of default under the terms of the Facility constitute an event of default under the Note. On December 31, 1997, management believes that Impac was in compliance with all debt covenants. OTHER DEBT Impac and Predecessors had mortgage loans totaling $17.7 million (unaudited), $14.6 million and $156.2 million at March 31, 1998 and December 31, 1997 and 1996, respectively. The mortgage loans outstanding at December 31, 1997 require interest only payments and are due during 1998 and 1999. The mortgage loans will convert to amortizing term loans which mature in 2020 through 2024. All mortgage loans outstanding at December 31, 1996 were paid out with proceeds from the Facility and the Note. Interest rates on Impac's mortgage loans vary and are either fixed or variable. At December 31, 1997, mortgage loan interest rates ranged from 2% to 8.5%. F-17 179 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 4. LONG-TERM OBLIGATIONS, CONTINUED: OTHER DEBT, CONTINUED Impac also has two promissory notes totaling $4.4 million at March 31, 1998 and December 31, 1997 that bear interest at 14%. These notes require interest only payments and mature in 2001. Impac refinanced its long-term obligations in March, 1997. Prior to the refinancing with the Facility and the Note, the Predecessors generally financed each hotel with separate mortgage debt. Such debt was collateralized by a single hotel without recourse to other entities or the property owners. Interest rates on mortgage notes varied by lender and were either fixed or variable. In connection with the previously described refinancing, all separate mortgage debt was satisfied. Prepayment penalties paid upon the retirement of the mortgages and the write-off of remaining deferred loan costs associated with the satisfied mortgage notes of approximately $13.3 million are included as an extraordinary item in the accompanying statement of operations for the year ended December 31, 1997. 5. EQUITY: Equity consisted of the following (in thousands except share amounts):
MARCH 31, ----------------- DECEMBER 31, 1998 1997 1996 ----------------- ------------------ ----------------- (UNAUDITED) Impac Hotel Group, L.L.C. and Predecessors: Member units, 11,559,527 issued and outstanding $ 37,324 $ 41,559 Partners' and Stockholders' equity $ 18,798 ----------------- ------------------ ----------------- 37,324 41,559 18,798 ----------------- ------------------ ----------------- Impac Hotel Development, Inc.: Common stock, no par value; 2,000 shares authorized, issued and outstanding 299 299 299 Additional paid-in capital 153 1,153 3,323 Retained deficit (4,850) (4,471) (1,460) Loans to members (1,570) (1,570) Loans to partners (1,200) ----------------- ------------------ ----------------- (5,968) (4,589) 962 ----------------- ------------------ ----------------- Total $ 31,356 $ 36,970 $ 19,760 ================= ================== =================
F-18 180 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 6. COMMITMENTS AND CONTINGENCIES: Impac has franchise and license agreements with various hotel chains which require monthly payments for license fees, reservation services and advertising fees. Such agreements are generally for periods from 10 to 20 years. A licensor may require Impac to upgrade its facilities at any time to comply with the licensor's then current standards. Upon the expiration of the term of a license, Impac may apply for a license renewal. In connection with a renewal of a license, a licensor may require payment of a renewal fee, increased license, reservation and advertising fees, as well as substantial renovation of the hotel. Impac is required under its franchise agreements to remit varying percentages of gross room revenue generally ranging from 6% to 7.5% to the various franchisors for franchising, royalties, reservations, sales and advertising services. Additional sales and advertising costs are incurred at the local property level. The license agreements are subject to cancellation in the event of a default, including the failure to operate the hotel in accordance with the quality standards and specifications of the licensor. Impac believes that the loss of a license for any individual hotel would not have a material adverse effect on the Impac's financial condition and results of operations. Impac believes it will be able to renew its current licenses or obtain replacements of a comparable quality. Impac's hotels have noncancelable operating leases, mainly for operating equipment, and Impac leases certain office space. Lease expense for the years ended December 31, 1997, 1996 and 1995 was approximately $625,000, $350,000 and $600,000. The Companies are a party to legal proceedings, including employment related claims, arising in the ordinary course of its business, the impact of which would not, either individually or in the aggregate, in management's opinion, based upon the facts known by management and the advice of counsel, have a material adverse effect on the Company's financial condition or results of operations. The Companies, prior to December 10, 1997, did not have insurance coverage, except for directors and officers' insurance, in connection with the employment related claims. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of accounts receivable and payable and accrued expenses are assumed to be equal to their reported carrying amounts due to their short maturity. The carrying amount of long-term obligations approximates their fair value based on the rate of interest charged and Impac's incremental borrowing rate. F-19 181 IMPAC HOTEL GROUP, L.L.C. AND PREDECESSORS AND IMPAC HOTEL DEVELOPMENT, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, CONTINUED 8. RELATED PARTY TRANSACTIONS: IHD loaned certain employees funds to purchase units in Impac. Such loans are included as a component of stockholder's equity in the consolidated and combined financial statements. Certain of these loans to members of approximately $590,000 were satisfied through a charge to incentive administrative and general expenses during 1997. IHD incurred fees of approximately $580,000, $160,000 and $575,000 during the years ended December 31, 1997, 1996, and 1995 to a related party for interior design consulting services and for equity placement fees in connection with the acquisition of hotels. All fees are recorded as operating expenses in the statement of operations. 9. SUBSEQUENT EVENT: On March 20, 1998, Impac signed a definitive agreement with Servico, Inc., a publicly owned hotel company, to merge and form a new publicly owned company. During July, 1998, IHD verbally agreed to merge with Servico although a definite agreement has not been executed. Under the terms of the agreement, the Company's members will initially receive 6,000,000 shares of common stock of the merged company and an additional 1,400,000 shares upon the completion of construction of five hotels during 1999. The existing shareholders of Servico, Inc. will receive one share of the merged company's common stock for each share of Servico, Inc. stock held by them (approximately 21,000,000 shares). The merged company will own and manage 140 hotels, of which 136 will be owned, with more than 26,000 rooms and operate in 35 states and Canada. The merger will be accounted for under the purchase method of accounting and is expected to close prior to December 31, 1998 subject to customary conditions, including regulatory approvals and approval by Impac's unitholders, IHD's shareholders and Servico, Inc.'s shareholders. The merger may be terminated by either party, with the terminating party obligated to pay certain termination fees as defined by the merger agreement. F-20 182 APPENDIX A ================================================================================ AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AMONG LODGIAN, INC., SERVICO, INC., IMPAC HOTEL GROUP, L.L.C., SHG-S SUB, INC., SHG-I SUB, L.L.C., P-BURG LODGING ASSOCIATES, INC., SHG-II SUB, INC., HAZARD LODGING ASSOCIATES, INC., SHG-III SUB, INC., MEMPHIS LODGING ASSOCIATES, INC., SHG-IV SUB, INC., DELK LODGING ASSOCIATES, INC., SHG-V SUB, INC., IMPAC HOTEL DEVELOPMENT, INC., SHG-VI SUB, INC., IMPAC DESIGN AND CONSTRUCTIONS, INC., SHG-VII SUB, INC., IMPAC HOTEL GROUP, INC. AND SHG-VIII SUB, INC. DATED AS OF JULY ___, 1998 =============================================================================== 183 TABLE OF CONTENTS
PAGE ---- ARTICLE I The Mergers.....................................................................................3 1.1 Formation of Merger Subsidiaries................................................................3 1.2 The Mergers.....................................................................................3 1.3 Closing.........................................................................................4 1.4 Effective Time..................................................................................4 1.5 Effect of the Mergers...........................................................................5 1.6 Articles of Incorporation; Articles of Organization; Bylaws; Operating Agreement; Directors and Officers of the Surviving Corporations.......................5 1.7 Restated Certificate of Incorporation and Restated Bylaws of SHG................................6 ARTICLE II Conversion of Securities; Exchange of Certificates..............................................6 2.1 Conversion of Securities........................................................................6 2.2 Conversion of Shares............................................................................7 2.3 Cancellation of Certain Shares and of Outstanding SHG Common Stock.............................10 2.4 Conversion of Common Stock and Membership Interests of Servico Merger Sub, Impac Merger Sub and Impac Affiliated Merger Sub into Common Stock or Membership Interests of the Surviving Corporations..........................................11 2.5 Exchange of Shares Other than Treasury Shares..................................................13 2.6 Stock Transfer Books...........................................................................13 2.7 No Fractional Share Certificates...............................................................14 2.8 Options to Purchase Servico Common Stock.......................................................16 2.9 Options to Purchase Impac Units................................................................16 2.10 Certain Adjustments............................................................................16 ARTICLE III Representations and Warranties of Servico......................................................17 3.1 Organization, Standing and Power...............................................................17 3.2 Legal, Valid and Binding Agreement.............................................................17 3.3 Authority to do Business.......................................................................17 3.4 No Violation or Conflict.......................................................................18 3.5 Governmental Consents..........................................................................18 3.6 Exchange Act Reports; Financial Statements.....................................................18 3.7 Compliance with Laws...........................................................................19 3.8 Legal Proceedings..............................................................................20 3.9 Brokers........................................................................................20 3.10 Absence of Material Adverse Changes............................................................20 3.11 Capitalization.................................................................................21 3.12 Tax Matters....................................................................................21 3.13 Title to Personal Property and Condition of Assets.............................................21 3.14 Real Property..................................................................................21 3.15 Opinion of Financial Advisor...................................................................22 3.16 Disclosure.....................................................................................22
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ARTICLE IV Representations and Warranties of Impac and the Impac Affiliated Companies.....................22 4.1 Organization, Standing and Power...............................................................22 4.2 Members' Interest..............................................................................22 4.3 Legal, Valid and Binding Agreement.............................................................23 4.4 Authority to do Business.......................................................................23 4.5 Articles of Organization and Operating Agreement...............................................23 4.6 Subsidiaries; Impac Affiliated Companies.......................................................24 4.7 No Violation or Conflict.......................................................................24 4.8 Governmental Consents..........................................................................24 4.9 Impac Statements...............................................................................25 4.10 Compliance with Laws...........................................................................25 4.11 Legal Proceedings..............................................................................26 4.12 Brokers........................................................................................26 4.13 Absence of Material Adverse Changes............................................................27 4.14 Capitalization.................................................................................27 4.15 Rights, Warrants, Options......................................................................27 4.16 Title to Personal Property and Condition of Assets.............................................28 4.17 Real Property..................................................................................28 4.18 Intangible Property............................................................................29 4.19 Governmental Authorizations....................................................................30 4.20 Insurance......................................................................................30 4.21 Employment Matters.............................................................................30 4.22 Material Agreements............................................................................32 4.23 List of Accounts...............................................................................33 4.24 Related Party Transactions.....................................................................33 4.25 Tax Matters....................................................................................34 4.26 Qualifying Transaction.........................................................................34 4.27 Affiliates.....................................................................................34 4.28 Opinion of Financial Advisor...................................................................35 4.29 Disclosure.....................................................................................35 ARTICLE V Covenants......................................................................................35 5.1 Interim Operations of Impac an the Impac Affiliated Companies..................................35 5.2 Interim Operations of Servico..................................................................36 5.3 Access.........................................................................................37 5.4 Consents.......................................................................................38 5.5 Reasonable Efforts.............................................................................38 5.6 Notification...................................................................................38 5.7 No Solicitation................................................................................38 5.8 Confidentiality................................................................................39 5.9 Publicity......................................................................................39 5.10 Letters of Accountants.........................................................................39 5.11 Plan of Reorganization.........................................................................40 5.12 Registration Statement; Joint Proxy Statement..................................................40
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5.13 Special Meetings...............................................................................42 5.14 Employee Benefits Matters......................................................................42 5.15 Executive Officers.............................................................................43 5.16 Affiliates.....................................................................................43 5.17 Headquarters...................................................................................43 5.18 Post-Merger SHG Board of Directors.............................................................43 5.19 Stock Exchange Listings........................................................................44 5.20 Indemnification................................................................................44 5.21 Guarantees.....................................................................................45 5.22 Registration Rights............................................................................45 5.23 Termination of Development Agreement; Use of Affiliated Names..................................45 ARTICLE VI Additional Agreements..........................................................................46 6.1 Survival of the Representations and Warranties.................................................46 6.2 Investigation..................................................................................46 ARTICLE VII Conditions Precedent.................................................................................46 7.1 Mutual Conditions Precedent....................................................................46 7.2 Conditions Precedent to the Obligations of Servico.............................................47 7.3 Conditions Precedent to the Obligations of Impac and the Impac Affiliated Companies.....................................................................49 7.4 Termination....................................................................................50 ARTICLE VIII Miscellaneous.......................................................................................51 8.1 Further Assurances.............................................................................51 8.2 Notices........................................................................................51 8.3 Entire Agreement...............................................................................52 8.4 Assignment.....................................................................................52 8.5 Waiver.........................................................................................52 8.6 No Third Party Beneficiary.....................................................................52 8.7 Severability...................................................................................52 8.8 Fees and Expenses..............................................................................52 8.9 Section Headings...............................................................................55 8.10 Counterparts...................................................................................55 8.11 Time of Essence................................................................................55 8.12 Litigation; Prevailing Party...................................................................55 8.13 Remedies Cumulative............................................................................55 8.14 Injunctive Relief..............................................................................55 8.15 Governing Law..................................................................................55 8.16 Jurisdiction and Venue.........................................................................55 8.17 Certain Definitions............................................................................56
-iii- 186 EXHIBITS EXHIBIT 1.7(a) Restated Certificate of Incorporation EXHIBIT 1.7(b) Restated Bylaws of SHG EXHIBIT 2.2(c) Escrow Agreement EXHIBIT 5.16 Impac Affiliate Letter EXHIBIT 5.22 Registration Rights Agreement EXHIBIT 7.2(e) Opinion of Counsel (Powell, Goldstein, Frazer & Murphy, LLP) EXHIBIT 7.3(e) Opinion of Counsel (Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.) -iv- 187 SCHEDULES ---------
Schedule 2.2(c) Additional Share Conditions and Calculations Schedule 3.4 No Violation or Conflict (Servico) Schedule 3.5 Governmental Contracts (Servico) Schedule 3.6 Exchange Act Reports; Financial Statements Schedule 3.7 Environmental Audits and Reports Schedule 3.7(a) Compliance with Laws (Servico) Schedule 3.8 Legal Proceedings Schedule 3.10 Absence of Material Adverse Changes Schedule 3.13 Title to Personal Property and Condition of Assets Schedule 3.14 Real Property Owned or Leased by Servico Schedule 3.14(a) Servico Improvements Schedule 4.2 Members' Interest Schedule 4.4 Authority to do Business Schedule 4.6 Impac Subsidiaries Schedule 4.7 No Violation or Conflict (Impac) Schedule 4.8 Governmental Consents (Impac) Schedule 4.9 Impac Statements Schedule 4.10 Compliance with Laws (Impac) Schedule 4.11 Legal Proceedings Schedule 4.13 Absence of Material Adverse Changes Schedule 4.15 Rights, Warrants, Options Schedule 4.16 Title to Personal Property and Condition of Assets Schedule 4.17(a) Real Property Owned or Leased by Impac or any Impac Subsidiary Schedule 4.17(b) Construction Projects Schedule 4.19 Governmental Authorizations Schedule 4.20 Insurance Policies Schedule 4.21(a) Labor Relations Schedule 4.21(b) Environmental Policies Schedule 4.21(c) Employment Agreements Schedule 4.21(d) Employee Benefit Plans Schedule 4.21(e) Names of all Managers and Officers of Impac, each Impac Affiliated Company and each Impac Subsidiary Schedule 4.22 Material Agreements Schedule 4.23 List of Accounts Schedule 4.24 Related Party Transactions Schedule 4.24(a) Tax Matters Schedule 4.25(c) Tax Liability Schedule 4.27 Impac Affiliates Schedule 5.1 Interim Operations of Impac Schedule 5.2 Interim Operations of Servico Schedule 5.23 Development Properties Schedule 7.2(g) Debt Restructuring Schedule 7.3(g) Employment Agreements
-v- 188 GLOSSARY OF DEFINED TERMS
DEFINED TERM SECTION - ------------ ------- Additional Shareholders.................................................................ss.2.2 Additional Shares....................................................................ss.2.2(c) affiliate...........................................................................ss.8.17(a) Agreement...........................................................................Preamble Allen & Company........................................................................ss.4.12 Base Number..........................................................................ss.2.2(b) Blue Sky Laws...........................................................................ss.3.5 business day........................................................................ss.8.17(b) Change of Control....................................................................ss.8.8(d) Closing.................................................................................ss.1.3 Code................................................................................Preamble Competing Transaction...................................................................ss.5.7 Construction Projects...............................................................ss.4.17(b) Delk................................................................................Preamble Delk Base Number.....................................................................ss.2.2(e) Delk Certificate of Merger..............................................................ss.1.4 Delk Common Shares Trust.............................................................ss.2.7(c) Delk Common Stock....................................................................ss.2.2(e) Delk Exchange Ratio..................................................................ss.2.2(e) Delk Merger.........................................................................Preamble Delk Merger Sub.....................................................................Preamble Delk Shares..........................................................................ss.2.2(l) Delk Surviving Corporation...........................................................ss.1.2(e) Designated Date.....................................................................ss.5.7(ii) Designated Person....................................................................ss.7.4(g) Designated Change of Control.....................................................ss.8.8(e)(ii) DGCL................................................................................Preamble Effective Time..........................................................................ss.1.4 employee pension benefit plan.......................................................ss.4.21(d) employee welfare benefit plan.......................................................ss.4.21(d) End Date.............................................................................ss.7.4(c) Environmental Law....................................................................ss.3.7(b) Environmental Permit.................................................................ss.3.7(b) ERISA...............................................................................ss.4.21(d) Escrowed Consideration...............................................................ss.2.2(c) Excess Shares........................................................................ss.2.7(b) Exchange Agent..........................................................................ss.2.5 Exchange Act............................................................................ss.3.5 Exchange Fund...........................................................................ss.2.5 FBCA................................................................................Preamble GAAP.................................................................................ss.3.6(b) GLLCA...............................................................................Preamble Governmental Entity.....................................................................ss.3.5 group................................................................................ss.8.8(c) group health plan......................................................................ss.4.21 Hazard..............................................................................Preamble Hazard Articles of Merger...............................................................ss.1.4 Hazard Base Number...................................................................ss.2.2(c) Hazard Common Shares Trust...........................................................ss.2.7(c) Hazard Common Stock..................................................................ss.2.2(c) Hazard Exchange Ratio................................................................ss.2.2(c) Hazard Merger.......................................................................Preamble Hazard Merger Sub...................................................................Preamble Hazard Shares........................................................................ss.2.2(l) Hazard Surviving Corporation.........................................................ss.1.2(c) Hazardous Material...................................................................ss.3.7(b) HSR Act.................................................................................ss.3.5 HW&E....................................................................................ss.3.9 IDC.................................................................................Preamble IDC Base Number......................................................................ss.2.2(g) IDC Certificate of Merger...............................................................ss.1.4 IDC Common Shares Trust..............................................................ss.2.7(c) IDC Common Stock.....................................................................ss.2.2(g) IDC Exchange Ratio...................................................................ss.2.2(g) IDC Merger..........................................................................Preamble IDC Merger Sub......................................................................Preamble IDC Shares...........................................................................ss.2.2(l) IDC Surviving Corporation............................................................ss.1.2(g) IHD.................................................................................Preamble IHD Assignee...........................................................................ss.5.23 IHD Base Number......................................................................ss.2.2(f) IHD Certificate of Merger...............................................................ss.1.4 IHD Common Shares Trust..................................................................... IHD Common Stock.....................................................................ss.2.2(f) IHD Exchange Ratio...................................................................ss.2.2(f) IHD Merger..........................................................................Preamble IHD Merger Sub......................................................................Preamble IHD Shares...........................................................................ss.2.2(l) IHD Surviving Corporation............................................................ss.1.2(f) IHG.................................................................................Preamble IHG Articles of Merger..................................................................ss.1.4 IHG Base Number......................................................................ss.2.2(h)
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IHG Common Shares Trust..............................................................ss.2.7(c) IHG Common Stock.....................................................................ss.2.2(h) IHG Exchange Ratio...................................................................ss.2.2(h) IHG Merger..........................................................................Preamble IHG Merger Sub......................................................................Preamble IHG Shares...........................................................................ss.2.2(l) IHG Surviving Corporation............................................................ss.1.2(f) Impac...............................................................................Preamble Impac Affiliate........................................................................ss.4.27 Impac Affiliate Letter.................................................................ss.5.17 Impac Affiliated Companies..........................................................Preamble Impac Affiliated Merger Subs........................................................Preamble Impac Affiliated Mergers............................................................Preamble Impac Articles of Merger................................................................ss.1.4 Impac Base Number....................................................................ss.2.2(i) Impac Director.........................................................................ss.5.19 Impac Exchange Ratio.................................................................ss.2.2(i) Impac Financial Statements..............................................................ss.4.9 Impac Material Adverse Effect.......................................................ss.8.17(c) Impac Material Agreements...........................................................ss.4.22(a) Impac Merger........................................................................Preamble Impac Merger Sub....................................................................Preamble Impac Pension Plan..................................................................ss.4.21(d) Impac Plans.........................................................................ss.4.21(d) Impac Related Parties..................................................................ss.4.24 Impac Related Party....................................................................ss.4.24 Impac Special Meeting...............................................................ss.5.13(a) Impac Subsidiaries......................................................................ss.4.1 Impac Surviving Corporation..........................................................ss.1.2(i) Impac Unit...........................................................................ss.2.2(i) Impac Unit Trust.....................................................................ss.2.7(c) Impac Voting Agreement..............................................................Preamble Impac Welfare Plan..................................................................ss.4.21(d) Improvements........................................................................ss.4.17(a) incentive stock options.................................................................ss.2.8 Indemnified Parties....................................................................ss.5.21 Joint Proxy Statement...............................................................ss.5.13(a) KBCA........................................................................................ knowledge...........................................................................ss.8.17(d) Law.................................................................................ss.8.17(e) Lehman Brothers.........................................................................ss.3.9 Licenses...............................................................................ss.4.19 Member..................................................................................ss.4.2 membership interest.................................................................ss.8.17(f) Memphis.............................................................................Preamble Memphis Articles of Merger..............................................................ss.1.4 Memphis Base Number..................................................................ss.2.2(d) Memphis Common Shares Trust..........................................................ss.2.7(c) Memphis Common Stock.................................................................ss.2.2(d) Memphis Exchange Ratio...............................................................ss.2.2(d) Memphis Merger......................................................................Preamble Memphis Merger Sub..................................................................Preamble Memphis Shares.......................................................................ss.2.2(l) Memphis Surviving Corporation........................................................ss.1.2(d) Merger Subsidiaries.....................................................................ss.1.1 Mergers.............................................................................Preamble Milestone Date.......................................................................ss.2.2(c) multiemployer plan..................................................................ss.4.21(d) New Delk Common Stock................................................................ss.2.4(e) New Hazard Common Stock..............................................................ss.2.4(c) New IDC Common Stock.................................................................ss.2.4(g) New IHD Common Stock.................................................................ss.2.4(f) New IHG Common Stock.................................................................ss.2.4(h) New Impac Units......................................................................ss.2.4(i) New Memphis Common Stock.............................................................ss.2.4(d) New P-Burg Common Stock..............................................................ss.2.4(b) New Servico Common Stock.............................................................ss.2.4(a) Nomura...............................................................................ss.8.8(a) NYSE.................................................................................ss.2.7(b) P-Burg..............................................................................Preamble P-Burg Articles of Merger...............................................................ss.1.4 P-Burg Base Number...................................................................ss.2.2(b) P-Burg Common Shares Trust...........................................................ss.2.7(c) P-Burg Common Stock..................................................................ss.2.2(b) P-Burg Exchange Ratio................................................................ss.2.2(b) P-Burg Merger.......................................................................Preamble P-Burg Merger Sub...................................................................Preamble P-Burg Shares........................................................................ss.2.2(l) P-Burg Surviving Corporation .........................................ss.1.2(b) Permitted Exceptions...................................................................ss.4.17 Personal Property......................................................................ss.4.16 person..............................................................................ss.8.17(g) Presurrender Dividends..................................................................ss.2.5 Real Property.......................................................................ss.4.17(a) Registration Statement..............................................................ss.5.13(a) Regulations.........................................................................Preamble Satisfaction Date.......................................................................ss.1.3 SEC.....................................................................................ss.3.6 Securities Act..........................................................................ss.3.5 Servico............................................................................ Preamble
-vii- 190
Servico Articles of Merger..............................................................ss.1.4 Servico Common Shares Trust..........................................................ss.2.7(c) Servico Common Stock............................................................... Preamble Servico Constituents....................................................................ss.3.2 Servico Director.......................................................................ss.5.19 Servico Exchange Ratio...............................................................ss.2.2(a) Servico Financial Statements.........................................................ss.3.6(b) Servico Material Adverse Effect.....................................................ss.8.17(h) Servico Merger......................................................................Preamble Servico Merger Sub..................................................................Preamble Servico Plans.......................................................................ss.5.15(a) Servico SEC Reports..................................................................ss.3.6(a) Servico Shares.......................................................................ss.2.2(e) Servico Special Meeting.............................................................ss.5.13(a) Servico Subsidiaries....................................................................ss.3.1 Servico Surviving Corporation........................................................ss.1.2(a) Shares...............................................................................ss.2.2(e) SHG................................................................................ Preamble SHG Common Stock....................................................................Preamble Special Meetings....................................................................ss.5.13(a) Stock Plans.........................................................................ss.5.15(b) subsidiaries........................................................................ss.8.17(i) subsidiary..........................................................................ss.8.17(i) Surviving Corporation................................................................ss.1.2(b) Surviving Corporations...............................................................ss.1.2(b) Tax.................................................................................ss.8.17(j) Third Party..........................................................................ss.7.4(j) Trading Period Average...............................................................ss.2.2(b) Transaction.........................................................................Preamble
-viii- 191 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into as of the ____ day of July, 1998, by and among SERVICO, INC., a Florida corporation ("Servico"), LODGIAN, INC., a Delaware corporation and a wholly-owned subsidiary of Servico ("SHG"), SHG-S SUB, INC., a Florida corporation and a wholly-owned subsidiary of SHG ("Servico Merger Sub"), IMPAC HOTEL GROUP, L.L.C., a Georgia limited liability company ("Impac"), SHG-I SUB, L.L.C., a Georgia limited liability company and a wholly-owned subsidiary of SHG ("Impac Merger Sub"), P-BURG LODGING ASSOCIATES, INC., a Kentucky corporation ("P-Burg"), SHG-II SUB, INC., a Kentucky corporation and a wholly-owned subsidiary of SHG ("P-Burg Merger Sub"), HAZARD LODGING ASSOCIATES, INC., a Kentucky corporation ("Hazard"), SHG-III SUB, INC., a Kentucky corporation and a wholly-owned subsidiary of SHG ("Hazard Merger Sub"), MEMPHIS LODGING ASSOCIATES, INC., a Florida corporation ("Memphis"), SHG-IV SUB, INC., a Florida corporation and a wholly-owned subsidiary of SHG ("Memphis Merger Sub"), DELK LODGING ASSOCIATES, INC., a Delaware corporation ("Delk"), SHG-V SUB, INC., a Delaware corporation and a wholly-owned subsidiary of SHG ("Delk Merger Sub"), IMPAC HOTEL DEVELOPMENT, INC., a Delaware corporation ("IHD"), SHG-VI SUB, INC., a Delaware corporation and a wholly-owned subsidiary of SHG ("IHD Merger Sub"), IMPAC DESIGN AND CONSTRUCTION, INC., a Delaware corporation ("IDC"), SHG-VII SUB, INC., a Delaware corporation and a wholly-owned subsidiary of SHG ("IDC Merger Sub"), IMPAC HOTEL GROUP, INC., a Florida corporation ("IHG"), SHG-VIII SUB, INC., a Florida corporation and a wholly-owned subsidiary of SHG ("IHG Merger Sub"), IHG, P-Burg, Hazard, Memphis, Delk, IHD and IDC are sometimes collectively referred to as the "Impac Affiliated Companies", P-Burg Merger Sub, Hazard Merger Sub, Memphis Merger Sub, Delk Merger Sub, IHD Merger Sub, IDC Merger Sub and IHG Merger Sub, are sometimes collectively referred to as the "Impac Affiliated Merger Subs". W I T N E S S E T H: WHEREAS, the Boards of Directors of Servico and the Impac Affiliated Companies and the Manager of Impac have determined that it is in the best interests of their respective companies, shareholders and members to combine their respective businesses in a merger transaction to be effected as set forth in this Agreement (the "Transaction"); WHEREAS, upon the terms and subject to the conditions of this Agreement and in accordance with the Business Corporation Act of the State of Florida (the "FBCA") , the Delaware General Corporation Law ("DGCL"), the Kentucky Business Corporation Act ("KBCA"), and the Georgia Limited Liability Company Act (the "GLLCA"), SHG will acquire all of the common stock of Servico and each of the Impac Affiliated Companies and all of the membership interests of Impac through the merger of Servico Merger Sub with and into Servico (the "Servico Merger"), the merger of P-Burg Merger Sub with and into P-Burg (the "P-Burg Merger"), the merger of Hazard Merger Sub with and into Hazard (the "Hazard Merger"), the -1- 192 merger of Memphis Merger Sub with and into Memphis (the "Memphis Merger"), the merger of Delk Merger Sub with and into Delk (the "Delk Merger"), the merger of IHD Merger Sub with and into IHD (the "IHD Merger"), the merger of IDC Merger Sub with and into IDC (the "IDC Merger") and the merger of IHG Merger Sub with and into IHG (the "IHG Merger", and, collectively with the P-Burg Merger, the Hazard Merger, the Memphis Merger, the Delk Merger, the IHD Merger and the IDC Merger, the "Impac Affiliated Mergers"), and the merger of Impac Merger Sub with and into Impac (the "Impac Merger") and the shareholders and members of Servico and Impac, respectively, will receive shares of common stock, par value $.01 per share, of SHG ("SHG Common Stock") as set forth herein; WHEREAS, as a result of the Servico Merger, the Impac Affiliated Mergers and the Impac Merger (collectively, the "Mergers"), (i) Servico, each of the Impac Affiliated Companies and Impac will each be a wholly-owned subsidiary of SHG, (ii) the shareholders of Servico and each of the Impac Affiliated Companies, will become shareholders of SHG and (iii) the members of Impac will become shareholders of SHG; WHEREAS, in furtherance of the Transaction, the Board of Directors of Servico has adopted this Agreement and the Mergers as contemplated by this Agreement and has recommended that the holders of common stock, par value $.01 per share, of Servico ("Servico Common Stock") vote to approve this Agreement and the terms of the Mergers as contemplated by this Agreement; WHEREAS, in furtherance of the Transaction, the Board of Directors and shareholders of each of the Impac Affiliated Companies has adopted and approved this Agreement and the Mergers as contemplated by this Agreement; WHEREAS, in furtherance of the Transaction, the Manager of Impac has approved this Agreement and the Mergers as contemplated by this Agreement and has recommended that the members of Impac vote to approve this Agreement and the terms of the Mergers as contemplated by this Agreement; WHEREAS, prior to the execution of this Agreement and as an inducement to Servico to enter into this Agreement, certain members of Impac, representing in excess of fifty-one percent (51%) of the outstanding Class A Ordinary Membership Interests of Impac have entered into a voting agreement (the "Impac Voting Agreement") pursuant to which the Members, among other things, have agreed to vote in favor of the approval of this Agreement and the Mergers contemplated hereby, upon the terms and subject to the conditions set forth therein; and WHEREAS, for United States federal income tax purposes, it is intended that the Servico Merger and each of the Impac Affiliated Mergers (except the IHD Merger) each qualify as a reorganization under the provisions of Sections 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations thereunder (the "Regulations"), and it is further intended that the Impac Merger and the IHD Merger each qualify as a transfer of property described in Section 351 of the Code and the Regulations thereunder. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agree as follows: -2- 193 ARTICLE I THE MERGERS 1.1 FORMATION OF MERGER SUBSIDIARIES. SHG has formed Servico Merger Sub, each of the Impac Affiliated Merger Subs and Impac Merger Sub (collectively, the "Merger Subsidiaries") under the FBCA, the DGCL, the KBCA or the GLLCA, as the case may be, as wholly-owned subsidiaries of SHG. Each of the Merger Subsidiaries has been formed solely to facilitate the Mergers and shall conduct no business or activity other than in connection with the Mergers. SHG shall, and Servico shall cause SHG to, execute formal written consents under Section 607.0704 of the FBCA, Section 228 of the DGCL, Section 271B.7- 040 of the KBCA, or Section 14-11-309 of the GLLCA, as the case may be, as the sole shareholder and/or member of each of the Merger Subsidiaries, approving the execution, delivery and performance of this Agreement by each of the Merger Subsidiaries. 1.2 THE MERGERS. (a) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the FBCA, at the Effective Time (as defined herein), Servico Merger Sub shall be merged with and into Servico. As a result of the Servico Merger, the separate corporate existence of Servico Merger Sub shall cease and Servico shall continue as the surviving corporation of the Servico Merger as a wholly-owned subsidiary of SHG (the "Servico Surviving Corporation"). (b) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the KBCA, at the Effective Time, P-Burg Merger Sub shall be merged with and into P- Burg. As a result of the P-Burg Merger, the separate corporate existence of P-Burg Merger Sub shall cease and P-Burg shall continue as the surviving corporation of the P-Burg Merger as a wholly-owned subsidiary of SHG (the "P-Burg Surviving Corporation"). (c) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the KBCA, at the Effective Time, Hazard Merger Sub shall be merged with and into Hazard. As a result of the Hazard Merger, the separate corporate existence of Hazard Merger Sub shall cease and Hazard shall continue as the surviving corporation of the Hazard Merger as a wholly-owned subsidiary of SHG (the "Hazard Surviving Corporation"). (d) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the FBCA, at the Effective Time, Memphis Merger Sub shall be merged with and into Memphis. As a result of the Memphis Merger, the separate corporate existence of Memphis Merger Sub shall cease and Memphis shall continue as the surviving corporation of the Memphis Merger as a wholly-owned subsidiary of SHG (the "Memphis Surviving Corporation"). (e) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, Delk Merger Sub shall be merged with and into Delk. As a result of the Delk Merger, the separate corporate existence of Delk Merger Sub shall cease and Delk shall continue as the surviving corporation of the Delk Merger as a wholly-owned subsidiary of SHG (the "Delk Surviving Corporation"). -3- 194 (f) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, IHD Merger Sub shall be merged with and into IHD. As a result of the IHD Merger, the separate corporate existence of IHD Merger Sub shall cease and IHD shall continue as the surviving corporation of the IHD Merger as a wholly-owned subsidiary of SHG (the "IHD Surviving Corporation"). (g) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, IDC Merger Sub shall be merged with and into IDC. As a result of the IDC Merger, the separate corporate existence of IDC Merger Sub shall cease and IDC shall continue as the surviving corporation of the IDC Merger as a wholly-owned subsidiary of SHG (the "IDC Surviving Corporation"). (h) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, IHG Merger Sub shall be merged with and into IHG. As a result of the IHG Merger, the separate corporate existence of IHG Merger Sub shall cease and IHG shall continue as the surviving corporation of the IHG Merger as a wholly-owned subsidiary of SHG (the "IHG Surviving Corporation"). (i) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the GLLCA, at the Effective Time, Impac Merger Sub shall be merged with and into Impac. As a result of the Impac Merger, the separate corporate existence of Impac Merger Sub shall cease and Impac shall continue as the surviving corporation of the Impac Merger as a wholly owned subsidiary of SHG (the "Impac Surviving Corporation"; any of Servico Surviving Corporation, P-Burg Surviving Corporation, Hazard Surviving Corporation, Memphis Surviving Corporation, Delk Surviving Corporation, IHD Surviving Corporation, IDC Surviving Corporation, IHG Surviving Corporation, or Impac Surviving Corporation being separately referred to as a "Surviving Corporation" and collectively referred to as the "Surviving Corporations"). 1.3 CLOSING. Unless this Agreement shall have been terminated and the Mergers shall have been abandoned pursuant to Section 7.4 and subject to the satisfaction or waiver of the conditions set forth in Article VII, the consummation of the Transaction shall take place as promptly as practicable (and in any event within three business days) after satisfaction or waiver of the conditions set forth in Article VII, at a closing (the "Closing") to be held at the offices of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 150 West Flagler Street, Suite 2200, Miami, Florida, 33130, unless another date, time or place is agreed to by Servico and Impac. The date on which all conditions set forth in Article VII have been satisfied or waived shall be referred to as the "Satisfaction Date." 1.4 EFFECTIVE TIME. At the time of the Closing, the parties shall cause the Mergers to be consummated concurrently, (a) in the case of the Servico Merger, the Memphis Merger and the IHG Merger, by filing articles of merger (respectively, the "Servico Articles of Merger," the "Memphis Articles of Merger" and the "IHG Articles of Merger") with the Florida Department of State in such form as required by, and executed in accordance with the relevant provisions of, the FBCA, (b) in the case of the P-Burg Merger and the Hazard Merger, by filing articles of merger (respectively, the "P-Burg Articles of Merger" and the "Hazard Articles of Merger") with the Kentucky Department of State in such form as required by, and executed in accordance with the relevant provisions of, the KBCA, (c) in the case of the -4- 195 Delk Merger, the IHD Merger and the IDC Merger, by filing a certificate of merger (respectively, the "Delk Certificate of Merger," the "IHD Certificate of Merger" and the "IDC Certificate of Merger"), with the Secretary of State of the State of Delaware in such form as required by, and executed in accordance with the relevant provisions of, the DGCL, and (d) in the case of the Impac Merger, by filing articles of merger (the "Impac Articles of Merger") with the Secretary of State of the State of Georgia in such form as required by, and executed in accordance with the relevant provisions of, the GLLCA (the date and time of such filings, or such later date or time as set forth therein, being the "Effective Time"). 1.5 EFFECT OF THE MERGERS. At the Effective Time, the effect of the Servico Merger, the Memphis Merger and the IHG Merger shall be as provided in the applicable provisions of the FBCA, the effect of the P-Burg Merger and the Hazard Merger shall be as provided in the applicable provisions of the KBCA, the effect of the Delk Merger, the IHD Merger and the IDC Merger shall be as provided in the applicable provisions of the DGCL, and the effect of the Impac Merger shall be as provided in the applicable provisions of the GLLCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, (a) all the property, rights, privileges, powers and franchises of Servico and Servico Merger Sub shall vest in Servico as the Servico Surviving Corporation, and all debts, liabilities and duties of Servico and Servico Merger Sub shall become the debts, liabilities and duties of Servico as the Servico Surviving Corporation, (b) all the property, rights, privileges, powers and franchises of P-Burg and P-Burg Merger Sub shall vest in P-Burg as the P-Burg Surviving Corporation, and all debts, liabilities and duties of P-Burg and P-Burg Merger Sub shall become the debts, liabilities and duties of P-Burg as the P-Burg Surviving Corporation, (c) all the property, rights, privileges, powers and franchises of Hazard and Hazard Merger Sub shall vest in Hazard as the Hazard Surviving Corporation, and all debts, liabilities and duties of Hazard and Hazard Surviving Corporation shall become the debts, liabilities and duties of Hazard as the Hazard Surviving Corporation, (d) all the property, rights, privileges, powers and franchises of Memphis and Memphis Merger Sub shall vest in Memphis as the Memphis Surviving Corporation, and all debts, liabilities and duties of Memphis and Memphis Merger Sub shall become the debts, liabilities and duties of Memphis as the Memphis Surviving Corporation, (e) all the property, rights, privileges, powers and franchises of Delk and Delk Merger Sub shall vest in Delk as the Delk Surviving Corporation, and all debts, liabilities and duties of Delk and Delk Merger Sub shall become the debts, liabilities and duties of Delk as the Delk Surviving Corporation, (f) all the property, rights, privileges, powers and franchises of IHD and IHD Merger Sub shall vest in IHD as the IHD Surviving Corporation, and all debts, liabilities and duties of IHD and IHD Merger Sub shall become the debts, liabilities and duties of IHD as the IHD Surviving Corporation, (g) all the property, rights, privileges, powers and franchises of IHG and IHG Merger Sub shall vest in IHG as the IHG Surviving Corporation, and all debts, liabilities and duties of IHD and IHD Merger Sub shall become the debts, liabilities and duties of IHD as the IHD Surviving Corporation, and (h) all the property, rights, privileges, powers and franchises of Impac and Impac Merger Sub shall vest in Impac as the Impac Surviving Corporation, and all debts, liabilities and duties of Impac and Impac Merger Sub shall become the debts, liabilities and duties of Impac as the Impac Surviving Corporation. As of the Effective Time, each of the Surviving Corporations shall be a wholly-owned subsidiary of SHG. 1.6 ARTICLES OF INCORPORATION; ARTICLES OF ORGANIZATION; BYLAWS; OPERATING AGREEMENT; DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATIONS. Unless otherwise agreed by Servico and Impac before the Effective Time, at the Effective Time: -5- 196 (a) the Articles of Incorporation and the Bylaws of Servico as the Servico Surviving Corporation shall be the Articles of Incorporation and the Bylaws of Servico Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended as provided by such Articles of Incorporation or Bylaws; (b) the Articles of Organization and the Operating Agreement of Impac as the Impac Surviving Corporation shall be the Articles of Organization and the Operating Agreement of Impac Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended as provided by such Articles of Organization or Operating Agreement (the Operating Agreement of Impac in effect prior to the Effective Time being amended and restated in connection with and by virtue of the Impac Merger); (c) the Articles or Certificate of Incorporation and Bylaws of each of the Impac Affiliated Companies as the respective Surviving Corporations in the Impac Affiliated Mergers shall be the Articles or Certificate of Incorporation of each respective Impac Affiliated Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended as provided by such Articles or Certificate of Incorporation or Bylaws; (d) subject to the provisions of Section 5.15, the officers of each of the Surviving Corporations shall be (i) David Buddemeyer, Chief Executive Officer, (ii) Robert Cole, President and (iii) David Buddemeyer and Robert Cole shall hold the positions of Co-Chairmen of the Board of Directors, each of whom shall serve in their respective offices of each of the respective Surviving Corporations from and after the Effective Time, together with such additional officers as may be elected from time to time, in each case until their successors are elected or appointed and qualified or until their resignation or removal in accordance with each Surviving Corporation's Articles or Certificate of Incorporation and Bylaws or Articles of Organization and Operating Agreement, as the case may be; and (e) the directors of each of Servico Merger Sub, P-Burg Merger Sub, Hazard Merger Sub, Delk Merger Sub, Memphis Merger Sub, IHD Merger Sub, IDC Merger Sub and IHG Merger Sub, and the managers of Impac Merger Sub immediately prior to the Effective Time shall continue to serve as the directors and managers of their respective Surviving Corporations from and after the Effective Time, in each case until their successors are elected or appointed and qualified or until their resignation or removal in accordance with the Surviving Corporation's Articles or Certificate of Incorporation and Bylaws or Articles of Organization and Operating Agreement, as the case may be. 1.7 RESTATED CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS OF SHG. Immediately prior to the Effective Time, SHG and Servico shall cause the Certificate of Incorporation and Bylaws of SHG to be amended and restated to read substantially in the form attached hereto as Exhibits 1.7(a) and (b), respectively. ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES 2.1 CONVERSION OF SECURITIES. The manner and basis of converting the securities of Servico, P- Burg, Hazard, Memphis, Delk, IHD, IDC, IHG, and Impac and each of Servico Merger Sub, P-Burg -6- 197 Merger Sub, Hazard Merger Sub, Delk Merger Sub, Memphis Merger Sub, IHD Merger Sub, IDC Merger Sub, IHG Merger Sub, and Impac Merger Sub, respectively, at the Effective Time, by virtue of the Mergers, shall be as hereinafter set forth in this Article II. 2.2 CONVERSION OF SHARES. (a) Each share of Servico Common Stock issued and outstanding immediately before the Effective Time (excluding those owned by Impac or any wholly owned subsidiary of Servico or Impac) and all rights in respect thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for 1.000 shares of SHG Common Stock; such ratio of shares of Servico Common Stock to shares of SHG Common Stock being referred to as the "Servico Exchange Ratio"). (b) Each share of P-Burg Common Stock, no par value per share (the "P-Burg Common Stock"), issued and outstanding immediately before the Effective Time and all rights in respect thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for a number of shares of SHG Common Stock as determined below (such ratio of shares of P-Burg Common Stock to shares of SHG Common Stock being referred to as the "P-Burg Exchange Ratio"). For purposes hereof, the P-Burg Exchange Ratio shall be equal to the quotient of (i) the difference between 135,580.25 (the "P-Burg Base Number") and 25,650.32 divided by (ii) the number of outstanding shares of P-Burg Common Stock; provided, however, that if the average of the closing sale prices of Servico Common Stock on the NYSE over the ten consecutive trading periods preceding the Satisfaction Date (the "Trading Period Average") is (i) less than $14.00, the P-Burg Base Number shall be equal to the product of the P-Burg Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the P-Burg Base Number shall be equal to the product of the P-Burg Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average. (c) Each share of Hazard Common Stock, no par value per share (the "Hazard Common Stock"), issued and outstanding immediately before the Effective Time and all rights in respect thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for a number of shares of SHG Common Stock as determined below (such ratio of shares of Hazard Common Stock to shares of SHG Common Stock being referred to as the "Hazard Exchange Ratio"). For purposes hereof, the Hazard Exchange Ratio shall be equal to the quotient of (i) the difference between 71,358.72 (the "Hazard Base Number") and 13,500.30 divided by (ii) the number of outstanding shares of Hazard Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the Hazard Base Number shall be equal to the product of the Hazard Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the Hazard Base Number shall be equal to the product of the Hazard Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average. (d) Each share of Memphis Common Stock, par value $.01 per share (the "Memphis Common Stock"), issued and outstanding immediately before the Effective Time and all rights in respect -7- 198 thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for a number of shares of SHG Common Stock as determined below (such ratio of shares of Memphis Common Stock to shares of SHG Common Stock being referred to as the "Memphis Exchange Ratio"). For purposes hereof, the Memphis Exchange Ratio shall be equal to the quotient of (i) the difference between 98,382.79 (the "Memphis Base Number") and 18,612.96 divided by (ii) the number of outstanding shares of Memphis Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the Memphis Base Number shall be equal to the product of the Memphis Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the Memphis Base Number shall be equal to the product of the Memphis Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average. (e) Each share of Delk Common Stock, no par value per share (the "Delk Common Stock"), issued and outstanding immediately before the Effective Time and all rights in respect thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for a number of shares of SHG Common Stock as determined below (such ratio of shares of Delk Common Stock to shares of SHG Common Stock being referred to as the "Delk Exchange Ratio"). For purposes hereof, the Delk Exchange Ratio shall be equal to the quotient of (i) the difference between 46,997.66 (the "Delk Base Number") and 8,891.45 divided by (ii) the number of outstanding shares of Delk Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the Delk Base Number shall be equal to the product of the Delk Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the Delk Base Number shall be equal to the product of the Delk Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average. (f) Each share of IHD Common Stock, no par value per share (the "IHD Common Stock"), issued and outstanding immediately before the Effective Time and all rights in respect thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for a number of shares of SHG Common Stock as determined below (such ratio of shares of IHD Common Stock to shares of SHG Common Stock being referred to as the "IHD Exchange Ratio"). For purposes hereof, the IHD Exchange Ratio shall be equal to the quotient of (i) the difference between 820,663.73 (the "IHD Base Number") and 155,260.71 divided by (ii) the number of outstanding shares of IHD Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the IHD Base Number shall be equal to the product of the IHD Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the IHD Base Number shall be equal to the product of the IHD Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average. (g) Each share of IDC Common Stock, no par value per share (the "IDC Common Stock"), issued and outstanding immediately before the Effective Time and all rights in respect thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for a number of shares of SHG Common Stock as determined below (such ratio of shares of IDC Common Stock to shares of SHG Common Stock being -8- 199 referred to as the "IDC Exchange Ratio"). For purposes hereof, the IDC Exchange Ratio shall be equal to the quotient of (i) the difference between 47,875.89 (the "IDC Base Number") and 9,057.60 divided by (ii) the number of outstanding shares of IDC Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the IDC Base Number shall be equal to the product of the IDC Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the IDC Base Number shall be equal to the product of the IDC Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average. (h) Each share of IHG Common Stock, par value $1.00 per share (the "IHG Common Stock"), issued and outstanding immediately before the Effective Time and all rights in respect thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for a number of shares of SHG Common Stock as determined below (such ratio of shares of IHG Common Stock to shares of SHG Common Stock being referred to as the "IHG Exchange Ratio"). For purposes hereof, the IHG Exchange Ratio shall be equal to the quotient of (i) the difference between 79,793.17 (the "IHG Base Number") and 15,096.00 divided by (ii) the number of outstanding shares of IHG Common Stock; provided, however, that if the Trading Period Average is (i) less than $14.00, the IHG Base Number shall be equal to the product of the IHG Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the IHG Base Number shall be equal to the product of the IHG Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average. (i) Except as provided in Section 2.3(c) below, each Class A Ordinary Membership Interest of Impac (an "Impac Unit") issued and outstanding immediately before the Effective Time and all rights in respect thereof, shall, at the Effective Time, without any action on the part of any holder thereof, forthwith cease to exist and be converted into and become exchangeable for a number of shares of SHG Common Stock as determined below (such ratio of shares of Impac Units to shares of SHG Common Stock being referred to as the "Impac Exchange Ratio"). For purposes hereof, the Impac Exchange Ratio shall be equal to the quotient of (i) the difference between 6,099,347.79 (the "Impac Base Number") and 1,153,930.66, divided by (ii) the number of outstanding Impac Units minus the number of Impac Units owned by P-Burg, Hazard, Delk, Memphis, IHD, IDC and IHG; provided, however, that if the Trading Period Average is (i) less than $14.00, the Impac Base Number shall be equal to the product of the Impac Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is the Trading Period Average, and (ii) if the Trading Period Average is greater than $25.00, the Impac Base Number shall be equal to the product of the Impac Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is the Trading Period Average. (j) Upon satisfaction of the conditions and milestones set forth on SCHEDULE 2.2(C), an aggregate of an additional 1,400,000 shares of SHG Common Stock (the "Additional Shares") shall be issuable to the holders of P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock and Impac Units (collectively, the "Additional Shareholders") in accordance with the methodology set forth on SCHEDULE 2.2(C). Certificates representing the Additional Shares shall be delivered at the Closing to the Exchange Agent (as hereinafter defined), as Escrow Agent, to be held and delivered to the Additional Shareholders -9- 200 upon satisfaction of the conditions and milestones set forth on SCHEDULE 2.2(C) in accordance with an Escrow Agreement substantially in the form attached hereto as Exhibit 2.2(c). The Escrow Agreement will provide for the Additional Shares to be released from escrow from time to time upon satisfaction of such conditions and milestones (each of such milestone dates being hereafter referred to as a "Milestone Date"). The parties agree and acknowledge that the Additional Shares will be held in escrow pending solely the satisfaction of the milestones and conditions set forth on SCHEDULE 2.2(C) and any breach of any representation, warranty or covenant by Impac contained in this Agreement will have no effect on SHG's obligation to issue the Additional Shares to the Additional Shareholders. The parties hereto hereby agree and acknowledge that the parties have been advised that the Additional Shares will not be treated as outstanding for purposes of calculating earnings per share under applicable accounting rules and guidelines as applied by the SEC or otherwise. (k) At the Effective Time, each Class B Ordinary Membership Interest of Impac shall be canceled and retired and no shares of stock or other securities of SHG or either of the Surviving Corporations or any other person shall be issuable, and no payment or other calculation shall be made with respect thereto. (l) Commencing immediately after the Effective Time, each certificate which, immediately prior to the Effective Time, represented issued and outstanding shares of Servico Common Stock ("Servico Shares"), P-Burg Common Stock ("P-Burg Shares"), Hazard Common Stock ("Hazard Shares"), Memphis Common Stock ("Memphis Shares"), Delk Common Stock ("Delk Shares"), IHD Common Stock ("IHD Shares"), IDC Common Stock ("IDC Shares"), IHG Common Stock, ("IHG Shares"), Impac Units (Impac Units, together with P-Burg Shares, Hazard Shares, Memphis Shares, Delk Shares, IHD Shares, IDC Shares, IHG Shares, and Servico Shares, the "Shares"), shall evidence ownership of SHG Common Stock on the basis hereinbefore set forth, but subject to the limitations set forth in Sections 2.3, 2.5, 2.7, 2.8 and 2.9 hereof. (m) For all purposes of this Agreement, unless otherwise specified, all shares held by employee benefit plans of Servico (i) shall be deemed to be issued and outstanding, (ii) shall not be deemed to be held in the treasury of Servico, and (iii) shall be converted into shares of SHG Common Stock in accordance with the Servico Exchange Ratio. 2.3 CANCELLATION OF CERTAIN SHARES AND OF OUTSTANDING SHG COMMON STOCK. (a) At the Effective Time, each share of Servico Common Stock owned by Impac or any wholly-owned subsidiary of Impac immediately prior to the Effective Time, shall be canceled and retired and no shares of stock or other securities of SHG or either of the Surviving Corporations or any other person shall be issuable, and no payment or other consideration shall be made, with respect thereto. (b) At the Effective Time, the shares of SHG Common Stock held by Servico shall be canceled and retired and no shares of stock or other securities of SHG or either of the Surviving Corporations or any other person shall be issuable, and no payment or other consideration shall be made, with respect thereto. -10- 201 (c) At the Effective Time, all Impac Units held by P-Burg, Hazard, Memphis, Delk, IHD, IDC and IHG shall be cancelled and retired and no shares of stock or other securities of SHG (including any Additional Shares) or any of the Surviving Corporations or any other person shall be issuable, and no payment or other consideration shall be made, with respect thereto. 2.4 CONVERSION OF COMMON STOCK AND MEMBERSHIP INTERESTS OF SERVICO MERGER SUB, IMPAC MERGER SUB AND IMPAC AFFILIATED MERGER SUB INTO COMMON STOCK OR MEMBERSHIP INTERESTS OF THE SURVIVING CORPORATIONS. (a) At the Effective Time, each share of common stock, par value $0.01 per share, of Servico Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of Servico Surviving Corporation (the "New Servico Common Stock"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the shares of the common stock of Servico Merger Sub, Servico Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New Servico Common Stock created by conversion of the common stock of Servico Merger Sub owned by SHG. (b) At the Effective Time, each share of common stock, par value $0.01 per share, of P-Burg Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of P-Burg Surviving Corporation (the "New P-Burg Common Stock"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the shares of the common stock of P-Burg Merger Sub, P-Burg Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New P-Burg Common Stock created by conversion of the common stock of P-Burg Merger Sub owned by SHG. (c) At the Effective Time, each share of common stock, par value $0.01 per share, of Hazard Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of Hazard Surviving Corporation (the "New Hazard Common Stock"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the shares of the common stock of Hazard Merger Sub, Hazard Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New Hazard Common Stock created by conversion of the common stock of Hazard Merger Sub owned by SHG. (d) At the Effective Time, each share of common stock, par value $0.01 per share, of Memphis Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of Memphis Surviving Corporation (the "New Memphis Common Stock"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the shares of the common stock of -11- 202 Memphis Merger Sub, Memphis Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New Memphis Common Stock created by conversion of the common stock of Memphis Merger Sub owned by SHG. (e) At the Effective Time, each share of common stock, par value $0.01 per share, of Delk Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of Delk Surviving Corporation (the "New Delk Common Stock"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the shares of the common stock of Delk Merger Sub, Delk Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New Delk Common Stock created by conversion of the common stock of Delk Merger Sub owned by SHG. (f) At the Effective Time, each share of common stock, par value $0.01 per share, of IHD Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of IHD Surviving Corporation (the "New IHD Common Stock"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the shares of the common stock of IHD Merger Sub, IHD Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New IHD Common Stock created by conversion of the common stock of IHD Merger Sub owned by SHG. (g) At the Effective Time, each share of common stock, par value $0.01 per share, of IDC Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of IDC Surviving Corporation (the "New IDC Common Stock"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the shares of the common stock of IDC Merger Sub, IDC Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New IDC Common Stock created by conversion of the common stock of IDC Merger Sub owned by SHG. (h) At the Effective Time, each share of common stock, par value $0.01 per share, of IHG Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of IHG Surviving Corporation (the "New IHG Common Stock"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the shares of the common stock of IHG Merger Sub, IHG Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New IHG Common Stock created by conversion of the common stock of IHG Merger Sub owned by SHG. (i) At the Effective Time, all membership interests of Impac Merger Sub issued and outstanding immediately prior to the Effective Time, and all rights in respect thereof, shall, without any action on the part of SHG, forthwith cease to exist and be converted into equivalent membership interests of Impac Surviving Corporation (the "New Impac Units"). Immediately after the Effective Time and upon surrender by SHG of the certificate representing the membership interests of Impac Merger Sub, Impac -12- 203 Surviving Corporation shall deliver to SHG an appropriate certificate or certificates representing the New Impac Units. 2.5 EXCHANGE OF SHARES OTHER THAN TREASURY SHARES. Subject to the terms and conditions hereof, at or prior to the Effective Time, SHG shall appoint an exchange agent to effect the exchange of Shares for SHG Common Stock in accordance with the provisions of this Article II (the "Exchange Agent"). From time to time after the Effective Time, SHG shall deposit, or cause to be deposited, certificates representing SHG Common Stock for conversion of Shares in accordance with the provisions of Section 2.2 hereof (such certificates, together with any dividends or distributions with respect thereto, being herein referred to as the "Exchange Fund"). Commencing immediately after the Effective Time and until the appointment of the Exchange Agent shall be terminated, each holder of a certificate or certificates theretofore representing Shares may surrender the same to the Exchange Agent, and, after the appointment of the Exchange Agent shall be terminated, any such holder may surrender any such certificate to SHG. Such holder shall be entitled upon such surrender to receive in exchange therefor a certificate or certificates representing the number of full shares of SHG Common Stock into which the Shares theretofore represented by the certificate or certificates so surrendered shall have been converted in accordance with the provisions of Section 2.2 hereof, together with a cash payment in lieu of fractional shares, if any, in accordance with Section 2.7 hereof, and all such shares of SHG Common Stock shall be deemed to have been issued at the Effective Time, it being agreed and acknowledged, however, that the Additional Shares shall not be deemed to be issued or outstanding until issuable on the applicable Milestone Date in accordance with the provisions of SCHEDULE 2.2(C). Until so surrendered and exchanged, each outstanding certificate which, prior to the Effective Time, represented issued and outstanding Shares shall be deemed for all corporate purposes of SHG, other than the payment of dividends and other distributions, if any, to evidence ownership of the number of full shares of SHG Common Stock into which the Shares theretofore represented thereby shall have been converted at the Effective Time. Unless and until any such certificate theretofore representing Shares is so surrendered, no dividend or other distribution, if any, payable to the holders of record of SHG Common Stock as of any date subsequent to the Effective Time shall be paid to the holder of such certificate in respect thereof. Upon the surrender of any such certificate theretofore representing Shares, however, the record holder of the certificate or certificates representing shares of SHG Common Stock issued in exchange therefor shall receive from the Exchange Agent or from SHG, as the case may be, payment of the amount of dividends and other distributions, if any, which as of any date subsequent to the Effective Time (or, with respect to the Additional Shares, subsequent to the Milestone Date) and until such surrender shall have become payable with respect to such number of shares of SHG Common Stock ("Presurrender Dividends"). No interest shall be payable with respect to the payment of Presurrender Dividends upon the surrender of certificates theretofore representing Shares. After the appointment of the Exchange Agent shall have been terminated, such holders of SHG Common Stock who have not received payment of Presurrender Dividends shall look only to SHG for payment thereof. Notwithstanding the foregoing provisions of this Section 2.5, risk of loss and title to such certificates representing Shares shall pass only upon proper delivery of such certificates to the Exchange Agent, and neither the Exchange Agent nor any party hereto shall be liable to a holder of Shares for any SHG Common Stock or dividends or distributions thereon delivered to a public official pursuant to any applicable abandoned property, escheat or similar law or to a transferee pursuant to Section 2.6 hereof. 2.6 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer books of Servico with respect to Servico Shares, the stock transfer books of P-Burg with respect to P-Burg Shares, the stock -13- 204 transfer books of Hazard with respect to Hazard Shares, the stock transfer books of Memphis with respect to Memphis Shares, the stock transfer books of Delk with respect to Delk Shares, the stock transfer books of IHD with respect to IHD Shares, the stock transfer books of IDC with respect to IDC Shares, the stock transfer books of IHG with respect to IHG Shares and the transfer books of Impac with respect to Impac Units shall each be closed, and there shall be no further registration of transfers of Shares thereafter on the records of any such transfer books. In the event of a transfer of ownership of Shares that is not registered in the transfer records of Servico, P-Burg, Hazard, Memphis, Delk, IHD, IDC, IHG or Impac, as the case may be, at the Effective Time, a certificate or certificates representing the number of full shares of SHG Common Stock into which such Shares shall have been converted shall be issued to the transferee together with a cash payment in lieu of fractional shares, if any, in accordance with Section 2.7 hereof, and a cash payment in the amount of Presurrender Dividends, if any, in accordance with Section 2.5 hereof, if the certificate or certificates representing such Shares is or are surrendered as provided in Section 2.5 hereof, accompanied by all documents required to evidence and effect such transfer and by evidence of payment of any applicable transfer tax. 2.7 NO FRACTIONAL SHARE CERTIFICATES. (a) No scrip or fractional share certificate for SHG Common Stock shall be issued upon the surrender for exchange of certificates evidencing Shares, and an outstanding fractional share interest shall not entitle the owner thereof to vote, to receive dividends or to any rights of a shareholder of SHG or a shareholder or member of any of the Surviving Corporations with respect to such fractional share interest. (b) As promptly as practicable following the Effective Time and following the applicable Milestone Date, the Exchange Agent shall determine the excess of (i) the number of full shares of SHG Common Stock to be issued and delivered to the Exchange Agent pursuant to Section 2.5 hereof over (ii) the aggregate number of full shares of SHG Common Stock to be distributed to holders of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock and Impac Units pursuant to Section 2.5 hereof (such excess being herein called the "Excess Shares"). Following the Effective Time and following the applicable Milestone Date, the Exchange Agent, as agent for the holders of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock and Impac Units , shall sell the Excess Shares at then prevailing prices on the New York Stock Exchange, Inc. (the "NYSE"), all in the manner provided in subsection (c) of this Section 2.7. (c) The sale of the Excess Shares by the Exchange Agent shall be executed on the NYSE through one or more member firms of such exchange and shall be executed in round lots to the extent practicable. The Exchange Agent shall use all reasonable efforts to complete the sale of the Excess Shares as promptly following the Effective Time or the applicable Milestone Date, as the case may be, as, in the Exchange Agent's reasonable judgment, is practicable consistent with obtaining the best execution of such sales in light of prevailing market conditions. Until the net proceeds of such sale or sales have been distributed to the holders of each of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock and Impac Units, the Exchange Agent shall hold such proceeds in trust for the -14- 205 holders of Servico Common Stock (the "Servico Common Shares Trust"), P-Burg Common Stock (the "P-Burg Common Shares Trust"), Hazard Common Stock (the "Hazard Common Shares Trust"), Memphis Common Stock (the "Memphis Common Shares Trust"), Delk Common Stock (the "Delk Common Shares Trust"), IHD Common Stock (the "IHD Common Shares Trust"), IDC Common Stock (the "IDC Common Shares Trust"), IHG Common Stock (the "IHG Common Shares Trust") and Impac Units (the "Impac Unit Trust"). SHG shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent, incurred in connection with such sale of Excess Shares. The Exchange Agent shall determine the portion of the Servico Common Shares Trust, the P-Burg Common Shares Trust, the Hazard Common Shares Trust, the Memphis Common Shares Trust, the Delk Common Shares Trust, the IHD Common Shares Trust, the IDC Common Shares Trust, the IHG Common Shares Trust or the Impac Unit Trust, as the case may be, to which each holder of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac Units shall be entitled, if any, by multiplying the amount of the aggregate net proceeds comprising the Servico Common Shares Trust, the P-Burg Common Shares Trust, the Hazard Common Shares Trust, the Memphis Common Shares Trust, the Delk Common Shares Trust, the IHD Common Shares Trust, the IDC Common Shares Trust, the IHG Common Shares Trust or the Impac Unit Trust, respectively, by a fraction the numerator of which is the amount of fractional share interests to which such holder of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac Units, as the case may be, is entitled (after taking into account all shares of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac Units, respectively, held at the Effective Time by such holder) and the denominator of which is the aggregate amount of fractional share interests to which all holders of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac Units, respectively, are entitled. (d) Notwithstanding the provisions of subsections (b) and (c) of this Section 2.7, Servico may, in lieu of the issuance and sale of Excess Shares and the making of the payments contemplated in such subsections, cause SHG to pay to the Exchange Agent an amount in cash sufficient for the Exchange Agent to pay each holder of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock and/or Impac Units an amount in cash equal to the product obtained by multiplying (i) the fractional share interest to which such holder would otherwise be entitled (after taking into account all shares of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock and/or Impac Units , as the case may be, held at the Effective Time by such holder) by (ii) the closing price for a share of SHG Common Stock on the NYSE Composite Transaction Tape on the first business day immediately following the Effective Time or the applicable Milestone Date, as the case may be, and, in such case, all references herein to the cash proceeds of the sale of the Excess Shares and similar references shall be deemed to mean and refer to the payments calculated as set forth in this subsection (d). In such event, Excess Shares shall not be issued or otherwise transferred to the Exchange Agent pursuant to Section 2.5 hereof. -15- 206 (e) As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac Units with respect to any fractional share interests, the Exchange Agent shall make available such amounts, net of any required withholding, to such holders of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac Units, subject to and in accordance with the terms of Section 2.5 hereof. (f) Any portion of the Exchange Fund, the Servico Common Shares Trust, the P-Burg Common Shares Trust, the Hazard Common Shares Trust, the Memphis Common Shares Trust, the Delk Common Shares Trust, the IHD Common Shares Trust, the IDC Common Shares Trust, the IHG Common Shares Trust or the Impac Unit Trust which remains undistributed for six months after the latest Milestone Date shall be delivered to SHG, and any holder of Servico Common Stock, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock, IHG Common Stock or Impac Units who has not theretofore complied with the provisions of this Article II shall thereafter look only to SHG for satisfaction of their claims for SHG Common Stock or any cash in lieu of fractional shares of SHG Common Stock and any Presurrender Dividends. 2.8 OPTIONS TO PURCHASE SERVICO COMMON STOCK. At the Effective Time, each option or warrant granted by Servico to purchase shares of Servico Common Stock which is outstanding and unexercised immediately prior to the Effective Time, shall be assumed by SHG and converted into an option or warrant to purchase shares of SHG Common Stock in such number and at such exercise price as provided below and otherwise having the same terms and conditions as in effect immediately prior to the Effective Time (except to the extent that such terms, conditions and restrictions may be altered in accordance with their terms as a result of the Mergers contemplated hereby): (a) the number of shares of SHG Common Stock to be subject to the new option or warrant shall be equal to the product of (x) the number of shares of Servico Common Stock subject to the original option or warrant and (y) the Servico Exchange Ratio; (b) the exercise price per share of SHG Common Stock under the new option or warrant shall be equal to (x) the exercise price per share of the Servico Common Stock under the original option or warrant divided by (y) the Servico Exchange Ratio; and (c) upon each exercise of options or warrants by a holder thereof, the aggregate number of shares of SHG Common Stock deliverable upon such exercise shall be rounded down, if necessary, to the nearest whole share and the aggregate exercise price shall be rounded up, if necessary, to the nearest cent. The adjustments provided herein with respect to any options which are "incentive stock options" (as defined in Section 422 of the Code) shall be effected in a manner consistent with the requirements of Section 424(a) of the Code. -16- 207 2.9 OPTIONS TO PURCHASE IMPAC UNITS. At the Effective Time, the option granted by Impac to Robert Cole to purchase Impac Units, which option is set forth on Schedule 2.9, shall be assumed by SHG and converted into an option to purchase shares of SHG Common Stock in such number and at such exercise price as provided below, and as otherwise having the same terms and conditions as in effect immediately prior to the Effective Time (except to the extent that such terms, conditions, and restrictions may be altered in accordance with their terms as a result of the Mergers contemplated hereby): (a) the number of shares of SHG Common Stock to be subject to the new option shall be equal to the product of (x) the number of shares of Servico Common Stock subject to the original option and (y) .64; (b) the exercise price per share of SHG Common Stock under the new option shall be equal to (x) the exercise price per unit of the Impac Unit under the original option divided by (y) .64; and (c) upon exercise of the option by Cole, the aggregate number of shares of SHG Common Stock deliverable upon such exercise shall be rounded down, if necessary, to the nearest whole share and the aggregate exercise price shall be rounded up, if necessary, to the nearest cent. 2.10 CERTAIN ADJUSTMENTS. If between the date of this Agreement and the Effective Time, the outstanding shares of Servico Common Stock shall be changed into a different number of shares by reason of any reclassification, recapitalization, split-up, combination or exchange of shares, or any dividend payable in stock, or other securities shall be declared thereon with a record date within such period, the Impac Exchange Ratio established pursuant to the provisions of Section 2.2(b) hereof shall be adjusted accordingly to provide to the holders of Impac Units, P-Burg Common Stock, Hazard Common Stock, Memphis Common Stock, Delk Common Stock, IHD Common Stock, IDC Common Stock and IHG Common Stock the same economic effect as contemplated by this Agreement prior to such reclassification, recapitalization, split-up, combination, exchange or dividend. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SERVICO Servico hereby represents and warrants to Impac and the Impac Affiliated Companies as follows: 3.1 ORGANIZATION, STANDING AND POWER. Each of Servico and each direct or indirect subsidiary (including the Servico Constituents (as defined herein)) of Servico (the "Servico Subsidiaries") has been duly organized and is validly existing and in good standing under the laws of its state of incorporation or organization, as the case may be, and has all requisite right, power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. 3.2 LEGAL, VALID AND BINDING AGREEMENT. The execution, delivery and performance of this Agreement by Servico, SHG, Impac Merger Sub, Servico Merger Sub and each of the Impac Affiliated Merger Subs (collectively, the "Servico Constituents") and the consummation by Servico and the Servico Constituents of the Mergers contemplated hereby have been duly and effectively authorized by all requisite corporate action and no other corporate proceedings on the part of Servico or the Servico Constituents are necessary to authorize this Agreement or to consummate such Mergers (other than the approval of this Agreement and the Mergers contemplated hereby by the holders of a majority of the outstanding shares of Servico Common Stock entitled to vote with respect thereto at the Servico Special Meeting and the filing and recordation of the Servico Articles of Merger, the Impac Articles of Merger, the P-Burg Articles of Merger, the Hazard Articles of Merger, the Memphis Articles of Merger, the Delk Certificate of Merger, the IHD Certificate of Merger, the IDC Certificate of Merger and the IHG Certificate of Merger, as required by the FBCA, the GLLCA, the KBCA and the DGCL, as applicable). This Agreement has been duly executed and delivered by Servico and each of the Servico Constituents and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes the legal, valid and binding obligations of Servico and each of the Servico Constituents, enforceable against Servico and the Servico Constituents in accordance with its terms. 3.3 AUTHORITY TO DO BUSINESS. Each of Servico and the Servico Subsidiaries has the corporate power and authority and all necessary governmental approvals to own, operate and lease its properties and assets and to conduct its business as presently conducted, and is duly qualified or licensed to transact business in all jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification or license, except where the failure to have such power, authority -17- 208 and governmental approvals or to be so qualified or licensed, individually or in the aggregate, would not have a Servico Material Adverse Effect. 3.4 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 3.4, the execution, delivery and performance of this Agreement by Servico and each of the Servico Constituents and the consummation by Servico and each of the Servico Constituents of the transactions contemplated hereby do not and will not (i) conflict with or violate any provision of the Articles of Incorporation or Bylaws of Servico or any equivalent organizational documents of any Servico Subsidiary, (ii) assuming that all consents, approvals, authorizations and permits described in Section 3.5 have been obtained and all filings and notifications described in Section 3.5 have been made, violate or conflict with any Law applicable to Servico or any Servico Subsidiary or by which any property or asset of Servico or any Servico Subsidiary is bound or effected, and (iii) with or without the passage of time or the giving of notice, result in the breach of, or constitute a default under, cause the acceleration of performance of, permit the unilateral modification or termination of, or require any consent under, or result in the creation of any liens or other encumbrance upon any property or assets of Servico or any Servico Subsidiary pursuant to any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other obligation, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would neither, individually or in the aggregate, (A) have a Servico Material Adverse Effect nor (B) prevent or materially delay the performance by Servico or any Servico Constituent of its material obligations pursuant to this Agreement or the consummation of the Mergers. 3.5 GOVERNMENTAL CONSENTS. The execution and delivery of this Agreement by Servico and each of the Servico Constituents does not, and the performance by Servico and each of the Servico Constituents of its obligations hereunder and the consummation of the Mergers will not, require any consent, approval, authorization or permit of, or filing by Servico or any Servico Constituent with or notification by Servico or any Servico Constituent to, any United States federal, state or local or any foreign governmental, regulatory or administrative authority, agency or commission or any court, tribunal or arbitral body (a "Governmental Entity"), except (i) applicable requirements of the Securities Exchange Act of 1934, as amended (together with the rules and regulations promulgated thereunder, the "Exchange Act"), the Securities Act of 1933, as amended (together with the rules and regulations promulgated thereunder, the "Securities Act"), state securities or "blue sky" laws ("Blue Sky Laws"), the rules and regulations of the NYSE, state takeover laws, the premerger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), the filing and recordation of the respective Articles or Certificates of Merger as referenced in Section 3.2 above, and as set forth on SCHEDULE 3.5, and (ii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not (A) prevent or materially delay the performance by Servico or any Servico Constituent of its material obligations pursuant to this Agreement and the consummation of the Mergers, or (B) individually or in the aggregate have a Servico Material Adverse Effect. 3.6 EXCHANGE ACT REPORTS; FINANCIAL STATEMENTS. (a) Since January 1, 1995, Servico has timely filed all reports and other documents required to be filed by it with the United States Securities and Exchange Commission (the "SEC") under each of the Securities Act and the Exchange Act and the respective rules and regulations thereunder, -18- 209 including but not limited to proxy statements and reports on Form 10-K, Form 10-Q and Form 8-K (collectively, the "Servico SEC Reports"). As of the respective dates they were filed with the SEC, the Servico SEC Reports, including all documents incorporated by reference into such reports, complied in all material respects with the rules and regulations of the SEC and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The consolidated financial statements (the "Servico Financial Statements") of Servico included in the Servico SEC Reports, as of the dates thereof and for the periods covered thereby, present fairly, in all material respects, the financial position, results of operations, and cash flows of Servico and the Servico Subsidiaries on a consolidated basis (subject, in the case of unaudited statements, to normal recurring year-end audit adjustments which were not and are not expected, individually or in the aggregate, to have a Servico Material Adverse Effect). Any supporting schedules included in the Servico SEC Reports present fairly, in all material respects, the information required to be stated therein. Such Servico Financial Statements and supporting schedules were prepared: (A) in accordance with the requirements of Regulation S-X promulgated by the SEC; and (B) except as otherwise noted in the Servico SEC Reports, in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis. Other than as disclosed by the Servico Financial Statements included in the Servico SEC Reports or on SCHEDULE 3.6 hereto, neither Servico nor any of the Servico Subsidiaries has any liabilities, commitments or obligations of any nature whatsoever, whether accrued, contingent or otherwise that would be required to be reflected on, or reserved against in, a balance sheet or in notes thereto, prepared in accordance with GAAP, other than liabilities, commitments or obligations incurred since December 31, 1996 in the ordinary course of business that would not, individually or in the aggregate, have a Servico Material Adverse Effect. 3.7 COMPLIANCE WITH LAWS. (a) Each of Servico and the Servico Subsidiaries is in compliance with all federal, state, local and foreign laws, ordinances, regulations, judgments, rulings, orders and other legal requirements applicable to it, its operations or its properties, including without limitation those relating to employment, building and zoning, safety and health, and environmental matters, except where the failure to so comply, individually or in the aggregate, would not have a Servico Material Adverse Effect. Except as set forth on SCHEDULE 3.7(A) or as would not reasonably be expected to have a Servico Material Adverse Effect, neither Servico nor any Servico Subsidiary has received notification from any Governmental Entity asserting that it may not be in compliance with, or may have violated, any of the Laws which said Governmental Entity enforces, or threatening to revoke any authorization, consent, approval, franchise, license or permit, and neither Servico nor any Servico Subsidiary is subject to any agreement or consent decree with any Governmental Entity arising out of previously asserted violations. (b) Without limiting the generality of Section 3.7(a), except as disclosed by the environmental audits and reports listed on SCHEDULE 3.7, copies of which have heretofore been delivered to Impac, or as otherwise set forth on SCHEDULE 3.7, or as will not, individually or in the aggregate, have a Servico Material Adverse Effect: (i) Servico and the Servico Subsidiaries are in compliance with all applicable Environmental Laws. All past noncompliance of Servico or any Servico Subsidiary with -19- 210 Environmental Laws or Environmental Permits has been resolved without any pending, ongoing or future obligation, cost or liability; and (ii) neither Servico nor any Servico Subsidiary has released a Hazardous Material at, or transported a Hazardous Material to or from, any real property currently or formerly owned, leased or occupied by Servico or any Servico Subsidiary in violation of any Environmental Law. For purposes of this Agreement: "ENVIRONMENTAL LAW" means any federal, state or local statute, law, ordinance, regulation, rule, code or order of the United States or any other jurisdiction and any enforceable judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to pollution or protection of the environmental or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Material, as in effect as of the date of this Agreement. "ENVIRONMENTAL PERMIT" means any permit, approval, identification number, license or other authorization required under or issued pursuant to any applicable Environmental Law. "HAZARDOUS MATERIAL" means (i) any petroleum, petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical, material or substance defined or regulated as toxic or hazardous or as a pollutant or contaminant or waste under any applicable Environmental Law. 3.8 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 3.8 or the Servico SEC Reports, neither Servico nor any of the Servico Subsidiaries is a party to any pending or, to the knowledge of Servico, threatened, legal, administrative or other proceeding, arbitration or investigation, that is or would be reasonably expected to, either individually or in the aggregate, result in a Servico Material Adverse Effect. Servico has no knowledge of any set of facts which would reasonably be expected to result in any such legal, administrative or other proceeding, arbitration or investigation involving Servico or any Servico Subsidiary. Except as set forth on SCHEDULE 3.8, neither Servico nor any of the Servico Subsidiaries is subject to any order, injunction or other judgment of any court or governmental authority which, individually or in the aggregate, could reasonably be expected to have a Servico Material Adverse Effect. 3.9 BROKERS. Other than Lehman Brothers, Inc. ("Lehman Brothers") and Hodges Ward & Elliot ("HW&E"), neither Servico nor any of the Servico Subsidiaries has employed any financial advisor, broker or finder and has not incurred and none will incur any broker's, finder's, investment banking or similar fees, commissions or expenses to any other party in connection with the transactions contemplated by this Agreement. Servico has provided to Impac complete and correct copies of all agreements between Servico and Lehman Brothers pursuant to which such firm would be entitled to any payment related to the Mergers. 3.10 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as disclosed on SCHEDULE 3.10 or in the Servico SEC Reports, since December 31, 1996 each of Servico and the Servico Subsidiaries has conducted its businesses only in the ordinary and usual course and in a manner consistent with past -20- 211 practices. Except as disclosed on SCHEDULE 3.10: (i) there has not been any Servico Material Adverse Effect; (ii) neither Servico nor any Servico Subsidiary has engaged or agreed to engage in any of the actions described in Section 5.2(a) (except as otherwise specifically permitted therein); and (iii) there has not been any event that would reasonably be expected to prevent or materially delay the performance of Servico's material obligations pursuant to this Agreement and the consummation of the Mergers by Servico. 3.11 CAPITALIZATION. The authorized capital stock of Servico consists of 25 million shares of Servico Common Stock, of which 21,038,995 shares were issued and outstanding as of March 20, 1998. The authorized capital stock of SHG is 75 million shares of common stock and 25 million shares of preferred stock, and the authorized capital stock of Servico Sub and Impac Sub is 1,000 shares and 100 membership interests, respectively, of which 1,000 shares and 100 membership interests, respectively, are issued and outstanding as of the date hereof. All shares of Servico's and each Servico Subsidiary's outstanding capital stock have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. No securities issued by Servico or any Servico Subsidiary from the date of its organization or incorporation to the date hereof were issued in violation of any statutory or common law preemptive rights or the rules and regulations of the Securities Act or any Blue Sky Laws. 3.12 TAX MATTERS. To the knowledge of Servico, neither Servico nor any of its affiliates has taken or agreed to take any action (other than actions contemplated by this Agreement) that would prevent the Servico Merger or any of the Impac Affiliated Mergers (except the IHD Merger) from constituting a transaction qualifying under Section 368(a) of the Code or would prevent the Impac Merger or the IHD Merger from constituting a transaction qualifying under Section 351 of the Code. Servico is not aware of any agreement, plan or other circumstance that would prevent the Mergers from so qualifying under Section 368(a) or Section 351 of the Code. 3.13 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS. Servico and the Servico Subsidiaries have good title to each item of personal (movable) property, tangible and intangible, to the extent reflected on the Servico Financial Statements and to each material item of material personal (movable) property, tangible and intangible, acquired since December 31, 1996 (other than property disposed of in the ordinary course of business consistent with past practice since December 31, 1996), free and clear of any liens or other encumbrances, except as set forth on the Servico Financial Statements or in SCHEDULE 3.13 hereto and except for liens arising by operation of law in favor of carriers, warehousemen, repairmen or landlords or other like liens which arise in the ordinary course of business for amounts which are not due and payable (all such personal property being hereinafter referred to as the "Servico Personal Property"). All equipment, machinery, fixtures and other Servico Personal Property owned or utilized by Servico or any Servico Subsidiary are in an operating condition and a state of maintenance and repair adequate for the conduct of their respective businesses. 3.14 REAL PROPERTY. SCHEDULE 3.14 sets forth a true and complete list of all real property owned or leased by Servico or any Servico Subsidiary and a description of all structures, fixtures or improvements ("Servico Improvements") thereon has been made available to Impac (such real property and Servico Improvements, collectively, the "Servico Real Property"). Servico and/or any Servico Subsidiary has such title to the Servico Real Property as shown or described on title insurance policies or commitments made available to Impac and listed on SCHEDULE 3.14. To the knowledge of Servico, except as disclosed in engineering reports made available to Impac or disclosed on SCHEDULE 3.14, all Servico Improvements are -21- 212 in good structural condition, free of any structural or other defect or impairment which could reasonably be expected to impair in any material respect the value, utility or life expectancy of such Servico Improvements, or which might otherwise adversely affect, in any material respect, the operation thereof. Except as disclosed on SCHEDULE 3.14, neither the whole nor any portion of the Servico Real Property is being condemned or otherwise taken by any public authority, nor is any such condemnation or taking, to the knowledge of Servico, threatened or contemplated. Servico has no information or knowledge of (a) any change contemplated in any Law, (b) any judicial or administrative action, (c) any action by adjacent landowners, or (d) any other fact or condition of any kind or character which would materially adversely affect the current use or operation of the Servico Real Property. 3.15 OPINION OF FINANCIAL ADVISOR. Lehman Brothers has delivered to the Board of Directors its opinion to the effect that, as of March 11, 1998, the Servico Exchange Ratio to be offered to the shareholders of Servico in the proposed Servico Merger is fair to such shareholders from a financial point of view. Lehman Brothers has authorized the inclusion of its opinion in the Joint Proxy Statement. 3.16 DISCLOSURE. No representation or warranty of Servico herein (including the exhibits and schedules hereto), and no certificate or notice furnished or to be furnished by or on behalf of Servico to Impac or its agents pursuant to this Agreement, contains or will, at the time it is made, contain any untrue statement of a material fact or omits or will, at the time it is made, omit to state a material fact necessary in order to make the statements contained herein or therein not misleading, in light of the circumstances under which they were made. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF IMPAC AND THE IMPAC AFFILIATED COMPANIES Impac and the Impac Affiliated Companies hereby jointly and severally represent and warrant to Servico as follows: 4.1 ORGANIZATION, STANDING AND POWER. Each of Impac, each subsidiary of Impac (the "Impac Subsidiaries") and each Impac Affiliated Company is a limited liability company, limited partnership or corporation duly organized, validly existing and in good standing under the laws of the state of its organization or incorporation, as the case may be, and has all requisite right, power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. 4.2 MEMBERS' INTEREST. SCHEDULE 4.2 sets forth the name and state of residence of each record and beneficial member of Impac (a "Member"), along with the number of Impac Units each Member owns. The amount of cash and a description and statement of the agreed value of the other property or services contributed by each Member and which each Member has agreed to contribute to Impac is also set forth on SCHEDULE 4.2. Except as set forth on SCHEDULE 4.2, no Member of Impac has agreed to contribute any additional cash, property or services to the capital of Impac. The Members own beneficially and of record 100% of the outstanding Impac Units, representing all of the membership interests in Impac except for the one Class B Ordinary Membership Interest owned by Banc One Capital Partners III, Ltd.. Except as also set forth on SCHEDULE 4.2 hereto, to the knowledge of Impac no written or oral agreement or understanding -22- 213 with Impac exists with respect to the disposition by any Member of the Impac Units, or any portion thereof, or any rights attendant or relating thereto, exists, other than this Agreement. 4.3 LEGAL, VALID AND BINDING AGREEMENT. The execution, delivery and performance of this Agreement by Impac and each Impac Affiliated Company and the consummation by Impac and each Impac Affiliated Company of the Mergers contemplated hereby have been duly and effectively authorized by all requisite action and no other corporate or company proceedings on the part of Impac or any Impac Affiliated Company are necessary to authorize this Agreement or to consummate such Mergers (other than, with respect to Impac, the approval of this Agreement and the Mergers contemplated hereby by Members owning a majority of the Impac Units at the Impac Special Meeting entitled to vote with respect thereto at the Impac Special Meeting and the filing and recordation of the Impac Articles of Merger, the P-Burg Articles of Merger, the Hazard Articles of Merger, the Memphis Articles of Merger, the Delk Certificate of Merger, the IHD Certificate of Merger, the IDC Certificate of Merger and the IHG Certificate of Merger as required by the GLLCA, the FBCA, the KBCA and the DGCL, as applicable). This Agreement has been duly executed and delivered by Impac and each of the Impac Affiliated Companies and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes the legal, valid and binding obligations of Impac and each of the Impac Affiliated Companies, enforceable against Impac, each of the Impac Affiliated Companies and the Members in accordance with its terms. The Members do not and will not have any dissenters' rights or other similar statutory or contractual rights to be paid the fair value of their membership interests in Impac by virtue of the Mergers. None of the shareholders of the Impac Affiliated Companies will have exercised or perfected any dissenters' rights or other similar statutory or contractual rights to be paid the fair value of their shares of any Impac Affiliated Company by virtue of the Mergers. 4.4 AUTHORITY TO DO BUSINESS. Each of Impac, the Impac Affiliated Companies and the Impac Subsidiaries has all requisite power and authority and all necessary governmental approvals to own, operate and lease its properties and assets and to conduct its business as presently conducted, except where the failure to have such approvals, individually or in the aggregate, would not have an Impac Material Adverse Effect. SCHEDULE 4.4 sets forth (i) those jurisdictions in which Impac, any of the Impac Affiliated Companies or any of the Impac Subsidiaries manage or operate facilities and/or properties and (ii) all jurisdictions in which Impac, any of the Impac Affiliated Companies or any of the Impac Subsidiaries are qualified to do business. Each of Impac, the Impac Affiliated Companies and the Impac Subsidiaries is duly qualified or licensed to transact business and is in good standing as a foreign limited liability company or foreign corporation, as the case may be, in all jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification or license, except where the failure to be so qualified or licensed, individually or in the aggregate, would not have an Impac Material Adverse Effect. 4.5 ARTICLES OF ORGANIZATION AND OPERATING AGREEMENT. Copies of the Articles of Organization and Articles or Certificate of Incorporation (certified by the appropriate public official in the state of organization or incorporation) and the Operating Agreement and Bylaws of Impac and each Impac Affiliated Company, in each case as in effect on the date hereof, have been delivered to Servico and are complete and correct as of the date hereof. The corporate minutes, written consents and records of Impac, the Impac Affiliated Companies and the Impac Subsidiaries have been delivered to Servico and are complete and correct as of the date hereof and reflect all material actions taken by the Managers, Members, Board of Directors, any committee thereof, incorporators and shareholders of each of Impac, the Impac -23- 214 Affiliated Companies and the Impac Subsidiaries from its respective date of incorporation or organization to the date hereof. 4.6 SUBSIDIARIES; IMPAC AFFILIATED COMPANIES. (a) SCHEDULE 4.6(A) lists all Impac Affiliated Companies and all Impac Subsidiaries, their respective jurisdictions of incorporation or organization, the number of shares of their respective capital stock or other equity or membership interests issued and outstanding, and the record owners and the amounts and percentage of ownership of such shares of capital stock or equity or membership interests. Except as set forth on SCHEDULE 4.6, neither Impac, any Impac Affiliated Company nor any Impac Subsidiary has any equity investment in any other corporation, limited liability company, association, partnership, joint venture or other entity. Except as set forth on SCHEDULE 4.6, all of the outstanding membership interests or shares of capital stock of each Impac Subsidiary are owned by either Impac or another Impac Subsidiary, free and clear of all liens or other encumbrances. (b) Except as described on SCHEDULE 4.6(B), the sole assets of the Impac Affiliated Companies are Impac Units and none of the Impac Affiliated Companies have any liabilities whatsoever. None of the Impac Affiliated Companies presently conduct any business or operations and, from the date hereof, none of the Impac Affiliated Companies shall conduct any business or commence any operations whatsoever other than passive ownership of Impac Units. None of the Impac Affiliated Companies are subject to and there is no basis for assertion against any Impac Affiliated Company of, any claim, liability, commitment or obligation of any nature, whether absolute, accrued, contingent or otherwise. 4.7 NO VIOLATION OR CONFLICT. Except as set forth on SCHEDULE 4.7, the execution, delivery and performance of this Agreement by Impac and the Impac Affiliated Companies and the consummation by Impac and the Impac Affiliated Companies of the transactions contemplated hereby do not and will not (i) conflict with or violate any provision of the Articles of Organization, Articles or Certificate of Incorporation, Operating Agreement or Bylaws of Impac, any Impac Affiliated Company or any equivalent organizational documents of any Impac Subsidiary or any Impac Affiliated Company, (ii) assuming that all consents, approvals, authorizations and permits described in Section 4.8 have been obtained and all filings and notifications described in Section 4.8 have been made, violate or conflict with any Law applicable to Impac, any Impac Affiliated Company or any Impac Subsidiary or by which any property or asset of Impac, any Impac Affiliated Company or any Impac Subsidiary is bound or effected, and (iii) with or without the passage of time or the giving of notice, result in the breach of, or constitute a default, cause the acceleration of performance, permit the unilateral modification or termination of, or require any consent under, or result in the creation of any liens or other encumbrance upon any property or assets of Impac, any Impac Affiliated Company or any Impac Subsidiary pursuant to any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other obligation, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would neither, individually or in the aggregate, (A) have an Impac Material Adverse Effect nor (B) prevent or materially delay the performance by Impac or any Impac Affiliated Company of its obligations pursuant to this Agreement or the consummation of the Mergers. 4.8 GOVERNMENTAL CONSENTS. The execution and delivery of this Agreement by each of Impac and the Impac Affiliated Companies does not, and the performance by each of Impac and the Impac -24- 215 Affiliated Companies of its obligations hereunder and the consummation of the Mergers will not, require any consent, approval, authorization or permit of, or filing by Impac or any Impac Affiliated Company with or notification by Impac or any Impac Affiliated Company to, any Governmental Entity, except (i) as set forth on SCHEDULE 4.8; (ii) the premerger notification requirements of the HSR Act and the filing and recordation of the respective Articles and Certificates of Merger as referenced in Section 4.3 above; and (iii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not (A) prevent or materially delay the performance by Impac of its obligations pursuant to this Agreement and the consummation of the Mergers or (B) individually or in the aggregate, have an Impac Material Adverse Effect. Neither Impac, any Impac Affiliated Company nor any Impac Subsidiary is subject to the periodic reporting requirements of the Exchange Act or required to file any form, report or other document with the SEC, any stock exchange or any other comparable Governmental Entity. 4.9 IMPAC STATEMENTS. Impac has previously delivered to Servico a true and complete copy of the balance sheets of Impac, IHD and the Impac Subsidiaries as of December 31, 1995, 1996 and 1997 and March 31, 1998, and the related statements of income, cash flows and changes in member's equity of Impac, IHD and the Impac Subsidiaries for the fiscal years ended December 31, 1995, 1996 and 1997 and March 31, 1998, including any related notes, certified (except for the March 31, 1998 Financial Statements) without qualification, by Pricewaterhouse Coopers LLP, Impac's independent public accountants, pursuant to their audit of the financial records of Impac, IHD and the Impac Subsidiaries (collectively, the "Impac Financial Statements"). The Impac Financial Statements present fairly, in all material respects, Impac's, IHD's and the Impac Subsidiaries' combined financial condition, assets, liabilities, equity, results of operations and cash flows at the dates and for the periods specified in those statements in accordance with GAAP applied on a consistent basis. Other than as disclosed by the Impac Financial Statements or on SCHEDULE 4.9, neither Impac nor any of the Impac Subsidiaries has any liabilities, commitments or obligations of any nature whatsoever, whether accrued, contingent or otherwise that would be required to be reflected on, or reserved against in, a combined balance sheet of Impac, IHD and the Impac Subsidiaries or in the notes thereto, prepared in accordance with GAAP, other than non-material liabilities, commitments or obligations incurred by Impac or the Impac Subsidiaries, since March 31, 1998 in the ordinary course of business consistent with past practices to persons other than Managers, Members or other affiliates of Impac, or any material unrealized or anticipated losses from any commitments of Impac or the Impac Subsidiaries and, to Impac's knowledge, there is no reasonable basis for assertion against Impac or any of the Impac Subsidiaries of any such liability, commitment, obligation or loss. The Impac Financial Statements included in the Registration Statement of SHG and Joint Proxy Statement of Servico and Impac will satisfy the requirements of Regulation S-X promulgated by the SEC. 4.10 COMPLIANCE WITH LAWS. (a) Except as set forth on SCHEDULE 4.10(A), each of Impac, the Impac Affiliated Companies and the Impac Subsidiaries is in compliance with all federal, state, local and foreign laws, ordinances, regulations, judgments, rulings, orders and other legal requirements applicable to it, its operations or its properties, including, without limitation, those relating to employment, building, zoning, -25- 216 safety and health, and environmental matters, except where the failure to so comply, individually or in the aggregate, would not have an Impac Material Adverse Effect. Except as set forth on SCHEDULE 4.10(A) or as would not reasonably be expected to have an Impac Material Adverse Effect, neither Impac, any Impac Affiliated Company, nor any Impac Subsidiary has received notification from any Governmental Entity asserting that it may not be in compliance with, or may have violated, any of the Laws which said Governmental Entity enforces, or threatening to revoke any authorization, consent, approval, franchise, license or permit, and neither Impac, any Impac Affiliated Company, nor any Impac Subsidiary is subject to any agreement or consent decree with any Governmental Entity arising out of previously asserted violations. (b) Without limiting the generality of Section 4.10(a), except as disclosed by the environmental audits and reports listed on SCHEDULE 4.10, copies of which have heretofore been delivered to Servico, or as otherwise set forth on SCHEDULE 4.10, or as would not, individually or in the aggregate, have an Impac Material Adverse Effect: (i) Each of Impac, the Impac Affiliated Companies and the Impac Subsidiaries are in compliance with all applicable Environmental Laws. All past noncompliance of Impac, any Impac Affiliated Company or any Impac Subsidiary with Environmental Laws or Environmental Permits has been resolved without any pending, ongoing or future obligation, cost or liability; and (ii) neither Impac, any Impac Affiliated Company nor any Impac Subsidiary has released a Hazardous Material at, or transported a Hazardous Material to or from, any real property currently or formerly owned, leased or occupied by Impac, any Impac Affiliated Company or any Impac Subsidiary in violation of any Environmental Law. 4.11 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 4.11, neither Impac, any Impac Affiliated Company nor any Impac Subsidiary is a party to any pending or, to the knowledge of Impac, threatened, legal, administrative or other proceeding, arbitration or investigation, that is or would be reasonably expected to, individually or in the aggregate, result in an Impac Material Adverse Effect. Neither Impac nor any Impac Affiliated Company has any knowledge of any set of facts which would reasonably be expected to result in any such legal, administrative or other proceeding, arbitration or investigation involving Impac, any Impac Affiliated Company or any Impac Subsidiary. Except as set forth on SCHEDULE 4.11, neither Impac, any Impac Affiliated Company nor any Impac Subsidiary is subject to any order, writ, injunction, decree, judgment, stipulation, determination or award entered by or with any Governmental Entity which could, individually or in the aggregate, reasonably be expected to have an Impac Material Adverse Effect. 4.12 BROKERS. Other than Allen & Company Incorporated ("Allen & Company"), Bear, Stearns & Co. Inc. and HW&E, neither Impac, any Impac Affiliated Company nor any Impac Subsidiary has employed any financial advisor, broker or finder in connection with the transactions contemplated by this Agreement and has not incurred and none will incur any broker's, finder's, investment banking or similar fees, commissions or expenses to any other party in connection with the transactions contemplated by this Agreement. Impac has provided to Servico complete and correct copies of all agreements between Impac and Allen & Company pursuant to which such firm would be entitled to any payment related to the -26- 217 Mergers. Notwithstanding the foregoing, Impac may retain another financial advisor to advise it in connection with the transactions contemplated by this Agreement provided (i) the aggregate amount of all fees, commissions or expenses owing to all financial advisors and brokers engaged by Impac or any Impac Subsidiary in connection with the transactions contemplated by this Agreement shall in no event exceed $3.6 million and (ii) neither Impac, any Impac Affiliated Company nor any Impac Subsidiary shall enter into any agreement with any financial advisor which would, following the Closing, obligate Impac, any Impac Affiliated Company, any Impac Subsidiary, their respective successors and assigns, Servico or SHG to utilize such financial advisor or its affiliates in connection with any other transactions. 