UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 6)
LODGIAN, INC.
(Name of Issuer)
Common Stock
(Title of Class of Securities)
54021P106
(CUSIP Number)
Edgecliff Holdings, LLC
Casuarina Cayman Holdings Ltd.
Edgecliff Management, LLC
1994 William J. Yung Family Trust
Joseph Yung
William J. Yung
The 1998 William J. Yung and Martha A. Yung Family Trust
207 Grandview Drive
Fort Mitchell, Kentucky 41017
Attn: Mr. William J. Yung
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attn: James M. Dubin, Esq.
April 7, 2000
(Date of Event which Requires Filing of
this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box
[ ].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d- 1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
CUSIP No. 54021P106 Page 2
---------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Edgecliff Holdings, LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP */ (a)[X]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS */
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Kentucky
7 SOLE VOTING POWER
NUMBER OF 0
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
0
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,598,100
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES */ [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.32%
14 TYPE OF REPORTING PERSON */
OO
- ----------
*/ See Instructions Before Filling Out
<PAGE>
SCHEDULE 13D
CUSIP No. 54021P106 Page 3
---------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Casuarina Cayman Holdings Ltd.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP */ (a)[X]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS */
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands, B.W.I.
7 SOLE VOTING POWER
NUMBER OF 0
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
0
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
493,700
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES */ [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.77%
14 TYPE OF REPORTING PERSON */
CO
- ----------
*/ See Instructions Before Filling Out
<PAGE>
SCHEDULE 13D
CUSIP No. 54021P106 Page 4
---------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Edgecliff Management, LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP */ (a)[X]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS */
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Kentucky
7 SOLE VOTING POWER
NUMBER OF 0
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
0
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,598,100
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES */ [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.32%
14 TYPE OF REPORTING PERSON */
OO
- ----------
*/ See Instructions Before Filling Out
<PAGE>
SCHEDULE 13D
CUSIP No. 54021P106 Page 5
---------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
1994 William J. Yung Family Trust
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP */ (a)[X]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS */
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Ohio
7 SOLE VOTING POWER
NUMBER OF 0
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
0
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES */ [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON */
OO
- ----------
*/ See Instructions Before Filling Out
<PAGE>
SCHEDULE 13D
CUSIP No. 54021P106 Page 6
---------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Joseph Yung, Investment Advisor to the 1994 William J. Yung Family
Trust and The 1998 William J. Yung and Martha A. Yung Family Trust
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP */ (a)[X]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS */
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
7 SOLE VOTING POWER
NUMBER OF 0
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
0
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES */ [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON */
IN
- ----------
*/ See Instructions Before Filling Out
<PAGE>
SCHEDULE 13D
CUSIP No. 54021P106 Page 7
---------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
William J. Yung
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP */ (a)[X]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS */
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
7 SOLE VOTING POWER
NUMBER OF 3,091,800
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
3,091,800
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,091,800
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES */ [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.09%
14 TYPE OF REPORTING PERSON */
IN
- ----------
*/ See Instructions Before Filling Out
<PAGE>
SCHEDULE 13D
CUSIP No. 54021P106 Page 8
---------
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
The 1998 William J. Yung and Martha A. Yung Family Trust
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP */ (a)[X]
(b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS */
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Ohio
7 SOLE VOTING POWER
NUMBER OF 0
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
0
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES */ [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON */
OO
- ----------
*/ See Instructions Before Filling Out
<PAGE>
9
Item 1. Security and Issuer.
Item 1 is restated in its entirety as follows.
This Schedule 13D relates to the Common Stock, par value $.01 per share
(the "Shares"), of Lodgian, Inc., a Delaware corporation ("Lodgian"). The
address of Lodgian's principal executive offices is Two Live Oak Center, 3445
Peachtree Road, N.E., Suite 700, Atlanta, Georgia 30326.
Item 2. Identity and Background.
Unchanged.
Item 3. Source and Amount of Funds or Other Consideration.
Unchanged.
Item 4. Purpose of Transaction.
The information below supplements the information previously reported
in Item 4.
According to publicly available information, Lodgian has a classified
Board of Directors consisting of three classes, with each class of directors
serving for three-year terms. Before the changes announced on March 9, 2000 by
Lodgian, three members of the Board of Directors were subject to reelection at
Lodgian's 2000 Annual Meeting of Stockholders (the "2000 Annual Meeting").
Specifically, before the changes announced on March 9, 2000, Lodgian's Board was
constituted as follows: Class I (term expiring in 2002) included Peter R. Tyson
and one vacant seat; Class II (term expiring in 2000) included Michael A. Leven,
Joseph C. Calabro and John M. Lang; and Class III (term expiring in 2001)
included Robert S. Cole, Richard H. Weiner and one vacant seat. Thus, before the
changes announced on March 9, 2000, Lodgian stockholders had the right to
nominate and appoint directors to replace all three Class II directors at the
2000 Annual Meeting.
On March 9, 2000, Lodgian announced that the following changes had been
made to its Board. First, Joseph C. Calabro resigned as a Class II director with
a term expiring in 2000 and was immediately appointed to fill a vacancy in Class
I, with a term expiring in 2002. Second, the Board of Directors reduced the
Board's size from eight to six members, with the result that each class now
consisted of only two directors. Realizing that Lodgian's bylaws provided that a
director "elected to fill a vacancy shall hold office only until the next
election of directors by the stockholders," the Director Defendants (as defined
below) deleted this bylaw and provided, instead, that "[a]ny director elected by
the Board to fill a vacancy shall hold office for a term that shall coincide
with the term of the class to which such director shall have been elected." As a
result, Lodgian shareholders now only may nominate and vote for two out of a
total of six directors at the 2000 Annual Meeting, whereas previously they were
entitled to vote for three out of six directors.
<PAGE>
10
On April 7, 2000, Casuarina Cayman Holdings, Ltd. ("Casuarina") and
Edgecliff Holdings, LLC ("Edgecliff") filed a Verified Complaint for Declaratory
and Injunctive Relief (the "Complaint") in the Court of Chancery of the State of
Delaware in and for New Castle County, naming Lodgian, Peter R. Tyson, Joseph C.
Calabro, John M. Lang, Robert S. Cole and Richard H. Weiner as defendants
(collectively, the "Defendants") to redress the foregoing actions.
The Complaint alleges that defendants Peter R. Tyson, Joseph C.
Calabro, John M. Lang, Robert S. Cole and Richard H. Weiner (the "Director
Defendants") voted to reduce the size of Lodgian's Board and limit the number of
directors who must stand for election at the 2000 Annual Meeting for the sole
purpose of interfering with Lodgian stockholders' ability to replace 50% of
Lodgian's Board of Directors at the 2000 Annual Meeting. The Complaint seeks
judgment (1) declaring that the Defendants have breached their fiduciary duties
of loyalty to Lodgian stockholders, (2) enjoining the Director Defendants and
Lodgian, its officers, agents, servants and employees from enforcing the
reduction in the size of Lodgian's Board of Directors from eight to six members
and (3) declaring that Lodgian's stockholders have the right to nominate and
elect three Class II directors at the 2000 Annual Meeting. The above description
of Casuarina's and Edgecliff's claims is qualified in its entirety by reference
to the Complaint, a copy of which is attached hereto as Exhibit 9 and which is
incorporated herein by reference.
