EXHIBIT 29
[LETTERHEAD OF DLJ REAL ESTATE CAPITAL PARTNERS, INC.]
June 14, 2000
Columbia Sussex Corporation
Attention: Mr. William J. Yung, President
207 Grandview Drive
Ft. Mitchell, KY 41017-2799
Gentlemen:
DLJ Real Estate Capital Partners, Inc. ("RECP") is pleased to provide
you with this letter and the Memorandum of Understanding attached hereto as
Appendix A with respect to our mutual interest in pursuing the acquisition and
privatization of Lodgian, Inc. (NYSE: LOD) (the "Transaction").
This letter, together with the Memorandum of Understanding, is intended
to confirm certain understandings between RECP and Columbia Sussex Corporation
(together with its shareholders, directors and affiliates "Columbia Sussex";
RECP and Columbia Sussex herein referred to individually as a "Party" and
collectively as the "Parties"), with respect to the Transaction.
Subject to the requirements of applicable law, the terms and conditions
of this letter, the Memorandum of Understanding and the Transaction, including
the identities of all Parties, will be held by the Parties in strict confidence
and will not be disclosed to anyone, other than legal counsel, agents and
representatives who need to know such information in connection with the
Transaction, otherwise as advisable after approval by RECP, or as required by
law. Subject to the requirements of applicable law, neither Columbia Sussex nor
RECP, their respective agents or representatives, shall make any news releases
or other public disclosure with respect to the Transaction without the prior
consent of the other Party.
This letter is intended solely for the benefit of the Parties hereto
and is not intended to confer, and shall not be deemed to confer, any benefits
upon, or create any rights for or in favor of, any person other than the
Parties. This letter shall be governed by the laws of the State of New York and
may not be amended, and no provision hereof may be waived or modified, except by
an instrument in writing signed by the party to be bound.
Recognizing that RECP's review of the Transaction and the negotiation
and drafting of documents have to date required and will continue to require
RECP to expend significant time, effort and money, and to induce RECP to
continue such review, negotiation and drafting, the Parties agree that from the
date of their acceptance of this letter agreement until the earlier of December
31, 2001 or such time as either Party stops pursuing the Transaction (such
period, the "Exclusivity Period") the Parties will negotiate in good faith with
each other to consummate the Transaction, and will not, and will cause each
Party's respective offices and directors and any advisors which have been
retained for the purpose of evaluating the proposed Transaction to not,
encourage any offers from, solicit, encourage, initiate, respond to (other than
by a bare statement without further detail or explanation that they are not
permitted to respond) or continue any discussions with, engage in or continue to
engage in negotiations with, or provide any information to, or enter into any
agreements or understandings with, any corporation, partnership, person, entity
or group, other than the other Party and its respective officers, directors,
employees and agents, concerning or relating to equity financing for the
Transaction without the prior written consent of the other Party. Should a Party
become aware
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Columbia Sussex Corporation June 14, 2000
Page 2
of any inquiry or request by another person or entity with respect to the
Transaction, such Party shall promptly notify the other Party of such inquiry,
indicate the identity of the offeror and the terms and conditions of any
proposals or the nature of any inquiries or contacts, and thereafter keep all
Parties informed, on a current basis, of the status and terms of any such
proposals or offers.
Upon the consummation of the Transaction, as and when requested by
RECP, Columbia Sussex will promptly reimburse RECP for all of their actual legal
and other out-of-pocket expenses in connection with the Transaction. Prior to
the consummation of the Transaction, or in the event the Transaction is not
consummated, as and when requested by RECP, Columbia Sussex will promptly
reimburse RECP for all of their respective out-of-pocket expenses incurred in
connection with the Transaction (including those incurred prior to the execution
of this letter agreement), including up to $500,000 in fees and expenses of
advisors, accountants, attorneys, consultants, and other parties whom RECP has
engaged to assist them in connection with the Transaction.
This letter sets forth the intent of the parties with respect to the
transaction but, except for the third, fourth, fifth, and sixth paragraphs
hereof, shall not create any legal or binding obligation. No such obligation
(except for such paragraphs, which shall be immediately binding) shall arise
unless and until mutually satisfactory definitive documentation (a "Definitive
Agreement") has been executed and delivered by the Parties hereto. The
obligations of RECP and Columbia Sussex under this letter agreement shall
automatically terminate and be superseded by the provisions of a Definitive
Agreement, if any.
