EXHIBIT 10.6
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re
Chapter 11
LODGIAN, INC., et al.,
Case No. 01-16345 (BRL)
Debtors.
Jointly Administered
DISCLOSURE STATEMENT FOR JOINT PLAN
OF REORGANIZATION OF LODGIAN, INC., ET AL. (OTHER THAN THE
CCA DEBTORS), TOGETHER WITH THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
CADWALADER, WICKERSHAM & TAFT CURTIS, MALLET-PREVOST, COLT
Attorneys for the Debtors and & MOSLE LLP
Debtors-In-Possession Co-Attorneys for the Debtors and
100 Maiden Lane Debtors-In-Possession
New York, New York 10038 101 Park Avenue
(212) 504-6000 New York, New York 10178
(212) 696-6000
- and -
DEBEVOISE & PLIMPTON
Attorneys for the Official Committee of
Unsecured Creditors
919 Third Avenue
New York, New York 10022
(212) 909-6000
Dated: As of September 25, 2002
THE DEADLINE BY WHICH EACH HOLDER OF AN IMPAIRED CLAIM OR EQUITY INTEREST MUST
CAST A PROPERLY COMPLETED AND DELIVERED BALLOT FOR ITS VOTE TO ACCEPT OR REJECT
THE PLAN TO BE COUNTED IS OCTOBER 28, 2002, AT 5:00 P.M. (PACIFIC TIME), UNLESS
EXTENDED.
IMPORTANT NOTICE
THIS 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 PLAN. NO REPRESENTATIONS HAVE BEEN
AUTHORIZED BY THE BANKRUPTCY COURT CONCERNING THE DEBTORS, THEIR BUSINESS
OPERATIONS OR THE VALUE OF THEIR ASSETS, EXCEPT AS EXPLICITLY SET FORTH IN THIS
DISCLOSURE STATEMENT.
PLEASE REFER TO THE GLOSSARY AND THE PLAN FOR DEFINITIONS OF
THE CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS DISCLOSURE STATEMENT.
THE DEBTORS RESERVE THE RIGHT TO FILE AN AMENDED PLAN AND
DISCLOSURE STATEMENT FROM TIME TO TIME. THE DEBTORS URGE YOU TO READ THIS
DISCLOSURE STATEMENT CAREFULLY FOR A DISCUSSION OF VOTING INSTRUCTIONS,
RECOVERY INFORMATION, CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS, THE
HISTORY OF THE DEBTORS AND THE CHAPTER 11 CASES, THE DEBTORS' BUSINESSES,
PROPERTIES AND RESULTS OF OPERATIONS, HISTORICAL AND PROJECTED FINANCIAL
RESULTS AND A SUMMARY AND ANALYSIS OF THE PLAN.
THE PLAN AND THIS DISCLOSURE STATEMENT HAVE NOT BEEN REQUIRED
TO BE PREPARED IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER
APPLICABLE NONBANKRUPTCY LAW. NEITHER THE SECURITIES AND EXCHANGE COMMISSION,
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE PLAN OR
THE PLAN SECURITIES OR HAS PASSED ON THE ACCURACY OR ADEQUACY OF THIS
DISCLOSURE STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS DISCLOSURE STATEMENT CONTAINS ONLY A SUMMARY OF THE
PLAN. THIS DISCLOSURE STATEMENT IS NOT INTENDED TO REPLACE THE CAREFUL AND
DETAILED REVIEW AND ANALYSIS OF THE PLAN, ONLY TO AID AND SUPPLEMENT SUCH
REVIEW. THIS DISCLOSURE STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PLAN, THE PLAN SUPPLEMENT AND THE EXHIBITS ATTACHED THERETO AND THE
AGREEMENTS AND DOCUMENTS DESCRIBED THEREIN. IF THERE IS A CONFLICT BETWEEN THE
PLAN AND THIS DISCLOSURE STATEMENT, THE PROVISIONS OF THE PLAN WILL GOVERN. YOU
ARE ENCOURAGED TO REVIEW THE FULL TEXT OF THE PLAN AND PLAN SUPPLEMENT AND TO
READ CAREFULLY THE ENTIRE DISCLOSURE STATEMENT, INCLUDING ALL EXHIBITS, BEFORE
DECIDING HOW TO VOTE WITH RESPECT TO THE PLAN.
EXCEPT AS OTHERWISE INDICATED, THE STATEMENTS IN THIS
DISCLOSURE STATEMENT ARE MADE AS OF THE DATE INDICATED ON THE COVER AND THE
DELIVERY OF THIS DISCLOSURE STATEMENT WILL NOT IMPLY THAT THE INFORMATION
CONTAINED IN THIS DISCLOSURE STATEMENT IS CORRECT AT ANY TIME AFTER THAT DATE.
ESTIMATES OF CLAIMS AND EQUITY INTERESTS IN THIS DISCLOSURE STATEMENT MAY VARY
FROM THE FINAL AMOUNTS OF CLAIMS OR EQUITY INTERESTS ALLOWED BY THE BANKRUPTCY
COURT.
YOU SHOULD NOT CONSTRUE THIS DISCLOSURE STATEMENT AS
PROVIDING ANY LEGAL, BUSINESS, FINANCIAL OR TAX ADVICE. YOU SHOULD, THEREFORE,
CONSULT WITH YOUR OWN LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS AS TO ANY
SUCH MATTERS IN CONNECTION WITH THE PLAN, THE SOLICITATION OF VOTES ON THE PLAN
AND THE TRANSACTIONS CONTEMPLATED BY THE PLAN.
2
AS TO ANY CONTESTED MATTERS, ADVERSARY PROCEEDINGS OR OTHER
ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT IS NOT, AND IS IN NO
EVENT TO BE CONSTRUED AS, AN ADMISSION OR STIPULATION. INSTEAD, THIS 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 PLAN AND THIS DISCLOSURE STATEMENT REMAIN SUBJECT
TO ONGOING NEGOTIATIONS WITH THE RESPECTIVE PARTIES.
FORWARD-LOOKING INFORMATION
THIS DISCLOSURE STATEMENT INCLUDES FORWARD-LOOKING STATEMENTS BASED
LARGELY ON THE DEBTORS' CURRENT EXPECTATIONS AND PROJECTIONS ABOUT FUTURE
EVENTS AND FINANCIAL TRENDS AFFECTING THE FINANCIAL CONDITION OF THE DEBTORS'
OR THE REORGANIZED LODGIAN DEBTORS' BUSINESSES. THESE INCLUDE MANAGEMENT'S
EXPECTATIONS WITH RESPECT TO THE CHAPTER 11 CASES, STATEMENTS THAT DESCRIBE
ANTICIPATED REVENUES, CAPITAL EXPENDITURES AND OTHER FINANCIAL ITEMS,
STATEMENTS THAT DESCRIBE THE REORGANIZED LODGIAN DEBTORS' BUSINESS PLANS AND
OBJECTIVES, AND STATEMENTS THAT DESCRIBE THE EXPECTED IMPACT OF COMPETITION,
GOVERNMENT REGULATION, LITIGATION AND OTHER FACTORS ON THE REORGANIZED LODGIAN
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 THIS
DISCLOSURE STATEMENT. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THE
FORWARD-LOOKING EVENTS AND CIRCUMSTANCES DISCUSSED IN THIS DISCLOSURE STATEMENT
MAY NOT OCCUR AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS. NONE OF THE DEBTORS, THE REORGANIZED LODGIAN
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.
3
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TABLE OF CONTENTS
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I. Introduction.......................................................................................... 1
II. Treatment of Creditors and Shareholders Under the Plan................................................ 5
A. New Capital Structure of the Reorganized Lodgian Debtors; Liquidation Plan of
Liquidating Debtors.......................................................................... 5
1. Reorganized Lodgian Debtors......................................................... 5
2. Liquidation Plan of Liquidating Debtors............................................. 6
B. Summary of Classification and Treatment...................................................... 7
C. Lodgian Debtors - Allocation of Value Under the Plan......................................... 10
D. Description of the Classes................................................................... 12
1. Secured Claims (Class 1)............................................................ 12
2. Priority Non-Tax Claims (Class 2)................................................... 16
3. General Unsecured Claims (Class 3).................................................. 17
4. Senior Subordinated Notes Claims (Class 4).......................................... 19
5. Convenience Claims (Class 5)........................................................ 19
6. CRESTS Claims (Class 7)............................................................. 19
7. Old Lodgian Common Stock Interests (Class 8)........................................ 20
8. Debtor Owned Old Subsidiary Equity Interests (Class 9).............................. 20
9. Third Party Owned Old Subsidiary Equity Interests (Class 10)........................ 21
10. Subordinated Claims (Class 11)...................................................... 22
E. Administrative Expenses of the Debtors....................................................... 23
1. Debtor-in-Possession Financing...................................................... 24
2. Fees and Expenses of Professionals.................................................. 24
3. Indenture Trustee Claims............................................................ 24
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F. Securities to Be Issued Under the Plan....................................................... 24
1. New Preferred Stock................................................................. 24
2. New Common Stock.................................................................... 25
3. Warrants............................................................................ 25
4. Equity Ownership of Reorganized Lodgian............................................. 26
G. Securities Law Matters....................................................................... 28
1. Issuance and Resale of Securities Plan.............................................. 28
2. Listing............................................................................. 30
3. Registration Rights................................................................. 30
4. Subsequent Transfers Under State Law................................................ 30
H. Reservation of "Cram Down" Rights............................................................ 30
III. Voting Procedures and Requirements.................................................................... 31
A. Vote Required for Acceptance by a Class...................................................... 32
B. Classes Not Entitled to Vote................................................................. 32
C. Voting....................................................................................... 32
IV. Financial Information, Projections and Valuation Analysis............................................. 33
A. Operating Performance........................................................................ 33
B. Three-Year Projections of the Reorganized Lodgian Debtors.................................... 34
C. Reorganization Valuation of the Reorganized Lodgian Debtors.................................. 35
1. Reorganized Lodgian Debtors......................................................... 35
2. Valuation Methodology............................................................... 36
V. Business Description and Reasons for Chapter 11....................................................... 38
A. Historical Background........................................................................ 38
1. Commencement of Cases............................................................... 38
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2. Employment of the Debtors' Professionals............................................ 38
3. Formation of the Committee.......................................................... 38
4. Debtors' Businesses and Management.................................................. 39
5. Debtors' Debt Structure............................................................. 40
6. Events Leading up to the Chapter 11 Cases and the Need to Reorganize................ 46
7. Debtors' Debtor-In-Possession Financing and Use of Cash Collateral.................. 47
8. Continuation of Business After the Commencement Date................................ 48
9. Disputes with CCA................................................................... 48
B. Filing of Schedules/Bar Date For Filing Proofs of Claim and Equity Interests................. 49
VI. Governance of the Reorganized Debtors................................................................. 49
A. Boards of Directors of the Reorganized Debtors............................................... 49
B. Senior Management of the Reorganized Debtors................................................. 49
C. Liquidating Debtors.......................................................................... 50
VII. Other Aspects of the Plan............................................................................. 50
A. Exit Financing Facility - Condition Precedent to the Effective Date.......................... 50
B. Distributions Under the Plan................................................................. 51
1. Disbursing Agent.................................................................... 51
2. Timing and Conditions of Distributions.............................................. 51
3. Procedures for Treating Disputed Claims and Equity Interests Under the Plan......... 52
C. Treatment of Executory Contracts and Unexpired Leases........................................ 54
1. Contracts and Leases Not Expressly Assumed Are Rejected............................. 54
2. Cure of Defaults.................................................................... 54
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3. Rejection Claims.................................................................... 54
4. Franchise Agreements................................................................ 54
D. New Equity Incentive Plan.................................................................... 55
E. Releases..................................................................................... 55
F. Effect of Confirmation....................................................................... 56
1. Discharge of Claims and Cancellation of Equity Interests............................ 56
2. Indemnification..................................................................... 56
3. Waiver of Contractual Subordination Rights.......................................... 56
G. Miscellaneous Provisions..................................................................... 57
VIII. Risk Factors.......................................................................................... 57
A. Certain Bankruptcy Considerations............................................................ 57
1. General Risks Relating to Confirmation and Consummation............................. 57
2. Risks Relating to Plan Treatment of Mortgage Financings............................. 58
3. Matters Affecting Recoveries........................................................ 58
4. Loss of Franchise Agreements........................................................ 58
5. No Assurance of Feasibility......................................................... 59
B. Risks Relating to the Plan Securities........................................................ 60
1. Variances from Projections.......................................................... 60
2. Significant Holders................................................................. 60
3. Lack of Trading Market.............................................................. 60
4. Dividend Policies................................................................... 61
5. Restrictions on Transfer............................................................ 61
6. Trading Values of the Plan Securities............................................... 61
C. Financing Risks.............................................................................. 62
1. Post-Reorganization Obligations..................................................... 62
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2. Limited Access to Working Capital................................................... 62
D. Risks Associated with the Businesses......................................................... 62
1. Certain Tax Implications............................................................ 63
IX. Confirmation of the Plan.............................................................................. 63
A. Confirmation Hearing......................................................................... 63
B. General Requirements of Section 1129......................................................... 64
C. Best Interests Tests......................................................................... 65
D. Liquidation Analysis......................................................................... 67
E. Feasibility.................................................................................. 67
F. Section 1129(b).............................................................................. 68
1. No Unfair Discrimination............................................................ 68
2. Fair and Equitable Test............................................................. 68
X. Alternatives to Confirmation and Consummation of the Plan............................................. 69
A. Liquidation Under Chapter 7.................................................................. 69
B. Alternative Plan............................................................................. 69
XI. Certain Federal Income Tax Consequences of the Plan................................................... 70
A. Consequences to Certain Debtors.............................................................. 71
1. Cancellation of Debt................................................................ 71
2. Limitations on NOL Carryforwards and Other Tax Benefits............................. 72
3. Alternative Minimum Tax............................................................. 74
B. Consequences to Holders of Certain Claims.................................................... 74
1. Consequences to Holders of General Unsecured Claims Against Lodgian, Inc. That
Do Not Constitute "Securities" Who Receive New Common Stock and New Preferred
Stock............................................................................... 75
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2. Consequences to Holders of General Unsecured Claims Against Lodgian, Inc. That
Constitute "Securities" Who Receive New Common Stock and New Preferred Stock........ 76
3. Consequences to Holders of General Unsecured Claims Against Lodgian Debtors
Other Than Lodgian, Inc............................................................. 77
4. Consequences to Holders of Senior Subordinated Notes Claims......................... 78
5. Consequences to Holders of CRESTS Junior Subordinated Debentures Claims............. 79
6. Consequences to Holders of Old Lodgian Common Stock Interests....................... 80
7. Distributions in Discharge of Accrued Interest...................................... 81
8. Market Discount..................................................................... 81
9. Treatment of Subsequent Distributions on New Preferred Stock and New Common
Stock............................................................................... 81
10. Subsequent Sale of New Common Stock or New Preferred Stock.......................... 83
11. Redemption of New Preferred Stock................................................... 83
12. Ownership and Disposition of Warrants............................................... 84
13. Information Reporting and Withholding............................................... 84
XII. Conclusion............................................................................................ 85
EXHIBITS
- --------
Exhibit A Debtors' Joint Plan of Reorganization
Exhibit B Estimated Plan Recoveries and Liquidation Analysis by Debtor
Exhibit C Estimated Class 3 Allowed Claims and Recoveries and Allocations
of Class 3 Plan Securities
Exhibit D Projections
Exhibit E Commitment Letter and Summary of Principal Terms of Exit
Financing Facility
Exhibit F Liquidation Analysis Assumptions and Summary of Liquidation
Recovery by Class
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21375155v19
GLOSSARY
The terms in the following table are used in this Disclosure
Statement and, in most cases, the Plan. The definitions given below of terms
used in the Plan are summaries. Please refer to the Plan for the complete
definitions of those terms and other defined terms used throughout this
Disclosure Statement. Unless otherwise specified, all section references in
this Disclosure Statement are to sections of this Disclosure Statement.
A Warrants Warrants to purchase up to 17.75% of the New Common
Stock on a fully diluted basis excluding (a) B
Warrant Shares, (b) New Incentive Shares and (c)
Other Future Shares. The A Warrants are described in
section II.F.3. The effect of the issuance of B
Warrant Shares and New Incentive Shares is summarized
in section II.F.3.
A Warrant Shares Shares of New Common Stock issuable upon exercise of
the A Warrants.
Administrative Expense Any expense relating to the administration of a
Claim Debtor's Chapter 11 Case, including actual and
necessary costs and expenses of preserving the
Debtor's estate and operating the 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 Debtor's estate.
Allowed Claim or Equity A Claim against, or Equity Interest in, a Debtor
Interest which the Debtor agrees, or in the event of a
dispute, which the Bankruptcy Court determines, to be
a valid obligation of the Debtor in the amount so
agreed or determined.
B Warrants Warrants to purchase up to 10.79% of the New Common
Stock on a fully diluted basis, excluding (a) New
Incentive Shares and (b) Other Future Shares. The B
Warrants are described in section II.F.3. The effect
of the issuance of New Incentive Shares is summarized
in section II.F.4.
B Warrant Shares Shares of New Common Stock issuable upon exercise of
the B Warrants.
Bankruptcy Code Title 11 of the United States Code.
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 could be filed against
the Debtors' estates.
CCA The Capital Company of America LLC.
CCA 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.
Claim A right to payment from a Debtor, whether legal or
equitable and whether or not liquidated, fixed,
matured or undisputed.
Class Liquidating Class 3 Subclasses consisting of General Unsecured
Subclasses Claims against a Liquidating Debtor.
Class 3 Plan Securities The aggregate Plan Securities available for
distribution to holders of Allowed Claims in Class 3
Lodgian Subclasses.
Class 3 Lodgian Class 3 Subclasses consisting of General Unsecured
Subclasses Claims against a Lodgian Debtor.
Class 4 Compromise The compromise embodied in the Plan of certain issues
between the Debtors and the holders of Senior
Subordinated Notes, including the amount of such
holders' Allowed Claims against each Guarantor Debtor
and the determination of the Debtors that are liable
as Guarantor Debtors, as well as the valuation of the
Debtors on which recoveries should be based.
Commencement Date The date a Debtor's Chapter 11 Case was commenced
(December 20, 2001, for all the Debtors other than
Worcester Hospitality, L.P., Lodgian Hotels, Inc.,
Brecksville Hospitality, L.P. and Sioux City
Hospitality, L.P., each of whose Commencement Date is
December 21, 2001, and New Orleans Airport Motel
Associates, L.P., whose Commencement Date is April
17, 2002).
Committee The official committee of general unsecured creditors
appointed in the Debtors' Chapter 11 Cases.
CRESTS The 7% Convertible Redeemable Equity Structured Trust
Securities issued by Lodgian Capital Trust I.
CRESTS Junior The 7% Convertible Junior Subordinated Debentures due
Subordinated Debentures 2010 originally issued by Servico, Inc. and assumed
by Lodgian, Inc.
2
Debtors Lodgian, Inc. and its direct and indirect
subsidiaries listed in Exhibit A to the Plan, which
do not include the CCA Debtors. The CCA Debtors
intend to file a separate plan or plans of
reorganization which are not the subject of the Plan
and this Disclosure Statement.
Disclosure Statement This document together with the annexed exhibits.
Disputed Claim or Equity A Claim or Equity Interest that is not an Allowed
Interest Claim or Equity Interest.
Effective Date A business day selected by the Plan Proponents
on or after the date of confirmation of the Plan, on
which all conditions to the effectiveness of the Plan
have been satisfied or waived and there is no stay of
the order confirming the Plan. The Plan Proponents
may select different Effective Dates for one or more
Debtors.
Equity Interest The rights of a holder of a Debtor's capital stock,
membership or partnership interests, or similar
ownership interests, including any right to acquire
such an interest.
Final Order An order of the Bankruptcy Court entered on the
docket in the Chapter 11 Cases, which has not been
reversed, vacated or stayed and (i) as to which the
time to appeal or move for a new trial, reargument or
rehearing has expired and as to which no appeal or
other proceedings for a new trial, reargument or
rehearing is then pending, or (ii) if an appeal, new
trial, reargument or rehearing has been sought, which
has been affirmed by the highest court to which such
order was appealed, or a new trial, reargument or
rehearing has been denied or resulted in no
modification of such order, and the time to take any
further appeal or move for a new trial, reargument or
rehearing has expired.
General Unsecured Claim Any general unsecured Claim against a Debtor other
than Senior Subordinated Notes Claims, CRESTS Claims,
Subordinated Claims or any Administrative Expense
Claim or other priority Claim.
GMAC-Orix Debtors Brecksville Hospitality, L.P., Servico Council
Bluffs, Inc., Servico Omaha, Inc., Servico Omaha
Central, Inc., Servico West Des Moines, Inc., Servico
Wichita, Inc., Sioux City Hospitality, L.P. and 1075
Hospitality, L.P.
Guarantor Debtor Each Debtor that has guaranteed the Senior
Subordinated Notes, including Lodgian, Inc. and the
direct and indirect subsidiaries of Lodgian Financing
Corp.
3
Hotel Properties As applicable, the respective interests of the
Debtors and the CCA Debtors in the hotel properties
(including leasehold interests) described in section
V.A.5.
Initial New Common Stock The shares of New Common Stock to be issued pursuant
to the Plan on the Effective Date, representing in
the aggregate 100% of the shares of New Common Stock
before issuance of (a) A Warrant Shares, (b) B
Warrant Shares, (c) New Incentive Shares and (d)
Other Future Shares. The effect of the issuance of A
Warrant Shares, B Warrant Shares and New Incentive
Shares is summarized in section II.F.4.
LCT I Lodgian Capital Trust I, a Delaware statutory
business trust and the issuer of the CRESTS.
Liquidating Debtors The GMAC-Orix Debtors and the Roundabout Debtor.
Lodgian Debtors The Debtors other than the Liquidating Debtors.
Mortgage Financing The Debtors' existing financing arrangements secured
by one or more Hotel Properties as described in
section V.A.5.
New Common Stock New common stock of Reorganized Lodgian to be issued
under the Plan. The New Common Stock is described in
section II.F.2.
New Equity Incentive Plan The management equity incentive plan to be adopted by
Reorganized Lodgian under which up to 10.0% of the
New Common Stock on a fully diluted basis will be
available for issuance.
New Incentive Share Shares of New Common Stock issuable pursuant to the
New Equity Incentive Plan.
New Preferred Stock New 12.25% preferred stock of Reorganized Lodgian to
be issued under the Plan in an aggregate liquidation
preference of $125 million. The New Preferred Stock
is described in section II.F.1.
New Subsidiary Equity New Equity Interests issued by a Reorganized Debtor
other than Reorganized Lodgian, to be issued on the
Effective Date pursuant to the Plan.
Old Lodgian Common Common stock (and options, warrants or rights to
Stock acquire common stock) of Lodgian, Inc. outstanding
immediately prior to the Effective Date.
4
Other Future Shares Shares of New Common Stock that the Board of
Reorganized Lodgian may in the future determine to
issue other than (a) the Initial New Common Stock,
(b) Warrant Shares or (c) New Incentive Shares.
Plan The Debtors' Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code, annexed as Exhibit
A to this Disclosure Statement.
Plan Proponents Each Debtor and the Committee.
Plan Securities The New Preferred Stock, the New Common Stock and the
Warrants.
Plan Supplement A supplemental appendix to the Plan to be filed with
the Bankruptcy Court within 7 days before the hearing
to confirm the Plan, but no later than 5 days before
the last day to vote to accept or reject the Plan.
Reorganized Debtors The Debtors as reorganized as of the Effective Date
in accordance with the Plan.
Reorganized Lodgian Lodgian, Inc. as reorganized as of the Effective Date
in accordance with the Plan.
Reorganized Lodgian The Lodgian Debtors as reorganized as of the
Debtors Effective Date in accordance with the Plan.
Roundabout Debtor Raleigh-Downtown Enterprises, Inc.
Secured Claim A Claim to the extent (i) secured by Collateral, the
amount of which Claim is equal to or less than the
value of such Collateral (A) as set forth in this
Plan, (B) as agreed to by the holder of such Claim
and the applicable Debtor(s), or (C) as determined by
a Final Order in accordance with section 506(a) of
the Bankruptcy Code, or (ii) secured by the amount of
any rights of setoff of the holder thereof under
section 553 of the Bankruptcy Code.
Senior Subordinated Notes The 12 1/4% Senior Subordinated Notes due 2009 issued
by Lodgian Financing Corp., and guaranteed by the
Guarantor Debtors.
Subclass Debtor With respect to any Subclass of Claims or Equity
Interests under the Plan, the Debtor to which those
Claims or Equity Interests relate.
Voting Agent See section I for contact information.
5
Voting Procedures Order An order of the Bankruptcy Court that sets which
Claims and Equity Interests may vote on the Plan and
designates the form of ballot to be used.
Warrants The A Warrants and the B Warrants.
Warrant Shares The A Warrant Shares and the B Warrant Shares.
6
I.
INTRODUCTION
The Plan Proponents are soliciting votes to accept or reject
the Plan. The overall purpose of the Plan is to provide for the restructuring of
the Debtors' liabilities in a manner designed to maximize recoveries to all
stakeholders. The Plan provides for the continued operation of the Reorganized
Lodgian Debtors and the orderly liquidation of the Liquidating Debtors. A copy
of the Plan is attached as Exhibit A to this Disclosure Statement. Please refer
to the Glossary and the Plan for definitions of terms used but not defined in
this Disclosure Statement.
Although the Plan is proposed as a joint plan of
reorganization of the Debtors, the Plan is a separate Plan for each Debtor. As
such, the Plan does not provide for substantive consolidation of the assets or
liabilities of any of the Debtors with any other Debtor. The Plan Proponents
reserve the right to proceed at any time with confirmation of the Plan as to
some, but not all, of the Debtors.
The Plan does not include the CCA Debtors. The CCA Debtors
intend to file a separate plan or plans of reorganization, which are not the
subject of this Disclosure Statement. See section V.A.9.
The purpose of this Disclosure Statement is to provide
sufficient information to enable the creditors and equity interest holders of
each Debtor who are entitled to vote to make an informed decision on whether to
accept or reject the Plan.
This Disclosure Statement describes:
- the new capital structures of the Reorganized Lodgian
Debtors and the liquidation plan of the Liquidating
Debtors, how the holders of Allowed Claims and Equity
Interests are treated, and the terms of the Plan
Securities (section II);
- how to vote on the Plan and who is entitled to vote
(section III);
- certain financial information about the Debtors,
including 3-year consolidated cash flow projections
and potential enterprise valuations of the
Reorganized Lodgian Debtors (section IV);
- the businesses of the Debtors, the reasons why they
commenced their Chapter 11 Cases and significant
events that have occurred in the Chapter 11 Cases
(section V);
- how the Reorganized Debtors will be governed when the
Plan becomes effective (section VI);
- how distributions under the Plan will be made and the
manner in which Disputed Claims and Equity Interests
will be resolved (section VII.B);
- certain factors creditors and equity interest holders
should consider before voting (section VIII);
- the procedure and requirements for confirming the
Plan, including a liquidation analysis (section IX);
- alternatives to the Plan (section X); and
- certain federal tax considerations (section XI).
Additional financial information about the Debtors can be
found in Lodgian, Inc.'s periodic reports filed with the Securities and Exchange
Commission including: Lodgian, Inc.'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 and June 30, 2002. Copies of these filings will be
included in the Plan Supplement and may be obtained over 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 Plan, including, among
others, the organizational documents of the Reorganized Debtors, the documents
related to the Plan Securities, the Exit Financing Facility documents and the
amended Mortgage Financings. The Plan Supplement will be filed with the
Bankruptcy Court within 7 days before the hearing to confirm the Plan, but no
later than 5 days before the last day to vote to accept or reject the Plan.
This Disclosure Statement, the attached exhibits, the Plan and
the Plan Supplement are the only materials that you should use in determining
whether to vote to accept or reject the Plan. The summaries of the Plan and
other documents related to the restructuring of the Debtors are qualified in
their entirety by the Plan, its exhibits, and the documents and exhibits
contained in the Plan Supplement.
2
CLASSES ENTITLED TO VOTE ON THE PLAN
- Classes 1, 3 (other than Class 3 Liquidating Subclasses), 4,
5, 7 and 10-B are impaired under the Plan and entitled to vote
on the Plan.
- Class 2, Class 9 Lodgian Subclasses, Class 10-C are unimpaired
under the Plan, are deemed to have accepted the Plan and will
not be entitled to vote on the Plan.
- Class 3 Liquidating Subclasses, Class 8, Class 9 (other than
Class 9 Lodgian Subclasses), Class 10-A and Class 11 are
impaired under the Plan, are deemed to have rejected the Plan
and will not be entitled to vote on the Plan.
See section II.B for a description of the Classes of Claims and Equity
Interests and their treatment under the Plan.
The Bankruptcy Code provides that only Claims and Equity
Interests actually voted will be counted for purposes of determining whether the
requisite acceptances of the Plan are received. Failure to timely deliver a
properly completed ballot with respect to any Claim or Equity Interest entitled
to vote will constitute an abstention and that Claim or Equity Interest will not
be counted for the purpose of approving the Plan.
