SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 18, 1997
RESORT INCOME INVESTORS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-10084 36-3593298
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(State of or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
150 South Wacker Drive, Suite 2900, Chicago, Illinois 60606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 683-3323
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
Effective November 18, 1997, Mr. Neil D. Hansen was appointed
Treasurer and Chief Accounting Officer of Resort Income Investors, Inc.
(the "Company") by the Company's Board of Directors, replacing Mr. Daniel
D. ("Ron") Lane in such positions. However, Mr. Lane remains the Company's
Secretary and one of its Directors. Mr. Hansen has been providing
consulting services to the Company since August 1995.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(C) Exhibits.
10.1 Stipulation of Settlement dated November 18, 1997.
10.2 Form of Notice of Pendency of Class and Derivative
Actions, Proposed Settlements, Settlement Hearings and Right to Share in
Settlement.
10.3 Form of Order and Final Judgment.
10.4 Order of Preliminary Approval of Settlement and
Proceedings in Connection Therewith.
10.5 Summary Notice of Class Action and Derivative
Action Settlements and Hearings Thereon.
99.1 Press Release of the Company dated December 2,
1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RESORT INCOME INVESTORS, INC.
(Registrant)
DATE: December 2, 1997 By: /s/ John R. Young
---------------------------------
Name: John R. Young
Title: Chairman of the Board of
Directors, Chief Executive Officer, President and
Chief Financial Officer
EXHIBIT 10.1
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Master File No. 95-B-1665
IN RE: RESORT INCOME INVESTORS, INC., SECURITIES LITIGATION
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THIS DOCUMENT RELATES TO: ALL ACTIONS
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Case No.: 97-B-2252
PHILIP FRANK, as Trustee for the Trust Under the Will of Helen Frank, and
JOSEPH E. ALPERT, derivatively on behalf of RESORT INCOME INVESTORS, INC.,
Plaintiffs,
vs.
CHRISTOPHER HEMMETER, MARK HEMMETER,
DANIEL D. LANE, and JOHN R. YOUNG,
Defendants,
and
RESORT INCOME INVESTORS, INC.,
Nominal Defendant.
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STIPULATION OF SETTLEMENT
<PAGE>
TABLE OF CONTENTS
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Page
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I. THE CLASS ACTIONS . . . . . . . . . . . . . . . . . . 1
II. THE DERIVATIVE ACTIONS. . . . . . . . . . . . . . . . 2
III. DISCOVERY IN THE LITIGATION . . . . . . . . . . . . . 2
IV. BENEFITS OF THE SETTLEMENT TO PLAINTIFFS, THE CLASS,
AND, WITH RESPECT TO THE DERIVATIVE ACTION, RESORT. . 3
V. BENEFITS OF SETTLEMENT TO THE DEFENDANTS. . . . . . . 3
VI. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 3
VII. FUNDING OF THE RESORT PAYMENT . . . . . . . . . . . . 9
VIII. CERTIFICATION OF CLASS. . . . . . . . . . . . . . . . 9
IX. SETTLEMENT PROCEEDINGS AND RELEASES . . . . . . . . .10
X. NOTICE AND CLAIMS ADMINISTRATION. . . . . . . . . . .11
XI. REQUEST FOR EXCLUSION . . . . . . . . . . . . . . . .12
XII. OBJECTION TO CLASS ACTION SETTLEMENT. . . . . . . . .13
XIII. OBJECTION TO DERIVATIVE ACTION SETTLEMENT . . . . . .13
XIV. EFFECT OF DISAPPROVAL, CANCELLATION OR TERMINATION. .13
XV. TRANSFER OF SETTLEMENT FUND . . . . . . . . . . . . .13
XVI. THE PRELIMINARY ORDER . . . . . . . . . . . . . . . .14
XVII. JUDGMENT TO BE ENTERED BY THE COURT APPROVING
THE SETTLEMENT. . . . . . . . . . . . . . . . . . . .14
XVIII. CONDITIONS OF SETTLEMENT. . . . . . . . . . . . . . .14
XIX. ADMINISTRATION AND CALCULATION OF CLAIMS, FINAL
AWARDS AND DISTRIBUTION OF DERIVATIVE FUND AND
CLASS ACTION FUND . . . . . . . . . . . . . . . . . .15
XX. ATTORNEYS' FEES AND EXPENSES. . . . . . . . . . . . .18
XXI. ORDER REGARDING ADMINISTRATION EXPENSES AND
DISTRIBUTION OF CLASS ACTION FUND . . . . . . . . . 19
XXII. STIPULATION IS NOT AN ADMISSION . . . . . . . . . . .19
XXIII. THE DELOITTE PROVISIONS . . . . . . . . . . . . . . .20
XXIV. THE DERIVATIVE PROVISIONS . . . . . . . . . . . . . .21
XXV. THE MISCELLANEOUS PROVISIONS. . . . . . . . . . . . .21
<PAGE>
This Stipulation of Settlement ("Stipulation") dated as of
November 18, 1997, is made and entered into by and among the plaintiffs and
defendants in the above captioned actions by and through their counsel of
record.
NOW THEREFORE, without any admission or concession on part of
Plaintiffs (as defined below) of any lack of merit of the Litigation (as
defined below) whatsoever, and without an admission or concession of
liability or wrongdoing or lack of merit in the defenses in the Litigation
whatsoever by Defendants (as defined below) or any Released Party (as
defined below), it is hereby STIPULATED AND AGREED, by and among the
parties to the Stipulation, through their respective attorneys, subject to
approval of the Court pursuant to Rules 23(e) and 23.1 of the Federal Rules
of Civil Procedure and in consideration of the benefits flowing to the
Parties (as defined below) from the settlement, that all Released Claims
(as defined below) as against the Released Parties (as defined below) shall
be compromised, settled, released and dismissed with prejudice upon and on
the merits, subject to the following terms and conditions:
I. THE CLASS ACTIONS
The class action litigation commenced in July, 1995 with the filing
of EDWARD AND ETHEL SARNOFF ET AL. V. RESORT INCOME INVESTORS, INC. ET AL.,
Civil Action No. 95-B-1665 (the "Sarnoff Action"), and ultimately involved
an additional action, SHELDON L. CONTRACT V. RESORT INCOME INVESTORS, INC.
ET AL., Civil Action No. 95-B-2184 (the "Contract Action"), filed in
August, 1995. The Sarnoff Action and the Contract Action were consolidated
on November 8, 1995 (collectively the "Class Action"), and a consolidated
complaint was filed on December 6, 1995 (the "Class Action Complaint").
The Class Action Complaint asserts claims based upon purported
violations of Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"), Rule 10b-5 of the rules and regulations promulgated
thereunder, and Section 20(a) of the Exchange Act. The Class Action seeks
to represent a class consisting of all persons who purchased or otherwise
acquired stock of Resort Income Investors, Inc. ("Resort") between March
31, 1993 and June 29, 1995, inclusive. The Class Action Complaint names as
defendants Resort, RII Advisors, Inc. ("RII"), Christopher B. Hemmeter ("C.
Hemmeter"), Mark Hemmeter ("M. Hemmeter"), Christopher R. Hemmeter ("C.R.
Hemmeter"), Gregory Hooper ("Hooper"), John R. Young ("Young"), and Daniel
D. Lane ("Lane") (C. Hemmeter, M. Hemmeter, C.R. Hemmeter, Hooper, Young
and Lane are collectively referred to herein as the "Individual
Defendants"). The Class Action Complaint also names Deloitte & Touche LLP,
now known as Deloitte & Touche USA LLP (collectively referred to
hereinafter as "D&T" which includes as well their predecessors and
successors). (Resort, RII, the Individual Defendants and D&T are
collectively referred to herein as the "Class Action Defendants").
The Class Action Complaint alleges, inter alia, a purported pattern
of knowing or reckless conduct which violated the Federal Securities Laws.
Among other things, it alleges that Class Action Defendants: (i) failed to
disclose and misrepresented the full and complete nature of the temporary
investments and loans made by Resort, and the magnitude of the risks
associated with these investments or loans; (ii) failed to maintain
adequate loan loss reserves for Resort's mortgage loans and temporary
investments, thereby overstating Resort's assets; and, (iii) misrepresented
that Resort's financial statements were audited in accordance with
Generally Accepted Auditing Standards and were prepared in accordance with
Generally Accepted Accounting Principles.
On or about November 27, 1995, the plaintiffs in the Class Action
("Class Action Plaintiffs") moved for certification of a class. On or
about February 29, 1996, the Class Action Defendants filed briefs in
opposition to the motion for class certification. On or about January 16,
1996, the Class Action Defendants moved to dismiss the Class Action
Complaint. Each set of motions was fully briefed, and argument was heard
by the Court on October 25, 1996. The Court had not ruled on either of the
motions when a settlement in principle of the Class Action was reached.
<PAGE>
II. THE DERIVATIVE ACTIONS
In June and July of 1995, two separate derivative actions were
commenced in the Court of Chancery of the State of Delaware, in and for
Newcastle County: ALPERT V. CHRISTOPHER B. HEMMETER ET AL., C.A. No. 14389
("Alpert Action"), and FRANK V. CHRISTOPHER HEMMETER, ET AL., C.A. No.
14413 ("Frank Action"). The Alpert Action and Frank Action were
consolidated on August 21, 1995 (collectively referred to as the "Delaware
Derivative Action").
The Delaware Derivative Action purports to allege that certain of the
officers and directors of Resort breached their fiduciary duties to Resort,
wasted Resort assets and that C. Hemmeter, through his direct, and/or
indirect, borrowings from Resort, stood in a conflict of interest position.
The defendants in the Delaware Derivative Action are C. Hemmeter,
M. Hemmeter, Young and Lane; Resort is also a nominal defendant in the
Delaware Derivative Action (collectively referred to as the "Derivative
Action Defendants"). Defendants in the Delaware Derivative Action filed a
motion to dismiss the Delaware Derivative Action for failure to comply with
the requirements of Delaware law.
To avoid duplicative efforts and to reduce costs related to the
proposed settlement described below, the plaintiffs in the Delaware
Derivative Action ("Derivative Action Plaintiffs") filed a complaint in
this Court (the "Colorado Derivative Action") on October 17, 1997,
captioned FRANK, ET AL. V. CHRISTOPHER HEMMETER, ET AL., Civil Action No.
97-B-2252. The complaint filed in the Colorado Derivative Action contains
substantially similar allegations and claims as those asserted in the
Delaware Derivative Action. (The Delaware Derivative Action and the
Colorado Derivative Action are collectively referred to as the "Derivative
Actions." The Class Action and the Derivative Actions are collectively
referred to as the "Litigation.")
III. DISCOVERY IN THE LITIGATION
Counsel for plaintiffs in the Class Action and Derivative Actions
(collectively "Plaintiffs' Counsel") have conducted discovery during the
prosecution of their respective actions. This discovery included, among
other things: (i) depositions of witnesses; (ii) the review and analysis
of tens of thousands of pages of documents produced by the Derivative
Action Defendants and Class Action Defendants (collectively "Defendants")
and third parties or acquired during the course of counsel's investigation;
(iii) the review and analysis of public documents, including filings made
by Resort with government agencies; (iv) the review of transcripts of
testimony given by certain of the Defendants before the Securities and
Exchange Commission in connection with the matters referred to in the
Litigation; and (v) consultation with experts. Plaintiffs' Counsel have
also researched the applicable law with respect to the claims and defenses
presented in the Litigation.
<PAGE>
IV. BENEFITS OF THE SETTLEMENT TO PLAINTIFFS, THE CLASS,
AND, WITH RESPECT TO THE DERIVATIVE ACTION, RESORT
Plaintiffs' Counsel recognize and acknowledge the expense and length
of continued proceedings necessary to prosecute the Litigation against the
Defendants through trial, post-trial motions and likely appeals.
Plaintiffs' Counsel have also evaluated the discovery taken in the
Litigation, taken into the account the uncertain outcome and the risk of
any litigation, especially complex actions such as the Litigation, as well
as the difficulties and delays inherent in such complex matters.
Plaintiffs' Counsel have also taken into account the strengths and
uncertainties of the claims asserted in the Litigation and the substantial
immediate benefits conferred on the Class and Resort by the Settlement set
forth in this Stipulation. Based on their consideration of all these
factors, and Resort's current financial condition, Plaintiffs' Counsel
therefore determined that the Settlement of the Litigation on the terms and
conditions set forth herein is fair, reasonable and in the best interests
of the Plaintiffs, the Class (with respect to the Class Action), and Resort
(with respect to the Derivative Actions).
V. BENEFITS OF SETTLEMENT TO THE DEFENDANTS
Defendants have concluded that it is desirable that the Litigation be
settled in the manner and on the terms and conditions set forth herein in
order to avoid the expense, inconvenience and distraction of further legal
proceedings and to put to rest the claims asserted by the Class and on
behalf of Resort. In determining to enter into this Stipulation,
Defendants have also considered a number of issues, including the uncertain
outcome and the risks of complex actions such as the Litigation, as well as
the difficulties and delays inherent in such matters and the strengths and
uncertainties of the claims and defenses asserted in the Litigation.
VI. DEFINITIONS
In addition to the terms defined above or elsewhere in this
Stipulation or Exhibits hereto, as used in this Stipulation the following
terms shall have the following meaning:
1. "Additional Resort Payment" means the amount of the
Derivative Fund minus the Derivative Fee and Expense Award.
2. "Administration Expenses" means all expenses incurred in
soliciting Proofs of Claim, assisting with the filing of Proofs of Claim,
administering and distributing the Class Action Fund, processing Proofs of
Claim, processing Requests for Exclusion, and all other expenses of
settlement administration.
3. "Attorneys' Fees and Expenses" means the portion of the
Derivative Fund and Class Action Fund approved by the Court for payment to
Plaintiffs' Counsel, including attorneys' fees, costs, litigation expenses,
fees and expenses of experts, as well as any interest earned on monies in
the Escrow Accounts allocable to such attorneys' fees, costs and expenses.
4. "Authorized Claimant" means a Class Member who timely
submits a complete and valid Proof of Claim.
<PAGE>
5. "Claims Administrator" means FRG Information Systems
Corp., retained by Class Counsel to process Proofs of Claim, administer and
distribute the Net Class Action Fund, and perform such other administrative
responsibilities as may be necessary or requested by Class Counsel.
6. "Class" and "Class Members" means, for the purposes of
this Stipulation only, all Persons who purchased or otherwise acquired
Resort Stock during the period from March 31, 1993 through June 29, 1995
inclusive, excluding (i) the Class Action Defendants, (ii) any entity in
which any Class Action Defendant has a controlling interest, (iii) the
partners, corporate officers and directors of any of the Class Action
Defendants, and (iv) the legal representatives, heirs, successors or
assigns of any such excluded party. Also excluded from the Class are any
putative Class Members who exclude themselves by filing a Request for
Exclusion in accordance with the requirements set forth in the Notice, or
as ordered by the Court.
7. "Class Action Complaint" means the Consolidated and
Amended Complaint filed on or about December 6, 1995, in the Class Action.
8. "Class Action Defendants" means each and all of the
following persons and entities: Defendants Resort, RII, Christopher B.
Hemmeter, Mark Hemmeter, Christopher R. Hemmeter, Gregory Hooper, John R.
Young, Daniel D. Lane, and D&T.
9. "Class Action Fund" means the aggregate amount of the:
(i) $1,425,000.00 cash paid on behalf of the Individual Defendants by the
Insurer into the Class Escrow, plus interest earned thereon;
(ii) $2,205,000.00 cash paid by D&T into the D&T Escrow, plus interest
earned thereon; (iii) Resort Payment, plus the interest earned thereon; and
(iv) Additional Resort Payment, plus interest earned thereon.
10. "Class Action Parties" means Class Action Defendants and
Class Action Plaintiffs.
11. "Class Action Plaintiffs" means Edward and Ethel Sarnoff,
as Trustee for the benefit of the Sarnoff Revocable Trust, and Sheldon L.
Contract, as Trustee for the benefit of the Sheldon L. Contract DDS PA
Employee Profit Sharing Plan and Trust, individually and as representatives
of the Class.
12. "Class Counsel" means Goodkind Labaton Rudoff & Sucharow
LLP and Starr & Holman LLP.
13. "Class Escrow" means $1,425,000.00 cash paid on behalf of
the Individual Defendants on August 6, 1997 by the Insurer being held at
LaSalle National Bank, Chicago ("LaSalle"), plus accrued interest of, at
least, 5% annually from the date of deposit.
14. "Class Fee and Expense Award" means those monies approved
and ordered by the Court to be paid, from the Class Settlement Fund, to
Class Counsel for their fees, costs and expenses incurred in connection
with the prosecution of the Class Action, plus accrued interest on these
attorneys' fees and expenses from the date of their deposit until paid,
including the fees of experts and consultants.
15. "Class Period" means March 31, 1993 through June 29,
1995, inclusive.
16. "Court" means the United States District Court for the
District of Colorado.
<PAGE>
17. "Current Resort Shareholders" or "Current Shareholders"
means all shareholders of Resort on the date of this Stipulation.
18. "D&T" means Deloitte & Touche LLP, now known as Deloitte
& Touche USA LLP, and their predecessors and successors.
19. "D&T Escrow" means $2,205,000.00 cash paid by D&T on
August 11, 1997 into the Gibson, Dunn & Crutcher LLP ("GD&C") client trust
account plus accrued interest at the prevailing rate of the client trust
account as set by Citibank FSB based on an average of California Money
Market Rates. Said rate, as of October 13, 1997, approximated 4.5% and is
subject to adjustment thereafter.
20. "Defendants" means collectively the Class Action
Defendants and Derivative Action Defendants.
21. "Defendants' Counsel" means the law firms of Brownstein,
Hyatt, Farber & Strickland P.C., Gibson, Dunn & Crutcher LLP, Hedlund
Hanley & John, McAllister & Murphy, P.C., Prickett, Jones, Elliott, Kristol
& Schnee, and Shefsky & Froelich Ltd.
22. "Delaware Derivative Action" means the consolidated
Alpert Action and Frank Action.
23. "Derivative Actions" means the Delaware Derivative Action
and the Colorado Derivative Action.
24. "Derivative Action Defendants" means Resort (as a nominal
defendant), Christopher B. Hemmeter, Mark Hemmeter, John R. Young and
Daniel D. Lane.
25. "Derivative Actions Plaintiffs" means Joseph E. Alpert,
Philip Frank, as trustee for the trust under the will of Helen Frank, and
William Schrank, all suing derivatively on behalf of Resort.