If the foregoing accurately summarizes your understanding with respect
to the proposed Transaction, please date and execute the duplicate original of
this letter that is enclosed and return the same to the undersigned.
Sincerely,
DLJ REAL ESTATE CAPITAL PARTNERS, INC.
By: /s/ Philip C. Tager
-------------------------------
Print: Philip C. Tager
-------------------------------
Title: Senior Vice President
-------------------------------
Accepted and agreed
this 15TH day of June, 2000:
COLUMBIA SUSSEX CORPORATION
By: /s/ Joseph E. Marquet
------------------------
Print: Joseph E. Marquet
------------------------
Title: Vice President - Finance
------------------------
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Columbia Sussex Corporation June 14, 2000
Page 3
APPENDIX A
MEMORANDUM OF UNDERSTANDING
DLJ REAL ESTATE CAPITAL PARTNERS, INC., EDGECLIFF, INC. AND
COLUMBIA SUSSEX CORPORATION
Issuer ............................ Edgecliff, Inc., a Delaware corporation
(the "Issuer") wholly owned by Edgecliff
Holdings, LLC ("Holdings"), the sole
member of which is Edge Cliff
Management, LLC (the sole members of
which are William Yung and his family
trusts).
Issuer Equity Contribution ........ At a minimum, $50,000,000.00 (but in no
event less than thirty percent (30%) of
the total amount of equity to be
contributed to the Issuer by Holdings
and DLJ Real Estate Capital Partners,
Inc. ("RECP") required to effect the
Transaction (as hereinafter defined))
shall be contributed to the Issuer by
Columbia Sussex Corporation and Holdings
(such amount to be reduced by the cost
of 4,191,800 shares of Lodgian, Inc.
acquired by Columbia Sussex Corporation,
Holdings and their affiliates as of the
date hereof, currently estimated to be
$18,000,000); such equity contribution
shall be maintained by the Issuer until
such time as all of the Preferred Stock
has been redeemed by the Issuer.
Preferred Stock ................... Cumulative Redeemable Preferred Stock of
the Issuer.
Stated Amount ..................... The lesser of (i) $150,000,000.00 and
(ii) seventy percent (70%) of the total
amount of equity to be contributed to
the Issuer by Holdings and RECP required
to effect the Transaction, provided that
RECP shall have the right, but not the
obligation, to contribute at least
$100,000,000.00. The amount of debt of
the Issuer shall be reduced in order to
accommodate the minimum amount to be
contributed hereunder and under the
heading "Issuer Equity Contribution"
above.
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Columbia Sussex Corporation June 14, 2000
Page 4
Issue Date ........................ The date the Preferred Stock is issued
to the holder.
Use of Proceeds ................... Solely for the acquisition and
privatization of Lodgian, Inc. (the
"Transaction").
Dividend Guaranty ................. Columbia Sussex Corporation
("Guarantor") shall guarantee the
Issuer's payment of Quarterly Cash
Dividends for the four quarters in the
second year after the Issue Date.
Hotel Assets ...................... All of the hotels and other assets owned
by the Issuer, whether acquired before
or after the Issue Date.
Senior Debt ....................... Any existing debt as of the Issue Date
and any other debt incurred by the
Issuer after the Issue Date.
Term .............................. 8 years.
Stated Value ...................... $25 per share plus the dollar amount
which will produce an annual IRR of 30%
calculated on a quarterly basis on the
Stated Amount of the Preferred Stock
being redeemed by the Issuer; taking
into consideration (i) any Quarterly
Cash Dividends paid to date attributable
to the value of such shares being
redeemed and (ii) any payment of a
portion of the Management Fee (as
hereinafter defined) to the holder.
Liquidation Preference; Ranking ... $25 per share plus the dollar amount
which will produce an annual IRR of 30%
calculated on a quarterly basis on the
Stated Amount of the Preferred Stock
then outstanding, taking into
consideration (i) any Quarterly Cash
Dividends paid to date attributable to
the value of the outstanding Preferred
Stock and (ii) any payment of a portion
of the Management Fee to the holder. The
Preferred Stock will rank senior, with
respect to distributions upon
liquidation, to (x) the Issuer's common
stock and (y) any other classes of the
Issuer's capital stock (common or
preferred, whether now existing or
created in the future).
Quarterly Cash Dividend ........... 15% per annum is to be paid on the
Stated Amount (as it may be increased
pursuant to this paragraph) less any
portion of the Management Fee actually
received by the
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Columbia Sussex Corporation June 14, 2000
Page 5
holder; payable in cash quarterly in
arrears; cumulative; the Quarterly Cash
Dividend for the first quarter of the
first year shall be paid in kind.
