EXHIBIT 10.1
LAW OFFICES OF GEORGE DONALDSON
GEORGE DONALDSON (79971)
DANIEL B. HARRIS (117230)
350 California Street, Suite 1750
San Francisco, CA 94104
Telephone: 415/394-8500
Settlement Counsel and
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
JACK OLIVE, JONATHAN NOBLE, ) Case No. C 89 4331 MHP
M.D., JOHN P. PEDJOE AND )
ALLSOP, INC. PROFIT SHARING ) DERIVATIVE ACTION
PLAN & TRUST, on behalf of )
themselves and all ) SECOND AMENDMENT TO THE
others similarly situated and ) MODIFICATION OF STIPULATION OF
derivatively on behalf of ) SETTLEMENT
NATIONAL INCOME REALTY TRUST, ) ------------------------------
a California business trust, )
CONTINENTAL MORTGAGE AND EQUITY )
TRUST, a California business )
trust, TRANSCONTINENTAL REALTY )
INVESTORS, a California )
business trust, and INCOME )
OPPORTUNITY REALTY TRUST, a )
California )
business trust, )
)
Plaintiffs, )
)
vs. )
)
GENE E. PHILLIPS; WILLIAM S. )
FRIEDMAN; RICHARD N. LAPP; )
MICHAEL E. SMITH; WILLIE K. )
DAVIS; RAYMOND V. J. SCHRAG; )
RANDALL K. GONZALEZ; JAMES W. )
HAMMOND, JR.; NATIONAL REALTY )
ADVISORS, INC., a Texas )
corporation; NATIONAL REALTY, )
L.P., )
)
-- caption continues -- )
)
- --------------------------------- )
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
a Delaware limited partnership; )
AMERICAN REALTY TRUST, INC., a )
Georgia corporation; NATIONAL )
OPERATING L.P., a Delaware )
limited partnership; )
)
Defendants, )
)
-and- )
)
)
)
)
NATIONAL INCOME REALTY TRUST, a )
California business trust; )
CONTINENTAL MORTGAGE AND EQUITY )
TRUST, a California business )
trust, TRANSCONTINENTAL REALTY )
INVESTORS, a California )
business trust; and INCOME )
OPPORTUNITY REALTY TRUST, a )
California business trust; )
)
Nominal Defendants. )
)
_______________________________ )
This Second Amendment to the Modification of Stipulation of Settlement (the
"Second Amendment") is made and entered into as of October 5, 2001, by and among
(i) Settlement Counsel; (ii) Transcontinental Realty Investors, Inc. ("TRI") and
Income Opportunity Realty Investors, Inc. ("IORI") (collectively referred to as
the "Dallas Trusts"), and (iii) Gene E. Phillips ("Phillips"), Basic Capital
Management, Inc. ("BCM"), American Realty Investors, Inc. ("ARI"), the parent
corporation of American Realty Trust, Inc. ("ART") (collectively referred to as
the "Settling Defendants").
///
///
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
1
FACTUAL RECITALS
A. On or about April 27, 1994, the parties to this Second Amendment,
along with others, executed the Modification of Stipulation of Settlement (the
"Modification"). The Modification amended a Stipulation of Settlement (the
"Stipulation"), previously executed on or about February 21, 1990, which settled
all of the claims asserted in an amended complaint filed on or about February
26, 1990, in the above-captioned action.
B. As of January 9, 1997, the parties to this Second Amendment, along
with others, entered the Amendment to the Modification of Stipulation of
Settlement (the "Amendment"), settling disputes which had arisen over
compliance with the Modification.
C. On or about May 24, 1999, Settlement Counsel filed a request with the
court presiding over this action (the "District Court") to exercise its
retained jurisdiction in accordance with Paragraph B.(17) of the Modification.
In essence, Settlement Counsel asserted that certain of the defendants who were
parties to the Modification had breached the terms of Paragraphs D.(4) thereof,
which provision directs the Boards of Directors of the Dallas Trusts to retain
a compensation consultant to evaluate the fairness of the contracts between BCM
and its affiliates and the Dallas Trusts, including, but not limited to, the
fairness to the Dallas Trusts of such contracts relative to other means of
administration.
D. On June 30, 2000, Settlement Counsel filed an amended request that
the District Court exercise its retained jurisdiction, contending that two
loans, totaling $12 million, made
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
2
by TRI to BCM and ART to satisfy margin calls relative to stock owned by BCM
and ART (the "Loans") were contrary to the provisions of Paragraph B.(7) of the
Modification, which prohibit the use of the funds and assets of the Dallas
Trusts to satisfy certain types of claims asserted against Phillips and/or his
affiliates. The Loans have been repaid with interest.
E. On August 31, 2000, and by subsequent order dated September 5, 2000,
the District Court issued an order finding, inter alia, that it had
jurisdiction to entertain Settlement Counsel's claim that the Loans violated
the Modification. Presently, Settlement Counsel's request relative to the
evaluation of contracts by a compensation consultant remains pending in the
District Court.
