EXHIBIT 10.58
EXHIBIT A
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re:
CHAPTER 11
LODGIAN, INC., et al.,
Case No. 01-16345 (BRL)
Debtors.
Jointly Administered
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DISCLOSURE STATEMENT FOR JOINT PLAN OF REORGANIZATION
OF IMPAC HOTELS II, L.L.C. AND IMPAC HOTELS III, L.L.C.
TOGETHER WITH THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
This is not a solicitation of acceptances or rejections of the
Impac Debtors' Joint Plan of Reorganization under chapter 11 of the Bankruptcy
Code, which is annexed as Exhibit B to the Impac Disclosure Statement (the
"Impac Plan"). Acceptances or rejections with respect to the Impac Plan may not
be solicited until a disclosure statement has been approved by the United States
Bankruptcy Court for the Southern District of New York. The Impac Disclosure
Statement is being submitted for approval, but has not yet been approved, by the
Bankruptcy Court. Any such approval by the Bankruptcy Court of the Impac
Disclosure Statement as containing "adequate information" will not constitute
endorsement of the Impac Plan. Information contained in the Impac Disclosure
Statement is subject to completion or amendment.
CADWALADER, WICKERSHAM CURTIS, MALLET-PREVOST, COLT
& TAFT LLP & MOSLE LLP
Attorneys for the Debtors and Co-Attorneys for the Debtors and
Debtors-In-Possession Debtors-In-Possession
100 Maiden Lane 101 Park Avenue New
York, New York 10038 New York, New York 10178
(212) 504-6000 (212) 696-6000
DEBEVOISE & PLIMPTON
Attorneys for the Official Committee of
Unsecured Creditors
919 Third Avenue
New York, New York 10022
(212) 909-6000
Dated: As of March 3, 2003
THE DEADLINE BY WHICH EACH HOLDER OF AN IMPAIRED CLAIM MUST CAST A
PROPERLY COMPLETED AND DELIVERED BALLOT FOR ITS VOTE TO ACCEPT OR REJECT THE
IMPAC PLAN TO BE COUNTED IS APRIL 17, 2003, AT 5:00 P.M.
(PACIFIC TIME), UNLESS EXTENDED.
IMPORTANT NOTICE
The Impac Disclosure Statement and its related documents are
the only documents authorized by the Bankruptcy Court to be used in connection
with the solicitation of votes to accept the Impac Plan. No representations have
been authorized by the Bankruptcy Court concerning the Impac Debtors, their
business operations or the value of their assets, except as explicitly set forth
herein.
Please refer to the Glossary and the Impac Plan for
definitions of the capitalized terms used but not defined in the Impac
Disclosure Statement.
The Impac Debtors reserve the right to file an amended Impac
Plan and Impac Disclosure Statement from time to time. The Impac Debtors urge
you to read the Impac Disclosure Statement carefully for a discussion of voting
instructions, recovery information, Classification of Claims and Equity
Interests, the history of the Impac Debtors and the Impac Debtors' Chapter 11
cases, the Impac Debtors' businesses, properties and results of operations,
historical and projected financial results and a summary and analysis of the
Impac Plan. The Impac Debtors also have attached the Lodgian Disclosure
Statement (as defined in section V.A.2), annexed hereto as Exhibit A, for
further information regarding the history and businesses of the Lodgian Group.
The Impac Disclosure Statement contains only a summary of the
Impac Plan. The Impac Disclosure Statement is not intended to replace the
careful and detailed review and analysis of the Impac Plan, only to aid and
supplement such review. The Impac Disclosure Statement is qualified in its
entirety by reference to the Impac Plan, the Plan Supplement and the exhibits
attached thereto and the agreements and documents described therein. If there is
a conflict between the Impac Plan and the Impac Disclosure Statement, the
provisions of the Impac Plan will govern. You are encouraged to review the full
text of the Impac Plan and Plan Supplement and to read carefully the entire
Impac Disclosure Statement, including all exhibits, before deciding how to vote
with respect to the Impac Plan.
Except as otherwise indicated, the statements in the Impac
Disclosure Statement are made as of the date indicated on the cover and the
delivery of the Impac Disclosure Statement will not imply that the information
contained in the Impac Disclosure Statement is correct at any time after that
date. Estimates of Claims in the Impac Disclosure Statement may vary from the
final amounts of Claims allowed by the Bankruptcy Court.
You should not construe the Impac Disclosure Statement as
providing any legal, business, financial or tax advice. You should, therefore,
consult with your own legal, business, financial or tax advisors as to any such
matters in connection with the Impac Plan, the solicitation of votes on the
Impac Plan and the transactions contemplated by the Impac Plan.
As to any contested matters, adversary proceedings or other
actions or threatened actions, the Impac Disclosure Statement is not, and is in
no event to be
construed as, an admission or stipulation. Instead, the Impac Disclosure
Statement is, and is for all purposes to be construed as, solely and exclusively
a statement made in settlement negotiations. The settlements and compromises
described in the Impac Plan and the Impac Disclosure Statement remain subject to
ongoing negotiations with the respective parties.
FORWARD-LOOKING INFORMATION
The Impac Disclosure Statement includes forward-looking
statements based largely on the Impac Debtors' current expectations and
projections about future events and financial trends affecting the financial
condition of the Impac Debtors' or the Reorganized Impac Debtors' businesses.
These include management's expectations with respect to the Impac Debtors'
Chapter 11 cases, statements that describe anticipated revenues, capital
expenditures and other financial items, statements that describe the Reorganized
Impac Debtors' business plans and objectives, and statements that describe the
expected impact of competition, government regulation, litigation and other
factors on the Reorganized Impac Debtors' future financial condition and results
of operations. The words "may," "should," "expect," "believe," "anticipate,"
"project," "estimate" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions, including those described in
section VIII, "Risk Factors," of the Impac Disclosure Statement. In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in the Impac Disclosure Statement may not occur and actual results
could differ materially from those anticipated in the forward-looking
statements. None of the Impac Debtors, the Reorganized Impac Debtors nor any
other person undertakes any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE #
I. INTRODUCTION.............................................................. 2
II. TREATMENT OF CREDITORS AND SHAREHOLDERS UNDER THE IMPAC PLAN............. 2
A. New Capital Structure of the Reorganized Impac Debtors........... 2
B. Summary of Classification and Treatment.......................... 2
C. Description of the Classes....................................... 2
1. CCA Secured Claim (Class 1-A).................................. 2
2. Miscellaneous Secured Claims (Class 1-B)....................... 2
3. Priority Non-Tax Claims (Class 2).............................. 2
4. General Unsecured Claims (Class 3)............................. 2
5. Convenience Claims (Class 5)................................... 2
6. Equity Interests (Class 9)..................................... 2
7. Subordinated Claims (Class 11)................................. 2
D. Administrative Expenses of the Impac Debtors..................... 2
E. Reservation of "Cram Down" Rights................................ 2
III. VOTING PROCEDURES AND REQUIREMENTS...................................... 2
A. Vote Required for Acceptance by a Class.......................... 2
B. Voting........................................................... 2
IV. FINANCIAL INFORMATION AND PROJECTIONS.................................... 2
A. Operating Performance............................................ 2
B. Three-Year Projections of the Reorganized Impac Debtors.......... 2
V. BUSINESS DESCRIPTION AND SALIENT EVENTS DURING REORGANIZATION............. 2
A. Historical Background............................................ 2
1. Background to the Chapter 11 Filings........................... 2
2. Confirmation of the Lodgian Plan............................... 2
3. Significant Events Concerning the Impac Debtors................ 2
VI. GOVERNANCE OF THE REORGANIZED IMPAC DEBTORS.............................. 2
A. Boards of Directors of the Reorganized Impac Debtors............. 2
B. Senior Management of the Reorganized Impac Debtors............... 2
VII. OTHER ASPECTS OF THE IMPAC PLAN......................................... 2
A. Distributions Under the Impac Plan............................... 2
1. Disbursing Agent............................................... 2
2. Timing and Conditions of Distributions......................... 2
3. Procedures for Treating Disputed Claims Under the Impac Plan... 2
B. Treatment of Executory Contracts and Unexpired Leases............ 2
1. Contracts and Leases Not Expressly Assumed Are Rejected........ 2
2. Cure of Defaults............................................... 2
3. Rejection Claims............................................... 2
4. Franchise Agreements........................................... 2
</Table>
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<Table>
<Caption>
PAGE #
C. Effect of Confirmation............................................ 2
1. Discharge of Claims............................................. 2
2. Indemnification................................................. 2
D. Miscellaneous Provisions.......................................... 2
VIII. RISK FACTORS............................................................ 2
A. Certain Bankruptcy Considerations................................. 2
1. General Risks Relating to Confirmation and Consummation......... 2
2. Matters Affecting Recoveries.................................... 2
3. of Franchise Agreements......................................... 2
4. No Assurance of Feasibility..................................... 2
B. Financing Risks................................................... 2
1. Post-Reorganization Obligations................................. 2
2. Limited Access to Working Capital............................... 2
C. Risks Associated with the Businesses.............................. 2
IX. CONFIRMATION OF THE IMPAC PLAN............................................ 2
A. Confirmation Hearing.............................................. 2
B. General Requirements of Section 1129.............................. 2
C. Interests Tests................................................... 2
D. Liquidation Analysis.............................................. 2
E. Feasibility....................................................... 2
F. Section 1129(b)................................................... 2
1. No Unfair Discrimination........................................ 2
2. Fair and Equitable Test......................................... 2
X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE IMPAC PLAN.................. 2
A. Consequences to Holders of General Unsecured Claims............... 2
B. Distributions in Discharge of Accrued Interest.................... 2
C. Market Discount................................................... 2
D. Information Reporting and Withholding............................. 2
XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE IMPAC PLAN........... 2
A. Liquidation Under Chapter 11...................................... 2
B. Alternative Plan(s)............................................... 2
XII. CONCLUSION............................................................... 2
</Table>
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EXHIBITS
Exhibit A Lodgian Disclosure Statement
Exhibit B Impac Debtors' Joint Plan of Reorganization
Exhibit C Projections
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GLOSSARY
The terms in the following table are used in the Impac
Disclosure Statement and, in most cases, the Impac Plan. The definitions given
below of terms used in the Impac Plan are summaries. Please refer to the Impac
Plan for the complete definitions of those terms and other defined terms used
throughout the Impac Disclosure Statement. Unless otherwise specified, all
section references in the Impac Disclosure Statement refer to sections of the
Impac Disclosure Statement.
Administrative Expense Claim Any expense relating to the administration
of an Impac Debtor's Chapter 11 Case,
including actual and necessary costs and
expenses of preserving the respective Impac
Debtor's estate and operating the Impac
Debtor's businesses, any indebtedness or
obligations incurred or assumed during the
applicable Chapter 11 Case, allowances for
compensation and reimbursement of expenses
to the extent allowed by the Bankruptcy
Court, and certain statutory fees chargeable
against the Impac Debtors' estates.
Allowed Claim or Equity Interest A Claim against, or Equity Interest in, an
Impac Debtor which the Impac Debtor agrees,
or in the event of a dispute, which the
Bankruptcy Court determines pursuant to a
Final Order, to be a valid obligation of the
Impac Debtor in the amount so agreed or
determined.
Allowed Tax Claim Any Allowed Claim of a governmental unit of
the kind entitled to priority in payment as
specified in sections 502(i) and 507(a)(8)
of the Bankruptcy Code.
Bankruptcy Code Title 11 of the United States Code, as
amended.
Bankruptcy Court The United States Bankruptcy Court for the
Southern District of New York.
Bar Date June 3, 2002, which is the date fixed by the
Bankruptcy Court as the last date upon which
proofs of Claim and Equity Interests can be
filed against the Impac Debtors' estates.
Cash Legal tender of the United States of
America.
CCA The Capital Company of America LLC.
CCA Secured Claim The Claim by CCA, as agreed to by the Impac
Debtors and CCA under the Settlement
Agreement.
Claim Either (i) any right to payment from any of
the Impac Debtors, whether or not such right
is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal,
equitable, secured or unsecured, known or
unknown, or (ii) any right to an equitable
remedy for breach of performance if such
breach gives rise to a right of payment from
any of the Impac Debtors, whether or not
such right to an
equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured,
disputed, undisputed, secured or unsecured,
known or unknown.
Commencement Date The date the Impac Debtors' Chapter 11 cases
were commenced was December 20, 2001.
Committee The Official Committee of General Unsecured
Creditors appointed in the jointly
administered Chapter 11 cases of Lodgian and
its debtor-subsidiaries, including the Impac
Debtors.
Disputed Claim A Claim that is not an Allowed Claim.
Effective Date A business day selected by the Plan
Proponents on or after the date of
confirmation of the Impac Plan, on which all
conditions to the effectiveness of the Impac
Plan have been satisfied or waived and there
is no stay of the order confirming the Impac
Plan. The Plan Proponents may select
different Effective Dates for each of the
Impac Debtors.
Equity Interest The rights of a holder of an Impac Debtor's
capital stock, membership or partnership
interests, or similar ownership interests,
including any right to acquire such an
interest.
Exit Financing Borrowers The newly formed special purpose entities to
be named as the borrowers under the Exit
Financing Facility.
Exit Financing Facility The financing agreements to be entered into
on the Effective Date among a lender (as
discussed in section V.A.3(b)), and the Exit
Financing Borrowers.