Work-In-Progress Reserve Fund ..... There shall be set aside at closing an
amount necessary to complete the
work-in-progress construction of new
Hotel Assets; such amount to be approved
by the holder after completion of its
due diligence.
Excess Cash Flow from Operations .. Any net cash flow from operations in
excess of debt service on the Senior
Debt and FF&E reserves and any other
required reserves under the Senior Debt
documents or franchise agreements
("Excess Cash Flow") generated by the
Issuer shall be used as follows: first
to fund Interest Reserve (to be defined)
requirements of the Senior Debt; second
to pay Quarterly Cash Dividends of
Preferred Stock; and third at the
Issuer's option, to either repay Senior
Debt or to redeem Preferred Stock,
subject to the Optional Cash Redemption
provision below. Upon or after the fifth
anniversary of the Issue Date, any
Excess Cash Flow generated by the Issuer
shall be used to fund the Mandatory
Redemption.
Proceeds from Capital Events ...... All proceeds of a disposition or
refinancing of any of the assets
comprising the Hotel Assets shall be
applied as and in the order set forth
below:
(i) FIRST, to pay third-party
out-of-pocket costs and expenses
incurred and paid in connection
with such disposition or
refinancing;
(ii) SECOND, to fund payments required
to discharge Senior Debt, in
accordance with its terms,
encumbering any property
transferred;
(iii)THIRD, to fund any payments
required by any other Senior Debt,
if any, after taking into
consideration the $10,000,000
general basket allowed to the
Issuer by the High Yield financing
provided by Lehman Brothers, which
basket shall be utilized to the
fullest extent to provide for the
payment to the holder of the
amounts due hereunder; and
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Columbia Sussex Corporation June 14, 2000
Page 6
(iv) FOURTH, any additional proceeds
shall be applied in the same manner
as Excess Cash Flow.
Veto Rights ....................... At all times while the holder owns any
amount of Preferred Stock, the holder
will be entitled to (i) prevent
dividends, redemptions and other
distributions with respect to the
Issuer's capital stock (other than with
respect to the Preferred Stock); (ii)
prevent the Issuer from incurring any
additional debt or from refinancing the
Senior Debt unless any such replacement
debt (A) shall contain covenants which
are not more restrictive than those in
the existing Senior Debt (provided
further, that in connection with
refinancing any Senior Debt upon its
stated final maturity, any such
replacement debt need only be on terms
consistent with those generally
available in the market place at the
time of such refinancing so long as such
replacement debt complies with clause
(B) below and that the Issuer complies
with clause (C) below at the time of
such refinancing), (B) does not prohibit
the Issuer from paying the holder the
amounts payable hereunder as and when
they are due and (C) the Issuer
maintains, on a pro forma basis after
incurring any such debt, a Cumulative
Coverage Ratio (as hereinafter defined)
equal to 1.1 during the first year after
the Issue Date and the Cumulative
Coverage Ratio increases by 0.1 per year
thereafter; (iii) prevent the Issuer
from liquidating or dissolving; (iv)
prohibit mergers, consolidations,
changes of control or similar
transactions including the reduction in
William Yung's investment in the Issuer;
(v) prohibit sale or other disposition
of the Hotel Assets except for a
pre-determined list of hotels to be
determined during the due diligence
process; (vi) prohibit sale-leasebacks;
(vii) place restrictions on major
alterations or modifications (based on
certain dollar thresholds) of any
property except for a pre-determined
list of hotels to be determined during
the due diligence process; (viii) place
restrictions on the issuance of
additional equity (other than equity
ranking junior to Preferred Stock); (ix)
place restrictions on
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Columbia Sussex Corporation June 14, 2000
Page 7
transactions with affiliates of the
Issuer other than with respect to the
Management Agreement (as hereinafter
defined); and (x) place restrictions on
any change in the officers of the
Issuer.
"Cumulative Coverage Ratio" shall mean
the ratio, for the latest four
consecutive quarters, of EBITDA to an
amount which is equal to the sum of (i)
debt service on Senior Debt and (ii)
Quarterly Cash Dividends.