F. On October 24, 2000, the Dallas Trusts appealed the District Court's
August 31, 2000 order to the United States Court of Appeals for the Ninth
Circuit (the ""Appeals Court"), contending, inter alia, that the Modification
had expired and that the District Court lacked jurisdiction to entertain
Settlement Counsel's assertions respecting the Loans (the "Appeal").
G. The parties hereto acknowledge that further and substantial expense
and time will be necessary to litigate the matters raised by Settlement
Counsel's pending requests that the District Court exercise its retained
jurisdiction. The parties desire to compromise, settle and discharge all claims
arising from such matters and to finally put an end to this litigation in order
to avoid the anticipated expense, inconvenience, distraction, and risk of
further legal proceedings.
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
3
H. To that end, Settlement Counsel and the Settling Defendants have
engaged in extensive arms' length negotiations over the matters set forth below,
and Settlement Counsel has been assisted in that process by a reputable real
estate valuation and consulting firm.
NOW, THEREFORE, the parties hereto agree that, as of the Effective
Date, all of their prior settlement agreements made and entered into in this
action, including those embodied in the Stipulation, the Modification and the
Amendment, be and hereby are supplanted and replaced in their entirety as
follows:
A. DEFINITIONS
As used in this Second Amendment, the following terms, in addition to
those defined elsewhere herein, shall have the meanings specified below:
1. "Directors" or "Boards of Directors" means the persons presently
acting as directors and/or trustees of TRI and IORI, i.e., Ted P. Stokely,
Edward G. Zampa, R. Douglas Leonhard, and Martin L. White, and any other person
who acted in such a capacity at any time since the execution of the Amendment,
i.e., Larry E. Harley, Edward L. Tixier, Murray Shaw and Richard W. Douglas.
2. "Effective Date" is the date on which the settlement embodied in
this Second Amendment becomes "effective," which is the date on which the
District Court's judgment approving the settlement herein contained,
substantially in the form of Exhibit A hereto (the "Final Judgment"), becomes
final, i.e., the date of the final affirmance on appeal, the expiration of the
time for
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
4
petitions for writs of certiorari to the Supreme Court of the United States and,
if certiorari be granted, the date of final affirmance following review pursuant
to that grant; or the final dismissal of any appeal or proceedings on certiorari
to the Supreme Court of the United States; or the expiration, in the absence of
the filing or noticing of any appeal or petition for a writ of certiorari to the
Supreme Court of the United States, of the time to appeal or petition from the
District Court's judgment.
3. "Escrow Agent" means the Law Offices of George Donaldson.
4. "Final Judgment" means the judgment to be entered approving the
proposed settlement contemplated herein and dismissing this action with
prejudice, as set forth in Section D. below and substantially in the form of
Exhibit A hereto.
5. "Freeze-Out Merger" means a transaction whereby a target entity is
merged with another entity, the target entity's shares are purchased, and no
shareholders in the target entity remain upon completion of the merger other
than the acquiring entity.
6. "Person" means any individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated organization, and any other type of legal entity and their
heirs, successors, or assigns.
7. "Released Parties" means collectively the Settling Defendants, the
Directors, IORI, TRI and his or its respective predecessors and successors,
parents, subsidiaries, affiliates, and
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
5
all their present and former partners, principals, officers, directors,
employees, agents, attorneys, assigns, representatives, heirs, executors,
members of the immediate family, and administrators who are or ever may become
liable with respect to the Settled Claims.
8. "Settled Claims" means any and all claims, actions or causes of
action of whatever nature, character or description, whether known, unknown,
suspected or unsuspected, that could or do arise out of or are or could be in
any way based on, connected with or related to any alleged breach of the
Stipulation, the Modification, the Amendment or to any of the matters raised in
Settlement Counsel's requests that the District Court exercise its retained
jurisdiction, as described above, including the Directors' alleged failure to
obtain a compensation consultant's report and the Loans.
9. "Settlement Counsel" means the Law Offices of George Donaldson,
350 California Street, Suite 1750, San Francisco, California 94104.
10. "Settlement Shareholders" means all owners of shares of the
common stock or of rights to acquire the common stock, if any, of TRI and/or
IORI on the date when the Freeze-Out Mergers become effective who did not
exercise applicable rights of dissent and who are not affiliated with the
Released Parties.
11. "Tender Offer" means an offer to purchase all of the outstanding
shares of the subject entity.
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
6
B. SETTLEMENT TERMS
1. Through the mechanism of a Freeze-Out Merger, Income Opportunity
Acquisition Corporation ("IOAC"), a subsidiary of ARI, shall be merged into IORI
pursuant to which all shares of IORI's common stock held by persons not
affiliated with the Released Parties shall be purchased, directly or indirectly,
by ARI at $19 per share in cash or, at the affirmative election of such persons,
in Series H Preferred Stock of ARI in an amount having a liquidation value of
$21.50 in exchange for each share of IORI common stock. In connection with such
Freeze-Out Merger, all of the shares of IORI that are held by the Released
Parties shall be exchanged for Series H Preferred Stock in an amount having a
liquidation value of $21.50 in exchange for each share of IORI common stock.