Final Order An order or judgment of the Bankruptcy Court
entered by the Clerk of the Bankruptcy Court
on the docket in the Chapter 11 Cases, which
has not been reversed, vacated or stayed and
as to which (i) the time to appeal, petition
for certiorari or move for a new trial,
reargument or rehearing has expired and as
to which no appeal, petition for certiorari
or other proceedings for a new trial,
reargument or rehearing shall then be
pending, or (ii) if an appeal, writ of
certiorari, new trial, reargument or
rehearing thereof has been sought, such
order or judgment of the Bankruptcy Court
shall have been affirmed by the highest
court to which such order was appealed, or
certiorari shall have been denied, or a new
trial, reargument or rehearing shall have
been denied or resulted in no modification
of such order, and the time to take any
further appeal, petition for certiorari or
move for a new trial, reargument or
rehearing shall have expired; provided,
however, that the possibility that a motion
under Rule 60 of the Federal Rules of Civil
Procedure, or any analogous rule under the
Bankruptcy Rules, may be filed relating to
such order shall not cause such order to not
be a Final Order.
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General Unsecured Claim Any Claim against the applicable Impac
Debtor that (i) is not an Administrative
Expense Claim, a Priority Tax Claim, a
Secured Claim, a Priority Non-Tax Claim, or
a Subordinated Claim, or (ii) is otherwise
determined by the Bankruptcy Court to be a
General Unsecured Claim.
Impac Debtors IMPAC Hotels II, L.L.C. and IMPAC Hotels
III, L.L.C., as debtors and
debtors-in-possession in Chapter 11 cases
01-16367 and 01-16375, respectively.
Impac Disclosure Statement This document together with the annexed
exhibits.
Impac Hotel Properties As applicable, the respective interests of
the Impac Debtors in the hotel properties
(including leasehold interests) described in
section V.A.3.
Impac Plan The Impac Debtors' Joint Plan of
Reorganization Under Chapter 11 of the
Bankruptcy Code, annexed as Exhibit B to the
Impac Disclosure Statement.
Inter-Company Claims Any General Unsecured Claim held by the
Impac Debtors or a member of the Lodgian
Group (as is defined in section V.A.3 of the
Impac Disclosure Statement) against the
other, as well as any General Unsecured
Claim held by one of the Impac Debtors
against the other Impac Debtor.
Lodgian Lodgian, Inc.
Plan Proponents The Impac Debtors and the Committee.
Plan Supplement A supplemental appendix to the Impac Plan
that will contain: (i) the draft form of the
Plan Documents to be entered into as of the
Effective Date and (ii) the Schedule of
Assumed Contracts as of the date of the Plan
Supplement, to be filed seven (7) days
before the date of the Confirmation Hearing.
Projections The projections in the Impac Disclosure
Statement, included in Exhibit C.
Reinstated Equity Security The Equity Interests in the Impac Debtors as
reinstated pursuant to the Impac Plan.
Reorganized Impac Debtors The Impac Debtors as reorganized as of the
Effective Date in accordance with the Impac
Plan.
Settlement Agreement The agreement approved by the Bankruptcy
Court on October 31, 2002, which, inter
alia, permits the Impac Debtors to fully
discharge the CCA Secured Claim.
Settlement Amount The amount for which the CCA Secured Claim
can be fully discharged, in accordance with
the Settlement Agreement.
Subclass A subclass of a Class of Claims established
pursuant to Section 3 of the Impac Plan.
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I.
INTRODUCTION
The Plan Proponents are soliciting votes to accept or reject
the Impac Plan. The overall purpose of the Impac Plan is to provide for the
restructuring of the Impac Debtors' liabilities in a manner designed to maximize
recoveries to all stakeholders and avoid liquidation or turnover of the Impac
Hotel Properties. The Impac Plan provides for the continued operation of the
Reorganized Impac Debtors. A copy of the Impac Plan is attached as Exhibit B to
the Impac Disclosure Statement. Please refer to the Glossary, as well as the
Impac Plan for definitions of terms used but not defined in the Impac Disclosure
Statement.
Although the Impac Plan is proposed as a joint plan of
reorganization of the Impac Debtors, the Impac Plan is a separate plan for each
Impac Debtor. As such, the Impac Plan does not provide for substantive
consolidation of the assets or liabilities of the Impac Debtors.
The purpose of the Impac Disclosure Statement is to provide
sufficient information to enable the creditors of each Impac Debtor that are
entitled to vote to make an informed decision on whether to accept or reject the
Impac Plan.
The Impac Disclosure Statement describes:
O the new capital structures of the Reorganized Impac
Debtors and how the holders of Allowed Claims and
Equity Interests are treated (section II);
O how to vote on the Impac Plan and who is entitled to
vote (section III);
O certain financial information about the Impac
Debtors, including three-year consolidated cash flow
projections of the Reorganized Impac Debtors (section
IV);
O the businesses of the Impac Debtors, the events that
led to the commencement of their Chapter 11 cases and
significant events that have occurred in the Chapter
11 cases (section V);
O how the Reorganized Impac Debtors will be governed
when the Impac Plan becomes effective (section VI);
O how distributions under the Impac Plan will be made
and the manner in which Disputed Claims will be
resolved (section VII.A);
O certain factors that creditors should consider before
voting (section VIII);
O the procedure and requirements for confirming the
Impac Plan (section IX);
O certain federal income tax consequences of
confirmation of the Impac Plan (section X); and
O alternatives to the Impac Plan (section XI).
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Additional financial information, such as historical profit
and loss statements, can be found in the Projections located in Exhibit C of the
Impac Disclosure Statement. Financial information about Lodgian can be found in
the periodic reports of Lodgian, filed with the Securities and Exchange
Commission, including: Lodgian's annual report on Form 10-K for the fiscal year
ended December 31, 2001, and quarterly reports on Form 10-Q for the fiscal
quarters ended March 31, 2002, June 30, 2002, and September 30, 2002. The
December 31, 2002 Form 10-K will be filed on or before March 31, 2003. Copies of
these filings may be obtained on the Internet at www.sec.gov or
www.freeedgar.com.
The Plan Supplement will contain material documents to be
entered into in connection with the implementation of the Impac Plan, including,
among others, organizational documents of the Reorganized Impac Debtors.
The Impac Disclosure Statement, the attached exhibits, the
Impac Plan and the Plan Supplement are the only materials that you should use in
determining whether to vote to accept or reject the Impac Plan. The summaries of
the Impac Plan and other documents related to the restructuring of the Impac
Debtors are qualified in their entirety by the Impac Plan, its exhibits, and the
documents and exhibits contained in the Plan Supplement.
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ENTITLEMENT TO VOTE ON THE IMPAC PLAN
O Classes 1-B, 3 and 5 are impaired under the Impac Plan and
are entitled to vote under the Impac Plan.
O Classes 1-A, 2, and 9 are unimpaired under the Impac Plan,
are deemed to have accepted the Impac Plan and will not be
entitled to vote on the Impac Plan.
O Class 11 will not receive any distribution under the Impac
Plan, is deemed to have rejected the Impac Plan and will not
be entitled to vote on the Impac Plan.
See section II.B for a description of the Classes of Claims and
Equity Interests and their treatment under the Impac Plan. (1)
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The Bankruptcy Code provides that only Claims actually voted
will be counted for purposes of determining whether the requisite acceptances of
the Impac Plan are received. Failure to timely deliver a properly completed
ballot with respect to any Claim entitled to vote will constitute an abstention
and that Claim will not be counted for the purpose of approving the Impac Plan.
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(1) The Impac Plan is based upon the confirmed Joint Plan of Reorganization
of Lodgian, Inc., et al., and provisions that do not apply to the Impac
Debtors were intentionally omitted. Consequently, the numbering of the
classes in the Impac Plan is not consecutive.
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VOTING DEADLINE AND RECORD DATE
THE LAST DAY TO VOTE TO ACCEPT OR REJECT THE IMPAC PLAN IS APRIL 17,
2003. ALL VOTES MUST BE RECEIVED BY THE VOTING AGENT BY 5:00 P.M.
(PACIFIC TIME) ON THAT DAY.
THE RECORD DATE FOR DETERMINING WHICH CREDITORS MAY VOTE ON THE
IMPAC PLAN IS MARCH 20, 2003.
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The Impac Plan is based on extensive negotiations with holders
of the various Claims against the Impac Debtors. Importantly, the Impac Plan
(and the Exit Financing Facility providing the means for its implementation)
enables the Impac Debtors to reorganize their businesses and avoid liquidation,
pursuant to the Impac Debtors' rights as previously negotiated in the Settlement
Agreement. The Plan Proponents believe that approval of the Impac Plan provides
the best opportunity for each Impac Debtor to avoid an immediate liquidation and
emerge from Chapter 11, returning its business to profitability. The Committee
fully supports, and is a co-proponent of, the Impac Plan. The Committee, which
is the single committee of unsecured creditors appointed in the jointly
administered chapter 11 cases of Lodgian and its debtor-subsidiaries, including
the Impac Debtors, does not include creditors of the Impac Debtors. The majority
of the Committee presently holds equity interests of Lodgian, which they
received as pre-petition creditors of Lodgian and its debtor-subsidiaries (other
than the Impac Debtors) pursuant to the previously confirmed plan of
reorganization of those entities. However, as discussed elsewhere in this Impac
Disclosure Statement, the Committee and its professionals participated fully in
the negotiation of the Settlement Agreement which was heavily negotiated prior
to confirmation of the Confirmed Debtors' plan of reorganization and the
conversion of the Committee members' allowed claims to equity interests of
reorganized Lodgian under that chapter 11 plan.
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VOTING RECOMMENDATIONS
The Plan Proponents believe that confirmation of the Impac Plan is
the best opportunity for creditors and Equity Interest holders of
the respective Impac Debtors to avoid an immediate liquidation and
maximize their recoveries and for the on-going business operations
of the Impac Debtors. Each of the Impac Debtors encourages its
creditors entitled to vote to accept the Impac Plan.
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Please contact the Voting Agent with any questions relating to
voting on the Impac Plan. Additional copies of the Impac Disclosure Statement
and, when filed, copies of the Plan Supplement are available upon request made
to the Voting Agent, at the following address:
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IF BY OVERNIGHT OR HAND DELIVERY: IF BY STANDARD MAILING:
POORMAN-DOUGLAS CORPORATION POORMAN-DOUGLAS CORPORATION
10300 S.W. ALLEN BOULEVARD P.O. BOX 4230
BEAVERTON, OREGON 97005 PORTLAND, OREGON 97208-4230
ATTN: LODGIAN/IMPAC ATTN: LODGIAN/IMPAC
BALLOTING CENTER BALLOTING CENTER
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II.
TREATMENT OF CREDITORS AND SHAREHOLDERS UNDER THE IMPAC PLAN
The Impac Plan governs the treatment of Claims against and
Equity Interests in the Impac Debtors. This section summarizes the new capital
structures of the Reorganized Impac Debtors, describes the Claims and Equity
Interests in each Class established under the Impac Plan and summarizes the
treatment of each Class.
A. NEW CAPITAL STRUCTURE OF THE REORGANIZED IMPAC DEBTORS
The Impac Plan provides for the continued operation of the
Reorganized Impac Debtors, which through their newly formed subsidiaries (the
Exit Financing Borrowers), will continue in operation if the Impac Plan is
confirmed. In order to maximize the value of the business of the Reorganized
Impac Debtors, by virtue of the reorganization, the Reinstated Equity Securities
of the Reorganized Impac Debtors will be left unimpaired and will continue to be
one hundred percent (100%) directly or indirectly owned by Lodgian, in exchange
for substantial contributions of new value. The new value contributions will
consist of certain InterCompany Claims at approximately $32.7 million, which
will be contributed as equity under the Impac Plan and will not receive a
creditor distribution. Further material contributions consist of Cash to fund
the Class 3 Cash Pool (discussed in section II.C.4) as well as financial
accommodations in connection with the Exit Financing Facility, such as extending
a guarantee under the Exit Financing Facility and the payment of Extension Fees
(as defined in the Settlement Agreement). In particular, the Exit Financing
Facility is expressly conditioned upon Lodgian's agreement to guaranty certain
obligations of the Exit Financing Borrowers, including, under certain
circumstances, repayment of the entire loan. Absent the Lodgian guarantee, there
would be no Exit Financing Facility and, in turn, no reorganization of the Impac
Debtors.
The Impac Debtors have explored multiple options for
reorganization, including sale of the Impac Hotel Properties or alternative exit
financing options, and believe that the current structure provides the best
recovery on all Claims given the facts and circumstances of the Impac Debtors'
bankruptcy cases. As set forth below in section V.A.3, the Settlement
-7-
Agreement provides that the Impac Debtors may fully discharge the CCA
pre-petition Claims by payment of the Settlement Amount on or before the Outside
Closing Date. Given that if the Settlement Amount is not timely paid, the Impac
Hotel Properties will be transferred to CCA pursuant to foreclosure and/or deed
in lieu of foreclosure documents executed and presently held in escrow (to the
detriment of all other claimholders of the Impac Debtors), the Settlement
Agreement effectively limits the types of structures the Impac Debtors can
employ in their reorganization. The only viable option for the Impac Debtors,
outside of the currently proposed Impac Plan, is liquidation. If liquidation
occurs, in accordance with the Settlement Agreement, it is highly probable that
CCA will obtain the Impac Hotel Properties, either through deed in lieu
documents or through foreclosure, leaving no unencumbered assets for
distribution to other claimants. Therefore, a reorganization with payment of the
Settlement Amount in satisfaction of the CCA Secured Claim provides a greater
recovery to all other Claims of the Impac Debtors.
