UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
.................................................x
LODGIAN, INC., : SUMMONS IN A
: CIVIL CASE
Plaintiff, :
: Docket No.: 00 CIV. 6118
- against - :
:
CASUARINA CAYMAN HOLDINGS LTD., :
EDGECLIFF HOLDINGS, LLC, EDGECLIFF :
MANAGEMENT, LLC, 1994 WILLIAM J. YUNG :
FAMILY TRUST, WILLIAM J. YUNG, JOSEPH YUNG, :
and THE 1998 WILLIAM J. YUNG AND MARTHA A. :
YUNG FAMILY TRUST, :
:
Defendants. :
.................................................x
TO: CASUARINA CAYMAN HOLDINGS LTD.
EDGECLIFF HOLDINGS, LLC Address of all Defendants:
EDGECLIFF MANAGEMENT, LLC
1994 WILLIAM J. YUNG FAMILY TRUST 207 Grandview Drive
WILLIAM J. YUNG Fort Mitchell, KY 41017
JOSEPH YUNG
THE 1998 WILLIAM J. YUNG AND
MARTHA A. YUNG FAMILY TRUST
YOU ARE HEREBY SUMMONED and required to serve upon PLAINTIFF'S
ATTORNEY:
Dennis J. Block, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
an answer to the complaint which is herewith served upon you, within 20 days
after service of this summons upon you, exclusive of the day of service. If you
fail to do so, judgment by default will be taken against you for the relief
demanded in the complaint. You must also file your answer with the Clerk of this
Court within a reasonable period of time after service
Clerk: James M. Parkison Date: August 16, 2000
-----------------------------------
/s/ [Authorized Signatory]
-----------------------------------
(By) Deputy Clerk
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
<PAGE>
.................................................x
LODGIAN, INC., : No.: 00 CIV. 6118
:
Plaintiff, :
:
- against - : COMPLAINT
:
:
CASUARINA CAYMAN HOLDINGS LTD., :
EDGECLIFF HOLDINGS, LLC, EDGECLIFF : JURY TRIAL DEMANDED
MANAGEMENT, LLC, 1994 WILLIAM J. YUNG :
FAMILY TRUST, WILLIAM J. YUNG, JOSEPH YUNG, :
and THE 1998 WILLIAM J. YUNG AND MARTHA A. :
YUNG FAMILY TRUST, :
:
Defendants. :
.................................................x
Plaintiff Lodgian, Inc. ("Lodgian" or the "Company"), by its
attorneys Cadwalader, Wickersham & Taft, alleges for its complaint against
defendants Casuarina Cayman Holdings Ltd. ("Casuarina"), Edgecliff Holdings, LLC
("Edgecliff Holdings"), Edgecliff Management, LLC ("Edgecliff Management"), 1994
William J. Yung Family Trust (the "1994 Trust'), William J. Yung ("Yung"),
Joseph Yung, and The 1998 William J. Yung and Martha A. Yung Family Trust (the
"1998 Trust") (collectively, "Defendants"), upon knowledge with respect to
Lodgian and its own acts, and upon information and belief as to all other
matters, as follows:
NATURE OF THE ACTION
--------------------
1. Plaintiff brings this action for preliminary and permanent
injunctive relief to prevent Defendants from continuing to violate the federal
securities laws in furtherance of an undisclosed plan, conceived and
orchestrated by Defendants, to acquire
<PAGE>
control of the Company's Board of Directors and/or to force the Company to sell
its assets to Yung or companies he controls at below market price, or, in the
alternative, to force a sale of the Company to third-party, or failing that, to
compel Lodgian to purchase Defendants' Lodgian stock at a premium over its
current market price (thereby permitting Defendants to reap a substantial profit
on their Lodgian investment).
2. Plaintiff Lodgian is a Delaware corporation, and is one of
the largest owners and operators of full service-hotels in North America.