2. Through the mechanism of a Freeze-Out Merger, Transcontinental
Realty Acquisition Corporation ("TRAC"), a subsidiary of ARI, shall be merged
into TRI pursuant to which all shares of TRI's common stock held by persons not
affiliated with the Released Parties shall be purchased, directly or indirectly,
by ARI at $17.50 per share in cash or, at the affirmative election of such
persons, in Series G Preferred Stock of ARI in an amount having a liquidation
value of $20 per share in exchange for each share of TRI common stock. In
connection with such Freeze-Out Merger, all of the shares of TRI that are held
by the Released Parties shall be exchanged for Series G Preferred Stock in an
amount having a liquidation value of $20 in exchange for each share of TRI
common stock.
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
7
3. The rights, preferences and privileges of the Series H Preferred
Stock shall be those set forth in Exhibit B hereto. The rights, preferences and
privileges of the Series G Stock shall be those set forth in Exhibit C hereto.
4. The purchase prices and the liquidation values stated in
Paragraphs B.1. and 2. above shall be reduced by all cash dividends declared and
paid by each of IORI and TRI after January 2, 2002.
5. The cash consideration to be paid to persons not affiliated with
the Released Parties in connection with the Freeze-Out Mergers described in
Paragraphs B.1. and 2. above shall be guaranteed by and become an obligation of
the Settling Defendants.
6. The Freeze-Out Mergers described in Paragraphs B.1. and 2. above
shall occur as soon as practicable after the satisfaction of each of the
following conditions:
(a) the entry of a Final Judgment, substantially in the form of
Exhibit A hereto, dismissing this action with prejudice with a finding that, in
light of the Freeze-Out Mergers and the related offers to purchase, the proposed
settlement herein provided is fair, reasonable and adequate within the meaning
of Federal Rule 23.1, as contemplated by Section C hereof;
(b) the occurrence of an Effective Date;
(c) receipt of all necessary regulatory approvals with respect to the
offers to purchase, including any required review of proxy solicitation
materials and registration statements by the Securities and Exchange Commission
(the "SEC"); and
(d) approval of the respective Freeze-Out Merger and
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
8
related offer to purchase by a majority of the shareholders of TRI and/or IORI
who are unaffiliated with any of the Settling Defendants.
7. In order to effectuate the Freeze-Out Mergers, the Settling
Defendants shall timely perform each of the following acts:
(a) On or before November 30, 2001, which date may be reasonably
extended, if necessary, the Board of Directors of TRI and IORI, at the Settling
Defendants' expense, shall obtain a fairness opinion from a reputable
investment banking firm opining that the consideration to be paid to the
unaffiliated shareholders of TRI and IORI in each respective Freeze-Out Merger
or, alternatively, in the Tender Offers described in Paragraphs B.8. and 9.
below is fair from a financial point of view.
(b) Upon entry of the Court's order preliminarily approving the proposed
settlement (the "Preliminary Approval Order"), as described in Section C below,
the Settling Defendants shall deposit $1 million with the Escrow Agent (the
"Good Faith Deposit"). In accordance with the Escrow Agency Agreement attached
hereto as Exhibit D, the Good Faith Deposit shall be held by the Escrow Agent
at least until each Freeze-Out Merger is effective and complete or,
alternatively, until an uncured default occurs, as specified in Paragraph B.8.
below. Upon occurrence of a default, the Good Faith Deposit shall be available
to Settlement Counsel to pay all reasonable costs and fees necessary to compel
the payment of the liquidated damages stipulated in Paragraph B.8. below.
Subject to Paragraph G.2. below, when the Freeze-Out Mergers have
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
9
been completed, or, alternatively, when the Tender Offers have been completed
without the occurrence of any uncured default, the Good Faith Deposit, plus all
interest earned thereon, shall be returned to the Settling Defendants. Subject
to paragraph G.2. below, should an uncured default have occurred and been later
fully remedied, the Good Faith Deposit, less all reasonable fees and expenses
drawn by or awarded Settlement Counsel, shall be returned to the Settling
Defendants.
(c) As soon as practicable after entry of the Preliminary Approval Order,
ARI, TRI and IORI shall file proxy solicitation materials with the SEC seeking
shareholder approval of the contemplated transactions. The proxy solicitation
materials shall include Freeze-Out Merger agreements which provide, inter alia,
that:
(i) IORI shall be acquired by ARI and IOAC shall be merged into IORI
and all Settlement Shareholders holding shares of IORI, subject
to paragraph B.5. above, shall receive $19.00 cash in exchange
for each such share, or, if such persons affirmatively so elect,
ARI preferred stock in an amount having a liquidation value of
$21.50 per share in exchange for each share of IORI common stock;
and
(ii) TRI shall be acquired by ARI and TRAC shall be merged into TRI
and all Settlement Shareholders holding shares of the common
stock of TRI
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
10
shall, subject to Paragraph B.5. above, receive $17.50 cash in
exchange for each such share, or, if such persons affirmatively
so elect, ARI preferred stock in an amount having a liquidation
value of $20.00 per share in exchange for each share of TRI
common stock.