B. SUMMARY OF CLASSIFICATION AND TREATMENT
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IMPORTANT NOTE ON ESTIMATES
The estimates of recovery amounts and percentages in the following
tables and elsewhere in the Impac Disclosure Statement may differ
from actual distributions if the Impac Debtors' estimates of Allowed
Claims prove to be inaccurate. The Impac Debtors' estimates of
Allowed Claims reflect the Impac Debtors' reasonable judgment based
on current information as of the date of the Impac Disclosure
Statement and the Impac Debtors make no representation as to the
accuracy of these amounts.
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The Impac Plan constitutes a separate Chapter 11 plan of
reorganization for each Impac Debtor. Except for Administrative Expense Claims
and Priority Tax Claims, all Claims against, and Equity Interests in a
particular Impac Debtor are placed in the following Classes for each of the
Impac Debtors. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Expense Claims and Priority Tax Claims have not been classified
and thus are excluded from the following Classes.
The following table designates the Classes of Claims against
and Equity Interests in each Impac Debtor (as and to the extent that such Class
of Claims or Equity Interests is applicable to such Impac Debtor) and specifies
which of those Classes are (i) impaired or unimpaired by the Impac Plan and (ii)
entitled to vote to accept or reject the Impac Plan in accordance with section
1126 of the Bankruptcy Code or deemed to reject the Impac Plan.
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Treatment of Claims and Equity Interests
<Table>
<Caption>
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CLASS DESCRIPTION TREATMENT ENTITLED ESTIMATED
TO VOTE RECOVERY
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1-A CCA Secured Claim Satisfaction of Settlement Amount No (deemed 100%
to accept)
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1-B Miscellaneous Secured Claims Either (i) Cash equal to 100% of the Yes 100%
Allowed Claim; (ii) net proceeds of
sale of collateral up to the amount of
the Allowed Claim; (iii) the
collateral securing the Allowed
Claim; (iv) a note with periodic cash
payments having a present value
equal to the amount of the Allowed
Claim and secured by the existing
collateral; (v) such treatment that
leaves unaltered the legal, equitable
and contractual rights of the holder;
or (vi) such other distribution as is
necessary to satisfy the requirements
of the Bankruptcy Code
- -------------------------------------------------------------------------------------------------------------------
2 Priority Non-Tax Claims Paid in full No (deemed 100%
to accept)
- -------------------------------------------------------------------------------------------------------------------
3 General Unsecured Claims Pro rata share of Class 3 Cash Pool Yes 15%
- -------------------------------------------------------------------------------------------------------------------
4 Reserved N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
5 Convenience Claims Paid in full Yes 100%
- -------------------------------------------------------------------------------------------------------------------
6 Reserved N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
7 Reserved N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
8 Reserved N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
9 Equity Interest Reinstated Equity Security No (deemed 100%
to accept)
- -------------------------------------------------------------------------------------------------------------------
10 Reserved N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
11 Subordinated Claims No distribution No (deemed None
to reject)
- -------------------------------------------------------------------------------------------------------------------
</Table>
For convenience of identification, the Impac Plan classifies the
Allowed Claims in Class 1 as a single Class. This Class is actually a group of
two Subclasses, the CCA Secured Claim Subclass and the Miscellaneous Secured
Claims Subclass. The treatment of the Claims in the CCA Secured Claim Subclass
is the contractual treatment as provided for in the Settlement Agreement and, as
such, Subclass 1-A is unimpaired. The treatment of the Miscellaneous Secured
Claims Subclass depends upon the Collateral securing such Allowed Claims. Each
Subclass is treated under the Impac Plan as a separate class for voting and
distribution purposes.
-9-
For convenience of identification, the Impac Plan classifies
the Allowed Claims in Class 3 as a single Class. This Class is actually a group
of two Subclasses, one for the Allowed Class 3 Claims against each Impac Debtor.
Although each Subclass is treated under the Impac Plan as a separate class for
voting purposes, the holders of claims in each Subclass will receive, as a
distribution under the Impac Plan, its pro rata share from the aggregate amount
of Cash in the Class 3 Cash Pool as provided in the Impac Plan.
C. DESCRIPTION OF THE CLASSES
Unless otherwise indicated, the characteristics and amount of
the Claims or Equity Interests in the following Classes are based on the books
and records of each of the applicable Impac Debtors.(2) Each Subclass is treated
as a separate Class for purposes of the Impac Plan and the Bankruptcy Code.
However, the following discussion may refer to a group of Subclasses as a single
Class for ease of reference.
--------------------------------------------------------------------
INTEREST WILL NOT ACCRUE AFTER COMMENCEMENT DATE
Unless otherwise specified in the Impac Plan or by order of the
Bankruptcy Court, no interest will accrue or be paid on an Allowed
Claim, for any purpose, on or after the Commencement Date.
--------------------------------------------------------------------
1. CCA Secured Claim (Class 1-A)
Description. The allowed claim held by CCA against the Impac
Debtors pursuant to the Settlement Agreement.
Treatment. The Class 1-A Claim is held by CCA and will be
satisfied in full by payment of the Settlement Amount. Class 1-A Claim is
unimpaired.
2. Miscellaneous Secured Claims (Class 1-B)
Description. The Claims in Class 1-B consist of any Claims to
the extent (i) secured by Collateral, the amount of which is equal to or less
than the value of such Collateral (A) as set forth in the Impac Plan, (B) as
agreed to by the holder of such Claim and the applicable Impac Debtor(s), or (C)
as determined by a Final Order in accordance with section 506(a) of the
Bankruptcy Code, or (ii) secured by the amount of any rights of setoff of the
holder thereof under section 553 of the Bankruptcy Code
Treatment. Class 1-B Claims are impaired, and any holders of
Allowed Claims in Class 1-B are entitled to vote to accept or reject the Impac
Plan. Class 1-B will receive (i) Cash equal to 100% of the Allowed Claim; (ii)
net proceeds of sale of collateral up to the amount of the Allowed Claim; (iii)
the collateral securing the Allowed Claim; (iv) a note with periodic cash
payments having a present value equal to the amount of the Allowed Claim and
secured by the
- ----------
(2) Again, the Impac Plan is based upon the confirmed Joint Plan of
Reorganization of Lodgian, Inc., et al. Provisions that do not apply to
the Impac Debtors were intentionally omitted and, consequently, the
numbering of the classes is intentionally not consecutive.
-10-
existing collateral; (v) such treatment that leaves unaltered the legal,
equitable and contractual rights of the holder; or (vi) such other distribution
as is necessary to satisfy the requirements of the Bankruptcy Code. In the event
that Class 1-B rejects the Impac Plan, the applicable Impac Debtor(s) reserves
the right to request, pursuant to section 13.10 of the Impac Plan, confirmation
of its plan through a "cram down" of such Class under section 1129(b) of the
Bankruptcy Code and modification of the plan to the extent, if any, confirmation
under section 1129(b) requires modification.
3. Priority Non-Tax Claims (Class 2)
Description. The Claims in Class 2 are the types of Claims
identified in section 507(a) of the Bankruptcy Code that are entitled to
priority in payment (other than Administrative Expense Claims and Priority Tax
Claims). For each of the Impac Debtors, these Claims relate primarily to
pre-petition wages and employee benefit plan contributions that had not yet been
paid as of the Commencement Date. Each of the Impac Debtors believes that all of
these Claims have already been paid pursuant to an order entered by the
Bankruptcy Court on the Commencement Date.
Treatment. Allowed Claims in Class 2 are unimpaired. To the
extent that they have not already been paid, they will be paid in full on or as
soon as is reasonably practicable after the Effective Date, except to the extent
that the holders of such Claims agree to a different treatment.
4. General Unsecured Claims (Class 3)
Description. Class 3 consists of the Claims of suppliers and
other vendors, personal injury and other litigation claimants to the extent not
covered by insurance, parties to executory contracts or unexpired leases with
the respective Impac Debtors that are being rejected, any applicable
Inter-Company Claims and other General Unsecured Claims. Class 3 includes Tort
Claims that are covered in whole or in part by insurance maintained by the Impac
Debtors. However, such Claims will share in the treatment of this Class only to
the extent of the allowed amount of such Claims that is less than or equal to
the Debtor's self-insured retention or deductible amount under the applicable
insurance policy and not satisfied from proceeds of insurance payable to the
holder of the Claim.
For purposes of the initial distribution, and as part of the
distribution mechanism under the Impac Plan for holders of Claims in Class 3,
the applicable Impac Debtor will be required to estimate the total amount of
Allowed Claims in Class 3. The aggregate amount of General Unsecured Claims
(excluding Inter-Company Claims) filed or scheduled against the Impac Debtors on
or before the Bar Date (adjusted to take into account Claims that have been
otherwise satisfied as of the date hereof) was approximately $4.4 million.(3)
However, the respective Impac Debtors estimate that, after deducting duplicate
Claims, Claims not supported by the respective Impac Debtors' books and records,
Claims that are (or will be) covered by insurance and Claims that are subject to
other objections, the aggregate amount of Allowed Claims in Class 3 Subclasses
will be approximately $2.0 million.
- ----------
(3) This amount excludes any potential deficiency claims that holders of
Allowed Secured Claims in Class 1-B may have.
-11-
For convenience of identification, the Impac Plan classifies
the Allowed Claims in Class 3 as a single Class. Class 3 actually consists of
two separate Subclasses, one for the allowed Class 3 Claims against each of the
respective Impac Debtors. Each Subclass is treated under the Impac Plan as a
separate class for purposes of voting.
Treatment of Class 3 Claims against Impac Debtors. Class 3
Claims are impaired. In order to provide a recovery to holders of Class 3
Allowed Claims, Lodgian is contributing $ 302,484 in Cash to the Class 3 Cash
Pool. The holders of Allowed Claims in each Class 3 Subclass will receive a pro
rata share of the Cash in the Class 3 Cash Pool.
Based upon present estimates of aggregate Claims, all holders
of Allowed Class 3 Claims will receive approximately fifteen percent (15%) of
their Allowed Claim. However, the actual percentage of the payout will be based
upon the ultimate amount of all Allowed Claims, as the percentage recovery is
based on a pro rata distribution of the fixed amount in the Class 3 Cash Pool.
5. Convenience Claims (Class 5)
Description. Class 5 consists of (a) Allowed General Unsecured
Claims of a holder in an amount equal to $200 or less, (b) Allowed General
Unsecured Claims of a holder that has irrevocably elected on its ballot to
reduce its Claims to the amount of $200, or (c) a disputed General Unsecured
Claim that becomes an Allowed General Unsecured Claim of $200 or less with the
consent of, and in the amount agreed to by, the applicable Impac Debtor or
pursuant to a Final Order.
Treatment. Class 5 is impaired. Class 5 Claims will receive
Cash in an amount equal to the Allowed amount of their Claim on or as soon as
reasonably practicable after the Effective Date.
6. Equity Interests (Class 9)
Description. Class 9 consists of holders of Equity Interests.
Treatment. Class 9 is unimpaired. Except as may otherwise be
determined by the applicable Impac Debtor, including, without limitation, the
transfer of Equity Interests to affiliates of the Impac Debtors, the legal,
equitable and contractual rights of holders of Allowed Equity Interests in Class
9 shall remain unaltered. All holders of Equity Interests, and all instruments
representing it, will be reinstated on the Effective Date. In consideration of
the retention of the Reinstated Equity Securities, Lodgian is providing
substantial new value consisting of Cash and other financial accommodations, as
set forth in section II.A.
7. Subordinated Claims (Class 11)
Description. Class 11 consists of any Claim against any of the
Impac Debtors for any fine, penalty, forfeiture or attorneys' fees (but only to
the extent such attorneys' fees are punitive in nature), or for multiple,
exemplary or punitive damages, to the extent that such fine, penalty,
forfeiture, attorneys' fees or damages are not compensation for actual pecuniary
loss suffered by the holder of such Claim and not statutorily prescribed, and
all claims against either
-12-
of the Debtors of the type described in Section 510(b) of the Bankruptcy Code
relating to equity interests (including all Equity Interests). In general,
punitive or exemplary damage Claims are intended to punish or make an example of
a wrongdoer. However, in the context of an insolvent entity, such as each of the
Impac Debtors, the enforcement of punitive Claims would have the effect of
punishing unsecured creditors by diluting the ultimate recovery to all unsecured
creditors. Moreover, punitive and exemplary damage Claims differ significantly
from other General Unsecured Claims which are based upon pecuniary losses. For
these reasons, such Claims have been classified separately from other unsecured
Claims. The Debtors do not believe that there will be any Allowed Claims in this
Class.
Treatment. Class 11 is impaired. To the extent that there are
any Allowed Claims in Class 11, they are subordinated to the Claims in other
Classes. No property will be distributed to or retained by the holders of
Allowed Claims in this Class on account of these Claims. Class 11 is therefore
deemed to reject the Impac Plan and the Impac Debtors will not solicit their
vote.
D. ADMINISTRATIVE EXPENSES OF THE IMPAC DEBTORS
In order to confirm the Impac Plan, Administrative Expense
Claims and Allowed Tax Claims entitled to priority under the Bankruptcy Code
must be paid in full or in a manner otherwise agreeable to the holders of those
Claims. Administrative expenses are the actual and necessary costs and expenses
of the Impac Debtors' Chapter 11 cases of each of the respective Impac Debtors.
Those expenses include, but are not limited to, cure payments in connection with
the assumption of certain contracts, post-petition salaries and other benefits
for employees, post-petition rent for facilities and offices, amounts owed to
vendors providing goods and services during the Impac Debtors' Chapter 11 cases,
tax obligations incurred after the commencement of the Impac Debtors' Chapter 11
cases, and certain statutory fees and expenses. Other administrative expenses
include the actual, reasonable and necessary professional fees and expenses of
the professionals retained by each of the Impac Debtors and the Committee.
