RESORT INCOME INVESTORS, INC.
150 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
312-683-3323
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------
To the Stockholders of
Resort Income Investors, Inc.:
The Annual Meeting of Stockholders (the "Meeting") of Resort Income
Investors, Inc., a Delaware corporation (the "Company"), will be convened
at The 410 Club, 410 North Michigan Avenue, Chicago, Illinois 60611 on
June 25, 1997 at 10:00 a.m. (Central Standard Time) (the "Meeting Date")
pursuant to this notice. All Stockholders are entitled to attend the
Meeting on the Meeting Date if they so elect. The Company is soliciting
proxies, pursuant to the attached Proxy Statement, for use at the Meeting
on the Meeting Date. The Company expects that a quorum will be present on
the Meeting Date and that the matters to be considered by the Stockholders
will be acted upon at the Meeting. The Meeting of Stockholders will be
held for the following purposes:
(1) To elect three directors to hold office until the next
Annual Meeting of Stockholders or otherwise as provided in the by-laws of
the Company;
(2) To consider and act upon the selection of BDO Seidman,
LLP as independent public accountants of the Company for the year 1997; and
(3) To transact such other business as may properly come
before the Meeting, or any adjournment thereof.
The Board of Directors has fixed the close of business on May 15,
1997, as the record date for the determination of Stockholders entitled to
notice of and to vote at the Meeting.
Whether or not you plan to attend the Meeting in person, please
complete, sign and return the enclosed form of proxy. Thank you.
/s/ DANIEL D. LANE
____________________________________
Daniel D. Lane
Secretary
The Company's 1996 Annual Report on Form 10-KSB is being mailed to
Stockholders concurrently with this Proxy Statement.
<PAGE>
RESORT INCOME INVESTORS, INC.
--------------------
PROXY STATEMENT
--------------------
This proxy statement is furnished on or about May 30, 1997 to
stockholders of record as of the Record Date, as hereinafter defined, (the
"Stockholders") of Resort Income Investors, Inc. (the "Company") in
connection with the solicitation of proxies by and on behalf of the Board
of Directors of the Company to be voted at the Annual Meeting of
Stockholders (the "Meeting") when it is convened on June 25, 1997 at 10:00
a.m. (the "Meeting Date"), or any subsequent adjournment thereof.
THE PROXIES SOLICITED BY THE COMPANY PURSUANT TO THIS PROXY STATEMENT
ARE SOLICITED FOR USE AT THE MEETING WHEN CONVENED ON THE MEETING DATE AND
ANY SUBSEQUENT ADJOURNMENTS AND MAY NOT BE USED FOR ANY PURPOSE, INCLUDING
THE DETERMINATION OF WHETHER A QUORUM IS PRESENT, PRIOR TO THE MEETING
DATE. THEREFORE, IT IS ANTICIPATED THAT THE BUSINESS OF THE COMPANY TO BE
CONSIDERED AT THE MEETING, WITH RESPECT TO WHICH PROXIES ARE SOLICITED
PURSUANT TO THIS PROXY STATEMENT, WILL BE ADDRESSED ON THE MEETING DATE.
The by-laws of the Company (the "Bylaws") require that the Annual
Meeting of Stockholders of the Company for any year be held on or before
June 30 of the following year. Therefore, the 1996 Annual Meeting of
Stockholders of the Company will be convened on June 25, 1997.
Stockholders who wish to attend the Annual Meeting should contact the
Company at 312-683-3323 so that arrangements can be made.
The solicitation of proxies will be by mail and the cost will be
borne directly by the Company. The Company has retained the services of
Chase Mellon Shareholder Services in connection with this solicitation at a
fee payable by the Company of $3,000, plus out-of-pocket expenses. Upon
request, the Company will reimburse banks, brokers, nominees and related
fiduciaries for reasonable expenses incurred by them in sending annual
reports and proxy materials to beneficial owners of shares of common stock
of the Company (the "Shares") to the extent required by Rule 14a-13(a-b)
under the Securities Exchange Act of 1934, as amended.
The Shares represented by properly executed proxies in the
accompanying form received by the Board of Directors prior to the Meeting
Date will be voted at the Meeting on the Meeting Date. Shares not
represented by properly executed proxies will not be voted. Where a
Stockholder specifies a choice in a proxy with respect to any matter to be
acted upon, the Shares represented by such proxy will be voted as
specified. When a Stockholder does not specify a choice, in an otherwise
properly executed proxy, with respect to any proposal referred to therein,
the Shares represented by such proxy will be voted with respect to such
proposal in accordance with the recommendations of the Board of Directors
described herein. A Stockholder who signs and returns a proxy in the
accompanying form may revoke it by: (i) giving written notice of
revocation to the Secretary of the Company before the proxy is voted at the
Meeting on the Meeting Date; (ii) executing and delivering a later-dated
proxy; or (iii) attending the Meeting on the Meeting Date and voting his or
her Shares in person.
The close of business on May 15, 1997 has been fixed as the record
date (the "Record Date") for the determination of Stockholders entitled to
notice of and to vote at the Meeting. On such date, the Company had
outstanding 4,156,000 Shares, each of which entitled the holder thereof to
one vote at the Meeting. Only Stockholders of record as of the Record Date
<PAGE>
will be entitled to vote at the Meeting or any adjournments thereof. A
quorum, consisting of the holders of at least a majority of the issued and
outstanding Shares eligible to vote, must be present, in person or by
proxy, at the Meeting for valid Stockholder action to be taken. Stock-
holders do not have any appraisal or similar rights of dissenters with
respect to the matters to be considered at the Meeting.
Assuming the presence of a quorum, the affirmative vote of a majority
of the Shares present in person or represented by proxy at the Meeting is
required for the election of Directors and the ratification of the
independent auditors. With regard to the election of Directors and
ratification of the independent auditors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote
and will have no effect. Broker non-votes (Shares not voted by brokers due
to the absence of instructions from street name holders) on a matter are
not considered voted, present or represented on that matter and thus have
no effect on the outcome of the election of Directors or ratification of
the independent auditors.
The mailing address of the principal executive offices of the Company
is 150 South Wacker Drive, Suite 2900, Chicago, Illinois 60606. This Proxy
Statement and the related materials are being mailed to the Stockholders on
or about May 30, 1997.
MATTERS TO BE CONSIDERED BY STOCKHOLDERS
1. ELECTION OF DIRECTORS
Three (3) Directors will be elected at the Meeting, each to serve
until the next Annual Meeting of Stockholders or otherwise as provided in
the Bylaws and until their respective successors are elected and qualified.