26. "Derivative Counsel" means Wolf Haldenstein Adler Freeman
& Herz LLP, Abbey Gardy & Squitieri, LLP, Chimicles Jacobsen & Tikellis,
and Rosenthal, Monhait, Gross & Goddess, P.A.
27. "Derivative Escrow" means $1,425,000.00 cash paid on
behalf of the Individual Defendants on August 6, 1997 by the Insurer being
held at LaSalle National Bank, Chicago plus accrued interest of, at least,
5% annually from the date of deposit.
28. "Derivative Fee and Expense Award" means those amounts
approved by the Court to be paid from the Derivative Fund to Derivative
Counsel for their attorneys' fees, costs and expenses, plus accrued
interest on these fees, costs and expenses from the date of their deposit
until paid, including fees of experts and consultants.
29. "Derivative Fund" means the amount of $1,425,000.00 plus
accrued interest, which amount Resort has received from the Insurer on
behalf of the Individual Defendants and placed into the Derivative Escrow.
<PAGE>
30. "Effective Date" means the first business day after which
all of the following have occurred:
a. the Court enters the Preliminary Order
substantially in the form of Exhibit A;
b. approval by the Court of the Settlement, following
notice to the Class and the Resort Shareholders, and hearings, as
prescribed by Rules 23 and 23.1 of the Federal Rules of Civil Procedure;
and
c. entry by the Court of an Order and Final Judgment,
substantially in the form set forth in Exhibit E annexed hereto, and the
expiration of any time for appeal or review of such Order and Final
Judgment, or, if any appeal is filed and not dismissed, after such Order
and Final Judgment is upheld on appeal in all material respects and is no
longer subject to review upon appeal or review by writ of certiorari, or,
in the event that the Court enters an order and final judgment in form
other than that provided above ("Alternative Judgment") and none of the
Parties elects to terminate this Settlement, the date that such Alternative
Judgment becomes final and no longer subject to appeal or review. It shall
not be considered a material difference if the Order and Final Judgment
does not award Plaintiffs' Counsel attorneys' fees and expenses in any
particular amount or if the Court reserves jurisdiction to award
Plaintiffs' Counsel fees and expenses in a separate Order.
d. the Effective Date shall not be delayed by reason
of any appeal relating solely to the award of Plaintiffs' Counsel's fees or
expenses.
31. "Escrow Accounts" means the Class Escrow, Derivative
Escrow and D&T Escrow.
32. "Escrow Agents" shall mean the LaSalle National Bank of
Chicago ("LaSalle") and the Gibson, Dunn & Crutcher ("GD&C") client trust
account. LaSalle shall act as escrow agent for those monies placed in the
Class Escrow and Derivative Escrow by the Insurer and the monies to be
placed in the Class Escrow by Resort via the Resort Payment. The GD&C
client trust account shall act as escrow agent for the monies paid by D&T
into the D&T Escrow.
33. "GD&C" means Gibson, Dunn & Crutcher LLP.
34. "Individual Defendants" shall mean Christopher B.
Hemmeter, Mark Hemmeter, Christopher R. Hemmeter, Gregory S. Hooper,
John R. Young and Daniel D. Lane.
35. "Insurer" means American International Specialty Lines
Insurance Co., which has issued a directors and officers liability policy
under which coverage has been requested by the Individual Defendants for
the claims asserted in the Litigation.
36. "Litigation" means the Class Action and the Derivative
Actions.
<PAGE>
37. "Net Class Action Fund" means the Class Action Fund less:
the Class Fee and Expense Award, Notice Expenses and Administration
Expenses, taxes, if any, assessed on income generated on the Class Action
Fund, and any other fees and expenses authorized by the Court to be paid
out of the Class Action Fund.
38. "Notice" means the Notice Of Pendency Of Class And
Derivative Actions, Proposed Settlements, Settlement Hearings And Right To
Share In Settlement substantially in the form of Exhibit B hereto.
39. "Notice Expenses" means all expenses incurred in
connection with the preparation, printing, mailing and publication of
Notice to the Class and Current Resort Shareholders of the proposed
Settlement, locating Class Members and Current Resort Shareholders,
publication of the Summary Notice and all other costs incurred in the
dissemination of the Notice and Summary Notice.
40. "Order and Final Judgment" means the proposed order in
the form attached hereto as Exhibit E.
41. "Parties" means Derivative Actions Plaintiffs, Class
Action Plaintiffs, Class Action Defendants and Derivative Defendants.
42. "Person" means an individual, corporation, partnership,
limited partnership, association, joint stock company, estate, legal
representative, trust, unincorporated organization, and any other type of
legal entity, and their heirs, predecessors, successors, representatives,
and assigns.
43. "Plaintiffs" means Class Action Plaintiffs and Derivative
Actions Plaintiffs.
44. "Plaintiffs' Counsel" means Class Counsel and Derivative
Counsel.
45. "Preliminary Order" means the proposed order in the form
attached hereto as Exhibit A.
46. "Proof of Claim" means the form substantially in the form
of Exhibit D hereto.
47. "Released Claims" means any and all claims, suits,
demands, rights, liabilities, damages, fees, costs and causes of action of
every nature and description whatsoever, in law or equity (whether
individual, derivative, or class in nature), known or Unknown, suspected or
unsuspected, accrued or unaccrued, including, without limitation, claims
for negligence, gross negligence, contribution or indemnity, breach of duty
of care and/or breach of duty of loyalty and/or breach of duty candor,
fraud, negligent misrepresentation, breach of fiduciary duty or violations
of any state or federal statutes, rules or regulations, held at any point
from the beginning of time to the date of execution of this Stipulation,
which have been asserted or could have been asserted by a Plaintiff, Class
Member, Current Shareholder or Released Party against any Released Party
arising out of, relating to, or in connection with any purchase, or other
acquisition, sale or other disposition of Resort Stock, or arising out of,
related to or based on any act, omission or representation by the Released
Parties relating to Resort, or professional services provided by the
Released Parties to Resort, or any of the acts, omissions, representations,
facts, events, matters, transactions, occurrences or capacities that were
or could have been referred to in any of the complaints filed in the
Litigation or otherwise alleged, asserted or contended in the Litigation.
<PAGE>
48. "Released Parties" or "Released Party," unless otherwise
noted, means Defendants and each and all of their respective present and
former subsidiaries (whether or not wholly owned), parents, successors and
affiliates, the present and former partners, principals, officers,
directors, employees, agents, consultants, accountants, attorneys,
advisors, shareholders, insurers, including the Insurer, and reinsurers of
any of the foregoing, and any of the respective predecessors, successors
and assigns of any of the foregoing.
49. "Request for Exclusion" means the request by a putative
member of the Class to be excluded from the Class consistent with the
requirements of the Stipulation and Notice or as otherwise ordered by the
Court.
50. "Resort" means Resort Income Investors, Inc., a Delaware
corporation.
51. "Resort Payment" means the amount to be paid by Resort
equal to the greater of (i) 44% of Resort's net assets in liquidation
valued as of (aa) December 31, 1997 (as set forth in Resort's Form 10-K or
audited financial statements for the period ending December 31, 1997) or
(bb) the date Resort files its certificate of liquidation, whichever is
earlier, or (ii) $1,000,000.00. The timing of the funding of the Resort
Payment into the Class Escrow Account is detailed in Section VII, below.
52. "Resort Stock" or "Resort Shares" means all stock of any
nature issued by Resort.
53. "Settlement" means the full and final compromise
settlement of the Litigation and the Released Claims, in accordance with
the terms and conditions of this Stipulation.
54. "Settlement Fund" shall mean the aggregation of the Class
Action Fund and the Derivative Fund.
55. "Summary Notice" means the Summary Notice Of Class Action
And Derivative Action Settlements And Hearings Thereon for publication in
the form attached as Exhibit C hereto.
56. "Unknown Claims" means any claims that any of the
Plaintiffs, Class Members, Current Resort Shareholders or Released Parties
(collectively referred to as "Releasing Parties") does not know or suspect
to exist in his, her or its favor at the time of the release of the
Released Parties that if known by him, her or it, might have affected his,
her or its settlement with and release of the Released Parties, or might
have affected his, her or its decision not to object to this Settlement.
With respect to any and all claims, the parties stipulate and agree that
upon the Effective Date, the Releasing Parties shall be deemed to have, and
by operation of the judgment shall have, specifically waived and
relinquished to the fullest extent permitted by law, the provisions, rights
and benefits of Section 1542 of the California Civil Code, and/or any
similar provision of law, which provides:
A general release does not extend to claims which
the creditor does not know or suspect to exist in its favor at the time of
executing the release, which if known by him must have materially affected
his settlement with the debtor.
<PAGE>
VII. FUNDING OF THE RESORT PAYMENT
A. The Resort Payment will be paid by Resort into the Class
Escrow in the following manner: (1) Within one business day after
receiving notice of the Court's entering an order preliminarily approving
the Settlement in the form annexed hereto as Exhibit A, Resort will deposit
$250,000 into the Class Escrow; (2) No later than four business days prior
to the hearing scheduled by the Court to determine whether to finally
approve the Class Action Settlement, Resort will deposit an additional
$250,000 into the Class Escrow; (3) Upon the sale or liquidation of any
Resort asset after the Stipulation is executed, Resort will pay 44% of the
proceeds from the liquidation or sale into the Class Escrow within three
business days after the proceeds are received. The payments described in
subparagraph (1) and (2) of this paragraph are to be made from Resort's
existing cash or cash equivalent reserves. In no event will payments into
the Class Escrow under subparagraph (3) of this paragraph exceed $500,000.
All payments into the Class Escrow shall accrue interest of, at least, 5%
annually from the date of deposit.
B. Resort is currently incurring certain expenses in connection
with the liquidation of its assets and winding up of its affairs (the
"Liquidation Costs"). These costs include, but are not limited to: legal
fees (including corporate, governmental compliance, litigation, and asset
disposition work), Directors and Officers insurance premiums, accounting
and audit services, consulting services, administrative costs (including
salary and director's fees, shareholder administration, transfer agent
costs, telephone, postage, etc.), costs associated with the adoption by
Resort's board of directors and approval by its shareholders of a plan of
liquidation and dissolution, dissolution and liquidation costs incurred in
compliance with Delaware law, costs associated with the disposition of
Resort's remaining non-cash assets prior to liquidation, expenses incurred
in a diligent, good-faith effort to ascertain all of Resort's liabilities,
including publication of its dissolution and other requirements, including
the resolution of any claims filed pursuant to Delaware law, compensation
of a liquidating agent for maintenance of all non-cash assets and cash
assets and liabilities during the three-year dissolution period provided by
Delaware law, and the reserves sufficient to pay the cost of the above
matters. Resort agrees to endeavor in good faith to minimize the
Liquidation Costs and to provide Class and Derivative Counsel, on a
quarterly basis, with a report of the Liquidation Costs incurred and the
status of its liquidation.
VIII. CERTIFICATION OF CLASS
A. Subject to approval by the Court, the Class Action Parties
hereto agree that a class consisting of all Persons who purchased or
otherwise acquired Resort Stock during the period from March 31, 1993
through June 29, 1995 inclusive, excluding (i) the Class Action Defendants,
(ii) any entity in which any Class Action Defendant has a controlling
interest, (iii) the partners, corporate officers and directors of any of
the Class Action Defendants, and (iv) the legal representatives, heirs,
successors or assigns of any such excluded party, shall be certified,
pursuant to Rule 23 of the Federal Rules of Civil Procedure, and, as set
forth in the Preliminary Order, solely for the purposes of the settlement
of the Released Claims.
<PAGE>
B. Any class certification pursuant to this Stipulation
(including, without limitation, as set forth in the Preliminary Order and
in the Order and Final Judgment) shall not constitute, in this or any other
proceeding, an admission by any Class Action Defendant or evidence that any
requirement for class certification is satisfied in this or any other
action, except for the limited purposes related to this Stipulation. The
certification of any class pursuant to this Stipulation shall be
automatically rescinded if the Settlement is terminated for any reason, is
disapproved in whole or in part by the Court or any appellate court, or if
the Effective Date does not occur, in which event neither this Stipulation
nor the fact that it was entered into shall be offered, received or
construed as an admission or evidence for any purpose, including, but not
limited to the certification of any class.
IX. SETTLEMENT PROCEEDINGS AND RELEASES
A. Promptly after execution of this Stipulation, the Parties shall
jointly apply to the Court for entry of the Preliminary Order.
B. The Class Action Parties agree that only Class Members who
submit valid and timely Proof of Claim Forms in accordance with the
instructions contained therein shall be entitled to receive any
distribution from the Net Class Action Fund.
C. The Parties agree to jointly request a Hearing before the Court
to determine, among other things: (i) whether the Settlement should be
approved as fair, reasonable and adequate; (ii) whether the Order and Final
Judgment approving the Settlement should be entered dismissing the
Litigation on the merits and with prejudice; and (iii) whether the
applications of Plaintiffs' Counsel for awards of Attorneys' Fees and
Expenses are reasonable and should be approved.
D. On the Effective Date, each and all of the Plaintiffs, Class
Members and Current Resort Shareholders, on behalf of themselves and each
of their predecessors, successors, parents, subsidiaries, affiliates,
custodians, agents, assigns, representatives, heirs, executors, trustees,
administrators and any other Person or entity having any legal or
beneficial interest in Resort Stock, shall be deemed to have fully,
finally, unconditionally and forever released, settled and discharged all
the Released Parties from and with respect to the Released Claims, whether
or not such Plaintiff or Class Member executes and delivers a Proof of
Claim.
E. On the Effective Date, each and all of the Plaintiffs, Class
Members and Current Resort Shareholders, and each of their predecessors,
successors, parents, subsidiaries, affiliates, custodians, agents, assigns,
representatives, heirs, executors, trustees, administrators and any other
person or entity having any legal or beneficial interest in Resort Stock
acquired by any member of the Class or Current Resort Shareholder, covenant
not to sue and will be forever barred and enjoined from commencing,
instituting or prosecuting any of the Released Claims or any action or
other proceeding against any of the Released Parties with respect to, based
on, arising from, or for the Released Claims.
F. On the Effective Date and save as expressly excepted below,
Class Members, Resort and Defendants shall be deemed unconditionally and
forever to have released and discharged the Plaintiffs and Plaintiffs'
Counsel from all claims, liabilities, and causes of action in connection
with or which are based on or arising out of Plaintiffs' or Plaintiffs'
Counsel's institution, prosecution, assertion, or resolution of the
Litigation or the Released Claims.
<PAGE>
G. On the Effective Date and save as expressly excepted below, the
Released Parties shall be deemed to have released each other from and with
respect to the Released Claims and to be forever barred and enjoined from
commencing, instituting or prosecuting any of the Released Claims or any
action or other proceeding against any of the other Released Parties with
respect to, based on, arising from or for the Released Claims.
H. Mr. Christopher B. Hemmeter has filed for bankruptcy protection
under Chapter 7 of the United States Bankruptcy Code. As a result, neither
he nor his estate shall be deemed to have delivered the releases referenced
in paragraphs (F) and (G) above, and neither he nor his estate shall be
enjoined as referenced in paragraph (G), above. Similarly, neither he nor
his estate shall be included in the releases given in paragraph (G) and
claims by the Released Parties against him and his estate (including but
not limited to claims relating to Released Claims, which in turn include
but are not limited to claims by Resort with regard to Mr. Hemmeter's
obligations to it as creditor, guarantor and/or debtor) shall not be barred
or enjoined.
I. Only Class Members shall have the right to object to the
settlement of the Class Action or to the Class Fee and Expense Award.
J. Only Current Resort Shareholders shall have the right to object
to the settlement of the Derivative Action or to the Derivative Fee and
Expense Award.
K. Pending final determination of whether the Settlement should be
approved, and subject to the Court's approval, all discovery and all
proceedings in the Litigation are stayed, except for proceedings relating
to the Settlement.
L. Pending final determination of whether the Settlement should be
approved, neither the Plaintiffs, the Class or the Current Resort
Shareholders nor any Released Party shall commence, maintain, or prosecute
against any Released Party, any action or proceeding in any court or
tribunal, asserting any of the Released Claims.
M. This Stipulation shall be effective when signed by counsel for
all the Parties. The Settlement shall be effective only on the condition
that the Effective Date occurs.
X. NOTICE AND CLAIMS ADMINISTRATION
A. Plaintiffs' Counsel agree to mail or cause to be mailed the
Notice and Proof of Claim to all Class Members and Current Resort
Shareholders who can be identified through reasonable effort. Within five
business days after the signing of this Stipulation, Resort shall
(a) provide to Derivative Counsel all information obtainable by reasonable
efforts, including, without limitation, information held by Resort's
present or former Transfer Agent, identifying by name and address the
persons and entities including banks, brokerage firms, institutions, and
other nominees who are or were shareholders of Resort stock as of the date
of this Stipulation, and (b) provide to Class Counsel, to the extent it has
not already done so, all information obtainable by reasonable efforts,
including, without limitation, information held by Resort's present or
former Transfer Agent, identifying by name and address the persons and
entities including banks, brokerage firms, institutions and other nominees
who purchased shares of Resort Stock during the Class Period.
<PAGE>
B. Plaintiffs' Counsel agree to publish or cause to be published
the Summary Notice, in the form of Exhibit C, once in the national edition
of THE WALL STREET JOURNAL. Plaintiffs' Counsel agree to mail or cause to
be mailed copies of the Notice and/or Proof of Claim to all Persons who
request a copy of the Notice and/or Proof of Claim as provided for in the
Summary Notice.
C. In the event that the Stipulation is not approved, or such
approval is reversed or substantially modified on appeal or the Effective
Date does not occur: (1) the Settlement will terminate and the Parties will
return to their respective positions as of May 30, 1997; (2) the monies in
the Escrow Accounts, including interest, will be returned to the respective
depositors; (3) Resort and D&T will, within five business days after
receiving written notice from Plaintiffs' Counsel, reimburse Plaintiffs'
Counsel for the Notice Expenses; and (4) the Notice Expenses will be
allocated 50% to D&T and 50% to Resort, with a cap on D&T's contribution of
$15,000. Any Notice Expenses in excess of $30,000, in the aggregate, will
be borne solely by Resort. Plaintiffs' Counsel agree to endeavor in good
faith to minimize the Notice Expenses.
D. Subject to Court approval, Class Action Counsel shall use the
firm of FRG Information Systems Corp. as Claims Administrator to process
Proofs of Claim and to administer payments to Class Members.