Consistent with the requirements of the Bankruptcy Code, the
Impac Plan generally provides for Allowed Administrative Expense Claims to be
paid in full on the later of the Effective Date and the first business day after
the date that is 30 days after the date such Administrative Expense Claim
becomes Allowed, except for Administrative Expense Claims relating to ordinary
course of business transactions or for money borrowed, both of which will be
paid in accordance with the past practice of the applicable Impac Debtor and the
terms of the agreements governing such obligations. Administrative Expense
Claims relating to compensation of the professionals retained by the applicable
Impac Debtors or the Committee or for the reimbursement of expenses of certain
members of the Committee will, unless otherwise agreed by the claimant, be paid
on the later of the Effective Date and the date on which an order allowing such
Administrative Expense Claim is entered.
Unless otherwise specified in the Impac Plan or by order of
the Bankruptcy Court, no interest will accrue or be paid in connection with an
Allowed Administrative Expense Claim for any purpose, on or after the
Commencement Date.
Allowed Tax Claims entitled to priority under the Bankruptcy
Code will be paid over a period not exceeding six years from the date of
assessment of the tax, with interest at a
-13-
fixed annual rate so that the periodic payments have a value, as of the
Effective Date, equal to the Allowed amount of the Claim.
E. RESERVATION OF "CRAM DOWN" RIGHTS
The Bankruptcy Code permits the Bankruptcy Court to confirm a
Chapter 11 plan over the dissent of any class of claims as long as the standards
in section 1129(b) are met. This power to confirm a plan over dissenting classes
- - often referred to as "cram down" - is an important part of the reorganization
process. It assures that no single group (or multiple groups) of claims can
block a restructuring that otherwise meets the requirements of the Bankruptcy
Code and is in the interests of the other constituents in the case.
Each of the Impac Debtors reserves the right to seek
confirmation of the Impac Plan, notwithstanding the rejection of the Impac Plan
by any Class entitled to vote. In the event that a Class votes to reject the
Impac Plan, the applicable Impac Debtor may request the Bankruptcy Court to rule
that the Impac Plan meets the requirements specified in section 1129(b) of the
Bankruptcy Code with respect to such Class. The applicable Impac Debtor will
also seek such a ruling with respect to each Class that is deemed to reject the
Impac Plan.
III.
VOTING PROCEDURES AND REQUIREMENTS
Detailed voting instructions are provided with the ballot
accompanying the Impac Disclosure Statement. The following Classes are the only
Classes entitled to vote to accept or reject the Impac Plan.
<Table>
<Caption>
CLASS DESCRIPTION
----- -----------
1-B Miscellaneous Secured Claims
3 General Unsecured Claims
5 Convenience Claims
</Table>
If your Claim is not in one of these Classes, you are not entitled to vote. If
your Claim is in one of these Classes, you should read your ballot and follow
the listed instructions carefully. Please only use the ballot that accompanies
the Impac Disclosure Statement.
----------------------------------------------
BALLOT INFORMATION NUMBER: (888) 697-3594
----------------------------------------------
A. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS
The Impac Debtors have filed a motion seeking entry of the
Voting Procedures Order to set certain procedures in connection with voting on
the Impac Plan. If the Voting Procedures Order is approved, it will set forth
the procedures to be employed in tabulating acceptances and rejections of the
Impac Plan.
-14-
--------------------------------------------------------------------
CLASS VOTE REQUIRED TO ACCEPT THE IMPAC PLAN
Acceptance of the Impac Plan by a Class of Claims will be determined
by calculating the number and the amount of Claims voting to accept,
based only on the Claims in the Class actually voting.
Acceptance by a Class of Claims requires an affirmative vote of a
majority of the total Claims voting and two-thirds in amount of the
total Claims in the Class voting. Any impaired Class that fails to
achieve the specified majority vote will be deemed to have rejected
the Impac Plan.
--------------------------------------------------------------------
B. VOTING
In order for your vote to be counted, your vote must be
received by the Voting Agent at the following address before the voting deadline
of 5:00 p.m., Pacific Time, on April 17, 2003:
--------------------------------------------------------------------
IF BY OVERNIGHT OR HAND DELIVERY: IF BY STANDARD MAILING:
POORMAN-DOUGLAS CORPORATION POORMAN-DOUGLAS CORPORATION
10300 S.W. ALLEN BOULEVARD P.O. BOX 4330
BEAVERTON, OREGON 97005 PORTLAND, OREGON 97208-4330
ATTN: LODGIAN/IMPAC ATTN: LODGIAN/IMPAC
BALLOTING CENTER BALLOTING CENTER
--------------------------------------------------------------------
If the instructions on your ballot require you to return the
ballot to your bank, broker or other nominee, or to their agent, you must
deliver your ballot to them in sufficient time for them to process it and return
it to the Voting Agent before the voting deadline. If a ballot is damaged or
lost, you may contact the Voting Agent at (888) 697-3594. Any ballot that is
executed and returned but which does not indicate an acceptance or rejection of
the Impac Plan will not be counted.
IV.
FINANCIAL INFORMATION AND PROJECTIONS
This section provides summary information concerning the
recent financial performance and three-year financial projections for the Impac
Debtors.
The projections are based on information available as of the
date of the Impac Disclosure Statement. The significant assumptions underlying
the projections and the basis of their preparation are discussed below.
-15-
A. OPERATING PERFORMANCE
For a recent description of the operating performance of Impac
Debtors on a consolidated basis, see the historical profit and loss statements,
which can be found in the Projections in Exhibit C of the Impac Disclosure
Statement. Financial information regarding the Impac Debtors on a consolidated
basis with Lodgian and its subsidiaries can be found in the periodic reports of
Lodgian (as discussed in section I).
B. THREE-YEAR PROJECTIONS OF THE REORGANIZED IMPAC DEBTORS
--------------------------------------------------------------------
IMPORTANT NOTE ON FINANCIAL PROJECTIONS
The projections included in the Impac Disclosure Statement (the
"Projections") are based on a number of important assumptions, which
are subject to significant business, economic and competitive risks
and uncertainties that are not within the Impac Debtors' control and
could cause actual results to differ materially and adversely from
the Projections.
These factors include the impact of the Chapter 11 cases on the Impac
Debtors' businesses and operations; the Debtors' ability to maintain
their existing franchise affiliations, to confirm the Impac Plan in a
timely manner, to access adequate financing and to generate cash flow
from operations to meet their obligations; the effect of general
economic conditions; and other factors. See section VIII, "Risk
Factors."
The Projections are not, and should not be regarded as, a
representation that the Projections can or will be achieved.
--------------------------------------------------------------------
As a condition to confirmation of a plan of reorganization,
the Bankruptcy Code requires, among other things, that the Bankruptcy Court
determine that confirmation is not likely to be followed by the liquidation or
the need for further financial reorganization of the debtor. In connection with
the development of the Impac Plan and for the purpose of determining whether the
Impac Plan satisfies this feasibility standard, the Impac Debtors developed the
Projections, including a pro forma balance sheet as of December 31, 2002 and
certain income statement projections for the fiscal years 2003 through 2005 (the
"Projection Period") for the Reorganized Impac Debtors.
Projections for the Reorganized Impac Debtors, on a
consolidated basis, including the principal assumptions on which they are based,
are attached as Exhibit C hereto.
Based on the Projections, the Impac Debtors believe that the
Reorganized Impac Debtors will be able to make all payments required pursuant to
the Impac Plan and, therefore, that confirmation of the Impac Plan is not likely
to be followed by liquidation or the need for further reorganization. The
Projections should be read in conjunction with the assumptions and notes set
forth in Exhibit C.
-16-
V.
BUSINESS DESCRIPTION AND SALIENT EVENTS DURING REORGANIZATION
A. HISTORICAL BACKGROUND
The following is a discussion of the background to the Chapter
11 filings, as well as pertinent events that have occurred during the Chapter 11
cases in connection with the overall restructuring of each of the Impac Debtors'
financial obligations.
1. Background to the Chapter 11 Filings
The Impac Debtors' business is cyclical, with the winter
months tending to be the low points in terms of occupancy and cash flow, with
the period of December 15th to January 15th being the lowest time period for the
Impac Debtors, operationally. Demand is also dependent upon many factors,
including general and local economic conditions and changes in levels of tourism
and business-related travel. The Impac Debtors' hotels depend upon both
commercial and tourist travelers for revenues and, generally, the Impac Debtors'
hotels operate in areas that contain numerous other competitive lodging
facilities. Notably, the Impac Debtors compete with other facilities on various
bases, including room prices, quality, service, location and amenities
customarily offered to the traveling public.
The Impac Debtors' businesses have been negatively impacted by
the general economic slowdown and, in particular, the dramatic decline in both
business and leisure travel. On a comparative basis, occupancy of the Debtors'
hotels declined from 57.3% to 57.1% over the twelve (12) months ending December
31, 2001 and December 31, 2002, respectively. The Average Daily Rate ("ADR")
declined from $75.23 to $71.00 over the same period.
The events of September 11, 2001 have exacerbated the pressure
on the Impac Debtors' revenues because of a standstill in travel demand.
Although travel and occupancy usage has increased since September 11, 2001, the
Impac Debtors expect the negative impact on travel to continue for the
foreseeable future. Business continues to be weak due to a soft economy, fears
of terrorism, and uncertainty of a conflict in the Middle East.
2. Confirmation of the Lodgian Plan
On the Commencement Date, Lodgian and its debtor-subsidiaries,
including the Impac Debtors, commenced these voluntary cases under Chapter 11 of
the Bankruptcy Code in the Bankruptcy Court. On December 21, 2001, the
Bankruptcy Court entered an Order Granting Joint Administration of the Impac
Debtors' cases under the lead bankruptcy case, In re Lodgian, Inc., et al. (Case
No.: 01-16345).
Also on December 21, 2001, the Bankruptcy Court entered an
interim order authorizing Lodgian and its debtor-subsidiaries, to borrow up to a
maximum aggregate principal amount of $10 million, in accordance with the terms
of the Revolving Credit and Guarantee Agreement Among Lodgian, Inc., as
Borrower, the Subsidiaries of the Borrower, as Guarantors, and the Lender
Parties, and Morgan Stanley Senior Funding, Inc., as Administrative Agent and
Collateral Agent (the "DIP Credit Agreement"). Upon final hearing, the
Bankruptcy Court
-17-
entered a final order authorizing Lodgian to borrow up to a maximum principal
amount of $25 million, again in accordance with the terms of the DIP Credit
Agreement. However, it should be noted that the Impac Debtors received no
proceeds in connection with the DIP Credit Agreement.
On January 8, 2002, pursuant to section 1102 of the Bankruptcy
Code, the United States Trustee appointed the Committee. No trustee or examiner
has been appointed in the Impac Debtors' Chapter 11 cases.
On April 19, 2002, the Court entered an order extending the
periods under section 1121(b) and 1121(c) of the Bankruptcy Code to file a
Chapter 11 plan or plans of reorganization (the "Exclusive Filing Period") and
solicit acceptances thereto (the "Exclusive Solicitation Period" and
collectively, the "Exclusive Periods") for a period of six (6) months through
and including July 18, 2002 and September 16, 2002, respectively. By order dated
July 11, 2002, the Bankruptcy Court further extended the Exclusive Filing Period
and the Exclusive Solicitation Period through and including October 21, 2002 and
December 18, 2002, respectively (the "Lodgian Exclusivity Order").
On September 23, 2002, Lodgian and its debtor-subsidiaries,
including the Impac Debtors, filed the Joint Plan of Reorganization of Lodgian,
Inc., et al., together with the Official Committee of Unsecured Creditors under
Chapter 11 of the Bankruptcy Code (the "Initial Lodgian Plan"), which contained
provisions addressing the treatment of the Impac Debtors' estates and the Impac
Debtors' creditors. At the September 24, 2002 hearing for the approval of the
disclosure statement (the "Lodgian Disclosure Statement") relating to the
Initial Lodgian Plan and upon the objection of CCA to the Lodgian Disclosure
Statement, the Bankruptcy Court adjourned the hearing relating to the Lodgian
Disclosure Statement to September 26, 2002. On September 25, 2002, Lodgian and
its debtor-affiliates filed a modified plan (the "Lodgian Plan") which excluded
the treatment of the Impac Debtors' estates from the Lodgian Plan. On September
26, 2002, the Bankruptcy Court approved the Lodgian Disclosure Statement. A copy
of the Lodgian Disclosure Statement is annexed hereto as Exhibit A. Upon the
confirmation hearing of November 5, 2002, the Court entered an order on November
5, 2002 confirming the Lodgian Plan which excluded the Impac Debtors.
3. Significant Events Concerning the Impac Debtors
As set forth in greater detail in the Lodgian Disclosure
Statement, Lodgian (together with its direct and indirect subsidiaries, the
"Lodgian Group"), the parent company of the Impac Debtors, is one of the largest
owners and operators of both full and limited-service hotels in the United
States with 97 hotels containing approximately eighteen thousand rooms under
Lodgian's ownership or management, located in thirty states, and with one hotel
in Windsor, Canada. The Impac Debtors own eighteen (18) hotels located in eleven
(11) states, seventeen (17) of which are operated under franchise agreements
with Six Continents Hotels, Inc. ("Six Continents") and with Marriott
International, Inc. ("Marriott"). There is one (1) hotel that is operated
independently.
Impac Hotels II, L.L.C.'s properties consist of the following
thirteen (13) hotels: Marriott Hotel Denver, Colorado; Mayfair House, Florida;
Holiday Inn North Miami, Florida;
-18-
Holiday Inn Florence, Kentucky; Holiday Inn Hamburg, New York; Holiday Inn
Syracuse, New York; Holiday Inn Cincinnati Downtown, Ohio; Holiday Inn Ft.