3. Defendants Edgecliff Holdings and Casuarina beneficially
own approximately 9.23% and 5.665%, respectively, of Lodgian's outstanding
common stock. According to Defendants' Schedule 13D and the Amendments thereto,
Yung controls the Edgecliff Defendants and Casuarina, and therefore, is deemed
to have beneficial ownership of all their shares, which represent 14.9% of the
Company's outstanding common stock.
4. This action seeks injunctive and other relief to redress
Defendants' flagrant violations of the federal securities law in connection with
their accumulation of Lodgian stock. As fully described below, for a period of
ten months -- during which Defendants increased their Lodgian stake to nearly
15% of Lodgian's outstanding common stock -- Defendants misled the investing
public (and Lodgian) as to their intentions concerning Lodgian. In a series of
statements on Schedule 13D filed pursuant to the Securities Exchange Act of 1934
(the "Exchange Act") with the Securities and Exchange Commission ("SEC"),
Defendants utterly failed to disclose (as required by Schedule 13D) their actual
intentions with respect to Lodgian.
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5. In truth, during this entire ten-month period, Defendants
were embarked on a scheme -- which still has not been accurately disclosed --
designed solely to maximize their immediate financial gain at the expense of
maximizing greater long-term value for Lodgian's shareholders. To further this
goal, Defendants have been actively attempting to obtain representation on or
control over Lodgian's Board of Directors, to force a sale of the Company either
to Yung or companies he controls at below market prices or to a third party, or,
in the alternative, to have Lodgian repurchase Defendants' stock at a
substantial premium over its market price. Defendants' tale purpose was never
disclosed to the investing public in direct violation of Section 13(d) of
Exchange Act.
6. In fact, Defendants' willingness to cease their efforts to
elect directors to Lodgian's Board in exchange for a substantial payment from
Lodgian for their shares was revealed to Lodgian (but not the investing public)
on August 1, 2000, when Yung phoned Lodgian's Chief Executive Officer, Robert
Cole. In that conversation, Yung offered to acquire a select group of hotels
from Lodgian, and proposed as part of that transaction that the Company purchase
Edgecliff and Casuarina's Lodgian stock for approximately $20 million --
representing a substantial greenmail premium to Defendants above the current
trading price of Lodgian stock. To date, Defendants still have not disclosed
their efforts to obtain a greenmail premium from Lodgian to the Company's
stockholders or the investing public.
7. Unless injunctive relief is ordered, Lodgian and its
stockholders will be irreparably harmed as a result of the securities laws
violations described herein.
3
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JURISDICTION AND VENUE
----------------------
8. This Court has subject matter jurisdiction over this action
pursuant to Section 27 of the Exchange Act, 15 U.S.C.ss.78aa and 28
U.S.C.ss.1331. The claims in this action arise under Section 13(d) of the
Exchange Act, 15 U.S.C.ss.78m(d), and Rule 13d-1 promulgated thereunder by the
Securities and Exchange Commission, 17 C.F.R.ss.240.13d-1.
9. Venue is proper in this District pursuant toss.27 of the
Exchange Act, 15 U.S.C.ss.78aa and 28 U.S.C.ss.1391(b). Many of the acts,
transactions and conduct constituting violations of the Exchange Act, including
the dissemination of false and misleading information, occurred, at least in
part, in this District.
10. In connection with the acts alleged in this Complaint,
Defendants directly and indirectly used the means and instrumentalities of
interstate commerce, including the mails, telephone communications and the
facilities of national securities exchanges.
THE PARTIES
-----------
11. Plaintiff Lodgian, Inc. is a corporation organized under
the laws of the State of Delaware, with its principal place of business in
Atlanta, Georgia. Lodgian owns and operates hotels throughout North America.
Lodgian's shares are registered pursuant to Section 12 of the Exchange Act and
are publicly traded on the New York Stock Exchange.