XI. REQUEST FOR EXCLUSION
A. Any putative member of the Class wishing to be excluded from
the Class must comply with the requirements set forth in the Notice or as
otherwise ordered by the Court as to the form, substance and manner in
order for that request for exclusion to be effective ("Request for
Exclusion").
B. Resort and D&T shall each have the option to terminate the
settlement if Persons purchasing or otherwise acquiring the number of
Resort Stock specified in opt-out contingency letters (the "opt-out
contingency letters") executed by Resort and Class Counsel and, separately,
by D&T and Class Counsel, shall have validly and timely requested to be
excluded from the Class and do not revoke such request. These opt-out
contingency letters shall be deemed incorporated in the Stipulation but
shall be maintained as confidential by the parties to the opt-out
contingency letters and their attorneys and shall be filed under seal with
the Court at such time as the Court may direct. (If the Court should not
permit filing of the opt-out contingency letters under seal, then they
shall not be filed but rather will be maintained, in confidence, by counsel
for the parties to the opt-out contingency letter.)
C. If either D&T or Resort exercises its option to terminate,
Class Action Plaintiffs shall have the option either to (i) continue the
settlement with the remaining defendants or (ii) to terminate the
Settlement as to remaining defendants ("plaintiffs' option to terminate").
Resort and D&T's options to terminate shall expire and be of no further
effect if not exercised, in writing, so that it is received by Class
Counsel within ten business days after the deadline set for receipt of
Requests for Exclusion. Plaintiffs' option to terminate must be exercised
within three business days after receipt of notice from either D&T or
Resort of the exercise of their options to terminate the settlement. If
either Resort or D&T shall timely and properly exercise their respective
options to terminate the settlement, except as provided for in Section X
regarding Notice Expenses, that party and the Class Plaintiffs will return
to their respective positions as of May 30, 1997.
D. Any Class Member who does not properly and timely submit a
Request for Exclusion shall be included in the Class and shall be bound by
all of the terms of this Stipulation and the Settlement and by all
proceedings, orders and judgments in the Class Action.
<PAGE>
XII. OBJECTION TO CLASS ACTION SETTLEMENT
Any member of the Class who has not filed a Request for Exclusion and
who wishes to challenge the fairness, reasonableness or adequacy of the
Class Action Settlement, must comply with the requirements set forth in
the Notice or as otherwise ordered by the Court, as to the form, substance
and manner of any challenge or objection to the Class Action Settlement. A
Person who files a Request for Exclusion may not object to the Settlement.
By filing objections, a Class Member submits to the jurisdiction of the
Court, and the decisions and the Order and Final Judgment of the Court
shall be binding.
XIII. OBJECTION TO DERIVATIVE ACTION SETTLEMENT
Any Current Resort Shareholder who wishes to challenge the fairness,
reasonableness or adequacy of the Derivative Action Settlement, must comply
with the requirements set forth in the Notice or as otherwise ordered by
the Court, as to the form, substance and manner of any challenge or
objection to the Derivative Action Settlement. By filing objections, an
objecting shareholder submits to the jurisdiction of the Court, and the
decisions and Order and Final Judgment of the Court shall be binding.
XIV. EFFECT OF DISAPPROVAL, CANCELLATION OR TERMINATION
A. If the Court, or in the event of an appeal, any appellate
court, refuses to approve or materially modifies this Stipulation or the
Settlement (excluding any Orders or provisions dealing solely with
Plaintiffs' Counsel's fees or expenses), Plaintiffs or any of Defendants,
by and through their counsel, at their respective options, may terminate
the Stipulation and the Settlement by giving written notice of termination
within ten business days following the date of receipt by the terminating
party of the order disapproving or materially modifying the Stipulation or
Settlement.
B. In the event this Stipulation is terminated according to its
terms, (a) all negotiations, proceedings, documents prepared and statements
made in connection herewith shall be without prejudice to the Parties,
shall not be deemed or construed to be an admission by any Party of any
act, matter or proposition and shall not be used in any manner or for any
purpose in any subsequent proceeding in the Litigation or in any other
action or proceeding; and (b) other than as expressly provided by this
Stipulation (including the payment regarding Notice Expenses) in the event
of its termination, this Stipulation shall have no further force and effect
with respect to any Party and shall not be used in the Litigation or any
other proceeding for any purpose.
XV. TRANSFER OF SETTLEMENT FUND
A. Within three business days after the Effective Date, the funds
comprising the Class Action Fund will be sent by wire transfer from the
Escrow Accounts to an account jointly controlled by Class Counsel, or such
Person as they jointly designate, on behalf of the Class ("Class Action
Fund Account"). Specifically, within three business days after the
Effective Date (a) Jonathan M. Plasse, Esq. and Allan T. Slagel, Esq. , on
behalf of their respective clients, shall direct LaSalle to transfer the
Class Escrow plus all amounts of the Resort Payment paid into the Class
Escrow, and all accrued interest, to the Class Action Fund Account;
(b) Jeffrey Smith, Esq. and Allan T. Slagel, Esq., on behalf of their
respective clients shall direct LaSalle to transfer that portion of the
Derivative Fund constituting the Additional Resort Payment plus all
accrued interest to the Class Action Fund Account; (c) D&T shall direct the
GD&C client trust account to transfer the D&T Escrow plus all accrued
interest to the Class Action Fund Account.
<PAGE>
B. Subject to the provisions of Section XIX(B)(1), within three
business days after the approval of the Derivative Fee and Expense Award
those monies shall be transferred to an account controlled by Derivative
Counsel or such Person as they jointly designate.
C. The Parties shall take all steps reasonably necessary to ensure
that the transfer of funds from the Escrow Accounts to the accounts jointly
controlled, respectively, by Class Counsel and Derivative Counsel, as
specified in Section XV(A) and (B), is timely accomplished.
D. Within five business days after both: (a) the filing of
Resort's Form 10-K for the period ending December 31, 1997, or Resort's
receipt of its audited financials statements for the period ended December
31, 1997, and (b) the occurrence of the Effective Date, the portion of the
Resort Payment that has not been paid into the Class Escrow shall be paid
by Resort directly into the Class Action Fund Account. Resort shall use
its best efforts to file its Form 10-K for the period ending December 31,
1997, or obtain its audited financial statements for the period ended
December 31, 1997, by April 15, 1998.
XVI. THE PRELIMINARY ORDER
Promptly after execution of this Stipulation, the Parties shall move
the Court for entry of the Preliminary Order, substantially in the form of
Exhibit A hereto, providing, among other things, for preliminary approval
of the Settlement and directing that notice be sent to the Class Members
and Current Resort Stockholders.
XVII. JUDGMENT TO BE ENTERED BY THE COURT APPROVING THE SETTLEMENT
Upon approval by the Court of the Settlement contemplated by this
Stipulation, the Parties shall seek entry of a Final Judgment and Order by
the Court, substantially in the form of Exhibit E attached hereto. Said
Judgment and Order will be entered in that form only if the settlements of
the Derivative Actions and the Class Action are approved by the Court and
the Parties do not otherwise exercise their rights, as defined in this
Stipulation and Exhibits, to terminate those settlements.
XVIII. CONDITIONS OF SETTLEMENT
A. This Stipulation shall be subject to the following conditions
and shall be canceled and terminated unless:
(1) The Class Action Fund and the Derivative Fund shall
have been fully funded as described in Section VII above;
(2) The Court shall enter the Preliminary Order, as
required by Section XVI above;
(3) The Court shall enter the Order and Final Judgment,
as required by Section XVII above;
(4) The Effective Date as set forth in Paragraph 30 of
Section V hereof shall have occurred.
(5) Neither Resort nor D&T nor Class Counsel shall have
exercised their options to terminate the Settlement.
B. Upon the occurrence of all of the foregoing events, any
obligation of the Escrow Agents to return funds to Defendants or the
Insurer shall be absolutely and forever extinguished.
<PAGE>
XIX.ADMINISTRATION AND CALCULATION OF CLAIMS, FINAL AWARDS
AND DISTRIBUTION OF DERIVATIVE FUND AND CLASS ACTION FUND
A. Class Counsel, or the Claims Administrator jointly designated
by them, acting on behalf of the Class, and subject to the supervision,
direction and approval of the Court, shall administer and calculate the
Proofs of Claim submitted by Class Members and shall oversee distribution
of that portion or the Class Settlement Fund that is finally awarded by the
Court to the Class.
B. On and after the Effective Date, the Derivative and Class
Action Funds shall be applied as follows:
(1) Subject to the approval and further order(s) of the
Court, (a) to pay, from the Derivative Fund, Derivative Counsel the
Derivative Fee and Expense Award, if and to the extent allowed by the
Court, and (b) to pay, from the Class Action Fund Account, Class Action
Counsel the Class Fee and Expense Award, if and to the extent allowed by
the Court. The Derivative Fee and Expense Award and the Class Fee and
Expense Award shall be paid, respectively, to Derivative Counsel and to
Class Counsel within three (3) business days after the later of either the
Court's entry of an order awarding such fees and expenses, or the Effective
Date. In the event that the Order making the Derivative Fee and Expense
Award and/or the Class Fee and Expense Award is reversed or modified on
appeal, and in the event that the Derivative Fee and Expense Award and/or
the Class Fee and Expense Award has been paid to any extent, then Class
Counsel (with respect to any reversal or modification of the Class Fee and
Expense Award) or Derivative Counsel (with respect to any reversal or
modification of the Derivative Fee and Expense Award) shall promptly refund
the relevant fees and expenses plus any interest actually paid consistent
with the reversal or modification. Any order or proceeding relating to the
Class Fee and Expense Award or Derivative Fee and Expense Award shall not
operate to terminate or cancel the Stipulation or to affect its finality;
and
(2) to pay, or reimburse Plaintiffs' Counsel for paying, all
fees, costs and expenses incurred in connection with providing Notice to
Class Members and Current Resort Shareholders as provided for in Section
X, locating Class Members, soliciting Class claims, assisting with the
filing of Proofs of Claim, administering and distributing the Class Action
Fund to the Class, processing Proofs of Claim, processing Requests for
Exclusion, escrow fees and other related costs.
(3) Subject to the approval and further order(s) of the
Court, the balance of the Class Action Fund after payment of the fees,
costs, expenses and accrued interest provided for in subparagraphs B(l) and
(2) above (the "Net Class Action Fund"), shall be distributed to Authorized
Claimants in accordance with the Plan of Distribution.
C. (1) To be an Authorized Claimant, each Class Member shall be
required to submit (i) a separate Proof of Claim that is properly completed
and valid and (ii) the documents and information specified in the Proof of
Claim, so that these submissions are received by the Claims Administrator
within ninety (90) days after the Notice Date.
<PAGE>
(2) Unless otherwise ordered by this Court, any Class Member
who fails to submit timely a properly completed and valid Proof of Claim
shall be forever barred from receiving any payments pursuant to this
Stipulation or from the Net Class Action Fund, but will in all other
respects be subject to the provisions of this Stipulation and the Final
Judgment and Order, including, without limitation, the covenant not to sue
and the release of the Released Parties from the Released Claims and the
dismissal of the Litigation with prejudice.
D. The Net Class Action Fund shall be allocated among Authorized
Claimants in the following manner (the "Plan of Distribution") or as
otherwise ordered by the Court:
(1) To the extent there are sufficient funds in the Net Class
Action Fund, each Authorized Claimant will receive an amount equal to the
Authorized Claimant's total Recognized Loss. If, however, the amount in
the Net Class Action Fund is not sufficient to permit payment of the total
Recognized Loss of each Authorized Claimant, the amount paid to each
Authorized Claimant shall be the percentage that each Authorized Claimant's
Recognized Loss bears to the total of the Recognized Losses of all
Authorized Claimants. If the Net Class Action Fund is in excess of the
total Recognized Losses of all Authorized Claimants, that excess shall be
distributed to Authorized Claimants pro rata based upon the amount their
Recognized Losses bear to the total Recognized Losses of all Authorized
Claimants. In no event shall any portion of the Class Action Fund revert
to Defendants if the Effective Date occurs.
(2) Each Authorized Claimant shall be entitled to receive a
share of the Net Class Action Fund, computed by multiplying the Net Class
Action Fund by a fraction, the numerator of which is the claimant's
Recognized Loss and the denominator of which is the total amount of the
Recognized Loss of the entire Class determined by adding together the
recognized Losses of all Authorized Claimants.
(3) The "Recognized Loss" of each Authorized Claimant shall
be the sum of all Holding Losses and Trading Losses.
(a) The "Holding Loss" of each Authorized Claimant
shall be:
(i) with respect to Class Members who purchased
from March 31, 1993 through March 31, 1994 inclusive ("Class A" and the
"Class A Period"), $4.00 per share, for each share purchased during the
Class A Period and held until the end of the Class Period;
(ii) with respect to Class Members who purchased
from April 1, 1994 through April 16, 1995 inclusive ("Class B" and the
"Class B Period"), $5.00 per share, for each share purchased during the
Class B Period and held until the end of the Class Period;
(iii) with respect to Class Members who purchased
from April 17, 1995 through June 14, 1995 inclusive ("Class C" and the
"Class C Period"), $6.00 per share, for each share purchased during the
Class C Period and held until the end of the Class Period;
(iv) with respect to Class Members who purchased
from June 15, 1995 through June 23, 1995 inclusive ("Class D" and the
"Class D Period"), $3.00 per share, for each share purchased during the
Class D Period and held until the end of the Class Period; and
<PAGE>
(v) with respect to Class Members who purchased
after June 23, 1995 ("Class E" and the "Class E Period"), the purchase
price minus $3.56, for each share purchased during the Class E Period and
held until the end of the Class Period.
(b) The "Trading Loss" of each Authorized Claimant
shall be:
(i) with respect to Class Members who purchased
during the Class Periods A-C, and sold during the Class D Period, the
difference between the Holding Loss for the period of purchase and $3.00
per share; and
(ii) with respect to Class Members who purchased
during the Class Periods A-D, and sold in Class Period E, the difference
between the Holding Loss for the period of purchase and a number which is
equal to the difference between (i) $3.00 and (ii) $6.56 minus the higher
of $3.56 or the sale price.
(c) In determining Holding Loss and Trading Loss,
brokers' commissions and all other transaction costs shall be excluded from
the calculation, and multiple purchases and sales will be treated on a
"first-in," "first-out" basis.
(4) No payment shall be made to an Authorized Claimant whose
share of the Net Class Action Fund is computed to be less than $5.00. The
portion of the Net Class Action Fund representing such de minimis claims
shall be included in the distributions to Authorized Claimants whose share
of the Net Class Action is computed to equal or exceed $5.00.
(5) Payment in the manner set forth above or otherwise
Ordered by the Court shall be deemed conclusive of compliance with the
Stipulation against all Authorized Claimants. All Class Members who fail
to file, complete valid and timely Proofs of Claim shall be barred from
participating in distributions from the Class Action Fund (unless otherwise
ordered by the Court), but otherwise shall be bound by all of the terms of
this Stipulation, including the terms of the Order and Final Judgment
entered and the releases given.
(6) Neither the Defendants nor Defendants' Counsel shall have
any responsibility for or any obligations or liabilities of any kind
whatsoever in connection with the determination, administration,
processing, calculation or payment of claims to Class Members.
(7) The definition of Recognized Loss may be considered by
the Court separately from the Court's consideration of the fairness,
reasonableness and adequacy of the Settlement, and any order or proceeding
relating to the method of calculating the Recognized Loss, or any appeal
from any order relating thereto or reversal or modification thereof, shall
not operate to terminate or cancel the Stipulation, or affect or delay the
entry of the Order and Final Judgment. The method of calculating the
Recognized Loss was determined by Class Counsel; the Class Action
Defendants take no position with respect to the definition of Recognized
Loss, the manner of calculating it or its effect on or fairness to any
Authorized Claimant.
(8) In connection herewith, the Defendants shall have no
involvement in the solicitation of Proofs of Claim, or any involvement in
the administration process itself, which will be conducted by Class Counsel
and/or the Claims Administrator in accordance with this Stipulation and the
orders entered by the Court.
<PAGE>
(9) No Authorized Claimant shall have any claim against Class
Counsel or the Claims Administrator if the distribution of the Class Action
Fund is made substantially in accordance with this Settlement or Orders of
the Court.
(10) No Authorized Claimant shall have any claim against
Defendants or Defendants' Counsel based upon the administration,
processing, determination, calculation or payment of claims to Class
Members.
E. All funds held in the Escrow Accounts shall be deemed to be in
CUTODIA LEGIS of the Court as of the date of deposit and shall remain
subject to the jurisdiction of the Court until such time as the funds shall
be distributed or returned to Defendants or Insurer pursuant to this
Stipulation and/or further order of the Court. The Escrow Agents shall
invest all funds pursuant to the terms and conditions of the respective
escrow agreements, the written agreement of the Parties or the orders of
the Court.
F. The Parties agree that the Settlement Fund is intended to be a
qualified Settlement Fund within the meaning of treasury regulation section
1.468B-1 and that FRG Information Systems Corp., as administrator of the
Settlement Fund within the meaning of treasury regulation sections
1.46B-2K3, shall be responsible for filing tax returns for the Settlement
Fund and paying from the Settlement Fund all (i) taxes including any
interest or penalty arising with respect to the income earned by the
Settlement Fund ("Taxes") and (ii) expenses and costs incurred in
connection with the satisfaction of the Settlement Fund's tax obligations,
including any expenses of tax attorneys and accountants and mailing and
distribution of costs and expenses relating to filing or failure to file
returns ("Tax Expenses").
G. All Taxes and Tax Expenses shall be paid out of the Settlement
Fund and in all events Defendants shall have no liability or responsibility
for payment of Taxes or Tax Expenses. Further, Taxes and Tax Expenses
shall be treated as, and considered to be, a cost of administration of the
Settlement and shall be timely paid by the Claims Administrator out of the
Settlement Fund without prior order from the Court. The Parties agree to
cooperate with each other and their tax attorneys and accountants to the
extent reasonably necessary to carry out the provisions of this
Stipulation. Defendants' Counsel agree to provide promptly to the Claims
Administrator the statement described in Treasury
Regulation Section 1.468B-3(e). In the event that for any reason the
income of the Settlement Fund is determined to be reportable by any of the
Defendants, then the Claims Administrator shall reimburse such Defendant(s)
for the incremental tax liability they incur by reason of such income.