Pursuant to the Bylaws, a majority of the Directors (the "Independent
Directors") must be unaffiliated with Mr. Christopher B. Hemmeter and the
Company's Affiliated Borrowers, as hereinafter defined, while the remaining
Directors may be affiliated with Mr. Christopher B. Hemmeter and the
Company's Affiliated Borrowers (the "Affiliated Directors"). An Independent
Director may not, directly or indirectly (including through a member of his
immediate family), own any material interest in, be employed by, serve as
an officer, director, trustee or general partner of, the Corporation's
Affiliated Borrowers or Mr. Christopher B. Hemmeter. Additionally, an
Independent Director may not serve as President or Executive Vice President
of the Company.
Unless instructions to the contrary are given, the persons named as
proxy voters ("Proxies") in the accompanying proxy, or their substitutes,
will vote for the following nominees for Director with respect to all
proxies received by the Company. If any nominee should become unavailable
for any reason, it is intended that votes will be cast for a substitute
nominee designated by the Independent Directors with respect to the
Independent Directors and by the remaining Directors with respect to the
Affiliated Directors.
<PAGE>
The names of the nominees for Independent Director and certain
information regarding them, including their principal occupations for the
past five years, is as follows:
YEAR FIRST
PRINCIPAL OCCUPATION(S) BECAME A
NAME AGE DURING PAST 5 YEARS DIRECTOR
- ---- --- ---------------------- ----------
Thomas A. Ellsworth 58 Director of the Company and
Chairman of the Audit Committee
since January 26, 1996.
Mr. Ellsworth is a principal
of PKF Investments, a hotel
real estate consulting and
brokerage company which is a
subsidiary of PKF Consulting,
an international hotel consulting
firm. Prior to joining
PKF Investments in 1992,
Mr. Ellsworth was a Senior Vice
President and Director of
Real Estate of ITT Sheraton
Corporation. Mr. Ellsworth had
been employed by ITT Sheraton
Corporation and its predecessors
since 1965. Mr. Ellsworth is a
board member of the Ipswich
Savings Bank, the Trustees
of Reservations, the Massachu-
setts Farmland Conservation
Trust and the Essex County
Greenbelt. 1996
Daniel D. Lane 62 Director of the Company and
member of the Audit Committee.
In August 1995, Mr. Lane became
the Secretary, Treasurer and
Chief Accounting Officer of
the Company. Mr. Lane is one
of two founding principals and
serves as Chairman and Chief
Executive Officer of Newport
Beach, California-based Lane/Kuhn
Pacific, Inc. This company
presently consists of several
master-planned community
development and home-building
partnerships, including East
Lake Development Company,
Lane/Kuhn Pacific Communities
and Lane/Kuhn Pacific Homes.
In 1960, Mr. Lane founded
Lan Ron Enterprises and its
related entities. These
companies engaged in the
development of thousands of
single-family homes. Mr. Lane
also served as managing partner
of Cadillac Fairview Homes West
from 1977 to 1983. Mr. Lane
has been a member of the Board
of Directors of Fidelity National
Financial, Inc. since 1992 and
a member of the University of
Southern California Board of
Trustees since 1987. 1990
<PAGE>
The name of the nominee for Affiliated Director and certain
information regarding him, including his principal occupation for the past
five years, is as follows:
YEAR FIRST
PRINCIPAL OCCUPATION(S) BECAME A
NAME AGE DURING PAST 5 YEARS DIRECTOR
- ---- --- ---------------------- ----------
John R. Young 63 Director of the Company 1988
and Chairman of the Board.
In August 1995, Mr. Young
became President, Chief
Executive Officer and
Chief Financial Officer
of the Company. Since 1988,
Mr. Young has been a
consultant to the hotel
industry and since 1990
he has also been a Director
and Senior Vice President-
Real Estate and Development
of Horizon Hotels, Ltd.
From 1980 until 1988, he was
Senior Vice President and
Treasurer of ITT Sheraton
Corporation and Executive
Vice President of ITT Sheraton
Realty Corporation. Mr. Young
was responsible for directing
all domestic and international
treasury and corporate
finance activities regarding
corporate finance requirements,
cash management, bank rela-
tionships, corporate insurance
requirements and risk management.
As Executive Vice President of
ITT Sheraton Realty Corporation,
Mr. Young participated and
consulted in the acquisition,
disposition and development of
hotel properties and he has
performed similar services for
Horizon Hotels, Ltd. since 1990.
Mr. Young had been employed by
ITT Sheraton Corporation and its
predecessors since 1967. Mr. Young
is a member of the American Hotel
and Motel Association and the
Urban Land Institute; and a past
Treasurer and founding member
of the Citizens Housing and
Planning Association of
Greater Boston.
The Board of Directors is required to meet at least four times per
year either in person or by telephonic conference. The Board of Directors
met six times during 1996, either in person or telephonically. The Board
has not established any nominating, compensation or other committees or
groups performing similar functions other than an audit committee which is
comprised solely of the Independent Directors (Messrs. Ellsworth and Lane).
The function of the audit committee is to work with the Company's
independent auditors and generally oversee the management-auditor
relationship. The audit committee met three times in 1996. All of the
incumbent members of the Board of Directors attended 100% of the meetings
of the Board of Directors, and all the Independent Directors attended the
three audit committee meetings.
<PAGE>
RECOMMENDED BY THE BOARD: THE FOREGOING NOMINEES FOR DIRECTOR WILL
BE PRESENTED FOR ELECTION BY THE STOCKHOLDERS AT THE ANNUAL MEETING OF
STOCKHOLDERS AND THE BOARD OF DIRECTORS RECOMMENDS THAT THEY BE ELECTED.
The affirmative vote of a majority of the votes cast by Stockholders
present in person or by proxy and eligible to vote at the Meeting, a quorum
being present, is required to elect each of the nominees listed above.
2. APPROVAL OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of the Company are included in the Company's
Annual Report furnished to all Stockholders. The Board of Directors has
appointed BDO Seidman, LLP ("BDO Seidman") as independent public
accountants for the Company to examine its financial statements for the
year 1997 and has determined that it would be desirable to request that the
Stockholders approve such appointment. BDO Seidman is knowledgeable about
the Company's operations and accounting practices and is well qualified to
act in the capacity of independent public accountants to the Company.
BDO Seidman acted as the Company's principal accountants for the
fiscal year ended December 31, 1996. The total fees for services paid by
the Company to BDO Seidman in 1996 was approximately $5,400 and
approximately $60,000 will be paid for such services in 1997. Deloitte &
Touche LLP ("Deloitte") acted as the Company's principal accountants for
the fiscal years ended December 31, 1994 and 1995. The total fees for
services paid by the Company to Deloitte & Touche in each of 1994 and 1995
were approximately $44,500 and $64,500, respectively. Fees applicable to
the audit of the Company's financial statements are reviewed by the Board
of Directors before the services are provided. Other services are not
normally approved by the Board of Directors before the services are
provided, but are subsequently reviewed by the Board of Directors.