VOTING DEADLINE AND RECORD DATE
THE LAST DAY TO VOTE TO ACCEPT OR REJECT THE PLAN IS OCTOBER 28, 2002.
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 AND EQUITY INTEREST
HOLDERS MAY VOTE ON THE PLAN IS SEPTEMBER 26, 2002
The Plan is based on extensive negotiations with holders of
the various secured and unsecured Claims against the Debtors. The Plan
Proponents believe that approval of the Plan is the best opportunity for each
Debtor to emerge from chapter 11 and (other than for the Liquidating Debtors)
return its business to profitability. The Committee, which includes holders of
54% of the Senior Subordinated Notes, 57% of the CRESTS, as well as holders of
General Unsecured Claims, fully supports, and is a co-proponent of, the Plan.
3
VOTING RECOMMENDATIONS
The Plan Proponents believe that confirmation of the Plan is the best
opportunity for creditors and equity interest holders of the respective
Debtors to maximize their recoveries and for the business operations of
the Debtors to succeed. Each of the Debtors encourages its creditors
and equity interest holders entitled to vote to accept the Plan.
The Committee has participated fully in the reorganization process and,
as a Plan Proponent, urges all creditors and equity interest holders of
each Debtor entitled to vote to accept the Plan.
Please contact the Voting Agent with any questions relating to
voting on the Plan. Additional copies of this Disclosure Statement and, when
filed, copies of the Plan Supplement are available upon request made to the
Voting Agent, at the following address:
IF BY OVERNIGHT OR HAND DELIVERY: IF BY STANDARD MAILING:
POORMAN-DOUGLAS CORPORATION POORMAN-DOUGLAS CORPORATION
10300 S.W. ALLEN BOULEVARD P.O. BOX 4230
BEAVERTON, OREGON 97005 PORTLAND, OREGON 97208-4230
ATTN: LODGIAN BALLOTING CENTER ATTN: LODGIAN BALLOTING CENTER
4
II.
TREATMENT OF CREDITORS AND SHAREHOLDERS
UNDER THE PLAN
The Plan governs the treatment of Claims against and Equity
Interests in the Debtors. This section summarizes the new capital structures of
the Reorganized Lodgian Debtors and the liquidation plan of the Liquidating
Debtors, describes the Claims and Equity Interests in each Class established
under the Plan, summarizes the treatment of each Class, and discusses legal
issues affecting the trading of Plan Securities.
A. NEW CAPITAL STRUCTURE OF THE REORGANIZED LODGIAN DEBTORS; LIQUIDATION
PLAN OF LIQUIDATING DEBTORS
The Plan provides for the continued operation of the
Reorganized Lodgian Debtors. The Liquidating Debtors will have no continuing
business operations after the Effective Date.
1. Reorganized Lodgian Debtors
The following table summarizes the proposed capital structure
of the Reorganized Lodgian Debtors, including the exit financing arrangements
the Lodgian Debtors expect to enter into on the Effective Date to refinance
certain Mortgage Financings, pay Administrative Expense Claims, including cure
costs of the executory contracts and unexpired leases assumed by the Lodgian
Debtors, and fund capital expenditures and other needs of their ongoing business
operations. Lodgian, Inc. has entered into a commitment letter providing for a
$286.2 million Exit Financing Facility secured by certain of the Lodgian
Debtors' Hotel Properties. The principal terms of the proposed exit financing
are described in section VII.A. Except as otherwise provided in the Plan and
described herein, the Lodgian Debtors' existing Mortgage Financings will be
reinstated on their original or amended terms and will continue to be secured by
the underlying Hotel Properties. The principal terms of the continuing Mortgage
Financings are summarized in the table in section II.D.1. The principal terms of
the Priority Tax Claim Note are summarized in the table in section II.B. The
Plan Securities to be issued on the Effective Date are described in section
II.F.
5
REORGANIZED LODGIAN DEBTORS
INSTRUMENT DESCRIPTION COMMENTS
---------- ----------- --------
Secured Loan $286.2 million(1) (exit financing)
Mortgage Financings Approximately $102.6(1) million (reinstated or amended)
Priority Tax Claims Note Approximately $13.6 million (restructuring debt)
New Preferred Stock $125 million (Plan Securities)
New Common Stock 7,000,000 shares (Plan Securities)
A Warrants To purchase up to 17.75% of the New Common (Plan Securities)
Stock(2)
To purchase up to 10.79% of the New Common (Plan Securities)
B Warrants Stock(3)
- ----------------------------
1 The Plan Proponents and the Exit Financing Lender have agreed in
principal to increase the Exit Financing Facility by $5.3 million to be
used to refinance the debt under Subclass 1-J. This would reduce the
principal amount of the continuing Mortgage Financings by a
corresponding amount.
2 Excludes (a) B Warrant Shares, (b) New Incentive Shares and (c) Other
Future Shares.
3 Excludes (a) New Incentive Shares and (b) Other Future Shares.
2. Liquidation Plan of Liquidating Debtors
The Plan Proponents have determined, in coordination with the
applicable secured creditor, that the Liquidating Debtors' Hotel Properties are
overleveraged and no longer economically valuable for those Debtors to continue
to own or operate. As such, they have agreed that such Hotel Properties should
be surrendered to the applicable secured creditor, which will seek to continue
the business operations at the affected Hotel Properties independent from the
Debtors' on-going businesses. The Plan provides for a consensual surrender of
the Liquidating Debtors' Hotel Properties, as a going concern, to the holders of
Secured Claims under the Liquidating Debtors' Mortgage Financings. The
Liquidating Debtors anticipate that the terms of the consensual surrender will
provide for the payment in full of all Allowed Administrative Expense Claims,
Allowed Priority Tax Claims and Allowed Priority Non-Tax Claims against the
Liquidating Debtors. If these Claims are not paid, the Plan cannot be confirmed
as to the Liquidating Debtors, and the Liquidating Debtors shall evaluate their
options to the disposition of their assets. Upon surrender of their respective
Hotel Properties under the Plan, the Liquidating Debtors will hold no assets and
will have no ongoing business operations. Because there is insufficient asset
value to satisfy the Allowed Claims of the applicable secured creditors, no
amounts will be available for distribution to holders of General Unsecured
Claims against the Liquidating Debtors.
6
B. SUMMARY OF CLASSIFICATION AND TREATMENT
The following table and the table in section II.D.1 divide the
Claims against, and Equity Interests in, each of the Debtors into separate
Classes, state the estimated aggregate amount of the Claims or Equity Interests
in each Class and summarize the treatment of each Class. The tables also
identify which Classes are entitled to vote on the Plan based on rules set forth
in the Bankruptcy Code and the Voting Procedures Order. Finally, the tables
indicate an estimated recovery for each Class.
IMPORTANT NOTE ON ESTIMATES AND VALUATIONS
The estimates of recovery amounts and percentages in the following
tables and elsewhere in this Disclosure Statement may differ from
actual distributions if the Debtors' estimates of Allowed Claims prove
to be inaccurate. The Debtors' estimates of Allowed Claims reflect the
Debtors' reasonable judgment based on current information as of the
date of this Disclosure Statement and the Debtors make no
representation as to the accuracy of these amounts.
In addition, the estimated valuation of the Reorganized Lodgian Debtors
and the Plan Securities, and the estimated recoveries to holders of
Claims, are not intended to represent the value at which the Plan
Securities could be sold if a market for those securities emerges.
As described in section VIII.D, the hotel and lodging industry is
affected by numerous uncertainties, including the economy in general
and the levels of business and leisure travel at any given time. Those
uncertainties and other risks related to the Debtors make it difficult
to determine a precise value for the Debtors and the Plan Securities to
be distributed under the Plan.
The Claim amounts and recoveries described in the following
tables and elsewhere in this Disclosure Statement represent the Debtors' best
estimates of those values given the information available at this time.
Approximately 4,299 proofs of claim were filed in the Debtors' Chapter 11 Cases
and the CCA Debtors' Chapter 11 Cases as of the Bar Date. As of the date of this
Disclosure Statement, the Debtors have completed a preliminary review of these
Claims, including reconciliation with 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 81 different entities, it is possible that the actual amount of
Allowed Claims may differ materially from the Debtors' estimates. The Debtors
continue to seek to resolve Disputed Claims and further refine their claims
analysis. Unless otherwise specified, the estimated Claim amounts and recoveries
in the following tables and elsewhere in this Disclosure Statement are based on
the Debtors' claims analysis and financial projections as of the date of this
Disclosure Statement.
7
The estimation of recoveries makes the following assumptions:
- The consolidated business and operations of the
Reorganized Lodgian Debtors does not include the
Hotel Properties or other assets or liabilities of
the CCA Debtors or the Liquidating Debtors. See
section IV.B and Exhibit D for a description of the
assumptions underlying the Debtors' financial
projections for the Reorganized Lodgian Debtors.
- The consolidated enterprise value of the Reorganized
Lodgian Debtors is approximately $615 million. See
section IV.C for a description of the basis of these
valuations.
- The aggregate amount of Allowed Secured Claims
against the Lodgian Debtors is approximately $354.2
million.
- The aggregate amount of Allowed General Unsecured
Claims (excluding Inter-Company Claims) against the
Lodgian Debtors is approximately $22.8 million.
- The Initial New Common Stock has an aggregate value
as of the Effective Date of approximately $85
million. See section IV.C for a description of the
basis of this valuation.
- The Warrants have an aggregate value as of the
Effective Date of approximately $8 million using a
standard computation methodology for the valuation of
warrants. See section IV.C for a description of the
basis of this valuation.
Treatment of Claims and Equity Interests
CLASS DESCRIPTION TREATMENT ENTITLED ESTIMATED
TO VOTE RECOVERY
- - Debtor-in-Possession Credit Payment of all amounts outstanding, No 100%
Agreement Claims and cash collateralization or
replacement of outstanding letters
Estimated Claim Amount: of credit.
$0(1)
- ------------------------
1 Excludes approximately $1.0 million in letters of credit issued and
undrawn as of the date of this Disclosure Statement. These letters of
credit will be replaced or cash collateralized on the Effective Date.
8
CLASS DESCRIPTION TREATMENT ENTITLED ESTIMATED
TO VOTE RECOVERY
----- ----------- --------- -------- ---------
- - Other Administrative Expense Paid in full. No 100%
Claims
Estimated Claim Amount:
$22.4 million
- - Priority Tax Claims Paid in full or paid over a period not to No 100%
exceed 6 years from the date of
Estimated Claim Amount: assessment of the tax, with interest at
$13.8 million the Federal Judgment Rate as in effect on
the Confirmation Date, payable monthly.
1 Secured Claims See section II.D.1. Yes See
section II.D.1.
2 Priority Non-Tax Claims Paid in full. No 100%
Estimated Claim Amount:
$0.1 million
3 General Unsecured Claims New Preferred Stock: $7,735,000 Yes 53.4%
against Lodgian Debtors Initial New Common Stock: 5.24%
Estimated Claim Amount:
$22.8 million
General Unsecured Claims No Distribution No (deemed to None
against Liquidating Debtors reject)
Estimated Claim Amount:
$1.7 million
4 Senior Subordinated Notes Claims New Preferred Stock: $117,265,000 Yes 87.7%
Initial New Common Stock: 79.39%
Estimated Claim Amount:
$210.5 million
5 Convenience Claims Paid in full. Yes 100%
Estimated Claim Amount:
$0.5 million
6 [Reserved]
6A [Reserved]
9
CLASS DESCRIPTION TREATMENT ENTITLED ESTIMATED
TO VOTE RECOVERY
----- ----------- --------- -------- ---------
7 CRESTS Claims Initial New Common Stock: 12.40% Yes 7.8%
A Warrants: 83.33%
Estimated Claim Amount: B Warrants: 24.39%
$197.2 million
8 Old Lodgian Common Stock Initial New Common Stock: 2.97% No (deemed to NA
Interests A Warrants: 16.67% reject)
B Warrants: 75.61%
Estimated Interests:
28.5 million shares
9 Debtor Owned Old Subsidiary In Lodgian Debtors: Unaltered. No (deemed to NA
Equity Interests accept)
In Liquidating Debtors: No distribution No (deemed to NA
reject)
10 Third Party Owned Old 10-A: No distribution. No (deemed to NA
Subsidiary Equity Interests reject)
10-B: Reduced percentage of New Yes NA
Subsidiary Equity
10-C: Unaltered No (deemed to NA
accept)
11 Subordinated Claims No distribution. No (deemed to None
reject)
Estimated Claim Amount:
$0
C. LODGIAN DEBTORS - ALLOCATION OF VALUE UNDER THE PLAN
The Plan provides for distributions of Plan Securities to
holders of General Unsecured Claims against Lodgian Debtors (Class 3), Senior
Subordinated Notes (Class 4), CRESTS (Class 7) and Old Lodgian Common Stock
(Class 8). The Plan Securities consist of $125 million aggregate liquidation
preference of New Preferred Stock, 100% of the Initial New Common Stock and the
Warrants to purchase up to an additional 26.62% of New Common Stock on a fully
diluted basis excluding (a) New Incentive Shares and (b) Other Future Shares.
The distributions of Plan Securities under the Plan reflect a
reallocation of value from the Senior Subordinated Notes to the General
Unsecured Claims against Lodgian Debtors, CRESTS and Old Lodgian Common Stock,
as described below. The Plan allocations are the result of extensive
negotiations between the Debtors and the Committee, which includes the holders
of 54% of the Senior Subordinated Notes and 57% of the CRESTS, as well as
holders of General Unsecured Claims. Further, the Plan embodies the Class 4
Compromise, which compromises a number of issues between the Debtors and the
holders of Senior Subordinated
10
Notes, including the amount of such holders' Allowed Claims against each
Guarantor Debtor and the determination of the Debtors that are liable as
Guarantor Debtors, as well as the valuation of the Debtors on which recoveries
should be based.
The Debtors and the Committee believe that the proposed terms
offer the best opportunity for the expeditious completion of a consensual
restructuring, which is likely to afford greater recoveries to all creditors and
shareholders, including the holders of Senior Subordinated Notes, than would
result from protracted and costly bankruptcy proceedings. The treatment of
General Unsecured Claims against Lodgian Debtors, CRESTS and Old Lodgian Common
Stock under the Plan is not an admission by the holders of Senior Subordinated
Notes, the Debtors, the Committee or any other party that those Claims and
Equity Interests would otherwise be entitled to the recovery provided in the
Plan. The Debtors and the Committee do not believe the recoveries provided in
the Plan for these Classes would likely be realized other than pursuant to the
Plan.
The following table compares the estimated recoveries under
the Plan with those to which the holders of Senior Subordinated Notes, General
Unsecured Claims against Lodgian Debtors, CRESTS and Old Lodgian Common Stock
would otherwise be entitled. Recoveries for General Unsecured Claims against
Lodgian Debtors, which range from 0% to 100% depending upon the Lodgian Debtor
against which the Claim is made, are shown on a combined basis for all Lodgian
Debtors. The recovery shown for the Senior Subordinated Notes is an aggregate of
the recoveries from Lodgian Financing Corp., the issuer of the Senior
Subordinated Notes, and each Guarantor Debtor. All dollar amounts are in
millions.
RECOVERY PER PLAN
-------------------------
STRICT ALLOCATIONS ADJUSTMENT AMOUNT %
------------------ ---------- -------- ------
SENIOR SUBORDINATED NOTES $207.2
($1.4)
to Gen Unsecured ($15.3)
to CRESTS ($5.8)
------
to Old Equity
$184.7 87.7%
GENERAL UNSECURED CLAIMS AGAINST $10.8
LODGIAN DEBTORS
from Sen Sub $1.4
---
$12.2 53.4%
CRESTS $0
from Sen Sub $15.3
----
$15.3 7.8%
OLD LODGIAN COMMON STOCK $0
from Sen Sub $5.8
---
$5.8 --
11
The value reallocated to CRESTS and Old Lodgian Common Stock
is composed of 15.37% of the Initial New Common Stock and 100% of the Warrants.
The reallocation to the holders of General Unsecured Claims against Lodgian
Debtors represents a 20% premium on the recovery to which they are otherwise
entitled and is composed of an additional $0.9 million aggregate liquidation
preference of New Preferred Stock and an additional 0.59% of the Initial New
Common Stock.
The estimated recovery amounts of Inter-Company Claims of one
Lodgian Debtor against another Lodgian Debtor is taken into account in
determining the estimated reorganization value of the Lodgian Debtor to which
the Claim is due. As a result, the recovery value of these Inter-Company Claims
is reflected in the recovery amounts realized by the holders of Claims against
and Equity Interests in the Lodgian Debtors to which the Claims are due. No
separate distribution will be made on account of Allowed Inter-Company Claims
of any Lodgian Debtor against another Lodgian Debtor.
The Debtors have estimated the recovery to the holders of
each Class of Claims against, and Equity Interests in, each Debtor based on the
estimated value of the Debtor against which such holders' Claims or Equity
Interests are asserted and the estimated amount and relative priorities of
Allowed Claims against that Debtor. Exhibit B to this Disclosure Statement sets
forth for each Debtor an analysis of estimated recoveries.
D. 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 Debtors. Each Subclass is treated as a
separate Class for purposes of the 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 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. Secured Claims (Class 1)
Description. Class 1 is a group of 16 Subclasses,
including estimated aggregate Secured Claims of approximately $383.2 million as
of the date of this Disclosure Statement. Claims in these Subclasses are, for
the most part, mortgage financings of the Hotel Properties. Each Subclass
represents a separate Mortgage Financing (or other secured financing) and
collateral pool. The table below describes the Subclasses in Class 1 by
Mortgage Financing and the number of underlying Hotel Properties. The Mortgage
Financings and collateral pools are further described in section V.A.5.
Treatment. Class 1 is impaired. On or as soon as
reasonably practicable after the Effective Date, each holder of an Allowed
Claim in a Class 1 Subclass will receive (i) the
12
treatment for such Subclass summarized in the following table, except to the
extent the holder and the applicable Debtor have agreed to a different
treatment, or (ii) such other treatment as the Bankruptcy Court may approve in
connection with confirmation of the applicable Debtor's Plan through a "cram
down" of such Subclass under section 1129(b) of the Bankruptcy Code.
The Debtors desire to enter into separate consensual
stipulations with the secured creditors in each Class 1 Subclass regarding the
treatment of their Claims. The applicable Debtors are continuing negotiations
with each Subclass. In the event that these negotiations result in a treatment
of any Class 1 Subclass different from that provided in the Plan, the Plan
Proponents intend to enter into a stipulation and order with the applicable
creditors which will provide for such agreed treatment and constitute a
modification of the Plan.
The estimated claim amount for each Class 1 Subclass shown in
the following table is the amount of principal and unpaid interest on the
Commencement Date and does not reflect an estimated valuation of the underlying
collateral or constitute an admission by the Debtors of the amount of the
Allowed Secured Claim.
- ---------------------------------------------------------------------------------------------------------------------------
ENTITLED ESTIMATED
SUBCLASS DESIGNATION TREATMENT TO VOTE RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
1-A BO Agreements Repaid in full in cash. Yes 100%
Hotel Properties Securing Claim: 1
Estimated Claim Amount:
$6.0 million
- ---------------------------------------------------------------------------------------------------------------------------
1-B BO/Rockbridge Agreements Repaid in full in cash. Yes 100%
Hotel Properties Securing Claim: 5
Estimated Claim Amount:
$54.8 million
- ---------------------------------------------------------------------------------------------------------------------------
1-C [Reserved]
- ---------------------------------------------------------------------------------------------------------------------------
1-D Chase Agreements Reinstated on original terms, except Yes Reinstated
Hotel Properties Securing Claim: 2 $492,000 arrearage in principal as amended
payments is rescheduled for payment at
Estimated Claim Amount: final maturity; secured by existing
$11.7 million collateral.
- ---------------------------------------------------------------------------------------------------------------------------
1-E Column/Criimi Mae Agreements Reinstated on original terms, except Yes Reinstated
Hotel Properties Securing Claim: 1 $132,000 arrearage in principal as amended
payments is rescheduled for payment at
Estimated Claim Amount: final maturity; secured by existing
$3.4 million collateral.
- ---------------------------------------------------------------------------------------------------------------------------
13
- ---------------------------------------------------------------------------------------------------------------------------
ENTITLED ESTIMATED
SUBCLASS DESIGNATION TREATMENT TO VOTE RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
1-F DLJ/Column Agreements Reinstated on original terms, except Yes Reinstated
Hotel Properties Securing Claim: 1 $388,000 arrearage in principal as amended
payments is rescheduled for payment at
Estimated Claim Amount: final maturity; secured by existing
$9.4 million collateral.
- ---------------------------------------------------------------------------------------------------------------------------
1-G DLJ/Column/Criimi Mae Agreements Reinstated on original terms, except Yes Reinstated
Hotel Properties Securing Claim: 9 $2,157,000 arrearage in principal as amended
payments is rescheduled for payment at
Estimated Claim Amount: final maturity; secured by existing
$29.8 million collateral.
- ---------------------------------------------------------------------------------------------------------------------------
1-H DDL Kinser Agreements Five-year note; principal equal to Yes See
Hotel Properties Securing Claim: 1 amount of Allowed Claim with interest treatment
at 7.0% per annum, payable monthly;
Estimated Claim Amount: amortization after year one equivalent
$2.5 million to 48-year straight line amortization
schedule, with balance payable at
maturity; secured by existing
collateral.
- ---------------------------------------------------------------------------------------------------------------------------
1-I First Union Agreements Reinstated on original terms, except Yes Reinstated
Hotel Properties Securing Claim: 1 $48,000 arrearage in principal as amended
payments is rescheduled for payment at
Estimated Claim Amount: final maturity; secured by existing
$3.4 million collateral.
- ---------------------------------------------------------------------------------------------------------------------------
1-J GMAC Agreements At the election of the applicable Yes See
Hotel Properties Securing Claim: 1 Debtor (i) repaid in full in cash, or treatment
(ii) reinstated on original terms,
Estimated Claim Amount: except $103,000 arrearage in principal
$5.3 million payments is rescheduled for payment at
final maturity; secured by existing
collateral.
- ---------------------------------------------------------------------------------------------------------------------------
1-K GMAC-Orix Agreements Consensual surrender of underlying Yes See
Hotel Properties Securing Claim: 8 Hotel Properties and other existing treatment
collateral.
Estimated Claim Amount:
$27.1 million
- ---------------------------------------------------------------------------------------------------------------------------
1-L Lehman/Criimi Mae Agreements Reinstated on original terms, except Yes Reinstated
Hotel Properties Securing Claim: 5 $471,000 arrearage in principal as amended
payments is rescheduled for payment at
Estimated Claim Amount: final maturity; final maturity
$24.0 million extended to November 30, 2005; secured
by existing collateral.
- ---------------------------------------------------------------------------------------------------------------------------
14
- ---------------------------------------------------------------------------------------------------------------------------
ENTITLED ESTIMATED
SUBCLASS DESIGNATION TREATMENT TO VOTE RECOVERY
- ---------------------------------------------------------------------------------------------------------------------------
1-M MSSF Pre-Petition Credit Facility Repaid in full in cash. Yes 100%
Hotel Properties Securing Claim: 50
Estimated Claim Amount:
$196.0 million
- ---------------------------------------------------------------------------------------------------------------------------
1-N Roundabout Agreements Consensual surrender of underlying Yes See
Hotel Properties Securing Claim: 1 Hotel Properties and other existing treatment
collateral.
Estimated Claim Amount:
$1.9 million
- ---------------------------------------------------------------------------------------------------------------------------
1-O Wells Fargo Agreements Five-year note; principal equal to Yes See
Hotel Properties Securing Claim: 1 amount of Allowed Claim with interest treatment
at 7.0% per annum, payable monthly;
Estimated Claim Amount: amortization after year one equivalent
$5.8 million to 48-year straight line amortization
schedule, with balance payable at
maturity; secured by existing
collateral.
- ---------------------------------------------------------------------------------------------------------------------------
1-P Miscellaneous At the election of the applicable Depends on Depends on
Debtor, holder will receive treatment. treatment.
(i) payment in full of Allowed Claim;
(ii) net proceeds of sale of
collateral up to the amount of Allowed
Claim; (iii) the collateral securing
the Claim; (iv) a note with periodic
cash payments having a present value
equal to the amount of the Allowed
Claim and secured by the existing
collateral; (v) such treatment that
leaves unaltered the legal, equitable
and contractual rights of the holder;
or (vi) such other distribution as is
necessary to satisfy the requirements
of the Bankruptcy Code. In the event
that a Debtor treats a Claim as
described under clause (i) or (ii),
the liens securing the Claim will be
deemed released
- ---------------------------------------------------------------------------------------------------------------------------
If the creditors in any Class 1 Subclass reject the Plan, the
applicable Debtors reserve the right to (i) request the Bankruptcy Court to
confirm its Plan through a "cram down" of the dissenting creditors under
section 1129(b) of the Bankruptcy Code and modify the Plan, to the extent, if
any confirmation under section 1129(b) of the Bankruptcy Code requires
modification, or (ii) defer confirmation of its Plan and continue with its
Chapter 11 Case in order
15
to further analyze its options under the Bankruptcy Code (even though the other
Debtors will proceed with confirmation of their Plans and emergence from their
Chapter 11 Cases).
2. 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 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 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 reasonably practicable after the Effective Date, except to the
extent that the holders of such Claims agree to a different treatment.
16
IMPORTANT NOTES ON DISTRIBUTIONS TO CLASSES 3, 4, 7 AND 8
INITIAL NEW COMMON STOCK AND WARRANT SHARES ARE SUBJECT TO DILUTION
The Initial New Common Stock to be distributed to holders of
General Unsecured Claims against Lodgian Debtors (Class 3),
Senior Subordinated Notes (Class 4), CRESTS (Class 7) and
Old Lodgian Common Stock (Class 8), and the Warrant Shares
issuable upon exercise of the Warrants to be distributed to
holders of CRESTS (Class 7) and Old Lodgian Common Stock
(Class 8), are subject to dilution by future share
issuances. See section II.F.4.
REALLOCATIONS PURSUANT TO CLASS 4 COMPROMISE
Pursuant to the Class 4 Compromise, the distributions under
the Plan reflect a reallocation to holders of General
Unsecured Claims against Lodgian Debtors (Class 3), CRESTS
(Class 7) and Old Lodgian Common Stock (Class 8) of a
portion of the value to which the holders of Senior
Subordinated Notes (Class 4) would otherwise be entitled.
The treatment of Classes 3, 4, 7 and 8, however, is not an
admission by the holders of the Senior Subordinated Notes,
the Debtors, the Committee or any other party that such
Classes would otherwise be entitled to the recovery provided
in the Plan. See section II.C.
RESOLUTION OF DISPUTED CLAIMS MAY AFFECT CLASS 3 RECOVERIES
The allocations of Plan Securities to holders of General
Unsecured Claims against Lodgian Debtors (Class 3) are based
on the Debtors' estimates of Allowed Claims in Class 3 as of
the date of this Disclosure Statement. The distributions
received by holders of General Unsecured Claims against
Lodgian Debtors could differ from the estimated percentage
recoveries described in this Disclosure Statement if the
Debtors' estimate of Allowed Claims in Class 3 proves to be
inaccurate. Pursuant to the Class 4 Compromise, the Plan
Securities allocated to the holders of Senior Subordinated
Notes will not be affected by any increase or decrease in
the actual amount of General Unsecured Claims.
3. 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 Debtors that are being rejected, any applicable
Inter-Company Claims and other General Unsecured Claims. Class 3 includes
Claims that are covered in whole or in part by insurance maintained by the
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.
17
For purposes of the initial distribution, and as part of the
distribution mechanism under the Plan for holders of Claims in Class 3, the
applicable 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 against the Debtors on or before the Bar Date was
approximately $153.2 million.(2) However, the respective Debtors estimate that,
after deducting duplicate Claims, Claims not supported by the respective
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 Lodgian Subclasses will be approximately $22.8
million.
Allowed Inter-Company Claims have been taken into account in
determining the distributions to Class 3 Subclasses. No separate distribution
will be made on account of any Allowed Inter-Company Claims.
For convenience of identification, the Plan classifies the
Allowed Claims in Class 3 as a single Class. Class 3 actually consists of 81
separate Subclasses, one for the allowed Class 3 Claims against each Debtor.
Each Subclass is treated under the Plan as a separate class for voting and
distribution purposes.
Treatment of Class 3 Claims against Lodgian Debtors. Class 3
Lodgian Subclasses are impaired. The holders of Allowed Claims in each Class 3
Lodgian Subclass will receive the Plan Securities allocated to their Subclass
Debtor. The aggregate Plan Securities available for all Class 3 Lodgian
Subclasses, referred to as the "Class 3 Plan Securities", consists of:
- $7,735,000 of New Preferred Stock
- 5.24% of the Initial New Common Stock
Each Lodgian Debtor will be allocated a pro rata share of the
Class 3 Plan Securities on the basis of the estimated recovery value of
estimated Allowed General Unsecured Claims against such Debtor, except that
these allocations will be adjusted so that:
- no Lodgian Debtor will be allocated Class 3 Plan Securities
representing a recovery value of more than 100% of the
estimated Allowed General Unsecured Claims against it; and
- each Lodgian Debtor will be allocated Class 3 Plan Securities
representing a recovery value of at least 10% of the
estimated Allowed General Unsecured Claims against it.