Mitchell, Kentucky; Courtyard by Marriott Tulsa, Oklahoma; Holiday Inn Memphis,
Tennessee; Holiday Inn Fairmont, West Virginia; Holiday Inn Morgantown, West
Virginia; and Holiday Inn Bridgeport, West Virginia. Impac Hotels III, L.L.C.'s
properties consist of the following five (5) hotels: Fairfield Inn Augusta,
Georgia; Courtyard by Marriott Lafayette, Louisiana; Fairfield Inn Merrimack,
New Hampshire; Fairfield Inn Jackson, Tennessee; and Fairfield Inn Colchester,
Vermont.
(a) CCA's Claims Against the Impac Debtors Prior to the
Commencement Date
Prior to the Commencement Date, the Impac Debtors entered into
separate loan agreements (the "Loan Agreements") with Nomura Asset Capital
Corporation ("NACC"). Thereafter, NACC assigned its right under the Loan
Agreements to CCA, an affiliate of NACC. Subsequent to such assignment, the
Impac Debtors and CCA entered into a loan agreement which consolidated and
restated the Loan Agreements (the "CCA Consolidated Loan Agreement").
On the Commencement Date, Lodgian and its
debtors-subsidiaries, including the Impac Debtors, filed a motion (the "Cash
Collateral Motion") to, inter alia, use cash collateral in which CCA claimed an
interest (the "CCA Cash Collateral"). CCA filed an objection, but consented to
the Impac Debtors' use of CCA's Cash Collateral based upon an agreement reached
with CCA on January 9, 2002. The agreement provided for the limited use by the
Impac Debtors of CCA Cash Collateral and that it would expire on or after the
final hearing for approval of the Cash Collateral Motion on February 14, 2002.
Thereafter, CCA agreed to extend the use of the CCA Cash Collateral until May
31, 2002 by entering into a stipulation and order and further agreed to the
extended use of the CCA Cash Collateral from the period commencing June 1, 2002
through June 30, 2002 by entering into a second stipulation and order.
On or about June 5, 2002, CCA filed proofs of claim against,
among other parties, (i) Impac Hotels II, L.L.C., asserting a secured claim in
the amount of $108,907,700, and (ii) Impac Hotels III, L.L.C., asserting a
secured claim in the amount of $108,907,700.
In anticipation of CCA's expected denial of the Impac Debtors'
consensual use of cash collateral, on June 7, 2002, the Impac Debtors filed a
Motion Pursuant to sections 105, 361, 363, 503, and 507 of the Bankruptcy Code
and Rule 4001 of the Federal Rules of Bankruptcy Procedure for Entry of Order
Approving the Use of Cash Collateral of The Capital Company of America LLC,
which requested an order authorizing the Debtors to use the CCA Cash Collateral
and provided assurance of adequate protection therewith (the "Second Cash
Collateral Motion"). On June 24, 2002, CCA filed an objection to the Second Cash
Collateral Motion. On June 27, 2002, without the need for litigation, Lodgian
and its affiliated debtor-subsidiaries, including the Impac Debtors, and CCA
entered into a third stipulation and order authorizing the use of CCA Cash
Collateral from the period commencing July 1, 2002 through July 31, 2002.
Thereafter, the parties entered into additional stipulations and orders allowing
the Impac Debtors' continued use of the CCA Cash Collateral pursuant to a very
restricted cash use agreement.
-19-
During this period, on May 30, 2002, CCA filed a motion for an
Order (i) Pursuant to Section 1121(d) of the Bankruptcy Code Terminating the
Exclusive Period Within Which Impac Hotels II, L.L.C. and Impac Hotels III,
L.L.C. May File and Solicit Acceptances to a Plan of Reorganization, and (ii)
Authorizing The Capital Company of America LLC to File and Solicit Acceptances
to a Plan of Reorganization (the "CCA Motion to Terminate Exclusivity"). On June
26, 2002, Lodgian and its affiliated debtor-subsidiaries, including the Impac
Debtors, filed a second motion to extend the exclusive period within which the
Debtors may file and solicit acceptances to a plan (or plans) of reorganization
(the "Debtors' Second Exclusivity Motion"). On July 8, 2002, CCA filed an
objection to the Debtors' Second Exclusivity Motion.
Nevertheless, on July 11, 2002, upon the adjourned hearing on
the CCA Motion to Terminate Exclusivity and upon the hearing of the Debtors'
Second Exclusivity Motion, the Bankruptcy Court entered the Lodgian exclusivity
order extending the Exclusive Filing Period and the Exclusive Solicitation
Period. In addition, the Bankruptcy Court determined, sua sponte, and pursuant
to section 2.2(B) of the Amended General Order Adopting Procedures Governing
Mediation of Matters in Bankruptcy Cases and Adversary Proceedings, dated
January 19, 1997, that Harvey R. Miller, Esq. be appointed as mediator (the
"Mediator") to, inter alia, facilitate a resolution of various disputes between,
inter alia, the Impac Debtors and CCA.
As a result of extensive and intensive mediation sessions
among representatives of Lodgian, the Impac Debtors, CCA, the Mediator, and
other interested parties, an agreement in principle was reached resolving
disputes between the Impac Debtors and CCA. By order dated October 31, 2002, the
Bankruptcy Court approved the Settlement Agreement which, inter alia, provides
that the Impac Debtors may fully discharge the CCA pre-petition Claims by
payment of the Settlement Amount on or before the Outside Closing Date (as
defined in the Settlement Agreement). The Outside Closing Date was initially
February 28, 2003 but was extended to March 31, 2003 and may be further extended
to May 31, 2003 upon satisfaction of the conditions provided in the Settlement
Agreement.
By order dated December 5, 2002, the Bankruptcy Court granted
the Impac Debtors a further extension of the Exclusive Filing Period and the
Exclusive Solicitation Period through and including February 28, 2003 and April
29, 2003, respectively. In addition, by order dated February 19, 2003, the
Bankruptcy Court granted a further extension of the Exclusive Filing Period and
the Exclusive Solicitation Period through and including June 2, 2003 and August
1, 2003, respectively. On February 20, 2003, the Impac Debtors notified CCA that
it would be exercising its option to extend the Outside Closing Date to March
31, 2003.
(b) The Impac Debtors' Efforts to Raise Capital to Exit
Chapter 11
On January 3, 2003, Lodgian, at its own expense, engaged
Hodges Ward Elliott, Inc. ("HWE") as its exclusive representative to seek to
raise debt and equity capital on behalf of the Impac Debtors for the purpose of
raising financing to pay the Settlement Amount in connection with the Impac
Debtors continuing to own the 18-hotel portfolio (the "Portfolio"). HWE sought
to effectuate a transaction of either (i) financing, mezzanine financing or
equity investment, or other arrangement or transaction relating to a direct or
indirect financing or equity interest, including partial interests of the Impac
Debtors; or (ii) financing or other transaction,
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directly or indirectly, with respect to a portion of the ownership interests of
the entities which own the Impac Debtors.
As part of its engagement, HWE prepared an analysis of the
Portfolio, resulting in a marketing package that was used to secure the interest
of multiple debt and equity investors, potential purchasers of the Impac Hotel
Properties, and similar parties (the "HWE Financing Memorandum"). Without
revealing the confidential information from the Settlement Agreement, HWE gave
presentations on the Portfolio as well as distributed the HWE Financing
Memorandum to numerous debt and equity investors. HWE simultaneously began
negotiating confidentiality agreements with investors that expressed interest in
the Portfolio, in preparation for releasing to such investors certain
confidential information from the Settlement Agreement, such as the Settlement
Amount. HWE based the confidentiality agreement on Exhibit P to the Settlement
Agreement and, through counsel for Lodgian, negotiated any modifications to
Exhibit P with counsel to CCA. Only when HWE had secured a signed
confidentiality agreement from an interested investor, that was in form and
substance acceptable to CCA, did HWE release confidential information from the
Settlement Agreement to the interested investor.
The HWE Financing Memorandum contained, among other things, an
overview of the Portfolio, a summary of the borrower's investment strategy and
detailed property summaries and financial data specific to each of the hotels in
the Portfolio. The solicitation period for potential investors in the Portfolio
lasted approximately one month.
Though several investors expressed general interest in the
Portfolio, Lehman Brothers Holdings Inc. ("Lehman Bros.") offered the most
complete and timely package. Lehman Bros. proposed financing for the entire
Portfolio, which was particularly attractive to the Impac Debtors given that
they would not have to seek financing for a mezzanine portion. The terms of the
Lehman Bros. proposal involve a two (2) year loan with an optional one (1) year
extension, with interest rate spreads and fees that are market rate for similar
transactions. Lehman Bros. also agreed to work to meet the Impac Debtors' goal
to consummate the transaction before the end of May 2003. Final negotiation of
the Exit Financing Facility is still pending, and as such, the Exit Financing
Facility may ultimately be provided by Lehman Bros., any of its affiliates or
subsidiaries, or such other third party as may be later be disclosed.
Of importance, the proceeds of the Exit Financing Facility
will be used, in part, to discharge in full the CCA Secured Claim under the
Settlement Agreement, thereby allowing the Impac Debtors to avoid an immediate
liquidation and surrender of collateral to CCA under the terms of the Settlement
Agreement. The Exit Financing Facility is expressly conditioned upon Lodgian's
agreement to guaranty certain obligations of the borrowers, including, under
certain circumstances, repayment of the entire loan. Absent the Lodgian
guarantee, there would be no Exit Financing Facility and, in turn, no
reorganization of the Impac Debtors.
Upon the Effective Date, all property of each Impac Debtor's
estate shall vest in each of the applicable newly created subsidiaries of the
Reorganized Impac Debtors pursuant to the Impac Plan. Each Reorganized Impac
Debtor is authorized to execute the necessary documentation to effectuate the
vesting of the property in the newly created subsidiaries as of the Effective
Date. The Impac Plan provides that each Impac Debtor will assume and assign to
the newly formed, wholly owned subsidiaries of each Reorganized Impac Debtor, as
part of the Exit
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Financing Agreement, each and every executory contract and unexpired lease to
which the applicable Impac Debtor is a party. Each of the newly created
subsidiaries will be required to have one independent director.
VI.
GOVERNANCE OF THE REORGANIZED IMPAC DEBTORS
A. BOARDS OF DIRECTORS OF THE REORGANIZED IMPAC DEBTORS
Prior to the confirmation of the Impac Plan, in accordance
with section 1129(a)(5) of the Bankruptcy Code, the Impac Debtors shall disclose
(i) the identity and affiliations of any individual proposed to serve, after the
Effective Date, as a director or officer of the Reorganized Debtors, and (ii)
the identity of any "insider" (as such term is defined in section 101(31) of the
Bankruptcy Code) who shall be employed and retained by the Reorganized Debtors
and the nature of any compensation for such insider.
The Board of Directors and officers of the Debtors immediately
before the Effective Date shall continue to serve immediately after the
Effective Date in their respective capacities as directors and officers of the
Reorganized Debtors.
B. SENIOR MANAGEMENT OF THE REORGANIZED IMPAC DEBTORS
The existing senior officers of the Impac Debtors will serve
in their current capacities after the Effective Date.
VII.
OTHER ASPECTS OF THE IMPAC PLAN
A. DISTRIBUTIONS UNDER THE IMPAC PLAN
One of the key concepts under the Bankruptcy Code is that only
Claims against, and Equity Interests in, a debtor that are "allowed" may receive
distributions under a Chapter 11 plan. This term is used throughout the Impac
Plan and the descriptions below. In general, an "allowed" Claim or "allowed"
Equity Interest simply means that the debtor agrees, or in the event of a
dispute, that the Bankruptcy Court determines, that the claim or equity
interest, and the amount thereof, is in fact a valid obligation of the debtor.
1. Disbursing Agent
Lodgian will contribute, among other valuable consideration,
Cash to be distributed under the Impac Plan to each Impac Debtor as a capital
contribution to allow such Impac Debtor to discharge the Claims against it.
All distributions under the Impac Plan shall be made by the
applicable Reorganized Impac Debtor as Disbursing Agent (or such other entity
designated by the Reorganized Impac Debtor as a Disbursing Agent on or after the
Effective Date).
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2. Timing and Conditions of Distributions
(a) Date of Distribution
Except as otherwise provided for in the Impac Plan,
distributions on account of Allowed Claims will be made on or as soon as
practicable after the later of the Effective Date or the date an order allowing
a Disputed Claim becomes a Final Order. Disputed Claims will be treated as set
forth below.
(b) De Minimis Distributions
The applicable Reorganized Impac Debtor as Disbursing Agent or
such other entity designated by such Reorganized Impac Debtor as a Disbursing
Agent on or after the Effective Date will not be required to distribute Cash to
the holder of an Allowed Claim in an impaired Class if the amount of Cash to be
distributed on any distribution date under the Impac Plan (including the
Effective Date and the Final Distribution Date) on account of such Claim is less
than $50. Any holder of an Allowed Claim on account of which the amount of Cash
to be distributed is less than $50 will have its Claim for such distribution
discharged and will be forever barred from asserting any such Claim against the
Reorganized Impac Debtors or their respective property. Any Cash not distributed
pursuant to this section VII.A.2.(b) will become the property of the Reorganized
Impac Debtors, free of any restrictions thereon, and any such Cash held by a
third-party Disbursing Agent will be returned to the Reorganized Impac Debtors.