If the Stockholders do not approve the appointment of BDO Seidman,
the Board of Directors would reconsider the appointment. In view of the
difficulty and expense involved in changing independent public accountants
on short notice, if the resolution is not approved it is contemplated that
the appointment for 1997 will be permitted to stand unless the Board of
Directors finds other compelling reasons for making a change. Disapproval
of the resolution will be considered as advice to the Board of Directors to
select other independent public accountants for the following year.
Representatives of BDO Seidman are not expected to be present at the
Meeting.
RECOMMENDATION OF THE BOARD: THE FOLLOWING RESOLUTION WILL BE
PRESENTED FOR A VOTE OF THE STOCKHOLDERS AT THE ANNUAL MEETING OF
STOCKHOLDERS AND THE BOARD OF DIRECTORS RECOMMENDS THAT IT BE APPROVED:
RESOLVED, that the Stockholders concur in the appointment by the
Board of Directors of BDO Seidman to serve as independent public
accountants for the Company for 1997.
The affirmative vote of a majority of the votes cast by Stockholders
present in person or by proxy and eligible to vote at the Meeting, a quorum
being present, is required for the adoption of the foregoing resolution.
On December 9, 1996, the Company dismissed Deloitte as its
independent accounting firm. Deloitte's report on the financial statements
for 1995 and 1994 did not contain an adverse opinion or a disclaimer of
opinion, nor was the report qualified or modified as to audit scope. The
audit report for 1995 was modified to include explanatory paragraphs with
respect to: (1) a change in accounting principles related to the change to
the liquidation basis of accounting, effective June 30, 1995; (2)
uncertainties related to the realization of assets and satisfaction of
liabilities in conjunction with the Company's liquidation; and (3) the
emphasis of a matter related to: (a) the formal investigation of the
Company by the Securities and Exchange Commission; (b) two purported class
<PAGE>
actions; and (c) three other actions pending against the Company. During
the Company's two most recent fiscal years and the subsequent interim
period preceding such dismissal, there were no disagreements with Deloitte
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. The decision to change
accountants was recommended and approved by the Audit Committee.
On December 9, 1996, the Company engaged BDO Seidman as the new
independent accountant to audit the Company's financial statements. During
1995 and 1994, and the subsequent interim period prior to engaging BDO
Seidman, the Company had not consulted BDO Seidman regarding: (i) either:
the application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered
on the Company's financial statements, and no written report was provided
to the Company and no oral advice was provided that BDO Seidman concluded
was an important factor considered by the Company in reaching a decision as
to the accounting, auditing or financial reporting issue; or (ii) any
matter that was either the subject of a disagreement (as defined in
paragraph 304(a)(1)(iv) of Regulation S-K) or a reportable event (as
described in paragraph 304(a)(1)(v) of Regulation S-K). BDO Seidman has
reviewed the disclosure contained herein and agrees with the same.
EXECUTIVE OFFICERS
The Executive Officers of the Company are selected by the Board of
Directors and each serves until his successor is elected and qualified or
until his death, resignation or removal by the Board of Directors. The
Executive Officers of the Company are John R. Young, President, Chief
Executive Officer and Chief Financial Officer, and Daniel D. Lane,
Secretary, Treasurer and Chief Accounting Officer. The biographies of
Messrs. John R. Young and Daniel D. Lane are set forth above.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS AND
RELATED INFORMATION
The Company pays each Independent Director: (i) a fee of $20,000 per
year (which amount may be increased or decreased at the discretion of the
Directors); and (ii) reimbursements for travel expenses and other out-of-
pocket disbursements incurred in connection with attending any meetings of
the Board of Directors. Mr. Lane received a fee of $20,000 for serving as
an Independent Director for the entire year and Mr. Ellsworth received a
fee of $18,333 for serving as an Independent Director for 11 months. The
Company entered into a consulting agreement with Mr. Young when he become
the Company's Chairman of the Board, President and Chief Executive Officer,
effective July 1995, pursuant to which Mr. Young received a fee of $10,000
per month during 1996. Effective January 1, 1997, this fee was reduced to
$7,500 per month. During the year ended December 31, 1996, the Company
also paid the Independent Directors reimbursements aggregating $3,451 and
Mr. Young reimbursements pursuant to the terms of his consulting
arrangement of $25,548. Other than fees received in connection with Mr.
Young's consulting arrangement with the Company, neither the Affiliated
Director nor the Executive Officers of the Company received any
compensation from the Company for serving in those capacities in 1996, nor
will they in 1997. The Directors have been and will be reimbursed by the
Company for travel expenses incurred in connection with attending meetings
of the Board of Directors.
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of May 1, 1997 by:
(i) each Director of the Company who beneficially owns common stock; (ii)
each Executive Officer of the Company; (iii) each person that is known by
the Company to beneficially own more than 5% of the outstanding Shares; and
(iv) all Directors and Executive Officers of the Company as a group. The
Stockholders named below have sole voting and investment power with respect
to the Shares shown as beneficially owned by them, except as expressly
disclosed to the contrary.
<PAGE>
AMOUNT AND
NAME AND ADDRESS NATURE OF
OF BENEFICIAL BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS
- -------------- ---------------- ---------- ----------
Common Stock John R. Young . . . . . 500 shares less than 1%
155 Walpole Street
Dover,
Massachusetts 02030
Common Stock Daniel D. Lane. . . . . 13,000 shares less than 1%
Lane/Kuhn Pacific, Inc.
14 Corporate Plaza
Newport Beach,
California 92660
Common Stock Thomas A. Ellsworth . . None None
PKF Investments
105 Belcher
Essex,
Massachusetts 01920
Common Stock Gotham Partners, L.P. . 216,966 shares 5.2%
237 Park Avenue
Ninth Floor
New York,
New York 10017
Common Stock All Directors and 13,500 shares less than 1%
Executive Officers
of the Company
as a group
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the Securities and Exchange Commission (the "Commission")
thereunder require the Company's executive officers and directors and
persons who own more than 10% of the Company's stock, as well as certain
affiliates of such persons, to file initial reports of ownership and
changes in ownership with the Commission. Executive officers, directors
and persons owning more than 10% of the Company's stock are required by the
Commission's regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such
forms received by it and written representations that no other reports were
required for those persons, the Company believes that, during the year
ended December 31, 1996, all persons subject to Section 16(a) were in
compliance with all Section 16(a) filing requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. GENERAL
The original business plan of the Company contemplated the Company
principally making mortgage loans ("Mortgage Loans") which would generally
be secured by either luxury destination resorts or unimproved property
anticipated to be developed into luxury destination resorts. In light of
the state of the real estate market during the early 1990's in general, and
the resort development market in particular, the Company shifted its focus
to making mortgage loans secured by gaming-related developments or
unimproved property anticipated to be developed into gaming-related
developments. The Mortgage Loans consisted primarily of: (i) loans made
for the purpose of acquiring, carrying out and engaging in pre-development
activities with respect to real property; and (ii) loans made for the
purpose of developing, constructing or refurbishing real property
improvements. As of December 31, 1996, all of the Company's loans had been
<PAGE>
made to affiliates of the Company or RII Advisors, Inc., the Company's
former investment manager (the "Former Investment Manager") (the
"Affiliated Borrowers"). The Former Investment Manager is an entity
controlled by affiliates of Mr. Christopher B. Hemmeter, who resigned as
Chairman of the Board, Chief Executive Officer and President of the Company
on August 8, 1995. Mortgage Loans were collateralized by a lien on the
Affiliated Borrowers' real property or by other REIT-qualifying collateral
approved by the Directors, including, without limitation, an interest in
the Affiliated Borrower, or by similar collateral.