Exhibit C sets forth for each Lodgian Debtor the estimated
Allowed Claims and estimated recovery percentage and amount for Claims in that
Debtor's Class 3 Lodgian Subclass and the percentage of Class 3 Plan Securities
allocated to that Debtor. These allocations
- ---------------
(2) This amount excludes any potential deficiency claims that holders of
Allowed Secured Claims may have. See sections II.D.1 and VIII.A.2.
18
are based on the Debtors' estimates of Allowed Claims in Class 3 Lodgian
Subclasses as of the date of this Disclosure Statement. The distributions to be
received by holders of General Unsecured Claims against Lodgian Debtors could
differ from the estimated percentage recovery if the Debtors' estimate of
Allowed Claims in Class 3 Lodgian Subclasses proves to be inaccurate. Pursuant
to the Class 4 Compromise, the Plan Securities allocated to the holders of
Senior Subordinated Notes will not be affected by any increase or decrease in
the actual amount of Allowed General Unsecured Claims against Lodgian Debtors.
Treatment of Class 3 Claims against Liquidating Debtors.
Class 3 Liquidating Subclasses are impaired. Because the value of the
Liquidating Debtors' assets are fully encumbered, no property will be
distributed to or retained by the holders of Allowed Claims in any Class 3
Liquidating Subclass on account of such Allowed Claims.
4. Senior Subordinated Notes Claims (Class 4)
Description. Class 4 consists of the Claims of the
holders of the Senior Subordinated Notes, including Claims under the related
Senior Subordinated Notes Guarantees.
Treatment. Class 4 is impaired. The holders of Allowed
Claims in Class 4 will receive in the aggregate:
- $117,265,000 of New Preferred Stock
- 79.39% of the Initial New Common Stock
This distribution reflects the aggregate recovery to Allowed Class 4 Claims
from Lodgian Financing Corp., the issuer of the Senior Subordinated Notes, and
each Guarantor Debtor.
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 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. CRESTS Claims (Class 7)
Description. Class 7 consists of the Allowed Claims of
LCT I as the holder of the CRESTS Junior Subordinated Debentures, together with
the Allowed Claims of the holders of the CRESTS under certain guarantees in
respect of the CRESTS.
19
Treatment. Class 7 is impaired. LCT I, the issuer of
the CRESTS, will receive the following Plan Securities, which it will in turn
distribute to the holders of the CRESTS in accordance with the terms of the
CRESTS:
- 12.40% of the Initial New Common Stock
- 83.33% of the A Warrants
- 24.39% of the B Warrants
7. Old Lodgian Common Stock Interests (Class 8)
Description. Class 8 consists of the Equity Interests of
the holders of Old Lodgian Common Stock.
Treatment. Class 8 is impaired. The holders of Allowed
Equity Interests in Class 8 will receive in the aggregate:
- 2.97% of the Initial New Common Stock
- 16.67% of the A Warrants
- 75.61% of the B Warrants
All Old Lodgian Common Stock, and all instruments representing it, will be
deemed canceled on the Effective Date.
The holders of Old Lodgian Common Stock will receive the Plan
Securities described above as a result of the reallocation from the holders of
the Senior Subordinated Notes pursuant to the Class 4 Compromise. However, the
holders of Old Lodgian Common Stock are not otherwise entitled to receive or
retain any property on account of their Equity Interests. Accordingly, the
holders of Old Lodgian Common Stock are deemed to reject the Plan and are not
entitled to vote and the Debtors will not solicit their vote.
8. Debtor Owned Old Subsidiary Equity Interests (Class 9)
Description. Class 9 consists of the Equity Interests
owned by any Debtor in each of the 80 other Debtors, other than Lodgian, Inc.
For convenience of identification, the Plan classifies the
Allowed Equity Interests in Class 9 as a single Class. Class 9 actually
consists of 80 separate Subclasses, one for the Allowed Equity Interests in
each of the Debtors other than Lodgian, Inc., including 76 Debtors that are
100% owned, directly or indirectly, by Lodgian, Inc., and the Equity Interests
owned by Debtors in four Debtors in which an Equity Interest is owned by a
Person other than a Debtor. These third party owned Equity Interests are
classified in Class 10. Each Subclass is treated under the Plan as a separate
class for voting and distribution purposes.
20
Treatment of Class 9 Equity Interests in Lodgian Debtors.
Class 9 Lodgian Subclasses are unimpaired. Except as may otherwise be
determined by the applicable Debtor, the legal, equitable and contractual
rights of holders of Allowed Equity Interests in each Class 9 Lodgian Subclass
shall remain unaltered, except as provided in section II.D.9.
Treatment of Class 9 Equity Holders in Liquidating Debtors.
Class 9 Liquidating Subclasses are impaired and have no estimated recovery
value. Because the value of the Liquidating Debtors' assets is less then the
total value of its debts and liabilities, it is not anticipated that the
holders of Allowed Equity Interests in Class 9 Liquidating Subclasses will
receive any distributions on account of such Equity Interests. The Plan
Proponents will request that the Bankruptcy Court make a finding that these
Equity Interests have no value for purposes of the "best interest" test under
section 1129(a)(7) of the Bankruptcy Code. On the date the Liquidating Debtors
are dissolved in accordance with the Plan, the instruments evidencing Equity
Interests in the Liquidating Debtors shall be deemed cancelled without further
act or action under any applicable agreement, law, regulation, order or rule,
and the Equity Interests in the Liquidating Debtors evidenced thereby shall be
extinguished.
9. Third Party Owned Old Subsidiary Equity Interests (Class 10)
Description Class 10 consists of the Equity Interests in
a Debtor that are owned by any Person other than a Debtor.
For convenience of identification, the Plan classifies the
Allowed Equity Interests in Class 10 as a single Class. Class 10 actually
consists of four separate Subclasses, one for the Allowed Equity Interests in
each of the Debtors identified in the table below. Each Subclass is treated
under the Plan as a separate class for voting and distribution purposes. These
Subclasses are further grouped in three Divisions, depending on the estimated
recovery value of those Equity Interests.
Division A of Class 10 consists of the Equity Interests in
those Debtors in which an Equity Interest is owned by a Person other than a
Debtor and which are estimated to have no recovery value. Division B of Class
10 consists of the Equity Interests in those Debtors in which an Equity
Interest is owned by a Person other than a Debtor and which are estimated to
have a positive recovery value. Division C of Class 10 consists of the Equity
Interests in those Debtors in which an Equity Interest is owned by a Person
other than a Debtor, which are estimated to have a positive recovery value and
which the applicable Debtor and the holders of such Equity Interests have
agreed to leave unimpaired. The Debtors in Divisions A, B and C of Class 10 are
identified below:
21
% OF NEW SUBSIDIARY
EQUITY OF REORGANIZED
CLASS 10 SUBCLASS DEBTOR DIVISION SUBCLASS 10 DEBTOR
------------------------------------------ -------- ---------------------
Columbus Hospitality Associates, L.P. B 34.3%
Melbourne Hospitality Associates, L.P. C 50.0%
New Orleans Airport Motel Associates, B 13.4%
L.P.
Servico Centre Associates, Ltd. A 0.0%
Treatment. Subclasses in Division A of Class 10 are
impaired. Except to the extent the applicable Debtor and the holders of Allowed
Equity Interests in the Subclasses otherwise agree, no property will be
distributed to or retained by the holders of Allowed Equity Interests in these
Subclasses on account of those Equity Interests and the Debtor holding Equity
Interests in the Subclass Debtor will receive 100% of the New Subsidiary Equity
in such Reorganized Subclass Debtor. All old Equity Interests in the Subclass
Debtor, and all instruments representing it, will be deemed canceled on the
Effective Date. The holders of Allowed Equity Interests in these Subclasses are
deemed to reject the Plan and are not entitled to vote and the Debtors will not
solicit their vote.
Subclasses in Division B of Class 10 are impaired. Except to
the extent the applicable Debtor and the holders of Allowed Equity Interests in
these Subclasses otherwise agree, holders of Allowed Equity Interests in these
Subclasses will receive the percentage of New Subsidiary Equity in the Subclass
Debtor indicated in the table above, and the Debtor holding Equity Interests in
such Subclass Debtor will receive the balance of the New Subsidiary Equity in
such Subclass Debtor. All old Equity Interests in the Subclass Debtor, and all
instruments representing it, will be deemed canceled on the Effective Date.
The applicable Debtors are continuing discussions with the
holders of Equity Interests in Subclasses in Division A and B of Class 10 and
have offered such holders the opportunity to make additional capital
contributions to maintain their percentage ownership in the applicable
Reorganized Debtor. To the extent a holder makes all or a portion of the
required contribution, its percentage ownership will be greater than that shown
in the preceding table.
The Subclass in Division C of Class 10 is unimpaired. The
legal, equitable and contractual rights of holders of Allowed Equity Interests
in the Subclass in Division C of Class 10 shall remain unaltered.
10. Subordinated Claims (Class 11)
Description. Class 11 consists of any Claim against any
of the 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. In general, punitive or exemplary
22
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 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. However, several proofs of claim have been filed concerning
personal injury or wrongful death Claims that include punitive or exemplary
damage amounts and this Class has been included in the Plan for completeness.
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 Plan and the Debtors will not solicit their
vote.
E. ADMINISTRATIVE EXPENSES OF THE DEBTORS
In order to confirm the 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
Chapter 11 Cases of each of the respective 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 Chapter 11 Cases, tax obligations
incurred after the commencement of the 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 Debtors and the Committee, as well as the obligations outstanding
under the DIP financing facility.
Consistent with the requirements of the Bankruptcy Code, the
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 Debtor and the terms of the
agreements governing such obligations. Administrative Expense Claims relating
to compensation of the professionals retained by the applicable 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 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.
23
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 fixed annual rate so that the
periodic payments have a value, as of the Effective Date, equal to the Allowed
amount of the Claim.
1. Debtor-in-Possession Financing
The Debtors estimate that there will be $0 outstanding under
the DIP Financing Facility on the Effective Date. Obligations under the DIP
Financing Facility will be paid in full on the Effective Date. After the
Allowed Claims of the DIP Lenders are paid in full, the DIP Financing Facility
and any agreements or instruments related to it will terminate, subject to any
exceptions that the Bankruptcy Court may approve. There is approximately $1.0
million of letters of credit issued and undrawn as of the date of this
Disclosure Statement. These letters of credit will be replaced or cash
collateralized on the Effective Date.
2. Fees and Expenses of Professionals
The Debtors estimate that the fees and expenses of the
various professionals in the Chapter 11 Cases will be approximately $15.1
million, including amounts paid on an interim basis during the Chapter 11 Cases
and certain restructuring fees payable (subject to Bankruptcy Court approval)
to the Debtors' and the Committee's financial advisors. See sections V.A.2 and
V.A.3.
3. Indenture Trustee Claims.
Deutsche Bank Trust Company of America, the Indenture Trustee
for the Senior Subordinated Notes, shall be granted, pursuant to section 503(b)
of the Bankruptcy Code, an Administrative Claim for its reasonable fees and
expenses in performing its duties as Indenture Trustee from the Commencement
Date through the Effective Date to the extent that such fees and expenses are
either (i) not in dispute by the Plan Proponents or (ii) in the event of any
dispute, determined by a Final Order of the Bankruptcy Court.
F. SECURITIES TO BE ISSUED UNDER THE PLAN
1. New Preferred Stock
On the Effective Date, Reorganized Lodgian will issue
5,000,000 shares of New Preferred Stock with an initial aggregate liquidation
preference of $125,000,000. The shares will be distributed on behalf of the
applicable Debtor to the holders of General Unsecured Claims against Lodgian
Debtors (Class 3) and Senior Subordinated Notes (Class 4). The following table
shows the allocation:
24
SHARES OF NEW % OF NEW PREFERRED
CLASS PREFERRED STOCK STOCK
----------------------------------- --------------- ------------------
General Unsecured Claims against 309,400 6.19%
Lodgian Debtors (Class 3)
Senior Subordinated Notes (Class 4) 4,690,600 93.81%
--------- ------
Total 5,000,000 100.00%
The New Preferred Stock will accrue cumulative dividends,
compounded annually, at the annual rate of 12.25% and will have a liquidation
preference equal to the initial liquidation preference plus accumulated unpaid
dividends. The dividends will be paid in the manner described in section
VIII.B.4. The New Preferred Stock is subject to redemption at any time at
Reorganized Lodgian's option (including a premium during the first five years)
and to mandatory redemption on the tenth anniversary of the Effective Date.
2. New Common Stock
On the Effective Date, Reorganized Lodgian will issue the
Initial New Common Stock. The shares will be distributed on behalf of the
applicable Debtor to the holders of General Unsecured Claims against Lodgian
Debtors (Class 3), Senior Subordinated Notes (Class 4), CRESTS (Classes 7) and
Old Lodgian Common Stock (Class 8). The Initial New Common Stock will consist
of 7,000,000 shares. The following table shows the allocation of the Initial
New Common Stock:
SHARES OF NEW % OF INITIAL NEW
CLASS COMMON STOCK COMMON STOCK
--------------------------------------------- ------------- ----------------
General Unsecured Claims against Lodgian 366,589 5.24%
Debtors (Class 3)
Senior Subordinated Notes (Class 4) 5,557,511 79.39%
CRESTS (Class 7) 868,000 12.40%
Old Lodgian Common Stock (Class 8) 207,900 2.97%
--------- ------
Total 7,000,000 100.00%
The New Common Stock will vote as a single class for the
election of directors and on other matters that require shareholder approval.
The Initial New Common Stock will be subject to dilution by (a) the Warrant
Shares, (b) New Incentive Shares and (c) Other Future Shares. The effect of
these issuances is described in section II.F.4. The Plan will provide for
authorization of sufficient shares of New Common Stock to accomplish these
purposes.
3. Warrants
A Warrants. On the Effective Date, Reorganized Lodgian
will issue A Warrants to purchase up to 17.75% of the New Common Stock on a
fully diluted basis, excluding
25
(a) B Warrant Shares, (b) New Incentive Shares and (c) Other Future Shares. The
effect of these issuances is described in section II.F.4. The A Warrants will
be distributed on behalf of the applicable Debtor to the holders of CRESTS
(Class 7) and Old Lodgian Common Stock (Class 8). The following table shows the
allocation of the A Warrants:
% OF
CLASS A WARRANTS A WARRANTS
---------------------------------- ---------- ----------
CRESTS (Class 7) 1,258,815 83.33%
Old Lodgian Common Stock (Class 8) 251,823 16.67%
--------- ------
Total 1,510,638 100.00%
The A Warrants initially provide for the purchase of up to
1,510,638 shares of New Common Stock at an exercise price of $18.29 per share,
subject to adjustment. The A Warrants will expire on the fifth anniversary of
the Effective Date. The current estimated valuation of the A Warrants is $3.16
per A Warrant and is based on (i) a volatility of 40%, (ii) a market price of
$12.14 per share of New Common Stock, (iii) an exercise price of $18.29 per
share, (iv) a five-year expiration and (v) a risk free rate of 2.8%.
B Warrants. On the Effective Date, Reorganized Lodgian
will issue B Warrants to purchase up to 10.79% of the New Common Stock on a
fully diluted basis, excluding (a) New Incentive Shares and (b) Other Future
Shares. The effect of these issuances is described in section II.F.4. The B
Warrants will be distributed on behalf of the applicable Debtor to the holders
of CRESTS (Class 7) and Old Lodgian Common Stock (Class 8). The following table
shows the allocation of the B Warrants:
% OF
CLASS B WARRANTS B WARRANTS
----------------------------------- ---------- ----------
CRESTS (Class 7) 251,062 24.39%
Old Lodgian Common Stock (Class 8) 778,304 75.61%
--------- ------
Total 1,029,366 100.00%
The B Warrants initially provide for the purchase of up to
1,029,366 shares of New Common Stock at an exercise price of $25.44 per share,
subject to adjustment. The B Warrants will expire on the seventh anniversary of
the Effective Date. The current estimated valuation of the B Warrants is $3.17
per B Warrant and is based on (i) a volatility of 40%, (ii) a market price of
$12.14 per share of New Common Stock, (iii) an exercise price of $25.44 per
share, (iv) a seven-year expiration and (v) a risk free rate of 3.4%.
4. Equity Ownership of Reorganized Lodgian
The following table shows the percentage equity ownership of
Reorganized Lodgian held by the holders of General Unsecured Claims against
Lodgian Debtors (Class 3), Senior Subordinated Notes (Class 4), CRESTS (Class
7) and Old Lodgian Common Stock (Class 8):
26
- on the Effective Date;
- after issuance of the A Warrant Shares;
- after issuance of the B Warrant Shares; and
- after issuance of the maximum number of New
Incentive Shares.
The table does not show the effect of possible issuances of Other Future
Shares.
PERCENTAGE EQUITY OWNERSHIP
--------------------------------------------------------------------
AFTER ISSUANCE OF
--------------------------------------------------
AS OF NEW
EFFECTIVE A WARRANT B WARRANT INCENTIVE
CLASS DATE SHARES SHARES SHARES
- ----------------------------------- -------------- -------------- ----------- ------------
GENERAL UNSECURED CLAIMS AGAINST
LODGIAN DEBTORS (CLASS 3)
New Common Stock 5.2% 4.3% 3.8% 3.5%
SENIOR SUBORDINATED NOTES (CLASS 4)
New Common Stock 79.4% 65.3% 58.3% 52.3%
CRESTS (CLASS 7)
New Common Stock 12.4% 10.2% 9.1% 8.2%
A Warrants -- 14.8% 13.2% 11.9%
B Warrants -- -- 2.6% 2.4%
---- ---- ---- ----
12.4% 25.0% 24.9% 22.5%
OLD LODGIAN COMMON STOCK (CLASS 8)
New Common Stock 3.0% 2.4% 2.2% 2.0%
A Warrants -- 3.0% 2.6% 2.4%
B Warrants -- -- 8.2% 7.3%
---- ---- ---- ----
3.0% 5.4% 13.0% 11.7%
NEW EQUITY INCENTIVE PLAN -- -- -- 10.0%
----- ----- ----- -----
TOTAL 100.0% 100.0% 100.0% 100.0%
27
G. SECURITIES LAW MATTERS
THE ISSUANCE AND RESALE OF THE PLAN SECURITIES
RAISE ISSUES UNDER FEDERAL AND STATE SECURITIES LAWS
The issuance of Plan Securities under the Plan and resales
of the Plan Securities raise securities law issues under the
Bankruptcy Code and federal and state securities laws that
are discussed in this section. The applicability and effect
of relevant laws and regulations depend heavily on facts and
circumstances relating to each recipient of Plan Securities
and any proposed transfer by such person. ACCORDINGLY, THE
DEBTORS MAKE NO REPRESENTATION AS TO THESE MATTERS,
INCLUDING WHETHER ANY PLAN SECURITIES MAY BE FREELY
TRANSFERRED, AND URGE POTENTIAL RECIPIENTS OF PLAN
SECURITIES TO CONSULT THEIR OWN COUNSEL.
Holders of Allowed Claims in Classes 3, 4, 7 and 8 will
receive Plan Securities pursuant to the Plan. Section 1145 of the Bankruptcy
Code provides certain exemptions from the securities registration requirements
of federal and state securities laws with respect to the distribution of
securities under a Plan.
1. Issuance and Resale of Securities Plan
Under section 1145(a) of the Bankruptcy Code, the issuance of
the Plan Securities, as well as the issuance of New Common Stock pursuant to
the Warrants, and the subsequent resale of such securities by entities which
are not "underwriters" (as defined in section 1145(b) of the Bankruptcy Code),
are not subject to the registration requirements of section 5 of the Securities
Act. In addition, such securities generally may be resold without registration
under state securities or "blue sky" laws pursuant to various exemptions
provided by the respective laws of the several states. HOWEVER, RECIPIENTS OF
SECURITIES ISSUED UNDER THE PLAN ARE ADVISED TO CONSULT WITH THEIR OWN LEGAL
ADVISORS AS TO THE AVAILABILITY OF ANY SUCH EXEMPTION FROM REGISTRATION UNDER
STATE LAW IN ANY GIVEN INSTANCE AND AS TO ANY APPLICABLE REQUIREMENTS OR
CONDITIONS TO SUCH AVAILABILITY.
Section 1145(b)(l) of the Bankruptcy Code defines
"underwriter" for purposes of the Securities Act as one who, except with
respect to "ordinary trading transactions" of an entity that is not an
"issuer," (A) purchases a claim against, equity interest in, or claim for an
administrative expense, with a view to distribution of any security to be
received in exchange for the claim or equity interest, or (B) offers to sell
securities issued under a plan to the holders of such securities, or (C) offers
to buy securities issued under a plan from the holders of such securities, if
the offer to buy is made with a view to distribution of such securities and
under an agreement made in connection with the plan, the consummation of the
plan, or the offer or sale of securities under the plan, or (D) is an issuer of
the securities within the meaning of section 2(11) of the Securities Act.
The term "issuer" is defined in section 2(4) of the
Securities Act; however, the reference contained in section 1145(b)(l)(D) of
the Bankruptcy Code to section 2(11) of the Securities Act purports to include
as statutory underwriters all persons who, directly or
28
indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with, an issuer of securities. "Control" (as defined in
Rule 405 under the Securities Act) means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract or
otherwise. Accordingly, an officer or director of a reorganized debtor or its
successor under a Plan may be deemed to be a "control person" of such debtor or
successor, particularly if the management position or directorship is coupled
with ownership of a significant percentage of the reorganized debtor's or its
successor's voting securities. Moreover, the legislative history of section 1145
of the Bankruptcy Code suggests that a creditor who owns ten percent or more of
the securities of a reorganized debtor may be presumed to be a "control person."
To the extent that persons deemed to be "underwriters" receive
Plan Securities pursuant to the Plan, resales by such persons would not be
exempted by section 1145 of the Bankruptcy Code from registration under the
Securities Act or other applicable law. Persons deemed to be "underwriters" for
purposes of section 1145 of the Bankruptcy Code may, however, be able to sell
securities pursuant to a registration statement (see discussion of registration
rights below) or, under certain conditions described below, without registration
pursuant to the resale provisions of Rule 144 under the Securities Act or any
other exemption from registration requirements.
Pursuant to Rule 144 under the Securities Act, "affiliates" of
the issuer who resell securities which are not restricted, will be deemed not to
be engaged in a distribution of such securities and therefore not to be
"underwriters" of such securities as defined in section 2(11) of the Securities
Act, if they comply with certain conditions including, in general terms: (a) the
availability of adequate current public information with respect to the issuer,
(b) limiting the amount of securities sold within any three-month period to the
greater of one percent of the shares outstanding or the average weekly trading
volume and (c) selling the securities only through "brokers' transactions."
Pursuant to the Plan, certificates evidencing Plan Securities
received by a holder of ten percent or more of the New Common Stock and New
Preferred Stock will bear a legend substantially in the form below in the event
that the Debtors reasonably believe that such holder is an underwriter:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED
FOR SALE, OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
Any person or entity that would receive legended securities as provided above
may instead receive certificates evidencing Plan Securities without such legend
if, prior to the Effective Date, such person or entity delivers to Reorganized
Lodgian (i) an opinion of counsel reasonably satisfactory to Reorganized Lodgian
to the effect that the Plan Securities to be received by such person or entity
are not subject to the restrictions applicable to "underwriters" under section
1145
29
of the Bankruptcy Code and may be sold without registration under the Securities
Act and (ii) a certification that such person or entity is not an "underwriter"
within the meaning of section 1145 of the Bankruptcy Code.
Any holder of a certificate evidencing Plan Securities bearing
such legend may present such certificate to the transfer agent for the shares of
Reorganized Lodgian in exchange for one or more new certificates not bearing
such legend or for transfer to a new holder without such legend at such time as
(i) such shares are sold pursuant to an effective registration statement under
the Securities Act, or (ii) such holder delivers to Reorganized Lodgian an
opinion of counsel reasonably satisfactory to Reorganized Lodgian to the effect
that such shares are no longer subject to the restrictions applicable to
"underwriters" under section 1145 of the Bankruptcy Code and may be sold without
registration under the Securities Act or to the effect that such transfer is
exempt from registration under the Securities Act, in which event the
certificate issued to the transferee shall not bear such legend, unless
otherwise specified in such opinion.
2. Listing
Reorganized Lodgian will use commercially reasonable efforts
to cause the shares of New Common Stock and, in the sole discretion of the Board
of Directors of Reorganized Lodgian, New Preferred Stock to be listed on a
national securities exchange or a qualifying interdealer quotation system. The
Reorganized Debtors will have no such obligation to list or seek to have listed
or qualified the equity securities of any other Reorganized Debtor.
3. Registration Rights
The Plan provides for the execution of a registration rights
agreement, under which Reorganized Lodgian will grant registration rights to
certain holders of Plan Securities on the terms provided in such agreement. A
copy of the registration rights agreement will be part of the Plan Supplement.
4. Subsequent Transfers Under State Law
The state securities laws generally provide registration
exemptions for subsequent transfers by a bona fide owner for his or her own
account and subsequent transfers to institutional or accredited investors. Such
exemptions are generally expected to be available for subsequent transfers of
New Preferred Stock, New Common Stock and Warrants.
Any person intending to rely on these exemptions is urged to consult
his or her own counsel as to their applicability to his or her circumstances.
H. 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 or equity interests 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 or equity interests can block a restructuring that otherwise
30
meets the requirements of the Bankruptcy Code and is in the interests of the
other constituents in the case.
Each of the Debtors reserves the right to seek confirmation of
the Plan, notwithstanding the rejection of the Plan by any Class entitled to
vote. In the event that a Class votes to reject the Plan, the applicable Debtor
may request the Bankruptcy Court to rule that the Plan meets the requirements
specified in section 1129(b) of the Bankruptcy Code with respect to such Class.
The applicable Debtor will also seek such a ruling with respect to each Class
that is deemed to reject the Plan.
Additionally, the Plan Proponents reserve the right to delay
seeking confirmation of the Plan as to any Debtor(s) and proceed with
confirmation of the Plan as to other Debtor(s) in order to continue to avail
themselves of the protection of the Chapter 11 Cases in the context of a
non-consensual Plan for any of the Debtors.
III.
VOTING PROCEDURES AND REQUIREMENTS
Detailed voting instructions are provided with the ballot
accompanying this Disclosure Statement. The following Classes are the only
Classes entitled to vote to accept or reject the Plan.
CLASS DESCRIPTION
---------------------------------------------
1 Secured Claims
3 General Unsecured Claims (other than Class 3
Liquidating Subclasses)
4 Senior Subordinated Notes Claims
5 Convenience Claims
7 CRESTS Claims
10-B Third Party Owned Old Subsidiary Equity Interests in
Division B of Class 10
If your Claim or Equity Interest is not in one of these Classes, you are not
entitled to vote. If your Claim or Equity Interest is in one of these Classes,
you should read your ballot and follow the listed instructions carefully. Please
only use the ballot that accompanies this Disclosure Statement.
BALLOT INFORMATION NUMBER: (888) 697-3594
31
A. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS
The Debtors have filed a motion seeking entry of the Voting
Procedures Order to set certain procedures in connection with voting on the
Plan. If the Voting Procedures Order is approved, it will set forth the
procedures to be employed in tabulating acceptances and rejections of the Plan.
CLASS VOTE REQUIRED TO ACCEPT A PLAN
Acceptance of the Plan by a Class of Claims or Equity Interests will be
determined by calculating the number and the amount of Claims and the
amount of Equity Interests voting to accept, based only on the Claims
or Equity Interests 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. Acceptance by a Class of Equity
Interests requires an affirmative vote of two-thirds in amount of the
total Equity Interests in the Class voting. Any impaired Class that
fails to achieve the specified majority vote will be deemed to have
rejected the Plan.
B. CLASSES NOT ENTITLED TO VOTE
Under the Bankruptcy Code, holder of Claims or Equity
Interests are not entitled to vote if their contractual rights are unimpaired by
the Plan or if they will not receive any property under the Plan. Based on this
standard, the holders of Claims in Class 2 and the holders of Equity Interests
in Class 9 Lodgian Subclasses and Subclasses in Division C of Class 10 are not
being affected by the Plan and thus are not entitled to vote on the Plan. In
addition, the holders of Equity Interests in Class 8 are not entitled to receive
(but for the reallocation of value described in section II.C), and the holders
of Equity Interests in Class 9 Liquidating Subclasses and Subclasses in Division
A of Class 10 and Claims in Class 3 Liquidating Subclasses and in Class 11 will
not receive, any property under the Plan. Therefore, they are deemed to reject
the Plan and are not entitled to vote. For a summary of the Classes entitled to
vote, see the tables in sections II.B and II.D.1.
C. 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 October 28, 2002:
32
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 BALLOTING CENTER ATTN: LODGIAN 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 Plan will not be counted.
IV.
FINANCIAL INFORMATION, PROJECTIONS AND VALUATION ANALYSIS
This section provides summary information concerning the
recent financial performance of the Debtors, three-year financial projections
for the Debtors and discusses an estimated reorganization valuation for the
Debtors. Because the Plan provides for the liquidation of the Liquidating
Debtors and the orderly transfer of the ownership and on-going business
operation of the affected Hotel Properties to the applicable secured lenders (or
their designees), no such information is provided for the Liquidating Debtors.