3. Procedures for Treating Disputed Claims Under the Impac Plan
(a) Disputed Claims
Disputed Claims include those Claims (i) listed by each Impac
Debtor in such respective Impac Debtor's schedules of assets and liabilities, as
may be amended from time to time, as not liquidated in amount or contingent or
disputed, (ii) to which an objection or request for estimation has been filed
and not withdrawn or determined, (iii) for which a proof of claim has been filed
and with respect to which no corresponding Claim is listed in the schedules or
the corresponding Claim is listed as other than contingent, disputed, or
unliquidated but for which the nature or amount of the Claim as filed differs
from that listed in the schedules, or (iv) asserting Tort Claims.
(b) Objections to Claims
Each of the Impac Debtors shall be entitled to object to all
Claims. Any objections to Claims shall be served and filed on or before one
hundred twenty (120) days after the Effective Date or such later date as may be
fixed by the Bankruptcy Court provided, however, that such one hundred and
twenty (120) day period may be automatically extended by the applicable Impac
Debtor, without any further application to, or approval by, the Bankruptcy
Court, for an additional thirty (30) days with the consent of the Committee (not
to be unreasonably withheld). Notwithstanding the foregoing, the Committee shall
also have the right to make and file objections to Claims filed against any
Impac Debtor, which objections shall be made in consultation with such Impac
Debtor(s) and shall be made within the above time frames. From and after the
Confirmation Date, subject to the Effective Date, all objections shall be
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litigated to a Final Order except to the extent that the applicable Impac Debtor
(with the consent of the Committee not to be unreasonably withheld) or the
Committee (with the consent of the applicable Impac Debtor not to be
unreasonably withheld), as applicable, elects to withdraw any such objection or
the applicable Impac Debtor (with the consent of the Committee not to be
unreasonably withheld) or the Committee (with the consent of the applicable
Impac Debtor not to be unreasonably withheld), as applicable, and the holder of
the Disputed Claim elects to compromise, settle or otherwise resolve any such
objection, in which event they may settle, compromise or otherwise resolve any
such Disputed Claim without approval of the Bankruptcy Court. At its option,
upon the consent of the Committee, the applicable Impac Debtors may make a
single, lump sum payment of the settlement amount to the claimant. To the extent
that an objection is filed by the Committee, at its option, the Committee, upon
the consent of the applicable Impac Debtor, may make a single, lump sum payment
of the settlement amount to the claimant.
(c) No Distributions Pending Allowance
If any portion of a Claim is a Disputed Claim, no payment or
distribution shall be made on account of the Claim until the disputed portion of
the Claim becomes an Allowed Claim or is otherwise resolved. Pending the
allowance or disallowance of the Disputed Claims, the applicable Impac Debtor
shall withhold from the distributions made pursuant to the Impac Plan to the
holders of Allowed Claims the distributions allocable to the Disputed Claims as
if the Disputed Claims had been Allowed Claims.
(d) Distributions After Allowance
If, on or after the Effective Date, any Disputed Claim
becomes, in whole or in part, an Allowed Claim, the applicable Reorganized Impac
Debtor shall distribute to the holder thereof the distributions, if any, to
which such holder is then entitled under the Impac Plan. Any Cash distributions
shall be made as soon as practicable after the date that the order or judgment
of the Bankruptcy Court allowing such Disputed Claim (or portion thereof)
becomes a Final Order, but in no event more than thirty (30) days thereafter.
Any pro rata share of the Class 3 Cash Pool distributable to the holder of a
Disputed Claim which becomes an Allowed Claim (in whole or in part) as a result
of the entry of such order or judgment of the Bankruptcy Court (and which is a
Final Order) allowing such Disputed Claim (or portion thereof) shall be made in
accordance with the next scheduled distribution date to the holders of Allowed
Claims.
(e) No Recourse With Respect to Disputed Claims
Notwithstanding that the Allowed amount of any particular
Disputed Claim is reconsidered under the applicable provisions of the Bankruptcy
Code and Bankruptcy Rules, no Claim holder will have recourse against the
Disbursing Agent, the Impac Debtors, the Committee, the Reorganized Impac
Debtors, or any of their professional consultants, officers, directors or
members or their successors or assigns, or any of their property. However,
nothing in the Impac Plan will modify any right of a holder of a Claim under
section 502(j) of the Bankruptcy Code.
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B. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. Contracts and Leases Not Expressly Assumed Are Rejected
On the Effective Date, all executory contracts and unexpired
leases to which each Impac Debtor is a party shall be deemed rejected as of the
Effective Date, except for an executory contract or unexpired lease that (i) has
been assumed or rejected pursuant to a Final Order of the Bankruptcy Court, (ii)
is specifically designated as a contract or lease to be assumed on the Schedule
of Assumed Contracts set forth in the Plan Supplement, provided however, that
the Impac Debtors reserve the right to amend the Plan Supplement at any time on
or before the Effective Date to amend the Schedule of Assumed Contracts to add
or delete any executory contract or unexpired lease, thus providing for its
assumption, assumption and assignment, or rejection, or (iii) is the subject of
a separate motion to assume, assume and assign, or reject filed under section
365 of the Bankruptcy Code by the applicable Impac Debtor on or before the
Effective Date.
2. Cure of Defaults
Generally, if there has been a default (other than a default
specified in section 365(b)(2) of the Bankruptcy Code) under an executory
contract or unexpired lease, the debtor can assume the contract or lease only if
the debtor cures the default. Accordingly, a condition to the assumption of an
executory contract or unexpired lease is that any default under an executory
contract or unexpired lease that is to be assumed pursuant to the Impac Plan
will be cured in a manner consistent with the Bankruptcy Code and as set forth
in the Impac Plan.
3. Rejection Claims
If an entity with a claim for damages arising from the
rejection of an executory contract or unexpired lease under the Impac Plan has
not filed a proof of claim for such damages within twenty (20) days after the
Effective Date, that Claim shall be barred and shall not be enforceable against
any of the Impac Debtors or the Reorganized Impac Debtors.
4. Franchise Agreements
At the present time, the Impac Debtors intend to continue
operating each of their respective Impac Hotel Properties under the Impac Plan
and, with one exception, intend to assume and assign to the applicable Exit
Financing Borrowers any franchise agreements relating to those Impac Hotel
Properties. However, with respect to the franchise agreement in connection with
the Holiday Inn Cincinnati Downtown, Ohio hotel property (the "Cincinnati Hotel
Property"), the applicable Impac Debtor has advised Six Continents that it
intends to reject this franchise agreement. Upon rejection, the Cincinnati Hotel
Property shall be operated as an independent hotel. The applicable Impac Debtors
hope to reach consensual resolution with each applicable franchisor on the terms
of the assumption of its franchise agreement. In the event that the applicable
Impac Debtor and franchisor are unable to reach an agreement over such terms,
including the cure of any defaults as and to the extent required by section 365
of the Bankruptcy Code, then the applicable Impac Debtor shall request that the
Bankruptcy Court resolve such disputes.
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C. EFFECT OF CONFIRMATION
1. Discharge of Claims
Except as otherwise provided in the Impac Plan, confirmation
of the Impac Plan will discharge all existing debts and Claims of any kind,
nature or description whatsoever, against or in each of the Impac Debtors or any
of their assets or properties, to the full extent permitted by section 1141 of
the Bankruptcy Code. All holders of existing Claims against the Impac Debtors
will be enjoined from asserting against the Reorganized Impac Debtors, or any of
their assets or properties, any other or further Claim based upon any act or
omission, transaction, or other activity that occurred prior to the Effective
Date, whether or not such holder has filed a proof of claim. In addition, upon
the Effective Date, each holder of a Claim against the Impac Debtors shall be
forever precluded and enjoined from prosecuting or asserting any discharged
Claim against the Impac Debtors or the Reorganized Impac Debtors.
2. Indemnification
The Impac Plan provides for the assumption and continuation of
normal corporate indemnification provisions related to the protection of
officers and directors.
D. MISCELLANEOUS PROVISIONS
The Impac Plan contains provisions relating to corporate
actions, the Disbursing Agent, delivery of distributions, manner of payment,
vesting of assets, binding effect, term of injunctions or stays, injunction
against interference with the Impac Plan, payment of statutory fees, recognition
of guaranty rights, substantial consummation, compliance with tax requirements,
severability, revocation and amendment of the Impac Plan, governing law, and
timing. For more information regarding these items, see the Impac Plan attached
hereto as Exhibit B.
VIII.
RISK FACTORS
Holders of Claims against the Impac Debtors should read and
consider carefully the following risk factors and the other information in the
Impac Disclosure Statement, the Impac Plan, the Plan Supplement and the other
documents delivered or incorporated by reference in the Impac Disclosure
Statement and the Impac Plan, before voting to accept or reject the Impac Plan.
These risk factors should not, however, be regarded as
constituting the only risks involved in connection with the Impac Plan and its
implementation. Additional risks and other information about Lodgian and the
Impac Debtors can be found in Lodgian's annual report on Form 10-K for the
fiscal year ended December 31, 2001, and quarterly reports on Form 10-Q for the
fiscal quarters ended March 31, 2002, June 30, 2002 and September 30, 2002, and
its other filings from time to time with the Securities and Exchange Commission,
which are incorporated into the Impac Disclosure Statement by reference.
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A. CERTAIN BANKRUPTCY CONSIDERATIONS
1. General Risks Relating to Confirmation and Consummation
Although each of the Impac Debtors believes that the Impac
Plan will satisfy all requirements necessary for confirmation by the Bankruptcy
Court, there can be no assurance that the Bankruptcy Court will reach the same
conclusion. Moreover, there can be no assurance that modifications of the Impac
Plan will not be required for confirmation or that such modifications would not
necessitate the resolicitation of votes. In addition, although each of the Impac
Debtors believes that the Effective Date will occur soon after the Confirmation
Date, there can be no assurance as to such timing.
The Bankruptcy Court may confirm the Impac Plan if at least
one impaired Class votes to accept the Impac Plan (with such acceptance being
determined without including the vote of any "insider" in such Class). Thus, for
the Impac Plan to be confirmed, one of the impaired Classes must vote to accept
the Impac Plan. As to each impaired Class that has not accepted the Impac Plan,
the Impac Plan may be confirmed if the Bankruptcy Court determines that the
Impac Plan "does not discriminate unfairly" and is "fair and equitable" with
respect to these Classes. Each of the Impac Debtors believes that the Impac Plan
satisfies these requirements.
2. Matters Affecting Recoveries
The estimates of recovery amounts and percentages in the Impac
Disclosure Statement are based on a number of assumptions, including the Impac
Debtors' estimates of Allowed Claims in each Class. Actual recoveries may differ
from such estimates if the Impac Debtors' estimates of Allowed Claims prove to
be inaccurate. The Impac Debtors' estimates of Allowed Claims reflect the Impac
Debtors' reasonable judgment based on current information as of the date of the
Impac Disclosure Statement and the Impac Debtors make no representation as to
the accuracy of these amounts.
3. Loss of Franchise Agreements
If any of the Impac Debtors were required to terminate or
reject any of their franchise agreements on a non-consensual basis, and if such
franchisor were to assert a claim against such Impac Debtor, then any Allowed
Claim relating to such termination or rejection could reduce recoveries to the
holders of Allowed General Unsecured Claims against such Impac Debtors. The Plan
Proponents do not believe that such risks are any greater than that attendant to
the resolution of Disputed Claims generally.
By order dated, November 4, 2002, the Bankruptcy Court
approved the stipulation entered into between Lodgian and certain of its
debtor-subsidiaries, including the Impac Debtors, and Marriott resolving the
status of certain franchise agreements (the "Marriott Stipulation"). Pursuant to
the Marriott Stipulation, with respect to certain of the Impac Hotel Properties,
the Impac Debtors agreed to, inter alia, (i) rectify the status of default under
Marriott's Quality Assurance Programs by June 30, 2003; and (ii) comply with
certain requirements relating to capital improvements of certain of the Impac
Hotel Properties. There exists a risk that the Impac
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Debtors will not have rectified any default within the time period proscribed by
the Marriott Stipulation.
4. No Assurance of Feasibility
The Impac Debtors cannot give assurance that the Reorganized
Impac Debtors will be able to achieve the revenue or cash flow levels reflected
in the Projections, which the Impac Debtors have relied on to project their
future business prospects. If either or both of the Reorganized Impac Debtors do
not achieve the revenue or cash flow levels reflected in the Projections, such
Impac Debtor may lack sufficient liquidity to continue operating as planned
after the Effective Date. Failure to meet specified financial results would be
likely to result in an event of default under the Exit Financing Facility.
The Projections represent management's view as of the date of
the Impac Disclosure Statement, based on current known facts as to the projected
operations of the Reorganized Impac Debtors and the assumptions stated in
section IV. However, while management believes that the assumptions underlying
the Projections are reasonable, the Projections do not attempt to demonstrate
the viability of the business in a "worst case" environment. Additionally,
approximately 475 proofs of claim were filed as of the Bar Date against the
Impac Debtors. As of the date of the Impac Disclosure Statement, the Impac
Debtors have completed a preliminary review of these Claims, including
reconciliation to their own books and records. However, due to the number and
amount of Claims in dispute, as well as the risk of error inherent in
reconciling such a large number of proofs of claim with the books and records of
the Impac Debtors, it is possible that the actual amount of Allowed Claims may
differ materially from the Impac Debtors' estimates. The Impac Debtors continue
to seek to resolve Disputed Claims and further refine their claims analysis.
