-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TxNJFKyn56e6+n6GBo7lLDcZUpDxYL1T9B/DqhArkKzzBvynZWPmAZ2mmve/Bl6S AhxWStl4QRTIRn3aHkqyDA== 0000950142-00-000321.txt : 20000410 0000950142-00-000321.hdr.sgml : 20000410 ACCESSION NUMBER: 0000950142-00-000321 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000407 GROUP MEMBERS: 1994 WILLIAM J. YUNG FAMILY TRUST GROUP MEMBERS: CASUARINA CAYMAN HOLDINGS LTD. GROUP MEMBERS: EDGECLIFF HOLDINGS LLC GROUP MEMBERS: EDGECLIFF HOLDINGS, LLC GROUP MEMBERS: EDGECLIFF MANAGEMENT, LLC GROUP MEMBERS: JOSEPH YUNG GROUP MEMBERS: THE 1998 WILLIAM J. YUNG & MARTHA A. YUNG FAM. TST GROUP MEMBERS: WILLIAM J. YUNG SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: LODGIAN INC CENTRAL INDEX KEY: 0001066138 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 522093696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-54947 FILM NUMBER: 596241 BUSINESS ADDRESS: STREET 1: 3445 PEACHTREE ROAD N E SUITE 700 CITY: ATLANTA STATE: CA ZIP: 30326 BUSINESS PHONE: 4043649400 MAIL ADDRESS: STREET 1: 3445 PEACHTREE ROAD N E SUITE 700 CITY: ATLANTA STATE: CA ZIP: 30326 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: EDGECLIFF HOLDINGS LLC CENTRAL INDEX KEY: 0001109862 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 611359148 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 207 GRANDVIEW DRIVE CITY: FORT MITCHELL STATE: KY ZIP: 41017 BUSINESS PHONE: 6065781100 MAIL ADDRESS: STREET 1: 207 GRANDVIEW DRIVE CITY: FORT MICTCHELL STATE: KY ZIP: 41017 SC 13D/A 1 AMENDMENT NO. 6 TO SCHEDULE 13D 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). 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 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 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 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 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 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 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 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. 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. 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. 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. 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 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 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. 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/ EX-9 2 EXHIBIT 9 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 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- 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- 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." -4- 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." -5- 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 -6- 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. -7- 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 -8- 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. -9- 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, -10- 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 -11- 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- EX-10 3 EXHIBIT 10 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 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 -2- 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 -3- "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 -4- 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 -5- 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 -6- 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 -7- 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 -8- 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 -9- 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 -10- 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- 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- 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 5. Trial shall commence on May __, 2000 at __:__ _.m. -------------------------------- Chancellor -2- EX-11 4 EXHIBIT 11 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 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 -----END PRIVACY-ENHANCED MESSAGE-----