Also on April 7, 2000, Casuarina and Edgecliff filed a Motion (the
"Motion") in the Court of Chancery of the State of Delaware in and for New
Castle County moving for an expedited trial and expedited discovery. A copy of
the Motion is attached hereto as Exhibit 10 and is incorporated herein by
reference.
Item 5. Interest in Securities of the Issuer.
The information below amends the information previously reported in
Item 5 pertaining to beneficial ownership.
Casuarina directly owns 493,700 Shares, which represents 1.77% of the
outstanding Shares. William J. Yung may be deemed to control Casuarina and may
therefore be deemed to have beneficial ownership of all of such Shares owned
directly by Casuarina.
Edgecliff is the record owner of 2,598,100 Shares, which represents
9.32% of the outstanding Shares. Edgecliff Management, LLC ("Management") is the
sole managing member of Edgecliff, and William J. Yung is the sole managing
member of Management. Management and William J. Yung, by virtue of such control,
may be deemed to have beneficial ownership of the 2,598,100 Shares held of
record by Edgecliff.
Casuarina, Edgecliff, the 1994 William J. Yung Family Trust, The 1998
William J. Yung and Martha A. Yung Family Trust, Management, Joseph Yung and
William J. Yung, may be deemed to be members of a "group" (as defined under Rule
13d-5 under the Securities Exchange Act of 1934, as amended) that beneficially
owns 3,091,800 Shares in the aggregate, which represents 11.09% of the
outstanding shares.
<PAGE>
11
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Unchanged.
Item 7. Material to be Filed as Exhibits.
Item 7 is hereby amended and restated in its entirety to read as
follows:
Exhibit 1. Engagement Letter between Casuarina Cayman Holdings Ltd.
and Greenhill & Co., LLC, dated November 10, 1999. 1/
Exhibit 2. Letter to Lodgian, Inc. from Casuarina Cayman Holdings Ltd.,
dated November 16, 1999. 2/
Exhibit 3. Letter to Casuarina Cayman Holdings Ltd. from Lodgian, Inc.,
dated November 19, 1999. 3/
Exhibit 4. Letter to Lodgian, Inc. from Casuarina Cayman Holdings Ltd.,
dated November 22, 1999. 3/
Exhibit 5. Joint Filing Agreement, dated November 22, 1999, among
Casuarina Cayman Holdings Ltd., the 1994 William J. Yung
Family Trust, Joseph Yung and William J. Yung. 3/
Exhibit 6. Joint Filing Agreement, dated December 29, 1999, among
Edgecliff Holdings, LLC, Casuarina Cayman Holdings Ltd.,
Edgecliff Management, LLC, 1994 William J. Yung Family
Trust, Joseph Yung, William J. Yung and The 1998 William J.
Yung and Martha A. Yung Family Trust. 4/
Exhibit 7. Letter to Lodgian, Inc. from Casuarina Cayman Holdings Ltd.,
dated January 18, 2000. 5/
Exhibit 8. Joint Filing Agreement, dated January 18, 2000, among
Edgecliff Holdings, LLC, Casuarina Cayman Holdings Ltd.,
Edgecliff Management, LLC, 1994 William J. Yung Family
Trust, Joseph Yung, William J. Yung and The 1998 William J.
Yung and Martha A. Yung Family Trust. 5/
- --------
1/ Filed as an Exhibit to Amendment No. 1 to the Schedule 13D.
2/ Filed as an Exhibit to Amendment No. 2 to the Schedule 13D.
3/ Filed as an Exhibit to Amendment No. 3 to the Schedule 13D.
4/ Filed as an Exhibit to Amendment No. 4 to the Schedule 13D.
5/ Filed as an Exhibit to Amendment No. 5 to the Schedule 13D.
<PAGE>
12
Exhibit 9. Complaint, dated April 7, 2000. 6/
Exhibit 10. Motion, dated April 7, 2000. 6/
Exhibit 11. Joint Filing Agreement, dated April 7, 2000, among
Edgecliff Holdings, LLC, Casuarina Cayman Holdings Ltd.,
Edgecliff Management, LLC, 1994 William J. Yung Family
Trust, Joseph Yung, William J. Yung and The 1998 William J.
Yung and Martha A. Yung Family Trust. 6/
- --------
6/ Filed herewith.
<PAGE>
13
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: April 7, 2000
EDGECLIFF HOLDINGS, LLC
By: /s/ William J. Yung
-------------------
Name: William J. Yung
Title: President
CASUARINA CAYMAN HOLDINGS LTD.
By: /s/ William J. Yung
-------------------
Name: William J. Yung
Title: President
EDGECLIFF MANAGEMENT, LLC
By: /s/ William J. Yung
-------------------
Name: William J. Yung
Title: President
1994 WILLIAM J. YUNG FAMILY TRUST
By: The Fifth Third Bank,
as Trustee
By: /s/ Timothy A. Rodgers
----------------------
Name: Timothy A. Rodgers
Title: Trust Officer
<PAGE>
14
/s/ Joseph Yung
---------------
Joseph Yung
/s/ William J. Yung
-------------------
William J. Yung
THE 1998 WILLIAM J. YUNG AND MARTHA
A. YUNG FAMILY TRUST
By: The Fifth Third Bank,
as Trustee
By: /s/ Timothy A. Rodgers
----------------------
Name: Timothy A. Rodgers
Title: Trust Officer
<PAGE>
15
Exhibit Index
Exhibit Description
- ------- -----------
1 Engagement Letter between Casuarina Cayman Holdings Ltd. and
Greenhill & Co., LLC, dated November 10, 1999. 1/
2 Letter to Lodgian, Inc. from Casuarina Cayman Holdings Ltd., dated
November 16, 1999. 2/
3 Letter to Casuarina Cayman Holdings Ltd. from Lodgian, Inc., dated
November 19, 1999. 3/
4 Letter to Lodgian, Inc. from Casuarina Cayman Holdings Ltd., dated
November 22, 1999. 3/
5 Joint Filing Agreement, dated November 22, 1999, among Casuarina
Cayman Holdings Ltd., the 1994 William J. Yung Family Trust,
Joseph Yung and William J. Yung. 3/
6 Joint Filing Agreement, dated December 29, 1999, among Edgecliff
Holdings, LLC, Casuarina Cayman Holdings Ltd., Edgecliff
Management, LLC, 1994 William J. Yung Family Trust, Joseph
Yung, William J. Yung and The 1998 William J. Yung and Martha
A. Yung Family Trust. 4/
7 Letter to Lodgian, Inc. from Casuarina Cayman Holdings Ltd., dated
January 18, 2000. 5/
8 Joint Filing Agreement, dated January 18, 2000, among Edgecliff
Holdings, LLC, Casuarina Cayman Holdings Ltd., Edgecliff
Management, LLC, 1994 William J. Yung Family Trust, Joseph
Yung, William J. Yung and The 1998 William J. Yung and Martha
A. Yung Family Trust. 5/
9 Complaint, dated April 7, 2000. 6/
10 Motion, dated April 7, 2000. 6/
- ---------
1/ Filed as an Exhibit to Amendment No. 1 to the Schedule 13D.