8. Should ARI, TRI and IORI fail to complete the SEC review process
relative to the proxy solicitation materials with respect to each Freeze-Out
Merger prior to March 31, 2002, which may be reasonably extended by consent of
Settlement Counsel, the Settling Defendants shall be in default and liable for
liquidated damages equal to $5.00 for each share of TRI and IORI common stock
held by the owners thereof, except that, within thirty (30) days of the
occurrence of such default, the Settling Defendants may cure the default by
filing Tender Offers for all of the shares of IORI and TRI held by the
Settlement Shareholders, provided such Tender Offers have with respect to the
cash option the same or better economic terms and conditions as the Freeze-Out
Merger to which they relate, except that no dissenting holder shall be required
to surrender his or her shares in the Tender Offers and the approval of the SEC
shall not be required with respect to the Tender Offers. If the Tender Offers
are substantially completed within one hundred and twenty (120) days following
their distribution and public announcement, the Settling Defendants shall be
deemed to have complied in all respects with this Second Amendment.
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
11
9. Should the proxy solicitation materials with respect to each Freeze-Out
Merger become effective, and thereafter should the voting shareholders of
either of IORI or TRI who are unaffiliated with the Settling Defendants reject
the proposed Freeze-Out Merger, then the Settling Defendants shall make a
Tender Offer with respect to the rejecting entity on the same terms described
in Paragraph B.8. above, and, in that event, the Settling Defendants shall have
fully performed their obligations under this Second Amendment as to such
rejecting shareholders and shall have no further obligation to them under this
Second Amendment.
10. The Settling Defendants shall not acquire any additional shares of TRI
and/or IORI not already owned by them as of October 5, 2001 until the
expiration of ten (10) business days following publication of the Summary
Notice, as provided in Paragraph C.6. below.
11. In connection with the Freeze-Out Mergers or the Tender Offers, other
than that necessary to obtain the requisite quorum for any vote of shareholders
that is required hereunder, which may include retention of a proxy solicitation
firm, the Released Parties shall not engage in any solicitation activity
directed at Settlement Shareholders, including, without limitation, acts
intended to have or having the effect of causing Settlement Shareholders to
accept preferred stock rather than cash. The Settling Defendants shall cooperate
with all reasonable requests of Settlement Counsel to insure compliance with the
requirements of this paragraph.
12. Immediately after execution of this Second
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
12
Amendment, Settlement Counsel and counsel for the Dallas Trusts shall jointly
request the Appeals Court to postpone oral argument until a date no earlier
than February 28, 2002 unless the parties hereafter jointly inform the Appeals
Court that the settlement has terminated and the Appeal should be placed back
on the calendar for oral argument.
C. THE PRELIMINARY APPROVAL ORDER
Promptly after execution of this Second Amendment, Settlement Counsel
shall file this Second Amendment with the Clerk of the District Court and move
the District Court for the entry of the Preliminary Approval Order,
substantially in the form of Exhibit E hereto, providing for notice of and
hearing on the proposed settlement. The Preliminary Approval Order shall
specifically include provisions which:
1. Preliminarily approve the proposed settlement embodied in this
Second Amendment as being within the range of fairness and reasonableness;
2. Approve a form of notice for mailing to the shareholders of the
Dallas Trusts, substantially in the form of Exhibit F hereto (the "Settlement
Notice"), that notifies such persons of the hearing on approval of the
settlement and of their rights with respect thereto;
3. Approve a form of summary notice of the hearing on the proposed
settlement for publication to the shareholders of the Dallas Trusts,
substantially in the form of Exhibit G hereto (the "Summary Notice");
4. Relieve Gene E. Phillips and A. Cal Rossi from the
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
13
restrictions on involvement in the affairs of TRI and IORI, as provided in the
Court's Order of July 21, 2000, to the extent necessary to accomplish the
purposes hereto;
5. Direct the Dallas Trusts, at the Settling Defendants' expense, to mail
or cause to be mailed the Settlement Notice to those shareholders of the Dallas
Trusts who can be identified through reasonable effort;
6. Direct Settlement Counsel, at the Settling Defendants' expense, to
cause the Summary Notice to be published on one occasion in the national
edition of The Wall Street Journal;
7. Find that mailing and publication pursuant to Paragraphs C.5. and 6.
above constitute the best notice practicable under the circumstances, including
individual notice to all shareholders of the Dallas Trusts who can be
identified through reasonable effort, are due and sufficient notice of the
matters set forth in the Settlement Notice to all such persons, and fully
satisfy the requirements of due process and Rule 23.1 of the Federal Rules of
Civil Procedure;
8. Schedule a hearing (the "Settlement Hearing") to determine whether the
proposed settlement embodied in this Second Amendment should be finally
approved as fair, reasonable and adequate and whether an order approving the
settlement should be entered thereon; and
9. Provide that any objections to the proposed settlement shall be heard
and any papers submitted in support of said objections shall be received and
considered by the District Court at the Settlement Hearing (unless, in its
discretion, the
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
14
District Court shall otherwise direct) only if, on or before a date to be
specified in the Preliminary Approval Order, persons making objections shall
file notice of their intention to appear and copies of any papers in support of
their position with Clerk of the District Court and serve such notice and papers
on counsel to the parties this Second Amendment.