12. Defendant William J. Yung is the President of Casuarina
and the Chief Executive Officer of Columbia Sussex Corporation ("Columbia
Sussex"), both of
4
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which are hotel companies that compete with Lodgian. He also is the President of
the Edgecliff Defendants, which are primarily engaged in the business of
investing in securities.
13. Defendant Joseph Yung, William Yung's son, serves as the
Investment Advisor to the 1994 and 1998 Trusts and is an officer of Columbia
Sussex.
14. Defendant Casuarina Cayman Holdings Ltd. is a corporation
organized under the laws of Cayman Islands, BWI with its principal place of
business in Fort Mitchell, Kentucky. Casuarina is a holding company owning 100%
of the outstanding capital stock of Galleon Beach Resort, Ltd., which, in turn,
owns and operates a resort hotel in Grand Cayman. Casuarina's two shareholders
are Yung and the 1994 Trust.
15. Defendants Edgecliff Holdings, LLC and Edgecliff
Management, LLC are organized under the laws of Kentucky and have their
principal places of business in Fort Mitchell, Kentucky.
16. The 1994 and 1998 Trusts are organized under the laws of
Ohio, with their principal offices in Fort Mitchell, Kentucky. The business of
the Trusts is to hold assets for Yung's children.
17. According to their most recent Schedule 13D Amendment,
Defendants are a "group" for purposes of Exchange Act Rule 13d-5, and together
beneficially own 4,191,800 shares, or 14.9% of Lodgian's outstanding common
stock.
5
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FACTUAL BACKGROUND
------------------
18. As set forth above, Lodgian is engaged in the business of
owning and operating hotels throughout North America. As of December 31, 1999,
Lodgian operated 134 hotels containing 25,493 rooms located in 35 states and
Canada. The Company owns and operates hotels under the Marriott, Hilton, Holiday
Inn, Radisson and Sheraton brands, among others. In fact, Lodgian is one of the
nation's largest Holiday Inn and Marriott franchisees, and has been recognized
repeatedly with service awards from these and other franchisors.
19. Yung, through his control of Casuarina and Columbia
Sussex, also owns and operates hotels, and thus, directly competes with the
Company in the lodging industry.
20. Beginning in or around October 1999, Casuarina and the
Edgecliff Defendants, at the direction of Yung and the other Defendants,
steadily increased their stake in Lodgian with a goal of obtaining
representation on or control of the Company's Board of Directors, forcing a sale
of the Company either to Yung or companies he controls at a fire sale price or
to a third party buyer, or failing that, compelling Lodgian to repurchase
Defendants' stock at a substantial premium over market price. Defendants did not
disclose these efforts in any of their Schedule 13D filings.
6
<PAGE>
The Initial Schedule 13D Contains A Boilerplate
Laundry List of the Possible Purposes of Defendants'
Investment in Lodgian And Is False And Misleading
-------------------------------------------------
21. On or around October 4, 1999, Casuarina, as required by
Section 13(d) of the Exchange Act, filed a Schedule 13D with the Securities and
Exchange Commission ("SEC"). The Schedule 13D disclosed beneficial ownership of
9.2% of Lodgian's outstanding shares. In addition, under Item 4 of the Schedule
13D (which requires full and complete disclosure with respect to the filing
person's "purpose" and "plans"), Casuarina stated that "Mr. Yung may seek
representation on the Board of Directors of the Issuer. While Mr. Yung has no
specific plans or proposals relating to obtaining representation on the Board of
Directors of the Issuer, such representation may involve a plan or proposal to
change the number or term of directors or to fill an existing vacancy on the
Board and may involve solicitation of proxies to obtain such representation."