XX. ATTORNEYS' FEES AND EXPENSES
A. Derivative Counsel will apply to the Court for an award from
the Derivative Fund of attorneys' fees and expenses not to exceed 30% of
the Derivative Fund. Derivative Defendants take no position on such
application, which shall be subject to approval of the Court. The
Derivative Fee and Expense Award shall be paid from the Derivative Fund in
the manner described in Section XIX, above.
<PAGE>
B. Class Counsel will apply to the Court for an award from the
Class Action Fund of attorneys' fees not to exceed 30% of the amount of the
Class Action Fund, excluding the amount of the Additional Resort Payment,
plus reimbursement of costs and expenses. Class Action Defendants will
take no position as to this application, which shall be subject to approval
of the Court. The Class Fee and Expense Award shall be paid from the Class
Action Fund in the manner described in Section XIX, above.
C. The procedure for and the allowance or disallowance by the
Court of any applications by any of the Plaintiffs' Counsel for attorneys'
fees, costs and expenses are not a condition of the Settlement. Any order
or proceeding relating to the application of Plaintiffs' Counsel for
attorneys' fees or expenses, and any appeal from such order, or from any
provision of the Order and Final Judgment relating only to attorneys' fees
or expenses, shall not operate to terminate or cancel the Stipulation, or
affect or delay the finality of the Order and Final Judgment.
XXI.ORDER REGARDING ADMINISTRATION EXPENSES AND
DISTRIBUTION OF CLASS ACTION FUND
Class Counsel shall apply to the Court, on notice to counsel for
the Class Action Defendants, for a Class distribution order approving the
administrative determination concerning the acceptance and rejection of the
claims filed herein, and approving the fees and expenses incurred in
administering the Class Action Fund and, if the Effective Date has
occurred, directing payment of the Net Class Action Fund to Authorized
Claimants.
XXII. STIPULATION IS NOT AN ADMISSION
Defendants are entering into this Stipulation solely in order to
avoid further expense, inconvenience, risk and delay and to permit the
continued operation of their affairs unhindered by expensive litigation and
by distraction and diversion of themselves and their executive personnel,
and thereby to put to rest all controversy with respect to the Released
Claims. This Stipulation and each of its provisions, and the Settlement
provided for herein, whether or not consummated, and any negotiations,
proceedings or agreements relating to the Stipulation and the Settlement,
or any matter arising in connection with such negotiations, proceedings or
agreements are not and shall not in any event (including in the event this
Stipulation is terminated) be:
1. described as, construed as, offered in evidence as,
received in evidence as, and/or deemed to be evidence of a presumption,
concession or an admission by any Defendant of the truth of any fact
alleged or the validity of any claim that has been, or could have been,
asserted in the Litigation, or of the deficiency of any defense that has
been, could have been, or in the future might be asserted in any
litigation, or of any liability, fault, wrongdoing or otherwise of any
Defendant;
2. described as, construed as, offered in evidence as,
received in evidence as, and/or deemed to be evidence of a presumption,
concession or an admission of any fault, breach of duty, wrongful act or
misrepresentation or omission in any statement or written document approved
or made by Defendants or the approval or making of which was participated
in by Defendants;
<PAGE>
3. described as, construed as, offered in evidence as,
received in evidence as, and/or deemed to be evidence of a presumption,
concession or an admission of any liability, fault or wrongdoing by any of
the parties in the Litigation or in any other civil, criminal or
administrative action or proceeding;
4. described as, construed by anyone for any purpose
whatsoever as evidence of a presumption, concession or an admission of any
liability, fault or wrongdoing on the part of the Defendants;
5. described as, construed as, offered in evidence as,
received in evidence as, and/or deemed to be evidence of a presumption,
concession or an admission that Plaintiffs or any Person have in fact
suffered any damage, or that Defendants are liable to Plaintiffs or any
Person; or
6. described as, construed as an admission or concession by
anyone that the consideration to be given hereunder represents the amount
of any judgment that would be or would have been awarded to Plaintiffs,
Class Members, Resort Class Action or any Person after trial.
XXIII. THE DELOITTE PROVISIONS
A. The settlement with D&T shall be binding on D&T and the Class
Action Plaintiffs regardless of the performance by the other Class Action
Defendants of their obligations hereunder, and the obligations of D&T to
the Class Action Plaintiffs and the obligations of Class Action Plaintiffs
to D&T are not dependent on the performance hereunder of the other Class
Action Defendants.
B. In the event, for any reason, the Settlement with one or more
of the other Class Action Defendants shall not be completed then the
settlement with D&T shall proceed, subject to the other provisions of this
Stipulation. In that event, the Stipulation will conform to the
requirements of TBG INC. V. BENDIS, 36 F.3d 916 (10th Cir. 1994), and the
Parties will present to the Court a proposed order for a bar of all
contribution claims against D&T, dismissal of D&T as a party pursuant to
the Stipulation, a proportionate allocation of fault at the trial of the
claims against the remaining Class Action Defendants, and such other
provisions as are necessary to assure that no further claims will be
brought by Plaintiffs, the Class, the remaining Class Action Defendants or
any other Party to the action against D&T relating to Resort, including but
not limited to Resort Stock.
C. The obligations of D&T to the Class Action Plaintiffs and the
obligations of the Class Action Plaintiffs to D&T under the settlement with
D&T are not dependent on (i) the approval of the settlement of the
Derivative Actions or (ii) the performance by the parties to that
settlement of the obligations thereunder.
<PAGE>
XXIV. THE DERIVATIVE PROVISIONS
Derivative Action Plaintiffs and Derivative Action Defendants agree
that, should the settlement of the Class Action not become effective for
any reason, including disapproval by the Court or exercise by D&T or Resort
of their respective rights to terminate the Class Action settlement, the
settlement of the Derivative Actions as contemplated by the provisions of
this Stipulation that relate solely to the Derivative Action, if approved
by the Court, will proceed with the monies in the Derivative Escrow being
paid to Resort, less the fees and expenses of Derivative Counsel approved
by the Court upon such occurrence. Derivative Counsel and counsel for the
Derivative Action Defendants will use their best efforts to prepare an
appropriate agreed Final Order for submission to the Court consistent with
the terms and conditions of this Stipulation relating solely to the
Derivative Action Settlement. Upon approval of the Settlement by the Court
in Colorado, the parties to the Derivative Action will dismiss the Delaware
Derivative Action with prejudice based upon the dismissal in the Colorado
Derivative Action.
XXV. THE MISCELLANEOUS PROVISIONS
A. The Parties: (i) acknowledge they intend to consummate the
Settlement contemplated by this Stipulation; (ii) agree to cooperate to the
extent necessary to effectuate and implement all terms and conditions of
this Stipulation; and (iii) exercise their best efforts to accomplish the
foregoing terms and conditions of the Stipulation.
B. All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.
C. This Stipulation and its exhibits, and the opt-out contingency
letters constitute the entire agreement among the parties hereto concerning
the Settlement of the Litigation and shall be deemed to supersede the
Memorandum of Understanding relating to the Class Action and the Letter
Agreement regarding settlement of the Derivative Action. No
representations, warranties, or inducements have been made by any Party
concerning this Stipulation and its exhibits and the opt-out contingency
letters other than those contained and memorialized herein. The
Stipulation may be amended or modified only by a written instrument signed
by the Parties. The opt-out contingency letters may be amended or modified
only by a written instrument signed by the parties to the respective
letter.
D. The waiver by a Party of any breach of the Stipulation by
another Party shall not be deemed a waiver of any other prior,
contemporaneous or subsequent breach of the Stipulation.
E. All agreements concerning the confidentiality of information
and/or documents exchanged, provided or otherwise disclosed in the
Litigation shall survive the execution of this Stipulation.
F. Counsel for Plaintiffs and Defendants represent that they are
authorized to sign this Stipulation on behalf of their respective clients.
G. The Stipulation may be executed in one or more original,
photocopied or telecopied counterparts. All executed counterparts and each
of them shall be deemed to be one and the same instrument.
<PAGE>
H. The Stipulation shall be binding upon, and inure to the benefit
of the Parties hereto and their respective heirs, executors,
administrators, predecessors, successors, trustees and assigns, and upon
any corporation, partnership or other entity into which any party hereto
may merge or consolidate.
I. All terms of the Stipulation, and the exhibits hereto, shall be
governed by and interpreted in accordance with the laws of the State of
Colorado without regard to its conflicts of laws, except to the extent
federal law requires federal law to govern.
J. Except as otherwise provided herein, in the event any one or
more of the provisions contained in this Stipulation shall for any reason
be held to be invalid, illegal, or unenforceable in any respect, this
Stipulation shall not be binding on a Party without the consent of such
Party to the change resulting from such finding or holding.
K. The captions contained in the Stipulation are not part of the
Stipulation and will not be relied upon in construing the Stipulation or in
determining its validity.
L. The Court shall retain continuing and exclusive jurisdiction
over the Parties and over the matters set forth in the Stipulation,
including the administration and enforcement of the Settlement. Any
disputes or controversies arising with respect to the interpretation,
enforcement, or implementation of the Stipulation or Settlement must be
raised by motion to the Court.
M. The Parties reserve the right, upon agreement of all of them
and subject to the Court's approval, to permit reasonable extensions of
time that may be necessary to carry out any of the provisions of the
Stipulation.
N. The Stipulation, including exhibits attached hereto, was
executed after arms-length negotiations among Parties and reflects the
conclusion of counsel for all of the Parties that the Settlement
contemplated here is fair, equitable and in the best interest of their
respective clients.
O. This Stipulation, including exhibits annexed hereto, shall not
be construed more strictly against one party than another merely by the
fact that it may have been prepared by counsel for one of the Parties, it
being recognized that it is the result of arm's length negotiations and all
counsel for all the Parties hereto have contributed substantially and
materially to its preparation.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Stipulation to
be executed by their duly authorized attorneys, as of the day and year
first above written.
Dated:
Respectfully submitted,
BADER, VILLANUEVA & FEDER, P.C.
By:
------------------------------
Gerald L. Bader
Jeffrey M. Villanueva
1660 Wynkoop Street, Suite 1000
Denver, Colorado 80202
(303) 534-1700
Liaison Counsel for Plaintiffs and the
Class
GOODKIND LABATON RUDOFF & SUCHAROW LLP
By:
------------------------------------
Jonathan M. Plasse
James W. Johnson
100 Park Avenue
New York, New York 10016
(212) 907-0700
Co-lead Counsel for Plaintiffs
and the Class
STARR & HOLMAN LLP
By:
-------------------------------------
Zachary Alan Starr
10 East 40th Street
29th Floor
New York, New York 10016
(212) 684-6442
Co-lead Counsel for Plaintiffs
and the Class
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP
By:
------------------------------
Jeffrey G. Smith
270 Madison Avenue
New York, New York 10016
(212) 545-4600
Counsel for Derivative Plaintiffs
<PAGE>
ABBEY GARDY & SQUITIERI, LLP
By:
------------------------------
Joshua N. Rubin
212 East 39th Street
New York, New York 10016
(212) 889-3700
Counsel for Derivative Plaintiffs
CHIMICLES JACOBSEN & TIKELLIS
By:
------------------------------
James C. Strum
One Rodney Square
P.O. Box 1035
Wilmington, Delaware 19899
(303) 652-2500
Counsel for Derivative Plaintiffs
ROSENTHAL, MONHAIT, GROSS & GODDESS P.A.
By:
------------------------------
First Federal Plaza
P.O. Box 1070
Wilmington, Delaware
Counsel for Derivative Plaintiffs
GIBSON, DUNN & CRUTCHER LLP
By:
------------------------------
George B. Curtis
1801 California Street
Suite 4100
Denver, Colorado 80202-2641
(303) 298-5700
D.C. Box No. 18
Attorneys for Defendant
Deloitte & Touche, LLP
SHEFSKY & FROELICH, LTD.
By:
------------------------------
Allan T. Slagel
444 North Michigan Avenue
Chicago, IL 60611
(312) 527-4000
Attorneys for Defendants
Resort Income Investors, Inc. and
RII Advisors, Inc.
<PAGE>
BROWNSTEIN HYATT FARBER & STRICKLAND, P.C.
By:
------------------------------
Terence C. Gill
Twenty Second Floor
410 Seventeenth Street
Denver, Colorado 80202
(303) 534-6335
Attorneys for Defendants
Christopher R. Hemmeter, Mark M.
Hemmeter and Gregory S. Hooper
HEDLUND, HANLEY & JOHN
By:
------------------------------
Peter C. John
Steven J. Roeder
57th Floor
233 South Wacker Drive
Chicago, IL 80606
(312) 441-6600
Attorneys for Defendants
John R. Young and
Daniel D. Lane
McALLISTER & MURPHY, P.C.
By:
------------------------------
Robert T. McAllister
1120 Lincoln, Suite 16W
Denver, Colorado
(303) 830-0566
Attorneys for Defendant
Resort Income Investors, Inc.,
RII Advisors, Inc.,
John R. Young and
Daniel D. Lane
EXHIBIT 10.2
- ------------
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Master File No. 95-B-1665
IN RE: RESORT INCOME INVESTORS, INC. SECURITIES LITIGATION
======================================================================
THIS DOCUMENT RELATES TO: ALL ACTIONS
======================================================================
Case No.: 97-B-2252
PHILIP FRANK, as Trustee for the Trust Under the Will of Helen Frank, and
JOSEPH E. ALPERT, derivatively on behalf of RESORT INCOME INVESTORS, INC.,
Plaintiffs,
vs.
CHRISTOPHER HEMMETER, MARK HEMMETER,
DANIEL D. LANE, and JOHN R. YOUNG,
Defendants,
and
RESORT INCOME INVESTORS, INC.,
Nominal Defendant.
======================================================================
NOTICE OF PENDENCY OF CLASS AND DERIVATIVE ACTIONS, PROPOSED
SETTLEMENTS, SETTLEMENT HEARINGS AND RIGHT TO SHARE IN
SETTLEMENT
TO: ALL PERSONS WHO PURCHASED SHARES OF RESORT INCOME INVESTORS,
INC. ("RESORT") DURING THE PERIOD FROM MARCH 31, 1993 TO JUNE 29, 1995,
INCLUSIVE, AND TO ALL HOLDERS OF SHARES OF RESORT ON NOVEMBER __, 1997.
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS MAY BE
AFFECTED BY PROCEEDINGS IN THIS LITIGATION. THE NOTICE CONTAINS
INFORMATION CONCERNING THE RIGHTS OF CLASS MEMBERS AND CURRENT RESORT
SHAREHOLDERS, INCLUDING THE HEARINGS AT WHICH THE COURT WILL CONSIDER A
PROPOSED SETTLEMENT OF THE ABOVE CAPTIONED ACTIONS AND RELATED MATTERS.
THE NOTICE ALSO DESCRIBES THE PROCEDURE BY WHICH CLASS MEMBERS MAY SUBMIT
CLAIMS TO SHARE IN THE CLASS ACTION FUND.
CLASS MEMBERS MUST SUBMIT PROOF OF CLAIM ON THE FORM ACCOMPANYING THIS
NOTICE ON OR BEFORE __________, 1998.
EXCLUSION REQUEST: REQUESTS FOR EXCLUSION FROM THE CLASS ACTION FUND MUST
BE RECEIVED NO LATER THAN ______, 1997.
SECURITIES BROKERS AND OTHER NOMINEES: PLEASE SEE INSTRUCTIONS ON PAGE ___
HEREIN.
<PAGE>
NOTICE IS HEREBY GIVEN, pursuant to Rules 23 and 23.1 of the Federal
Rules of Civil Procedure and an Order of the United States District Court
for the District of Colorado (the "Court") that (i) a class, as further
defined herein, has been conditionally certified in the above-referenced
class action by the Court for settlement purposes only, and (ii) a
settlement has been reached for the benefit of the class in the class
action, and for the benefit of Resort in the related derivative action, on
terms summarized in this Notice. The purpose of this Notice is to inform
you of this litigation relating to Resort, the proposed Settlements and
plan of distribution, the hearings on the Settlements and your rights and
responsibilities with respect to these matters.
Separate hearings (the "Settlement Hearings") will be held in
both the Class Action and the Derivative Action before the Honorable Lewis
T. Babcock, United States District Judge, at the United States Courthouse,
1929 Stout Street, Denver, Colorado 80294, in Courtroom No. ___, on
__________, __, 1998, at ___:___ __m., (for the Derivative Action) and at
___:___ __m. (for the Class Action), for the purpose of determining, among
other things: whether the proposed settlement in each of these actions on
the terms and conditions set forth in the Stipulation of Settlement dated
November __, 1997 (the "Stipulation") is fair, reasonable and adequate and
should be granted final approval; whether the Class was adequately
represented by the named Class Action Plaintiffs and by Class Counsel;
whether the proposed plan of distribution in the class action should be
approved; and whether the application of plaintiffs' counsel for attorneys'
fees, expenses and costs should be granted. At the Settlement Hearings,
the Court will determine whether to finally approve the settlements and
dismiss the actions and the claims asserted in each. The Settlement
Hearings may be adjourned from time to time by the Court without further
written notice to the Class or the shareholders of Resort.
DESCRIPTION OF THE CLASS ACTION
-------------------------------
1. On June 29, 1995 Resort announced that it had decided to
commence an orderly self-liquidation of its assets and that its independent
directors, after consultation with Resort's advisors, had determined to
reduce the value of the Company's loan portfolio by recognizing an
accounting charge of approximately $12.5 million. As a result of this
charge, the net book value of the Company was reduced to approximately
$27.5 million, and shares of Resort common stock, which had traded from
January 1995 to June 1995 between $9 and $10 3/8 per share, fell to under
$4 per share.
2. In July, 1995 and August, 1995, respectively, class
action lawsuits were filed by Resort shareholders Edward and Ethel Sarnoff
and Sheldon L. Contract ("Class Action Plaintiffs"). By an Order of the
Court filed on November 8, 1995, these class actions were consolidated for
all purposes (the "Class Action").