In late June 1995, Mr. Christopher B. Hemmeter ("CBH"), then the
Chairman of the Board, President and Chief Executive Officer of the
Company, informed the Company that interest and principal would not be paid
when due on demand loans made by the Company to him personally or to the
Affiliated Borrowers. Further, he informed the Company that he would not
be able to make timely payment of such interest and principal on behalf of
the Affiliated Borrowers pursuant to guarantees he had made in connection
with the Affiliated Borrowers' loans, thereby creating an event of default
for each of the loans. The affected loans constituted all of the demand
loans to related parties held by the Company, aggregating $36,605,000 of
which CBH was personally the borrower of $15,000,000 and the Affiliated
Borrowers were the borrowers of $21,605,000, as of the date of such
announcement.
The Company announced on June 29, 1995, that it would commence an
orderly self-liquidation of its assets over an estimated 24- to 36-month
period. The Company also determined that it would take a charge to income
for the second quarter of 1995 in an amount that, in management's judgment
based upon then available information, would be adequate to absorb
estimated losses related to the loan portfolio. The amount of the charge
was based on management's judgment regarding the ability of CBH and the
Affiliated Borrowers to repay such loans and also reflected management's
judgment concerning the extent that the estimated realizable value of the
Company's collateral would not provide for the recovery of the Company's
investment in the loans and accrued interest, in light of CBH's inability
to perform on his guarantees in a timely manner. The Company reflected,
for the second quarter of 1995, an allowance of $10,367,903, consisting of
$9,900,000 for the loan to CBH and $467,903 for uncollectibility of
interest accrued as of December 31, 1994 but unpaid as of June 30, 1995.
Further, interest of $2,043,017 accrued during 1995 but unpaid as of June
30, 1995, was reversed by a charge against interest income. Additionally,
$1,250,000 was provided for amounts that management estimated would be
needed to advance to first lien holders and others to protect the Company's
collateral position while the plan of liquidation is accomplished, which
includes negotiations with CBH and the Affiliated Borrowers.
The Company also decided to cease accruing interest on its current
loans for financial statement purposes only and convert each of its loans
to the Affiliated Borrowers maturing June 30, 1995 to demand loans, and
that periodic liquidating distributions be made to the stockholders of the
Company as loans are repaid, subject to allowances for necessary reserves
and working capital, to allow the Company to protect its remaining
collateral position and assets and, in that regard, that all quarterly
distributions be eliminated. Finally, the Company determined that no new
loans would be made by the Company and that any additional advances related
to existing loans to the Affiliated Borrowers would be made only in an
effort to protect the collateral position of the Company. However, as a
result of the uncertainty caused by the lawsuits described in Section 4
hereof, management of the Company decided that no periodic liquidating
distributions be made to the stockholders of the Company. The Company
reevaluates this position on an ongoing basis.
<PAGE>
As a result of the announcement by the Company on June 29, 1995 of
its intent to liquidate, the Company began reporting on the liquidation
basis of accounting. The Company's 1996 results are presented on the
liquidation basis. The 1995 results are a combination of operations for
the period January 1, 1995 through June 30, 1995 on a going concern basis
and the operations for the period July 1, 1995 to December 31, 1995 on a
liquidation basis. Net loss, expressed on an on-going concern basis for
the period ended June 30, 1995 was $10,849,558 or $2.61 per Share based on
4,156,000 Shares outstanding, and for the year ended December 31, 1995 the
Company had the equivalent of a net loss of $26,645,026 or $6.41 per Share
based on 4,156,000 Shares outstanding. Net assets in liquidation for the
six months ended December 31, 1995 were $13,057,684.
As of December 31, 1996, the Company's investment in loans had a
carrying value of $4,127,891, which is net of a $14,267,000 allowance for
impairment of the loan to CBH and his wife, an $11,115,700 allowance for
impairment of the Company's loan to R.C.H. Investments, L.L.C., an
Affiliated Borrower, and a $1,686,200 allowance for impairment of the
Company's loans to Outlaws Casino, Ltd. At December 31, 1996, all of the
Company's loans were on a non-accrual status. Additionally, at December
31, 1996, the Company had advanced approximately $743,000 to the Affiliated
Borrowers in an effort to protect the Company's collateral positions.
The Company's balance of cash, cash equivalents and investment
securities as of December 31, 1996 was $473,063. Cash and cash equivalents
represent cash invested in bank accounts and institutional money market
funds. The Company's near term capital requirements will be for ongoing
operating costs during the period of self-liquidation. The Company
believes that its existing cash, cash equivalents and investment securities
should be adequate to fund near-term capital requirements.
In April 1996, the Company's Shares were delisted from the American
Stock Exchange. The shares are currently listed on the National
Association of Securities Dealers Automated Quotations Electronic Bulletin
Board under the symbol RIIV.
2. CURRENT LOANS
As of December 31, 1996, the Company had four temporary investments
outstanding with carrying values totalling $4,127,891 in principal. Each
of these temporary mortgage loan investments, the status of which are
described below, were declared in default during 1995. Each of the
borrowers is an Affiliated Borrower. The Company will not make any new
loans. The Company has, however, advanced and may continue to advance
funds to the Affiliated Borrowers to the extent deemed necessary to protect
the Company's position in the underlying collateral. As of December 31,
1996, the Company has advanced approximately $743,000 to the Affiliated
Borrowers in an effort to protect the Company's collateral positions.
The Company made a loan to Canadian Pavilion Limited Partnership (the
"Canadian Pavilion Borrower") in the amount of $2,600,000 (the "Canadian
Pavilion Loan") in November 1991. The loan was personally guaranteed by
CBH. The proceeds were applied as follows: $1,000,000 to purchase the
$2,900,000 of defaulted mortgages and notes encumbering the subleasehold
interest in the Canadian Pavilion and approximately $800,000 was advanced
to an affiliate of the Canadian Pavilion Borrower for it to purchase the
subleasehold interest from a third party. The remaining $800,000 was used
to provide working capital to the Canadian Pavilion Borrower. Immediately
after the closing of the Company's loan, the interest of this third party
was transferred to the Canadian Pavilion Borrower. The Canadian Pavilion
is a wharf-front property on the Mississippi River in downtown New Orleans.