2/ Filed as an Exhibit to Amendment No. 2 to the Schedule 13D.
3/ Filed as an Exhibit to Amendment No. 3 to the Schedule 13D.
4/ Filed as an Exhibit to Amendment No. 4 to the Schedule 13D.
5/ Filed as an Exhibit to Amendment No. 5 to the Schedule 13D.
6/ Filed herewith.
<PAGE>
16
11 Joint Filing Agreement, dated April 7, 2000, among Edgecliff
Holdings, LLC, Casuarina Cayman Holdings Ltd., Edgecliff
Management, LLC, 1994 William J. Yung Family Trust, Joseph
Yung, William J. Yung and The 1998 William J. Yung and Martha
A. Yung Family Trust. 6/
Exhibit 9
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
CASUARINA CAYMAN HOLDINGS LTD., )
a Cayman Islands, British West Indies corporation, )
and EDGECLIFF HOLDINGS, LLC, a Kentucky )
limited liability company, )
)
Plaintiffs, )
)
v. ) Civil Action No. ________
)
LODGIAN, INC., PETER R. TYSON, )
JOSEPH C. CALABRO, JOHN M. LANG, )
ROBERT S. COLE and RICHARD H. WEINER, )
)
Defendants. )
)
VERIFIED COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF
Plaintiffs Casuarina Cayman Holdings Ltd. ("Casuarina") and Edgecliff
Holdings, LLC ("Purchaser"), for their Verified Complaint, allege upon knowledge
as to themselves and upon information and belief as to all other matters, as
follows:
NATURE OF ACTION
1. Plaintiffs Casuarina and Purchaser, collectively the largest
shareholders of defendant Lodgian, Inc. ("Lodgian"), bring this action to
invalidate the defendants' blatant actions to infringe upon shareholder
democracy and prevent a majority of Lodgian's stockholders from nominating and
electing three new board members at Lodgian's next annual meeting ("2000 Annual
Meeting"). In direct response to plaintiffs' persistent efforts to purchase all
of the issued and outstanding shares of Lodgian for a substantial premium or
otherwise to encourage the Director Defendants to sell Lodgian to the highest
bidder -- and to prevent
<PAGE>
Lodgian stockholders from punishing management for presiding over the collapse
of Lodgian's share price from over $7-1/8 per share to $3-7/16 in less than a
year -- defendants Peter R. Tyson, Joseph C. Calabro, John M. Lang, Robert S.
Cole and Richard H. Weiner (collectively, "Director Defendants") voted to reduce
the size of Lodgian's classified Board and limit the number of directors who
must stand for reelection at Lodgian's 2000 Annual Meeting. The Director
Defendants' sole purpose in doing so was to interfere with Lodgian shareholders'
ability to replace fifty percent of Lodgian's Board of Directors.
2. By this action, plaintiffs seek judgment (a) declaring that each of
the individual defendants has breached his fiduciary duty of loyalty to Lodgian
stockholders by acting for the primary purpose of foreclosing effective
shareholder action, (b) declaring that each of the individual defendants'
actions as described herein is invalid, and (c) declaring that Lodgian
stockholders have the right to nominate and elect three Class II directors at
the 2000 Annual Meeting.
THE PARTIES
3. Plaintiff Casuarina is a corporation organized under the laws of the
Cayman Islands, British West Indies. Casuarina is the beneficial owner of
493,700 shares of Lodgian common stock, representing approximately 1.77% of the
outstanding shares.
4. Plaintiff Purchaser is a Kentucky limited liability company, with
its principal executive office in Fort Mitchell, Kentucky. Purchaser is the
record owner of 2,598,100 shares of Lodgian common stock, representing
approximately 9.32% of the outstanding shares.
5. Defendant Lodgian is a Delaware corporation, engaged in hotel
ownership and management, with its principal place of business in Atlanta,
Georgia.
-2-
<PAGE>
6. Defendants Peter R. Tyson, Joseph C. Calabro, John M. Lang, Robert
S. Cole and Richard H. Weiner are directors of Lodgian. Mr. Cole is Chief
Executive Officer and President of Lodgian. Joseph C. Calabro is Chairman of
Lodgian's Board of Directors. Each of the Director Defendants owe fiduciary
duties of loyalty and care to Lodgian's stockholders.
FACTUAL BACKGROUND
The Offer
7. On October 19, 1999, Casuarina and its affiliates disclosed that
they had acquired more than 9% of Lodgian's issued and outstanding shares.
Casuarina further disclosed that its principal, Mr. William J. Yung, an
experienced and successful hotel builder, owner and manager, "may seek
representation on the Board of Directors of the Issuer" which "may involve
solicitation of proxies to obtain such representation."
8. On November 9, 1999, Casuarina and its affiliates disclosed that
they had retained a financial advisor, Greenhill & Co., LLC, to assist them in
evaluating their strategic alternatives in respect of their investment in
Lodgian.
9. By letter dated November 16, 1999, Casuarina informed Lodgian that
it was interested in purchasing all of the issued and outstanding shares of
Lodgian for $6.50 per share, entirely in cash, representing a 48% premium to the
prevailing market value. Casuarina requested customary due diligence information
to verify its valuation of Lodgian. Casuarina reminded the Director Defendants
that, in light of their fiduciary responsibilities under Delaware law, they
could not "take any steps which would tend to entrench management or tilt the
playing field in favor of management."
10. Instead of embracing the immediate premium to Lodgian's
shareholders, by letter dated November 19, 1999, Lodgian rejected Casuarina's
overtures, stating that
-3-
<PAGE>
unspecified "terms and conditions" by which Casuarina "proposed to move forward
regarding a purchase of the Company were not in the best interests of Lodgian's
stockholders and that the price contemplated by Casuarina's offer materially
understated the value of Lodgian's business and assets."
11. By letter dated November 22, 1999, Casuarina responded that its
"proposed valuation of $6.50 per share" represented an "approximately 50 percent
premium over recent trading levels." Casuarina also stated that "providing us
with the information we seek may enable us to increase our valuation above
$6.50." Casuarina urged the defendants to "reconsider and provide . . . the
information necessary" to make a "compelling offer to your shareholders."
12. By letter dated January 3, 2000, defendant Calabro confirmed that
Lodgian had retained Morgan Stanley Dean Witter as its financial advisor to
"assist the Company in exploring alternatives to maximize shareholder value."