3. A Consolidated Amended Class Action Complaint (the "Class
Complaint") was filed on December 6, 1995. The Class Complaint names as
defendants Resort, RII Advisors, Inc., Christopher B. Hemmeter
("C. Hemmeter"), Mark Hemmeter ("M. Hemmeter"), Christopher R. Hemmeter
("C.R. Hemmeter"), Gregory S. Hooper ("Hooper"), John R. Young ("Young"),
Daniel D. Lane ("Lane") and Deloitte & Touche, LLP ("D&T")(the "Class
Action Defendants"). The Class Complaint alleges the Class Action
Defendants violated sections 10(b) and 20 of the Securities Exchange Act of
<PAGE>
1934, 15 U.S.C. Section 78j(b) and 78t, and Rule 10b-5 promulgated
thereunder, 17 C.F.R. Section 240.10b-5. The Class Complaint alleges,
among other things, that the Class Action Defendants: (i) failed to
disclose and misrepresented the full and complete nature of the temporary
investments and loans made by Resort, and the magnitude of the risks
associated with those investments and loans; (ii) failed to maintain
adequate loan loss reserves for Resort's mortgage loans and temporary
investments, thereby overstating Resort's assets; and (iii) misrepresented
that Resort's financial statements were audited in accordance with
Generally Accepted Auditing Standards and were prepared in accordance with
Generally Accepted Accounting Principles.
4. On November 27, 1995 the Class Action Plaintiffs moved
for certification of a class pursuant to Rule 23(b)(3) of the Federal Rules
of Civil Procedure. Following discovery relating to class certification
(including the depositions of the Class Action Plaintiffs), the Class
Action Defendants submitted briefs in opposition to the motion for class
certification. Oral argument on the class motion was heard by the Court on
October 25, 1996.
5. On January 16, 1996 the Class Action Defendants moved to
dismiss the claims asserted in the Class Action. The motions to dismiss
were briefed, and oral argument was heard by the Court on October 25, 1996.
6. When a settlement in principle was agreed upon, the Court
had not yet ruled on the motion for class certification or the motions to
dismiss.
CERTIFICATION AND DEFINITION OF THE CLASS
-----------------------------------------
7. In connection with the proposed settlement of the Class
Action, the Court by Order dated November __, 1997 has provisionally
certified a class (the "Class") comprised of:
all persons who purchased or otherwise acquired
Resort stock during the period from March 31, 1993 through June 29, 1995,
inclusive (the "Class Period"), excluding (i) the Class Action Defendants,
(ii) any entity in which any Class Action Defendant has a controlling
interest, (iii) the partners, corporate officers and directors of any of
the Class Action Defendants, and (iv) the legal representatives, heirs,
successors or assigns of any such excluded party.
8. In the event that the settlement of the Class Action is
approved by the Court at the Hearing, the provisional class, excluding
those persons who properly and timely file a Request for Exclusion (as
explained on page ___ below), shall be finally certified as a class by the
Court in accordance with the terms of the Stipulation.
9. The Court has approved the designation of Edward and
Ethel Sarnoff and Sheldon L. Contract as representatives of the Class and
designated the following attorneys to serve as Class counsel:
Zachary Alan Starr, Esq. Jonathan M. Plasse, Esq.
STARR & HOLMAN, LLP James W. Johnson, Esq.
Ten East Fortieth Street, GOODKIND LABATON RUDOFF
Suite 2904 & SUCHAROW LLP
New York, New York 10016 100 Park Avenue
New York, New York 10017
<PAGE>
10. All members of the Class, except those who request
exclusion pursuant to this Notice in accordance with the procedure
described below, will be bound by the proposed settlement and judgment in
the Class Action, will be included in any other judgment in the Class
Action whether favorable or not, and will be eligible to share in the
recovery obtained for the benefit of the Class. Persons who are excluded
from the Class will not be eligible to share in any recovery obtained for
the benefit of the Class, whether through the proposed settlement or
otherwise.
DESCRIPTION OF THE DERIVATIVE ACTION
------------------------------------
11. In June and July of 1995, two separate actions were
commenced in the Court of Chancery of the State of Delaware, in and for
Newcastle County: ALBERT V. CHRISTOPHER B. HEMMETER ET AL., C.A. No.
14389, and FRANK V. CHRISTOPHER HEMMETER, ET AL., C.A. No. 14413
(collectively, the "Delaware Derivative Actions"). The Delaware derivative
actions purport to allege that certain officers and directors of Resort
breached their fiduciary duties to Resort, wasted Resort assets and that
Christopher Hemmeter, through his direct and/or indirect borrowing from
Resort, stood in a conflict of interest position. Defendants in the
Delaware derivative action are C. Hemmeter, M. Hemmeter, Young and Lane.
Resort is also a nominal defendant in the Delaware derivative action
("Derivative Defendants"). Defendants in the Delaware derivative actions
moved to dismiss the action for failure to comply with the requirements of
Delaware law.
12. To avoid duplicative efforts and to reduce costs related
to the proposed settlement described in this Notice, the plaintiffs in the
Delaware Derivative Actions filed a complaint in this Court (the "Colorado
Derivative Action") on October 17, 1997. The complaint filed in the
Colorado Derivative Action contains substantially similar claims as those
asserted in the Delaware Derivative Actions. (The Delaware Derivative
Actions and the Colorado Derivative Action are collectively referred to as
the "Derivative Action." The Class Action and the Derivative Action are
collectively referred to as the "Actions".) It is the intent of the
parties to the Derivative Action that approval of the Settlement by the
Court in Colorado will be followed by a dismissal of the Delaware
Derivative Action with prejudice based upon the dismissal here.
<PAGE>
13. The Court has approved the designation the following
attorneys to serve as Derivative Counsel:
Jeffrey G. Smith
Wolf Haldenstein Adler
Freeman & Herz LLP
270 Madison Avenue
New York, New York 10016
<PAGE>
Joshua N. Rubin
Abbey Gardy & Squitieri
212 East 39th Street
New York, New York 10016
<PAGE>
<PAGE>
<PAGE>
BACKGROUND TO THE SETTLEMENT
----------------------------
14. The Class Action Defendants and Derivative Defendants
(hereinafter collectively referred to as "Defendants") have denied all
allegations of wrongdoing or liability in the actions and any other
accusations of wrongdoing or violations of law. The Stipulation is not and
shall not be construed or be deemed to be evidence of or an admission or
concession on the part of any of the Defendants or other Released Parties
(as defined in Footnote 1 below) of any fault or liability or damages
whatsoever, and Defendants do not concede any infirmity in any defense
which they have asserted or intended to assert in the Actions.
15. Prior to entering into the Stipulation, Plaintiffs'
Counsel in the Actions conducted an investigation relating to the events
and transactions underlying the claims, and conducted pretrial discovery on
the merits including, among other things, depositions of witnesses; the
review and analysis of tens of thousands of pages of documents produced by
Defendants and third parties or acquired during the course of their
investigation; the review and analysis of public documents, including
filings by Resort with government agencies; consultation with experts; and
review of applicable law with respect to the claims and defenses presented
in the Actions.
16. Plaintiffs' Counsel's decision to enter into the
settlement was made with knowledge of the facts and circumstances
underlying the claims in the Actions and the strengths and weaknesses of
those claims. In determining to settle the action, Plaintiffs' Counsel
have evaluated the extensive discovery and investigation undertaken in the
Actions, and taken into account: (i) the substantial expense and length of
time necessary to prosecute the Actions through a trial, post-trial motions
and likely appeals; (ii) the uncertain outcome and risk of any litigation,
especially complex litigation such as the Actions, as well as the
difficulties and delays inherent in such complex matters; (iii) the
strength and uncertainties of the claims in their Actions, and the
substantial immediate benefits conferred upon the Class and Resort by
settlement set forth in the Stipulation. Based upon their consideration of
all these factors, and Resort's current financial condition, Plaintiffs'
Counsel have determined that the settlement, as set forth in the
Stipulation, is fair and in the best interest of the Plaintiffs, the Class
(with respect to the class action) and Resort (with respect to the
derivative actions).
17. The Defendants deny any liability whatsoever to the
Plaintiffs or the Class, deny each of Plaintiff's claims, and deny any
liability arising out of the conduct alleged in the Actions. Moreover,
Defendants deny that the Plaintiffs, any member of the Class or Resort
suffered damages, that Defendants engaged in any negligent or reckless
conduct, any fraudulent scheme or improper practice, or that Resort Shares
were artificially inflated by reason of misrepresentations, non-
disclosures, or otherwise.
<PAGE>
18. The Parties agree that the Stipulation may not be used as
an admission against any of the Defendants of wrongdoing or liability.
19. Defendants have concluded it is desirable that the
Actions be settled in the manner and upon the terms and conditions set
forth in the Stipulation in order to avoid the expense, inconvenience and
distraction of further legal proceedings, and put to rest the Released
Claims (as defined in footnote 2) asserted by the Class and on behalf of
Resort. In determining to enter into and/or perform the settlement,
Defendants have also considered a number of issues, including the uncertain
outcome of complex matters such as the Actions, as well as the difficulties
and delays inherent in such matters, and the strengths and uncertainties of
the claims asserted in the Actions.
20. The amount of damages, if any, which Plaintiffs could
prove is also a matter of serious dispute by the Parties, and the
settlements's proposed plan of distribution does not constitute a finding,
admission or concession that probable damages could be measured. No
determination has been made by the Court as to liability or the amount, if
any, of damages suffered by the Class or Resort, nor the proper measure of
any such damages. The determination of damages, like the determination of
liability, is a complicated and uncertain process, typically involving
conflicting expert opinions. During the course of the actions, Defendants,
in addition to denying any liability, disputed that the Class and Resort
were damaged by any wrongful conduct on Defendants' part. The settlement
described in the Notice is provides an immediate and substantial cash
benefit, and avoids the risks that liability or damages might not be proven
at trial.
21. THE COURT HAS NOT RULED ON ANY ISSUE OF LIABILITY OR
DAMAGES, AND THIS NOTICE IS NOT TO BE UNDERSTOOD AS AN EXPRESSION OF
OPINION BY THE COURT AS TO THE MERITS OF ANY CLAIM OR DEFENSE ASSERTED BY
THE PARTIES. THIS NOTICE DOES NOT IMPLY THAT THERE HAS BEEN ANY VIOLATION
OF LAW OR THAT ANY AMOUNT WILL BE RECOVERED IF THE ACTIONS ARE NOT SETTLED
BUT ARE INSTEAD RESOLVED BY TRIAL. RATHER, IT IS SENT FOR THE PURPOSE OF
INFORMING YOU OF YOUR RIGHTS WITH REGARD TO THE ACTIONS AND THE PROPOSED
SETTLEMENT.
<PAGE>
THE PROPOSED SETTLEMENTS
------------------------
22. The settlement of the Derivative Action provides for the
cash payment to Resort of $1,425,000 plus accrued interest commencing on
August 6, 1997 (the "Derivative Fund").
23. The settlement of the Class Action provides for an
aggregate cash payment of approximately $5,630,000 plus accrued interest on
a portion of this amount. This settlement amount includes:
(a) A cash payment of $3,630,000 which has been paid
into escrows on behalf of the Class, the components of which have been
earning interest for the benefit of the Class since August 9, 1997 and
August 11, 1997;
(b) a cash payment by Resort of an amount equal to the
greater of (i) 44 percent of Resort's net assets in liquidation valued as
of December 31, 1997 or the date Resort files its certification of
liquidation, whichever is earlier, or (ii) $1,000,000; and
(c) the $1,425,000 from the Derivative Action
Settlement Fund, less the payment of such attorneys' fees and expenses (the
"Additional Resort Payment") as may be awarded by the Court in the
Derivative Action.
(The total amount of funds ultimately received in settlement of the Class
Action is referred to as the "Class Action Fund.")
24. After payment of attorneys' fees and litigation costs and
expenses of plaintiffs' counsel in the Class Action, including fees and
expenses of experts, notice costs, and fees and expenses of settlement
administration, the Class Action Fund shall be distributed, pursuant to
Court approval, to members of the Class in accordance with the plan of
distribution described below.
25. When the settlement becomes effective, the Actions and
the claims asserted will be dismissed with prejudice and the Plaintiffs and
Class members who have not properly completed a Request for Exclusion (as
described below) and persons who held shares of Resort as of November __,
1997, the date of the Stipulation ("Current Shareholders") will be deemed
to have released all claims, whether individual or class, direct or
derivative, that were or could have been alleged in the Actions against all
Released Parties.
26. The Stipulation provides that Resort and D&T may withdraw
from and terminate the Class Action Settlement in the event that potential
Class members holding in excess of a certain amount of Resort stock exclude
themselves from the Class.
27. The Stipulation provides that if the Class Action
Settlement is not approved, the Derivative Settlement may proceed with the
monies in the Derivative Fund less Derivative Counsel's attorneys' fees
being paid to Resort.
28. The Stipulation provides that: (i) if the Class Action
Defendants, other than Deloitte & Touche, do not complete the Class Action
Settlement, the Class Action Settlement with Deloitte & Touche shall
proceed subject to the other provisions of the Stipulation; and (ii) the
Settlement with Deloitte & Touche is not dependent on the approval of the
settlement of the Derivative Actions or the performance by the parties to
that settlement of their obligations thereunder.
<PAGE>
THE PROPOSED PLAN OF DISTRIBUTION
---------------------------------
29. Class Action Plaintiffs' counsel propose that, if the
Court approves the Settlement, the Class Action Fund, less Court-approved
attorneys' fees, expenses, and notice and settlement administration costs
(the "Net Class Action Fund") be distributed to all members of the Class
who have not been excluded from the Class and who timely submit completed
and valid Proofs of Claim ("Authorized Claimants") as provided in
paragraphs 37 - 41 below.
30. The Net Class Action Settlement Fund shall be distributed
as follows:
(a) The "Recognized Loss" of each Authorized Claimant shall
be the sum of all Holding Losses and Trading Losses.
(b) The "Holding Loss" of each Authorized Claimant shall be:
(i) with respect to Class Members who purchased from
March 31, 1993 through March 31, 1994 inclusive ("Class A" and the "Class A
Period"), $4.00 per share, for each share purchased during the Class A
Period and held until the end of the Class Period;
(ii) with respect to Class Members who purchased from
April 1, 1994 through April 16, 1995 inclusive ("Class B" and the "Class B
Period"), $5.00 per share, for each share purchased during the Class B
Period and held until the end of the Class Period;
(iii) with respect to Class Members who purchased from
April 17, 1995 through June 14, 1995 inclusive ("Class C" and the "Class C
Period"), $6.00 per share, for each share purchased during the Class C
Period and held until the end of the Class Period;
(iv) with respect to Class Members who purchased from
June 15, 1995 through June 23, 1995 inclusive ("Class D" and the "Class D
Period"), $3.00 per share, for each share purchased during the Class D
Period and held until the end of the Class Period; and
(v) with respect to Class Members who purchased after
June 23, 1995 ("Class E" and the "Class E Period"), the purchase price
minus $3.56, for each share purchased during the Class E Period and held
until the end of the Class Period.
(c) The "Trading Loss" of each Authorized Claimant shall be:
(i) with respect to Class Members who purchased during
the Class Periods A-C, and sold during the Class D Period, the difference
between the Holding Loss for the period of purchase and $3.00 per share;
and
(ii) with respect to Class Members who purchased during
the Class Periods A-D, and sold in Class Period E, the difference between
the Holding Loss for the period of purchase and a number which is equal to
the difference between (i) $3.00 and (ii) $6.56 minus the higher of $3.56
or the sale price.
<PAGE>
(d) In determining Holding Loss and Trading Loss, brokers'
commissions and all other transaction costs shall be excluded from the
calculation, and multiple purchases and sales will be treated on a "first-
in," "first-out" basis.
31. No payment shall be made to an Authorized Claimant whose
share of the Net Class Action Fund is computed to be less than $5.00. The
portion of the Net Class Action Fund representing such de minimis claims
shall be included in the distributions to Authorized Claimants whose share
of the Net Class Action is computed to equal or exceed $5.00.
APPLICATIONS FOR REIMBURSEMENT OF EXPENSES
AND AWARD OF ATTORNEYS' FEES
------------------------------------------
32. Plaintiffs' Counsel have conducted the Actions without
receiving any compensation for their services, and they have advanced funds
to pay the necessary expenses of the Actions. They have done so on the
understanding that if they were successful in obtaining a recovery, their
expenses would be reimbursed and they would receive their fees from the
funds recovered. Under the terms of the proposed settlements of the
Actions, Plaintiffs' Counsel in each of the Actions may apply to the Court
for an award of attorneys' fees and for the reimbursement of reasonable
litigation costs and expenses, including fees and expenses of experts, out
of the respective settlement funds in each of the Actions. Derivative
Action Plaintiffs' Counsel intend to apply for an award of attorneys' fees
and expenses not expected to exceed 30% of the Derivative Fund. Class
Action Plaintiffs' Counsel intend to apply for an award of attorneys' fees
not to exceed 30% of the Class Action Fund, excluding the amount of the
Additional Resort Payment, and reimbursement of litigation costs and
expenses not expected to exceed $________.
33. The applications for attorneys' fees and expenses will be
filed at least seven days before the Settlement Hearings. Class Counsel
also may subsequently apply for fees and reimbursement of expenses incurred
in connection with settlement administration without further notice.
Attorneys' fees in the Class Action will be awarded and expenses reimbursed
out of the Class Action Fund only as approved by the Court. Attorneys'
fees in the Derivative Action will be awarded out of the Derivative Fund
only as approved by the Court.
<PAGE>
PROCEDURES FOR OBJECTING TO SETTLEMENTS
---------------------------------------
34. Any member of the Class who has not filed a Request for
Exclusion or any Current Shareholder may appear, in person or through
counsel, at the Settlement Hearing relevant to them to show cause why the
proposed Settlement relevant to them should or should not be approved as
fair, reasonable, and adequate; at the Class Action Settlement Hearing to
show cause why the proposed plan of distribution should or should not be
approved; why the Plaintiffs' Derivative Counsel or Class Action Counsel in
the action relevant to them should or should not be awarded attorneys'
fees, expenses, and administrative costs in connection with the relevant
settlements, or why a final judgment and order of dismissal should or
should not be entered, all as requested. However, no Current Shareholder
or member of the Class shall be heard or entitled to contest the approval
of either the proposed Derivative Settlement or the proposed Class Action
Settlement, plan of distribution (as to the Class Action), applications for
fees and expenses, or the final judgment and order of dismissal, unless, on
or before ____________, 1998, (twenty-five business days before the
Settlement Hearing) such person shall have served by hand or first class
mail, postage prepaid, copies of proof of class membership (as to the Class
Action Settlement Hearing) and proof of ownership of shares of Resort on
November __, 1997 (as to the Derivative Settlement Hearing) and a statement
of position or objection and any briefs or other papers offered or believed
to support such position or objection, upon the following counsel:
For Plaintiffs in Class Action:
Zachary Alan Starr, Esq. -and- Jonathan Plasse, Esq.