4.13 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as set forth on SCHEDULE 4.13, since March 31, 1998: (i) each of Impac, IHD and the Impac Subsidiaries has conducted its business only in the ordinary and usual course and in a manner consistent with past practices and the business of each of the Impac Affiliated Companies (other than IHD) has been limited to the passive ownership of Impac Units or Holdings Units; (ii) there has not been any Impac Material Adverse Effect, (iii) there has not been any event that would reasonably be expected to prevent or materially delay the performance of Impac's or any Impac Affiliated Company's material obligations pursuant to this Agreement and the consummation of the Mergers by Impac and the Impac Affiliated Companies; and (iv) neither Impac, any Impac Affiliated Company nor any Impac Subsidiary has engaged or agreed to engage in any of the actions described in Section 5.1 (except as otherwise specifically permitted in Section 5.1). 4.14 CAPITALIZATION. The only membership interests in Impac are the Class A Ordinary Membership Interests and one Class B Ordinary Membership Interest. The authorized capital stock of P- Burg consists of 200 shares of P-Burg Common Stock, of which 200 shares are issued and outstanding; the authorized capital stock of Hazard consists of 2,000 shares of Hazard Common Stock, of which 2,000 shares are issued and outstanding; the authorized capital stock of Memphis consists of 100,000 shares of Memphis Common Stock, of which 100,000 shares are issued and outstanding; the authorized capital stock of Delk consists of 100 shares of Delk Common Stock, of which 100 shares are issued and outstanding; the authorized capital stock of IHD consists of 2,000 shares of IHD Common Stock, of which 2,000 shares are issued and outstanding; the authorized capital stock of IDC consists of 2,000 shares of IDC Common Stock, of which 2,000 shares are issued and outstanding; and the authorized capital stock of IHG consists of 100 shares of IHG Common Stock, of which 100 shares are issued and outstanding. All such membership interests and each of the Impac Affiliated Companies' and Impac's Subsidiaries' membership interests, partnership interests or outstanding capital stock have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. No interests or securities issued by Impac, any Impac Affiliated Company or any Impac Subsidiary from the date of its organization or incorporation to the date hereof were issued in violation of any statutory or common law preemptive rights or the rules and regulations of the Securities Act or any Blue Sky Laws. There are no dividends or distributions which have accrued or been declared but are unpaid on the membership interests or capital stock of Impac, any Impac Affiliated Company or any Impac Subsidiary. All Taxes required to be paid in connection with the issuance by Impac, any Impac Affiliated Company or any Impac Subsidiary of its respective membership interests or capital stock have been paid. 4.15 RIGHTS, WARRANTS, OPTIONS. Except as set forth on SCHEDULE 4.15, there are no outstanding: (i) securities or instruments convertible into or exercisable for any of the capital stock or other equity or membership interests of Impac, any Impac Affiliated Company or any Impac Subsidiary; (ii) options, -27- 218 warrants, subscriptions or other rights to acquire capital stock or other equity or membership interests of Impac, any Impac Affiliated Company or any Impac Subsidiary; (iii) debt securities with any voting rights or convertible into securities with voting rights; or (iv) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to any capital stock or other equity or membership interests of Impac, any Impac Affiliated Company or any Impac Subsidiary, or the issuance or repurchase by Impac, any Impac Affiliated Company or any Impac Subsidiary of any capital stock or other equity or membership interests of Impac, any Impac Affiliated Company or any Impac Subsidiary, any such securities or instruments convertible into or exchangeable for capital stock or other equity or membership interests of Impac, any Impac Affiliated Company or any Impac Subsidiary or any such options, warrants or rights. 4.16 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS. Impac and the Impac Subsidiaries have good title to each item of personal (movable) property, tangible and intangible, to the extent reflected on the March 31, 1998 Impac Financial Statements and to each item of material personal (movable) property, tangible and intangible, acquired since March 31, 1998 (other than non-material property disposed of in the ordinary course of business consistent with past practice since March 31, 1998 to persons who are not Managers or Members or other affiliates of Impac), free and clear of any liens or other encumbrances, except as set forth on the March 31, 1998 Impac Financial Statements or in SCHEDULE 4.16 hereto and except for liens arising by operation of law in favor of carriers, warehousemen, repairmen or landlords or other like liens which arise in the ordinary course of business for amounts which are not due and payable (all such personal property being hereinafter referred to as the "Personal Property"). All equipment, machinery, fixtures and other Personal Property owned or utilized by Impac or any Impac Subsidiary are in an operating condition and in a state of maintenance and repair adequate for the conduct of their respective businesses. Except for leasehold interests and other leased properties specifically identified in either SCHEDULE 4.16 or 4.17 hereto, and except for equipment leases or other personal property leases with annual lease payments of less than $20,000 or which are terminable by Impac or any Impac Subsidiary without penalty or payment of any additional consideration upon less than 90 days notice, there are no assets owned by any third party which are used in the operations or the business of Impac or any Impac Subsidiary, as presently conducted or proposed to be conducted. The Impac Affiliated Companies do not own or lease any real or personal property or other assets, other than Impac Units or Holdings Units, all of which are held free and clear of any liens or other encumbrances. 4.17 REAL PROPERTY. (a) SCHEDULE 4.17(A) hereto sets forth a true and complete list of all real property owned or leased by Impac or any Impac Subsidiary, together with a brief description of all structures, fixtures or improvements ("Improvements") thereon (such real property and Improvements, collectively, the "Real Property"). Impac and/or an Impac Subsidiary owns good and marketable title to the Real Property, free and clear of all liens, mortgages, security interests, pledges, liens, conditional sales agreements, claims, restrictions, reservations, covenants, encumbrances, charges, restraints on transfer, or any other material title defect of any nature, other than liens for real property taxes not yet due and other than those matters specifically disclosed on SCHEDULE 4.17(A) or any title insurance policies or commitments provided to Servico and listed on SCHEDULE 4.17(A), which matters, individually or in the aggregate, do not adversely impair, in any material respect, the marketability of the Real Property as it is now used by Impac or any Impac Subsidiary (the "Permitted Exceptions"). Except as disclosed on SCHEDULE 4.17(A), all -28- 219 Improvements are in good structural condition, free of any structural or other defect or impairment which might impair in any material respect the value, utility, or life expectancy of such Improvements, or which might otherwise adversely affect, in any material respect, the operation thereof. Except as disclosed on any surveys delivered to Servico or in title commitments listed on SCHEDULE 4.17(A), none of the Improvements encroach onto adjoining land or onto any easements and there is no encroachment of improvements from adjoining land onto any of the Real Property. To the knowledge of Impac, except as specifically disclosed on the title insurance policies, commitments or surveys listed on SCHEDULE 4.17(A), (i) none of the Real Property is located in an area identified by any Governmental Entity as having special flood or mud slide hazards or wetlands and (ii) there are no soil or geological conditions which might impair or adversely affect in any material respect the current use of any of the Real Property. Except as disclosed on SCHEDULE 4.17(A), neither the whole nor any portion of the Real Property is being condemned or otherwise taken by any public authority, nor is any such condemnation or taking, to the knowledge of Impac, threatened or contemplated. Except as disclosed on SCHEDULE 4.17(A), no portion of any of the Real Property is affected by any outstanding special assessments or impact fees imposed by any Governmental Entity. Except for any Permitted Exceptions, no commitments relating to the Real Property have been made to any Governmental Entity, utility company, school board, church or other religious body or any homeowner or homeowners association, merchant's association or any other organization, group or individual which would impose an obligation upon Impac or any Impac Subsidiary or its successors or assigns to make any contribution or dedication of money or land or to construct, install or maintain any improvements of a public or private nature on or off the Real Property; and no Governmental Entity has imposed any requirement that any owner of the Real Property pay directly or indirectly any special fees or contributions or incur any expenses or obligations in connection with the Real Property. Impac has no information or knowledge of (a) any change contemplated in any Law, (b) any judicial or administrative action, (c) any action by adjacent landowners, or (d) any other fact or condition of any kind or character which would materially adversely affect the current use or operation of the Real Property. Neither any Manager or Member nor any of their affiliates owns or leases, directly or indirectly, any adjacent property to the Real Property. Except as disclosed on SCHEDULE 4.17(A), neither the air rights over the Real Property nor any other "development rights" with respect to the Real Property have been assigned, transferred, leased or encumbered. (b) SCHEDULE 4.17(B) hereto sets forth a true and complete list of those portions of the Real Property whereon Impac or any Impac Subsidiary is constructing new hotel projects (the "Construction Projects"), together with a brief description of the Improvements to be constructed thereon, the stage of completion, and projected completion date. SCHEDULE 4.17(B) further sets forth a true and complete list of all construction contracts (including all material amendments thereto) with respect to each of the Construction Projects (the "Construction Contracts"). Except as set forth on SCHEDULE 4.17(B) all of the Construction Contracts are in full force and effect as of the date hereof; there are no material defaults thereunder; to the knowledge of Impac, all of the contractors under the Construction Contracts are duly licensed in the states where such Construction Contracts are being performed; there are full payment and performance bonds for each Construction Contract, and as of the date hereof no claims have been made against any surety under such payment and performance bonds; all payments currently due have been made under the Construction Contracts; and Impac or an Impac Subsidiary has available through existing credit lines or other existing financing or equity, the funds necessary to complete each of the Construction Projects and to pay the balance due under each of the respective Construction Contracts. -29- 220 4.18 INTANGIBLE PROPERTY. Except as would not, individually or in the aggregate, have an Impac Material Adverse Effect, Impac, the Impac Affiliated Companies and the Impac Subsidiaries own or possess adequate licenses or other valid rights to use all patents, patent rights, trademarks, trademark rights, trade names, trade dress, trade name rights, copyrights, service marks, trade secrets, applications for trademarks and for service marks, know-how and other proprietary rights and information used or held for use in connection with the respective businesses of Impac, the Impac Affiliated Companies and the Impac Subsidiaries as currently conducted and Impac is unaware of any assertion or claim challenging the validity of any of the foregoing. The conduct of the respective businesses of Impac, the Impac Affiliated Companies and the Impac Subsidiaries as currently conducted does not conflict in any way with any patent, patent right, license, trademark, trademark right, trade dress, trade name, trade name right, service mark or copyright of any third party that, individually or in the aggregate, would have an Impac Material Adverse Effect. To the knowledge of Impac, there are no infringements of any proprietary rights owned by or licensed by or to Impac, the Impac Affiliated Companies or any Impac Subsidiary that, individually or in the aggregate, would have an Impac Material Adverse Effect. 4.19 GOVERNMENTAL AUTHORIZATIONS. Except as disclosed on SCHEDULE 4.19, Impac, the Impac Affiliated Companies and the Impac Subsidiaries have in full force and effect all authorizations, consents, approvals, franchises, certificates, operating authorities, licenses and permits required under applicable Law (collectively referred to as "Licenses") for the ownership of Impac's, the Impac Affiliated Companies' and the Impac Subsidiaries' respective properties, for the existing construction of all Construction Projects, and the operation of their respective businesses as presently operated, except where the failure to have any such Licenses would not reasonably be expected to have an Impac Material Adverse Effect. 4.20 INSURANCE. SCHEDULE 4.20 sets forth a list and description of all insurance policies existing as of the date hereof providing insurance coverage of any nature to Impac, any Impac Affiliated Company or any Impac Subsidiary. All such policies are in full force and effect, are valid and enforceable in accordance with their terms and are sufficient for compliance with all Impac Material Agreements, except where the failure to so comply would not have an Impac Material Adverse Effect. 4.21 EMPLOYMENT MATTERS. (a) LABOR RELATIONS. Except as set forth on SCHEDULE 4.21(A), none of the managers or employees of Impac or any Impac Subsidiary is represented by any labor union, and neither Impac nor any Impac Subsidiary is subject to any labor or collective bargaining agreement. None of the Impac Affiliated Companies have any employees. Except as set forth on SCHEDULE 4.21(A), none of the managers or employees of Impac or any Impac Subsidiary is known by Impac to be engaged in organizing any labor union or other employee group that is seeking recognition as a bargaining unit. Impac and the Impac Subsidiaries have not experienced any material strike, work stoppage or labor disturbance with any group of employees or managers, and to Impac's knowledge, no set of facts exists which would reasonably be expected to lead to any of the foregoing events. (b) EMPLOYMENT POLICIES. Except as set forth on SCHEDULE 4.21(B), Impac has provided to Servico all of Impac's and the Impac Subsidiaries' employee policies (written or otherwise), employee manuals or other written statements of rules or policies concerning employment. -30- 221 (c) EMPLOYMENT AGREEMENTS. Except as set forth on SCHEDULE 4.21(C) and except for agreements that have terms of less than one year involving less than $75,000 or annual payments of less than $75,000, there are no employment, consulting, severance or indemnification agreements, or to the knowledge of Impac, material understandings or arrangements between Impac or any Impac Subsidiary and any manager, officer, director, consultant or employee. Except as set forth on SCHEDULE 4.21(C), the terms of employment or engagement of all managers, employees, agents, consultants and professional advisors of Impac or any Impac Subsidiary are such that their employment or engagement may be terminated by not more than two weeks' notice given at any time without liability for payment of compensation or damages, except as required by applicable Law. (d) EMPLOYEE BENEFIT PLANS. Except as set forth on SCHEDULE 4.21(D), there are no pension, retirement, stock or equity purchase, stock or equity bonus, stock or equity ownership, stock or equity option, profit sharing, savings, medical, disability, hospitalization, insurance, deferred compensation, bonus, incentive, welfare or any other employee benefit plan, policy, agreement, commitment or arrangement maintained by or binding upon Impac, any Impac Affiliated Company or any Impac Subsidiary for any of their managers, directors, officers, consultants, employees or former employees (the "Impac Plans"). Neither Impac, any Impac Affiliated Company nor any Impac Subsidiary maintains any funded welfare plans. SCHEDULE 4.21(D) also identifies each Impac Plan which constitutes an "employee pension benefit plan" ("Impac Pension Plan") or an "employee welfare benefit plan" ("Impac Welfare Plan"), as such terms are defined in the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder ("ERISA"). None of the Impac Plans is a "multiemployer plan," as such term is defined in ERISA, or is subject to Title IV of ERISA. Impac has delivered to Servico current, accurate and complete copies of each Impac Plan (including all other instruments relating thereto) and, to the extent applicable, summary plan descriptions therefor and, to the extent applicable, copies of their most recent (i) Internal Revenue Service determination letter and any outstanding request for a determination letter; (ii) Form 5500 and attached Schedule B (including any related actuarial valuation report) with respect to the last three plan years for each Impac Plan; (iii) certified financial statements; (iv) attorney's response to an auditor's request for information; (v) collective bargaining agreements or other such contracts; (vi) ruling letter and any outstanding request for a ruling letter with respect to the tax-exempt status of any voluntary employees' beneficiary association which is implementing such Impac Plan; and (vii) general notification to employees of their rights under Code Section 4980B and form of letter(s) distributed upon the occurrence of a qualifying event described in Code Section 4980B, in the case of a Impac Plan that is a "group health plan" as defined in Code Section 5000(b)(1). Each Impac Pension Plan has been determined to be qualified under Section 401(a) of the Code and, except as disclosed on SCHEDULE 4.21(D) to Impac's knowledge, no facts or circumstances exist which could result in the revocation of such qualification. Except as disclosed on SCHEDULE 4.21(D), each Impac Plan has been administered in all material respects in accordance with its terms and the Code, and each Impac Pension Plan and Impac Welfare Plan has been administered in all material respects in accordance with ERISA. The assets of each Impac Pension Plan are at least equal in value to the present value of the accrued benefits of participants of such Plan. Except as disclosed on SCHEDULE 4.21(D), no facts or circumstances exist which could reasonably be expected to give rise to any liability of any Impac Plan, Impac, any Impac Affiliated Company, Servico, SHG or any subsidiary thereof to any person other than -31- 222 routine claims for benefits and for the fees and expenses of third parties arising in the ordinary course of business which were incurred in connection with the maintenance of such plans. Impac has paid all amounts required under applicable Law, any Impac Pension Plan and any Impac Welfare Plan to be paid as a contribution to each Impac Pension Plan and Impac Welfare Plan through the date hereof. Except as disclosed on SCHEDULE 4.21(D), neither Impac, any Impac Affiliated Company, any Impac Subsidiary, nor, to the knowledge of Impac, any other person has engaged in any transaction or taken any other action with respect to any Impac Plan which would subject Impac, Servico, SHG, any Impac Affiliated Company or any subsidiary thereof to: (i) any Tax, penalty or liability for prohibited transactions under ERISA or the Code; (ii) any Tax under Code Sections 4971, 4972, 4976, 4977 or 4979; or (iii) a penalty under ERISA Sections 502(c) or 502(l). None of Impac, any Impac Affiliated Company or any Impac Subsidiary, or any manager, director, officer or employee of Impac, any Impac Affiliated Company or any Impac Subsidiary, to the extent it or he is a fiduciary with respect to any Impac Pension Plan or Impac Welfare Plan, has breached any of its or his responsibilities or obligations imposed upon fiduciaries under ERISA or the Code or which could result in any claim being made under, by or on behalf of any Impac Pension Plan or Impac Welfare Plan or any participant or beneficiary thereof which would reasonably be expected to result in an Impac Material Adverse Effect. Each Impac Welfare Plan which is a group health plan within the meaning of Code Section 5000(b)(1) complies in all material respects with and in each and every case has complied in all material respects with the applicable requirements of Code Section 4980B and Part 6 of Title I of ERISA and does not benefit retirees, except as otherwise required by law. As of the date thereof, there was no accrued vacation or sick leave payable to any person by Impac, any Impac Affiliated Company or any Impac Subsidiary which is not reflected in the Impac Financial Statements. None of the items disclosed on Schedule 4.21(d) could reasonably be expected to have an Impac Material Adverse Effect. (e) PERSONNEL. SCHEDULE 4.21(E) sets forth: (i) the names of all managers and officers of Impac, each Impac Affiliated Company and each Impac Subsidiary; and (ii) the names and job designations of all employees of Impac and each Impac Subsidiary whose salary (including bonuses) exceeds $100,000 per annum. Except as disclosed in the Impac Financial Statements and except for unpaid base compensation accrued in the ordinary course of business consistent with past practice since September 30, 1997, there are no material sums due to any employees, officers, directors or managers of Impac, any Impac Affiliated Company or any Impac Subsidiary. 4.22 MATERIAL AGREEMENTS. (a) SCHEDULE 4.22 sets forth a list of the following written and oral agreements, arrangements or commitments (collectively, the "Impac Material Agreements") to which either Impac, any Impac Affiliated Company or any Impac Subsidiary is a party or by which it or any of its respective assets are bound which are or would reasonably be expected to be material to the financial position or results of operations of Impac, IHD and the Impac Subsidiaries on a consolidated basis, including, but not limited to, any: (i) contract, commitment, or agreement (a) resulting in a commitment for expenditure or other obligation, or which provides for the receipt of amounts involving in excess of $250,000, or a series or related contracts, commitments or agreements that in the aggregate give rise to rights or liabilities exceeding such amounts or (b) binding any Impac Affiliated Entity or any of its respective assets, regardless of amount; (ii) indenture, mortgage, promissory note, loan agreement, guarantee or other agreement or commitment relating to the borrowing of money, encumbrance of assets or guaranty of any obligation in excess of $250,000; (iii) licensing, franchise or royalty agreements or agreements providing -32- 223 for other similar rights or agreements with third parties involving annual royalty payments in excess of $250,000; (iv) agreements which restrict Impac, any Impac Affiliated Company or any Impac Subsidiary from engaging in any line of business or from competing with any other person or entity anywhere in the world; (v) agreements or arrangements for the sale of any of the assets, property or rights of Impac, any Impac Affiliated Company or any Impac Subsidiary or requiring the consent of any party to the transfer and assignment of such assets, property and rights, except for agreements or arrangements to sell products or services in the ordinary course of business consistent with past practices; (vi) agreement, contract or arrangement with any affiliate of Impac, any Impac Affiliated Company or any Impac Subsidiary or any affiliate of any manager, officer, director or employee of Impac, any Impac Affiliated Company or any Impac Subsidiary involving in excess of $60,000; (vii) any indemnification, contribution or similar agreement or arrangement pursuant to which Impac, any Impac Affiliated Company or any Impac Subsidiary may be required to make any indemnification or contribution to any other person except to the extent provided in the Articles of Organization or Operating Agreement of Impac as in effect on the date hereof; or (viii) any other material contract, agreement or instrument which cannot be terminated without penalty to Impac, any Impac Affiliated Company or any Impac Subsidiary, upon the provision of not greater than 30 days notice. True and correct copies of all written agreements listed on SCHEDULE 4.22 have been furnished or made available to Servico. (b) Except as set forth on SCHEDULE 4.22 or SCHEDULE 4.24, all Impac Material Agreements have been entered into on an "arms-length" basis with parties who are not affiliates of Impac, any Impac Affiliated Company or any Impac Subsidiary. The Impac Material Agreements are each in full force and effect and are the valid and legally binding obligations of Impac, the applicable Impac Affiliated Company or the applicable Impac Subsidiary which is a party to same and, to Impac's or any Impac Affiliated Company's knowledge, have not been breached by any of the other parties thereto, except for those breaches which would not, individually or in the aggregate, reasonably be expected to have an Impac Material Adverse Effect, and are valid and binding obligations of the other parties thereto. Neither Impac, any Impac Affiliated Company nor any Impac Subsidiary is in default under its Articles of Organization or Articles of Incorporation or Operating Agreement or Bylaws or in material default or alleged material default under any Impac Material Agreement to which it is a party, and, to the knowledge of Impac, no event has occurred which with the giving of notice or lapse of time or both would constitute such a default. 4.23 LIST OF ACCOUNTS. SCHEDULE 4.23 sets forth, as of the date hereof: (i) the name of each bank or other institution in which Impac, any Impac Affiliated Company or any Impac Subsidiary maintains an account (cash, securities or other) or safe deposit box; and (ii) the account number of the relevant account and a description of the type of account. 4.24 RELATED PARTY TRANSACTIONS. Except as set forth on SCHEDULE 4.22 OR 4.24 or reflected in the Impac Financial Statements, no director, officer, manager, or other affiliate of Impac, any Impac Affiliated Company or any Impac Subsidiary, (individually an "Impac Related Party" and collectively the "Impac Related Parties") or any affiliate of any Impac Related Party: (i) owns, directly or indirectly, any interest in any person which is a competitor of Impac, any Impac Affiliated Company or any Impac Subsidiary, except for the ownership of not more than 5% of the outstanding stock of any company listed by a national stock exchange or the Nasdaq National Market; (ii) owns, directly or indirectly, in whole or in part, any material property, asset (other than cash) or right, real, personal or mixed, tangible or intangible, which is associated with or necessary in the operation of the business of Impac, any Impac Affiliated Company or -33- 224 any Impac Subsidiary, as presently conducted; or (iii) has an interest in or is, directly or indirectly, a party to any contract, agreement, lease or arrangement to which Impac, any Impac Affiliated Company or any Impac Subsidiary is bound or is a party. 4.25 TAX MATTERS. (a) Except as set forth on SCHEDULE 4.25(A), all federal, state, local and foreign Tax returns and Tax reports, if any, required to be filed with respect to the business or assets of Impac, the Impac Affiliated Companies and the Impac Subsidiaries have been filed with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed; all of the foregoing as filed are true, correct and complete, and reflect accurately all liability for Taxes of Impac, the Impac Affiliated Companies and the Impac Subsidiaries for the periods for which such returns relate; and all amounts shown as owing thereon have been paid. Except as set forth on SCHEDULE 4.25(A), none of such returns or reports have been audited by any governmental authority. (b) All Taxes, if any, payable by Impac, the Impac Affiliated Companies and the Impac Subsidiaries or relating to or chargeable against any of their assets, revenues or income through March 31, 1998, were fully paid by such date or provided for by adequate reserves in the Impac Financial Statements, and all similar items due through the Closing will have been fully paid by that date or provided for by adequate reserves on the books of Impac, the Impac Affiliated Companies and the Impac Subsidiaries. (c) Except as set forth on SCHEDULE 4.25(C), none of Impac, any of the Impac Affiliated Companies nor any of the Impac Subsidiaries will have any liability with respect to any such Taxes including, but not limited to, interest and/or penalties, in excess of the amount so paid or the reserves so established on the books of Impac, the Impac Affiliated Companies and the Impac Subsidiaries. Except as set forth on SCHEDULE 4.25(C), neither Impac, any of the Impac Affiliated Companies nor any of the Impac Subsidiaries is delinquent in the payment of any Tax. No deficiencies for any Tax have been asserted against Impac, any of the Impac Affiliated Companies or any of the Impac Subsidiaries with respect to any Taxes which have not been paid, settled or adequately provided for and there exists no basis for the making of any such deficiency, assessment or charge. None of the items disclosed on Schedule 4.25(c) could reasonably be expected to have an Impac Material Adverse Effect. (d) Except as set forth on SCHEDULE 4.25(D), neither Impac, any of the Impac Affiliated Companies nor any of the Impac Subsidiaries has waived any restrictions on assessment or collection of Taxes or consented to the extension of any statute of limitations relating to federal, state, local or foreign taxation. 4.26 QUALIFYING TRANSACTION. To the knowledge of Impac, neither Impac, any of the Impac Affiliated Companies nor any of their respective affiliates has taken or agreed to take any action (other than actions contemplated by this Agreement) that would prevent the Servico Merger, or any of the Impac Affiliated Mergers (except the IHD Merger) from constituting a transaction qualifying under Section 368(a) of the Code or would prevent the Impac Merger or the IHD Merger from constituting a transaction qualifying under Section 351 of the Code. Impac is not aware of any agreement, plan or other circumstance that would prevent the Mergers from so qualifying under Section 368(a) and Section 351 of the Code. -34- 225 4.27 AFFILIATES. SCHEDULE 4.27 sets forth the names and addresses of those persons who may be deemed to be "affiliates" of Impac or any of the Impac Affiliated Companies within the meaning of Rule 145 of the rules and regulations promulgated under the Securities Act (each such person, an "Impac Affiliate"). 4.28 OPINION OF FINANCIAL ADVISOR. Allen & Company has delivered to the Manager its opinion to the effect that the Impac Exchange Ratio is fair to the Members from a financial point of view. Allen & Company has authorized the inclusion of its opinion in the Joint Proxy Statement. 4.29 DISCLOSURE. No representation or warranty of Impac or any Impac Affiliated Company herein (including the exhibits and schedules hereto), and no certificate furnished or to be furnished by or on behalf of Impac or any Impac Affiliated Company to Servico or its agents pursuant to this Agreement, contains or will, at the time it is made, contain any untrue statement of a material fact or omits or will, at the time it is made, omit to state a material fact necessary in order to make the statements contained herein or therein not misleading, in light of the circumstances under which they were made. ARTICLE V COVENANTS 5.1 INTERIM OPERATIONS OF IMPAC AN THE IMPAC AFFILIATED COMPANIES. During the period from the date of this Agreement to the Effective Time, Impac shall, and shall cause each Impac Subsidiary to, operate its business only in the usual and ordinary course consistent with past practices and (i) use reasonable good faith efforts to preserve intact its business organization and goodwill in all material respects, (ii) continuously maintain insurance coverage substantially equivalent to the insurance coverage in existence on the date hereof, and (iii) use reasonable good faith efforts to maintain its relationships with franchisors, licensors, distributors, suppliers and others with which it has business relations. During such period, none of the Impac Affiliated Companies shall conduct any business or commence any operations other than the passive ownership of Impac Units. Except as otherwise expressly contemplated herein (including the provisions of Section 4.12) or set forth on SCHEDULE 5.1, without the written consent of Servico, which consent shall not be unreasonably withheld or delayed, Impac shall not, nor shall it cause or permit any Impac Subsidiary to, and no Impac Affiliated Company shall (i) amend or otherwise change its Articles of Organization or Articles or Certificate of Incorporation or Operating Agreement or Bylaws or other charter documents; (ii) issue, sell or authorize for issuance or sale, any membership interests or shares of any class of its securities (including, but not limited to, by way of stock split or dividend) or other equity interests or any subscriptions, options, warrants, rights or convertible securities or enter into any agreements or commitments of any character obligating it to issue or sell any such membership interests, securities or other equity interests; (iii) redeem, purchase or otherwise acquire, directly or indirectly, any of its membership interests or any shares of capital stock or other equity interests or any option, warrant or other right to purchase or acquire any such shares, membership interests or other equity interests or return all or any portion of any capital contributions; (iv) enter into any commitment or transaction (including, but not limited to, any capital expenditure or sale of assets), other than in the ordinary course of business consistent with past practices; provided, however, that no commitment or transaction involving the receipt or potential receipt of in excess of Five Hundred Thousand Dollars ($500,000) or payment or potential payment of in excess of Five Hundred Thousand Dollars ($500,000) shall be entered into without -35- 226 the prior written consent of Servico, which shall not be unreasonably withheld or delayed; (v) create, incur or assume any long-term indebtedness or short-term indebtedness or indebtedness for borrowed money (including purchase money financing), except in the ordinary course of business consistent with past practices under an existing loan availability (but in no event in an aggregate amount exceeding Two Hundred Fifty Thousand Dollars ($250,000) more than is currently owed and outstanding as of the date hereof) and except for indebtedness in the amounts and for the purposes indicated on SCHEDULE 5.1, or any lien, pledge, mortgage or other encumbrance affecting any of its assets; (vi) pay, discharge or satisfy claims, liabilities or obligations (absolute, accrued, contingent or otherwise) which involve payments or commitments to make payments which exceed normal business operating requirements, consistent with past practice; (vii) cancel any debts or waive any claims or rights other than the cancellation of immaterial debts or waiver of immaterial claims, in the ordinary course of business and consistent with past practice, of persons who would not be deemed affiliates of Impac or any Impac Subsidiary; (viii) make any loans, advances or capital contributions to, or investments in financial instruments of, any person or entity other than capital contributions to Impac Subsidiaries consistent with past practices; (ix) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity other than immaterial assumptions, guarantees or endorsements made in the ordinary course of business and consistent with past practice in favor of persons who would not be deemed affiliates of Impac or any Impac Subsidiary; (x) grant any increase in the compensation payable or to become payable to any of its managers, officers, employees or consultants or establish, adopt or increase any bonus, insurance or other employee benefit plan, payment or arrangement made to, for or with any such persons or pay any bonus to any manager, officer, director or employee, other than increases in the compensation or bonuses payable to such persons (other than Robert Cole or Robert Flanders), in the ordinary course of business and consistent with past practice; (xi) enter into any employment agreement or grant any severance or termination pay with or to any manager, officer or director or, except in the ordinary course of business consistent with past practices, any employee; (xii) declare or pay any dividend or other distribution (whether in cash, stock, membership interests or other property) with respect to is membership interests or capital stock; (xiii) alter in any material way the manner of keeping its books, accounts or records or its accounting practices therein reflected; (xiv) enter into any agreement which would be an Impac Material Agreement or terminate or materially amend any existing Impac Material Agreement; (xv) enter into any indemnification, contribution or similar agreement requiring it to indemnify any other person or entity or make contributions to any other person or entity other than immaterial indemnification, contribution or similar agreements made in the ordinary course of business and consistent with past practice with persons who would not be deemed affiliates of Impac, any Impac Affiliated Company or any Impac Subsidiary; (xvi) do any act, or omit to do any act, or permit, to the extent within Impac's control, any act or omission to act which would cause a material violation or breach of any of the representations, warranties or covenants of Impac or any Impac Affiliated Company set forth in this Agreement; (xvii) enter into any agreement or take any action which could have an Impac Material Adverse Effect (financial or otherwise); or (xviii) agree, whether in writing or otherwise, to do any of the foregoing. 5.2 INTERIM OPERATIONS OF SERVICO. (a) During the period from the date of this Agreement to the Effective Time, Servico shall, and shall cause each Servico Subsidiary to, operate its business only in the usual and ordinary course consistent with past practices and shall (i) use reasonable good faith efforts to preserve intact its business -36- 227 organization and goodwill in all material respects, (ii) continuously maintain insurance coverage substantially equivalent to the insurance coverage in existence on the date hereof, and (iii) use reasonable good faith efforts to maintain its relationships with franchisors, licensors, distributors, suppliers and others with which it has business relations. Except as otherwise expressly contemplated herein or set forth on SCHEDULE 5.2, without the written consent of Impac, which consent shall not be unreasonably withheld or delayed, Servico and the Servico Subsidiaries shall not (i) do any act, or omit to do any act, or permit, to the extent within Servico's control, any act or omission to act which could cause a material violation or breach of any of the representations, warranties or covenants of Servico set forth in this Agreement; (ii) enter into any agreement or take any action which could have a Servico Material Adverse Effect (financial or otherwise); (iii) enter into any commitment or transaction which would be dilutive to Servico's earnings per share in the fiscal year in which such transaction is consummated; (iv) enter into any commitment or transaction outside of the ordinary course of Servico's business requiring the payment of in excess of Two Million Dollars ($2,000,000) or create, incur or assume indebtedness in excess of Five Million Dollars ($5,000,000) other than in connection with or related to the acquisition, operation or renovation of hotel or hotel related properties; (v) issue or sell any shares of its Common Stock or securities convertible into its Common Stock other than either pursuant to or in connection with (A) options granted to directors or employees or shares issued pursuant to currently outstanding options or warrants and (B) transactions involving shares representing no more than ten percent (10%) of Servico's outstanding Common Stock; or (vi) agree, whether in writing or otherwise, to do any of the foregoing. (b) During the period from the date of this Agreement to the Effective Time, in the event that Servico determines to acquire hotels and related properties for an aggregate purchase price of more than One Hundred Million Dollars ($100,000,000) (excluding any hotels currently under contract such as the AMI Operating Partners, L.P. properties), then Servico shall promptly notify Impac. If Impac reasonably determines that such acquisitions will result in a Material Adverse Effect or materially change the nature of Servico's operations, then Impac may exercise its right to terminate this Agreement pursuant to Section 7.4(i) of this Agreement. 5.3 ACCESS. (a) SERVICO ACCESS. Servico shall: (i) afford to Impac and its agents and representatives reasonable access to the properties, books, records and other information of Servico and the Servico Subsidiaries, provided that such access shall be granted upon reasonable notice and at reasonable times during normal business hours in such a manner as to not unreasonably interfere with normal business operations; (ii) use its reasonable efforts to cause Servico's personnel, without unreasonable disruption of normal business operations, to assist Impac in its investigation of Servico and the Servico Subsidiaries pursuant to this Section 5.3(a); and (iii) furnish promptly to Impac all information and documents concerning the business, assets, liabilities, properties and personnel of Servico and Servico Subsidiaries as Impac may from time to time reasonably request. In addition, from the date of this Agreement until the Closing, Servico shall cause one or more of its officers to confer on a regular basis with the Manager of Impac and to report on the general status of Servico's ongoing operations. (b) IMPAC ACCESS. Impac and each Impac Affiliated Company shall: (i) afford to Servico and its agents and representatives full access to the properties, books, records and other information of Impac, the Impac Affiliated Companies and the Impac Subsidiaries, provided that such -37- 228 access shall be granted upon reasonable notice and at reasonable times during normal business hours in such a manner as to not unreasonably interfere with normal business operations; (ii) use its reasonable efforts to cause Impac's personnel, without unreasonable disruption of normal business operations, to assist Servico in its investigation of Impac, the Impac Affiliated Companies and the Impac Subsidiaries pursuant to this Section 5.3(b); and (iii) furnish promptly to Servico all information and documents concerning the business, assets, liabilities, properties and personnel of Impac, the Impac Affiliated Companies and the Impac Subsidiaries as Servico may from time to time reasonably request. In addition, from the date of this Agreement until the Closing, Impac shall cause one or more of its managers or officers to confer on a regular basis with officers of Servico and to report on the general status of Impac's ongoing operations. 5.4 CONSENTS. Each of Impac, the Impac Affiliated Companies and Servico agrees to cooperate with each other, file, submit or request promptly after the date of this Agreement and to prosecute diligently any and all applications or notices required to be filed or submitted to any Governmental Entity, including those specified in Sections 3.5 and 4.8. Each of Impac, the Impac Affiliated Companies and Servico shall promptly make available to the other such information as each of them may reasonably request relating to its business, assets, liabilities, properties and personnel as may be required by each of them to prepare and file or submit such applications and notices and any additional information requested by any Governmental Entity, and shall update by amendment or supplement any such information given in writing. Each of Impac, the Impac Affiliated Companies, on the one hand, and Servico, on the other hand, represents and warrants to the other that such information, as amended or supplemented, shall be true and not misleading. Each of Impac, the Impac Affiliated Companies and Servico shall promptly provide the other with copies of all filings made with Governmental Entities in connection with this Agreement. 5.5 REASONABLE EFFORTS. Subject to the terms and conditions of this Agreement, each of the parties shall use its reasonable efforts in good faith to take or cause to be taken as promptly as practicable all reasonable actions that are within its control to cause to be fulfilled those conditions precedent to its obligations to consummate the Merger. The parties shall use reasonable efforts to obtain all consents and approvals required in connection with the consummation of the transactions contemplated by this Agreement. 5.6 NOTIFICATION. Each party to this Agreement shall promptly notify the other parties in writing of the occurrence, or threatened occurrence, of (i) any event that, with the lapse of time or notice or both, would constitute a violation or breach of this Agreement by such party, (ii) any event that would cause any representation or warranty made by such party in this Agreement to be false or misleading in any respect; and (iii) any other matter which may occur from and after the date of this Agreement which, if existing on the date of such Agreement, would have been required to be disclosed herein. The updating of any schedule pursuant to this Section 5.6 shall not be deemed to release any party for the breach of any representation, warranty or covenant hereunder or of any other liability arising hereunder. 5.7 NO SOLICITATION. Except for the transactions contemplated by this Agreement, unless and until this Agreement shall have been terminated, neither Impac nor any Impac Affiliated Company shall (nor shall it permit any of its managers, officers, directors, agents or affiliates to) enter into a binding agreement to sell all or substantially all of the business, assets or capital stock or membership units of Impac, any Impac Affiliated Company or any Impac Subsidiary, whether by merger, purchase of assets or otherwise (a "Competing Transaction") and shall not, directly or indirectly: -38- 229 (i) from the period from the date of this Agreement to May 1, 1998, except as required by Law or under an appropriate confidentiality agreement, disclose any non-public information or any other information not customarily disclosed to any person or entity concerning the business or assets of Impac, any Impac Affiliated Company and any Impac Subsidiary or afford to any person or entity (other than Servico and its designees) access to the books or records of Impac or any Impac Subsidiary; and (ii) after May 1, 1998 or such later date during which Servico is actively negotiating with any Designated Person or enters into active negotiations with any other third party with respect to any offer or proposal regarding a Change of Control (such date being hereinafter referred to as the "Designated Date"), solicit, encourage, initiate or participate in any negotiations or discussions with respect to any offer or proposal to acquire all or substantially all of the business, assets or capital stock or membership interests of Impac, any Impac Affiliated Company or any Impac Subsidiary, whether by merger, purchase of assets or otherwise, or, except as required by Law, disclose any nonpublic information or any other information not customarily disclosed to any person or entity concerning the business and assets of Impac, any Impac Affiliated Company and any Impac Subsidiary, afford to any person or entity (other than Servico and its designees) access to the books or records of Impac, any Impac Affiliated Company or any Impac Subsidiary or otherwise assist or encourage any person or entity in connection with any of the foregoing. In the event Impac or any Impac Affiliated Company shall receive or become aware of any offer or proposal of the type referred to in the foregoing provision, Impac shall promptly inform Servico as to any such offer or proposal. 5.8 CONFIDENTIALITY. The parties acknowledge that all confidential or proprietary information with respect to the business and operations of the other party and their respective subsidiaries is valuable, special and unique. The parties shall not disclose, directly or indirectly, to any person or entity, or use or purport to authorize any person or entity to use any confidential or proprietary information with respect to the other party or any of their respective subsidiaries, without the prior written consent of the other party, including without limitation, information as to the financial condition, results of operations, customers, suppliers, proposed projects, projects under development, services, services under development, inventions, sources, leads or methods of obtaining new business or projects, pricing methods or formulas, costs, marketing strategies or any other information relating to Impac, any Impac Affiliated Company or Servico or any of their respective subsidiaries, which could reasonably be regarded as confidential or proprietary, but not including information which (i) is or shall become generally available to the public, other than as a result of an unauthorized disclosure by any of the parties or any of its affiliates, (ii) becomes available to the other party on a nonconfidential basis from a source other than a party to this Agreement, provided such source is not in violation of a confidentiality agreement with the party providing such information or (iii) is required to be disclosed by law or by the rules and regulations of the NYSE. The covenants of the parties contained in this Section 5.8 shall survive any termination of this Agreement. 5.9 PUBLICITY. The parties agree to consult and cooperate with each other in issuing any press release or other public announcement or making any governmental filing concerning this Agreement or the transactions contemplated hereby. Nothing contained herein shall prevent any party from at any time furnishing any information to any Governmental Entity which it is by Law or pursuant to the rules and regulations of the NYSE so obligated to disclose or from making any disclosure which its independent outside counsel (which may be such party's regularly engaged outside counsel) deems (in the case of non- -39- 230 governmental filings, in writing) necessary in order to fulfill such party's disclosure obligations under applicable law, or the rules and regulations of the NYSE. 5.10 LETTERS OF ACCOUNTANTS. Each of Servico and Impac shall use all reasonable efforts to cause to be delivered to the other a "comfort" letter of each of Ernst & Young L.L.P. and Pricewaterhouse Coopers LLP, respectively, each such letter dated and delivered as of the date the Registration Statement shall have become effective and as of the Effective Time, and addressed to Servico and Impac, respectively, in form and substance reasonably satisfactory to the recipient thereof and reasonably customary in scope and substance for letters delivered by independent public accountants in connection with mergers such as those contemplated by this Agreement. 5.11 PLAN OF REORGANIZATION. This Agreement is intended to constitute a "plan of reorganization" within the meaning of Section 1.368-2(g) of the income tax regulations promulgated under the Code. From and after the date of this Agreement, each party hereto shall use all reasonable efforts to cause the Mergers to qualify, and shall not, without the prior written consent of the other parties hereto, knowingly take any actions or cause any actions to be taken which could prevent the Servico Merger or any of the Impac Affiliated Mergers (except the IHD Merger) from qualifying as a reorganization under the provisions of Section 368(a) of the Code or the Impac Merger or the IHD Merger as a transfer of property described in Section 351 of the Code. In the event that the Mergers shall fail to qualify as transactions under the provisions of Section 351 and 368(a) of the Code, as the case may be, then the parties hereto agree to negotiate in good faith to restructure the Mergers in order that they shall qualify as tax-free transactions under the Code. Following the Effective Time, and consistent with any such consent, none of the Surviving Corporations, Servico, Impac, the Impac Affiliated Companies, SHG nor any of their affiliates shall knowingly take any action or knowingly cause any action to be taken which would cause the Mergers to fail to qualify as a reorganization under Section 368(a) of the Code or as a transfer of property described in Section 351 of the Code, as the case may be. 5.12 REGISTRATION STATEMENT; JOINT PROXY STATEMENT. (a) As promptly as practicable after the execution of this Agreement, Servico and Impac shall jointly prepare and SHG shall file with the SEC a document or documents that will constitute (i) the prospectus forming part of the registration statement on Form S-4 of SHG (together with all amendments thereto, the "Registration Statement"), in connection with the registration under the Securities Act of (A) the SHG Common Stock to be issued to Servico's and each of the Impac Affiliated Companies' shareholders pursuant to the Servico Merger and the Impac Affiliated Mergers and (B) the SHG Common Stock to be issued to Impac's Members pursuant to the Impac Merger, and (ii) the Joint Proxy Statement with respect to the Mergers relating to the special meeting of each of Servico's shareholders (the "Servico Special Meeting") and Impac's Members (the "Impac Special Meeting" and, together with the Servico Special Meeting, the "Special Meetings") to be held to consider the approval of this Agreement and the Mergers contemplated hereby (such document, together with any amendments thereto, the "Joint Proxy Statement"). Copies of the Joint Proxy Statement shall be provided to the NYSE in accordance with the rules of such exchange. Each of the parties hereto shall use all reasonable efforts to cause the Registration Statement to become effective as promptly as practicable, and, prior to the effective date of the Registration Statement, the parties hereto shall take all action required under any applicable Laws in connection with the issuance of shares of SHG Common Stock pursuant to the Mergers. Servico, Impac or the Impac -40- 231 Affiliated Companies, as the case may be, shall furnish all information concerning Servico, Impac or the Impac Affiliated Companies (including updated financial information as required by Regulation S-X) as the other party may reasonably request in connection with such actions and the preparation of the Registration Statement and Joint Proxy Statement. As promptly as practicable after the effective date of the Registration Statement, the Joint Proxy Statement shall be mailed to the shareholders of Servico and the Impac Affiliated Companies and the Members of Impac. Each of the parties hereto shall cause the Joint Proxy Statement to comply as to form and substance in all material respects with the applicable requirements of (i) the Exchange Act, (ii) the NYSE, (iii) the Securities Act and (iv) the FBCA and the GLLCA. (b) (i) The Joint Proxy Statement shall include the adoption of the Mergers and recommendation of the Board of Directors of Servico to Servico's shareholders that they vote in favor of approval of this Agreement and the Mergers contemplated hereby. In addition, the Joint Proxy Statement shall include the opinion of Lehman Brothers referred to in Section 3.15. (ii) The Joint Proxy Statement shall reflect (A) the approval of the Mergers and recommendation of the Manager of Impac to Impac's Members that they vote in favor of approval of this Agreement and the Mergers contemplated hereby and (B) the adoption and approval of the Mergers by the Board of Directors and the requisite percentage of the shareholders of each of the Impac Affiliated Companies. In addition, the Joint Proxy Statement shall include the opinion of Allen & Company referred to in Section 4.28. (c) No amendment or supplement to the Joint Proxy Statement or the Registration Statement shall be made without the approval of Servico and Impac, which approval shall not be unreasonably withheld or delayed. Each of the parties hereto shall advise the other parties hereto, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, of the issuance of any stop order, of the suspension of the qualification of the SHG Common Stock issuable in connection with the Mergers for offering or sale in any jurisdiction, or of any request by the SEC or the NYSE for amendment of the Joint Proxy Statement or the Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information. (d) The information supplied by Impac or any Impac Affiliated Company for inclusion in the Registration Statement and the Joint Proxy Statement shall not, at (i) the time the Registration Statement is filed with the SEC, (ii) if different, the time the Registration Statement is declared effective, (iii) the time the Joint Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to the Members of Impac and the shareholders of Servico and the Impac Affiliated Companies, (iv) the time of the Impac Special Meeting, (v) the time of the Servico Special Meeting and (vi) the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If at any time prior to the Effective Time any event or circumstance relating to Impac, any Impac Affiliated Company or any Impac Subsidiary, or their respective managers, officers or directors, should be discovered by Impac or any Impac Affiliated Company that should be set forth in an amendment or a supplement to the Registration Statement or Joint Proxy Statement, Impac shall promptly inform Servico. -41- 232 (e) The information supplied by Servico for inclusion in the Registration Statement and the Joint Proxy Statement shall not, at (i) the time the Registration Statement is filed with the SEC, (ii) if different, the time the Registration Statement is declared effective, (iii) the time the Joint Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to the shareholders of Servico and the Impac Affiliated Companies and the Members of Impac, (iv) the time of the Impac Special Meeting, (v) the time of the Servico Special Meeting and (vi) the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If, at any time prior to the Effective Time, any event or circumstance relating to Servico or any Servico Subsidiary, or their respective officers or directors, should be discovered by Servico that should be set forth in an amendment or a supplement to the Registration Statement or Joint Proxy Statement, Servico shall promptly inform Impac. 5.13 SPECIAL MEETINGS. Impac shall call and hold the Impac Special Meeting and Servico shall call and hold the Servico Special Meeting as promptly as practicable for the purpose of voting upon the approval of this Agreement pursuant to the Joint Proxy Statement and the Mergers contemplated hereby, and each of Servico and Impac shall use its reasonable efforts to hold the Special Meetings on the same day and as soon as practicable after the date on which the Registration Statement becomes effective. Impac shall use its reasonable efforts to solicit from its Members, proxies in favor of the approval of this Agreement and the Mergers contemplated hereby pursuant to the Joint Proxy Statement and shall take all other action necessary or advisable to secure the vote or consent of Members required by the GLLCA. Servico shall use its reasonable efforts to solicit from its shareholders proxies in favor of the approval of this Agreement and the Mergers contemplated hereby pursuant to the Joint Proxy Statement, and shall take all other action necessary or advisable to secure the vote or consent of its shareholders required by the FBCA or applicable stock exchange requirements to obtain such approval. Each of the parties hereto shall take all other action necessary or, in the opinion of the other parties hereto, advisable to promptly and expeditiously secure any vote or consent of shareholders or Members required by applicable Law and such party's Articles of Incorporation or Articles of Organization and Bylaws or Operating Agreement to effect the Mergers. 5.14 EMPLOYEE BENEFITS MATTERS. (a) Except as otherwise provided herein, each benefit plan of Servico (the "Servico Plans") and the Impac Plans in effect as of the Effective Time shall be maintained in effect with respect to the employees or former employees of Servico and the Servico Subsidiaries, on the one hand, and of Impac and the Impac Subsidiaries, on the other hand, respectively, who are covered by such benefit plans immediately prior to the Closing until SHG otherwise determines after the Effective Time; PROVIDED, HOWEVER, that nothing contained herein shall limit any reserved right in any Servico Plan or Impac Plan to amend, modify, suspend, revoke or terminate any such plan. (b) With respect to any Servico Plan or benefit plan of SHG under which the delivery of Servico Common Stock or SHG Common Stock, as the case may be, is required upon payment of benefits, grant of awards or exercise of options (the "Stock Plans"), SHG shall take all corporate action necessary or appropriate to (i) obtain shareholder approval with respect to such plan to the extent such approval is required for purposes of the Code or other applicable law, or to enable such plan to comply -42- 233 with Rule 16b-3 promulgated under the Exchange Act, (ii) reserve for issuance under such plan or otherwise provide a sufficient number of shares of SHG Common Stock for delivery upon payment of benefits, grant of awards or exercise of options under such plan and (iii) as soon as practicable after the Effective Time, file registration statements on Form S-3 or Form S-8, as appropriate (or any successor or other appropriate forms), with respect to the shares of SHG Common Stock subject to such plan to the extent such registration statement is required under applicable law, and SHG shall use its best efforts to maintain the effectiveness of such registration statements (and maintain the current status of the prospectuses contained therein) for so long as such benefits and grants remain payable and such options remain outstanding. Further, SHG shall reserve for issuance under a stock option plan approved by the Board of Directors of SHG, that number of shares of SHG Common Stock which equals seven and one-half percent (7-1/2%) of the Base Number, such options to be granted to certain employees of Impac or any Impac Subsidiary. SHG agrees that such options shall be granted to such employees effective as of the Closing and in the names and respective allocations determined by the Board of Directors of SHG after consideration of recommendations from Robert Cole and the grants of stock options made to employees in comparable positions at Servico and the Servico Subsidiaries. With respect to those individuals who subsequent to the Mergers will be subject to the reporting requirements under Section 16(a) of the Exchange Act, SHG shall administer the Stock Plans, where applicable, in a manner that complies with Rule 16b-3 promulgated under the Exchange Act. (c) Without limiting the applicability of the foregoing or of Section 2.8 hereof, each of the parties hereto shall take all actions as are necessary to ensure that Servico and Impac shall not be, at the Effective Time, bound by any options, stock or equity appreciation rights, warrants or other rights or agreements which would entitle any person, other than SHG, to own any capital stock or interests of the Surviving Corporations or to receive any payment in respect thereof, and all Servico Plans conferring any rights with respect to shares or other capital stock or interests of Servico shall be deemed hereby to be amended to be in conformity with this Section 5.14. 5.15 EXECUTIVE OFFICERS. At the Effective Time, subject to the Bylaws of SHG and each of the Surviving Corporations (i) David A. Buddemeyer shall hold the position of Chief Executive Officer of SHG and each of the Surviving Corporations, (ii) Robert S. Cole shall hold the position of President of SHG and each of the Surviving Corporations and (iii) David Buddemeyer and Robert Cole shall hold the positions of Co-Chairmen of the Board of Directors of SHG and each of the Surviving Corporations. If any of such persons is unable or unwilling to hold such offices as set forth above, his successor shall be selected by the Board of Directors of SHG or the Surviving Corporations in accordance with their respective Bylaws. 5.16 AFFILIATES. Each of Impac and the Impac Affiliated Companies shall use its reasonable efforts to deliver or cause to be delivered to Servico, prior to the Effective Time, an affiliate letter in the form attached hereto as Exhibit 5.16 (the "Impac Affiliate Letter"), executed by each of the Impac Affiliates identified in SCHEDULE 4.27. The foregoing notwithstanding, SHG shall be entitled to place legends in the form specified in the Impac Affiliate Letter on the certificates evidencing any of the SHG Common Stock to be received by (i) any Impac Affiliate or (ii) any person Servico reasonably identifies (by written notice to Impac) as being a person who may be deemed an "affiliate" within the meaning of Rule 145 of the rules and regulations of the Securities Act and to issue appropriate stop transfer instructions to the transfer agent for the SHG Common Stock, consistent with the terms provided for in -43- 234 the Impac Affiliate Letter, regardless of whether such person has executed an Impac Affiliate Letter and regardless of whether such person's name and address appear on SCHEDULE 4.27. 5.17 HEADQUARTERS. The corporate headquarters of SHG shall initially be located in Atlanta, Georgia. 5.18 POST-MERGER SHG BOARD OF DIRECTORS. At the Effective Time, the total number of persons serving on the Board of Directors of SHG shall be eight (unless otherwise agreed in writing by Servico and Impac prior to the Effective Time), five of whom shall be Servico Directors, two of whom shall be Impac Directors and one of whom shall be selected by both Impac and Servico. The initial directors of SHG and the initial allocations of the directors among the three classes of directors shall, at the Effective Time, be as follows: The Board of Directors shall be divided into three classes, designated as Class I to initially serve for one year, Class II to initially serve for two years and Class III to initially serve for three years. The initial directors of SHG shall allocate the directors among the three classes as follows: (i) Class I shall consist of two directors, comprised of Peter R. Tyson and the person mutually selected as provided above; (ii) Class II shall consist of three directors, comprised of Joseph C. Calabro, Michael Levin and John Lang; and (iii) Class III shall consist of three directors, comprised of David Buddemeyer, Robert S. Cole and Richard H. Weiner. Such directors shall serve as the directors of SHG from and after the Effective Time in accordance with the Restated Certificate of Incorporation and Bylaws of SHG until their successors are elected or appointed and qualified or until their resignation or removal. In the event that, prior to the Effective Time, any person so selected to serve on the Board of Directors of SHG is unable or unwilling to serve in such position, the company that selected such person shall designate another person to serve in such person's stead. From and after the Effective Time, the composition of the Board of Directors shall be determined in accordance with the Restated Certificate of Incorporation and Bylaws of SHG. The term "Impac Director" means any person serving as a Manager or executive officer of Impac on the date hereof who become a director of SHG at the Effective Time; and the term "Servico Director" means any person serving as a director or executive officer of Servico on the date hereof who is designated by Servico become a director of SHG at the Effective Time. 5.19 STOCK EXCHANGE LISTINGS. Each of the parties hereto shall use its reasonable efforts to obtain, prior to the Effective Time, the approval for listing on the NYSE, effective upon official notice of issuance, of the shares of SHG Common Stock into which the Shares will be converted pursuant to Article II hereof and which will be issuable upon exercise of options pursuant to Section 2.8 hereof. 5.20 INDEMNIFICATION. (a) From and after the Effective Time, SHG agrees that it will, and will cause the Surviving Corporations to, indemnify and hold harmless each present and former director, manager, member, officer and agent of Servico and Impac (the "Indemnified Parties"), against any costs or expenses (including attorneys' fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in settlement incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that Servico or Impac, as the case may be, would have been permitted under Florida or Georgia law, as the case may be, and its articles of incorporation, articles of organization, operating -44- 235 agreement or bylaws in effect on the date hereof to indemnify such Indemnified Party (and SHG and the Surviving Corporations shall also advance expenses as incurred to the fullest extent permitted under applicable Law, provided the Indemnified Party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Indemnified Party is not entitled to indemnification). (b) For a period of six (6) years after the Effective Time, SHG shall maintain or shall cause the Surviving Corporations to maintain (to the extent available in the market) in effect a directors' and officers' liability insurance policy covering those persons who are currently covered by Servico or Impac directors' and officers' liability insurance policy (copies of which have been heretofore delivered by Servico and Impac to each other ) with coverage in amount and scope at least as favorable as Servico's or Impac's existing coverage; provided that in no event shall SHG or the Surviving Corporations be required to expend in the aggregate in excess of 200% of the annual premium currently paid by Servico or Impac for such coverage; and if such premium would at any time exceed 200% of such amount, then SHG or the Surviving Corporations shall maintain insurance policies which provide the maximum and best coverage available at an annual premium equal to 200% of such amount. (c) The provisions of this Section 5.20 are intended to be an addition to the rights otherwise available to the current officers, directors and managers of Servico and Impac by law, charter, statute, bylaw or agreement, and shall operate for the benefit of, and shall be enforceable by, each of the Indemnified Parties, their heirs and their representatives. 5.21 GUARANTEES. SHG shall use its reasonable efforts (without the requirement to pay any fee or adversely modify the terms of any agreement) to obtain a release of any individuals from liability as guarantor of Impac's or any Impac Subsidiary's obligations to third parties under those franchise agreements and related documentation identified on SCHEDULE 5.21. In any event, SHG shall indemnify and hold harmless each such individual guarantor from and against any liability such guarantor may incur after the Effective Time under such guarantees as a result of Impac's or any Impac Subsidiary's failure to satisfy its obligations under such franchise agreements or related documentation. 5.22 REGISTRATION RIGHTS. Pursuant to, and subject to the provisions of, a Registration Rights Agreement, the form of which is set forth as Exhibit 5.22 hereto, SHG shall grant certain "piggy-back" registration rights to those Members of Impac who receive SHG Common Stock in the Mergers and who (i) as a result of the Mergers, become subject to the restrictions on the sale of such SHG Common Stock pursuant to Rule 145 of the rules and regulations of the Securities Act and (ii) would be prohibited from selling, over a twelve month period, all of their respective shares of SHG Common Stock so received in the Mergers by virtue of the volume limitations set forth in paragraph (d)(i) of Rule 145 incorporating paragraph (e) of Rule 144 promulgated by the SEC under the Securities Act. 5.23 TERMINATION OF DEVELOPMENT AGREEMENT; USE OF AFFILIATED NAMES. Impac shall, prior to Closing, cause the termination of that certain Development Agreement between Impac and IHD, dated March 10, 1998, as assigned by IHD to a newly-formed corporation owned by the shareholders of IHD (the "IHD Assignee") without any cost or liability of any kind to Impac and shall take all other action necessary to ensure that, after the Closing, neither Impac nor any Impac Subsidiary has any further obligation of any kind, contingent or otherwise, including any payment obligation, to the IHD Assignee after the Closing -45- 236 other than the payment of up to a 4% development fee upon the acquisition by SHG, after the Closing of any of the hotels or properties identified on SCHEDULE 5.23; provided, however, that in no event shall the aggregate amount of development fees payable to the IHD Assignee exceed $2.5 million. Additionally, Impac shall cause all affiliates of Impac (other than any Impac Subsidiary) and all affiliates of each Impac Subsidiary to, within sixty (60) days after the Closing, cease using any and all tradenames and any other names, trademarks, logos or tradedress containing the word "Impac" and, as applicable, to file an appropriate amendment to its charter documents changing its name to a name which does not use or include the name "Impac" or any similar name. ARTICLE VI ADDITIONAL AGREEMENTS 6.1 SURVIVAL OF THE REPRESENTATIONS AND WARRANTIES. The representations and warranties of Impac, the Impac Affiliated Companies and Servico contained in this Agreement shall terminate at the Closing. 6.2 INVESTIGATION. Notwithstanding any provisions contained herein to the contrary, the representations, warranties, covenants and agreements of this Agreement shall not be affected or diminished in any way by the receipt of any notice pursuant to Section 5.6 or by any investigation (or failure to investigate) at any time by or on behalf of the party for whose benefit such representations, warranties, covenants and agreements were made. All statements contained herein or in any schedule, certificate or exhibit delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties for purposes of this Agreement. ARTICLE VII CONDITIONS PRECEDENT 7.1 MUTUAL CONDITIONS PRECEDENT. The respective obligations of the parties to consummate the transactions contemplated by this Agreement are subject to the satisfaction at or prior to the Closing of the following conditions: (a) GOVERNMENTAL CONSENTS. All material consents and approvals required by Governmental Entities for the consummation of the transactions contemplated by this Agreement shall have been obtained, including without limitation, the expiration or termination of any notice and waiting period under the HSR Act. All of such consents and approvals shall have been obtained without the imposition of any conditions which would materially adversely affect SHG's ability to operate Servico, any Impac Affiliated Company, Impac or any of their subsidiaries following the Closing. (b) NO LITIGATION. No litigation, arbitration or other proceeding shall be pending or, to the knowledge of the parties, threatened by or before any court, arbitration panel or governmental authority; no law or regulation shall have been enacted after the date of this Agreement; and no judicial or administrative decision shall have been rendered; in each case, which enjoins, prohibits or materially -46- 237 restricts, or seeks to enjoin, prohibit or materially restrict, the consummation of the transactions contemplated by this Agreement. (c) REGISTRATION STATEMENT. The Registration Statement shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no proceeding for that purpose shall have been initiated by the SEC and not concluded or withdrawn. (d) LISTING OF EXCHANGE SHARES. SHG shall have obtained approval for listing on the NYSE of the shares of SHG Common Stock to be issued in the Mergers. (e) CORPORATE APPROVALS. The shareholders of Servico and the Members of Impac shall have approved this Agreement and the Mergers in accordance with the FBCA and the GLLCA, respectively. (f) OPINION OF SERVICO'S TAX COUNSEL. Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. shall have issued its opinion, such opinion dated on or about the date hereof and on or about the date of the Closing, addressed to SHG, Servico, Impac and the Impac Affiliated Companies, based upon customary representations of Servico, Impac and the Impac Affiliated Companies and customary assumptions, to the effect that the Servico Merger will be treated for federal income tax purposes as a reorganization qualifying under the provisions of Section 368(a) of the Code and that each of Servico, Servico Merger Sub and SHG shall be a party to the reorganization within the meaning of Section 368(b) of the Code, which opinion shall not have been withdrawn or modified in any material respect; (g) OPINION OF IMPAC'S TAX COUNSEL. Powell, Goldstein, Frazer & Murphy, LLP shall have issued its opinion, such opinion dated on or about the date hereof and on or about the date of the Closing, addressed to SHG, Servico, Impac and the Impac Affiliated Companies, based upon customary representations of Servico, Impac and the Impac Affiliated Companies and customary assumptions, to the effect that the Impac Merger and the IHD Merger will be treated for federal income tax purposes as a transfer of property described in Section 351 of the Code, and each of the Impac Affiliated Mergers (except the IHD Merger) will be treated for federal income tax purposes as a reorganization qualifying under Section 368(a) of the Code and that each of the Impac Affiliated Companies (except IHD), each of the Impac Affiliated Merger Subs (except IHD Merger Sub) and SHG shall be a party to a reorganization within the meaning of Section 368(b) of the Code, which opinion shall not have been withdrawn or modified in any material respect; (h) COMFORT LETTERS. Each of Coopers & Lybrand and Ernst & Young shall have delivered the comfort letters referred to in Section 5.10. 7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SERVICO. The obligations of Servico to consummate the transactions contemplated by this Agreement are subject to the satisfaction at or prior to the Closing of the following conditions: (a) REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations and warranties of Impac and the Impac Affiliated Companies contained herein or in any certificate or other document -47- 238 delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects (except for such representations and warranties qualified by materiality which shall be true and correct in all respects) on and as of the Closing with the same force and effect as though made on and as of such date. (b) PERFORMANCE. Each of Impac and the Impac Affiliated Companies shall have performed and complied in all material respects with all of the agreements, covenants and obligations required under this Agreement to be performed or complied with by if prior to or at the Closing. (c) NO MATERIAL ADVERSE EFFECT. There shall not have occurred any event or condition which has adversely affected or may adversely affect in any material respect the condition (financial or otherwise) of Impac and the Impac Subsidiaries, taken as a whole or, or any of the Impac Affiliated Companies or their respective assets, liabilities (whether absolute, accrued, contingent or otherwise), earnings, business, prospects or operations. (d) CONSENTS. Impac shall have obtained all material authorizations, consents, waivers and approvals as may be required in connection with the consummation of the transactions contemplated hereby, including, without limitation, any consents required to be obtained in connection with those instruments and agreements listed on SCHEDULE 4.7 hereto and consents necessary to enable the business and operations of Impac after consummation of the transactions contemplated hereby to continue to be conducted in the same manner as currently conducted. Each such consent shall have been obtained without the imposition of any adverse terms or conditions or without the imposition of any significant cost. (e) OPINION OF COUNSEL. Servico shall have received from Powell, Goldstein, Frazer & Murphy, LLP ("PGFM"), legal counsel to Impac and each of the Impac Affiliated Companies, an opinion letter, dated the Closing Date, in form and substance reasonably satisfactory to Servico, with respect to the matters set forth in Exhibit 7.2(e) to this Agreement, including an opinion that no membership interests or other securities issued by Impac, any Impac Affiliated Company or any Impac Subsidiary from the date of its organization or incorporation to the date hereof were issued in violation of the rules and regulations of the Securities Act or Blue Sky Laws. The opinion of PGFM regarding the issuance of membership interests or other securities of any Impac Affiliated Company or any Impac Subsidiary may be limited to issuances occurring after PGFM first acted as legal counsel for Impac, any Impac Affiliated Company or any Impac Subsidiary. (f) CERTIFICATES. Each of Impac and the Impac Affiliated Companies shall have delivered to Servico a certificate executed by its Manager or President, dated as of the Closing, certifying in such detail as Servico may reasonably request, that (i) the conditions specified in Sections 7.2(a) and (b) (insofar as they are to be performed by Impac or any Impac Affiliated Company) have been fulfilled and (ii) attached to such certificate is a true and correct copy of the resolutions or consents of the shareholders of each of the Impac Affiliated Companies and the Members authorizing and approving the execution, delivery and performance of this Agreement by Impac and the Impac Affiliated Companies, respectively. Servico shall also have received (i) a certificate of Secretary as to the incumbency and signatures of the officers of each of Impac and the Impac Affiliated Companies executing this Agreement and the Articles and Certificates of Merger of each of Impac and the Impac Affiliated Companies with respect to the Impac Merger and each of the Impac Affiliated Mergers, and (ii) a certificate issued by the -48- 239 secretary of state of the applicable state of organization or incorporation of each state in which Impac, any Impac Affiliated Company or any Impac Subsidiary is qualified to do business, as of a date reasonably acceptable to Servico, as to the good standing of Impac, each of the Impac Affiliated Companies and the Impac Subsidiaries in those states. (g) DEBT RESTRUCTURING. Impac and Servico shall have received a commitment, effective as of the Closing, to restructure the indebtedness of Impac and the Impac Subsidiaries substantially in accordance with the terms described on SCHEDULE 7.2(G). (h) IMPAC AFFILIATED COMPANIES' FINANCIAL STATEMENTS. Servico shall have received a balance sheet for each of the Impac Affiliated Companies (other than IHD) as of June 30, 1998, certified without qualification, by Pricewaterhouse Coopers LLP, pursuant to their audit of the financial records of such Impac Affiliated Companies. Such balance sheets shall present fairly, in all material respects, the financial condition, assets, liabilities and equity of each of such Impac Affiliated Companies at June 30, 1998, and shall reflect that none of such Impac Affiliated Companies have any liabilities, commitments or obligations of any nature whatsoever whether accrued, contingent or otherwise. 7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF IMPAC AND THE IMPAC AFFILIATED COMPANIES. The obligations of Impac and the Impac Affiliated Companies to consummate the transactions contemplated by this Agreement are subject to the satisfaction at or prior to the Closing of the following conditions: (a) REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations and warranties of Servico contained herein or in any certificate or document delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects (except for such representations and warranties qualified by materiality which shall be true and correct in all respects) on and as of the Closing with the same force and effect as though made on and as of such date. (b) PERFORMANCE. Servico shall have performed and complied in all material respects with all of the agreements, covenants and obligations required under this Agreement to be performed or complied with by them prior to or at the Closing. (c) NO MATERIAL ADVERSE EFFECT. There shall not have occurred any event or condition which has adversely affected or may adversely affect in any material respect the condition (financial or otherwise) of Servico and the Servico Subsidiaries, taken as a whole, or their assets, liabilities (whether absolute, accrued, contingent or otherwise), earnings, business, prospects or operations. (d) CONSENTS. Servico shall have obtained all material authorizations, consents, waivers and approvals as may be required in connection with the consummation of the transactions contemplated hereby, including, without limitation, any consents required to be obtained in connection with those instruments and agreements listed on SCHEDULE 3.4 hereto and consents necessary to enable the business and operations of Servico after consummation of the transactions contemplated hereby to continue to be conducted in the same manner as currently conducted. Each such consent shall have been obtained without imposition of any adverse terms or conditions or without the imposition of any significant costs. -49- 240 (e) OPINION OF COUNSEL. Impac shall have received from Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., legal counsel to Servico, an opinion letter, dated the Closing, in form and substance reasonably satisfactory to Impac, with respect to the matters set forth in Exhibit 7.3(e) to this Agreement. (f) SERVICO'S CERTIFICATES. Servico shall have delivered to Impac a certificate executed by its Chairman and President, dated as of the Closing, certifying in such detail as Impac may reasonably request, that: (i) the conditions specified in Sections 7.3(a) and (b) (insofar as they are to be performed by Servico) have been fulfilled; and (ii) attached to such certificate is a true and correct copy of the resolutions of the Board of Servico authorizing the execution, delivery and performance of this Agreement by Servico. Impac shall have also received a certificate of Secretary as to the incumbency and signatures of the officers of Servico executing this Agreement and the Servico Articles of Merger. (g) EMPLOYMENT AGREEMENTS. Each of those persons listed on SCHEDULE 7.3(G) shall have been offered employment by SHG substantially upon the terms described in SCHEDULE 7.3(G). 7.4 TERMINATION. This Agreement may be terminated and the Mergers may be abandoned at any time prior to the Effective Time, notwithstanding any requisite adoption and approval of this Agreement (with Impac in each case acting on behalf of itself and the Impac Affiliated Companies), as follows: (a) by mutual written consent of Servico and Impac; (b) by either Servico or Impac, if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the Mergers, and such order, decree, ruling or other action shall have become final and nonappealable; (c) by either Servico or Impac, after the End Date, if the Mergers have not been consummated on or before December 31, 1998 (such date or such later date mutually agreed to in writing by the parties hereto referred to as the "End Date") (other than due to the failure of the party seeking to terminate this Agreement to perform its obligations under this Agreement required to be performed at or prior to the Closing); (d) by either Servico or Impac, if at the Servico Special Meeting (including any adjournment or postponement thereof), the requisite vote of the shareholders of Servico in favor of approval of the adoption of this Agreement and the Mergers shall not have been obtained; (e) by Servico at any time in its sole discretion if any of the representations or warranties of Impac or any Impac Affiliated Company in this Agreement are not in all material respects true and correct, or if Impac or any Impac Affiliated Company breaches in any material respect any covenant contained in this Agreement, provided that if such misrepresentation or breach is curable, it is not cured within fifteen (15) business days after notice thereof, but in any event prior to the End Date; (f) by Impac at any time in its sole discretion if any of the representations or warranties of Servico in this Agreement are not in all material respects true and correct, or if Servico breaches in any -50- 241 material respect any covenant contained in this Agreement, provided that if such misrepresentation or breach is curable, it is not cured within fifteen (15) business days after notice thereof, but in any event prior to the End Date; (g) by Impac, if after May 1, 1998, Servico shall be actively engaged in negotiating with any person or entity with which it has exchanged any non-public information under a confidentiality agreement during the period from January 1, 1998 to the date of this Agreement (a "Designated Person"), with respect to any offer or proposal involving a Change of Control of Servico; (h) by Impac or Servico, if a proposal for a Change of Control of Servico shall have been publicly announced and Servico's Board of Directors shall have withdrawn or adversely modified their recommendation to Servico's shareholders that they vote in favor of the approval of this Agreement and the Mergers contemplated hereby or Servico chooses to enter into a definitive agreement for a Change of Control; (i) by Impac, if since the date of this Agreement, Servico shall have provided Impac a notice pursuant to Section 5.2(b) and Impac reasonably determines that Servico's proposed acquisitions will result in a Servico Material Adverse Effect or materially change the nature of Servico's operations taken as a whole; provided that Impac so notifies Servico of its election to terminate hereunder within ten days after receipt of the notice delivered by Servico pursuant to Section 5.2(b); or (j) by Impac or Servico after May 1, 1998, if the non-terminating party (i) has entered into active negotiations with any third party (other than a Designated Person) with respect to any offer or proposal regarding a Change of Control (with respect to Servico) or a Competing Transaction (with respect to Impac) or (ii) provides (or provides access to) any third party (other than a Designated Person) with non-public information concerning its business or assets with respect to any offer or proposal involving a Change of Control (with respect to) Servico or a Competing Transaction (with respect to Impac), as the case may be (any such third party referred to in this Section 7.4(j) with which Servico or Impac engages in such negotiations or provides (or provides access to) any such non-public information prior to the termination of this Agreement being hereafter referred to as a "Third Party"). If this Agreement is terminated pursuant to this Section 7.4, written notice thereof shall promptly be given by the party electing such termination to the other party and, subject to the expiration of the cure periods provided in clauses (e) and (f) above, if any, this Agreement shall terminate without further actions by the parties and no party shall have any further obligations under this Agreement except to the extent provided in Section 8.8. Notwithstanding the termination of this Agreement, the respective obligations of the parties under SECTIONS 5.8 (Confidentiality), 8.8 (Fees and Expenses), 8.12 (Litigation; Prevailing Party), 8.14 (Injunctive Relief), 8.15 (Governing Law) and 8.16 (Jurisdiction and Venue) shall survive the termination of this Agreement. Subject to Section 5.8 hereof, upon termination of this Agreement, each party shall return all documents and other materials of any other party relating to the transactions contemplated by this Agreement, whether so obtained before or after the execution of this Agreement, to the party furnishing the same. -51- 242 ARTICLE VIII MISCELLANEOUS 8.1 FURTHER ASSURANCES. The parties hereto shall deliver any and all other instruments or documents required to be delivered pursuant to, or necessary or proper in order to give effect to, all of the terms and provisions of this Agreement including, without limitation, all necessary stock powers and such other instruments of transfer as may be necessary or desirable to transfer ownership. 8.2 NOTICES. Any notice or other communication under this Agreement shall be in writing and shall be delivered personally or sent by registered mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below their names on the signature pages of this Agreement (or at such other addresses as shall be specified by the parties by like notice). Such notices, demands, claims and other communications shall be deemed given when actually received or (a) in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery, (b) in the case of registered U.S. mail, five days after deposit in the U.S. mail, or (c) in the case of facsimile, the date upon which the transmitting party received confirmation of receipt by facsimile, telephone or otherwise. A copy of any notices delivered to Servico, SHG or Holdings shall also be sent to Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., 150 West Flagler Street, Suite 2200, Miami, Florida 33130, Attention: Alison W. Miller, Esq. A copy of any notices delivered to Impac or any Impac Affiliated Company shall also be sent to Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, N.E., Suite 1600, Atlanta, Georgia, 30303, Attention: Ken Harrigan, Esquire. 8.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings, negotiations and discussions, both written and oral, among the parties hereto with respect to the subject matter hereof. This Agreement may not be amended or modified in any way except by a written instrument executed by all of the parties hereto. 8.4 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party without the written consent of the other parties hereto (whether by operation of Law or otherwise). Subject to the preceding sentence, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives, legal representatives, and permitted assigns. 8.5 WAIVER. At any time prior to the Effective Time, any representation, warranty, covenant, term or condition of this Agreement which may legally be waived, may be waived, or the time of performance thereof extended, at any time by the party hereto entitled to the benefit thereof, and any term, condition or covenant hereof may be amended by the parties hereto at any time. Any such waiver, extension or amendment shall be evidenced by an instrument in writing duly executed on behalf of the appropriate party by a person who has been authorized by its Board of Directors or Manager, as the case may be, to execute waivers, extensions or amendments on its behalf. No waiver by any party hereto, whether express or implied, of its rights under any provision of this Agreement shall constitute a waiver of such party's rights under such provisions at any other time or a waiver of such party's rights under any other provision of this Agreement or any other agreement. No failure by any party hereto to take any action against any breach of this Agreement or default by another party shall constitute a waiver of the former party's right to enforce any provision of this Agreement or to take action against such breach or default or any subsequent breach or default by such other party. -52- 243 8.6 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement. 8.7 SEVERABILITY. In the event that any one or more of the provisions contained in this Agreement shall be declared invalid, void or unenforceable, the remainder of the provisions of this Agreement shall remain in full force and effect, and such invalid, void or unenforceable provision shall be interpreted as closely as possible to the manner in which it was written. 8.8 FEES AND EXPENSES. (a) Except as set forth in Section 8.8(a) and (b) below, all fees and expenses incurred in connection with the Mergers, this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, except that the fees for filing under the HSR Act and any termination or other fees payable to Nomura Asset Capital Corporation ("Nomura") pursuant to that certain $200 million loan commitment from Nomura, shall be shared equally between Impac and Servico, it being specifically agreed and acknowledged that if Nomura or any of its affiliates waives any portion of such fees, the benefit of such waiver shall inure equally to Servico and Impac. (b) If this Agreement shall be terminated pursuant to Section 7.4(e) as the result of an intentional or willful breach by Impac or any Impac Affiliated Company of any representation, warranty or covenant contained herein, then Impac shall pay Servico an amount equal to all reasonable costs and out-of-pocket expenses (including reasonable attorneys' and advisors' fees) of up to $2.5 million incurred by Servico in connection with this Agreement and the transactions contemplated by this Agreement; provided, however, that if, within twelve (12) months after such termination of this Agreement Impac or any Impac Subsidiary shall consummate a Competing Transaction with any party with which or to which, prior to such termination, Impac or any Impac Subsidiary, directly or indirectly, (i) had negotiations or discussions regarding a potential Competing Transaction or (ii) provided (or provided access to) non-public information concerning its business or assets, then Impac shall pay Servico an amount equal to $10 million, less any amounts previously paid to Servico pursuant to this Section 8.8(b) for costs and expenses. (c) If this Agreement shall be terminated pursuant to Section 7.4(f) as the result of an intentional or willful breach by Servico of any representation, warranty or covenant contained herein, or terminated pursuant to Section 7.4(i) then Servico shall pay Impac an amount equal to all reasonable costs and out-of-pocket expenses (including reasonable attorneys' and advisors' fees) of up to $2.5 million incurred by Impac in connection with this Agreement and the transactions contemplated by this Agreement. (d) If this Agreement shall be terminated pursuant to Section 7.4(g), then Servico shall pay Impac an amount equal to all reasonable costs and out-of-pocket expenses (including reasonable attorneys' and advisors' fees) of up to $2.5 million incurred by Impac in connection with this Agreement and the transactions contemplated by this Agreement; provided, however, that if, within twelve (12) months after such termination of this Agreement, Servico shall consummate a Designated Change of Control (as hereafter defined), then Servico shall pay Impac an amount equal to $7.5 million, if the termination shall occur on or before April 10, 1998, $10 million if the termination shall occur after April -53- 244 10, 1998 and on or before May 15, 1998, or $15 million if the termination shall occur after May 15, 1998, in any such case, less any amounts previously paid to Impac pursuant to this Section 8.8(d) for costs and expenses. (e) (i) If this Agreement shall be terminated pursuant to Section 7.4(h) and within twelve months after such termination of this Agreement such Change of Control shall have been consummated, then Servico shall pay Impac an amount equal to $10 million. For purposes of this Agreement, "Change of Control" shall mean either (A) a consensual merger, consolidation, share exchange, business combination or similar consensual transaction involving Servico pursuant to which any person, or any "group" (as such term is defined under Section 13(d) of the Exchange Act) acquire more than 28% of the outstanding shares of Servico Common Stock; or (B) a sale, lease, exchange, transfer or other disposition of all or substantially all of Servico's business in a single transaction or series of related transactions. The provisions of this Section 8.8(e)(i) shall not apply to a Designated Change of Control (as defined in Section 8.8(e)(ii) below). (ii) If this Agreement shall be terminated by Servico pursuant to Section 7.4(c), 7.4(d) or 7.4(e) (except for incorrect representations or warranties or breaches which have resulted in, or could reasonably be expected to result in, an Impac Material Adverse Effect, in which case no amount would be due hereunder), or by Impac pursuant to Section 7.4(d), 7.4(f) (and such breach is intentional or willful), or 7.4(h) and, within twelve (12) months after such termination of this Agreement a Designated Change of Control (as hereafter defined) shall have been consummated, then Servico shall pay Impac an amount equal to $7.5 million, if the termination shall occur on or before April 10, 1998, $10 million if the termination shall occur after April 10, 1998, and on or before May 15, 1998, or $15 million if the termination shall occur after May 15, 1998. For purposes of this Agreement, "Designated Change of Control" shall mean a Change of Control transaction involving a Designated Person or its affiliates. In no event will a Designated Change of Control be deemed to exist for purposes of this Section 8.8(e) if, at the time of termination of this Agreement, there shall have occurred any event or condition which has resulted in, or could reasonably be expected to result in, an Impac Material Adverse Effect. (f) If this Agreement shall be terminated pursuant to Section 7.4(j), then the non-terminating party shall, unless, prior to such termination, the terminating party has also provided non-pubic information concerning its business or assets to any Third Party (in which case, no reimbursement for expenses incurred shall be made), pay the terminating party an amount equal to all reasonable costs and out-of-pocket expenses (including reasonable attorneys' and advisors' fees) of up to $2.5 million incurred by the terminating party in connection with this Agreement and the transactions contemplated by this Agreement; provided, however, that if, within twelve months after such termination of this Agreement, (i) Impac or any Impac Subsidiary shall consummate a Competing Transaction with a Third Party, then Impac shall pay Servico an amount equal to $10 million, less any amounts previously paid to Servico pursuant to this Section 8.8(f) for reimbursement of costs and expenses and (ii) if Servico consummates a Change of Control with a Third Party, then Servico shall pay Impac an amount equal to $10 million, less any amounts previously paid to Impac pursuant to this Section 8.8(f) for reimbursement of costs and expenses. (g) Each party agrees that the actual damages accruing from termination of this Agreement pursuant to the termination provisions referenced in Section 8.8(b), (c), (d), (e) or (f) are -54- 245 incapable of precise estimation and would be difficult to prove, and that the damages stipulated herein bear a reasonable relationship to the potential injury likely to be sustained in the event of termination pursuant to such occurrence. The payments stipulated in Section 8.8(b), (c), (d), (e) or (f) are intended by the parties to provide just compensation in the event of termination pursuant to said termination provision referenced in Section 8.8(b), (c), (d), (e) or (f), and are not intended to compel performance or to constitute a penalty for nonperformance. (h) Any payment required to be made pursuant to Section 8.8(b), (c), (d), (e) or (f) shall be made not later than five business days after the occurrence of the event for which a party is entitled to payment and delivery by such party to the other party of a notice of demand for payment, provided that such notice shall include an itemization setting forth in reasonable detail all expenses of such party for which it is entitled to reimbursement hereunder (which itemization may be supplemented and updated from time to time by such party until the sixtieth day after such party delivers such notice of demand for payment). All payments required to be made pursuant to this Section 8.8 shall be made by wire transfer of immediately available funds to an account designated by such party in the notice of demand for payment delivered pursuant to this Section 8.8(h). (i) In the event a party shall fail to make any payment required pursuant to Section 8.8(b), (c), (d), (e) or (f), the amount of any such required payment shall be increased to include the costs and expenses actually incurred or accrued by the other party (including, without limitation, fees and expenses of counsel) in connection with the collection under and enforcement of this Section 8.8, together with interest on such unpaid amounts commencing on the date that such payment under Section 8.8(b), (c), (d), (e) or (f) became due, at a rate equal to the rate of interest publicly announced by Citibank, N.A., from time to time, in The City of New York, from time to time, as such bank's base rate plus 2.00%. 8.9 SECTION HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of any provisions of this Agreement. 8.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the several parties hereto in separate counterparts, each of which shall be deemed to be one and the same instrument. 8.11 TIME OF ESSENCE. Wherever time is specified for the doing or performance of any act or the payment of any funds, time shall be considered of the essence. 8.12 LITIGATION; PREVAILING PARTY. In the event of any litigation with regard to this Agreement, the prevailing party shall be entitled to receive from the non-prevailing party and the non-prevailing party shall pay upon demand all reasonable fees and expenses of counsel for the prevailing party. 8.13 REMEDIES CUMULATIVE. No remedy made available by any of the provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity. -55- 246 8.14 INJUNCTIVE RELIEF. It is possible that remedies at law may be inadequate and, therefore, the parties hereto shall be entitled to equitable relief including, without limitation, injunctive relief, specific performance or other equitable remedies in addition to all other remedies provided hereunder or available to the parties hereto at law or in equity. 8.15 GOVERNING LAW. This Agreement has been entered into and shall be construed and enforced in accordance with the laws of the State of Florida without reference to the choice of law principles thereof. 8.16 JURISDICTION AND VENUE. This Agreement shall be subject to the exclusive jurisdiction and venue of the courts of Palm Beach County, Florida. The parties to this Agreement agree that any breach of any term or condition of this Agreement shall be deemed to be a breach occurring in the State of Florida by virtue of a failure to perform an act required to be performed in the State of Florida and irrevocably and expressly agree to submit to the jurisdiction of the courts of the State of Florida for the purpose of resolving any disputes among the parties relating to this Agreement or the transactions contemplated hereby. The parties irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, or any judgment entered by any court in respect hereof brought in Palm Beach County, Florida, and further irrevocably waive any claim that any suit, action or proceeding brought in Palm Beach County, Florida has been brought in an inconvenient forum. 8.17 CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the following meanings: (a) "AFFILIATE" has the meaning specified in Rule 144 promulgated by the SEC under the Securities Act; (b) "BUSINESS DAY" means any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of determining a date when any payment is due, any day on which banks are not required or authorized by law or executive order to close in the City of New York, USA; (c) "IMPAC MATERIAL ADVERSE EFFECT" means any change in or effect on the business of Impac, the Impac Affiliated Companies and the Impac Subsidiaries that is, or is reasonably likely to be, materially adverse to the business, assets (including intangible assets), liabilities (contingent or otherwise), condition (financial or otherwise) or results of operations of Impac, and the Impac Subsidiaries taken as a whole; (d) "KNOWLEDGE" means, with respect to any matter in question, that the executive officers and Manager of Impac, each Impac Affiliated Company or Servico, as the case may be, (i) have actual knowledge of such matter or (ii) after due investigation, should have known of such matter; (e) "LAW" means any federal, state or local statute, law, ordinance, regulation, rule, code, order or other requirement or rule of law of the United States or any other jurisdiction; -56- 247 (f) "MEMBERSHIP INTEREST" means a member's rights in the subject limited liability company, collectively, including the member's share of the profits and losses of the limited liability company, the right to receive distributions of the limited liability company's assets, and any right to vote or participate in management; (g) "PERSON" means an individual, corporation, partnership, limited partnership, limited liability company, syndicate, person (including, without limitation, a "PERSON" as defined in Section 13(d)(3) of the Exchange Act), trust, association, entity or government or political subdivision, agency or instrumentality of a government; (h) "SERVICO MATERIAL ADVERSE EFFECT" means any change in or effect on the business of Servico and the Servico Subsidiaries that is, or is reasonably likely to be, materially adverse to the business, assets (including intangible assets), liabilities (contingent or otherwise), condition (financial or otherwise) or results of operations of Servico and the Servico Subsidiaries taken as a whole; (i) "SUBSIDIARY" or "SUBSIDIARIES" of any person means any corporation, limited liability company, partnership, joint venture or other legal entity of which such person (either alone or through or together with any other subsidiary of such person) owns, directly or indirectly, more than fifty percent of the stock or other equity interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity; and (j) "TAX" means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, transportation, transportation excise, registration, value added, documentary stamp, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax or governmental charge, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; the foregoing shall include any transferee or secondary liability for a Tax and any liability assumed by agreement or arising as a result of being (or ceasing to be) a member of any affiliated group (or being included (or required to be included) in any tax return relating thereto). -57- 248 IN WITNESS WHEREOF, the parties hereto have each executed and delivered this Agreement as of the day and year first above written. SERVICO, INC., a Florida corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: President and Chief Executive Officer Address: 1601 Belvedere Road West Palm Beach, Florida 33406 LODGIAN, INC., a Delaware corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: Chief Executive Officer Address: 1601 Belvedere Road West Palm Beach, Florida 33406 IMPAC HOTEL GROUP, L.L.C., a Georgia limited liability company By: ----------------------------------------------- Name: Robert S. Cole Title: President and Manager Address: 3445 Peachtree Road, N.E. Suite 7800 Atlanta, Georgia 30326 SHG-S SUB, INC., a Florida corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: President Address: 1601 Belvedere Road West Palm Beach, Florida 33406 SHG-I SUB, L.L.C., a Georgia limited liability company -58- 249 By: ----------------------------------------------- Name: David A. Buddemeyer Title: Manager Address: 1601 Belvedere Road West Palm Beach, Florida 33406 P-BURG LODGING ASSOCIATES, INC., a Kentucky corporation By: ----------------------------------------------- Name: Title: Address: SHG-II SUB, INC., a Kentucky corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: President Address: 1601 Belvedere Road West Palm Beach, FL 33406 HAZARD LODGING ASSOCIATES, INC., a Kentucky corporation By: ----------------------------------------------- Name: Title: Address: SHG-III SUB, INC., a Kentucky corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: President Address: 1601 Belvedere Road West Palm Beach, FL 33406 MEMPHIS LODGING ASSOCIATES, INC., a Florida corporation -59- 250 By: ----------------------------------------------- Name: Title: Address: SHG-IV SUB, INC., a Florida corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: President Address: 1601 Belvedere Road West Palm Beach, FL 33406 DELK LODGING ASSOCIATES, INC., a Delaware corporation By: ----------------------------------------------- Name: Title: Address: SHG-V SUB, INC., a Delaware corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: President Address: 1601 Belvedere Road West Palm Beach IMPAC HOTEL DEVELOPMENT, INC., a Delaware corporation By: ----------------------------------------------- Name: Title: Address: SHG-VI SUB, INC., a Delaware corporation By: ----------------------------------------------- Name: David A. Buddemeyer -60- 251 Title: President Address: 1601 Belvedere Road West Palm Beach, FL 33406 IMPAC DESIGN AND CONSTRUCTION, INC., a Delaware corporation By: ----------------------------------------------- Name: Title: Address: SHG-VII SUB, INC., a Delaware corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: President Address: 1601 Belvedere Road West Palm Beach, FL 33406 IMPAC HOTEL GROUP, INC., a Florida corporation By: ----------------------------------------------- Name: Title: Address: SHG-VIII SUB, INC., a Florida corporation By: ----------------------------------------------- Name: David A. Buddemeyer Title: President Address: 1601 Belvedere Road West Palm Beach, FL 33406 -61- 252 APPENDIX B LEHMAN BROTHERS March 12, 1998 Board of Directors Servico, Inc. 1601 Belvedere Road West Palm Beach, FL 33406 Members of the Board: We understand that Servico, Inc. ("SER" or the "Company") has entered into an Agreement and Plan of Merger (the "Agreement") by and among Servico Hotel Group, Inc. (which subsequently changed its name to Lodgian, Inc. "Lodgian"), the Company, Impac Hotel Group, L.L.C. ("Impac"), SHG-S Sub, Inc. ("Servico Merger Sub") and SHG-I Sub, L.L.C. ("Impac Merger Sub"), pursuant to which (i) Lodgian, a wholly-owned subsidiary of the Company, formed two wholly-owned merger subsidiaries, Servico Merger Sub and Impac Merger Sub, (ii) Servico Merger Sub will be merged with and into SER and Impac Merger Sub will be merged with and into Impac, with SER and Impac continuing as surviving entities and wholly-owned by Lodgian, (iii) each issued and outstanding share of common stock of the Company will be exchangeable for one share of common stock of Lodgian, and (iv) Impac's membership interests will be exchangeable for an aggregate of 7.4 million shares of common stock of Lodgian (the "Base Number"), 1.4 million shares of which will be reserved for future issuance to Impac's current members upon the satisfaction of certain conditions and milestones as set forth in more detail in the Agreement; provided, however, that if the ten day trading average of SER's common stock is (i) less than $14.00, the Base Number shall be equal to the product of the Base Number and a fraction, the numerator of which is $14.00 and the denominator of which is such ten day trading average, or (ii) greater than $25.00, the Base Number shall be equal to the product of the Base Number and a fraction, the numerator of which is $25.00 and the denominator of which is such ten day trading average (the "Proposed Transaction"). We further understand that, in connection with the Proposed Transaction, SER will assume approximately $406 million of indebtedness of Impac. The terms and conditions of the Proposed Transaction are set forth in more detail in the Agreement. We have been requested by the Board of Directors of the Company to render our opinion with respect to the fairness, from a financial point of view, to the Company of the consideration to be paid in the Proposed Transaction. We have not been requested to opine as to, and our opinion does not in any manner address, the Company's underlying business decision to proceed with or effect the Proposed Transaction. In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and the specific terms of the Proposed Transaction; (2) publicly available information concerning the Company that we believe to be relevant to our analysis, including its annual report on Form 10-K for the year ended December 31, 1996 and quarterly reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1997; (3) financial statements for Impac and it subsidiaries, including balance sheets as of December 31, 1995 and 1996 and September 30, 1997, and the related statements of income, cash flow and changes in member's equity for the fiscal years ended December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1997, including any related notes, certified, without qualification, by Coopers & Lybrand L.L.P., Impac's independent public accountants; (4) financial and operating information with respect to 253 the business, operations and prospects of the Company and Impac furnished to us by the Company and Impac, respectively; (5) a comparison of the historical financial results and present financial condition of the Company with those of other companies that we deemed relevant; (6) the trading history of the Company's common stock from January 1996 to the present and a comparison of that trading history with those of other companies that we deemed relevant; (7) the potential pro forma impact of the Proposed Transaction on the Company, including the cost savings, operating synergies and strategic benefits expected by the management of the Company to result from a combination of the applicable businesses; (8) a comparison of the relative contribution of Impac to the financial results of Lodgian following the consummation of the Proposed Transaction to the Impac ownership interest in Lodgian following the Proposed Transaction; and (9) a comparison of the financial terms of the Proposed Transaction with the financial terms of certain other recent transactions that we deemed relevant. In addition, we have had discussions with the management of the Company and Impac concerning their respective businesses, operations, assets, financial conditions and prospects and have undertaken such other studies, analyses and investigations as we deemed appropriate. In arriving at our opinion, we have assumed and relied upon the accuracy and completeness of the financial and other information used by us without assuming any responsibility for independent verification of such information and have further relied upon the assurances of management of the Company and Impac that they are not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections of the Company and Impac, upon advice of the Company and Impac we have assumed that such projections have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company and Impac as to the future financial performance of the Company and Impac, respectively, and that the Company and Impac will perform substantially in accordance with such projections. In arriving at our opinion, we have not conducted a physical inspection of the properties and facilities of the Company and Impac and have not made or obtained any evaluations or appraisals of the assets or liabilities of the Company or Impac. In addition, you have not authorized us to solicit, and we have not solicited, any indications of interest from any third party with respect to the purchase of all or a part of the Company's business. Upon advice of the Company, Impac and their respective legal and accounting advisors, we have assumed that the Proposed Transaction will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and therefore as a tax-free transaction to the stockholders of the Company. Our opinion necessarily is based upon market, economic and other conditions as they exist on, and can be evaluated as of, the date of this letter. Based upon and subject to the foregoing, we are of the opinion as of the date hereof that, from a financial point of view, the consideration to be paid in the Proposed Transaction is fair to the Company. We have acted as financial advisor to the Company in connection with the Proposed Transaction and will receive a fee for our services a portion of which is contingent upon the consummation of the Proposed Transaction. In addition, the Company has agreed to indemnify us for certain liabilities that may arise out of the rendering of this opinion. We also have performed various investment banking services for the Company in the past and have received customary fees for such services. In addition, an affiliate of Lehman Brothers currently acts as a lender to the Company, with an outstanding amount owed by the Company to such affiliate of approximately $200 million. In the ordinary course of our business, we actively trade in the equity securities of the Company for our own account and for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities. 254 This opinion is for the use and benefit of the Board of Directors of the Company and is rendered to the Board of Directors in connection with its consideration of the Proposed Transaction. This opinion is not intended to be and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the Proposed Transaction. Very truly yours, LEHMAN BROTHERS 255 APPENDIX C ALLEN & COMPANY INCORPORATED March 19, 1998 Impac Hotel Group, L.L.C. Two Live Oak Center 3445 Peachtree Road, NE Suite 700 Atlanta, Georgia 30326 Attn: Mr. Robert Cole President Dear Sirs: You have requested our opinion, as of this date, as to the fairness, from a financial point of view, to the holders (the "Members") of Class A Ordinary Membership Interests of Impac Hotel Group, L.L.C., a Georgia limited liability company (the "Company") of the Impac Exchange Ratio (as defined below). Pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), to be entered into by and between the Company, Servico, Inc., a Delaware corporation ("Servico"), Lodgian, Inc. ("Lodgian"), SHG-S Sub, Inc. and SHG-I Sub, the Company will enter into a business combination transaction with Servico pursuant to which as a result of the merger of SHG-I Sub, Inc. with and into the Company (the "Impac Merger") and the merger of SHG-S Sub, Inc. with and into Servico (the "Servico Merger"), each effected pursuant to the Merger Agreement, (i) the Company will be a wholly-owned subsidiary of Lodgian, (ii) Servico will be a wholly-owned subsidiary of Lodgian, (iii) the Members will become shareholders of Lodgian, and (iv) the shareholders of Servico will become shareholders of Lodgian (the "Proposed Transaction"). Pursuant to the terms of the Merger Agreement, each Class A Ordinary Membership Interest of the Company will be converted into such number of shares of common stock, par value $0.01 per share, of Lodgian, in accordance with the exchange ratio specified in the Merger Agreement (such ratio, as the same may be adjusted pursuant to the Merger Agreement, the "Impac Exchange Ratio"). We understand that the Impac Merger has been structured as a transfer of property pursuant to Section 351 of the Internal Revenue Code or 1986, as amended (the "Code"), and the regulations thereunder, and that the Servico Merger 256 Impac Hotel Group, L.L.C. March 19, 1998 Page 2 has been structured as a reorganization pursuant to Section 368(a) of the Code and the regulations thereunder. We understand that all approvals required for the consummation of the Proposed Transaction have been or, prior to consummation of the Proposed Transaction, will be obtained. As you know, pursuant to its agreement with the Company, Allen & Company Incorporated ("Allen") will receive a fee for its services to the Company. In arriving at our opinion, we have among other things: (i) reviewed the terms and conditions of the Merger Agreement and related documents; (ii) analyzed historical business and financial information relating to the Company and management's forecasts prepared by the Company, as presented in documents provided to us by the Company; (iii) analyzed publicly available historical business and financial information relating to Servico, as presented in documents filed with the Securities and Exchange Commission; (iv) reviewed the Company's and Servico's respective operations and considered the views of professional analysts covering Servico; (v) reviewed certain limited non-public information relating to Servico, including financial and operating results of Servico and management's forecasts prepared by Servico; (vi) conducted discussions with certain members of the senior management of the Company and Servico with respect to the financial condition, business, operations, strategic objectives and prospects of the Company and Servico, respectively; (vii) reviewed and analyzed public information, including certain stock market data and financial information relating to selected public companies which we deemed generally comparable to the Company and Servico; 257 Impac Hotel Group, L.L.C. March 19, 1998 Page 3 (viii) reviewed the trading history of the common stock of Servico, including such stock's performance in comparison to market indices and to selected companies in comparable businesses; (ix) considered multiples paid in merger and acquisition transactions we deemed to be comparable to the Proposed Transaction; and (x) conducted such other financial analyses and investigations and reviewed such other materials as we deemed necessary or appropriate for the purposes of the opinion expressed herein. In rendering our opinion, we have assumed and relied upon the accuracy and completeness of the financial and other information respecting the Company and Servico and any other information provided to us, and we have not assumed any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets of the Company or Servico. With respect to the financial forecasts referred to above, we have assumed that they have been reasonably prepared on a basis reflecting the best currently available judgments of the management of the Company and Servico as to the future financial performance of the Company and Servico, respectively. In addition to our review and analysis of the specific information set forth above, our opinion herein reflects and gives effect to our assessment of general economic, monetary and market conditions existing as of the date hereof as they may affect the business and prospects of the Company and Servico. The opinion rendered herein does not constitute a recommendation of the Proposed Transaction over any other alternative transactions which may be available to the Company. Our engagement and the opinion expressed herein are solely for the benefit of the Members and are not intended to confer rights or remedies upon Servico or any of its shareholders. Furthermore, the opinion rendered herein does not constitute a recommendation by Allen as to the manner in which any security holder of the Company should vote with respect to any security holder action required to approve the Proposed Transaction. Allen consents to the inclusion of the text of this opinion in any notification or appropriate disclosure to the Company's security holders and in any filing the Company is required by applicable law to make, or include in documents filed, with the Securities and Exchange Commission. 258 Impac Hotel Group, L.L.C. March 19, 1998 Page 4 Based on and subject to the foregoing, we are of the opinion that, as of this date, the Impac Exchange Ratio is fair to the Members from a financial point of view. Very truly yours, ALLEN & COMPANY INCORPORATED By: /s/ Paul A. Gould -------------------------------- Paul A. Gould Managing Director 259 APPENDIX D LODGIAN, INC. 1998 SHORT-TERM INCENTIVE COMPENSATION PLAN 260 LODGIAN, INC. 1998 SHORT-TERM INCENTIVE COMPENSATION PLAN