Lodgian, however, demanded as a condition to granting plaintiffs access to
customary due diligence materials, that Casuarina (1) sign a standstill
agreement to prevent Casuarina from making any offer to Lodgian's stockholders
(which Lodgian orally demanded last for one year) and (2) provide "satisfactory
evidence" of Casuarina's "ability to finance" an acquisition of Lodgian. Lodgian
stated that "[b]ecause you have been unwilling or unable to do either, our Board
of Directors has determined that it is not in our shareholders' best interest to
provide you with non-public information regarding the Company." Despite
Lodgian's sagging share price, defendant Calabro assured that Lodgian "has an
excellent long-term strategy that will provide our shareholders with the highest
possible value for their investment."
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<PAGE>
13. By letter dated January 5, 2000, Casuarina objected to Lodgian's
proposed "new conditions" to the "receipt of the customary information [Lodgian]
had previously agreed would be provided to us." Casuarina stated that it was
"prepared to execute a customary mutual confidentiality agreement as a condition
to our receipt of non-public information from Lodgian." Casuarina noted,
however, that given its stated intent to acquire Lodgian, Lodgian's request that
Casuarina agree to a standstill as a condition to providing non-public
information was "neither customary nor appropriate." Notwithstanding this
unusual request, Casuarina indicated that "in the interest of moving the process
forward," it would "abide by a 30-day standstill." Casuarina provided Lodgian
with a proposed Confidentiality and Standstill Agreement reflecting those terms.
14. On January 12, 2000, the defendants shocked the market,
unexpectedly announcing -- despite recent assurances that Lodgian had "an
excellent long-term strategy that will provide our shareholders with the highest
possible value for their investment" -- that Lodgian's 1999 earnings would be
24-28% below consensus analyst estimates and that 2000 earnings would be flat.
15. By letter dated January 18, 2000, Casuarina informed Lodgian that,
despite having been "exceedingly patient," it had been "met with an overwhelming
lack of cooperation" in its attempts to obtain customary due diligence
information. As a result of the surprise earnings announcement -- and without
being afforded access to due diligence materials to verify Casuarina's valuation
of Lodgian -- Casuarina stated that it was "no longer willing to offer Lodgian
shareholders $6.50 per share in cash." Casuarina urged the defendants to
"promptly reconsider" their "refusal to grant us access to the information we
have requested."
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<PAGE>
16. On March 6, 2000, Purchaser and its affiliates met with
representatives of Lodgian and its financial advisor, and proposed to acquire
Lodgian at $5.75 per share, subject to customary conditions, all in cash. In
addition, to satisfy Lodgian's request that plaintiffs provide evidence of their
ability to finance the acquisition of Lodgian, representatives of plaintiffs'
financing sources attended the March 6, 2000 meeting and answered all questions
regarding the financing. The Director Defendants nonetheless insisted that
Purchaser and its affiliates execute a lengthy standstill agreement as a
condition to receiving due diligence information. Purchaser responded that it
would not sign a lengthy standstill agreement, because if Lodgian rejected
Purchaser's offer, Purchaser fully intended to seek representation on Lodgian's
Board of Directors by conducting a proxy solicitation.
The Board Reshuffling
17. On March 9, 2000, with Lodgian's 2000 Annual Meeting now on the
horizon (the 1999 Annual Meeting was held on June 25, 1999) and just three days
after plaintiffs had demonstrated their ability to offer Lodgian's stockholders
a substantial premium and indicated their intention to conduct a proxy
solicitation and to replace three of Lodgian's directors, defendants reshuffled
Lodgian's Board of Directors under the pretext of corporate housekeeping. But
the actions were not ordinary housekeeping changes.
18. Lodgian has a staggered Board of Directors consisting of three
classes, with each class of directors serving for three-year terms. Three
members of the Board of Directors were subject to reelection at the 2000 Annual
Meeting. Specifically, Lodgian's Board was constituted as follows: Class I (term
expiring in 2002) included defendant Tyson and one vacant seat; Class II (term
expiring in 2000) included Michael Leven and defendants Calabro and Lang; and
Class III (term expiring in 2001) included defendant Cole, defendant Weiner and
one
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<PAGE>
vacant seat. Thus, at the 2000 Annual Meeting, Lodgian stockholders expected to
nominate and elect directors to replace all three Class II directors.
19. The Director Defendants knew that if Lodgian's stockholders could
vote for three directors at the 2000 Annual Meeting, the Director Defendants
would likely lose control of Lodgian due to management's poor performance and
the substantial premium plaintiffs were willing to offer Lodgian's shareholders.
20. To entrench themselves at the expense of denying Lodgian's
shareholders the right to vote the defendants out of office, the Director
Defendants approved a series of changes to the structure of Lodgian's Board of
Directors. First, defendant Calabro resigned as a Class II director with a term
expiring in 2000 and was immediately appointed to fill a vacancy in Class I,
with a term expiring in 2002. Second, the Board of Directors shrank the Board's
size from eight to six members, with the result that each class now consisted of
only two directors. Realizing that Lodgian's bylaws provided -- inconsistent
with Lodgian's Certificate of Incorporation -- that a director "elected to fill
a vacancy shall hold office only until the next election of directors by the
stockholders," the Director Defendants deleted this bylaw and provided, instead,
that "[a]ny director elected by the Board to fill a vacancy shall hold office
for a term that shall coincide with the term of the class to which such director
shall have been elected." The purpose and effect of these changes was to
insulate defendant Calabro from standing for re-election, a campaign Calabro --
the very individual who had presided as Chairman of Lodgian's Board over the
mismanagement of Lodgian and the collapse of Lodgian's share price -- was likely
to lose. As a result, Lodgian shareholders now only may nominate and vote for
two out of a total of six directors at the 2000 Annual Meeting, whereas
previously they were entitled to vote for three out of six directors.
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<PAGE>
21. Rather than forthrightly disclose their true entrenchment motives,
defendants falsely cited a host of pretexts for the foregoing actions.
Defendants stated in their public filings with the Securities and Exchange
Commission that the foregoing changes were necessary to comply with Lodgian's
Certificate of Incorporation and the rules of the New York Stock Exchange.
Notwithstanding that defendants had lived with the prior arrangements while it
was convenient to do so in flagrant disregard of the very standards they now
sanctimoniously invoke -- arrangements that Lodgian stockholders have relied
upon and fully expected would be in place at the 2000 Annual Meeting -- the
Director Defendants made these changes in direct response to plaintiffs' open
challenge to their control of Lodgian when theses arrangements were no longer
convenient to them.
22. In a press release dated March 16, 2000, Lodgian once again
astonished the financial markets by disclosing that it would take an unusual $75
million earnings charge -- an item completely omitted from Lodgian's earnings
forecasts just weeks earlier -- and would experience an even wider operating
loss for 1999. Defendant Cole candidly acknowledged that "1999 was, to say the
least, an extremely difficult year for shareholders." Recognizing the "high
level of shareholder impatience and frustration with the performance of the
Company's share price," Lodgian repeated that it had retained Morgan Stanley
Dean Witter "to assist the Company in its evaluation of strategic alternatives
to enhance shareholder value," and admitted that it is actively considering "a
possible sale of the Company" about which "discussions are taking place." Thus,
defendants made clear that Lodgian is up for sale at precisely the time they
adopted the foregoing defensive measures.
