EXHIBIT 10.1
LAW OFFICES OF GEORGE DONALDSON
GEORGE DONALDSON (79971)
DANIEL B. HARRIS (117230)
456 Montgomery Street, Suite 1250
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 others ) SECOND AMENDMENT TO THE
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 S. Phillips ("Phillips"),
Basic Capital Management, Inc. ("BCM"), American Realty Investors, Inc. ("ARI"),
the parent corporation of American Realty Trust, Inc. ("ART").
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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
Paragraph 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
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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").
The Appeal is docketed with the Appeals Court as case number 00-17231.
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.
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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. "Affiliate" or "Affiliated" shall be defined by 17 C.F.R.
Section 240.12b-2.
2. "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.
3. "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
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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 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.
The parties hereto represent that neither they nor any affiliate thereof will
appeal from the entry of the Final Judgment, as herein defined.
4. "Escrow Agent" means the Law Offices of George Donaldson.
5. "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.
6. "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.
7. "Person" means any individual, corporation, partnership,
limited partnership, association, joint stock company,
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estate, legal representative, trust, unincorporated organization, and any other
type of legal entity and their heirs, successors, or assigns.
8. "Released Parties" means collectively the Settling
Defendants, the Directors, IORI, TRI and 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, members of the immediate family, and
administrators who are or ever may become liable with respect to the Settled
Claims.
9. "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.
10. "Settlement Counsel" means the Law Offices of George
Donaldson, 456 Montgomery Street, Suite 1250, San Francisco, California 94104.
11. "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
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become effective who did not exercise applicable rights of dissent and who are
not affiliated with the Settling Defendants.
12. "Settling Defendants" refers collectively to BCM,
Phillips, ARI, ART, and 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, members of the immediate family, and
administrators.
13. "Tender Offer" means an offer to purchase all of the
outstanding shares of the subject entity.
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 Settling Defendants 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 Settling Defendants 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
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shares of TRI's common stock held by persons not affiliated with the Settling
Defendants 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 Settling
Defendants 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.
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 Preferred Stock shall be those set
forth in Exhibit C hereto.
4. The purchase price and the liquidation value stated in
Paragraph B.1. above shall be reduced by all cash dividends declared and paid by
IORI after January 2, 2002.
5. The purchase price and the liquidation value stated in
Paragraph B.2. above shall be reduced by all cash dividends declared and paid by
TRI after January 2, 2002.
6. The cash consideration to be paid to persons not affiliated
with the Settling Defendants in connection with the Freeze-Out Mergers
described in Paragraphs B.l. and 2. above shall be guaranteed by and become an
obligation of the Settling Defendants.
7. Subject to the provisions of Section F below, the
Freeze-Out Mergers described in Paragraphs B.1. and 2. above shall
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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) 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
(c) approval of the respective Freeze-Out Merger and related
offer to purchase by a majority of the shareholders of TRI and/or IORI who are
not affiliated with any of the Settling Defendants.
8. In order to effectuate the Freeze-Out Mergers, the Settling
Defendants shall timely perform each of the following acts:
(a) On or before December 31, 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 shareholders of TRI and IORI not affiliated with the Settling Defendants 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.
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(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.9. 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.9.
below. Subject to Paragraph G.2. below, when the Freeze-Out Mergers have 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:
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(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.4. 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 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.
9. ARI, TRI and IORI covenant to use their best efforts to
timely complete the process by which the SEC reviews the proxy solicitation
materials, including responding promptly to all inquiries from the SEC relative
to such materials. Should ARI, TRI and IORI, despite the exercise of their best
efforts, fail to complete the SEC review process relative to the proxy
solicitation
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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 shareholders of IORI and TRI who are not
affiliated with the Settling Defendants, provided such Tender Offers with
respect to the cash option have 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, subject to Paragraph F.3. below, be deemed to have complied
with the provisions of the Second Amendment that concern the purchase of IORI
and TRI shares held by persons not affiliated with the Settling Defendants.
10. 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 not affiliated 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
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Paragraph B.9. above, and, in that event, the Settling Defendants shall, subject
to Paragraph F.3. below, 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.