22. Item 4 further states that "while there are no specific
plans or proposals at this time, nothing would preclude ... [the] undertaking
[of] any of the following actions: the disposition of securities of the Issuer;
an extraordinary corporate transaction involving the Issuer or any of its
subsidiaries; a sale or transfer of material amount of the assets of Issuer or
any of its subsidiaries; material change in the present capitalization or
dividend policy of the Issuer; any other material change in the Issuer's
business or corporate structure; changes in the Issuer's charter or by-laws or
other actions that might impede the acquisition or control of the Issuer by any
other person; causing securities of the Issuer to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an interdealer
quotation system of a registered
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national securities association; causing securities of the Issuer to be eligible
for termination of registration pursuant to the Securities Exchange Act of 1934;
or any other similar action."
23. The Schedule 13D plainly is false and misleading because,
at the time this Schedule was filed with the SEC, and notwithstanding
Defendants' statements to the contrary, Defendants were not merely "considering"
some or all of the actions above, but in fact already had decided on and were
actively pursuing certain specific goals: altering the composition of the Board
(by nominating Yung and others for director positions on the Board) and seeking
either to promote an extraordinary corporate transaction (i.e., the sale of the
Company to a third party or the sale of the Company's assets to Yung) or the
greenmail of Lodgian through the repurchase of Yung's stock by Lodgian at an
exorbitant premium.
24. The Schedule 13D also is false and misleading because
Defendants did not intend to take any of the actions listed in P. 22 other than
as noted above. By setting forth a laundry list of potential actions --
including "any other similar action" -- which Defendants in fact never had any
intention of considering or pursuing, Defendants knowingly and willfully
obscured their true purpose in acquiring Lodgian shares.
Amendment No. 1 (November 9,
1991) Is False And Misleading
-----------------------------
25. On November 9, 1999, Casuarina transferred all of its
shares to its two shareholders, the 1994 Trust and Yung. On that same date,
Defendants filed Amendment No. 1 disclosing this transfer of shares.
8
<PAGE>
26. Amendment No. 1 also states that Casuarina and its
affiliates had retained Greenhill & Co. as financial advisor in connection with
their investment in Lodgian. Item 4 of Amendment No.1 contains virtually the
same laundry list of possible plans with respect to the Company that was
contained in the initial 13D disclosure, adding that "[a]lthough the Trust and
William J. Yung are actively exploring their options with respect to each of the
foregoing, there can be no assurance that the Trust and William J. Yung will
actually seek to implement any of the foregoing."
27. Item 4 of Amendment No. 1, like Item 4 of the Schedule
13D, is false and misleading. Defendants were not considering all of the
foregoing options; rather, they already had intended to seek representation on
or control of the Board in order to force a sale of the Company or the sale of
Lodgian's assets to Yung at below market prices or obtain greenmail from
Lodgian. Moreover, by representing that they were considering all these
alternatives, Defendants masked their true intent, as set forth above. These
plans should have been, but were not disclosed.
Amendment Nos. 2 and 3 (November 16 and
November 22. 1999) Are False And Misleading
-------------------------------------------
28. On November 16, 1999, Defendants filed Amendment No. 2 to
their Schedule 13D. Amendment No. 2 states that "by a letter dated November 16,
1999," Casuarina and its affiliates "informed Lodgian, Inc. of their intention
to offer to acquire Lodgian, Inc." In the November 16 letter, which was attached
to Amendment No. 2, Yung made a conditional "offer" to acquire Lodgian for
$6.50/share subject to due diligence and the ability to obtain financing. Yung
also demanded, among other things, "access to non-public information in
connection with this proposal."
9
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29. On November 22, 1999, Casuarina purchased 143,600 shares
of Lodgian stock. On that same date, Amendment No. 3 was filed, disclosing
Casuarina's purchase of those shares and attaching a letter from Mr. Cole to
Yung rejecting Yung's "offer" to acquire Lodgian. As set forth in Mr. Cole's
November 22 letter, the Lodgian Board "believe[d] that the terms and conditions
by which you propose to move forward regarding a purchase of the Company are not
in the best interests of Lodgian shareholders. Moreover, we believe that the
price you are considering materially understates the value of the Company's
business and assets."