23. Lodgian, apparently preparing the financial markets for yet another
surprise earnings announcement, disclosed on March 30, 2000, that it was
delaying the filing of
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<PAGE>
its 1999 Form 10-K. Kenneth Posner, Executive Vice-President and Chief Financial
Officer of Lodgian, stated that "[a]s a consequence of certain accounting issues
requiring further review and evaluation by management, including items related
to accounting for the Servico/Impac merger, accounting for the impairment of
long-lived assets and accounting for intangible assets," Lodgian's audit of its
1999 financial statements would be delayed. Thus, with Lodgian's management
unable to turn Lodgian's business around and unable even to file their Annual
Report in a timely manner, the only "corporate house-keeping" the defendants
deemed necessary or appropriate was a reshuffling of the Board of Directors to
deny Lodgian stockholders the ability to replace fifty percent of Lodgian's
Board at the 2000 Annual Meeting, where the Director Defendants were sure to be
held accountable for their failed management of a floundering company.
Irreparable Injury
24. Plaintiffs intend to nominate three individuals for election at the
2000 Annual Meeting to serve as Class II directors. The unlawful actions of
Lodgian and the Director Defendants are unreasonable defensive measures that
have the effect of impairing Lodgian stockholders' ability to nominate and vote
for this slate, which would constitute fifty-percent of the Board at the 2000
Annual Meeting. Lodgian's stockholders will be irreparably harmed unless
defendants' actions are reversed. The injury to plaintiffs is real and palpable
and will not be compensable in money damages. Plaintiffs have no adequate remedy
at law.
FIRST CAUSE OF ACTION
(Breach of Fiduciary Duty)
25. Plaintiffs repeat and reallege each and every allegation set forth
in paragraphs 1 through 24 as fully set forth herein.
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<PAGE>
26. The Director Defendants owe Lodgian's stockholders the highest
duties of care, loyalty and good faith. This duty includes but is not limited to
the obligation to refrain from taking any action for the sole or primary purpose
of impeding the effectiveness of shareholder action absent compelling
justification. This duty also includes the obligation to refrain from acting for
the sole or primary purpose of entrenchment and to refrain from taking any
defensive action that is not reasonable or proportionate to a cognizable threat
to a legitimate corporate interest. The prospect that stockholders might vote
differently than the Board of Directors in an election for directors does not
constitute a legitimate threat to a corporate interest justifying defensive
action.
27. By reducing the size of Lodgian's Board and eliminating the right
of Lodgian shareholders to replace fifty percent of the Lodgian Board of
Directors at the 2000 Annual Meeting in direct response to plaintiffs' offer to
acquire Lodgian and on the eve of a contested election, the Director Defendants
have breached their fiduciary duties of loyalty.
28. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs respectfully request judgment against defendants
as follows:
(a) declaring that the Director Defendants have breached their
fiduciary duty of loyalty to Lodgian stockholders by reducing the size of
Lodgian's Board of Directors from eight to six members for the sole purpose of
denying shareholders the right to vote for three out of six directors on
Lodgian's Board of Directors;
(b) enjoining the Director Defendants and Lodgian, its officers,
agents, servants, employees, and those acting in concert or participation with
them, from implementing,
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<PAGE>
applying or enforcing the reduction in the size of Lodgian's Board of Directors
from eight to six members;
(c) declaring that the stockholders of Lodgian have the right to
nominate and elect three Class II directors to Lodgian's Board of Directors at
the 2000 Annual Meeting;
(d) awarding plaintiffs their costs and disbursements in this action,
including reasonable attorneys' and experts' fees; and
(e) granting plaintiffs such other and further relief as this Court may
deem just and proper.
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ Alan J. Stone
---------------------------------------
Alan J. Stone
Jessica Zeldin
1201 N. Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
(302) 658-9200
Attorneys for Plaintiffs Casuarina
Cayman Holdings Ltd. and Edgecliff
Holdings, LLC
OF COUNSEL:
Martin Flumenbaum
Michael C. Keats
PAUL, WEISS, RIFKIND, WHARTON
& GARRISON
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3000
Dated: April 7, 2000
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<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
CASUARINA CAYMAN HOLDINGS LTD., )
a Cayman Islands, British West Indies corporation, )
and EDGECLIFF HOLDINGS, LLC, a Kentucky )
limited liability company, )
)
Plaintiffs, )
)
v. ) Civil Action No. ________
)
LODGIAN, INC., PETER R. TYSON, ) VERIFICATION
JOSEPH C. CALABRO, JOHN M. LANG, )
ROBERT S. COLE and RICHARD H. WEINER, )
)
Defendants. )
)
STATE OF DELAWARE )
: ss.:
COUNTY OF NEW CASTLE )
WILLIAM J. YUNG, being duly sworn, deposes and says:
I am President and General Manager of plaintiffs Casuarina Cayman
Holdings, Ltd. and Edgecliff Holdings, LLC, and I know the allegations of the
foregoing Verified Complaint to be true of my own knowledge, except as to
matters alleged upon information and belief. As to those matters, I believe them
to be true.
Dated: April 6, 2000
/s/ William J. Yung
-------------------
William J. Yung
SWORN to and SUBSCRIBED before me
this 6th day of April 2000.
/s/ Joanne M. Stern
- --------------------------------
Notary Public
-12-
Exhibit 10
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
CASUARINA CAYMAN HOLDINGS LTD., )
a Cayman Islands, British West Indies corporation, )
and EDGECLIFF HOLDINGS, LLC, a Kentucky )
limited liability company, )
)
Plaintiffs, )
)
v. ) Civil Action No. ________
)
LODGIAN, INC., PETER R. TYSON, )
JOSEPH C. CALABRO, JOHN M. LANG, )
ROBERT S. COLE and RICHARD H. WEINER, )
)
Defendants. )
)
MOTION FOR EXPEDITED PROCEEDINGS
Plaintiffs Casuarina Cayman Holdings Ltd. ("Casuarina") and Edgecliff
Holdings, LLC ("Purchaser"), hereby move the Court, pursuant to Court of
Chancery Rules 4, 12, 26, 30 and 34, for an order expediting the proceedings and
setting an early trial date in this matter.
INTRODUCTION
1. Plaintiffs seek to nominate and elect three individuals to the Board
of Directors of Lodgian, Inc. ("Lodgian"), as part of their persistent efforts
to acquire all of the issued and outstanding shares of Lodgian for a substantial
premium. In direct response -- and to prevent Lodgian stockholders from
punishing management for presiding over the collapse of Lodgian's share price
from over $7-1/8 per share to $3-7/16 in less than a year -- the defendants
reduced the size of Lodgian's Board and then reshuffled the incumbent directors,
all to limit the number of directors who must stand for reelection at Lodgian's
2000 Annual Meeting. The
<PAGE>
defendants' sole purpose in doing so was to entrench themselves and prevent the
ouster of fifty percent of the current Board at the 2000 Annual Meeting.