It is part of the International Pavilion which was erected as an exhibition
hall for the 1984 World's Fair. On June 30, 1995, the Company ceased
accruing interest on the Canadian Pavilion Loan and converted it to a
demand loan. The Company made additional advances to the Canadian Pavilion
Borrower to preserve the underlying collateral in the amount of
approximately $113,000 subsequent to June 30, 1995.
<PAGE>
During the third quarter of 1995, negotiations by and between various
governmental agencies, the former owner of the Canadian Pavilion and the
Canadian Pavilion Borrower proved unsuccessful and the Canadian Pavilion
Borrower received a termination letter regarding its lease from the New
Orleans Exhibition Hall Authority ("NOEHA"). After receipt of the NOEHA
letter, the Company had numerous discussions with representatives of the
Canadian Pavilion Borrower and its counsel in New Orleans and real estate
professionals located in New Orleans. After considering the input of these
various parties, as well as the lack of acceptance of riverboat gaming in
the downtown New Orleans area and the poor performance of the temporary
land-based casino in New Orleans, the Company concluded that the value of
the property collateralizing the loan to the Canadian Pavilion Borrower had
been significantly reduced. Furthermore, certain ongoing financial
obligations of the Canadian Pavilion Borrower, including insurance,
payments to governmental agencies and maintenance expenses were continuing
with no assurance that such amounts, which had been advanced by the
Company, would be repaid to the Company nor was there any assurance that
the Company would receive any of the principal portion of the Canadian
Pavilion Loan since, after extensive marketing of the property
collateralizing the Canadian Pavilion Loan, no significant interest in the
acquisition of the property arose. Based on these factors, the Company
took a reserve, as of September 30, 1995, for the full $2,600,000 of the
Canadian Pavilion Loan.
The Company was named as a defendant in two lawsuits, one of which
was brought by the entity which sold the Canadian Pavilion to the Canadian
Pavilion Borrower under a lender liability theory and the second lawsuit
was brought by the City of New Orleans and NOEHA demanding that the
Company's mortgages memorializing the Canadian Pavilion Loan be removed.
The Company completed a settlement with the plaintiffs in 1996 wherein it
assigned its interest in the collateral for the Canadian Pavilion Loan for
$50,000 and a settlement and release from the litigation. Thus, the
Company no longer maintains any interest in the collateral. As the Company
had fully reserved against this loan, the settlement did not require the
Company to take any further reserves.
On February 11, 1992, the Company funded the initial draws for two
loans to Outlaws Casino, Ltd. (the "Outlaws Borrower"), in the amounts of
$1,200,000 (the "Crook Loan") and $500,000 (the "Hudspeth Loan")
(collectively, the "Outlaws Loans"). On June 30, 1995, the Company ceased
accruing interest on the Outlaws Loans and converted them to demand loans.
The Outlaws Borrower had sought the loans in order to fund a portion of the
acquisition of a small casino, the Outlaws Casino, located on two adjacent
parcels of land in Black Hawk, Colorado, known as the Crook Parcel
(approximately 16,000 square feet) and the Hudspeth Parcel (approximately
5,500 square feet). The Outlaws Borrower originally planned to combine the
Crook Parcel and the Hudspeth Parcel and construct an approximately 50,000
square foot casino containing approximately 800 slot machines. The Outlaws
Loans were collateralized by an assignment of a partnership interest in the
Outlaws Borrower and CBH's personal guaranty. The Crook Loan was also
collateralized by a second mortgage on the Crook Parcel which was
subordinated to a seller note with a principal balance at December 31, 1996
of $2,561,621 and the Hudspeth Loan was also collateralized by a second
mortgage on the Hudspeth Parcel.
In October 1995, representatives of the Outlaws Borrower informed the
Company that the Outlaws Casino had very little cash and that its bills
were approximately 45 days in arrears. Such representatives also told the
Company that it was an absolute necessity for the Outlaws Casino to build
up its working capital reserves to approximately $150,000 so as to be able
to fund the operating deficits which usually occur in the winter due to the
weather conditions which hinder ingress and egress to the casinos located
in Black Hawk, Colorado. The Company was also advised that the October
mortgage payment on the senior encumbrance collateralized by the Crook
Parcel was not made and that the Outlaws Borrower was currently in
negotiations with the senior lender to revise the terms of the loan in a
manner so as to allow the Outlaws Borrower to make interest only payments
until spring 1996. In addition, these representatives informed the Company
<PAGE>
that they were developing a marketing plan for the Outlaws Casino which
would appeal to local patrons who do not desire to game in a larger casino.
The Company was also advised that a potential sale of the Outlaws Casino
was probably not possible at such time since the winter months are the
least productive for Colorado casinos and that any prospective buyer would
defer a purchase until spring of 1996. Despite the revised marketing plan
of the Outlaws Borrower, operations at the Outlaws Casino did not result in
the generation of funds necessary to allow for sufficient working capital,
therefore, the Company never received any monthly payments of net revenue
from the Outlaws Borrower during 1996.
As of December 31, 1996, the outstanding loan balances, including
interest, were $1,600,000 for the Crook Loan and $605,000 for the Hudspeth
Loan. The Company was advised that the market value of the fee simple
interest in the Outlaws Casino was $2,500,000. Therefore, the Company set
up a reserve for the entire $1,600,000 of the Crook Loan. During the
fourth quarter of 1996, the Company set up a reserve for the Hudspeth Loan
in the amount of $86,200 based on the valuation from an appraisal
commissioned by the Company. As of December 31, 1996, the carrying value
of the Hudspeth Loan was $518,800. On April 30, 1997, the sum of $605,000
was placed in escrow on behalf of the Company by an affiliate of the
Outlaws Borrower in exchange for the Company releasing its interests in the
loan secured by the Hudspeth Parcel and the Crook Parcel. The Company no
longer maintains any interest in these properties.
On May 12, 1992, the Company made a loan in the amount of $900,000
(the "Waikiki Loan") to Hemmeter Investment Company, a Hawaii general
partnership. Mideast and China Trading Company (the "Waikiki Borrower") is
the successor to Hemmeter Investment Company and assumed its obligations
under the Waikiki Loan. The proceeds of the Waikiki Loan, which was funded
on May 27, 1992, were used to acquire options on various properties in New
Orleans, Louisiana, in connection with gaming-related developments by
affiliates of the Former Investment Manager. The Waikiki Loan was
collateralized by a sub-leasehold mortgage on the International
Marketplace, a retail center in Honolulu, Hawaii (the "Waikiki Property"),
CBH's personal guaranty and a collateral assignment of the Waikiki
Borrower's interest as the sub-sublessor of the Waikiki Property. On June
30, 1995, the Company ceased accruing interest on the Waikiki Loan and such
loan went into default.
On April 8, 1994, the Company made a second demand loan (the
"Waikiki II Loan") to the Waikiki Borrower in the amount of $1,000,000.