D. JUDGMENT TO BE ENTERED BY THE DISTRICT COURT APPROVING THE SETTLEMENT
Upon approval by the District Court of the settlement, as herein
contemplated, the Final Judgment shall be entered, substantially in the form of
Exhibit A hereto, which shall:
1. Approve the settlement embodied in this Second Amendment as fair,
reasonable and adequate to the Dallas Trusts and their shareholders within the
meaning of Federal Rule 23.1;
2. Adjudge that the Dallas Trusts and the shareholders of the Dallas
Trusts, in their derivative capacity, shall be deemed conclusively to have
released the Settled Claims against the Released Parties;
3. Bar and permanently enjoin the Dallas Trusts, and their shareholders
in a derivative capacity, from prosecuting the Settled Claims against the
Released Parties; and
4. Reserve jurisdiction, without affecting the finality of the Final
Judgment entered, only over: (a) implementation of the settlement embodied in
this Second Amendment; (b) any hearing and/or determination on the applications
of Settlement counsel for an award of attorneys' fees and expenses; and (c)
enforcing and administering this Second Amendment. Upon the Effective Date, the
terms of this Second Amendment shall supersede and extinguish any
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
15
and all prior agreements between the parties. By acknowledging the Court's
jurisdiction to approve this Second Amendment, the Dallas Trusts and the
Settling Defendants do not in any way waive their position that the Court does
not have any continuing jurisdiction to enforce or otherwise interpret the
previous agreements between the parties, including the Stipulation, the
Modification and the Amendment.
E. CONDITIONS OF SETTLEMENT
1. This Second Amendment shall be effective only on the condition
that all of the following events occur:
(a) The District Court enters the Preliminary Approval Order;
(b) The District Court enters the Final Judgment; and
(c) There is an Effective Date.
2. Upon the occurrence of all of the events referenced in Paragraph
E.1. above, the Dallas Trusts and the named plaintiffs to this action (a) are
deemed to dismiss this action with prejudice; (b) acknowledge full and complete
satisfaction of, and do hereby fully, finally and forever settle, release and
discharge the Settled Claims with respect to the Released Parties; (c) do hereby
further acknowledge that he, she or it is aware that he, she or it may hereafter
discover facts in addition to or different from those which he, she or it now
knows or believes to be true with respect to the subject matter of this release,
but that it is his, her or its intention to, and he, she or it does hereby,
fully, finally, and forever settle, release and discharge all claims
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
16
referenced in this Paragraph E.2. without regard to the subsequent discovery or
existence of such different or additional facts.
3. Upon the occurrence of all of the events referenced in Paragraph
E.1. above, the Dallas Trusts shall dismiss the Appeal with prejudice.
4. Notwithstanding the foregoing, nothing herein other than the
events specified in Section F. below shall relieve the Settling Defendants from
performing any of their respective obligations under this Second Amendment.
F. EFFECT OF DISAPPROVAL, CANCELLATION OR TERMINATION
1. If the District Court does not enter the Final Judgment or if the
District Court enters the Final Judgment and appellate review is sought and on
such review such judgment is materially modified or reversed, then this Second
Amendment shall not be cancelled and terminated if all parties to this Second
Amendment who are adversely affected thereby, within thirty (30) days from the
date of mailing of such ruling to such parties, provide written notice to all
other parties hereto of their intent to proceed with this Second Amendment. Such
notice may be provided on behalf of each party to this Second Amendment by his
or its counsel.
2. If the Effective Date does not occur, or if this Second Amendment
is terminated or cancelled pursuant to its terms, the parties to this Second
Amendment shall be deemed to have reverted to their respective status as of the
date and time immediately prior to the execution of this Second Amendment, and
they shall proceed in all respects as if this Second Amendment had
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
17
not been executed.
G. ATTORNEYS' FEES AND EXPENSES
1. The parties shall use their best efforts to agree on a
reasonable award of attorneys' fees and expenses to Settlement Counsel for its
services in connection with the matters leading up to this Second Amendment, in
which event Settlement Counsel shall apply to the District Court for an award
that does not exceed the agreed-upon amount. Should the parties be unable to
agree, Settlement Counsel shall move the District Court for an award of
attorneys' fees and expenses in whatever amount it deems appropriate, and the
Settling Defendants shall respond to any such request in whatever manner they
deem appropriate. In either event, the Settling Defendants shall be obligated
to and shall pay the award of attorneys' fees and expenses approved by the
District Court no later than five (5) days after the Effective Date.
2. If and to the extent not previously distributed pursuant to the
terms hereof, the Good Faith Deposit shall remain in escrow until all fees and
reimbursable expenses have been disbursed and shall serve as security therefor.
H. MISCELLANEOUS PROVISIONS
1. The parties hereto agree to cooperate to the extent necessary to
effectuate all terms and conditions of this Second Amendment.