Because distributions under the Impac Plan and the Projections are linked to the
amount and value of the Allowed Claims, any change in the Impac Debtors'
estimates of Allowed Claims resulting from further analysis of the proofs of
claim filed as of the Bar Date could impact the Projections. Claim estimates for
purposes of effectuating the reserve for Disputed Claims will ultimately be
established, after notice and hearing, by the Bankruptcy Court.
Moreover, the Projections may not adequately account for
continuing or unforeseen effects on the Reorganized Impac Debtors' operations
that may result from the terrorist attacks that occurred on September 11, 2001,
including the current crisis with the Republic of Iraq, or from extended
weakening in the U.S. economy. The long-term effects of these events on the
overall global and U.S. economies, the Impac Debtors' areas of business and the
Impac Debtors' operations cannot be predicted. Further, the Projections do not
take into account any changes in interest rates during the Projection Period.
Though each of the Impac Debtors believes that the assumptions
underlying the Projections are reasonable, the impact, if any, that the Chapter
11 cases may have on the operations of the Reorganized Impac Debtors cannot be
accurately predicted or quantified. If confirmation and consummation of the
Impac Plan do not occur expeditiously, the Chapter 11 cases could further
adversely affect the Impac Debtors' relationships with their customers,
employees and suppliers. However, even expedited Chapter 11 cases could have a
detrimental
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impact on future sales and patronage due to the possibility that the Chapter 11
cases may have created a negative image of the Impac Debtors in the eyes of
their customers and suppliers.
B. FINANCING RISKS
1. Post-Reorganization Obligations
The Reorganized Impac Debtors may not be able to meet their
post-reorganization debt obligations, operating expenses, working capital and
other capital expenditures. The Impac Debtors are currently highly leveraged.
The Reorganized Impac Debtors will be substantially less leveraged. However, the
Impac Debtors cannot provide assurance that the operating cash flow of the
Reorganized Impac Debtors will be adequate to pay the principal and interest
payments under their post-reorganization indebtedness when due, as well as to
fund all capital expenditures contemplated in the cash flow Projections.
2. Limited Access to Working Capital
The Reorganized Impac Debtors' businesses are expected to
require certain amounts of working capital. While the Projections assume that
sufficient funds to meet their working capital needs for the foreseeable future
will be available from the Cash generated by the businesses of the Reorganized
Impac Debtors and from the proceeds of the Exit Financing Facility, the ability
of the Reorganized Impac Debtors to gain access to additional capital, if
needed, cannot be assured, particularly in view of competitive factors, industry
conditions and the terms of the Exit Financing Facility.
The Impac Debtors expect that the Exit Financing Facility will
contain restrictive financial and operating covenants and prohibitions,
including provisions that will limit the ability of the Reorganized Impac
Debtors to make capital expenditures. Restrictions on capital investment are
expected to be more restrictive if the Reorganized Impac Debtors' cash flow is
lower than projected. As noted above, failure to make necessary capital
expenditures could have an adverse effect on the ability of the Reorganized
Impac Debtors to remain competitive.
C. RISKS ASSOCIATED WITH THE BUSINESSES
The following categories of risks associated with the
businesses of the Impac Debtors are set forth in the Lodgian Registration
Statement on Form S-4 filed with the Securities and Exchange Commission on
August 13, 1999 (as amended on September 7, 1999): Risk Associated With The
Lodging Industry - Economic Conditions, Oversupply, Travel Patterns and Other
Conditions Beyond the Debtors' Control and Risk Related to Development of New
Projects, Acquisitions and Renovations. Please refer to such filing for further
discussion on this topic.
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IX.
CONFIRMATION OF THE IMPAC PLAN
A. CONFIRMATION HEARING
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CONFIRMATION HEARING
The Court will hold the confirmation hearing at the following time
and place:
DATE AND TIME: commencing at 10:00 a.m. (Eastern time), on April
24, 2003.
PLACE: The United States Bankruptcy Court, Southern District of New
York, Alexander Hamilton Custom House, One Bowling Green, New York,
New York 10004.
JUDGE: The Honorable Burton R. Lifland.
The confirmation hearing may be adjourned from time to time by the
respective Impac Debtors or the Bankruptcy Court without further
notice except for an announcement of the adjourned date made at the
confirmation hearing or any subsequent adjourned confirmation
hearing.
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Section 1128(b) of the Bankruptcy Code provides that any party
in interest may object to confirmation of a plan. Any objection to confirmation
of the Impac Plan must be in writing, state the name and address of the
objecting party and the nature of the Claim of such party, provide a concise
statement of the basis for such objection or proposed modification, including,
if applicable: (i) the specific page number of the Impac Plan to which the
objection refers; (ii) the specific language proposed to be deleted, if a
deletion is sought; (iii) a draft of the precise language that the objecting
party proposes be added or substituted; and (iv) the reasons and statutory or
other authority therefor and be filed, together with proof of service, with the
Bankruptcy Court (with a copy to the chambers of the Honorable Judge Burton R.
Lifland), and must further be served upon the following parties: (1) Cadwalader,
Wickersham & Taft LLP, 100 Maiden Lane, New York, New York 10038, Attn: Adam C.
Rogoff, Esq., counsel to the Debtors and Debtors-in-Possession; (2) Curtis,
Mallet-Prevost, Colt & Mosle LLP, 101 Park Avenue, New York, New York 10178,
Attn: Steven J. Reisman, Esq., co-counsel to the Debtors and
Debtors-in-Possession; (3) Debevoise & Plimpton, 919 Third Avenue, New York, New
York 10022, Attn: George E.B. Maguire, Esq., counsel for the Committee; and (4)
Lodgian, Inc., 3445 Peachtree Road, Suite 700, Atlanta, Georgia 30326, Attn:
Daniel Ellis, Esq., in each case SO AS TO BE ACTUALLY RECEIVED NO LATER THAN 4
P.M. (EASTERN TIME) ON APRIL 17, 2003.
Objections to confirmation of the Impac Plan are governed by
Rule 9014 of the Federal Rules of Bankruptcy Procedure. UNLESS AN OBJECTION TO
CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE CONSIDERED BY THE
BANKRUPTCY COURT.
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B. GENERAL REQUIREMENTS OF SECTION 1129
At the confirmation hearing, the Bankruptcy Court will
determine whether the following confirmation requirements specified in section
1129 of the Bankruptcy Code have been satisfied:
1. The Impac Plan complies with the applicable provisions of the
Bankruptcy Code.
2. Each of the Impac Debtors has complied with the applicable
provisions of the Bankruptcy Code.
3. The Impac Plan has been proposed in good faith and not by any
means proscribed by law.
4. Any payment made or promised by each of the Impac Debtors or
by a person issuing securities or acquiring property under the
Impac Plan for services or for costs and expenses in, or in
connection with, the Chapter 11 cases, or in connection with
the Impac Plan and incident to the Chapter 11 cases, has been
disclosed to the Bankruptcy Court, and any such payment made
before the confirmation of the Impac Plan is reasonable or if
such payment is to be fixed after confirmation of the Impac
Plan, such payment is subject to the approval of the
Bankruptcy Court as reasonable.
5. Each of the Impac Debtors has disclosed the identity and
affiliations of any individual proposed to serve, after
confirmation of the Impac Plan, as a director, officer or
voting trustee of the respective Impac Debtors, affiliates of
each of the Impac Debtors participating in the Impac Plan with
each of the Impac Debtors, or a successor to each of the Impac
Debtors under the Impac Plan, and the appointment to, or
continuance in, such office of such individual is consistent
with the interests of creditors and equity holders and with
public policy, and each of the Impac Debtors has disclosed the
identity of any insider that will be employed or retained by
each of the Impac Debtors, and the nature of any compensation
for such insider.
6. With respect to each Class of Claims, each holder of an
impaired Claim either has accepted the Impac Plan or will
receive or retain under the Impac Plan, on account of such
holder's Claim, property of a value, as of the Effective Date,
that is not less than the amount such holder would receive or
retain if the applicable Impac Debtor was liquidated on the
Effective Date under Chapter 7 of the Bankruptcy Code. See
discussion of "Best Interests Test" below.
7. Except to the extent that the Impac Plan meets the
requirements of section 1129(b) of the Bankruptcy Code
(discussed below), each Class of Claims has either accepted
the Impac Plan or is not impaired under the Impac Plan.
8. Except to the extent that the holder of a particular Claim has
agreed to a different treatment of such Claim, the Impac Plan
provides that Administrative Expense Claims and Priority
Non-Tax Claims will be paid in full on the Effective Date and
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that Priority Tax Claims will receive on account of such
Claims deferred cash payments, over a period not exceeding six
(6) years after the date of assessment of such Claims, of a
value, as of the Effective Date, equal to the Allowed amount
of such Claims.
9. At least one Class of impaired Claims has accepted the Impac
Plan, determined without including any acceptance of the Impac
Plan by any insider holding a Claim in such Class.
10. Confirmation of the Impac Plan is not likely to be followed by
the liquidation or the need for further financial
reorganization of any of the Impac Debtors or any successor to
the Impac Debtors under the Impac Plan, unless such
liquidation or reorganization is proposed in the Impac Plan.
See discussion of "Feasibility" below.
C. BEST INTERESTS TESTS
As described above, the Bankruptcy Code requires that each
holder of an impaired Claim either (i) accept the Impac Plan or (ii) receive or
retain under the Impac Plan property of a value, as of the Effective Date, that
is not less than the value such holder would receive if the applicable Impac
Debtor was liquidated under Chapter 7 of the Bankruptcy Code.
The first step in determining whether this test has been
satisfied is to determine the dollar amount that would be generated from the
liquidation of the applicable Impac Debtor's assets and properties in the
context of a Chapter 7 liquidation case. The gross amount of Cash that would be
available for satisfaction of Claims would be the sum consisting of the proceeds
resulting from the disposition of the unencumbered assets and properties of the
applicable Impac Debtor, augmented by the unencumbered Cash held by the
applicable Impac Debtor at the time of the commencement of the liquidation case.
The next step is to reduce that gross amount by the costs and
expenses of liquidation and by such additional administrative and priority
Claims that might result from the termination of the applicable Impac Debtor's
business and the use of Chapter 7 for the purposes of liquidation. Any remaining
net Cash would be allocated to creditors and shareholders in strict priority, in
accordance with section 726 of the Bankruptcy Code. Finally, the present value
of such allocations (taking into account the time necessary to accomplish the
liquidation) are compared to the value of the property that is proposed to be
distributed under the Impac Plan on the Effective Date.
The applicable Impac Debtor's costs of liquidation under
Chapter 7 would include the fees payable to a trustee in bankruptcy, as well as
those fees that might be payable to attorneys and other professionals that such
a trustee might engage. Other liquidation costs include the expenses incurred
during the Chapter 11 cases that are Allowed Claims in the Chapter 7 case, such
as compensation for attorneys, financial advisors, appraisers, accountants and
other professionals for the applicable Impac Debtor and the Committee, and costs
and expenses of members of the Committee, as well as other compensation Claims.
In addition, Claims would arise by reason of the breach or rejection of
obligations incurred and leases and
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executory contracts assumed or entered into by the applicable Impac Debtor
during the pendency of the Chapter 11 cases.
Generally, the foregoing types of Claims, costs, expenses,
fees and such other Claims that may arise in a liquidation case would be paid in
full from the liquidation proceeds before the balance of those proceeds would be
made available to pay pre-petition secured, priority and unsecured Claims. EACH
OF THE IMPAC DEBTORS BELIEVES THAT IN A CHAPTER 7 CASE, CLASS 3 (GENERAL
UNSECURED CLAIMS), CLASS 5 (CONVENIENCE CLAIMS) AND CLASS 9 (EQUITY INTERESTS)
WOULD RECEIVE NO DISTRIBUTION OF PROPERTY, PARTICULARLY GIVEN THAT THE
SETTLEMENT AGREEMENT WOULD OBLIGATE THE IMPAC DEBTORS TO TRANSFER EACH OF THE
IMPAC HOTEL PROPERTIES TO CCA, IN ACCORDANCE WITH THE SETTLEMENT AGREEMENT.
After consideration of the effects that a Chapter 7
liquidation would have on the ultimate proceeds available for distribution to
creditors in the Chapter 11 cases, including (i) the increased costs and
expenses of a liquidation under Chapter 7, arising from fees payable to a
trustee in bankruptcy and professional advisors to such trustee, (ii) additional
costs associated with the transfer of the Impac Hotel Properties, pursuant to
the Settlement Agreement, and (iii) the substantial increases in Claims that
would be satisfied on a priority basis, each of the Impac Debtors has determined
that confirmation of the Impac Plan will provide each holder of an Allowed Claim
with a recovery that is not less than such holder would receive pursuant to
liquidation of each of the Impac Debtors under Chapter 7.
Each of the Impac Debtors also believes that the value of any
distributions to each Class of Allowed Claims in a Chapter 7 case, including all
secured Claims, would be less than the value of distributions under the Impac
Plan because such distributions in a Chapter 7 case would not occur for a
substantial period of time. In this regard, it is possible that distribution of
the proceeds of the liquidation could be delayed for one year or more after the
completion of such liquidation in order to resolve Claims and prepare for
distributions. In the event that litigation was necessary to resolve Claims
asserted in a Chapter 7 case, the delay could be prolonged and administrative
expenses increased.