2. Lodgian's 2000 Annual Meeting must be held by July 25, 2000 (the
1999 Annual Meeting was held on June 25, 1999). See 8 Del. C.ss. 211. Plaintiffs
now seek an expedited trial -- and therefore expedited discovery -- so that the
Court can make a final determination prior to the 2000 Annual Meeting and in
advance of the time that plaintiffs will need to solicit proxies in favor of
their three director nominees. Such expedited treatment is crucial to vindicate
stockholders' rights. In the absence of an expedited trial and discovery, the
election to be held at the 2000 Annual Meeting will be "prejudicially tainted,
would have to be invalidated, and a new election free from tainting influence
would have to be held." Packer v. Yanpol, Del. Ch., C.A. No. 1832, slip op. at
28-29, Jacobs, V.C. (Apr. 18, 1986) (Exhibit A hereto).
FACTUAL BACKGROUND
Parties
3. Collectively plaintiffs are the beneficial or record owners of
3,091,800 outstanding shares of Lodgian common stock, representing more than 11%
of Lodgian's outstanding shares. Defendant Lodgian is a Delaware corporation
engaged in hotel management with its principal place of business in Atlanta,
Georgia. The individual defendants are all directors of Lodgian.
The Offer
4. On October 19, 1999, Casuarina and its affiliates disclosed that
they had acquired more than 9% of Lodgian's issued and outstanding shares.
Casuarina further disclosed that its principal, Mr. William J. Yung, an
experienced and successful hotel builder, owner and
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<PAGE>
manager, "may seek representation on the Board of Directors of the Issuer" which
"may involve solicitation of proxies to obtain such representation."
5. On November 9, 1999, Casuarina and its affiliates disclosed that
they had retained a financial advisor, Greenhill & Co., LLC, to assist them in
evaluating their strategic alternatives in respect of their investment in
Lodgian.
6. By letter dated November 16, 1999, Casuarina informed Lodgian that
it was interested in purchasing all of the issued and outstanding shares of
Lodgian for $6.50 per share, entirely in cash, representing a 48% premium to the
prevailing market value. Casuarina requested customary due diligence information
to verify its valuation of Lodgian. Casuarina reminded the Director Defendants
that, in light of their fiduciary responsibilities under Delaware law, they
could not "take any steps which would tend to entrench management or tilt the
playing field in favor of management."
7. Instead of embracing the immediate premium to Lodgian's
shareholders, by letter dated November 19, 1999, Lodgian rejected Casuarina's
overtures, stating that unspecified "terms and conditions" by which Casuarina
"proposed to move forward regarding a purchase of the Company were not in the
best interests of Lodgian's stockholders and that the price contemplated by
Casuarina's offer materially understated the value of Lodgian's business and
assets."
8. By letter dated November 22, 1999, Casuarina responded that its
"proposed valuation of $6.50 per share" represented an "approximately 50 percent
premium over recent trading levels." Casuarina also stated that "providing us
with the information we seek may enable us to increase our valuation above
$6.50." Casuarina urged the defendants to
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<PAGE>
"reconsider and provide . . . the information necessary" to make a "compelling
offer to your shareholders."
9. By letter dated January 3, 2000, defendant Calabro confirmed that
Lodgian had retained Morgan Stanley Dean Witter as its financial advisor to
"assist the Company in exploring alternatives to maximize shareholder value."
Lodgian, however, demanded as a condition to granting plaintiffs access to
customary due diligence materials, that Casuarina (1) sign a standstill
agreement to prevent Casuarina from making any offer to Lodgian's stockholders
(which Lodgian orally demanded last for one year) and (2) provide "satisfactory
evidence" of Casuarina's "ability to finance" an acquisition of Lodgian. Lodgian
stated that "[b]ecause you have been unwilling or unable to do either, our Board
of Directors has determined that it is not in our shareholders' best interest to
provide you with non-public information regarding the Company." Despite
Lodgian's sagging share price, defendant Calabro assured that Lodgian "has an
excellent long-term strategy that will provide our shareholders with the highest
possible value for their investment."
10. By letter dated January 5, 2000, Casuarina objected to Lodgian's
proposed "new conditions" to the "receipt of the customary information [Lodgian]
had previously agreed would be provided to us." Casuarina stated that it was
"prepared to execute a customary mutual confidentiality agreement as a condition
to our receipt of non-public information from Lodgian." Casuarina noted,
however, that given its stated intent to acquire Lodgian, Lodgian's request that
Casuarina agree to a standstill as a condition to providing non-public
information was "neither customary nor appropriate." Notwithstanding this
unusual request, Casuarina indicated that "in the interest of moving the process
forward," it would "abide by a 30-day standstill." Casuarina
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<PAGE>
provided Lodgian with a proposed Confidentiality and Standstill Agreement
reflecting those terms.
11. On January 12, 2000, the defendants shocked the market,
unexpectedly announcing -- despite recent assurances that Lodgian had "an
excellent long-term strategy that will provide our shareholders with the highest
possible value for their investment" -- that Lodgian's 1999 earnings would be
24-28% below consensus analyst estimates and that 2000 earnings would be flat.
12. By letter dated January 18, 2000, Casuarina informed Lodgian that,
despite having been "exceedingly patient," it had been "met with an overwhelming
lack of cooperation" in its attempts to obtain customary due diligence
information. As a result of the surprise earnings announcement -- and without
being afforded access to due diligence materials to verify Casuarina's valuation
of Lodgian -- Casuarina stated that it was "no longer willing to offer Lodgian
shareholders $6.50 per share in cash." Casuarina urged the defendants to
"promptly reconsider" their "refusal to grant us access to the information we
have requested."
13. On March 6, 2000, Purchaser and its affiliates met with
representatives of Lodgian and its financial advisor, and proposed to acquire
Lodgian at $5.75 per share, subject to customary conditions, all in cash. In
addition, to satisfy Lodgian's request that plaintiffs provide evidence of their
ability to finance the acquisition of Lodgian, representatives of plaintiffs'
financing sources attended the March 6, 2000 meeting and answered all questions
regarding the financing. The Director Defendants nonetheless insisted that
Purchaser and its affiliates execute a lengthy standstill agreement as a
condition to receiving due diligence information. Purchaser responded that it
would not sign a lengthy standstill agreement, because if Lodgian rejected
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<PAGE>
Purchaser's offer, Purchaser fully intended to seek representation on Lodgian's
Board of Directors by conducting a proxy solicitation.
The Board Reshuffling
14. On March 9, 2000, with Lodgian's 2000 Annual Meeting now on the
horizon (the 1999 Annual Meeting was held on June 25, 1999) and just three days
after plaintiffs had demonstrated their ability to offer Lodgian's stockholders
a substantial premium and indicated their intention to conduct a proxy
solicitation and to replace three of Lodgian's directors, defendants reshuffled
Lodgian's Board of Directors under the pretext of corporate housekeeping. But
the actions were not ordinary housekeeping changes.