30. By letter dated January 3, 2000, however, the Company
offered Casuarina the very non-public information it had been seeking. The
Company added that it had retained Morgan Stanley Dean Witter as its financial
advisor to assist the Company in exploring strategic alternatives to maximize
shareholder value. The Company stated that -- as with all parties potentially
interested in an acquisition -- Lodgian was willing to provide Casuarina with
non-public information regarding Lodgian upon proof of ability to finance an
acquisition, and the execution of a customary confidentiality and standstill
agreement. Defendants, however, were absolutely unwilling to enter into such a
standstill agreement, which (as Defendants are well aware) is designed to
protect Lodgian stockholders by preventing the use of non-public information
regarding the Company in connection with unsolicited acquisition attempts that
are not in the shareholders' best interests.
31. However, neither Amendment Nos. 2 or 3, nor Yung's letter
accompanying Amendment No. 2, disclose Defendants' actual "purpose or plans" in
connection with Casuarina's acquisition of additional Lodgian stock. At the time
they
10
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filed Amendment Nos. 2 and 3, Defendants in fact were acquiring additional
shares in connection with seeking representation on or control of the Lodgian
board in order to force a sale of the Company or the sale of Lodgian's assets to
Yung at fire sale prices, or to force Lodgian to purchase Yung's shares at a
premium. Those plans should have been but were not publicly disclosed.
Accordingly, Amendment Nos. 2 and 3 plainly are false and misleading.
Amendment Nos. 4, and 5 (December 28, 1999
and January 18, 2000) Are False And Misleading
----------------------------------------------
32. Between December 20 and December 28, 1999, Casuarina
purchased an additional 200,200 shares of Lodgian common stock, thereby
increasing Defendants' stake in Lodgian to 10.54862%. On December 28, 1999,
Defendants filed Amendment No. 4 to their Schedule 13D, which disclosed these
purchases. Likewise, Amendment No. 5, filed on January 18, 2000, disclosed
Casuarina's purchase of 100,000 additional Lodgian shares. In Item 4 of both
Amendment No. 4 and No. 5, however, Defendants once again completely failed to
disclose any "purposes or plan" in connection with their acquisition of these
additional shares, nor did they purport to amend Defendants' prior disclosure --
contained in the Schedule 13D and the first three amendments thereto.
33. Amendment Nos. 4 and 5 clearly are false and misleading.
At the time they filed Amendment Nos. 4 and 5, Defendants were well into a
campaign not only to obtain Board representation, but also either to acquire
outright control of the Board and to force a sale of the Company to a third
party or the sale of the Company's assets to Yung at prices favorable to Yung
but not to the majority of Lodgian shareholders, or
11
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to compel Lodgian to purchase Defendants' Lodgian shares at a substantial
premium over the stock's current market price. In fact, as noted above,
Defendants' true intentions (as described herein) are confirmed by their
unwillingness to execute a customary standstill restriction in order to obtain
non-public information regarding the Company. Amendment Nos. 4 and 5 do not
contain any disclosure of Defendants' "purposes and plans" with respect to their
ownership and acquisition of Lodgian stock, let alone their true "purposes and
plans" as set forth above.
Amendment Nos. 7 and 8 (April 18
And May 4, 2000 Are False and Misleading
----------------------------------------
34. Amendment No. 7 finally disclosed that Defendants intended
to conduct a proxy contest in order to nominate and elect directors to Lodgian's
Board at the 2000 Annual Meeting of Stockholders. In Item 4 of Amendment No. 7,
Defendants stated that their nominees "are expected to strongly advocate a sale
of Lodgian to the highest bidder, whether to [Defendants] or to any other party
offering an acquisition proposal deemed to be superior." Amendment No. 7 also
attached a copy of a Preliminary Proxy Statement to shareholders ("PPS"), which
listed Defendants' proposed nominees as Yung, Joseph E. Marquet (Columbia
Sussex's Chief Financial Officer) and Andrew Berger (Edgecliff's outside
counsel). Amendment No. 8 to Defendants' Schedule 13D attached an amended PPS.