The proceeds of the Waikiki II Loan, which was funded on April 8, 1994,
were used for working capital for Grand Palais Casino, Inc., an affiliate
of CBH ("GPCI"). The Waikiki II Loan was also collateralized by the
Waikiki Property, CBH's personal guaranty and a collateral assignment of
the Waikiki Borrower's interest as the sub-sublessor of the Waikiki
Property. The liens on the Waikiki Property collateralizing the Waikiki
and Waikiki II Loans were of equal priority. On June 30, 1995, the Company
ceased accruing interest on the Waikiki II Loan and such loan went into
default. The Company modified the terms of the two Waikiki Loans on
November 1, 1995 so as to require the Waikiki Borrower to make monthly
payments of $15,042 with interest accruing at a rate of 11% per annum. The
Affiliated Borrower of the Waikiki and Waikiki II Loans made interest
payments in December 1995 of $45,125 and monthly payments in January and
February 1996, each in the amount of $15,042. This borrower ceased making
all payments under the terms of the modified loan agreement, effective with
the March 1996 payment. The Company applied the interest payments received
against the carrying amount of the loans.
<PAGE>
The subleasehold interest at International Marketplace was appraised
at $2,510,000 at December 31, 1995. In light of this valuation, the
Company did not set up a reserve for the principal amount of the Waikiki
Loans. As of December 31, 1996, the combined outstanding principal
balances were $1,824,791. During the second quarter of 1997, the Company
completed negotiations with the Waikiki Borrower to obtain title to the
Waikiki Borrower's interest as a sublessor of the Waikiki Property in
exchange for the Company releasing its interest in the Waikiki Loans. As
of the date of this proxy, the necessary documentation remains in escrow
pending the completion of certain ministerial matters which should be
completed before the end of the second quarter of 1997. At such time, the
Company will have title to the Waikiki Property and receive approximately
$25,000 per month from the rental of the subleasehold interest in the
Waikiki Property.
The Company loaned $12,900,000 (the "Sint Maarten Loan") in the
fourth quarter of 1988 to R.C.H. Investments, N.V. (the "Sint Maarten
Borrower"), which was collateralized by a second mortgage on a 28-acre site
on the island of Sint Maarten in the Netherlands Antilles (the "Sint
Maarten Property"). This loan matured on May 7, 1992. On May 12, 1992,
the Company agreed to make a new loan to the Sint Maarten Borrower in the
amount of $12,900,000 (the "New Sint Maarten Loan") to replace the Sint
Maarten Loan. The New Sint Maarten Loan had an original term of
approximately 12 months, and was scheduled to mature on May 7, 1993. In
December 1994, the Sint Maarten Borrower transferred its interests in the
Sint Maarten Property and the attendant obligation related to the New Sint
Maarten Loan to R.C.H. Investments, L.L.C., a Delaware limited liability
company, whose constituent members were the shareholders of the Sint
Maarten Borrower (the "New Sint Maarten Borrower"). Due to the inability
of the New Sint Maarten Borrower, as well as CBH in his capacity as the
guarantor of the New Sint Maarten Loan, to fulfill their obligations under
the terms of the New Sint Maarten Loan, the Company converted the New Sint
Maarten Loan to a demand loan on June 30, 1995, the date the New Sint
Maarten Loan was scheduled to mature.
The Sint Maarten Property also collateralized a first mortgage in the
principal amount of $4,000,000 in favor of a lender unaffiliated with the
Affiliated Borrowers. Interest payments due the senior lender subsequent
to June 30, 1995 and through December 31, 1995, in the amount of
approximately $354,000 were funded by the Company and charged against the
$1,250,000 provided for by the Company to protect the collateral positions
on the Company's various loans. Based on an appraisal of the Sint Maarten
Property by an independent third party appraiser, a loss reserve in the
amount of $5,000,000 was recorded during the fourth quarter of 1995
reducing the outstanding carrying balance of the loan to $7,900,000.
The senior encumbrance matured on December 31, 1995. The New Sint
Maarten Borrower requested an extension of the loan from the senior lender,
which request was denied. The New Sint Maarten Borrower then received a
formal demand for payment from the senior lender which demand stated that
if payment was not received by June 13, 1996, the senior lender would
institute legal proceedings against both the Affiliated Borrower and CBH
personally, as the guarantor of such loan. Representatives of the Company
met with the senior lender during the second quarter of 1996 and were
informed that the senior lender had commenced the foreclosure process. In
connection with the foreclosure process undertaken by the senior lender,
the Sint Maarten property was put out to auction. Pursuant to the terms of
the auction, a minimum bid of $8,000,000 was required and if a bid equal to
or in excess of such amount was not received, the auction process would be
continued at a later date with a lesser minimum bid. On September 26,
1996, the auction for the Sint Maarten Property was held, however, the
minimum bid was not received. In this regard, the auction was rescheduled
for November 14, 1996 and the minimum bid was reduced to $7,000,000. Based
on this new minimum auction price, the Company took an additional reserve,
as of September 30, 1996, for $5,500,000. On November 14, 1996, the
auction for the Sint Maarten Property was continued, however, the minimum
<PAGE>
bid was not received and it was rescheduled again until December 12, 1996.
As had occurred in September and November 1996, no minimum bid was
received. The auction was then again rescheduled for January 30, 1997. At
the auction on January 30, 1997, a bid was received in an amount sufficient
to retire the amount of the principal balance of the first mortgage plus
all accrued and unpaid interest and the related fees and costs of the
senior lender and provide the Company with $1,784,300. On February 6,
1997, the Company received the $1,784,300 of proceeds from the sale by
public auction of the Sint Maarten Property. As a condition of the sale,
the Company released its liens against the Sint Maarten Property. Thus,
the Company no longer maintains any interest in the Sint Maarten Property.
For the quarter ended December 31, 1996, the Company recorded a final loss
reserve in the amount of $615,700 to reflect a carrying value of
$1,784,300.