Additional Covenants .............. Those typical for this type of
transaction and any additional ones
appropriate in the context of the
Transaction, including, without
limitation, those set forth below:
(i) prohibition on amendment of
organizational documents;
(ii) restrictions on modification of
hotel management/franchise
agreements;
(iii)restrictions on amending or
refinancing the Senior Debt;
(iv) restrictions on making loans or
other investments;
(v) restrictions on the settlement of
any claim, subject to the customary
basket exclusions;
(vi) except as otherwise authorized by
the Senior Debt documents,
restrictions on the restoration of
properties after any casualty or
condemnation;
(vii)requirement to maintain insurance
coverage;
(viii) ERISA covenants;
(ix) restrictions on capital
expenditure; and
(x) requirement to maintain a minimum
amount of working capital, or in
lieu thereof, an approved line of
credit.
Mandatory Redemption .............. All of the holders remaining Preferred
Stock is mandatorily redeemable by the
Issuer at the Liquidation Preference
upon the fifth anniversary of the Issue
Date.
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Columbia Sussex Corporation June 14, 2000
Page 8
Sale of Hotel Assets .............. If:
(a) The Issuer fails to pay the holder
the required amount of the
Mandatory Redemption in cash as and
when required, or
(b) At any time after the first
anniversary of the Issue Date, the
Issuer fails to pay a Quarterly
Cash Dividend as and when required,
subject to any applicable cure
period (including cure by the
Guarantor), or
(c) At any time after the first
anniversary of the Issue Date, the
Issuer defaults under any of the
Veto Rights or Additional Covenants
and such default is continuing
after any applicable cure period,
or
(d) At any time after the first
anniversary of the Issue Date, the
Guarantor fails to pay the holder
any amount due and payable under
the Dividend Guaranty within 30
days after the holder demands
payment, or
(e) The Issuer fails to comply with the
restrictions placed upon the use of
Excess Cash Flow, or
(f) The Issuer fails to purchase any
Preferred Stock put to it in
accordance with the provisions
described under "Certain Events",
or
(g) a default under the Senior Debt at
any time after the Issue Date,
subject to any applicable notice
and cure period under the Senior
Debt documents. (Such events
described in clauses (a) - (g)
collectively referred to as the
"Redemption Defaults"),
then the holder will immediately have
the right (but not the obligation) to
direct the sale of the Hotel Assets by
merger, consolidation or single or
multiple asset sale (collectively,
hereinafter referred to as "Hotel Asset
Sales"). After application of the net
proceeds from such Hotel Asset Sales to
the payment of any outstanding Quarterly
Cash Dividends and the Liquidation
Preference, the Issuer's
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Columbia Sussex Corporation June 14, 2000
Page 9
redemption obligation will continue to
be in default to the extent of any
cumulative remaining deficiency. To the
extent any net proceeds from Hotel Asset
Sales exceed any outstanding Quarterly
Cash Dividend and the Liquidation
Preference, the Issuer shall be entitled
to the residual of such proceeds.
Hotel Asset Sales will be effected in a
manner that does not conflict with the
limitations set forth in any instrument
evidencing the Senior Debt ("Senior Debt
Instruments").
Optional Cash Redemption .......... The Issuer has the option to redeem the
Preferred Stock for cash, at the Stated
Value (plus accrued and unpaid
dividends) in accordance with the
following schedule:
a. Years 1 and 2 No Optional Cash
Redemption
b. From the second Redemption of
anniversary of one-third of the
the Issue Date - Preferred Stock
end of Year 3
c. From the third Redemption of an
anniversary of additional 42% of
the Issue Date - the end Preferred
end of year 4 Stock
d. From the fourth Redemption of the
anniversary of remaining Preferred
the Issue Date - Stock outstanding
end of year 5
e. Anytime: IPO Redemption of all
Preferred Stock
outstanding
Certain Events .................... Upon (i) any voluntary or involuntary,
direct or indirect change of control of
Issuer or Guarantor (by sale of capital
stock, merger, consolidation or
otherwise) or (ii) any amendment or
modification to the Senior Debt
Instruments after the Issue Date that
reduces or limits the amount of cash or
other consideration that the Issuer is
able to pay in order to fund a dividend
or redemption payment provided for under
the terms of the Preferred Stock or
otherwise would preclude the performance
by the Issuer of its obligations under
the terms of the Preferred
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Columbia Sussex Corporation June 14, 2000
Page 10
Stock, the holder will have the option
to put all of the Preferred Stock to the
Issuer for cash at the Liquidation
Preference.