35. Thus, after Defendants had accumulated over 11% of
Lodgian's stock and filed a Schedule 13D and six amendments thereto, Defendants
disclosed -- for the first time -- their long standing and transparent intention
to nominate and attempt to elect directors to the Lodgian's Board of Directors
and force a sale of the Company to
12
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a third party or, in the alternative, to Yung. Amendment Nos. 7 and 8, however,
still are false and misleading because while they discuss a possible sale of the
Company to Yung or companies he controls, they do not disclose that Yung is
interested in such a transaction only if he could make the purchase at a below
market price that would be favorable to Yung but not to the majority of Lodgian
stockholders. Moreover, Amendment Nos. 7 and 8 fail to disclose Defendants'
intention to obtain a greenmail premium by forcing Lodgian to purchase
Defendants' Lodgian stock at a price substantially above its current market
price. In short Defendants failed to place the investing public on notice as to
the true course of action they were pursuing as required by Section 13(d) of the
Exchange Act.
Amendment No. 9 (May 25,
2000) Is False and Misleading
-----------------------------
36. On May 25, 2000, Casuarina purchased 1,100,000 additional
shares of Lodgian thereby increasing Defendants' stake in Lodgian to 14.9%. On
that same date, Defendants filed Amendment No. 9 disclosing that purchase. In
Item 4, however, Defendants again failed to disclose any "purposes or plan" in
connection with Casuarina's acquisition of these additional shares, nor did
Defendants purport to amend their prior disclosure contained in the Schedule 13D
or the eight prior amendments thereto. By failing to make corrective disclosure
regarding Defendants' true plan with respect to Lodgian, Amendment No. 9 plainly
is false and misleading.
Amendment Nos. 10 and 11 (July 13, 2000
and July 18, 2000) Are False and Misleading
-------------------------------------------
37. By letters dated July 13 and 17, 2000, Yung wrote Mr. Cole
regarding the Company's announced potential sale of certain Lodgian hotels to a
third
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party. Morgan Stanley had arranged this transaction pursuant to the Company's
previously disclosed strategy of selling under-performing hotels, consolidating
the number of brands in the Company's portfolio, and using the proceeds of asset
sales to reduce the Company's overall debt.
38. In his July 13 and 17 letters, Yung indicated that his
"organization" would have offered at least $10 million above the quoted purchase
price for these hotels, and suggested that Lodgian was selling a particular
hotel for 50% of cost. Yung's July 13 and July 17 letters were attached to
Amendment Nos. 10 and 11, respectively.
39. Mr. Cole replied to Yung in letters dated July 13 and 20,
2000. In these letters, Mr. Cole made clear that several weeks earlier, Morgan
Stanley, at the request of the Lodgian Board, contacted Yung's financial
advisors to determine if Yung would be interested in an acquisition of selected
properties in one or more portfolio sales. Yung's advisors responded that Yung
had no interest in such transactions (the very type of transaction that Yung, in
his July 13 letter, suddenly claimed a willingness to consummate). Indeed, Yung
himself had expressed a complete lack of interest in such portfolio transactions
in a face to face meeting with Mr. Cole in June 2000.
40. Mr. Cole also indicated in his July 20 letter that Lodgian
was not selling a hotel to the third-party in question at 50% of cost. Finally,
he noted that, as he had stated publicly on other occasions, Lodgian was
determined to reduce the Company's debt, "especially in this higher interest
rate environment. This debt reduction strategy will be executed primarily
through the sale of hotels, in particular in markets where new supply has
negatively impacted business trades. Quite simply, in determining
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whether to sell a hotel or portfolio of hotels, Lodgian's management and its
Board of Directors have acted and will continue to act so as to maximize
shareholder value."