On January 4, 1994, the Company made a loan to CBH in the amount of
$12,900,000 (the "Hemmeter Loan"), the proceeds of which were used for
working capital purposes for CBH's various gaming affiliates and to retire
certain indebtedness collateralized by three of CBH's residences, one in
Hawaii and two in California. This loan was originally collateralized by
junior mortgages on the aforementioned residences, bore interest at 12% per
annum, was payable quarterly in arrears, and was scheduled to mature on
January 3, 1995. On September 14, 1994, the loan was modified to provide
for an additional $1,100,000 ("Additional Principal") thereby increasing
the principal amount of the loan to $14,000,000. The Additional Principal
originally bore interest at the rate of 22%, 12% of which was paid under
the same terms as the original loan, and the remaining 10% accrued and was
to be payable upon the maturity or earlier prepayment of the loan. In
addition, the interest rate on the original $12,900,000 in principal was
increased to 21.7% effective October 1, 1994, 12% of which was paid under
the same terms as the original loan, and the remaining 9.7% accrued and was
to be payable upon the maturity or earlier prepayment of the loan. On
December 16, 1994, CBH informed the Directors that he was selling his
residence in Hawaii in late December 1994, the proceeds of which sale were
utilized in their entirety to repay the senior encumbrance collateralized
by the property, and requested a release of the Company's lien on the
Hawaii residence and an extension of the maturity date of the Hemmeter
Loan, including the Additional Principal. In response to CBH's request,
the Company agreed that: (i) it would release its lien on the Hawaii
residence, effective January 3, 1995; (ii) the maturity of the Hemmeter
Loan, including the Additional Principal, be extended to June 30, 1995; and
(iii) the interest rate on the Hemmeter Loan and the Additional Principal
be increased to 22.7% and 23%, respectively. Thirteen percent of both the
Hemmeter Loan and the Additional Principal was to be paid under the same
terms as described above, and the remaining 9.7% of the Hemmeter Loan and
the remaining 10% of the Additional Principal would accrue and be payable
upon the maturity or earlier repayment of the Hemmeter Loan and the
Additional Principal. On May 2, 1995, the Company agreed to a further
modification of the loan to provide for an additional $1,000,000 (the
"Second Additional Principal") thereby increasing the principal amount of
the loan to $15,000,000. The Second Additional Principal bore interest at
the rate of 23%, 10% of which was to be payable upon the maturity or
earlier prepayment of the Second Additional Principal.
The carrying value of the Hemmeter Loan, including the Additional
Principal and the Second Additional Principal, was reduced by the Company
three times, once at June 30, 1995 by a $9,900,000 reserve, again at
September 30, 1995 by a $2,950,000 reserve and finally by $977,000 at the
time the California residences that served as collateral for the loan were
sold. Also, approximately $611,000 of the $1,250,000 collateral
preservation reserve made by the Company at June 30, 1995 was allocated to
the Hemmeter Loan. After paying the costs associated with the sale of
CBH's California residences, the Company received net proceeds from the
sales of approximately $733,000. CBH and his wife still have personal
liability for the remaining $14,267,000 principal balance of the loan.
However, the current carrying value of the Hemmeter Loan is zero.
<PAGE>
On February 14, 1994, the Company made a loan to GPCI in the amount
of $4,000,000 (the "GPCI Loan"). The proceeds of the GPCI Loan were used
to cover certain expenses of GPCI incurred in connection with the
development of the single land-based casino in New Orleans, Louisiana, of
which GPCI was to be a one-third owner. The GPCI Loan bore interest at a
rate of 14% per annum, payable quarterly in arrears, was collateralized by
the personal guarantee of CBH and was due to mature on September 30, 1994.
On April 8, 1994, an additional loan was made to GPCI in the amount of
$2,250,000 under the same terms and conditions as the GPCI Loan. On April
14, 1995, the Company sold the two loans made to GPCI to an unaffiliated
third-party for the sum of $6,250,000 plus all accrued and unpaid interest
through the date of sale.
On April 25, 1995, the Company made a loan to Hemmeter Enterprises,
Inc. ("HEI") in the amount of $1,000,000, bearing interest at the rate of
12% per annum, payable quarterly in arrears, and due on demand (the "HEI
Loan"). HEI, either directly or through affiliated entities, was in the
business of developing, owning and operating gaming and related
entertainment facilities. HEI was a one-third partner in the partnership
attempting to develop the sole-land based casino in New Orleans, Louisiana
and a 50% partner in the joint venture which developed and operated a
riverboat gaming project in New Orleans. In addition, HEI developed, owned
and operated two of the largest casinos in Colorado, known as Bullwhackers.
The proceeds of the HEI Loan were utilized by HEI for working capital
purposes and were collateralized by the guarantee of CBH. On May 13, 1995,
the Company agreed to provide HEI with a senior bank facility in the amount
of $4,000,000 (the "HEI Senior Bank Facility"). The HEI Senior Bank
Facility was collateralized pari passu by deeds of trust for the
Bullwhackers Casinos in Central City and Black Hawk, Colorado, a second
mortgage on the Canadian Pavilion Property and a second mortgage on the
riverboat operated in New Orleans by Grand Palais Riverboat, Inc. ("GPRI")
and a collateral assignment of GPRI's interests in the riverboat joint
venture which was operated in New Orleans. The HEI Senior Bank Facility
was also guaranteed jointly and severally by various subsidiaries of HEI,
certain other affiliated entities and by CBH. During the week of May 15,
1995, the Company made an initial funding of $2,000,000 of the $4,000,000
HEI Senior Bank Facility and $1,000,000 of the loan proceeds were utilized
to repay the HEI Loan. The HEI Senior Bank Facility bore interest at the
rate of 12% per annum and was scheduled to mature on September 30, 1995.
On June 30, 1995, the Company determined that it would not advance any
additional sums to HEI under the terms of the HEI Senior Bank Facility.
In October 1995, HEI and GPRI both filed for bankruptcy protection.
As of December 31, 1995, the Company recorded a $1,000,000 reserve against
the carrying value of the HEI Senior Bank Facility. The plans of
reorganization of HEI and GPRI were approved by the bankruptcy courts and
in June 1996, in satisfaction of its interests, the Company received the
following in settlement of its claims: (i) a 12% senior secured pay-in-
kind note due 2003 in the principal amount of $601,702 issued by Colorado
Gaming & Entertainment Co., the successor to HEI ("Colorado Gaming"); (ii)
60,170 shares of common stock of Colorado Gaming, which entity is not
publicly traded; and (iii) 27,089 shares of common stock of Casino America,
Inc. ("Casino America"), a publicly-held stock traded on the NASDAQ
National Market under the symbol "CSNO." In addition, the Company is also
entitled to receive a small number of warrants of Casino America. On July
25, 1996, the Company exercised its right to purchase 6,913 shares of
common stock of Casino America at a price of $5.875 per share. On December
1, 1996, the Company received cash and proceeds of $899 and an additional
note in the principal amount of $34,000 with terms consistent with the
original Colorado Gaming note representing the payment of interest due on
the original Colorado Gaming note through December 1, 1996.
3. AFFILIATES OF THE COMPANY
On June 29, 1995, the Company terminated its investment management
agreement with the Former Investment Manager and retained Mr. Neil D.
Hansen, an outside consultant, to assist the Directors in the orderly self-
liquidation of the Company.
<PAGE>
4. LITIGATION AND SEC INQUIRY
On July 3, 1995, a class action complaint captioned "Sarnoff v.
Resort Income Investors, Inc., et al., Doc. No. 95 B 1665" was filed
against the Company, CBH, Mark M. Hemmeter and Deloitte & Touche LLP, the
Company's independent auditors at that time, in U.S. District Court for the
District of Colorado alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and other provisions of the federal
securities laws and the rules promulgated by the Securities and Exchange
Commission (the "Commission"). On August 24, 1995, a second class action
suit captioned "Contract v. Resort Income Investors, Inc., et al., Doc. No.