1. Purpose........................................................................1 2. Definitions....................................................................1 3. Effective Date.................................................................4 4. Administration.................................................................4 5. Eligibility....................................................................6 6. Maximum Amount of Award per Participant........................................6 7. Target Awards..................................................................6 8. Performance Objectives.........................................................6 9. Notice of Target Award.........................................................7 10. Final Award Determination......................................................7 11. Payment of Final Awards........................................................8 12. Shares of Stock Subject to the Plan............................................8 13. Termination of Employment......................................................8 14. Transfer.......................................................................9 15. Amendment, Suspension or Termination of Plan...................................9 16. Non-Transferability............................................................9 17. Recapitalization or Reorganization.............................................9 18. Change in Control.............................................................10 19. Miscellaneous.................................................................10
-i- 261 LODGIAN, INC. 1998 SHORT-TERM INCENTIVE COMPENSATION PLAN 1. PURPOSE. The Lodgian, Inc. 1998 Short-Term Incentive Compensation Plan (the "Plan") is intended to increase the profitability of LODGIAN, INC., a Delaware corporation (the "Company"), and its Subsidiaries (as hereinafter defined) by providing the opportunity for key executives to earn incentive payment for outstanding achievement and performance. The Plan has the further purpose of fulfilling the Company's objective of offering a fully competitive total compensation package to its key employees, thus enabling the Company to attract and retain executives of the highest caliber and ability. 2. DEFINITIONS. For purposes of the Plan, the following terms shall be defined as follows: "ADMINISTRATOR" means the individual or individuals to whom the Committee delegates authority under the Plan in accordance with Section 4(d). "AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. "AWARD" means the right of a Participant to receive a payment under the Plan subject to the terms and conditions hereof, including satisfaction of the Participant's Performance Objectives during the applicable Performance Period. "BENEFICIAL OWNER" has the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act. "BOARD" means the Board of Directors of the Company. "CEO" means the Chief Executive Officer of the Company. A "CHANGE IN CONTROL" of the Company shall be deemed to have occurred when: (a) any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any person or entity organized, appointed or established by the Company or any Subsidiary of the Company for or pursuant to the terms of any such plan), alone or together with its Affiliates and Associates (collectively, an "ACQUIRING PERSON"), shall become the Beneficial Owner of 40 percent or more of the then outstanding shares of Common Stock or the Combined Voting Power of the Company, (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director who is a representative or nominee of an Acquiring Person) whose election -1- 262 by the Board or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (collectively, the "CONTINUING DIRECTORS"), cease for any reason to constitute a majority of the Board, (c) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity of such merger or consolidation (the "SURVIVING ENTITY") or any Parent of such Surviving Entity) at least a majority of the Combined Voting Power of the Company, such Surviving Entity or the Parent of such Surviving Entity outstanding immediately after such merger or consolidation, or (d) the shareholders of the Company approve a plan of reorganization (other than a reorganization under the United States Bankruptcy Code) or complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; PROVIDED, HOWEVER, that a Change in Control shall not be deemed to have occurred in the event of (i) a sale or conveyance in which the Company continues as a holding company of an entity or entities that conduct all or substantially all of the business or businesses formerly conducted by the Company, or (ii) any transaction undertaken for the purpose of incorporating the Company under the laws of another jurisdiction, if such transaction does not materially affect the beneficial ownership of the Company's capital stock. "CODE" means the Internal Revenue Code of 1986, as amended, and the applicable rulings and regulations thereunder. "COMBINED VOTING POWER" means the combined voting power of the Company's or other relevant entity 's then outstanding voting securities. "COMMITTEE" means the Compensation Committee of the Board, any successor committee thereto or any other Committee appointed by the Board to administer the Plan. "COMMON STOCK" means the Common Stock, par value $.01 per share, of the Company. -2- 263 "COVERED EMPLOYEE" means, for a given fiscal year of the Company, any Participant designated by the Committee by not later than 90 days following the start of such year as a Participant (or such other time as may be required or permitted by Section 162(m) of the Code) whose compensation for such fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. "DISABILITY" means eligibility for disability benefits under the terms of the Company's long-term disability plan in effect at the time the Participant becomes disabled. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the applicable filings and regulations thereunder. "FAIR MARKET VALUE" means, in the event the Common Stock is traded on a recognized securities exchange or quoted by the National Association of Securities Dealers Automated Quotations on National Market Issues, an amount equal to the average of the high and low prices of the Common Stock on such exchange or such quotation on the date set for valuation or, if no sales of Common Stock were made on said exchange or so quoted on that date, the average of the high and low prices of the Common Stock on the next preceding day on which sales were made on such exchange or quotations; or, if the Common Stock is not so traded or quoted, that value determined, in its sole discretion, by the Committee. "FINAL AWARD" means the amount determined pursuant to Section 10 as payable to a Participant under the Plan in respect of a Performance Period. "MANAGEMENT" means the Co-Chairmen of the Board and the CEO, and such other member of the Company's management as they may from time to time designate to take action with respect to the Plan. "PARENT" means any corporation which is a "parent corporation" within the meaning of Section 424(e) of the Code with respect to the relevant entity. "PARTICIPANT" means a key executive of the Company whose decisions and actions significantly affect the Company 's growth and profitability and who receives an Award opportunity under the Plan as determined by the Committee. "PERFORMANCE OBJECTIVES" means significant financial or individual objectives to be achieved by the Participant during the Performance Period and upon which the payment of the Award shall be based. "PERFORMANCE PERIOD" means each calendar year or multi-year cycle as determined by the Committee. -3- 264 "PERSON" means any person, entity or "group" within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act. "RETIREMENT" means retirement at normal retirement age, as defined in the retirement plan applicable to a Participant, or under the early retirement provisions of such plan. "SUBSIDIARY" means (i) any corporation which is a "subsidiary corporation" within the meaning of Section 424(f) of the Code with respect to the Company or (ii) any other corporation or other entity in which the Company, directly or indirectly, has an equity or similar interest and which the Committee designates as a Subsidiary for the purposes of the Plan. "TARGET AWARD" means the amount established pursuant to Section 7 with respect to a Participant. Target Awards shall be denominated in cash. 3. EFFECTIVE DATE. The Plan shall be effective as of the date (the "EFFECTIVE DATE") of either (i) the consummation of the proposed reorganization pursuant to which Servico, Inc. and Impac Hotel Group, L.L.C. will become wholly-owned subsidiaries of the Company, contingent upon its prior approval by the shareholders of Servico, Inc. and unitholders of Impac Hotel Group, Inc., or (ii) following such reorganization, on the date of its approval by the shareholders of the Company. If, in either case, shareholder approval is not obtained at or prior to the first annual meeting of the shareholders of the Company to occur after the adoption of the Plan by the Board, the Plan and any Awards thereunder shall terminate as AB INITIO and be of no further force and effect. Subject to compliance with all applicable legal requirements and the foregoing, the first fiscal year of the Company beginning on or after January 1, 1998 shall be the first Performance Period of the Plan. No Award shall be made with respect to Performance Periods ending after December 31, 2002, unless the Plan is extended by the Board. 4. ADMINISTRATION. (a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the Committee, which shall have full power and authority, subject to the express provisions hereof: (i) to select Participants, (ii) to make Awards in accordance with the Plan, (iii) to determine the amount of each Target Award, (iv) to determine the terms and conditions of each Award, including, without limitation, those related to vesting, forfeiture and payment, and the effect, if any, of a Participant's termination of employment with the Company or, subject to Section 18 hereof, of a Change in Control on the Award made to such Participant, and including the authority to amend the -4- 265 terms and conditions of an Award after the making thereof to a Participant in a manner that is not prejudicial to the rights of such Participant in such Award and not otherwise prohibited by the Plan, (v) to determine Performance Objectives applicable to each Award, (vi) to determine the degree of the attainment of the Performance Objectives, (vii) to determine the amount of Final Awards and the form of payments to Participants, (viii) to prescribe, amend and rescind rules and procedures relating to the Plan, (ix) to vary the terms of Awards to take account of tax, securities law and other regulatory requirements of foreign jurisdictions, (x) subject to the provisions of the Plan and subject to such additional limitations and restrictions as the Committee may impose, to delegate to one or more officers of the Company some or all of its authority under the Plan, and (xi) to make all other determinations and to formulate such procedures as may be necessary or advisable for the administration of the Plan. In reaching its decisions, the Committee shall consider recommendations made by Management. In addition, the Committee is authorized to use the services of independent auditors to determine the level of achievement of Performance Objectives, subject to the certification of the Committee with respect to the achievement of the Performance Objectives for the Covered Employees. (b) PLAN CONSTRUCTION AND INTERPRETATION. The Committee shall have all power and authority, subject to the express provisions hereof, to construe and interpret the Plan. (c) DETERMINATIONS OF COMMITTEE FINAL AND BINDING. All determinations by the Committee in carrying out and administering the Plan and in construing and interpreting the Plan shall be final, binding and conclusive for all purposes and upon all persons interested herein. (d) DELEGATION OF AUTHORITY. The Committee may, but need not, from time to time delegate some or all of its authority under the Plan to an Administrator consisting of one or more members of the Committee or of one or more officers of the Company; PROVIDED, HOWEVER, that the Committee may not delegate its authority (i) to make Awards to Participants (A) who are Covered Employees or (B) who are officers of the Company who are delegated authority by the Committee hereunder, or (ii) under Sections 4(b)and 15 of the Plan. Any delegation hereunder shall be subject to the restrictions and limitations that the Committee specifies at the time of such delegation or thereafter. Nothing in the Plan shall be construed as obligating the Committee to delegate authority -5- 266 to an Administrator, and the Committee may at any time rescind the authority delegated to an Administrator appointed hereunder or appoint a new Administrator. At all times, the Administrator appointed under this Section 4(d) shall serve in such capacity at the pleasure of the Committee. Any action undertaken by the Administrator in accordance with the Committee's delegation of authority shall have the same force and effect as if undertaken directly by the Committee, and any reference in the Plan to the Committee shall, to the extent consistent with the terms and limitations of such delegation, be deemed to include a reference to the Administrator. (e) LIABILITY OF COMMITTEE. No member of the Committee shall be liable for anything whatsoever in connection with the administration of the Plan except such person's own willful misconduct. Under no circumstances shall any member of the Committee be liable for any act or omission of any other member of the Committee. In the performance of its functions with respect to the Plan, the Committee shall be entitled to rely upon information and advice furnished by the Company's officers, the Company's accountants, the Company's counsel and any other party the Committee deems necessary, and no member of the Committee shall be liable for any action taken or not taken in reliance upon any such advice. 5. ELIGIBILITY. The Committee shall select Participants based on recommendations of Management. Selection as a Participant shall be limited to those officers or other key employees or consultants of the Company or a Subsidiary who, by virtue of their positions, have a demonstrable impact on either the profitability of a major business unit of the Company, or upon the overall profitability of the Company. An individual's status as a member of the Committee will not affect his or her eligibility to participate in the Plan. No Participant or employee of the Company shall have any right to be awarded an Award or to receive an actual payment under the Plan. 6. MAXIMUM AMOUNT OF AWARD PER PARTICIPANT. The maximum Award that may be earned by any Participant in respect of any Performance Period shall equal $1,000,000. 7. TARGET AWARDS. The Target Award for each Participant shall be determined by the Committee at or near the start of the applicable Performance Period based upon Management's recommendation. The Target Award for any Participant shall not exceed the amount specified in Section 6 as the maximum Award that may be earned by any Participant. For Covered Employees, the Target Award, the related award schedule and the Performance Objective(s) shall be established within 90 days of the beginning of the Performance Period (or such other time as may be required or permitted by Section 162(m) of the Code). Each individual Target Award shall be for a stated dollar amount, but Final Awards may be paid in cash, in shares of Common Stock (valued at their Fair Market Value as of the date of payment) or in a combination of cash and shares as the Committee shall determine. 8. PERFORMANCE OBJECTIVES. Performance Objectives for each Participant shall be established as provided in this section at demanding levels so that their achievement reflects commendable performance by the Participant. The Performance Objectives may consist of Financial Objectives, Individual Objectives or a combination of Financial and Individual Objectives. With -6- 267 respect to Covered Employees, the Performance Objectives shall consist of Financial Objectives only. Financial and Individual Objectives are defined as follows: (a) FINANCIAL OBJECTIVES. Financial Objectives shall be expressed in terms of one or more of the following performance measures established by the Committee for each Performance Period: (i) net revenue, (ii) net earnings, (iii) operating earnings or income, (iv) absolute and/or relative return on equity or assets, (v) earnings per share, (vi) cash flow, (vii) pre profits, (viii) earnings growth, (ix) revenue growth, (x) book value per share, (xi) stock price and (xii) performance relative to peer group companies, each of which may be established on a Company-wide basis or established with respect to one or more operating units, divisions, acquired businesses, minority investments, partnerships or joint ventures. At the same time, a "range" of achievement for financial objectives ranging from "zero" to "target" (100% of Target Award relating to Financial Objectives) to "maximum" shall be established. The Committee shall have the authority to alter or adjust Financial Objectives during the course of a Performance Period, or to alter or adjust the financial results otherwise reported or achieved by the Company during such Performance Period, if it is deemed appropriate to do so, except with respect to the Covered Employees who are subject to the terms of the last sentence of Section 10(b). (b) INDIVIDUAL OBJECTIVES. Individual Objectives, if appropriate for a Participant, shall be expressed in terms of significant qualitative or quantitative individual goals to be achieved during the Performance Period. Individual Objectives usually shall be established jointly by the Participant and the Participant's immediate superior, subject to approval by the CEO, or his delegate. A Participant's Individual Objectives may be altered or amended during a Performance Period, if necessary, to properly reflect changed business conditions and priorities, subject to approval by the CEO or his delegate. 9. NOTICE OF TARGET AWARD. Except as may otherwise be determined by the Committee, a Participant shall be notified in writing on or near the start of the Performance Period of the amount of the Participant's Target Award and the Performance Objectives. 10. FINAL AWARD DETERMINATION. As soon as practicable following the completion of each Performance Period, the level of achievement of Performance Objectives for each Participant and the amount of the Final Award payment shall be determined by Management. With respect to Covered Employees, the Committee shall review such determination and shall certify in writing as to such level of achievement. The level of achievement of the Performance Objectives shall be determined in the following manner: (a) FINANCIAL OBJECTIVES. For performance at or below the "zero" level of achievement, there shall be no payment. Performance between the "zero" level of achievement and the "target" level shall result in a payment in accordance with the established range of achievement payment schedule. Performance between the "target" and the "maximum" level of achievement shall result in a payment in accordance with the established range of achievement payment schedule. -7- 268 (b) ADJUSTMENTS IN FINANCIAL CALCULATIONS. Except as provided below with respect to Covered Employees, the Committee in its sole discretion has the authority to effect adjustments from time to time in connection with determining the degree of achievement of the Financial Objectives for the Company or a business unit of the Company for the applicable year in question, and to make any other determinations, as it deems equitable, fair or advisable for the purpose of ascertaining the amount of any payments under this Plan. With respect to Covered Employees, the Committee shall have no discretion to increase, but may decrease, the amount of the Final Award based on the range of achievement of the Financial Objectives established under Sections 7 and 8 hereof. (c) INDIVIDUAL OBJECTIVES. The attainment of Individual Objectives shall be determined by the Participant's superior, subject to review by Management and the Committee for consistent and equitable evaluations and judgments. (d) MAXIMUM AWARDS. Where one or more objectives (but not necessarily all) have been clearly and demonstrably exceeded, a Participant (other than a Covered Employee) may be paid an amount in excess of the portion of the Target Award related to such objectives. 11. PAYMENT OF FINAL AWARDS. Final Award payments shall be made, less required tax and other applicable withholdings, as soon as practicable after the determination and final approval of such payments as provided in Section 10. Final Awards shall be paid in cash, in shares of Common Stock (valued at their Fair Market Value as of the date of payment) or in a combination of cash and shares as the Committee shall determine. With respect to Final Awards that are paid in Common Stock, the Committee may establish at or prior to the time of payment such restrictions on the transferability and/or vesting requirements, if any, as the Committee considers appropriate. 12. SHARES OF STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in Section 17(b) hereof, the number of shares of Common Stock that may be issued under the Plan in payment of Final Awards shall not exceed, in the aggregate, 1,000,000 shares. Such shares may be either authorized but unissued shares, treasury shares or any combination thereof. 13. TERMINATION OF EMPLOYMENT. If a Participant's employment with the Company terminates during a Performance Period because of death, Disability or Retirement or with the approval of the Committee, the Participant (or the Participant's designated beneficiary or estate in the absence of a surviving designated beneficiary) shall receive a pro rata payment based on the number of full months during which the Participant was employed during the Performance Period and the degree to which during such Performance Period the Performance Objectives were judged to have been achieved. A Participant whose employment with the Company terminates during a Performance Period for any reason other than death, Disability or Retirement (including without limitation by voluntary resignation or termination by the Company with or without cause) shall not be eligible for any payment for such Performance Period. A leave of absence, if approved by the Committee, shall not be deemed to be a termination of employment for purposes of this Plan, and may warrant the payment of a full or pro rata Award as determined by the Committee. -8- 269 14. TRANSFER. If a Participant is transferred within the Company during a Performance Period to a position that is not considered as eligible for participation in the Plan, the Committee may, in its sole and absolute discretion, authorize a pro rata payment based on the number of full months during the Performance Period during which the Participant was employed and the degree to which during such Performance Period the Performance Objectives were judged to have been achieved. 15. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN. The Board or Committee may at any time and from time to time terminate, modify, suspend, or amend the Plan in whole or in part; PROVIDED, HOWEVER, that without shareholder approval, the Board or Committee shall not change (i) the performance measures listed in Section 8(a) with respect to Covered Employees, (ii) the individuals or class of individuals eligible to participate in the Plan, or (iii) the maximum amount payable to a Participant under the Plan. No termination, modification, suspension or amendment of the Plan shall, without the consent of a Participant to whom any Awards shall previously have been awarded, adversely affect his or her rights under such Awards. 16. NON-TRANSFERABILITY. No Award made under the Plan or any rights or interests therein shall be sold, transferred, assigned, pledged or otherwise encumbered or disposed of except by will or by the laws of descent and distribution or pursuant to a "qualified domestic relations order" ("QDRO") as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder. In the event of a Participant's death, the payment of the Award as provided in the Plan, if any, shall be made to the Participant's designated beneficiary, or estate in the absence of a surviving beneficiary. 17. RECAPITALIZATION OR REORGANIZATION. (a) AUTHORITY OF THE COMPANY AND SHAREHOLDERS. The existence of the Plan and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or Proceeding, whether of a similar character or otherwise. (b) CHANGE IN CAPITALIZATION. Notwithstanding any provision of the Plan, in the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, reorganization, merger, consolidation, stock split, combination or exchange of shares or any other significant corporate event affecting the Common Stock, the Committee, in its discretion, may make (i) such proportionate adjustments it considers appropriate (in the form determined by the Committee in its sole discretion) to prevent diminution or enlargement of the -9- 270 rights of Participants under the Plan with respect to the aggregate number of shares of Common Stock for which Awards in respect thereof may be granted under the Plan, the number of shares of Common Stock covered by each outstanding Award, and the exercise or Award prices in respect thereof and/or (ii) such other adjustments as it deems appropriate. The Committee's determination as to what, if any, adjustment shall be made shall be final and binding on the Company and all Participants. 18. CHANGE IN CONTROL. In the event of a Change in Control, and except as the Committee (as constituted immediately prior to such Change in Control) may otherwise determine in its sole discretion, the Company shall pay to each Participant the pro rata amount of such Participant's Target Award for said Performance Period, determined by the ratio which the number of months during the applicable Performance Period during which the Award had been outstanding (including the month in which the Change in Control occurred) bears to number of full months in the Performance Period. 19. MISCELLANEOUS. (a) TAX WITHHOLDING. No later than the date as of which an amount first becomes includable in the gross income of the Participant for applicable income tax purposes with respect to any Award under the Plan, the Participant shall pay to the Company or make arrangements satisfactory to the Committee regarding the payment of any federal, state or local taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, in accordance with rules and procedures established by the Committee, the minimum required withholding obligations may be settled with Common Stock, including Common Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditioned upon such payment or arrangements and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. (b) NO RIGHT TO AWARDS OR EMPLOYMENT. No Participant shall have any claim or right to receive Awards under the Plan. Nothing in the Plan shall confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, as the case may be, or interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time, with or without cause. (c) UNFUNDED PLAN. The Plan is intended to constitute an unfunded plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of this or other arrangement to meet the obligations created under the Plan to deliver Common Stock or payments in lieu thereof with respect to Awards hereunder. (d) SECURITIES LAW RESTRICTIONS. The Committee may require each Participant acquiring shares of Common Stock pursuant to an Award to represent to and agree with the -10- 271 Company in writing that such Participant is acquiring the shares for investment and not with a view to the distribution thereof. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, the New York Stock Exchange or any other exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. No shares of Common Stock shall be issued hereunder unless the Company shall have determined that such issuance is in compliance with, or pursuant to an exemption from, all applicable federal and state securities laws. (e) EXPENSES. The costs and expenses incurred in administering the Plan, including any Committee fees, charges by the Company's independent auditors, or other costs, shall be borne by the Company. (f) APPLICABLE LAW. Except as to matters of federal law, the Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to conflicts of law principles. -11- 272 APPENDIX E LODGIAN, INC. 1998 STOCK INCENTIVE PLAN 273 LODGIAN, INC. 1998 STOCK INCENTIVE PLAN -------------------------
1. Purpose.........................................................................1 2. Definitions.....................................................................1 3. Administration of the Plan......................................................4 4. Duration of Plan................................................................5 5. Shares of Stock Subject to the Plan.............................................6 6. Eligible Individuals............................................................6 7. Awards Generally................................................................7 8. Stock Options...................................................................7 9. Stock Appreciation Rights.......................................................8 10. Stock Awards....................................................................9 11. Performance Share Awards........................................................9 12. Other Awards....................................................................9 13. Section 162(m) Awards...........................................................9 14. Non-Transferability............................................................10 15. Recapitalization or Reorganization.............................................10 16. Change in Control..............................................................11 17. Amendment of the Plan..........................................................11 18. Miscellaneous..................................................................12
-i- 274 LODGIAN, INC. 1998 STOCK INCENTIVE PLAN 1. PURPOSE. The purposes of the Lodgian, Inc. 1998 Stock Incentive Plan (the "PLAN") are to attract, retain and motivate officers and other key employees and consultants of LODGIAN, INC., a Delaware corporation (the "COMPANY"), and its Subsidiaries (as hereinafter defined), to compensate them for their contributions to the growth and profits of the Company and to encourage ownership by them of stock of the Company. 2. DEFINITIONS. For purposes of the Plan, the following terms shall be defined as follows: "ADMINISTRATOR" means the individual or individuals to whom the Committee delegates authority under the Plan in accordance with Section 3(d). "AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. "AWARD" means an award made pursuant to the terms of the Plan to an Eligible Individual in the form of Stock Options, Stock Appreciation Rights, Stock Awards, Performance Share Awards, Section 162(m) Awards or other awards determined by the Committee. "AWARD AGREEMENT" means a written agreement or certificate granting an Award. An Award Agreement shall be executed by an officer on behalf of the Company and shall contain such terms and conditions as the Committee deems appropriate and that are not inconsistent with the terms of the Plan. The Committee may in its discretion require that an Award Agreement be executed by the Participant to whom the relevant Award is made. "BENEFICIAL OWNER" has the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act. "BOARD" means the Board of Directors of the Company. A "CHANGE IN CONTROL" of the Company shall be deemed to have occurred when: (a) any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any person or entity organized, appointed or established by the Company or any Subsidiary of the Company for or pursuant to the terms of any such plan), alone or together with its Affiliates and Associates (collectively, an "ACQUIRING PERSON"), shall become the Beneficial Owner of 40 percent or more of the then outstanding shares of Common Stock or the Combined Voting Power of the Company, 275 (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director who is a representative or nominee of an Acquiring Person) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (collectively, the "CONTINUING DIRECTORS"), cease for any reason to constitute a majority of the Board, (c) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the Surviving Entity (as defined in Section 16 hereof or any Parent of such Surviving Entity) at least a majority of the Combined Voting Power of the Company, such Surviving Entity or the Parent of such Surviving Entity outstanding immediately after such merger or consolidation, or (d) the shareholders of the Company approve a plan of reorganization (other than a reorganization under the United States Bankruptcy Code) or complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; PROVIDED, HOWEVER, that a Change in Control shall not be deemed to have occurred in the event of (i) a sale or conveyance in which the Company continues as a holding company of an entity or entities that conduct all or substantially all of the business or businesses formerly conducted by the Company, or (ii) any transaction undertaken for the purpose of incorporating the Company under the laws of another jurisdiction, if such transaction does not materially affect the beneficial ownership of the Company's capital stock. "CODE" means the Internal Revenue Code of 1986, as amended, and the applicable rulings and regulations thereunder. "COMBINED VOTING POWER" means the combined voting power of the Company's or other relevant entity's then outstanding voting securities. "COMMITTEE" means the Compensation Committee of the Board, any successor committee thereto or any other committee appointed by the Board to administer the Plan. -2- 276 "COMMON STOCK" means the Common Stock, par value $.01 per share, of the Company. "ELIGIBLE INDIVIDUALS" means the individuals described in Section 6 who are eligible for Awards under the Plan. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the applicable rulings and regulations thereunder. "FAIR MARKET VALUE" means, in the event the Common Stock is traded on a recognized securities exchange or quoted by the National Association of Securities Dealers Automated Quotations on National Market Issues, an amount equal to the average of the high and low prices of the Common Stock on such exchange or such quotation on the date set for valuation or, if no sales of Common Stock were made on said exchange or so quoted on that date, the average of the high and low prices of the Common Stock on the next preceding day on which sales were made on such exchange or quotations; or, if the Common Stock is not so traded or quoted, that value determined, in its sole discretion, by the Committee. "INCENTIVE STOCK OPTION" means a Stock Option which is an "incentive stock option" within the meaning of Section 422 of the Code and designated by the Committee as an Incentive Stock Option in an Award Agreement. "NONQUALIFIED STOCK OPTION" means a Stock Option which is not an Incentive Stock Option. "PARENT" means any corporation which is a "parent corporation" within the meaning of Section 424(e) of the Code with respect to the relevant entity. "PARTICIPANT" means an Eligible Individual to whom an Award has been granted under the Plan. "PERFORMANCE PERIOD" means a fiscal year of the Company or such other period that may be specified by the Committee in connection with the grant of a Section 162(m) Award. "PERFORMANCE SHARE AWARD" means a conditional Award of shares of Common Stock granted to an Eligible Individual pursuant to Section 11 hereof. "PERSON" means any person, entity or "group" within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act. "SECTION 162(M) PARTICIPANT" means, for a given fiscal year of the Company, any Participant designated by the Committee by not later than 90 days following the start of such year as a Participant (or such other time as may be required or permitted by Section 162(m) -3- 277 of the Code) whose compensation for such fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. "STOCK APPRECIATION RIGHT" means an Award to receive all or some portion of the appreciation on shares of Common Stock granted to an Eligible Individual pursuant to Section 9 hereof. "STOCK AWARD" means an Award of shares of Common Stock granted to an Eligible Individual pursuant to Section 10 hereof. "STOCK OPTION" means an Award to purchase shares of Common Stock granted to an Eligible Individual pursuant to Section 8 hereof. "SUBSIDIARY" means (i) any corporation which is a "subsidiary corporation" within the meaning of Section 424(f) of the Code with respect to the Company or (ii) any other corporation or other entity in which the Company, directly or indirectly, has an equity or similar interest and which the Committee designates as a Subsidiary for the purposes of the Plan. "SUBSTITUTE AWARD" means an Award granted upon assumption of, or in substitution for, outstanding awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock. 3. ADMINISTRATION OF THE PLAN. (a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the Committee, which shall have full power and authority, subject to the express provisions hereof, (i) to select Participants from the Eligible Individuals, (ii) to make Awards in accordance with the Plan, (iii) to determine the number of Shares subject to each Award or the cash amount payable in connection with an Award, (iv) to determine the terms and conditions of each Award, including, without limitation, those related to vesting, forfeiture, payment and exercisability, and the effect, if any, of a Participant's termination of employment with the Company or, subject to Section 16 hereof, of a Change in Control on the outstanding Awards granted to such Participant, and including the authority to amend the terms and conditions of an Award after the granting thereof to a Participant in a manner that is not prejudicial to the rights of such Participant in such Award, (v) to specify and approve the provisions of the Award Agreements delivered to Participants in connection with their Awards, (vi) to construe and interpret any Award Agreement delivered under the Plan, (vii) to prescribe, amend and rescind rules and procedures relating to the Plan, (viii) to vary the terms of Awards to take account of tax, securities law and other regulatory requirements of foreign jurisdictions, (ix) subject to the provisions of the Plan and subject to such additional limitations and restrictions as the Committee may impose, to delegate to one or more officers -4- 278 of the Company some or all of its authority under the Plan, and (x) to make all other determinations and to formulate such procedures as may be necessary or advisable for the administration of the Plan. (b) PLAN CONSTRUCTION AND INTERPRETATION. The Committee shall have full power and authority, subject to the express provisions hereof, to construe and interpret the Plan. (c) DETERMINATIONS OF COMMITTEE FINAL AND BINDING. All determinations by the Committee in carrying out and administering the Plan and in construing and interpreting the Plan shall be final, binding and conclusive for all purposes and upon all persons interested herein. (d) DELEGATION OF AUTHORITY. The Committee may, but need not, from time to time delegate some or all of its authority under the Plan to an Administrator consisting of one or more members of the Committee or of one or more officers of the Company; PROVIDED, HOWEVER, that the Committee may not delegate its authority (i) to make Awards to Eligible Individuals (A) who are Section 162(m) Participants or (B) who are officers of the Company who are delegated authority by the Committee hereunder, or (ii) under Sections 3(b) and 17 of the Plan. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation or thereafter. Nothing in the Plan shall be construed as obligating the Committee to delegate authority to an Administrator, and the Committee may at any time rescind the authority delegated to an Administrator appointed hereunder or appoint a new Administrator. At all times, the Administrator appointed under this Section 3(d) shall serve in such capacity at the pleasure of the Committee. Any action undertaken by the Administrator in accordance with the Committee's delegation of authority shall have the same force and effect as if undertaken directly by the Committee, and any reference in the Plan to the Committee shall, to the extent consistent with the terms and limitations of such delegation, be deemed to include a reference to the Administrator. (e) LIABILITY OF COMMITTEE. No member of the Committee shall be liable for anything whatsoever in connection with the administration of the Plan except such person's own willful misconduct. Under no circumstances shall any member of the Committee be liable for any act or omission of any other member of the Committee. In the performance of its functions with respect to the Plan, the Committee shall be entitled to rely upon information and advice furnished by the Company's officers, the Company's accountants, the Company's counsel and any other party the Committee deems necessary, and no member of the Committee shall be liable for any action taken or not taken in reliance upon any such advice. 4. DURATION OF PLAN. The Plan shall remain in effect until terminated by the Board of Directors and thereafter until all Awards granted under the Plan are satisfied by the issuance of shares of Common Stock or the payment of cash or are terminated under the terms of the Plan or under the Award Agreement entered into in connection with the grant thereof. Notwithstanding the foregoing, -5- 279 no Awards may be granted under the Plan after the tenth anniversary of the Effective Date (as defined in Section 18(k)). 5. SHARES OF STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in Section 15(b) hereof, the number of shares of Common Stock that may be issued under the Plan pursuant to Awards shall not exceed, in the aggregate, 3,000,000 shares (the "SECTION 5 LIMIT"), of which the number of shares of Common Stock that may be issued under the Plan pursuant to Incentive Stock Options may not exceed, in the aggregate, 3,000,000 shares. Such shares may be either authorized but unissued shares, treasury shares or any combination thereof. For purposes of determining the number of shares that remain available for issuance under the Plan, the following rules shall apply: (a) the number of Shares subject to outstanding Awards shall be charged against the Section 5 Limit; and (b) the Section 5 Limit shall be increased by: (i) the number of shares subject to an Award (or portion thereof) which lapses, expires or is otherwise terminated without the issuance of such shares or is settled by, the delivery of consideration other than shares, (ii) the number of shares tendered to pay the exercise price of a Stock Option or other Award, and (iii) the number of shares withheld from any Award to satisfy a Participant's tax withholding obligations or, if applicable, to pay the exercise price of a Stock Option or other Award. In addition, any shares underlying Substitute Awards shall not be counted against the Section 5 Limit set forth in the first sentence of this Section 5. 6. ELIGIBLE INDIVIDUALS. (a) ELIGIBILITY CRITERIA. Awards may be granted by the Committee to individuals ("ELIGIBLE INDIVIDUALS") who are officers or other key employees or consultants of the Company or a Subsidiary with the potential to contribute to the future success of the Company or its Subsidiaries. An individual's status as an Administrator or a member of the Committee will not affect his or her eligibility to participate in the Plan. (b) MAXIMUM NUMBER OF SHARES PER ELIGIBLE INDIVIDUAL. In accordance with the requirements under Section 162(m) of the Code, no Eligible Individual shall receive grants of Awards with respect to an aggregate of more than 250,000 shares of Common Stock in respect of any fiscal year of the Company. For purposes of the preceding sentence, any Award that is made as bonus compensation, or is made in lieu of compensation that otherwise -6- 280 would be payable to an Eligible Individual, shall be considered made in respect of the fiscal year to which such bonus or other compensation relates or otherwise was earned. 7. AWARDS GENERALLY. Awards under the Plan may consist of Stock Options, Stock Appreciation Rights, Stock Awards, Performance Share Awards, Section 162(m) Awards or other awards determined by the Committee. The terms and provisions of an Award shall be set forth in a written Award Agreement approved by the Committee and delivered or made available to the Participant as soon as practicable following the date of the award. The vesting, exercisability, payment and other restrictions applicable to an Award (which may include, without limitation, restrictions on transferability or provision for mandatory resale to the Company) shall be determined by the Committee and set forth in the applicable Award Agreement. Notwithstanding the foregoing, the Committee may accelerate (i) the vesting or payment of any Award, (ii) the lapse of restrictions on any Award or (iii) the date on which any Option or Stock Appreciation Right first becomes exercisable. The date of a Participant's termination of employment for any reason shall be determined in the sole discretion of the Committee. The Committee shall also have full authority to determine and specify in the applicable Award Agreement the effect, if any, that a Participant's termination of employment for any reason will have on the vesting, exercisability, payment or lapse of restrictions applicable to an outstanding Award. 8. STOCK OPTIONS. (a) TERMS OF STOCK OPTIONS GENERALLY. Subject to the terms of the Plan and the applicable Award Agreement, each Stock Option shall entitle the Participant to whom such Stock Option was granted to purchase the number of shares of Common Stock specified in the applicable Award Agreement and shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Agreement. Upon satisfaction of the conditions to exercisability specified in the applicable Award Agreement, a Participant shall be entitled to exercise the Stock Option in whole or in part and to receive, upon satisfaction or payment of the exercise price or an irrevocable notice of exercise in the manner contemplated by Section 8(d) below, the number of shares of Common Stock in respect of which the Stock Option shall have been exercised. Stock Options may be either Nonqualified Stock Options or Incentive Stock Options. (b) EXERCISE PRICE. The exercise price per share of Common Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant and set forth in the Award Agreement, PROVIDED, that the exercise price per share shall be no less than 100% of the Fair Market Value per share on the date of grant. Notwithstanding the foregoing, the exercise price per share of a Stock Option that is a Substitute Award may be less than the Fair Market Value per share on the date of award, provided that the excess of: (i) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over -7- 281 (ii) the aggregate exercise price thereof, does not exceed the excess of: (iii) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Committee) of the shares of the predecessor entity that were subject to the award assumed or substituted for by the Company, over (iv) the aggregate exercise price of such shares. (c) OPTION TERM. The term of each Stock Option shall be fixed by the Committee and set forth in the Award Agreement; PROVIDED, HOWEVER, that a Stock Option shall not be exercisable after the expiration of ten (10) years after the date the Stock Option is granted. (d) METHOD OF EXERCISE. Subject to the provisions of the applicable Award Agreement, the exercise price of a Stock Option may be paid in cash or previously owned shares or a combination thereof. In accordance with the rules and procedures established by the Committee for this purpose, the Stock Option may also be exercised through a "cashless exercise" procedure approved by the Committee involving a broker or dealer approved by the Committee, that affords Participants the opportunity to sell immediately some or all of the shares underlying the exercised portion of the Stock Option in order to generate sufficient cash to pay the Stock Option exercise price and/or to satisfy withholding tax obligations related to the Stock Option. When payment of the exercise price for a Stock Option consists of shares of the Company's capital stock, such shares will not be accepted as payment unless the Participant has held such shares for the requisite period necessary to avoid a charge to the Company's earnings for financial reporting purposes. 9. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights shall be subject to the terms and conditions established by the Committee in connection with the Award thereof and specified in the applicable Award Agreement. Upon satisfaction of the conditions to the payment specified in the applicable Award Agreement, each Stock Appreciation Right shall entitle a Participant to an amount, if any, equal to the Fair Market Value of a share of Common Stock on the date of exercise over the Stock Appreciation Right exercise price specified in the applicable Award Agreement. At the discretion of the Committee, payments to a Participant upon exercise of a Stock Appreciation Right may be made in Shares, cash or a combination thereof. A Stock Appreciation Right may be granted alone or in addition to other Awards, or in tandem with a Stock Option. If granted in tandem with a Stock Option, a Stock Appreciation Right shall cover the same number of shares of Common Stock as covered by the Stock Option (or such lesser number of shares as the Committee may determine) and shall be exercisable only at such time or times and to the extent the related Stock Option shall be exercisable, and shall have the same term and exercise price as the related Stock Option. Upon exercise of a Stock Appreciation Right granted in tandem with a Stock Option, the related Stock Option shall be cancelled automatically to the extent of the number of shares covered -8- 282 by such exercise; conversely, if the related Stock Option is exercised as to some or all of the shares covered by the tandem grant, the tandem Stock Appreciation Right shall be cancelled automatically to the extent of the number of shares covered by the Stock Option exercised. 10. STOCK AWARDS. Stock Awards shall consist of one or more shares of Common Stock granted or offered for sale to an Eligible Individual, and shall be subject to the terms and conditions established by the Committee in connection with the Award and specified in the applicable Award Agreement. The shares of Common Stock subject to a Stock Award may, among other things, be subject to vesting requirements or restrictions on transferability. 11. PERFORMANCE SHARE AWARDS. Performance Share Awards shall be evidenced by an Award Agreement in such form and containing such terms and conditions as the Committee deems appropriate and which are not inconsistent with the terms of the Plan. Each Award Agreement shall set forth the number of shares of Common Stock to be earned by a Participant upon satisfaction of certain specified performance criteria and subject to such other terms and conditions as the Committee deems appropriate. Payment in settlement of a Performance Share Award shall be made as soon as practicable following the conclusion of the applicable performance period, or at such other time as the Committee shall determine, in shares of Common Stock, in an equivalent amount of cash or in a combination of Common Stock and cash, as the Committee shall determine. 12. OTHER AWARDS. The Committee shall have the authority to specify the terms and provisions of other forms of equity-based or equity-related Awards not described above which the Committee determines to be consistent with the purpose of the Plan and the interests of the Company, which Awards may provide for cash payments based in whole or in part on the value or future value of Common Stock, for the acquisition or future acquisition of Common Stock, or any combination thereof. Other Awards shall also include cash payments (including the cash payment of dividend equivalents) under the Plan which may be based on one or more criteria determined by the Committee which are unrelated to the value of Common Stock and which may be granted in tandem with, or independent of, other Awards under the Plan. 13. SECTION 162(M) AWARDS. (a) TERMS OF SECTION 162(M) AWARDS GENERALLY. In addition to any other Awards under the Plan, the Company may make Awards that are intended to qualify as "qualified performance-based compensation" for purposes of Section 162(m) of the Code ("SECTION 162(M) AWARDS"). Section 162(m) Awards may consist of Stock Options, Stock Appreciation Rights, Stock Awards, Performance Share Awards or Other Awards the vesting, exercisability and/or payment of which is conditioned upon the attainment for the applicable Performance Period of specified performance targets related to designated performance goals for such period selected by the Committee from among the performance goals specified in Section 13(b) below. Section 162(m) Awards will be made in accordance with the procedures specified in applicable treasury regulations for compensation intended to be "qualified performance-based compensation." -9- 283 (b) PERFORMANCE GOALS. For purposes of this Section 13, performance goals shall be limited to one or more of the following: (i) net revenue, (ii) net earnings, (iii) operating earnings or income, (iv) absolute and/or relative return on equity or assets, (v) earnings per share, (vi) cash flow, (vii) pretax profits, (viii) earnings growth, (ix) revenue growth, (x) book value per share, (xi) stock price and (xii) performance relative to peer companies, each of which may be established on a corporate-wide basis or established with respect to one or more operating units, divisions, acquired businesses, minority investments, partnerships or joint ventures. (c) OTHER PERFORMANCE-BASED COMPENSATION. The Committee's decision to make, or not to make, Section 162(m) Awards within the meaning of this Section 13 shall not in any way prejudice the qualification of any other Awards as performance based compensation under Section 162(m). In particular, Awards of Stock Options may, pursuant to applicable regulations promulgated under Section 162(m), be qualified as performance-based compensation for Section 162(m) purposes without regard to this Section 13. 14. NON-TRANSFERABILITY. No Award granted under the Plan or any rights or interests therein shall be sold, transferred, assigned, pledged or otherwise encumbered or disposed of except by will or by the laws of descent and distribution or pursuant to a "qualified domestic relations order" ("QDRO") as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder; PROVIDED, HOWEVER, that the Committee may, subject to such terms and conditions as the Committee shall specify, permit the transfer of an Award to a Participant's family members or to one or more trusts established in whole or in part for the benefit of one or more of such family members; PROVIDED, HOWEVER, that the restrictions in this sentence shall not apply to the shares received in connection with an Award after the date that the restrictions on transferability of such shares set forth in the applicable Award Agreement have lapsed. During the lifetime of a Participant, a Stock Option or Stock Appreciation Right shall be exercisable only by, and payments in settlement of Awards shall be payable only to, the Participant or, if applicable, the "alternate payee" under a QDRO or the family member or trust to whom such Stock Option, Stock Appreciation Right or other Award has been transferred in accordance with the previous sentence. 15. RECAPITALIZATION OR REORGANIZATION. (a) AUTHORITY OF THE COMPANY AND SHAREHOLDERS. The existence of the Plan, the Award Agreements and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or -10- 284 business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) CHANGE IN CAPITALIZATION. Notwithstanding any provision of the Plan or any Award Agreement, in the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, reorganization, merger, consolidation, stock split, combination or exchange of shares or any other significant corporate event affecting the Common Stock, the Committee, in its discretion, may make (i) such proportionate adjustments it considers appropriate (in the form determined by the Committee in its sole discretion) to prevent diminution or enlargement of the rights of Participants under the Plan with respect to the aggregate number of shares of Common Stock for which Awards in respect thereof may be granted under the Plan, the number of shares of Common Stock covered by each outstanding Award, and the exercise or Award prices in respect thereof and/or (ii) such other adjustments as it deems appropriate. The Committee's determination as to what, if any, adjustments shall be made shall be final and binding on the Company and all Participants. 16. CHANGE IN CONTROL. In the event of a Change in Control, (i) all Stock Options or Stock Appreciation Rights then outstanding shall become fully exercisable as of the date of the Change in Control, whether or not then exercisable, (ii) all restrictions and conditions of all Stock Awards then outstanding shall lapse as of the date of the Change in Control, (iii) all Performance Share Awards shall be deemed to have been fully earned as of the date of the Change in Control, and (iv) in the case of a Change in Control involving a merger of, or consolidation involving, the Company in which the Company is (A) not the surviving corporation (the "SURVIVING ENTITY") or (B) becomes a wholly owned subsidiary of the Surviving Entity or any Parent thereof, each outstanding Stock Option granted under the Plan and not exercised (a "PREDECESSOR OPTION") will be converted into an option (a "SUBSTITUTE OPTION") to acquire common stock of the Surviving Entity or its Parent, which Substitute Option will have substantially the same terms and conditions as the Predecessor Option, with appropriate adjustments as to the number and kind of shares and exercise prices. 17. AMENDMENT OF THE PLAN. The Board or Committee may at any time and from time to time terminate, modify, suspend or amend the Plan in whole or in part; PROVIDED, HOWEVER, that no such termination, modification, suspension or amendment shall be effective without shareholder approval if such approval is required to comply with any applicable law or stock exchange rule; and PROVIDED, HOWEVER, that the Board or Committee may not, without shareholder approval, increase the maximum number of shares issuable under the Plan. No termination, modification, suspension or amendment of the Plan shall, without the consent of a Participant to whom any Awards shall previously have been granted, adversely affect his or her rights under such Awards. Notwithstanding any provision herein to the contrary, the Board or Committee shall have broad authority to amend the Plan or any Stock Option to take into account changes in applicable tax laws, securities laws, accounting rules and other applicable state and federal laws. -11- 285 18. MISCELLANEOUS. (a) TAX WITHHOLDING. No later than the date as of which an amount first becomes includable in the gross income of the Participant for applicable income tax purposes with respect to any award under the Plan, the Participant shall pay to the Company or make arrangements satisfactory to the Committee regarding the payment of any federal, state or local taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, in accordance with rules and procedures established by the Committee, the minimum required withholding obligations may be settled with Common Stock, including Common Stock that is part of the award that gives rise to the withholding requirement. The obligation of the Company under the Plan shall be conditioned upon such payment or arrangements and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. (b) LOANS. On such terms and conditions as shall be approved by the Committee, the Company may directly or indirectly lend money to a Participant to accomplish the purposes of the Plan, including to assist such Participant to acquire or carry shares of Common Stock acquired upon the exercise of Stock Options granted hereunder, and the Committee may also separately lend money to any Participant to pay taxes with respect to any of the transactions contemplated by the Plan. (c) NO RIGHT TO GRANTS OR EMPLOYMENT. No Eligible Individual or Participant shall have any claim or right to receive grants of Awards under the Plan. Nothing in the Plan or in any Award or Award Agreement shall confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, as the case may be, or interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time, with or without cause. (d) UNFUNDED PLAN. The Plan is intended to constitute an unfunded plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or payments in lieu thereof with respect to awards hereunder. (e) OTHER EMPLOYEE BENEFIT PLANS. Payments received by a Participant under any Award made pursuant to the provisions of the Plan shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan or similar arrangement provided by the Company. -12- 286 (f) SECURITIES LAW RESTRICTIONS. The Committee may require each Eligible Individual purchasing or acquiring shares of Common Stock pursuant to a Stock Option or other Award under the Plan to represent to and agree with the Company in writing that such Eligible Individual is acquiring the shares for investment and not with a view to the distribution thereof. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, the New York Stock Exchange or any other exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. No shares of Common Stock shall be issued hereunder unless the Company shall have determined that such issuance is in compliance with, or pursuant to an exemption from, all applicable federal and state securities laws. (g) COMPLIANCE WITH RULE 16B-3. (i) The Plan is intended to comply with Rule 16b-3 under the Exchange Act or its successors under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Award Agreement in a manner consistent therewith. To the extent any provision of the Plan or Award Agreement or any action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan or an Award Agreement does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements, or the price and amount of Awards) shall be deemed automatically to be incorporated by reference into the Plan or such Award Agreement insofar as Participants subject to Section 16 of the Exchange Act are concerned. (ii) Notwithstanding anything contained in the Plan or any Award Agreement to the contrary, if the consummation of any transaction under the Plan would result in the possible imposition of liability on a Participant pursuant to Section 16(b) of the Exchange Act, the Committee shall have the right, in its sole discretion, but shall not be obligated, to defer such transaction to the extent necessary to avoid such liability. (h) AWARD AGREEMENT. In the event of any conflict or inconsistency between the Plan and any Award Agreement, the Plan shall govern, and the Award Agreement shall be interpreted to minimize or eliminate any such conflict or inconsistency. (i) EXPENSES. The costs and expenses of administering the Plan shall be borne by the Company. -13- 287 (j) APPLICABLE LAW. Except as to matters of federal law, the Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to conflicts of law principles. (k) EFFECTIVE DATE. The Plan shall be effective as of the date (the "EFFECTIVE DATE") of either (i) the consummation of the proposed reorganization pursuant to which Servico, Inc. and Impac Hotel Group, L.L.C. will become wholly-owned subsidiaries of the Company, contingent upon its prior approval by the shareholders of Servico, Inc. and the unitholders of Impac Hotel Group, L.L.C. or (ii) following such reorganization, on the date of its approval by the shareholders of the Company. If, in either case, shareholder approval is not obtained at or prior to the first annual meeting of the shareholders of the Company to occur after the adoption of the Plan by the Board, the Plan and any Awards thereunder shall terminate AB INITIO and be of no further force and effect. -14- 288 APPENDIX F LODGIAN, INC. NON-EMPLOYEE DIRECTORS' STOCK PLAN 289 LODGIAN, INC. NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Definitions..................................................................1 2. Purposes.....................................................................3 3. Administration...............................................................3 4. Shares Available.............................................................3 5. Director Shares .............................................................4 6. Options......................................................................4 7. Recapitalization or Reorganization...........................................7 8. Termination and Amendment of the Plan........................................7 9. Miscellaneous................................................................8
-i- 290 LODIGIAN, INC. NON-EMPLOYEE DIRECTORS' STOCK PLAN 1. DEFINITIONS. "AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act. "ANNUAL FEES" means the cash portion of (i) any annual fee payable to a Non-Employee Director for service on the Board, (ii) any other fee determined on an annual basis and payable for service on, or for acting as chairperson of, any committee of the Board and (iii) any similar annual fee payable in respect of service on the board of directors of any Subsidiary or any committee of any such board of directors. "ANNUAL MEETING" means an annual meeting of the Company's stockholders. "BENEFICIAL OWNER" has the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act. "BOARD" means the Board of Directors of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMBINED VOTING POWER" means the combined voting power of the Company's or other relevant entity's then outstanding voting securities. "COMMITTEE" means the committee appointed by the Board to administer the Plan, which shall be composed exclusively of members of the Board who are not Non-Employee Directors. "COMMON STOCK" means the Common Stock of the Company, par value $.01 per share. "COMPANY" means LODGIAN, Inc., a Delaware corporation, or any successor to substantially all of its business. "DIRECTOR'S FEES" means the aggregate of a Non-Employee Director's Annual Fees and Meeting Fees. "DIRECTOR SHARES" means shares of Common Stock granted to a Non-Employee Director, which shall be subject to such terms and conditions as are set forth in Section 5 below. "DISABILITY" means eligibility for disability benefits under the terms of the Company's long-term disability plan in effect at the time the Non-Employee Director becomes disabled. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 291 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FAIR MARKET VALUE" means, in the event the Common Stock is traded on a recognized securities exchange or quoted by the National Association of Securities Dealers Automated Quotations on National Market Issues, an amount equal to the average of the high and low prices of the Common Stock on such exchange or such quotation on the date set for valuation or, if no sales of Common Stock were made on said exchange or so quoted on that date, the average of the high and low prices of the Common Stock on the next preceding day on which sales were made on such exchange or quotations; or, if the Common Stock is not so traded or quoted, that value determined, in its sole discretion, by the Committee. "MEETING FEES" means (i) any meeting fee payable in respect of attendance at or participation in meetings of the Board or any committee of the Board or any meeting of the stockholders of the Company and (ii) any similar meeting fee payable in respect of service on the board of directors of any Subsidiary or any committee of any such board of directors. "MERGER" means the proposed reorganization pursuant to which Servico, Inc. and Impac Hotel Group, L.L.C. will become wholly-owned Subsidiaries of the Company. "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an employee of the Company or any of its Subsidiaries. "OPTION" means an option to purchase shares of Common Stock awarded to a Non-Employee Director pursuant to the Plan, which option shall not be intended to qualify, and shall not be treated, as an "incentive stock option" within the meaning of Section 422 of the Code. "PARENT" means any corporation which is a "parent corporation" within the meaning of Section 424 of the Code with respect to the relevant entity. "PERSON" means any person, entity, or "group" within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act. "PLAN" means the Lodgian, Inc. Non-Employee Directors' Stock Plan. "RETIREMENT" means a Non-Employee Director ceasing to be a member of the Board as a result of retirement from the Board in accordance with the retirement Policy then applicable to Board members. "SUBSIDIARY" means (i) any corporation which is a "subsidiary corporation" within the meaning of Section 424(f) of the Code with respect to the Company or (ii) any other corporation or other entity in which the Company, directly or indirectly, has an equity or similar interest and which the Committee designates as a Subsidiary for the purposes of the Plan. -2- 292 2. PURPOSES. The purposes of the Plan are to retain the services of qualified individuals who are not employees of the Company to serve as members of the Board and to secure for the Company the benefits of the incentives inherent in increased Common Stock ownership by such individuals by awarding such individuals Options to purchase shares of Common Stock. 3. ADMINISTRATION. (a) AUTHORITY. The Committee will be responsible for administering the Plan. The Committee will have authority to adopt such rules as it may deem appropriate to carry out the purposes of the Plan, and shall have authority to interpret and construe the provisions of the Plan and any agreements and notices under the Plan and to make determinations pursuant to any Plan provision. The Committee shall also have the authority to adjust the number of shares subject to an Option related to each Annual Award pursuant to Section 6(a) at any time and from time to time. Each interpretation, determination or other action made or taken by the Committee pursuant to the Plan shall be final and binding on all Persons. No member of the Committee shall be liable for any action or determination made in good faith, and the members of the Committee shall be entitled to indemnification and reimbursement in the manner provided in the Company's Restated Certificate of Incorporation as it may be amended from time to time. (b) DELEGATION. The Committee may designate a committee composed of one or more members of the Board to carry out its responsibilities under such conditions as it may set. 4. SHARES AVAILABLE. Subject to the provisions of Section 12 of the Plan, the maximum number of shares of Common Stock which may be issued under the Plan shall not exceed 300,000 shares (the "SECTION 4 LIMIT"). Either authorized and unissued shares of Common Stock or treasury shares may be delivered pursuant to the Plan. For purposes of determining the number of shares that remain available for issuance under the Plan, the following rules shall apply: (a) the number of shares subject to awards granted under the Plan shall be charged against the Section 4 Limit; and (b) the Section 4 Limit shall be increased by: (i) the number of shares subject to an Option which lapses, expires or is otherwise terminated without the issuance of such shares, (ii) the number of shares tendered to pay the exercise price of an Option, and -3- 293 (iii) the number of shares withheld to satisfy any tax withholding obligations of a Non-Employee Director with respect to any shares or other payments hereunder. 5. DIRECTORS SHARES. (a) DIRECTOR SHARE AWARDS. A Non-Employee Director may elect to receive all or a specified percentage of his or her Director Fees for each year of service on the Board in Director Shares, in lieu of cash compensation for such portion thereof, rounded up or down to the next whole share in the event of fractional amounts. The number of Director Shares so awarded to each Non-Employee Director shall be determined by dividing the portion of such Non-Employee Director's Director Fees to be paid in Director Shares by the Fair Market Value of a share of Common Stock on the date of award. (b) TERMS OF DIRECTOR SHARE AWARDS. At the time Director Shares are granted to a Non-Employee Director, share certificates representing the appropriate number of Director Shares shall be registered in the name of the Non-Employee Director and shall be delivered to the Non-Employee Director. The Non-Employee Director shall have all the rights and privileges of a stockholder as to such shares, including the right to receive dividends and the right to vote such shares. The Director Shares shall be immediately vested upon grant, shall not be forfeitable to the Company and shall not be subject to any restrictions on transfer (other than those imposed under applicable law or under any trading policy of the Company). 6. OPTIONS. In addition to the awards of Director Shares described above in Section 5, each Non-Employee Director shall also receive awards of Options under the Plan as follows: (a) OPTION GRANTS. At each Annual Meeting, commencing with the Annual Meeting held in 1999, each Non-Employee Director who will remain on the Board following the date of such Annual Meeting shall receive as of such date an award consisting of an Option to purchase 5,000 shares of Common Stock (or such lesser number determined by multiplying 5,000 by a fraction, the numerator of which is the number of full or partial months since the immediately preceding Annual Meeting during which such individual served on the Board in the capacity of a Non-Employee Director, and the denominator of which is the number of full or partial months since the immediately preceding Annual Meeting). Such Option shall have a per share exercise price equal to the Fair Market Value of the Common Stock on the date of award and shall be subject to the vesting schedule provided for in Section 6(b) and the other terms and conditions provided for herein. (b) VESTING SCHEDULE OF OPTIONS. Options awarded pursuant to the Plan shall vest and become exercisable in equal installments as of each of the first three Annual Meetings following the date of grant; PROVIDED, HOWEVER, that an Option shall become fully vested and exercisable upon a Non-Employee ceasing to be a member of the Board as a result of death, Disability or Retirement. -4- 294 (c) EXERCISE OF OPTIONS FOLLOWING TERMINATION OF SERVICE. (i) EXERCISE FOLLOWING TERMINATION OF SERVICE DUE TO DEATH, DISABILITY OR RETIREMENT. If a Non-Employee Director ceases to be a member of the Board by reason of death, Disability, Retirement or in the event of his involuntary termination of service on the Board other than for cause, all Options awarded to such Non-Employee Director may be exercised by such Non-Employee Director, or by his or her estate, personal representative or beneficiary, as the case may be, at any time within one year after the date of termination of service. At the end of such one-year period the Options shall expire. (ii) EXERCISE FOLLOWING OTHER TERMINATIONS OF SERVICE. If a Non-Employee Director ceases to be a member of the Board for any reason other than as set forth above in subsection (i) hereof, then (A) the Non-Employee Director shall have the right, subject to the terms and conditions hereof, to exercise the Option, to the extent it has vested as of the date of such termination of service, at any time within six months after the date of such termination, and (B) the unvested portion of any Options awarded to the Non-Employee Director shall be forfeited as of the date of termination of service. (d) TIME AND MANNER OF EXERCISE OF OPTIONS. (i) NOTICE OF EXERCISE. Subject to the other terms and conditions hereof, a Non-Employee Director may exercise any Options, to the extent such Options are vested, by giving written notice of exercise to the Company; PROVIDED, HOWEVER, that in no event shall an Option be exercisable for a fractional share. The date of exercise of an Option shall be the later of (i) the date on which the Company receives such written notice or (ii) the date on which the conditions provided in Section 6(d)(ii) are satisfied. (ii) PAYMENT. Prior to the issuance of a certificate pursuant to Section 6(d)(v) hereof evidencing the shares of Common Stock in respect of which all or a portion of an Option shall have been exercised, a Non-Employee Director shall have paid to the Company the exercise price of the Option for all such shares purchased pursuant to the exercise of such Option. Payment may be made by personal check, bank draft or postal or express money order (such modes of payment are collectively referred to as "cash") payable to the order of the Company in U.S. dollars or in shares of Common Stock already owned by the Non-Employee Director valued at their Fair Market Value as of the last business day preceding the date of exercise, or in any combination of cash or such shares as the Committee in its sole discretion may approve. Payment of the exercise price in shares of Common Stock shall be made by delivering to the Company the share certificate(s) representing the required number of shares, with the Non-Employee Director signing his or her name on the -5- 295 back, or by attaching executed stock powers (the signature of the Non-Employee Director must be guaranteed in either case). When payment of the exercise price for an Option consists of shares of Common Stock, such shares will not be accepted as payment unless the Non-Employee Director has held such shares for the requisite period necessary to avoid a charge to the Company's earnings for financial reporting purposes. (iii) STOCKHOLDER RIGHTS. A Non-Employee Director shall have no rights as a stockholder with respect to any shares of Common Stock issuable upon exercise of an Option until a certificate evidencing such shares shall have been issued to the Non-Employee Director pursuant to Section 6(d)(v), and no adjustment shall be made for dividends or distributions or other rights in respect of any share for which the record date is prior to the date upon which the Non-Employee Director shall become the holder of record thereof. (iv) LIMITATION ON EXERCISE. No Option shall be exercisable unless the Common Stock subject thereto has been registered under the Securities Act and qualified under applicable state "blue sky" laws in connection with the offer and sale thereof, or the Company has determined that an exemption from registration under the Securities Act and from qualification under such state "blue sky" laws is available. (v) ISSUANCE OF SHARES. Subject to the foregoing conditions, as soon as is reasonably practicable after its receipt of a proper notice of exercise and payment of the exercise price of the Option for the number of shares with respect to which the Option is exercised, the Company shall deliver to the Non-Employee Director (or following the Non-Employee Director's death, such other Person entitled to exercise the Option), at the principal office of the Company or at such other location as may be acceptable to the Company and the Non-Employee Director (or such other Person), one or more stock certificates for the appropriate number of shares of Common Stock issued in connection with such exercise. Such shares shall be fully paid and nonassessable and shall be issued in the name of the Non-Employee Director (or such other Person). (e) RESTRICTIONS ON TRANSFER. An Option may not be transferred, pledged, assigned, or otherwise disposed of, except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code or Title I of ERISA ("QDRO"); PROVIDED, HOWEVER, that the Committee may, subject to such terms and conditions as the Committee shall specify, permit the transfer of an Option to a Non-Employee Director's family members or to one or more trusts established in whole or in part for the benefit of one or more of such family members. The Option shall be exercisable, during the Non-Employee Director's lifetime, only by the Non-Employee Director or by the Person to whom the Option has been transferred in accordance with the previous sentence. No -6- 296 assignment or transfer of the Option, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except by will or the laws of descent and distribution or pursuant to a QDRO, shall vest in the assignee or transferee any interest or right in the Option, but immediately upon any attempt to assign or transfer the Option the same shall terminate and be of no force or effect. 7. RECAPITALIZATION OR REORGANIZATION. (a) AUTHORITY OF THE COMPANY AND STOCKHOLDERS. The existence of the Plan shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) CHANGE IN CAPITALIZATION. Notwithstanding any other provision of the Plan, in the event of any change in the outstanding Common Stock by reason of a stock dividend, recapitalization, reorganization, merger, consolidation, stock split, combination or exchange of shares or any other significant corporate event affecting the Common Stock, the Committee, in its discretion, may make (i) such proportionate adjustments as it considers appropriate (in the form determined by the Committee in its sole discretion) to prevent diminution or enlargement of the rights of Non-Employee Directors under the Plan with respect to the aggregate number of shares of Common Stock authorized to be awarded under the Plan, the number of shares of Common Stock covered by each outstanding Option and the exercise prices in respect thereof, the number of shares of Common Stock covered by future Option awards and the number of Phantom Stock Units credited to a Non-Employee Director's Deferred Compensation Account and/or (ii) such other adjustments as it deems appropriate. The Committee's determination as to what, if any, adjustments shall be made shall be final and binding on the Company and all Non-Employee Directors. 8. TERMINATION AND AMENDMENT OF THE PLAN. (a) TERMINATION. The Plan shall terminate as of the tenth anniversary of the Effective Date. Following the Effective Date, no further awards of Director Shares or Options shall be granted pursuant to the Plan. (b) GENERAL POWER OF BOARD. Notwithstanding anything herein to the contrary, the Board or the Committee may at any time and from time to time terminate, modify, suspend or amend the Plan in whole or in part (including by amending the Plan as provided -7- 297 in Section 3(a)); PROVIDED, HOWEVER, that no such termination, modification, suspension or amendment shall be effective without shareholder approval if such approval is required to comply with any applicable law or stock exchange rule; and PROVIDED FURTHER, that the Board may not, without shareholder approval, increase the maximum number of shares issuable under the Plan except as provided in Section 7(b) above. (c) WHEN NON-EMPLOYEE DIRECTORS' CONSENTS REQUIRED. The Committee may not alter, amend, suspend, or terminate the Plan without the consent of any Non-Employee Director to the extent that such action would adversely affect his or her rights with respect to Director Shares or Options that have previously been granted. 9. MISCELLANEOUS. (a) TAX WITHHOLDING. No later than the date as of which an amount first becomes includable in the gross income of the Non-Employee Director for applicable income tax purposes with respect to any award under the Plan, the Non-Employee Director shall pay to the Company or make arrangements satisfactory to the Committee regarding the payment of any federal, state or local taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, in accordance with rules and procedures established by the Committee, the minimum required withholding obligations may be settled with Common Stock, including Common Stock that is part of the award that gives rise to the withholding requirement. The obligation of the Company under the Plan shall be conditioned upon such payment or arrangements and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Non-Employee Director. (b) LOANS. On such terms and conditions as shall be approved by the Committee, the Company may directly or indirectly lend money to a Non-Employee Director to accomplish the purposes of the Plan, including to assist such Non-Employee Director to acquire or carry shares of Common Stock acquired upon the exercise of Options granted hereunder, and the Committee may also separately lend money to any Non-Employee Director to pay taxes with respect to any of the transactions contemplated by the Plan. (c) NO RIGHT TO REELECTION. Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any of its members for reelection by the Company's stockholders, nor confer upon any Non-Employee Director the right to remain a member of the Board for any period of time, or at any particular rate of compensation. (d) UNFUNDED PLAN. This Plan is unfunded. Amounts payable under the Plan will be satisfied solely out of the general assets of the Company subject to the claims of the Company's creditors. -8- 298 (e) OTHER COMPENSATION ARRANGEMENTS. Payments received by a Non-Employee Director under any award made pursuant to the provisions of the Plan shall not be included in, nor have any effect on, the determination of benefits under any other arrangement provided by the Company. (f) SECURITIES LAW RESTRICTIONS. The Committee may require each Non-Employee Director purchasing or acquiring shares of Common Stock pursuant to the Plan to agree with the Company in writing that such Non-Employee Director is acquiring the shares for investment and not with a view to the distribution thereof. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission or any exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. No shares of Common Stock shall be issued hereunder unless the Company shall have determined that such issuance is in compliance with, or pursuant to an exemption from, all applicable federal and state securities laws. (g) COMPLIANCE WITH RULE 16B-3. (i) The Plan is intended to comply with Rule 16b-3 under the Exchange Act or its successors under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan in a manner consistent therewith. To the extent any provision of the Plan or any action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements, or the price and amount of Options) shall be deemed automatically to be incorporated by reference into the Plan. -9- 299 (ii) Notwithstanding anything contained in the Plan to the contrary, if the consummation of any transaction under the Plan would result in the possible imposition of liability on a Non-Employee Director pursuant to Section 16(b) of the Exchange Act, the Committee shall have the right, in its sole discretion, but shall not be obligated, to defer such transaction to the extent necessary to avoid such liability. (h) EXPENSES. The costs and expenses of administering the Plan shall be borne by the Company. (i) APPLICABLE LAW. Except as to matters of federal law, the Plan and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to conflicts of law principles. (j) EFFECTIVE DATE. The Plan shall be effective as of the date (the "EFFECTIVE DATE") of either (i) the consummation of the Merger, contingent upon its prior approval by the shareholders of Servico, Inc. and the unitholders of Impac Hotel Group, L.L.C. or (ii) following the Merger, on the date of its approval by the shareholders of the Company. If, in either case, shareholder approval is not obtained at or prior to the first Annual Meeting of the shareholders of the Company to occur after the adoption of the Plan by the Board, the Plan and any awards hereunder shall terminate AB INITIO and be of no further force and effect. -10- 300 APPENDIX G RESTATED CERTIFICATE OF INCORPORATION OF LODGIAN, INC. --------------------------------------- ARTICLE I NAME SECTION 1.1 NAME. The name of the Corporation is Lodgian, Inc. ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT SECTION 2.1 OFFICE AND AGENT. The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. ARTICLE III CORPORATE PURPOSE SECTION 3.1 PURPOSE. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law ("DGCL"). ARTICLE IV CAPITALIZATION SECTION 4.1 AUTHORIZED CAPITAL; SHARES. The total number of shares of all classes of stock that the Corporation shall have authority to issue is One Hundred Million (100,000,000), of which Seventy Five Million (75,000,000) shares shall be shares of Common Stock, par value $0.01 per share ("COMMON STOCK"), and Twenty Five Million (25,000,000) shares shall be shares of Preferred Stock, par value $0.01 per share ("PREFERRED STOCK"). 301 SECTION 4.2 PREFERRED STOCK. Shares of Preferred Stock of the Corporation may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the affirmative vote of a majority of the whole Board of Directors of the Corporation (the "BOARD OF DIRECTORS") prior to the issuance of any shares thereof (the number of directors of the Corporation, as so determined from time to time, being referred to herein as the "WHOLE BOARD"). Each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions, including the dividend rate, redemption price and liquidation preference, and may be convertible into, or exchangeable for, at the option of either the holder or the Corporation or upon the happening of a specified event, shares of any other class or classes or any other series of the same or any other class or classes of capital stock, or any debt securities, of the Corporation at such price or prices or at such rate or rates of exchange and with such adjustments as shall be stated and expressed in this Restated Certificate of Incorporation or in any amendment hereto or in such resolution or resolutions providing for the issuance of such class or series of Preferred Stock as may be adopted from time to time by the affirmative vote of the number of directors constituting the majority of the Whole Board prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the DGCL. The authority of the Board of Directors with respect to each series shall also include, but not be limited to, the determination of restrictions, if any, on the issue or reissue of any additional shares of Preferred Stock. SECTION 4.3 NO PREEMPTIVE RIGHTS. The holders of shares of Common Stock shall have no preemptive or preferential rights of subscription to any shares of any class of capital stock of the Corporation or any securities convertible into or exchangeable for shares of any class of capital stock of the Corporation. ARTICLE V COMPROMISE OR ARRANGEMENT SECTION 5.1 COMPROMISE OR ARRANGEMENT. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the DGCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such a manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization, if sanctioned by the court to which the said application has -2- 302 been made, shall be binding on all the creditors or the members of the class of creditors, and/or on all the stockholders or the members of the class of stockholders, of the Corporation, as the case may be, and also on the Corporation. ARTICLE VI INDEMNIFICATION SECTION 6.1 INDEMNIFICATION. (a) GENERAL. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the full extent authorized or permitted by law, as now or hereafter in effect, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person seeking indemnification did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) DERIVATIVE ACTIONS. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the full extent authorized or permitted by law, as now or hereafter in effect, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; PROVIDED, HOWEVER, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) SUCCESSFUL DEFENSE. To the extent that a present or former director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of -3- 303 any action, suit or proceeding referred to in subsections (a) and (b) above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) PROCEEDINGS INITIATED BY ANY PERSON. Notwithstanding anything to the contrary contained in subsections (a) or (b) above, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any person in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized in advance, or unanimously consented to, by the Board of Directors. (e) PROCEDURE. Any indemnification under subsections (a) and (b) above (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) above. Such determination shall be made with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of a quorum of the directors who are not parties to such action, suit or proceeding, (ii) by a committee of such nonparty directors designated by a majority vote of such directors, even though less than a quorum, (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iv) by the stockholders of the Corporation. (f) ADVANCEMENT OF EXPENSES. Expenses (including attorneys' fees) incurred by a director or an officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking in form and substance satisfactory to the Corporation by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation pursuant to this Article VI. Such expenses (including attorneys' fees) incurred by former directors or officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (g) RIGHTS NOT EXCLUSIVE. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (h) INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of the DGCL. -4- 304 (i) DEFINITION OF "CORPORATION". For purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (j) CERTAIN OTHER DEFINITIONS. For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves service by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation," as referred to in this Article VI. (k) CONTINUATION OF RIGHTS. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (l) REPEAL OR MODIFICATION. Any repeal or modification of this Article VI by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to advancement of expenses that any person may have at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification. (m) ACTION AGAINST CORPORATION. Notwithstanding any provisions of this Article VI to the contrary, no person shall be entitled to indemnification or advancement of expenses under this Article VI with respect to any action, suit or proceeding, or any claim therein, brought or made by him against the Corporation. ARTICLE VII DIRECTORS SECTION 7.1 DIRECTOR LIABILITY. (a) A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve -5- 305 intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived any improper personal benefit. (b) If the DGCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the DGCL, as so amended, without further action by either the Board of Directors or the stockholders of the Corporation. (c) Any repeal or modification of this Article VII shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to or at the time of such repeal or modification. SECTION 7.2 REMOVAL. Any or all of the directors may be removed only for due cause by vote of the record holders of a majority of the outstanding shares of the Corporation entitled to vote thereon at a meeting of the stockholders; PROVIDED, HOWEVER, that no such removal can be made at such meeting unless the notice thereof specifies such removal and the reasons therefor as one of the matters that shall be considered at such meeting. ARTICLE VIII MANAGEMENT OF THE AFFAIRS OF THE CORPORATION SECTION 8.1 MANAGEMENT OF THE AFFAIRS OF THE CORPORATION. (a) The business and affairs of the Corporation shall be managed by the Board of Directors, which may exercise all the powers of the Corporation and do all such lawful acts and things that are not conferred upon or reserved to the stockholders by law, by this Restated Certificate of Incorporation or by the bylaws of the Corporation (the "BYLAWS"). (b) Election of directors of the Corporation need not be by written ballot, unless required by the Bylaws. (c) The following provisions are inserted for the limitation and regulation of the powers of the Corporation and of its directors and stockholders: (i) The Bylaws, or any of them, may be altered, amended or repealed, or new bylaws may be made, but only to the extent any such alteration, amendment, repeal or new bylaw is not inconsistent with any provision of this Restated Certificate of Incorporation as it may be amended from time to time, either by the number of directors constituting the majority of the Whole Board or by the stockholders of the Corporation upon the affirmative vote of the holders of at least 80% of the outstanding capital stock entitled to vote thereon. (ii) The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The term of the -6- 306 initial Class I directors shall terminate on the date of the 1999 annual meeting of stockholders; the term of the initial Class II directors shall terminate on the date of the 2000 annual meeting of stockholders; and the term of the initial Class III directors shall terminate on the date of the 2001 annual meeting of stockholders. At each annual meeting of stockholders, beginning with the 1999 annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. The term of a director elected by stockholders to fill a newly created directorship or other vacancy shall expire at the same time as the terms of the other directors of the class for which the new directorship is created or in which the vacancy occurred. Any director elected by the Board of Directors to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to Section 4.2 of Article IV hereof applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Section 8.1(c) unless expressly provided by such terms. (iii) Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding and the notice provisions set forth in Section 7.2 of Article VII, any or all of the directors of the Corporation may be removed from office at any time only for cause by the affirmative vote of holders of a majority of the outstanding shares of the Corporation entitled to vote generally in the election of directors, considered for purposes of this paragraph as one class. (iv) Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by a majority of the members of the Board of Directors or Chief Executive Officer of the Corporation. A special meeting of the stockholders of the Corporation may not be called by any other person or persons. -7- 307 ARTICLE IX PRIVATE PROPERTY SECTION 9.1 PRIVATE PROPERTY. The private property of the stockholders of the Corporation shall not be subject to the payment of corporate debts to any extent whatsoever. ARTICLE X SHAREHOLDER CONSENT SECTION 10.1 NO STOCKHOLDERS' CONSENT IN LIEU OF MEETING. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual meeting or special meeting of such stockholders and may not be effected by any consent in writing by any such stockholders. ARTICLE XI AMENDMENT SECTION 11.1 AMENDMENTS. Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend, repeal, or adopt any provision inconsistent with, Section 7.2 of Article VII, Section 8.1(c) of Article VIII or this Article XI of this Restated Certificate of Incorporation. ARTICLE XII EFFECTIVE DATE SECTION 12.1 EFFECTIVE DATE. This Restated Certificate of Incorporation shall become effective upon filing with the Secretary of State of the State of Delaware. -8- 308 APPENDIX H =============================================================================== RESTATED BYLAWS OF LODGIAN, INC. =============================================================================== 309 TABLE OF CONTENTS
PAGE ARTICLE I OFFICES............................................................................-1- SECTION 1. Registered Office in Delaware......................................................-1- SECTION 2. Other Offices......................................................................-1- ARTICLE II MEETINGS OF STOCKHOLDERS...........................................................-1- SECTION 1. Annual Meeting.....................................................................-1- SECTION 2. Special Meetings...................................................................-1- SECTION 3. Notice of Meetings.................................................................-1- SECTION 4. Waiver of Notice...................................................................-2- SECTION 5. Adjournments.......................................................................-2- SECTION 6. Quorum.............................................................................-2- SECTION 7. Voting.............................................................................-3- SECTION 8. Proxies............................................................................-3- SECTION 9. Organization.......................................................................-3- SECTION 10. Advance Notice of Business to Be Transacted at Annual Meetings.....................-3- ARTICLE III BOARD OF DIRECTORS.................................................................-4- SECTION 1. General Powers.....................................................................-4- SECTION 2. Number and Term of Holding Office..................................................-5- SECTION 3. Nomination of Directors and Advance Notice Thereof.................................-5- SECTION 4. Resignation........................................................................-6- SECTION 5. Vacancies..........................................................................-6- SECTION 6. Meetings...........................................................................-6- SECTION 7. Action by Consent..................................................................-7- SECTION 8. Meetings by Conference Telephone, etc..............................................-7- SECTION 9. Compensation.......................................................................-8- ARTICLE IV COMMITTEES.........................................................................-8- SECTION 1. Committees.........................................................................-8- ARTICLE V OFFICERS...........................................................................-9- SECTION 1. Officers...........................................................................-9- SECTION 2. Authority and Duties...............................................................-9- SECTION 3. Term of Office, Resignation and Removal............................................-9- SECTION 4. Vacancies..........................................................................-9- SECTION 5. The Chairman.......................................................................-9- SECTION 6. The Chief Executive Officer.......................................................-10- SECTION 7. The President.....................................................................-10- SECTION 8. Vice Presidents...................................................................-10-
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SECTION 9. The Secretary.....................................................................-10- SECTION 10. Assistant Secretaries.............................................................-10- SECTION 11. Chief Financial Officer...........................................................-11- SECTION 12. The Treasurer.....................................................................-11- SECTION 13. Assistant Treasurers..............................................................-11- SECTION 14. Additional Officers...............................................................-11- ARTICLE VI DIVIDENDS, CHECKS, DRAFTS, NOTES AND PROXIES......................................-11- SECTION 1. Dividends.........................................................................-11- SECTION 2. Checks, Drafts and Notes..........................................................-11- SECTION 3. Execution of Proxies..............................................................-12- ARTICLE VII SHARES AND TRANSFER OF SHARES.....................................................-12- SECTION 1. Certificates of Stock.............................................................-12- SECTION 2. Record............................................................................-12- SECTION 3. Transfer of Stock.................................................................-12- SECTION 4. Addresses of Stockholders.........................................................-12- SECTION 5. Lost, Destroyed or Mutilated Certificates.........................................-13- SECTION 6. Facsimile Signatures..............................................................-13- SECTION 7. Regulations.......................................................................-13- SECTION 8. Record Date.......................................................................-13- SECTION 9. Registered Stockholders...........................................................-14- ARTICLE VIII BOOKS AND RECORDS.................................................................-14- SECTION 1. Books and Records.................................................................-14- ARTICLE IX SEAL..............................................................................-14- SECTION 1. Seal..............................................................................-14- ARTICLE X FISCAL YEAR.......................................................................-14- SECTION 1. Fiscal Year.......................................................................-14- ARTICLE XI INDEMNIFICATION...................................................................-14- SECTION 1. Indemnification...................................................................-14- ARTICLE XII AMENDMENTS........................................................................-17- SECTION 1. Amendments........................................................................-17-
-ii- 311 RESTATED BYLAWS OF LODGIAN, INC. ---------------------------------- ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE IN DELAWARE. The address of the registered office of Lodgian, Inc. (hereinafter called the "CORPORATION") in the State of Delaware shall be The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801, and the registered agent in charge thereof shall be The Corporation Trust Company. SECTION 2. OTHER OFFICES. The Corporation may also have an office or offices at any other place or places within or without the State of Delaware as the Board of Directors of the Corporation (the "BOARD") may from time to time determine or the business of the Corporation may from time to time require. Notwithstanding the foregoing, the corporate headquarters of the Corporation shall be initially located in Atlanta, Georgia. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such place within or without the State of Delaware, and at such date and hour, as shall be designated by the Board and set forth in the notice or in a duly executed waiver of notice thereof. SECTION 2. SPECIAL MEETINGS. A special meeting of the stockholders for any purpose or purposes may be called at any time by a majority of the members of the Board or by the Chief Executive Officer of the Corporation (the "CEO"). A special meeting of stockholders of the Corporation may not be called by any other person or persons. Any such meeting shall be held at such place within or without the State of Delaware, and at such date and hour, as shall be designated in the notice or in a duly executed waiver of notice of such meeting. Only such business as is stated in the written notice of a special meeting may be acted upon thereat. SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided by law, written notice of each annual or special meeting of stockholders stating the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is held, 312 shall be given personally or by first class mail to each stockholder entitled to vote at such meeting, not less than 10 nor more than 60 calendar days before the date of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. If, prior to the time of mailing, the Secretary shall have received from any stockholder entitled to vote a written request that notices intended for such stockholder are to be mailed to an address other than the address that appears on the records of the Corporation, notices intended for such stockholder shall be mailed to the address designated in such request. Notice of a special meeting may be given by the person or persons calling the meeting, or, upon the written request of such person or persons, by the Secretary of the Corporation on behalf of such person or persons. If the person or persons calling a special meeting of stockholders gives notice thereof, such person or persons shall forward a copy thereof to the Secretary. Every request to the Secretary for the giving of notice of a special meeting of stockholders shall state the purpose or purposes of such meeting. SECTION 4. WAIVER OF NOTICE. Notice of any annual or special meeting of stockholders need not be given to any stockholder entitled to vote at such meeting who files a written waiver of notice with the Secretary, duly executed by the person entitled to notice, whether before or after the meeting. Neither the business to be transacted at, nor the purpose of, any meeting of stockholders need be specified in any written waiver of notice. Attendance of a stockholder at a meeting, in person or by proxy, shall constitute a waiver of notice of such meeting, except as provided by law. SECTION 5. ADJOURNMENTS. When a meeting is adjourned to another date, hour or place, notice need not be given of the adjourned meeting if the date, hour and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 calendar days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. At the adjourned meeting any business may be transacted which might have been transacted at the original meeting. When any meeting is convened, the presiding officer, if directed by the Board, may adjourn the meeting if (a) no quorum is present for the transaction of business, or (b) the Board determines that adjournment is necessary or appropriate to enable the stockholders (i) to consider fully information which the Board determines has not been made sufficiently or timely available to stockholders or (ii) otherwise to exercise effectively their voting rights. SECTION 6. QUORUM. Except as otherwise provided by law or the Restated Certificate of Incorporation of the Corporation (the "RESTATED CERTIFICATE OF INCORPORATION"), whenever a class of stock of the Corporation is entitled to vote as a separate class, or whenever classes of stock of the Corporation are entitled to vote together as a single class, on any matter brought before any meeting of the stockholders, whether annual or special, holders of shares entitled -2- 313 to cast a majority of the votes entitled to be cast by all the holders of the shares of stock of such class voting as a separate class, or classes voting together as a single class, as the case may be, outstanding and entitled to vote thereon, present in person or by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter at any such meeting of the stockholders. If, however, such quorum shall not be present or represented, the stockholders entitled to vote thereon may adjourn the meeting with respect to that matter from time to time in accordance with Section 5 of this Article II until a quorum shall be present or represented. SECTION 7. VOTING. Unless otherwise provided in the Restated Certificate of Incorporation, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of capital stock entitled to vote thereat held by such stockholder. Except as otherwise provided by law or the Restated Certificate of Incorporation or these Bylaws, when a quorum is present with respect to any matter brought before any meeting of the stockholders, the vote of the holders of stock casting a majority of the votes present in person or represented by proxy and entitled to be cast on the matter shall decide any such matter. Votes need not be by written ballot, unless the Board, in its discretion, requires any vote or votes cast at such meeting to be cast by written ballot. SECTION 8. PROXIES. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy. Such proxy shall be filed with the Secretary before such meeting of stockholders at such time as the Board may require. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. SECTION 9. ORGANIZATION. Meetings of stockholders of the Corporation shall be presided over by the CEO in accordance with Article V, Section 6, or in the absence of the CEO, by the President, or in the absence of the President by a director chosen by a majority of the directors present at such meeting. The Secretary of the Corporation (the "SECRETARY"), or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 10. ADVANCE NOTICE OF BUSINESS TO BE TRANSACTED AT ANNUAL MEETINGS. (a) To be properly brought before the annual meeting of stockholders, business must be either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board (or any duly authorized committee thereof), (ii) otherwise properly brought before the meeting by or at the direction of the Board (or any duly authorized committee thereof) or (iii) otherwise properly brought before the meeting by any stockholder of the Corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this Section 10 and on the record date for the determination of stockholders entitled to vote at such meeting and (B) who complies with the notice procedures set forth in this Section 10. In addition to any other applicable requirements, including but not limited to the requirements of Rule 14a-8 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "EXCHANGE -3- 314 ACT"), for business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of this Section 10(a), such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. (b) To be timely, a stockholder's notice to the Secretary pursuant to clause (iii) of Section 10(a) must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received no later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting is mailed or such public disclosure of the date of the annual meeting is made, whichever first occurs. (c) To be in proper written form, a stockholder's notice to the Secretary pursuant to clause (iii) of Section 10(a) must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, together with evidence reasonably satisfactory to the Secretary of such beneficial ownership, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. (d) Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting of stockholders except business brought before such meeting in accordance with the procedures set forth in this Section 10; PROVIDED, HOWEVER, that, once business has been properly brought before such meeting in accordance with such procedures, nothing in this Section 10 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of such meeting determines that business was not properly brought before the meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. ARTICLE III BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The property, business and affairs of the Corporation shall be managed by the Board, which may exercise all such powers of the Corporation -4- 315 and do all such lawful acts and things as are not by law or by the Restated Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. NUMBER AND TERM OF HOLDING OFFICE. The Board of the Corporation shall consist of not less than six members, the exact number to be determined from time to time by resolution adopted by the affirmative vote of a majority of all directors of the Corporation then holding office at any special or regular meeting. Any such resolution increasing or decreasing the number of directors shall have the effect of creating or eliminating a vacancy or vacancies, as the case may be, provided that no such resolution shall reduce the number of directors below the number then holding office. Except as provided in Section 5 of this Article III, directors shall be elected by a plurality of the votes cast at annual meetings of stockholders, and each director so elected shall hold office as provided by Article VIII of the Restated Certificate of Incorporation. None of the directors need be stockholders of the Corporation. SECTION 3. NOMINATION OF DIRECTORS AND ADVANCE NOTICE THEREOF. (a) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Restated Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (i) by or at the direction of the Board (or any duly authorized committee thereof) or (ii) by any stockholder of the Corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3 and on the record date for the determination of stockholders entitled to vote at such meeting and (B) who complies with the notice procedures set forth in this Section 3. In addition to any other applicable requirements, for a nomination to be made by a stockholder pursuant to clause (ii) of this Section 3(a), such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. (b) To be timely, a stockholder's notice to the Secretary pursuant to clause (ii) of Section 3(a) must be delivered to or mailed and received at the principal executive offices of the Corporation (i) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting is mailed or such public disclosure of the date of the annual meeting is made, whichever first occurs, or (ii) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which notice of the date of the special meeting is mailed or public disclosure of the date of the special meeting is made, whichever first occurs. -5- 316 (c) To be in proper written form, a stockholder's notice to the Secretary pursuant to clause (ii) of Section 3(a) must set forth (i) as to each person whom the stockholder proposes to nominate for election as a director, (A) the name, age, business address and residence address of the person, (B) the principal occupation or employment of the person, (C) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (D) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (ii) as to the stockholder giving the notice, (A) the name and record address of such stockholder, (B) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, together with evidence reasonably satisfactory to the Secretary of such beneficial ownership, (C) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (D) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (E) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. (d) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman of the meeting shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. SECTION 4. RESIGNATION. Any director may resign at any time by giving written notice to the Board, the CEO, the President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, then it shall take effect when accepted by action of the Board. Except as aforesaid, acceptance of such resignation shall not be necessary to make it effective. SECTION 5. VACANCIES. Any vacancy occurring in the Board, including a vacancy created by an increase in the number of directors, may be filled by the stockholders or by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board. A director elected to fill a vacancy shall hold office only until the next election of directors by the stockholders. If there are no remaining directors, the vacancy shall be filled by the stockholders. SECTION 6. MEETINGS. (a) ANNUAL MEETINGS. As soon as practicable after each annual election of directors, the Board shall meet for the purpose of organization and the transaction -6- 317 of other business, unless it shall have transacted all such business by written consent pursuant to Section 7 of this Article III. (b) OTHER MEETINGS. Other meetings of the Board shall be held at such times as the Board shall from time to time determine or upon call by the Chairman, the CEO, the President or any two directors. (c) NOTICE OF MEETINGS. Regular meetings of the Board may be held without notice. The Secretary of the Corporation shall give notice to each director of each special meeting, including the time and place of such special meeting. Notice of each such meeting shall be given to each director either by mail, at least two days before the day on which such meeting is to be held, or by telephone, telegram, facsimile, telex or cable not later than the day before the day on which such meeting is to be held or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Notice of any meeting shall not be required to be given to any director who shall attend such meeting. A waiver of notice by the person entitled thereto, whether before or after the time of any such meeting, shall be deemed equivalent to adequate notice. (d) PLACE OF MEETINGS. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution determine or as shall be designated in the respective notices or waivers of notice thereof. (e) QUORUM AND MANNER OF ACTING. Except as otherwise provided by law, the Restated Certificate of Incorporation or these Bylaws, a majority of the total number of directors then in office shall be necessary at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the affirmative vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given. (f) MINUTES OF MEETINGS. The Secretary or, in the case of his absence, any person (who shall be an Assistant Secretary, if an Assistant Secretary is present) whom the chairman of the meeting shall appoint shall act as secretary of such meeting and keep the minutes thereof. SECTION 7. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent or consents thereto is signed by all members of the Board or such committee, as the case may be, and such written consent or consents are filed with the minutes of the proceedings of the Board or such committee. SECTION 8. MEETINGS BY CONFERENCE TELEPHONE, ETC. Any one or more members of the Board, or of any committee thereof, may participate in a meeting of the Board, or of such -7- 318 committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. SECTION 9. COMPENSATION. Each director, in consideration of his serving as such, shall be entitled to receive from the Corporation such amount per annum, if any, or such fees, if any, for attendance at meetings of the Board or of any committee thereof, or both, as the Board shall from time to time determine. The Board may likewise provide that the Corporation shall reimburse each director or member of a committee for any expenses incurred by him on account of his attendance at any such meeting. Nothing contained in this Section 9 shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV COMMITTEES SECTION 1. COMMITTEES. The Board, by resolution passed by a majority of the number of directors constituting the whole Board, may designate members of the Board to constitute one or more committees which shall in each case consist of such number of directors, not fewer than two, and, to the extent permitted by law and provided in the resolution establishing such committee, shall have and exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified members at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any absent or disqualified member. A majority of all the members of any such committee may fix its rules of procedure, determine its action and fix the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless the Board shall otherwise by resolution provide. The Board, upon approval of a majority of the number of directors constituting the whole Board, shall have power to change the members of any such committee at any time, to fill vacancies therein and to discharge any such committee, either with or without cause, at any time. Each committee shall keep regular minutes and report to the Board when required. -8- 319 ARTICLE V OFFICERS SECTION 1. OFFICERS. The officers of the Corporation shall be the CEO, the President, the Secretary and a Treasurer and may include one or more Vice Presidents and one or more Assistant Secretaries and one or more Assistant Treasurers. The Board of Directors from time to time may elect a Chairman or Co-Chairmen of the Board. Any two or more offices may be held by the same person. SECTION 2. AUTHORITY AND DUTIES. All officers shall have such authority and perform such duties in the management of the Corporation as may be provided in these Bylaws or, to the extent not so provided, by resolution of the Board. SECTION 3. TERM OF OFFICE, RESIGNATION AND REMOVAL. (a) Each officer shall be appointed by the Board and shall hold office for such term as may be determined by the Board. Each officer shall hold office until his successor has been appointed and qualified or his earlier death or resignation or removal in the manner hereinafter provided. The Board may require any officer to give security for the faithful performance of his duties. (b) Any officer may resign at any time by giving written notice to the Board, the CEO, the President or the Secretary. Such resignation shall take effect at the time specified in such notice or, if the time be not specified, upon receipt thereof by the Board, the CEO, the President or the Secretary, as the case may be. Unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. (c) All officers and agents appointed by the Board shall be subject to removal, with or without cause, at any time by the Board or by the action of the recordholders of a majority of the Shares entitled to vote thereon. SECTION 4. VACANCIES. Any vacancy occurring in any office of the Corporation, for any reason, shall be filled by action of the Board. Unless earlier removed pursuant to Section 3 hereof, any officer appointed by the Board to fill any such vacancy shall serve only until such time as the unexpired term of his predecessor expires unless reappointed by the Board. SECTION 5. THE CHAIRMAN. The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors. The Board of Directors may appoint more than one person to serve as Co-Chairmen of the Board of Directors. If the Chairman or any Co-Chairman is not available to preside over a meeting of the Board, a director chosen by a majority of the directors present shall preside over the meeting. -9- 320 SECTION 6. THE CHIEF EXECUTIVE OFFICER. The CEO shall be the senior officer of the Corporation and, subject to the control of the Board of Directors, shall have general and active management and control of the business and affairs of the Corporation and over its several officers, and shall see that all orders and resolutions of the Board are carried into effect. The CEO shall have the power to call special meetings of stockholders and call special meetings of the Board, shall preside over meetings of the stockholders of the Corporation. The CEO shall have such additional duties specified in any Employment Agreement between the Corporation and such officer in effect from time to time. SECTION 7. THE PRESIDENT. The President shall have the power to call special meetings of the Board. If the CEO is not present at a meeting of the stockholders, the President shall preside, and if the President is not present at such meeting, a director or officer chosen by a majority of the directors present shall preside over the meeting. The President shall exercise supervision over the business of the Corporation and over its several officers, subject to the oversight of the CEO. The President shall have such additional duties specified in any Employment Agreement between the Corporation and such officer in effect from time to time. SECTION 8. VICE PRESIDENTS. Vice Presidents, if any, in such order as may be determined by the Board, shall generally assist the CEO and the President and perform such other duties as the Board, the CEO, or the President shall prescribe. The Board shall have the right to appoint a Vice President of Finance who shall assist the President with respect to financing and capital raising activities. SECTION 9. THE SECRETARY. The Secretary shall, to the extent practicable, attend all meetings of the Board and all meetings of stockholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform the same duties for any committee of the Board when so requested by such committee. He shall give or cause to be given notice of all meetings of stockholders and of the Board, shall perform such other duties as may be prescribed by the Board or the CEO and shall act under the supervision of the CEO. He shall keep in safe custody the seal of the Corporation and affix the same to any instrument that requires that the seal be affixed to it and which shall have been duly authorized for signature in the name of the Corporation and, when so affixed, the seal shall be attested by his signature or by the signature of the Treasurer of the Corporation (the "TREASURER") or an Assistant Secretary or Assistant Treasurer of the Corporation. He shall keep in safe custody the certificate books and stockholder records and such other books and records of the Corporation as the Board or the CEO may direct and shall perform all other duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or the CEO. SECTION 10. ASSISTANT SECRETARIES. Assistant Secretaries of the Corporation ("ASSISTANT SECRETARIES"), if any, in order of their seniority or in any other order determined by the Board, shall generally assist the Secretary and perform such other duties as the Board of the -10- 321 Secretary shall prescribe, and, in the absence or disability of the Secretary, shall perform the duties and exercise the powers of the Secretary. SECTION 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall exercise supervision over all of the financial affairs of the Corporation, shall perform such other duties as may be prescribed by the Board or the CEO and shall act under the supervision of the CEO. SECTION 12. THE TREASURER. The Treasurer shall have the care and custody of all the funds of the Corporation and shall deposit such funds in such banks or other depositories as the Board, or any officer or officers, or any officer and agent jointly, duly authorized by the Board, shall, from time to time, direct or approve. He shall disburse the funds of the Corporation under the direction of the Board and the CEO. He shall keep a full and accurate account of all moneys received and paid on account of the Corporation and shall render a statement of his accounts whenever the Board or the CEO shall so request. He shall perform all other necessary actions and duties in connection with the administration of the financial affairs of the Corporation and shall generally perform all the duties usually appertaining to the office of treasurer of a corporation. When required by the Board, he shall give bonds for the faithful discharge of his duties in such sums and with such sureties as the Board shall approve. SECTION 13. ASSISTANT TREASURERS. Assistant Treasurers of the Corporation ("ASSISTANT TREASURERS"), if any, in order of their seniority or in any other order determined by the Board, shall generally assist the Treasurer and perform such other duties as the Board or the Treasurer shall prescribe, and, in the absence or disability of the Treasurer, shall perform the duties and exercise the powers of the Treasurer. SECTION 14. ADDITIONAL OFFICERS. The Board or the CEO may appoint such other officers and assistant officers and agents as it or he shall deem necessary, who shall hold their offices for such terms and shall have authority and exercise such powers and perform such duties as shall be determined from time to time by the Board, by resolution not inconsistent with these Bylaws, or by the CEO. ARTICLE VI DIVIDENDS, CHECKS, DRAFTS, NOTES AND PROXIES SECTION 1. DIVIDENDS. Dividends shall be declared only out of any assets or funds of the Corporation legally available for the payment of dividends at such times as the Board shall direct. Dividends shall be paid to holders of the stock of the Corporation in U.S. dollars. SECTION 2. CHECKS, DRAFTS AND NOTES. All checks, drafts and other orders for the payment of money, notes and other evidences of indebtedness issued in the name of the Corporation -11- 322 shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall be determined, from time to time, by resolution of the Board. SECTION 3. EXECUTION OF PROXIES. The CEO or, in the absence or disability of the CEO, the President or any Vice President, may authorize, from time to time, the execution and issuance of proxies to vote shares of stock or other securities of other corporations held of record by the Corporation and the execution of consents to action taken or to be taken by any such corporation. All such proxies and consents, unless otherwise authorized by the Board, shall be signed in the name of the Corporation by the CEO, the President or any Vice President. ARTICLE VII SHARES AND TRANSFER OF SHARES SECTION 1. CERTIFICATES OF STOCK. Every owner of shares of stock of the Corporation shall be entitled to have a certificate evidencing the number of shares of stock of the Corporation owned by him or it and designating the class of stock to which such shares belong, which shall otherwise be in such form as the Board shall prescribe. Each such certificate shall bear the signature (or a facsimile thereof) of the CEO, the President or any Vice President and of the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Corporation. SECTION 2. RECORD. A record shall be kept of the name of the person, firm or corporation owning the stock represented by each certificate evidencing stock of the Corporation issued, the number of shares represented by each such certificate, and the date thereof, and, in the case of cancellation, the date of cancellation. Except as otherwise expressly required by law, the person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 3. TRANSFER OF STOCK. (a) The transfer of shares of stock and the certificates evidencing such shares of stock of the Corporation shall be governed by Article 8 of Subtitle I of Title 6 of the Delaware Code (the Uniform Commercial Code), as amended from time to time. (b) Registration of transfers of shares of stock of the Corporation shall be made only on the books of the Corporation upon request of the registered holder thereof, or of his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and upon the surrender of the certificate or certificates evidencing such shares properly endorsed or accompanied by a stock power duly executed. SECTION 4. ADDRESSES OF STOCKHOLDERS. Each stockholder shall designate to the Secretary of the Corporation an address at which notices of meetings and all other corporate notices may be served or mailed to him, and, if any stockholder shall fail to so designate such an address, -12- 323 corporate notices may be served upon him by mail directed to him at his post office address, if any, as the same appears on the share record books of the Corporation or at his last known post office address. SECTION 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. A holder of any shares of stock of the Corporation shall promptly notify the Corporation of any loss, destruction or mutilation of any certificate or certificates evidencing all or any such shares of stock. The Board may, in its discretion, cause the Corporation to issue a new certificate in place of any certificate theretofore issued by it and alleged to have been mutilated, lost, stolen or destroyed, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction, and the Board may, in its discretion, require the owner of the lost, stolen or destroyed certificate or his legal representative to give the Corporation a bond sufficient to indemnify the Corporation against any claim made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 6. FACSIMILE SIGNATURES. Any or all of the signatures on a certificate evidencing shares of stock of the Corporation may be facsimiles. SECTION 7. REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the Restated Certificate of Incorporation or these Bylaws, concerning the issue, transfer and registration of certificates evidencing stock of the Corporation. It may appoint, or authorize any principal officer or officers to appoint, one or more transfer agents and one or more registrars, and may require all certificates of stock to bear the signature or signatures (or a facsimile or facsimiles thereof) of any of them. The Board may at any time terminate the employment of any transfer agent or any registrar of transfers. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall cease to be such officer, transfer agent or registrar, whether because of death, resignation, removal or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed or whose facsimile signature has been placed upon such certificate or certificates had not ceased to be such officer, transfer agent or registrar. SECTION 8. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other such action. A determination of stockholders entitled to notice of, or to vote at, any meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER, that the Board may fix a new record date for the adjourned meeting. -13- 324 SECTION 9. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. ARTICLE VIII BOOKS AND RECORDS SECTION 1. BOOKS AND RECORDS. The books and records of the Corporation may be kept at such place or places within or without the State of Delaware as the Board may from time to time determine. ARTICLE IX SEAL SECTION 1. SEAL. The Board shall provide a corporate seal which shall bear the full name of the Corporation. ARTICLE X FISCAL YEAR SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall be fixed, and shall be subject to change from time to time, by the Board. ARTICLE XI INDEMNIFICATION SECTION 1. INDEMNIFICATION. (a) GENERAL. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation -14- 325 as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the full extent authorized or permitted by law, as now or hereafter in effect, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person seeking indemnification did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) DERIVATIVE ACTIONS. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the full extent authorized or permitted by law, as now or hereafter in effect, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; PROVIDED, HOWEVER, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) SUCCESSFUL DEFENSE. To the extent that a present or former director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) PROCEEDINGS INITIATED BY ANY PERSON. Notwithstanding anything to the contrary contained in subsections (a) or (b) above, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any person in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized in advance, or unanimously consented to, by the Board. (e) PROCEDURE. Any indemnification under subsections (a) and (b) above (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a -15- 326 determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) above. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination (i) by a majority vote of a quorum of the directors who are not parties to such action, suit or proceeding, (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, (iii) if there are no such directors, or if such directors so direct by independent legal counsel in a written opinion, or (iv) by the stockholders of the Corporation. (f) ADVANCEMENT OF EXPENSES. Expenses (including attorneys' fees) incurred by a director or an officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking in form and substance satisfactory to the Corporation by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation pursuant to this Article XI. Such expenses (including attorneys' fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. (g) RIGHTS NOT EXCLUSIVE. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article XI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (h) INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of the State of Delaware. (i) DEFINITION OF "CORPORATION". For purposes of this Article XI, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article XI with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. -16- 327 (j) CERTAIN OTHER DEFINITIONS. For purposes of this Article XI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves service by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation," as referred to in this Article XI. (k) CONTINUATION OF RIGHTS. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article XI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (l) REPEAL OR MODIFICATION. Any repeal or modification of this Article XI by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to advancement of expenses that any person may have at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification. (m) ACTION AGAINST CORPORATION. Notwithstanding any provisions of this Article XI to the contrary, no person shall be entitled to indemnification or advancement of expenses under this Article XI with respect to any action, suit or proceeding, or any claim therein, brought or made by him against the Corporation. ARTICLE XII AMENDMENTS SECTION 1. AMENDMENTS. These Bylaws, or any of them, may be altered, amended or repealed, or new bylaws may be made, but only to the extent any such alteration, amendment, repeal or new bylaw is not inconsistent with any provision of the Certificate of Incorporation, either by a majority of the number of directors constituting the whole Board or by the stockholders of the Corporation upon the affirmative vote of the holders of 80% of the outstanding shares of capital stock of the Corporation entitled to vote thereon. -17- 328 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's Certificate of Incorporation provides, and its Restated Certificate of Incorporation (the "Certificate") will provide, that the Registrant shall indemnify to the fullest extent authorized by the Delaware General Corporation Law (the "DGCL"), each person who is involved in any litigation or other proceeding because such person is or was a director or officer of the Registrant, against all expense, loss or liability reasonably incurred or suffered in connection therewith. The Registrant's Bylaws provide, and its Restated Bylaws will provide, that a director or officer may be paid expenses incurred in defending any proceeding in advance of its final disposition upon receipt by the Registrant of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that such director or officer is not entitled to indemnification. Section 145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if he had no reason to believe his conduct was unlawful. In a derivative action, (i.e., one brought by or on behalf of the corporation), indemnification may be made only for expenses, actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit, if such person acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. Pursuant to Section 102(b)(7) of the DGCL, the Certificate will eliminate the liability of a director to the Registrant or its stockholders for monetary damages for such breach of fiduciary duty as a director, except for liabilities arising (a) from any breach of the director's duty of loyalty to the corporation or its stockholders, (b) from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL, or (d) from any transaction from which the director derived an improper personal benefit. The Registrant has obtained primary and excess insurance policies insuring the directors and officers of the Registrant and its subsidiaries against certain liabilities they may incur in their capacity as directors and officers. Under such policies, the insurer, on behalf of the Registrant, may also pay amounts for which the Registrant has granted indemnification to the directors or officers. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS The following exhibits either are filed herewith or incorporated by reference to documents previously filed or will be filed by amendment, as indicated below: EXHIBIT DESCRIPTION - ------- ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of July ____, 1998, among the Registrant, Servico, Inc., Impac Hotel Group, L.L.C., SHG-S Sub, Inc., SHG-I Sub, L.L.C., Lodgian Holdings, L.L.C., P-Burg Lodging Associates, Inc., Hazard Lodging Associates, Inc., Memphis Lodging Associates, Inc., Delk Lodging Associates, Inc., Impac Hotel Development, Inc., Impac Design and Construction, Inc. and Impac Hotel Group, Inc. (included as Appendix A to the Prospectus/Proxy Statement/Solicitation of Written Consent which is part of this Registration Statement). 3.1 Restated Certificate of Incorporation of the Registrant (included as Appendix G to the Prospectus/Proxy Statement/Solicitation of Written Consent which is part of this Registration Statement). 3.2 Restated Bylaws of the Registrant (included as Appendix H to the Prospectus/Proxy Statement/Solicitation of Written Consent which is part of this Registration Statement). 5 Opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. regarding the validity of the shares of Lodgian Common Stock being offered. 8.1 Opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. regarding certain federal income tax matters. 8.2 Opinion of Powell, Goldstein, Frazer & Murphy, LLP regarding certain federal income tax matters. II-1 329 8.3 Opinion of Lehman Brothers (included as Appendix B to the Prospectus/Proxy Statement/Solicitation of Written Consent which is part of this Registration Statement). 8.4 Opinion of Allen & Company (included as Appendix C to the Prospectus/Proxy Statement/Solicitation of Written Consent which is part of this Registration Statement). 10.1 Indenture, dated as of June 17, 1998, between Servico, Inc., the Registrant and Wilmington Trust Company, as Trustee. 10.2 First Supplemental Indenture, dated as of June 17, 1998, between Servico, Inc., the Registrant and Wilmington Trust Company, as Trustee. 10.3 Guarantee Agreement, dated as of June 17, 1998, between the Servico, Inc., the Registrant and Wilmington Trust Company, as Guarantee Trustee. 10.4 Registration Rights Agreement, dated June 17, 1998, among Lodgian Capital Trust I, Servico, Inc. NationsBanc Montgomery Securities, LLC. 10.5 Amended and Restated Declaration of Trust of Lodgian Capital Trust I, dated as of June 17, 1998, between Servico, Inc., as Sponsor, David A. Buddemeyer, Charles M. Diaz and Phillip Hale, as Regular Trustees, and Wilmington Trust Company, as Delaware Trustee. 10.6 Form of Lodgian 1998 Short-Term Incentive Compensation Plan (included as Appendix D to the Prospectus/Proxy Statement/Solicitation of Written Consent which is part of this Registration Statement). 10.7 Form of Lodgian 1998 Stock Incentive Plan (included as Appendix E to the Prospectus/Proxy Statement/Solicitation of Written Consent which is part of this Registration Statement). 10.8 Form of Lodgian Non-Employee Directors' Stock Plan (included as Appendix F to the Prospectus/Proxy Statement/Solicitation of Written Consent which is part of this Registration Statement). 10.9 Form of Employment Agreement between the Registrant and David A. Buddemeyer 10.10 Form of Employment Agreement between the Registrant and Robert S. Cole 10.11 Form of Registration Rights Agreement between the Registrant and certain unitholders of Impac Hotel Group, L.L.C. 21 Subsidiaries of the Registrant. 23.1 Consent of Lehman Brothers. 23.2 Consent of Allen & Company (included with Exhibit 8.4 filed herewith). 23.3 Consent of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. 23.4 Consent of Powell, Goldstein, Frazer & Murphy, LLP (included with Exhibit 8.2 filed herewith). 23.5 Consent of Ernst & Young, L.L.P. 23.6 Consent of Coopers & Lybrand, L.L.P. 24 Power of Attorney (included with signature pages to this Registration Statement). 27 Financial Data Schedule. 99.1 Form of Servico, Inc. Common Stock Proxy Card for Special Meeting of Shareholders of Servico, Inc. 99.2 Form of Written Consent for unitholders of Impac Hotel Group, L.L.C. 99.3 Consent of Peter R. Tyson, as a person named as about to become a director. 99.4 Consent of Joseph C. Calabro, as a person named as about to become a director. 99.5 Consent of Michael Leven, as a person named as about to become a director. 99.6 Consent of John Lang, as a person named as about to become a director. 99.7 Consent of Richard H. Weiner, as a person named as about to become a director. 99.8 Consent of Robert S. Cole, as a person named as about to become a director. II-2 330 (b) FINANCIAL STATEMENT SCHEDULES. Schedules are omitted because they are either not required, are not applicable or because equivalent information has been included in the financial statements, the notes thereto or elsewhere herein. (c) REPORTS, OPINIONS AND APPRAISALS. Omitted because they are included as appendicies to the Prospectus/Proxy Statement/Solicitation of Written Consent which is a part of this Registration Statement. ITEM 22. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, whether applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (d) The Registrant hereby undertakes that every prospectus (i) that is filed pursuant to paragraph (c) immediately preceding or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (e) Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (f) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. II-3 331 (g) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-4 332 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of West Palm Beach, State of Florida, on this 17th day of July, 1998 LODGIAN, INC. By: /s/ David A. Buddemeyer ----------------------------------- David A. Buddemeyer President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David A. Buddemeyer and Charles M. Diaz, and each of them acting alone, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ David A. Buddemeyer President and Chief Executive Officer and July 17, 1998 - -------------------------------- Sole Director David A. Buddemeyer /s/ Warren M. Knight Vice President Finance (Principal July 17, 1998 - ---------------------------------- Financial and Accounting Officer) Warren M. Knight
II-5 EX-5 2 OPINION OF STEARNS WEAVER RE: VALIDITY OF SHARES 1 Exhibit 5 July 17, 1998 Mr. David A. Buddemeyer President and Chief Executive Officer Lodgian, Inc. 1601 Belvedere Road West Palm Beach, Florida 33406 Re: Lodgian, Inc. - Mergers of Servico, Inc. with and into SHG-s Sub, Inc and of Impac Hotel Group, L.L.C. with and into SHG-I Sub, L.L.C. Dear Mr. Buddemeyer As counsel to Lodgian, Inc. a Delaware corporation (the "Corporation"), we have examined (i) the Certificate of Incorporation and Bylaws of the Corporation, (ii) the form of Restated Certificate of Incorporation and the form of Restated Bylaws of the Corporation and (iii) such other documents and proceedings as we have considered necessary for the purposes of this opinion. We have also examined and are familiar with the proceedings taken by the Corporation in connection with the mergers (the "Mergers") of Servico, Inc., a Florida corporation, ("Servico") with and into SHG-S Sub, Inc., a Florida corporation which is a wholly-owned subsidiary of the Corporation, and of Impac Hotel Group, L.L.C., a Georgia limited liability company ("Impac"), with and into SHG-I Sub, L.L.C., a Georgia limited liability company which is a wholly-owned subsidiary of the 2 Mr. David A. Buddemeyer July 17, 1998 Page 2 Corporation, and the registration under the Securities Act of 1933, as amended, of the shares of the Common Stock, par value $.01 per share (the "Shares"), of the Corporation to be issued in connection with the Mergers, all as more fully described in the Corporation's Registration Statement on Form S-4 (the "Registration Statement"), filed with the Securities and Exchange Commission on July 17, 1998. We have also examined a copy of the Amended and Restated Agreement and Plan of Merger (the "Agreement") set forth as Appendix A to the Prospectus/Proxy Statement/Solicitation of Written Consent of the Corporation, Servico and Impac which comprises a part of the Registration Statement. We have assumed the genuineness of signatures on and the authenticity of all documents submitted to us as copies. Also, we have relied upon such certificates of public officials, corporate agents and officers of the Corporation, Servico and Impac and such other certificates with respect to the accuracy of material factual matters contained therein which were not independently established. Based upon the foregoing, and having regard to legal considerations which we deem relevant, we are of the opinion that, following the issuance and delivery of the Shares by the Corporation in accordance with the terms of the Agreement and in the manner contemplated by the Registration Statement, the Shares will be validly issued, fully paid and non-assessable. Very truly yours, STEARNS WEAVER MILLER WEISSLER ALHADEFF & SITTERSON, P.A. EX-8.1 3 OPINION OF STEARNS WEAVER RE: TAXES 1 EXHIBIT 8.1 July 17, 1998 Servico, Inc. 1601 Belvedere Road West Palm Beach, Florida 33406 Re: Registration Statement on Form S-4 of Lodgian, Inc., containing the Joint Proxy Statement/Prospectus of Servico, Inc. ("Servico") and Impac Hotel Group, L.L.C. ("Impac") dated July 17, 1998 (the "Joint Proxy Statement/Prospectus") Gentlemen: You have requested our opinion concerning certain of the federal income tax consequences of certain of the transactions described in the Joint Proxy Statement/Prospectus, specifically, the tax consequences of the "Servico Merger" (as defined in the Joint Proxy Statement/Prospectus). In connection with this opinion we have made certain assumptions and relied upon certain representations, including representations of the management of Servico, Impac, P-Burg, Hazard, Memphis, Delk, IHD, IDC and IHG (as those terms are defined in the Joint Proxy Statement/Prospectus) as to the facts upon which this opinion is based. Based upon the assumptions and the representations, we confirm our opinions as set forth in the Joint Proxy Statement/Prospectus under the headings "THE MERGER; Material Federal Income Tax Consequences." This opinion addresses only the effect under the federal income tax laws of the Servico Merger, and we express no opinion with respect to the applicability thereto, or the effect thereon, or other federal laws, the laws of any state or other jurisdiction, or as to any matters of municipal law or the laws of any other local agencies within any state. We hereby consent to the filing of this opinion as an exhibit to such Joint Proxy Statement/Prospectus and the reference to our firm and the above-mentioned opinion under the headings "Material Federal Income Tax Consequences" included in the Joint Proxy Statement/Prospectus. In giving such consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, STEARNS WEAVER MILLER WEISSLER ALHADEFF & SITTERSON, P.A. EX-8.2 4 OPINION OF POWELL GOLDSTEIN 1 EXHIBIT 8.2 July 17, 1998 Impac Hotel Group, Inc. Two Live Oak Center 3445 Peachtree Road, N.E., Suite 700 Atlanta, Georgia 30326 Re: Registration Statement on Form S-4 of Lodgian, Inc., containing the Joint Proxy Statement/Prospectus of Servico, Inc. ("Servico") and Impac Hotel Group, L.L.C. ("Impac") dated July 17, 1998 (the "Joint Proxy Statement/Prospectus") Gentlemen: You have requested our opinion concerning certain of the federal income tax consequences of certain of the transactions described in the Joint Proxy Statement/Prospectus, specifically, the tax consequences of the "P-Burg Merger," the "Hazard Merger," the "Memphis Merger," the "Delk Merger," the "IHD Merger," the "IDC Merger," the "IHG Merger," and the "Impac Merger" (as those terms are defined in the Joint Proxy Statement/Prospectus). In connection with this opinion we have made certain assumptions and relied upon certain representations, including representations of the management of Servico, Impac, P-Burg, Hazard, Memphis, Delk, IHD, IDC and IHG (as those terms are defined in the Joint Proxy Statement/Prospectus) as to the facts upon which this opinion is based. Based upon the assumptions and the representations, we confirm our opinions as set forth in the Joint Proxy Statement/Prospectus under the headings "THE MERGER; Material Federal Income Tax Consequences." This opinion addresses only the effect under the federal income tax laws of the P-Burg Merger, the Hazard Merger, the Memphis Merger, the Delk Merger, the IHD Merger, the IDC Merger, the IHG Merger, and the Impac Merger, and we express no opinion with respect to the applicability thereto, or the effect thereon, or other federal laws, the laws of any state or other jurisdiction, or as to any matters of municipal law or the laws of any other local agencies within any state. We hereby consent to the filing of this opinion as an exhibit to such Joint Proxy Statement/Prospectus and the reference to our firm and the above-mentioned opinion under the headings "Material Federal Income Tax Consequences" included in the Joint Proxy 2 Statement/Prospectus. In giving such consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, POWELL, GOLDSTEIN, FRAZER & MURPHY LLP EX-10.1 5 INDENTURE 1 Exhibit 10.1 ================================================================================ INDENTURE AMONG SERVICO, INC. AS ISSUER, LODGIAN, INC. AND WILMINGTON TRUST COMPANY AS TRUSTEE DATED AS OF JUNE 17, 1998 SUBORDINATED DEBENTURES ================================================================================ 2 TABLE OF CONTENTS(1) ----------------------
PAGE ---- ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. DEFINITIONS......................................................................1 SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS............................................10 SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE..........................................11 SECTION 1.04. ACTS OF HOLDERS.................................................................12 SECTION 1.05. NOTICE, ETC., TO TRUSTEE, COMPANY AND LODGIAN...................................15 SECTION 1.06. NOTICE TO HOLDERS OF DEBENTURES; WAIVER.........................................15 SECTION 1.07. LANGUAGE OF NOTICES, ETC........................................................16 SECTION 1.08. CONFLICT WITH TRUST INDENTURE ACT...............................................16 SECTION 1.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS........................................16 SECTION 1.10. SUCCESSORS AND ASSIGNS..........................................................16 SECTION 1.11. SEPARABILITY CLAUSE.............................................................16 SECTION 1.12. BENEFITS OF INDENTURE...........................................................16 SECTION 1.13. GOVERNING LAW...................................................................17 SECTION 1.14. COUNTERPARTS....................................................................17 SECTION 1.15. LEGAL HOLIDAYS..................................................................17 SECTION 1.16. IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES.........................................................17 ARTICLE 2 ISSUE, DESCRIPTION, TERMS, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.01. DESIGNATION, TERMS, AMOUNT AUTHENTICATION AND DELIVERY OF DEBENTURES...................................................................18 SECTION 2.02. FORM OF DEBENTURE AND TRUSTEE'S CERTIFICATE.....................................20 SECTION 2.03. DATE AND DENOMINATIONS OF DEBENTURES AND PROVISIONS FOR PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST......................................20 SECTION 2.04. EXECUTION OF DEBENTURES.........................................................22 SECTION 2.05. EXCHANGE OF DEBENTURES..........................................................23 SECTION 2.06. TEMPORARY DEBENTURES............................................................25 SECTION 2.07. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES.................................25
- -------- (1) Note: This table of contents shall not, for any purpose be deemed to be part of the Indenture. 3
PAGE ---- SECTION 2.08. CANCELLATION OF SURRENDERED DEBENTURES..........................................26 SECTION 2.09. PROVISIONS OF INDENTURE AND DEBENTURES FOR SOLE BENEFIT OF PARTIES AND DEBENTUREHOLDERS....................................................27 SECTION 2.10. APPOINTMENT OF AUTHENTICATING AGENT.............................................27 SECTION 2.11. GLOBAL DEBENTURE................................................................27 SECTION 2.12. CUSIP NUMBERS...................................................................29 ARTICLE 3 SATISFACTION AND DISCHARGE SECTION 3.01. SATISFACTION AND DISCHARGE OF INDENTURE.........................................29 SECTION 3.02. APPLICATION OF TRUST MONEY......................................................30 SECTION 3.03. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE......................................................................31 SECTION 3.04. DISCHARGE AND DEFEASANCE........................................................31 SECTION 3.05. COVENANT DEFEASANCE.............................................................31 SECTION 3.06. CONDITIONS TO DEFEASANCE........................................................32 ARTICLE 4 REMEDIES SECTION 4.01. EVENTS OF DEFAULT...............................................................35 SECTION 4.02. ACCELERATION OF MATURITY; RECISSION AND ANNULMENT...............................37 SECTION 4.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.........................................................................39 SECTION 4.04. TRUSTEE MAY FILE PROOFS OF CLAIM................................................40 SECTION 4.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF DEBENTURES......................................................................41 SECTION 4.06. APPLICATION OF MONEY COLLECTED..................................................42 SECTION 4.07. LIMITATION ON SUITS.............................................................42 SECTION 4.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST............................................................43 SECTION 4.09. RESTORATION OF RIGHTS AND REMEDIES..............................................43 SECTION 4.10. RIGHTS AND REMEDIES CUMULATIVE..................................................43 SECTION 4.11. DELAY OR OMISSION NOT WAIVER....................................................44 SECTION 4.12. CONTROL BY HOLDERS OF DEBENTURES................................................44 SECTION 4.13. WAIVER OF PAST DEFAULTS.........................................................44 SECTION 4.14. UNDERTAKING FOR COSTS...........................................................45 SECTION 4.15. WAIVER OF STAY OR EXTENSION LAWS................................................46
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PAGE ---- ARTICLE 5 THE TRUSTEE SECTION 5.01. DUTIES AND RESPONSIBILITIES OF THE TRUSTEE; DURING DEFAULT; PRIOR TO DEFAULT................................................................46 SECTION 5.02. CERTAIN RIGHTS OF TRUSTEE.......................................................47 SECTION 5.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF DEBENTURES..........................49 SECTION 5.04. MAY HOLD DEBENTURES.............................................................49 SECTION 5.05. MONEY HELD IN TRUST.............................................................49 SECTION 5.06. COMPENSATION AND REIMBURSEMENT..................................................49 SECTION 5.07. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR...............................50 SECTION 5.08. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR..........................................52 SECTION 5.09. DISQUALIFICATION; CONFLICTING INTERESTS.........................................53 SECTION 5.10. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.........................................54 SECTION 5.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...............................54 SECTION 5.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS........................................................................54 SECTION 5.13. NOTICE OF DEFAULTS..............................................................54 ARTICLE 6 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 6.01. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS..........................55 SECTION 6.02. REPORTS BY TRUSTEE..............................................................56 SECTION 6.03. REPORTS BY COMPANY..............................................................56 ARTICLE 7 CONSOLIDATION, MERGER, SALE OR CONVEYANCE SECTION 7.01. COMPANY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS..................................56 SECTION 7.02. SUCCESSOR CORPORATION SUBSTITUTED...............................................57 SECTION 7.03. MERGER WITH IMPAC...............................................................57 SECTION 7.04. OPINION OF COUNSEL TO TRUSTEE...................................................58 ARTICLE 8 SUPPLEMENTAL INDENTURES SECTION 8.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS..............................58 SECTION 8.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.................................59 SECTION 8.03. EXECUTION OF SUPPLEMENTAL INDENTURES............................................61 SECTION 8.04. EFFECT OF SUPPLEMENTAL INDENTURES...............................................61 SECTION 8.05. CONFORMITY WITH TRUST INDENTURE ACT.............................................61
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PAGE ---- SECTION 8.05. CONFORMITY WITH TRUST INDENTURE ACT.............................................61 SECTION 8.06. REFERENCE IN DEBENTURES TO SUPPLEMENTAL INDENTURES..............................61 ARTICLE 9 COVENANTS SECTION 9.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST......................................62 SECTION 9.02. MAINTENANCE OF OFFICE OR AGENCY.................................................62 SECTION 9.03. MONEY FOR DEBENTURES PAYMENTS TO BE HELD IN TRUST...............................62 SECTION 9.04. LIMITATION ON DIVIDENDS; TRANSACTIONS WITH AFFILIATES...........................64 SECTION 9.05. COVENANTS AS TO LODGIAN CAPITAL TRUST...........................................64 SECTION 9.06. EXISTENCE.......................................................................65 SECTION 9.07. STATEMENT BY OFFICERS AS TO DEFAULT.............................................65 SECTION 9.08. FINANCIAL INFORMATION; SEC REPORTS..............................................65 ARTICLE 10 REDEMPTION OF DEBENTURES SECTION 10.01. APPLICABILITY OF ARTICLE.......................................................66 SECTION 10.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE..........................................66 SECTION 10.03. SELECTION BY TRUSTEE OF DEBENTURES TO BE REDEEMED..............................67 SECTION 10.04. NOTICE OF REDEMPTION...........................................................68 SECTION 10.05. DEPOSIT OF REDEMPTION PRICE....................................................69 SECTION 10.06. DEBENTURES PAYABLE ON REDEMPTION DATE..........................................69 SECTION 10.07. DEBENTURES REDEEMED IN PART....................................................69 ARTICLE 11 SINKING FUNDS SECTION 11.01. APPLICABILITY OF ARTICLE.......................................................70 SECTION 11.02. SATISFACTION OF SINKING FUND PAYMENTS WITH DEBENTURES..........................70 SECTION 11.03. REDEMPTION OF DEBENTURES FOR SINKING FUND......................................71 ARTICLE 12 CONVERSION OF DEBENTURES SECTION 12.01. APPLICABILITY OF ARTICLE.......................................................71 SECTION 12.02. EXERCISE OF CONVERSION PRIVILEGE...............................................71 SECTION 12.03. NO FRACTIONAL SHARES...........................................................73 SECTION 12.04. ADJUSTMENT OF CONVERSION PRICE.................................................73 SECTION 12.05. RESERVATION OF SHARES OF COMMON STOCK..........................................74 SECTION 12.06. PAYMENT OF CERTAIN TAXES UPON CONVERSION.......................................74 SECTION 12.07. NONASSESSABILITY...............................................................74
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PAGE ---- SECTION 12.08. EFFECT OF CONSOLIDATION OR MERGER ON CONVERSION PRIVILEGE......................................................................74 SECTION 12.09. DUTIES OF TRUSTEE REGARDING CONVERSION.........................................75 SECTION 12.10. REPAYMENT OF CERTAIN FUNDS UPON CONVERSION.....................................75 ARTICLE 13 SUBORDINATION OF DEBENTURES SECTION 13.01. DEBENTURES SUBORDINATE TO SENIOR INDEBTEDNESS..................................75 SECTION 13.02. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.................................76 SECTION 13.03. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.................................77 SECTION 13.04. PAYMENT PERMITTED IN CERTAIN SITUATIONS........................................78 SECTION 13.05. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS........................78 SECTION 13.06. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS....................................78 SECTION 13.07. TRUSTEE TO EFFECTUATE SUBORDINATION............................................79 SECTION 13.08. NO WAIVER OF SUBORDINATION PROVISIONS..........................................79 SECTION 13.09. NOTICE TO TRUSTEE..............................................................79 SECTION 13.10. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT..........................................................................80 SECTION 13.11. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS.......................81 SECTION 13.12. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS, PRESERVATION OF TRUSTEE'S RIGHTS...............................................81 SECTION 13.13. ARTICLE APPLICABLE TO PAYING AGENTS............................................81 SECTION 13.14. CERTAIN CONVERSIONS DEEMED PAYMENT.............................................81
v 7 INDENTURE, dated as of June 17, 1998, among Servico Inc. (the "COMPANY"), Lodgian, Inc. ("LODGIAN") and Wilmington Trust Company, as Trustee (the "TRUSTEE"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its secured or unsecured subordinated debentures, notes or other evidences of indebtedness (the "DEBENTURES"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Debentures by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Debentures or of a series thereof, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (d) a reference to a Section or Article is to a Section or Article of this Indenture. "ACT," when used with respect to any Holder of a Debenture, has the meaning specified in Section 1.04. 8 "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "AUTHENTICATING AGENT" means any Person authorized by the Trustee pursuant to Section 2.10 to act on behalf of the Trustee to authenticate Debentures of one or more series. "AUTHORIZED NEWSPAPER" means a newspaper, in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in the place, in connection with which the term is used, or in the financial community of such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day. "BOARD OF DIRECTORS" means either the board of directors of the Company or any duly authorized committee of that board. "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "BUSINESS DAY," when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Debentures, means any day other than a Saturday, Sunday or any other day on which banking institutions in that Place of Payment or other location are permitted or required by any applicable law to close. "COMMISSION" means the United States Securities and Exchange Commission. "COMMON SECURITIES" means undivided beneficial interests in the assets of the Lodgian Capital Trust that rank PARI PASSU with Preferred Securities issued by such Lodgian Capital Trust; PROVIDED, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect to distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. 2 9 "COMMON STOCK" includes any stock of any class of the Company that has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that is not subject to redemption by the Company. Subject to the anti-dilution provisions of any convertible Debenture, however, shares of Common Stock of the Company issuable on conversion of a Debenture shall include only shares of the class designated as Common Stock of the Company at the date of any supplemental indenture, Board Resolution or other instrument authorizing such Debenture or shares of any class or classes resulting from any reclassification or reclassifications thereof that have no preference in respect of the payment of dividends or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company and that are not subject to redemption by the Company; PROVIDED, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion that the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all classes resulting from all such reclassifications. "COMPANY" means the Person named as the "COMPANY" in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "COMPANY" shall mean such successor Person. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by the Chairman of the Board of Directors or the President or any Executive Vice President or any Vice President and by the Treasurer or the Secretary or any Assistant Treasurer or any Assistant Secretary of the Company and delivered to the Trustee. "CORPORATE TRUST OFFICE" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered. "CORPORATION" means a corporation, association, company, joint-stock company or business trust. "COVENANT DEFEASANCE" has the meaning specified in Section 3.05. "DEBENTURE REGISTER" has the meaning specified in Section 2.05. "DEBENTURE REGISTRAR" has the meaning specified in Section 2.05. 3 10 "DEBENTURES" has the meaning stated in the first recital of this Indenture and more particularly means any Debentures authenticated and delivered under this Indenture. "DECLARATION," with respect to a Lodgian Capital Trust, means the Amended and Restated Declaration of Trust of such Lodgian Capital Trust. "DEFAULTED INTEREST" has the meaning specified in Section 2.03. "DEFEASANCE" has the meaning specified in Section 3.04. "DEPOSITARY" means, with respect to the Debentures of any series for which the Company shall determine that such Debentures will be issued as a Global Debenture, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to either Section 2.01 or 2.11. "DOLLAR" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. "EVENT OF DEFAULT" has the meaning specified in Section 4.01. "GLOBAL DEBENTURE" means, with respect to any series of Debentures, a Debenture executed by the Company and authenticated and made available for delivery by the Trustee to the Depositary, or pursuant to the Depositary's instruction, all in accordance with the Indenture, which shall be registered in the name of the Depositary or its nominee. "GUARANTEE" means any Guarantee that the Guarantor may enter into with Wilmington Trust Company or other Persons that operates directly or indirectly for the benefit of holders of Trust Securities of a Lodgian Capital Trust. "GUARANTOR" means the Company in its capacity as guarantor under any Guarantees. "HOLDER", when used with respect to any Debenture, means the Person in whose name the Debenture is registered in the Debenture Register. "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures 4 11 supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of Debentures of any series established as contemplated by Section 2.01. "INTEREST," when used with respect to an Original Issue Discount Debenture that by its terms bears interest only at Maturity, means interest payable at Maturity. "INTEREST PAYMENT DATE," when used with respect to any Debenture, means the Stated Maturity of an installment of interest on such Debenture. "LODGIAN" has the meaning stated in the first paragraph of this Indenture. "LODGIAN CAPITAL TRUST" means Lodgian Capital Trust I, a Delaware statutory business trust, or any permitted successor thereto, or any substantially similar Delaware statutory business trust sponsored by the Company for the purpose of issuing Debentures hereunder. "MATURITY," when used with respect to any Debenture, means the date on which the principal of such Debenture or an installment of such principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, notice of option to elect repayment or otherwise. "MERGER" has the meaning specified in Section 7.03. "NOTICE OF DEFAULT" has the meaning specified in Section 4.01. "NYSE" means the New York Stock Exchange, Inc. or any successor thereto. "OFFICERS' CERTIFICATE" means, in the case of the Company, signed in the name of the Company by its Chairman of the Board, Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer, any Vice President (whether or not designated by a number or word or words added before or after the title Vice President), or Treasurer or an Assistant Treasurer, and by its Secretary or an Assistant Secretary, or its Comptroller or an Assistant Comptroller, as the case may be, and delivered to the Trustee. "OPINION OF COUNSEL" means a written opinion of counsel, who may be an employee of or counsel for the Company and who shall be acceptable to the Trustee. 5 12 "ORIGINAL ISSUE DISCOUNT DEBENTURE" means any Debenture that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 4.02. "OUTSTANDING," when used with respect to Debentures of any series, means, as of the date of determination, all Debentures of such series theretofore authenticated and delivered under this Indenture, except: (i) Debentures of such series theretofore canceled by the Trustee or any Paying Agent or delivered to the Trustee for cancellation or that have previously been canceled; (ii) Debentures of such series for whose payment or redemption of which money or United States Government Obligations in the necessary amount has been theretofore deposited in accordance with Article 3 with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of Debentures of such series; PROVIDED, if Debentures of such series or portions of Debentures of such series are to be redeemed prior to the Maturity thereof, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Debentures of such series that have been paid pursuant to Section 2.07 or in exchange for or in lieu of which other Debentures of such series have been authenticated and delivered pursuant to this Indenture, other than any Debentures of such series in respect of which there shall have been presented to the Trustee proof satisfactory to it that Debentures of such series are held by a bona fide purchaser in whose hands Debentures of such series are valid obligations of the Company; and (iv) Debentures of such series as to which Defeasance has been effected pursuant to Section 3.04; PROVIDED, that in determining whether the Holders of the requisite aggregate principal amount of the Outstanding Debentures of such series have given any request, demand, authorization, direction, notice, consent or waiver hereunder or whether a quorum is present at a meeting of Holders of Debentures of such Series (A) the principal amount of an Original Issue Discount Debenture of such series that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 4.02, (B) the principal amount of a Debenture of such series denominated in a foreign currency or 6 13 currencies shall be the U.S. dollar equivalent, determined on the date of original issuance of such Debenture, of the principal amount (or, in the case of an Original Issue Discount Debenture of such series, the U.S. dollar equivalent on the date of original issuance of such Debenture of the amount determined as provided in (A) above) of such Debenture, and (C) Debentures of such series owned by the Company or any other obligor upon such Debentures, or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, or upon any such determination as to the presence of a quorum, only Debentures of such series that a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Debentures of such series so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon such Debentures or any Affiliate of the Company or of such other obligor. "PAYING AGENT" means any Person authorized by the Company to pay the principal of and any premium and interest on any Debentures on behalf of the Company. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PLACE OF PAYMENT," when used with respect to the Debentures of any series, means the place or places where, subject to the provisions of Section 9.02, the principal of and any premium and interest on Debentures of such series are payable as specified as contemplated by Section 2.01. "PREDECESSOR DEBENTURE" of any Debenture of any series means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such Debenture; and, for the purposes of this definition, any Debenture of any series authenticated and delivered under Section 2.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture. "PREFERRED SECURITIES" means undivided beneficial interests in the assets of Lodgian Capital Trust that rank PARI PASSU with Common Securities issued by such Lodgian Capital Trust; PROVIDED, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of 7 14 distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. "REDEMPTION DATE," when used with respect to any Debenture to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE," when used with respect to any Debenture to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "REPRESENTATIVE" means (a) the indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. "RESALE RESTRICTION TERMINATION DATE" means the first date on which the Preferred Securities, the Guarantee, the Debentures and any Common Stock issued or issuable upon the conversion or exchange thereof (other than (i) such securities acquired by the Company or any Affiliate thereof and (ii) Common Stock issued upon the conversion or exchange of any such security described in clause (i) above) may be sold pursuant to Rule 144(k). "RESPONSIBLE OFFICER" means, when used with respect to the Trustee, any vice president, any assistant vice president or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and assigned to the Corporate Trust Administration department of the Trustee and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "RULE 144(K)" means Rule 144(k) under the Securities Act or any successor rule. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor statute. 8 15 "SENIOR INDEBTEDNESS" shall mean, with respect to the Company, the principal of, premium, if any, and interest on (i) all indebtedness of the Company, whether outstanding on the date hereof or hereafter created, incurred or assumed, which is for money borrowed, or evidenced by a note or similar instrument given in connection with the acquisition of any business, properties or assets, including securities (other than trade accounts in the ordinary course of business), (ii) any indebtedness of others of the kinds described in the preceding clause (i) for the payment of which the Company is responsible or liable (directly or indirectly, contingently or otherwise) as guarantor or otherwise and (iii) amendments, renewals, extensions and refundings of any such indebtedness, unless in any instrument or instruments evidencing or securing such indebtedness or pursuant to which the same is outstanding, or in any such amendment, renewal, extension or refunding, it is expressly provided that such indebtedness is not superior in right of payment to the Debentures of any series. The Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the provisions of Article 13 irrespective of any amendment, modification or waiver of any term of the Senior Indebtedness or extension or renewal of the Senior Indebtedness. "STATED MATURITY," when used with respect to any Debenture or any installment of principal thereof or interest thereon, means the date specified in such Debenture as the fixed date on which the principal of such Debenture or such installment of principal or interest is due and payable. "SUBSIDIARY" means, with respect to any Person, (i) any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture, business trust or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. "TRUSTEE" means the Person named as the "TRUSTEE" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "TRUSTEE" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "TRUSTEE" as used with respect to the Debentures of any series shall mean the Trustee with respect to Debentures of that series. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; PROVIDED, that in the event the Trust Indenture Act of 1939 is amended after such date, "TRUST INDENTURE 9 16 ACT" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "TRUST SECURITIES" means Common Securities and Preferred Securities of a Lodgian Capital Trust. "UNITED STATES" means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the United States for the payment of which its full faith and credit is pledged, or obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States and the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States that, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depository receipt; PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depository receipt. "VOTING STOCK," as applied to stock of any Person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. "YIELD TO MATURITY" means the yield to maturity on Debentures of any series, calculated at the time of issuance of such series, or, if applicable, at the most recent redetermination of interest on such series, and calculated in accordance with accepted financial practice. SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS. Except as otherwise expressly provided by this Indenture, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the 10 17 proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion by or on behalf of the Company with respect to compliance with a condition or covenant provided for in this Indenture, except for certificates provided for in Section 9.07, shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, the individual has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such officer's certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or 11 18 representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. ACTS OF HOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders signing such instrument or instruments and so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Debenture of any series, shall be sufficient for any purpose of this Indenture and (subject to Section 5.02) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to the execution thereof. Where such execution is by a signer acting in a capacity other than the signer's individual capacity, such certificate or affidavit shall also constitute sufficient proof of the signer's authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount and serial numbers of Debentures of any series held by any Person, and the date of holding the same, shall be proved by the Debenture Register. 12 19 (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debenture of any series shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. (e) With respect to the Debentures of any series, upon receipt by the Trustee of (i) any written notice directing the time, method or place of conducting any proceeding or exercising any trust or power pursuant to Section 4.01 with respect to Debentures of such series or (ii) a request by the Company pursuant to a resolution of its Board of Directors or any written demand, request or notice with respect to any matter on which the Holders of Debentures of such series are entitled to act under this Indenture, in each case from Holders of less than, or proxies representing less than, 25% of the aggregate principal amount or, if a higher percentage is specified pursuant to this Indenture, the requisite principal amount of Outstanding Debentures of such series entitled to give such demand, request or notice, the Trustee shall establish a record date for determining Holders of Outstanding Debentures of such series entitled to join in such demand, request or notice, which record date shall be the close of business on the day the Trustee received such demand, request or notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such demand, request or notice whether or not such Holders remain Holders after such record date; PROVIDED, that unless the Holders of the requisite principal amount of Outstanding Debentures of such series shall have joined in such demand, request or notice prior to the day that is the ninetieth day after such record date, such demand, request or notice shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, (i) after the expiration of such 90-day period, a new demand, request or notice identical to a demand, request or notice that has been canceled pursuant to the proviso to the preceding sentence or (ii) during any such 90-day period, a new demand, request or notice that has been canceled pursuant to the proviso to the preceding sentence or (iii) during any such 90-day period, a new demand, request or notice contrary to or different from such demand, request or notice, in either of which events a new record date shall be established pursuant to the provisions of this clause. (f) The Persons entitled to vote a majority in principal amount of the Outstanding Debentures of a series shall constitute a quorum for a meeting of Holders of Debentures of such series. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Debentures of such series, be dissolved. In 13 20 any other case, the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. Subject to the foregoing, at the reconvening of any such further adjourned meeting, the Persons entitled to vote 40% in aggregate principal amount of the Outstanding Debentures of such series shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. Notice of the reconvening of an adjourned meeting which was adjourned for lack of a quorum shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Debentures of such series which shall constitute a quorum. Except as limited by Sections 4.13 and 8.02, and subject to the provisions described in the next succeeding paragraph, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the lesser of (i) the Holders of a majority in principal amount of the Outstanding Debentures of that series and (ii) 662/3% in principal amount of Outstanding Debentures of such series represented and voting at such meeting or adjourned meeting; PROVIDED, HOWEVER, that any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage which is less than a majority in principal amount of the Outstanding Debentures of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the lesser of (i) the Holders of such specified percentage in principal amount of the Outstanding Debentures of that series and (ii) a majority in principal amount of Debentures of such series represented and voting at such meeting or adjourned meeting. Any resolution passed or decision taken at any meeting of Holders of Debentures of any series duly held in accordance with this Section shall be binding on all the Holders of Debentures of such series whether or not present or represented at the meeting. With respect to any consent, waiver or other action which this Indenture expressly provides may be given by the Holders of a specified percentage of Outstanding Debentures of all series affected thereby (acting as one class), only the principal amount of Outstanding Debentures of any series represented at a meeting or adjourned meeting duly reconvened at which a quorum is present, held in accordance with this Section, and voting in favor of such action, shall be counted for purposes of calculating the aggregate principal amount of Outstanding Debentures of all series affected thereby favoring such action. Notwithstanding 14 21 the foregoing or the Trust Indenture Act, the Company shall not set a record date for, and the provisions of this clause shall not apply with respect to, any action to be given or taken by Holders pursuant to Section 4.01, 4.02 or 4.12. SECTION 1.05. NOTICE, ETC., TO TRUSTEE, COMPANY AND LODGIAN. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (a) the Trustee by any Holder or by the Company or Lodgian shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Telecopy No.: 302-651-8882, Attention: Corporate Trust Administration, or (b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company or Lodgian addressed to it at 1601 Belvedere Road, West Palm Beach, Florida 35406, Telecopy No.: 561- 689-8946, to the attention of the Chief Executive Officer, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. NOTICE TO HOLDERS OF DEBENTURES; WAIVER. Except as otherwise expressly provided herein, where this Indenture provides for notice to Holders of Debentures of any event, such notice shall be sufficiently given to Holders of any series if in writing and mailed, first-class postage prepaid, to each Holder of a Debenture affected by such event, at the address of such Holder as registered in the books of the Company, not earlier than the earliest date, and not later than the latest date, prescribed for the giving of such notice; PROVIDED, that any notice of redemption of Debentures required to be given to all Holders shall also be given by release made by the Company to Reuters Economic Services and Bloomberg Business News not earlier than the earliest date, and not later than the latest date, prescribed for the giving of such notice. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice to Holders of Debentures by mail, then such notification as shall be made with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. In any case where notice to Holders of Debentures is given by mail, neither the failure to mail such notice, nor any defect in any notice mailed to any particular Holder of a Debenture shall affect the sufficiency of such notice with respect to other Holders of Debentures. 15 22 Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Debentures shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.07. LANGUAGE OF NOTICES, ETC.. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. SECTION 1.08. CONFLICT WITH TRUST INDENTURE ACT. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture that is required to be included in this Indenture by any of Sections 310 to 318, inclusive, of the Trust Indenture Act, such required provision shall control. SECTION 1.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.10. SUCCESSORS AND ASSIGNS. Subject to Section 7.03, all covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not; PROVIDED that the Company shall have the right at all times to assign any of its respective rights or obligations under this Indenture to a direct or indirect wholly owned subsidiary of the Company; PROVIDED, FURTHER that, in the event of any such assignment, the Company will remain liable for all of their respective obligations. Except as provided in this Section 1.10, this Indenture may not otherwise be assigned by the parties thereto. SECTION 1.11. SEPARABILITY CLAUSE. In case any provision in this Indenture or the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.12. BENEFITS OF INDENTURE. Nothing in this Indenture or the Debentures, express or implied, shall give to any Person, other than the parties hereto, any Authenticating Agent, any Paying Agent, any Debentures Registrar and their successors hereunder, the holders of Trust Securities, the Holders of Debentures, and the holders of Senior Indebtedness, any benefit or any legal or equitable right, remedy or claim under this Indenture. 16 23 SECTION 1.13. GOVERNING LAW. This Indenture and the Debentures shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. SECTION 1.14. COUNTERPARTS. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 1.15. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date, sinking fund payment date, Maturity or Stated Maturity of any Debenture of any series shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Debentures other than a provision in the Debentures of any series that specifically states that such provision shall apply in lieu of this Section) payment of interest or principal (and premium, if any) will be made on the next succeeding Business Day at such Place of Payment; PROVIDED, that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, to such succeeding Business Day and except that, if such Business Day is in the next succeeding calendar year, then such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. SECTION 1.16. IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of a Debenture of any series, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer, director or employee, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations of the Company, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers, directors or employees, as such, of the Company or of any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, shareholder, officer, director or employee, as such, because of the creation of the indebtedness hereby authorized, or under of by reason of the obligations or agreements contained in this Indenture or in any of the Debentures or implied 17 24 therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Debentures. All payments of interest and other amounts, if any, to be made by the Trustee hereunder shall be made only from the money deposited with the Trustee and only to the extent that the Trustee shall have sufficient income or proceeds to make such payments in accordance with the terms of this Indenture, and each Holder thereof, by its acceptance of a Debenture, agrees that it will look solely to the income and proceeds deposited with the Trustee to the extent available for distribution to such Holder as provided and that the Trustee is not personally liable in any manner to such Holder for any amounts payable or any liability under this Indenture or any Debenture. ARTICLE 2 ISSUE, DESCRIPTION, TERMS, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.01. DESIGNATION, TERMS, AMOUNT AUTHENTICATION AND DELIVERY OF DEBENTURES. The aggregate principal amount of Debentures that may be authenticated and delivered under this Indenture is unlimited. The Debentures may be issued in one or more series up to the aggregate principal amount of Debentures of that series from time to time authorized by or pursuant to a Board Resolution or pursuant to one or more indentures supplemental hereto, prior to the initial issuance of Debentures of a particular series. Prior to the initial issuance of Debentures of any series, there shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto: (a) the title of the Debentures of the series (which shall distinguish the Debentures of the series from all other Debentures); (b) any limit upon the aggregate principal amount of the Debentures of that series that may be authenticated and delivered under this Indenture (except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures of that series); (c) the date or dates on which the principal of the Debentures of the series is payable; 18 25 (d) the rate or rates at which the Debentures of the series shall bear interest or the manner of calculation of such rate or rates, if any; (e) the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest will be payable or the manner of determination of such Interest Payment Dates and the record date for the determination of Holders to whom interest is payable on any such Interest Payment Dates; (f) the right, if any, to extend or defer the interest payment periods and the duration of such extension; (g) the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series may be redeemed, in whole or in part, at the option of the Company; (h) the obligation, if any, of the Company to redeem or purchase Debentures of the series pursuant to any sinking fund or analogous provisions (including payments made in cash in anticipation of future sinking fund obligations) or at the option of a Holder thereof and the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (i) any exchangeability, conversion or prepayment provisions of the Debentures; (j) the form of the Debentures of the series including the form of the certificate of authentication for such series; (k) if other than denominations of $50 or any integral multiple thereof, the denominations in which the Debentures of the series shall be issuable; (l) any and all other terms with respect to such series (which terms shall not be inconsistent with the terms of this Indenture); (m) whether the Debentures are issuable as a Global Debenture and, in such case, the identity of the Depositary for such series; and (n) If the Debentures of such series are to be deposited as trust assets in a Lodgian Capital Trust the name of the applicable Lodgian 19 26 Capital Trust (which shall distinguish such Lodgian Capital Trust from all other Lodgian Capital Trusts) into which the Debentures of such series are to be deposited as trust assets and the date of its Declaration. All Debentures of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to any such Board Resolution or in any indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. SECTION 2.02. FORM OF DEBENTURE AND TRUSTEE'S CERTIFICATE. The Debentures of any series and the Trustee's certificate of authentication to be borne by such Debentures shall be substantially of the tenor and purport as set forth in one or more indentures supplemental hereto or as provided in a Board Resolution and as set forth in an Officers' Certificate, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Debentures of that series may be listed, or to conform to usage. SECTION 2.03. DATE AND DENOMINATIONS OF DEBENTURES AND PROVISIONS FOR PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Debentures shall be issuable as registered Debentures and in the denominations of $50 or any integral multiple thereof, subject to Section 2.01(k). The Debentures of a particular series shall bear interest payable on the dates and at the rate specified with respect to that series. The principal of and the interest on the Debentures of any series, as well as any premium thereon in case of redemption thereof prior to maturity, shall be payable in the coin or currency of the United States of America that at the time is legal tender for public and private debt, at the office or agency of the Company maintained for that purpose in the City of Wilmington, State of Delaware, or any other place designated by the Company; PROVIDED that in the event the Debentures are issued in definitive form, interest may be paid at the option of the Company by check mailed to the address of the holder entitled thereto. Each Debenture shall be dated the date of its authentication. Interest on the Debentures shall be computed on the basis of a 360-day year composed of twelve 30-day months. 20 27 The interest installment on any Debenture that is payable, and is punctually paid or duly provided for, on any Interest Payment Date for Debentures of that series shall be paid to the person in whose name said Debenture (or one or more Predecessor Debentures) is registered at the close of business on the regular record date for such interest installment. Except as provided below, accrued but unpaid interest shall not be paid in cash on Debentures that are converted by a Holder into Common Stock, nor shall such accrued interest be converted into additional shares of Common Stock. Holders of Debentures at the close of business on a regular record date shall be entitled to receive the interest payable on such Debentures (except that holders of Debentures called for redemption on a redemption date between such regular record date and the Interest Payment Date shall not be entitled to receive such interest on such Interest Payment Date) on the corresponding Interest Payment Date notwithstanding the conversion of such Debentures following such regular record date and prior to such Interest Payment Date. However, Debentures surrendered for conversion during the period between the close of business on any regular record date and the opening of business on the corresponding Interest Payment Date (except Debentures called for redemption on a redemption date during such period) shall be accompanied by payment of an amount equal to the interest payable on such Debentures on such Interest Payment Date. A Holder of Debentures on a regular record date who (or whose transferee) tenders any such Debentures for conversion into shares of Common Stock on such Interest Payment Date shall receive the interest payable by the Company on such Debentures on such date, and the converting Holder need not include payment of the amount of such interest upon surrender of Debentures for conversion. The Company shall make no payment or allowance for dividends on the shares of Common Stock issued upon conversion. Any interest on any Debenture that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date for Debentures of the same series (herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the registered Holder on the relevant regular record date by virtue of having been such Holder; and such Defaulted Interest shall be paid by the Company, at its election, as provided in clause (a) or clause (b) below: (a) The Company may make payment of any Defaulted Interest on Debentures to the persons in whose names such Debentures (or their respective Predecessor Debentures) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of 21 28 such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest, which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Debentureholder at his or her address as it appears in the Debenture Register, not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Debentures (or their Predecessor Debentures) are registered on such special record date and shall be no longer payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest on any Debentures in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Debentures may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Unless otherwise set forth in a Board Resolution or one or more indentures supplemental hereto establishing the terms of any series of Debentures pursuant to Section 2.01 hereof, the term "regular record date" as used in this Section with respect to a series of Debentures with respect to any Interest Payment Date for such series shall mean the fifteenth day preceding such Interest Payment Date, whether or not such date is a Business Day. Subject to the foregoing provisions of this Section, each Debenture of a series delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Debenture of such series shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. SECTION 2.04. EXECUTION OF DEBENTURES. The Debentures shall be signed on behalf of the Company by the Chairman or Vice Chairman of its Board of Directors or its President or one of its Vice Presidents. The signature of the 22 29 Chairman, Vice Chairman, President or a Vice President upon the Debentures, may be in the form of a manual or facsimile signature of a present or any future Chairman, Vice Chairman, President or Vice President and may be imprinted or otherwise reproduced on the Debentures and for that purpose the Company may use the manual or facsimile signature of any person who shall have been a Chairman, Vice Chairman, President or Vice President notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of such person shall have ceased to be the Chairman, Vice Chairman, President or a Vice President of the Company, as the case may be. Only such Debentures as shall bear thereon a certificate of authentication substantially in the form established for such Debentures, executed manually by an authorized signatory of the Trustee, or by any Authenticating Agent with respect to such Debentures, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate executed by the Trustee, or by any Authenticating Agent appointed by the Trustee with respect to such Debentures, upon any Debenture executed by the Company shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and made available for delivery hereunder and that the Holder is entitled to the benefits of this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures of any series executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures, signed by its President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and make available for delivery such Debentures. In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 5.01) shall be fully protected in relying upon that the form and terms thereof have been established in conformity with the provisions of this Indenture. The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. SECTION 2.05. EXCHANGE OF DEBENTURES. (a) Debentures of any series may be exchanged upon presentation thereof at the office or agency of the Company designated for such purpose in the Borough of Manhattan, The City and State of 23 30 New York, or such other location designated by the Company for such purpose for other Debentures of such series of authorized denominations, and for a like aggregate principal amount, upon payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, all as provided in this Section 2.05. In respect of any Debentures so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall make available for delivery in exchange therefor the Debenture or Debentures of the same series that the Debentureholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. (b) The Company shall keep, or cause to be kept, at its office or agency designated for such purpose in the City of Wilmington, State of Delaware, or such other location designated by the Company a register or registers (herein referred to as the "DEBENTURE REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Debentures and the transfers of Debentures as in this Article provided and that at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Debentures and transfer of Debentures as herein provided shall be appointed as authorized by Board Resolution (the "DEBENTURE REGISTRAR"). Upon surrender for transfer of any Debenture at the office or agency of the Company designated for such purpose in the City of Wilmington, State of Delaware, or such other location designated by the Company, the Company shall execute, the Trustee shall authenticate and such office or agency shall make available for delivery in the name of the transferee or transferees a new Debenture or Debentures of the same series as the Debenture presented for a like aggregate principal amount. All Debentures presented or surrendered for exchange or registration of transfer, as provided in this Section, shall be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company or the Debenture Registrar, duly executed by the registered Holder or by his duly authorized attorney in writing. (c) No service charge shall be made for any exchange or registration of transfer of Debentures, or issue of new Debentures in case of partial redemption of any series, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.06, Section 8.06 and Section 10.07 not involving any transfer. (d) The Company shall not be required (i) to issue, exchange or register the transfer of any Debentures during a period beginning at the opening of 24 31 business 15 days before the day of the mailing of a notice of redemption of less than all the outstanding Debentures of the same series and ending at the close of business on the day of such mailing, nor (ii) to register the transfer of or exchange any Debentures of any series or portions thereof called for redemption. The provisions of this Section 2.05 are, with respect to any Global Debenture, subject to Section 2.11 hereof. SECTION 2.06. TEMPORARY DEBENTURES. Pending the preparation of definitive Debentures of any series, the Company may execute, and the Trustee shall authenticate and make available for delivery, temporary Debentures of any authorized denomination, and substantially in the form of the definitive Debentures in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every temporary Debenture of any series shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Debentures of such series. Without unnecessary delay the Company will execute and will furnish definitive Debentures of such series and thereupon any or all temporary Debentures of such series may be surrendered in exchange therefor (without charge to the Holders), at the office or agency of the Company designated for the purpose in the City of Wilmington, State of Delaware, or such other location designated by the Company, and the Trustee shall authenticate and such office or agency shall make available for delivery in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures of such series, unless the Company advises the Trustee to the effect that definitive Debentures need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Debentures of such series shall be entitled to the same benefits under this Indenture as definitive Debentures of such series authenticated and delivered hereunder. SECTION 2.07. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES. In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company (subject to the next succeeding sentence) shall execute, and upon its request the Trustee (subject as aforesaid) shall authenticate and make available for delivery, a new Debenture of the same series bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee may authenticate 25 32 any such substituted Debenture and make available for delivery the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Debenture that has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and to the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. Every Debenture issued pursuant to the provisions of this Section in substitution for any Debenture that is mutilated, destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures of the same series duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.08. CANCELLATION OF SURRENDERED DEBENTURES. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be canceled by it, and no Debentures shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On written request of the Company, the Trustee shall deliver to the Company canceled Debentures held by the Trustee. If the Company shall otherwise acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. SECTION 2.09. PROVISIONS OF INDENTURE AND DEBENTURES FOR SOLE BENEFIT OF PARTIES AND DEBENTUREHOLDERS. Nothing in this Indenture or in the Debentures, 26 33 express or implied, shall give or be construed to give to any person, firm or corporation, other than the parties hereto and the Holders, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the Holders. SECTION 2.10. APPOINTMENT OF AUTHENTICATING AGENT. So long as any of the Debentures of any series remain outstanding there may be an Authenticating Agent for any or all such series of Debentures, which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Debentures of such series issued upon exchange, transfer or partial redemption thereof, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Debentures by the Trustee shall be deemed to include authentication by an Authenticating Agent for such series except for authentication upon original issuance or pursuant to Section 2.07 hereof. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation that has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and that is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by Federal or State authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time (and upon request by the Company shall) terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, the Trustee may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto. SECTION 2.11. GLOBAL DEBENTURE. (a) If the Company shall establish pursuant to Section 2.01 that the Debentures of a particular series are to be issued as one or more Global Debentures, then the Company shall execute and the Trustee shall, in accordance with Section 2.04, authenticate and make available for delivery, one or more Global Debentures, which shall represent, and shall be denominated in an aggregate amount equal to the aggregate principal amount of, 27 34 all of the Outstanding Debentures of such series, shall be registered in the name of the Depositary or its nominee, shall be made available for delivery by the Trustee to the Depositary or pursuant to the Depositary's instruction and shall bear a legend substantially to the following effect: "Except as otherwise provided in Section 2.11 of the Indenture, this Debenture may be transferred, in whole but not in part, only to another nominee of the Depositary or to a successor Depositary or to a nominee of such successor Depositary." (b) Notwithstanding the provisions of Section 2.05, the Global Debenture of a series may be transferred, in whole but not in part and in the manner provided in Section 2.05, only to another nominee of the Depositary for such series, or to a successor Depositary for such series selected or approved by the Company or to a nominee of such successor Depositary. (c) If at any time the Depositary for a series of Debentures notifies the Company that it is unwilling or unable to continue as Depositary for such series or if at any time the Depositary for such series shall no longer be registered or in good standing under the Exchange Act, or other applicable statute or regulation and a successor Depositary for such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, this Section 2.11 shall no longer be applicable to the Debentures of such series and the Company will execute and, subject to Section 2.05, the Trustee will authenticate and make available for delivery Debentures of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debenture. In addition, the Company may at any time determine that the Debentures of any series shall no longer be represented by one or more Global Debentures and that the provisions of this Section 2.11 shall no longer apply to the Debentures of such series. In such event the Company will execute and, subject to Section 2.05, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and make available for delivery Debentures of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debentures. Upon the exchange of the Global Debentures for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debentures shall be canceled by the Trustee. Such Debentures in definitive registered form issued in exchange for the Global Debentures pursuant to this Section 2.11 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The 28 35 Trustee shall make available for delivery such Debentures to the Depositary for delivery to the persons in whose names such Debentures are so registered. SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Debentures may use "CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP numbers in notices of redemption or exchange as a convenience to Debentureholders and no representation shall be made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of redemption or exchange and any such redemption or exchange shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE 3 SATISFACTION AND DISCHARGE SECTION 3.01. SATISFACTION AND DISCHARGE OF INDENTURE. Except as otherwise specified as contemplated by Section 2.01, this Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Debentures herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when: (a) either, (i) all Debentures theretofore authenticated and delivered and have been delivered to the Trustee for cancellation; or (ii) all such Debentures not theretofore delivered to the Trustee for cancellation, (A) have become due and payable, or (B) will become due and payable at their Stated Maturity within one year, or (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, 29 36 and the Company, in the case of (A), (B) or (C) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose, an amount sufficient to pay and discharge the entire indebtedness on such Debentures not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and any interest to the date of such deposit (in the case of Debentures that have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 5.06, the obligations of the Company to any Authenticating Agent under Section 2.10 and, if money shall have been deposited with the Trustee pursuant to clause 3.01(a)(ii) of this Section, the obligations of the Trustee under Section 3.02 and the last paragraph of Section 9.03 shall survive. SECTION 3.02. APPLICATION OF TRUST MONEY. Subject to the provisions of the last paragraph of Section 9.03, all money and U.S. Government Obligations deposited with the Trustee pursuant to Section 3.01 or 3.03 and all money received by the Trustee in respect of such U.S. Government Obligations shall be held in trust and applied by it, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the Persons entitled thereto, of the principal (and premium, if any) and any interest for whose payment such money and U.S. Government Obligations have been deposited with or received by the Trustee. Money deposited pursuant to this Section not in violation of this Indenture shall not be subject to claims of the holders of Senior Indebtedness under Article 13. All moneys deposited with the Trustee pursuant to Section 3.04 for the payment of Debentures subsequently converted shall be returned to the Company upon Company Request; PROVIDED, that the Company shall have furnished to the Trustee such security or indemnity as the Trustee may require. SECTION 3.03. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE. If applicable to Debentures of any series, the Company may elect, at 30 37 its option at any time, to have Section 3.04 or Section 3.05 applied to any such series of Debentures or any Debentures of such series, as the case may be, designated pursuant to Section 2.01 as being defeasible pursuant to such Section 3.04 or 3.05, in accordance with any applicable requirements provided pursuant to Section 2.01 and upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 2.01 for such Debentures. SECTION 3.04. DISCHARGE AND DEFEASANCE. If this Section 3.04 is specified, under the terms of Section 2.01, to be applicable to Debentures of any series, then notwithstanding Section 3.01 and upon compliance with the applicable conditions set forth in 3.06: (1) the Company shall be deemed to have paid and discharged the entire indebtedness on all the Outstanding Debentures of any such series ("DEFEASANCE") and (2) the provisions of this Indenture as it relates to such Outstanding Debentures shall no longer be in effect (except (i) as to the rights of Holders of Debentures of such series to receive, solely from the trust fund described in Section 3.06, payment of (a) the principal of (and premium, if any) and any installment of principal of (and premium, if any) or interest on Debentures of such series on the Stated Maturity of such principal (and premium, if any) or installment of principal (and premium, if any) or interest or upon optional redemption and/or (b) any mandatory sinking fund payments or analogous payments applicable to the Debentures of such series on that day on which such payments are due and payable in accordance with the terms of the Indenture and of Debentures of such series, (ii) the Company's obligations with respect to Debentures of such series under Sections 2.06, 2.05, 2.07, 9.02, 9.03, and 9.04 and (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including those under Section 5.08 hereof). SECTION 3.05. COVENANT DEFEASANCE. If this Section 3.05 is specified, as contemplated by Section 2.01, to be applicable to any series of Debentures or any Debentures of such series, as the case may be, (a) the Company shall be released from its obligations under Sections 9.04 through 9.07, inclusive, and any covenants provided pursuant to Section 2.01(l) or 8.01(b) for the benefit of the Holders of Debentures of such series that pursuant to the terms of such Debentures of such series are defeasible pursuant to this Section 3.05 and (b) the occurrence of any event specified in Sections 4.01(d) (with respect to any of Sections 9.03 through 9.07, inclusive, and any such covenants provided pursuant to Sections 2.01(l), 8.01(b) or 8.01(d) and 4.01(g) (if pursuant to the terms of such Debentures this Section 3.05 is applicable to any such event specified in Section 4.01(g)) shall be deemed not to be or result in an Event of Default, in each case with respect to Debentures of such series as provided in this Section on and after the date the conditions set forth in Section 3.06 are satisfied (hereinafter called "COVENANT DEFEASANCE"). For this purpose, such Covenant Defeasance means 31 38 that, with respect to Debentures of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 4.01(d) and 4.01(g)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Debentures shall be unaffected thereby. SECTION 3.06. CONDITIONS TO DEFEASANCE. The following shall be the conditions to the application of Section 3.04 or Section 3.05 to any applicable series of Debentures or any Debentures of such series, as the case may be (a) either (i) with respect to all Outstanding Debentures of such series or such Debentures of such Series, as the case may be, with reference to this Section 3.06, the Company has deposited or caused to be deposited with the Trustee, under the terms of an escrow trust agreement satisfactory to the Trustee, irrevocably (but subject to the provisions of Section 3.02 and the last paragraph of Section 9.03), as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Debentures of such series, (A) lawful money of the United States in an amount, or (B) U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than the opening of business on the due dates of any payment referred to in clause (A) or (B) of this subparagraph (a)(i) lawful money of the United States in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge (1) the principal of (and premium, if any) and each installment of principal (and premium, if any) and interest on such Debentures the Stated Maturity of such principal or installment of principal or interest or upon optional redemption and (2) any mandatory sinking fund payments or analogous payments applicable to the Debentures of such series on the day on which such payments are due and payable in accordance with the terms of this Indenture and of the Debentures of such series; or 32 39 (ii) the Company has properly fulfilled such other means of satisfaction and discharge as is specified, as contemplated by Section 2.01, to be applicable to the Debentures of such series; (b) the Company has paid or caused to be paid all other sums payable with respect to the Debentures of such series; (c) such deposit for the benefit of Holders of Debentures of such series will not result in a breach or violation of, or constitute a default under, this Indenture, any material indenture, or any other agreement or instrument to which the Company or its subsidiaries or any of their properties is a party or by which any of them is bound; (d) no Event of Default or event (including such deposit) that with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the Debentures of such series shall have occurred and be continuing on the date of such deposit and no Event of Default under Section 4.01(e) or Section 4.01(f) or event that, with the giving of notice or lapse of time, or both, would become an Event of Default under Section 4.01(e) or Section 4.01(f), shall have occurred and be continuing on the 91st day after such date; (e) in the event of an election to have Section 3.04 apply to the Debentures of any series, the Company has delivered to the Trustee (i) an Opinion of Counsel satisfactory to the Trustee to the effect, or (ii) an Internal Revenue Service ruling satisfactory to the Trustee to the effect, that the Holders of Debentures of such series shall not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; (f) in the event of an election to have Section 3.05 apply to Debentures of any series, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of Debentures of such series will not recognize gain or loss for federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to the Debentures of such series and will be subject to United States federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur; 33 40 (g) if the Debentures of such series are then listed on any domestic or foreign securities exchange, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit, defeasance and discharge will not cause the Debentures of such series to be delisted; (h) no default in the payment of the principal (and premium, if any) or any interest on any Senior Indebtedness beyond any applicable grace period shall have occurred and be continuing; (i) no other default with respect to any Senior Indebtedness shall have occurred and be continuing and shall have resulted in the acceleration of such Senior Indebtedness; and (j) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the Defeasance or Covenant Defeasance with respect to Debentures of such series have been complied with and an Opinion of Counsel to the effect that either (i) as a result of such deposit and the related exercise of the Company's option under this Article, registration is not required under the Investment Company Act of 1940, as amended, by the Company, the trust funds representing such deposit or the Trustee or (ii) all necessary registrations under said Act have been effected. Any deposits with the Trustee referred to in Section 3.06(a)(i) shall be irrevocable and shall be made under the terms of an escrow/trust agreement in form and substance satisfactory to the Trustee. If any Outstanding Debentures of such series are to be redeemed prior to their Stated Maturity, whether pursuant to any optional redemption provisions or in accordance with any mandatory sinking fund requirement, the applicable escrow trust agreement shall provide therefor and the Company shall make such arrangements as are satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. Upon Defeasance with respect to all the Debentures of any series, the terms and conditions of the Debentures of such series, including the terms and conditions with respect thereto set forth in this Indenture, shall no longer be binding upon, or applicable to, the Company; PROVIDED, that the Company shall not be discharged from any payment obligations in respect of Debentures of such series that are deemed not to be Outstanding under clause (iii) of the definition thereof if such obligations continue to be valid obligations of the Company under applicable law. 34 41 Notwithstanding the cessation, termination and discharge of all obligations, covenants and agreements (except as provided above in this Section 3.06) of the Company under this Indenture with respect to the Debentures of any series, the obligations of the Company to the Trustee under Section 5.06, and the obligations of the Trustee under Section 3.02 and the last paragraph of Section 9.03 shall survive with respect the Debentures of such series. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in this Section 3.06 with respect to Debentures of any series that, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to Debentures of such series. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to this Section 3.06 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Debentures. ARTICLE 4 REMEDIES SECTION 4.01. EVENTS OF DEFAULT. "EVENT OF DEFAULT," wherever used herein with respect to Debentures of any series, unless otherwise provided the applicable supplemental indenture, means any one or more of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any interest upon any Debenture of such series when it becomes due and payable, and continuance of such default for a period of 30 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Debentures of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "NOTICE OF DEFAULT" hereunder (whether or not such payment is 35 42 prohibited by the subordination provisions set forth in Article 13); PROVIDED, that a valid extension of an interest payment period by the Company in accordance with the terms of any indenture supplemental hereto, shall not constitute a default in the payment of interest for this purpose; or (b) default in the payment of the principal of (or premium, if any, on) any Debenture of such series as and when the same shall become due and payable whether at maturity, upon redemption, by declaration or otherwise, or in any payment required by any sinking or analogous fund established with respect to that series (whether or not such payment is prohibited by the subordination provisions set forth in Article 13); PROVIDED, that a valid extension of the maturity of the Debentures of such series in accordance with the terms of any indenture supplemental hereto shall not constitute a default in the payment of principal or premium, if any; or (c) if the Debentures of such series are convertible or exchangeable into or for shares of Common Stock of the Company or other securities, cash or other property pursuant to any supplemental indenture, Board Resolution or other instrument authorizing Debentures of such series, failure by the Company to convert such Debentures (whether or not conversion or exchange is prohibited by the subordination provisions set forth in Article 13); or (d) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or that has expressly been included in this Indenture solely for the benefit of any series of Debentures other than such series), and continuance of such default or breach for a period of 90 days after a Notice of Default; or (e) the entry by a court having jurisdiction in the premises of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or 36 43 (f) the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated as bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidation, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors; or (g) in the event Debentures of any series are issued to a Lodgian Capital Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Lodgian Capital Trust, such Lodgian Capital Trust shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of Debentures of such series to holders of Trust Securities in liquidation of their interest in such Lodgian Capital Trust, (ii) the redemption or conversion of all of the outstanding Trust Securities of such Lodgian Capital Trust or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Declaration of such Lodgian Capital Trust; (h) an event of default under any mortgage, indenture, loan agreement or other instrument under which the Company has or shall hereafter have outstanding indebtedness of borrowed money in excess of $10,000,000 which has become due and payable by its terms and has not been paid of whose maturity has been accelerated and such payment default has not been cured or such acceleration has not been annulled within 30 days after a Notice of Default has been given; or (i) any other Event of Default provided pursuant to Section 2.01 with respect to Debentures of such series. SECTION 4.02. ACCELERATION OF MATURITY; RECISSION AND ANNULMENT. If an Event of Default described in clause (a), (b), (c), (d), (g), (h) or (i) (if the Event of Default under clause (d) is with respect to less than all series of Debentures then Outstanding) of Section 4.01 above occurs and is continuing, then, and in each and every such case, unless the principal of all of the Debentures of such series 37 44 shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Debentures of such series then Outstanding hereunder (each such series voting as a separate class), by notice in writing to the Company (and to the Trustee if given by the Holders of Debentures of such series), may declare the entire principal (or, if the Debentures of such series are Original Issue Discount Debentures, such portion of the principal amount as may be specified in the terms of such series) of all Debentures of such series and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. If an Event of Default described under clause (e) or (f) of Section 4.01 shall occur and be continuing, then the entire principal (or, if any Debentures are Original Issue Discount Debentures such portion of the principal as may be specified in the terms thereof) of all Debentures of all series then Outstanding and interest accrued thereon, if any, shall be and become immediately due and payable, without notice or demand. If an Event of Default described in clause (d) (if the Event of Default under clause (d) relates to all series of Debentures then Outstanding), of Section 4.01 occurs and is continuing, then and in each and every such case, unless the principal of all the Debentures of all series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Debentures of all series then Outstanding hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Holders of Debentures), may declare the entire principal (or, if any Debentures are Original Issue Discount Debentures such portion of the principal as may be specified in the terms thereof) of all Debentures of all series then Outstanding and interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. The foregoing provisions, however, are subject to the condition that if, at any time after the principal (or, if any Debentures are Original Issue Discount Debentures, such portion of the principal as may be specified in the terms thereof) of the Debentures of any series (or of all the Debentures of all series, as the case may be) then Outstanding shall have been so declared due and payable, and before any judgment or decree for the payment of such moneys shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures of such series (or of all Debentures of all series, as the case may be) and the principal of (and premium, if any on) Debentures of such series (or of all Debentures of all series, as the case may be) that shall have become due otherwise than by acceleration (with interest upon such principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Debentures) specified in the Debentures of 38 45 such series (or at the respective rates of interest or Yields to Maturity of all Debentures of all series, as the case may be) to the date of such payment or deposit) and such amount as shall be sufficient to cover reasonable compensation to the Trustee, and each predecessor Trustee, their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and if any and all Events of Default under the Indenture, other than the non-payment of the principal of Debentures of such series (or, if any Debentures are Original Issue Discount Debentures, such portion of the principal as may be specified in the terms thereof) that shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein -- then and in every such case the Holders of a majority in aggregate principal amount of all the Debentures of such series, each series voting as a separate class (or of all Debentures of all series, as the case may be, voting as a single class), then Outstanding, by written notice to the Company and to the Trustee, may waive all such defaults with respect to the Debentures of such series (or with respect to all Debentures of all series, as the case may be) and rescind and annul such declaration and its consequence, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right with respect to Debentures of such series under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. SECTION 4.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. The Company covenants that if: (a) default is made in the payment of any interest on any Debenture of any series, or any payment required by any sinking or analogous fund established with respect to Debentures of such series as and when the same shall have become due and payable and such default continues for a period of 30 days (provided that a valid extension of the interest payment period permitted by the terms of the supplemental indenture or Board Resolutions setting forth the terms of the Debentures of such series shall not constitute a default in the payment of interest), or 39 46 (b) default is made in the payment of the principal of (or premium, if any, on) any Debenture of any series when the same shall have become due and payable, whether upon maturity of the Debentures of such series or upon redemption or upon declaration or otherwise, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of Debentures of such series, the whole amount then due and payable on such Debentures of such series and any premium and interest and, to the extent that payment of such interest shall be legally enforceable under applicable law, interest on any overdue principal and on the premium, if any, and overdue interest, at the rate or rates prescribed therefor in Debentures of such series and, if the Debentures of such series are held by a Lodgian Capital Trust or a trustee of such trust, without duplication of any other amounts paid by such Lodgian Capital Trust or trustee in respect thereof, upon overdue installments of interest at the rate per annum expressed in the Debentures of such series; and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel under Section 5.06. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon Debentures of such series and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon Debentures of such series, wherever situated. If an Event of Default with respect to Debentures of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Debentures of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, either at law or in equity or in bankruptcy or otherwise whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 4.04. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Debentures of any series or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Debentures of such series shall then 40 47 be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal and any premium and interest owing and unpaid in respect of the Debentures of any series and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Debentures of such series, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Debentures of such series to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Debentures of such series, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 5.06. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Debenture of any series, any plan of reorganization, arrangement, adjustment or composition affecting the Debentures of such series or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of Debentures of any series in any such proceeding. SECTION 4.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF DEBENTURES. All rights of action and claims under this Indenture or under any of the terms established with respect to the Debentures of any series may be prosecuted and enforced by the Trustee without the possession of any of the Debentures of such series or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel due under Section 5.06, be for the ratable benefit of the Holders of the Debentures of such series in respect of which such judgment has been recovered. 41 48 SECTION 4.06. APPLICATION OF MONEY COLLECTED. Any money collected by the Trustee pursuant to this Article with respect to Debentures of any series shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Debentures of such series, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 5.06; SECOND: To the payment of all Senior Indebtedness of the Company and to the extent required by Article 13: THIRD: To the payment of the amounts then due and unpaid for principal of and any premium and interest on the Debentures of such series in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on Debentures of such series for principal and any premium and interest, respectively; and FOURTH: To the payment of the remainder, if any, to the Company. SECTION 4.07. LIMITATION ON SUITS. No Holder of any Debenture of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless; (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Debentures of such series and of the continuance thereof with respect to the Debentures of such series specifying such Event of Default, as hereinbefore provided; (b) the Holders of not less than 25% in principal amount of the Outstanding Debentures of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; 42 49 (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Holders of a majority in principal amount of the Outstanding Debentures of such series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SECTION 4.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Notwithstanding any other provision in this Indenture, but subject to Article 13 of this Indenture, the Holder of any Debenture of any series shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 2.03) interest on Debenture of such series on the Stated Maturity or Maturities expressed in Debentures of such series (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 4.09. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder of Debentures of any series has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Debentures of such series shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 4.10. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures in the last paragraph of Section 2.07, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Debentures is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy 43 50 hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 4.11. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Debenture to exercise any right or remedy accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Subject to the provisions of Section 4.07, every right and remedy given by this Article or by law to the Trustee or to the Holders of Debentures may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Debentures, as the case may be. SECTION 4.12. CONTROL BY HOLDERS OF DEBENTURES. The Holders of a majority in aggregate principal amount of the Outstanding Debentures of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Debentures of such series; PROVIDED, that (a) such direction shall not be in conflict with any rule of law or with this Indenture, and (b) the Trustee may take any other action deemed proper by the Trustee; PROVIDED, that such direction shall not be in conflict with any rule of law or with this Indenture or be unduly prejudicial to the rights of Holders of Debentures of any other series at the time Outstanding. Subject to the provisions of Section 5.02, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. SECTION 4.13. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in principal amount of the Outstanding Debentures of any series may on behalf of the Holders of all the Debentures of such series waive any past default hereunder with respect to the Debentures of such series and its consequences, except a default (a) in the payment of the principal of (or premium, if any) or any interest on any Debenture of such series as and when the same shall become due by the terms of Debentures of such series otherwise than by acceleration (unless such default has been cured and sums sufficient to pay 44 51 all matured installments of interest and principal and any premium has been deposited with the Trustee (in accordance with Section 4.02)), or (b) in respect of a covenant or provision hereof that under Article 8 cannot be modified or amended without the consent of the Holder of each Outstanding Debenture of such series affected; PROVIDED, that if the Debentures of such series are held by a Lodgian Capital Trust or a trustee of such trust, such waiver or modification to such waiver shall not be effective until the holders of a majority of the aggregate liquidation amount of Trust Securities of the applicable Lodgian Capital Trust shall have consented to such waiver or modification to such waiver; PROVIDED FURTHER, that where a consent under this Indenture would require the consent of Holders of more than a majority of the principal amount of Outstanding Debentures of such series, such waiver shall not be effective until the holders of at least the same proportion in aggregate liquidation amount of the Trust Securities of the applicable Lodgian Capital Trust shall have consented to such waiver; PROVIDED FURTHER, that a default in respect of any covenant or provision contained in Article 12 may only be waived by the Holders affected thereby. Upon any such waiver, the default covered thereby shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture and the Company, the Trustee and the Holders of the Debentures of such series shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 4.14. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Debenture by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Debentures of any series, or to any suit instituted by any Holder of any Debenture for the enforcement of the payment of the principal of or any premium or interest on such Debenture on or after the Stated Maturity or 45 52 Maturities expressed in such Debenture (or, in the case of redemption, on or after the Redemption Date). SECTION 4.15. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 5 THE TRUSTEE SECTION 5.01. DUTIES AND RESPONSIBILITIES OF THE TRUSTEE; DURING DEFAULT; PRIOR TO DEFAULT. With respect to the Holders of any series of Debentures issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to the Debentures of a such series and after the curing or waiving of all Events of Default that may have occurred with respect to Debentures of such series, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default with respect to the Debentures of such series has occurred (which has not been cured or waived), the Trustee shall exercise with respect to the Debentures of such series such of the rights and powers vested in it by this Indenture, and shall use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (a) prior to the occurrence of an Event of Default with respect to the Debentures of any series and after the curing or waiving of all such Events of Default with respect to the Debentures of such series that may have occurred: (i) the duties and obligations of the Trustee with respect to the Debentures of such series shall be determined solely by the 46 53 express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee: and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such statement, certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that such Responsible Officers of the Trustee were negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders pursuant to Section 4.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or Power conferred upon the Trustee, under this Indenture. No provision of this Indenture shall require the Trustee to extend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 5.02. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of the Trust Indenture Act: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; 47 54 (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Debentures of any series pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction, including such reasonable advances as may be requested by the Trustee; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to 48 55 be authorized or within the discretion or rights or powers conferred upon it by this Indenture, unless the Trustee was negligent in ascertaining the pertinent facts; and (i) the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Debentures and this Indenture. SECTION 5.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF DEBENTURES. The recitals contained herein and in the Debentures (except the Trustee's certificates of authentication) shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of any Debentures. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Debentures or the proceeds thereof. SECTION 5.04. MAY HOLD DEBENTURES. The Trustee, any Authenticating Agent, any Paying Agent, or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to Section 5.09 and 5.11, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, or such other agent. SECTION 5.05. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 5.06. COMPENSATION AND REIMBURSEMENT. The Company agrees: (a) to pay to the Trustee or any successor Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee or any predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the 49 56 compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee and any predecessor Trustee for, and to hold it harmless against, any and all loss, damage, claim, liability or expense, including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 4.01(e) or Section 4.01(f), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar laws. The Trustee shall have a lien prior to the Debentures as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 5.06, except with respect to unclaimed funds held in trust for the benefit of the Holders of particular Debentures. The provisions of this Section 5.06 shall survive the termination of this Indenture. SECTION 5.07. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 5.08. (b) The Trustee may resign at any time with respect to the Debentures of one or more series by giving written notice thereof to the Company, or so long as no Event of Default shall have occurred or be continuing, be removed with respect to the Debentures of one or more series by the Company by a Board Resolution, a copy of which shall be delivered to the Trustee and the Holders of such series. If the instrument of acceptance by a successor Trustee required by Section 5.08 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent 50 57 jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. (c) The Trustee may be removed at any time with respect to the Debentures of any series by Act of the Holders of a majority in principal amount of the Outstanding Debentures of such series delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee required by Section 5.08 shall not have been delivered to the Trustee within 30 days after the delivery of such Act of removal, the Trustee being removed may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. (d) If at any time: (i) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Holder of a Debenture who has been a bona fide Holder of a Debenture for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.10 and Section 310(a) of the Trust Indenture Act and shall fail to resign after written request therefor by the Company or by any such Holder of a Debenture who has been a bona fide Holder of Debenture for at least six months, or (iii) the Trustee shall become incapable of acting or shall be adjudged bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Company by a Board Resolution may remove the Trustee with respect to all Debentures, or (B) subject to Section 4.14 any Holder of a Debenture who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Debentures and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Debentures of one or more series, the Company, by a Board 51 58 Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Debentures of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Debentures of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Debentures of any particular series) and shall comply with the applicable requirements of Section 5.08. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Debentures of any series shall be appointed by Act of the Holders of a majority in principal amount of Outstanding Debentures of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 5.08, become the successor Trustee with respect to the Debentures of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Debentures of any series shall have been so appointed by the Company or the Holders of Debentures of such series and accepted appointment in the manner required by Section 5.08, any Holder of a Debenture of such series who has been a bona fide Holder of a Debenture of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Debentures of any series and each appointment of a successor Trustee with respect to the Debentures of any series in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee with respect to the Debentures of such series and the address of its Corporate Trust Office. SECTION 5.08. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Trustee with respect to all Debentures, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but on the written request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. 52 59 (b) In case of the appointment hereunder of a successor Trustee with respect to the Debentures of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Debentures of such series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and that (i) shall contain such provisions as shall be necessary or desirable to transfer and conform to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of such series to which the appointment of such successor Trustee relates, (ii) if the retiring Trustee is not retiring with respect to all Debentures, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of such series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (iii) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees as co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of such series to which the appointment of such successor Trustee relates; but, on the written request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Debentures of such series to which the appointment of such successor Trustee relates. (c) Upon the written request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 5.09. DISQUALIFICATION; CONFLICTING INTERESTS. If the Trustee has or shall acquire a conflicting interest within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the holder of Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in 53 60 all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 5.10. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall be at all times a Trustee hereunder, which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and (a) has a combined capital and surplus of at least $50,000,000 or (b) has a combined capital and surplus of at least $10,000,000 and is a wholly-owned subsidiary of a corporation having a combined capital and surplus of at least $50,000,000, and in each case subject to supervision by Federal, State or District of Columbia authority. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereunder specified in this Article. SECTION 5.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Debentures), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 5.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. SECTION 5.13. NOTICE OF DEFAULTS. If a default occurs hereunder with respect to Debentures of any series, the Trustee shall give the Holders of Debentures of such series notice of such default as and to the extent provided by the Trust Indenture Act; provided, that in the case of any default of the character specified in Section 4.01(d) with respect to Debentures of such series, no such 54 61 notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event that is, or after notice or lapse of time or both would become, an Event of Default with respect to Debentures of such series. ARTICLE 6 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 6.01. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders of Debentures (i) contained in the most recent list furnished to the Trustee as provided in Section 312(a) of the Trust Indenture Act, (ii) received by the Trustee in its capacity as Debenture Registrar and (iii) filed with it within the two preceding years pursuant to Section 313(c)(2) of the Trust Indenture Act. (b) If three or more Holders of Debentures of any series (herein referred to as "APPLICANTS") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Debenture of such series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Debentures of such series with respect to their rights under this Indenture or under the Debentures of such series and is accompanied by a copy of the form of proxy or other communication that such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 6.01(a), or (ii) inform such applicants as to the approximate number of Holders of Debentures of such series whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 6.01(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. (c) Every Holder of Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders 55 62 of Debentures in accordance with Section 6.01(b), regardless of the source from which such information was derived and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 6.01(b). SECTION 6.02. REPORTS BY TRUSTEE. The Trustee shall in each year transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each May 15 following the date of this Indenture deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of Section 313(a). The trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 6.03. REPORTS BY COMPANY. The Company shall file with the Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. The Company shall transmit information to the Holders of the Debentures as required by Section 313(c) of the Trust Indenture Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE 7 CONSOLIDATION, MERGER, SALE OR CONVEYANCE SECTION 7.01. COMPANY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. The Company shall not merge or consolidate with any other corporation or sell or convey all or substantially all of its assets to any Person, unless (a) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) shall be a corporation organized under the laws of the United States of America or any State thereof and shall expressly assume the due and punctual payment of the principal of and interest on all the Debentures, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, by supplemental indenture satisfactory to the Trustee, executed 56 63 and delivered to the Trustee by such corporation, and (b) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition. SECTION 7.02. SUCCESSOR CORPORATION SUBSTITUTED. In case of any such consolidation, merger, sale or conveyance, and following such an assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein. Such successor corporation may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession any or all of the Debentures issuable hereunder that theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall make available for delivery any securities that previously shall have been signed and delivered by the officers of the Company, to the Trustee for authentication, and any Debentures that such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. In the event of any such sale or conveyance (other than a conveyance by way of lease) the Company or any successor corporation that shall theretofore have become such in the manner described in this Article shall be discharged from all obligations and covenants under this Indenture and the Debentures and may be liquidated and dissolved. SECTION 7.03. MERGER WITH IMPAC. If the merger (the "MERGER") contemplated pursuant to the Agreement and Plan of Merger dated as of March 20, 1998 among Lodgian, the Company, Impac Hotel Group, L.L.C., SHG-S Sub, Inc. and SHG-I Sub, L.L.C. is consummated, then, upon the assumption by Lodgian of the Company's obligations under this Indenture and the Debentures as contemplated by Section 7.01, Servico, Inc. shall be discharged from all obligations and covenants under this Indenture and the Debentures. 57 64 SECTION 7.04. OPINION OF COUNSEL TO TRUSTEE. The Trustee may receive an Opinion of Counsel, prepared in accordance with Section 1.02, as conclusive evidence that any such consolidation, merger, sale, lease or conveyance, and any such assumption, and any such liquidation or dissolution, complies with the applicable provisions of this Indenture. ARTICLE 8 SUPPLEMENTAL INDENTURES SECTION 8.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without the consent of any Holders of Debentures, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Debentures; or (b) to add to the covenants of the Company for the benefit of the Holders of Debentures of all or any series (and if such covenants are to be for the benefit of Debentures of less than all series, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (c) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the Trust Indenture Act; (d) to add any additional Events of Default (and if such Events of Default are to be for the benefit of Debentures of less than all series, stating that such Events of Default are expressly being included solely for the benefit of such series); or (e) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Debenture Outstanding of any series created prior to the execution of such supplemental indenture that is entitled to the benefit of such provision; or 58 65 (f) to establish the form or terms of Debentures of any series as permitted by Sections 2.01; or (g) to evidence and provide for the acceptance of appointment thereunder by a successor Trustee with respect to the Debentures of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 5.08(b); or (h) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Article 12, including providing for the conversion of the Debentures into any security or property (other than the Common Stock of the Company); or (i) to cure any ambiguity, to correct or supplement any provision herein that may be inconsistent with any other provision herein, to make any change to the form or term of the Debentures of any series or to make other changes to this Indenture; PROVIDED, that such action shall not have a material adverse effect on the interests of the Holders of Debentures of any series. SECTION 8.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Debentures of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Debentures of such series under this Indenture; PROVIDED, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debenture affected thereby, (a) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Debenture of any series, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Debenture that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 4.02 or change the coin or currency in which any Debenture or any premium or interest thereon is payable, or change any Place of Payment where any Debenture is payable, or impair the right to 59 66 institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (b) reduce the percentage in principal amount of the Outstanding Debentures of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of certain defaults hereunder and their consequences provided for in this Indenture, or (c) modify any of the provisions of this Section or Section 4.13, except to increase the percentage of Outstanding Debentures of any series the consent of the Holders of which is required pursuant to such provisions or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Debenture affected thereby, or (d) make any change that adversely affects the right to convert any Debenture of any series as provided in Article 12 or pursuant to Section 2.01 (except as permitted by Section 8.01) or decrease the conversion rate or increase the conversion price of any such Debenture of such series, or (e) change the obligation of the Company, with respect to Outstanding Debentures of a series, to maintain an office or agency in the places and for the purposes specified in Section 9.02 for such series; or (f) if the Debentures of any series are secured, change the terms and conditions pursuant to which the Debentures of such series are secured in a manner adverse to the Holders of the secured Debentures of such series, or (g) make any change in Article 13 that adversely affects the rights of any Holders of Outstanding Debentures of such series. If the Debentures of such series are held by a Lodgian Capital Trust or a trustee of such trust, such supplemental indenture shall not be effective until the holders of 662/3% of the aggregate liquidation amount of Trust Securities of the applicable Trust shall have consented to such supplemental indenture; PROVIDED, where a consent under this Indenture would require the consent of Holders of more than 662/3% of the principal amount of Outstanding Debentures of such series, such supplemental indenture shall not be effective until the holders of at least the same proportion in aggregate liquidation amount of the Trust Securities 60 67 of the applicable Lodgian Capital Trust shall have consented to such supplemental indenture. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of Debentures of one or more particular series, or that modifies the rights of the Holders of Debentures of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Debentures of any other series. It shall not be necessary for any Act of Holders of Debentures of any series under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 8.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 5.02) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 8.04. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debentures theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 8.05. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act of 1939, as amended, in effect on such date. SECTION 8.06. REFERENCE IN DEBENTURES TO SUPPLEMENTAL INDENTURES. Debentures of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and made available for delivery by the Trustee in exchange for Outstanding Debentures of such series. 61 68 ARTICLE 9 COVENANTS SECTION 9.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company covenants and agrees for the benefit of Debentures of any series that it will duly and punctually pay the principal of and any premium and interest on the Debentures of such series in accordance with the terms of the Debentures of such series and this Indenture. SECTION 9.02. MAINTENANCE OF OFFICE OR AGENCY. So long as any series of the Debentures remain outstanding, the Company agrees to maintain an office or agency in the City of Wilmington, State of Delaware, with respect to each such series and at such other location or locations as may be designated as provided in this Section 9.02, where (i) Debentures of that series may be presented for payment, (ii) Debentures of that series may be presented as herein above authorized for registration of transfer and exchange, and (iii) notices and demands to or upon the Company in respect of the Debentures of that series and this Indenture may be given or served, such designation to continue with respect to such office or agency until the Company shall, by written notice signed by its President or a Vice President and delivered to the Trustee, designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, notices and demands. SECTION 9.03. MONEY FOR DEBENTURES PAYMENTS TO BE HELD IN TRUST. If the Company shall at any time act as its own Paying Agent with respect to Debentures of any series, it will, on or before each due date of the principal of and any premium or interest on any of the Debentures of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure to act. Whenever the Company shall have one or more Paying Agents for Debentures of any series it will, prior to each due date of the principal of and any premium or interest on any Debentures of such series, deposit with a Paying Agent a sum sufficient to pay the principal and any premium or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the 62 69 Trustee) the Company will promptly notify the Trustee of its action or failure to act. The Company will cause each Paying Agent for Debentures of any series other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of and any premium or interest on Debentures of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any default by the Company (or any other obligor upon the Debentures of such series) in the making of any payment of principal of and any premium or interest on the Debentures of such series; (c) comply with the provisions of the Trust Indenture Act applicable to it as Paying Agent; and (d) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of and any premium or interest on any Debenture of any series and remaining unclaimed for two years after such principal and any premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of the Debenture of such series shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money and all liability of the Company as trustee thereof 63 70 shall thereupon cease; PROVIDED, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment, notice that such money remains unclaimed and that after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 9.04. LIMITATION ON DIVIDENDS; TRANSACTIONS WITH AFFILIATES. If Debentures of any series are issued to a Lodgian Capital Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Lodgian Capital Trust and (a) there shall have occurred any event that would constitute an Event of Default, (b) the Guarantor shall be in default with respect to its payment of any obligations under the Guarantee relating to such Lodgian Capital Trust, or (c) the Company shall have given notice of its election to defer payments of interest on Debentures of such series by extending the interest payment period as provided herein and such period, or any extension thereof, shall be continuing, then the Company shall not, and shall not permit any Subsidiary to, (x) declare or pay any dividend on, make any distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock or (y) make any payment of principal of, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank on a parity with or junior in interest to the Debentures of that series or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks on a parity with or junior in interest to the Debentures of that series (other than (a) dividends or distributions in common stock of the Company, (b) payments under the Guarantee relating to such Lodgian Capital Trust, (c) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (d) purchases of common stock related to the issuance of common stock or rights under any of the Company's benefit plans). SECTION 9.05. COVENANTS AS TO LODGIAN CAPITAL TRUST. In the event Debentures are issued to a Lodgian Capital Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Lodgian Capital Trust, for so long as such Trust Securities remain outstanding, the Company will (a) maintain directly or indirectly ownership of all of the Common Securities of such Lodgian Capital Trust; PROVIDED, that any permitted successor of the Company under the Indenture may succeed to the Company's ownership of the Common Securities, (b) cause such Lodgian Capital Trust to remain a statutory business trust, except in connection with a distribution of Debentures of such series to the holders of Trust Securities in liquidation of such Lodgian Capital Trust, the redemption of all of the Trust Securities of such Trust, or certain mergers, 64 71 consolidations or amalgamations, each as permitted by the Declaration, and not to voluntarily dissolve, wind-up, liquidate or to be terminated, except as permitted by the Declaration, (c) use its commercially reasonable efforts to ensure that the Trust shall not be an "investment company" for purposes of the Investment Company Act of 1940, as amended, and (d) take no action that would be reasonably likely to cause the Trust to be classified as an association or a publicly traded partnership taxable as a corporation for United States federal income tax purposes. SECTION 9.06. EXISTENCE. Subject to Article 7, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; PROVIDED, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 9.07. STATEMENT BY OFFICERS AS TO DEFAULT. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate signed by its principal executive officer, principal financial officer or principal accounting officer stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. The Company shall file with the Trustee written notice of the occurrence of any default relating to an Event of Default of the type described in clause (e), (f) or (g) of Section 4.01 or any Event of Default within five Business Days of its becoming aware of any such default or Event of Default. SECTION 9.08. FINANCIAL INFORMATION; SEC REPORTS. The Company shall file with the Trustee, within 15 days after it files any annual and quarterly reports, information, documents and other reports with the Commission, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If at any time, the Company is not required to file any such reports with the Commission, the Company will deliver to the Trustee (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Company 65 72 (i) a consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations, stockholders' equity and cash flows for such fiscal year, all reported on by an independent public accountant of nationally recognized standing and (ii) a report containing a management's discussion and analysis of the financial condition and results of operations and a description of the business and properties of the Company and (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company (i) an unaudited consolidated financial report for such quarter and (ii) a report containing a management's discussion and analysis of the financial condition and results of operations of the Company; PROVIDED, that the foregoing shall not be required for any fiscal year or quarter, as the case may be, with respect to which the Company files or expects to file with the Trustee an annual report or quarterly report, as the case may be, pursuant to the second paragraph of this Section 9.08. With respect to Debentures originally issued in an offering not registered pursuant to the Securities Act, if prior to the Resale Restriction Termination Date, the Company is neither subject to Section 13 or 15(d) of the Exchange Act, the Company shall at the request of any Holder provide to such Holder and any prospective purchaser designated by such Holder such information, if any, required by Rule 144A(d)(4) under the Securities Act. ARTICLE 10 REDEMPTION OF DEBENTURES SECTION 10.01. APPLICABILITY OF ARTICLE. Debentures of any series that are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 2.01 for Debentures of any series) in accordance with this Article. SECTION 10.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the Company to redeem Debentures of any series shall be evidenced by an Officers' Certificate. In the case of any redemption, at the election of the Company, the Company shall, upon not less than 30 nor more than 60 days prior to the Redemption Date fixed by the Company, notify the Trustee of such Redemption Date and of the principal amount of Debentures of such series to be redeemed. In the case of any redemption of Debentures of such series (a) prior to the expiration of any restriction on such redemption provided in the terms of such Debentures of such series or elsewhere in this Indenture, or (b) pursuant to an election of the Company that is subject to a condition specified in the terms of 66 73 Debentures of such series, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition. SECTION 10.03. SELECTION BY TRUSTEE OF DEBENTURES TO BE REDEEMED. If less than all the Debentures of any series and of like tenor are to be redeemed, the particular Debentures of such series to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debentures of such series and of like tenor not previously called for redemption. If the Outstanding Debentures have not been distributed to the Holders of Trust Securities upon a dissolution of the Lodgian Capital Trust (where applicable), the Debentures to be redeemed may be selected by such method as the Trustee shall deem fair and appropriate and that may provide for the selection of portions (equal to the minimum authorized denomination for Debentures of such series or any integral multiple thereof) of the principal amount of Registered Debentures of such series of a denomination larger than the minimum authorized denomination for Debentures of such series. If the Outstanding Debentures have been distributed to the Holders of Trust Securities, then the Trustee must redeem the Outstanding Debentures PRO RATA. If Debentures of any series selected for partial redemption are converted in part before termination of the conversion right with respect to the portion of the Debenture of such series so selected, the converted portion of the Debentures of such series shall be deemed (so far as may be) to be the portion selected for redemption. Debentures (or portions thereof) that have been converted during a selection of Debentures of such series to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. In any case where more than one Debenture of such series is registered in the same name, the Trustee in its discretion may treat the aggregate principal amount so registered as if it were represented by one Debenture of such series. The Trustee shall promptly notify the Company in writing of the Debentures of such series selected for redemption and, in the case of any Debentures of such series selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debentures of such series of such series shall relate, in the case of any Debentures of such series redeemed or to be redeemed only in part, to the portion of the principal amount of the Debentures of such series that has been or is to be redeemed. 67 74 SECTION 10.04. NOTICE OF REDEMPTION. Notice of redemption shall be given in the manner provided in Section 1.06 to the Holders of Debentures to be redeemed not less than 30 nor more than 60 days prior to the Redemption Date. All notices of redemption shall identify the Debentures (including the CUSIP number) to be redeemed and shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all the Outstanding Debentures of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Debentures of such series to be redeemed, and a statement to the effect that on or after the Redemption Date upon surrender of such Debenture a new Debenture of such series in the principal amount equal to the unredeemed portion will be issued; (d) that on the Redemption Date the Redemption Price will become due and payable upon each such Debenture of such series to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date; (e) the place or places where such Debentures of such series, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price; (f) that the redemption is for a sinking fund, if such is the case; and (g) if applicable, the conversion rate or price, the date on which the right to convert the Debentures of such series to be redeemed will terminate and the place or places where such Debentures may be surrendered for conversion. A notice of redemption published as contemplated by Section 1.06 need not identify particular Registered Debentures of such series to be redeemed. Notice of redemption of Debentures to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. 68 75 SECTION 10.05. DEPOSIT OF REDEMPTION PRICE. Prior to 10:00 A.M., New York time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 9.03) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Debentures that are to be redeemed on that date. If any Debenture called for redemption is converted into Common Stock of the Company, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Debenture shall (subject to any right of the Holder of such Debenture or any Predecessor Debenture to receive interest as provided in Section 2.03) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust. SECTION 10.06. DEBENTURES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as aforesaid, the Debentures so to be redeemed shall on the Redemption Date become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Debentures shall cease to bear interest. Upon surrender of any such Debenture for redemption in accordance with said notice maturing after the Redemption Date, such Debenture shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; PROVIDED, that, unless otherwise specified as contemplated by Section 2.01, installments of interest on Registered Debentures whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Debentures or one or more Predecessor Debentures, registered as such at the close of business on the relevant record dates according to their terms and the provisions of Section 2.03. If any Debenture called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Debenture. SECTION 10.07. DEBENTURES REDEEMED IN PART. Any Registered Debenture of any series that is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Debenture without service charge, a new Registered Debenture or Debentures of such series and of like tenor of any authorized denomination as 69 76 requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Debenture of such series so surrendered. ARTICLE 11 SINKING FUNDS SECTION 11.01. APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to any sinking fund for the retirement of Debentures of any series except as otherwise specified as contemplated by Section 2.01 for Debentures of such series. The minimum amount of any sinking fund payment provided for by the terms of Debentures of any series is herein referred to as a "MANDATORY SINKING FUND PAYMENT," and any payment in excess of such minimum amount provided for by the terms of Debentures of any series is herein referred to as an "OPTIONAL SINKING FUND PAYMENT." If provided for by the terms of Debentures of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 11.02. Each sinking fund payment shall be applied to the redemption of Debentures of any series as provided for by the terms of Debentures of such series. SECTION 11.02. SATISFACTION OF SINKING FUND PAYMENTS WITH DEBENTURES. The Company (a) may deliver Outstanding Debentures of any series (other than any previously called for redemption (b) an may apply as a credit Debentures of such series that have been redeemed either at the election of the Company pursuant to the terms of the Debentures of such series or through the application of permitted optional sinking fund payments pursuant to the terms of the Debentures, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Debentures of such series required to be made pursuant to the terms of the Debentures of such series; PROVIDED, that the Debentures of such series have not been previously so credited. The Debentures shall be received and credited for such purpose by the Trustee at the Redemption Price specified in the Debentures of such series for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 11.03. REDEMPTION OF DEBENTURES FOR SINKING FUND. Not less than 60 days prior to each sinking fund payment date for Debentures of any series, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such series pursuant to the 70 77 terms of such series, the portion thereof, if any, that is to be satisfied by payment of cash and the portion thereof, if any, that is to be satisfied by delivering and crediting Debentures of such series pursuant to Section 11.02 and will also deliver to the Trustee any Debentures of such series to be so delivered. Not less than 45 days before each such sinking fund payment date the Trustee shall select the Debentures of such series to be redeemed upon such sinking fund payment date in the manner specified in Section 10.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 10.04. Such notice having been duly given, the redemption of such Debentures of such series shall be made upon the terms and in the manner stated in Sections 10.06 and 10.07. ARTICLE 12 CONVERSION OF DEBENTURES SECTION 12.01. APPLICABILITY OF ARTICLE. The provisions of this Article shall be applicable to the Debentures of any series that are convertible into shares of Common Stock of the Company, and the issuance of such shares of Common Stock upon the conversion of Debentures of such series, except as otherwise specified as contemplated by Section 2.01 for the Debentures of such series. The terms and provisions applicable to the conversion of Debentures of any series into securities of the Company (other than Common Stock) shall, if applicable, be set forth in an Officers' Certificate or established in one or more indentures supplemental hereto, prior to the issuance of Debentures of such series in accordance with Section 2.01. SECTION 12.02. EXERCISE OF CONVERSION PRIVILEGE. In order to exercise a conversion privilege, the Holder of a Debenture of any series with such a privilege shall surrender such Debenture to the Company at the office or agency maintained for that purpose pursuant to Section 1.02, accompanied by written notice to the Company that the Holder elects to convert such Debenture or a specified portion thereof. Such notice shall also state, if different from the name and address of such Holder, the name or names (with address) in that the certificate or certificates for shares of Common Stock that shall be issuable on such conversion shall be issued. Debentures of such series surrendered for conversion shall (if so required by the Company or the Trustee) be duly endorsed by or accompanied by instruments of transfer in forms satisfactory to the Company and the Trustee duly executed by the registered Holder or its attorney duly authorized in writing. As promptly as practicable after the receipt of such notice and of any payment required pursuant to a Board Resolution and, subject to Section 2.01, set forth, or determined in the manner provided, in an Officers' Certificate, or established in 71 78 one or more indentures supplemental hereto setting forth the terms of Debentures and the surrender of such Debentures in accordance with such reasonable regulations as the Company may prescribe, the Company shall issue and shall deliver, at the office or agency at which such Debenture is surrendered, to such Holder or on its written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Debenture (or specified portion thereof), in accordance with the provisions of such Board Resolution, Officers' Certificate or supplemental indenture, and cash as provided therein in respect of any fractional share of such Common Stock otherwise issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date on which such notice and such payment, if required, shall have been received in proper order for conversion by the Company and such Debenture shall have been surrendered as aforesaid (unless such Holder shall have so surrendered such Debenture and shall have instructed the Company to effect the conversion on a particular date following such surrender and such Holder shall be entitled to convert such Debenture on such date, in which case such conversion shall be deemed to be effected immediately prior to the close of business on such date) and at such time the rights of the Holder of such Debenture as such Debenture Holder shall cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock of the Company shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. Except as set forth above and subject to Section 2.03, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Debentures of such series surrendered for conversion or on account of any dividends on the Common Stock of the Company issued upon such conversion. Debentures surrendered for conversion on or after any regular record date and prior to the next succeeding Interest Payment Date (other than a Debenture or a portion of a Debenture called for redemption on a Redemption Date occurring after such regular record date and on or prior to such Interest Payment Date) shall be accompanied by payment equal to the amount of interest payable on such Debenture on such Interest Payment Date. In the case of any Debenture of any series that is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and make available for delivery to or on the order of the Holder thereof, at the expense of the Company, a new Debenture or Debentures of such series, of authorized denominations, in aggregate principal amount equal to the unconverted portion of such Debenture. SECTION 12.03. NO FRACTIONAL SHARES. No fractional share of Common Stock of the Company shall be issued upon conversions of Debentures of any series. If more than one Debenture of such series shall be surrendered for 72 79 conversion at one time by the same Holder, the number of full shares that shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Debentures of such series (or specified portions thereof to the extent permitted hereby) so surrendered. If, except for the provisions of this Section 12.03, any Holder of a Debenture or Debentures of such series would be entitled to a fractional share of Common Stock of the Company upon the conversion of such Debenture or Debentures, or specified portions thereof, the Company shall pay to such Holder an amount in cash equal to the current market value of such fractional share based upon the (i) the closing sale price (or, if no closing price is reported, the last reported sale price) of the Common Stock (regular way) on the NYSE on the trading day immediately preceding the date of conversion, (ii) if the Common Stock is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is so listed, (iii) if the Common Stock is not so listed on a United States national or regional securities exchange, as reported by the NASDAQ Stock Market, (iv) if the Common Stock is not so reported, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization, (v) if the Common Stock is not so quoted, the average of the mid-point of the last bid and ask prices for the Common Stock from at least three nationally recognized investment banking firms selected by the Board of Directors or (vi) if not so available in such manner, as otherwise determined in good faith by the Board of Directors. For purposes of this Section, "trading day" shall mean any day on which the Common Stock is traded on the NYSE, or if the Common Stock is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which the Common Stock is listed or admitted, or if not listed or admitted to trading on any national securities exchange, on the NASDAQ Stock Market, or if the Common Stock is not quoted on the NASDAQ Stock Market, in the applicable securities market in which the Common Stock is traded. SECTION 12.04. ADJUSTMENT OF CONVERSION PRICE. The conversion price of Debentures of any series that is convertible into Common Stock of the Company shall be adjusted for any stock dividends, stock splits, reclassification, combinations or similar transactions in accordance with the terms of the supplemental indenture or Board Resolutions setting forth the terms of the Debentures of such series. Whenever the conversion price is adjusted, the Company shall compute the adjusted conversion price in accordance with terms of the applicable Board Resolution or supplemental indenture and shall prepare an Officers' Certificate setting forth the adjusted conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of 73 80 Debentures of such series pursuant to Section 9.02 and, if different, with the Trustee. The Company shall forthwith cause a notice setting forth the adjusted conversion price to be mailed, first class postage prepaid, to each Holder of Debentures of such series at its address appearing on the Debenture Register and to any conversion agent other than the Trustee. SECTION 12.05. RESERVATION OF SHARES OF COMMON STOCK. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock or treasury shares, for the purpose of effecting the conversion of Debentures, the full number of shares of Common Stock of the Company then issuable upon the conversion of all outstanding Debentures of any series that has conversion rights. SECTION 12.06. PAYMENT OF CERTAIN TAXES UPON CONVERSION. The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of its Common Stock on conversion of Debentures pursuant hereto. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of shares of its Common Stock in a name other than that of the Holder of the Debenture or Debentures to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. SECTION 12.07. NONASSESSABILITY. The Company covenants that all shares of Common Stock that may be issued upon conversion of Debentures will upon issue in accordance with the terms hereof be duly and validly issued and fully paid and nonassessable. SECTION 12.08. EFFECT OF CONSOLIDATION OR MERGER ON CONVERSION PRIVILEGE. With respect to Debentures of any series, in case of any consolidation of the Company with, or merger of the Company into or with any other Person, or in case of any sale of all or substantially all of the assets of the Company or any other similar event, the conversion privilege shall be modified in accordance with the terms of the supplemental indenture or Board Resolutions setting forth the terms of the Debentures of such series. SECTION 12.09. DUTIES OF TRUSTEE REGARDING CONVERSION. Neither the Trustee nor any conversion agent shall at any time be under any duty or responsibility to any Holder of Debentures of any series that is convertible into Common Stock to determine whether any facts exist that may require any adjustment of the conversion price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, whether 74 81 herein or in any supplemental indenture (or whether a supplemental indenture need be entered into), any resolutions of the Board of Directors or written instrument executed by one or more officers of the Company provided to be employed in making the same. Neither the Trustee nor any conversion agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debentures and neither the Trustee nor any conversion agent makes any representation with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Debenture for the purpose of conversion or to comply with any of the covenants of the Company contained in this Article 12 or in the applicable supplemental indenture, resolutions of the Board of Directors or written instrument executed by one or more duly authorized officers of the Company. All Debentures delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 2.08. SECTION 12.10. REPAYMENT OF CERTAIN FUNDS UPON CONVERSION. Any funds that at any time shall have been deposited by the Company or on its behalf with the Trustee or any other paying agent for the purpose of paying the principal of, and premium, if any, and interest, if any, on any of the Debentures (including funds deposited for the sinking fund referred to in Article 2 hereof) and that shall not be required for such purposes because of the conversion of such Debentures as provided in this Article 12 shall after such conversion be repaid to the Company by the Trustee upon the Company's written request, subject to Section 2.03 hereof. ARTICLE 13 SUBORDINATION OF DEBENTURES SECTION 13.01. DEBENTURES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company covenants and agrees, and each Holder of a Debenture, by the Holder's acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the indebtedness represented by the Debentures and the payment of the principal of (and premium, if any) and interest on each and all of the Debentures are hereby expressly made subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article shall prevent the occurrence of any default or Event of Default hereunder. 75 82 SECTION 13.02. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. In the event of (i) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Company, its creditors or its property, (ii) any proceeding for the liquidation, dissolution or other winding up of the Company, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (iii) any assignment by the Company for the benefit of its creditors or (iv) any other marshalling of the assets of the Company, all Senior Indebtedness shall first be paid in full before any payment or distribution, whether in cash, securities or other property, shall be made by the Company on account of the Debentures. Any payment or distribution, whether in cash, securities or other property (other than securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinate, at least to the extent provided in the subordination provisions of the Indenture with respect to the indebtedness evidenced by the Debentures, to the payment of all Senior Indebtedness at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), which would otherwise (but for such subordination provisions) be payable or deliverable in respect of the Debentures shall be paid or delivered directly to the holders of Senior Indebtedness in accordance with the priorities then existing among such holders until all Senior Indebtedness shall have been paid in full. No present or future holder of any Senior Indebtedness shall be prejudiced in the right to enforce subordination of the Debentures by any act or failure to act on the part of the Company. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety 76 83 to another Person upon the terms and conditions set forth in Article 7 shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article 7. SECTION 13.03. NO PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT. In the event that (i) the Company shall default in the payment of any principal, or premium, if any, or interest on any Senior Indebtedness when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or declaration or otherwise or (ii) an event of default occurs with respect to any Senior Indebtedness permitting the holders thereof to accelerate the maturity thereof and written notice describing such event of default is given to the Company by the holders of Senior Indebtedness, then unless and until such default in payment and event of default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment (in cash, property, securities, by set-off or otherwise) shall be made or agreed to be made on account of the Debentures or any interest thereon or in respect of any repayment, redemption, retirement, purchase or other acquisition of the Debentures. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 13.03 such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 13.04. PAYMENT PERMITTED IN CERTAIN SITUATIONS. Nothing contained in this Article or elsewhere in this Indenture or in any of the Debentures shall prevent (a) the Company, at any time except during the pendency of any dissolution, winding-up, liquidation or reorganization of the Company, whether voluntary or involuntary or any bankruptcy, insolvency, receivership or other proceedings of the Company referred to in Section 13.02 or under the conditions described in Section 13.03, from making payments at any time of principal of or premium, if any, or interest on the Debentures, or (b) the application by the 77 84 Trustee of any money deposited with it hereunder to the payment of or on account of the principal of, or premium, if any, or interest on the Debentures or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article. SECTION 13.05. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Senior Indebtedness shall not be deemed to have been paid in full unless the holders thereof shall have received cash, securities or other property, equal to the amount of such Senior Indebtedness then outstanding. Subject to the payment in full of all Senior Indebtedness, the rights of the Holders of Debentures shall be subrogated to the rights of any holders of Senior Indebtedness to receive any further payments or distributions applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Debentures shall be paid in full, by reason of such subrogation, of cash, property or securities which would be paid or distributed to the holders of Senior Indebtedness, shall, as among the Company and its creditors other than holders of Senior Indebtedness, on the one hand, and the Holders of Debentures, on the other, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness and not on account of the Convertible Debentures. SECTION 13.06. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of Debentures on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Debentures is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of Debentures, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company), to pay to the Holders of Debentures the principal of (and premium, if any) and interest on the Debentures as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of Debentures and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 13.07. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of a Debenture by such Holder's acceptance thereof authorizes and directs the Trustee 78 85 on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. SECTION 13.08. NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Debentures, without incurring responsibility to the Holders of Debentures and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of Debentures to the holders of Senior Indebtedness do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable in any manner for the collection of Senior Indebtedness; and (d) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 13.09. NOTICE TO TRUSTEE. The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 5.02, shall be entitled in all respects to assume that no such facts exist; PROVIDED, that if the Trustee shall have not received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any 79 86 purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Debentures, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. Subject to the provisions of Section 5.02, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 13.10. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 5.02, and the Holders of Debentures shall be entitled to conclusively rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Debentures, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 13.11. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into the Indenture against the Trustee. Except with respect to Section 13.03, the Trustee 80 87 shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders or creditors if it shall in good faith pay over or distribute to Holders of Debentures or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 13.12. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS, PRESERVATION OF TRUSTEE'S RIGHTS. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness that may at any time be held by it, to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 5.06. SECTION 13.13. ARTICLE APPLICABLE TO PAYING AGENTS. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "TRUSTEE" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; PROVIDED, that this Section 13.13 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 13.14. CERTAIN CONVERSIONS DEEMED PAYMENT. For the purposes of this Article only, (a) the issuance and delivery of junior securities (or cash paid in lieu of fractional shares) upon conversion of Debentures in accordance with Article 12, or pursuant to the terms set forth in an Officers' Certificate or established in one or more indentures supplemental hereto in accordance with Section 2.01, shall not be deemed to constitute a payment or distribution on account of the principal of or premium or interest on Debentures or on account of the purchase or other acquisition of Debentures, and (b) the payment, issuance or delivery of cash, property or securities (other than junior securities and cash paid in lieu of fractional shares) upon conversion of a Debenture shall be deemed to constitute payment on account of the principal of such Debenture. For the purposes of this Section, the term "junior securities" means (i) shares of any stock of any class of the Company and (ii) securities of the Company that are subordinated in right of payment to all Senior Indebtedness that may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Debentures are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this 81 88 Indenture or in the Debentures is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of Debentures, the right, which is absolute and unconditional, of the Holder of any Debenture to convert such Debenture in accordance with Article 12. 82 89 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. SERVICO, INC. By: /s/ Charles M. Diaz ------------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary WILMINGTON TRUST COMPANY, AS TRUSTEE By: /s/ W. Christopher Sponenberg ------------------------------------- Name: W. Christopher Sponenberg Title: Senior Financial Services Officer LODGIAN, INC. By: /s/ Charles M. Diaz -------------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary 83 EX-10.2 6 FIRST SUPPLEMENTAL INDENTURE 1 Exhibit 10.2 SERVICO, INC. As Issuer, LODGIAN, INC. and WILMINGTON TRUST COMPANY As Trustee 7% Convertible Junior Subordinated Debentures Due 2010 First Supplemental Indenture Dated as of June 17, 1998 2 TABLE OF CONTENTS ----------------------
PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITION OF TERMS..............................................................2 ARTICLE 2 GENERAL TERMS AND CONDITIONS OF THE CONVERTIBLE DEBENTURES SECTION 2.01. DESIGNATION AND PRINCIPAL AMOUNT................................................11 SECTION 2.02. MATURITY........................................................................12 SECTION 2.03. FORM AND PAYMENT................................................................12 SECTION 2.04. GLOBAL DEBENTURE................................................................12 SECTION 2.05. INTEREST........................................................................16 ARTICLE 3 REDEMPTION OF THE CONVERTIBLE DEBENTURES SECTION 3.01. TRUST SPECIAL EVENT REDEMPTION..................................................17 SECTION 3.02. OPTIONAL REDEMPTION.............................................................17 SECTION 3.03. DEPOSIT OF REDEMPTION PRICE; PAYMENT OF INTEREST ON CONVERTIBLE DEBENTURES TO BE REDEEMED...........................................19 SECTION 3.04. REDEMPTION OF LESS THAN ALL CONVERTIBLE DEBENTURES..............................19 SECTION 3.05. NOTICE OF REDEMPTION............................................................20 SECTION 3.06. NO SINKING FUND.................................................................20 ARTICLE 4 OPTIONAL REPURCHASE SECTION 4.01. REPURCHASE OF CONVERTIBLE DEBENTURES UPON NON- COMPLETION OF MERGER............................................................21 ARTICLE 5 EXTENSION OF INTEREST PAYMENT PERIOD SECTION 5.01. EXTENSION OF INTEREST PAYMENT PERIOD............................................24 SECTION 5.02. NOTICE OF EXTENSION.............................................................25
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PAGE ---- ARTICLE 6 EXPENSES SECTION 6.01. PAYMENT OF EXPENSES.............................................................26 SECTION 6.02. PAYMENT UPON RESIGNATION OR REMOVAL.............................................27 ARTICLE 7 COVENANTS SECTION 7.01. COVENANTS AS TO THE TRUST.......................................................27 ARTICLE 8 CONVERSION OF CONVERTIBLE DEBENTURES SECTION 8.01. CONVERSION RIGHTS...............................................................28 SECTION 8.02. CONVERSION PROCEDURES...........................................................28 SECTION 8.03. CERTAIN CONVERSION PRICE ADJUSTMENTS............................................31 SECTION 8.04. MERGER, CONSOLIDATION, OR SALE OF ASSETS........................................39 SECTION 8.05. SPECIAL PROVISIONS REGARDING ADJUSTMENT OF CONVERSION PRICE OR OTHER PROVISIONS.......................................................40 SECTION 8.06. CERTAIN ADDITIONAL RIGHTS.......................................................41 SECTION 8.07. TRUSTEE NOT RESPONSIBLE FOR DETERMINING CONVERSION PRICE OR ADJUSTMENTS............................................................42 SECTION 8.08. DEFEASANCE......................................................................42 ARTICLE 9 EVENTS OF DEFAULT SECTION 9.01. EVENTS OF DEFAULT...............................................................42 ARTICLE 10 FORM OF CONVERTIBLE DEBENTURE SECTION 10.01. FORM OF CONVERTIBLE DEBENTURE..................................................43 ARTICLE 11 ORIGINAL ISSUE OF CONVERTIBLE DEBENTURES SECTION 11.01. ORIGINAL ISSUE OF CONVERTIBLE DEBENTURES.......................................43
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PAGE ---- ARTICLE 12 MISCELLANEOUS SECTION 12.01. RATIFICATION OF BASE INDENTURE; SUPPLEMENTAL INDENTURE CONTROLS.......................................................................43 SECTION 12.02. TRUSTEE NOT RESPONSIBLE FOR RECITALS...........................................44 SECTION 12.03. GOVERNING LAW..................................................................44 SECTION 12.04. SEPARABILITY...................................................................44 SECTION 12.05. COUNTERPARTS...................................................................44 SECTION 12.06. MERGER.........................................................................44 ANNEX I FORM OF CONVERTIBLE DEBENTURE........................................................A-1 FORM OF FACE OF CONVERTIBLE DEBENTURE................................................A-1 FORM OF CERTIFICATE OF AUTHENTICATION................................................A-7 FORM OF REVERSE OF DEBENTURE.........................................................A-8 FORM OF ELECTION TO CONVERT.........................................................A-15 ASSIGNMENT FORM.....................................................................A-16 FORM OF SCHEDULE FOR ENDORSEMENTS ON GLOBAL DEBENTURES TO REFLECT CHANGES IN PRINCIPAL AMOUNT.................................................................A-19
iii 5 THIS FIRST SUPPLEMENTAL INDENTURE, dated as of June 17, 1998 (the "SUPPLEMENTAL INDENTURE"), is between SERVICO, INC., a Florida corporation (the "COMPANY"), LODGIAN, INC., a Delaware corporation ("LODGIAN") and WILMINGTON TRUST COMPANY, as trustee (the "TRUSTEE"). RECITALS WHEREAS, the Company has executed and delivered the Base Indenture (as defined herein) to the Trustee to provide for the issuance of the Company's Securities from time to time in one or more series as might be determined by the Company under the Base Indenture, in an unlimited aggregate principal amount as may be authenticated and delivered as provided in the Base Indenture; WHEREAS, pursuant to the terms of the Base Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its 7% Convertible Junior Subordinated Debentures Due 2010 (the "CONVERTIBLE DEBENTURES"), the form and substance of such Convertible Debentures, and the terms, provisions and conditions thereof to be set forth as provided in the Base Indenture and this Supplemental Indenture; WHEREAS, Lodgian Capital Trust I, a Delaware statutory business trust (the "TRUST"), intends to issue up to $175,000,000 aggregate liquidation amount of its 7% Convertible Redeemable Equity Structured Trust Securities ("CRESTS") (and may issue up to an additional $26,250,000 aggregate liquidation amount of CRESTS solely to cover over-allotments) and $5,412,400 aggregate liquidation amount of common securities, having a liquidation amount of $50 per security and designated the 7% Common Securities of the Trust (and may issue up to an additional $811,850 aggregate liquidation amount of Common Securities if additional CRESTS are issued) (the "TRUST COMMON SECURITIES" and, together with the CRESTS, the "TRUST SECURITIES"), representing undivided beneficial ownership interests in the assets of the Trust; and WHEREAS, the Trust proposes to purchase Convertible Debentures in an aggregate principal amount equal to the aggregate liquidation amount of the Trust Securities issued; NOW, THEREFORE, in consideration of the purchase of the Convertible Debentures by the Trust, and for the purpose of setting forth, as provided in the Base Indenture, the form and substance of the Convertible Debentures and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows: 6 ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITION OF TERMS. For all purposes of this Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) unless otherwise defined herein, the capitalized terms used herein that are defined in the Base Indenture have the same meanings when used in this Supplemental Indenture; (b) the terms defined in this Article 1 have the meanings assigned to them in this Article 1 and include the plural as well as the singular; (c) all other terms used herein which are defined in the Trust Indenture Act. either directly or by reference therein, have the meanings assigned to them therein; (d) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America, and, except as otherwise herein expressly provided, the term "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America at the date of such computation; (e) a reference to a Section or Article (or subdivision thereof) or the Recitals is to a Section or Article (or subdivision thereof) or the Recitals of this Supplemental Indenture; (f) the words "HEREIN", "HEREOF" and "HEREUNDER" and other words of similar import refer to this Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision; (g) headings are for convenience of reference only and do not affect interpretation; (h) the following terms have the meanings given to them in the Declaration: (i) "AUTHORIZED NEWSPAPER"; (ii) "BOARD OF DIRECTORS"; (iii) "BUSINESS DAY"; (iv) "CLOSING DATE"; (v) "COMMON STOCK"; (vi) "DATE OF NON-COMPLETION"; (vii) "DELAWARE TRUSTEE"; (viii) "DISTRIBUTION"; (ix) "GUARANTEE"; (x) "INVESTMENT COMPANY EVENT"; (xi) "MERGER"; (xii) "MERGER AGREEMENT"; (xiii) "NASDAQ"; (xiv) "NO RECOGNITION OPINION"; (xv) 2 7 "PROPERTY TRUSTEE"; (xvi) "REDEMPTION TAX OPINION"; (xvii) "RESTRICTED SECURITY"; and (xviii) "TAX EVENT"; (i) the terms defined as follows shall have the meanings assigned to them as follows: "ADJUSTED INTEREST RATE," with respect to any Reset Transaction, means the rate per annum that is the arithmetic average of the rates quoted by two Reference Dealers selected by the Company or its successor as the rate that the Convertible Debentures should bear so that the fair market value, expressed in dollars, of a Convertible Debenture immediately after the later of (i) public announcement of such Reset Transaction and (ii) public announcement of a change in dividend policy in connection with such Reset Transaction, but without giving effect to the provisions of Section 8.03 applicable to such Reset Transaction, shall equal the greater of (i) the average Trading Price of CRESTS or, if the Convertible Debentures have been distributed in liquidation of the Trust, a Convertible Debenture for the 20 Trading Days immediately preceding the date of public announcement of such Reset Transaction and (ii) the sum of (A) the fair market value of a Convertible Debenture immediately after such public announcement and (B) the amount of the decrease, if any, in the fair market value of a Convertible Debenture solely attributable to the increase in the Dividend Yield (excluding the effect of any change in the Trading Price of the common stock into which the Convertible Debentures are convertible that is attributable solely to the increase in the Dividend Yield); PROVIDED that the Adjusted Interest Rate shall not be less than 7% per annum. "ADJUSTMENT TRIGGER DATE" has the meaning specified in Section 8.03(A)(III). "ADMINISTRATIVE ACTION" means an official administrative pronouncement, ruling, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt such procedures or regulations. "APPLICABLE PRICE" means (i) in the event of a Non-Stock Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by a holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the average of the daily Closing Prices of one share of Common Stock during the 10 Trading Days immediately prior to the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change or, if there is no such record date, prior to the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets, but the adjustment shall be based upon the 3 8 consideration that the holders of Common Stock received in the transaction or event as a result of which more than 50% of the Common Stock shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets. "APPLICABLE RATE" means (i) from the Closing Date to but not including the effective date of the first Reset Transaction, if any, 7% per annum and (ii) from the effective date of any Reset Transaction (the "APPLICABLE RESET TRANSACTION") to but not including the earlier of (x) the effective date of any succeeding Reset Transaction or (y) the Maturity Date, the Adjusted Interest Rate in respect of the Applicable Reset Transaction. "BASE INDENTURE" means that Indenture dated as of even date hereof between the Company, Lodgian and the Trustee, as it may be amended, restated, supplemented and/or modified from time to time. "BUSINESS DAY" means any day other than a Saturday, Sunday, or any other day on which banking institutions in New York, New York or Wilmington, Delaware are permitted or required by any applicable law to close. "CERTIFICATE OF INCORPORATION" means the Company's Articles of Incorporation, as amended from time to time. "CLOSING PRICE" of any class of common stock of any Person on any date of determination means (i) the closing sale price (or, if no closing price is reported, the last reported sale price) of such common stock (regular way) on the NYSE on such date, (ii) if such common stock is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which such common stock is so listed, (iii) if such common stock is not so listed on a United States national or regional securities exchange, as reported by the NASDAQ Stock Market, (iv) if such common stock is not so reported, the last quoted bid price for such common stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization, (v) if such common stock is not so quoted, the average of the mid-point of the last bid and ask prices for such common stock from at least three nationally recognized investment banking firms selected by the board of directors of such Person or (vi) if not so available in such manner, as otherwise determined in good faith by the Board. "COMMON SECURITY CERTIFICATE" means a definitive certificate in fully registered form representing a Trust Common Security substantially in the form of Exhibit B to the Declaration. 4 9 "COMMON STOCK FUNDAMENTAL CHANGE" means any Fundamental Change in which more than 50% of the value (as determined in good faith by the board of directors of the Company) of the consideration received by holders of Common Stock consists of common stock that, for the 10 Trading Days immediately prior to such Fundamental Change, has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on The Nasdaq National Market System; PROVIDED, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding Convertible Debentures continue to exist as outstanding Convertible Debentures or (ii) the outstanding Convertible Debentures continue to exist as Convertible Debentures and are convertible into shares of the common stock of the corporation succeeding to the business of the Company. The Merger shall be deemed a Common Stock Fundamental Change. "COMPANY" has the meaning specified in the first paragraph hereof. "COMPOUNDED INTEREST" has the meaning specified in Section 5.01. "CONVERSION AGENT" means the Property Trustee acting as Conversion Agent for a Holder. "CONVERSION DATE" has the meaning specified in Section 8.02(B). "CONVERSION NOTICE" has the meaning specified in Section 8.02(A). "CONVERSION PRICE" means $21.42, as of the date of this Supplemental Indenture, as adjusted from time to time as set forth in Article 8. "CONVERTIBLE DEBENTURES" has the meaning specified in the Recitals. "CRESTS" has the meaning specified in the Recitals. "CRESTS CERTIFICATE" means a certificate representing CRESTS substantially in the form of Exhibit A to the Declaration. "CURRENT MARKET PRICE" shall mean, with respect to any class of common stock of the Company, the average of the daily Closing Prices of a share of such common stock during the five consecutive Trading Days selected by the Company commencing not more than 20 Trading Days before, and ending not later than, the date in question; provided, however, that (i) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Sections 8.03(A)(II) through 5 10 8.03(A)(V) occurs on or after the 20th Trading Day prior to the day in question and prior to the "ex" date for the issuance or distribution requiring such computation, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (ii) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Sections 8.03(A)(II) through 8.03(A)(V) occurs on or after the "ex" date for the issuance or distribution requiring such computation and on or prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (iii) if the "ex" date for the issuance or distribution requiring such computation is on or prior to the day in question, after taking into account any adjustment required pursuant to clause (ii) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value on the day in question (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 8.03(A)(III) or 8.03(A)(IV)) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of the applicable class of common stock of the Company as of the close of business on the day before such "ex" date. For purposes of this definition, the term "ex" date, with respect to any class of common stock of the Company, (i) when used with respect to any issuance or distribution, means the first date on which such common stock trades regular way on such exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (ii) when used with respect to any subdivision or combination of shares of such common stock, means the first date on which such common stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (iii) when used with respect to any tender or exchange offer means the first date on which such common stock trades regular way on such exchange or in such market after the expiration time of such tender or exchange offer. "DECLARATION" means the Amended and Restated Declaration of Trust of the Trust, dated as of June 17, 1998, as it may be amended, restated, supplemented and/or modified from time to time. "DEFERRED INTEREST" has the meaning specified in Section 5.01. 6 11 "DEPOSITARY" means a clearing agency registered under the Securities Exchange Act of 1934 that is designated as Depositary for the Convertible Debentures. "DISSOLUTION EVENT" means that, as a result of the occurrence and continuation of a Trust Special Event, the Trust is to be dissolved in accordance with the Declaration, and the Convertible Debentures held by the Property Trustee are to be distributed to the holders of the Trust Securities issued by the Trust PRO RATA in accordance with the Declaration. "DIVIDEND YIELD," on any security for any period, means the dividends paid or proposed to be paid pursuant to an announced dividend policy on such security for such period divided by, if with respect to dividends paid on such security, the average Closing Price of such security during such period and, if with respect to dividends so proposed to be paid on such security, the Closing Price of such security on the effective date of the related Reset Transaction. "EXCESS PURCHASE PAYMENT" means the excess, if any, of (A) the aggregate of the cash and the value (as determined by the Board of Directors) of all other consideration paid by the Company or any of its Subsidiaries with respect to the shares of the class of Common Stock acquired in a tender or exchange offer, respectively, over (B) the product of the Current Market Price per share of such common stock times the number of shares of such Common Stock acquired in such tender or exchange offer. "EXERCISE TRIGGER DATE" has the meaning specified in Section 8.03(A)(III). "EXTENSION PERIOD" has the meaning specified in Section 5.01. "FUNDAMENTAL CHANGE" means the occurrence of any transaction or event or series of transactions or events pursuant to which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or shall constitute solely the right to receive cash, securities, property or other assets (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); PROVIDED, in the case of any such series of transactions or events, for purposes of adjustment of the Conversion Price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets. "GLOBAL DEBENTURE" has the meaning specified in Section 2.04. 7 12 "IDC" means Interactive Data Corporation. "INTEREST PAYMENT DATE" has the meaning specified in Section 2.05. "LODGIAN" has the meaning specified in the first paragraph hereof. "MATURITY DATE" means the date on which the Convertible Debentures mature and on which the principal shall be due and payable, together with any accrued and unpaid interest thereon, including Compounded Interest, if any. "MINISTERIAL ACTION" has the meaning specified in Section 3.01. "90-DAY PERIOD" has the meaning specified in Section 3.01. "NON-COMPLETION OFFER" has the meaning specified in Section 4.01. "NON-COMPLETION PAYMENT" has the meaning specified in Section 4.01. "NON-COMPLETION PAYMENT DATE" has the meaning specified in Section 4.01. "NON-COMPLETION PAYMENT NOTICE" has the meaning specified in Section 4.01. "NON-STOCK FUNDAMENTAL CHANGE" means any Fundamental Change other than a Common Stock Fundamental Change. "NYSE" means the New York Stock Exchange, Inc. or any successor thereto. "OID" means original issue discount. "PAYING AGENT" means any Paying Agent with respect to the Convertible Debentures under the Base Indenture. "PRICE TRIGGER DATE" has the meaning specified in Section 8.03(A)(III). "PURCHASE DATE" shall have the meaning specified in Section 8.03(A)(V). "PURCHASE AGREEMENT" means the Purchase Agreement dated June 9, 1998, among NationsBanc Montgomery Securities LLC, the Trust and the Company, as it may be amended, restated, supplemented and/or modified from time to time. 8 13 "PURCHASER STOCK PRICE" means, with respect to any Common Stock Fundamental Change, the average of the daily Closing Prices for one share of the common stock received by holders of Common Stock in such Common Stock Fundamental Change during the 10 Trading Days immediately prior to the date fixed for the determination of the holders of Common Stock entitled to receive such common stock or, if there is no such date, prior to the date upon which the holders of Common Stock shall have the right to receive such common stock. "REDEMPTION PRICE" has the meaning specified in Section 3.02. "REFERENCE DEALER" means a dealer engaged in the trading of convertible securities. "REFERENCE MARKET PRICE" initially means $11.22 and, in the event of any adjustment to the Conversion Price other than as a result of a Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of the initial Reference Market Price to the initial Conversion Price of $21.42 per share. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated the date hereof, among the Company, Lodgian, NationsBanc Montgomery Securities LLC and the Trust for the benefit of themselves and the Holders, as the same may be amended from time to time in accordance with the terms thereof. "REGULAR RECORD DATE" has the meaning specified in Section 2.05(A). "REGULAR TRUSTEE" means the Regular Trustee of the Trust. "RESALE RESTRICTION TERMINATION DATE" has the meaning specified in Section 2.04. "RESET TRANSACTION" means (i) a merger, consolidation or statutory share exchange to which the Person that is the issuer of the common stock into which the Convertible Debentures are then convertible is a party, (ii) a sale of all or substantially all assets of such Person, (iii) a recapitalization of such common stock or a distribution described in Section 8.03(A)(III) or (iv) the election by the Person that is the issuer of the common stock into which the Convertible Debentures are then convertible to be a real estate investment trust (as defined in Section 856 of the Internal Revenue Code of 1986, as amended), after the effective date of which transaction or distribution or election described in clauses (i) through (iv) above the Convertible Debentures are convertible into shares of a 9 14 Person (x) the common stock of which had a Dividend Yield for the four fiscal quarters of such Person immediately preceding the public announcement thereof which was, or (y) that announces a dividend policy prior to the effective date thereof which policy, if implemented, would result in a Dividend Yield on such common stock for the next four fiscal quarters of such Person which would be, more than 250 basis points higher than the Dividend Yield on the common stock into which the Convertible Debentures are convertible prior to such transaction, distribution or election for the four fiscal quarters immediately preceding the public announcement of such transaction or distribution or election. "SECURITIES" has the meaning set forth in Section 8.03(A)(III). "SPECIAL EVENT REDEMPTION PRICE" has the meaning specified in Section 3.01. "STATED MATURITY" has the meaning specified in the Base Indenture. "SUBSIDIARY" means, with respect to any Person, (i) any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture, business trust or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. "SUPPLEMENTAL INDENTURE" has the meaning specified in the first paragraph hereof. "TRADING DAY" means, with respect to any class of common stock of any Person, any day on which such common stock is traded on the NYSE, or if such common stock is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such common stock is listed or admitted, or if not listed or admitted to trading on any national securities exchange, on the NASDAQ Stock Market, or if such common stock is not quoted on the NASDAQ Stock Market, in the applicable securities market in which such common stock is traded. "TRADING PRICE" of a security on any date of determination means (i) the closing sale price (or, if no closing price is reported, the last reported sale price) of a security (regular way) on the NYSE on such date, (ii) if such security is not listed for trading on the NYSE on any such date, as reported in the composite 10 15 transactions for the principal United States securities exchange on which such security is so listed, (iii) if such security is not so listed on a United States national or regional securities exchange, as reported by the NASDAQ Stock Market, (iv) if such security is not so reported, the price quoted by IDC for such security or, if IDC is not quoting such price, a similar quotation service selected by the Company, (v) if such security is not so quoted, the average of the mid-point of the last bid and ask prices for such security from at least two dealers recognized as market-makers for such security, or (vi) if such security is not so quoted, the average of the last bid and ask prices for such security from a Reference Dealer. "TRUST" has the meaning specified in the first paragraph hereof. "TRUST COMMON SECURITIES" has the meaning specified in the Recitals. "TRUSTEE" has the meaning specified in the Recitals. "TRUST SECURITIES" has the meaning specified in the Recitals. "TRUST SPECIAL EVENT" means a Tax Event or an Investment Company Event. "VOTING STOCK", as applied to stock of any Person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. ARTICLE 2 GENERAL TERMS AND CONDITIONS OF THE CONVERTIBLE DEBENTURES SECTION 2.01. DESIGNATION AND PRINCIPAL AMOUNT. There is hereby authorized a series of Debentures designated the 7% Convertible Junior Subordinated Debentures Due 2010, limited in aggregate principal amount to the sum of (a) $180,412,400 and (b) such aggregate principal amount (which may not exceed $207,474,300 aggregate principal amount) of Convertible Debentures as shall be purchased by the Trust as a consequence of the exercise of an over-allotment option in accordance with the terms of the Purchase Agreement, except for Convertible Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Convertible Debentures under the terms of this Supplemental Indenture and the Base Indenture, which amount 11 16 shall be as set forth in one or more Company Orders for the authentication and delivery of Convertible Debentures pursuant to Section 2.04 of the Base Indenture. SECTION 2.02. MATURITY. The Maturity Date is June 30, 2010. SECTION 2.03. FORM AND PAYMENT. Except as provided in Section 2.04, the Convertible Debentures shall be issued in fully registered certificated form without Coupons with appropriate legends as set forth on Annex I hereto, in denominations of $50 and integral multiples thereof. Principal, premium, if any, and interest on the Convertible Debentures issued in certificated form shall be payable, the transfer of such Convertible Debentures shall be registrable, and such Convertible Debentures shall be exchangeable for Convertible Debentures bearing identical terms and provisions, at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the Holder of any Convertible Debentures is the Property Trustee, the payment of the principal of, premium, if any, and interest (including Compounded Interest, if any) on such Convertible Debentures held by the Property Trustee shall be made at such place and to such account as may be designated by the Property Trustee. SECTION 2.04. GLOBAL DEBENTURE. (a) So long as Convertible Debentures are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Convertible Debentures that are so eligible shall be represented by one or more global Convertible Debentures ("GLOBAL DEBENTURES"). The transfer and exchange of beneficial interests in any such Global Debenture shall be effected through the Depositary in accordance with the Indenture and the procedures of the Depositary therefor. If distributed to holders of CRESTS in connection with the involuntary or voluntary dissolution, winding-up, or liquidation of the Trust as a result of the occurrence of a Trust Special Event, the Convertible Debentures shall be issued in the form of one or more global certificates registered in the name of the Depositary or its nominee. If the Convertible Debentures are so distributed to holders of CRESTS in liquidation of such holders' interests in the Trust, the Depositary shall act as securities depositary for the Convertible Debentures. None of the Company, the Trust, the Property Trustee, any Paying Agent and any other agent of the Company or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Debenture for such Convertible Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. 12 17 Beneficial owners of a Convertible Debenture represented by a Global Debenture shall not be entitled to have certificates registered in their names, shall not receive or be entitled to receive physical delivery of certificates in definitive form and shall not be considered Holders of such Convertible Debenture. (b) Each Global Debenture and Convertible Debentures not represented by a Global Debenture that constitutes a Restricted Security shall bear the following legend on the face thereof until two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Convertible Debentures (or any predecessor thereto) (the "RESALE RESTRICTION TERMINATION DATE"), unless otherwise agreed by the Company and the Holder thereof: THIS SECURITY, THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, THE GUARANTEE AND THE CRESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION IN THESE SECURITIES MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITIES, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF SUCH SECURITIES (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS SUCH SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT 13 18 PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING SUCH SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, OR AS FIDUCIARY FOR THE ACCOUNT OF ONE OR MORE TRUSTS, EACH OF WHICH IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a) (7) OF RULE 501 UNDER THE SECURITIES ACT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, SUBJECT IN EACH OF THE FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THESE SECURITIES BEING COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) BY REASON OF THE APPLICATION OF ONE OR MORE STATUTORY OR ADMINISTRATIVE EXEMPTIONS FROM THE PROHIBITED TRANSACTION RULES OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE, ITS PURCHASE AND HOLDING OF CRESTS WILL NOT CONSTITUTE, CAUSE OR RESULT IN THE OCCURRENCE OF A NON-EXEMPT PROHIBITED TRANSACTION WITHIN THE MEANING OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST 14 19 OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT RELATING TO THE SECURITIES. (c) A Global Debenture may be transferred, in whole but not in part, only to another nominee of the Depositary, or to a successor Depositary selected or approved by the Company or to a nominee of such successor Depositary. Any Convertible Debentures (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms may, upon surrender of such Convertible Debentures for exchange to the Trustee in accordance with the provisions of this Section 2.04(B), be exchanged for new Convertible Debentures of like tenor and aggregate liquidation amount, which shall not bear the restrictive legend required by this Section 2.04(B). Upon any sale or transfer of any Restricted Security (including any interest in a Global Debenture) (i) that is effected pursuant to an effective registration statement under the Securities Act or (ii) in connection with which the Trustee receives certificates and other information (including an opinion of counsel, if requested) reasonably acceptable to the Company and the Trustee to the effect that such security shall no longer be subject to the resale restrictions under federal and state securities laws, then (A) in the case of a Restricted Security in definitive form the Trustee shall permit the holder thereof to exchange such Restricted Security for a security that does not bear the legend set forth in Section 2.04(B), and shall rescind any such restrictions on transfer and (B) in the case of Restricted Securities represented by a Global Debenture, such Convertible Debentures shall no longer be subject to the restrictions contained in the legend set forth in Section 2.04(B) (but still subject to the other provisions hereof). In addition, any Convertible Debentures (or security issued in exchange or substitution therefor) as to which the restrictions on transfer described in the legend set forth in Section 2.04(B) have expired by their terms, may, upon surrender thereof (in accordance with terms of this Indenture) together with such certifications and other information (including an opinion of counsel having substantial experience in practice under the Securities Act and otherwise reasonably acceptable to the Company, addressed to the Company and the Trustee and in form acceptable to the Company, to the effect that the transfer of such Restricted Security may be made in compliance with Rule 144(k) or such successor provision) acceptable to the Company and the Trustee as either of them may reasonably require, be 15 20 exchanged for a new Convertible Debenture or Convertible Debentures of like tenor and aggregate principal amount, which shall not bear the restrictive legends set forth in Section 2.04(B). SECTION 2.05. INTEREST. (a) Each Convertible Debenture shall bear interest at the Applicable Rate per annum from and including the Closing Date until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Applicable Rate, compounded quarterly, payable (subject to the provisions of Article 5) quarterly in arrears on March 31, June 30, September 30 and December 31, of each year (each, an "INTEREST PAYMENT DATE"), commencing September 30, 1998 to the Holder of such Convertible Debenture, at the close of business on the record date for such Interest Payment Date, which record date (the "REGULAR RECORD DATE"), (i) shall be the close of business on the Business Day next preceding that Interest Payment Date, in respect of (A) Convertible Debentures of which the Property Trustee is the only Holder and the related CRESTS are in book-entry only form or (B) a Global Debenture, and (ii) shall be any date selected by the Company but in any event at least one Business Day before that Interest Payment Date in respect of Convertible Debentures other than as set forth in (i). (b) The amount of interest payable for any full quarterly interest period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed, shall be computed on the basis of 30-day months and, for periods of less than a month, on the basis of the actual number of days elapsed. In the event that any date on which interest is payable on the Convertible Debentures is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. ARTICLE 3 REDEMPTION OF THE CONVERTIBLE DEBENTURES SECTION 3.01. TRUST SPECIAL EVENT REDEMPTION. If a Trust Special Event has occurred and is continuing and (a) the Company has received a Redemption Tax Opinion or (b) the Regular Trustees have been informed by independent tax counsel experienced in such matters that, for substantive reasons, it cannot deliver 16 21 a No Recognition Opinion to the Trust, then, notwithstanding Sections 3.02 and 3.03, the Company shall have the right upon not less than 30 days' nor more than 60 days' notice to the Holders of the Convertible Debentures to redeem the Convertible Debentures, in whole or in part, for cash, within 90 days following the occurrence of such Trust Special Event (the "90-DAY PERIOD"), at a redemption price equal to 100% of the principal amount to be redeemed, together with accrued and unpaid interest (including Compounded Interest, if any) thereon to, but excluding, the date of such redemption (the "SPECIAL EVENT REDEMPTION PRICE"), PROVIDED that, if at the time there is available to the Company or the Trust the opportunity to eliminate, which elimination shall be complete within the 90- Day Period, such Trust Special Event by taking some ministerial action (such as filing a form or making an election, or pursuing some other similar reasonable measure) that has no adverse effect on the Company, the Trust or the Holders of the Trust Securities, or does not subject any of them to more than DE MINIMIS regulatory requirements ("MINISTERIAL ACTION"), the Company or the Trust shall pursue such Ministerial Action in lieu of redemption. and, provided, further, that the Company shall have no right to redeem the Convertible Debentures while the Trust is pursuing any Ministerial Action pursuant to its obligations under the Declaration; provided such Ministerial Action can eliminate such Trust Special Event during the 90-Day Period. On the date notice of redemption is given by mail pursuant to Section 3.05, the Company shall issue a press release announcing such redemption and that such redemption shall result in the redemption of the CRESTS. The Special Event Redemption Price shall be paid prior to 12:00 noon, New York time, on the date fixed by the Company for such redemption or at such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Special Event Redemption Price by 10:00 a.m., New York time, on the date such Special Event Redemption Price is to be paid. SECTION 3.02. OPTIONAL REDEMPTION. (a) Subject to the provisions of Section 3.03 and Section 3.04 of this Supplemental Indenture and to the provisions of Article 10) of the Base Indenture, the Company shall have the right to redeem the Convertible Debentures, in whole or in part, for cash, from time to time on and after July 3, 2002, upon not less than 30 days' nor more than 60 days' notice to the Holders, at the following prices (expressed as percentages of the principal amount of the Convertible Debentures) (the "REDEMPTION PRICE"), together with any accrued and unpaid interest (including Compounded Interest, if any) thereon to, but excluding, the date of such redemption, if redeemed during the period beginning July 3, 2002 and ending on June 27, 2003, the redemption price shall be 104.2% and if redeemed thereafter during the 12-month period beginning on June 30 of the following years: 17 22 YEAR REDEMPTION PRICE ---- ---------------- 2003 103.5% 2004 102.8% 2005 102.1% 2006 101.4% 2007 100.7% 2008 and thereafter 100.0% The Company may exercise its redemption right pursuant to this Section 3.02 provided that the redemption price (other than the portion thereof consisting of accrued and unpaid interest (including Compounded Interest, if any)) is payable solely out of the sale proceeds of other equity securities of the Company, and from no other source. For purposes of the preceding sentence, "EQUITY SECURITIES" means (i) any equity securities, including common stock and preferred stock, of the Company, (ii) any securities, which by their terms, are mandatorily convertible or exchangeable for, or require the purchase of, such common stock or preferred stock and (iii) preferred securities issued by a business trust, partnership or limited liability company, all of the common equity of which is owned, directly or indirectly by, the Company and the sole assets of which are subordinated debt securities with interest payments deferrable at the Company's option. On the date notice of redemption pursuant to this Section 3.02(A) is given by mail pursuant to Section 3.05, the Company shall issue a press release announcing such redemption which shall set forth the aggregate principal amount of Convertible Debentures that the Company intends to redeem and, if the Property Trustee is the Holder of the Debentures, that such redemption shall result in the redemption of an equal liquidation amount of CRESTS. (b) Subject to the provisions of Section 3.03 and Section 3.04 of this Supplemental Indenture and to the provisions of Article 10 of the Base Indenture, the Company shall have the right to redeem the Convertible Debentures, in whole or in part, for cash from time to time after July 3, 2002, upon not less than 30 days' nor more than 60 days' notice to the Holders, at a redemption price equal to 100% of the principal amount of the Convertible Debentures to be redeemed, together with any accrued and unpaid interest (including Compounded Interest, if any) thereon to, but excluding the date of such redemption. The Company may exercise its redemption right pursuant to this Section 3.02(B) by notice given on any date only (i) if for 20 Trading Days within any period of 30 consecutive Trading Days ending on such date, including the last day of such period, the Closing Price of the shares of Common Stock exceeds $25.71 per share, subject to adjustment, under the circumstances described in Section 8.03, with respect to the Conversion Price and (ii) on or prior to the date of the notice of redemption required by Section 3.05, the Company shall have entered into an agreement, 18 23 subject to customary terms and conditions, with a nationally recognized investment banking firm pursuant to which such firm shall have agreed to purchase from the Company such number of whole shares of Common Stock as would have been issuable upon conversion of Convertible Debentures that are not surrendered for conversion prior to the close of business on the redemption date. To exercise its redemption right pursuant to this Section 3.02(B), the Company shall issue a press release announcing the redemption prior to the opening of business on the second Trading Day after the conditions described in the preceding sentences have, from time to time, been met but shall not issue such press release prior to July 3, 2002. Such press release shall announce the redemption and set forth the aggregate principal amount of Convertible Debentures that the Company intends to redeem and, if the Property Trustee is the holder of the Debentures, that such redemption shall result in the redemption of an equal liquidation amount of CRESTS. SECTION 3.03. DEPOSIT OF REDEMPTION PRICE; PAYMENT OF INTEREST ON CONVERTIBLE DEBENTURES TO BE REDEEMED. The redemption price of Debentures to be redeemed, together with any accrued and unpaid interest (including Compounded Interest, if any) thereon required to be paid, shall be paid prior to 12:00 noon, New York time, on the date fixed by the Company for redemption or at such earlier time as the Company determines, PROVIDED that the Company shall deposit with the Trustee an amount sufficient to pay such redemption price, plus such accrued and unpaid interest, by 10:00 a.m., New York time, on the date such redemption price is to be paid; PROVIDED, FURTHER, that if Convertible Debentures are redeemed pursuant to this Article 3 on March 31, June 30, September 30, or December 31, accrued and unpaid interest (including Compounded Interest, if any) shall be payable to Holders on the relevant record date. The Company may not redeem any Convertible Debentures unless all accrued and unpaid interest (including Compounded Interest, if any) has been paid on all of the outstanding Convertible Debentures for all quarterly interest periods terminating on or prior to the last Interest Payment Date before the date of redemption. SECTION 3.04. REDEMPTION OF LESS THAN ALL CONVERTIBLE DEBENTURES. If the Convertible Debentures are only partially redeemed, the Convertible Debentures shall be redeemed pro rata by the Trustee. SECTION 3.05. NOTICE OF REDEMPTION. Notice of any redemption of the Convertible Debentures shall be given by the Company by mail to each Holder of Convertible Debentures to be redeemed not fewer than 30 nor more than 60 days before the date fixed for redemption of the Convertible Debentures, provided that notice of redemption by mail pursuant to Section 3.02(B) shall be given on the date on which the Company issues the press release referred to in Section 3.02(B). If the Convertible Debentures have been distributed to Holders in liquidation of 19 24 the Trust, notice of any redemption shall also be given by publication made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date in an Authorized Newspaper. For purposes of the calculation of the date of redemption and the dates on which notices are given pursuant to this Section 3.05, a notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, or by such other means suitable to assure delivery of such written notice, to Holders of Convertible Debentures. Each notice given by mail shall be addressed to the Holders of Convertible Debentures at the address of each such Holder appearing in the books and records of the Company. No defect in the notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each notice, whether given by mail or publication, shall state, as appropriate: (A) the redemption date; (B) the aggregate principal amount of Convertible Debentures to be redeemed, including CUSIP numbers, and, if less than all the Convertible Debentures held by such Holder are to be redeemed, the aggregate principal amount of such Convertible Debentures to be redeemed from such Holder; (C) the redemption price to be paid in respect of the redemption; (D) the then current Conversion Price and, if any event then known to the Company shall result in an adjustment to the Conversion Price on or prior to the redemption date, such adjusted conversion price and the date of such adjustment; (E) the last date on which the Convertible Debentures may be converted prior to the redemption date; (F) any Holder who wishes to convert his or her Convertible Debentures must comply with and satisfy all the terms, conditions and requirements for conversion as set forth in the Convertible Debentures and the Supplemental Indenture; (G) that interest on the Convertible Debentures to be redeemed shall cease to accrue on the redemption date; and (H) a place for the Convertible Debentures to be redeemed. SECTION 3.06. NO SINKING FUND. The Convertible Debentures are not entitled to the benefit of any sinking fund. 20 25 ARTICLE 4 OPTIONAL REPURCHASE SECTION 4.01. REPURCHASE OF CONVERTIBLE DEBENTURES UPON NON- COMPLETION OF MERGER. (a) If the Merger Agreement is terminated or the Merger has not been consummated by December 31, 1998, the Company shall make an offer (the "NON-COMPLETION OFFER") to each Holder of Convertible Debentures to repurchase all or any part (equal to $50 or an integral multiple thereof) of such Holder's Convertible Debentures at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the date of purchase (the "NON-COMPLETION PAYMENT"). (b) Within 20 days following the Date of Non-Completion, the Company shall mail a notice to each Holder of Convertible Debentures stating: (i) that a Non-Completion Offer is being made pursuant to Section 4.01 and that all Convertible Debentures properly tendered shall be accepted for payment; (ii) the purchase price and the purchase date, which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "NON-COMPLETION PAYMENT DATE"); (iii) that any Convertible Debentures not properly tendered shall continue to accrue interest in accordance with the terms of this Supplemental Indenture and the Base Indenture; (iv) that, unless the Company defaults in the payment of the Non- Completion Payment, all Convertible Debentures accepted for payment pursuant to a Non-Completion Offer shall cease to accrue interest after the Non-Completion Payment Date; (v) that Holders of Convertible Debentures electing to have any Convertible Debentures purchased pursuant to a Non-Completion Offer shall be required to surrender the Convertible Debentures, with the form entitled "Option of Holder to Elect Purchase" on the reverse of such Convertible Debentures completed, or transfer by book-entry, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Non-Completion Payment Date; (vi) that Holders of Convertible Debentures shall be entitled to withdraw their election if the Paying Agent receives, not later than the 21 26 close of business on the third Business Day prior to the Non-Completion Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Convertible Debentures delivered for purchase, and a statement that such Holder is withdrawing his election to have such Convertible Debentures purchased; and (vii) that Holders of Convertible Debentures whose Convertible Debentures are being purchased only in part shall be issued new Convertible Debentures equal in principal amount to the unpurchased portion of the Convertible Debentures surrendered, which unpurchased portion must be equal to $50 in principal amount or an integral multiple thereof. (c) A Holder may exercise its rights specified in Section 4.01(A) by complying with the terms of the notice in Section 4.01(B) or upon (1) delivery to any Paying Agent of a written notice (a "NON-COMPLETION PAYMENT NOTICE") at any time prior to the close of business on the Non-Completion Payment Date, stating (A) the certificate number of the Convertible Debenture that the Holder shall deliver to be purchased and (B) the portion of the principal amount of the Convertible Debenture that the Holder shall deliver to be purchased, which portion must be $50 or an integral multiple thereof and (2) delivery of such Convertible Debenture to such Paying Agent at such office prior to, on or after the Non-Completion Payment Date (together with all necessary endorsements), such delivery being a condition to receipt by the Holder of the Non-Completion Payment therefor. If a Holder has elected to deliver to the Company for purchase a portion of a Convertible Debenture, and if the principal amount of such portion is $50 or an integral multiple of $50, the Company shall purchase such portion from the Holder thereof pursuant to Section 4.01. Provisions of this Supplemental Indenture and the Base Indenture that apply to the purchase of all of a Convertible Debenture also apply to the purchase of a portion of such Convertible Debenture. Each Paying Agent shall promptly notify the Company of the receipt by the former of any and all Non-Completion Payment Notices and any and all written notices of withdrawal thereof. (d) Upon receipt by any Paying Agent of a Non-Completion Payment Notice, the Holder of the Convertible Debenture in respect of which such Non- Completion Payment Notice was given shall thereafter be entitled to receive solely the Non-Completion Payment with respect to such Convertible Debenture (unless such Non-Completion Payment Notice is withdrawn pursuant to Section 4.01(I)). Such Non-Completion Payment shall be paid to such Holder promptly following the later of the Business Day following the Non-Completion Payment Date (provided the conditions in Section 4.01(C) have been satisfied) and the time 22 27 of delivery of such Convertible Debenture to the relevant Paying Agent at the office of such Paying Agent by the Holder thereof in the manner required by Section 4.01(B). (e) On or prior to the Non-Completion Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Convertible Debentures or portions thereof properly tendered pursuant to a Non-Completion Offer, (ii) deposit with the Paying Agent an amount of money in same-day funds (or New York Clearing House funds if such deposit is made prior to the Non-Completion Payment Date) sufficient to pay the Non-Completion Payment with respect to all the Convertible Debentures or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Convertible Debentures so tendered together with a certification setting forth the aggregate principal amounts of Convertible Debentures or portions thereof being purchased by the Company. (f) Upon a Non-Completion Payment Notice having been given as aforesaid, Convertible Debentures to be purchased shall, on the Non-Completion Payment Date, become due and payable at the Non-Completion Payment and from and after such date (unless the Company shall default in the payment of the Non- Completion Payment) such Convertible Debentures shall cease to bear interest. Upon surrender of any such Convertible Debenture for purchase in accordance with the foregoing provisions, such Convertible Debenture shall be purchased by the Company for an amount equal to the Non-Completion Payment with respect to such Convertible Debenture. If any Convertible Debenture tendered for purchase shall not be so paid upon surrender thereof, the principal thereof (and premium, if any, thereon) shall, until paid, bear interest from the Non-Completion Payment Date at the rate borne by such Convertible Debenture. (g) Any Convertible Debenture that is to be purchased only in part shall be surrendered to a Paying Agent at the office of such Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Convertible Debenture, without service charge, one or more new Convertible Debentures of any authorized denomination as requested by such Holder in an aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Convertible Debenture so surrendered that is not purchased; PROVIDED that each such new Convertible Debenture shall be in a principal amount of $50 or an integral multiple thereof. 23 28 (h) The Company shall comply with applicable tender offer rules, including Rule 14e-1 under the Exchange Act, in connection with a Non- Completion Offer and may modify a Non-Completion Offer to so comply. (i) A Non-Completion Payment Notice may be withdrawn before or after delivery by the Holder to the relevant Paying Agent at the office of such Paying Agent of the Convertible Debenture to which such Non-Completion Payment Notice relates, by means of a written notice of withdrawal (by facsimile transmission or letter) received by such Paying Agent at such office not later than three Business Days prior to the Non-Completion Payment Date, specifying, as applicable: (i) the certificate number of the Convertible Debenture in respect of which such notice of withdrawal is being submitted; (ii) the principal amount of the Convertible Debenture with respect to which such notice of withdrawal is being submitted; and (iii) the principal amount, if any, of the Convertible Debenture that remains subject to the original Non-Completion Payment Notice and that has been or shall be delivered for purchase by the Company. Each Paying Agent shall promptly return to the prospective Holders thereof any Convertible Debentures with respect to which a Non-Completion Payment Notice has been withdrawn in compliance with this Indenture. ARTICLE 5 EXTENSION OF INTEREST PAYMENT PERIOD SECTION 5.01. EXTENSION OF INTEREST PAYMENT PERIOD. As long as an Event of Default under Section 4.01(a) of the Base Indenture shall not have occurred and be continuing, the Company shall have the right, at any time and from time to time during the term of the Convertible Debentures, to defer payments of interest by extending the interest payment period of such Convertible Debentures for a period not exceeding 20 consecutive quarters nor extending beyond the Stated Maturity of the Convertible Debentures (an "EXTENSION PERIOD"), during which Extension Period no interest shall be due and payable on the Convertible Debentures. To the extent permitted by applicable law, interest, the payment of which has been deferred during an Extension Period, shall bear interest thereon at the Applicable Rate compounded quarterly for each quarter of the Extension Period ("COMPOUNDED INTEREST"). Before the termination of any such Extension Period the Company may further extend such Extension Period, provided that such Extension 24 29 Period, together with all such previous and further extensions thereof, shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. At the end of the Extension Period, the Company shall pay all interest accrued and unpaid on the Convertible Debentures, including any Compounded Interest (together, "DEFERRED INTEREST") that shall be payable to the Holders of Convertible Debentures in whose names the Convertible Debentures are registered in the Debenture Register on the first record date after the termination of the Extension Period. Upon the termination of any Extension Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extension Period, subject to the foregoing requirements. No interest shall be due and payable during an Extension Period, except at the end thereof, but the Company may pay at any time all or any portion of the interest accrued during an Extension Period. SECTION 5.02. NOTICE OF EXTENSION. (a) If the Property Trustee shall be the only Holder of the Convertible Debentures at the time the Company selects an Extension Period, the Company shall give written notice to the Regular Trustees, the Property Trustee and the Trustee of its selection of such Extension Period one Business Day before the earlier of (i) the date on which Distributions on the Trust Securities are payable and (ii) the date the Regular Trustees are required to give notice of the record date or the date such Distributions are payable to any national stock exchange or other organization on which the CRESTS may be listed or quoted, if any, or to holders of CRESTS, but in any event at least one Business Day before such record date or such payment date. (b) If the Property Trustee shall not be the Holder of the Convertible Debentures at the time the Company selects an Extension Period, the Company shall give the Holders of Convertible Debentures written notice of its selection of such Extension Period at least 10 Business Days before the earlier of (i) the Interest Payment Date for the first quarter of such Extension Period and (ii) the date the Company is required to give notice of the record date or the date of such interest payment to Holders of Convertible Debentures. (c) The quarter in which any notice is given pursuant to subsections (a) or (b) of this Section 5.02 shall be, and shall be counted as, one of the 20 quarters permitted in the maximum Extension Period permitted under Section 5.01. 25 30 ARTICLE 6 EXPENSES SECTION 6.01. PAYMENT OF EXPENSES. Because the Trust is being formed solely to facilitate an investment in the Convertible Debentures, the Company, in its capacity as borrower with respect to the Convertible Debentures, shall: (a) pay all costs and expenses relating to the offering, sale, issuance and/or exchange of the Convertible Debentures and the Trust Securities, including fees payable pursuant to the Purchase Agreement and compensation, expenses and indemnification of the Trustee under the Base Indenture in accordance with the provisions of Section 5.06 of the Base Indenture; (b) pay all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization, maintenance and dissolution of the Trust, the fees and expenses of the Regular Trustees, Property Trustee and the Delaware Trustee and the fees and expenses of the Guarantee Trustee under the Guarantee, the costs and expenses relating to the operation of the Trust, including, without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); (c) pay all costs and expenses related to the enforcement by the Property Trustee of its rights as a Holder of Convertible Debentures; (d) be responsible for all debts and obligations of the Trust (other than with respect to the Trust Securities); (e) pay any and all taxes, duties, assessments or governmental charges of whatever nature (other than United States withholding taxes) directly imposed on the Trust, in its capacity as a legal entity or as a holder of the Convertible Debentures, by the United States, or any other taxing authority; so that the net amounts received and retained by such Trust and the Property Trustee after paying such taxes, duties, assessments, governmental charges, expenses, debts and obligations shall be equal to the amounts such Trust and the Property Trustee would have received had no such taxes, duties, 26 31 assessments, governmental charges, expenses, debts and obligations been incurred by or imposed on such Trust. The foregoing obligations of the Company are for the benefit of, and shall be enforceable by, any person to whom any such fees, debts, obligations, costs, expenses, taxes, duties, assessments or other governmental charges are owed (each a "CREDITOR") whether or not such Creditor has received notice thereof. Any Creditor may enforce such obligations of the Company directly against the Company, and the Company irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other person before proceeding against the Company. The Company shall execute such additional agreements as may be necessary or desirable to give full effect to the foregoing. SECTION 6.02. PAYMENT UPON RESIGNATION OR REMOVAL. Upon termination of this Supplemental Indenture or the Base Indenture or the removal or resignation of the Trustee pursuant to Section 5.07 of the Base Indenture, the Company shall pay to the Trustee all amounts owed to the Trustee accrued to the date of such termination, removal or resignation. Upon termination of the Declaration or removal or resignation of the Delaware Trustee or the Property Trustee, as the case may be, pursuant to Section 6.06 of the Declaration or the Guarantee Trustee pursuant to the Guarantee, the Company shall pay to the Delaware Trustee, the Property Trustee or the Guarantee Trustee, and their respective counsel, as the case may be, all amounts accrued to the date of such termination, removal or resignation. ARTICLE 7 COVENANTS SECTION 7.01. COVENANTS AS TO THE TRUST. If the Property Trustee is the Holder of the Convertible Debentures, the Company shall (a) maintain, directly or indirectly, ownership of all of the Trust Common Securities; PROVIDED, however, that any permitted successor of the Company under the Base Indenture may succeed to the Company's ownership of the Trust Common Securities, (b) cause the Trust to remain a statutory business trust, except in connection with a distribution of Convertible Debentures to the holders of Trust Securities, the redemption or conversion of all of the Trust Securities, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and not to voluntarily dissolve, wind-up, liquidate or to be terminated, except as permitted by the Declaration, (c) use its commercially reasonable efforts to ensure that the Trust shall not be an "investment company" for purposes of the Investment Company Act of 1940, as amended, and (d) take no action that would be 27 32 reasonably likely to cause the Trust to be classified as an association or a publicly traded partnership taxable as a corporation for United States federal income tax purposes. ARTICLE 8 CONVERSION OF CONVERTIBLE DEBENTURES SECTION 8.01. CONVERSION RIGHTS. (a) Subject to and upon compliance with the provisions of this Article 8, the Convertible Debentures are convertible, at the option of the Holder thereof, at any time beginning 90 days following the last date of original issuance of any CRESTS and prior to the close of business, New York time, on June 28, 2010 (or earlier as provided in Section 8.01(B)) into that number of fully paid and nonassessable shares of Common Stock obtained by dividing the principal amount of the Convertible Debentures to be converted by the Conversion Price (as in effect on the date provided for in Section 8.02(B)). The initial Conversion Price is $21.42 per share of Common Stock. The Conversion Price is subject to adjustment as described in this Article 8. (b) The right to convert Convertible Debentures shall terminate prior to the close of business (i) on June 28, 2010 or (ii) in the case of Convertible Debentures called for redemption, on the second Business Day prior to the related redemption date, unless the Company shall default in making payment of any moneys or shares of Common Stock payable upon such redemption under Article 3. SECTION 8.02. CONVERSION PROCEDURES. (a) In order to convert all or a portion of the Convertible Debentures, the Holder thereof shall (i) sign and deliver to the Conversion Agent an irrevocable notice of election to convert ("CONVERSION NOTICE") setting forth the principal amount of Convertible Debentures to be converted (which shall equal $50 or any integral multiple thereof), together with the name or names, if other than the Holder, in which the shares of Common Stock should be issued upon conversion together with any payment required by the following paragraph, (ii) if such Convertible Debentures are definitive Convertible Debentures, surrender to the Conversion Agent the Convertible Debentures to be converted, with such endorsements or transfer documents as requested by the Conversion Agent, and (iii) pay any transfer or similar tax, if required. In addition, a holder of Trust Securities may exercise its right under the Declaration to convert such Trust Securities into Common Stock by delivering to the Conversion Agent an irrevocable conversion request setting forth the information called for by the preceding sentence and directing the Conversion Agent (A) to exchange such Trust Securities for a portion of the 28 33 Convertible Debentures held by the Trust (at an exchange rate of $1 of principal amount of Convertible Debentures for each $1 liquidation amount of Trust Securities) and (B) to immediately convert such Convertible Debentures, on behalf of such holder, into Common Stock pursuant to this Article 8 and, if such Trust Securities are in definitive form, surrendering such Convertible Preferred Security Certificates or Common Security Certificates, as the case may be, duly endorsed or assigned to the Trust or in blank. So long as any CRESTS are outstanding, the Trust shall not convert any Convertible Debentures except pursuant to a conversion request delivered to the Conversion Agent by a holder of Trust Securities. Except as provided below, accrued but unpaid interest shall not be paid in cash on Convertible Debentures that are converted by a Holder into Common Stock, nor shall such accrued interest be converted into additional shares of Common Stock. Holders of Convertible Debentures at the close of business on a Regular Record Date shall be entitled to receive the interest payable on such Convertible Debentures (except that holders of Convertible Debentures called for redemption on a redemption date between such Regular Record Date and the Interest Payment Date shall not be entitled to receive such interest on such Interest Payment Date) on the corresponding Interest Payment Date notwithstanding the conversion of such Convertible Debentures following such Regular Record Date and prior to such Interest Payment Date. However, Convertible Debentures surrendered for conversion during the period between the close of business on any Regular Record Date and the opening of business on the corresponding Interest Payment Date (except Convertible Debentures called for redemption on a redemption date during such period) shall be accompanied by payment of an amount equal to the interest payable on such Convertible Debentures on such Interest Payment Date. A Holder of Convertible Debentures on a Regular Record Date who (or whose transferee) tenders any such Convertible Debentures for conversion into shares of Common Stock on such Interest Payment Date shall receive the interest payable by the Company on such Convertible Debentures on such date, and the converting Holder need not include payment of the amount of such interest upon surrender of Convertible Debentures for conversion. The Company shall make no payment or allowance for dividends on the shares of Common Stock issued upon conversion. (b) Each conversion shall be deemed to have been effected immediately prior to the close of business on the day on which the Conversion Notice was received (the "CONVERSION DATE") by the Conversion Agent from the Holder or from a holder of the Trust Securities effecting a conversion thereof pursuant to its conversion rights under the Declaration, as the case may be. The Person or Persons entitled to receive Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock as 29 34 of the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver at the office of the Conversion Agent, unless otherwise directed by the Holder in the Conversion Notice, a certificate or certificates for the number of full shares of Common Stock and any other shares of common stock of the Company issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same. The Conversion Agent shall deliver such certificate or certificates to such Person or Persons. (c) The Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Convertible Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at the Maturity Date of the portion of Convertible Debentures so converted and any unpaid interest (including Compounded Interest, if any) accrued on such Convertible Debentures at the time of such conversion. (d) No fractional shares or scrip representing fractions of shares of Common Stock shall be issued upon conversion of the Convertible Debentures. Instead of any fractional interest in a share of Common Stock that would otherwise be deliverable upon the conversion of the Convertible Debentures, the Company shall pay to the Conversion Agent an amount in cash (and the Conversion Agent in turn shall pay such cash amount to the Holder of such Convertible Debentures or the holder of the Trust Securities so converted, as appropriate) based upon the Closing Price of Common Stock on the Trading Day immediately preceding the date of conversion. If more than one Convertible Debenture shall be surrendered for conversion at any one time by the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of Convertible Debentures so surrendered. (e) In the event of the conversion of any Convertible Debenture in part only, a new Convertible Debenture or Convertible Debentures for the unconverted portion thereof shall be issued in the name of the Holder thereof upon the cancellation thereof in accordance with Section 12.02 of the Base Indenture. (f) In effecting the conversion transactions described in this Section 8.02, the Conversion Agent is acting as agent of the holders of Trust Securities (in the exchange of Trust Securities for Convertible Debentures) and as agent of the Holders of Convertible Debentures (in the conversion of Convertible Debentures into Common Stock), as the case may be. The Conversion Agent is hereby authorized (i) to exchange Convertible Debentures held by the Trust from time to time for Trust Securities in connection with the conversion of such Trust 30 35 Securities in accordance with this Article 8 and (ii) to convert all or a portion of the Convertible Debentures into Common Stock and thereupon to deliver such shares of Common Stock of the Company in accordance with the provisions of this Article 8 and to deliver to the Trust a new Convertible Debenture or Convertible Debentures for any resulting unconverted principal amount. SECTION 8.03. CERTAIN CONVERSION PRICE ADJUSTMENTS. (a) The Conversion Price per share of Common Stock shall be adjusted from time to time as follows: (i) If the Company shall after the date on which Convertible Debentures are initially issued (A) pay a dividend or make a distribution on any class of its capital stock in shares of Common Stock, (B) subdivide the outstanding Common Stock into a greater number of shares or (C) combine the outstanding Common Stock into a smaller number of shares, then the Conversion Price in effect at the opening of business on the day next following the date fixed for the determination of stockholders entitled to receive such dividend or distribution or at the opening of business on the day next following the day on which such subdivision or combination becomes effective, as the case may be, shall be adjusted so that the Holder of any Convertible Debenture thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such Holder would have owned or have been entitled to receive after the happening of any of the events described above had such Convertible Debenture been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision or combination. An adjustment made pursuant to this Section 8.03(A)(I) shall become effective immediately after the opening of business on the day next following the record date (except as provided in Section 8.03) below) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the day next following the effective date in the case of a subdivision or combination. (ii) If the Company shall issue after the date on which Convertible Debentures are initially issued rights, options or warrants (other than any rights, options or warrants referred to in Section 8.03(A)(III) below) to all holders of Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price per share of Common Stock on the record date for the determination of stockholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on 31 36 the day next following such record date shall be adjusted to equal the price determined by multiplying (A) the Conversion Price in effect immediately prior to the opening of business on the day next following the date fixed for such determination by (B) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and (2) the number of shares that the aggregate proceeds to the Company from the exercise of such rights, options or warrants for Common Stock would purchase at such Current Market Price, and the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding on the close of business on the date fixed for such determination and (y) the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in Section 8.03(E)). In determining whether any rights, options or warrants entitle the holders of Common Stock to subscribe for or purchase shares of Common Stock at less than the Current Market Price thereof, there shall be taken into account any consideration received by the Company upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (iii) If the Company shall distribute to all holders of the Common Stock any shares of capital stock (other than common stock of the Company), evidences of indebtedness, cash or other assets of the Company (including securities, but excluding (w) any dividend or distribution referred to in Section 8.03(A)(I), (x) any rights, options or warrants referred to in Section 8.03(A)(II)) or in the second paragraph of this Section 8.03(A)(III), (y) any dividend or distribution paid exclusively in cash or (z) any stocks, securities or other property received as a result of a transaction referred to in Section 8.04) (any of the foregoing being hereinafter referred to in this Section 8.03(A)(III) as the "SECURITIES"), then in each such case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by (II) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors) of the portion of the Securities so distributed to one share of Common Stock, and the denominator of which shall be the Current Market Price per share of Common Stock on the record date mentioned below. 32 37 Such adjustment shall become effective immediately at the opening of business on the day next following the record date for the determination of stockholders entitled to receive such distribution (except as provided in Section 8.03(E)). In case the Company shall distribute rights or warrants to purchase Common Stock pro rata to all holders of Common Stock which rights, options or warrants are not at such time immediately exercisable but, upon the occurrence of a specified event or events ("EXERCISE TRIGGER DATE") shall become exercisable and once they become exercisable shall entitle, or upon the occurrence of an additional specified event or events ("PRICE TRIGGER DATE") shall entitle, the Holder thereof to purchase Common Stock at a price per share of Common Stock less than the Current Market Price of the Common Stock on the Trading Day next succeeding the later of the Exercise Trigger Date or the Price Trigger Date ("ADJUSTMENT TRIGGER DATE") and there shall have occurred such Adjustment Trigger Date, thus permitting the holders of such rights, options or warrants irrevocably to exercise any exchange, subscription or purchase rights conferred by such rights, options or warrants at a price per share of Common Stock less than such Current Market Price, then the Conversion Price in effect at the opening of business on the Adjustment Trigger Date shall be adjusted by multiplying (I) such Conversion Price by (II) a fraction, the numerator of which shall be equal to the Current Market Price per share of the Common Stock on the Trading Day immediately prior to the Adjustment Trigger Date less an amount equal to the quotient of (x) the aggregate fair market value on the Adjustment Trigger Date of the rights, options or warrants so distributed (as determined by the Board of Directors) divided by (y) the number of shares of Common Stock outstanding on such day prior to the Adjustment Trigger Date and the denominator of which shall be equal to such Current Market price per share of the Common Stock. Such adjustment shall become effective immediately after the opening of business on the day next following such Adjustment Trigger Date. (iv) If the Company shall, by dividend or otherwise, at any time distribute to all holders of the Common Stock cash (excluding any cash that is distributed as part of a distribution requiring a Conversion Price adjustment pursuant to Section 8.03(A)(III) and cash that is distributed in a merger or consolidation to which Section 8.05 applies) in an aggregate amount that, together with (A) the aggregate amount of any other distributions to all holders of the Common Stock made exclusively in cash (to which this Section 8.03(A)(IV) would otherwise apply) within the 12 months preceding the date of payment of such distribution and in respect 33 38 of which no Conversion Price adjustment has been made and (B) all Excess Purchase Payments in respect of each tender offer or exchange offer for Common Stock concluded by the Company or any of its Subsidiaries within the 12 months preceding the date of payment of such distribution and in respect of which no Conversion Price adjustment has been made, exceeds an amount equal to 10% of the product of the Current Market Price per share of Common Stock on the date fixed for determination of holders of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (I) such Conversion Price in effect immediately prior to the Conversion Price adjustment contemplated by this Section 8.03(A)(IV) by (II) a fraction the numerator of which shall be the Current Market Price per share of the Common Stock on the date fixed for determination of holders of Common Stock entitled to receive such distribution less the combined amount of such cash and such Excess Purchase Payments so distributed applicable to one share of Common Stock and the denominator of which shall be such Current Market Price per share of the Common Stock on such date of determination. Such adjustment shall become effective immediately prior to the opening of business on the day next following the date fixed for such determination. (v) In case a tender offer or exchange offer (other than an odd-lot offer) made by the Company or any of its Subsidiaries for all or any portion of the Common Stock shall be consummated, if the aggregate amount of any Excess Purchase Payment, together with (A) the aggregate amount of any distributions made to all holders of Common Stock made exclusively in cash (excluding any cash that is distributed as part of a distribution requiring a Conversion Price adjustment pursuant to Section 8.03(A)(III) and cash that is distributed in a merger or consolidation to which Section 8.04 applies) within the 12 months preceding the consummation of such tender or exchange offer and in respect of which no Conversion Price adjustment has been made, and (B) all other Excess Purchase Payments in respect of each tender or exchange offer for Common Stock concluded by the Company or any of its Subsidiaries within the 12 months preceding the consummation of such tender or exchange offer and in respect of which no Conversion Price adjustment has been made, exceeds an amount equal to 10% of the product of the Current Market Price per share of Common Stock on the consummation date of such tender or exchange offer (any such date, the "PURCHASE DATE") times the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on such Purchase Date, then the Conversion Price shall be adjusted so that it shall equal the price 34 39 determined by multiplying (I) such Conversion Price in effect immediately prior to such Purchase Date by (II) a fraction, the numerator of which shall be the Current Market Price per share of the Common Stock on such Purchase Date less the combined amount of Excess Purchase Payments and such cash so distributed applicable to one share of Common Stock and the denominator of which shall be such Current Market Price per share on such Purchase Date. Such adjustment shall become effective immediately prior to the opening of business on the day next following such Purchase Date. (vi) The Company from time to time may reduce the Conversion Price by any amount for any period of at least 20 Business Days (or such other period as may then be required by applicable law), provided that the Board of Directors shall have determined that such reduction is in the best interests of the Company. No reduction in the Conversion Price pursuant to this Section 8.03(A)(VI) shall become effective unless the Company shall have mailed a notice, at least 15 days prior to the date on which such reduction is scheduled to become effective, to each Holder of Convertible Debentures and to each holder of the Trust Securities. Such notice shall be given by first class mail, postage prepaid, at such Holder's address as the same appears on the records of the Company. Such notice shall state the amount per share by which the Conversion Price shall be reduced and the period for which such reduction shall be in effect. (vii) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 8.03(A)(I) through 8.03(A)(V), as the Board determines to be necessary in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients; PROVIDED that any such reduction shall not be effective until written evidence of the action of the Board authorizing such reduction shall be filed with the Secretary of the Company and notice thereof shall have been given by first class mail, postage prepaid, to each Holder of Convertible Debentures and to each holder of the Trust Securities at such Holder's address as the same appears on the stock transfer books of the Company. (b) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason of this Section 8.03(B) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in accordance with the provisions of this Article 8 (other than this Section 8.03(B)) not later than such time as may be 35 40 required in order to preserve the tax-free nature of a distribution to the holders of shares of Common-Stock into which Convertible Debentures are convertible. Notwithstanding any other provisions of this Article 8, the Company shall not be required to make any adjustment of any Conversion Price established hereunder for the issuance of any shares of common stock of the Company (including Common Stock) pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under such plan. All calculations under this Article 8 shall be made to the nearest 1/100 of a cent (with $.00005 being rounded upward) or to the nearest 1/10,000 of a share (with .00005 of a share being rounded upward), as the case may be. (c) The reclassification of Common Stock into which Convertible Debentures are then convertible into securities which include securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 8.04 applies), shall be deemed to involve (i) a distribution of such securities other than Common Stock to all holders of such Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution") and (ii) a subdivision or combination, as the case may be, of the number of shares of such Common Stock outstanding immediately prior to such reclassification into the number of shares of such Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be the effective date of such subdivision or combination). (d) If: (i) the Company takes any action that would require an adjustment of the Conversion Price pursuant to this Section 8.03 or 8.04; or (ii) there shall be any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required; or (iii) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Company; or (iv) the Company or any of its Subsidiaries shall commence a tender offer or exchange offer for all or a portion of the outstanding shares of Common Stock (or shall amend any such tender or exchange offer), 36 41 then the Company shall cause to be filed with the Trustee and the transfer agent for the CRESTS and the Convertible Debentures, and shall cause to be mailed to the Holders of Convertible Debentures and the holders of the Trust Securities at their addresses as shown on the securities transfer records of the Company, as promptly as possible, but at least 15 days prior to the earliest applicable date hereinafter specified, a notice stating, as applicable, (A) the proposed record date for a dividend or distribution or the proposed effective date of a consolidation, merger, sale, transfer, liquidation, dissolution, or winding up, (B) the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such consolidation, merger, sale, transfer, liquidation, dissolution or winding up or (C) the date on which such tender or exchange offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of any amendment thereto). Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the related transaction. (e) In any case in which Section 8.03(A) provides that an adjustment shall become effective on the day next following a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Convertible Debenture converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the number of shares of Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction thereof pursuant to Section 8.02(D). (f) For purposes of this Article 8, the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock or such other common stock then owned or held by or for the account of Company. The Company shall not pay a dividend or make any distribution on, or issue any rights or warrants in respect of, shares of Common Stock held in the treasury of the Company. (g) The Company shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of Common Stock or its issued shares of Common Stock held in its treasury, for the purpose of effecting conversion of the Convertible Debentures, the full number of shares of Common Stock deliverable upon the conversion of all the Convertible Debentures then outstanding and not theretofore converted. Any shares of Common Stock of the Company issued upon conversion of the Convertible Debentures shall be duly authorized, validly issued and fully paid and nonassessable. The Company shall deliver the shares of Common Stock received 37 42 upon conversion of the Convertible Debentures to the converting Holder free and clear of all liens. charges, security interests and encumbrances, except for United States withholding taxes. The Company shall endeavor to list the shares of Common Stock to be delivered upon conversion of the Convertible Debentures, prior to such delivery, upon each national securities exchange or with each national securities association, if any, upon which the outstanding Common Stock is listed at the time of such delivery. Prior to the delivery of any securities that the Company shall be obligated to deliver upon conversion of Convertible Debentures, the Company shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. For purposes of this Section 8.03(G), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding Convertible Debentures shall be computed as if at the time of computation all such outstanding Convertible Debentures were held by a single Holder. (h) The Company shall pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock or other securities or property on conversion of Convertible Debentures pursuant hereto; provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or other securities or property in a name other than that of the holder of such shares to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or established, to the reasonable satisfaction of the Company, that such tax has been paid. (i) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Property Trustee for the Trust an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, which certificate shall be prima facie evidence of the correctness of such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall send such notice of such adjustment of the Conversion Price by first class mail, postage prepaid, to the Holders of the Convertible Debentures, at such Holders' address as the same appears on the records of the Company. SECTION 8.04. MERGER, CONSOLIDATION, OR SALE OF ASSETS. (a) In the event that the Company shall be a party to any Fundamental Change, then appropriate provision shall be made as part of the terms of such transaction whereby 38 43 the Holder of each Convertible Debenture then outstanding shall have the right thereafter to convert such Convertible Debenture only into: (i) in the case of any such transaction that does not constitute a Common Stock Fundamental Change and subject to funds being legally available for such purpose under applicable law at the time of such conversion, the kind and amount of the securities, cash or other property that would have been receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock issuable upon conversion of such Convertible Debenture immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange, after giving effect, in the case of any Non-Stock Fundamental Change, to any adjustment in the Conversion Price in accordance with Section 8.04(C)(I); and (ii) in the case of any such transaction that constitutes a Common Stock Fundamental Change, common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount determined in accordance with Section 8.04(C)(II). (b) The company formed by such consolidation or resulting from such merger or that acquires such assets or that acquires the Company's shares, as the case may be, shall enter into a supplemental indenture with the Trustee, satisfactory in form to the Trustee and executed and delivered to the Trustee, the provisions of which shall establish such conversion right specified in Section 8.04(A). Such supplemental indenture shall provide for adjustments that, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions shall similarly apply to successive transactions of the foregoing type. (c) Notwithstanding any other provision of this Section to the contrary, if any Fundamental Change occurs, then the Conversion Price in effect shall be adjusted immediately after such Fundamental Change as follows: (i) in the case of a Non-Stock Fundamental Change, the Conversion Price of the Convertible Debentures immediately following such Non-Stock Fundamental Change shall be the lower of (A) the Conversion Price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to Section 8.03, and (B) the product of the greater of the Applicable Price and the then applicable Reference Market Price and a 39 44 fraction, the numerator of which is $50 and the denominator of which is (x) the amount of the Optional Redemption Price set forth in Section 3.02 for $50 in principal amount of Convertible Debentures if the redemption date were the date of such Non- Stock Fundamental Change (or, for the period commencing June 17, 1998 and ending June 29, 1999, and the twelve-month periods beginning June 30, 1999 and June 30, 2000 and the period beginning June 30, 2001 and ending July 2, 2002, the product of 107%, 106.3%, 105.6% and 104.9 % respectively), times $50 plus (y) any then-accrued and unpaid interest on $50 principal amount of Convertible Debentures; and (ii) in the case of a Common Stock Fundamental Change, the Conversion Price of the Convertible Debentures immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to Section 8.03, multiplied by a fraction, the numerator of which is the Purchaser Stock Price and the denominator of which is the Applicable Price; PROVIDED, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquirer or other third party (and cash, if any, paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the Common Stock (other than treasury shares and shares held by subsidiaries of the Company) shall have been exchanged for, converted into or acquired for, common stock of the successor, acquirer or other third party (and any cash with respect to fractional interests in such common stock resulting from such Common Stock Fundamental Change), the Conversion Price of the Convertible Debentures immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change multiplied by a fraction, the numerator of which is one (1) and the denominator of which is the number of shares of common stock of the successor, acquirer or other third party received by a holder of one share of Common Stock as a result of such Common Stock Fundamental Change. SECTION 8.05. SPECIAL PROVISIONS REGARDING ADJUSTMENT OF CONVERSION PRICE OR OTHER PROVISIONS. In the event that the provisions of this Article 8 specifying the methods by which the Conversion Price or other provisions are adjusted would require an adjustment that is determined in good faith by the Board of Directors to be inconsistent with the purposes of the provisions hereof providing for Conversion Price or other adjustments (generally, to place the 40 45 holders of the Convertible Debenture and the Trust Securities in a position equivalent to the position they were in prior to the event requiring an adjustment to the Conversion Price or other adjustments), the Board of Directors may make an adjustment (in lieu of that required pursuant to such provisions) that it determines in good faith to place the Holders of the Convertible Debentures in a position at least equivalent to the position they were in prior to such event, which determination shall be described in a Board Resolution. There shall be no adjustment of the Conversion Price in case of the issuance of any stock of the Company in a reorganization, acquisition or other similar transaction except as specifically set forth in this Article 8. If any action or transaction would require adjustment of any Conversion Price established hereunder pursuant to more than one paragraph of this Article 8, only the adjustment which would result in the largest reduction of such Conversion Price shall be made. SECTION 8.06. CERTAIN ADDITIONAL RIGHTS. In case the Company shall, by dividend or otherwise, declare or make a distribution on the Common Stock referred to in Section 7.01(C) or 7.01(D), the Holder of the Convertible Debentures, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which the Convertible Debentures are converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; provided, that, at the election of the Company (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all Holders so converting, the Company may, in lieu of distributing to such Holder any portion of such distribution not consisting of cash or securities of the Company, pay such Holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors). If any conversion of Convertible Debentures described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock that the Holder of Convertible Debentures so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such Holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such Holder is so entitled; provided, that such due bill (a) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (b) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets no later than the 41 46 date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. SECTION 8.07. TRUSTEE NOT RESPONSIBLE FOR DETERMINING CONVERSION PRICE OR ADJUSTMENTS. Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any Holder of any Convertible Debenture to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or whether this supplemental indenture need be entered into. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind of account) of any shares of Common Stock or of any securities or property, which may at any time be issued or delivered upon the conversion of any Convertible Debenture; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Convertible Debenture for the purpose of conversion. SECTION 8.08. DEFEASANCE. The Convertible Debentures are subject to Section 3.04 of the Base Indenture. If the Company exercises its right of defeasance in accordance with Section 3.04 of the Base Indenture, the conversion rights of the Holders of the Convertible Debentures under the Base Indenture and the Supplemental Indenture and the holders of the Trust Securities under the Declaration shall survive until the Convertible Debentures are no longer outstanding. ARTICLE 9 EVENTS OF DEFAULT SECTION 9.01. EVENTS OF DEFAULT. A default in the payment of Liquidated Damages Amounts (as defined in the Registration Rights Agreement) shall be a default under Section 4.01(b) of the Base Indenture. Notwithstanding any other provision to the contrary, a valid extension of the interest payment period of the Convertible Debentures pursuant to Section 5.01 shall not constitute a default in the payment of an installment of interest under Section 4.01(a) of the Base Indenture. 42 47 ARTICLE 10 FORM OF CONVERTIBLE DEBENTURE SECTION 10.01. FORM OF CONVERTIBLE DEBENTURE. The Convertible Debentures and the Trustee's Certificate of Authentication to be endorsed thereon shall be substantially in the form set forth as Annex I to this Supplemental Indenture. ARTICLE 11 ORIGINAL ISSUE OF CONVERTIBLE DEBENTURES SECTION 11.01. ORIGINAL ISSUE OF CONVERTIBLE DEBENTURES. Convertible Debentures in the aggregate principal amount of up to the sum of (a) $180,412,400 and (b) such aggregate principal amount (which may not exceed $207,474,250 aggregate principal amount) of Convertible Debentures as shall be purchased by the Trust as a consequence of the exercise of an over-allotment option in accordance with the terms of the Purchase Agreement, may, upon or following execution of this Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Convertible Debentures to or upon the written order of the Company, signed by its Chairman, its Vice Chairman, its President, or any Vice President, without any further action by the Company. ARTICLE 12 MISCELLANEOUS SECTION 12.01. RATIFICATION OF BASE INDENTURE; SUPPLEMENTAL INDENTURE CONTROLS. The Base Indenture, as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed, and this Supplemental Indenture shall be deemed part of the Base Indenture in the manner and to the extent herein and therein provided. The provisions of this Supplemental Indenture shall supersede the provisions of the Base Indenture to the extent the Base Indenture is inconsistent herewith. SECTION 12.02. TRUSTEE NOT RESPONSIBLE FOR RECITALS. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. 43 48 SECTION 12.03. GOVERNING LAW. This Supplemental Indenture and each Convertible Debenture shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State. SECTION 12.04. SEPARABILITY. In case any one or more of the provisions contained in this Supplemental Indenture or in the Convertible Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Supplemental Indenture or of the Convertible Debentures, but this Supplemental Indenture and the Convertible Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 12.05. COUNTERPARTS. This Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 12.06. MERGER. The provisions of Article 7 of the Base Indenture shall govern the obligations of Servico, Inc. and Lodgian following the Merger. 44 49 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed on the date or dates indicated in the acknowledgments and as of the day and year first above written. SERVICO, INC. By: /s/ Charles M. Diaz ----------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary WILMINGTON TRUST COMPANY, as Trustee By: /s/ W. Christopher Sponenberg ----------------------------------- Name: W. Christopher Sponenberg Title: Senior Financial Services Officer LODGIAN, INC. By: /s/ Charles M. Diaz ----------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary 45 50 ANNEX I FORM OF CONVERTIBLE DEBENTURE FORM OF FACE OF CONVERTIBLE DEBENTURE THIS SECURITY, THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, THE GUARANTEE AND THE CRESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION IN THESE SECURITIES MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITIES, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF SUCH SECURITIES (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS SUCH SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR' WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS A-1 51 ACQUIRING SUCH SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, OR AS FIDUCIARY FOR THE ACCOUNT OF ONE OR MORE TRUSTS, EACH OF WHICH IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a) (7) OF RULE 501 UNDER THE SECURITIES ACT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, SUBJECT IN EACH OF THE FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THESE SECURITIES BEING COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) BY REASON OF THE APPLICATION OF ONE OR MORE STATUTORY OR ADMINISTRATIVE EXEMPTIONS FROM THE PROHIBITED TRANSACTION RULES OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE, ITS PURCHASE AND HOLDING OF CRESTS WILL NOT CONSTITUTE, CAUSE OR RESULT IN THE OCCURRENCE OF A NON-EXEMPT PROHIBITED TRANSACTION WITHIN THE MEANING OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT RELATING TO THE SECURITIES. A-2 52 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. No. CUSIP No. 817648AA6 SERVICO, INC. 7% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURE DUE 2010 Servico, Inc., a Florida corporation (the "COMPANY", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Wilmington Trust Company, as Property Trustee for Lodgian Capital Trust I, or registered assigns, the principal sum set forth on Schedule A hereto on June 30, 2010, and to pay interest on said principal sum from June 17, 1998, or from the most recent date on which interest has been paid to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 31, June 30, September 30 and December 31 of each year (each, an "INTEREST PAYMENT DATE") commencing September 30, 1998, at the rate of Applicable Rate per annum until the principal hereof shall have become due and payable, and on any overdue principal and A-3 53 premium, if any, and overdue installment of interest at the same rate per annum compounded quarterly (without duplication and to the extent that payment of such interest is enforceable under applicable law). The amount of interest payable on any Interest Payment Date for any full quarterly interest period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed shall be computed on the basis of 30-day months and, for periods of less than a month, on the basis of the actual number of days elapsed. In the event that any date on which interest is payable on this Convertible Debenture is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture (referred to on the reverse hereof), be paid to the person in whose name this Convertible Debenture is registered on the Regular Record Date for such interest installment. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such Regular Record Date and may be paid to the Person in whose name this Convertible Debenture is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of the Convertible Debentures not less than 10 days prior to such special record date, or may be paid at anytime in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Convertible Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Convertible Debenture shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; PROVIDED, however, that payment of interest may be made at the option of the Company by check mailed to the registered Holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the Holder of this Convertible Debenture is the Property Trustee, the payment of the principal of (and premium, if any) and interest on this Convertible Debenture shall be made at such place and to such account as may be designated by the Property Trustee. The indebtedness evidenced by this Convertible Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Convertible Debenture is A-4 54 issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Convertible Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions. This Convertible Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Convertible Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. A-5 55 IN WITNESS WHEREOF, the Company has caused this instrument to be executed. SERVICO, INC. By: -------------------------------- Name: Title: A-6 56 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Convertible Debentures of the series of Convertible Debentures issued under the within-mentioned Indenture. Dated: Wilmington Trust Company, as Trustee By: ------------------------------ Authorized Signatory A-7 57 [FORM OF REVERSE OF DEBENTURE] This Convertible Debenture is one of a duly authorized series of Securities of the Company specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an Indenture (the "BASE INDENTURE"), dated as of June 17, 1998, duly executed and delivered between the Company and Wilmington Trust Company, as Trustee (the "TRUSTEE"), as supplemented by the Supplemental Indenture dated as of June 17, 1998, between the Company and the Trustee (the "SUPPLEMENTAL INDENTURE" and such Supplemental Indenture, as it supplements the Base Indenture, the "INDENTURE"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of Convertible Debentures. By the terms of the Indenture, the Securities are issuable thereunder in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Securities is limited in aggregate principal amount as specified in said Supplemental Indenture and is herein sometimes referred to as the "CONVERTIBLE DEBENTURES." Because of the occurrence and continuation of a Trust Special Event, in certain circumstances, this Convertible Debenture may become due and payable, in whole or in part, at 100% of the principal amount to be redeemed together with any interest accrued thereon, including Compounded Interest, if any, to, but excluding, the redemption date. In addition, the Company shall have the right to redeem this Convertible Debenture at the option of the Company, upon not less than 30 nor more than 60 days notice, in whole or in part, for cash at any time on and after July 30, 2002 at the following prices (expressed as percentages of the principal amount of the Convertible Debentures), together with accrued and unpaid interest (including Compounded Interest, if any) thereon to, but excluding, the redemption date, if redeemed during the period beginning July 30, 2002 and ending on June 27, 2003, the redemption price shall be 104.2% and if redeemed thereafter during the 12- month period beginning on June 30 of the following years: YEAR REDEMPTION PRICE ---- ---------------- 2003 103.5% 2004 102.8% 2005 102.1% 2006 101.4% 2007 100.7% 2008 and thereafter 100.0% A-8 58 The Company may exercise its redemption right provided that the redemption price (other than the portion thereof consisting of accrued and unpaid interest (including Compounded Interest, if any)) is payable solely out of the sale proceeds of other equity securities of the Company, and from no other source. For purposes of the preceding sentence, "equity securities" means (i) any equity securities, including common stock and preferred stock, of the Company, (ii) any securities. which by their terms, are mandatory convertible or exchangeable for, or require the purchase of, such common stock or preferred stock and (iii) preferred securities issued by a business trust, partnership or limited liability company, all of the common equity of which is owned, directly or indirectly by, the Company and the sole assets of which are subordinated debt securities with interest payments deferrable at the Company's option. In addition, the Company shall have the right to redeem the Convertible Debentures, in whole or in part, for cash from time to time after July 3, 2002, upon not less than 30 days' nor more than 60 days' notice to the Holders, at a redemption price equal to 100% of the principal amount of the Convertible Debentures to be redeemed, together with any accrued and unpaid interest (including Compounded Interest, if any) thereon to, but excluding the date of such redemption. The Company may exercise its redemption night only if (i) for 20 Trading Days within any period of 30 consecutive Trading Days, including the last day of such period, the Closing Price of the shares of Common Stock exceeds $25.71 per share, subject to adjustment, under the circumstances described in the Supplemental Indenture with respect to the Conversion Price and (ii) on or prior to the date of the notice of redemption required by Section 3.05 of the Supplemental Indenture, the Company shall have entered into an agreement, subject to customary terms and conditions, with a nationally recognized investment banking firm pursuant to which such firm shall have agreed to purchase from the Company such number of whole shares of Common Stock as would have been issuable upon conversion of Convertible Debentures that are not surrendered for conversion prior to the close of business on the redemption date. To exercise such redemption right, the Company shall issue a press release announcing the redemption prior to the opening of business on the second Trading Day after the conditions described in the preceding sentences have, from time to time, been met but shall not issue such press release prior to July 3, 2002. The Company may not redeem any Convertible Debentures unless all accrued and unpaid interest has been paid on all outstanding Convertible Debentures for all quarterly interest payment periods terminating on or prior to the last Interest Payment Date before the date of redemption. If Convertible Debentures are redeemed on March 31, June 30, September 30 and December 31, accrued and unpaid interest shall be payable to Holders on the relevant record date for such interest payment date. A-9 59 If the Convertible Debentures are only partially redeemed by the Company pursuant to an optional redemption, the Convertible Debentures shall be redeemed PRO RATA. In the event of redemption of this Convertible Debenture in part only, a new Convertible Debenture or Convertible Debentures of this series for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. In the event that the Merger Agreement is terminated or the Merger has not been consummated by December 31, 1998, the Company shall make an offer to each Holder of Convertible Debentures to repurchase all or any portion of such Holder's Convertible Debentures in integral multiples of $50 at a purchase price in cash in an amount equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Convertible Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Convertible Debentures of each series affected at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Convertible Debentures of such series; PROVIDED, however, that no such supplemental indenture shall (a) extend the stated maturity of any Convertible Debentures of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, or make any change that adversely affects the right to convert any Convertible Debentures of any series or make any change in the subordination provisions that adversely affects the rights of any Holders of any Convertible Debentures of any series, without the consent of the Holder of each Debenture so affected, or (b) reduce the aforesaid percentage in aggregate principal amount of Convertible Debentures of such series, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of each Convertible Debenture of any series then outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Convertible Debentures of any series at the time outstanding affected thereby, on behalf of all of the Holders of the Convertible A-10 60 Debentures of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any Convertible Debentures of such series; PROVIDED that a failure to convert any Convertible Debentures of such series in accordance with its terms may only be waived by the Holders affected thereby. Any such consent or waiver by the registered Holder of this Convertible Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Convertible Debenture and of any Convertible Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Convertible Debenture. No reference herein to the Indenture and no provision of this Convertible Debenture or of the Indenture, but subject to Article 13 of the Base Indenture, shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Convertible Debenture at the time and place and at the rate and in the money to the extent herein prescribed. As long as an Event of Default under Section 4.01 of the Base Indenture or Section 9.01 of the Supplemental Indenture shall not have occurred and be continuing, the Company shall have the right, at any time and from time to time during the term of the Convertible Debentures, to defer payments of interest by extending the interest payment period of the Convertible Debentures for a period not exceeding 20 consecutive quarterly periods (an "EXTENSION PERIOD") during which Extension Period no interest shall be due and payable on the Convertible Debentures; PROVIDED, that no Extension Period may extend beyond the Maturity Date. To the extent permitted by applicable law, interest, the payment of which has been deferred during an Extension Period, shall bear interest thereon at the rate specified for these Convertible Debentures, compounded quarterly for each quarter of the Extension Period ("COMPOUNDED INTEREST"). Before the termination of any such Extension Period, the Company may further extend such Extension Period, PROVIDED, that such Extension Period together with all such previous and further extensions thereof shall not exceed 20 consecutive quarterly periods, or extend beyond the Maturity Date. At the end of the Extension Period, the Company shall pay all interest then accrued and unpaid on the Convertible Debentures, including Compounded Interest, if any, that shall be payable to the Holders of Convertible Debentures on the first record date after the termination of the Extension Period. Upon the termination of any such Extension Period and upon the payment of all accrued and unpaid interest (including Compounded Interest to the extent permitted by applicable law), the Company may commence a A-11 61 new Extension Period. The Company may pay at any time all or any portion of the interest accrued during an Extension Period, subject to the requirements set forth in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, this Convertible Debenture is transferable by the registered Holder hereof on the Debenture Register of the Company, upon surrender of this Convertible Debenture for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered Holder hereof or his or her attorney duly authorized in writing, and thereupon one or more new Convertible Debentures of authorized denominations and for the same aggregate principal amount and series shall be issued to the designated transferee or transferees. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Convertible Debenture, the Company, the Trustee, any paying agent and the Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Convertible Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Convertible Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any in corporation, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. Subject to and upon compliance with Article 8 of the Supplemental Indenture, the Holder of this Convertible Debenture has the right, exercisable at any time beginning 90 days following the last date of original issuance of any CRESTS and prior to the close of business on (i) June 28, 2010 or (ii) in the event this Convertible Debenture is called for redemption, the second Business Day prior to the related redemption date, subject to limited exceptions specified in the Supplemental Indenture, to convert the principal amount hereof (or any portion thereof that is an integral multiple of $50) into that number of fully paid and A-12 62 nonassessable shares of Common Stock obtained by dividing the principal amount of the Convertible Debentures to be converted by the Conversion Price in effect on the Conversion Date. The initial Conversion Price is $21.42 per share of Common Stock. The Conversion Price is subject to adjustment as described in the Indenture. All Conversion Price and conversion provision calculations shall be made to the nearest 1/100 of a cent (with $.00005 being rounded upward) or to the nearest 1/10,000 of a share (with .00005 of a share being rounded upward), as the case may be. To convert all or a portion of this Convertible Debenture, a Holder must (a) complete and sign an irrevocable notice of election to convert substantially in the form attached hereto and deliver such Conversion Notice to the Conversion Agent, together with any payment required by the fourth sentence of this paragraph, (b) surrender the Convertible Debenture to the Conversion Agent, (c) furnish appropriate endorsements or transfer documents if required by the Conversion Agent and (d) pay any transfer or similar tax, if required. Except as provided below, accrued but unpaid interest shall not be paid in cash on Convertible Debentures that are converted by a Holder into Common Stock, nor shall such accrued interest be converted into additional shares of Common Stock. Holders of Convertible Debentures at the close of business on a Regular Record Date shall be entitled to receive the interest payable on such Convertible Debentures (except that holders of Convertible Debentures called for redemption on a redemption date between such Regular Record Date and the Interest Payment Date shall not be entitled to receive such interest on such Interest Payment Date) on the corresponding Interest Payment Date notwithstanding the conversion of such Convertible Debentures following such Regular Record Date and prior to such Interest Payment Date. However, Convertible Debentures surrendered for conversion during the period between the close of business on any Regular Record Date and the opening of business on the corresponding Interest Payment Date (except Convertible Debentures called for redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the interest payable on such Convertible Debentures on such Interest Payment Date. A Holder of Convertible Debentures on a Regular Record Date who (or whose transferee) tenders any such Convertible Debentures for conversion into shares of Common Stock on such Interest Payment Date shall receive the interest payable by the Company on such Convertible Debentures on such date, and the converting Holder need not include payment of the amount of such interest upon surrender of Convertible Debentures for conversion. The Company shall make no payment or allowance for dividends on the shares of Common Stock issued upon conversion. No fractional shares shall be issued upon conversion but a cash payment shall be made by the Company in lieu of such fractional interest. The outstanding principal amount of any Convertible Debenture shall be reduced by the principal A-13 63 amount thereof converted into shares of Common Stock or other shares of common stock of the Company. The Company's delivery upon conversion of the fixed number of shares of Common Stock or other shares of common stock of the Company into which the Convertible Debentures are convertible (together with cash in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at the Maturity Date of the portion of Convertible Debentures so converted and any unpaid interest (including Compounded Interest) accrued on such Convertible Debentures at the time of such conversion. The Convertible Debentures of this series are issuable only in registered form without coupons in denominations of $50 and any integral multiple thereof. IF THE CONVERTIBLE DEBENTURE IS TO BE A GLOBAL DEBENTURE, SUBSTITUTE THE FOLLOWING FOR THE PREVIOUS SENTENCE: This Global Debenture is exchangeable for Convertible Debentures in definitive form only under certain limited circumstances set forth in the Indenture. Convertible Debentures of this series so issued are issuable only in registered form without coupons in denominations of $50 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Convertible Debentures of this series are exchangeable for a like aggregate principal amount of Convertible Debentures of this series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Convertible Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THE CONVERTIBLE DEBENTURES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. A-14 64 FORM OF ELECTION TO CONVERT To: [Servico, Inc.] [Lodgian, Inc.] The undersigned Holder of this Convertible Debenture hereby irrevocably exercises the option to convert this Convertible Debenture, or the portion below designated, into Common Stock of [SERVICO, INC.] [LODGIAN, INC.](the "COMPANY"), or any other class of common stock of the Company, as permitted by the Articles of Incorporation of the Company, in accordance with the terms of the Indenture referred to in this Convertible Debenture, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto. However, Convertible Debentures surrendered for conversion during the period between the close of business on any Regular Record Date and the opening of business on the corresponding Interest Payment Date (except Convertible Debentures called for redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date. Date: in whole in part Portion of principal amount of the Convertible Debenture to be converted ($50 or integral multiples thereof): $ Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number Signature Guarantee:(1) - -------- (1) The signature(s) should be guaranteed by an eligible guarantor institution (continued...) A-15 65 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------------------------- Date: --------------------------------------- Your Signature: ------------------------ Signature Guarantee: ------------------------ - -------------------------------------------- (Signature must be guaranteed)(2) - ------------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Security. In connection with any transfer or exchange of any of the Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being: CHECK ONE BOX BELOW: - ------------- (1) (...continued) (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15. (2) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15. A-16 66 1/ / acquired for the undersigned's own account, without transfer; or 2/ / transferred to the Company or a subsidiary thereof; or 3/ / transferred pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "SECURITIES ACT"); or 4/ / for so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act, to a person the undersigned reasonably believes is a "qualified institutional buyer" as defined in Rule 144A that purchases for its own account or for the account of a qualified institutional buyer to whom notice is give that the transfer is being made in reliance on Rule 144A; or 5/ / to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act, that is acquiring such securities for its own account, or for the account of such an institutional Accredited Investor, or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of subparagraph (a)(7) of Rule 501 under the Securities Act, for investment purposes and not with a view to, or for offer or sale in connection with any distribution in violation of the Securities Act; or 6/ / transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee shall refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (6) is checked, the Trustee or the Company may require, prior to registering any such transfer of the Securities, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ------------------------------ Signature Signature Guarantee: A-17 67 - --------------------------------- ------------------------------ (Signature must be guaranteed)(3) Signature - ------------------------------------------------------------------ TO BE COMPLETED BY PURCHASER IF (4) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Convertible Debenture for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. - ------------------------ Dated: - -------- (3) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15. A-18 68 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Convertible Debenture purchased by the Company pursuant to Section 4.01 of the Indenture, check the Box: / / If you wish to have a portion of this Convertible Debenture purchased by the Company pursuant to Section 4.01 of the Indenture, state the amount: maturity): $______________. Date: --------------------- Your Signature: ------------------------------------------------------------ (Sign exactly as your name appears on the other side of this Convertible Debenture) Signature Guarantee: ----------------------------------------- A-19 69 [FORM OF SCHEDULE FOR ENDORSEMENTS ON GLOBAL DEBENTURES TO REFLECT CHANGES IN PRINCIPAL AMOUNT] Schedule A Changes to Principal Amount of Global Debentures The initial principal amount of this Global Debenture shall be $[ ]. The following increases or decreases in the principal amount of this Global Debenture have been made:
PRINCIPAL AMOUNT OF SECURITIES BY WHICH THIS GLOBAL DEBENTURE SIGNATURE IS TO BE REDUCED OR OF INCREASED, AND REASON REMAINING PRINCIPAL AUTHORIZED FOR REDUCTION OR AMOUNT OF THIS OFFICIAL OF DATE INCREASE GLOBAL DEBENTURE THE TRUSTEE - ---- --------------------- ------------------- ----------- - -------- -------------------- ------------------ --------- - -------- -------------------- ------------------ --------- - -------- -------------------- ------------------ --------- - -------- -------------------- ------------------ --------- - -------- -------------------- ------------------ --------- - -------- -------------------- ------------------ --------- - -------- -------------------- ------------------ --------- - -------- -------------------- ------------------ ---------
A-20 EX-10.3 7 GUARANTEE AGREEMENT 1 Exhibit 10.3 - ------------------------------------------------------------------------------- GUARANTEE AGREEMENT LODGIAN CAPITAL TRUST I Dated as of June 17, 1998 - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS ----------------------
PAGE ---- ARTICLE 1 INTERPRETATION AND DEFINITIONS SECTION 1.01. INTERPRETATION AND DEFINITIONS...................................................2 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. TRUST INDENTURE ACT; APPLICATION.................................................6 SECTION 2.02. LISTS OF HOLDERS OF SECURITIES...................................................6 SECTION 2.03. REPORTS BY GUARANTEE TRUSTEE.....................................................7 SECTION 2.04. PERIODIC REPORTS TO GUARANTEE TRUSTEE............................................7 SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.................................7 SECTION 2.06. GUARANTEE EVENT OF DEFAULT; WAIVER...............................................7 SECTION 2.07. GUARANTEE EVENT OF DEFAULT; NOTICE...............................................7 SECTION 2.08. CONFLICTING INTERESTS............................................................8 SECTION 2.09. DISCLOSURE OF INFORMATION........................................................8 SECTION 2.10. GUARANTEE TRUSTEE MAY FILE PROOFS OF CLAIM.......................................8 ARTICLE 3 POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE SECTION 3.01. POWERS AND DUTIES OF GUARANTEE TRUSTEE...........................................8 SECTION 3.02. CERTAIN RIGHTS OF GUARANTEE TRUSTEE.............................................10 SECTION 3.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE...........................12 ARTICLE 4 GUARANTEE TRUSTEE SECTION 4.01. GUARANTEE TRUSTEE; ELIGIBILITY..................................................12 SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF GUARANTEE TRUSTEE.........................................................................13 ARTICLE 5 GUARANTEE SECTION 5.01. GUARANTEE.......................................................................14 SECTION 5.02. WAIVER OF NOTICE AND DEMAND.....................................................14 SECTION 5.03. OBLIGATIONS NOT AFFECTED........................................................15
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PAGE ---- SECTION 5.04. RIGHTS OF HOLDERS...............................................................16 SECTION 5.05. GUARANTEE OF PAYMENT............................................................16 SECTION 5.06. SUBROGATION.....................................................................16 SECTION 5.07. INDEPENDENT OBLIGATIONS.........................................................17 ARTICLE 6 LIMITATION OF TRANSACTIONS; RANKING SECTION 6.01. LIMITATION OF TRANSACTIONS......................................................17 SECTION 6.02. RANKING.........................................................................17 ARTICLE 7 TERMINATION SECTION 7.01. TERMINATION.....................................................................18 ARTICLE 8 INDEMNIFICATION SECTION 8.01. EXCULPATION.....................................................................18 SECTION 8.02. INDEMNIFICATION.................................................................19 ARTICLE 9 ASSUMPTION SECTION 9.01. MERGER WITH IMPAC...............................................................19 ARTICLE 10 MISCELLANEOUS SECTION 10.01. SUCCESSORS AND ASSIGNS.........................................................19 SECTION 10.02. AMENDMENTS.....................................................................19 SECTION 10.03. NOTICES........................................................................20 SECTION 10.04. BENEFIT........................................................................21 SECTION 10.05. GOVERNING LAW..................................................................21
ii 4 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION IN THESE SECURITIES MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITIES, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF SUCH SECURITIES (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS SUCH SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING SUCH SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, OR AS FIDUCIARY FOR THE ACCOUNT OF ONE OR MORE TRUSTS, EACH OF WHICH IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a) (7) OF RULE 501 UNDER THE SECURITIES ACT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, SUBJECT IN EACH OF THE FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE SECURITIES BEING COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE 5 COMPANY. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) BY REASON OF THE APPLICATION OF ONE OR MORE STATUTORY OR ADMINISTRATIVE EXEMPTIONS FROM THE PROHIBITED TRANSACTION RULES OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE, ITS PURCHASE AND HOLDING OF CRESTS WILL NOT CONSTITUTE, CAUSE OR RESULT IN THE OCCURRENCE OF A NON-EXEMPT PROHIBITED TRANSACTION WITHIN THE MEANING OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT RELATING TO THE SECURITIES. 6 GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (the "GUARANTEE"), dated as of June 17, 1998, is executed and delivered by Servico, Inc., a Florida corporation (the "GUARANTOR"), Wilmington Trust Company, as trustee (the "GUARANTEE TRUSTEE"), and Lodgian, Inc., a Delaware corporation ("LODGIAN") for the benefit of the Holders (as defined herein) from time to time of the Securities (as defined herein) of Lodgian Capital Trust I, a Delaware statutory business trust (the "TRUST"). W I T N E S S E T H: WHEREAS, pursuant to the Declaration (as defined herein), the Trust is issuing up to $175,000,000 aggregate liquidation amount of convertible preferred securities, having a liquidation amount of $50 per security and designated the 7% Convertible Redeemable Equity Structured Trust Securities of the Trust (and may issue up to an additional $26,250,000 aggregate liquidation amount of 7% Convertible Redeemable Equity Structured Trust Securities solely to cover over-allotments) (the "CRESTS") and $5,412,400 aggregate liquidation amount of common securities, having a liquidation amount of $50 per security and designated the 7% Common Securities of the Trust (and may issue up to an additional $811,850 of aggregate liquidation amount of Common Securities if additional CRESTS are issued) (the "COMMON SECURITIES" and, together with the CRESTS, the "SECURITIES"); WHEREAS, as incentive for the Holders to purchase the Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee, to pay to the Holders of the Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and that if a Trust Enforcement Event (as defined herein) has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee are subordinated to the rights of Holders of CRESTS to receive Guarantee Payments under this Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder of Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of the Holders. 7 ARTICLE 1 INTERPRETATION AND DEFINITIONS SECTION 1.01. INTERPRETATION AND DEFINITIONS. In this Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Guarantee has the same meaning throughout; (c) all references to "the Guarantee" or "this Guarantee" are to this Guarantee as modified, supplemented or amended from time to time; (d) all references in this Guarantee to Articles, Sections and Recitals are to Articles, Sections and Recitals of this Guarantee, unless otherwise specified; (e) unless otherwise defined in this Guarantee, a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee; (f) a reference to the singular includes the plural and vice versa and a reference to any masculine form of a term shall include the feminine form of a term, as applicable; and (g) the following terms have the following meanings: "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "BUSINESS DAY" has the meaning specified in the Declaration. "COMMON SECURITIES" has the meaning specified in the Recitals hereto. "COMMON STOCK" means the common stock of the Guarantor, $.01 par value per share, or any other class of common stock of the Guarantor. "CORPORATE TRUST OFFICE" means the principal office of the Guarantee Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Guarantee is located at Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attn: Corporate Trust Administration. 2 8 "COVERED PERSON" means a Holder or beneficial owner of Securities. "CRESTS" has the meaning specified in the Recitals hereto. "DEBENTURES" means the series of convertible junior subordinated deferrable interest debentures to be issued by the Guarantor designated the 7% Convertible Junior Subordinated Debentures Due 2010 held by the Property Trustee (as defined in the Declaration) of the Trust. "DECLARATION" means the Amended and Restated Declaration of Trust, dated as of June 17, 1998, as amended, modified or supplemented from time to time, among the trustees of the Trust named therein, the Guarantor, as sponsor, Lodgian and the Holders, from time to time, of undivided beneficial ownership interests in the assets of the Trust. "GLOBAL SECURITY" means a fully registered, global CRESTS. "GUARANTEE EVENT OF DEFAULT" means a default by the Guarantor on any of its payment or other obligations under this Guarantee. "GUARANTEE PAYMENTS" means the following payments or distributions, without duplication, with respect to the CRESTS or the Common Securities, as the case may be, to the extent not paid by or on behalf of the Trust: (i) any accumulated and unpaid Distributions (as defined in the Declaration) that are required to be paid on such CRESTS or the Common Securities, as the case may be, to the extent the Trust has sufficient funds available therefor at the time, (ii) the Redemption Price and all accumulated and unpaid Distributions to the date of redemption, with respect to any CRESTS or Common Securities, as the case may be, called for redemption by the Trust, to the extent the Trust shall have sufficient funds available therefor at the time or (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the exchange of all of the Securities for Debentures and the conversion thereof into Common Stock or the distribution of Debentures to the Holders in exchange for CRESTS or Common Securities, as the case may be, as provided in the Declaration or a redemption of all of the CRESTS or the Common Securities, as the case may be), the lesser of (A) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the CRESTS or the Common Securities, as the case may be, to the date of payment, to the extent the Trust has sufficient funds available therefor and (B) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust (in either case, the "LIQUIDATION DISTRIBUTION"). If an event of default under the Indenture has occurred and is continuing, the rights of Holders of the Common Securities to 3 9 receive Guarantee Payments are subordinated to the rights of Holders of CRESTS to receive Guarantee Payments. "GUARANTEE TRUSTEE" means Wilmington Trust Company, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee and thereafter means each such Successor Guarantee Trustee. "HOLDER" means any holder of CRESTS or Common Securities, as the case may be, as registered on the books and records of the Trust; PROVIDED, however, that, in determining whether the Holders of the requisite liquidation amount of CRESTS have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor or any other obligor on the CRESTS; and PROVIDED FURTHER, that in determining whether the Holders of the requisite liquidation amount of CRESTS have voted on any matter provided for in this Guarantee, then for the purpose of such determination only (and not for any other purpose hereunder), if the CRESTS remain in the form of one or more Global Certificates (as defined in the Declaration), the term "Holders" shall mean the holder of the Global Certificate acting at the direction of the Beneficial Owners (as defined in the Declaration). "INDEMNIFIED PERSON" means the Guarantee Trustee, any Affiliate of the Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Guarantee Trustee. "INDENTURE" means the Indenture, dated as of June 17, 1998, among the Guarantor, Lodgian and Wilmington Trust Company, as trustee, as amended and supplemented by the First Supplemental Indenture dated as of June 17, 1998, and by any other indenture supplemental thereto pursuant to which the Debentures are to be issued to the Property Trustee of the Trust. "MAJORITY IN LIQUIDATION AMOUNT" means, except as provided in the terms of the CRESTS or by the Trust Indenture Act, Holder(s) of outstanding Securities, voting together as a single class, or, as the context may require, Holders of outstanding CRESTS or Holders of outstanding Common Securities, voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. In determining whether the Holders of the requisite amount of CRESTS have voted, CRESTS which are owned by the 4 10 Guarantor or any Affiliate of the Guarantor or any other obligor on the CRESTS shall be disregarded for the purpose of any such determination. "MERGER" has the meaning specified in Section 9.01. "OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate signed on behalf of such Person by two Authorized Officers (as defined in the Declaration) of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer on behalf of such Person in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer on behalf of such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer acting on behalf of such Person, such condition or covenant has been complied with. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PROPERTY TRUSTEE" has the meaning specified in the Declaration. "REDEMPTION PRICE" has the meaning specified in the Declaration. "RESPONSIBLE OFFICER" means, with respect to the Guarantee Trustee, any officer with direct responsibility for the administration of this Guarantee and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "SECURITIES" has the meaning specified in the Recitals hereto. 5 11 "SUCCESSOR GUARANTEE TRUSTEE" means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01. "TRUST ENFORCEMENT EVENT" in respect of the Securities means an Indenture Event of Default (as defined in the Indenture) has occurred and is continuing in respect of the Debentures. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. TRUST INDENTURE ACT; APPLICATION. (a) This Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.02. LISTS OF HOLDERS OF SECURITIES. (a) The Guarantor shall provide the Guarantee Trustee (i) except while the CRESTS are represented by one or more Global Securities at least one Business Day prior to the date for payment of Distributions, a list, in such form as the Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the CRESTS ("LIST OF HOLDERS") as of the record date relating to the payment of such Distributions, and (ii) at any other time, within 30 days of receipt by the Guarantor of a written request from the Guarantee Trustee for a List of Holders as of a date no more than 15 days before such List of Holders is given to the Guarantee Trustee; PROVIDED that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Guarantee Trustee by the Guarantor. The Guarantee Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it, PROVIDED that the Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Guarantee Trustee shall comply with its obligations under Sections 311 (a), 311 (b) and 312(b) of the Trust Indenture Act. 6 12 SECTION 2.03. REPORTS BY GUARANTEE TRUSTEE. Within 60 days after May 15 of each year (commencing with the year of the first anniversary of the issuance of the Securities), the Guarantee Trustee shall provide to the Holders of the CRESTS such reports as are required by Section 313 of the Trust Indenture Act (if any) in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.04. PERIODIC REPORTS TO GUARANTEE TRUSTEE. The Guarantor shall provide to the Guarantee Trustee such documents, reports and information as required by Section 314(a) (if any) of the Trust Indenture Act and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314(a) of the Trust Indenture Act. SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.06. GUARANTEE EVENT OF DEFAULT; WAIVER. The Holders of a Majority in Liquidation Amount of the CRESTS or Common Securities, as the case may be, may, by vote or written consent, on behalf of the Holders of all of the CRESTS or Common Securities, as the case may be, waive any past Guarantee Event of Default and its consequences. Upon such waiver, any such Guarantee Event of Default shall cease to exist, and any Guarantee Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee, but no such waiver shall extend to any subsequent or other default or Guarantee Event of Default or impair any right consequent thereon. SECTION 2.07. GUARANTEE EVENT OF DEFAULT; NOTICE. (a) The Guarantee Trustee shall, within 90 days after the occurrence of a Guarantee Event of Default, transmit by mail, first class postage prepaid, to the Holders of the CRESTS or Common Securities, as the case may be, notices of all Guarantee Events of Default actually known to a Responsible Officer of the Guarantee Trustee, unless such defaults have been cured before the giving of such notice; PROVIDED, that the Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the CRESTS or the Common Securities, as the case may be. 7 13 (b) The Guarantee Trustee shall not be deemed to have knowledge of any Guarantee Event of Default unless the Guarantee Trustee shall have received written notice thereof or a Responsible Officer of the Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge thereof. SECTION 2.08. CONFLICTING INTERESTS. The Declaration shall be deemed to be specifically described in this Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. SECTION 2.09. DISCLOSURE OF INFORMATION. The disclosure of information as to the names and addresses of the Holders of the CRESTS in accordance with Section 312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to Section 312 of the Trust Indenture Act, nor shall the Guarantee Trustee be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act. SECTION 2.10. GUARANTEE TRUSTEE MAY FILE PROOFS OF CLAIM. Upon the occurrence of a Guarantee Event of Default, the Guarantee Trustee is hereby authorized to (a) recover judgment, in its own name and as trustee of an express trust, against the Guarantor for the whole amount of any Guarantee Payments remaining unpaid and (b) file such proofs of claim and other papers or documents as may be necessary or advisable in order to have its claims and those of the Holders of the Securities allowed in any judicial proceedings relative to the Guarantor, its creditors or its property. ARTICLE 3 POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE SECTION 3.01. POWERS AND DUTIES OF GUARANTEE TRUSTEE. (a) This Guarantee shall be held by the Guarantee Trustee on behalf of the Trust for the benefit of the Holders of the Securities and the Guarantee Trustee shall not transfer this Guarantee to any Person except a Holder of Securities exercising his or her rights pursuant to Section 5.03(b) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee in and to this Guarantee shall automatically vest in any Successor Guarantee Trustee, and such vesting and succession of title shall be effective whether or not 8 14 conveyance documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee. (b) If a Guarantee Event of Default actually known to a Responsible Officer of the Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee for the benefit of the Holders of the Securities. (c) The Guarantee Trustee, before the occurrence of any Guarantee Event of Default and after the curing of all Guarantee Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee, and no implied covenants shall be read into this Guarantee against the Guarantee Trustee. In case a Guarantee Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06) and is actually known to a Responsible Officer of the Guarantee Trustee, the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Guarantee shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Guarantee Event of Default and after the curing or waiving of all such Guarantee Events of Default that may have occurred: (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee, and no implied covenants or obligations shall be read into this Guarantee against the Guarantee Trustee; and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty 9 15 to examine the same to determine whether or not they conform to the requirements of this Guarantee; (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in Liquidation Amount of the CRESTS or Common Securities, as the case may be, relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee; and (iv) no provision of this Guarantee shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee or if the Guarantee Trustee shall have reasonable grounds for believing that an indemnity, reasonably satisfactory to the Guarantee Trustee, against such risk or liability is not reasonably assured to it. SECTION 3.02. CERTAIN RIGHTS OF GUARANTEE TRUSTEE. (a) Subject to the provisions of Section 3.01: (i) The Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) Any direction or act of the Guarantor contemplated by this Guarantee shall be sufficiently evidenced by an Officers' Certificate; (iii) Whenever, in the administration of this Guarantee, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) 10 16 may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor; (iv) The Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or re-registration thereof); (v) The Guarantee Trustee may consult with counsel, and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee from any court of competent jurisdiction; (vi) The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such security and indemnity, reasonably satisfactory to the Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided, that nothing contained in this Section 3.02(a)(vi) shall be taken to relieve the Guarantee Trustee, upon the occurrence of a Guarantee Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee; (vii) The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; 11 17 (ix) Any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders, and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action; and (x) Whenever in the administration of this Guarantee the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (A) may request written instructions from the Holders of a Majority in Liquidation Amount of the CRESTS or the Common Securities, as the case may be, (B) may refrain from enforcing such remedy or right or taking such other action until such written instructions are received, and (C) shall be protected in conclusively relying on or acting in accordance with such written instructions. (b) No provision of this Guarantee shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty. SECTION 3.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representations as to the validity or sufficiency of this Guarantee. ARTICLE 4 GUARANTEE TRUSTEE SECTION 4.01. GUARANTEE TRUSTEE; ELIGIBILITY. (a) There shall be at all times a Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and 12 18 (ii) be a corporation organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia, or a corporation or other Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.01(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 4.01(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.02(c). (c) If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF GUARANTEE TRUSTEE. (a) Subject to Section 4.02(b), unless a Guarantee Event of Default shall have occurred and be continuing, the Guarantee Trustee may be appointed or removed with or without cause at any time by the Guarantor. (b) The Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor. (c) The Guarantee Trustee appointed to office shall hold such office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee. 13 19 (d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 within 60 days after delivery to the Guarantor of an instrument of removal or resignation, the removed or resigning Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee. (e) No Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Guarantee Trustee. (f) Upon termination of this Guarantee or removal or resignation of the Guarantee Trustee pursuant to this Section 4.02, the Guarantor shall pay to the Guarantee Trustee all amounts owing for fees and reimbursement of expenses which have accrued to the date of such termination, removal or resignation. ARTICLE 5 GUARANTEE SECTION 5.01. GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. Notwithstanding anything to the contrary herein, the Guarantor retains all of its rights under the Indenture to (i) extend the interest payment period on the Debentures and the Guarantor shall not be obligated hereunder to make any Guarantee Payments during any Extension Period (as defined in the certificate evidencing the Debentures) with respect to the Distributions (as defined in the Declaration) on the Securities, and (ii) change the maturity date of the Debentures to the extent permitted by the Indenture. SECTION 5.02. WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. 14 20 SECTION 5.03. OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any event, including without limitation, the following, whether or not with notice to, or the consent of, the Guarantor: (a) The release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Securities to be performed or observed by the Trust; (b) The extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sum payable under the terms of the Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with the Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any change to the maturity date of the Debentures permitted by the Indenture); (c) Any failure, omission, delay or lack of diligence on the part of the Property Trustee or the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Property Trustee or the Holders pursuant to the terms of the Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) The voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) Any invalidity of, or defect or deficiency in, the Securities; (f) The settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) Any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.02 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. 15 21 There shall be no obligation of the Guarantee Trustee or the Holders to give notice to, or obtain consent of the Guarantor or any other Person with respect to the happening of any of the foregoing. SECTION 5.04. RIGHTS OF HOLDERS. (a) The Holders of at least a Majority in Liquidation Amount of the CRESTS or Common Securities, as the case may be, have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under this Guarantee. (b) If the Guarantee Trustee fails to enforce this Guarantee, then any Holder of Securities may, subject to the subordination provisions of Section 6.02, institute a legal proceeding directly against the Guarantor to enforce the Guarantee Trustee's rights under this Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person or entity. In addition, if the Guarantor has failed to make a Guarantee Payment, a Holder of Securities may, subject to the subordination provisions of Section 6.02, directly institute a proceeding against the Guarantor for enforcement of the Guarantee for such payment to the Holder of the Securities of the principal of or interest on the Debentures on or after the respective due dates specified in the Debentures, and the amount of the payment will be based on the Holder's pro rata share of the amount due and owing on any of the Securities. The Guarantor hereby waives any right or remedy to require that any action on this Guarantee be brought first against the Trust, the Guarantee Trustee or any other person or entity before proceeding directly against the Guarantor. SECTION 5.05. GUARANTEE OF PAYMENT. This Guarantee creates a guarantee of payment and not of collection. SECTION 5.06. SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders of Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee, if at the time of any such payment, any amounts are due and unpaid under this Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Guarantee Trustee for the benefit of the Holders. 16 22 SECTION 5.07. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections 5.03(a) through 5.03(g), inclusive, hereof. ARTICLE 6 LIMITATION OF TRANSACTIONS; RANKING SECTION 6.01. LIMITATION OF TRANSACTIONS. So long as any Securities remain outstanding, if (i) there shall have occurred an event of default under the Indenture with respect to the Debentures, (ii) there shall be a Guarantee Event of Default or (iii) the Guarantor shall have given notice of its election of an Extension Period as provided in the certificate evidencing the Debentures and shall not have rescinded such notice, or such Extension Period or any extension thereof shall be continuing, then the Guarantor shall not, and shall not permit any subsidiary of the Guarantor, to (x) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Guarantor's capital stock or (y) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Guarantor that rank on a parity with or junior in interest to the Debentures or make any guarantee payments with respect to any guarantee by the Guarantor of the debt securities of any subsidiary of the Guarantor if such guarantee ranks on a parity with or junior in interest to the Debentures (other than (a) dividends or distributions in common stock of the Guarantor, (b) payments under this Guarantee and (c) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (d) purchases of common stock related to the issuance of common stock or rights under any of the Guarantor's benefit plans). SECTION 6.02. RANKING. This Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, (ii) on a parity with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee previously, now or hereafter entered into by the Guarantor in respect of any preferred securities of any Affiliate of the Guarantor and (iii) senior to the Guarantor's common stock. 17 23 ARTICLE 7 TERMINATION SECTION 7.01. TERMINATION. This Guarantee shall terminate as to each Holder upon (i) full payment of the Redemption Price of all Securities, (ii) distribution of the Common Stock to all Holders in respect of the conversion of all the Securities or upon the distribution of the Debentures to the Holders of all the Securities, (iii) full payment of the amounts payable in accordance with the Declaration or (iv) liquidation of the Trust. Notwithstanding the foregoing, this Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Securities must restore payment of any sums paid under the Securities or under this Guarantee. ARTICLE 8 INDEMNIFICATION SECTION 8.01. EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage, liability, expense or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 8.02. INDEMNIFICATION. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or 18 24 trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 8.02 shall survive the termination of this Guarantee. ARTICLE 9 ASSUMPTION SECTION 9.01. MERGER WITH IMPAC. In the event the merger (the "MERGER") pursuant to the Agreement and Plan of Merger dated as of March 20, 1998, among Lodgian, the Guarantor, Impac Hotel Group, L.L.C., SHG-S Sub, Inc. and SHG-I Sub, L.L.C. is consummated, Lodgian, the successor corporation in the Merger, shall assume the Company's obligations under the Guarantee and shall execute and deliver such documents as may be necessary to carry out the intent of this Section. From and after the Merger and the assumption by Lodgian of Servico, Inc.'s obligations hereunder, Servico, Inc. shall be released from its obligations under this Guarantee as Guarantor or otherwise. Following the Merger, all references to the Guarantor herein shall instead refer to Lodgian. ARTICLE 10 MISCELLANEOUS SECTION 10.01. SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Securities then outstanding. SECTION 10.02. AMENDMENTS. Except with respect to any changes that do not materially adversely affect the rights of the Holders (in which case no consent of the Holders will be required), this Guarantee may not be amended without the prior approval of the Holders of not less than a Majority in Liquidation Amount of the Securities. The provisions of Section 11.02 of the Declaration with respect to meetings of, and action by written consent of, the Holders of the Securities apply to the giving of such approval. Except in connection with any permitted merger or consolidation of the Guarantor with or into another entity (which shall include the Merger) or any permitted sale, transfer or lease of the Guarantor's assets to another entity (as described in Article 7 of the Indenture), the Guarantor may not assign its rights or delegate its obligations under this Guarantee without the prior approval 19 25 of the Holders of at least a Majority in Liquidation Amount of the CRESTS then outstanding. SECTION 10.03. NOTICES. All notices provided for in this Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered by hand, telecopied or mailed by registered or certified mail, as follows: (a) If given to the Guarantee Trustee, at the Guarantee Trustee's mailing address set forth below (or such other address as the Guarantee Trustee may give notice of to the Guarantor and the Holders of the Securities): Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Administration Telecopy no.: (302) 651-8882 (b) If given to the Guarantor or Lodgian, at the Guarantor's mailing addresses set forth below (or such other address as the Guarantor may give notice of to the Guarantee Trustee and the Holders of the Securities): Servico, Inc. 1601 Belvedere Road West Palm Beach, Florida 33406 Attention: Chief Executive Officer Telecopy no.: (561) 689-9970 (c) If given to any Holder of Securities, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 10.04. BENEFIT. This Guarantee is solely for the benefit of the Holders of the Securities and, subject to Section 3.01(a), is not separately transferable from the Securities. 20 26 SECTION 10.05. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. 21 27 IN WITNESS WHEREOF, this Guarantee is executed as of the day and year first above written. SERVICO, INC., as Guarantor By: /s/ Charles M. Diaz ----------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary WILMINGTON TRUST COMPANY, as Guarantee Trustee By: /s/ W. Christopher Sponenberg ----------------------------------- Name: W. Christopher Sponenberg Title: Senior Financial Services Officer LODGIAN, INC. By: /s/ Charles M. Diaz ----------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary 22 EX-10.4 8 REGISTRATION RIGHTS AGREEMENT-NATIONSBANK 1 Exhibit 10.4 =============================================================================== REGISTRATION RIGHTS AGREEMENT Dated as of June 17, 1998 Among LODGIAN CAPITAL TRUST I, SERVICO, INC., LODGIAN, INC. and NATIONSBANC MONTGOMERY SECURITIES LLC as Initial Purchaser =============================================================================== 2 This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and entered into as of June 17, 1998 by and among LODGIAN CAPITAL TRUST I, a Delaware statutory business trust (the "TRUST"), SERVICO, INC., a Florida corporation (the "COMPANY"), LODGIAN, INC., a Delaware corporation ("LODGIAN"), and NATIONSBANC MONTGOMERY SECURITIES LLC (the "INITIAL PURCHASER"). The Company, Lodgian and the Trust agree with the Initial Purchaser, (i) for its benefit as Initial Purchaser and (ii) for the benefit of the beneficial owners (including the Initial Purchaser) from time to time of the CRESTS (as defined herein) and the beneficial owners from time to time of the Underlying Common Stock (as defined herein) issued upon conversion of the Convertible Debentures (as defined herein) (each of the foregoing a "HOLDER" and together the "HOLDERS"), as follows: The parties hereby agree as follows: 1. INTERPRETATION AND DEFINITIONS. In this Agreement, unless the context otherwise requires: (a) capitalized terms used in this Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1; (b) a term defined anywhere in this Agreement has the same meaning throughout; (c) all references to "the Agreement" or "this Agreement" are to this Agreement as modified, supplemented or amended from time to time; (d) all references in this Agreement to Sections are to Sections of this Agreement, unless otherwise specified; (e) capitalized terms not defined herein shall have the meaning given to such terms in the Declaration or, if the Convertible Debentures have been distributed to the Holders of CRESTS in liquidation of the Trust, the Indenture; (f) a reference to the singular includes the plural and vice versa and a reference to the masculine form of a term includes the feminine form of a term, as applicable; and (g) the following terms have the following meanings: "AMENDMENT EFFECTIVENESS DEADLINE DATE": As defined in Section 4(a). "APPLICABLE CONVERSION PRICE": The Applicable Conversion Price as of any date of 3 determination means the Conversion Price in effect as of such date of determination or, if no Convertible Debentures are then outstanding, the Conversion Price that would be in effect were Convertible Debentures then outstanding. "CLOSING DATE": The first date of original issuance of the Convertible Debentures, Guarantees, CRESTS and Common Securities. "COMMISSION": The Securities and Exchange Commission. "COMMON SECURITIES": The beneficial ownership interest represented by the common securities of the Trust. "COMMON STOCK": The common stock, par value $.01 per share, of the Company and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture, including the Underlying Common Stock. "CONVERTIBLE DEBENTURES": The 7% Convertible Junior Subordinated Debentures of the Company to be purchased by the Trust pursuant to the Debenture Purchase Agreement dated as of the date hereof between the Company and the Trust. "CRESTS": The 7% Convertible Redeemable Equity Structured Trust Securities of the Trust. "DAMAGES ACCRUAL PERIOD": As defined in Section 4(a). "DAMAGES PAYMENT DATE": Each payment date under the Declaration, in the case of CRESTS, each Interest Payment Date (as defined in the Indenture), in the case of Convertible Debentures, and each March 31, June 30, September 30 and December 31, in the case of Underlying Common Stock. "DECLARATION": The Amended and Restated Declaration of Trust, dated as of June 17, 1998, among the Company, Lodgian, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and the other trustees named therein, pursuant to which the CRESTS are being issued, as amended or supplemented from time to time in accordance with the terms thereof. "DEFERRAL DATE": As defined in Section 5(b)(v). "DEFERRAL NOTICE": As defined in Section 5(b)(v). "DEFERRAL PERIOD": As defined in Section 5(b)(v). 2 4 "EFFECTIVENESS DEADLINE DATE": As defined in Section 3(a)(ii). "EFFECTIVENESS PERIOD": The period commencing with the date hereof and ending on the date that all CRESTS, Convertible Debentures and Underlying Common Stock and the Guarantee have ceased to be Transfer Restricted Securities. "EXCHANGE ACT": The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "FILING DEADLINE DATE": As defined in Section 3(a). "GUARANTEE AGREEMENT": The Guarantee Agreement, dated as of June 17, 1998, among the Company, Lodgian and Wilmington Trust Company, as Guarantee Trustee, pursuant to which the Guarantee is being issued, as amended or supplemented from time to time in accordance with the terms thereof. "GUARANTEE": The guarantee by the Company of the CRESTS pursuant to the Guarantee Agreement. "HOLDERS": As defined in the second paragraph of this Agreement. "IMPAC": Impac Hotel Group, L.L.C. "INDENTURE": The Indenture, dated as of June 17, 1998, among the Company, Lodgian and Wilmington Trust Company, as trustee, as amended or supplemented, pursuant to which the Convertible Debentures are to be issued, as such Indenture is further amended or supplemented from time to time in accordance with the terms thereof. "INITIAL PURCHASER": As defined in the preamble hereto. "INSPECTOR": As defined in Section 5(b)(vi). "LIQUIDATED DAMAGES AMOUNTS": As defined in Section 4(a). "LODGIAN": As defined in the preamble of this Agreement. "MATERIAL EVENT": As defined in Section 5(b)(v). "MERGER" has the meaning specified in Section 12(m). "NASD": National Association of Securities Dealers, Inc. 3 5 "NOTICE AND QUESTIONNAIRE": A written notice delivered to the Company and the Trust containing substantially the information called for by the Notice and Questionnaire attached as Appendix A to the Offering Memorandum of the Company and the Trust dated June 15, 1998 relating to the CRESTS. "NOTICE HOLDER": On any date, a Holder that has delivered a Notice and Questionnaire to the Company or the Trust on or prior to such date. "PARTICIPANT": As defined in Section 8(a). "PERSON": An individual, partnership, corporation. trust or unincorporated organization, or a government or agency or political subdivision thereof. "PRINCIPAL HOLDER" means any Notice Holder, or any group of Notice Holders acting together through a single representative, having at least $75,000,000 in aggregate principal amount or aggregate liquidation amount of Transfer Restricted Securities. "PROSPECTUS": The prospectus included in the Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. "PURCHASE AGREEMENT": As defined in the second paragraph of this Agreement. "RECORD HOLDER": (i) With respect to any Damages Payment Date relating to any Convertible Preferred Security or Convertible Debenture as to which any such Liquidated Damages Amount has accrued, the Registered Holder of such Convertible Preferred Security or Convertible Debenture on the record date with respect to the distribution payment date under the Declaration or the interest payment date under the Indenture, as the case may be, on which such Damages Payment Date shall occur and (ii) with respect to any Damages Payment Date relating to any Underlying Common Stock as to which any such Liquidated Damages Amount has accrued, the registered holder of such Underlying Common Stock 15 days prior to the next succeeding Damages Payment Date. "REGISTERED HOLDER": The holder of a Convertible Preferred Security that is registered as such on the books of the Trust. "REGISTRANTS": The Trust and the Company or, if the Convertible Debentures have been distributed to the Holders of the CRESTS in liquidation of the Trust, the Company only. "REGISTRATION DEFAULT": As defined in Section 4(a). "REGISTRATION DEFAULT DATE": (A) The Filing Deadline Date in the case of Section 4 6 4(a)(i), (B) the Effectiveness Deadline Date in the case of Section 4(a)(ii), (C) the date by which the Registrants are required to perform their obligations set forth in Section 3(b) in the case of Section 4(a)(iii), (D) the date on which the aggregate duration of Deferral Periods in any period exceeds the number of days permitted by Section 5(b)(v) in the case of Section 4(a)(iv), (E) the date of the commencement of a Deferral Period that causes the limit on the number of Deferral Periods in any period under Section 5(b)(v) to be exceeded in the case of Section 4(a)(v) and (F) the date on which the Shelf Registration Statement ceases to be effective or shall fail to be usable by a Notice Holder with respect to such Shelf Registration Statement, in the case of Section 4(a)(vi). Notwithstanding the foregoing, a Registration Default Date shall not exist with respect to any Security on the date on which such Security ceases to be a Transfer Restricted Security. "RULE 144": Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "RULE 144A": Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "SECURITIES": The Convertible Debentures, the CRESTS, the Common Securities and the Guarantee. "SECURITIES ACT": The Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "SHELF REGISTRATION STATEMENT": Any shelf registration statement of the Registrants pursuant to Rule 415 under the Securities Act relating to the registration for resale of Transfer Restricted Securities, which is filed pursuant to the provisions of this Agreement including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. "SPECIAL COUNSEL": As defined in Section 5(b)(vi). "TIA": The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb), as amended. "TRANSFER RESTRICTED SECURITIES": The CRESTS, the Guarantee, the Convertible Debentures and the Underlying Common Stock, until such securities have been converted or exchanged, and, at all times subsequent to any such conversion or exchange, any securities into or for which such securities have been converted or exchanged, and any security issued with respect thereto upon any stock dividend, split or similar event until, in the case of any such security, (A) the earliest of (i) its effective registration under the Securities Act and resale in accordance with the Shelf Registration Statement covering it, (ii) expiration of the holding period that would be applicable thereto under Rule 144(k) were it not held by an Affiliate of the Registrants or (iii) its sale to the public pursuant to Rule 144, and (B) as a result of the event or 5 7 circumstance described in any of the foregoing clauses (i) through (iii), the legends with respect to transfer restrictions required under the Declaration and the Indenture are removed or removable in accordance with the terms of the Declaration or the Indenture, as the case may be. "TRUSTEE": Wilmington Trust Company (or any successor entity), the Property Trustee under the Declaration and the Trustee under the Indenture. "UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING": A registration in which securities of the Registrants are sold to an underwriter for reoffering to the public. 2. SECURITIES SUBJECT TO THIS AGREEMENT. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities. 3. SHELF REGISTRATION. (a) SHELF REGISTRATION. The Registrants shall: (i) cause to be filed a Shelf Registration Statement, on or prior to the 120th day after the Closing Date (the "FILING DEADLINE DATE"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 3(b) hereof, and (ii) use their respective best efforts to cause such Shelf Registration Statement or any successor Shelf Registration Statement to be declared effective by the Commission on or before the 180th day after the Closing Date (the "EFFECTIVENESS DEADLINE DATE"). The Registrants shall use their respective best efforts to keep a Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Sections 5(a) and (b) hereof to the extent necessary to ensure that it is available for resales of Securities by the Holders of Transfer Restricted Securities entitled to the benefit of this Section 3(a), and to ensure that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, until the end of the Effectiveness Period. (b) Each Holder of Transfer Restricted Securities agrees that if such Holder wishes to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement and related Prospectus, it shall do so only in accordance with this Section 3(b). Each Holder of Transfer Restricted Securities wishing to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a 6 8 Notice and Questionnaire to the Registrants at least three (3) business days prior to any intended distribution of Transfer Restricted Securities under the Shelf Registration Statement. From and after the date the initial Shelf Registration Statement becomes effective, the Registrants shall, as promptly as is practicable after the date a Notice and Questionnaire is delivered, and in any event within five (5) business days after such date, (i) if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling security holder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Transfer Restricted Securities in accordance with applicable law and, if the Registrants shall file a post-effective amendment to the Shelf Registration Statement, use their best efforts to cause such post-effective amendment to become effective under the Securities Act as promptly as is practicable; (ii) provide such Holder copies of any documents filed pursuant to Section 3(b)(i); and (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 3(b)(i); PROVIDED, that if such Notice and Questionnaire is delivered during a Deferral Period, the Registrants shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 5(b)(v). The Registrants shall be under no obligation to name any Holder that is not a Notice Holder as a selling security holder in any Transfer Restricted Statement or related Prospectus. (c) The Registrants shall supplement and amend the Shelf Registration Statement or file a new Shelf Registration Statement if required by the Securities Act to permit registered resale of the Transfer Restricted Securities or, to the extent to which the Registrants do not reasonably object, as reasonably requested by the Initial Purchaser or by the Trustee on behalf of the Registered Holders. 4. LIQUIDATED DAMAGES AMOUNT. (a) The parties hereto agree that the Holders of Transfer Restricted Securities shall suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision if (i) the Shelf Registration Statement required by this Agreement is not filed with the Commission on or prior to the date specified for such filing in this Agreement; (ii) a Shelf Registration Statement has not been declared effective by the Commission on or prior to the date specified for such effectiveness in this Agreement, (iii) the Registrants have failed to perform their obligations set forth in Section 3(b)(i) within the time period specified; (iv) the aggregate duration of the Deferral Periods in any period exceeds the number of days permitted in respect of such period pursuant to Section 7 9 5(b)(v); (v) the number of Deferral Periods in any period exceeds the number permitted in respect of such period pursuant to Section 5(b)(v); or (vi) a Shelf Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective, except during a Deferral Period in compliance with Section 5(b)(v), or fail to be usable by a Notice Holder with respect to such Shelf Registration Statement without being succeeded within five business days by a post-effective amendment to such Shelf Registration Statement or a new Shelf Registration Statement that cures such failure and that is itself promptly, and in any event no later than five business days, declared effective (each such event referred to in clauses (i) through (vi), a "REGISTRATION DEFAULT"), accordingly, commencing on (and including) any Registration Default Date and ending on (but excluding) the next date on which there are no Registration Defaults that have occurred and are continuing (a "DAMAGES ACCRUAL PERIOD"), the Registrants agree to pay, as liquidated damages and not as a penalty, an amount (the "LIQUIDATED DAMAGES AMOUNT"), payable on the Damages Payment Dates, (i) prior to the conversion thereof, to Record Holders (as set forth in the succeeding paragraph) of (x) CRESTS that are Transfer Restricted Securities or (y) in the event that the Convertible Debentures are distributed to holders of CRESTS upon dissolution of the Trust in accordance with the Declaration, Convertible Debentures that are Transfer Restricted Securities, accruing at a rate per annum equal to one-quarter of one percent (.25%) of the liquidation amount of such CRESTS or of the principal amount of such Convertible Debentures, as the case may be with respect to the first 90 day period immediately following the occurrence of such Registration Default, and (ii) to Record Holders (as set forth in the succeeding paragraph) of shares of Underlying Common Stock issued upon conversion of CRESTS or Convertible Debentures that are Transfer Restricted Securities, accruing, for each portion of such Damages Accrual Period beginning on and including a Damages Payment Date (or, in respect of the first such portion, the Event Date) and ending on but excluding the next subsequent Damages Payment Date with respect to the first 90 day period immediately following the occurrence of such Registration Default, at a rate per annum equal to one-quarter of one percent (.25%) of the aggregate Applicable Conversion Price of such shares of Underlying Common Stock as of the Business Day immediately preceding such next subsequent Damages Payment Date, and the Liquidated Damages Amount shall increase to 0.5% of such liquidation amount, principal amount or Applicable Conversion Price after such 90 day period; PROVIDED, that in the case of a Damages Accrual Period that is in effect solely as a result of a Registration Default of the type described in clause (iii) of the preceding paragraph, such Liquidated Damages Amount shall be paid only to the Holders (as set forth in Section 3(b)) that have delivered Notice and Questionnaires that caused the Registrants to incur the obligations set forth in Section 3(b) the non-performance of which is the basis of such Registration Default. The rate of accrual of the Liquidated Damages Amount with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Registration Defaults. 8 10 The Registrants shall pay on each Damages Payment Date that portion of the Liquidated Damages Amount payable pursuant to this Section in respect of any Damages Accrual Period that has accrued from and including the next preceding Damages Payment Date during such Damages Accrual Period (or, in respect of the first such portion, the Registration Default Date with respect to such Damages Accrual Period) to but excluding such Damages Payment Date on any Convertible Preferred Security, Convertible Debenture or share of Underlying Common Stock to the Record Holders thereof; PROVIDED, that any Liquidated Damages Amount accrued with respect to any Convertible Preferred Security or Convertible Debenture or portion thereof called for redemption on a redemption date or converted into Underlying Common Stock on a conversion date prior to the Damages Payment Date, shall, in any such event, be paid instead to the holder who submitted such Convertible Preferred Security or Convertible Debenture or portion thereof for redemption or conversion on the applicable redemption date or conversion date, as the case may be, on such date (or promptly following the conversion date, in the case of conversion); PROVIDED FURTHER, that, in the case of a Registration Default of the type described in clause (iii) of the first paragraph of this Section, such Liquidated Damages Amount shall be paid only to the Holders entitled thereto pursuant to such first paragraph by check mailed to the address set forth in the Notice and Questionnaire delivered by such Holder. The Trustee shall be entitled, on behalf of Registered Holders of CRESTS, Convertible Debentures or Underlying Common Stock, to seek any available remedy for the enforcement of this Agreement, including for the payment of such Liquidated Damages Amount. Notwithstanding the foregoing, the parties agree that the sole damages payable for a violation of the terms of this Agreement with respect to which liquidated damages are expressly provided shall be such liquidated damages. Nothing shall preclude a Holder of Transfer Restricted Securities from pursuing or obtaining specific performance or other equitable relief with respect to this Agreement. All of the Registrants' obligations set forth in this Section that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of this Agreement pursuant to Section 12(l). The parties hereto agree that the liquidated damages provided for in this Section constitute a reasonable estimate of the damages that may be incurred by Holders of Transfer Restricted Securities by reason of the failure of the Shelf Registration Statement to be filed or declared effective or available (absolutely or as a practical matter) for effecting resales of Transfer Restricted Securities in accordance with the provisions hereof. (b) The Registrants shall notify the Trustee, as the Property Trustee under the Declaration (or, if the Convertible Debentures shall have been distributed to the Holders 9 11 of the CRESTS in liquidation of the Trust, the Trustee, as Trustee under the Indenture) within two business days after each and every date on which an event occurs in respect of which Liquidated Damages Amounts are required to be paid. 5. REGISTRATION PROCEDURES. (a) SHELF REGISTRATION STATEMENT. In connection with the Shelf Registration Statement, the Registrants shall comply with all the provisions of Section 5(b) below and shall use their best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Registrants shall as expeditiously as possible prepare and file with the Commission a Shelf Registration Statement relating to the registration on the appropriate form under the Securities Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof. (b) GENERAL PROVISIONS. In connection with the Shelf Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities, the Registrants shall: (i) use their best efforts to keep such Shelf Registration Statement continuously effective and provide all requisite financial statements for the Effectiveness Period; upon the occurrence of any event that would cause any such Shelf Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Registrants shall file promptly an appropriate amendment to such Shelf Registration Statement or a new Shelf Registration Statement, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use their best efforts to cause such amendment or new Shelf Registration Statement to be declared effective and such Shelf Registration Statement and the related Prospectus to become usable for their intended purpose(s) as soon as practicable thereafter; (ii) prepare and file with the Commission such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective for the Effectiveness Period; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such 10 12 Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Shelf Registration Statement or supplement to the Prospectus; (iii) advise the underwriter(s), if any, the Initial Purchaser and Notice Holders promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the occurrence of (but not the nature of or details concerning) a Material Event and (E) of the determination by the Registrants that a post-effective amendment to a Shelf Registration Statement would be appropriate, which notice may, at the discretion of the Registrants (or as required by Section 5(b)(v)), state that it constitutes a Deferral Notice, in which event the provisions of Section 5(b)(v) shall apply. If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Registrants shall use their best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) furnish to each of the Notice Holders, the Initial Purchaser and each of the underwriter(s), if any, before filing with the Commission, copies of the Shelf Registration Statement or any Prospectus included therein or any amendments or supplements to any such Shelf Registration Statement or Prospectus (excluding all documents incorporated by reference after the initial filing of such Shelf Registration Statement and any such amendments or supplements required to be filed as a consequence of the filing of reports or other documents pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended), which documents shall be subject to the review of such Holders and underwriter(s), if any, for a period of at least five business days, and the Registrants shall not file any such Shelf Registration Statement or Prospectus or any amendment or supplement to any such Shelf Registration Statement or Prospectus (excluding any documents incorporated by 11 13 reference and any such amendments or supplements required to be filed as a consequence of the filing of reports or other documents pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended) to which a Notice Holder of Transfer Restricted Securities covered by such Shelf Registration Statement or the underwriter(s), if any, shall reasonably object within five business days after the receipt thereof; (v) upon (A) the issuance by the Commission of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a "MATERIAL EVENT") as a result of which any Shelf Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (C) the occurrence or existence of any pending corporate development that, in the discretion of the Registrants, makes it appropriate to suspend the availability of the Shelf Registration Statement and the related Prospectus, (i) in the case of clause (B) above, subject to the next sentence, as promptly as practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Shelf Registration Statement or a supplement to the related Prospectus or a new Shelf Registration Statement or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Shelf Registration Statement and Prospectus so that such Shelf Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Transfer Restricted Securities being sold thereunder, and, in the case of a new Shelf Registration Statement or a post-effective amendment to a Shelf Registration Statement, subject to the next sentence, use their best efforts to cause it to become effective as promptly as is practicable, and (ii) give notice to the Notice Holders that the availability of the Shelf Registration Statement is suspended (a "DEFERRAL NOTICE") and, upon receipt of any Deferral Notice, each Notice Holder shall not sell any Transfer Restricted Securities pursuant to the Shelf Registration Statement until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in 12 14 writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Registrants, shall use their best efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (A) or (B) above, as promptly as is practicable and (y) in the case of clause (C) above, as soon as, in the discretion of the Registrants, such suspension is no longer appropriate. The Registrants shall be entitled to exercise their right under this Section to suspend the availability of the Shelf Registration Statement or any Prospectus, without incurring any obligation to pay liquidated damages pursuant to Section 4(a), no more than one (1) time in any three (3) month period or three (3) times in any twelve (12) month period, and the period during which the availability of the Shelf Registration Statement and any Prospectus is suspended (the "DEFERRAL PERIOD") shall, without incurring any obligation to pay liquidated damages pursuant to Section 4(a), not exceed thirty (30) days; PROVIDED, that in the case of a Material Event relating to an acquisition or a probable acquisition meeting the significance test of Rule 3-05(b)(2)(ii) of Regulation S-X under the Securities Act, the Registrants may, without incurring any obligation to pay liquidated damages pursuant to Section 4(a), deliver to Notice Holders a second certificate to the effect set forth above, which shall have the effect of extending the Deferral Period by up to an additional thirty (30) days, or such shorter period of time as is specified in such second notice; PROVIDED, that the aggregate duration of any Deferral Periods shall not, without incurring any obligation to pay liquidated damages pursuant to Section 4(a), exceed sixty (60) days in any three (3) month period or ninety (90) days in any twelve (12) month period; (vi) make available at reasonable times for inspection by a representative of the Principal Holder (the "INSPECTOR"), any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney or accountant retained by such Principal Holder (the "SPECIAL COUNSEL") or any of the underwriter(s), all financial and other records, pertinent corporate documents, other relevant documents and properties of the Registrants and use its reasonable best efforts to cause the Registrants' officers, trustees, directors, managers and employees to supply all relevant information reasonably requested by any such underwriter, Inspector or Special Counsel in connection with such Shelf Registration Statement subsequent to the filing thereof and prior to its effectiveness, in each case as is customary for similar "due diligence" examinations; (vii) if requested by any Notice Holders, the Initial Purchaser or the underwriter(s), if any, promptly incorporate in the Shelf Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Notice Holders and underwriter(s), if any, may 13 15 reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities, information with respect to the liquidation or principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Registrants are notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (viii) furnish to each Notice Holder, the Initial Purchaser and each of the underwriter(s), if any, without charge, at least one copy of the Shelf Registration Statement, as first filed with Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (ix) deliver to each Notice Holder, the Initial Purchaser and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Registrants hereby consent to the use of the Prospectus and any amendment or supplement thereto by each of the Notice Holders, the Initial Purchaser and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (x) enter into such customary agreements (including an underwriting agreement in customary form), and make such representations and warranties, and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to the Shelf Registration Statement contemplated by this Agreement, all to such extent as may be requested by any Principal Holder of Transfer Restricted Securities or underwriter in connection with any sale or resale pursuant to the Shelf Registration Statement contemplated by this Agreement, PROVIDED, however, that the Company shall not be obligated to enter into an underwriting agreement or to facilitate such disposition in an underwritten offering pursuant to the Shelf Registration Statement unless a Principal Holder elects to dispose of such Transfer Restricted Securities in such an underwritten offering, and in connection with an Underwritten Registration, the Registrants shall: (A) upon request of any Principal Holder, furnish to each Notice Holder, the Initial Purchaser and each underwriter, if any, in such substance and scope as such Principal Holder may request and as are 14 16 customarily made by issuers to underwriters in primary underwritten offerings, upon the closing of the Underwritten Registration: (1) a certificate in customary form, dated the date of the closing of the Underwritten Registration signed by (y) its Chairman of the Board, its President, a Vice President or trustee and (z) its Chief Financial Officer confirming, as of such date, such matters as such parties may reasonably request; (2) an opinion in customary form, dated the date of the closing of the Underwritten Registration, of counsel for the Registrants, covering such matters as such parties may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Registrants, representatives of the independent public accountants for the Registrants in connection with the preparation of such Shelf Registration Statement and the related Prospectus and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing, no facts came to such counsel's attention that caused such counsel to believe that the Shelf Registration Statement, at the time such Shelf Registration Statement or any post-effective amendment thereto became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Shelf Registration Statement, as of its date, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in the Shelf Registration Statement contemplated by this Agreement or the related Prospectus; and (3) if permitted by Statement of Accounting Standards No. 72, customary comfort letters, dated the date of the closing of the Underwritten Registration from the Registrants' and, in the 15 17 event the Merger has not been completed or terminated, Impac's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters by underwriters in connection with primary underwritten offerings. (B) set forth in full or incorporate by reference in the underwriting agreement, if any, the indemnification provisions and procedures of Section 8 hereof with respect to all parties to be indemnified pursuant to said Section; and (C) deliver such other customary documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Registrants pursuant to this clause (xii), if any. (xi) prior to any public offering of Transfer Restricted Securities, cooperate with the Notice Holders, the Initial Purchaser, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the Notice Holders, the Initial Purchaser or underwriter(s) may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; PROVIDED, HOWEVER, that no Registrant shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Shelf Registration Statement, in any jurisdiction where it is not now so subject; (xii) cooperate with the Notice Holders, the Initial Purchaser and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and to the extent applicable not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, may request at least one business day prior to any sale of Transfer Restricted Securities made by such underwriter(s); (xiii) use its reasonable best efforts to cause the Transfer Restricted Securities covered by the Shelf Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter(s), if any, to consummate 16 18 the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xiii) above; (xiv) provide CUSIP numbers for all Transfer Restricted Securities not later than the effective date of the Shelf Registration Statement and provide certificates for the Transfer Restricted Securities; (xv) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter") that is required to be retained in accordance with the rules and regulations of the NASD; (xvi) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earning statement meeting the requirements of Rule 158 (which need not be audited) for the twelve-month period (A) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm or best efforts Underwritten Offering or (B) if not sold to underwriters in such an offering, beginning with the first month of the Registrants' first fiscal quarter commencing after the effective date of the Shelf Registration Statement; (xvii) cause the Indenture and, if the Convertible Debentures shall not have been distributed to the Holders of the CRESTS in liquidation of the Trust, the Declaration and the Guarantee to be qualified under the TIA not later than the effective date of the first Shelf Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the Holders of Securities to effect such changes to the Indenture, the Declaration and the Guarantee as may be required for the Indenture, the Declaration and the Guarantee to be so qualified in accordance with the terms of the TIA; and execute and use their best efforts to cause the Indenture Trustee, Guarantee Trustee and the Property Trustee to execute all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture and Declaration and Guarantee to be so qualified in a timely manner; and (xviii) provide promptly to each Holder upon request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act; and 6. HOLDER'S OBLIGATIONS. Each Holder agrees, by acquisition of the Transfer Restricted Securities, that no Holder of Transfer Restricted Securities shall be entitled to sell any of such 17 19 Transfer Restricted Securities pursuant to a Shelf Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Registrants with a Notice and Questionnaire as required pursuant to Section 3(b) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. Each Notice Holder agrees promptly to furnish to the Registrants all information required to be disclosed in order to make the information previously furnished to the Registrants by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Transfer Restricted Securities as the Registrants may from time to time reasonably request. Any sale of any Transfer Restricted Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading. Each Holder further agrees that, upon receipt of any Deferral Notice from the Company, such Holder shall forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Shelf Registration Statement until (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 5(b)(v) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. Each Holder receiving a Deferral Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Deferral Notice. 7. REGISTRATION EXPENSES. All expenses incident to the Registrants' performance of or compliance with this Agreement shall be borne by the Registrants, regardless of whether the Shelf Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing, messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Registrants; and (v) all fees and disbursements of independent certified public accountants of the Registrants and Impac (including the expenses of any special audit and comfort letters required by or incident to such performance). In addition, the Registrants shall bear or reimburse the Notice Holders for the reasonable fees and disbursements of one firm of legal counsel for the Holders, which shall initially be Davis Polk & Wardwell, but 18 20 which may, with the written consent of the Initial Purchaser (which shall not be unreasonably withheld), be another nationally recognized law firm experienced in securities law matters designated by the Registrants. Notwithstanding the provisions of this Section, each seller of Transfer Restricted Securities shall pay all registration expenses to the extent the Registrants are prohibited by applicable Blue Sky laws from paying for or on behalf of such seller of Transfer Restricted Securities. The Company shall not have any obligation to pay any underwriting fees, discounts or commissions attributable to the sale of any Transfer Restricted Securities pursuant to this Agreement. The Registrants shall, in any event, bear their internal expenses (including, without limitation, all salaries and expenses of their officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts and legal counsel, retained by the Registrants. 8. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with the Shelf Registration Statement, the Registrants shall indemnify and hold harmless each Holder of Transfer Restricted Securities included within any such Shelf Registration Statement, and each person, if any, who controls any such person within the meaning of the Securities Act (each, a "PARTICIPANT"), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Securities) to which such Participant or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss. claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any preliminary Prospectus, such Shelf Registration Statement or any Prospectus or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each Participant promptly upon demand for any legal or other expenses reasonably incurred by such Participant in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; PROVIDED, however, that (i) the Registrants shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any such Shelf Registration Statement or any prospectus forming part thereof or in any such amendment or supplement in reliance upon and in conformity with written information furnished to the Registrants by or on behalf of any Participant specifically for inclusion therein; and provided further that as to any preliminary Prospectus, the indemnity agreement contained in this Section 8(a) shall not inure to the benefit of any such Participant or any controlling person of such Participant on account of any loss, claim, damage, liability or action arising from the sale of the 19 21 Securities to any person by that Participant if (i) that Participant failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Securities Act and (ii) the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such preliminary Prospectus was corrected in the Prospectus, unless, in each case, such failure resulted from non-compliance by the Registrants with Section 5(b). The foregoing indemnity agreement is in addition to any liability which the Registrants may otherwise have to any Participant or to any controlling person of that Participant. (b) Each Participant, severally and not jointly, shall indemnify and hold harmless the Registrants, each of its trustees, directors, officers, employees or agents and each person, if any, who controls the Registrants within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Registrants or any such director, officer, employees or agents or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any preliminary Prospectus, Shelf Registration Statement or Prospectus or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Registrants by or on behalf of that Participant specifically for inclusion herein, and shall reimburse the Registrants and any such trustee, director, officer, employees or agents or controlling person for any legal or other expenses reasonably incurred by the Registrants or any such trustee, director, officer, employees or agents or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. In no event shall the liability of any selling Holder of Transfer Restricted Securities hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Transfer Restricted Securities pursuant to the Shelf Registration Statement giving rise to such indemnification obligation. The foregoing indemnity agreement is in addition to any liability which any Participant may otherwise have to the Registrants or any such trustee, director, officer or controlling person. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the 20 22 indemnifying party shall not relieve it from any liability which it may have to an indemnified parry otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the reasonable judgment of such counsel it is advisable for such indemnified party to employ separate counsel or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties, which firm shall be designated in writing by the Initial Purchaser. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss of liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section shall for any reason be 21 23 unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, in such proportion as shall be appropriate to reflect the relative fault of the Registrants on the one hand and the Participants on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Registrants or the Participants. the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Registrants and the Participants agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were to be determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 8(d) shall be deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), no Participant shall be required to contribute any amount in excess of the amount by which the total received by such Participant with respect to the sale of its Securities exceeds the amount of any damages which such Participant has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Participants' obligations to contribute as provided in this Section 8(d) are several and not Joint. The indemnity and contribution provisions contained in this Section 8 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder or any person controlling any Holder, or any Registrant or its officers, directors or trustees or any person controlling the Registrants and (iii) the sale of any Transfer Restricted Securities by any Holder. 9. RULE 144A. The Registrants hereby agree with each Holder, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer 22 24 Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. 10. Participation in Underwritten Registrations. No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Registrants and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. 11. Selection of Underwriters. If any of the Transfer Restricted Securities covered by a Shelf Registration Statement are to be sold in an Underwritten Offering, the investment banker or investment bankers and manager or managers that shall administer the offering shall be selected by the Holders of a majority in aggregate principal amount or liquidation amount of the Transfer Restricted Securities included in such offering; PROVIDED, that such investment bankers and managers must be reasonably satisfactory to the Company and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. 12. Miscellaneous. (a) REMEDIES. The Registrants agree that monetary damages (including the liquidated damages contemplated hereby) would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) NO INCONSISTENT AGREEMENTS. The Registrants shall not on or after the date of this Agreement enter into any agreement with respect to their securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Registrants have not previously entered into any agreement granting any Person the right to include securities of the Company on any Shelf Registration Statement pursuant to this Agreement. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Registrants' securities under any agreement in effect on the date hereof. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the 23 25 provisions hereof may not be given unless the Registrants have obtained the written consent of Holders of a majority of the then outstanding Underlying Common Stock constituting Transfer Restricted Securities (with Holders of CRESTS (or Convertible Debentures issued upon liquidation of the Trust) deemed to be the Holders, for purposes of this Section, of the number of outstanding shares of Underlying Common Stock into which such CRESTS (or Convertible Debentures) are or would be convertible or exchangeable as of the date on which such consent is requested). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Transfer Restricted Securities whose securities are being sold pursuant to a Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders of Transfer Restricted Securities may be given by Holders of at least a majority of the Transfer Restricted Securities being sold by such Holders pursuant to such Shelf Registration Statement; PROVIDED, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Trust; and (ii) if to the Registrants: Servico, Inc. 1601 Belvedere Road West Palm Beach, Florida 33406 Attention: Chief Executive Officer All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be 24 26 binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; PROVIDED, HOWEVER, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder; and PROVIDED, further, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (f) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (i) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (j) ENTIRE AGREEMENT. This Agreement together with the other transaction documents is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Registrants with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 25 27 (k) REQUIRED CONSENTS. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Registrants or their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (l) TERMINATION. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Sections 6, 7 or 8 hereof and the obligations to make payments of and provide for liquidated damages under Section 4(a) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with their terms. (m) MERGER. In the event the merger (the "MERGER") pursuant to the Agreement and Plan of Merger, dated as of March 20, 1998 among Lodgian, the Company, Impac Hotel Group, L.L.C., SHG-S Sub and SHG-I Sub, L.L.C. is consummated, Lodgian, the successor corporation in the Merger, shall assume the Company's obligations under this Agreement and shall execute and deliver such documents as may be necessary to carry out the intent of this Section. From and after the Merger and the assumption by Lodgian of Servico, Inc.'s obligations hereunder, Servico, Inc. shall be released from its obligations under this Agreement. Following the Merger, all references to the Company hereunder shall instead refer to Lodgian. 26 28 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SERVICO, INC. By: /s/ Charles M. Diaz ----------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary LODGIAN CAPITAL TRUST I By: /s/ Charles M. Diaz ----------------------------------- Name: Charles M. Diaz Title: Regular Trustee LODGIAN, INC. By: /s/ Charles M. Diaz ----------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary Accepted as of the date hereof NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ Richard Smith --------------------------------- Name: Richard Smith Title: Senior Managing Director 27 EX-10.5 9 DECLARATION OF TRUST 1 Exhibit 10.5 =============================================================================== AMENDED AND RESTATED DECLARATION OF TRUST LODGIAN CAPITAL TRUST I Dated as of June 17, 1998 ================================================================================ 2 TABLE OF CONTENTS ----------------------
PAGE ---- ARTICLE 1 INTERPRETATION AND DEFINITIONS SECTION 1.01. INTERPRETATION AND DEFINITIONS...................................................2 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. TRUST INDENTURE ACT; APPLICATION................................................13 SECTION 2.02. LIST OF HOLDERS OF SECURITIES...................................................13 SECTION 2.03. REPORTS BY THE PROPERTY TRUSTEE.................................................14 SECTION 2.04. PERIODIC REPORTS TO THE PROPERTY TRUSTEE........................................14 SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT................................14 SECTION 2.06. TRUST ENFORCEMENT EVENTS; WAIVER................................................15 SECTION 2.07. TRUST ENFORCEMENT EVENT; NOTICE.................................................16 ARTICLE 3 ORGANIZATION SECTION 3.01. NAME AND ORGANIZATION...........................................................17 SECTION 3.02. OFFICE..........................................................................17 SECTION 3.03. PURPOSE.........................................................................17 SECTION 3.04. AUTHORITY.......................................................................18 SECTION 3.05. TITLE TO PROPERTY OF THE TRUST..................................................18 SECTION 3.06. POWERS AND DUTIES OF THE REGULAR TRUSTEES.......................................19 SECTION 3.07. PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES............................22 SECTION 3.08. POWERS AND DUTIES OF THE PROPERTY TRUSTEE.......................................23 SECTION 3.09. CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE.........................................................................25 SECTION 3.10. CERTAIN RIGHTS OF PROPERTY TRUSTEE..............................................28 SECTION 3.11. DELAWARE TRUSTEE................................................................30 SECTION 3.12. EXECUTION OF DOCUMENTS..........................................................30 SECTION 3.13. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES..........................30 SECTION 3.14. DURATION OF TRUST...............................................................30 SECTION 3.15. MERGERS.........................................................................31 SECTION 3.16. PROPERTY TRUSTEE MAY FILE PROOFS OF CLAIM.......................................32