15. Lodgian has a staggered Board of Directors consisting of three
classes, with each class of directors serving for three-year terms. Three
members of the Board of Directors were subject to reelection at the 2000 Annual
Meeting. Specifically, Lodgian's Board was constituted as follows: Class I (term
expiring in 2002) included defendant Tyson and one vacant seat; Class II (term
expiring in 2000) included Michael Leven and defendants Calabro and Lang; and
Class III (term expiring in 2001) included defendant Cole, defendant Weiner and
one vacant seat. Thus, at the 2000 Annual Meeting, Lodgian stockholders expected
to nominate and elect directors to replace all three Class II directors.
16. The Director Defendants knew that if Lodgian's stockholders could
vote for three directors at the 2000 Annual Meeting, the Director Defendants
would likely lose control of Lodgian due to management's poor performance and
the substantial premium plaintiffs were willing to offer Lodgian's shareholders.
17. To entrench themselves at the expense of denying Lodgian's
shareholders the right to vote the defendants out of office, the Director
Defendants approved a series of
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<PAGE>
changes to the structure of Lodgian's Board of Directors. First, defendant
Calabro resigned as a Class II director with a term expiring in 2000 and was
immediately appointed to fill a vacancy in Class I, with a term expiring in
2002. Second, the Board of Directors shrank the Board's size from eight to six
members, with the result that each class now consisted of only two directors.
Realizing that Lodgian's bylaws provided -- inconsistent with Lodgian's
Certificate of Incorporation -- that a director "elected to fill a vacancy shall
hold office only until the next election of directors by the stockholders," the
Director Defendants deleted this bylaw and provided, instead, that "[a]ny
director elected by the Board to fill a vacancy shall hold office for a term
that shall coincide with the term of the class to which such director shall have
been elected." The purpose and effect of these changes was to insulate defendant
Calabro from standing for re-election, a campaign Calabro -- the very individual
who had presided as Chairman of Lodgian's Board over the mismanagement of
Lodgian and the collapse of Lodgian's share price -- was likely to lose. As a
result, Lodgian shareholders now only may nominate and vote for two out of a
total of six directors at the 2000 Annual Meeting, whereas previously they were
entitled to vote for three out of six directors.
18. Rather than forthrightly disclose their true entrenchment motives,
defendants falsely cited a host of pretexts for the foregoing actions.
Defendants stated in their public filings with the Securities and Exchange
Commission that the foregoing changes were necessary to comply with Lodgian's
Certificate of Incorporation and the rules of the New York Stock Exchange.
Notwithstanding that defendants had lived with the prior arrangements while it
was convenient to do so in flagrant disregard of the very standards they now
sanctimoniously invoke -- arrangements that Lodgian stockholders have relied
upon and fully expected would be in place at the 2000 Annual Meeting -- the
Director Defendants made these changes in direct
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<PAGE>
response to plaintiffs' open challenge to their control of Lodgian when theses
arrangements were no longer convenient to them.
19. In a press release dated March 16, 2000, Lodgian once again
astonished the financial markets by disclosing that it would take an unusual $75
million earnings charge -- an item completely omitted from Lodgian's earnings
forecasts just weeks earlier -- and would experience an even wider operating
loss for 1999. Defendant Cole candidly acknowledged that "1999 was, to say the
least, an extremely difficult year for shareholders." Recognizing the "high
level of shareholder impatience and frustration with the performance of the
Company's share price," Lodgian repeated that it had retained Morgan Stanley
Dean Witter "to assist the Company in its evaluation of strategic alternatives
to enhance shareholder value," and admitted that it is actively considering "a
possible sale of the Company" about which "discussions are taking place." Thus,
defendants made clear that Lodgian is up for sale at precisely the time they
adopted the foregoing defensive measures.
20. Lodgian, apparently preparing the financial markets for yet another
surprise earnings announcement, disclosed on March 30, 2000, that it was
delaying the filing of its 1999 Form 10-K. Kenneth Posner, Executive
Vice-President and Chief Financial Officer of Lodgian, stated that "[a]s a
consequence of certain accounting issues requiring further review and evaluation
by management, including items related to accounting for the Servico/Impac
merger, accounting for the impairment of long-lived assets and accounting for
intangible assets," Lodgian's audit of its 1999 financial statements would be
delayed. Thus, with Lodgian's management unable to turn Lodgian's business
around and unable even to file their Annual Report in a timely manner, the only
"corporate house-keeping" the defendants deemed necessary or appropriate was a
reshuffling of the
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<PAGE>
Board of Directors to deny Lodgian stockholders the ability to replace fifty
percent of Lodgian's Board at the 2000 Annual Meeting, where the Director
Defendants were sure to be held accountable for their failed management of a
floundering company.
ARGUMENT
21. The Court of Chancery Rules grant this Court broad power to order
expedited discovery and proceedings. See Ct. Ch. R. 4, 12, 26, 30, 34. Indeed,
courts interpreting these rules have held that plaintiffs need only show "some
reason justifying departure from the sequence envisioned by the rules to secure
expedition." American Stores Co. v. Lucky Stores, Inc., Del. Ch., C.A. No. 9766,
slip op. at 4, Allen, C. (Apr. 13, 1988) (Exhibit B hereto).
22. In the context of a plaintiff seeking expedited proceedings in aid
of a motion for preliminary injunction, this Court "traditionally has acted with
a certain solicitude for plaintiffs" and "has followed the practice of erring on
the side of more [expedited] hearings rather than fewer." Giammargo v. Snapple
Beverage Corp., Del. Ch., C.A. No. 13845, slip op. at 6, Allen, C. (Nov. 15,
1994) (emphasis added) (Exhibit C hereto). Accordingly, the Court limits its
inquiry into whether the plaintiff "has articulated a sufficiently colorable
claim and shown a sufficient possibility of a threatened irreparable injury . .
.." Id. at 5-6. The Court does not judge the merits or even the legal
sufficiency of the complaint. Id. at 5.
23. Here, plaintiffs do not seek the extraordinary remedy of a
preliminary injunction, but rather seek an expedited trial. Under such
circumstances, where the Court and the public are not burdened with an extra and
purely interim proceeding, the showing plaintiffs are required to meet should be
demonstrably less vigorous. See generally Chesapeake Corp. v. Shore, Del. Ch.,
C.A. No. 17626, slip op. at 50, Strine, V.C. (Feb. 7, 2000) (refusing to
schedule
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<PAGE>
a preliminary injunction but granting an expedited trial to determine the
effects of proposed by-law amendments on an impending shareholder vote) (Exhibit
D hereto).
24. First, there can be no dispute that plaintiffs have pleaded
colorable claims sufficient to support the grant of expedited treatment.