The projections and reorganization value are based on
information available as of the date of this Disclosure Statement. The
significant assumptions underlying the projections and valuation and the basis
of their preparation are discussed below.
A. OPERATING PERFORMANCE
For a recent description of the operating performance of
Debtors on a consolidated basis, see Lodgian, Inc.'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 and June 30, 2002. Copies of these
reports will be included in the Plan Supplement and may be obtained over the
Internet at www.sec.gov or www.freeedgar.com.
33
B. THREE-YEAR PROJECTIONS OF THE REORGANIZED LODGIAN DEBTORS
IMPORTANT NOTE ON FINANCIAL PROJECTIONS
The projections included in this 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 Lodgian 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 Lodgian
Debtors' businesses and operations; the Debtors' ability to maintain
their existing franchise affiliations, to confirm the 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 Plan and for the purpose of determining whether the Plan
satisfies this feasibility standard, the Debtors developed the Projections,
including certain income statement, cash flows and balance sheet projections for
the fiscal years 2003 through 2005 (the "Projection Period") for the Reorganized
Lodgian Debtors.
Projections for the Reorganized Lodgian Debtors on a
consolidated basis, including the principal assumptions on which they are based,
are attached as Exhibit D hereto.
Based on the Projections, the Lodgian Debtors believe that the
Reorganized Lodgian Debtors will be able to make all payments required pursuant
to the Plan and, therefore, that confirmation of the 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 D.
34
C. REORGANIZATION VALUATION OF THE REORGANIZED LODGIAN DEBTORS
IMPORTANT NOTE ON ESTIMATES OF REORGANIZATION VALUE
The estimates of reorganization value discussed below are not, and do
not purport to be, appraisals or liquidation values of the Reorganized
Lodgian Debtors or their assets, or estimates of the market value that
could be realized through a sale of any Plan Securities should a market
for those securities develop.
Such estimates were developed solely for purposes of formulating and
negotiating a plan of reorganization for the Debtors and analyzing the
projected recoveries under the Plan.
The Debtors have been advised by Chilmark Partners LLC
("Chilmark") with respect to the range of estimated reorganization values of the
Reorganized Lodgian Debtors. Chilmark's valuations reflect a number of other
assumptions, including a successful reorganization in a timely manner of the
businesses and finances of the Lodgian Debtors, the continuation of the
Reorganized Lodgian Debtors as the owner and operator of their businesses and
assets from and after the Effective Date, the projections reflected in the
Projections, the amount of available cash, market conditions and the Plan
becoming effective in accordance with its terms on a basis consistent with the
estimates and other assumptions discussed herein.
1. Reorganized Lodgian Debtors
The reorganization value of the Reorganized Lodgian Debtors
discussed in this section (i) includes the operating businesses and the
estimated value of certain non-operating assets of the Reorganized Lodgian
Debtors and (ii) excludes the Hotel Properties and other assets and liabilities
of the Liquidating Debtors.
The midpoint of the total reorganization value range for the
Reorganized Lodgian Debtors was estimated by Chilmark to be approximately $615
million as of an assumed Effective Date of December 31, 2002. The midpoint of
the reorganization common equity value range, which takes into account the
estimated debt balances and the New Preferred Stock at and beyond the Effective
Date, was estimated by Chilmark to be approximately $93 million as of an assumed
Effective Date of December 31, 2002. The foregoing reorganization equity value
(ascribed as of the date of this Disclosure Statement) reflects, among other
factors discussed below, current financial market conditions and the inherent
uncertainty as to the achievement of the Projections.
Based on the assumed reorganization equity value set forth
above, the midpoint value of the 7,000,000 shares of New Common Stock to be
issued under the Plan, adjusted for the estimated value of the Warrants, is
estimated to be approximately $12.14 per share.
The Plan contemplates the distribution of Warrants to holders
of Allowed Claims in Class 7 and Allowed Equity Interests in Class 8. The
exercise price of each Warrant issued under the Plan exceeds the estimated
reorganization equity value per share, and the exercise of the Warrants requires
the payment to Reorganized Lodgian of cash in the amount of the exercise
35
price. While warrants may be valued using complex mathematical computations,
these computations are based upon highly subjective assumptions, including,
among others, the estimated trading prices of the equity securities for which
the warrants may be exercised and the projected volatility of price movements of
those equity securities. Based on an assumed trading price equal to the
estimated reorganization common equity value of $12.14 per share and an
estimated trading volatility of 40%, Chilmark computed the theoretical value of
the Warrants, using a standard computation methodology for the valuation of
warrants, to be $3.16 per A Warrant and $3.17 per B Warrant. There can be no
assurance that the New Common Stock will trade at the estimated reorganization
equity value per share, that the trading volatility of the New Common Stock will
be or will be perceived to be 40% or that the market value of an A Warrant will
be $3.16 or that the market value of a B Warrant will be $3.17. Finally, actual
trading values for warrants frequently differ materially from those values
derived from mathematical computations. Accordingly, the foregoing computation
of value cannot be relied upon as a measure of realizable value of the Warrants.
2. Valuation Methodology
In preparing the estimated reorganization value, Chilmark: (a)
reviewed certain historical financial information of Lodgian, Inc. and its
subsidiaries for recent years and interim periods; (b) reviewed certain internal
financial and operating data of Lodgian, Inc. and its subsidiaries and their
financial projections relating to their businesses and prospects; (c) met with
certain members of senior management of Lodgian, Inc. to discuss the operations
and future prospects of Lodgian, Inc. and its subsidiaries; (d) reviewed
publicly available financial data and considered the market values of public
companies that Chilmark deemed generally comparable to the operating businesses
of Lodgian, Inc.; (e) reviewed the financial terms of assets sold by Lodgian,
Inc. in recent years; (f) reviewed the financial terms, to the extent publicly
available, of certain recent acquisitions of companies that Chilmark believes
were comparable to the operating businesses of Lodgian, Inc.; (g) considered
certain economic and industry information relevant to the operating businesses
of Lodgian, Inc.; and (h) conducted such other analyses as Chilmark deemed
appropriate. Although Chilmark conducted a review and analysis of the
businesses, operating assets and liabilities and business plans of Lodgian, Inc.
and its subsidiaries, Chilmark assumed and relied on the accuracy and
completeness of all financial and other information furnished to it by the
Debtors and publicly available information. In addition, Chilmark did not
independently verify the assumptions underlying the Projections in connection
with such valuation.
The estimated reorganization value reflects work performed by
Chilmark on the basis of information in respect of the business and assets of
Lodgian, Inc. available to Chilmark as of August 30, 2002.
The estimates of reorganization value prepared by Chilmark
reflect the application of various valuation techniques, including, among
others:
(a) a comparable company analysis, in which Chilmark analyzed
the enterprise value of public companies that Chilmark deemed generally
comparable to the operating businesses of the Debtors as a multiple of
earnings before interest, taxes, depreciation and
36
amortization ("EBITDA") and then applied multiples provided by such
analysis to the EBITDA of Lodgian, Inc. and its subsidiaries;
(b) a discounted cash flow analysis, in which Chilmark, using
a weighted average cost of capital, computed the present value of free
cash flows and terminal value of Lodgian, Inc. and its subsidiaries;
and
(c) a comparable transaction analysis, in which Chilmark
analyzed the financial terms of certain acquisitions of companies and
sales of assets that Chilmark believed were comparable to the operating
businesses of the Debtors and then applied the EBITDA multiples
provided by such analysis to the EBITDA of Lodgian, Inc. and its
subsidiaries.
An estimate of reorganization value is not entirely
mathematical, but involves complex consideration and judgments concerning
various factors that could affect the value of an operating business. As a
result, the estimate of reorganization value set forth herein is not necessarily
indicative of actual outcomes, which may be significantly more or less favorable
than those set forth herein. Because such estimates are inherently subject to
uncertainties, none of the Debtors, Chilmark, the Committee nor any other person
assumes responsibility for their accuracy. Depending on the results of the
Debtors' operations or changes in the financial markets, Chilmark's valuation
analysis as of the Effective Date may differ from that disclosed herein.
In addition, the valuation of newly-issued securities is
subject to additional uncertainties and contingencies, all of which are
difficult to predict. Actual market prices of such securities at issuance will
depend upon, among other things, prevailing interest rates, conditions in the
financial markets, the anticipated initial securities holdings of pre-petition
creditors, some of which may prefer to liquidate their investment rather than
hold it on a long-term basis, and other factors that generally influence the
prices of securities. Actual market prices of such securities also may be
affected by the Debtors' history in Chapter 11, conditions affecting the
Debtors' competitors or the industry generally in which the Debtors participate
or by other factors not possible to predict. Accordingly, the reorganization
value estimated by Chilmark does not necessarily reflect, and should not be
construed as reflecting, values that will be attained in the public or private
markets. The equity value ascribed in Chilmark's analysis does not purport to be
an estimate of the post-reorganization market trading value. Such trading value
may be materially different from the reorganization equity value ranges
associated with Chilmark's valuation analysis. Indeed, there can be no assurance
that a trading market will develop for the New Common Stock. See section
VIII.B.3, "Risk Factors - Risks Relating to the Plan Securities - Lack of
Trading Market."
Furthermore, in the event that the actual Allowed Claims and
the actual distributions to holders of Allowed Claims in Class 3 differ from
those assumed by the Debtors in their recovery analysis, the actual recoveries
realized by holders of Allowed Claims in Class 3 could be significantly higher
or lower than estimated by the Debtors.
37
V.
BUSINESS DESCRIPTION AND REASONS FOR CHAPTER 11
A. HISTORICAL BACKGROUND
The following is a discussion of pertinent events that have
occurred during the Chapter 11 Cases in connection with the overall
restructuring of each Debtor's financial obligations. Where relevant, the
following discussion addresses pertinent events prior to the commencement of the
Chapter 11 Cases.
1. Commencement of Cases
On December 20, 2001, Lodgian, Inc. and seventy-seven of its
subsidiaries commenced their cases under chapter 11 of the Bankruptcy Code in
the Bankruptcy Court. The following four Debtors commenced their Chapter 11
Cases on December 21, 2001: Worcester Hospitality, L.P., Lodgian Hotels, Inc.,
Brecksville Hospitality, L.P. and Sioux City Hospitality, L.P. On April 17,
2002, an affiliate of the Debtors, New Orleans Airport Motel Associates, L.P.,
filed its voluntary case under chapter 11 of the Bankruptcy Code. The Chapter 11
Cases are being jointly administered for procedural purposes only.
2. Employment of the Debtors' Professionals
On the Commencement Date, the Debtors filed applications to
retain each of Cadwalader, Wickersham & Taft ("CW&T") and Curtis,
Mallet-Prevost, Colt & Mosle LLP ("CM-P") as co-attorneys for the Debtors;
Chilmark Partners LLC ("Chilmark") as investment bankers to the Debtors; Richard
Cartoon LLC ("Cartoon") as Chief Financial Officer to the Debtors; and PKF
Consulting ("PKF") as real estate and business appraisers to the Debtors.
Applications to retain PricewaterhouseCoopers LLP ("PWC") as accountants and tax
advisors to the Debtors and Arthur Andersen, LLP ("Arthur Andersen") as
accountants and auditors to the Debtors were filed on January 15, 2002 and
January 31, 2002, respectively. On December 21, 2001, the Bankruptcy Court
approved the retention of CW&T, CM-P, PKF, Chilmark and Cartoon on an interim
basis. By final Orders dated March 13, 2002, the Bankruptcy Court approved the
retention of CW&T, CM-P, PKF and Cartoon. By a final Order dated April 15, 2002,
the Bankruptcy Court approved the retention of Chilmark. By final Orders of the
Bankruptcy Court dated March 13, 2002, Arthur Andersen and PWC were retained
effective as of the Commencement Date. The Debtors intend to file a motion with
the Bankruptcy Court seeking to replace Arthur Anderson with Deloitte & Touche
("D&T") as the Debtors' accountants. By motion filed on August 21, 2002, the
Debtors are seeking authorization to pay Chilmark, upon consummation of the
Plan, the restructuring fee provided under Chilmark's retention agreement.
3. Formation of the Committee
On January 8, 2002, the United States Trustee for the Southern
District of New York appointed the Committee. The Committee currently consists
of the following seven members: (i) Northeast Investors Trust, (ii) BRE/HY
Funding, L.L.C., (iii) OCM Real Estate Opportunities Fund II, L.P., (iv) Bankers
Trust Company, (v) Third Avenue Funds, (vi) U.S.
38
Foodservice, Inc. and (vii) Hospitality Restoration Builders. By Order of the
Bankruptcy Court dated March 7, 2002, the Committee retained Debevoise &
Plimpton as its attorneys. On August 21, 2002, the Committee filed an
application seeking an interim order to retain Evercore Partners L.P.
("Evercore") as its financial advisors. By motion filed on that same date, the
Debtors are seeking authorization to pay Evercore, upon consummation of the Plan
and subject to entry of a final Order approving Evercore's retention, the
restructuring fee provided under Evercore's retention agreement. By Order dated
September 9, 2002, the Bankruptcy Court approved the retention of Evercore on an
interim basis.
4. Debtors' Businesses and Management
The Debtors are one of the largest owners and operators of
both full and limited-service hotels in the United States with 88 hotels under
the Debtors' ownership or management, containing approximately 17,500 rooms
located in 28 states and one hotel in Windsor, Canada. The CCA Debtors own 18
hotels, containing approximately 2,500 rooms located in 12 states. The Debtors'
hotels include 73 wholly-owned hotels and four hotels in which they have a 50%
or greater equity interest. The CCA Debtors' hotels are wholly-owned by the CCA
Debtors. In addition, the Debtors manage one hotel in which they own less than a
50% equity interest. The Debtors' hotels are primarily full-service properties
which offer food and beverage services, meeting space and banquet facilities and
compete in the mid-price and upscale segments of the lodging industry.
Substantially all of the Debtors' hotels are affiliated with nationally
recognized hospitality franchises. The Debtors own 58 hotels under franchise
agreements with Six Continents, which includes the Holiday Inn, Holiday Inn
Express and Crowne Plaza brands; nine hotels under franchise agreements with
Marriott International, Inc. ("Marriott"), which includes the Courtyard by
Marriott and Fairfield Inn brands; and seven hotels under franchise agreements
with Hilton, which includes the Hampton Inn and Doubletree brands. The remaining
franchise hotels are operated under franchise agreements with Radisson, Starwood
and Choice. The CCA Debtors own ten hotels under franchise agreements with Six
Continents; seven under franchise agreements with Marriott and one independent.
Lodgian, Inc. was formed in December 1998 through the merger
of Servico, Inc. and Impac Hotel Group, L.L.C. Prior to the merger, both
companies had portfolios consisting of full-and limited-service properties.(3)
The Debtors are a sizable lodging company and for the year
ended December 31, 2001, they generated revenues of approximately $395.6 million
and an operating profit of approximately $11.6 million (before interest expense
of $67.9 million and an impairment charge of $19.1 million) and, on a
consolidated basis with the CCA Debtors, $448 million and an operating profit of
approximately $16 million (before interest expense of $75 million and an
impairment charge of $67 million).
The hotel business is highly competitive. The Debtors compete
with other facilities on various bases, including room price, quality, service,
location and amenities customarily offered to the traveling public. The demand
for accommodations and the resulting
- -------------------------------
3 In September 1990, Servico filed for chapter 11 protection in the
United States Bankruptcy Court for the Southern District of Florida. In
August 1992, Servico emerged from the reorganization proceedings as
Servico, Inc., a Florida corporation.
39
cash flow vary seasonally. The off-season tends to be the winter months for
properties located in colder weather climates and the summer months for
properties located in warmer weather climates. Levels of demand are dependent
upon many factors, including general and local economic conditions and changes
in levels of tourism and business-related travel. The Debtors' hotels depend
upon both commercial and tourist travelers for revenues, and generally, the
Debtors' hotels operate in areas that contain numerous other competitive lodging
facilities.
An important feature of the Debtors is that the management of
all 106 properties is closely coordinated and integrated. Like any other
national scale business, the Debtors do not operate as independent and
individualized hotels. Instead, the Debtors operate on a centralized basis,
thereby enabling the Debtors to achieve numerous operating efficiencies,
including: (i) national vendor contracts with food companies, telecommunications
companies and software companies; and (ii) centralized management of hotel
operations, consisting of human resources, payroll, federal and state taxes,
general ledger accounting and bank reconciliations, accounts payable processing
and payment, operation of an integrated computer system, planning, negotiation
and execution of capital expenditures and maintaining franchisor relationships.
As an important part of operating all of the individual hotels, the Debtors have
been able to negotiate preferential terms and treatment for their properties as
a result of their consolidated buying power.
5. Debtors' Debt Structure
Prior to the Commencement Date, the Debtors financed their
growth and development through a variety of means, principally including
entering into the Mortgage Financings and issuing the Senior Subordinated Notes
and the CRESTS.
(a) Mortgage Financings
The Debtors estimate that approximately $381.1 million in
aggregate principal amount and unpaid interest was outstanding under their
Mortgage Financings, and $108.8 million under the CCA Debtors' Mortgage
Financings, as of the Commencement Date. The Mortgage Financings of the Debtors
and the CCA Debtors are described below. In each case, the Mortgage Financings
are principally secured by mortgages (including, as applicable, leasehold
mortgages) on the Hotel Properties identified below. In addition, in many cases,
the Mortgage Financings are secured by additional collateral including, among
other things, personal property located on the Hotel Property premises and
certain monies and accounts.
(i) Loans from Morgan Stanley Senior Funding, Inc.
("MSSF")
Approximately $196.0 million was outstanding on the
Commencement Date under loan agreements entered into on or about July 23, 1999
between MSSF as agent for a group of lenders and Lodgian Financing Corp. as
borrower. Such loans are guaranteed by Lodgian, Inc., Impac Hotel Group, L.L.C.,
Servico, Inc., Impac Hotels I, L.L.C. and certain other affiliates of the
borrower. The Hotel Properties securing the MSSF Mortgage Financing are:
40
Holiday Inn - Sheffield, AL Holiday Inn - Dothan, AL
Hampton Inn - Dothan, AL Holiday Inn Express - Gadsden, AL
Courtyard by Marriott - Bentonville, AR Residence Inn - Little Rock, AR
Holiday Inn - East Hartford, CT Crowne Plaza - West Palm Beach, FL
Holiday Inn Express - Pensacola, FL Holiday Inn - University Mall, FL
Holiday Inn - Winter Haven, FL Hampton Inn - Pensacola, FL
Holiday Inn - Brunswick, GA Courtyard by Marriott - Atlanta, GA
Holiday Inn Hotel & Suites - Marietta, GA Fairfield Inn - Valdosta, GA
Holiday Inn - Rolling Meadows, IL Quality Hotel - Metairie, LA
Hilton Inn - Columbia, MD Holiday Inn - Silver Spring, MD
Holiday Inn - Frederick, MD Holiday Inn - Cromwell Bridge, MD
Holiday Inn - Belmont, MD Crowne Plaza - Cedar Rapids, IA
Holiday Inn Arden Hills - St. Paul, MN Courtyard by Marriott - Paducah, KY
Courtyard by Marriott - Florence, KY Hurstbourne Hotel - Louisville, KY
Holiday Inn - St. Louis North, MO Crowne Plaza - Albany, NY
Holiday Inn Select - Niagara Falls, NY Four Points Niagara Falls, NY
Holiday Inn - Grand Island, NJ Holiday Inn - Select Strongsville, OH
Holiday Inn - Greentree, PA Holiday Inn - Parkway East, PA
Doubletree Club - Philadelphia, PA Holiday Inn - York, PA
Hilton Inn - Northfield, MI Clarion - Charleston, SC
Holiday Inn Sunspree - Myrtle Beach, SC French Quarter Suites - Memphis, TN
Crowne Plaza - Houston, TX Courtyard by Marriott - Abilene, TX
Holiday Inn - Austin, TX Holiday Inn Market Center - Dallas, TX
Holiday Inn Select - DFW Airport, TX Holiday Inn Select - Windsor, Ontario
Holiday Inn - Valdosta, GA Holiday Inn - Jamestown, NY
(ii) Loans from Capital Corporation of America LLC ("CCA")
Approximately $108.8 million was outstanding on the
Commencement Date under loan agreements entered into on or about August 31, 2000
between CCA as lender and Impac Hotels II, L.L.C. and Impac Hotels III, L.L.C.
as borrowers. Up to $10.2 million of this loan is guaranteed on a limited basis
by Impac Hotel Group, L.L.C. and Lodgian, Inc. (the "CCA Guarantee"). See
section V.A.9. The Hotel Properties purported to secure the CCA Mortgage
Financing are:
41
Holiday Inn - Cincinnati, OH Mayfair House - Miami, FL
Holiday Inn - Fort Mitchell, KY Marriott Denver Airport - Denver CO
Holiday Inn - Sycamore View, Memphis, TN Holiday Inn - Clarksburg, WV
Holiday Inn - Morgantown, WV Fairfield Inn - Augusta, GA
Holiday Inn - Fairmont, WV Courtyard by Marriott - Lafayette, LA
Holiday Inn - Florence, KY Fairfield Inn - Merrimack, NH
Holiday Inn - Farrell Road, Syracuse, NY Courtyard by Marriott - Tulsa, OK
Holiday Inn - Miami, FL Fairfield Inn - Jackson, TN
Holiday Inn - Hamburg, NY Fairfield Inn - Colchester, VT
(iii) Loans from Banc One Capital Funding
Corporation/RockBridge Capital, Inc.
("BO/RockBridge")
Approximately $54.8 million was outstanding on the
Commencement Date under cross-collateralized loan agreements entered into on or
about December 8, 1998 between Nationwide Life Insurance Company as lender and
Lodgian AMI, Inc. as borrower. Such loans are guaranteed by Penmoco, Inc. and
Island Motel Enterprises, Inc. and, on a limited basis, by Lodgian, Inc. The
Hotel Properties securing the BO/RockBridge Mortgage Financing are:
Holiday Inn - Lancaster, PA Holiday Inn - Jekyll Island, GA
Holiday Inn - Glen Burnie North, MD Holiday Inn - BWI Airport, MD
Holiday Inn - Inner Harbor
(iv) Cities of Manhattan and Lawrence, Kansas Commercial
Development Revenue Refunding Bonds/Chase ("Chase")
Approximately $11.7 million was outstanding on the
Commencement Date under promissory notes issued in connection with the Mortgage
Financings entered into on or about January 1, 1997 among Chase, the City of
Manhattan, Kansas, the City of Lawrence, Kansas, Lawrence Hospitality
Associates, L.P. and Manhattan Hospitality Associates, L.P. The "reserve funds"
to pay the principal and interest on the promissory notes are guaranteed by
Servico, Inc. on a limited basis and in a limited amount. The Hotel Properties
securing the Lawrence/Chase Mortgage Financing are:
Holiday Inn - Lawrence, KS Holiday Inn - Manhattan, KS
(v) Loans from Lehman Brothers Holdings, Inc./Criimi Mae
("Lehman/Criimi Mae")
Approximately $24.0 million was outstanding in the aggregate
on the Commencement Date under cross-collateralized loan agreements entered into
on or about April 11, 1997 and June 30, 1997 between Lehman Brothers Holdings,
Inc. as lender, and Melbourne Hospitality Associates, L.P., Fort Wayne
Hospitality Associates II, L.P., Servico Frisco, Inc., Worcester Hospitality,
L.P. and Apico Inns of Pittsburgh, Inc. as borrowers. Such loans are guaranteed
on a limited basis by Servico, Inc. The Hotel Properties securing the
Lehman/Criimi Mae Mortgage Financing are:
42
Holiday Inn - Fort Wayne, IN Holiday Inn - Monroeville, PA
Crowne Plaza - Worcester, MA Holiday Inn - Melbourne, FL
Holiday Inn - Frisco, CO
(vi) Loans from Banc One ("BO")
Approximately $6.0 million was outstanding on the Commencement
Date under loan agreements entered into on or about April 26, 1999 between
Nationwide Insurance Company as lender and Dedham Lodging Associates I, L.P.
Such loans are guaranteed on a limited basis by Lodgian, Inc. The Hotel Property
securing the Banc One Mortgage Financing is Residence Inn - Dedham, MA.
(vii) Loans from First Union Bank of North Carolina ("First
Union")
Approximately $3.4 million was outstanding on the Commencement
Date under loan agreements entered into on or about March 18, 1997 between First
Union as lender and Atlanta-Boston Lodging L.L.C. as borrower. Such loans are
guaranteed by Impac Hotel Group, L.L.C. The Hotel Property securing the First
Union Mortgage Financing is Courtyard by Marriott - Boston/Revere, MA.
(viii) Loans from GMAC Commercial Mortgage Corporation and
Orix Corp. ("GMAC-Orix")
Approximately $27.1 million was outstanding in the aggregate
on the Commencement Date under cross-collateralized loan agreements entered into
on or about January 17, 1996 and July 18, 1996 between GMAC Commercial Mortgage
Corporation as lender, and Servico Council Bluffs, Inc., Servico West Des
Moines, Inc., Servico Omaha, Inc., Servico Omaha Central, Inc., Servico Wichita,
Inc., Brecksville Hospitality, L.P., Sioux City Hospitality, L.P. and 1075
Hospitality, L.P. as borrowers. Such loans are guaranteed on a limited basis by
Servico, Inc. The Hotel Properties securing the GMAC/Orix Mortgage Financings
are:
Clarion - West Des Moines, IA Clarion - Omaha, NE
Quality - Council Bluffs, IA Clarion Central - Omaha, NE
Holiday Inn - Wichita Airport, KS Hilton Hotel - Sioux City, IA
Holiday Inn - Richfield, OH Holiday Inn - Augusta, GA
(ix) Loans from GMAC Commercial Mortgage Corporation
("GMAC")
Approximately $5.3 million was outstanding on the Commencement
Date under loan agreements entered into on or about May 9, 1996 between GMAC as
lender and Servico Lansing, Inc. as borrower. Such loans are guaranteed by
Servico, Inc. on a limited basis. The Hotel Property securing the GMAC Mortgage
Financing is Holiday Inn - West Lansing, MI.
43
(x) Loans from DLJ/Column Financial, Inc. and Criimi Mae
("DLJ/Column/Criimi Mae")
Approximately $29.8 million was outstanding in the aggregate
on the Commencement Date under cross-collateralized loan agreements entered into
on or about January 31, 1995 between Column Financial, Inc. ("Column") as
lender, and Hilton Head Motel Enterprises, Inc., Servico Hotels I, Inc., Servico
Hotels II, Inc., Moon Airport Motel, Inc., Servico Fort Wayne, Inc., Washington
Motel Enterprises, Inc., Servico Hotels III, Inc., Servico Hotels IV, Inc. and
New Orleans Airport Motel Associates, L.P. as borrowers. The Hotel Properties
securing the DLJ/Column/Criimi Mae Mortgage Financing are:
Holiday Inn - Phoenix, AZ Holiday Inn - Santa Fe, NM
Radisson - Phoenix, AZ Crowne Plaza - Pittsburgh, PA
Holiday Inn Express - Palm Desert, CA Holiday Inn Meadowlands - Washington, PA
Fort Wayne Hilton - Fort Wayne, IN Holiday Inn - Hilton Head, SC
New Orleans Airport Hotel & Conference Center, LA
(xi) Loans from DLJ/Column Financial, Inc. ("DLJ/Column")
Approximately $9.4 million was outstanding on the Commencement
Date under loan agreements entered into on or about June 29, 1995 between Column
as lender and East Washington Hospitality Limited Partnership as borrower. The
Hotel Property securing the DLJ/Column Mortgage Financing is Holiday Inn Airport
East - Phoenix, AZ.
(xii) Loans from Roundabout Partners ("Roundabout")
Approximately $1.9 million was outstanding on the Commencement
Date under lease agreements between Roundabout as lender and Raleigh-Downtown
Enterprises, Inc. as borrower. The Hotel Property securing the Roundabout
Mortgage Financing is Clarion Downtown - Raleigh, NC.
(xiii) Loans from Column Financial, Inc./Criimi Mae
("Column/Criimi Mae")
Approximately $3.4 million was outstanding on the Commencement
Date under loan agreements entered into on or about January 31, 1995 between
Column as lender and McKnight Motel, Inc. as borrower. The Hotel Property
securing the Column/Criimi Mae Mortgage Financing is Holiday Inn - McKnight
Road, PA.
(xiv) Loans from DDL Kinser Partners LLC ("DDL Kinser")
Approximately $2.5 million was outstanding on the Commencement
Date under loan agreements entered into on or about December 29, 1986 between
Westinghouse Credit Corporation as lender and Kinser Motel Enterprises as
borrower, as modified on May 7, 1992 by
44
order confirming Servico Inc.'s Plan of Reorganization and ultimately assigned
to DDL Kinser. The Hotel Property securing the DDL Kinser Mortgage Financing is
in Bloomington, Indiana.
(xv) Loans from Wells Fargo Bank Minnesota National
Association ("Wells Fargo")
Approximately $5.8 million was outstanding on the Commencement
Date under loan agreements dated as of December 22, 1997 between Wells Fargo
(known as and successor by merger to Norwest Bank Minnesota, National
Association) as lender and Columbus Hospitality Associates, L.P. (of which 70%
of the limited partnership interests are owned by a third party) as borrower.