STARR & HOLMAN, LLP GOODKIND LABATON RUDOFF
Ten East Fortieth Street, & SUCHAROW LLP
Suite 2904 100 Park Avenue
New York, New York 10016 New York, New York 10017
For Plaintiffs in the Derivative Action:
Jeffrey G. Smith, Esq. - and - Joshua Rubin, Esq.
WOLF HALDENSTEIN ADLER ABBEY GARDY & SQUITIERI,
FREEMAN & HERZ LLP
270 Madison Avenue 212 East 39th Street
New York, New York, 10016 New York, New York 10016
For Defendants in both Actions:
Allan T. Slagel, Esq.
SHEFSKY & FROELICH LTD.
444 North Michigan Avenue
Chicago, Illinois 60611
and has filed such statement of position or objection, papers, and briefs,
showing proof of service on the above counsel, with the Clerk, United
States District Court for the District of Colorado, 1929 Stout Street,
Denver, Colorado 80294. All such statements of position or objection,
papers, and briefs shall show the caption and file number of the applicable
action. Any statement of position or objection shall identify any and all
witnesses, documents, and other evidence of any kind to be presented at
either the Derivative Settlement Hearing or the Class Action Settlement
Hearing in support of the statement of position or objection, as well as
the substance of the testimony to be given by any witness and of any other
evidence to be presented.
<PAGE>
35. Any person who does not submit an objection in the form
and manner specified shall be deemed to have waived the right to make any
such objection and shall be foreclosed from subsequently making any
objection to the fairness, adequacy, or reasonableness of the settlements,
the proposed plan of distribution, the applications for fees and expenses,
or the entry of a final judgment and order of dismissal.
36. At the Settlement Hearings, the Court will determine
whether to finally approve this Settlement and dismiss the Actions and the
claims asserted therein. The Settlement Hearings may be adjourned from
time to time by the Court without further written notice to the Class or
the Current Shareholders. Each settlement will be considered separately by
the Court.
SUBMITTING PROOFS OF CLAIM IN THE CLASS ACTION
----------------------------------------------
37. A Proof of Claim form, and Instructions, accompany this
Notice. Each member of the Class who wishes to assert a claim for payment
from the Net Class Action Fund must submit a completed and signed Proof of
Claim and supporting documentation, as described in the Proof of Claim and
Instructions, to the Claims Administrator:
Resort Income Investors Litigation
FRG Information Systems Corp.
823 United Nations Plaza, Suite 500
New York, New York 10017
All Proof of Claim forms must be submitted by __________________, 1998.
Those submitted by mail will be considered submitted when postmarked, if
mailed by first class mail, or registered or certified mail, postage
prepaid, addressed in accordance with the Instructions given with the Proof
of Claim form. All other Proof of Claim forms shall be considered
submitted at the time they are actually received by the Claims
Administrator at its principal place of business:
Resort Income Investors Litigation
FRG Information Systems Corp.
823 United Nations Plaza, Suite 500
New York, New York 10017
Proof of Claim forms submitted after _____________, 1998 will be disallowed
as untimely.
38. ANY CLASS MEMBER WHO FAILS TO SUBMIT A VALID AND TIMELY
PROOF OF CLAIM SHALL NOT RECEIVE ANY PORTION OF THE NET CLASS ACTION FUND.
A CLASS MEMBER WHO DOES NOT SUBMIT A PROOF OF CLAIM WILL NEVERTHELESS BE
BOUND BY ANY SETTLEMENT APPROVED AND JUDGMENT ENTERED BY THE COURT, UNLESS
THE CLASS MEMBER HAS SUBMITTED A TIMELY AND VALID REQUEST FOR EXCLUSION.
39. IF YOU ARE A CURRENT RESORT SHAREHOLDER AND NOT A CLASS
MEMBER, YOU SHOULD NOT SUBMIT A PROOF OF CLAIM.
40. If you did not receive a Proof of Claim form and
Instructions with this Notice you may obtain those documents by written
request addressed to the Claims Administrator, at the address given in
paragraph 37 above. In your written request, you must include your name
and current address.
<PAGE>
41. You may read or receive more than one copy of this Notice
and/or Proof of Claim. Regardless of the number of copies you read or
receive you should submit ONLY ONE Proof of Claim for your claim relating
to your purchase of Resort stock. By submitting a Proof of Claim, you are
agreeing that the United States District Court for the District of Colorado
has jurisdiction with respect to your claim.
OPTION OF EXCLUSION FROM THE CLASS ACTION
-----------------------------------------
42. If you are a member of the Class and wish to remain so
and to participate in the settlement of the Class Action described herein,
you need take no action pursuant to this section of the Notice. You will
be represented by Class Counsel, Starr & Holman, LLP, Ten East Fortieth
Street, New York, New York 10016, and Goodkind Labaton Rudoff & Sucharow
LLP, 100 Park Avenue, New York, New York 10017. However, if you wish, you
may choose to be represented by your own individual counsel at your own
expense.
43. Class members may request to be excluded from the Class.
Any person or entity who timely and properly requests to be excluded will
not be represented by Class Counsel and will not be bound by the judgment
or entitled to participate in the settlement. If you are excluded from the
Class, you may pursue, at your own expense, whatever legal rights you may
have.
44. If you are a Class member and you wish to be excluded
from the Class, you must submit a "Request for Exclusion." Any Request for
Exclusion must be properly completed and mailed by First Class Mail,
received no later than ________, 1998 (25 business days before the
Settlement Hearing) addressed to:
For Plaintiffs in the Class Action:
- ----------------------------------
Zachary Alan Starr, Esq. -and- Jonathan Plasse, Esq.
STARR & HOLMAN, LLP GOODKIND LABATON RUDOFF
Ten East Fortieth Street, Suite 2904 & SUCHAROW LLP
New York, New York 10016 100 Park Avenue
New York, New York 10017
For Defendant D&T in the Class Action:
- -------------------------------------
George B. Curtis, Esq.
Gibson, Dunn & Crutcher LLP
1801 California Street
Suite 4100
Denver, Colorado 80202-2641
For the Remaining Defendants in the Class Action:
- ------------------------------------------------
Allan T. Slagel, Esq.
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
<PAGE>
A Request for Exclusion must be typed or printed legibly, and must
set forth: your name, address, telephone number and Social Security or
Taxpayer Identification number of the person requesting to be excluded from
the Class; the name and address of the person in whose name the shares of
Resort stock for which exclusion is being requested was registered (if
different from the foregoing); the number of shares of Resort stock for
which exclusion is being requested; the number of shares of Resort stock as
to which losses are claimed, and the losses claimed; the date(s) of
purchase or acquisition; the number of shares of Resort stock purchased or
acquired; the price(s) paid for all shares of Resort stock purchased or
otherwise acquired during the Class Period by the person requesting to be
excluded from the Class; if the Resort stock is no longer owned, the
date(s) of sale or other disposition, the number of shares sold and the
proceeds received; and a statement requesting exclusion from the Class
Action signed by the Class Member, or if the Class Member is not an adult,
natural person or is under any disability, by a natural person duly
authorized act. All Requests for Exclusion must be signed by or on behalf
of the person or entity so requesting exclusion and must include proof of
purchase of the shares for which exclusion is requested.
45. If a person or entity who requests exclusion purchased
Resort stock during the Class Period in joint names with others, the person
or entity must state this in the Request for Exclusion, must set forth the
names and current addresses of all joint purchasers, and must have each
sign the Request for Exclusion. If a Request for Exclusion is made on
behalf of a Class member other than (and who is not a joint purchaser with)
the individual signing the request (such as a corporation of which the
individual is an officer, a partnership of which the individual is a
general partner, a trust of whom the individual is a trustee, or a minor or
incompetent of whom the individual is a guardian), the individual signing
the Request must attach documentary proof of authority to act on the Class
member's behalf (such as a copy of the relevant corporate resolution, court
order of appointment, or other instrument showing the individual's
authority).
46. All Class members who have not timely and properly
requested exclusion will be bound by the settlement and judgment in the
Class Action and may be entitled to share in the recovery obtained on
behalf of the Class. To participate in the settlement of the Class Action,
you are required to submit a claim pursuant to the accompanying Proof of
Claim ("Proof of Claim form") and Instructions. THOSE WHO TIMELY AND
PROPERLY REQUEST EXCLUSION WILL NOT BE ENTITLED TO SHARE IN THE BENEFITS OF
THE SETTLEMENT OF THE CLASS ACTION AND WILL NOT SHARE IN ANY OTHER POSSIBLE
BENEFITS OF OR BE BOUND BY ANY JUDGMENT. FAVORABLE OR UNFAVORABLE. ENTERED
ON THE CLASS CLAIMS ASSERTED IN THE CLASS ACTION.
RELEASE OF CLAIMS AND CONCLUSION OF LITIGATION
----------------------------------------------
47. If the proposed Settlements are approved by the Court,
the Court will enter a Judgment which, among other things, will:
(a) Approve the Settlements as fair, reasonable and
adequate;
(b) Dismiss the Actions in their entirety as against
all Defendants and Released Parties with prejudice and without costs to any
Party as against any other Party.
<PAGE>
(c) Adjudge that the Plaintiffs, each Class member and
each Current Shareholder, on behalf of themselves and each of their
predecessors, successors, parents, subsidiaries, affiliates, custodians,
agents, assigns, representatives, heirs, executors, trustees,
administrators and any other person or entity having any legal or
beneficial interest in the Resort Stock purchased or otherwise acquired by
any member of the Class during the Class Period, shall be deemed
conclusively to have fully, finally, unconditionally and forever released,
settled, discharged and covenanted not to sue the other Released Parties(1)
with respect to the Released Claims(2), notwithstanding any facts which
Plaintiffs, Class members or Current Shareholders may learn in addition to
or different from those which they now know or believe to be true with
respect to the litigation, the Released Claims or the subject matter of the
release.
(d) Save as expressly excepted below, adjudge that the
Released Parties shall be deemed conclusively to have fully, finally,
unconditionally and forever released, settled and discharged the other
Released Parties with respect to the Released Claims, notwithstanding any
facts which the Released Parties may later learn in addition to or
different from those which they now know or believe to be true with respect
to the Actions, the Released Claims or the subject matter of the Release.
(e) Save as expressly excepted below, bar and
permanently enjoin plaintiffs, each Class member, all Current Shareholders
and the Released Parties and each of their predecessors, successors,
parents, subsidiaries, affiliates, custodians, agents, assigns,
representatives, heirs, executors, trustees, administrators and any other
person or entity having any legal or beneficial interest in the Resort
Shares purchased by any member of the Class, from commencing, instituting
or prosecuting the Released Claims or any action or other proceeding
asserting against any of the Defendants or the other Released Parties with
respect to, based on, arising from, or for the Released Claims.
(f) Adjudge that the plaintiffs, and each Class member
and all Current Shareholders shall be deemed unconditionally and forever to
have released and discharged Plaintiffs and Plaintiffs' Counsel from all
claims, liabilities, and causes of action in connection with plaintiffs'
institution, prosecution, assertion or resolution of the Actions or the
Release Claims.
(g) Save as expressly excepted below, adjudge that
Released Parties shall be deemed to have released the plaintiffs and
plaintiffs' Counsel from those claims, or potential claims against
Plaintiffs and Plaintiffs' Counsel which are based upon or arise out of the
institution, assertion, or prosecution of the Actions, or the Released
Claims.
(h) Mr. Christopher B. Hemmeter has filed for
bankruptcy protection under Chapter 7 of the United States Bankruptcy Code.
As a result, neither he nor his estate shall be deemed to have delivered
the releases referenced in paragraphs (d) and (g), above, and neither he
nor his estate shall be enjoined as referenced in paragraph (e) above.
Similarly, neither he nor his estate shall be included in the releases
given in paragraph (d) and claims by the Released Parties against him and
his estate (including but not limited to claims relating to Released
Claims) shall not be barred or enjoined.
48. The Court may also approve Plaintiffs' Counsel's request
for attorneys' fees and expenses, to be paid from either (as applicable)
the Class Action Fund or the Derivative Fund.
<PAGE>
NOTICE TO BANKS, BROKERS, INSTITUTIONS, AND OTHER NOMINEES
----------------------------------------------------------
49. All Nominees who purchased Resort stock during the Class
Period, or held such stock on November __, 1997, for the benefit of others,
are required by Court order to provide to the Claims Administrator, within
ten (10) days after the Nominee receives the Notice, the name and last
known address of each person or entity for whom the Nominee purchased
Resort stock during the Class Period or held Resort stock on November __,
1997. For each Nominee who submits to the Claims Administrator a list of
such beneficial owners, the Claims Administrator shall send a copy of the
Notice to each such beneficial owner with ten (10) days after receipt of
such list. Alternatively, a Nominee may request from the Claims
Administrator a sufficient number of additional copies of the Notice to
permit the Nominee to mail a copy of the Notice directly to the beneficial
owners for whom the Nominee purchased Resort stock during the Class Period
or held Resort stock on November __, 1997. In such event, the Nominee is
required by Court order to mail a copy of the Notice by first class mail to
each such beneficial owner within ten (10) days after receipt of the
additional copies of the Notice.
EXAMINATION OF PAPERS AND FURTHER INFORMATION
---------------------------------------------
50. This Notice is only a summary of the proposed settlements
and is not all-inclusive. For further details of the matters discussed in
this Notice, including the Stipulation described above, and for further
information concerning the case, reference may be made to the documents
filed in these Actions all of which may be inspected during normal business
hours at the Office of the Clerk, United States District Court, 1929 Stout
Street, Denver, Colorado 80294.
51. If you have any questions with respect to the proposed
settlement, this Notice, the Proof of Claim form and Instructions, or the
Actions generally, you may raise them with your own attorney or advisor, or
direct them in writing to the Claims Administrator:
Resort Income Investors Litigation
FRG Information Systems Corp.
823 United Nations Plaza, Suite 500
New York, New York 10017
Calls may be made to: Resort Income Investors Litigation Claims
Administrator, (212) 490-3550. PLEASE DO NOT DIRECT INQUIRIES TO THE
COURT, OR TO THE CLERK OF THE COURT, EITHER BY TELEPHONE OR IN WRITING.
Dated: _____________________, 1997
______________________________
Clerk of the Court
United States District Court
for the District of Colorado
By ORDER OF THE COURT
EXHIBIT 10.3
- ------------
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Master File No. 95-B-1665
IN RE: RESORT INCOME INVESTORS, INC., SECURITIES LITIGATION
======================================================================
THIS DOCUMENT RELATES TO: ALL ACTIONS
======================================================================
Case No.: 97-B-2252
PHILIP FRANK, as Trustee for the Trust Under the Will of Helen Frank, and
JOSEPH E. ALPERT, derivatively on behalf of RESORT INCOME INVESTORS, INC.,
Plaintiffs,
vs.
CHRISTOPHER HEMMETER, MARK HEMMETER,
DANIEL D. LANE, and JOHN R. YOUNG,
Defendants,
and
RESORT INCOME INVESTORS, INC.,
Nominal Defendant.
======================================================================
ORDER AND FINAL JUDGMENT
This matter having come before the Court on the application of the
Parties for approval of the settlement set forth in the Stipulation of
Settlement and exhibits attached thereto (the "Stipulation") relating to
the above-captioned Class and Derivative Actions, and settlement hearings
having been held before this Court on _________, 1998, and the Court having
considered all papers filed and proceedings had herein, and otherwise being
fully informed in the premises, and good cause appearing therefore, it is
<PAGE>
ORDERED, ADJUDGED AND DECREED THAT:
DEFINITIONS
1. For purposes of this Order and Final Judgment, the Court adopts
and incorporates the definitions contained in the Stipulation.
JURISDICTION
2. This Court has jurisdiction over the subject matter of the
litigation, and over all Parties and Actions. Plaintiffs, all Current
Shareholders and all members of the Class, except Opt-Outs (defined below),
are bound by this Order and Final Judgment.
FAIRNESS, REASONABLENESS AND ADEQUACY OF SETTLEMENT
3. A full opportunity hearing having been offered to all known
Current Shareholders and Class Members to participate in the relevant
settlement hearing, this Court hereby approves the Settlement set forth in
the Stipulation, adopts its terms as its order, and finds that the
Settlement is, in all respects, fair, reasonable and adequate to the Class
and all its members, Resort, and all of the Parties in the Actions in
accordance with Rules 23, 23.1 and 54 of the Federal Rules of Civil
Procedure. The Court directs the consummation and implementation of the
Settlement in accordance with the terms and provisions of the Stipulation.
This Court further finds that the Settlement has been entered into and made
in good faith.
4. The Plan of Distribution is approved and shall be consummated
as provided therein.
<PAGE>
THE CLASS CERTIFICATION
5. The Class Action satisfies the applicable prerequisites for
class action treatment under Federal Rule of Civil Procedure 23. The Class
is so numerous that a joinder of all members is impracticable, there are
questions of law and fact common to the Class, the claims of the Class
representatives are typical of the claims of the Class, the Class is
adequately represented by the Class Action Plaintiffs and by Class Counsel,
and the Class representatives will fairly and adequately protect the
interest of the Class. Questions of law and fact, common to the members of
the Class, predominate over any questions affecting only individual members
and the Class Action is superior to other available methods for the fair
and efficient adjudication of the controversy.
6. This Class Action is hereby finally certified as a class action
on behalf of a class consisting each and all of the following persons and
entities: all Persons who purchased or otherwise acquired Resort Stock
during the period from March 31, 1993 through June 29, 1995 inclusive,
excluding (i) the Class Action Defendants, (ii) any entity in which any
Class Action Defendant has a controlling interest, (iii) the partners,
corporate officers and directors of any of the Class Action Defendants, and
(iv) the legal representatives, heirs, successors or assigns of any such
excluded party. Annexed hereto as Exhibit A is a list of all Class Members
who have submitted timely and proper requests for exclusion from the Class
(the "Opt-Outs"). The Opt-Outs are hereby excluded from the Class, shall
not participate further in the Class Action Fund, and shall not be bound by
or share in the benefits of any subsequent determination in the Class
Action.
<PAGE>
DISMISSAL WITH PREJUDICE
7. The Complaints in the Actions, and all claims or causes of
action asserted therein are hereby dismissed with prejudice on the
Effective Date as against each and all of the Released Parties, and without
cost to any of the Parties as against the other.