41. As set forth in Mr. Cole's letters, Yung and his financial
advisors repeatedly indicated to Lodgian that they had absolutely no interest in
purchasing selected Lodgian properties; instead, they wanted to acquire Lodgian
as a whole. Amendment Nos. 10 and 11 and the letters attached thereto, however,
represented that Yung's "organization" not only would have purchased the ten
properties in question, but would have done so at a price $10 million higher
than Lodgian's planned transaction with a third party. These statements clearly
were false, and in fact directly contradict the substance of Yung and his
advisors' representations to Lodgian. In truth, Defendants never had any
intention of pursuing such a transaction, and Amendments Nos. 10 and 11 plainly
are misleading by suggesting that Defendants would be willing to make such a
purchase.
42. In short, neither the Schedule 13D nor any of the twelve
Amendments thereto disclose Defendants' true intention with respect to Lodgian.
In fact, Defendants did not disclose their plan to nominate candidates for the
Lodgian Board until April 2000 -- at least six months after they had determined
to do so. Moreover, Defendants' Schedule 13D filings represent that Defendants
and their nominees for directors believe that Yung and his "organization" are in
a position to offer the highest value for the Company. In truth, Defendants and
their proposed directors -- Yung, and his employee and his lawyer -- will
purchase Lodgian only at a price well below market value to the detriment of the
majority of Lodgian stockholders. This information is never disclosed in
Defendants' Schedule 13D filings.
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43. In addition, to date Defendants still have not disclosed
their proposal to Lodgian to call off their efforts to nominate directors in
exchange for Lodgian repurchasing Defendants' Lodgian stock at a price
substantially in excess of its current market price. As noted above, Yung
proposed such a sale of his Lodgian shares to Mr. Cole in an August 1 phone
conversation. During that call, Yung proposed a transaction whereby he would
purchase certain Lodgian properties, and Lodgian would use part of the proceeds
from this transaction to purchase Yung's Lodgian shares for approximately $20
million -- representing a substantial greenmail premium to Defendants over the
stock's current market price. In flagrant violation of the federal securities
laws, Defendant never timely disclosed any of the foregoing in their Schedule
13D or any Amendments thereto.
Defendants' Preliminary Proxy
Statements Are False And Misleading
-----------------------------------
44. As set forth above, Amendment Nos. 7 and 8 to Defendants'
Schedule 13D attaches Edgecliff Holding's Preliminary Proxy Statement and
Amendment No. 1 to the Preliminary Proxy Statement (the "PPS"). The PPS contains
much of the same false and misleading disclosure contained in the Schedule 13D
and the Amendments thereto.
45. In particular, the PPS represents that Edgecliff Holding's
nominees to the Board "are open to considering all of the Company's strategic
alternatives, rather than a select few." Likewise, the PPS states that
"Edgecliff believes that a sale of the Company to the highest bidder represents
the best means for the Company's stockholders to maximize the value of their
Shares, and that the Edgecliff Group is in a position to
16
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offer the highest value available." These statements are false and misleading.
As Defendants are well aware, Edgecliff Holdings and the other Defendants'
interest is not in maximizing shareholder value in connection with acquiring the
Company, but in consummating such a transaction at well below market value for
the benefit of the Defendants, and to the detriment of the Company stockholders.
46. Moreover, The PPS is utterly silent with respect to
Edgecliff Holdings' offer to cease its efforts to nominate and elect directors
to the Lodgian Board if the Company will purchase Defendants' Lodgian stock for
a substantial premium over its current market price. The PPS plainly is false
and misleading in failing to disclose this crucial information regarding
Edgecliff Holdings' lack of "commitment" to its efforts to obtain representation
on the Lodgian Board of Directors.