Plaintiffs have alleged with specificity in the Verified Complaint that the
Director Defendants' acts to reduce the Lodgian Board from eight to six members
for the primary purpose of denying Lodgian stockholders their expected right to
elect fifty percent of the Board at the 2000 Annual Meeting constitutes an
attempt to entrench the directors and to unjustifiably interfere with the
shareholder vote. These actions violate long-standing and well-recognized
principles of Delaware law including the fiduciary duty doctrines set forth in
Blasius Industries, Inc. v. Atlas Corp., Del. Ch., 564 A.2d 651 (1988) and
Unocal Corp. v. Mesa Petroleum Co., Del. Super., 943 A.2d 946 (1985), and
recently reiterated in Chesapeake Corp. v. Shore, Del. Ch., C.A. No. 17626,
Strine, V.C. (Feb. 7, 2000).
25. Second, the Verified Complaint sets forth more than a possibility
of threatened irreparable injury. Prior to the unlawful actions of Lodgian and
the Director Defendants, Lodgian shareholders had the right to elect at the 2000
Annual Meeting a slate of directors that would constitute fifty percent of the
Lodgian board. The Director Defendants have frustrated this right and interfered
with the stockholder franchise. This Court has consistently recognized that such
interference with stockholder voting rights constitutes irreparable harm. See,
e.g., Packer v. Yanpol, Del. Ch., C.A. No. 1832, slip op. at 28-29, Jacobs, V.C.
(Apr. 18, 1986) (finding that stock issuance would inflict irreparable harm on
stockholders by chilling stockholder vote); Eisenberg v. Chicago Milwaukee
Corp., Del. Ch., 537 A.2d 1051, 1062 (1987) (noting that in the disclosure
context irreparable harm exists where challenged actions threaten "the
shareholders' right to make an informed, uncoerced decision"); see also Bank of
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<PAGE>
New York Co. v. Irving Bank Corp., 528 N.Y.S.2d 482, 484 (N.Y. Supr. 1988)
(finding that stockholders would be irreparably harmed by continuing director
provision that would defer stockholders from voting for insurgent board of
directors). Indeed, were the 2000 Annual Meeting to go forward and the change in
the number of directors later found invalid:
The election would have been prejudicially tainted, would have to be
invalidated, and a new election free from tainting influence, would
have to be held. A course that might yield such an undesirable result
should be avoided if possible.
Packer, slip op. at 28.
26. Additionally, Lodgian stockholders are suffering irreparable harm
because the Lodgian Board's actions deny them the ability to replace half of the
Board with directors who would favor consideration of a sale of the company at a
premium to shareholders. This Court has held that shareholders' loss of the
ability to receive a premium for their stock "alone would be sufficient to
constitute irreparable harm." QVC Network, Inc. v. Paramount Communications,
Inc., Del. Ch., 635 A.2d 1245, 1273 n.50, aff'd, Del. Supr., 637 A.2d 828 (1993)
(Table). Likewise, plaintiffs' loss of the unique opportunity to acquire Lodgian
has been recognized to constitute irreparable injury. See, e.g., Revlon, Inc. v.
MacAndrews & Forbes Holdings, Inc., Del. Supr., 506 A.2d 173, 184 (1986)
(affirming finding of irreparable harm due to the loss of "Pantry Pride's
opportunity to bid for Revlon").
27. In light of the imminent 2000 Annual Meeting and the need for
sufficient time for plaintiffs to solicit proxies in advance of that meeting,
plaintiffs propose a trial in mid-May, with discovery and briefing preceding it.
As set forth in the attached proposed order, plaintiffs seek the ability to
accelerate and to abbreviate the periods for responding to discovery and taking
depositions. Plaintiffs' counsel will cooperate with defendants' counsel to
reasonably accommodate whatever difficulties may arise in responding to the
expedited discovery sought.
-11-
<PAGE>
CONCLUSION
Accordingly, plaintiffs respectfully request that the Court enter an
order in substantially the form attached hereto expediting proceedings and
setting a mid-May trial in this matter.
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ Alan J. Stone
-------------------------------------
Alan J. Stone
Jessica Zeldin
1201 N. Market Street
P.O. Box 1347
Wilmington, DE 19899
(302) 658-9200
Attorneys for Plaintiffs
OF COUNSEL:
Martin Flumenbaum
Michael C. Keats
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
(212) 373-3000
April 7, 2000
-12-
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
CASUARINA CAYMAN HOLDINGS LTD., )
a Cayman Islands, British West Indies corporation, )
and EDGECLIFF HOLDINGS, LLC, a Kentucky )
limited liability company, )
)
Plaintiffs, )
)
v. ) Civil Action No. ________
)
LODGIAN, INC., PETER R. TYSON, )
JOSEPH C. CALABRO, JOHN M. LANG, )
ROBERT S. COLE and RICHARD H. WEINER, )
)
Defendants. )
)
ORDER EXPEDITING PROCEEDING
WHEREFORE, plaintiffs having moved for an Order expediting these
proceedings, the Court having duly considered the motion and for good cause
shown,
IT IS HEREBY ORDERED this ______ day of April, 2000, that:
1. Defendants shall answer the Verified Complaint on or before April
___ 2000;
2. The parties shall respond to any written discovery within five days
of service;
3. The parties shall be permitted to commence depositions, on or after
April __, 2000, on three days notice and prior to the time otherwise prescribed
in Court of Chancery Rule 30(a);
4. The parties shall file simultaneous pre-trial briefs on May __,
2000; and
<PAGE>
5. Trial shall commence on May __, 2000 at __:__ _.m.
--------------------------------
Chancellor
-2-
Exhibit 11
Joint Filing Agreement
----------------------
Each of the undersigned hereby acknowledges and agrees, in compliance
with the provisions of Rule 13d-1(k)(1) promulgated under the Securities
Exchange Act of 1934, as amended, that the Schedule 13D to which this Agreement
is attached as an Exhibit (the "Schedule 13D"), and any amendments thereto, will
be filed with the Securities and Exchange Commission jointly on behalf of each
of the undersigned. This Agreement may be signed by the undersigned in separate
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
Dated: April 7, 2000
EDGECLIFF HOLDINGS, LLC
By: /s/ William J. Yung
-------------------
Name: William J. Yung
Title: President
CASUARINA CAYMAN HOLDINGS LTD.
By: /s/ William J. Yung
-------------------
Name: William J. Yung
Title: President
EDGECLIFF MANAGEMENT, LLC
By: /s/ William J. Yung
-------------------
Name: William J. Yung
Title: President
<PAGE>
20
1994 WILLIAM J. YUNG FAMILY TRUST
By: The Fifth Third Bank,
as Trustee
By: /s/ Timothy A. Rodgers
----------------------
Name: Timothy A. Rodgers
Title: Trust Officer
/s/ Joseph Yung
---------------
Joseph Yung
/s/ William J. Yung
-------------------
William J. Yung
THE 1998 WILLIAM J. YUNG AND MARTHA
A. YUNG FAMILY TRUST
By: The Fifth Third Bank,
as Trustee
By: /s/ Timothy A. Rodgers
----------------------
Name: Timothy A. Rodgers
Title: Trust Officer