The Hotel Property securing the Wells Fargo Mortgage Financing is Holiday Inn -
Columbus, OH.
(b) Senior Subordinated Notes
The Debtors are indebted on the Senior Subordinated Notes,
which were issued on or about July 23, 1999 by Lodgian Financing Corp. and
guaranteed by Lodgian, Inc. and 36 Guarantor Debtors together with nine
non-debtor subsidiaries of the Debtors. On the Commencement Date, an aggregate
$200,000,000 principal amount of Senior Subordinate Notes were outstanding with
an annualized interest expense of $24.5 million. The Guarantor Debtors are:
Albany Hotel, Inc. AMI Operating Partners, LP
Apico Hills, Inc. Apico Inns of Green Tree, Inc.
Atlanta-Hillsboro Lodging, LLC Brunswick Motel Enterprises, Inc.
Dothan Hospitality 3053, Inc. Dothan Hospitality 3071, Inc.
Gadsden Hospitality, Inc. Impac Hotels I, L.L.C.
Little Rock Lodging Associates, Limited Lodgian Mount Laurel, Inc.
Partnership
Lodgian Ontario, Inc. Lodgian Richmond, LLC.
Minneapolis Motel Enterprises, Inc. NH Motel Enterprises, Inc.
Servico Austin, Inc. Servico Cedar Rapids, Inc.
Servico Centre Associates, Ltd. Servico Columbia, Inc.
Servico Grand Island, Inc. Servico Houston, Inc.
Servico Jamestown, Inc. Servico Market Center, Inc.
Servico Maryland, Inc. Servico Metairie, Inc.
Servico New York, Inc. Servico Niagara Falls, Inc.
Servico Northwoods, Inc. Servico Pensacola 7200, Inc.
Servico Pensacola 7330, Inc. Servico Rolling Meadows, Inc.
Servico Windsor, Inc. Servico Winter Haven, Inc.
Sheffield Motel Enterprises, Inc.
45
Third party holders of 50% of the limited partnership
interests in Servico Centre Associates, Ltd. have asserted that Servico Centre
Associates, Ltd.'s guarantee of the Senior Subordinated Notes was not properly
authorized and is, therefore, unenforceable. The Debtors are investigating the
authorization of the guarantee, but believe that under applicable law, the lack
of proper authorization would not affect the enforceability of the guarantee.
(c) CRESTS
In June of 1998, LCT I issued 3,500,000 CRESTS with an
aggregate liquidation amount of $175,000,000, plus accrued interest. LCT I used
the proceeds of the CRESTS to purchase the CRESTS Junior Convertible Debentures.
Lodgian, Inc. is the holder of LCT I's common securities and has guaranteed
payments of distributions on the CRESTS and payments on liquidation of LCT I or
the redemption of the CRESTS, to the extent that LCT I has available funds
therefor and fails to make such payments. On the Commencement Date, the
liquidation amount plus accumulated distributions on the CRESTS was
approximately $197,218,000 and an equal amount was due in respect of the CRESTS
Junior Subordinated Debentures. The CRESTS are convertible into shares of Old
Lodgian Common Stock and are redeemable upon the repayment of the CRESTS Junior
Subordinated Debentures on June 30, 2010.
6. Events Leading up to the Chapter 11 Cases and the
Need to Reorganize.
The Debtors' chapter 11 filings were precipitated by the
weaker U.S. economy, the decline in travel since the events of September 11,
2001 and the Debtors' heavy debt load.
The 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 64.7% occupancy to 59.9% occupancy for the twelve months
ended December 31, 2000 and December 31, 2001, respectively, and average daily
rates declined by approximately 2% during this same period.
The events of September 11, 2001 and the weakened U.S. economy
have exacerbated the pressure on each of the Debtors' revenues because of a
virtual standstill in travel demand. Although travel and occupancy usage has
increased in the months following September 11, each of the Debtors expects the
negative impact on travel to continue for the foreseeable future.
As of December 31, 2001, the Debtors' books and records (on a
consolidated basis) reflected assets totaling approximately $975 million (at
book value) and liabilities totaling approximately $982 million.
In the months preceding the filing of the Chapter 11 Cases,
certain of the Debtors began discussions with certain of their secured lenders,
as well as with an Ad Hoc Committee of holders of the Senior Subordinated Notes
to review the respective Debtors' financial condition and outline possible
restructuring alternatives. However, the combination of the general
46
economic decline, as well as the low season of each of the Debtors' business
cycle, left the respective Debtors without sufficient immediate liquidity to
service their debt on the Commencement Date in accordance with its terms and,
thus, without sufficient time to continue their pre-petition negotiations.
7. Debtors' Debtor-In-Possession Financing and Use of Cash
Collateral
As noted above, as of the Commencement Date, the Debtors had
executed more than 100 hotel mortgages under the Mortgage Financings in favor of
more than 15 separate lenders or lender groups.
On December 20, 2001, the Debtors sought authorization from
the Bankruptcy Court to use "cash collateral" (as such term is defined in
section 363(a) of the Bankruptcy Code) to sustain each of the Debtors' business
operations. In addition, to supplement the liquidity that each of the Debtors
anticipated would be provided through their use of cash collateral, the
respective Debtors sought approval of a post-petition financing facility (the
"DIP Financing Facility"). The DIP Financing Facility provides for financing by
the DIP Lenders in the amount of up to $25 million.
Each of the Debtors required the DIP Financing Facility in
order to, among other things, have sufficient liquidity to meet their
post-petition obligations. Because of seasonal variations in cash flow from
their hotel properties, each of the Debtors anticipated that it would need
financing in order to meet its day to day working capital needs and to fund
certain capital expenditures.
On December 20, 2001, the Bankruptcy Court entered interim
Orders (i) approving the DIP Financing Facility on an interim basis; (ii)
authorizing the Debtors to obtain post-petition financing in an aggregate amount
not to exceed $10 million; (iii) granting adequate protection; and (iv)
authorizing the use of cash collateral in accordance with certain terms and
conditions regarding such use, pending a final hearing on the DIP motion.
On February 14, 2002, the Bankruptcy Court entered final
Orders authorizing and approving the DIP Financing Facility, and continuing the
respective Debtors' authorization to use cash collateral upon substantially the
same terms as those contained in the interim Order, on a permanent basis. In
addition, on February 14, 2002, the Bankruptcy Court approved three different
stipulations between the respective Debtors and certain lenders, limiting the
respective Debtors' use of the respective lenders' cash collateral to the terms
and conditions delineated in each of such stipulations.(4)
As of the date of this Disclosure Statement, $24.05 million of
the $25 million DIP Financing remains available for the respective Debtors' use.
The respective Debtors expended $950,000 of the DIP Financing to establish
letters of credit to meet the needs of the largest vendor of each of the
Debtors.
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4 The Debtors have entered into cash collateral stipulations with each of
the following secured lenders: CCA, Criimi Mae Services L.P. as Special
Servicer, JPMorgan Chase Bank as successor Indenture Trustee and Lennar
Partners, Inc. as Special Servicer. Each of the cash collateral
stipulations between the applicable Debtors and their secured lenders
are on file with the Bankruptcy Court and available electronically
through the Bankruptcy Court's website: www.nysb.uscourts.gov.
47
8. Continuation of Business After the Commencement Date
Since the Commencement Date, the Debtors have continued to
operate their businesses in the ordinary course as debtors-in-possession under
sections 1107 and 1108 of the Bankruptcy Code. As described in greater detail
below, a variety of steps have been taken to strengthen and enhance the value of
the Debtors' businesses during these cases.
Both before and after the Commencement Date, the Debtors have
taken action to stabilize operations. The Debtors' management is actively and
regularly reaching out to its vendors to assure them that these cases will not
affect the Debtors' ability to operate and honor trade terms on a going-forward
basis. At the same time, management has addressed and will continue to address
the many emergencies and other matters which are incidental to the commencement
of complex Chapter 11 cases, including responding to a multitude of inquiries by
employees, unsecured creditors, the Committee and its professionals, holders of
Secured Claims and their professionals, and others.
In addition, the Debtors have moved quickly to ensure
liquidity during the pendency of these cases by seeking authorization from the
court to use cash collateral and by obtaining the DIP Financing Facility as
described above. The Debtors believe that establishing the DIP Financing
Facility has been and will be viewed by third parties as a means of providing
stability and improving cash flow and enhancing the long term competitiveness of
the Debtors. In addition, post-petition financing has enabled the Debtors to
increase their available financial resources and engender confidence in their
vendors such that the Debtors were and are able to purchase goods and services
on normal trade terms.
9. Disputes with CCA
Since the commencement of the Chapter 11 cases, the Debtors
have been negotiating with CCA a consensual treatment of its Claims. CCA had
disputed the amount of its Allowed Secured Claim and the related CCA Guarantee
Claims. In addition, CCA had challenged allocation to the CCA Debtors of
responsibility for costs of the Chapter 11 cases and the ability of the Debtors
to use CCA's cash collateral to satisfy these expenses as they relate to and
benefited the estates of the CCA Debtors. At the Debtors' request, the parties
are currently in court mandated mediation.
On September 24, 2002, as a result of the mediation, the
parties reached an agreement in principle for the consensual resolution of CCA's
claims against the CCA Debtors and CCA's Guarantee Claims against certain of the
Debtors (the "Settlement"). The Debtors, the CCA Debtors and CCA are presently
documenting the Settlement, which will be subject to court approval. The
Settlement provides, inter alia, for the removal of the CCA Debtors from the
Plan. The CCA Debtors shall proceed separately with respect to their Hotel
Properties in their chapter 11 cases, which are contemplated to continue after
the Effective Date of the Debtors' Plan. The Debtors, the CCA Debtors and the
Committee believe that the proposed Settlement is in the best interests of the
CCA Debtors' estates. In the event that the Settlement with the Debtors and the
CCA Debtors were not approved, CCA would likely assert its claims under the CCA
Guarantee against the Debtors which, if allowed, would dilute the distribution
to the Debtors' General Unsecured Creditors under the Plan. See Section
V.A.5(a)(ii).
48
B. FILING OF SCHEDULES/BAR DATE FOR FILING PROOFS OF CLAIM AND EQUITY
INTERESTS
On March 5, 2002, each of the Debtors filed their Statement of
Financial Affairs and Schedules of Assets and Liabilities (collectively, as
amended, the "Schedules"). Certain of the Schedules were amended on April 5,
2002. The Debtors reserve their rights to further amend the Schedules as may be
necessary. The Schedules with respect to New Orleans Airport Motel Associates,
L.P. were filed on May 2, 2002. Each of the Debtors' Schedules are available on
the Bankruptcy Court's website: www.nysb.uscourts.gov.
In accordance with the Local Bankruptcy Rules, June 3, 2002
was fixed as the Bar Date, the last date and time upon which proofs of claim or
equity interest could be filed against the Debtors' estates. On or about April
4, 2002, Poorman-Douglas Corporation, the Debtors' Bankruptcy Court appointed
claims agent, mailed a notice of entry of the order establishing the Bar Date to
all creditors listed on the creditor matrix for each of the Debtors filed with
the Bankruptcy Court. The notice included the Bar Date, a proof of claim form,
and instructions for completing such form as well as notice of the meeting of
creditors in connection with section 341 of the Bankruptcy Code. Pursuant to
Bankruptcy Rule 3003(c)(2), any creditor: (a) whose Claim (i) was not scheduled
by the Debtors or (ii) was scheduled as disputed, contingent or unliquidated,
and (b) who failed to file a proof of claim on or before the Bar Date, will not
be treated as a creditor with respect to that Claim for purposes of voting on
the Plan or receiving a distribution under the Plan. The Debtors received
approximately 4,299 proofs of claim as of the Bar Date.
VI.
GOVERNANCE OF THE REORGANIZED DEBTORS
A. BOARDS OF DIRECTORS OF THE REORGANIZED DEBTORS
The Board of Directors of Reorganized Lodgian shall consist
initially of nine members, of whom eight (including three independent directors)
will be designated by the Committee and one will be the Chief Executive Officer
of the Reorganized Debtors.
B. SENIOR MANAGEMENT OF THE REORGANIZED DEBTORS
The officers of the Reorganized Debtors immediately before the
Effective Date, including David Hawthorne, Chief Executive Officer of Lodgian,
Inc., shall continue to serve immediately after the Effective Date in their
respective capacities. The Debtors have assumed Mr. Hawthorne's employment
agreement by Order of the Bankruptcy Court dated April 17, 2002. Mr. Hawthorne
will continue to be employed under the terms of that agreement as it may be
amended in connection with the consummation of the Plan.
On September 5, 2002, the Debtors filed a motion with the
Bankruptcy Court seeking authorization to pay emergence bonuses on the Effective
Date to certain members of the Debtors' senior management.
49
C. LIQUIDATING DEBTORS
As discussed above, the Plan is a chapter 11 Plan of
Liquidation for the Liquidating Debtors. Upon the distribution of all assets of
the Liquidating Debtors' Estates pursuant to the Plan and the filing by or on
behalf of the Liquidating Debtors of a certification to that effect with the
Bankruptcy Court, the Liquidating Debtors shall be deemed dissolved for all
purposes without the necessity for any other or further actions to be taken by
or on behalf of each of the Liquidating Debtors or payments to be made in
connection therewith; provided, however, that Liquidating Debtors may (but shall
not be required to) file with the Office of the Secretary of State for the
applicable State a certificate of dissolution. From and after the Effective
Date, the Liquidating Debtors shall not be required to file any document, or
take any other action, to withdraw their business operation from any states in
which the Liquidating Debtors previously conducted their business operations.
From and after the Confirmation Date, the Liquidating Debtors
shall continue in existence (and shall consult with the Committee as
specifically provided for in the Plan) for the purpose of (i) winding up their
affairs as expeditiously as reasonably possible, (ii) liquidating, by conversion
to Cash or other methods, any remaining assets of their Estates, as
expeditiously as reasonably possible, (iii) enforcing and prosecuting claims,
interests, rights and privileges of the Liquidating Debtors, including, without
limitation, the prosecution of avoidance actions in conjunction with the
marshalling of the Liquidating Debtors' assets, as agreed upon by the Plan
Proponents (iv) resolving Disputed Claims, (v) administering the Plan, and (vi)
filing appropriate tax returns.
From and after the Confirmation Date, and subject to the
Effective Date, the then current officers of each of the Liquidating Debtors
shall continue to serve in their respective capacities through the earlier of
the date such Liquidating Debtor is dissolved in accordance with the Plan and
the date such officer resigns, is replaced or is terminated.
VII.
OTHER ASPECTS OF THE PLAN
A. EXIT FINANCING FACILITY - CONDITION PRECEDENT TO THE EFFECTIVE DATE
By Order dated August 8, 2002, the Bankruptcy Court authorized
the Debtors to perform their obligations under a Commitment Letter with Merrill
Lynch Mortgage Capital Inc. ("MLMC"), which provides for a $286.2 million loan
from MLMC and/or affiliates (the "Exit Financing Facility"), secured by the MSSF
Hotel Properties, the BO Hotel Property and the BO/Rockbridge Hotel Properties.
A copy of the Commitment Letter, including a Summary of the Principal Terms of
the Exit Financing Facility, is attached as Exhibit E. Of the amounts available
under the Exit Financing Facility, $256.6 million will be used to refinance the
Mortgage Financings under the MSSF Agreements, the BO Agreements and the
BO/Rockbridge Agreements, with the $29.6 million balance available to fund other
required payments at consummation of the Plan and for general corporate
purposes, including on-going capital expenditures of the Reorganized Lodgian
Debtors.(5)
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B. DISTRIBUTIONS UNDER THE 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 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, Inc. will contribute the Plan Securities to be
distributed under the Plan to each other Debtor as a capital contribution to
allow such Debtor to discharge the Claims against it. Lodgian, Inc. will act as
Disbursing Agent, on behalf of itself and each other Debtor, with respect to the
Plan Securities to be distributed under this Plan.
All distributions under the Plan (other than distribution of
Plan Securities) shall be made by the applicable Reorganized Debtor as
Disbursing Agent (or such other entity designated by the Reorganized Debtor as a
Disbursing Agent on or after the Effective Date).
2. Timing and Conditions of Distributions
(a) Date of Distribution
Except as otherwise provided for in the Plan, distribution on
account of Allowed Claims and Equity Interests will be made on or as soon as
practicable after the later of the Effective Date and the date an order allowing
a Disputed Claim or Equity Interest becomes a Final Order. Disputed Claims and
Equity Interests will be treated as set forth below.
(b) Surrender of Certain Securities Necessary for
Distribution
Plans of reorganization generally require a holder of an
instrument or security of a debtor to surrender such instrument or security
prior to receiving a new instrument or security in exchange therefor under a
plan. This rule avoids disputes regarding who is the proper recipient of
instruments or securities under a plan.
As a condition to participating in the distributions under the
Plan, a holder of a certificated instrument or note must surrender such
instrument or note prior to the first anniversary of the Effective Date or
provide the Disbursing Agent with a satisfactory affidavit of loss and/or
indemnity and bond. Failure to do so will result in the forfeiture of such
holder's right to receive any distribution relating to such instrument or note.
This requirement does not apply to certificated instruments or notes that are
being reinstated under the Plan. Any other
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5 The Plan Proponents and MLMC have agreed in principal to increase the
Exit Financing Facility by $5.3 million to be used to refinance the
Mortgage Financing under the GMAC Agreements.
51
holder of an Allowed Claim who fails to take such action required by the
Disbursing Agent or its designee to receive its distribution under the Plan
before the first anniversary of the Effective Date, or such earlier time as
otherwise provided for in the Plan, may not participate in any distribution
under the Plan in respect of such Claim. Any distribution so forfeited shall
become property of the applicable Reorganized Debtor.
(c) Fractional Shares
No fractional shares of New Preferred Stock, New Common Stock
or Warrants (or cash in lieu thereof) will be distributed. For purposes of
distribution, fractional shares of New Preferred Stock or New Common Stock, and
Warrants shall be rounded down to the next whole number or zero, as appropriate.
Fractional shares or Warrants that are not distributed because of this rounding
will be returned to Reorganized Lodgian and canceled.
(d) Final Distribution of New Preferred Stock, New Common
Stock and Warrants
Upon the resolution or determination of all Disputed Claims
and Equity Interests, the Disbursing Agent shall distribute to all holders of
Allowed Claims and Equity Interests entitled to receive New Preferred Stock, New
Common Stock and Warrants the amount of such securities that such holders would
have received if the resolution of all Disputed Claims and Equity Interests had
been known on the Effective Date. In the event that dividend distributions have
been made with respect to the New Preferred Stock and/or New Common Stock, such
holder shall be entitled to receive the allocable portion of such dividends
without any interest with respect thereto.
(e) De Minimis Distributions
The applicable Reorganized Debtor as Disbursing Agent or such
other entity designated by such Reorganized Debtor as a Disbursing Agent on or
after the Effective Date will not be required to distribute cash to the holder
of an Allowed Claim in an impaired Class if the amount of cash to be distributed
on any distribution date under the Plan (including the Effective Date and the
Final Distribution Date) on account of such Claim is less than $50. Any holder
of an Allowed Claim on account of which the amount of cash to be distributed is
less than $50 will have its Claim for such distribution discharged and will be
forever barred from asserting any such Claim against the Reorganized Debtors or
their respective property. Any cash not distributed pursuant to this section
VII.B.1.(e) will become the property of the Reorganized Debtors, free of any
restrictions thereon, and any such cash held by a third-party Disbursing Agent
will be returned to the Reorganized Debtors.
3. Procedures for Treating Disputed Claims and Equity Interests
Under the Plan
For purposes of the following discussion, the term "Allowed"
when it applies to a Claim or Equity Interest means that the Claim or Equity
Interest has been recognized as a valid Claim or Equity Interest against the
respective Debtor and is entitled to participate in the Class to which such
Claim or Equity Interest belongs.
52
(a) Disputed Claims and Equity Interests
Disputed Claims include those Claims or Equity Interests (i)
listed by any Debtor in such 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 or equity
interest has been filed and with respect to which no corresponding Claim or
Equity Interest is listed in the schedules or the corresponding Claim or Equity
Interest is listed as other than contingent, disputed, or unliquidated but for
which the nature or amount of the Claim or Equity Interest as filed differs from
that listed in the schedules, or (iv) asserting tort Claims.
(b) Objections to Claims and Equity Interests
Each of the Debtors shall be entitled to object to all Claims
and Equity Interests. Any objections to Claims or Equity Interests shall be
served and filed on or before one hundred and twenty (120) days after the
Effective Date or such later date as may be fixed by the Bankruptcy Court.
(c) No Distributions Pending Allowance
If any portion of a Claim or Equity Interest is a Disputed
Claim or Equity Interest, no payment or distribution shall be made on account of
the Claim or Equity Interest until the disputed portion of the Claim or Equity
Interest becomes an Allowed Claim or Equity Interest or is otherwise resolved.
Pending the allowance or disallowance of the Disputed Claims or Equity
Interests, the applicable Debtor shall withhold from the payments and
distributions made pursuant to the Plan to the holders of Allowed Claims or
Equity Interests the payments and distributions allocable to the Disputed Claims
or Equity Interests as if the Disputed Claims or Equity Interests had been
Allowed Claims or Equity Interests.
(d) Distributions After Allowance
Once a Disputed Claim or Equity Interest becomes an Allowed
Claim or Equity Interest, the holder of such Allowed Claim or Equity Interest
shall receive a distribution in accordance with the provisions of the Plan. If
the holder is entitled to a cash distribution under the Plan, the cash
distribution shall include interest, calculated at the average rate received by
the respective Debtor in its deposit accounts, from the Effective Date until the
date of distributions. Cash distributions shall be made as soon as practicable
after the order allowing the Disputed Claim becomes a Final Order. If the holder
of a Disputed Claim or Equity Interest which becomes Allowed after the Effective
Date is entitled to New Preferred Stock, New Common Stock or Warrants, the
Disbursing Agent may distribute to such holder the amount of shares of such
securities as such holder would have received had such holder's Claim or Equity
Interest been Allowed in such amount on the Effective Date. In the event that
dividend distributions have been made with respect to the New Preferred Stock or
New Common Stock, such holder shall be entitled to receive such previously
distributed dividends without any interest with respect thereto.
53
(e) No Recourse With Respect to Disputed Claims and
Equity Interests
Notwithstanding that the Allowed amount of any particular
Disputed Claim or Equity Interest is reconsidered under the applicable
provisions of the Bankruptcy Code and Bankruptcy Rules, no Claim or Equity
Interest holder will have recourse against the Disbursing Agent, the Debtors,
the Committee, the Reorganized 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 Plan will modify any right of a
holder of a Claim under section 502(j) of the Bankruptcy Code.
C. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. Contracts and Leases Not Expressly Assumed Are Rejected
All executory contracts and unexpired leases, except for those
expressly assumed by the Plan or by separate motion, are rejected pursuant to
the Plan. The Plan provides for the applicable Debtor to assume those executory
contracts and unexpired leases specifically designated as a contract or lease to
be assumed as specified in the Schedule of Assumed Contracts included in the
Plan Supplement. Any time prior to the first Business Day prior to the
commencement of the hearing on confirmation of the Plan, any Debtor may modify
that list. The applicable Debtor will provide notice to the parties affected by
any such amendment. Each of the applicable Debtors expressly reserves the right
to reject any contract in the event that there is a dispute concerning the
amount necessary to cure defaults, notwithstanding the fact that such dispute
may arise after the confirmation of the Plan.
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 Plan will be
cured in a manner consistent with the Bankruptcy Code and as set forth in the
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 Plan has not
filed a proof of claim for such damages within 20 days after the Effective Date,
that Claim shall be barred and shall not be enforceable against any of the
Debtors or the Reorganized Debtors.
4. Franchise Agreements
At the present time, the Lodgian Debtors intend to continue
operating each of their respective Hotel Properties under the Plan and intend to
assume any franchise agreements relating to those Hotel Properties. In
connection therewith, the applicable 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 Debtor and franchisor are unable to
reach
54
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
Debtor shall request that the Court resolve such disputes.
The Liquidating Debtors intend to effect under the Plan a
consensual surrender of their Hotel Properties to their secured creditors.
Accordingly, the Liquidating Debtors shall seek to enter into a consensual
transfer of the applicable franchise agreement. If such a consensual treatment
cannot be reached by the parties, then, either the applicable Debtor shall seek
to assume and assign the applicable franchise agreement or, alternatively,
reject the same. The Debtors do not believe that any such rejection and
corresponding rejection damage claims shall have a material adverse impact upon
the unsecured creditors of the applicable Liquidating Debtor as, under the Plan,
such unsecured creditors are not otherwise receiving a distribution. Lodgian,
Inc. has guaranteed the rejection damage claims under certain of the Liquidating
Debtors' franchise agreements. Accordingly, a rejection of such franchise
agreements could result in a dilution of the recoveries to unsecured creditors
of Lodgian, Inc.
Because the Plan excludes the estates of the CCA Debtors, the
Plan does not address the assumption or rejection of any executory contracts and
unexpired leases, including franchise agreements, for the CCA Debtors. Any such
agreements shall be treated in the context of the CCA Chapter 11 cases,
including any Chapter 11 plan relating thereto. Lodgian, Inc. has guaranteed the
rejection damage claims under certain of the CCA Debtors' franchise agreements.
Accordingly, a rejection of such franchise agreements could result in a dilution
of the recoveries to unsecured creditors of Lodgian, Inc.
D. NEW EQUITY INCENTIVE PLAN
Reorganized Lodgian will adopt the New Equity Incentive Plan,
a new long term management incentive plan under which up to 10.0% of the New
Common Stock on a fully diluted basis will be available for issuance to
management employees. A copy of the New Equity Incentive Plan is part of the
Plan Supplement.
E. RELEASES
The Plan provides for a release of all claims by each of the
Debtors against (i) any director, officer, agent or employee of any Debtor who
was employed or otherwise serving in such capacity on the Confirmation Date,
(ii) the Committee, and (iii) any member of the Committee, any member, director,
officer, agent or employee of a member of the Committee, or any of the Debtors'
or the Committee's attorneys or advisors, in each case who were acting, employed
or otherwise serving in such capacity on the Confirmation Date, with respect to
the activities of such releasees in the Chapter 11 Cases, except for (x) claims
resulting from the willful misconduct or gross negligence of such releasees and
(ii) claims against directors, officers or employees of any Debtor in respect of
any loan or other contractual obligation owed by these individuals person to any
Debtor. This provision is intended to release all claims of each Debtor, whether
arising pre-petition or post-petition, and based on any theory (other than
willful misconduct or gross negligence) against these individuals. The release
is limited to claims that could be asserted by the respective Debtors and only
applies to claims against such parties in their representative capacity.
55
The purpose of the release of the personnel of each of the
Debtors is to prevent a collateral attack against those individuals based on
derivative actions. It is the intent of the Plan to bring finality to the
disruption caused by the reorganization of these companies. Despite many
obstacles, management of the respective Debtors has not only continued to stay
with the company, but also made enormous contributions to the reorganization
efforts and the compromises set forth in the Plan. None of the Debtors are aware
of any pending or threatened actions, whether civil or criminal, against the
management of the Debtors. However, in order to continue to retain the Debtors'
management, it is important that they be relieved of the threat of any
derivative actions against them personally by parties in the Chapter 11 Cases
that may be dissatisfied with the treatment provided in the Plan.
The purpose of the release of the representatives of the other
major constituency in these cases, the Committee, is to protect the chapter 11
process for individuals who have contributed to the restructuring process. None
of the Debtors are aware of any pending or threatened actions against the
representatives of the Committee.
F. EFFECT OF CONFIRMATION
1. Discharge of Claims and Cancellation of Equity Interests
Except as otherwise provided in the Plan, confirmation of the
Plan will discharge all existing debts and Claims and cancel all Equity
Interests, of any kind, nature or description whatsoever, against or in each of
the Debtors or any of their assets or properties, to the full extent permitted
by section 1141 of the Bankruptcy Code (except for certain interdebtor Equity
Interests that the Reorganized Debtors will continue to maintain for corporate
organizational purposes). All holders of existing Claims against and Equity
Interests in the Debtors will be enjoined from asserting against the Reorganized
Debtors, or any of their assets or properties, any other or further Claim or
Equity Interest 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 or proof of equity interest. In addition, upon the Effective
Date, each holder of a Claim against or Equity Interest in the Debtors shall be
forever precluded and enjoined from prosecuting or asserting any discharged
Claim against or canceled Equity Interest in the Debtors or the Reorganized
Debtors.
2. Indemnification
The Plan provides for the assumption and continuation of
normal corporate indemnification provisions related to the protection of
officers and directors.
3. Waiver of Contractual Subordination Rights
The distributions under the Plan take into account the
relative priority of the Claims in each Class in connection with any applicable
contractual subordination provisions. For this reason, the distributions to the
holders of Senior Subordinated Note Claims in Class 4 will not be subject to
levy, garnishment, attachment or other legal process by any holder of
indebtedness senior to the indebtedness represented by Senior Subordinated Note
Claims because of contractual subordination rights. On the Effective Date, all
holders of Claims will be deemed to have waived any and all contractual
subordination rights that they may have with
56
respect to a distribution, and the Confirmation Order will permanently enjoin,
effective as of the Effective Date, all holders of Claims from enforcing or
attempting to enforce any such rights with respect to the distributions under
the Plan to the holders of Senior Subordinated Note Claims in Class 4.