IRREPARABLE HARM
----------------
47. Unless Defendants are enjoined from continuing their
unlawful conduct, Lodgian, its shareholders and the investing public will
continue to suffer irreparable injury in that, among other things:
a. The Lodgian shareholders and the investing public
will continue to be denied material information to which they are entitled under
the federal securities laws and which is essential to informed investment
decision making with respect to purchasing, selling and voting Lodgian shares;
b. The market for Lodgian shares will continue to be
manipulated and disrupted;
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c. The widespread confusion and uncertainty created
by Defendants' unlawful conduct as to the intentions of Defendants toward
Lodgian is causing, and will continue to cause, substantial uncertainty as to
the future course and conduct of Lodgian's business, causing damage to employee
morale, potential loss of business, and impeding and complicating plans for
future operations; and
d. The Defendants will continue to threaten using the
Lodgian shares acquired and held in violation of the federal securities laws in
attempting to cause changes in the operation, structure and board composition of
Lodgian.
CLAIM FOR RELIEF
----------------
(Violations of Section 13(d) of the Exchange Act,
15 U.S.C. ss. 78m, With Respect to
Amendments 1 Through 12 to the Schedule 13D)
48. Lodgian repeats and realleges each and every allegation
contained in Paragraphs 1-47 as if fully set forth herein.
49. Section 13(d) of the Exchange Act, 15 U.S.C. ss.
78m(d)(1), and Rule 13d-1 promulgated thereunder, require that any person
acquiring beneficial ownership of 5 percent or more of any class of securities
of any company registered under Section 12 of the Exchange Act, 15 U.S.C. ss.
781, must file a Schedule 13D Statement with the SEC and any national exchange
on which the Company's shares are registered (in this case the New York Stock
Exchange) within ten days of crossing the 5% threshold.
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50. In the Schedule 13D statement, the filing persons must
fully and truthfully disclose (among other things) their purposes, plans and
intentions with respect to the acquisition of such shares (Item 4).
51. Rule 12b-20, 17 C.F.R. ss. 240.12b-20, specifically
requires that the reporting persons also disclose "such further material
information" as is necessary to make the information required in the Schedule
13D statement not misleading in light of the circumstances in which the required
statements are made.
52. As hereinabove alleged, the Schedule 13D and Amendments 1
through 12 to the Schedule 13D filed by Defendants fail to make the full and
fair disclosure required by the Exchange Act and the rules promulgated
thereunder.
53. Plaintiff has no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, plaintiff respectfully requests that this Court
grant relief against Defendants as follows:
I. Preliminarily and permanently enjoining Defendants and all
other persons acting in concert with or on behalf of Defendants, directly or
indirectly, from making any additional false or misleading public statements and
false and misleading public filings regarding Lodgian stock, and from taking or
attempting to take any other steps in furtherance of their unlawful conduct and
scheme;
II. Ordering Defendants to take immediate corrective action to
disclose all material facts in connection with their efforts to acquire shares
of Lodgian, control of Lodgian, or votes or proxies with respect to Lodgian
shares, and otherwise to cure the
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defects in their Schedule 13D and to bring their conduct into compliance with
Sections 13(d) of the Exchange Act, 15 U.S.C. ss.ss. 78m(d), and the rules and
regulations promulgated thereunder, all in a statement to be approved by the
Court and disseminated in a manner to be approved by the Court.
III. Ordering Defendants to divest themselves of any and all
shares of Lodgian stock that they unlawfully acquired in violation of the
federal securities laws in accordance with and pursuant to a plan of divestiture
ordered by the Court.
IV. Awarding Lodgian reasonable attorneys' fees, costs and
disbursements of this action.
V. Ordering expedited discovery with respect to the claims
alleged herein; and
VI. Awarding such other and further relief as this Court may
deem just and proper.
Dated: New York, New York
August 16, 2000
Respectfully submitted,
CADWALADER, WICKERSHAM & TAFT
By: /s/ Dennis J. Block
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Dennis J. Block (DB-0432)
Jason M. Halper (JH-8310)
Simon C. Roosevelt (SR-3563)
100 Maiden Lane
New York, New York 10038
(212) 504-6000
Attorneys for Plaintiff Lodgian, Inc.
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