RELEASES
8. From and after the Effective Date:
(a) each and all of the Plaintiffs, Class Members and Current
Resort Shareholders, on behalf of themselves and each of their
predecessors, successors, parents, subsidiaries, affiliates, custodians,
agents, assigns, representatives, heirs, executors, trustees,
administrators and any other Person or entity having any legal or
beneficial interest in Resort Stock, shall be deemed to have fully,
finally, unconditionally and forever released, settled and discharged all
the Released Parties(1) from and with respect to the Released Claims, (2)
whether or not such Plaintiff or Class Member executes and delivers a Proof
of Claim;
(b) each and all of the Plaintiffs, Class Members and Current
Resort Shareholders, and each of their predecessors, successors, parents,
subsidiaries, affiliates, custodians, agents, assigns, representatives,
heirs, executors, trustees, administrators and any other person or entity
having any legal or beneficial interest in Resort Stock acquired by any
member of the Class or Current Resort Shareholder, will be forever barred
and enjoined from commencing, instituting or prosecuting any of the
Released Claims or any action or other proceeding against any of the
Released Parties with respect to, based on, arising from, or for the
Released Claims;
(c) Save as expressly excepted below, Class Members, Resort
and Defendants shall be deemed unconditionally and forever to have released
and discharged the Plaintiffs and Plaintiffs' Counsel from all claims,
liabilities, and causes of action in connection with or which are based on
or arising out of Plaintiffs' or Plaintiffs' Counsel's institution,
prosecution, assertion, or resolution of the Litigation or the Released
Claims;
(d) Save as expressly excepted below, the Released Parties
shall be deemed to have released each other from and with respect to the
Released Claims and to be forever barred and enjoined from commencing,
instituting or prosecuting any of the Released Claims or any action or
other proceeding against any of the other Released Parties with respect to,
based on, arising from or for the Released Claims; and
(e) Mr. Christopher B. Hemmeter has filed for bankruptcy
protection under Chapter 7 of the United States Bankruptcy Code. As a
result, neither he nor his estate shall be deemed to have delivered the
releases referenced in paragraphs (c) and (d) and neither he nor his estate
shall be enjoined as referenced in paragraph (d) above. Similarly, neither
he nor his estate shall be included in the releases given in paragraph (d)
and claims by the Released Parties against him and his estate (including
but not limited to claims relating to Released Claims) shall not be barred
or enjoined.
(f) neither the Defendants nor Defendants' Counsel shall have
any responsibility for or obligation of any kind whatsoever in connection
with the determination, administration, calculation or payment of claims to
the Class members.
<PAGE>
NO ADMISSIONS
9. Defendants have entered into this Stipulation solely in order
to avoid further expense, inconvenience, risk and delay and to permit the
continued operation of their affairs unhindered by expensive litigation,
distraction and diversion of themselves and their executive personnel, and
thereby to put to rest all controversy with respect to the Released Claims.
The Stipulation and Order, or any matter arising in connection with such
negotiations, proceedings or agreements are not and shall not in any event
be described as or constitute:
(a) an admission by any Defendant of the truth of any
fact alleged or the validity of any claim that has been, or could have
been, asserted in the Litigation, or of the deficiency of any defense that
has been, could have been, or in the future might be asserted in any
litigation, or of any liability, fault, wrongdoing or otherwise of any
Defendant;
(b) an admission of any fault, breach of duty, wrongful
act or misrepresentation or omission in any statement or written document
approved or made by Defendants or the approval or making of which was
participated in by Defendants;
(c) an admission of any liability, fault or wrongdoing
by any of the parties in the Litigation or in any other civil, criminal or
administrative action or proceeding;
(d) an admission of any liability, fault or wrongdoing
on the part of the Defendants;
(e) an admission that Plaintiffs or any Person have in
fact suffered any damage, or that Defendants are liable to Plaintiffs or
any Person; or
(f) an admission that the consideration to be given
pursuant to the Settlement represents the amount of any judgment that would
be or would have been awarded to Plaintiffs, Class Members, current
shareholders or any Person after trial.
<PAGE>
INJUNCTION AGAINST ASSERTION OF RELEASED CLAIMS
10. Each Plaintiff, Class Member (except Opt-Outs), Current
Shareholder and each of the Defendants are hereby severally and permanently
barred and enjoined from asserting or continue to assert any of the claims
he, she or it released pursuant to provisions of Paragraph 7 of this Order
in any court or other forum whatsoever, including such Released Claims as
already may have been asserted in any pending action, arbitration or other
proceeding.
ADEQUACY OF NOTICE
11. The Notice given to the Class and Current Shareholders of the
Settlement set forth in the Stipulation and other matters set forth
therein, including the individual notice to all members of the Class and
Current Shareholders who could be identified, through a reasonable effort,
was the best notice practicable under the circumstances. The Notice
provided fair and readable notice to the Members of the Class and Current
Shareholders concerning the nature of the Actions and the claims and causes
of action asserted therein on behalf of the Class and Resort in the
proposed settlement and the hearing with respect thereto, and provided due
and adequate notice of those proceedings and the matters set forth therein
to all Persons entitled to such notice. The Notice fully satisfied the
requirements of Rules 23 and 23.1 of the Federal Rules of Civil Procedure
and of the United States Constitution.
<PAGE>
CONTINUING JURISDICTION
11. Without affecting the finality of this judgment in any way,
this Court retains continuing jurisdiction over: (a) the implementation of
the Settlement including specifically but not limited to the payment of the
Resort Payment and Additional Resort Payment; (b) the distribution of the
Class Action Fund to the members of the Class, including the payment of
such additional fees, expenses and costs as are incurred in connection with
settlement administration; (c) the hearing and determining applications for
attorneys' fees, costs, expenses, including expert fees, and interest made
by Plaintiffs' Counsel in connection with the prosecution of the Action;
(d) the Actions until the final judgment contemplated by this Order has
become effective and each and every act agreed to be performed by the
Parties shall have been performed pursuant to the Stipulation; and (e) the
Parties to Actions for the purpose of taking such other actions as may be
necessary to conclude and administer this Settlement, and to implement and
enforce the Stipulation.
TERMINATION OF SETTLEMENT
12. Counsel for the Parties shall consummate the settlement in
accordance with the terms of the Stipulation. In the event that the
Settlement does not become effective, or is terminated in accordance with
the terms and provisions of the Stipulation, then this final judgment shall
be rendered null and void and be vacated and the Stipulation and all orders
rendered in connection therewith by the Court shall be rendered null and
void, except as provided in the Stipulation.
ATTORNEYS' FEES AND
REIMBURSEMENT OF LITIGATION EXPENSES
14. The Court has reviewed and considered the application of
Derivative Counsel for attorneys' fees and reimbursement of expenses in
connection with the prosecution of the Action, and supporting submissions.
Upon the application Derivative Counsel is hereby awarded attorneys' fees
in the amount of $__________, together with interest on said amount, at the
rate the Derivative Fund earns interest, from the date the Derivative Fund
was funded to the date of payment, to be paid out of the Derivative Fund in
compensation for their services in conducting the litigation on behalf of
the Current Resort Shareholders in achieving the settlement. The Court
finds that such award is reasonable and appropriate in view of, among other
things, the work performed, the risk taken, the result achieved, and the
complexity and difficulty of the case.
15. The amounts specified in the preceding paragraph shall be paid
to the Derivative Counsel upon the occurrence of the Effective Date,
without further action by the Court.
16. The Court has reviewed and considered the application of Class
Action Plaintiffs' Counsel for attorneys' fees and reimbursement of
expenses in connection with the prosecution of the Action, and supporting
submissions. Upon the application Class Action Plaintiffs' Counsel is
hereby awarded attorneys' fees in the amount of $__________, together with
interest on said amount, at the rate the Class Action Fund earns interest,
from the date the Class Action Fund was funded to the date of payment, to
be paid out of the Class Action Fund in compensation for their services in
conducting the litigation on behalf of the Plaintiffs and the Class and in
achieving the settlement. The Court finds that such award is reasonable
and appropriate in view of, among other things, the work performed, the
risk taken, the result achieved, and the complexity and difficulty of the
case. Class Action Plaintiffs' Counsel are also awarded reimbursement of
their litigation expenses, including fees and expenses of experts, in the
amount of $______, together with interest on such amount at the rate the
Class Action Fund earns interest, from the date the Class Action Fund was
funded to the date of payment, to be paid out of the Class Action Fund.
<PAGE>
17. The amounts specified in the preceding paragraph shall be paid
to the Class Counsel upon the occurrence of the Effective Date, without
further action by the Court.
ENTRY OF FINAL JUDGMENT
18. The Court find no just reason exists for the delay in entering
the final judgment pursuant to Rule 54(b) of the Federal Rules of Civil
Procedure in accordance with the Stipulation. Accordingly, the Clerk of
the Court is hereby directed forthwith to enter this Order and Final
Judgment pursuant to Rule 54(b).
Dated: Denver, Colorado
_______________, 1998
______________________________
Honorable Lewis T. Babcock
United States District Judge
EXHIBIT 10.4
- ------------
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Master File No. 95-B-1665
IN RE: RESORT INCOME INVESTORS, INC., SECURITIES LITIGATION
======================================================================
THIS DOCUMENT RELATES TO: ALL ACTIONS
======================================================================
Case No.: 97-B-2252
PHILIP FRANK, as Trustee for the Trust Under the Will of Helen Frank, and
JOSEPH E. ALPERT, derivatively on behalf of RESORT INCOME INVESTORS, INC.,
Plaintiffs,
vs.
CHRISTOPHER HEMMETER, MARK HEMMETER,
DANIEL D. LANE, and JOHN R. YOUNG,
Defendants,
and
RESORT INCOME INVESTORS, INC.,
Nominal Defendant.
======================================================================
ORDER OF PRELIMINARY APPROVAL OF SETTLEMENT
AND PROCEEDINGS IN CONNECTION THEREWITH
======================================================================
WHEREAS, the above-captioned consolidated class action and the
derivative action are pending before the Court (collectively, the
"Litigation");
WHEREAS, the Parties having made application for an order
preliminarily approving the Settlement of this Litigation, in accordance
with a Stipulation of Settlement dated November __, 1997 (the
"Stipulation"), which, together with the exhibits attached thereto, sets
forth the terms and conditions for a proposed Settlement of the Litigation
and for dismissal of the Litigation on the merits and with prejudice; and
the Court having considered the Stipulation and the exhibits thereto and
the Parties having consented to the entry of this Order;
<PAGE>
WHEREAS, Class Counsel and Derivative Counsel (as defined in the
Stipulation) believe the Settlement to be fair, reasonable, and adequate
and in the best interests of the Class Members (as defined in the
Stipulation), Resort Income Investors, Inc. ("Resort") and all Persons who
were shareholders of Resort on the date of the Stipulation ("Current
Shareholders");
WHEREAS, the Settlement contemplates the compromise and resolution of
the claims asserted in the Litigation and, ultimately, the dismissal of the
Litigation;
WHEREAS, Fed. R. Civ. P. 23(e) provides that a class action shall not
be dismissed or compromised without the approval of the Court following a
hearing held pursuant to notice to Class Members; and
WHEREAS, Fed. R. Civ. P. 23.1 provides that a derivative action shall
not be dismissed or compromised without the approval of the Court following
notice to shareholders;
NOW, on the basis of the Stipulation and all the files, records and
proceedings herein,
IT IS HEREBY ORDERED THAT:
1. For purposes of this Order, all capitalized terms herein
shall have the meaning as defined in the Stipulation .
2. The Settlement of the Class Action and Colorado
Derivative Action Litigation on the terms and conditions set forth in the
Stipulation is preliminarily approved as fair, reasonable and adequate to
the Class and Resorts.
3. A Hearing shall be held before this Court on
_______________, 1998 at __:__ __.m., in Courtroom ____, of the United
States Courthouse, 1929 Stout Street, Denver, Colorado 80294 to: (i)
determine whether the proposed Settlement of the Colorado Derivative Action
on the terms and conditions provided for in the Stipulation is fair,
reasonable and adequate and should be approved by the Court; (ii) determine
whether an order approving the Settlements and a final judgment and order
of Dismissal with prejudice, as provided in the Stipulation, should be
entered; (iii) determine whether the application of Derivative Counsel for
the payment of the Derivative Fee and Expense Award is reasonable and
should be approved; and (iv) rule upon such other matters as the Court
deems appropriate.
4. A Hearing shall be held before this Court on
_______________, 1998 at __:__ __.m., in Courtroom ____, of the United
States Courthouse, 1929 Stout Street, Denver, Colorado 80294 to: (i)
determine whether the proposed Settlement of the Class Action on the terms
and conditions provided for in the Stipulation is fair, reasonable and
adequate and should be approved by the Court; (ii) determine whether the
Class was adequately represented by the named Class Action Plaintiffs and
by Class Counsel; (iii) determine whether an order approving the Settlement
and a Final Judgment and Order of Dismissal with Prejudice, as provided in
the Stipulation, should be entered herein; (iv) determine whether the
application of Class Counsel for the payment of the Class Fee and Expense
Award is reasonable and should be approved; and (v) rule upon such other
matters as the Court deems appropriate.
<PAGE>
5. The Court reserves the right to approve either of the
settlements with or without modification and with or without further notice
of any kind.
6. In connection with consideration of the Settlement, and
solely for that purpose, the Court hereby provisionally certifies, pursuant
to Fed. R. Civ. P. 23(b)(3), a class (the "Class") comprised of:
all persons who purchased or otherwise acquired
Resort stock during the period from March 31, 1993 through June 29, 1995
inclusive, excluding (i) the Class Action Defendants, (ii) any entity in
which any Class Action Defendant has a controlling interest, (iii) the
partners, corporate officers and directors of any of the Class Action
Defendants, and (iv) the legal representatives, heirs, successors or
assigns of any such excluded party.
7. The Court finds that the prerequisites to a class action
under Federal Rule of Civil Procedure 23(a) have been satisfied in that
(a) the number of class members is so numerous that joinder of all members
thereof is impracticable; (b) there are questions of law and fact common to
the Class; (c) the claims of the name representatives are typical of the
claims of the class they see to represent; (d) the Plaintiffs fairly and
adequately represent the interest of the class; (e) the questions of law
and fact common to the members of the class predominate over questions
affecting not only individual members of the class; and (f) a class action
superior to other available methods for the fair, efficient adjudication of
the controversy.
8. Pursuant to Rule 23 of the Federal Rules of Civil
Procedure, Edward and Ethel Sarnoff, as trustees for the benefit of the
Sarnoff Irrevocable Trust, and Sheldon L. Contract, as trustee for the
benefit of the Sheldon L. Contract DDSPA Employee Profit Sharing Plan and
Trust are certified as class representatives for purposes of the
settlement.
9. Pursuant to Rule 23 of the Federal Rules of Civil
Procedure, Zachary Alan Starr of Starr & Holman, LLP, and Jonathan M.
Plasse of Goodkind Labaton Rudoff & Sucharow LLP, are designated as counsel
for the Class for purposes of settlement.
10. Pursuant to Rule 23.1 of the Federal Rules of Civil
Procedure, Jeffrey G. Smith of Wolf Haldenstein Adler Freeman & Herz LLP
and Joshua N. Rubin of Abbey Gardy & Squitieri are designated counsel for
the Plaintiffs in the Colorado Derivative Actions for purposes of
settlement.
11 . Within five (5) days of the date of this Order, Resort
shall provide to Class Counsel and Derivative Counsel, to the extent that
it has not already done so, all information obtainable by reasonable
efforts, including information held by its present and former transfer
agents, identifying by name and address: (a) the Persons who purchased
shares of Resort stock during the Class Period, including banks, brokerage
firms, institutions, and other nominees; and (b) the Persons who are or
were Resort Shareholders as of November __, 1997, including banks,
brokerage firms, institutions and other nominees.
<PAGE>
12. The Notice, Summary Notice and the Proof of Claim
attached as Exhibits B, C and D to the Stipulation, reasonably inform the
Class and Current Shareholders of the pendency and nature of the
Litigation, the terms of the proposed Settlements, the Plan of
Distribution, and the rights of Class Members and Current Shareholders with
respect to the Settlements.
13. The Notice, Summary Notice and Proof of Claim are
approved by the Court as to their form, content and requirements.
14. Plaintiffs' Counsel is authorized to issue the Notices
and Proofs of Claim and publish the Summary Notice, in substantially their
present form, to those members of the Class and Current Shareholders that
can be identified through reasonable effort. Plaintiffs' Counsel are
hereby authorized to take reasonable steps and to utilize reasonable
procedures in connection with the dissemination of the Notice and the
administration of the Settlement which are consistent with this Order and
the terms and conditions of the Settlement.
15. Plaintiffs' Counsel are hereby authorized to retain the
firm of FRG Information Systems Corp. to supervise and administer the
dissemination of the Notice and Proof of Claim as well as the processing of
claims as more fully set forth below:
a. Not later than 10 days from the date hereof,
Plaintiffs' Counsel shall cause a copy of the Notice and the Proof of Claim
to be mailed by first-class mail to: (i) all Persons who can be identified
through reasonable efforts by the parties to have purchased Resort Stock
during the period from March 31, 1993 through June 29, 1995, inclusive; and
(ii) all Current Shareholders who can be identified through reasonable
efforts by the parties to own stock in Resort as of November __, 1997. The
date of such initial mailing shall be referred to as the "Notice Date."
b. Plaintiffs' Counsel shall use reasonable efforts to
give notice to nominee owners, such as brokerage firms or other Persons who
held shares of Resort stock as record owner, but not as beneficial owner,
during the period from March 31, 1993 through June 29, 1995, inclusive, and
as of November __, 1997, as part of these efforts. A Notice to Banks,
Brokers, Institutions, and Other Nominees ("Notice to Nominees") shall be
included in the mailing described in paragraph (a) above, and all Persons
to whom the Notice to Nominees is addressed are hereby directed to comply
with the directions contained therein. If any Nominee submits to Class
Counsel or Derivative Counsel a list of beneficial owners, Class Counsel or
Derivative Counsel shall send a copy of the Notice to each such beneficial
owner within ten (10) days after receipt of such list. Alternatively, upon
request by a Nominee, Class Counsel or Derivative Counsel shall send to the
Nominee, within ten (10) days of receipt of such request, a sufficient
number of additional copies of the Notice to permit mailing to all
beneficial owners for whom the Nominee acted.
c. Not later than 20 days after the Notice Date,
Plaintiffs' Counsel shall cause to be published the Summary Notice once in
the national edition of THE WALL STREET JOURNAL.
d. Plaintiffs' Counsel shall also cause the Notice to
be mailed as soon as practicable after the Notice Date to all Persons who,
in response to the Summary Notice, represent that they are Class Members or
Current Shareholders and request a copy of the Notice.
