According to the Company’s FORM 10-Q for the Quarterly Period Ended March 31, 2002, on May 7, 2002, the U.S. District Court for the District of Maryland issued an order granting the Company its motion to dismiss the Consolidated Claims.
As previously disclosed by the Company’s Form 10-K for the fiscal year ended December 31, 2001, from April through June 2001, five class action complaints were filed in the U.S. District Court for the Eastern District of Virginia against the Company and certainof its executive officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The complaints were brought on behalf of persons who purchased the Company's common stock from November 14, 2000 through March 29, 2001 (the "Class Period"). In June 2001, the parties stipulated to transfer the cases to the U.S. District Court for the District of Maryland. In July 2001, the Court appointed lead plaintiffs and approved their selection of counsel. In September 2001, lead plaintiffs filed a consolidated amended complaint alleging violations of the same securities laws and regulations and alleging the same Class Period. Specifically, plaintiffs allege that defendants made false and misleading statements concerning the Company's financial condition and operations and artificially inflated the market price of the Company's securities during the Class Period. In November 2001, the Company filed a motion to dismiss the consolidated amended complaint. The plaintiffs have responded to such motion and the Company has since filed a reply memorandum of law in support of its motion to dismiss the plaintiffs' consolidated amended complaint.
The original complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market during the Class Period, thereby artificially inflating the price of Humphrey securities. According to the complaint, Humphrey is a self-administered real estate investment trust ("REIT"). As of December 31, 2000, Humphrey owned 92 existing limited service hotels (the "Hotels") and one office building. The Hotels (containing approximately 6,400 rooms in 19 states) and office building are leased to Humphrey Hospitality Management, Inc. and its subsidiary Supertel Hospitality Management, Inc. (the "Lessee"). Specifically, the complaint alleges that defendants conditioned the market to believe in the strength of Humphrey's financial condition, and that Humphrey's conservative fiscal policies meant that its dividend was secure. The complaint further alleges that on March 29, 2001, the Company shocked the market by announcing that its Lessee advised that, without a substantial reduction in the rent, it would be unable to lease and operate the hotels; and that the Board of Directors had established "a committee of independent directors" to "explore alternatives available to the (Company)." Humphrey also announced that its dividend would be reduced for monthly payments subsequent to those payable to shareholders of record on March 30, 2001. Humphrey common stock opened at $7.0938 per share on March 29, 2001 and closed that day at $4.7812 that day on volume of 217,200 shares, approximately seven times its average volume.