Notwithstanding the foregoing, the
transfer of William Yung's interest in
the Issuer upon his death shall not be
deemed a change of control for the
purposes of clause (i) above; however,
upon William Yung's death, the holder
shall have the right to approve the new
chief executive officer of both the
Issuer and the Management Company (as
hereinafter defined), such approval
shall not be unreasonably withheld by
the holder.
Public Offerings of Stock; IPO
Redemption; Redemption Premium .... The holder will have customary
"piggy-back" rights in public offerings
of any class of stock. In the event of
the initial public offering of the
common stock of the Issuer, the holder
shall be entitled to a redemption
premium equal to the greater of (i) the
initial Stated Amount and (ii) the
dollar amount which would produce an
annual IRR of 30% calculated on a
quarterly basis on the initial Stated
Amount as calculated at the time such
initial public offering occurs.
Management ........................ The Hotel Assets shall be managed by an
affiliate of Columbia Sussex Corporation
reasonably approved by the holder (the
"Management Company") pursuant to a
management agreement acceptable to the
holder (the "Management Agreement"). The
Management Agreement shall provide that
upon a Redemption Default, the holder
shall have the right to terminate the
Management Agreement. The Management
Company shall receive a 4% management
fee from the Issuer (the "Management
Fee"). The holder shall own twenty-five
percent of the Management Company and
the governance structure of the Board of
Directors of the Management Company
shall mirror that of the Issuer. A
dividend equal to twenty-five percent of
the Management Fee shall be paid to the
holder. Upon redemption in full of the
Preferred Stock, the Issuer shall have
the right to purchase the holder's
interest in the Management Company for
$1.00.
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Columbia Sussex Corporation June 14, 2000
Page 11
Officers of Management Company .... The officers of the Management Company
shall include a chief financial officer,
an accounting officer and chief
operating officer approved by the holder
from time to time.
Voting Rights ..................... After the Issue Date and until such time
as all Preferred Stock has been redeemed
by the Issuer, the holder will have the
sole right to elect three directors to
the Board of Directors of the Issuer,
which directors shall comprise 50% of
such Board of Directors. During the
pendency of any Redemption Default, the
holder will have the right to take
control of the Board of Directors of
Issuer by expanding the Board of
Directors to add an additional director
and the holder shall have the right to
appoint such additional director. After
the appointment of such additional
director, the majority of the Board of
Directors shall have the right to
replace the officers of the Issuer and
such new officers shall have the right,
among other things, to (i) declare and
pay the defaulted and all future
Quarterly Cash Dividends and to provide
for any unpaid and any future Mandatory
Redemption payments (in each case out of
funds legally available therefor); (ii)
to direct the sale of Hotel Assets in
order to fund any defaulted dividend or
redemption obligation; (iii) terminate
the Management Agreement and enter into
a new management agreement with a
management company selected by the
holder; and (iv) take any such actions
as the Board of Directors may direct.
Information ....................... Until all of the Preferred Stock has
been redeemed, the Issuer will furnish
the holder with (i) monthly consolidated
profit and loss statements and monthly
profit and loss statements for each
property comprising the Hotel Assets,
(ii) quarterly consolidated financial
statements and (iii) any other available
financial information it may request.
Conditions to Closing ............. (i) The holders of the Senior Debt must
consent to the terms of the
Preferred Stock;
(ii) Satisfactory completion of due
diligence by the holder; and
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Columbia Sussex Corporation June 14, 2000
Page 12
(iii)Final approval of the holder's
investment committee.
Placement Fee ..................... 2% of the Stated Amount payable to the
holder upon closing of the Transaction.
Break-Up Fee ...................... 50% of any "break-up fee" the Issuer may
be entitled to pursuant to any agreement
with Lodgian, Inc.
Transfer of Preferred Stock/RECP's
Interest in the holder ............ RECP shall have the right to transfer
(i) up to 49% of the shares of Preferred
Stock and/or (ii) up to 49% of its
interest in the holder.
Transfer of RECP's Interest in
the Management Company ............ RECP shall not transfer any interest in
the Management Company to a third party
that does not hold the Preferred Stock
or any interest in the holder.
Other Terms ....................... The Preferred Stock purchase agreement
will contain representations,
warranties, closing conditions and
opinion requirements as the holder may
reasonably request; outside counsel to
the Issuer must opine on the validity of
the Preferred Stock and the Special
Committee; the Issuer will reimburse the
holder for its reasonable legal and
other expenses in connection with the
issuance of the Preferred Stock; other
terms as agreed.