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PAGE ---- ARTICLE 4 SPONSOR SECTION 4.01. RESPONSIBILITIES OF THE SPONSOR.................................................33 SECTION 4.02. INDEMNIFICATION AND EXPENSES OF THE TRUSTEES....................................34 ARTICLE 5 TRUST COMMON SECURITIES HOLDER SECTION 5.01. DEBENTURE ISSUER'S PURCHASE OF COMMON SECURITIES................................34 SECTION 5.02. COVENANTS OF THE COMMON SECURITIES HOLDER.......................................35 SECTION 5.03. COVENANTS OF LODGIAN............................................................35 ARTICLE 6 TRUSTEES SECTION 6.01. NUMBER OF TRUSTEES..............................................................36 SECTION 6.02. DELAWARE TRUSTEE; ELIGIBILITY...................................................36 SECTION 6.03. PROPERTY TRUSTEE; ELIGIBILITY...................................................36 SECTION 6.04. QUALIFICATIONS OF REGULAR TRUSTEES AND DELAWARE TRUSTEE GENERALLY.......................................................................37 SECTION 6.05. INITIAL TRUSTEES................................................................37 SECTION 6.06. APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES................................38 SECTION 6.07. VACANCIES AMONG TRUSTEES........................................................39 SECTION 6.08. EFFECT OF VACANCIES.............................................................40 SECTION 6.09. MEETINGS........................................................................40 SECTION 6.10. DELEGATION OF POWER.............................................................40 SECTION 6.11. MERGERS, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS........................................................................41 ARTICLE 7 TERMS OF SECURITIES SECTION 7.01. GENERAL PROVISIONS REGARDING SECURITIES.........................................41 SECTION 7.02. DISTRIBUTIONS...................................................................43 SECTION 7.03. REDEMPTION OF SECURITIES; DISTRIBUTION OF DEBENTURES............................46 SECTION 7.04. REDEMPTION PROCEDURES...........................................................47 SECTION 7.05. VOTING RIGHTS OF CRESTS.........................................................49 SECTION 7.06. VOTING RIGHTS OF COMMON SECURITIES..............................................52 SECTION 7.07. PAYING AGENT....................................................................53 SECTION 7.08. TRANSFER OF SECURITIES..........................................................54
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PAGE ---- SECTION 7.09. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES...............................55 SECTION 7.10. DEEMED SECURITY HOLDERS.........................................................55 SECTION 7.11. GLOBAL SECURITIES...............................................................55 SECTION 7.12. RESTRICTIVE LEGEND..............................................................58 SECTION 7.13. CONVERSION RIGHTS...............................................................62 SECTION 7.14. MERGER..........................................................................65 SECTION 7.15. OPTIONAL REPURCHASE.............................................................65 ARTICLE 8 DISSOLUTION AND TERMINATION OF TRUST SECTION 8.01. DISSOLUTION AND TERMINATION OF TRUST............................................67 SECTION 8.02. LIQUIDATION DISTRIBUTION UPON DISSOLUTION OF THE TRUST..........................68 ARTICLE 9 LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, DELAWARE TRUSTEES OR OTHERS SECTION 9.01. LIABILITY.......................................................................69 SECTION 9.02. EXCULPATION.....................................................................69 SECTION 9.03. FIDUCIARY DUTY..................................................................70 SECTION 9.04. INDEMNIFICATION.................................................................71 SECTION 9.05. OUTSIDE BUSINESS................................................................74 ARTICLE 10 ACCOUNTING SECTION 10.01. FISCAL YEAR....................................................................75 SECTION 10.02. CERTAIN ACCOUNTING MATTER......................................................75 SECTION 10.03. BANKING........................................................................75 SECTION 10.04. WITHHOLDING....................................................................76 ARTICLE 11 AMENDMENTS AND MEETINGS SECTION 11.01. AMENDMENTS.....................................................................76 SECTION 11.02. MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN CONSENT........................................................................79
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PAGE ---- ARTICLE 12 REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 12.01. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE.........................80 SECTION 12.02. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE TRUSTEE.........................81 ARTICLE 13 MISCELLANEOUS SECTION 13.01. NOTICES........................................................................82 SECTION 13.02. GOVERNING LAW..................................................................83 SECTION 13.03. INTENTION OF THE PARTIES.......................................................83 SECTION 13.04. HEADINGS.......................................................................83 SECTION 13.05. SUCCESSORS AND ASSIGNS.........................................................83 SECTION 13.06. PARTIAL ENFORCEABILITY.........................................................84 SECTION 13.07. COUNTERPARTS...................................................................84
iv 6 AMENDED AND RESTATED DECLARATION OF TRUST THIS AMENDED AND RESTATED DECLARATION OF TRUST ("DECLARATION"), dated as of June 17, 1998, by and among Servico, Inc., a Florida corporation, as Sponsor, and David Buddemeyer, Phillip R. Hale and Charles M. Diaz as the initial Regular Trustees, not in their individual capacities, but solely as Trustees, Wilmington Trust Company as the initial Property Trustee and as the initial Delaware Trustee, not in its individual capacity but solely as Trustee, Lodgian, Inc. and the holders, from time to time, of undivided beneficial ownership interests in the Trust to be issued pursuant to this Declaration. WHEREAS, the Trustees and the Sponsor established Lodgian Capital Trust I (the "TRUST"), a business trust under the Business Trust Act (as defined, together with other capitalized terms, herein) pursuant to a Declaration of Trust dated as of May 15, 1998 (the "ORIGINAL DECLARATION"), and a Certificate of Trust (the "CERTIFICATE OF TRUST") filed with the Secretary of State of the State of Delaware on May 15, 1998; and WHEREAS, the sole purpose of the Trust shall be to issue and sell certain securities representing undivided beneficial ownership interests in the assets of the Trust, to invest the proceeds from such sales in the Debentures issued by the Debenture Issuer (as defined herein) and to engage in only those activities necessary or incidental thereto; and WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration. NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees hereby declare that all assets contributed to the Trust be held in trust for the benefit of the Holders, from time to time, of the Securities representing undivided beneficial ownership interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. 7 ARTICLE 1 INTERPRETATION AND DEFINITIONS SECTION 1.01. INTERPRETATION AND DEFINITIONS. Unless the context otherwise requires: (a) capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "THE DECLARATION" or "THIS DECLARATION" are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles, Sections, Recitals and Exhibits are to Articles and Sections of, or Recitals and Exhibits to, this Declaration unless otherwise specified; (e) unless otherwise defined in this Declaration, a term defined in the Trust Indenture Act has the same meaning when used in this Declaration; and (f) a reference to the singular includes the plural and vice versa and a reference to any masculine form of a term shall include the feminine form of a term, as applicable. (g) the following terms have the following meanings: "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "APPLICABLE RATE" has the meaning specified in Section 7.02. "AUTHORIZED NEWSPAPER" means a leading newspaper customarily published at least once a day for at least five days in each calendar week and of general circulation in New York City. Such publication is expected to be made in The Wall Street Journal (Eastern edition). "AUTHORIZED OFFICER" of a Person means any Person that is authorized to bind such Person. 2 8 "BENEFICIAL OWNERS" means, for CRESTS represented by a Global Security, the person who acquires an interest in the CRESTS which is reflected on the records of the Depositary through the Depositary Participants. "BOARD OF DIRECTORS" or "BOARD" means, at any time, the duly elected or acting board of directors (or duly authorized committee thereof) of the Debenture Issuer at such time. "BUSINESS DAY" means any day, other than a Saturday or Sunday, that is not a day on which banking institutions in the Borough of Manhattan, The City of New York or Wilmington, Delaware are authorized or required by law, regulation or executive order to close. "BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time, or any successor legislation. "CEDEL" means Cedel Bank, SOCIETE ANONYME. "CERTIFICATE" means a Common Security Certificate or a CRESTS Certificate. "CERTIFICATE OF TRUST" has the meaning specified in the Recitals hereto. "CLOSING DATE" means June 17, 1998, the date on which the CRESTS were initially issued and sold. "CLOSING PRICE" of any class of common stock of the Debenture Issuer on any date of determination means (i) the closing sale price (or, if no closing price is reported, the last reported sale price) of such common stock (regular way) on the NYSE on such date, (ii) if such common stock is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which such common stock is so listed, (iii) if such common stock is not so listed on a United States national or regional securities exchange, as reported by The Nasdaq Stock Market, (iv) if such common stock is not so reported, the last quoted bid price for such common stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization or (v) if such common stock is not so quoted, the average of the mid-point of the last bid and ask prices for such common stock from at least three nationally recognized investment banking firms selected by the Board of Directors. 3 9 "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. A reference to a specific section of the Code refers not only to such specific section but also to any corresponding provision of any federal tax statute enacted after the date of this Declaration, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Declaration containing such reference. "COMMISSION" means the Securities and Exchange Commission. "COMMON SECURITIES HOLDER" means Servico, Inc., in its capacity as purchaser and holder of all of the Common Securities issued by the Trust. "COMMON SECURITY" has the meaning specified in Section 7.01. "COMMON SECURITY CERTIFICATE" means a definitive certificate in fully registered form representing a Common Security, substantially in the form of Exhibit B. "COMMON STOCK" means the Common Stock, $.01 par value per share, of the Debenture Issuer or, from and after the date the Merger is consummated, the Common Stock, $.01 par value per share, of Lodgian, and any other shares of common stock as may constitute "Common Stock" under the Indenture. "COMPOUNDED DISTRIBUTIONS" has the meaning specified in Section 7.02(b). "CONVERSION AGENT" has the meaning specified in Section 7.13(d). "CONVERSION DATE" has the meaning specified in Section 7.13(c). "CONVERSION REQUEST" has the meaning specified in Section 7.13(c). "CONVERSION PRICE" means the conversion price per share of Common Stock, set forth in Section 7.13(a), as such Conversion Price may be adjusted from time to time pursuant to the Supplemental Indenture. "CORPORATE TRUST OFFICE" means the principal office of the Property Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Declaration is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration. 4 10 "COVERED PERSON" mean (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities. "CRESTS" has the meaning specified in Section 7.01. "CRESTS CERTIFICATE" means a definitive certificate in fully registered form representing a CRESTS, substantially in the form of Exhibit A. "DATE OF NON-COMPLETION" means the earlier of (i) the date of termination of the Merger Agreement and (ii) December 31, 1998 if the Merger has not been consummated. "DEBENTURE ISSUER" means Servico, Inc., in its capacity as issuer of the Debentures under the Indenture. "DEBENTURE ISSUER INDEMNIFIED PERSON" means (a) any Regular Trustee; (b) any Affiliate of any Regular Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Regular Trustee or any Affiliate thereof; or (d) any officer, employee or agent of the Trust or its Affiliates. "DEBENTURE TRUSTEE" means Wilmington Trust Company, in its capacity as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "DEBENTURES" means the 7% Convertible Junior Subordinated Debentures Due 2010 to be issued by the Debenture Issuer under the Indenture and held by the Property Trustee. "DELAWARE TRUSTEE" has the meaning specified in Section 3.11. "DEPOSITARY" means, with respect to Securities issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities. "DEPOSITARY PARTICIPANT" means a member of, or participant in, the Depositary. "DIRECT ACTION" has the meaning specified in Section 3.08(e). 5 11 "DISTRIBUTION" means a distribution payable to Holders of Securities in accordance with Section 7.02. "EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "EXTENSION PERIOD" has the meaning specified in Section 7.02(b). "FIDUCIARY INDEMNIFIED PERSON" has the meaning specified in Section 9.04(b). "FISCAL YEAR" has the meaning specified in Section 10.01. "GLOBAL SECURITY" means a fully registered, global CRESTS Certificate. "GUARANTEE" means the Guarantee Agreement, dated as of June 17, 1998, of the Sponsor in respect of the Securities. "HOLDER" means any holder of Securities, as registered on the books and records of the Trust; PROVIDED, however, that in determining whether the Holders of the requisite liquidation amount of CRESTS have voted on any matter provided for in this Declaration, then for the purpose of such determination only (and not for any other purpose hereunder), if the CRESTS remain in the form of one or more Global Securities and if the Depositary which is the holder of such Global Securities has sent an omnibus proxy to the Trust assigning voting rights to Depositary Participants to whose accounts the CRESTS are credited on the record date, the term "HOLDERS" shall mean such Depositary Participants acting at the direction of the Beneficial Owners. "INDEMNIFIED PERSON" means a Debenture Issuer Indemnified Person or a Fiduciary Indemnified Person. "INDENTURE" means the Indenture, dated as of June 17, 1998, between the Debenture Issuer, Lodgian and Wilmington Trust Company, as Trustee, as the same may be amended and supplemented from time to time pursuant to which the Debentures are to be issued. "INDENTURE EVENT OF DEFAULT" has the meaning given to the term "EVENT OF DEFAULT" in the Indenture. 6 12 "INITIAL PURCHASER" means NationsBanc Montgomery Securities LLC. "INVESTMENT COMPANY" means an investment company as defined in the Investment Company Act and the regulations promulgated thereunder. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "INVESTMENT COMPANY EVENT" means the receipt by the Trust of an opinion of counsel, rendered by a law firm having a recognized national securities practice, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "CHANGE IN 1940 ACT LAW"), there is more than an insubstantial risk that the Trust is or shall be considered an "INVESTMENT COMPANY" that is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after the Closing Date. "LEGAL ACTION" has the meaning specified in Section 3.06(g). "LIQUIDATION" has the meaning specified in Section 8.02(a). "LIQUIDATION DISTRIBUTION" has the meaning specified in Section 8.02(a). "LIST OF HOLDERS" has the meaning specified in Section 2.02(a)(i). "LODGIAN" has the meaning specified in Section 7.14. "MAJORITY IN LIQUIDATION AMOUNT" means, except as provided in the terms of the CRESTS or by the Trust Indenture Act, Holder(s) of outstanding Securities, voting together as a single class, or, as the context may require, Holders of outstanding CRESTS or Holders of outstanding Common Securities, voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "MERGER" has the meaning specified in Section 7.15. "MERGER AGREEMENT" means the Agreement and Plan of Merger, dated as of March 20, 1998 among Lodgian, the Company, Impac Hotel Group, L.L.C., SHG-S Sub, Inc. and SHG-I Sub, L.L.C. 7 13 "MINISTERIAL ACTION" has the meaning specified in Section 7.03(b). "NASDAQ" means the National Association of Securities Dealers, Inc. Automated Quotations System or any successor thereto. "90-DAY PERIOD" has the meaning specified in Section 7.03(b). "NO RECOGNITION OPINION" means an opinion of independent tax counsel experienced in such matters (which opinion may rely on published revenue rulings of the Internal Revenue Service) to the effect that the holders of the Securities shall not recognize any gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and the distribution of Debentures. "NON-COMPLETION NOTICE" has the meaning specified in Section 7.15(b). "NON-COMPLETION OFFER" means the offer to repurchase CRESTS described in Section 7.15. "NON-COMPLETION PAYMENT" has the meaning specified in Section 7.15(a). "NON-COMPLETION PAYMENT DATE" has the meaning specified in Section 7.15(c). "NYSE" means the New York Stock Exchange, Inc. or any successor thereto. "OFFERING MEMORANDUM" means the confidential offering memorandum, dated as of June 9, 1998, relating to the issuance by the Trust of CRESTS, as amended, supplemented, superseded or reissued. "OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate signed on behalf of such Person by two Authorized Officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer on behalf of such Person in rendering the Officers' Certificate; 8 14 (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer on behalf of such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer acting on behalf of such Person, such condition or covenant has been complied with; PROVIDED, that the term "OFFICERS' CERTIFICATE", when used with reference to Regular Trustees who are natural persons shall mean a certificate signed by two of the Regular Trustees which otherwise satisfies the foregoing requirements. "OPTION CLOSING DATE" means the date of closing of any sale of the Option CRESTS (as defined in the Purchase Agreement). "PAYING AGENT" has the meaning specified in Section 7.07. "PAYMENT AMOUNT" has the meaning specified in Section 7.02(c). "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PORTAL" has the meaning specified in Section 3.06(b)(i). "PROPERTY ACCOUNT" has the meaning specified in Section 3.08(c)(i). "PROPERTY TRUSTEE" means the Trustee meeting the eligibility requirements set forth in Section 6.03. "PRO RATA" means PRO RATA to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Indenture Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the CRESTS PRO RATA according to the aggregate liquidation amount of CRESTS held by the relevant Holder relative to the aggregate liquidation amount of all CRESTS outstanding, and only after satisfaction of all amounts owed to the Holders of the CRESTS, to each Holder of Common Securities PRO RATA according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 9 15 "QUALIFIED INSTITUTIONAL BUYER" or "QIB" has the meaning specified in Rule 144A under the Securities Act. "QUORUM" means a majority of the Regular Trustees or, if them are only two Regular Trustees, both of them. "REDEMPTION/DISTRIBUTION NOTICE" has the meaning specified in Section 7.04. "REDEMPTION PRICE" means the amount for which the Securities shall be redeemed, which amount shall equal (i) the redemption price paid by the Debenture Issuer to repay or redeem in whole or in part, the Debentures held by the Trust plus an amount equal to accumulated and unpaid Distributions on such Securities through the date of their redemption or (ii) such lesser amount as shall be received by the Trust in respect of the Debentures so repaid or redeemed. "REDEMPTION TAX OPINION" means an opinion of independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Debenture Issuer would be precluded from deducting the interest on the Debentures for United States federal income tax purposes even after the Debentures were distributed to the holders of Securities in liquidation of such holders' interests in the Trust as described in the Declaration. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated the date hereof, among the Sponsor, Lodgian, the Initial Purchaser and the Trust for the benefit of themselves and the Holders, as the same may be amended from time to time in accordance with the terms thereof. "REGULAR TRUSTEE" means any Trustee other than the Property Trustee and the Delaware Trustee. "RELATED PARTY" means, with respect to the Sponsor, any direct or wholly owned subsidiary of the Sponsor or any Person that owns, directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "RESALE RESTRICTION TERMINATION DATE" has the meaning specified in Section 7.12(a). "RESPONSIBLE OFFICER" means, with respect to the Property Trustee, any officer with direct responsibility for the administration of this Declaration and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. 10 16 "RESTRICTED SECURITY" has the meaning assigned to such term in Rule 144(a)(3), as amended from time to time or any successor rule, under the Securities Act. "RULE 144A" means Rule 144A, as amended from time to time or any successor rule, under the Securities Act. "RULE 3A-5" means Rule 3a-5 under the Investment Company Act or any successor rule thereunder. "SECURITIES" means the Common Securities and the CRESTS. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "SECURITY REGISTER" has the meaning specified in Section 7.08(b). "SECURITY REGISTRAR" has the meaning specified in Section 7.08(b). "SHELF REGISTRATION STATEMENT" has the meaning specified in the Registration Rights Agreement. "SPECIAL EVENT" means a Tax Event or an Investment Company Event. "SPECIAL REDEMPTION PRICE" has the meaning specified in Section 7.03(b). "SPONSOR" means Servico, Inc., a Florida corporation, or any successor entity in a merger, consolidation, amalgamation or replacement by or conveyance, transfer or lease of its properties substantially as an entirety, in its capacity as sponsor of the Trust. "SUCCESSOR DELAWARE TRUSTEE" has the meaning specified in Section 6.06(b). "SUCCESSOR ENTITY" has the meaning specified in Section 3.15(b)(i). "SUCCESSOR PROPERTY TRUSTEE" has the meaning specified in Section 6.06(b). "SUCCESSOR SECURITY" has the meaning specified in Section 3.15(b)(vi)(B). "SUPER MAJORITY" has the meaning specified in Section 2.06(a)(i). 11 17 "SUPPLEMENTAL INDENTURE" means the First Supplemental Indenture, dated as of June 17, 1998 between the Debenture Issuer, Lodgian and Wilmington Trust Company, as Trustee. "TAX EVENT" means the receipt by the Trust of an opinion of independent tax counsel experienced in such matters, to the effect that, as a result of (a) any amendment to, change in or announced proposed change in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or (b) any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or proposed change, pronouncement or decision is announced on or after the Closing Date, there is more than an insubstantial risk that (i) the Trust is, or shall be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Debentures, (ii) interest payable by the Debenture Issuer on the Debentures is not, or within 90 days of the date of such opinion, shall not be, deductible by the Debenture Issuer, in whole or in part, for United States federal income tax purposes, or (iii) the Trust is, or shall be within 90 days of the date of such opinion, subject to more than a DE MINIMIS amount of other taxes, duties or other governmental charges; PROVIDED, however, that a Tax Event shall not be deemed to occur under (ii) above if the Debenture Issuer is merely required to defer taking a deduction for any interest or original issue discount ("OID") that accrues with respect to the Debentures until such interest payment or OID is paid by the Debenture Issuer in cash. "10% IN LIQUIDATION AMOUNT" means, except as provided in the terms of the CRESTS or by the Trust Indenture Act, Holder(s) of outstanding Securities, voting together as a single class, or, as the context may require, Holders of outstanding CRESTS or Holders of outstanding Common Securities, voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "TREASURY REGULATIONS" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRUST" has the meaning specified in the Recitals hereto. 12 18 "TRUST ENFORCEMENT EVENT" in respect of the Securities means an Indenture Event of Default has occurred and is continuing in respect of the Debentures. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "TRUST SPECIAL EVENT" has the meaning specified in Section 7.03(b). "TRUSTEE" or "TRUSTEES" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. TRUST INDENTURE ACT; APPLICATION. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a Trustee for the purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (d) The application of the Trust Indenture Act to this Declaration shall not affect the Trust's classification as a grantor trust for United States federal income tax purposes and shall not affect the nature of the Securities as equity securities representing undivided beneficial ownership interests in the assets of the Trust. SECTION 2.02. LIST OF HOLDERS OF SECURITIES. (a) At any time when the Property Trustee is not also acting as the Securities Registrar, each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Property Trustee (i), except while the CRESTS are represented by one or more Global Securities, at 13 19 least one Business Day prior to the date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Securities ("LIST OF HOLDERS") as of the record date relating to the payment of such Distributions and (ii) at any other time, within 30 days of receipt by the Trust of a written request from the Property Trustee for a List of Holders as of a date no more than 15 days before such List of Holders is given to the Property Trustee; PROVIDED that neither the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Regular Trustees on behalf of the Trust. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity), PROVIDED that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with its obligations under, and shall be entitled to the benefits of, Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.03. REPORTS BY THE PROPERTY TRUSTEE. Within 60 days after May 15 of each year (commencing with the year of the first anniversary of the issuance of the CRESTS), the Property Trustee shall provide to the Holders of the CRESTS such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.04. PERIODIC REPORTS TO THE PROPERTY TRUSTEE. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. 14 20 SECTION 2.06. TRUST ENFORCEMENT EVENTS; WAIVER. (a) The Holders of a Majority in Liquidation Amount of the CRESTS may, by vote or written consent, on behalf of the Holders of all of the CRESTS, waive any past Trust Enforcement Event in respect of the CRESTS and its consequences, PROVIDED that, if the underlying Indenture Event of Default: (i) is not waivable under the Indenture, the Trust Enforcement Event under the Declaration shall also not be waivable; or (ii) requires the consent or vote of greater than a majority in principal amount of the holders of the Debentures (a "SUPER MAJORITY") to be waived under the Indenture, the related Trust Enforcement Event under the Declaration may only be waived by the vote or written consent of the Holders of at least the proportion in liquidation amount of the CRESTS that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The foregoing provisions of this Section 2.06(a) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Trust Enforcement Event with respect to the CRESTS arising therefrom shall be deemed to have been cured, for every purpose of this Declaration and the CRESTS, but no such waiver shall extend to any subsequent or other Trust Enforcement Event with respect to the CRESTS or impair any right consequent thereon. Any waiver by the Holders of the CRESTS of a Trust Enforcement Event with respect to the CRESTS shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Trust Enforcement Event with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in Liquidation Amount of the Common Securities may, by vote or written consent, on behalf of the Holders of all of the Common Securities, waive any past Trust Enforcement Event in respect of the Common Securities and its consequences, PROVIDED that, if the underlying Indenture Event of Default: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Trust Enforcement Event under the Declaration as provided below in this Section 2.06(b), the Trust Enforcement Event under the Declaration shall also not be waivable; or 15 21 (ii) requires the consent or vote of a Super Majority to be waived under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Trust Enforcement Event under the Declaration as provided below in this Section 2.06(b), the Trust Enforcement Event under the Declaration may only be waived by the vote or written consent of the Holders of at least the proportion in liquidation amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; PROVIDED further, each Holder of Common Securities shall be deemed to have waived any Trust Enforcement Event and all Trust Enforcement Events with respect to the Common Securities and the consequences thereof until all Trust Enforcement Events with respect to the CRESTS have been cured, waived or otherwise eliminated, and until such Trust Enforcement Events with respect to the CRESTS have been so cured, waived or otherwise eliminated, the Property Trustee shall be deemed to be acting solely on behalf of the Holders of the CRESTS and only the Holders of the CRESTS shall have the right to direct the Property Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.06(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such Sections 316(a)(I)(A) and 316(a)(l)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Subject to the foregoing provisions of this Section 2.06(b), upon such cure, waiver or other elimination, any such default shall cease to exist and any Trust Enforcement Event with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other Trust Enforcement Event with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the CRESTS constitutes a waiver of the corresponding Trust Enforcement Event with respect to the CRESTS under this Declaration. The foregoing provisions of this Section 2.06(c) shall be in lieu of Section 316(a)(l)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. SECTION 2.07. TRUST ENFORCEMENT EVENT; NOTICE. (a) The Property Trustee shall, within 90 days after the occurrence of a Trust Enforcement Event, transmit by rail, first class postage prepaid, to the Holders of the Securities, notices of all defaults with respect to the Securities actually known to a Responsible Officer of 16 22 the Property Trustee, unless such defaults have been cured before the giving of such notice (the term "DEFAULTS" for the purposes of this Section 2.07(a) being hereby defined to be an Indenture Event of Default, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); PROVIDED that, except for a default in the payment of principal of (or premium, if any) or interest on any of the Debentures, the Property Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Property Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. (b) The Property Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 4.01(a) and 4.01(b) of the Indenture; or (ii) any default as to which the Property Trustee shall have received written notice or of which a Responsible Officer of the Property Trustee charged with the administration of this Declaration shall have actual knowledge. ARTICLE 3 ORGANIZATION SECTION 3.01. NAME AND ORGANIZATION. The Trust hereby continued is named "Lodgian Capital Trust I" as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. SECTION 3.02. OFFICE. The address of the principal office of the Trust is c/o Servico, Inc., 1601 Belvedere Road, West Palm Beach, Florida 33406. On 10 Business Days' written notice to the Holders of Securities, the Regular Trustees may designate another principal office. SECTION 3.03. PURPOSE. The exclusive purposes and functions of the Trust are (a) to issue and sell Securities and use the gross proceeds from such sale to acquire the Debentures, and (b) except as otherwise limited herein, to engage in only those other activities necessary or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets or otherwise undertake (or permit to be undertaken) any activity 17 23 that would cause the Trust not to be classified as a grantor trust for United States federal income tax purposes. By the acceptance of this Trust, none of the Trustees, the Sponsor, the Holders of the CRESTS or Common Securities or the CRESTS Beneficial Owners shall take any position for United States federal income tax purposes which is contrary to the classification of the Trust as a grantor trust. SECTION 3.04. AUTHORITY. Subject to the limitations provided in this Declaration and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. (a) Except as expressly set forth in this Declaration and except if a meeting of the Regular Trustees is called with respect to any matter over which the Regular Trustees have power to act, any power of the Regular Trustees may be exercised by, or with the consent of, any one such Regular Trustee. (b) Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act or applicable law, any Regular Trustee is authorized to execute on behalf of the Trust any documents which the Regular Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.06(b), PROVIDED, that the registration statements referred to in Section 3.06(b)(ii), including any amendments thereto, shall be signed by or on behalf of a majority of the Regular Trustees; and (c) a Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purposes of signing any documents which the Regular Trustees have power and authority to cause the Trust to execute pursuant to Section 3.06. SECTION 3.05. TITLE TO PROPERTY OF THE TRUST. Except as provided in Section 3.08 with respect to the Debentures and the Property Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets 18 24 of the Trust, but shall have an undivided beneficial ownership interest in the assets of the Trust. SECTION 3.06. POWERS AND DUTIES OF THE REGULAR TRUSTEES. The Regular Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: (a) to establish the terms and form of the CRESTS and the Common Securities in the manner specified in Section 7.01 and issue and sell the CRESTS and the Common Securities in accordance with this Declaration; PROVIDED, however, that the Trust may issue no more than one series of CRESTS and no more than one series of Common Securities, and, provided further, that there shall be no interests in the Trust other than the Securities, and the issuance of Securities shall be limited to the simultaneous issuance of both CRESTS and Common Securities so that the Common Securities at all times constitute 3% of the capital of the Trust; (b) in connection with the issue and sale of the CRESTS, at the direction of the Sponsor, to: (i) if deemed necessary or desirable by the Sponsor, execute and file an application, prepared by the Sponsor, to the Private Offerings, Resale and Trading through Automated Linkages ("PORTAL") Market for listing of any CRESTS, the Guarantee and the Debentures; (ii) assist with an Offering Memorandum in preliminary and final form prepared by the Sponsor, in relation to the offering and sale of CRESTS, the Guarantee and the Debentures to Qualified Institutional Buyers in reliance on Rule 144A and to execute and file with the Commission a Shelf Registration Statement prepared by the Sponsor, including any amendments thereto, pertaining to the CRESTS, the Guarantee, the Debentures and the Common Stock issuable upon conversion of the CRESTS; (iii) if deemed necessary or desirable by the Sponsor, execute and file with the Commission a registration statement on Form 8-A, including any amendments thereto, prepared by the Sponsor, relating to the registration of the CRESTS, the Guarantee, and the Debentures under Section 12(b) or (g) of the Exchange Act; (iv) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor to be necessary, in order to 19 25 qualify or register all or part of the CRESTS in any State in which the Sponsor has determined to qualify or register such CRESTS for sale; (v) negotiate the terms of and execute and enter into a purchase agreement and other related agreements providing for the sale of the CRESTS; and (vi) negotiate the terms and execute and enter into the Registration Rights Agreement. (c) to acquire the Debentures with the proceeds of the sale of the CRESTS and the Common Securities; PROVIDED, however, that the Regular Trustees shall cause legal title to the Debentures to be held of record in the name of the Property Trustee for the benefit of the Holders of the CRESTS and the Holders of the Common Securities; (d) to give the Sponsor and the Property Trustee prompt written notice of the occurrence of a Special Event; PROVIDED that the Regular Trustees shall consult with the Sponsor and the Property Trustee before taking or refraining from taking any action in relation to any such Special Event; (e) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of Section 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of CRESTS and Holders of Common Securities, and, to the extent applicable, to any stock exchange or other organization on which CRESTS are listed or quoted, as to such actions and applicable record dates; (f) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of this Declaration and the Securities; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action or otherwise adjust claims or demands of or against the Trust ("LEGAL ACTION"), unless pursuant to Section 3.08(e), the Property Trustee has the exclusive power to bring such Legal Action; (h) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors and consultants to conduct only those services that the Regular Trustees have authority to conduct directly, and to pay reasonable compensation for such services; 20 26 (i) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (j) to give the certificate required by Section 314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate may be executed by any Regular Trustee; (k) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (l) to act as, or appoint another Person to act as, registrar and transfer agent for the Securities; (m) to give prompt written notice to the Holders of the Securities of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures by extending the interest payment period under the Debentures as authorized by the Indenture; (n) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the CRESTS and the Holders of the Common Securities or to enable the Trust to effect the purposes for which the Trust was created; (o) to take any action, not inconsistent with applicable law, that the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the purposes and functions of the Trust as set out in Section 3.03 or the activities of the Trust as set out in this Section 3.06, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified as a grantor trust for United States federal income tax purposes; and (iii) cooperating with the Debenture Issuer to ensure that the Debentures shall be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes. 21 27 (p) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust; and (q) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the, foregoing. The Regular Trustees shall exercise the powers set forth in this Section 3.06 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.03, and the Regular Trustees shall have no power to, and shall not, take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.03. Subject to this Section 3.06, the Regular Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.08. Any expenses incurred by the Regular Trustees pursuant to this Section 3.06 shall be reimbursed by the Debenture Issuer pursuant to the Indenture. SECTION 3.07. PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES. (a) The Trust shall not, and the Trustees (including the Property Trustee) shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees (including the Property Trustee) shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness; (v) possess any power or otherwise act in such a way as to vary the Trust assets; (vi) possess any power or otherwise act in such a way as to vary the terms of the Securities in any way whatsoever (except to the extent expressly authorized in this Declaration or by the terms of the Securities); 22 28 (vii) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; (viii) other than as provided in this Declaration or by the terms of the Securities, (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received an opinion of counsel to the effect that such modification shall not cause more than an insubstantial risk that the Trust shall be deemed an Investment Company required to be registered under the Investment Company Act, or the Trust shall not be classified as a grantor trust for United States federal income tax purposes; (ix) take any action inconsistent with the status of the Trust as a grantor trust for United States federal income tax purposes; or (x) revoke any action previously authorized or approved by vote of the Holders of the CRESTS. SECTION 3.08. POWERS AND DUTIES OF THE PROPERTY TRUSTEE. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Trust and the Holders of the Securities. The right, title and interest of the Property Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Section 6.06. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Debentures to the Regular Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee). (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "PROPERTY ACCOUNT") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the 23 29 Debentures held by the Property Trustee, deposit such funds into the Property Account and make payments to the Holders of the CRESTS and Holders of the Common Securities from the Property Account in accordance with Section 7.02. Funds in the Property Account shall be held uninvested until disbursed in accordance with this Declaration. The Property Account shall be an account that is maintained with a banking institution the rating on whose long-term unsecured indebtedness is at least equal to the rating assigned to the CRESTS by a "nationally recognized statistical rating organization", within the meaning of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the CRESTS and the Common Securities to the extent the Debentures are redeemed or mature; and (iii) upon written notice of distribution issued by the Regular Trustees in accordance with the terms of the Securities, engage in such ministerial activities as so directed and as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities upon the occurrence of a Special Event. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of this Declaration, and the Securities. (e) The Property Trustee shall take any Legal Action which arises out of or in connection with a Trust Enforcement Event of which a Responsible Officer of the Property Trustee has actual knowledge or the Property Trustee's duties and obligations under this Declaration or the Trust Indenture Act; PROVIDED however, that if a Trust Enforcement Event has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest, principal, premium or other required payments on the Debentures on the date such interest, principal, premium or other required payments are otherwise payable (or in the case of redemption, on the redemption date), then a Holder of CRESTS may directly institute a proceeding against the Debenture Issuer for enforcement of payment to such Holder of the principal of or premium, if any, or interest on Debentures having a principal amount equal to the aggregate liquidation amount of the CRESTS of such Holder (a "DIRECT ACTION") on or after the respective due date specified in the Debentures. Notwithstanding any payments made to such holder of CRESTS by the Debenture Issuer in connection with a Direct Action, the Debenture Issuer shall remain obligated to pay the principal of or interest on the Convertible Debentures held by the Trust or the Property Trustee of the Trust, and the Debenture Issuer shall be subrogated to the rights of the holder of such 24 30 CRESTS with respect to payments on the CRESTS to the extent of any payments made by the Debenture Issuer to such holder in any Direct Action. The holders of CRESTS shall not be able to exercise directly any other remedy available to the holders of the Convertible Debentures. (f) The Property Trustee shall continue to serve as a Trustee until either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Property Trustee has been appointed and has accepted that appointment in accordance with Section 6.06(g). The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures under the Indenture and, if a Trust Enforcement Event actually known to a Responsible Officer of the Property Trustee occurs and is continuing, the Property Trustee shall, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to the terms of such Securities. (g) The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures under the Indenture and, if a Trust Enforcement Event actually known to a Responsible Officer of the Property Trustee occurs and is continuing, the Property Trustee shall, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to the terms of such Securities. (h) The Property Trustee may authorize one or more Paying Agents to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to all Securities and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the Property Trustee at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Property Trustee. (i) Subject to this Section 3.08, the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Regular Trustees set forth in Section 3.06. The Property Trustee shall exercise the powers set forth in this Section 3.08 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.03, and the Property Trustee shall have no power to, and shall 25 31 not, take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.03. SECTION 3.09. CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE. (a) The Property Trustee, before the occurrence of any Trust Enforcement Event and after the curing of all Trust Enforcement Events that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Property Trustee. In case a Trust Enforcement Event has occurred (that has not been cured or waived pursuant to Section 2.06) of which a Responsible Officer of the Property Trustee has actual knowledge, the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) prior to the occurrence of a Trust Enforcement Event and after the curing or waiving of all such Trust Enforcement Events that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to 26 32 examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it without negligence, in good faith in accordance with the direction of the Holders of not less than a Majority in Liquidation Amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Declaration; (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or indemnity reasonably satisfactory to the Property Trustee against such risk or liability is not reasonably assured to it; (v) the Property Trustee's sole duty with respect to the custody, safe-keeping and physical preservation of the Debentures and the Property Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Declaration and the Trust Indenture Act; (vi) the Property Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Sponsor. Money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Property Account maintained by the Property Trustee pursuant to Section 3.08(c)(i) and except to the extent otherwise required by law; and 27 33 (viii) the Property Trustee shall not be responsible for monitoring the compliance by the Regular Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Property Trustee be liable for any default or misconduct of the Regular Trustees or the Sponsor. SECTION 3.10. CERTAIN RIGHTS OF PROPERTY TRUSTEE. (a) Subject to the provisions of Section 3.09: (i) the Property Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Sponsor or the Regular Trustees contemplated by this Declaration shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (iv) the Property Trustee shall have no duty to see filing or registration of any instrument (including or continuation statement or any filing under laws) or any rerecording, refiling or reregistration thereof, (v) the Property Trustee may consult with counsel other experts and the advice or opinion of suck experts with respect to legal matters or advice of such experts' area of expertise shall be full authorization and protection in respect of any suffered or omitted by it hereunder in good faith accordance with such advice or opinion, such counsel to the Sponsor or any of its Affiliates, any of its employees. The Property Trustee at any time to seek instructions concerning the this Declaration from any court of competent jurisdiction; 28 34 (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee security and indemnity, reasonably satisfactory to the Property Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Property Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee; PROVIDED that, nothing contained in this Section 3.10(a) shall be taken to relieve the Property Trustee, upon the occurrence of an Indenture Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request instructions from the Holders of the Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Securities as would be entitled to direct the Property Trustee under the terms of the Securities in respect of such remedy, right or action, (ii) may refrain from 29 35 enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in or accordance with such instructions; (xi) except as otherwise expressly provided by this Declaration, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; and (xii) the Property Trustee shall not be liable for any action taken, suffered or omitted to be taken by it without negligence, in good faith and reasonably believed by it to be authorized or within the discretion, rights or powers conferred upon it by this Declaration. (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION 3.11. DELAWARE TRUSTEE. Notwithstanding any other provision of this Declaration other than Section 3.11, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees or the Property Trustee described in this Declaration. Except as set forth in Section 3.11, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Business Trust Act. SECTION 3.12. EXECUTION OF DOCUMENTS. Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act, any Regular Trustee is authorized to execute on behalf of the Trust any documents that the Regular Trustees have the power and authority to execute pursuant to Section 3.06; PROVIDED that, the registration statements referred to in Section 3.06(b)(ii), including any amendments thereto, shall be signed by or on behalf of a majority of the Regular Trustees. SECTION 3.13. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no 30 36 representations as to the validity or sufficiency of this Declaration, the Securities, the Debentures or the Indenture. SECTION 3.14. DURATION OF TRUST. The Trust shall exist until terminated pursuant to the provisions of Article 8 hereof. SECTION 3.15. MERGERS. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described in Section 3.15(b) and (c). (b) The Trust may, at the request of the Sponsor and with the consent of the Regular Trustees or, if there are more than two, a majority of the Regular Trustees and without the consent of the Holders of the Securities, the Delaware Trustee or the Property Trustee, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties substantially as an entirety to a trust organized as such under the laws of any State; PROVIDED, that: (i) if the Trust is not the successor, such successor entity (the "SUCCESSOR ENTITY") either (A) expressly assumes all of the obligations of the Trust with respect to the Securities; or (B) substitutes for the CRESTS other securities having substantially the same terms as the CRESTS (the "SUCCESSOR SECURITIES") so long as the Successor Securities rank the same as the CRESTS rank with respect to Distributions and payments upon liquidation, redemption and otherwise; (ii) the Debenture Issuer expressly appoints a trustee of such Successor Entity that possesses the same powers and duties as the Property Trustee as the holder of the Debentures; (iii) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the CRESTS (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; 31 37 (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the Holders of the CRESTS (including any Successor Securities) in any material respect; (v) such Successor Entity has a purpose identical to that of the Trust; (vi) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease the Sponsor has received an opinion of independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the CRESTS (including any Successor Securities) in any material respect; (B) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease neither the Trust nor the Successor Entity shall be required to register as an Investment Company; and (C) following such merger, consolidation, amalgamation or replacement, the Trust (or the Successor Entity) shall continue to be classified as a grantor trust for United States federal income tax purposes; (vii) the Sponsor or any permitted successor or assignee owns all of the Common Securities and guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Securities Guarantee; and (viii) such Successor Entity expressly assumes all of the obligations of the Trust with respect to the Trustees. (c) Notwithstanding Section 3.15(b), the Trust shall not, except with the consent of Holders of 100% in aggregate liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to, any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause the Trust or Successor Entity to be classified as other than a 32 38 grantor trust for United States federal income tax purposes and each Holder of the Securities not to be treated as owning an undivided interest in the Debentures. SECTION 3.16. PROPERTY TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Trust or any other obligor upon the Securities or the property of the Trust or of such other obligor or their creditors, the Property Trustee (irrespective of whether any Distributions on the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Property Trustee shall have made any demand on the Trust for the payment of any past due Distributions) shall be entitled and empowered, to the fullest extent permitted by law, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of any Distributions owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Property Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Property Trustee and, in the event the Property Trustee shall consent to the making of such payments directly to the Holders, to pay to the Property Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel, and any other amounts due the Property Trustee. Nothing herein contained shall be deemed to authorize the Property Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or compensation affecting the Securities or the rights of any Holder thereof or to authorize the Property Trustee to vote in respect of the claim of any Holder in any such proceeding. 33 39 ARTICLE 4 SPONSOR SECTION 4.01. RESPONSIBILITIES OF THE SPONSOR. In connection with the issue and sale of the CRESTS, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (a) to prepare the Offering Memorandum and to prepare for filing by the Trust with the Commission the Shelf Registration Statement, including any amendments thereto, pertaining to the CRESTS, the Guarantee and the Debentures; (b) to determine the States in which to take appropriate action to qualify or register for sale all or part of the CRESTS and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (c) to prepare for any filing by the Trust of an application to PORTAL for listing, if such filing is determined to be necessary of desirable by the Sponsor; (d) to prepare any filing by the Trust with the Commission of a registration statement on Form 8-A, including any amendments thereto, if such filing is determined to be necessary or desirable by the Sponsor; (e) to negotiate the terms of a purchase agreement and other related agreements providing for the sale of the CRESTS to the Initial Purchaser; and (f) to negotiate the terms of the Registration Rights Agreement. SECTION 4.02. INDEMNIFICATION AND EXPENSES OF THE TRUSTEES. Pursuant to Section 9.04(b) of this Agreement, the Sponsor, in its capacity as Debenture Issuer, agrees to indemnify the Property Trustee and the Delaware Trustee for, and to hold each of them harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Property Trustee or the Delaware Trustee, as the case may be, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending either of them against any claim or liability in connection with the exercise or performance of any of their respective powers or duties hereunder; the provisions of this Section 4.02 shall survive the resignation or removal of the Delaware Trustee or the Property Trustee or the termination of this Declaration. 34 40 ARTICLE 5 TRUST COMMON SECURITIES HOLDER SECTION 5.01. DEBENTURE ISSUER'S PURCHASE OF COMMON SECURITIES. On any date on which the Trust issues CRESTS, the Debenture Issuer shall purchase simultaneously Common Securities issued by the Trust so that the Common Securities outstanding immediately after such issuance of CRESTS shall equal at least 3% of the capital of the Trust. The aggregate stated liquidation amount of Common Securities outstanding at any time shall not be less than 3% of the capital of the Trust. SECTION 5.02. COVENANTS OF THE COMMON SECURITIES HOLDER. For so long as the CRESTS remain outstanding, the Common Securities Holder shall covenant (i) to maintain, directly or indirectly, 100% ownership of the Common Securities (other than a transfer to Lodgian following the Merger); PROVIDED, however, that any permitted successor of the Common Securities Holder under the Indenture may succeed to the Common Securities Holder's interest in the Common Securities, (ii) to cause the Trust to remain a statutory business trust, except in connection with a distribution of Convertible Debentures to the holders of Securities, the redemption or conversion of all of the Securities, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and not to voluntarily dissolve, wind up, liquidate or be terminated, except as permitted by this Declaration, (iii) to use its commercially reasonable efforts to ensure that the Trust shall not be an investment company for purposes of the Investment Company Act, and (iv) to take no action which would be reasonably likely to cause the Trust to be classified as an association or a publicly traded partnership taxable as a corporation for United States federal income tax purposes. ARTICLE 6 TRUSTEES SECTION 6.01. NUMBER OF TRUSTEES. The number of Trustees initially shall be five, and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in Liquidation 35 41 Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities or by written consent in lieu of such meeting; PROVIDED that the number of Trustees shall be at least three; and PROVIDED further that (1) the Delaware Trustee, in the case of a natural person, shall be a person who is a resident of the State of Delaware or that, if not a natural person, is an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law; (2) at least one Regular Trustee is an employee or officer of, or is affiliated with, the Sponsor, and (3) one Trustee shall be the Property Trustee for so long as this Declaration is required to qualify as an indenture under the Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements. SECTION 6.02. DELAWARE TRUSTEE; ELIGIBILITY. If required by the Business Trust Act, one Trustee (which may be the Property Trustee) (the "DELAWARE TRUSTEE") shall be: (a) a natural person who is a resident of the State of Delaware; or (b) if not a natural person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, PROVIDED that, if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. SECTION 6.03. PROPERTY TRUSTEE; ELIGIBILITY. (a) There shall at all times be one Trustee (which may be the Delaware Trustee) which shall act as Property Trustee which shall: (i) not be an Affiliate of the Sponsor, and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or other Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust owners, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the 36 42 requirements of the supervising or examining authority referred to above, then for the purposes of this Section 6.03(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Property Trustee shall cease to be eligible to so act under Section 6.03(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 6.06(c). (c) If the Property Trustee has or shall acquire any "CONFLICTING INTEREST" within the meaning of Section 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in Section 3 10(b) of the Trust Indenture Act) shall in all respects comply with the provisions of Section 3.10(b) of the Trust Indenture Act. (d) The Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first proviso contained in Section 3.10(b) of the Trust Indenture Act. SECTION 6.04. QUALIFICATIONS OF REGULAR TRUSTEES AND DELAWARE TRUSTEE GENERALLY. Each Regular Trustee and the Delaware Trustee (unless the Property Trustee also acts as Delaware Trustee) shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers. SECTION 6.05. INITIAL TRUSTEES. (a) The initial Regular Trustees shall be: David Buddemeyer, Phillip R. Hale and Charles M. Diaz, the business address of all of whom is Servico, Inc., 1601 Belvedere Road, West Palm Beach, Florida 33406. (b) The initial Property Trustee and the initial Delaware Trustee shall be Wilmington Trust Company. SECTION 6.06. APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES. (a) Subject to Section 6.06(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; and 37 43 (ii) after the issuance of any Securities, by vote of the Holders of a Majority in Liquidation Amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities. (b) The Trustee that acts as Property Trustee shall not be removed in accordance with Section 6.06(a) until a successor Trustee possessing the qualifications to act as Property Trustee under Section 6.03(a) (a "SUCCESSOR PROPERTY TRUSTEE") has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Regular Trustees and the Sponsor. The Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 6.06(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 6.02 and 6.04 (a "SUCCESSOR DELAWARE TRUSTEE") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until his or its successor shall have been appointed, until his death or its dissolution or until his or its removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; PROVIDED, however, that: (i) No such resignation of the Trustee that acts as the Property Trustee shall be effective: (A) until a Successor Property Trustee has been appointed and has accepted such appointment by instrument, executed by such Successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the holders of the Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. 38 44 (d) The Holders of the Common Securities shall use their best efforts to promptly appoint a Successor Delaware Trustee or Successor Property Trustee, as the case may be, if the Property Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 6.06. (e) If no Successor Property Trustee or Successor Delaware Trustee, as the case may be, shall have been appointed and accepted appointment as provided in this Section 6.06 within 60 days after delivery to the Sponsor and the Trust of an instrument of resignation or removal, the resigning or removed Property Trustee or Delaware Trustee, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee, as applicable. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. (f) No Property Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Property Trustee or Successor Delaware Trustee, as the case may be. (g) The Holders of the CRESTS shall have no right to vote to appoint, remove, replace or change the number of the Regular Trustees, which voting rights are vested exclusively in the Holders of the Common Securities. SECTION 6.07. VACANCIES AMONG TRUSTEES. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 6.01, or if the number of Trustees is increased pursuant to Section 6.01, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Regular Trustees or, if there are more than two, a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 6.06. SECTION 6.08. EFFECT OF VACANCIES. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until such vacancy is filled by the appointment of a Regular Trustee in accordance with Section 6.06, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. SECTION 6.09. MEETINGS. If there is more than one Regular Trustee, meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at 39 45 a time and place fixed by resolution of the Regular Trustees. Notice of any in- person meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, PROVIDED that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. In the event there is only one Regular Trustee, any and all action of such Regular Trustee shall be evidenced by a written consent of such Regular Trustee. SECTION 6.10. DELEGATION OF POWER. (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any natural person over the age of 21 his, her or its power for the purpose of executing any documents contemplated in Section 3.06, including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing (b) The Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. SECTION 6.11. MERGERS, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Property Trustee, the Delaware Trustee or any Regular Trustee that is not a natural person may be merged or converted or with such Trustee may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Trustee shall be the successor of such Trustee hereunder, PROVIDED such corporation shall be otherwise qualified and eligible under this Article, without 40 46 the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE 7 TERMS OF SECURITIES SECTION 7.01. GENERAL PROVISIONS REGARDING SECURITIES. (a) On June 9, 1998, the Sponsor, on behalf of the Trust and pursuant to the Original Declaration, executed and delivered the Purchase Agreement. On the Closing Date and contemporaneously with the execution and delivery of this Declaration, the Regular Trustees, on behalf of the Trust, shall execute and deliver to (i) the Initial Purchaser, a Global Security, registered in the name of the nominee of the initial Depositary, in an aggregate amount of 3,500,000 7% Convertible Redeemable Equity Structured Trust Securities ("CRESTS") having an aggregate liquidation amount of $175,000,000, against receipt of the aggregate purchase price of such CRESTS of $175,000,000, and (ii) the Sponsor, Common Securities Certificates, registered in the name of the Sponsor, in an aggregate amount of 108,248 7% Common Securities (the "COMMONS SECURITIES") having an aggregate liquidation amount of $5,412,400, against receipt of the aggregate purchase price of such Common Securities of $5,412,400. In the event and to the extent the over-allotment option granted by the Trust pursuant to the Purchase Agreement is exercised by such Initial Purchaser, on the Option Closing Date the Regular Trustees, on behalf of the Trust, shall execute and deliver to (iii) such Initial Purchaser a Global Security, registered in the name of the nominee of the initial Depositary, in an aggregate amount of up to 525,000 CRESTS having an aggregate liquidation amount of up to $26,250,000 against receipt of the aggregate purchase price of such CRESTS of up to $26,250,000, and (iv) the Sponsor, Common Security Certificates, registered in the name of the Sponsor, in an aggregate amount of 16,237 Common Securities having an aggregate liquidation amount of $811,850 against receipt of the aggregate purchase price of such Common Securities of up to $811,850. (b) Payment of Distributions on, and payment of the Redemption Price upon a redemption of, the CRESTS and the Common Securities, as applicable, shall be made Pro Rata based on the liquidation amount of such CRESTS and Common Securities. The Trust shall issue no securities or other interests in the assets of the Trust other than the CRESTS and the Common Securities. (c) The Certificates, substantially in the forms of Exhibit A and Exhibit B, shall be signed on behalf of the Trust by a Regular Trustee. Such signature 41 47 shall be the manual or facsimile signature of any Regular Trustee. In case a Regular Trustee of the Trust who shall have signed any of the Certificates shall cease to be such Regular Trustee before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Certificate, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such a Regular Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation of any stock exchange on which Securities may be listed, or to conform to usage. A Certificate representing CRESTS shall not be valid until authenticated by the manual signature of an authorized signatory of the Property Trustee. Such signature shall be conclusive evidence that such Certificate has been authenticated under this Declaration. Upon a written order of the Trust signed by one Regular Trustee, the Property Trustee shall authenticate the Certificates representing CRESTS for original issue. The aggregate liquidation amount of CRESTS outstanding at any time shall not exceed the liquidation amount set forth in Section 7.01(a). The Property Trustee may appoint an authenticating agent acceptable to the Trust to authenticate Certificates. An authenticating agent may authenticate Certificates whenever the Property Trustee may do so. Each reference in this Declaration to authentication by the Property Trustee includes authentication by such agent. An authenticating agent has the same rights as the Property Trustee to deal with the Sponsor or an Affiliate of the Sponsor. (d) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (e) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and, subject to Section 9.01(b), non-assessable beneficial ownership interests in the assets of the Trust. 42 48 (f) Every Person, by virtue of having become a Holder or a CRESTS Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration and the terms of the Securities, the Guarantee, the Indenture and the Debentures. (g) The holders of the Securities shall have no preemptive rights. SECTION 7.02. DISTRIBUTIONS. (a) Holders of Securities shall be entitled to receive cumulative cash Distributions at the rate per annum, of 7% of the stated liquidation amount of $50 per Security, subject to increase if, and to the extent that, the interest rate on the Debentures is increased pursuant to the Indenture (the "APPLICABLE RATE"). The amount of Distributions payable for any period shall be computed (i) for any full 90-day quarterly distribution period on the basis of a 360-day year of twelve 30- day months, (ii) for any period shorter than a full 90-day quarterly distribution period for which Distributions are computed, on the basis of a 30-day month and (iii) for periods of less than a month, on the basis of the actual number of days elapsed. Distributions shall be made on the CRESTS and the Common Securities on a Pro Rata basis. Distributions on the Securities shall, from and including the Closing Date, accrue and be cumulative and shall be payable quarterly, in arrears, on March 31, June 30, September 30 and December 31 of each year, commencing September 30, 1998, when, as and if available for payment, by the Property Trustee, except as otherwise described below. Distributions are payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent that the Trust has funds available for the payment of such Distributions in the Property Account. (b) Distributions not paid on the scheduled payment date shall accumulate and compound quarterly, to the extent permitted by law at the Applicable Rate per annum ("COMPOUNDED DISTRIBUTIONS"). "DISTRIBUTIONS" shall mean ordinary cumulative distributions together with any Compounded Distributions. So long as the Debenture Issuer shall not be in default in the payment of interest on the Debentures, the Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debenture for a period not exceeding 20 consecutive quarters (each an "EXTENSION PERIOD"), during which Extension Period no interest shall be due and payable on the Debentures; PROVIDED, that no Extension Period shall last beyond the date of maturity or any redemption date of the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, quarterly Distributions shall continue to accrue with interest thereon (to the extent permitted by applicable law) at the Applicable 43 49 Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; PROVIDED, that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the maturity or any redemption date of the Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. (c) If and to the extent that the Debenture Issuer makes a payment of interest, premium and/or principal on the Debentures held by the Property Trustee (the amount of any such payment being a "PAYMENT AMOUNT"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to make a Pro Rata distribution of the Payment Amount to Holders. (d) Distributions on the Securities shall be payable to the Holders thereof as they appear on the register of the Trust as of the close of business on the relevant record dates. While the CRESTS are represented by one or more Global Securities, the relevant record dates shall be the close of business on the Business Day next preceding such Distribution payment date, unless a different regular record date is established or provided for the corresponding interest payment date on the Debentures. The relevant record dates for the Common Securities shall be the same as for the CRESTS. If the CRESTS shall not continue to remain represented by one or more Global Securities, the relevant record dates for the CRESTS shall be selected by the Regular Trustees and shall be at least one Business Day prior to the relevant payment dates. At all times, the Distribution payment dates shall correspond to the interest payment dates on the Debentures. Distributions payable on any Securities that are not punctually paid on any Distribution payment date, as a result of the Debenture Issuer having failed to make a payment under the Debentures, shall cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution shall instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with this Declaration. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distribution payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, with the same force and effect as if made on such payment date. (e) Except as provided below, accumulated but unpaid Distributions shall not be paid in cash on Securities that are converted by the Holder into 44 50 Common Stock pursuant to the terms of the Securities nor shall such accumulated Distributions be converted into additional shares of Common Stock. Holders of Securities at the close of business on a record date for determining Holders entitled to receive a Distribution shall be entitled to receive the Distribution payable on such shares on the corresponding distribution payment date (except that Holders of Securities called for redemption on a redemption date between such record date and the distribution payment date shall not be entitled to receive such Distribution on such distribution payment date) notwithstanding the conversion thereof following such distribution record date and prior to such distribution payment date. However, Securities surrendered for conversion during the period between the close of business on any distribution record date and the opening of business on the corresponding distribution payment date (except Securities called for redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the Distribution payable on such shares on such distribution payment date. A Holder of Securities on a distribution record date who (or whose transferee) tenders any such shares for conversion into shares of Common Stock on a distribution payment date shall receive the Distribution payable by the Trust on such Securities on such date, and the converting Holder need not include payment of the amount of such Distribution upon surrender of such Securities for conversion. The Debenture Issuer shall make no payment or allowance for dividends on the shares of Common Stock issued upon conversion. (f) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata among the Holders of the Securities. SECTION 7.03. REDEMPTION OF SECURITIES; DISTRIBUTION OF DEBENTURES. (a) Upon the repayment or redemption, in whole or in part, of the Debentures held by the Trust, whether at the stated maturity of the Debentures or upon earlier redemption as provided in the Indenture, the proceeds from such repayment or redemption shall be simultaneously applied Pro Rata (subject to Sections 7.01(b) and 7.15) to redeem Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed at the Redemption Price. Holders shall be given not less than 30 days' nor more than 60 days' notice of such redemption in accordance with Section 7.04. (b) If, at any time, a Tax Event or an Investment Company Event (each, a "TRUST SPECIAL EVENT") shall occur, the Regular Trustees may except in certain limited circumstances described in this Section 7.03(b), dissolve the Trust and, after satisfaction of liabilities to creditors, cause Debentures held by the Property 45 51 Trustee having an aggregate principal amount equal to the aggregate liquidation amount of, with an interest rate identical to the interest rate of, and accrued and unpaid interest equal to accumulated and unpaid Distributions on, and having the same record date for payment as the Securities, to be distributed to the Holders of the Securities in liquidation of such Holders' interests in the Trust on a Pro Rata basis, within 90 days following the occurrence of such Trust Special Event (the "90-DAY PERIOD"); PROVIDED, however, that in the case of a Tax Event such dissolution and distribution shall be conditioned on (i) the Regular Trustees' receipt of a No Recognition Opinion, (ii) the Debenture Issuer or the Trust being unable to eliminate, which elimination shall be complete within the 90-Day Period, such Trust Special Event by taking some ministerial action (such as filing a form or making an election, or pursuing some other reasonable measure) that has no adverse effect on the Trust, the Debenture Issuer, the Sponsor or the Holders of the Securities or does not subject any of them to more than DE MINIMIS regulatory requirements ("MINISTERIAL ACTION"), and (iii) the Debenture Issuer's prior written consent to such dissolution and distribution. Furthermore, if a Trust Special Event occurs (i) that is a Tax Event and the Debenture Issuer has received a Redemption Tax Opinion or (ii) that is a Tax Event or an Investment Company Event and such Regular Trustees shall have been informed, by independent tax counsel experienced in such matters that it, for substantive reasons, cannot deliver a No Recognition Opinion to the Trust, the Debenture Issuer shall have the right, upon not less than 30 days' nor more than 60 days' notice, to redeem the Debentures, in whole or in part, at 100% of the principal amount thereof, plus accrued and unpaid interest thereon to but excluding the date of redemption (the "SPECIAL REDEMPTION PRICE"), for cash within 90 days following the occurrence of such Trust Special Event. Following such redemption, Securities with an aggregate initial liquidation amount equal to the aggregate principal amount of the Debentures so redeemed shall be redeemed by the Trust at a redemption price equal to 100% of the liquidation amount to be redeemed on a Pro Rata basis, plus accumulated but unpaid Distributions thereon to but excluding such redemption date; PROVIDED, however, that if at the time there is available to the Debenture Issuer or the Trust the opportunity to eliminate, which elimination shall be complete within the 90-Day period, such Trust Special Event by taking some Ministerial Action, the Trust or the Debenture Issuer shall pursue such Ministerial Action in lieu of redemption. (c) On the date fixed for any distribution of Debentures, upon dissolution of the Trust, (i) the Securities shall no longer be deemed to be outstanding and (ii) certificates representing Securities shall be deemed to represent the Debentures having an aggregate principal amount equal to the stated liquidation amount of, and bearing accrued and unpaid distributions equal to 46 52 accrued and unpaid distributions on, such Securities until such certificates are presented to the Sponsor or its agent for transfer or reissuance. SECTION 7.04. REDEMPTION PROCEDURES. (a) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Securities (a "REDEMPTION/DISTRIBUTION NOTICE"), which notice shall be irrevocable, shall be given by the Property Trustee by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, shall be the date fixed for redemption of the Debentures. Notice of redemption shall also be given by publication made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date in an Authorized Newspaper. Notice of redemption of Securities shall be given on the same date as the related notice of redemption of the Debentures is given pursuant to the Indenture. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 7.04(a), a Redemption/ Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Securities at the address of each such Holder appearing in the register of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. Each notice, whether given by mail or publication, shall state, as appropriate: (A) the redemption date; (B) the aggregate principal amount of Securities to be redeemed, including CUSIP numbers, and, if less than all the Securities held by such Holder are to be redeemed, the aggregate principal amount of such Securities to be redeemed from such Holder, (C) the redemption price to be paid in respect of the redemption; (D) the then current Conversion Price and, if any event then known to the Debenture Issuer shall result in an adjustment to the Conversion Price on or prior to the redemption date, such adjusted conversion price and the date of such adjustment; (F) the last date on which the Securities may be converted prior to the redemption date; (G) that any Holder who wishes to convert his or her Securities must comply with and satisfy all the terms, conditions and requirements for conversion as set forth in the Securities and the Declaration; (H) that distribution on the Securities to be redeemed shall cease to accrue on the redemption date; and (F) a place for the Securities to be redeemed. (b) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the CRESTS shall be redeemed Pro Rata and the CRESTS to be redeemed shall be redeemed Pro Rata from each Holder of CRESTS, it being understood that, in respect of CRESTS registered in the name 47 53 of and held of record by the Depositary or its nominee, the distribution of the proceeds of such redemption shall be made to each Depositary Participant (or Person on whose behalf such nominee holds such securities) in accordance with the procedures applied by such Depositary or nominee. The Trust may not redeem the Securities in part unless all accumulated and unpaid Distributions to the date of redemption have been paid in full on all Securities then outstanding. For all purposes of this Declaration, unless the context otherwise requires, all provisions relating to the redemption of CRESTS shall relate, in the case of any CRESTS redeemed or to be redeemed only in part to the portion of the aggregate liquidation amount of CRESTS which has been or is to be redeemed. (c) Subject to the Trust's fulfillment of the notice requirements set forth in Section 7.04(a) above, if Securities are to be redeemed, then (i) with respect to CRESTS represented by one or more Global Securities, by 12:00 noon, New York City time, on the redemption date (PROVIDED that the Debenture Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Debentures), the Property Trustee shall deposit irrevocably with the Depositary or its nominee (or successor Depositary or its nominee) funds sufficient to pay the applicable Redemption Price with respect to the CRESTS and shall give the Depositary irrevocable instructions and authority to pay the Redemption Price to the Holders of the CRESTS and (ii) with respect to Securities not represented by one or more Global Securities (PROVIDED that the Debenture Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Debentures), the Paying Agent shall pay the relevant Redemption Price to the Holders of such Securities upon surrender of their certificates representing such Securities. If any date fixed for redemption of Securities is not a Business Day, then payment of the Redemption Price payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Property Trustee or by the Sponsor as guarantor pursuant to the Guarantee, Distributions on such Securities shall continue to accrue at the then applicable rate from the original redemption date to the actual date of payment in which case the actual payment date shall be considered the date fixed for redemption for purposes of calculating the Redemption Price. For these purposes, the applicable Redemption Price shall not include Distributions which are being paid to Holders who were Holders on a relevant record date. If a Redemption/Distribution Notice shall have been given and funds deposited or paid as required, then immediately prior to the close of business on the date of such deposit or payment, Distributions shall cease to 48 54 accrue on the Securities called for redemption and all rights of Holders of such Securities so called for redemption shall cease, except the right of the Holders to receive the Redemption Price, but without interest on such Redemption Price, and from and after the date fixed for redemption, such Securities shall cease to be outstanding. Neither the Regular Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Securities that have been called for redemption, except in the case of any Securities being redeemed in part, any portion thereof not to be redeemed. (d) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Debenture Issuer or its subsidiaries may at any time and from time to time purchase outstanding CRESTS by tender, in the open market or by private agreement. SECTION 7.05. VOTING RIGHTS OF CRESTS. (a) Except as provided under Sections 2.06(a) and 11.01 and this Article 7 and as otherwise required by the Business Trust Act, the Trust Indenture Act and other applicable law, the Holders of the CRESTS shall have no voting rights. (b) Subject to the requirement of the Property Trustee obtaining a tax opinion in certain circumstances set forth in Section 7.05(d) below, the Holders of a Majority in Liquidation Amount of the CRESTS voting separately as a class have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee, as Holder of the Debentures, to (i) exercise the remedies available to it under the Indenture as a Holder of the Debentures; (ii) consent to any amendment or modification of the Indenture or the Debentures where such consent shall be required or (iii) waive any past default and its consequences that is waivable under Section 4.13 of the Indenture; PROVIDED, however, that if an Indenture Event of Default has occurred and is continuing, then the Holders of 25% of the aggregate liquidation amount of the CRESTS may direct the Property Trustee to declare the principal of and interest on the Debentures due and payable; PROVIDED, further, that where a consent or action under the Indenture would require the consent or act of the Holders of more than a majority of the aggregate principal amount of Debentures affected thereby, only the Holders of the percentage of the aggregate liquidation amount of the CRESTS which is at least equal to the percentage required under the Indenture may direct the Property Trustee to give such consent to take such action. 49 55 (c) If the Property Trustee fails to enforce its rights under the Debentures after a Holder of CRESTS has made a written request, such Holder of CRESTS may, to the extent permitted by applicable law, institute a legal proceeding directly against the Debenture Issuer to enforce the Property Trustee's rights under the Indenture without first instituting any legal proceeding against the Property Trustee or any other person or entity. In addition, if a Trust Enforcement Event has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to make any interest, principal or other required payments when due under the Indenture, then a Holder of CRESTS may directly institute a Direct Action against the Debenture Issuer on or after the respective due date specified in the Debentures. (d) The Property Trustee shall notify all Holders of the CRESTS of any notice of any Indenture Event of Default received from the Debenture Issuer with respect to the Debentures. Such notice shall state that such Indenture Event of Default also constitutes a Trust Enforcement Event. Except with respect to directing the time, method, and place of conducting a proceeding for a remedy, the Property Trustee shall be under no obligation to take any of the actions described in Section 7.05(b)(i) and (ii) above unless the Property Trustee has received an opinion of independent tax counsel to the effect that the Trust shall not fail to be classified as a grantor trust for United States federal income tax purposes as a result of such action, and each Holder shall be treated as owning an undivided beneficial ownership interest in the Debentures. (e) In the event the consent of the Property Trustee, as the Holder of the Debentures, is required under the Indenture with respect to any amendment or modification of the Indenture, the Property Trustee shall request the direction of the Holders of the Securities with respect to such amendment or modification and shall vote with respect to such amendment or modification as directed by not less than a 662/3% of the aggregate liquidation amount of the CRESTS; PROVIDED, however, that where a consent under the Indenture would require the consent of the Holders of more than 662/3% of the aggregate principal amount of the Debentures, the Property Trustee may only give such consent at the direction of the Holders of at least the same proportion in aggregate stated liquidation amount of the CRESTS. The Property Trustee shall not take any such action in accordance with the directions of the Holders of the CRESTS unless the Property Trustee has received an opinion of independent tax counsel to the effect that the Trust shall not be classified as other than a grantor trust for United States federal income tax purposes as a result of such action, and each Holder shall be treated as owning an undivided beneficial ownership interest in the Debentures. 50 56 (f) A waiver of an Indenture Event of Default with respect to the Debentures shall constitute a waiver of the corresponding Trust Enforcement Event. (g) Any required approval or direction of Holders of CRESTS may be given at a separate meeting of Holders of CRESTS convened for such purpose, at a meeting of all of the Holders of Securities or pursuant to written consent. The Regular Trustees shall cause a notice of any meeting at which Holders of CRESTS are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of CRESTS. Each such notice shall include a statement setting forth the following information: (i) the date of such meeting or the date by which such action is to be taken; (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought; and (iii) instructions for the delivery of proxies or consents. (h) No vote or consent of the Holders of CRESTS shall be required for the Trust to redeem and cancel CRESTS or distribute Debentures in accordance with the Declaration and the terms of the Securities. (i) Notwithstanding that Holders of CRESTS are entitled to vote or consent under any of the circumstances described above, any of the Securities that are owned at such time by the Debenture Issuer, the Trustees or any entity directly or indirectly controlled by, or under direct or indirect common control with, the Debenture Issuer or any Trustee, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if such Securities were not outstanding. (j) Holders of the CRESTS shall have no rights to appoint or remove the Trustees, who may be appointed, removed or replaced solely by the Common Securities Holder. (k) If an Indenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by a Majority in Liquidation Amount of the CRESTS. SECTION 7.06. VOTING RIGHTS OF COMMON SECURITIES. (a) Except as provided under Sections 2.06(b) and 6.01(b), this Section 7.06 or Section 11.01 or as otherwise required by the Business Trust Act, the Trust Indenture Act or other applicable law or provided by the Declaration, the Holders of the Common Securities shall have no voting rights. 51 57 (b) The Holders of the Common Securities shall be entitled, in accordance with Article 6, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (c) Subject to Section 2.06 and only after all Trust Enforcement Events with respect to the CRESTS have been cured, waived, or otherwise eliminated and subject to the requirement of the Property Trustee obtaining a tax opinion in certain circumstances set forth in this paragraph (c), the Holders of a Majority in Liquidation Amount of the Common Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee, as Holder of the Debentures, to (i) exercise the remedies available to it under the Indenture as a Holder of the Debentures, (ii) consent to any amendment or modification of the Indenture or the Debentures where such consent shall be required or (iii) waive any past default and its consequences that is waivable under Section 4.13 of the Indenture; PROVIDED, however, that where a consent or action under the Indenture would require the consent or act of the Holders of more than a majority of the aggregate principal amount of Debentures affected thereby, only the Holders of the percentage of the aggregate stated liquidation amount of the Common Securities which is at least equal to the percentage required under the Indenture may direct the Property Trustee to have such consent or take such action. Except with respect to directing the time, method, and place of conducting a proceeding for a remedy, the Property Trustee shall be under no obligation to take any of the actions described in Section 7.06(c)(i) and (ii) above unless the Property Trustee has received an opinion of independent tax counsel to the effect that, as a result of such action, for United States federal income tax purposes the Trust shall not fail to be classified as a grantor trust and each Holder shall be treated as owning an undivided beneficial ownership interest in the Debentures. (d) If the Property Trustee fails to enforce its rights under the Debentures after a Holder of Common Securities has made a written request, such Holder of Common Securities may, to the extent permitted by applicable law, directly institute a legal proceeding directly against the Debenture Issuer to enforce the Property Trustee's rights under the Debentures without first instituting any legal proceeding against the Property Trustee or any other person or entity. (e) A waiver of an Indenture Event of Default with respect to the Debentures shall constitute a waiver of the corresponding Trust Enforcement Event. (f) Any required approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened 52 58 for such purpose, at a meeting of all of the Holders of Securities or pursuant to written consent. The Regular Trustees shall cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter on which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice shall include a statement setting forth the following information: (i) the date of such meeting or the date by which such action is to be taken; (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought; and (iii) instructions for the delivery of proxies or consents. (g) No vote or consent of the Holders of the Common Securities shall be required for the Trust to redeem and cancel Common Securities or to distribute Debentures in accordance with the Declaration and the terms of the Securities. SECTION 7.07. PAYING AGENT. In the event that any CRESTS are not in book-entry only form, the Trust shall maintain in the Borough of Manhattan, City of New York, State of New York, an office or agency where the CRESTS may be presented for payment ("PAYING AGENT"). The Trust may appoint the paying agent and may appoint one or more additional paying agents in such other locations as it shall determine. The term "PAYING AGENT" includes any additional paying agent. The Trust may change any Paying Agent without prior notice to the Holders. The Trust shall notify the Property Trustee of the name and address of any Paying Agent not a party to this Declaration. If the Trust fails to appoint or maintain another entity as Paying Agent, the Property Trustee shall act as such. The Trust or any of its Affiliates may act as Paying Agent. Wilmington Trust Company shall initially act as Paying Agent for the Securities. In the event Wilmington Trust Company shall no longer be the Paying Agent, the Regular Trustees shall appoint a successor (which shall be a bank or trust company acceptable to the Debenture Issuer) to act as Paying Agent. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Property Trustees and the Debenture Issuer. SECTION 7.08. TRANSFER OF SECURITIES. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) The Trust shall cause to be kept at the Corporate Trust Office of the Property Trustee a register (the register maintained in such office being herein sometimes referred to as the "SECURITY REGISTER") in which, subject to such 53 59 reasonable regulations as it may prescribe, the Trust shall provide for the registration of CRESTS and of transfers of CRESTS. The Property Trustee is hereby appointed "SECURITY REGISTRAR" for the purpose of registering CRESTS and transfers of CRESTS as herein provided. (c) Upon surrender for registration of transfer of any Security at an office or agency of the Trust designated for such purpose, the Trust shall execute, and the Property Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. (d) At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Trust shall execute, and in the case of CRESTS the Property Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. (e) Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Trust or the Property Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Trust and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. (f) No service charge shall be made for any registration of transfer or exchange of Securities, but the Trust may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities. (g) If the Securities are to be redeemed in part, the Trust shall not be required (A) to issue, register the transfer of or exchange any Securities during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Securities selected for redemption under Section 7.04 and ending at the close of business on the day of such mailing, or (B) to register the transfer or exchange of any Security so selected for redemption, except the unredeemed portion of any Security being redeemed in part. SECTION 7.09. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If: (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and 54 60 (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them, the Sponsor and the Trust harmless, then, in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, any Regular Trustee on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 7.09, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. SECTION 7.10. DEEMED SECURITY HOLDERS. The Trustees may treat the Person in whose name any Certificate shall be registered on the register of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust shall have actual or other notice thereof. SECTION 7.11. GLOBAL SECURITIES. The CRESTS shall be issued in the form of one or more Global Securities. The Regular Trustee on behalf of the Trust shall execute and the Property Trustee shall authenticate and deliver one or more Global Securities that (i) shall represent and shall be denominated in an amount equal to the aggregate liquidation amount of all of the CRESTS to be issued and not yet canceled, (ii) shall be registered in the name of the Depositary for such Global Security or CRESTS or the nominee of such Depositary, and (iii) shall be delivered by the Property Trustee to such Depositary or pursuant to such Depositary's instructions. Global Securities shall bear a legend substantially to the following effect: "This CRESTS is a Global Security within the meaning of the Declaration hereinafter referred to and is registered in the name of The Depository Trust Company, a New York corporation (the "DEPOSITARY"), or a nominee of the Depositary. This CRESTS is exchangeable for CRESTS registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Declaration and no transfer of this CRESTS (other than a transfer of this CRESTS as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary) may be registered except in limited circumstances. 55 61 Unless this CRESTS Certificate is presented by an authorized representative of the Depositary to the Property Trustee or its agent for registration of transfer, exchange or payment, and any CRESTS Certificate issued is registered in the name of Cede & Co. or such other name as registered by an authorized representative of the Depositary (and any payment hereon is made to Cede & Co. or to such other entity as is requested by an authorized representative of the Depositary), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein." CRESTS not represented by a Global Security issued in exchange for all or a part of a Global Security pursuant to this Section 7.11 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Property Trustee. Upon execution and authentication, the Property Trustee shall deliver such CRESTS not represented by a Global Security to the persons in whose names such definitive CRESTS are so registered. At such time as all interests in Global Securities have been redeemed, repurchased or canceled, such Global Securities shall be, upon receipt thereof, canceled by the Property Trustee in accordance with standing procedures of the Depositary. At any time prior to such cancellation, if any interest in Global Securities is exchanged for CRESTS not represented by a Global Security, redeemed, canceled or transferred to a transferee who receives CRESTS not represented by a Global Security therefor or any CRESTS not represented by a Global Security is exchanged or transferred for part of Global Securities, the principal amount of such Global Securities shall, in accordance with the standing procedures of the Depositary, be reduced or increased, as the case may be, and an endorsement shall be made on such Global Securities by the Property Trustee to reflect such reduction or increase. The Trust and the Property Trustee may for all purposes, including the making of payments due on the CRESTS, deal with the Depositary as the authorized representative of the Holders for the purposes of exercising the rights of Holders hereunder. The rights of the owner of any beneficial interest in a Global Security shall be limited to those established by law and agreements between such owners and depository participants or Euroclear and Cedel; PROVIDED, that no such agreement shall give any rights to any person against the Trust or the Property Trustee without the written consent of the parties so affected. Multiple requests and directions from and votes of the Depositary as holder of CRESTS in global form with respect to any particular matter shall not be deemed inconsistent to the extent they do not represent an amount of CRESTS in excess of those held in the name of the Depositary or its nominee. 56 62 If at any time the Depositary for any CRESTS represented by one or more Global Securities notifies the Trust that it is unwilling or unable to continue as Depositary for such CRESTS or if at any time the Depositary for such CRESTS shall no longer be eligible under this Section 7.11, the Trust shall appoint a successor Depositary with respect to such CRESTS. If a successor Depositary for such CRESTS is not appointed by the Trust within 90 days after the Trust receives such notice or becomes aware of such ineligibility, the Trust's election that such CRESTS be represented by one or more Global Securities shall no longer be effective and the Trust shall execute, and the Property Trustee shall authenticate and deliver, CRESTS definitive registered form, in any authorized denominations, in an aggregate liquidation amount equal to the principal amount of the Global Security or CRESTS representing such CRESTS in exchange for such Global Security or CRESTS. The Trust may at any time and in its sole discretion determine that the CRESTS issued in the form of one or more Global Securities shall no longer be represented by a Global Security or CRESTS. In such event the Trust shall execute, and the Property Trustee, shall authenticate and deliver, CRESTS in definitive registered form, in any authorized denominations, in an aggregate liquidation amount equal to the principal amount of the Global Security or CRESTS representing such CRESTS, in exchange for such Global Security or CRESTS. Notwithstanding any other provisions of this Declaration (other than the provisions set forth in Section 7.08), Global Securities may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. Interests of beneficial owners in a Global Security may be transferred or exchanged for CRESTS not represented by a Global Security and CRESTS not represented by a Global Security may be transferred or exchanged for Global Securities in accordance with rules of the Depositary and the provisions of Section 7.13. Any CRESTS in global form may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Declaration as may be required by the Depositary or by the National Association of Securities Dealers, Inc. in order for the CRESTS to be tradeable on the PORTAL Market or as may be required for the CRESTS to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder 57 63 or with the rules and regulations of any securities exchange upon which the CRESTS may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular CRESTS are subject. SECTION 7.12. RESTRICTIVE LEGEND. (a) Each Global Security and CRESTS not represented by a Global Security that constitutes a Restricted Security shall bear the following legend on the face thereof until two years after the later of the date of original issue and the last date on which the Sponsor or any affiliate of the Sponsor was the owner of such CRESTS (or any predecessor thereto) (the "RESALE RESTRICTION TERMINATION DATE"), unless otherwise agreed by the Trust and the Holder thereof: THIS SECURITY, THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, THE GUARANTEE AND THE CONVERTIBLE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION IN THESE SECURITIES MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITIES, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF SUCH SECURITIES (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS SUCH SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS 58 64 GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING SUCH SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, OR AS FIDUCIARY FOR THE ACCOUNT OF ONE OR MORE TRUSTS, EACH OF WHICH IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a) (7) OF RULE 501 UNDER THE SECURITIES ACT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, SUBJECT IN EACH OF THE FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THESE SECURITIES BEING COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) BY REASON OF THE APPLICATION OF ONE OR MORE STATUTORY OR ADMINISTRATIVE EXEMPTIONS FROM THE PROHIBITED TRANSACTION RULES OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE, ITS PURCHASE AND HOLDING OF CRESTS WILL NOT CONSTITUTE, CAUSE OR RESULT IN THE OCCURRENCE OF A NON-EXEMPT PROHIBITED TRANSACTION WITHIN THE MEANING OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE. THIS LEGEND SHALL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT RELATING TO THE SECURITIES. 59 65 Prior to the Resale Restriction Termination Date, any certificate representing Common Stock issued upon conversion of the Debentures shall bear the following legend (unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act): THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER HEREOF BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) or (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE COMMON STOCK FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, OR AS FIDUCIARY FOR THE ACCOUNT OF ONE OR MORE TRUSTS, EACH OF WHICH IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(7) OF RULE 501 UNDER THE SECURITIES ACT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND THAT CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (2) IT SHALL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (E) ABOVE) A NOTICE SUBSTANTIALLY TO THE 60 66 EFFECT OF THIS LEGEND. THIS LEGEND SHALL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE (E) ABOVE OR UPON ANY TRANSFER OF COMMON STOCK EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE COMMON STOCK EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). Any CRESTS (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms may, upon surrender of such CRESTS for exchange to the Security Registrar in accordance with the provisions of this Section 7.12(a), be exchanged for a new CRESTS or CRESTS, of like tenor and aggregate liquidation amount, which shall not bear the restrictive legend required by this Section 7.12(a). Upon any sale or transfer of any Restricted Security (including any interest in a Global Security) (i) that is effected pursuant to an effective registration statement under the Securities Act or (ii) in connection with which the Property Trustee receives certificates and other information (including an opinion of counsel, if requested) reasonably acceptable to the Sponsor and the Property Trustee to the effect that such security shall no longer be subject to the resale restrictions under federal and state securities laws, then (A) in the case of a Restricted Security in definitive form the Security Registrar shall permit the holder thereof to exchange such Restricted Security for a security that does not bear the legend set forth in Section 7.12(a), and shall rescind any such restrictions on transfer and (B) in the case of Restricted Securities represented by a Global Security, such CRESTS shall no longer be subject to the restrictions contained in the legend set forth in Section 7.12(a) (but still subject to the other provisions hereof). In addition, any CRESTS (or security issued in exchange or substitution therefor) as to which the restrictions on transfer described in the legend set forth in Section 7.12(a) have expired by their terms, may, upon surrender thereof (in accordance with terms of this Declaration) together with such certifications and other information (including an opinion of counsel having substantial experience in practice under the Securities Act and otherwise reasonably acceptable to the Sponsor, addressed to the Sponsor and the Property Trustee and in form acceptable to the Sponsor, to the effect that the transfer of such Restricted Security has been made in compliance with Rule 144 or such successor provision) acceptable to the Sponsor and the Property Trustee as either of them may reasonably require, be exchanged for a new CRESTS or CRESTS of like tenor and aggregate liquidation amount, which shall not bear the restrictive legends set forth in Section 7.12(a). 61 67 SECTION 7.13. CONVERSION RIGHTS. The Holder of Securities shall have the right at any time, beginning 90 days following the last date of original issuance of any CRESTS and prior to the close of business (New York time) on June 28, 2010 (or earlier as described in Section 7.13(b)), at their option, to cause the Conversion Agent, to convert Securities in whole or in part (but only in whole Securities), on behalf of the converting Holders, into shares of Common Stock in the manner described herein on and subject to the following terms and conditions: (a) The Securities shall be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of Common Stock pursuant to the Holder's direction to the Conversion Agent to exchange such Securities for a portion of the Debentures theretofore held by the Trust on the basis of $1 in liquidation amount of a Security per $1 in principal amount of Debentures, and immediately convert such amount of Debentures into that number of fully paid and nonassessable shares of Common Stock obtained by dividing the principal amount of such Debentures to be converted by the conversion price of the Debentures. The initial conversion price of the Debentures is $21.42 per share of Common Stock (equivalent to a conversion ratio of 2.334 shares of Common Stock for each Security). The conversion price and the securities into which the Securities are convertible are subject to certain adjustments and the conversion price is subject to a reset provision set forth in Article 8 of the Supplemental Indenture. Such initial conversion price, as so adjusted from time to time, is herein referred to as the "CONVERSION PRICE." Any Holder of Securities may only convert whole Securities and the Trust shall not be obligated to issue any fractional Securities. (b) The right to convert Securities shall terminate prior to the close of business (i) on June 28, 2010 or (ii) in the case of Securities called for redemption, on the second Business Day prior to related redemption date, unless the Property Trustee shall default in making payment of any moneys payable upon such redemption under Section 7.03. (c) In order to convert Securities into Common Stock, the Holder shall deliver to the Conversion Agent at the office referred to above an irrevocable request to convert Securities on behalf of such Holder (the "CONVERSION REQUEST"), together, if the Securities are in certificated form, with such certificates. The Conversion Request shall (i) set forth the number of Securities to be converted and the name or names, if other than the Holder, in which the shares of Common Stock should be issued together with any payment required by Section 7.02(e) and (ii) direct the Conversion Agent (A) to exchange such Securities for a portion of the Debentures held by the Trust and (B) to immediately convert such Debentures on behalf of such Holder, into Common Stock (at the conversion rate specified in Section 7.03). The Conversion Agent shall notify the Trust of the Holder's election to exchange Securities for a portion of the Debentures held by the Trust and the Trust shall, upon receipt of such notice, deliver to the Conversion Agent the appropriate principal amount of Debentures for exchange in accordance with this Section 7.13(c). The Conversion Agent 62 68 shall thereupon notify the Debenture Issuer of the Holder's election to convert such Debentures into shares of Common Stock at the conversion price specified in Section 7.03. Except as provided in Section 7.02(e), neither the Trust nor the Sponsor shall make, or be required to make, any payment, allowance or adjustment upon any conversion on account of any accumulated and unpaid Distributions accumulated on the Securities (including Compounded Distributions accumulated thereon) surrendered for conversion, or on account of any accumulated and unpaid dividends on the shares of Common Stock issued upon such conversion. Securities shall be deemed to have been converted immediately prior to the close of business on the day on which a Conversion Request relating to such Securities is received by the Trust in accordance with the foregoing provision (the "CONVERSION DATE"). The Person or Persons entitled to receive Common Stock issuable upon conversion of the Debentures shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the Conversion Date, the Debenture Issuer shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same, unless otherwise directed by the Holder in the notice of conversion and the Conversion Agent shall distribute such certificate or certificates and cash payments, if any, to such Person or Persons. (d) Each Holder of a Security by his acceptance thereof appoints the Property Trustee as "CONVERSION AGENT" for the purpose of effecting the conversion of Securities in accordance with this Section 7.13. In effecting the conversion and transactions described in this Section, the Conversion Agent shall be acting as agent of the Holders of Securities directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Securities from time to time for Debentures held by the Trust in connection with the conversion of such Securities in accordance with this Section and (ii) to convert all or a portion of the Debentures into Common Stock or other common stock of the Debenture Issuer and thereupon to deliver such shares of Common Stock or other common stock in accordance with the provisions of this Section 7.13 and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. 63 69 (e) No fractional shares or scrip representing fractions of shares of Common Stock or any other common stock of the Debenture Issuer shall be issued upon conversion of any Securities. Instead of any fractional interest in a share of Common Stock or such other common stock that would otherwise be deliverable upon the conversion of any Securities, the Debenture Issuer shall pay to the holder of such share an amount in cash based upon the Closing Price of Common Stock or such other common stock on the Trading Day immediately preceding the date of conversion. If more than one Security shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock or such other common stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of Securities so surrendered. (f) Upon conversion of the Securities, Distributions shall only be payable in accordance with Section 7.02(e). Shares of Common Stock or shares of such other common stock received upon conversion of the Debentures shall be delivered to the converting Holder free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of the Debenture Issuer and the Trust shall endeavor to list the shares of Common Stock or other common stock of the Debenture Issuer required to be delivered upon conversion of the Debentures and the Securities, prior to such delivery, upon each national securities exchange or with each national securities association, if any, upon which the outstanding Common Stock or such other common stock is listed or quoted at the time of such delivery. Prior to the delivery of any securities that the Debenture Issuer shall be obligated to deliver upon conversion of the Debentures and the Securities, the Debenture Issuer shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. For purposes of this Section 7.13 the number of shares of Common Stock or such other shares of common stock that shall be deliverable upon the conversion of all outstanding Securities shall be computed as if at the time of computation all such outstanding Securities were held by a single Holder. (g) The Debenture Issuer shall pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock or other securities or property on conversion of Debentures and the delivery of the shares of Common Stock or other securities or property upon conversion of the Securities. The Debenture issuer shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Trust the 64 70 amount of any such tax, or has established to the satisfaction of the Trust that such tax has been paid. (h) Nothing in the preceding Section 7.13(g) shall limit the requirement of the Trust to withhold taxes pursuant to the terms of the Securities or set forth in this Declaration or otherwise require the Property Trustee or the Trust to pay any amounts on account of such withholdings. (i) Notwithstanding the foregoing, no holder of Common Securities may convert such number of Common Securities which, after giving effect to such conversion, would result in the holders of Common Securities in the aggregate holding less then 3% of the capital of the Trust. SECTION 7.14. MERGER. In the event the Merger (the "MERGER") pursuant to the Merger Agreement is consummated, Lodgian, Inc. ("LODGIAN"), the successor corporation in the Merger, shall assume the Sponsor's obligations under the Declaration and shall execute and deliver such documents as may be necessary to carry out the intent of this Section. From and after the Merger and the assumption by Lodgian of Servico, Inc.'s obligations hereunder, Servico, Inc. shall be released from its obligations under this Declaration as Sponsor or otherwise. Following the Merger, all references to Servico, Inc., the Sponsor, the Common Securities Holder and the Debenture Issuer herein shall instead refer to Lodgian. SECTION 7.15. OPTIONAL REPURCHASE. (a) In the event that the Merger Agreement is terminated or the Merger has not been consummated by December 31, 1998, each Holder of a CRESTS shall have the right to require the Debenture Issuer to repurchase Debentures in aggregate principal amount equal to the aggregate liquidation amount of CRESTS that a Holder elects to cause the Trust to repurchase pursuant to the Non-Completion Offer, at an offer price in cash (the "NON-COMPLETION PAYMENT") equal to 101% of the aggregate principal amount thereof plus accrued and unpaid Distributions thereon, to the date of repurchase. (b) Within 20 days after the Date of Non-Completion, the Regular Trustees shall cause the Trust to issue a press release and mail a notice (the "NON-COMPLETION NOTICE") to each Holder offering to repurchase the CRESTS, on the date specified in the Non-Completion Notice (the "NON-COMPLETION PAYMENT DATE"), which date shall be not earlier than 30 days and not later than 60 days from the date such Non-Completion Notice is mailed, pursuant to the procedures required in the Indenture and described in such Notice. The Debenture Issuer shall, and the Regular Trustees shall cause the Trust to, comply with the requirements of Rule 13e-4 under the Exchange Act and any other securities laws 65 71 and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Debentures and the CRESTS. (c) On the Non-Completion Payment Date, the Debenture Issuer shall, to the extent lawful, (i) deposit with the Property Trustee an amount equal to the Non-Completion Payment in respect of the aggregate amount of Debentures tendered by the Property Trustee and (ii) deliver or cause to be delivered to the Debenture Trustee the Debentures so tendered together with a certification setting forth the aggregate principal amount of Debentures or portions thereof being purchased by the Debenture Issuer. (d) On the Non-Completion Payment Date, the Property Trustee shall, to the extent lawful and to the extent that funds are available, (i) tender to the Debenture Issuer an aggregate principal amount of Debentures equal to the aggregate liquidation amount of CRESTS properly tendered by Holders pursuant to the Non-Completion Offer, (ii) accept for payment all CRESTS or portions thereof properly tendered pursuant to the Non-Completion Offer, (iii) deposit irrevocably with the Depositary an amount equal to the Non-Completion Payment in respect of all CRESTS or portions thereof so tendered which were represented by one or more Global Securities and give the Depositary irrevocable instructions and authority to pay the Non-Completion Payment to the relevant accounts at the Depositary or, if any CRESTS so tendered are not represented by one or more Global Securities, deposit irrevocably with the Paying Agent for such CRESTS an amount equal to the Non-Completion Payment in respect of such CRESTS and give such Paying Agent irrevocable instructions and authority to pay the Non-Completion Payment to the holders thereof. (e) The Trust shall promptly authenticate and deliver (or cause to be transferred by book-entry) to each Holder a new CRESTS equal in liquidation amount to any unpurchased portion of the CRESTS surrendered, if any. ARTICLE 8 DISSOLUTION AND TERMINATION OF TRUST SECTION 8.01. DISSOLUTION AND TERMINATION OF TRUST. (a) The Trust shall dissolve upon the earliest of: (i) the bankruptcy of the Holder of the Common Securities or the Sponsor; 66 72 (ii) (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, this Declaration or the Guarantee) the filing of a certificate of dissolution or its equivalent with respect to the Sponsor, the filing of a certificate of cancellation with respect to the Trust after obtaining the consent of the Holders of at least a Majority in Liquidation Amount of the Securities to the filing of a certificate of cancellation with respect to the Trust or the revocation of the Sponsor's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) the entry of a decree of judicial dissolution of the Sponsor or the Trust; (iv) the time when all of the Securities shall have been called for redemption and the amounts then due shall have been paid to the Holders in accordance with the terms of the Securities; (v) upon the election of the Regular Trustees, following the occurrence and continuation of a Special Event pursuant to which the Trust shall have been dissolved in accordance with the terms of the Securities, and all of the Debentures shall have been distributed to the Holders of Securities in exchange for all of the Securities; (vi) the time when all of the Regular Trustees and the Sponsor shall have consented to dissolution of the Trust PROVIDED such action is taken before the issuance of any Securities; (vii) upon the distribution of the Common Stock to all Holders of CRESTS upon conversion of all outstanding CRESTS; or (viii) the expiration of the term of the Trust on June 30, 2020. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.01(a) and upon completion of the winding up and liquidation of the Trust, the Trustees shall terminate the Trust by filing a certificate of cancellation with the Secretary of State of the State of Delaware. (c) The provisions of Section 4.02 and Article 9 shall survive the termination of the Trust. SECTION 8.02. LIQUIDATION DISTRIBUTION UPON DISSOLUTION OF THE TRUST. 67 73 (a) In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Trust (each a "LIQUIDATION"), the Holders of the CRESTS on the date of the Liquidation shall be entitled to receive, out of the assets of the Trust available for distribution to Holders of Securities after satisfaction of the Trust's liabilities to creditors, if any, distributions in cash or other immediately available funds in an amount equal to the aggregate of the stated liquidation amount of $50 per Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "LIQUIDATION DISTRIBUTION"), unless, in connection with such Liquidation, Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accumulated and unpaid Distributions on, such Securities shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities. (b) If, upon any such Liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a Pro Rata basis. The Holders of the Common Securities shall be entitled to receive distributions upon any such Liquidation Pro Rata with the Holders of the CRESTS except that if an Indenture Event of Default has occurred and is continuing, the CRESTS shall have a preference over the Common Securities with regard to such distributions. ARTICLE 9 LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, DELAWARE TRUSTEES OR OTHERS SECTION 9.01. LIABILITY. (a) Except as expressly set forth in this Declaration, the Guarantee and the terms of the Securities, the Sponsor: (i) shall not be personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; and (ii) shall not be required to pay to the Trust or to any Holder of Securities any deficit upon dissolution of the Trust or otherwise. (b) Pursuant to Section 3803(a) of the Business Trust Act, the Holder of the Common Securities shall be entitled to the same limitation of personal liability 68 74 extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; PROVIDED, however, the Holders of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of the CRESTS shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 9.02. EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 9.03. FIDUCIARY DUTY. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to another Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the 69 75 Property Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Persons; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "DISCRETION" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "GOOD FAITH" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 9.04. INDEMNIFICATION. (a) (i) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Debenture Issuer Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit 70 76 or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Debenture Issuer Indemnified Person against expenses (including attorney fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the Debenture Issuer Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Debenture Issuer Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Debenture Issuer Indemnified Person against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim issue or matter as to which such Debenture Issuer Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) Any indemnification under paragraphs (i) and (ii) of this Section 9.04(a) (unless ordered by a court) shall be made by the Debenture Issuer only as authorized in the specific case upon a determination that indemnification of the Debenture Issuer Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Regular Trustees by a majority vote of a quorum consisting of such Regular Trustees who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum 71 77 of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion, or (3) by the Common Security Holder of the Trust. (iv) Expenses (including attorneys' fees) incurred by a Debenture Issuer Indemnified Person in defending a civil criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 9.04(a) shall be paid by the Debenture Issuer in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Debenture Issuer Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be Indemnified by the Debenture Issuer as authorized in this Section 9.04(a). Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer if a determination is reasonably and promptly made (i) by the Regular Trustees by a majority vote of a quorum of disinterested Regular Trustees, (ii) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion or (iii) the Common Security Holder of the Trust, that, based upon the facts known to the Regular Trustees, counsel or the Common Security Holder at the time such determination is made, such Debenture Issuer Indemnified Person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Debenture Issuer Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Regular Trustees, independent legal counsel or Common Security Holder reasonably determine that such person deliberately breached his duty to the Trust or its Common or CRESTS Holders. (v) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 9.04(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Debenture Issuer or CRESTS Holders of the Trust or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 9.04(a) (a) shall be deemed to be provided by a contract between the Debenture Issuer and each Debenture Issuer Indemnified Person who serves in such capacity at any time while this Section 9.04(a) is in effect. Any repeal or modification of this Section 9.04(a) shall not affect any rights or obligations then existing. 72 78 (vi) The Debenture Issuer or the Trust may purchase and maintain insurance on behalf of any person who is or was a Debenture Issuer Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Debenture Issuer would have the power to indemnify him against such liability under the provisions of this Section 9.04(a). (vii) For purposes of this Section 9.04(a), references to "THE TRUST" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 9.04(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (viii) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 9.04(a) shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Debenture Issuer Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a person. The obligation to indemnify as set forth in this Section 9.04(a) shall survive the resignation or removal of the Delaware Trustee or the Property Trustee or the termination of this Declaration. (b) The Debenture Issuer agrees to indemnify the (i) Property Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee and the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Property Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "FIDUCIARY INDEMNIFIED PERSON") for, and to hold each Fiduciary Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 9.04(a) shall survive the satisfaction and discharge of this Declaration. 73 79 SECTION 9.05. OUTSIDE BUSINESS. Any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the activities of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the activities of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE 10 ACCOUNTING SECTION 10.01. FISCAL YEAR. The fiscal year ("FISCAL YEAR") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 10.02. CERTAIN ACCOUNTING MATTER. (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Regular Trustees. (b) The Regular Trustees shall cause to be prepared and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of 74 80 the Trust as of the end of such Fiscal Year, and the related statements of income or loss. (c) The Regular Trustees shall cause to be duly prepared and delivered to each of the Holders of Securities, an annual United States federal income tax information statement, required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (d) The Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority, an annual United States federal income tax return, on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. SECTION 10.03. BANKING. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; PROVIDED, however, that all payments of funds in respect of the Debentures held by the Property Trustee shall be made directly to the Property Account and no other funds of the Trust shall be deposited in the Property Account. The sole signatories for such accounts shall be designated by the Regular Trustees, PROVIDED, however, that the Property Trustee shall designate the signatories for the Property Account. SECTION 10.04. WITHHOLDING. The Trust and the Regular Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Regular Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed over withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. 75 81 ARTICLE 11 AMENDMENTS AND MEETINGS SECTION 11.01. AMENDMENTS. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by the Sponsor and (i) the Regular Trustees (or, if there are more than two Regular Trustees, a majority of the Regular Trustees) and (ii) the Property Trustee if the amendment affects the rights, powers, duties, obligations or immunities of the Property Trustee and (iii) by the Delaware Trustee if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee. (b) No amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless, in the case of any proposed amendment, the Property Trustee shall have first received an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); (ii) unless, in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee shall have first received: (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (iii) to the extent the result of such amendment would be to: (A) cause the Trust to be classified other than as a grantor trust for United States federal income tax purposes; (B) reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act; or 76 82 (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act. (c) At such time after the Trust has issued any Securities that remain outstanding, any amendment that would (i) change the amount or timing of any distribution of the Securities or otherwise adversely affect the amount of any distribution required to be made in respect of the Securities as of a specified date or (ii) restrict the right of a Holder of Securities to institute suit for the enforcement of any such payment on or after such date, then the holders of the Securities voting together as a single class shall be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of each of the Holders of the Securities affected thereby; PROVIDED that, if any amendment or proposal that would adversely affect the powers, preferences or special rights of only the CRESTS or the Common Securities, whether by amendment to the Declaration or otherwise, then only the affected class shall be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of 662/3% in liquidation amount of such class of Securities affected thereby. (d) This Section 11.01 shall not be amended without the consent of all of the Holders of the Securities. (e) Article 4 shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities. (f) The rights of the Holders of the Common Securities under Article 6 to increase or decrease the number of, and appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities. (g) Notwithstanding Section 11.01(c), this Declaration may be amended without the consent of the Holders of the Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration or to make any other provisions with respect to matters or questions arising under this Declaration which are not inconsistent with the other provisions of this Declaration; 77 83 (iii) add to the covenants, restrictions or obligations of the Sponsor, (iv) to conform to any change in Rule 3a-5 or written change in interpretation or application of Rule 3a-5 by any legislative body, court, government agency or regulatory authority which amendment does not have a material adverse effect on the rights, preferences or privileges of the Holders; or (v) to modify, eliminate and add to any provision of this Declaration to ensure that the Trust shall be classified as a grantor trust for United States federal income tax purposes at all times that any Securities are outstanding or to ensure that the Trust shall not be required to register as an Investment Company under the Investment Company Act; PROVIDED, however, that such modification, elimination or addition would not adversely affect in any material respect the rights, privileges or preferences of any Holder of the Securities. SECTION 11.02. MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN CONSENT. (a) Meetings of the Holders of any class of Securities may be called at any time by the Regular Trustees to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the CRESTS are listed or admitted for trading. The Regular Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in Liquidation Amount of such class of Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Certificates held by the Holders of Securities exercising the right to call a meeting and only those Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of Securities: (i) notice of any such meeting shall be given to all the Holders of Securities having a right to vote thereat at least 7 days and not more than 78 84 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange on which the CRESTS are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Securities owning not less than the minimum amount of Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Security Holders for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Securities executing such proxy. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and (iv) unless the Business Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the CRESTS are then listed for trading, otherwise provides, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, 79 85 quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE 12 REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 12.01. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE. The Trustee that acts as initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee that: (a) the Property Trustee is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (b) the Property Trustee satisfies the requirements set forth in Section 6.03(a)); (c) the execution, delivery and performance by the Property Trustee of this Declaration has been duly authorized by all necessary corporate action on the part of the Property Trustee. This Declaration has been duly executed and delivered by the Property Trustee, and it constitutes a legal valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (d) the execution, delivery and performance of this Declaration by the Property Trustee does not conflict with or constitute a breach of the articles of association or incorporation, as the case may be, or the by-laws (or other similar organizational documents) of the Property Trustee; and (e) no consent, approval or authorization of, or registration with or notice to, any Delaware or federal banking authority is required for the execution, delivery or performance by the Property Trustee of this Declaration. 80 86 SECTION 12.02. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE TRUSTEE. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee that: (a) the Delaware Trustee satisfies the requirements set forth in Section 6.02 and has the power and authority to execute and deliver, and to carry out and perform its obligations under the terms of this Declaration and, if it is not a natural person, is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization; (b) the Delaware Trustee has been authorized to perform its obligations under the Certificate of Trust and this Declaration. This Declaration under Delaware law constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); and (c) no consent, approval or authorization of, or registration with or notice to, any Delaware or federal banking authority is required for the execution, delivery or performance by the Delaware Trustee of this Declaration. ARTICLE 13 MISCELLANEOUS SECTION 13.01. NOTICES. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Property Trustee, the Delaware Trustee and the Holders of the Securities): Servico, Inc. 1601 Belvedere Road West Palm Beach, Florida 33406 81 87 Attention: Chief Executive Officer Telecopy No: 561-689-8946 (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as the Delaware Trustee may give notice of to the Regular Trustees, the Property Trustee and the Holders of the Securities): Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Administration Telecopy No: 302-651-8882 (c) if given to the Property Trustee, at its Corporate Trust Office (or such other address as the Property Trustee may give notice of to the Regular Trustees, the Delaware Trustee and the Holders of the Securities); (d) if given to the Sponsor, the Holder of the Common Securities, or Lodgian at the mailing address set forth below (or such other address as the Holder of the Common Securities may give notice of to the Property Trustee, the Delaware Trustee and the Trust): Servico, Inc. 1601 Belvedere Road West Palm Beach, Florida 33406 Attention: Chief Executive Officer Telecopy No: 561-689-8946 (e) if given to any other Holder, at the address set forth on the register of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 13.02. GOVERNING LAW. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware. 82 88 SECTION 13.03. INTENTION OF THE PARTIES. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted in a manner consistent with such classification. SECTION 13.04. HEADINGS. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 13.05. SUCCESSORS AND ASSIGNS. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 13.06. PARTIAL ENFORCEABILITY. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 13.07. COUNTERPARTS. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. 83 89 IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as of the day and year first above written. SERVICO, INC., as Sponsor and as Common Securities Holder BY: /s/ Charles M. Diaz --------------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary WILMINGTON TRUST COMPANY, as Property Trustee and as Delaware Trustee BY: /s/ W. Christopher Sponenberg --------------------------------------- Name: W. Christopher Sponenberg Title: Senior Financial Services Officer David Buddemeyer, as Regular Trustee /s/ David Buddemeyer --------------------------------------- Phillip R. Hale, as Regular Trustee /s/ Phillip R. Hale --------------------------------------- Charles M. Diaz, as Regular Trustee /s/ Charles M. Diaz --------------------------------------- 84 90 LODGIAN, INC. BY: /s/ Charles M. Diaz --------------------------------------- Name: Charles M. Diaz Title: Vice President and Secretary 85 91 EXHIBIT A [FORM OF CRESTS CERTIFICATE] This CRESTS is a Global Security within the meaning of the Declaration hereinafter referred to and is registered in the name of The Depository Trust Company, a New York corporation (the "DEPOSITARY"), or a nominee of the Depositary. This CRESTS is exchangeable for CRESTS registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Declaration and no transfer of this CRESTS (other than a transfer of this CRESTS as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary) may be registered except in limited circumstances. Unless this CRESTS Certificate is presented by an authorized representative of the Depositary to the issuer or its agent for registration of transfer, exchange or payment, and any CRESTS Certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of the Depositary (and any payment hereon is made to Cede & Co. or to such other entity as is requested by an authorized representative of the Depositary), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. THIS SECURITY, COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, THE GUARANTEE AND THE CONVERTIBLE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION IN THESE SECURITIES MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITIES, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE COMPANY WAS THE OWNER OF SUCH A-1 92 SECURITIES (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS SUCH SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING SUCH SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, OR AS FIDUCIARY FOR THE ACCOUNT OF ONE OR MORE TRUSTS, EACH OF WHICH IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a) (7) OF RULE 501 UNDER THE SECURITIES ACT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, SUBJECT IN EACH OF THE FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THESE SECURITIES BEING COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY SHALL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) BY REASON OF THE APPLICATION OF ONE OR MORE STATUTORY OR ADMINISTRATIVE EXEMPTIONS FROM THE PROHIBITED TRANSACTION RULES OF SECTION 406 OF ERISA AND SECTION 4975 OF THE CODE, ITS PURCHASE AND HOLDING OF CRESTS SHALL NOT CONSTITUTE, CAUSE OR RESULT IN THE A-2 93 OCCURRENCE OF A NON-EXEMPT PROHIBITED TRANSACTION WITHIN THE MEANING OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE. THIS LEGEND SHALL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT RELATING TO THE SECURITIES. Certificate No. Number of CRESTS: 3,500,000 CUSIP No. 540217106 Certificate Evidencing 7% Convertible Redeemable Equity Structured Trust Securities ("CRESTS") of Lodgian Capital Trust I 7% Convertible Redeemable Equity Structured Trust Securities (liquidation amount $50 per CRESTS) Lodgian Capital Trust I, a statutory business trust formed under the laws of the State of Delaware (the "TRUST"), hereby certifies that Cede & Co. (the "HOLDER") is the registered owner of 3,500,000 CRESTS of the Trust representing undivided beneficial ownership interests in the assets of the Trust designated the 7% Convertible Redeemable Equity Structured Trust Securities ("CRESTS") (liquidation amount $50 per CRESTS). The CRESTS are transferable on the register of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in the Declaration (as defined below). The designation, rights, privileges, restrictions, preferences and other terms and provisions of the CRESTS are set forth in, and the CRESTS represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust, dated as of June 17, 1998 (as the same may be amended from time to time (the "DECLARATION")), among Servico, Inc., as Sponsor, David Buddemeyer, Phillip R. Hale and Charles M. Diaz, as Regular Trustees, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and Lodgian, Inc. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Guarantee to the extent described therein. The Sponsor shall provide a copy of the Declaration, the Guarantee and the Indenture to a Holder without charge upon written request to the Sponsor at its principal place of business. A-3 94 Upon repayment of the Debentures, in whole, or in part, whether at maturity or upon redemption, the proceeds from such repayment or payment shall be substantially simultaneously applied to redeem the CRESTS as provided in the Declaration. The CRESTS shall be exchangeable at the option of the Debenture Issuer upon certain events as set forth in the Declaration and in the Supplemental Indenture. The CRESTS shall be exchangeable for Debentures for conversion into shares of Common Stock or other shares of common stock of the Debenture Issuer at the holder's direction to the Conversion Agent as set forth in the Declaration. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the CRESTS as evidence of undivided indirect beneficial ownership interests in the Debentures. A-4 95 IN WITNESS WHEREOF, the Trust has executed this certificate this ____________ day of _______, 1998. LODGIAN CAPITAL TRUST I By: ---------------------------------------- Name: Title: Regular Trustee This is one of the Securities referred to in the within-mentioned Declaration. WILMINGTON TRUST COMPANY, as Property Trustee BY: ---------------------------------------- Name: Title: A-5 96 ASSIGNMENT FORM To assign this CRESTS, fill in the form below: I or we assign and transfer this CRESTS to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this CRESTS on the books of the Sponsor. The agent may substitute another to act for him. - ------------------------------------------------------------------------------- Date: Your Signature: ------------------------ ---------------------------- Signature Guarantee: -------------------------------------------- (Signature must be guaranteed)* - ------------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this CRESTS. In connection with any transfer or exchange of any of the CRESTS evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such CRESTS and the last date, if any, on which such Securities were owned by the Sponsor or any Affiliate of the Sponsor, the undersigned confirms that such CRESTS are being: [Check One] (1) _____ to the Sponsor or a subsidiary thereof; or (2) _____ pursuant to a registration statement which has been declared effective under the Securities Act of 1933, as amended (the "SECURITIES ACT"); (3) _____ for so long as the CRESTS are eligible for resale pursuant to Rule 144A under the Securities Act, to a person the undersigned reasonably believes is a "qualified institutional buyer" as defined in - -------- * The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15. A-6 97 Rule 144A that purchases for its own account or for the account of a qualified institutional buyer to whom notice is give that the transfer is being made in reliance on Rule 144A; or (4) _____ to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act, that is acquiring such securities for its own account, or for the account of such an institutional Accredited Investor, or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of subparagraph (a)(7) of Rule 501 under the Securities Act, for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act; or (5) _____ pursuant to another available exemption from the registration requirements of the Securities Act. Unless one of the boxes is checked, the Trustees shall refuse to register any of the CRESTS evidenced by this certificate in the name of any person other than the registered Holder thereof; PROVIDED, however, that if box (5) is checked, the Sponsor or the Trustees may require, prior to registering any such transfer of the CRESTS, in its sole discretion, such written legal opinions, certifications and other information satisfactory to the Sponsor. Dated: Signed: -------------------------- ------------------------------------ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ----------------------------------------------------------- TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this CRESTS for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "QUALIFIED INSTITUTIONAL BUYER" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Sponsor as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. A-7 98 Dated: -------------------------------- ------------------------------------- NOTICE: To be executed by an executive officer A-8 99 CONVERSION REQUEST To: Wilmington Trust Company as Conversion Agent of Lodgian Capital Trust I The undersigned Holder of these Convertible Redeemable Equity Structured Trust Securities ("CRESTS") hereby irrevocably exercises the option to convert these CRESTS, or the portion below designated, into Common Stock of [Servico, Inc.] [Lodgian, Inc.] (the "COMPANY") (the "COMMON STOCK"), or any other class of common stock of the Company as permitted by the Articles of Incorporation of the Company, in accordance with the terms of the Amended and Restated Declaration of Trust of Lodgian Capital Trust I, dated as of June 17, 1998 (as amended from time to time, the "DECLARATION"). Pursuant to the aforementioned exercise of the option to convert these CRESTS, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) on behalf of the undersigned to (i) exchange such CRESTS for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the CRESTS set forth in the Declaration) and (ii) immediately convert such Debentures, into Common Stock or any such other class of common stock pursuant to the terms of the Indenture (as defined in the Declaration). However, CRESTS surrendered for conversion during the period between the close of business on any distribution record date and the opening of business on the corresponding distribution payment date (except CRESTS called for redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the Distribution payable on such shares on such distribution payment date. The undersigned does also hereby direct the Conversion Agent that the shares of Common Stock, or other class of common stock of the Company, issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto. Date: Number of CRESTS to be converted: in whole: /__/ in part /___/ If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock, or other class of common stock of the Company, are to be issued, along with the address or addresses of such person or persons Signature (for conversion only) A-9 100 Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number Signature Guarantee:* - -------- * The signature(s) should be guaranteed by an eligible institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guaranteed medallion program), pursuant to SEC Rule 17Ad-15. A-10 101 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this CRESTS Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee and irrevocably appoints agent to transfer this CRESTS Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: Signature: (Sign exactly as your name appears on the other side of this CRESTS Certificate) Signature Guarantee* - -------- * The signature(s) should be guaranteed by an eligible institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guaranteed medallion program), pursuant to SEC Rule 17Ad-15. A-11 102 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this CRESTS purchased by the Debenture Issuer pursuant to Section 7.15 of the Declaration, check the Box: |_| If you wish to have a portion of this CRESTS purchased by the Debenture Issuer pursuant to Section 7.15 of the Declaration, state the amount: maturity: $______________. Date: ________________ Your Signature: ____________________________________________ (Sign exactly as your name appears on the other side of this CRESTS) Signature Guarantee:*__________________________ - -------- * The signature(s) should be guaranteed by an eligible institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guaranteed medallion program), pursuant to SEC Rule 17Ad-15. A-12 103 SCHEDULE I CHANGES TO NUMBER OF CRESTS IN GLOBAL SECURITY
NUMBER OF CRESTS BY WHICH THIS GLOBAL SECURITY IS TO BE REDUCED OR INCREASED, REMAINING CRESTS AND REASON FOR REPRESENTED BY THIS NOTATION DATE REDUCTION OR INCREASE GLOBAL SECURITY MADE BY - -------- ---------------------- ------------------- -------- - -------- ---------------------- ------------------- -------- - -------- ---------------------- ------------------- -------- - -------- ---------------------- ------------------- -------- - -------- ---------------------- ------------------- -------- - -------- ---------------------- ------------------- -------- - -------- ---------------------- ------------------- -------- - -------- ---------------------- ------------------- -------- - -------- ---------------------- ------------------- --------
A-13 104 EXHIBIT B [FORM OF COMMON SECURITY CERTIFICATE] THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT IN COMPLIANCE WITH APPLICABLE LAW AND THE PROVISIONS OF THE DECLARATION. Certificate No. Number of Common Securities: 108,248 Certificate Evidencing 7% Common Securities of Lodgian Capital Trust I 7% Common Securities (liquidation amount $50 per Common Security) Lodgian Capital Trust I, a statutory business trust formed under the laws of the State of Delaware (the "TRUST"), hereby certifies that SERVICO, INC., (the "HOLDER") is the Registered owner of 108,248 common securities of the Trust representing an undivided beneficial ownership interest in the assets of the Trust designated the 7% Common Securities (liquidation amount $50 per Common Security) (the "COMMON SECURITIES"). The Common Securities are not transferable except in compliance with the provisions of the Declaration and any attempted transfer thereof shall be void. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and the Common Securities represented hereby are issued and shall in all respects be subject to, the provisions of the Amended and Restated Declaration of Trust of the Trust, dated as of June 17, 1998 (as the same may be amended from time to time, the "DECLARATION"), among Servico, Inc. as Sponsor, David Buddemeyer, Phillip R. Hale and Charles M. Diaz as Regular Trustees, Wilmington Trust Company as Property Trustee and as Delaware Trustee and Lodgian, Inc. The Holder is entitled to the benefits of the Guarantee to the extent described therein. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Sponsor shall provide a copy of the Declaration, the Guarantee and the Indenture to the Holder without charge upon written request to the Sponsor at its principal place of business. Upon repayment of the Debentures, in whole or in part, whether at maturity or upon redemption, the proceeds from such repayment or payment shall be substantially simultaneously applied to redeem the Common Securities as provided in the Declaration. B-1 105 The Common Securities shall be exchangeable at the option of the Debenture Issuer upon certain events as set forth in the Declaration and in the Supplemental Indenture. The Common Securities shall be exchangeable for Debentures for conversion into shares of Common Stock at the Holder's direction to the Conversion Agent as set forth in the Declaration. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. B-2 106 By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of an undivided indirect beneficial ownership interest in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this _____ day of _____ 1998. LODGIAN CAPITAL TRUST I By: --------------------------------------- Name: Title: Regular Trustee B-3 107 CONVERSION REQUEST To: Wilmington Trust Company, as Conversion Agent of Lodgian Capital Trust I The undersigned Holder of these Common Securities hereby irrevocably exercises the option to convert these Common Securities, or the portion below designated, into Common Stock of Servico, Inc. (the "COMMON STOCK"), or any other class of common stock of Servico, Inc. as permitted by the Articles of Incorporation of Servico, Inc., in accordance with the terms of the Amended and Declaration of Trust of Lodgian Capital Trust I, dated as of June 17, 1998 (as amended from time to time, the "DECLARATION"). Pursuant to the aforementioned exercise of the option to convert these Common Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) on behalf of the undersigned to (i) exchange such Common Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Common Securities set forth as Annex I to the Declaration) and (ii) immediately convert such Debentures into Common Stock pursuant to the terms of the Indenture (as defined in the Declaration). However, Common Securities surrendered for conversion during the period between the close of business on any distribution record date and the opening of business on the corresponding distribution payment date (except Common Securities called for redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the Distribution payable on such shares on such distribution payment date. The undersigned does also hereby direct the Conversion Agent that the shares of Common Stock issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto. Date: ___________, in whole /__/ in part /__/ Number of Common Securities to be converted: If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of ____________ Stock are to be issued, along with the address or addresses of such person or persons Signature (for conversion only) B-4 108 Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number Signature Guarantee *: - -------- * The signature(s) should be guaranteed by an eligible institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guaranteed medallion program), pursuant to SEC Rule 17Ad-15. B-5 109 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints _______ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: Signature: (Sign exactly as your name appears on the other side of this Common Security Certificate) Signature Guarantee*: - -------- * The signature(s) should be guaranteed by an eligible institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guaranteed medallion program), pursuant to SEC Rule 17Ad-15. B-6 EX-10.9 10 EMPLOYMENT AGREEMENT-BUDDEMEYER 1 EXHIBIT 10.9 EMPLOYMENT AGREEMENT Employment Agreement dated as of ____________, 1998 between DAVID A. BUDDEMEYER (the "Executive") and LODGIAN, INC., a Delaware corporation (the "Company"). RECITALS The Company desires to employ the Executive as Chief Executive Officer, and the Executive desires to accept such employment, for the term and upon the other conditions hereinafter set forth. As a condition of entering into this Agreement, the Executive agrees to waive the Executive's rights, if any, against the Company and any predecessor company under (i) any employment agreement and (ii) any other plan, arrangement or agreement of any kind that provides any form of severance payments. The parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company. STATEMENT OF AGREEMENT 1. Employment The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein. 2. Term. The Executive shall be considered an at-will employee and his employment may be terminated by either party subject to the obligations of the parties upon such termination as may be set forth hereinafter. 3. Position and Duties (a) Position. The Executive will be employed as the Chief Executive Officer of the Company or in such other executive and managerial capacities as determined by the Board of Directors of the Company (the "Board"). (b) Business Time. During the term of this Agreement, the Executive agrees to devote his full business time during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for: 2 (i) time spent managing his personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation to which he is entitled. (c) Duties. During the term of this Agreement, the Executive shall perform the duties normally associated with his position as Chief Executive Officer and consistent with the Company's Bylaws and such other duties as may be requested by the Board from time to time. (d) Co-Chairman. As long as the Executive is employed the Company and serves on the Company's Board of Directors, he shall have the position as Co-Chairman. In the event he is no longer employed by the Company hereunder, he shall resign as a member of the Board and as Co-Chairman. 4. Place of Performance. The Executive shall perform his duties and conduct his business at the principal executive offices of the Company, except for required travel on the Company's business. 5. Salary and Annual Bonus. (a) Base Salary. The Executive shall receive a base salary (the "Base Salary") payable in equal bi-weekly installments at an annual rate of $405,000. The Company will review the Base Salary periodically and in light of such review may increase (but not decrease) the Base Salary taking into account any change in the Executive's responsibilities, increases in compensation of other executives with comparable responsibilities, performance of the Executive and other pertinent factors, and such adjusted Base Salary shall then constitute the "Base Salary" for purposes of this Agreement. Neither the Base Salary nor any increase in the Base Salary after the date hereof shall serve to limit or reduce any other obligation of the Company hereunder. (b) Annual Bonus. The Company shall provide the Executive with an annual bonus plan providing the Executive with an opportunity to earn an annual bonus equal to one hundred percent (100%) (the "Bonus") of his Base Salary if the Company achieves for the relevant year certain financial targets established pursuant to such plan. 6. Vacation, Holidays and Sick Leave. During the term of this Agreement, the Executive shall be entitled to paid vacation, paid holidays and sick leave in accordance with the Company's standard policies for its similarly situated executives. 7. Business Expenses. The Executive shall be reimbursed for all ordinary and necessary business expenses incurred by him in connection with his employment upon timely submission by the Executive of receipts and other documentation as required by the Internal Revenue Code and in conformance with the Company's normal procedures. -2- 3 8. Pension and Welfare Benefits. During the term of this Agreement, the Executive shall be eligible to participate fully in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements available to similarly situated executives of the Company generally. 9. Stock Options. The Company, pursuant to the terms of its stock option plan, may grant to the Executive, nonqualified stock options, incentive stock options or a combination thereof to purchase a number of shares of common stock. 10. Termination of Employment. (a) Death or Disability. (i) The Executive's employment hereunder shall automatically terminate upon the death of the Executive. (ii) The Company may terminate the Executive's employment upon the Executive's Disability by giving to the Executive written notice of its intention to terminate his employment, and his employment with the Company shall terminate effective on the ninetieth (90th) day after receipt of such notice if the Executive shall fail to return to full-time performance of his duties within ninety (90) days after such receipt. For the purposes of this Agreement, "Disability" means: (1) the inability of the Executive to perform his duties under this Agreement for a period of ninety (90) consecutive days due to accident, illness or any other physical or mental incapacity, or (2) a disability of the Executive within the meaning of Section 72(m)(7) of the Internal Revenue Code, that is, the Executive is unable to engage in any substantial gainful activity with the Company or any other employer, by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration, or (3) the Executive becomes entitled to: (A) disability retirement benefits under the Federal Social Security Act, or (B) receive benefits under any long-term disability plan or policy maintained by the Company. -3- 4 (c) Termination by the Company. The Company may terminate the Executive's employment hereunder at any time, whether or not for Cause. For purposes of this Agreement, "Cause" means: (i) the failure or refusal by the Executive to perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), which has not ceased within ten (10) days after a written demand for substantial performance is delivered to the Executive by the Company, which demand identifies the manner in which the Company believes that the Executive has not performed such duties, (ii) the engaging by the Executive in willful misconduct or an act of moral turpitude which is materially injurious to the Company, monetarily or otherwise (including, but not limited to, conduct which violates Section 13 hereof) or (iii) the conviction of the Executive of, or the entering of a plea of nolo contendere by, the Executive with respect to, a felony. (d) Termination by the Executive. The Executive shall be entitled to terminate his employment hereunder: (i) for Good Reason, (ii) if his health should become impaired to an extent that makes his continued performance of his duties hereunder hazardous to his physical or mental health, provided that the Executive shall have furnished the Company with a written statement from a qualified doctor to such effect and provided, further, that, at the Company's request, the Executive shall submit to an examination by a doctor selected by the Company and such doctor shall have concurred in the conclusion of the Executive's doctor or (iii) without the Executive's express written consent, any failure by the Company to comply with any material provision of this Agreement, which failure has not been cured within ten (10) days after written notice of such noncompliance has been given by the Executive to the Company. For purposes of this Agreement, "Good Reason" shall mean the occurrence, during the term of this Agreement, of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: -4- 5 (A) any material diminution in the Executive's authorities or responsibilities (including reporting responsibilities) or from his status, title, position or responsibilities (including reporting responsibilities); the assignment to him of any duties or work responsibilities which are inconsistent with such status, title, position or work responsibilities; or any removal of the Executive from, or failure to reappoint or reelect him to any of such positions, except if any such changes are because of Disability, retirement, death or Cause; (B) a reduction by the Company in the Executive's Base Salary or Bonus as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any Person (as defined Section 10(h) below) in control of the Company; (C) the relocation of the Executive's place of employment to a location more than fifty (50) miles from its present location, except for required travel on the Company's business; (D) the failure by the Company, without the Executive's consent, to pay to the Executive any portion of the Executive's current compensation; (E) the failure by the Company to provide the Executive with benefits substantially similar to benefits provided to other senior executives of the Company under any of the Company's pension, life insurance, medical, health and accident, or disability plans; (F) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 10(f) below; for purposes of this Agreement, no such purported termination shall be effective. The Executive's continued employment for sixty (60) days following any act or failure to act constituting Good Reason hereunder without the delivery of a Notice of Termination shall constitute consent to, and a waiver of rights with respect to, such act or failure to act. (e) Voluntary Resignation. Should the Executive wish to resign from his position with the Company or terminate his employment for other than Good Reason during the term of this Agreement, the Executive shall give sixty (60) days written notice to the Company ("Notice Period"), setting forth the reasons and specifying the date as of which his resignation is to become effective. During the Notice Period, the Executive shall cooperate fully with the Company in achieving a smooth transition of the Executive's duties and responsibilities to such person(s) as may be designated by the Company. The Company reserves the right to accelerate the Date of Termination by giving the Executive notice and payment of amounts due to the Executive under Section -5- 6 5(a) and, to the extent applicable, Section 5(b) for the balance of the Notice Period. The Company's obligation to continue to employ the Executive or to continue payment of the amounts described in the preceding sentence shall cease immediately if: (1) the Executive has not satisfied his obligations to cooperate fully with a smooth transition or (2) the Company has grounds to terminate the Executive's employment immediately for Cause. (f) Notice of Termination. Any purported termination of the Executive's employment by the Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17. "Notice of Termination" shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (g) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated because of death, the date of the Executive's death, (ii) if the Executive's employment is terminated for Disability, the date Notice of Termination is given, (iii) if the Executive's employment is terminated pursuant to Subsection (c), (d) or (e) hereof or for any other reason (other than death or Disability), the date specified in the Notice of Termination which shall not be less than sixty (60) days from the date such Notice of Termination is given. (h) Change in Control. For purposes of this Agreement, a Change in Control of the Company shall have occurred if (i) any person (as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof), excluding the Company, any Subsidiary and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee) (the Company, all Subsidiaries, and such employee benefit plans and trustees acting as trustees being hereafter referred to as the "Company Group"), but including a 'group' as defined in Section 13(d)(3) of the Exchange Act (a "Person"), becomes the beneficial owner of shares of the Company having at least forty percent (40%) of the total number of votes that may be cast for the election of directors of the Company (the "Voting Shares"); provided that no Change of Control will occur as a result of an acquisition of stock by the Company Group which increases, proportionately, the stock representing the voting power of the Company beneficially owned by such Person above forty percent (40%) of the voting power of the Company, and provided further that if such Person acquires beneficial ownership of stock representing more than forty percent (40%) of the voting power of the Company by reason of share purchases by the Company Group, and after such share purchases by the Company Group acquires any additional shares representing voting power of the Company, then a Change of Control shall occur; -6- 7 (ii) the shareholders of the Company shall approve any merger or other business combination of the Company, sale of the Company's assets or combination of the foregoing transactions (a "Transaction") other than a Transaction involving only the Company and one or more of its Subsidiaries, or a Transaction immediately following which the shareholders of the Company immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity; or (iii) within any 24-month period, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that any director who was not a director as of the effective date of this Plan shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this clause (iii); and provided that any director elected to the Board to avoid or settle a threatened or actual proxy context shall in no event be deemed to be an Incumbent Director. (i) Return of Property. When the Executive ceases to be employed by the Company, the Executive will promptly surrender to the Company all Company property, including without limitation, all records and other documents obtained by him or entrusted to him during the course of his employment with the Company provided, however, that the Executive may retain copies of such documents as necessary for the Executive's personal records for federal income tax purposes. 11. Compensation During Disability; Death or Upon Termination. (a) During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), the Executive shall continue to receive his Base Salary at the rate then in effect for such period until his employment is terminated pursuant to Section 10(a)(ii) hereof, provided that payments so made to the Executive during the Disability Period shall be reduced by the sum of the amounts, if any, payable to the Executive with respect to such period under disability benefit plans of the Company or under the Social Security disability insurance program, and which amounts were not previously applied to reduce any such payment. (b) If the Executive's employment is terminated by his death or Disability, the Company shall pay (i) any Base Salary due to the Executive under Section 5(a) through the date of such termination and (ii) if the Executive's Date of Termination is after June 30 of the fiscal year in which the Date of Termination occurs, an amount equal to the Bonus he would have received for the fiscal year that ends on or immediately after the Date of Termination, assuming the Company achieved the lowest target level for which a bonus is paid under the plan described in Section 5(b), prorated for the period beginning -7- 8 on the first day of the fiscal year in which occurs the Date of Termination through the Date of Termination. (c) If the Executive's employment is terminated by the Company for Cause or by the Executive for other than Good Reason, the Company shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to the Executive under this Agreement. (d) If following a Change in Control (A) the Company terminates the Executive's employment without Cause, or (B) the Executive terminates his employment for Good Reason or under clause (iii) of Section 10(d) hereof, then (i) the Company shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination under any compensation plan or program of the Company, at the time such payments are due; (ii) the Company shall pay the Executive, in a lump sum, two and one-half times his Base Salary at the rate in effect of the Date of Termination; (iii) the Company shall pay the Executive, in a lump sum, an amount equal to the greater of: (I) the Executive's Bonus that would have been paid for the period beginning on the last day of the fiscal year in which the Date of Termination occurs or (II) the average of the Executive's Bonus payable for the three fiscal years immediately preceding the fiscal year in which occurs the Date of Termination; (iv) provided that there are no adverse tax consequences, the Company shall continue coverage for the Executive, on the same terms and conditions as would be applicable if the Executive were an active Employee, under the Company's life insurance, medical, health and similar welfare benefit plans (other then group disability benefits) for a period of twelve (12) months. Benefits otherwise receivable by the Executive pursuant to this Section 11(d)(iv) shall be reduced to the extent comparable benefits are actually received by the Executive from a subsequent employer during the period during which the Company is required to provide such benefits, and the Executive shall report any such benefits actually received by him to the Company. In lieu of continued participation in life insurance, medical, health and similar welfare benefit plans, the Executive may elect by written notice delivered to the Company prior to the Date of Termination, to receive an amount equal to the annual cost to the Company (based on premium rates) of providing such coverage. In the event that adverse tax consequences would result from the continuation of benefits under this Section 11(d)(iv), the Company may pay to the Executive an amount equal to the annual cost to the Company (based on premium rates) of providing such coverage; -8- 9 (v) the payments provided for in this Section 11(d) (other than Section 11(d)(iv)) shall be made not later than the thirtieth (30th) day following the Date of Termination. At the time that payments are made under this Section 11(d), the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement); and (vi) any unvested, outstanding stock options or other equity-based incentive shall fully vest as of the Date of Termination. (e) If, prior to any Change of Control, the Executive terminates his employment under clause (iii) of Section 10(d) hereof or the Company terminates the Executive's employment without Cause, then (i) the Company shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination under any compensation plan or program of the Company, at the time such payments are due; (ii) the Company shall pay the Executive two and one-half times his Base Salary at the rate in effect at termination; such amount to be paid in substantially equal monthly installments during the period commencing with the month immediately following the month in which the Date of Termination occurs or in a lump sum payment, as decided by the Company; (iii) if the Executive's Date of Termination is after June 30 of the fiscal year in which occurs the Date of Termination, the Company shall pay the Executive his Bonus prorated for the period beginning on the first day of the fiscal year in which occurs the Date of Termination through the Date of Termination; (iv) provided that there are no adverse tax consequences, the Company shall continue coverage for the Executive, on the same terms and conditions as would be applicable if the Executive were an active Employee, under the Company's life insurance, medical, health and similar welfare benefit plans (other then group disability benefits) for a period of twelve (12) months. Benefits otherwise receivable by the Executive pursuant to this Section 11(d)(iv) shall be reduced to the extent comparable benefits are actually received by the Executive from a subsequent employer during the period during which the Company is required to provide such benefits, and the Executive shall report any such benefits actually received by him to the Company. In lieu of continued participation in life insurance, medical, health and similar welfare benefit plans, the Executive may elect by written notice delivered to the Company prior to the Date of Termination, -9- 10 to receive an amount equal the annual cost to the Company (based on premium rates) of providing such coverage. In the event that adverse tax consequences would result from the continuation of benefits under this Section 11(d)(iv), the Company may pay to the Executive an amount equal to the annual cost to the Company (based on premium rates) of providing such coverage; (v) benefits otherwise receivable by the Executive pursuant to clause (iv) of this Section 11(e) shall be reduced to the extent comparable benefits are actually received by the Executive from a subsequent employer during the period which the Company is required to provide such benefits, and the Executive shall report any such benefits actually received by him to the Company; (vi) the payments made to the Executive under Section 11(e) hereof may not be reduced by the amount of payments provided for by any subsequent employer of the executive for a position obtained after the Date of Termination; and (vii) any unvested, outstanding stock options and other equity based incentive shall fully vest as of the Date of Termination. (f) If the Executive experiences a termination under Section 11(d) or 11(e) hereof, until the Executive finds another full-time position or for 6 months, whichever is earlier, the Company shall provide the Executive with professional outplacement services of the Executive's choosing and shall reimburse the Executive documented incidental outplacement expenses directly related to the Executive's job search such as resume mailing, interview trips, and clerical support, subject to a maximum cost of $10,000 for such outplacement services and incidental expenses. The Executive's choice of professional outplacement services is subject to the Company's reasonable prior approval. If the Company has not approved or disapproved of the Executive's choice within ten (10) business days of receiving notice of such choice, the Company will be deemed to have given its approval. Any disapproval by the Company will be in writing and will state the basis for such disapproval. The Executive will not be entitled to receive cash in lieu of the professional outplacement services provided pursuant to this Section. (g) If the Executive shall terminate his employment under clause (ii) of Section 10(d) hereof, the Company shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to the Executive under this Agreement. 12. Successors: Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. -10- 11 (b) This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate. 13. Confidentiality and Non-Solicitation Covenants. (a) All Confidential Information and Trade Secrets and all physical embodiments thereof received or developed by the Executive while employed by the Company are confidential to and are and will remain the sole and exclusive property of the Company. Except to the extent necessary to perform the duties assigned to him by the Company, the Executive will hold such Confidential Information and Trade Secrets in trust and strictest confidence, and will not use, reproduce, distribute, disclose or otherwise disseminate the Confidential Information and Trade Secrets or any physical embodiments thereof and may in no event take any action causing or fail to take the action necessary in order to prevent, any Confidential Information and Trade Secrets disclosed to or developed by the Executive to lose its character or cease to qualify as Confidential Information or Trade Secrets. As used herein, "Confidential Information" means data and information relating to the business of the Company (which does not rise to the status of a Trade Secret) which is or has been disclosed to the Executive or of which the Executive became aware as a consequence of or through its relationship to the Company and which has value to the Company and is not generally known to its competitors. Confidential Information shall not include any data or information that has been voluntarily disclosed to the public by the Company (except where public disclosure) has been made by the Executive without authorization) or that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means. The provisions in the Agreement restricting the use of Confidential Information shall survive for a period of one (1) year following termination of this Agreement. As used herein, "Trade Secrets" means information including, but not limited to, technical or nontechnical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The provisions of this Agreement restricting the use of Trade Secrets shall survive termination of this Agreement for so long as is permitted by the Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767. -11- 12 (b) Upon request by the Company, and in any event upon termination of the employment of the Executive with the Company for any reason, as a prior condition to receiving any final compensation hereunder, the Executive will promptly deliver to the Company all property belonging to the Company, including, without limitation, all Confidential Information and Trade Secrets (and all embodiments thereof) then in the Executive's custody, control or possession. (c) The Executive agrees that during the period he is employed hereunder and for a period of one (1) year after termination of this Agreement, he will not, either directly or indirectly, on the Executive's own behalf or in the service of or on behalf of others, solicit or divert, or attempt to solicit or divert, to a Competing Business, any individual or entity which was an actual or actively sought prospective client or customer of the Company and with whom the Executive had material contact during the Executive's last year of employment with the Company. The Executive agrees that during the period he is employed hereunder and for a period of one (1) year after termination of this Agreement, he will not, either directly or indirectly, on the Executive's own behalf or in the service of or on behalf of others, solicit or divert, or attempt to solicit or divert, to any Competing Business any person employed by the Company or an affiliate, whether or not such employee is a full-time employee or a temporary employee of the Company or an affiliate and whether or not such employment is pursuant to written agreement and whether or not such employment is for a determined period or is at will. As used herein, "Competing Business" means any person, firm, corporation, joint venture or other business entity which is engaged in a business that competes directly or indirectly with the Company. (d) Without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by the Executive of the covenants contained in this Section 13, it is expressly agreed by the Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief, without the necessity of proving actual monetary loss, to prevent any such violation or any continuing violation thereof. Each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in this Section 13, any term, restriction, covenant or promise contained herein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency. The covenants contained in Section 13 shall survive the conclusion of the Executive's employment by the Company. 14. Certain Further Payments by the Company. (a) Tax Reimbursement Payment. In the event that any amount or benefit paid or distributed to the Executive by the Company or any affiliated company, whether pursuant to this Agreement or otherwise (collectively, the "Covered Payments"), is or becomes subject to the tax (the "Excise Tax") imposed under Section 4999 of the Code or any similar tax that may hereafter be imposed, the Company shall pay to the Executive, at -12- 13 the time specified in Section 14(e) below, the Tax Reimbursement Payment (as defined below). The Tax Reimbursement is defined as an amount, which when added to the Covered Payments and reduced by any Excise Tax on the Covered Payments and any federal, state and local income tax and Excise Tax on the Tax Reimbursement Payment provided for by this Agreement (but without reduction for any federal, state or local income or employment tax on such Covered Payments), shall be equal to the sum of (i) the amount of the Covered Payments, and (ii) an amount equal to the product of any deductions disallowed for federal, state or local income tax purposes because of the inclusion of the Tax Reimbursement Payment in the Executive's adjusted gross income and the highest applicable marginal rate of federal, state or local income taxation, respectively, for the calendar year in which the Tax Reimbursement Payment is to be made. (b) Determining Excise Tax. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the opinion of the Company's independent certified public accountants, which, in the case of Covered Payments made after the Change of Control, shall be the Company's independent certified public accounts appointed prior to the Change of Control, or tax counsel selected by such accountants (the "Accountants"), such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code, and (iii) if the Covered Payments exceed the amount allowed under Code Section 280G(d)(2), the Executive may elect one of the following: (A) the Company will adjust the Covered Payments by the amount of excise tax due as a result of excess payment amount under Code Section 280G; or (B) the Covered Payments may be reduced by the amount which exceeds the limit on Code Section 280G. -13- 14 (c) Applicable Tax Rates and Deductions. For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed: (i) to pay federal income taxes at the highest applicable marginal rate of federal income taxes for the calendar year in which the Tax Reimbursement Payment is to be made, (ii) to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Executive's adjusted gross income), and (iii) to have otherwise allowable deductions for federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Tax Reimbursement Payment in the Executive's adjusted gross income. (d) Subsequent Events. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that has been paid to the Executive or to federal, state or local tax authorities on the Executive's behalf and that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess which Tax Reimbursement Payment shall include any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. -14- 15 (e) Date of Payment. The portion of the Tax Reimbursement Payment attributable to a Covered Payment shall be paid to the Executive or to a "rabbi" trust established by the Company prior to the Change of Control Date within ten (10) business days following the payment of the Covered Payment. If the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (which Tax Reimbursement Payment shall include interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than forty-five (45) calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall be repaid or refunded pursuant to the provisions of Section 16(d) above. 15. Entire Agreement. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and on the Effective Date shall supersede all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 16. Amendment or Modification. Waiver. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 17. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Executive at: [FILL IN ADDRESS] To the Company at: [FILL IN ADDRESS] Any notice delivered personally or by courier under this Section 17 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. -15- 16 18. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 19. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 20. Governing Law: Attorney's Fees. (a) This Agreement will be governed by and construed in accordance with the laws of the State of Georgia, without regard to its conflicts of laws principles. (b) If Executive commences a cause of action to enforce any provision or resolve any dispute arising under this Agreement, the Company shall reimburse Executive for all reasonable costs incurred (including reasonable attorneys' fees) by the Executive to the extent, but only to the extent, Executive prevails in any such action. 21. Dispute Resolution. (a) (i) In the event of disputes between the parties with respect to the terms and conditions of this Agreement, such disputes shall be resolved by and through an arbitration proceeding to be conducted under the auspices of the American Arbitration Association (or any like organization successor thereto) in Atlanta, Georgia. Such arbitration proceeding shall be conducted pursuant to the commercial arbitration rules (formal or informal) of the American Arbitration Association in as expedited a manner as is then permitted by such rules (the "Arbitration"). Both the foregoing agreement of the parties to arbitrate any and all such claims, and the results, determination, finding, judgment and/or award rendered through such Arbitration, shall be final and binding on the parties hereto and may be specifically enforced by legal proceedings. (ii) Such Arbitration may be initiated by written notice from either party to the other which shall be a compulsory and binding proceeding on each party. The Arbitration shall be conducted by an arbitrator selected in accordance with the procedures of the American Arbitration Association. Time is of the essence of this arbitration procedure, and the arbitrator shall be instructed and required to render his or her decision within thirty (30) days following completion of the Arbitration. (iii) Any action to compel arbitration hereunder shall be brought in the State Court of Georgia. -16- 17 22. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 23. No Set-off. The existence of any claim, demand, action or cause of action by the Executive against the Company, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of its rights hereunder. 24. Withholdings. All payments to the Executive under this Agreement shall be reduced by all applicable withholding required by federal, state or local tax laws. 25. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 26. Release of Prior Employment Agreement. The Executive hereby releases the Company and any predecessor from all obligations under any predecessor employment agreement entered into by the Executive and a predecessor company, including any obligation to pay severance or other post-termination benefits, which shall be upon the execution hereof terminated and of no further force and effect; provided, however, that in no event shall this release affect the Executive's right under any grant or award under any stock option or stock award plans of the Company and any predecessor company. 27. Indemnification. The indemnification of the Executive set forth in the Amended and Restated Agreement and Plan of Merger, dated July ___, 1998, by and between the Company, Servico, Inc., Impac Hotel Group, L.L.C. and others will not be terminated, rescinded or other adversely affected. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ---------------------------------------- BY: ------------------------------------- NAME: ----------------------------------- TITLE: ---------------------------------- EXECUTIVE: ---------------------------------------- DAVID A. BUDDEMEYER -17- EX-10.10 11 EMPLOYMENT AGREEMENT-COLE 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT Employment Agreement dated as of ____________, 1998 between ROBERT COLE (the "Executive") and LODGIAN, INC., a Delaware corporation (the "Company"). RECITALS The Company desires to employ the Executive as President, and the Executive desires to accept such employment, for the term and upon the other conditions hereinafter set forth. As a condition of entering into this Agreement, the Executive agrees to waive the Executive's rights, if any, against the Company and any predecessor company under (i) any employment agreement and (ii) any other plan, arrangement or agreement of any kind that provides any form of severance payments. The parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company. STATEMENT OF AGREEMENT 1. Employment The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein. 2. Term. The Executive shall be considered an at-will employee and his employment may be terminated by either party subject to the obligations of the parties upon such termination as may be set forth hereinafter. 3. Position and Duties (a) Position. The Executive will be employed as the President of the Company or in such other executive and managerial capacities as determined by the Board of Directors of the Company (the "Board"). (b) Business Time. During the term of this Agreement, the Executive agrees to devote his full business time during normal business hours to the business and affairs of the Company and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for: (i) time spent managing his personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation to which he is entitled. 2 (c) Duties. During the term of this Agreement, in addition to the duties normally associated with the Executive's position with the Company, the Executive shall, in addition to such other duties as may be requested by the Board from time to time (i) have primary responsibility for acquisition, development, renovation and construction projects and (ii) together with the CEO assist in capital raising activities, the development of strategic alternatives and long-term strategies, and the appointment of senior level Company managers and officers, subject to the approval of the Board. (d) Co-Chairman. As long as the Executive is employed by the Company and serves on the Company's Board of Directors, he shall have the position as Co-Chairman. In the event he is no longer employed by the Company hereunder he shall resign as a member of the Board and as Co-Chairman. 4. Place of Performance. The Executive shall perform his duties and conduct his business at the principal executive offices of the Company, except for required travel on the Company's business. 5. Salary and Annual Bonus. (a) Base Salary. The Executive shall receive a base salary (the "Base Salary") payable in equal bi-weekly installments at an annual rate of $300,000. The Company will review the Base Salary periodically and in light of such review may increase (but not decrease) the Base Salary taking into account any change in the Executive's responsibilities, increases in compensation of other executives with comparable responsibilities, performance of the Executive and other pertinent factors, and such adjusted Base Salary shall then constitute the "Base Salary" for purposes of this Agreement. Neither the Base Salary nor any increase in the Base Salary after the date hereof shall serve to limit or reduce any other obligation of the Company hereunder. (b) Annual Bonus. The Company shall provide the Executive with an annual bonus plan providing the Executive with an opportunity to earn an annual bonus equal to one hundred percent (100%) (the "Bonus") of his Base Salary if the Company achieves for the relevant year certain financial targets established pursuant to such plan. 6. Vacation, Holidays and Sick Leave. During the term of this Agreement, the Executive shall be entitled to paid vacation, paid holidays and sick leave in accordance with the Company's standard policies for its similarly situated executives. 7. Business Expenses. The Executive shall be reimbursed for all ordinary and necessary business expenses incurred by him in connection with his employment upon timely submission by the Executive of receipts and other documentation as required by the Internal Revenue Code and in conformance with the Company's normal procedures. 8. Pension and Welfare Benefits. During the term of this Agreement, the Executive shall be eligible to participate fully in all health benefits, insurance programs, pension and -2- 3 retirement plans and other employee benefit and compensation arrangements available to similarly situated executives of the Company generally. 9. Stock Options. The Company, pursuant to the terms of its stock option plan, may grant to the Executive, nonqualified stock options, incentive stock options or a combination thereof to purchase a number of shares of common stock. 10. Termination of Employment. (a) Death or Disability. (i) The Executive's employment hereunder shall automatically terminate upon the death of the Executive. (ii) The Company may terminate the Executive's employment upon the Executive's Disability by giving to the Executive written notice of its intention to terminate his employment, and his employment with the Company shall terminate effective on the ninetieth (90th) day after receipt of such notice if the Executive shall fail to return to full-time performance of his duties within ninety (90) days after such receipt. For the purposes of this Agreement, "Disability" means: (1) the inability of the Executive to perform his duties under this Agreement for a period of ninety (90) consecutive days due to accident, illness or any other physical or mental incapacity, or (2) a disability of the Executive within the meaning of Section 72(m)(7) of the Internal Revenue Code, that is, the Executive is unable to engage in any substantial gainful activity with the Company or any other employer, by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration, or (3) the Executive becomes entitled to: (A) disability retirement benefits under the Federal Social Security Act, or (B) receive benefits under any long-term disability plan or policy maintained by the Company. (b) Termination by the Company. The Company may terminate the Executive's employment hereunder at any time, whether or not for Cause. For purposes of this Agreement, "Cause" means: -3- 4 (i) the failure or refusal by the Executive to perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), which has not ceased within ten (10) days after a written demand for substantial performance is delivered to the Executive by the Company, which demand identifies the manner in which the Company believes that the Executive has not performed such duties, (ii) the engaging by the Executive in willful misconduct or an act of moral turpitude which is materially injurious to the Company, monetarily or otherwise (including, but not limited to, conduct which violates Section 13 hereof) or (iii) the conviction of the Executive of, or the entering of a plea of nolo contendere by, the Executive with respect to, a felony. (c) Termination by the Executive. The Executive shall be entitled to terminate his employment hereunder: (i) for Good Reason, (ii) if his health should become impaired to an extent that makes his continued performance of his duties hereunder hazardous to his physical or mental health, provided that the Executive shall have furnished the Company with a written statement from a qualified doctor to such effect and provided, further, that, at the Company's request, the Executive shall submit to an examination by a doctor selected by the Company and such doctor shall have concurred in the conclusion of the Executive's doctor or (iii) without the Executive's express written consent, any failure by the Company to comply with any material provision of this Agreement, which failure has not been cured within ten (10) days after written notice of such noncompliance has been given by the Executive to the Company. For purposes of this Agreement, "Good Reason" shall mean the occurrence, during the term of this Agreement, of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (A) any material diminution in the Executive's authorities or responsibilities (including reporting responsibilities) or from his status, title, position or responsibilities (including reporting responsibilities); the assignment to him of any duties or work responsibilities which are inconsistent with such status, title, position or work responsibilities; or any removal of the Executive from, or failure to reappoint or reelect him to any -4- 5 of such positions, except if any such changes are because of Disability, retirement, death or Cause; (B) a reduction by the Company in the Executive's Base Salary or Bonus as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any Person (as defined Section 10(h) below) in control of the Company; (C) the relocation of the Executive's place of employment to a location more than fifty (50) miles from its present location, except for required travel on the Company's business; (D) the failure by the Company, without the Executive's consent, to pay to the Executive any portion of the Executive's current compensation; (E) the failure by the Company to provide the Executive with benefits substantially similar to benefits provided to other senior executives of the Company under any of the Company's pension, life insurance, medical, health and accident, or disability plans; (F) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 10(f) below; for purposes of this Agreement, no such purported termination shall be effective. The Executive's continued employment for sixty (60) months following any act or failure to act constituting Good Reason hereunder without the delivery of a Notice of Termination shall constitute consent to, and a waiver of rights with respect to, such act or failure to act. (d) Voluntary Resignation. Should the Executive wish to resign from his position with the Company or terminate his employment for other than Good Reason during the term of this Agreement, the Executive shall give sixty (60) days written notice to the Company ("Notice Period"), setting forth the reasons and specifying the date as of which his resignation is to become effective. During the Notice Period, the Executive shall cooperate fully with the Company in achieving a smooth transition of the Executive's duties and responsibilities to such person(s) as may be designated by the Company. The Company reserves the right to accelerate the Date of Termination by giving the Executive notice and payment of amounts due to the Executive under Section 5(a) and, to the extent applicable, Section 5(b) for the balance of the Notice Period. The Company's obligation to continue to employ the Executive or to continue payment of the amounts described in the preceding sentence shall cease immediately if: (1) the Executive has not satisfied his obligations to cooperate fully with a smooth transition or (2) the Company has grounds to terminate the Executive's employment immediately for Cause. -5- 6 (e) Notice of Termination. Any purported termination of the Executive's employment by the Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17. "Notice of Termination" shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated because of death, the date of the Executive's death, (ii) if the Executive's employment is terminated for Disability, the date Notice of Termination is given, (iii) if the Executive's employment is terminated pursuant to Subsection (c), (d) or (e) hereof or for any other reason (other than death or Disability), the date specified in the Notice of Termination which shall not be less than sixty (60) days from the date such Notice of Termination is given. (g) Change in Control. For purposes of this Agreement, a Change in Control of the Company shall have occurred if (i) any person (as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof), excluding the Company, any Subsidiary and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee) (the Company, all Subsidiaries, and such employee benefit plans and trustees acting as trustees being hereafter referred to as the "Company Group"), but including a 'group' as defined in Section 13(d)(3) of the Exchange Act (a "Person"), becomes the beneficial owner of shares of the Company having at least forty percent (40%) of the total number of votes that may be cast for the election of directors of the Company (the "Voting Shares"); provided that no Change of Control will occur as a result of an acquisition of stock by the Company Group which increases, proportionately, the stock representing the voting power of the Company beneficially owned by such Person above forty percent (40%) of the voting power of the Company, and provided further that if such Person acquires beneficial ownership of stock representing more than forty percent (40%) of the voting power of the Company by reason of share purchases by the Company Group, and after such share purchases by the Company Group acquires any additional shares representing voting power of the Company, then a Change of Control shall occur; (ii) the shareholders of the Company shall approve any merger or other business combination of the Company, sale of the Company's assets or combination of the foregoing transactions (a "Transaction") other than a Transaction involving only the Company and one or more of its Subsidiaries, or a Transaction immediately following which the shareholders of the Company -6- 7 immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity; or (iii) within any 24-month period, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that any director who was not a director as of the effective date of this Plan shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this clause (iii); and provided that any director elected to the Board to avoid or settle a threatened or actual proxy context shall in no event be deemed to be an Incumbent Director. (h) Return of Property. When the Executive ceases to be employed by the Company, the Executive will promptly surrender to the Company all Company property, including without limitation, all records and other documents obtained by him or entrusted to him during the course of his employment with the Company provided, however, that the Executive may retain copies of such documents as necessary for the Executive's personal records for federal income tax purposes. 11. Compensation During Disability; Death or Upon Termination. (a) During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), the Executive shall continue to receive his Base Salary at the rate then in effect for such period until his employment is terminated pursuant to Section 10(a)(ii) hereof, provided that payments so made to the Executive during the Disability Period shall be reduced by the sum of the amounts, if any, payable to the Executive with respect to such period under disability benefit plans of the Company or under the Social Security disability insurance program, and which amounts were not previously applied to reduce any such payment. (b) If the Executive's employment is terminated by his death or Disability, the Company shall pay (i) any Base Salary due to the Executive under Section 5(a) through the date of such termination and (ii) if the Executive's Date of Termination is after June 30 of the fiscal year in which the Date of Termination occurs, an amount equal to the Bonus he would have received for the fiscal year that ends on or immediately after the Date of Termination, assuming the Company achieved the lowest target level for which a bonus is paid under the plan described in Section 5(b), prorated for the period beginning on the first day of the fiscal year in which occurs the Date of Termination through the Date of Termination. (c) If the Executive's employment is terminated by the Company for Cause or by the Executive for other than Good Reason, the Company shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of -7- 8 Termination is given, and the Company shall have no further obligations to the Executive under this Agreement. (d) If following a Change in Control (A) the Company terminates the Executive's employment without Cause, or (B) the Executive terminates his employment for Good Reason or under clause (iii) of Section 10(d) hereof, then (i) the Company shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination under any compensation plan or program of the Company, at the time such payments are due; (ii) the Company shall pay the Executive, in a lump sum, two and one-half times his Base Salary at the rate in effect of the Date of Termination; (iii) the Company shall pay the Executive, in a lump sum, an amount equal to the greater of: (I) the Executive's Bonus that would have been paid for the period beginning on the last day of the fiscal year in which the Date of Termination occurs or (II) the average of the Executive's Bonus payable for the three fiscal years immediately preceding the fiscal year in which occurs the Date of Termination; (iv) provided that there are no adverse tax consequences, the Company shall continue coverage for the Executive, on the same terms and conditions as would be applicable if the Executive were an active Employee, under the Company's life insurance, medical, health and similar welfare benefit plans (other then group disability benefits) for a period of twelve (12) months. Benefits otherwise receivable by the Executive pursuant to this Section 11(d)(iv) shall be reduced to the extent comparable benefits are actually received by the Executive from a subsequent employer during the period during which the Company is required to provide such benefits, and the Executive shall report any such benefits actually received by him to the Company. In lieu of continued participation in life insurance, medical, health and similar welfare benefit plans, the Executive may elect by written notice delivered to the Company prior to the Date of Termination, to receive an amount equal to the annual cost to the Company (based on premium rates) of providing such coverage. In the event that adverse tax consequences would result from the continuation of benefits under this Section 11(d)(iv), the Company may pay to the Executive an amount equal to the annual cost to the Company (based on premium rates) of providing such coverage; (v) the payments provided for in this Section 11(d) (other than Section 11(d)(iv)) shall be made not later than the thirtieth (30th) day following the Date of Termination. At the time that payments are made under this Section 11(d), the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such -8- 9 calculations including, without limitation, any opinions or other advice the Company has received from outside counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement); and (vi) any unvested, outstanding stock options or other equity-based incentive shall fully vest as of the Date of Termination. (e) If, prior to any Change of Control, the Executive terminates his employment under clause (iii) of Section 10(d) hereof or the Company terminates the Executive's employment without Cause, then (i) the Company shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination under any compensation plan or program of the Company, at the time such payments are due; (ii) the Company shall pay the Executive two and one-half times his Base Salary at the rate in effect at termination; such amount to be paid in substantially equal monthly installments during the period commencing with the month immediately following the month in which the Date of Termination occurs or in a lump sum payment, as decided by the Company; (iii) if the Executive's Date of Termination is after June 30 of the fiscal year in which occurs the Date of Termination, the Company shall pay the Executive his Bonus prorated for the period beginning on the first day of the fiscal year in which occurs the Date of Termination through the Date of Termination; (iv) provided that there are no adverse tax consequences, the Company shall continue coverage for the Executive, on the same terms and conditions as would be applicable if the Executive were an active Employee, under the Company's life insurance, medical, health and similar welfare benefit plans (other then group disability benefits) for a period of twelve (12) months. Benefits otherwise receivable by the Executive pursuant to this Section 11(d)(iv) shall be reduced to the extent comparable benefits are actually received by the Executive from a subsequent employer during the period during which the Company is required to provide such benefits, and the Executive shall report any such benefits actually received by him to the Company. In lieu of continued participation in life insurance, medical, health and similar welfare benefit plans, the Executive may elect by written notice delivered to the Company prior to the Date of Termination, to receive an amount equal to the annual cost to the Company (based on premium rates) of providing such coverage. In the event that adverse tax consequences would result from the continuation of benefits under this Section 11(d)(iv), the Company may pay to the Executive an amount equal to the annual cost to the Company (based on premium rates) of providing such coverage; -9- 10 (v) benefits otherwise receivable by the Executive pursuant to clause (iv) of this Section 11(e) shall be reduced to the extent comparable benefits are actually received by the Executive from a subsequent employer during the period which the Company is required to provide such benefits, and the Executive shall report any such benefits actually received by him to the Company; (vi) the payments made to the Executive under Section 11(e) hereof may not be reduced by the amount of payments provided for by any subsequent employer of the executive for a position obtained after the Date of Termination; and (vii) any unvested, outstanding stock options and other equity based incentive shall fully vest as of the Date of Termination. (f) If the Executive experiences a termination under Section 11(d) or 11(e) hereof, until the Executive finds another full-time position or for 6 months, whichever is earlier, the Company shall provide the Executive with professional outplacement services of the Executive's choosing and shall reimburse the Executive documented incidental outplacement expenses directly related to the Executive's job search such as resume mailing, interview trips, and clerical support, subject to a maximum cost of $10,000 for such outplacement services and incidental expenses. The Executive's choice of professional outplacement services is subject to the Company's reasonable prior approval. If the Company has not approved or disapproved of the Executive's choice within ten (10) business days of receiving notice of such choice, the Company will be deemed to have given its approval. Any disapproval by the Company will be in writing and will state the basis for such disapproval. The Executive will not be entitled to receive cash in lieu of the professional outplacement services provided pursuant to this Section. (g) If the Executive shall terminate his employment under clause (ii) of Section 10(d) hereof, the Company shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to the Executive under this Agreement. (h) If the Executive is terminated by the Company without Cause at any time, the Company will enter into a Registration Rights Agreement in customary form with respect to the registration of the shares of the Company's Common Stock owned by Executive if necessary so as to permit the Executive to sell such shares 12. Successors: Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. -10- 11 (b) This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate. 13. Confidentiality and Non-Solicitation Covenants. (a) All Confidential Information and Trade Secrets and all physical embodiments thereof received or developed by the Executive while employed by the Company are confidential to and are and will remain the sole and exclusive property of the Company. Except to the extent necessary to perform the duties assigned to him by the Company, the Executive will hold such Confidential Information and Trade Secrets in trust and strictest confidence, and will not use, reproduce, distribute, disclose or otherwise disseminate the Confidential Information and Trade Secrets or any physical embodiments thereof and may in no event take any action causing or fail to take the action necessary in order to prevent, any Confidential Information and Trade Secrets disclosed to or developed by the Executive to lose its character or cease to qualify as Confidential Information or Trade Secrets. As used herein, "Confidential Information" means data and information relating to the business of the Company (which does not rise to the status of a Trade Secret) which is or has been disclosed to the Executive or of which the Executive became aware as a consequence of or through its relationship to the Company and which has value to the Company and is not generally known to its competitors. Confidential Information shall not include any data or information that has been voluntarily disclosed to the public by the Company (except where public disclosure) has been made by the Executive without authorization) or that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means. The provisions in the Agreement restricting the use of Confidential Information shall survive for a period of one (1) year following termination of this Agreement. As used herein, "Trade Secrets" means information including, but not limited to, technical or nontechnical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The provisions of this Agreement restricting the use of Trade Secrets shall survive termination of this Agreement for so long as is permitted by the Georgia Trade Secrets Act of 1990, O.C.G.A. ss.ss. 10-1-760-10-1-767. -11- 12 (b) Upon request by the Company, and in any event upon termination of the employment of the Executive with the Company for any reason, as a prior condition to receiving any final compensation hereunder, the Executive will promptly deliver to the Company all property belonging to the Company, including, without limitation, all Confidential Information and Trade Secrets (and all embodiments thereof) then in the Executive's custody, control or possession. (c) The Executive agrees that during the period he is employed hereunder and for a period of one (1) year after termination of this Agreement, he will not, either directly or indirectly, on the Executive's own behalf or in the service of or on behalf of others, solicit or divert, or attempt to solicit or divert, to a Competing Business, any individual or entity which was an actual or actively sought prospective client or customer of the Company and with whom the Executive had material contact during the Executive's last year of employment with the Company. The Executive agrees that during the period he is employed hereunder and for a period of one (1) year after termination of this Agreement, he will not, either directly or indirectly, on the Executive's own behalf or in the service of or on behalf of others, solicit or divert or attempt to solicit or divert to any Competing Business any person employed by the Company or an affiliate, whether or not such employee is a full-time employee or a temporary employee of the Company or an affiliate and whether or not such employment is pursuant to written agreement and whether or not such employment is for a determined period or is at will. As used herein, "Competing Business" means any person, firm, corporation, joint venture or other business entity which is engaged in a business that competes directly or indirectly with the Company. (d) Without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by the Executive of the covenants contained in this Section 13, it is expressly agreed by the Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief, without the necessity of proving actual monetary loss, to prevent any such violation or any continuing violation thereof. Each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in this Section 13, any term, restriction, covenant or promise contained herein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency. The covenants contained in Section 13 shall survive the conclusion of the Executive's employment by the Company. 14. Certain Further Payments by the Company. (a) Tax Reimbursement Payment. In the event that any amount or benefit paid or distributed to the Executive by the Company or any affiliated company, whether pursuant to this Agreement or otherwise (collectively, the "Covered Payments"), is or becomes subject to the tax (the "Excise Tax") imposed under Section 4999 of the Code or any similar tax that may hereafter be imposed, the Company shall pay to the Executive, at the time specified in Section 14(e) below, the Tax Reimbursement Payment (as defined -12- 13 below). The Tax Reimbursement is defined as an amount, which when added to the Covered Payments and reduced by any Excise Tax on the Covered Payments and any federal, state and local income tax and Excise Tax on the Tax Reimbursement Payment provided for by this Agreement (but without reduction for any federal, state or local income or employment tax on such Covered Payments), shall be equal to the sum of (i) the amount of the Covered Payments, and (ii) an amount equal to the product of any deductions disallowed for federal, state or local income tax purposes because of the inclusion of the Tax Reimbursement Payment in the Executive's adjusted gross income and the highest applicable marginal rate of federal, state or local income taxation, respectively, for the calendar year in which the Tax Reimbursement Payment is to be made. (b) Determining Excise Tax. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the opinion of the Company's independent certified public accountants, which, in the case of Covered Payments made after the Change of Control, shall be the Company's independent certified public accounts appointed prior to the Change of Control, or tax counsel selected by such accountants (the "Accountants"), such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code, and (iii) if the Covered Payments exceed the amount allowed under Code Section 280G(d)(2), the Executive may elect one of the following: (A) the Company will adjust the Covered Payments by the amount of excise tax due as a result of excess payment amount under Code Section 280G; or (B) the Covered Payments may be reduced by the amount which exceeds the limit on Code Section 280G. (c) Applicable Tax Rates and Deductions. For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed: -13- 14 (i) to pay federal income taxes at the highest applicable marginal rate of federal income taxes for the calendar year in which the Tax Reimbursement Payment is to be made, (ii) to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Executive's adjusted gross income), and (iii) to have otherwise allowable deductions for federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Tax Reimbursement Payment in the Executive's adjusted gross income. (d) Subsequent Events. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that has been paid to the Executive or to federal, state or local tax authorities on the Executive's behalf and that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess which Tax Reimbursement Payment shall include any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (e) Date of Payment. The portion of the Tax Reimbursement Payment attributable to a Covered Payment shall be paid to the Executive or to a "rabbi" trust established by the Company prior to the Change of Control Date within ten (10) business days following the payment of the Covered Payment. If the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before -14- 15 the date on which payment is due, the Company shall pay to the Executive an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (which Tax Reimbursement Payment shall include interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than forty-five (45) calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall be repaid or refunded pursuant to the provisions of Section 16(d) above. 15. Entire Agreement. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and on the Effective Date shall supersede all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 16. Amendment or Modification. Waiver. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 17. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Executive at: [FILL IN ADDRESS] To the Company at: [FILL IN ADDRESS] Any notice delivered personally or by courier under this Section 17 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 18. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the -15- 16 application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 19. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 20. Governing Law; Attorney's Fees. (a) This Agreement will be governed by and construed in accordance with the laws of the State of Georgia, without regard to its conflicts of laws principles. (b) If Executive commences a cause of action to enforce any provision or resolve any dispute arising under this Agreement, the Company shall reimburse Executive for all reasonable costs incurred (including reasonable attorneys' fees) by the Executive to the extent, but only to the extent, Executive prevails in any such action. 21. Dispute Resolution. (a) (i) In the event of disputes between the parties with respect to the terms and conditions of this Agreement, such disputes shall be resolved by and through an arbitration proceeding to be conducted under the auspices of the American Arbitration Association (or any like organization successor thereto) in Atlanta, Georgia. Such arbitration proceeding shall be conducted pursuant to the commercial arbitration rules (formal or informal) of the American Arbitration Association in as expedited a manner as is then permitted by such rules (the "Arbitration"). Both the foregoing agreement of the parties to arbitrate any and all such claims, and the results, determination, finding, judgment and/or award rendered through such Arbitration, shall be final and binding on the parties hereto and may be specifically enforced by legal proceedings. (ii) Such Arbitration may be initiated by written notice from either party to the other which shall be a compulsory and binding proceeding on each party. The Arbitration shall be conducted by an arbitrator selected in accordance with the procedures of the American Arbitration Association. Time is of the essence of this arbitration procedure, and the arbitrator shall be instructed and required to render his or her decision within thirty (30) days following completion of the Arbitration. (iii) Any action to compel arbitration hereunder shall be brought in the State Court of Georgia. 22. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. -16- 17 23. No Set-off. The existence of any claim, demand, action or cause of action by the Executive against the Company, whether predicated upon this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of its rights hereunder. 24. Withholdings. All payments to the Executive under this Agreement shall be reduced by all applicable withholding required by federal, state or local tax laws. 25. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 26. Indemnification. The indemnification of the Executive set forth in the Amended and Restated Agreement and Plan of Merger dated July ___, 1998 by and among the Company, Servico, Inc., Impac Hotel Group, L.L.C. and others will not be terminated, rescinded or other adversely affected. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ---------------------------------------- BY: ------------------------------------- NAME: ----------------------------------- TITLE: ---------------------------------- EXECUTIVE: ---------------------------------------- ROBERT COLE -17- EX-10.11 12 REGISTRATION RIGHTS AGREEMENT-IMPAC 1 EXHIBIT 10.11 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of the ___ day of ________, 1998 by and among LODGIAN, INC., a Delaware corporation (the "Company"), and the individuals and entities listed on the signature pages hereto (individually referred to as, a "Stockholder" and collectively referred to as, the "Stockholders"). W I T N E S S E T H: WHEREAS, pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated March 20, 1998 (the "Acquisition Agreement"), among Servico, Inc., a Florida corporation ("Servico"), the Company, Impac Hotel Group, L.L.C., a Georgia limited liability company, SHG-S Sub, Inc., a Florida corporation and wholly-owned subsidiary of the Company, SHG-I Sub, L.L.C., a Georgia limited liability company and wholly-owned subsidiary of the Company, P-Burg Lodging Associates, Inc., a Kentucky corporation ("P-Burg"), Hazard Lodging Associates, Inc. a Kentucky corporation ("Hazard"), Memphis Lodging Associates, Inc., a Florida corporation ("Memphis"), Delk Lodging Associates, Inc., a Delaware corporation ("Delk"), Impac Hotel Development, Inc., a Delaware corporation ("IHD"), Impac Design and Construction, Inc., a Delaware corporation ("IDC"), Impac Hotel Group, Inc., a Florida corporation, ("IHG") (P-Burg, Hazard, Memphis, Delk, IHD, IDC and IHG being referred to collectively as the "Impac Affiliated Companies"), and certain acquisition subsidiaries, Impac and each of the Impac Affiliated Companies became wholly-owned subsidiaries of the Company and the members of Impac and the stockholders of the Impac Affiliated Companies became stockholders of the Company (such transaction being hereinafter referred to as the "Merger"); WHEREAS, pursuant to the Merger, the Stockholders received shares of Common Stock, par value $.01 per share, of the Company ("Common Stock"), in exchange for their membership interests in Impac; and WHEREAS, pursuant to the Acquisition Agreement, the Company has agreed to grant to the Stockholders certain registration rights with respect to such shares of Common Stock. NOW, THEREFORE, in consideration of the premises and mutual agreements hereinafter set forth, the Company and the Stockholders agree as follows: 1. Registration Rights. (a) Subject to the limitations set forth in this Agreement, if at any time prior to the date which is two years from the date hereof the Company proposes to register any of its Common Stock for its own account under the Securities Act of 1933, as amended (the "Act"), in connection with an underwritten public offering, the Company shall give written notice to the Stockholders as promptly as practicable of its intention to effect such a registration. Upon written 2 request of any Stockholder, given within 10 days after receipt from the Company of such notice, the Company shall, subject to the limitations set forth in this Agreement, use its best efforts to cause the number of the Stockholder's Registerable Securities (as hereinafter defined) referred to in such request (which may not exceed 40% of the number of Registerable Securities then held by such Stockholder) to be included in such registration statement. (b) Requirements of Request. Each request delivered pursuant to Section 1(a) shall: (i) specify the amount of Registerable Securities intended to be offered and sold by such Stockholder; and (ii) contain the undertaking of the Stockholder to provide all such information and materials and take all such action as may be required in order to permit the Company to comply with all applicable requirements of the Securities and Exchange Commission (the "SEC") and state securities and "blue sky" laws with respect to registration of such Stockholder's Registerable Securities and to obtain acceleration of the effective date of the registration statement. (c) Limitations on Incidental Registrations. The obligations of the Company to cause any Stockholder's Registerable Securities to be registered pursuant to this Section 1 are subject to each of the following limitations, conditions and qualifications: (i) In no event shall the Company be required to register Registerable Securities pursuant to this Agreement in an amount in excess of 10% of the aggregate number of shares of Common Stock being offered in the registration. (ii) If the Company is advised in writing by the managing underwriter that the inclusion of the Registerable Securities requested to be included in such registration pursuant to Section 1(a) and pursuant to any other rights granted by the Company to holders of its securities to request inclusion of any such securities in such registration exceeds the number of securities which can be sold in the offering without, in the opinion of such underwriter, interfering with the orderly sale and distribution of the Common Stock proposed to be offered by the Company or adversely affecting the price at which such Common Stock may be sold, the Company may first include in such registration all Common Stock the Company proposes to sell, and the Stockholders shall accept a reduction (including a total elimination) in the number of shares to be included in such registration in accordance with Section 5 below. (iii) Any Stockholder wishing to participate in the offering must (together with the Company and other holders distributing their securities through such offering) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such offering by the Company. (iv) The Company may, in its sole discretion and without the consent of the Stockholders, withdraw any registration statement it has filed, before or after effectiveness, and abandon the proposed offering in which the Stockholders had requested to participate at any time. -2- 3 2. Indemnification. In the event that the Company shall register under the Act any Stockholder's Registerable Securities (such selling Stockholder being hereafter referred to as a "Seller"): (a) Company's Indemnification. The Company will indemnify and hold harmless the Seller and each person who controls the Seller within the meaning of the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") against any losses, claims, expenses, damages or liabilities (including reasonable attorneys' fees), joint or several, to which the Seller or controlling person become subject under the Act, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registerable Securities were registered under the Act pursuant to Section 1 hereof, any preliminary prospectus (if used prior to the effective date of the registration statement) or final prospectus contained therein, or any amendment or supplement thereof, or arise out or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Seller and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, expense, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, expense, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished to the Company by the Seller or such controlling person. (b) Seller's Indemnification. The Seller will indemnify and hold harmless the Company and each underwriter of the Company's securities under Section 1 and each person who controls the Company or underwriter within the meaning of the Act and the Exchange Act, each officer of the Company who signs the registration statement and each director of the Company, against all losses, claims, expenses, damages or liabilities (including reasonable attorneys' fees), joint or several, to which the Company, underwriter or such officer or director or controlling person become subject under the Act, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registerable Securities were registered under the Act pursuant to Section 1 hereof, any preliminary prospectus (if used prior to the effective date of the registration statement) or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, each such underwriter and each such officer, director and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, expense, damage, liability or action; provided, however, that the Seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, expense, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in conformity with information furnished to the Company by the Seller or any controlling person of the Seller. -3- 4 (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof; provided, however, that any failure to give such notice will not waive any rights of the indemnified party except to the extent the rights of the indemnified party are materially prejudiced. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that (i) if the indemnifying party has failed to assume the defense and employ counsel or (ii) if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it that are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, then the indemnified party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. In no event shall the indemnifying party be liable for fees and expenses of more than one counsel separate from its own counsel for all indemnified parties in connection with any one action or separate but similar or related actions arising out of the same general allegations or circumstances. (d) If the indemnification provided for in this Section 2 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, expenses, damages or liabilities or actions in respect thereof, then each indemnifying party shall in lieu of indemnifying such indemnified party contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, expenses, damages, liabilities or actions in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and the Seller, on the other, in connection with the statements or omissions which resulted in such losses, claims, expenses, damages, liabilities or actions as well as any other relevant equitable considerations, including the failure to give any required notice. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Seller, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Stockholders agree that it would not be just and equitable if contribution pursuant to this Section 2(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 2(d). The amount paid or payable by an indemnified party as a result of the losses, claims, expenses, damages, liabilities or actions in respect thereof referred to above in this Section 2(d) shall be deemed to -4- 5 include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 3. Expenses. The Company shall pay the costs and expenses incurred in connection with the preparation and filing of any registration statement covering Registerable Securities pursuant to this Agreement, including, but not limited to, the fees and expenses of counsel, accountants and other experts for the Company, printing costs, registration and filing fees and blue sky fees and expenses, commissions of underwriters (other than commissions of underwriters attributable to Registerable Securities, which shall be paid by the respective Sellers) and all other direct and indirect costs and expenses in connection with the registration and public offering of Registerable Securities. Notwithstanding anything contained herein to the contrary, the Company shall not be required to pay the fees and expenses of counsel for any of the Stockholders. 4. Registerable Securities. For purposes of this Agreement, the term "Registerable Securities" shall mean (i) any and all shares of Common Stock owned by the Stockholders and issued in connection with the Mergers contemplated by the Acquisition Agreement and (ii) any shares of Common Stock issued or issuable with respect to the shares of Common Stock described in (i) above, by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganizations. 5. Allocation of Registration Opportunities. In any circumstance in which all of the Registerable Securities and other shares of Common Stock of the Company (including shares of Common Stock issuable upon conversion or exchange of other securities or obligations of the Company) with registration rights ("Other Shares") requested to be included in a registration on behalf of the Stockholders or other selling stockholders of the Company cannot be so included as a result of limitations of the aggregate number of shares of Registerable Securities and Other Shares that may be so included, the number of shares of Registerable Securities and Other Shares that may be so included shall be allocated among the Stockholders and other selling stockholders requesting inclusion of shares pro rata on the basis of the number of shares of Registerable Securities and Other Shares that are requested to be registered by such Stockholders and other stockholders, including shares of Common Stock which would be held by such other stockholders assuming conversion or exchange of any other securities or obligations of the Company held by such Stockholders. 6. Restriction on Sale. Except for the Registerable Securities proposed to be offered pursuant to Section 1(a) of this Agreement, each Stockholder agrees not to effect any sale, transfer, distribution or disposition (other than to donees who agree to be similarly bound) of Common Stock, including sales pursuant to Rule 144 of the SEC promulgated under the Securities Act, during the fourteen days prior to, and during the 90-day period beginning on, the effective date of any registration statement filed in connection with a registration under this Agreement (or such longer periods as may be requested by the underwriter or underwriters of such offering). -5- 6 7. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the conflict of law principles thereof. 8. Binding Effect. The obligations of this Agreement shall be binding upon the parties, their heirs, successors and legal representatives. 9. Assignment. This Agreement may not be assigned. 10. Amendment. Amendments to this Agreement may only be made in writing signed by each of the parties. 11. Entire Agreement. This Agreement contains the entire understanding of the parties and there are no other agreements, written or oral, regarding the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. LODGIAN, INC. By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- STOCKHOLDERS: --------------------------------------------- [ ] --------------------------------------------- [ ] --------------------------------------------- [ ] --------------------------------------------- [ ] -6- EX-21 13 SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT SHG-S Sub, Inc. SHG-I Sub, L.L.C. EX-23.1 14 CONSENT OF LEHMAN BROTHERS 1 EXHIBIT 23.1 CONSENT OF LEHMAN BROTHERS We hereby consent to the use of our opinion letter dated March 12, 1998, to the Board of Directors of Servico, Inc. (the "Company") attached as Appendix B to the Company's Joint Proxy Statement/Prospectus on Form S-4 (the "Prospectus") and to the references to our firm in the Prospectus under the heading Opinion of Lehman Brothers therein. In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder, and we do not thereby admit that we are experts with respect to any part of the Registration Statement under the meaning of the term "expert" as used in the Securities Act. LEHMAN BROTHERS INC. By: /s/ Ali Elam ----------------------------- New York, New York July 8, 1998 EX-23.3 15 CONSENT OF STEARNS WEAVER 1 EXHIBIT 23.3 CONSENT OF COUNSEL We hereby consent to the use of our opinions included herein and to all references to this firm under the heading "Legal Matters" in the Prospectus/Proxy Statement/Solicitation of Written Consents constituting a part of this Registration Statement on Form S-4 of Lodgian, Inc. STEARNS WEAVER MILLER WEISSLER ALHADEFF & SITTERSON, P.A. Miami, Florida July 17, 1998 EX-23.5 16 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.5 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" and to the incorporation by reference of our report dated February 16, 1998, except for paragraph one of Note 11, as to which the date is March 5, 1998 and paragraph two of Note 11, as to which the date is March 20, 1998, with respect to the consolidated financial statements of Servico, Inc. and to the inclusion of our report dated April 20, 1998 with respect to the balance sheet of Lodgian, Inc., in the Joint Proxy Statement/Prospectus of Servico, Inc. that is made a part of the Registration Statement (Form S-4) and Prospectus of Lodgian, Inc. that is made a part of the Registration Statement for the registration of 29,951,695 shares of Lodgian, Inc.'s common stock. ERNST & YOUNG L.L.P. West Palm Beach, Florida July 17, 1998 EX-23.6 17 CONSENT OF PRICE WATERHOUSE LLP 1 Exhibit 23.6 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-4 (File No. _______) of our report dated April 10, 1998 except for note 9 as to which the date is July 7, 1998 on our audits on the consolidated and combined financial statements of Impac Hotel Group, L.L.C. and Predecessors and Impac Hotel Development, Inc. We also consent to the references to our firm under the caption "Experts." PricewaterhouseCoopers LLP Atlanta, Georgia July 16, 1998 EX-27 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED PRO FORMA BALANCE SHEET AT MARCH 31, 1998 AND UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN SERVICO'S PROXY STATEMENT. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 16,739 0 26,111 0 7,498 71,003 1,108,807 0 1,253,225 72,956 585,745 175,000 0 270 349,022 1,253,225 0 117,452 0 104,023 (455) 0 14,178 (294) (116) (178) 0 0 0 (178) (.01) (.01)
EX-99.1 19 SERVICO PROXY CARD 1 Exhibit 99.1 PROXY SERVICO, INC. ANNUAL MEETING OF SHAREHOLDERS - ___________ 1998 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned stockholder of Servico, Inc. ("Servico") hereby appoints David Buddemeyer and Warren M. Knight, and each of them, the undersigned's proxies, with full power of substitution, to vote all shares of Common Stock of Servico which the undersigned would be entitled to vote if personally present at the Annual Meeting of Shareholders to be held on ___________, 1998 at 10:00 A.M. local time, at the Omni Hotel, 1601 Belvedere Road, West Palm Beach, Florida 33406 and at any adjournments or postponements thereof, to the same extent and with the same power as if the undersigned was personally present at said meeting or such adjournments or postponements thereof and, without limiting the generality of the power hereby conferred, the proxy nominees named above and each of them are specifically directed to vote as indicated below. WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE MERGER, FOR EACH OF THE LODGIAN PLANS, FOR THE ELECTION OF THE NOMINEE LISTED IN ITEM NO. 5 AND FOR THE ADOPTION OF THE PROPOSAL TO AMEND SERVICO'S STOCK OPTION PLAN AS SET FORTH IN ITEM NO. 6. If there are amendments or variations to the matters proposed at the meeting or at any adjournments or postponements thereof, or if any other business properly comes before the meeting, this proxy confers discretionary authority on the proxy nominees named herein and each of them to vote on such amendments, variations or other business. (Continued, and to be signed and dated on the other side.) 1. Approval of the Amended and Restated Agreement 6. Proposal to Amend Servico's Stock and Plan of Merger pursuant to which Option Plan to increase the number Servico, Inc. and Impac Hotel Group, L.L.C. of shares issuable pursuant to will become wholly owned subsidiaries the Plan of Lodgian, Inc. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN [ ] [ ] [ ] [ ] [ ] [ ] 2. Approval of the Lodgian 1998 Short-Term The undersigned acknowledges receipt of the Incentive Compensation Plan accompanying Notice of Annual Meeting of Shareholders and the Proxy Statement for the FOR AGAINST ABSTAIN ___________, 1998 meeting. [ ] [ ] [ ] Dated: _________________________, 1998 3. Approval of the Lodgian 1998 Stock Incentive Plan FOR AGAINST ABSTAIN ----------------------------------------------------- [ ] [ ] [ ] Signature of Stockholder(s) 4. Approval of the Lodgian Non-Employee Directors' Stock Plan ----------------------------------------------------- FOR AGAINST ABSTAIN Print Name(s) Here [ ] [ ] [ ] (Please sign exactly as name or names appear hereon. Full title of one signing in representative capacity 5. Election of Michael Leven as a Class I should be clearly designated after signature. Names Director of all joint holders should be written even if signed by only one.) FOR the nominee WITHHOLD AUTHORITY listed to vote for the PLEASE COMPLETE, DATE, SIGN AND MAIL nominee listed THIS PROXY IN THE ENVELOPE PROVIDED [ ] [ ]
EX-99.2 20 WRITTEN CONSENT FOR UNITHOLDERS OF IMPAC HOTEL 1 Exhibit 99.2 IMPAC HOTEL GROUP, L.L.C. MEMBER CONSENT FORM The undersigned member of Impac Hotel Group, L.L.C. ("Impac" or the "Company") hereby acknowledges receipt of the Joint Statement/Prospectus of Servico, Inc. ("Servico") and Impac Hotel Group, L.L.C. ("Impac") dated ________, 1998 and consents to and approves the terms of the Amended and Restated Agreement and Plan of Merger, dated as of July __, 1998 among Lodgian, Inc., Servico, Impac, SHG-S Sub, Inc., SHG-I Sub, L.L.C., certain corporate unitholders of Impac and certain acquisition subsidiaries, and all transactions contemplated thereby. ------------------------------------------- Authorized Signature ------------------------------------------- Printed Name of Member (Name in which Impac Units are Held) ----------------------------------------- Social Security/Tax Identification Number ----------------------------------------- Date EX-99.3 21 CONSENT OF PETER TYSON 1 EXHIBIT 99.3 CONSENT OF A PERSON NAMED AS ABOUT TO BECOME A DIRECTOR I hereby consent to my being named in the Registration Statement on Form S-4 of Lodgian, Inc. (the "Company") as a person who will become a director of the Company upon consummation of the transactions described therein. /s/ Peter R. Tyson ---------------------------------------- Peter R. Tyson EX-99.4 22 CONSENT OF JOSEPH CALABRO 1 EXHIBIT 99.4 CONSENT OF A PERSON NAMED AS ABOUT TO BECOME A DIRECTOR I hereby consent to my being named in the Registration Statement on Form S-4 of Lodgian, Inc. (the "Company") as a person who will become a director of the Company upon consummation of the transactions described therein. /s/ Joseph C. Calabro ---------------------------------------- Joseph C. Calabro EX-99.5 23 CONSENT OF MICHAEL LEVEN 1 EXHIBIT 99.5 CONSENT OF A PERSON NAMED AS ABOUT TO BECOME A DIRECTOR I hereby consent to my being named in the Registration Statement on Form S-4 of Lodgian, Inc. (the "Company") as a person who will become a director of the Company upon consummation of the transactions described therein. /s/ Michael Leven ---------------------------------------- Michael Leven EX-99.6 24 COSENT OF JOHN LANG 1 EXHIBIT 99.6 CONSENT OF A PERSON NAMED AS ABOUT TO BECOME A DIRECTOR I hereby consent to my being named in the Registration Statement on Form S-4 of Lodgian, Inc. (the "Company") as a person who will become a director of the Company upon consummation of the transactions described therein. /s/ John Lang ---------------------------------------- John Lang EX-99.7 25 CONSENT OF RICHARD WEINER 1 EXHIBIT 99.7 CONSENT OF A PERSON NAMED AS ABOUT TO BECOME A DIRECTOR I hereby consent to my being named in the Registration Statement on Form S-4 of Lodgian, Inc. (the "Company") as a person who will become a director of the Company upon consummation of the transactions described therein. /s/ Richard H. Weiner ---------------------------------------- Richard H. Weiner EX-99.8 26 CONSENT OF ROBERT COLE 1 EXHIBIT 99.8 CONSENT OF A PERSON NAMED AS ABOUT TO BECOME A DIRECTOR I hereby consent to my being named in the Registration Statement on Form S-4 of Lodgian, Inc. (the "Company") as a person who will become a director of the Company upon consummation of the transactions described therein. /s/ Robert S. Cole ---------------------------------------- Robert S. Cole -----END PRIVACY-ENHANCED MESSAGE-----