Lauth granted reprieve

A judge has given Lauth Group Inc. a reprieve from an equity investor that is seeking to take control of most of the developer’s
properties.

The decision
this month by U.S. Bankruptcy Judge Basil H. Lorch could give Carmel-based Lauth more wiggle room as it attempts
to restructure and survive an epic downturn for commercial real estate.

Three companies controlled by Lauth filed for Chapter 11 bankruptcy protection last month in part
to block a move by Inland American Real Estate Trust Inc—its largest creditor—to take control
of more than 40 office, industrial and retail properties.

Without the authority to renegotiate loans on the individual properties and collect fees from
managing them, Lauth likely would have had no choice but to shut down.

In the decision, Lorch says allowing the 32-year-old developer to operate the properties as a
so-called debtor-in-possession is in the best interest of all creditors, at least until he hears a more
thorough airing of the dispute.

The order removes confusion for lenders, which had received notices from Inland that the Chicago-based company should now
be considered the primary contact on the Lauth-developed properties.

Lauth has asked for a declaratory decision that would permanently address the question of control.

"Lauth has objected to Inland’s attempt
to seize control of its businesses and is highly confident the bankruptcy judge will uphold Lauth’s control
of day-to-day operations," said Reed Oslan, a Lauth attorney who works in the Chicago office of restructuring
powerhouse Kirkland & Ellis LLP. "What they’re attempting to do is amusing: They’re trying to get around documents
they signed."

A local attorney for Inland, Jeffrey A. Hokanson of Hostetler & Kowalik PC, declined to comment for this story, referring
questions to lead counsel Claire Ann Resop, of Wisconsin-based von Briesen & Roper. Resop did not return a phone message.

Inland maintains in court filings that Lauth
did not have authority to file for bankruptcy protection since Lauth was no longer in control of the
subsidiary above the entities that filed, LIP Holdings LLC.

The three Inland representatives on the five-member LIP Holdings board had voted to declare a
default after Lauth failed to make two consecutive interest payments related to a $250 million Inland
investment. Inland says that April 27 vote gives it control of LIP Holdings and all the associated properties.
The company even filed its motions in court under the name LIP Holdings.

But Lauth points to a section of the original agreement with Inland that requires approval from
at least one Lauth representative and one Inland representative for major company decisions, including
a change in control.

Ultimately,
Oslan said, it comes down to equity versus debt, and Inland is trying to "dress up" its equity investment as debt.
Investors have many more options to recover funds if they invest debt than they do with equity.

Inland said in a filing that Lauth has "omitted
key documents and facts" in its bankruptcy filings to create "a misleading impression of events."

Specifically, they point to an April 20 agreement
that changed the terms of the Lauth-Inland deal to allow Inland to cause a "liquidating event"
if Lauth fails to deliver two consecutive payments. Inland apparently won the change in terms by lending
$800,000 to settle several lawsuits with Pennsylvania-based Select Medical Corp.