2. All of the exhibits attached hereto are hereby incorporated by
this reference as though fully set forth herein.
3. This Second Amendment may be amended or modified only by a written
instrument signed by all parties, their
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
18
successors-in-interest of their counsel of record.
4. This Second Amendment and the exhibits attached hereto constitute
the entire agreement among the parties hereto and no representations,
warranties or inducements have been made to any party concerning this Second
Amendment or its exhibits other than the representations, warranties and
covenants contained and memorialized in such documents.
5. Settlement Counsel, on behalf of the named plaintiffs and the
Dallas Trusts, is expressly authorized to take all appropriate action required
or permitted to be taken by it pursuant to this Second Amendment to effectuate
its terms and is also expressly authorized to enter into any modifications or
amendments to this Second Amendment which they deem appropriate.
6. Counsel for the Released Parties whose names appear on the
signature pages are authorized to sign this Second Amendment on behalf of their
respective clients.
7. This Second Amendment may be executed in one or more
counterparts. All executed counterparts and each of them shall be deemed to be
one and the same instrument. Counsel for the parties to this Second Amendment
shall exchange among themselves original signed counterparts and a complete set
of original executed counterparts shall be filed with the District Court.
8. This Second Amendment shall be binding upon, and inure to the
benefit of, the successors and assigns of the parties hereto.
9. All terms of this Second Amendment and the exhibits hereto shall
be governed by and interpreted according to the laws
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
19
of the State of California.
10. All parties shall use best efforts to perform all terms of this Second
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be executed, by their duly authorized attorneys, as of the date and year first
above written.
Dated: October 17, 2001 LAW OFFICES OF GEORGE DONALDSON
350 California Street, Suite 1750
San Francisco, CA 94104
Telephone: (415) 394-8500
By /s/ GEORGE DONALDSON
---------------------------------
George Donaldson
Settlement Counsel and Attorneys for
the Plaintiffs
Dated: October 17, 2001 COOLEY GODWARD LLP
One Maritime Plaza, Suite 2000
San Francisco, CA 94111
Telephone: (415) 693-2000
SIMON, WARNER & DOBY, L.L.P.
1700 City Center Tower II
301 Commerce Street
Fort Worth, TX 76102
Telephone: (817) 810-5250
By /s/ HENRY W. SIMON, JR.
---------------------------------
Henry W. Simon, Jr.
Attorneys for Gene E. Phillips and
Basic Capital Management, Inc.,
American Realty Trust, Inc. and
American Realty Investors, Inc.
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
20
Dated: October 17, 2001 HELLER EHRMAN WHITE & MCAULIFFE
333 Bush Street, Suite 3000
San Francisco, CA 94104-2878
By /s/ JESSICA S. PERS
-----------------------------
Jessica S. Pers
Attorneys for the Dallas Trusts
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
21
EXHIBIT A
LAW OFFICES OF GEORGE DONALDSON
GEORGE DONALDSON (79971)
DANIEL B. HARRIS (117230)
350 California Street, Suite 1750
San Francisco, CA 94104
Telephone: 415/394-8500
Settlement Counsel and
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
JACK OLIVE, JONATHAN NOBLE, ) Case No. C 89 4331 MHP
M.D., JOHN P. PEDJOE AND )
ALLSOP, INC. PROFIT SHARING ) DERIVATIVE ACTION
PLAN & TRUST, on behalf of )
themselves and all ) FINAL JUDGMENT AND ORDER OF
others similarly situated and ) DISMISSAL
derivatively on behalf of ) ---------------------------
NATIONAL INCOME REALTY TRUST, )
a California business trust, )
CONTINENTAL MORTGAGE AND EQUITY )
TRUST, a California business )
trust, TRANSCONTINENTAL REALTY )
INVESTORS, a California )
business trust, and INCOME )
OPPORTUNITY REALTY TRUST, a )
California business trust, )
Plaintiffs, )
)
vs. )
)
GENE E. PHILLIPS; WILLIAM S. )
FRIEDMAN; RICHARD N. LAPP; )
MICHAEL E. SMITH; WILLIE K. )
DAVIS; RAYMOND V. J. SCHRAG; )
RANDALL K. GONZALEZ; JAMES W. )
HAMMOND, JR.; NATIONAL REALTY )
ADVISORS, INC., a Texas )
corporation; NATIONAL REALTY, L.P., )
)
-- caption continues -- )
)
- ---------------------------------------------
FINAL JUDGMENT AND ORDER OF DISMISSAL
a Delaware limited partnership; )
AMERICAN REALTY TRUST, INC., a )
Georgia corporation; NATIONAL )
OPERATING L.P., a Delaware )
limited partnership; )
)
Defendants, )
)
-and- )
)
NATIONAL INCOME REALTY TRUST, a )
California business trust; )
CONTINENTAL MORTGAGE AND EQUITY )
TRUST, a California business )
trust; TRANSCONTINENTAL REALTY )
INVESTORS, a California )
business trust; and INCOME )
OPPORTUNITY REALTY TRUST, a )
California business trust; )
)
Nominal Defendants. )
)
- --------------------------------------- )
This matter came before the Court on the motion of Settlement Counsel, on
behalf of the Dallas Trusts, as those terms are defined in the Second Amendment
to the Modification of Stipulation of Settlement, dated as of October 5, 2001
(the "Second Amendment"), for approval of a settlement in this action, as
embodied in the Second Amendment. The Court, having considered all papers filed
in connection with said motion and good cause appearing therefor, hereby
ORDERS, ADJUDGES AND DECREES as follows:
1. This Court has jurisdiction over the subject matter and parties to
these actions and over all parties to the Second Amendment. By acknowledging
the Court's jurisdiction over the subject matter of the Second Amendment, the
Settling Defendants and the Dallas Trusts do not acknowledge the jurisdiction
of the Court to do anything other than enter this Final Judgment and Order of
FINAL JUDGMENT AND ORDER OF DISMISSAL
1
Dismissal and this will not be deemed to be a waiver of their objection to the
Court's exercise of jurisdiction over the Settling Defendants or the Dallas
Trusts arising from any of the previous settlement agreements in this action.