<PAGE>
16. The Court finds that the mailing and publication of
notice of the Settlement ordered herein meets the requirements of due
process and Rules 23 and 23.1 of the Federal Rules of Civil Procedure and
is the best notice practicable under the circumstances and constitutes due
and sufficient notice to all Persons entitled to receive notice.
17. No later than seven days before the Settlement Hearing,
Plaintiffs' Counsel shall cause to be served on Defendants' Counsel and
filed with the Clerk of this Court one or more affidavits or declarations
of the person or persons under whose direction the mailing of the Notice
and Proof of Claim and the publication of the Summary Notice shall have
been accomplished substantially in accordance with this Order.
18. Members of the Class who wish to participate in the Class
Action Fund shall complete and submit Proofs of Claim in accordance with
the instructions contained therein. All Proofs of Claim must be received
by the Claims Administrator no later than 90 days from the Notice Date.
19. All members of the Class shall have the option to be
excluded from the Class and thereby elect not to participate in the Class
Action Fund. Such exclusion shall be exercisable by mailing a timely and
valid written Request for Exclusion to Class Counsel on behalf of
Plaintiffs, to George Curtis of Gibson, Dunn & Crutcher LLP on behalf of
D&T and to Allan T. Slagel of Shefsky & Froelich Ltd. on behalf of the
remaining Defendants. To be effective, the Request for Exclusion must be
in writing and received no later than 25 business days before the date of
the Hearing set forth in the Notice. No Person may exclude themselves from
the Class after that date. Such Request for Exclusion must set forth: (i)
the name, address, telephone number and social security or taxpayer
identification number of the Person requesting to be excluded from the
Class; (ii) the name and address of the Person in whose name the shares of
Resort stock for which exclusion is being requested was registered, if
different from the foregoing; (iii) the number of shares of Resort stock
for which exclusion is being requested; (iv) the number of shares of Resort
stock as to which losses are claimed, and the losses claimed; and (v) the
date(s) of purchase or acquisition, the number of shares of Resort stock
purchased or acquired, and the price(s) paid for all shares of Resort stock
purchased or otherwise acquired during the Class Period by the Person
requesting to be excluded from the Class; if the Resort stock is no longer
owned, the date(s) of sale or other disposition, the number of shares sold
and the proceeds received. All Requests for Exclusion must be signed by or
on behalf of the Person or entity so requesting exclusion and must include
proof of purchase of the shares for which exclusion is requested. If a
Request for Exclusion is not timely submitted, or does not include all the
information set forth above, or is not signed, it shall not be a valid
Request for Exclusion and the Person filing an invalid Request for
Exclusion shall remain a member of the Class. All Persons who file valid
and timely Request for Exclusion from the Class shall have no rights with
respect to the Class Action Settlement and have no interest in the Class
Action Fund.
20. Pending final determination of whether the Settlement
should be approved, neither the Plaintiffs, Class Member or Current
Shareholder nor any Released Party shall commence, maintain or prosecute
against any Defendant, any action or proceeding in any court or tribunal
asserting any Released Claim.
<PAGE>
21. All members of the Class may enter appearances in the
Class Action, at their own expense, individually or through counsel of
their own choice. If they do not enter an appearance, they will continue
to be represented by Class Counsel. Similarly, all Current Shareholders
may enter appearances in the Derivative Actions, at their own expense,
individually or through counsel of their own choice. If they do not enter
an appearance, they will continue to be represented by Derivative Counsel.
Neither class members or Current Shareholders need to appear at the
respective hearings or take any other action to indicate their approval.
22. Any member of the Class who has not requested exclusion
may appear and show cause, if any, why the proposed Settlement should or
should not be approved as fair, reasonable and adequate; why a final
judgment and order of dismissal should or should not be entered thereon;
why Attorneys' Fees and Expenses should or should not be awarded to Class
Counsel in the amount requested; or why the Plan of Distribution should or
should not be approved as fair. However, in order to appear, be heard or
entitled to contest any of these issues, a Class Member must file, by at
least 25 business days prior to the Hearing, evidence of their being a
Class Member and a written statement of position or objection together with
any briefs or supporting documents, with the Clerk of the United States
District Court for the District of Colorado, The United States Courthouse,
1929 Stout Street, Denver, Colorado 80294, and serve copies of such papers
by hand or first-class mail upon Class Counsel; and Allan T. Slagel of
Shefsky & Froelich Ltd. Any statement of position or objection shall
identify any and all witnesses, documents and other evidence of any kind to
be presented at the Hearing in support of the statement of position or
objection, as well as the substance of the testimony to be given by any
such witnesses and of any other evidence to be presented. Any member of
the Class who does not object in this manner shall be deemed to have waived
such objection and shall forever be foreclosed from making any objection to
the fairness or adequacy of the proposed Settlement to any Final Order and
Judgment that may be entered, to the award of Attorneys' Fees and Expenses
to Class Counsel, and to the Plan of Distribution.
23. Any Current Shareholder may appear and show cause, if
any, why the proposed Settlement should or should not be approved as fair,
reasonable and adequate; why a final judgment and order of dismissal should
or should not be entered thereon; or why Attorneys' Fees and Expenses
should or should not be awarded to Derivative Counsel in the amount
requested. However, in order to appear, be heard or be entitled to contest
any of these issues, a Current Shareholder must file, by at least 25
business days prior to the Hearing, evidence of their being a Current
Shareholder and a written statement of position or objection together with
any briefs or supporting documents, with the Clerk of the United States
District Court for the District of Colorado, The United States Courthouse,
1929 Stout Street, Denver, Colorado 80294, and serve copies of such papers
by hand or first-class mail upon Jeffrey Smith, Esq. of Wolf Haldenstein
Adler Freeman & Herz LLP, Joshua N. Rubin of Abbey Gardy & Squitieri and
Allan T. Slagel of Shefsky & Froelich Ltd. Any statement of position or
objection shall identify any and all witnesses, documents and other
evidence of any kind to be presented at the Hearing in support of the
statement of position or objection, as well as the substance of the
testimony to be given by any such witnesses and of any other evidence to be
presented. Any Current Shareholder who does not object in this manner
shall be deemed to have waived such objection and shall forever be
foreclosed from making any objection to the fairness or adequacy of the
proposed Settlement to any final judgment and order of dismissal that may
be entered, or to the award of Attorneys' Fees and Expenses to Derivative
Counsel.
<PAGE>
24. Only Class Members shall have the right to object to the
settlement of the Class Action or the Class Fee and Expense Award. Only
Current Shareholders shall have the right to object to the settlement of
the Derivative Action or the Derivative Fee and Expense Award.
25. Any memoranda in support or clarification of the
Settlement shall be filed by the Parties at least seven days before the
Hearings.
26. Class Counsel and Derivative Counsel shall file their
respective applications for Attorneys' Fees and Expenses, including the
fees and expenses of experts, and any supporting papers, at least seven
days before the Hearings.
27. In the event that the proposed settlements are not
finally approved by the Court, are terminated in accord with the provisions
of the Stipulation, or for any reason are not consummated and a final
judgment and order of dismissal is not entered, then the Stipulation shall
become null and void and of no further force and effect, except as
specified therein.
28. Whether or not the settlement is consummated, the
Stipulation and all negotiations and papers relating to it, and any
proceedings in connection with the Settlements, (a) are not and shall not
be construed to be evidence of an admission by any of the Defendants as to
any claim asserted in the Litigation or any other action or proceeding, (b)
are not and shall not be construed to be evidence of an admission by the
Plaintiffs that any claim asserted in the Litigation lacks merit, and (c)
shall not be offered or received in evidence in any action or a proceeding
except a proceeding to enforce the terms of the Stipulation.
29. All proceedings in the Litigation, except those relating
to the Settlements, are hereby stayed and all applicable deadlines are
hereby extended pending the Court's further consideration of the
Settlements. The institution or prosecution by any Class Member or Current
Shareholder of any claim which would be dismissed or released in connection
with the Settlements is hereby stayed pending the Court's further
consideration of the Settlements.
30. The Opt-Out Contingency letters referred to in Section XI
of the Stipulation shall continue to be treated as confidential unless and
until either Resort or Deloitte & Touche exercise their rights pursuant to
the letters.
31. The Court reserves the right: (a) to approve the
Settlements, with such modification as may be agreed to by counsel for the
Parties consistent with the Stipulation, without further notice to Class
Members and Current Shareholders, and (b) to adjourn the Hearings or any
adjournment thereof without any further notice other than an announcement
at the hearings or any adjournment thereof.
32. The Court retains exclusive jurisdiction over the Actions
to consider all further matters arising out of or connected with the
Settlements, including the enforcement of the Stipulation.
IT IS SO ORDERED.
------------------------------
Honorable Lewis T. Babcock
United States District Judge
____________________ , 1997.
Denver, Colorado
EXHIBIT 10.5
- ------------
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Master File No. 95-B-1665
IN RE: RESORT INCOME INVESTORS, INC., SECURITIES LITIGATION
===========================================================================
THIS DOCUMENT RELATES TO: ALL ACTIONS
===========================================================================
Case No.: 97-B-2252
PHILIP FRANK, as Trustee for the Trust Under the Will of Helen Frank, and
JOSEPH E. ALPERT, derivatively on behalf of RESORT INCOME INVESTORS, INC.,
Plaintiffs,
vs.
CHRISTOPHER HEMMETER, MARK HEMMETER,
DANIEL D. LANE, and JOHN R. YOUNG,
Defendants,
and
RESORT INCOME INVESTORS, INC.,
Nominal Defendant.
===========================================================================
SUMMARY NOTICE OF CLASS ACTION AND DERIVATIVE ACTION
SETTLEMENTS AND HEARINGS THEREON
===========================================================================
TO: (1) ALL PERSONS WHO PURCHASED SHARES OF RESORT INCOME INVESTORS, INC.
("RESORT") DURING THE PERIOD FROM MARCH 31, 1993 TO JUNE 29, 1995,
INCLUSIVE ("CLASS PERIOD"); AND (2) ALL HOLDERS OF SHARES OF RESORT AS OF
NOVEMBER __, 1997.
YOU ARE HEREBY NOTIFIED, pursuant to an Order of the United States
District Court for the District of Colorado, dated __________, 1998, that
hearings will be held on _______, 1998 at ___ _.m. in FRANK, ET AL. V.
CHRISTOPHER HEMMETER, ET AL. (the "Derivative Actions") and in IN RE RESORT
INCOME INVESTORS INC. SECURITIES LITIGATION (the "Class Action") before the
Honorable Lewis T. Babcock, at the United States District Courthouse, 1929
Stout Street, Denver, Colorado 80294, Courtroom __, for the purpose of
determining: (1) whether the proposed settlement of the Derivative Actions
and the Class Action should be approved by the Court as fair, reasonable
and adequate; (2) whether the Class was adequately represented by the named
Class Action Plaintiffs and by Class Counsel; (3) whether the Derivative
Actions and Class Action should each be dismissed with prejudice as set
forth in the Stipulation of Settlement dated November __, 1997, which is on
file with the Court; (4) whether the Plan of Distribution of the Class
Action Fund among class members in the Class Action should be approved; and
(5) whether an application of Plaintiffs' Counsel for the payment of
Attorneys' Fees and Expenses is reasonable and should be approved.
<PAGE>
IF YOU PURCHASED RESORT STOCK DURING THE PERIOD FROM MARCH 31, 1993
TO JUNE 29, 1995, INCLUSIVE, OR IF YOU HELD SHARES OF RESORT STOCK ON
NOVEMBER __, 1997, YOUR RIGHTS MAY BE AFFECTED BY THIS LITIGATION AND THE
PROPOSED SETTLEMENTS.
This Notice is only a brief summary of important matters. If you
have not received the detailed printed Notice of Class And Derivative
Actions and Hearings On Proposed Settlement (the "Notice") and a copy of
the Proof of Claim, you may obtain copies by writing to: Resort Income
Investors Litigation, FRG Information Systems Corp., 823 United Nations
Plaza, Suite 500, New York, NY l00l7.
If you are a member of the Class, in order to share in the
distribution of the Class Action Fund, you must submit a completed Proof of
Claim no later than _________, 1998, establishing your entitlement to
recovery. Class Members will be bound by any judgment rendered in the
Class Action unless you mail a written request to be excluded, to the above
address, received by _________, 1997. IF YOU ARE A CLASS MEMBER, AND DO
NOT EXCLUDE YOURSELF AND DO NOT FILE A PROPER PROOF OF CLAIM, YOU WILL NOT
SHARE IN THE SETTLEMENT, BUT YOU WILL BE BOUND BY ANY FINAL ORDER AND
JUDGEMENT ENTERED BY THE COURT.
Inquiries, other than for the forms of Notice and proof of Claim, may
be made to Plaintiffs' Counsel; Co-Lead Counsel for plaintiffs in the Class
Action are: Jonathan M. Plasse, Esq., Goodkind Labaton Rudoff & Sucharow
LLP, 100 Park Avenue, New York, New York 10017; and Zachary Alan Starr,
Esq., Starr & Holman LLP, 10 East 40th Street, 29th Floor, New York, New
York 10016. Co-Lead Counsel for Record Holders in the Derivative Action
are: Jeffrey Smith, Esq., Wolf Haldenstein Adler Freeman & Herz LLP, 270
Madison Avenue, New York, New York 10016; and Joshua Rubin, Abbey Gardy &
Squitieri LLP, 212 East 39th Street, New York, New York 10016.
PLEASE DO NOT CONTACT THE COURT OF THE CLERK'S OFFICE
Dated: ________________, 1997
BY ORDER OF THE COURT
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
EXHIBIT 99.1
- ------------
RESORT INCOME INVESTORS, INC.
For Immediate Release
Investor Relations: 312/683-3323
312/683-5534 (fax)
RESORT INCOME INVESTORS, INC. ANNOUNCES FILING OF SETTLEMENT
AGREEMENT IN CLASS ACTION AND DERIVATIVE LITIGATION
Chicago, Illinois, December 2, 1997 -- Resort Income Investors, Inc.
(NASDAQ EBB: RIIV) today announced the filing on November 26, 1997 of the
settlement agreement in the securities class action and derivative lawsuits
involving the Company pending in Federal District Court in Denver,
Colorado.
As previously reported, the securities class action lawsuits were
originally filed in June and July 1995 in Federal District Court in
Colorado against the Company and certain of its current and former
directors and officers and its independent auditors at the time. These
lawsuits alleged violations of Sections 10(b) and 20(a) of the Securities
and Exchange Act of 1934 and other provisions of the federal securities
laws and regulations.
The derivative actions were filed in June 1995 in the Chancery Court
of Delaware against certain current and former directors and officers of
the Company. The Company is a nominal defendant in the derivative actions.
The derivative action complaints allege that the directors and officers
breached their fiduciary duties to the Company, wasted Company assets and
that its chairman of the board and chief executive officer, at the time,
was in a conflict of interest position. Plaintiffs in the derivative
actions, in October 1997, filed a related action in the Federal District
Court in Colorado in order to seek approval of the settlement of the
derivative actions in that Court concurrently with the securities class
action settlement.
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<PAGE>
The Company's Board of Directors believes that the settlements are
beneficial to the Company because its liquidation will be more readily
accomplished once the Company is unencumbered by the expense and
uncertainty of defending the lawsuit. The settlement agreement emphasizes
that the approval of the settlement should not be considered an admission
of liability by any defendant with respect to any of the claims asserted.
The class action settlement provides that investors who purchased
shares in the Company between March 31, 1993 and June 29, 1995 will be
eligible to participate in the settlement proceeds. The settlement
proceeds will consist of approximately $5,055,000 paid by the Company's
officers and directors' insurer and its former auditors, plus an amount
equal to the greater of : (I) 44% of the Company's net assets in
liquidation as of: (a) December 31, 1997; or (b) the date the Company files
its certificate of liquidation, whichever is earlier; or (ii) $1,000,000.
$1,425,000 of the $5,055,000 will be contributed towards the settlement of
the derivative actions.
The amounts available for distribution to the class will be
determined after court-ordered attorney fees and expenses have been
awarded. The amount that individual class members may receive will
be determined according to certain formulas set forth in the settlement
agreement and the amount of claims filed.
Preliminary approval of the settlement by the Court is expected
within the next couple of weeks. A court hearing for final approval
of the settlement will likely take place in the first quarter of 1998.
After preliminary approval of the settlement is received, notices
which thoroughly address the settlement terms and the process for filing
claims will be sent to the Company's stockholders, as of November 18, 1997,
and class members from the Clerk of the Court.
STOCKHOLDERS AND CLASS MEMBERS SHOULD ADDRESS ALL QUESTIONS PERTAINING
TO THE ADMINISTRATION OF CLAIMS AND THE PROCESS FOR SUBMITTING FORMS TO:
FRG Information Systems Corp.
Re: Resort Income Investors, Inc. Litigation
823 United National Plaza - Suite 500
New York, NY 10017
Telephone: 212/490-3500
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<PAGE>
ADDITIONALLY, STOCKHOLDERS AND CLASS MEMBERS MAY ADDRESS GENERAL QUESTIONS
CONCERNING THE LAWSUITS AND/OR SETTLEMENT ISSUES TO PLAINTIFFS COUNSEL AT:
1. Class Action counsel:
Jonathan M. Plasse, Esq.
Goodkind Labaton Rudoff & Sucharow LLP
100 Park Avenue
New York, NY 10017
(212) 907-0700
and
Zachary Alan Starr, Esq.
Starr & Holman LLP
10 East 40th Street
29th Floor
New York, New York 10016
(212) 684-6442
2. Derivative Counsel:
Jeffrey G. Smith
Wolf Haldenstein Adler Freeman & Herz LLP
270 Madison Avenue
New York, New York 10016
(212) 545-4600
and
Joshua N. Rubin
Abbey Gardy & Squitieri
212 East 39th Street
New York, New York 10016
(212) 889-3700
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<PAGE>
The Company has 4,156,000 shares outstanding.
Statements regarding future financial performance and results and
the other statements that are not historical facts contained in this
release are forward-looking statements subject to numerous risks and
uncertainties, and other factors detailed in the Company's Securities
and Exchange Commission filings.
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