G. MISCELLANEOUS PROVISIONS
The Plan contains provisions relating to the cancellation of
existing securities, 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 Plan, payment of
statutory fees, recognition of guaranty rights, substantial consummation,
compliance with tax requirements, severability, revocation, and amendment of the
Plan, governing law, and timing. For more information regarding these items, see
the Plan attached hereto as Exhibit A.
VIII.
RISK FACTORS
Holders of Claims against and Equity Interests in the Debtors
should read and consider carefully the following risk factors and the other
information in this Disclosure Statement, the Plan, the Plan Supplement and the
other documents delivered or incorporated by reference in this Disclosure
Statement and the Plan, before voting to accept or reject the Plan.
These risk factors should not, however, be regarded as
constituting the only risks involved in connection with the Plan and its
implementation. Additional risks and other information about Lodgian, Inc. and
the other Debtors can be found in Lodgian, Inc.'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 and June 30, 2002, and its other
filings from time to time with the Securities and Exchange Commission, which are
incorporated into this Disclosure Statement by reference. Copies of the Debtors'
most recent annual and quarterly reports will be included in the Plan Supplement
and may also be obtained over the Internet at www.sec.gov or www.freeedgar.com.
A. CERTAIN BANKRUPTCY CONSIDERATIONS
1. General Risks Relating to Confirmation and Consummation
Although each of the Debtors believes that the 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 Plan
will not be required for confirmation or that such modifications would not
necessitate the resolicitation of votes. In addition, although each of the
Debtors believes that the Effective Date will occur soon after the Confirmation
Date, there can be no assurance as to such timing.
57
The Plan does not provide for any distribution to Class 3
Liquidating Subclasses, Class 9 Liquidating Subclasses, Class 10-A or Class 11.
The Bankruptcy Code conclusively deems these Classes to have rejected the Plan.
Notwithstanding the fact that these Classes are deemed to have rejected the
Plan, the Bankruptcy Court may confirm the Plan if at least one impaired Class
votes to accept the Plan (with such acceptance being determined without
including the vote of any "insider" in such Class). Thus, for the Plan to be
confirmed, one of the impaired Classes must vote to accept the Plan. As to each
impaired Class that has not accepted the Plan, the Plan may be confirmed if the
Bankruptcy Court determines that the Plan "does not discriminate unfairly" and
is "fair and equitable" with respect to these Classes. Each of the Debtors
believes that the Plan satisfies these requirements. For more information, see
section IX.F.
2. Risks Relating to Plan Treatment of Mortgage Financings
At this time, the Projections do not reflect a reduction in
the principal amount of any Class 1 Claim. Further, the Debtors believe that it
will reach agreement with its secured creditors that will not give rise to
deficiency Claims. However, if the Debtors determine, based on a valuation of
the underlying collateral, that any Class 1 Claim should be bifurcated into a
reduced Secured Claim and an unsecured deficiency Claim, the affected secured
creditor could raise potential issues with respect to its right to make an
election under section 1111(b) of the Bankruptcy Code which would require the
Debtor to give the applicable secured creditor a note in the full principal
amount of the debt with the present value of the collateral. If the applicable
secured creditor were to make this election, the total debt obligations of the
applicable Reorganized Debtor(s) would be increased accordingly. However, the
Debtors do not believe that the increase in principal amount would impair the
feasibility of the Plan as it relates to any affected Debtors.
3. Matters Affecting Recoveries
The estimates of recovery amounts and percentages in this
Disclosure Statement are based on a number of assumptions including the Debtors'
estimates of Allowed Claims in each Class. Actual recoveries may differ from
such estimates if the Debtors' estimates of Allowed Claims prove to be
inaccurate. The Debtors' estimates of Allowed Claims reflect the Debtors'
reasonable judgment based on current information as of the date of this
Disclosure Statement and the Debtors make no representation as to the accuracy
of these amounts.
4. Loss of Franchise Agreements
As discussed above, if any of the 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 Debtor (either as
franchisee or as a guarantor of obligations under the franchise agreement), then
any Allowed Claim relating to such termination or rejection could reduce
recoveries (if any) to the holders of Allowed General Unsecured Claims against
such Debtors. The Plan Proponents do not believe that such risks are any greater
than that attendant to the resolution of Disputed Claims generally. In addition,
as of the date hereof, one franchisor, Marriott International Inc., has filed a
motion for permission for relief from the automatic stay to terminate a
"Fairfield" franchise agreement covering a Hotel Property owned by a Lodgian
58
Debtor (as well as a "Fairfield" franchise agreement covering a Hotel Property
owned by a CCA Debtor). The affected Lodgian Debtor and the affected CCA Debtor
are in discussions with Marriott regarding a consensual resolution of the motion
but, in the absence of any agreement with Marriott, will contest the relief
sought. In the event that the affected Lodgian Debtor and the affected CCA
Debtor are unable to prevail in their defense of such motion, if prosecuted by
Marriott, the Plan Proponents do not believe that the loss of this "flag" at the
affected Hotel Property will affect their ability to confirm the Plan. Lodgian,
Inc. has guaranteed the obligations under the Marriott franchise agreement. If
that agreement is terminated as a result of Marriott's motion or otherwise, the
resulting claim under Lodgian, Inc.'s guarantee of rejection damages could
result in a dilution of the recoveries to unsecured creditors of Lodgian, Inc.
5. No Assurance of Feasibility
The Debtors cannot assure you that the Reorganized Lodgian
Debtors will be able to achieve the revenue or cash flow levels reflected in the
Projections, which the Debtors have relied on to project their future business
prospects. If any or all of the Reorganized Lodgian Debtors do not achieve the
revenue or cash flow levels reflected in the Projections, such Debtor or Debtors
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
this Disclosure Statement based on current known facts as to the projected
operations of the Reorganized Lodgian Debtors and the assumptions stated in
section IV.B. 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 4,299 proofs of claim were filed as of the Bar Date against the
Debtors and the CCA Debtors. As of the date of this Disclosure Statement, the
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
81 different entities, it is possible that the actual amount of Allowed Claims
may differ materially from the Debtors' estimates. The Debtors continue to seek
to resolve Disputed Claims and further refine their claims analysis. Because
distributions under the Plan and the Projections and the estimated valuation of
the Reorganized Lodgian Debtors are linked to the amount and value of the
Allowed Claims, any change in the 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. See section IV, "Financial Information, Projections and
Valuation Analysis".
Moreover, the Projections may not adequately account for
continuing or unforeseen effects on the Reorganized Lodgian Debtors' operations
that may result from the terrorist attacks that occurred on September 11, 2001
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 Debtors' areas of business
and the Debtors' operations cannot be predicted. Further, the Projections do not
take into account any changes in interest rates during the Projection Period.
59
B. RISKS RELATING TO THE PLAN SECURITIES
1. Variances from Projections
The Projections included in this Disclosure Statement reflect
numerous assumptions concerning the anticipated future performance of the
Reorganized Debtors and with respect to the prevailing market and economic
conditions that are beyond the control of the Reorganized Debtors and that may
not materialize. Each of the Debtors believes that the assumptions underlying
the Projections are reasonable. However, unanticipated events and circumstances
occurring subsequently to the preparation of the Projections may affect the
actual financial results of each of the Debtors. Therefore, the actual results
achieved throughout the periods covered by the Projections necessarily will vary
from the projected results, which variations may be material and adverse.
The impact, if any, that the Chapter 11 Cases may have on the
operations of the Reorganized Debtors cannot be accurately predicted or
quantified. The Debtors believe that the consummation of the Plan in an
expeditious manner will have a minimal further adverse impact on relationships
with customers, employees and suppliers, especially in view of the fact that the
Plan is supported by the Committee. If confirmation and consummation of the Plan
do not occur expeditiously, the Chapter 11 Cases could further adversely affect
the Debtors' relationships with their customers, employees and suppliers.
However, even expedited Chapter 11 Cases could have a
detrimental impact on future sales and patronage due to the possibility that the
Chapter 11 Cases may have created a negative image of the Debtors in the eyes of
their customers and suppliers. Notwithstanding the support offered by the
Committee for the Plan, the Debtors' continuation of the Chapter 11 Cases could
further adversely affect the Debtors' relationships with their customers,
suppliers and employees. Prolonged Chapter 11 Cases may make it more difficult
for the Debtors to retain and attract management and other key personnel and
would require senior management to spend an excessive amount of time and effort
dealing with the Debtors' financial problems instead of focusing on the
operation of their businesses.
2. Significant Holders
Under the Plan, certain holders of Allowed Claims may receive
distributions of shares in Reorganized Lodgian representing in excess of 5% of
the outstanding shares of New Common Stock. If holders of a significant number
of shares of Reorganized Lodgian were to act as a group, such holders may be in
a position to control the outcome of actions requiring shareholder approval,
including the election of directors. Further, the possibility that one or more
of the holders of a number of shares of Reorganized Lodgian may determine to
sell all or a large portion of their shares in a short period of time may
adversely affect the market price of the stock of Reorganized Lodgian.
3. Lack of Trading Market
Reorganized Lodgian will use reasonable commercial efforts to
cause the shares of New Common Stock and, in the sole discretion of the Board of
Directors of Reorganized Lodgian, shares of New Preferred Stock to be listed on
a national securities exchange or a
60
qualifying interdealer quotation system as soon as practicable following the
Effective Date. There can be no assurance, however, that the New Preferred Stock
and New Common Stock will be listed on such exchange or system. Accordingly,
there can be no assurance that a holder of such securities will be able to sell
such shares in the future or as to the price at which such shares might trade.
Even if such securities are subsequently listed, the Debtors cannot assure you
that an active market for such securities will develop or, if any such market
does develop, that it will continue to exist, or as to the degree of price
volatility in any such market that does develop.
4. Dividend Policies
Because all of the respective Debtors' cash flows will be used
in the foreseeable future to make payments under the Exit Financing Facility and
the restructured Mortgage Financings, Reorganized Lodgian does not anticipate
paying dividends on the New Common Stock in the near future. As to the New
Preferred Stock, dividends will be cumulative and compounded annually at the
annual rate of 12.25%. For the first year following the Effective Date, such
dividends will be declared and paid via the issuance of additional shares of New
Preferred Stock, and for the second and third years following the Effective
Date, the Board of Directors of Reorganized Lodgian will declare such dividends
and will have the option to pay such dividends in cash or in kind with
additional shares of New Preferred Stock. For a more detailed description of the
New Preferred Stock, see section II.F.1.
5. Restrictions on Transfer
Holders of Plan Securities who are deemed to be "underwriters"
as defined in section 1145(b) of the Bankruptcy Code, including holders who are
deemed to be "affiliates" or "control persons" within the meaning of the
Securities Act, will be unable freely to transfer or to sell their securities
except pursuant to (i) "ordinary trading transactions" by a holder that is not
an "issuer" within the meaning of section 1145(b), (ii) an effective
registration of such securities under the Securities Act and under equivalent
state securities or "blue sky" laws, or (iii) pursuant to the provisions of Rule
144 and Rule 144A under the Securities Act or another available exemption from
registration requirements. For a more detailed description of these matters, see
section II.G, above.
6. Trading Values of the Plan Securities
The estimated valuation of the Reorganized Lodgian Debtors
used in this Disclosure Statement has been prepared based on commonly accepted
valuation analysis and is not intended to represent the trading values of the
Plan Securities in public or private markets. The estimated recoveries to
Classes 3, 4, 7 and 8 are based on this theoretical valuation analysis. This
valuation analysis is based on capital and financial market conditions as of the
date of this Disclosure Statement and numerous assumptions, (the realization of
many of which is beyond the control of the Reorganized Lodgian Debtors),
including: the ability of the Reorganized Lodgian Debtors to (a) meet the
Projections included in this Disclosure Statement; (b) maintain sufficient
financial flexibility to fund operations, working capital requirements and
capital expenditures; and (c) attract and retain key managers.
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Even if the Reorganized Lodgian Debtors successfully achieves
the Projections included in this Disclosure Statement, the trading market values
for the Plan Securities could be adversely impacted by: (a) lack of trading
liquidity for such securities; (b) lack of institutional research coverage; and
(c) concentrated selling by recipients of the Plan Securities.
C. FINANCING RISKS
1. Post-Reorganization Obligations
The Reorganized Debtors may not be able to meet their
post-reorganization debt obligations, operating expenses, working capital and
other capital expenditures. The Debtors are currently highly leveraged. The
Reorganized Debtors will be substantially less leveraged; however, the Debtors
cannot assure you that the operating cash flow of the Reorganized 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 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 Lodgian
Debtors and from the proceeds of the Exit Financing Facility, the ability of the
Reorganized 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 and the restructured Mortgage
Financings.
The Lodgian 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 Lodgian
Debtors to make capital expenditures and pay cash dividends and make other
distributions to holders of New Preferred Stock and New Common Stock.
Restrictions on capital investment are expected to be more restrictive if
Reorganized Lodgian's 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 Lodgian Debtors to remain competitive.
D. RISKS ASSOCIATED WITH THE BUSINESSES
The following categories of risks associated with each of the
Debtors' businesses are set forth in their 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.
62
1. Certain Tax Implications
Certain tax implications of the Debtors' bankruptcy and
reorganization may increase the tax liability of the Reorganized Group. The U.S.
federal income tax consequences of consummation of the Plan to holders of Claims
or Equity Interests are complex and subject to uncertainty. Certain U.S. tax
attributes of the Debtors, including net operating loss carryovers ("NOLs"), may
be reduced or eliminated as a consequence of the Plan. The elimination or
reduction of NOLs and such other tax attributes may increase the amount of tax
payable by the Reorganized Group following the consummation of the Plan as
compared with the amount of tax payable had no such reduction been required.
See section XI, "Certain Federal Income Tax Consequences of
the Plan", for a discussion of the U.S. federal income tax consequences for
certain holders of Claims and Equity Interests and certain Debtors resulting
from the consummation of the Plan.
IX.
CONFIRMATION OF THE PLAN
A. CONFIRMATION HEARING
CONFIRMATION HEARING
The Court will hold the confirmation hearing at the following time and
place:
DATE AND TIME: commencing at 10:00 a.m. (Eastern time), on November 5,
2002.
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 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.
63
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 Plan must be in writing, state the name and address of the objecting
party and the nature of the Claim or Equity Interest 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 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
64
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, 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., et al., 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 OCTOBER 28, 2002.
Objections to confirmation of the 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.
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 Plan complies with the applicable provisions of the
Bankruptcy Code.
2. Each of the Debtors has complied with the applicable
provisions of the Bankruptcy Code.
3. The 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 Debtors or by a
person issuing securities or acquiring property under the Plan
for services or for costs and expenses in, or in connection
with, the Chapter 11 Cases, or in connection with the 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 Plan is reasonable or if such payment is
to be fixed after confirmation of the Plan, such payment is
subject to the approval of the Bankruptcy Court as reasonable.
5. Each of the Debtors has disclosed the identity and
affiliations of any individual proposed to serve, after
confirmation of the Plan, as a director, officer or voting
trustee of the respective Debtors, affiliates of each of the
Debtors participating in the Plan with each of the Debtors, or
a successor to each of the Debtors under the 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 Debtors
has disclosed the identity of any insider that will be
employed or retained by each of the Debtors, and the nature of
any compensation for such insider.
65
6. With respect to each Class of Claims or Equity Interests, each
holder of an impaired Claim or impaired Equity Interest either
has accepted the Plan or will receive or retain under the
Plan, on account of such holder's Claim or Equity Interest,
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 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 Plan meets the requirements of
section 1129(b) of the Bankruptcy Code (discussed below), each
Class of Claims or Equity Interests has either accepted the
Plan or is not impaired under the Plan. Class 3 Liquidating
Subclasses, Class 8 (Old Lodgian Common Stock Interests),
Class 9 Liquidating Subclasses, Subclasses in Division A of
Class 10 (Third Party Owned Old Subsidiary Equity Interests)
and Class 11 (Subordinated Claims), are deemed to have
rejected the Plan and thus the Plan can be confirmed only if
the requirements of section 1129(b) of the Bankruptcy Code are
met.
8. Except to the extent that the holder of a particular Claim has
agreed to a different treatment of such Claim, the Plan
provides that Administrative Expense Claims and Priority
Non-Tax Claims will be paid in full on the Effective Date and
that Priority Tax Claims will receive on account of such
Claims deferred cash payments, over a period not exceeding six
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 Plan,
determined without including any acceptance of the Plan by any
insider holding a Claim in such Class.
10. Confirmation of the Plan is not likely to be followed by the
liquidation or the need for further financial reorganization
of any of the Debtors or any successor to the Debtors under
the Plan, unless such liquidation or reorganization is
proposed in the Plan. See discussion of "Feasibility," below.
C. BEST INTERESTS TESTS
As described above, the Bankruptcy Code requires that each
holder of an impaired Claim or Equity Interest either (i) accept the Plan or
(ii) receive or retain under the Plan property of a value, as of the Effective
Date, that is not less than the value such holder would receive if the
applicable 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 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 and Equity Interests would be the sum consisting of the
proceeds resulting from the disposition of the unencumbered assets and
properties of the
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applicable Debtor, augmented by the unencumbered cash held by the applicable
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 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 Plan on the Effective Date.
The applicable 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 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 executory contracts assumed or entered into by the
applicable Debtor during the pendency of the Chapter 11 Cases.
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 Debtors believes that in a chapter 7 case, Class 3 Liquidating Subclasses,
Class 8 (Old Lodgian Common Stock Interests), Class 9 Liquidating Subclasses,
Subclasses in Division A of Class 10 (Third Party Owned Old Subsidiary Equity
Interests) and Class 11 (Subordinated Claims) would receive no distribution of
property.
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 rapid transfer or cessation of operations at the facilities
and the erosion in value of assets in a chapter 7 case in the context of the
expeditious liquidation required under chapter 7 and the "forced sale"
atmosphere that would prevail, and (iii) the substantial increases in Claims
that would be satisfied on a priority basis, each of the Debtors has determined
that confirmation of the Plan will provide each holder of an Allowed Claim and
Equity Interest with a recovery that is not less than such holder would receive
pursuant to liquidation of each of the Debtors under chapter 7.
Each of the Debtors also believes that the value of any
distributions to each Class of Allowed Claims and Equity Interests in a chapter
7 case, including all secured Claims, would be less than the value of
distributions under the 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
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completion of such liquidation in order to resolve Claims and Equity Interests
and prepare for distributions. In the event that litigation was necessary to
resolve Claims and Equity Interests asserted in a chapter 7 case, the delay
could be prolonged and administrative expenses increased.
D. LIQUIDATION ANALYSIS
IMPORTANT NOTE ON THE DEBTORS' LIQUIDATION ANALYSIS
The Liquidation Analysis presented below is an estimate, based on a
number of significant assumptions, of the proceeds that may be
generated in a hypothetical chapter 7 liquidation of each of the
Debtors. The Liquidation Analysis is not, and does not purport to be, a
valuation of the Debtors' assets or indicative of the values that may
be realized in an actual liquidation.
Attached as Exhibit B is a separate liquidation analysis for
each Debtor (the "Liquidation Analysis"). Attached as Exhibit F are the
assumptions underlying the Liquidation Analysis and a summary of liquidation
recovery by Class.
The Debtors have prepared the Liquidation Analysis in
consultation with Chilmark. The Liquidation Analysis reflects the projected
outcome of a hypothetical, orderly liquidation under chapter 7 of the Bankruptcy
Code. In each case, the projected liquidation proceeds to each Class was less
than or equal to the estimated recoveries under the Plan.
Underlying the Liquidation Analysis are a number of estimates
and assumptions that, although developed and considered reasonable by
management, are inherently subject to economic, competitive and other
contingencies beyond the control of the Debtors and management. It is possible
that the time needed to dispose of the assets could exceed the timeframes
assumed in this analysis, causing an adverse impact on the recoveries depicted
herein. Similarly, other assumptions with respect to the liquidation process may
be subject to change. Upon a liquidation, there is a general risk of
unanticipated events which could have a significant impact upon projected cash
receipts and disbursements. Cash flows could be impaired due to events such as:
(i) an adverse impact on customers' perceptions; (ii) disruptions in the
employee base; (iii) a loss of vendor support and/or change in terms; (iv) an
adverse affect on the relationship with franchisors; (v) the inability to find a
purchaser for a specific property within the six month liquidation period; and
(vi) significant changes in the economy during the liquidation period. In
addition, the proceeds from the liquidation have not been discounted to reflect
any delay in distributions following the completion of the liquidation process.
Applying an additional discount factor to the proceeds from the liquidation to
account for any such delay would result in a lower range of recoveries for
certain creditors. For all of the foregoing reasons, there can be no assurance
that the values reflected in the Liquidation Analysis or recovery percentages
would be realized if the Debtors were, in fact, liquidated in chapter 7 cases,
and actual results could vary materially from those shown in this analysis.
E. FEASIBILITY
As a condition to confirmation of the Plan, the Bankruptcy
Code requires, among other things, that the Bankruptcy Court determine that
confirmation is not likely to be followed
68
by the liquidation or the need for further financial reorganization of the
Debtors. In connection with the development of the Plan and for the purpose of
determining whether the Plan satisfies this feasibility standard, the 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 Lodgian Debtors on a consolidated
basis. The Projections, together with a discussion of the assumptions underlying
the Projections, are included in section IV.B, above, and Exhibit D,
"Projections". Based on the Projections, the Debtors believe that the
Reorganized Lodgian Debtors will be able to make all payments required pursuant
to the Plan and, therefore, that confirmation of the Plan is not likely to be
followed by liquidation or the need for further reorganization. Because the Plan
contemplates an orderly liquidation of the Liquidating Debtors, there are no
Projections required or provided for such Debtors.
F. SECTION 1129(B)
The Bankruptcy Court may confirm the Plan over the rejection
or deemed rejection of the Plan by a Class of Claims or Equity Interests if the
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 or Equity Interests
that are of equal priority and are receiving different treatment under the 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 or Equity Interests in such Class:
- 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.
- 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.
69
- Equity Interests. Either (i) each Equity Interest
holder receives or retains under the Plan property
of a value equal to the greater of (a) the fixed
liquidation preference or redemption price, if any,
of such Equity Interest and (b) the value of the
Equity Interest, or (ii) the holders of Equity
Interests that are junior to the Equity Interests of
the dissenting Class will not receive or retain any
property under the Plan.
These requirements are in addition to other requirements established by case
law interpreting the statutory requirement.
Each of the Debtors believes that the Plan will satisfy the
"fair and equitable" requirement notwithstanding that Class 3 Liquidating
Subclasses, Class 8 (Old Lodgian Common Stock Interests), Class 9 Liquidating
Subclasses, Subclasses in Division A of Class 10 (Third Party Owned Old
Subsidiary Equity Interests) and Class 11 (Subordinated Claims) are deemed to
reject the Plan because no Class that is junior to such Classes and Subclasses
will receive or retain any property on account of the Claims or Equity
Interests in such Class.
X.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
A. LIQUIDATION UNDER CHAPTER 7
If no chapter 11 plan can be confirmed for any Debtor(s), the
applicable Chapter 11 Cases may be converted to cases under chapter 7 of the
Bankruptcy Code in which a trustee would be elected or appointed to liquidate
the assets of the Debtors for distribution in accordance with the priorities
established by the Bankruptcy Code. A discussion of the effect that a chapter 7
liquidation would have on the recoveries of holders of Claims is set forth in
sections IX.C and IX.D, above. Each of the Debtors believes that liquidation
under chapter 7 would result in smaller distributions being made to the
respective holders of Claims and Equity Interests than those provided for in
the Plan because of (i) the likelihood that other assets of each of the Debtors
would have to be sold or otherwise disposed of in a less orderly fashion, (ii)
additional administrative expenses attendant to the appointment of a trustee
and the trustee's employment 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 liquidation and from the rejection of
leases and other executory contracts in connection with a cessation of each of
the Debtors' operations. In a chapter 7 liquidation, each of the Debtors
believes that there would be no distribution to holders of Claims in Class 3
Liquidating Subclasses, Class 8 (Old Lodgian Common Stock Interests),
Subclasses in Division A of Class 10 (Third Party Owned Old Subsidiary Equity
Interests) and Class 11 (Subordinated Claims).
B. ALTERNATIVE PLAN
If the Plan is not confirmed, each of the Debtors or any
other party in interest (if the applicable Debtor's exclusive period in which
to file a Plan has expired) could attempt to formulate a different plan. Such a
plan might involve either a reorganization and continuation of
69
the applicable Debtor's business or an orderly liquidation of the Debtor's
assets under chapter 11. Each of the Debtors has concluded that the Plan
enables creditors and equity holders to realize the most value under the
circumstances. In a liquidation under chapter 11, each of the Debtors would
still incur the expenses associated with closing or transferring to new
operators numerous facilities. The process would be carried out in a more
orderly fashion over a greater period of time. Further, if a trustee were not
appointed, because such appointment is not required in a chapter 11 case, the
expenses for professional fees would most likely be lower than those incurred
in a chapter 7 case. Although preferable to a chapter 7 liquidation, each of
the Debtors believes that liquidation under chapter 11 is a much less
attractive alternative to creditors and equity holders than the Plan because of
the greater return provided by the Plan.
XI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes certain federal income
tax consequences of the implementation of the Plan to certain Debtors and
certain holders of Claims and Equity Interests. 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 Plan, (ii) holders of Equity Interests or Claims which are
extinguished without a distribution in exchange therefor, and (iii) holders of
Equity Interests which are otherwise unimpaired under the Plan.
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.
The federal income tax consequences of the Plan are complex
and are subject to significant uncertainties. None of the 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 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 Plan, nor does
it purport to address all federal income tax consequences of the 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 or the Equity Interests as part of a
straddle, hedge, conversion transaction or other integrated investment).
This discussion assumes that the various debt and other
arrangements to which each of the Debtors is currently a party and any
consideration issued by each of the Debtors under the Plan will be respected
for federal income tax purposes in accordance with their form.
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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 OR AN EQUITY INTEREST. ALL HOLDERS OF CLAIMS
OR EQUITY INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM OF THE IMPLEMENTATION
OF THE PLAN.
A. CONSEQUENCES TO CERTAIN DEBTORS
The Debtors, other than those Debtors that are treated as
partnerships for federal income tax purposes, file a consolidated federal
income tax return (such Debtors filing a consolidated federal income tax
return, collectively, the "Lodgian Group").
For federal income tax purposes, the Lodgian Group has
consolidated net operating loss ("NOL") carryforwards of roughly $263 million
as of December 31, 2001.
As discussed below, the Lodgian Group's current year NOLs, if
any, and NOL carryforwards will be substantially reduced, and may be subject to
additional limitations upon implementation of the Plan. In addition, certain
other tax benefits may be reduced, or subject to limitation, upon
implementation of the Plan. The amount of such losses and other tax benefits
may be adjusted during the course of the preparation of the Debtors' tax
returns and remain subject to examination by the IRS.
1. Cancellation of Debt
In general, the discharge of a debt obligation by a debtor
for an amount less than the remaining balance of the debt obligation (as
determined for federal income tax purposes) gives rise to cancellation of debt
("COD") income which must be included in the debtor's income, subject to
certain exceptions. One of the exceptions applies to corporate and certain
other debtors if the discharge is granted in a title 11 bankruptcy case or
pursuant to a plan approved by a bankruptcy court.
In general, no portion of the COD income recognized by
debtors in bankruptcy is includable in income; however, a debtor must still
reduce certain of its tax attributes - such as NOL carryforwards, current year
NOLs, capital loss carryforwards, current year capital losses, tax credits and
tax basis in assets - by the amount of any COD income. To the extent that the
amount of COD income exceeds the tax attributes available for reduction, the
remaining excludable COD income is simply forgiven. It is unclear whether the
reduction in certain tax attributes (especially with respect to NOLs) should
occur on a consolidated group or separate company basis, since the Debtors
(other than Debtors treated as partnerships) file consolidated federal income
tax returns with the other members of their group, and the IRS has, in certain
cases, asserted that such reduction generally should occur on a consolidated
basis. Any reduction in tax attributes does not occur until the first day of
the taxable year following the year during which the COD income is realized. If
advantageous, a debtor could elect to reduce the basis of depreciable property
prior to any reduction in its NOL carryforwards.
In the case of a partnership (or a limited liability company
treated as a partnership for federal income tax purposes), the above described
bankruptcy exception to COD income
71
applies at the partner level, rather than the partnership level, and is
determined on the basis of the financial status of each partner. Thus, a
corporate partner that is itself in bankruptcy should be able to apply the
above bankruptcy exception to its allocable share of the COD income of the
partnership.
As a result of the discharge of Claims pursuant to the Plan,
certain of the Debtors will incur COD income, resulting in a reduction of the
NOL carryforwards, and, possibly, the tax basis in the assets of the Lodgian
Group, effective as of the beginning of the taxable year following the taxable
year in which the Effective Date occurs. The extent of such COD income and
resulting tax attribute reduction will depend, in part, on the fair market
value of the New Common Stock, New Preferred Stock and Warrants, the amount of
cash distributed and the dollar amount of claims ultimately allowed. Based on
the estimated enterprise value of the Reorganized Debtors (see section IV.C,
above), it is anticipated that the Reorganized Debtors will incur approximately
$230 million of COD income.