2. This Court hereby finally approves the settlement embodied in the
Second Amendment and finds that said settlement is fair, reasonable and
adequate to the Dallas Trusts, as defined in the Second Amendment, and their
shareholders.
3. The Court hereby dismisses, with prejudice and without costs to any
party as against any other, except as provided in the Second Amendment, this
action and any and all claims, actions, or causes of actions alleged by the
plaintiffs, on behalf of the Dallas Trusts, in the above-captioned action
against Gene E. Phillips, Basic Capital Management, Inc., American Realty
Investors, Inc., American Realty Trust, Inc., Ted P. Stokely, Edward G.
Zampa, R. Douglas Leonhard, Martin L. White, Larry E. Harley, Murray Shaw and
Richard W. Douglas (collectively referred to herein as the "Released
Defendants").
4. The Dallas Trusts and all persons claiming to represent such Trusts
in any agency or derivative capacity shall be deemed conclusively to have
released and are hereby permanently barred and enjoined from prosecuting
against the Released Defendants, including, without limitation, his or its
respective predecessors and successors, parents, subsidiaries, affiliates and
all their present and former partners, principals, officers, directors,
employees, agents, attorneys, assigns, representatives, heirs, executors and
administrators, any and all claims, actions,
FINAL JUDGMENT AND ORDER OF DISMISSAL
2
or causes of action of whatever nature, character or description, whether known,
unknown, suspected or unsuspected, that could or do arise out of or are or could
be in any way based on, connected with or related to any alleged breach of the
Stipulation, the Modification, or the Amendment, as those terms are defined in
the Second Amendment, or to any of the matters raised in Settlement Counsel's
requests that the District Court exercise its retained jurisdiction, including,
as described in the Second Amendment, the alleged failure by certain of the
defendants to obtain a compensation consultant's report and the defendants'
conduct respecting the Loans.
5. Notwithstanding the foregoing, nothing herein shall relieve any
party the Second Amendment from liability for failing to abide by the terms and
obligations imposed by the Second Amendment.
6. The notice given to the shareholders of the Dallas Trusts of the
settlement set forth in the Second Amendment, as required by this Court's Order
Preliminarily Approving Proposed Derivative Action Settlement, entered on
October ___, 2001, was the best notice practicable under the circumstances,
including individual notice to all shareholders of the Dallas Trusts who could
be identified through reasonable effort. Said notice provided due and sufficient
notice of the proceedings regarding final approval of the settlement, including
the terms of the proposed settlement set forth in the Second Amendment, to all
persons entitled to such notice, and said notice fully satisfies the
requirements of due process and Federal Rule 23.1.
FINAL JUDGMENT AND ORDER OF DISMISSAL
3
7. Without affecting the finality of this judgment, the Court hereby
reserves jurisdiction over only (a) enforcement and administration of the
Second Amendment; and (b) any hearing on and determination of the applications
for attorneys' fees, costs, interest and expenses in this action.
Dated:
-------------------------------------
The Honorable Marilyn Hall Patel
United States District Court Judge
APPROVED AS TO FORM AND CONTENT:
Dated: October , 2001 COOLEY GODWARD LLP
-- One Maritime Plaza, Suite 2000
San Francisco, CA 94111
Telephone: (415) 693-2000
SIMON, WARNER & DOBY, L.L.P.
1700 City Center Tower II
301 Commerce Street
Fort Worth, TX 76102
Telephone: (817) 810-5250
By /s/ HENRY W. SIMON, JR.
-----------------------------------
Attorneys for Gene E. Phillips, Basic
Capital Management, Inc., American
Realty Trust, Inc. and American Realty
Investors, Inc.
Dated: October 18, 2001 HELLER EHRMAN WHITE & MCAULIFFE
333 Bush Street, Suite 3000
San Francisco, CA 94104-2878
By /s/ JESSICA S. PERS
-----------------------------------
Jessica S. Pers
Attorneys for the Dallas Trusts
FINAL JUDGMENT AND ORDER OF DISMISSAL
4
7. Without affecting the finality of this judgment, the Court hereby
reserves jurisdiction over only (a) enforcement and administration of the
Second Amendment; and (b) any hearing on and determination of the applications
for attorneys' fees, costs, interest and expenses in this action.