11. 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.
12. 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 shareholders of IORI and/or TRI who are not affiliated with
the Settling Defendants, including, without limitation, acts intended to have or
having the effect of causing such 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.
13. Immediately after execution of this Second 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
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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. Preliminary 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
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;
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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 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 the Clerk of
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the District Court and serve such notice and papers on counsel to the parties
to 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) any hearing and/or determination on the
applications of Settlement Counsel for an award of attorneys' fees and expenses;
(b) enforcing and administering this Second Amendment; and (c) any claim that
this Second Amendment is without legal effect, including any claim that it was
improperly procured or induced. Upon the Effective Date, the terms of this
Second Amendment shall supersede and extinguish any 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
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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. The provisions of Paragraph E.2. below 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 referenced in this Paragraph E.2. without regard to the subsequent
discovery or existence of such different or additional facts.
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3. Upon the occurrence of all of the events referenced in
Paragraph E.l. 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; APPROVAL SUBJECT TO APPEAL WITH
ACCOMPANYING STAY; APPROVAL SUBJECT TO APPEAL WITHOUT STAY
1. If the District Court does not enter the Final Judgment
substantially in the form of Exhibit A hereto, this Second Amendment shall have
no effect, the parties to the Second Amendment shall revert to their status as
of the date and time immediately prior to the execution of this Second
Amendment, and they shall proceed in all respects as though this Second
Amendment had not been executed.
2. If the District Court enters the Final Judgment
substantially in the form of Exhibit A hereto and the Final Judgment is appealed
and an appellate court stays the effectiveness of the Final Judgment prior to
the consummation of the Freeze-Out Mergers or the Tender Offers, this Second
Amendment, shall have no effect, 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 though this Second Amendment had not been executed.
3. If the District Court enters the Final Judgment
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substantially in the form of Exhibit A hereto, and the Final Judgment is
appealed but its effectiveness is not stayed or it is stayed but such stay does
not take effect until after consummation of the Tender Offers or the Freeze-Out
Mergers, the parties shall proceed with their respective commitments hereunder,
recognizing that if the appeal proceeds and is successful, each shall thereafter
take such action as the mandate from the appellate court shall provide.
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 entry of the Final Judgment.
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.
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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 successors-in-interest or
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
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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 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.
LAW OFFICES OF GEORGE DONALDSON
456 Montgomery Street, Suite 1250
San Francisco, CA 94104
Telephone: (415) 394-8500
By /s/ GEORGE DONALDSON
-------------------------------------
George Donaldson
Settlement Counsel and Attorneys for
the Plaintiffs
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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.
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
22
SECOND AMENDMENT TO THE MODIFICATION OF STIPULATION OF SETTLEMENT
EXHIBIT A
LAW OFFICES OF GEORGE DONALDSON
GEORGE DONALDSON (79971)
DANIEL B. HARRIS (117230)
456 Montgomery Street, Suite 1250
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 JUDGEMENT 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
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 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, or
2
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 to 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
December 18, 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.
3
7. Without affecting the finality of this judgment, the Court hereby
reserves jurisdiction over only (a) enforcement and administration of the Second
Amendment; (b) any hearing on and determination of the applications for
attorneys' fees, costs, interest and expenses in this action; and (c) any claim
that this Second Amendment is without legal effect, including any claim that it
was wrongfully procured or induced.
Dated:
---------------------------------
The Honorable Marilyn Hall Patel
United State District Court Judge
APPROVED AS TO FORM AND CONTENT:
Dated: December ___, 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, Basic
Capital Management, Inc., American
Realty Trust, Inc. and American Realty
Investors, Inc.
4
FINAL JUDGMENT AND ORDER OF DISMISSAL
Dated: December 14, 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
5
FINAL JUDGMENT AND ORDER OF DISMISSAL
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
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
1
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.
2
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 TCI
common stock if a TCI 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 TCI shareholder will receive a number of Series G shares equal
to the number of TCI shares exchanged.
Exchange Example:
Submit - 100 TCI 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
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 TCI 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 TCI common stock at the time of the merger. This
ratio will be set by the investment
1
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.
2