As of the date of the filing of the Plan and Disclosure
Statement, the Debtors estimate that after reducing the Lodgian Group's NOLs by
the amount of COD income realized, at least $30 million of Lodgian Group NOL
carryforwards will remain. Due to the magnitude of the NOL carryforwards, it is
not anticipated that the Debtors' tax basis in their depreciable or amortizable
assets will be significantly reduced, if at all. Accordingly, for purposes of
calculating the Projections included in this Disclosure Statement (see section
IV.B, above, and Exhibit D, "Projections"), it has been assumed that any
reduction in the tax basis in depreciable or amortizable assets of the Debtors
would be insignificant.
2. Limitations on NOL Carryforwards and Other Tax Benefits
Following the implementation of the Plan, the NOLs, NOL
carryforwards and certain other tax attributes of the Lodgian Group allocable
to the period prior to the Effective Date of the Plan will be subject to the
limitations imposed by Section 382 of the Tax Code.
Under Section 382, after a corporation undergoes an
"ownership change", the amount of its pre-change losses that may be utilized to
offset future taxable income is, in general, subject to an annual limitation.
Such limitation also may apply to certain losses or deductions that are
"built-in" (i.e., economically accrued but unrecognized) as of the date of the
ownership change that are subsequently recognized. The Debtors anticipate that
an ownership change will occur with respect to the Lodgian Group upon
implementation of the Plan.
a. General Section 382 Limitation. The amount of the annual
limitation to which a loss corporation may be subject (i) depends, in part, on
whether the corporation is in bankruptcy and the ownership change occurs
pursuant to a Plan confirmed by the bankruptcy court, and (ii) generally
applies on a consolidated basis to an affiliated group of corporations that
file a consolidated federal income tax return.
In general, the amount of the annual limitation to which a
corporation (or consolidated group) would be subject would be equal to the
product of (i) the fair market value of the stock of the corporation (or, in
the case of a consolidated group, the common parent) immediately before the
ownership change (with certain adjustments) multiplied by (ii) the
72
"long-term tax-exempt rate" in effect for the month in which the ownership
change occurs (4.91% for ownership changes occurring in September 2002). For a
corporation in bankruptcy and, presumably, as in the case of the Debtors, when
a consolidated group's parent corporation is in bankruptcy and undergoes the
ownership change pursuant to a confirmed bankruptcy plan, and if certain other
conditions are met, the stock value generally is determined immediately after
(rather than before) the ownership change, and some of the adjustments that
ordinarily would apply do not apply. For example, the annual limitation
applicable to a corporation not in bankruptcy is generally determined after
reduction of its stock value for any capital infusions within the two year
period ending on the date of the ownership change, whereas the stock value of
each of the Debtors for purposes of computing the annual limitation generally
would not be so reduced.
Regardless of whether the ownership change occurs pursuant to
a confirmed plan, certain "anti-duplication" rules apply. These rules
principally are intended to prevent the value of a nonconsolidated, more than
50% owned subsidiary from being taken into account both in the determination of
such subsidiary's own annual limitation and, as a result of being an asset of
the controlling corporation, indirectly in the determination of the annual
limitation of the controlling corporation (or group). Similar rules or
principles can apply within a consolidated group in those cases where the
consolidated return regulations continue to require separate company (or
subgroup) annual limitations.
Any unused limitation may be carried forward, thereby
increasing the annual limitation in the subsequent taxable year. However, if
the corporation (or consolidated group) does not continue its historic business
or use a significant portion of its assets in a new business for two years
after the ownership change, the annual limitation resulting from the ownership
change is zero.
b. Built-In Gains and Losses. If a loss corporation (or
consolidated group) has a net unrealized built-in gain at the time of an
ownership change (determined by taking into account most assets and all items
of "built-in" income and deductions), any built-in gains recognized during the
following five years (up to the amount of the original net unrealized built-in
gain) generally will increase the annual limitation in the year recognized,
such that the loss corporation (or consolidated group) would be permitted to
use its pre-change losses against such built-in gain income in addition to its
regular annual allowance.
On the other hand, if the loss corporation (or consolidated
group) has a net unrealized built-in loss at the time of an ownership change,
any built-in losses recognized during the following five years (up to the
amount of the original net unrealized built-in loss) generally will be treated
as a pre-change loss and will be subject to the annual limitation in the same
fashion as a pre-change NOL carryforward. In addition, although this net
built-in loss rule generally applies to consolidated groups on a consolidated
basis, any corporation that joins the consolidated group within the preceding
five years may have to be excluded from the group computation and tested for a
net built-in loss on a separate company basis. Accordingly, even though a
consolidated group of corporations may not have a net unrealized built-in loss
on an overall group basis, the group may have a net unrealized built-in loss if
certain members of the group are required to be excluded. Additionally, if the
excluded member has a net built-in loss when tested on a separate company
basis, any subsequently recognized built-in losses of such
73
corporation may be subject to a more restrictive annual limitation based on the
separate value of such member.
A loss corporation's (or consolidated group's) net unrealized
built-in gain or loss generally will be deemed to be zero unless it is greater
than the lesser of (i) $10 million or (ii) 15% of the fair market value of its
gross assets (with certain adjustments) immediately before the ownership
change.
It is currently unclear whether each of the Debtors will be
in a net unrealized built-in loss position or a net unrealized built-in gain
position as of the Effective Date.
3. Alternative Minimum Tax
In general, an alternative minimum tax ("AMT") is imposed on
a corporation's "alternative minimum taxable income" ("AMTI") at a 20% rate to
the extent that such tax exceeds the corporation's regular federal income tax
for the year. AMTI is generally equal to regular taxable income with certain
adjustments. For purposes of computing AMTI, certain tax deductions and other
beneficial allowances are modified or eliminated. In particular, even though a
corporation otherwise might be able to offset all of its taxable income for
regular tax purposes by available NOL carryforwards, a corporation (or
consolidated group) is generally entitled to offset no more than 90% of its
AMTI with NOLs as recomputed for AMT purposes ("AMTNOLs"). Under a new law,
however, up to 100% of AMTI can be offset with carrybacks of AMTNOLs generated
in 2001 or 2002 and AMTNOLs carried forward to 2001 or 2002.
In addition, if a corporation (or consolidated group)
undergoes an "ownership change" within the meaning of Section 382 and is in a
net unrealized built-in loss position on the date of the ownership change, the
corporation's (or group's) aggregate tax basis in its assets would be reduced
for certain AMT purposes to reflect the fair market value of such assets as of
the change date. The application of this provision is unaffected by whether the
special bankruptcy exception to the Section 382 annual limitation (and built-in
loss) rules applies.
Any AMT that the corporation pays generally will be allowed
as a nonrefundable credit against its regular federal income tax liability in
future taxable years when the corporation is no longer subject to AMT.
B. CONSEQUENCES TO HOLDERS OF CERTAIN CLAIMS
The federal income tax consequences of the Plan to holders of
Claims against Lodgian, Inc. depend, in part, on whether such claims constitute
"securities" for federal income tax purposes. For purposes of this discussion
and the following sections, "Lodgian, Inc." includes any entity that is treated
as a disregarded entity not separate from Lodgian, Inc. for federal income tax
purposes. The term "security" is not defined in the Tax Code or in the
regulations issued thereunder and has not been clearly defined by judicial
decisions. The determination of whether a particular debt constitutes a
"security" depends on an overall evaluation of the nature of the debt. One of
the most significant factors considered in determining whether a particular
debt is a security is its original term. In general, debt obligations issued
with a weighted average maturity at issuance of five years or less (e.g., trade
74
debt and revolving credit obligations) do not constitute securities, whereas
debt obligations with a weighted average maturity at issuance of ten years or
more constitute securities.
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 should consult their tax
advisors regarding the effect of such dual status obligations on the federal
income tax consequences of the Plan to them.
1. Consequences to Holders of General Unsecured Claims Against
Lodgian, Inc. That Do Not Constitute "Securities" Who Receive
New Common Stock and New Preferred Stock
In general, holders of General Unsecured Claims against
Lodgian, Inc. that do not constitute "securities", who receive New Common Stock
and New Preferred Stock, would recognize gain or loss in an amount equal to the
difference between (i) the "amount realized" 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 XI.B.7, below.
For these purposes, the "amount realized" by a holder will
equal the sum of the aggregate of (i) cash, if any, (ii) the fair market value
of any New Preferred Stock, and (iii) the fair market value of any New Common
Stock received by the holder (less any portion of such distribution required to
be treated as imputed interest as a result of any such distribution being made
after the Effective Date).
Due to the possibility that a holder of a General Unsecured
Claim may receive a distribution of New Preferred Stock and New Common Stock
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 New Preferred Stock and
New Common Stock 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
75
with market discount, and whether and to what extent the holder had previously
claimed a bad debt deduction.
A holder's aggregate tax basis in any New Preferred Stock and
New Common Stock received will equal the fair market value of such New
Preferred Stock and New Common Stock. The holding period for any New Preferred
Stock and New Common Stock generally will begin the day following the issuance
of such New Preferred Stock and New Common Stock.
2. Consequences to Holders of General Unsecured Claims Against
Lodgian, Inc. That Constitute "Securities" Who Receive New
Common Stock and New Preferred Stock
The receipt of New Common Stock and New Preferred Stock in
satisfaction of a General Unsecured Claim against Lodgian, Inc. that
constitutes a "security" likely would constitute a "recapitalization" for
federal income tax purposes. Assuming such exchange constitutes a
"recapitalization," in general, the holder of a General Unsecured Claim against
Lodgian, Inc. that constitutes a "security" will not recognize loss upon such
exchange, but will recognize any gain to the extent of the fair market value of
any consideration received other than New Preferred Stock and New Common Stock
(such as proceeds from insurance). The character and timing of such gain would
be determined in accordance with the principles discussed in the preceding
section. The portion of any consideration allocable to a claim for accrued but
unpaid interest (see section XI.B.7, below) or required to be treated as
imputed interest due to the distribution of additional consideration after the
Effective Date (see section XI.B.1, above), is excluded from the above
calculation and taxed under separate rules.
In the case of a recapitalization, a holder's aggregate tax
basis in any New Preferred Stock and New Common Stock received in satisfaction
of its claim (other than a claim or portion thereof for accrued but unpaid
interest) will equal the holder's aggregate adjusted tax basis in its claim
increased by any gain recognized with respect to such claim and decreased by
the fair market value of any consideration other than New Preferred Stock and
New Common Stock received with respect to such claim. Such tax basis would be
allocated between the New Preferred Stock and New Common Stock based on their
relative fair market values. In general, the holder's holding period for the
New Preferred Stock and New Common Stock received will include the holder's
holding period for the claim except to the extent that the New Preferred Stock
and New Common were issued in respect of a claim for accrued but unpaid
interest or treated as imputed interest.
Notwithstanding the foregoing, it is possible that the IRS
may seek to treat the receipt of New Preferred Stock and New Common Stock as
part of a non-recognition transaction under Section 351 of the Tax Code. If the
satisfaction of claims were so treated, holders would not recognize any loss,
but would recognize any gain to the extent of the greater of (i) the fair
market value of any consideration received other than New Common Stock
(including the New Preferred Stock received and any proceeds from insurance)
and (ii) the accrued market discount, if any (see section XI.B.8, below). The
character and timing of such gain would be determined in accordance with the
principles discussed in section XI.B.1, above. The portion of any consideration
allocable to a claim for accrued but unpaid interest (see section XI.B.7,
below) or required to be treated as imputed interest due to the distribution of
additional consideration after
76
the Effective Date (see section XI.B.1, above), would be excluded from the
above calculation and taxed under separate rules. A holder's aggregate tax
basis in New Common Stock received in satisfaction of its claim would equal the
holder's aggregate adjusted tax basis in such claim increased by any gain
recognized with respect to such claim and decreased by the fair market value of
any consideration other than New Common Stock received with respect to such
claim. A holder's aggregate tax basis in New Preferred Stock received would
equal the fair market value of such stock. In general, the holder's holding
period for the New Common Stock received will include the holder's holding
period for the claim except to the extent that the New Common Stock was issued
with respect to a claim for accrued but unpaid interest or treated as imputed
interest. Although the issue is not free from doubt, the Debtors intend to
treat the transfer of New Common Stock and New Preferred Stock in satisfaction
of a General Unsecured Claim against Lodgian, Inc. that constitutes a
"security" as a "recapitalization" for federal income tax purposes.
3. Consequences to Holders of General Unsecured Claims Against
Lodgian Debtors Other Than Lodgian, Inc.
The receipt of New Preferred Stock and New Common Stock in
exchange for General Unsecured Claims against Lodgian Debtors other than
Lodgian, Inc. likely would not constitute a "recapitalization" or other
"reorganization" transaction for federal income tax purposes. Accordingly,
holders may recognize gain or loss in an amount equal to the difference between
(i) the "amount realized" 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).
See section XI.B.1, above for a discussion of the character and timing of gain
or loss. For a discussion of the tax consequences of the portion of any claim
attributable to accrued interest, see section XI.B.7, below.
Assuming the exchange is taxable, the "amount realized" by a
holder will equal the sum of the fair market values of New Preferred Stock and
New Common Stock received by the holder (less any portion of such distribution
required to be treated as imputed interest as a result of any such distribution
being made after the Effective Date). See section XI.B.1, above for a
discussion of the imputed interest rules.
A holder's tax basis in the New Preferred Stock and New
Common Stock received will equal the fair market value of such New Preferred
Stock and New Common Stock, respectively, assuming the exchange of the holder's
claim is taxable. Furthermore, the holding period for such New Preferred Stock
and New Common Stock generally will begin the day following the issuance of
such New Preferred Stock and New Common Stock.
Notwithstanding the foregoing, it is possible that the IRS
may seek to treat the receipt of New Preferred Stock and New Common Stock as
part of a non-recognition transaction under Section 351 of the Tax Code. If the
transaction were so treated, a holder would not be permitted to recognize any
loss, but such holder would still be required to recognize any gain to the
extent of the greater of (i) the fair market value of the New Preferred Stock
received and (ii) the accrued market discount, if any (see section XI.B.8,
below). The holder's tax basis and holding period in the New Preferred Stock
will generally be the same as that of the New Preferred Stock received by a
holder in a fully taxable transaction as described above. However,
77
the holder's tax basis in its New Common Stock will generally equal its tax
basis in the claims surrendered, increased by the amount of gain recognized and
decreased by the fair market value of the New Preferred Stock received. In
addition, the holder's holding period in the New Common Stock would include its
holding period in the claims. Although the issue is not free from doubt, the
Debtors intend to treat the satisfaction of General Unsecured Claims against
Lodgian Debtors other than Lodgian, Inc. for New Common Stock and New Preferred
Stock as a fully taxable transaction, in which holders would recognize both
gain and loss, as applicable.
4. Consequences to Holders of Senior Subordinated Notes Claims
Because the Senior Subordinated Notes were issued by Lodgian
Financing Corp. (rather than Lodgian, Inc.), the receipt of New Preferred Stock
and New Common Stock in exchange for Senior Subordinated Notes likely would not
constitute a "recapitalization" or other "reorganization" transaction for
federal income tax purposes. Accordingly, holders may recognize gain or loss in
an amount equal to the difference between (i) the "amount realized" 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). See section XI.B.1, above for
a discussion of the character and timing of gain or loss. For a discussion of
the tax consequences of the portion of any claim attributable to accrued
interest, see section XI.B.7, below.
Assuming the exchange is taxable, the "amount realized" by a
holder will equal the sum of the fair market values of New Preferred Stock and
New Common Stock received by the holder (less any portion of such distribution
required to be treated as imputed interest as a result of any such distribution
being made after the Effective Date). See section XI.B.1, above for a
discussion of the imputed interest rules.
A holder's tax basis in the New Preferred Stock and New
Common Stock received will equal the fair market value of such New Preferred
Stock and New Common Stock, respectively, assuming the exchange of the holder's
claim is taxable. Furthermore, the holding period for such New Preferred Stock
and New Common Stock generally will begin the day following the issuance of
such New Preferred Stock and New Common Stock.
Notwithstanding the foregoing, it is possible that the IRS
may seek to treat the receipt of New Preferred Stock and New Common Stock as
part of a non-recognition transaction under Section 351 of the Tax Code. If the
transaction were so treated, a holder would not be permitted to recognize any
loss, but such holder would still be required to recognize any gain to the
extent of the greater of (i) the fair market value of the New Preferred Stock
received and (ii) the accrued market discount, if any (see section XI.B.8,
below). The holder's tax basis and holding period in the New Preferred Stock
will generally be the same as that of the New Preferred Stock received by a
holder in a fully taxable transaction as described above. However, the holder's
tax basis in its New Common Stock will generally equal its tax basis in the
Senior Subordinated Notes surrendered, increased by the amount of gain
recognized and decreased by the fair market value of the New Preferred Stock
received. In addition, the holder's holding period in the New Common Stock
would include its holding period in its Senior Subordinated Notes. Although not
free from doubt, the Debtors intend to treat the satisfaction by Lodgian
Financing Corp. of Senior Subordinated Notes Claims for New Common Stock and
New
78
Preferred Stock as a fully taxable transaction, in which holders would
recognize both gain and loss, as applicable.
5. Consequences to Holders of CRESTS Junior Subordinated
Debentures Claims
Assuming that the CRESTS Junior Subordinated Debentures are
treated as debt for federal income tax purposes, such debentures will
constitute "securities," and the receipt of New Common Stock and Warrants in
satisfaction of CRESTS Junior Subordinated Debentures likely would constitute a
"recapitalization" for federal income tax purposes. Assuming such exchange is
treated as a "recapitalization," in general, the holder of a CRESTS Junior
Subordinated Debentures Claim will not recognize loss upon such exchange, but
will recognize gain, if any, to the extent of any consideration received other
than the New Common Stock and Warrants (such as proceeds from insurance). The
portion of any consideration allocable to a claim for accrued but unpaid
interest (see section XI.B.7, below) or required to be treated as imputed
interest due to the distribution of such consideration after the Effective Date
(see section XI.B.1, above) is excluded from the above calculation and taxed
under separate rules.
In addition, a holder's aggregate tax basis in any New Common
Stock and Warrants received in satisfaction of its claim (other than a claim or
portion thereof for accrued but unpaid interest) will equal the holder's
aggregate adjusted tax basis in such claim increased by any gain recognized
with respect to such claim and decreased by the fair market value of any
consideration other than the New Common Stock and Warrants received with
respect to such claim. Such tax basis would be allocated between the New Common
Stock and Warrants based on relative fair market value. In general, the
holder's holding period for the New Common Stock and Warrants received will
include the holder's holding period for the claim except to the extent that the
New Common Stock and Warrants were issued in respect of a claim for accrued but
unpaid interest or treated as imputed interest.
Notwithstanding the foregoing, it is possible that the IRS
may seek to treat the receipt of New Common Stock and Warrants as part of a
non-recognition transaction under Section 351 of the Tax Code. If so treated,
holders would not recognize any loss, but would recognize any gain to the
extent of the greater of (i) the fair market value of any consideration
received other than New Common Stock (including the Warrants received and any
proceeds from insurance) and (ii) the accrued market discount, if any (see
section XI.B.8, below). The character and timing of such gain would be
determined in accordance with the principles discussed in section XI.B.1,
above. The portion of any consideration allocable to a claim for accrued but
unpaid interest (see section XI.B.7, below) or required to be treated as
imputed interest due to the distribution of additional consideration after the
Effective Date (see section XI.B.1, above), would be excluded from the above
calculation and taxed under separate rules. A holder's aggregate tax basis in
New Common Stock received in satisfaction of its claim would equal the holder's
aggregate adjusted tax basis in such claim increased by any gain recognized
with respect to such claim and decreased by the fair market value of any
consideration other than New Common Stock received with respect to such claim.
A holder's aggregate tax basis in the Warrants received would equal the fair
market value of such warrants. In general, the holder's holding period for the
New Common Stock received will include the holder's holding period for the
claim except to the extent that the New Common Stock was issued with respect to
a claim for
79
accrued but unpaid interest or treated as imputed interest. Although the issue
is not free from doubt, the Debtors intend to treat the issuance of New Common
Stock and Warrants in satisfaction of CRESTS Junior Subordinated Debentures as
a "recapitalization" for federal income tax purposes.
6. Consequences to Holders of Old Lodgian Common Stock Interests
The receipt of New Common Stock, A Warrants and B Warrants in
exchange for Old Lodgian Common Stock likely would be treated as a
"recapitalization" for federal income tax purposes. Assuming such exchange
constitutes a "recapitalization," in general, the holder of an Old Lodgian
Common Stock Interest will not recognize loss upon such exchange, but will
recognize gain, if any, to the extent of any consideration received other than
New Common Stock, A Warrants and B Warrants (such as proceeds from insurance).
The portion of any consideration required to be treated as imputed interest due
to the distribution of such consideration after the Effective Date is excluded
from the above calculation and taxed under separate rules (see section XI.B.1,
above).
In addition, a holder's aggregate tax basis in New Common
Stock, A Warrants and B Warrants received in exchange for its Old Lodgian
Common Stock Interest will equal the holder's aggregate adjusted tax basis in
such interest, increased by any gain recognized with respect to such interest
and decreased by any consideration other than New Common Stock, A Warrants and
B Warrants received with respect to such interest. Such tax basis would be
allocated between the New Common Stock, A Warrants and B Warrants based on
their relative fair market values. In general, the holder's holding period for
the New Common Stock, A Warrants and B Warrants received will include the
holder's holding period for its Old Lodgian Common Stock Interest.
Notwithstanding the foregoing, it is possible that the IRS
may seek to treat the receipt of New Common Stock, A Warrants and B Warrants as
part of a non-recognition transaction under Section 351 of the Tax Code. If so
treated, holders would not recognize any loss, but would recognize any gain to
the extent of the fair market value of any consideration received other than
New Common Stock (including the A Warrants and B Warrants received and any
proceeds from insurance). The character and timing of such gain would be
determined in accordance with the principles discussed in section XI.B.1,
above. The portion of any consideration allocable to a claim for accrued but
unpaid interest (see section XI.B.7, below) or required to be treated as
imputed interest due to the distribution of additional consideration after the
Effective Date (see section XI.B.1, above), would be excluded from the above
calculation and taxed under separate rules. A holder's aggregate tax basis in
New Common Stock received in satisfaction of its claim would equal the holder's
aggregate adjusted tax basis in such claim increased by any gain recognized
with respect to such claim and decreased by the fair market value of any
consideration other than New Common Stock received with respect to such claim.
A holder's aggregate tax basis in the A Warrants and B Warrants received would
equal the fair market value of such warrants. In general, the holder's holding
period for the New Common Stock received will include the holder's holding
period for the claim except to the extent that the New Common Stock was issued
with respect to a claim for accrued but unpaid interest or treated as imputed
interest. Although the issue is not free from doubt, the Debtors intend to
treat the
80
issuance of New Common Stock, A Warrants and B Warrants in satisfaction of Old
Lodgian Common Stock as a "recapitalization" for federal income tax purposes.
7. Distributions in Discharge of Accrued Interest
Pursuant to the 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
(whether stock, cash, or other property) by a holder of a debt is treated as
received in satisfaction of accrued interest during its holding period, 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.
However, it is possible that the IRS may seek to deny loss recognition with
respect to claims allocable to accrued interest held against Debtors other than
Lodgian, Inc. by treating such claims as having been transferred in a
non-recognition transaction. Although the issue is not free from doubt, the
Debtors intend not to treat such claims as having been transferred in a
non-recognition transaction. 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.
8. 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.
To the extent that a holder's claim is exchanged in a
"recapitalization" for federal income tax purposes, any accrued market discount
not treated as ordinary income upon such exchange should carry over, on an
allocable basis, to any New Common Stock, New Preferred Stock, and/or Warrants
received, such that any gain recognized by the holder upon a subsequent
disposition of such New Common Stock, New Preferred Stock, or Warrants would be
treated as ordinary income to the extent of any accrued market discount not
previously included in income.
9. Treatment of Subsequent Distributions on New Preferred Stock
and New Common Stock
Distributions - In General. The amount of distributions,
other than any constructive distributions on the New Preferred Stock (see
discussion below), if any, by the Reorganized Debtors in respect of the New
Common Stock and the New Preferred Stock will be equal to the amount of cash
and the fair market value as of the date of distribution of any property
distributed. Subject to the discussion in section XI.B.11, below, regarding
redemption of New Preferred Stock, distributions generally will be treated for
federal income tax purposes first as a taxable dividend to the extent of
Reorganized Debtors' current and accumulated
81
earnings and profits (as determined for federal income tax purposes) and then
as a tax-free return of capital to the extent of the holder's tax basis in its
stock, with any excess treated as capital gain from the sale or exchange of the
stock.
PIK Distributions. Distributions on the New Preferred Stock
will, for the first year following the Effective Date, and may, for the later
years, be paid in kind with additional shares of New Preferred Stock. Any such
distribution of additional shares of New Preferred Stock generally will be
taxed under the general distribution rules described above. Under these rules,
the amount of any such distribution generally will equal the fair market value
of the New Preferred Stock so received on the distribution date and be treated
for federal income tax purposes first as a taxable dividend to the extent of
the Reorganized Debtors' current and accumulated earnings and profits (as
determined for federal income tax purposes) and then as a tax-free return of
capital to the extent of the holder's tax basis in its stock, with any excess
treated as capital gain from the sale or exchange of the stock. In addition, a
holder's tax basis in the New Preferred Stock so received will equal the fair
market value of such stock on the distribution date, and such holder's holding
period for such stock will commence on the day following the distribution date.
Constructive Distributions on New Preferred Stock. Because
the New Preferred Stock is mandatorily redeemable on the tenth anniversary of
the Effective Date, if the New Preferred Stock is treated as having more than a
de minimis "redemption premium" (i.e., an excess of the "issue price" of the
New Preferred Stock over its redemption price), holders would be treated as
receiving distributions totaling the amount of such "redemption premium" over
the period of time during which the New Preferred Stock is held, based on a
constant yield-to-maturity method that reflects compounding. The applicable
sections of the Tax Code and Treasury Regulations do not state how the "issue
price" of preferred stock is to be determined. If, as the Debtors believe, the
"issue price" of preferred stock is determined in the same manner as the issue
price of debt instruments, and the New Preferred Stock is not publicly traded
within 30 days after the Effective Date, the "issue price" of the New Preferred
Stock should equal its liquidation preference. However, there can be no
assurance that the IRS will agree with the Debtors on the correct manner of
determining the "issue price" of preferred stock. In addition, because the New
Preferred Stock provides for cumulative dividends and its liquidation
preference will increase by the amount of any accrued, unpaid dividends, the
IRS may take the position that the amount of cumulative dividends must be added
to the redemption price of the New Preferred Stock, thus creating a redemption
premium. Although the issue is not free from doubt, the Debtors intend to take
the position that the New Preferred Stock has no redemption premium.
Distributions to Corporate Shareholders. In general,
distributions to corporate shareholders that constitute dividends for federal
income tax purposes will qualify for the 70% dividends received deduction,
which is available to corporate shareholders that own less than 20% of the
voting power or value of the outstanding stock of the distributing corporation
(other than certain preferred stock not applicable here). A corporate
shareholder holding 20% or more of the distributing corporation (other than
certain preferred stock not applicable here) may be eligible for an 80%
dividends received deduction. For purposes of applying the 20% ownership test,
the New Preferred Stock likely would not be taken into account. No assurance
can be given that the Reorganized Debtors will have sufficient earnings and
profits (as determined for federal
82
income tax purposes) to cause any distributions to be eligible for a dividends
received deduction. Dividend income that is not subject to regular federal
income tax as a consequence of the dividends received deduction may be subject
to the federal alternative minimum tax.
The dividends received deduction is only available if certain
holding periods and other taxable income requirements are satisfied. The length
of time that a shareholder has held stock is reduced by any period during which
the shareholder's risk of loss with respect to the stock is diminished by
reason of the existence of certain options, contracts to sell, short sales, or
similar transactions. Also, to the extent that a corporation incurs
indebtedness that is directly attributable to an investment in the stock on
which the dividend is paid, all or a portion of the dividends received
deduction may be disallowed. In addition, any dividend received by a
corporation may also be subject to the "extraordinary distribution" provisions
of the Tax Code.
10. Subsequent Sale of New Common Stock or New Preferred Stock
Any gain recognized by a holder upon a subsequent taxable
disposition of New Preferred Stock or New Common Stock (including any New
Common Stock received upon exercise of a Warrant) received pursuant to the Plan
(or any stock or property received for it in a later tax-free exchange) will be
treated as ordinary income to the extent of (i) any bad debt deductions (or
additions to a bad debt reserve) claimed with respect to its claim and any
ordinary loss deductions incurred upon satisfaction of its claim, less any
income (other than interest income) recognized by the holder upon satisfaction
of its claim, and (ii) with respect to a cash-basis holder, also any amounts
which would have been included in its gross income if the holder's claim had
been satisfied in full but which was not included by reason of the cash method
of accounting.
In addition, a portion of any gain recognized by a holder
upon a subsequent taxable disposition of New Preferred Stock or New Common
Stock may be treated as ordinary income under the "market discount" rules of
the Tax Code. See section XI.B.8, above.