Dated:
-------------------------------------
The Honorable Marilyn Hall Patel
United States District Court Judge
APPROVED AS TO FORM AND CONTENT:
Dated: October __, 2001 COOLEY GODWARD LLP
One Maritime Plaza, Suite 2000
San Francisco, CA 94111
Telephone: (415) 693-2000
SIMON, WARNER & DOBY, L.L.P.
1700 City Center Tower II
301 Commerce Street
Fort Worth, TX 76102
Telephone: (817) 810-5250
By
-----------------------------------
Henry W. Simon, Jr.
Attorneys for Gene E. Phillips, Basic
Capital Management, Inc., American
Realty Trust, Inc. and American Realty
Investors, Inc.
Dated: October 18, 2001 HELLER EHRMAN WHITE & MCAULIFFE
333 Bush Street, Suite 3000
San Francisco, CA 94104-2878
By
-----------------------------------
Jessica S. Pers
Attorneys for the Dallas Trusts
FINAL JUDGMENT AND ORDER OF DISMISSAL
4
EXHIBIT B
EXHIBIT B
AMERICAN REALTY INVESTORS, INC.
SERIES H CUMULATIVE CONVERTIBLE PREFERRED STOCK
("SERIES H PREFERRED STOCK")
ISSUANCE:
Series H Preferred Stock will be issued in exchange for shares of IORI
common stock if a IORI stockholder elects to receive stock in lieu of a cash
payment.
EXCHANGE RATIO: ONE-FOR-ONE
The Series H Preferred Stock will have a liquidation value of $21.50 per
share. The IORI shareholder will receive a number of Series H shares equal to
the number of IORI shares exchanged.
EXCHANGE EXAMPLE:
Submit -- 100 IORI shares at $19.00 each = $1,900.00
Receive -- 100 Series H Shares at $21.50 each = $2,150.00
DESCRIPTION OF SERIES H PREFERRED STOCK
<Table>
Par Value: $2.00 per share
Liquidation Value: $21.50 per share
Number Authorized: 1,030,000 shares
Dividend Rate: 10% per annum, payable quarterly in arrears from date of
issuance
Voting Rights: The Series H shares will have the voting rights required by
the NYSE, the same as the ARI Series A shares.
Conversion Rights: For a six month period commencing on the first anniversary
of the date of acquisition of IORI by ARI, the Series H
Shares may be converted into shares of ARI common stock.
Each Series H share will be convertible into shares of ARI
common stock on an exchange ratio which will provide for a
number of shares of ARI common stock with an underlying
asset value equal to the underlying asset value of one share
of IORI common stock at the time of the merger. This ratio
will be set by the investment banker that provides the
fairness opinion.
Redemption Rights: None by holder. Redeemable by ARI at any time for 100% of
the liquidation value plus any accrued but unpaid dividends.
Listing: If there are an adequate number of Series H shareholders and
Series H shares issued, an application will be made to list
the Series H shares on the NYSE.
</Table>
1
EXHIBIT C
EXHIBIT C
AMERICAN REALTY INVESTORS, INC.
SERIES G CUMULATIVE CONVERTIBLE PREFERRED STOCK
("SERIES G PREFERRED STOCK")
ISSUANCE:
Series G Preferred Stock will be issued in exchange for shares of TRI
common stock if a TRI stockholder elects to receive stock in lieu of a cash
payment.
EXCHANGE RATIO: ONE-FOR-ONE
The Series G Preferred Stock will have a liquidation value of $20.00 per
share. The TRI shareholder will receive a number of Series G shares equal to the
number of TRI shares exchanged.
EXCHANGE EXAMPLE:
Submit -- 100 TRI shares at $17.50 each = $1,750.00
Receive -- 100 Series G Shares at $20.00 each = $2,000.00
DESCRIPTION OF SERIES G PREFERRED STOCK
<Table>
Par Value: $2.00 per share
Liquidation Value: $20.00 per share
Number Authorized: 4,050,000 shares
Dividend Rate: 10% per annum, payable quarterly in arrears from date of
issuance
Voting Rights: The Series G shares will have the voting rights required by
the NYSE, the same as the ARI Series A shares.
Conversion Rights: For a six month period commencing on the first anniversary
of the date of acquisition of TRI by ARI, the Series G
Shares may be converted into shares of ARI common stock.
Each Series G share will be convertible into shares of ARI
common stock on an exchange ratio which will provide for a
number of shares of ARI common stock with an underlying
asset value equal to the underlying asset value of one share
of TRI common stock at the time of the merger. This ratio
will be set by the investment banker that provides the
fairness opinion.
Redemption Rights: None by holder. Redeemable by ARI at any time for 100% of
the liquidation value plus any accrued but unpaid dividends.
Listing: If there are an adequate number of Series G shareholders and
Series G shares issued, an application will be made to list
the Series G shares on the NYSE.
</Table>
1