D. LIQUIDATION ANALYSIS
Typically a liquidation analysis reflects the projected
outcome of a hypothetical, orderly liquidation under chapter 7 of the Bankruptcy
Code. However, as set forth in section XI.A, if no Chapter 11 plan can be
confirmed for any of the Impac Debtors by the Outside Closing Date, the Impac
Debtors' applicable Chapter 11 cases would be administered pursuant to the
Settlement Agreement. Pursuant to the Settlement Agreement, each of the Impac
Debtors believes that implementation of the Settlement Agreement would result in
no distributions being made to the respective holders of Claims and Equity
Interests because of (i) the likelihood that other assets of each of the Impac
Debtors would have to be sold or otherwise disposed of in accordance with the
Settlement Agreement, (ii) additional administrative expenses attendant to fees
and expenses of attorneys and other professionals, and (iii) additional expenses
and Claims, some of which would be entitled to priority, which would be
generated during the implementation of the Settlement Agreement and from other
executory contracts in connection with a cessation of each of the Impac Debtors'
operations. As no funds would remain, the estates of the Impac Debtors would, at
this point, be administratively insolvent.
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E. FEASIBILITY
As a condition to confirmation of the Impac Plan, the
Bankruptcy Code requires, among other things, that the Bankruptcy Court
determine that confirmation is not likely to be followed by the liquidation or
the need for further financial reorganization of the Impac Debtors. In
connection with the development of the Impac Plan and for the purpose of
determining whether the Impac Plan satisfies this feasibility standard, the
Impac Debtors developed the Projections, which include certain income statement,
cash flows and balance sheet projections for the Projection Period consisting of
the fiscal years 2003 through 2005 for the Reorganized Impac Debtors on a
consolidated basis. The Projections, together with a discussion of the
assumptions underlying the Projections, are included in section IV above, and
Exhibit C, "Projections." Based on the Projections, the Impac Debtors believe
that the Reorganized Impac Debtors will be able to make all payments required
pursuant to the Impac Plan and, therefore, that confirmation of the Impac Plan
is not likely to be followed by liquidation or the need for further
reorganization.
F. SECTION 1129(b)
The Bankruptcy Court may confirm the Impac Plan over the
rejection or deemed rejection of the Impac Plan by a Class of Claims if the
Impac Plan "does not discriminate unfairly" and is "fair and equitable" with
respect to such Class.
1. No Unfair Discrimination
This test applies to Classes of Claims that are of equal
priority and are receiving different treatment under the Impac Plan. The test
does not require that the treatment be the same or equivalent, but that such
treatment be "fair."
2. Fair and Equitable Test
This test applies to Classes of different priority and status
(e.g., secured versus unsecured) and includes the general requirement that no
Class of Claims receive more than 100% of the amount of the Allowed Claims in
such Class. As to the dissenting Class, the test sets different standards,
depending on the type of Claims in such Class:
O Secured Creditors. Each holder of an impaired Secured
Claim either (i) retains its liens on the property to
the extent of the amount of its Allowed Secured Claim
and receives deferred cash payments having a value,
as of the effective date, of at least the amount of
such Allowed Claim, (ii) has the right to credit bid
the amount of its Claim if its property is sold and
retains its liens on the proceeds of the sale or
(iii) receives the "indubitable equivalent" of its
Allowed Secured Claim.
O Unsecured Creditors. Either (i) each holder of an
impaired unsecured Claim receives or retains under
the plan property of a value equal to the amount of
its Allowed Claim, or (ii) the holders of Claims and
Equity Interests that are junior to the Claims of the
dissenting Class will not receive any property under
the plan.
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These requirements are in addition to other requirements established by case law
interpreting the statutory requirement.
Each of the Impac Debtors believes that the Impac Plan will
satisfy the "fair and equitable" requirement, because no junior Class to those
not paid in full will receive or retain any property, in the absence of new
value issued, on account of the Claims or Equity Interests in such Class. In
addition, in consideration of the retention of the Reinstated Equity Securities,
Lodgian is providing substantial new value consisting of Cash and other
financial accommodations, as set forth in section II.A.
X.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE IMPAC PLAN
The following discussion summarizes certain federal income tax
consequences of the implementation of the Impac Plan to certain holders of
General Unsecured Claims. The following summary does not address the federal
income tax consequences to (i) holders whose Claims are entitled to
reinstatement or payment in full in cash, or are otherwise unimpaired under the
Impac Plan, and (ii) holders of Claims which are extinguished without a
distribution in exchange therefor. In addition, because no Equity Interests will
be distributed to holders of Claims, the following summary does not address the
federal income tax consequences of the implementation of the Impac Plan to the
Impac Debtors.
The following summary is based on the Internal Revenue Code of
1986, as amended (the "Tax Code"), Treasury Regulations promulgated thereunder,
judicial decisions, and published administrative rules and pronouncements of the
Internal Revenue Service ("IRS") as in effect on the date hereof. Changes in
such rules or new interpretations thereof may have retroactive effect and could
significantly affect the federal income tax consequences described below.
Certain federal income tax consequences of the Impac Plan are
complex and are subject to significant uncertainties. None of the Impac Debtors
have requested or will request a ruling from the IRS or an opinion of counsel
with respect to any of the tax aspects of the Impac Plan. Thus, no assurance can
be given as to the interpretation that the IRS will adopt. In addition, this
summary does not address foreign, state or local tax consequences of the Impac
Plan, nor does it purport to address all federal income tax consequences of the
Impac Plan that may be relevant to specific taxpayers in light of their
particular circumstances or to special classes of taxpayers (such as foreign
taxpayers, broker-dealers, mutual funds, insurance companies, financial
institutions, small business investment companies, regulated investment
companies, tax-exempt organizations, investors in pass-through entities, dealers
in securities, U.S. expatriates or persons who have acquired the Claims as part
of a straddle, hedge, conversion transaction or other integrated investment).
Furthermore, the following discussion does not necessarily
apply to holders who have claims in more than one class relating to the same
underlying obligation (such as where the underlying obligation is classified as
partially secured and partially unsecured). Such holders
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should consult their tax advisors regarding the effect of such dual status
obligations on the federal income tax consequences of the Impac Plan to them.
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME
TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES
PERTAINING TO A HOLDER OF A CLAIM. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES
TO THEM OF THE IMPLEMENTATION OF THE IMPAC PLAN.
A. CONSEQUENCES TO HOLDERS OF GENERAL UNSECURED CLAIMS
In general, holders of General Unsecured Claims would
recognize gain or loss in an amount equal to the difference between (i) the
amount of cash (less any portion of such cash required to be treated as imputed
interest as a result of any such cash being distributed after the Effective
Date) received by the holder in satisfaction of its claim (other than any claim
for accrued but unpaid interest) and (ii) the holder's adjusted tax basis in its
claim (other than any claim for accrued but unpaid interest). For a discussion
of the tax consequences of any claims for accrued interest, see section X.B,
below.
Due to the possibility that a holder of a General Unsecured
Claim may receive a distribution of cash subsequent to the Effective Date in
respect of any subsequently allowed disputed claims, the imputed interest
provisions of the Tax Code may apply to treat a portion of the distribution to
such holders as imputed interest. With respect to certain holders, such imputed
interest may accrue over time using the constant interest method, in which case
such holders may be required to include such imputed interest in income prior to
the actual distribution.
In addition, because distributions of cash to such holders may
be made after the Effective Date, recognition of any loss, and a portion of any
gain, realized by a holder in satisfaction of its claim may be deferred until
all such subsequent distributions are made. Such holders are urged to consult
their tax advisors regarding the possible application of (or ability to elect
out of) the "installment method" of reporting any gain that may be recognized by
such holder with respect to its claim.
Where gain or loss is recognized by a holder, the character of
such gain or loss as long-term or short-term capital gain or loss or as ordinary
income or loss will be determined by a number of factors, including the tax
status of the holder, whether the claim constitutes a capital asset in the hands
of the holder and how long it has been held, whether the claim was acquired with
market discount, and whether and to what extent the holder had previously
claimed a bad debt deduction.
B. DISTRIBUTIONS IN DISCHARGE OF ACCRUED INTEREST
Pursuant to the Impac Plan, all distributions in respect of an
allowed claim will be allocated first to the principal amount of the claim, with
any excess allocated to the remaining portion of the claim. However, there is no
assurance that such allocation would be respected by the IRS for federal income
tax purposes. In general, to the extent that any amount received by a holder of
a debt is treated as received in satisfaction of accrued interest during its
holding period,
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such amount will be taxable to the holder as interest income (if and to the
extent not previously included in the holder's gross income). Conversely, a
holder would generally recognize a deductible loss to the extent any accrued
interest claimed was previously included in its gross income and is not paid in
full. Each holder of a claim is urged to consult its tax advisor regarding the
allocation of consideration and the deductibility of unpaid interest for tax
purposes.
C. MARKET DISCOUNT
A holder that purchased its claim from a prior holder with
market discount will be subject to the market discount rules of the Tax Code.
Under those rules, assuming that the holder has made no election to amortize the
market discount into income on a current basis with respect to any market
discount instrument, any gain recognized on the exchange of its claim (subject
to a de minimis rule) generally would be characterized as ordinary income to the
extent of the accrued market discount on such claim as of the date of the
exchange.
D. INFORMATION REPORTING AND WITHHOLDING
All distributions to holders of allowed claims under the Impac
Plan are subject to any applicable withholding (including employment tax
withholding). Under federal income tax law, interest, dividends, and other
reportable payments may, under certain circumstances, be subject to "backup
withholding" (currently at a rate of 30% and not to exceed 31%). Backup
withholding generally applies if the holder (i) fails to furnish its social
security number or other taxpayer identification number ("TIN"), (ii) furnishes
an incorrect TIN, (iii) fails properly to report interest or dividends, or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalty of perjury, that the TIN provided is its correct number, that it
is not subject to backup withholding, and that it is a U.S. person. Backup
withholding is not an additional tax but merely an advance payment of tax, which
may be refunded to the extent it results in an overpayment of tax. Certain
persons are exempt from backup withholding, including, in certain circumstances,
corporations and financial institutions.
THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL
PURPOSES ONLY. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES APPLICABLE
UNDER THE IMPAC PLAN.
XI.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE IMPAC PLAN
A. LIQUIDATION UNDER CHAPTER 11
If no Chapter 11 plan can be confirmed for any of the Impac
Debtors by the Outside Closing Date, the Impac Debtors' applicable Chapter 11
cases would be administered pursuant to the Settlement Agreement and liquidated
under Chapter 11 of the Bankruptcy Code with either a structured dismissal or
alternative arrangement acceptable to CCA and the Bankruptcy Court. A discussion
of the effect that a Chapter 11 liquidation would have on the recoveries of
holders of Claims is set forth in sections IX.C and IX.D, above. Pursuant to the
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Settlement Agreement, each of the Impac Debtors believes that implementation of
the Settlement Agreement would result in no distributions being made to the
respective holders of Claims and Equity Interests because of (i) the likelihood
that other assets of each of the Impac Debtors would have to be sold or
otherwise disposed of in accordance with the Settlement Agreement, (ii)
additional administrative expenses attendant to fees and expenses of attorneys
and other professionals, and (iii) additional expenses and Claims, some of which
would be entitled to priority, which would be generated during the
implementation of the Settlement Agreement and from other executory contracts in
connection with a cessation of each of the Impac Debtors' operations. AS NO
FUNDS WOULD REMAIN, THE ESTATES OF THE IMPAC DEBTORS WOULD, AT THIS POINT, BE
ADMINISTRATIVELY INSOLVENT. EACH OF THE IMPAC DEBTORS BELIEVES THAT THERE WOULD
BE NO DISTRIBUTION TO HOLDERS OF CLAIMS IN CLASS 3 (GENERAL UNSECURED CLAIMS),
CLASS 5 (CONVENIENCE CLAIMS) AND CLASS 9 (EQUITY INTERESTS) IF THE IMPAC PLAN IS
NOT CONFIRMED AND THE IMPAC HOTEL PROPERTIES ARE DISPOSED OF BY CCA UNDER THE
SETTLEMENT AGREEMENT.
B. ALTERNATIVE PLAN(S)
If the Impac Plan is not confirmed, the possibility that each
of the Impac Debtors or any other party in interest (if the applicable Impac
Debtor's exclusive period in which to file a plan has expired) could attempt to
formulate a different plan would be highly unlikely given that the Impac Hotel
Properties would more than likely be sold, or returned to CCA, in accordance
with the Settlement Agreement. On the other hand, the Impac Plan allows the
Reorganized Impac Debtors to take advantage of their unique position in the
lodging industry, including strong relationships with vendors, extended credit
terms, and other benefits associated with combined management efforts provided
by the Lodgian Group. The employees and vendors of the Impac Debtors, as well as
the management team, have expended substantial and valuable resources into the
formulation of the Impac Plan, which would be lost if the Impac Debtors are
required by CCA to dispose of the Impac Hotel Properties under the Settlement
Agreement. This adverse result can be avoided if the current Impac Plan is
confirmed.
XII.
CONCLUSION
Each of the Impac Debtors believes that the Impac Plan is in
the best interests of all of its creditors and equity holders and urges the
holders of impaired Claims in Classes 1, 3, 5 and 9 to vote to accept the Impac
Plan and to evidence such acceptance by returning their Ballots so that they
will be received by the Voting Agent NOT LATER THAN 5:00 P.M. (PACIFIC TIME) ON
APRIL 17, 2003.
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Dated: As of March 3, 2003
Respectfully submitted,
IMPAC HOTELS II, L.L.C.
By: /s/ Daniel E. Ellis
----------------------------------------
Name: Daniel E. Ellis
Title: Authorized Officer
IMPAC HOTELS III, L.L.C.
By: /s/ Daniel E. Ellis
----------------------------------------
Name: Daniel E. Ellis
Title: Authorized Officer
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
By: Debevoise & Plimpton, its counsel
By: /s/ George E.B. Maguire
-----------------------------------
Name: George E.B. Maguire
Title: Attorneys for the Committee
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