11. Redemption of New Preferred Stock
The federal income tax treatment of a redemption to a holder
of New Preferred Stock will depend on the particular facts relating to such
holder at the time of the redemption. If, after applying certain constructive
stock ownership rules, the redemption of such stock (i) is "not essentially
equivalent to a dividend" with respect to the holder (taking into account any
ownership of common stock), (ii) is "substantially disproportionate" with
respect to the holder (defined generally as a greater than 20% reduction in a
holder's voting stock interest in a corporation), or (iii) results in a
"complete termination" of all such holder's equity interest in the corporation,
then the receipt of cash or property by such holder will be treated as a
taxable exchange with respect to which gain or loss will be recognized. In such
a case, any gain recognized by a holder will nonetheless be treated as ordinary
income to the extent of (i) any bad debt deductions (or additions to a bad debt
reserve) claimed with respect to its claim and any ordinary loss deductions
incurred upon satisfaction of its claim, less any income (other than interest
income) recognized by the holder upon satisfaction of its claim, and (ii) any
amounts received by cash-basis holders which would have been included in
83
the holder's gross income if the holder's claim had been satisfied in full but
which was not included by reason of the cash method of accounting.
If none of the above tests giving rise to taxable exchange
treatment is satisfied in respect of a redemption of New Preferred Stock, the
holder will be treated as having received an ordinary distribution with respect
to such stock. The amount of such distribution generally will equal the amount
of cash and the fair market value of property received in the redemption, and
will be treated first as a taxable dividend to the extent of the Reorganized
Debtors' current and accumulated earnings and profits, if any, and then as a
tax-free return of capital to the extent of the holder's tax basis in the stock
redeemed, with any excess treated as capital gain from the sale or exchange of
such stock. See the discussion in section XI.B.9, above with respect to
distributions to corporate shareholders.
12. Ownership and Disposition of Warrants
A holder of a Warrant will not recognize gain or loss upon
the exercise of such warrant (except possibly in respect of any cash received
in lieu of fractional shares). A holder's tax basis in the New Common Stock
received upon exercise of a Warrant will be equal to the sum of the holder's
tax basis in the Warrant and the exercise price (less the portion of the
holder's tax basis allocable to any fractional shares as to which the holder
receives cash, as discussed below). The holding period of the New Common Stock
received upon exercise of a Warrant will commence on the day following the
exercise of such warrant.
A holder who receives cash in lieu of a fractional share upon
exercise of a Warrant should recognize capital gain or loss equal to the
difference between the amount of cash received and the portion of the holder's
tax basis in the Warrant allocable to such fractional share, assuming the
Warrant is a capital asset in the hands of such holder.
The presence of an adjustment to the exercise price of the
Warrants under anti-dilution provisions may, under certain circumstances,
result in constructive distributions to the holder. Conversely, the absence of
an adjustment to the exercise price of the Warrants may result in a
constructive distribution to the holders of the New Common Stock.
Upon the lapse or disposition of a Warrant, the holder
generally should recognize gain or loss equal to the difference between the
amount received (nothing in the case of a lapse) and its tax basis in the
warrant. In general, such gain or loss should be a capital gain or loss,
long-term or short-term, depending on whether the Warrant was held as a capital
asset and whether the requisite holding period was satisfied.
13. Information Reporting and Withholding
All distributions to holders of allowed claims under the 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" at a rate 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
84
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. 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 AND EQUITY INTERESTS ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL, and OTHER TAX CONSEQUENCES APPLICABLE
UNDER THE PLAN.
XII.
CONCLUSION
Each of the Debtors believes that the 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, 4, 5, 10-A and 11 to vote to accept the 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 OCTOBER
28, 2002.
Dated: As of September 25, 2002
Respectfully submitted,
LODGIAN, INC.
By: /s/ David Hawthorne
------------------------------------
Name: David Hawthorne
Title: Chief Executive Officer
LODGIAN FINANCING CORP.
1075 HOSPITALITY, L.P.
ALBANY HOTEL, INC.
AMI OPERATING PARTNERS, L.P.
APICO HILLS, INC.
APICO INNS OF GREEN TREE, INC.
APICO INNS OF PITTSBURGH, INC.
ATLANTA-BOSTON HOLDINGS L.L.C.
ATLANTA-BOSTON LODGING L.L.C.
85
ATLANTA-HILLSBORO LODGING, L.L.C.
BRECKSVILLE HOSPITALITY, L.P.
BRUNSWICK MOTEL ENTERPRISES, INC.
COLUMBUS HOSPITALITY ASSOCIATES, L.P.
DEDHAM LODGING ASSOCIATES I, L.P.
DOTHAN HOSPITALITY 3053, INC.
DOTHAN HOSPITALITY 3071, INC.
EAST WASHINGTON HOSPITALITY LIMITED
PARTNERSHIP
FORT WAYNE HOSPITALITY ASSOCIATES II,
L.P.
GADSDEN HOSPITALITY, INC.
HILTON HEAD MOTEL ENTERPRISES, INC.
IMPAC HOTEL GROUP, L.L.C.
IMPAC HOTEL MANAGEMENT L.L.C.
IMPAC HOTELS I, L.L.C.
ISLAND MOTEL ENTERPRISES, INC.
KINSER MOTEL ENTERPRISES
LAWRENCE HOSPITALITY ASSOCIATES, L.P.
LITTLE ROCK LODGING ASSOCIATES, LIMITED
PARTNERSHIP
LODGIAN AMI, INC.
LODGIAN HOTELS, INC.
LODGIAN MOUNT LAUREL, INC.
LODGIAN ONTARIO, INC.
LODGIAN RICHMOND, LLC.
MANHATTAN HOSPITALITY ASSOCIATES, L.P.
MCKNIGHT MOTEL, INC.
MELBOURNE HOSPITALITY ASSOCIATES, L.P.
MINNEAPOLIS MOTEL ENTERPRISES, INC.
MOON AIRPORT MOTEL, INC.
NEW ORLEANS AIRPORT MOTEL ASSOCIATES,
L.P.
NH MOTEL ENTERPRISES, INC.
PENMOCO, INC.
RALEIGH-DOWNTOWN ENTERPRISES, INC.
SAGINAW HOSPITALITY, L.P.
SECOND FAYETTEVILLE MOTEL ENTERPRISES,
INC.
SERVICO AUSTIN, INC.
SERVICO CEDAR RAPIDS, INC.
SERVICO CENTRE ASSOCIATES, LTD.
SERVICO COLUMBIA, INC.
SERVICO COUNCIL BLUFFS, INC.
SERVICO FORT WAYNE, INC.
SERVICO FRISCO, INC.
SERVICO GRAND ISLAND, INC.
SERVICO HOTELS I, INC.
SERVICO HOTELS II, INC.
86
SERVICO HOTELS III, INC.
SERVICO HOTELS IV, INC.
SERVICO HOUSTON, INC.
SERVICO JAMESTOWN, INC.
SERVICO LANSING, INC.
SERVICO MANAGEMENT CORP.
SERVICO MARKET CENTER, INC.
SERVICO MARYLAND, INC.
SERVICO METAIRIE, INC.
SERVICO NEW YORK, INC.
SERVICO NIAGARA FALLS, INC.
SERVICO NORTHWOODS, INC.
SERVICO OMAHA CENTRAL, INC.
SERVICO OMAHA, INC.
SERVICO PENSACOLA 7200, INC.
SERVICO PENSACOLA 7330, INC.
SERVICO PENSACOLA, INC.
SERVICO ROLLING MEADOWS, INC.
SERVICO WEST DES MOINES, INC.
SERVICO WICHITA, INC.
SERVICO WINDSOR, INC.
SERVICO WINTER HAVEN, INC.
SERVICO, INC.
SHEFFIELD MOTEL ENTERPRISES, INC.
SIOUX CITY HOSPITALITY, L.P.
WASHINGTON MOTEL ENTERPRISES, INC.
WORCESTER HOSPITALITY, L.P.
By: /s/ Daniel Ellis
------------------------------------
Name: Daniel Ellis
Title: Authorized Officer
OFFICIAL COMMITTEE OF UNSECURED
CREDITORS
By: /s/ Sean Armstrong
------------------------------------
Name: Sean Armstrong
Title: Chairman
87
EXHIBIT A
DEBTORS' JOINT PLAN OF REORGANIZATION
Please see the attached.
88
EXHIBIT B
ESTIMATED PLAN RECOVERIES AND LIQUIDATION ANALYSIS BY DEBTOR
The material contained in this Exhibit B reflects the financial
analysis conducted by the Debtors and their financial advisor. For each Debtor,
this Exhibit contains a set of columns labeled "Recovery" setting forth the
estimated reorganization value of the Debtor, the categories and estimated
amount of Claims against such Debtor, and the estimated percentage recovery on
those Claims using the Bankruptcy Code's strict priority scheme for payment of
Claims. A similar analysis is provided in the second set of columns labeled
"Liquidation" assuming a hypothetical liquidation of the Debtors in a chapter 7
bankruptcy proceeding, utilizing the assumptions set forth in Exhibit F to the
Disclosure Statement.
For the "Recovery" case, the estimated reorganization value of
individual Debtors (the amount shown on the line labeled "Total Estimated
Value") is composed mainly of the estimated value of hotel assets, which is
reflected in the line labeled "Hotel Assets Estimated Value" and was generally
determined by applying a consistent valuation multiple to each Debtor's
trailing twelve month EBITDA (the amount shown on the line labeled "Operating
Profit"), subject to certain adjustments. The estimated value of any non-hotel
assets is shown on the line labeled "Non-Hotel Assets Estimated Value."
For the "Liquidation" case, the estimated liquidation value of
individual Debtors was calculated using approximately 80% of the "Recovery"
value to reflect the reduced proceeds that the Debtors believe would result in
a liquidation auction sale as compared to going concern value. Also, in the
"Liquidation" case, liquidation costs estimated at 10% of gross proceeds are
deducted reflecting the payment of chapter 7 trustee fees and other direct sale
costs, including other professional fees.
Please see the attached.
89
EXHIBIT C
ESTIMATED CLASS 3 ALLOWED CLAIMS AND
RECOVERIES AND ALLOCATIONS OF CLASS 3 PLAN SECURITIES
Please see the attached.
90
EXHIBIT D
PROJECTIONS
PRINCIPAL ASSUMPTIONS
Overall
1. The Effective Date of the Plan is December 31, 2002.
2. The recoveries and treatment of each Class of Claims and Equity
Interests are those set forth in the Plan.
3. From and after the Effective Date:
1. The consolidated results, assets and liabilities of the
Reorganized Lodgian Debtors exclude the respective results,
assets and liabilities of the Liquidating Debtors and the CCA
Debtors.
2. The Reorganized Lodgian Debtors' 30% ownership interest in
Columbus Hospitality Associates, L.P., a Debtor, is increased
to greater than 50% and therefore the results, assets and
liabilities of Columbus Hospitality Associates, L.P. are
included in the Projections for the Reorganized Lodgian
Debtors.
3. The Reorganized Lodgian Debtors' majority ownership interests
in each of New Orleans Airport Motel Associates, L.P. and
Servico Centre Associates, Ltd., each a Debtor and owner of a
Hotel Property, is increased to 85% or greater.
4. No purchases or sales of hotels occur during the Projection Period.
5. The mortgage financing on the hotel property owned by Macon Hotel
Associates, LLC, which matures in September 2003, is extended on the
same terms through the end of the Projection Period. The Lodgian
Debtors currently have a 60% ownership interest in Macon Hotel
Associates, LLC, which is not a Debtor. Accordingly, the results,
assets and liabilities of Macon Hotel Associates, LLC are included in
the Projections for the Reorganized Lodgian Debtors.
Income Statement
6. The income statements for 2002 are comprised of six months actual and
six months forecast operating results and exclude the Liquidating
Debtors and the CCA Debtors. Depreciation is based upon historical
cost, whereas depreciation expense for the Projection Period is based
upon the fair value of assets calculated under the fresh-start
accounting methodology.
7. Present economic conditions continue through the 3rd quarter of 2003
and then improve gradually during the remainder of the Projection
Period. Accordingly, occupancy and
91
average daily rate ("ADR") are assumed to increase gradually through
the Projection Period.
8. Market share (as reflected in annual change in revenue per available
room ("RevPAR") compared with competing hotels) remains constant.
9. Annual increases in operating profit result from increased revenues
rather than improved efficiencies.
10. Management fees for all hotels are 4% of total revenues.
11. The cost of property and general liability insurance has been
increased by more than 20% for the year ending 2003 to reflect
increased industry costs. No further changes are assumed for 2004 and
2005.
12. Current interest rates have been used for variable rate financing and
have been held constant throughout the Projection Period.
13. Depreciation has been calculated on the fair value of the fixed assets
as shown in the fresh start balance sheet using management's estimate
of the remaining useful life on a straight line basis consistent with
prior years.
14. The costs of the Exit Financing Facility, estimated at approximately
$8 million, have been charged to the Reorganized Lodgian Debtors and
are amortized over two years, which is the original term of the Exit
Financing Facility.
15. Unusual expenses in 2003 include an estimated $2.6 million for the
Reorganized Lodgian Debtors for residual Chapter 11 reorganization
costs.
16. Federal taxable income for the Reorganized Lodgian Debtors during the
Projection Period is assumed to be offset by net operating losses
brought forward and accordingly no payment is shown for taxes nor is
any charge or credit shown for Federal tax provisions during the
Projection Period. A charge for and payment of State taxes has been
assumed at $0.5 million in fiscal 2003 increasing to $1 million in
fiscal 2005.
Pro Forma Balance Sheet
1. The pro forma balance sheets show (a) the fresh start accounting
treatment of anticipated Allowed Claims and Equity Interests as
contemplated by the Plan and (2) debt discharge contemplated by the
Plan. The pro forma balance sheets illustrate the pro forma unaudited
pre-confirmation balance sheets and pro forma adjustments to record
the Plan confirmation which, when combined, form the pro forma
unaudited balance sheets of the Reorganized Lodgian Debtors as of
December 31, 2002.
2. Fixed assets have been restated to fair value in accordance with
reorganization fresh start principles - the effect has been to reduce
the net book value by approximately $162 million.
92
3. Long term secured debt of the Reorganized Lodgian Debtors includes (a)
the variable rate Exit Financing Facility, which is secured by 56
Hotel Properties, (b) the Mortgage Financings (other than the
GMAC-Orix Mortgage Financing, the Roundabout Mortgage Financing and
the CCA Mortgage Financing), which, as restructured pursuant to the
Plan, accrue interest at their pre-petition rates or, in the case of
the DDL Kinser and Wells Fargo Mortgage Financings, at the modified
rate specified herein and (c) the mortgage financing on the Macon
Hotel Associates, LLC hotel property, which continues at the existing
interest rate.
4. $13.6 million of priority tax claims payable over 5 years at an
assumed rate of interest of 3.5% are included in other long term debt
of the Reorganized Lodgian Debtors. Interest is paid currently on all
other long term debt.
5. Stockholders' equity of the Reorganized Lodgian Debtors has been
valued at a total of $214 million ($89 million for common equity and
$125 million for preferred stock). The New Preferred Stock has a
12.25% coupon, which accrues from the Effective Date with the first
cash dividend payments commencing in the first quarter of 2004.
PROJECTIONS
Please see the attached income statement, balance sheet, cash flow statement,
pro forma consolidated balance sheet and related notes.
93
LODGIAN, INC.
PROJECTED CONSOLIDATED FINANCIAL STATEMENTS
($ MILLIONS)
PREDECESSOR REORGANIZED LODGIAN DEBTORS
----------- --------------------------------------------
2002 2003 2004 2005
----------- ---------- ---------- ----------
INCOME STATEMENT
Available Rooms (1) 5,715,293 5,715,293 5,730,951 5,715,293
Revenues:
Rooms $ 253.3 $ 265.6 $ 284.7 $ 300.0
Food and beverage 77.6 79.7 83.1 85.2
Other 13.6 13.1 13.7 14.0
---------- ---------- ---------- ----------
Total revenues 344.5 358.3 381.5 399.2
---------- ---------- ---------- ----------
Operating expenses:
Direct 135.2 138.5 143.6 147.9
General, administrative and other 144.4 148.7 154.7 159.0
Depreciation & amortization 49.7 44.9 47.1 44.8
Restructuring expenses 21.7 2.6 -- --
---------- ---------- ---------- ----------
Total operating expenses 351.1 334.6 345.4 351.7
---------- ---------- ---------- ----------
Operating profit (6.6) 23.7 36.1 47.5
Other (income)/expense:
Interest income and other (0.3) -- -- --
Interest expense 31.9 28.0 26.7 24.5
Minority interest (0.4) -- -- --
---------- ---------- ---------- ----------
Income/(loss) before taxes (37.8) (4.3) 9.5 23.0
Provision for income taxes (0.4) (0.5) (0.8) (1.0)
---------- ---------- ---------- ----------
Net income/(loss) (38.2) (4.8) 8.7 22.0
Less preferred stock dividends -- (16.0) (17.3) (17.3)
---------- ---------- ---------- ----------
Net income/(loss) attributable to common shareholders $ (38.2) $ (20.9) $ (8.5) $ 4.7
========== ========== ========== ==========
EBITDA 44.0 68.5 83.2 92.3
Unusual Expenses 21.7 2.6 -- --
---------- ---------- ---------- ----------
EBITDA before unusual expenses $ 65.7 $ 71.1 $ 83.2 $ 92.3
========== ========== ========== ==========
Notes:
(1) Increase in available rooms in 2004 due to leap year
(2) Excludes CCA, GMAC/Orix, and Roundabout Debtors
Please refer to Principal Assumptions
94
LODGIAN, INC.
PROJECTED CONSOLIDATED FINANCIAL STATEMENTS- REORGANIZED LODGIAN DEBTORS
($ MILLIONS)
2002 2003 2004 2005
------ ------ ------ ------
BALANCE SHEET
Cash balance $ 15.5 $ 14.2 $ 5.0 $ 5.0
Cash - restricted 9.3 9.3 9.3 9.3
Accounts receivable 11.7 12.2 13.0 13.6
Inventories 5.5 6.0 6.1 6.2
Prepaid expenses 10.0 9.1 9.1 9.1
------ ------ ------ ------
Total current assets 52.0 50.8 42.5 43.2
Property & equipment, net 604.9 591.0 565.3 538.4
Capex escrows 4.2 4.4 4.4 4.4
Other assets 8.1 4.1 -- --
------ ------ ------ ------
TOTAL ASSETS $669.2 $650.3 $612.2 $586.1
====== ====== ====== ======
Accounts payable $ 9.3 $ 9.9 $ 10.5 $ 11.0
Accrued liabilities 35.6 31.1 33.0 34.6
Advance deposits 1.8 1.7 1.8 1.9
------ ------ ------ ------
Total current liabilities 46.7 42.7 45.3 47.5
Merrill Lynch financing 286.2 283.2 273.5 247.4
Other long term secured debt 105.1 100.7 80.9 76.6
Other long term debt 13.6 10.9 8.2 5.4
Minority Interest 3.7 3.7 3.7 3.7
Preferred Stock 125.0 141.0 141.0 141.0
Stockholders' equity 89.0 68.1 59.6 64.3
------ ------ ------ ------
TOTAL LIABILITIES & EQUITY $669.2 $650.3 $612.2 $586.1
====== ====== ====== ======
Please refer to Principal Assumptions
95
LODGIAN, INC.
PROJECTED CONSOLIDATED FINANCIAL STATEMENTS- REORGANIZED LODGIAN DEBTORS
($ MILLIONS)
2003 2004 2005
----- ----- -----
CASH FLOWS
Net income/(loss) $(4.8) $ 8.7 $22.0
Depreciation & amortization 44.9 47.1 44.8
Changes in operating assets & liabilities:
Accounts receivable (0.5) (0.7) (0.6)
Inventory (0.5) (0.1) (0.1)
Accounts payable 0.6 0.6 0.5
Accrued liabilities (4.5) 1.9 1.6
Advance deposits (0.1) 0.1 0.1
----- ----- -----
Net cash from operations 35.9 57.6 68.3
Investing:
Capital improvements, gross (26.9) (17.3) (18.0)
Net funding to capex escrow (0.1) -- --
----- ----- -----
Net cash from investing (27.1) (17.3) (18.0)
Financing:
Additional repayment of ML financing -- (5.2) (20.1)
Repayment of long term debt (7.4) (24.3) (10.3)
Repayment of other debt (2.7) (2.7) (2.7)
Preferred stock dividends -- (17.3) (17.3)
----- ----- -----
Net cash from financing (10.1) (49.5) (50.3)
----- ----- -----
Net change in cash (1.3) (9.2) --
Cash balance, beginning 15.5 14.2 5.0
----- ----- -----
Cash balance, ending $14.2 $ 5.0 $ 5.0
===== ===== =====
Please refer to Principal Assumptions
96
REORGANIZED LODGIAN DEBTORS
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
(Unaudited)
(Dollars in millions)
Projected
Projected Precon-
Precon- firmation
firmation Deduct Balance
Balance Deduct Round- Add Deduct Sheet (as
Sheet CCA about Columbus GMAC/Orix adjusted)
--------- ------ ------ -------- --------- ----------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 17.9 $ 1.7 $ 0.9 $ 0.2 $ 16.9
Cash restricted (including cash escrows
for LC backing) ............................................ 7.6 3.5 0.4 3.7
Accounts receivable, net of allowances ........................ 14.1 1.8 0.2 0.8 11.7
Inventories ................................................... 7.4 1.2 0.1 0.1 0.7 5.5
Prepaid expenses and other current assets ..................... 8.2 0.5 0.7 7.0
------ ------ ----- ----- ------ ------
Total current assets ................................... 55.2 8.7 0.1 1.2 2.8 44.8
Property and equipment, net ........................................ 895.5 107.8 1.7 7.0 26.3 766.7
Deposits for capital expenditures .................................. 5.8 1.5 0.1 4.2
Other assets, net .................................................. 2.7 0.1 0.1 2.5
------ ------ ----- ----- ------ ------
$959.3 $118.1 $ 1.8 $ 8.2 $ 29.3 $818.3
====== ====== ===== ===== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................. $ 11.4 $ 1.0 $ 0.2 $ 0.1 $ 1.0 9.3
Other accrued liabilities ................................... 39.8 2.1 0.4 1.5 36.6
Advance deposits ............................................ 2.0 0.1 0.1 1.8
Current portion of long-term debt and capital
lease obligations ........................................ 0.3 -- -- 0.3
------ ------ ----- ----- ------ ------
Total current liabilities ................................... 53.5 3.2 0.2 0.5 2.6 48.0
Other long-term debt and capital
lease obligations............................................. 7.3 -- 7.3
Liabilities Subject to Compromise ................................. 928.7 111.4 1.9 6.2 27.7 793.9
Merrill Lynch financing ........................................... -- --
GMAC/Orix financing ............................................... --
Other Long Term Secured Debt ...................................... -- --
Other Long Term Debt .............................................. -- --
Minority interests ................................................ 6.7 6.7
Stockholders' (deficit) equity:
Common stock (old) ............................................. 0.3 0.3
Common stock (new) ............................................. --
Preferred stock ................................................ -- --
Additional paid-in capital ..................................... 263.3 263.3
Accumulated deficit ............................................ (299.1) 3.5 (0.3) 1.5 (1.0) (299.8)
Accumulated other comprehensive loss ........................... (1.4) (1.4)
------ ------ ----- ----- ------ ------
Total stockholders' deficit ............................. (36.9) 3.5 (0.3) 1.5 (1.0) (37.6)
------ ------ ----- ----- ------ ------
$959.3 $118.1 $ 1.8 $ 8.2 $ 29.3 $818.3
====== ====== ===== ===== ====== ======
Debt
Merrill For-
Lynch giveness & Reorganized
Financing Fresh Start Other Balance Sheet
--------- ----------- ----- -------------
ASSETS
Current assets:
Cash and cash equivalents ..................... $ (1.9) $ 0.5 $ 15.5
Cash restricted (including cash escrows
for LC backing) ............................ 7.1(b) (0.5) (1.0)(e) 9.3
Accounts receivable, net of allowances ........ 11.7
Inventories ................................... 5.5
Prepaid expenses and other current assets ..... 2.0(b) 1.0(e) 10.0
------ ------- ------ ------
Total current assets ................... 7.2 -- -- 52.0
Property and equipment, net ........................ (161.8)(d) 604.9
Deposits for capital expenditures .................. 4.2
Other assets, net .................................. 8.1(a) (2.5)(d) 8.1
------ ------- ------ ------
$ 15.3 $(164.3) $ -- $669.2
====== ======= ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................. 9.3
Other accrued liabilities ................... (1.0)(b) 35.6
Advance deposits ............................ 1.8
Current portion of long-term debt and capital
lease obligations ........................ (0.3) --
Total current liabilities ................... (1.0) (0.3) 46.7
Other long-term debt and capital
lease obligations ............................ (7.3) --
Liabilities Subject to Compromise ................. (262.3)(b) (111.1)(f) --
Merrill Lynch financing ........................... 286.2 286.2
GMAC/Orix financing ............................... --
Other Long Term Secured Debt ...................... 105.1(f) 105.1
Other Long Term Debt .............................. 13.6 13.6
Minority interests ................................ (3.0)(d) 3.7
Stockholders' (deficit) equity:
Common stock (old) ............................. (0.3) --
Common stock (new) ............................. 89.0(c) 89.0
Preferred stock ................................ 125.0(c) 125.0
Additional paid-in capital ..................... (263.3)(d) --
Accumulated deficit ............................ (7.6)(b) 307.4(d) --
Accumulated other comprehensive loss ........... 1.4(d) --
------ ------- ------ ------
Total stockholders' deficit ............. (7.6) 259.2 -- 214.0
------ ------- ------ ------
$ 15.3 $(164.3) $ -- $669.2
====== ======= ====== ======
The Projections should be read only in conjunction with the assumptions,
qualifications and explanations under the caption "- Projected Financial
Information".
97
LODGIAN, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
a) Reflects financing fees and expenses associated with the establishment
of the Exit Financing Credit Facility.
b) Reflects the payment of (i) cure payments for assumptions of executory
contracts; (ii) repayment of certain secured debt; (iii) certain
professional fees, deposits and other expenses related to the
Reorganization Cases; (iv) cash collateralization of letters of
credit; and (v) management bonuses.
c) Reflects distribution of equity under the Plan.
d) Reflects the write-down of identifiable assets to fair value in
accordance with fresh-start reporting as well as other fresh start
reporting adjustments.
e) Reflects reclassification of deposit.
f) Reflects the following treatment of debt:
Lehman/CriimiMae $ 23.9
Local Federal 2.5
GMAC 5.3
First Union 3.4
DLJ/Column/CriimiMae 29.6
DLJ/Column 9.4
Column/CriimiMae 3.4
Chase 11.7
Wells Fargo 5.8
United Capital/Hudson United 0.2
Albany - deferred rent 2.3
Promissory note (priority tax claims) 13.6
------
LIABILITIES SUBJECT TO COMPROMISE 111.1
Plus Macon (previously not subject to compromise) 7.6
Less Priority tax claims (shown separately) (13.6)
------
OTHER LONG TERM SECURED DEBT $105.1
======
98
EXHIBIT E
COMMITMENT LETTER AND SUMMARY OF PRINCIPAL TERMS OF EXIT FINANCING FACILITY
Please see the attached.
99
EXHIBIT F
LIQUIDATION ANALYSIS ASSUMPTIONS AND SUMMARY OF LIQUIDATION RECOVERY BY CLASS
The following major assumptions have been made in the liquidation
analysis set forth in this Exhibit F:
1. The liquidation of assets commences on January 1, 2003 and is
completed by June 30, 2003.
2. No additional income tax liabilities or other claims arise from the
liquidation of the Debtors' assets.
3. During the liquidation process, the Debtors continue to operate their
hotels as a going concern.
4. The Debtors are liquidated under the direction of a trustee appointed
by the Bankruptcy Court who will be entitled to 3% of the gross
liquidation proceeds as fees.
5. Other professionals, such as real estate brokers, attorneys and other
advisors, will be utilized in order to expedite the liquidation
process. In addition, corporate office and regional employees are
assumed to assist in the liquidation process and receive severance
payments. These and other direct costs related to the sales of the
individual properties are estimated at 7% of the gross liquidation
values.
6. Liens against the properties, such as property taxes, are deducted
from the gross liquidation proceeds to arrive at the net liquidation
proceeds available for creditors.
7. Any cash generated by the hotels during the liquidation period and
since the Chapter 11 petitions were filed is assumed to be consumed by
operating expenses, management fees, capital expenditures,
administrative costs and interest expense on secured debt.
8. Proceeds from Hotel Properties have been calculated assuming that (i)
all operations are sold through auctions in the Bankruptcy Court as
"going-concerns" and (ii) all executory contracts and unexpired leases
that have not been rejected or terminated by the Debtors are assigned
to the purchasers. As a result, all cure costs related to these
executory contracts and unexpired leases are paid out of the gross
liquidation proceeds.
9. Hotel employees will be employed by the new hotel owners and therefore
will not be entitled to severance or other termination benefits.
10. Estimated gross proceeds from asset sales are valued at a 30% discount
to the reorganization value for the "Low" scenario and a 20% discount
for the "High" scenario.
Please see the attached summary of liquidation recoveries by Class.
100