95 B 2184," alleging similar violations was filed in the U.S. District
Court for the District of Colorado against each of the defendants in the
lawsuit described earlier, as well as Daniel D. Lane, Christopher R.
Hemmeter, Gregory Hooper and John R. Young. In November 1995, the two
actions were consolidated. On November 27, 1995, the plaintiffs moved to
have the consolidated actions certified as a class action for investors who
purchased or acquired stock in the Company between March 31, 1993 and June
29, 1995. On December 6, 1995, the plaintiffs filed a consolidated amended
complaint containing similar allegations or claims as asserted in the
Sarnoff and Contract class actions. The consolidated amended complaint
seeks an unspecified amount of actual damages and reimbursement of costs
and expenses. On January 16, 1996, the defendants moved to dismiss the
consolidated amended complaint for failure to state a claim. On February
29, 1996, the defendants filed opposition papers to the plaintiffs' motion
for class certification. On October 25, 1996, the Court heard arguments on
the defendants' motion to dismiss and the plaintiffs' notice for class
certification. No ruling has been issued to date. The parties are
currently engaged in discovery. No assessment of the outcome of this
action or the amount or range of any loss that might be incurred by the
Company can be made at this time. However, the Company intends to defend
against the charges as it believes it did not violate the federal
securities laws. Pursuant to the Company's by-laws and Delaware law, the
Company is advancing CBH's, Mark M. Hemmeter's, Christopher R. Hemmeter's,
Gregory Hooper's, Daniel D. Lane's and John R. Young's costs of defense in
this matter. Each of these individuals has executed undertakings to repay
the Company for the advances if it is ever determined that they were not
entitled to receive the advances. No estimates can reasonably be made at
this time of the costs of defense of the Company and these individuals.
In June 1995, two derivative actions were filed in the Court of
Chancery of the State of Delaware in and for New Castle County, ALPERT V.
HEMMETER ET AL., Doc. No. 14389, and FRANK, ET AL. V. HEMMETER ET AL., Doc.
No. 14413. The Company is a nominal defendant in each of these cases. The
defendants in both cases are CBH, Mark M. Hemmeter, Daniel D. Lane and John
R. Young. The complaints purport to allege that the officers and directors
breached their fiduciary duties to the Company, wasted Company assets and
that CBH stood in a conflict of interest position. The complaints have now
been consolidated. The defendants have moved to dismiss the consolidated
derivative action for failure to comply with the requirements of Delaware
law. Pursuant to the Company's by-laws and Delaware law, the Company will
advance to the individual defendants their defense costs. Messrs.
Christopher B. Hemmeter, Mark M. Hemmeter, Christopher R. Hemmeter, Gregory
Hooper, Daniel D. Lane and John R. Young have agreed to repay the Company
for the advances if it is ever determined that they were not entitled to
receive the advances. No estimate can reasonably be made at this time of
the cost of defense. Both complaints pray for unspecified damages.
On October 25, 1995, the Commission issued a formal order of
investigation captioned IN THE MATTER OF RESORT INCOME INVESTORS, INC.,
Case No. HO-5327. In connection with the investigation, the Company was
requested to produce certain documents and information. The Company has
complied with these requests. The Company has been advised that the
investigation should not be construed as an indication by the Commission or
its staff that any violation of law has occurred, nor as a reflection upon
any person, entity or security. The Company cannot, at this time, predict
the outcome of the investigation or the financial impact, if any, to the
Company.
<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals for the 1997 Annual Meeting of Stockholders
will not be included in the Company's Proxy Statement for that meeting
unless received by the Company at its executive offices in Chicago,
Illinois, on or prior to January 12, 1998. Such proposals must also meet
the other requirements of the rules of the Commission relating to
shareholder proposals.
OTHER MATTERS
As of the date of this Proxy Statement, the above is the only
business known to management to be acted upon at the Meeting. However, if
other matters not known to management should properly come before the
Meeting, the persons appointed by the signed proxy intend to vote it in
accordance with their best judgment.
By the order of the Board of Directors,
/s/ DANIEL D. LANE
_____________________________________
Daniel D. Lane
Secretary
Chicago, Illinois
May 30, 1997
A COPY OF THE RESORT INCOME INVESTORS, INC. 1996 ANNUAL REPORT ON
FORM 10-KSB IS BEING MAILED TO THE STOCKHOLDERS TOGETHER WITH THIS PROXY
STATEMENT; HOWEVER, THE REPORT IS NOT PART OF THE PROXY STATEMENT
MATERIALS. ADDITIONAL COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996, AS FILED WITH THE COMMISSION, MAY BE
OBTAINED WITHOUT CHARGE UPON REQUEST MADE TO:
Resort Income Investors, Inc.
c/o Investor Relations Department
150 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
312-683-3323
YOUR VOTE IS IMPORTANT. THE PROMPT RETURN OF PROXIES WILL SAVE THE
COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES. PLEASE MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
RESORT INCOME INVESTORS, INC.
150 SOUTH WACKER DRIVE
SUITE 2900
CHICAGO, ILLINOIS 60606
312-683-3323
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints John R. Young and Don S. Hershman,
and each of them, as Proxies, with the power to appoint their substitutes,
and hereby authorizes them to represent and to vote, as designated below,
all the Shares of Beneficial Interest of Resort Income Investors, Inc. (the
"Company") held of record by the undersigned on May 15, 1997, at the Annual
Meeting of Shareholders when convened on June 25, 1997, or any adjournment
thereof.
Continued on the reverse side.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2.
1. PROPOSAL to elect three Directors to hold office until the next
Annual Meeting of Stockholders, or otherwise as provided in the Bylaws of
the Company. (check one box):
FOR AGAINST
THOMAS A. ELLSWORTH [ ] [ ]
DANIEL D. LANE [ ] [ ]
JOHN R. YOUNG [ ] [ ]
For: except vote withheld from the following nominee(s):
_______________________________
2. PROPOSAL to concur in the selection of BDO Seidman, LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 1997. (check one box):
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the Proxies are authorized to transact any other
business as may properly come before the Meeting, or any adjournment
thereof.
DATED:_______________________, 1997
____________________________________
Signature
____________________________________
Signature if held jointly
Sign exactly as name appears at left. If joint tenant, both should sign.
If attorney, executor, administrator, trustee or guardian, give full title
as such. If a corporation, please sign corporate name by President or
authorized officer. If partnership, sign in full partnership name by
authorized person.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN THIS CARD USING THE ENCLOSED
ENVELOPE. PLEASE CONTACT THE COMPANY'S PROXY SOLICITOR, CHASE MELLON
SHAREHOLDER SERVICES, AT (800)667-6589, WITH ANY QUESTIONS REGARDING THE
ABOVE.
