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UNITED STATES DISTRICT COURT DISTRICT OF NORTH DAKOTA
RAYMOND HANS, GAYLE HERBERT, JEREMY JACKEY, CHUCK LEBLANC, LARRY RICHMAN, DONNA WALKER and MICHAEL WEBSTER on behalf of themselves, individually and on behalf of all others similarly situated in the Former Employee Class; and CARLOS GONZALES, DONALD KLAIN, JOLENE MATHESON-GODSCHALK, and SIDNEY LIEN, on behalf of themselves individually and on behalf of all others similarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON, ROGER THARALDSON, RAYMOND BRAUN and JAMES LOCHOW as the Trustees of the MICHELLE THARALDSON TRUST and as Trustees of the MATTHEW THARALDSON TRUST, SOUTH DAKOTA TRUST COMPANY, LLC as Trustee of the MICHELLE LYN THARALDSON LEMASTER DYNASTY TRUST, as Trustee of the MATTHEW THARALDSON DYNASTY TRUST and as Trustee of the MICHAEL THARALDSON DYNASTY TRUST, and LINDA THARALDSON individually and in her capacity as Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCK OWNERSHIP PLAN,
Nominal Defendant.
Civil Action No. 3:05-CV-00115-RRE-KKK
PLAINTIFFS’ NOTICE AND MOTION IN SUPPORT OF PRELIMINARY APPROVAL OF PROPOSED SETTLEMENT, APPROVAL OF NOTICE PLAN AND SCHEDULING
OF FAIRNESS HEARING
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COME NOW Plaintiffs Carlos Gonzales, Jolene Matheson-Godschalk, and Sidney Lien,
on behalf of themselves individually and on behalf of all others similarly situated in the Current
Employee Class (“CEC”) and Raymond Hans, Gayle Herbert, Larry Richman, Donna Walker,
Michael Webster, Bernard McKay and Tammy Blake on behalf of themselves, individually and
on behalf of all others similarly situated in the Former Employee Class (“FEC”) and move this
Court for an Order (1) preliminarily approving the proposed Settlement Agreement dated on or
about October 10, 2012 between the Class Plaintiffs and Defendants attached hereto as Exhibit A
and incorporated herein by reference;1 (2) approving and directing distribution of the Notice to
the Settlement Classes attached hereto as Exhibit B and incorporated herein by reference; (3)
establishing a date for a final Fairness Hearing for approval of the Settlement; (4) setting a
deadline by which all Objections to the Settlement must be made; and (5) setting a deadline for
filing briefs in support of Class Counsel’s applications for a Fee Award, Incentive Award and
Expense Award.
The proposed Settlement, consisting of (1) a cash payment of $4,000,000, and (2) a total
of $11,000,000 being credited against principal owing under the ESOP2 Notes inter alia,
provides substantial benefits to members of the Class and resolves all claims asserted by
Plaintiffs. Plaintiffs submit that the Settlement is fair, reasonable, and adequate under the
1 Defendants Connie Tharaldson, Roger Tharaldson, Raymond Braun and James Lochow (as the
Trustees of the Michelle Tharaldson Trust and as Trustees of the Matthew Tharaldson Trust), South Dakota Trust Company, LLC (as Trustee of the Michelle Lyn Tharaldson LeMaster Dynasty Trust, the Matthew Tharaldson Dynasty Trust and the Michael Tharaldson Dynasty Trust), and Linda Tharaldson (individually and in her capacity as Trustee for the Michael Tharaldson Trust), who are referred to as the “Fiduciary Selling Shareholders,” along with Defendant Gary Tharaldson are referred to collectively as “Defendants,” the “Tharaldsons” or the “Tharaldson Family.”
2 The term “ESOP Notes” refers to the notes which the Tharaldson Motels, Inc. (“TMI”) Employee Stock Ownership Plan (“ESOP” or “TMI ESOP”) gave to the Defendants as partial consideration for the purchase of 9,999,900 shares of TMI stock which is the subject of the Complaint in this proceeding.
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governing standards for evaluating class action settlements in this Circuit. See, e.g., In re
Wireless Tel. Fed. Cost Recovery Fees Litig. (“Wireless II”), 396 F.3d 922, 934 (8th Cir. 2005).
All prerequisites for preliminary approval of the Settlement and class certification have been
met, and Plaintiffs respectfully request that their motion be granted, for the reasons set forth
herein.
I. BACKGROUND
A. The ERISA Claims Asserted Against the Defendants
The Court is familiar with this case as a result of the case hearings, rulings and the
extensive briefing submitted by all parties that has occurred over the last several years. Plaintiffs
Raymond Hans, Gayle Herbert, Jeremy Jackey, Chuck LeBlanc, Larry Richman, Donna Walker
and Michael Webster, acting on behalf of themselves and on behalf of the Tharaldson Motels,
Inc. Employee Stock Ownership Plan (the “ESOP”), filed this lawsuit in December 2004. In the
Complaint, the Plaintiffs alleged that Defendants violated the Employee Retirement Income
Security Act of 1974 (ERISA) in connection with the sale of 100% of the outstanding shares of
TMI stock to the ESOP in exchange for over $500 million, consisting of cash and the ESOP
Notes, during the period 1998 through 2000. Specifically, Plaintiffs claimed that Gary
Tharaldson as the sole ESOP trustee caused the ESOP to pay in excess of fair market value for
the shares of TMI purchased by the ESOP in transactions prohibited by ERISA § 406. Plaintiffs
also alleged that because Gary Tharaldson was conflicted in such transactions, his actions in
acquiring the shares of TMI for the ESOP constituted breaches of his fiduciary duties of
prudence and loyalty to the ESOP in violation of ERISA § 404. See Hans v. Tharaldson, 2007
WL 2873504 *3 (D.N.D. Sept. 26, 2007). Plaintiffs further alleged that in paying more than fair
market value for the purchase of TMI stock, the ESOP incurred an excessive amount of debt,
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which was financed in large part by loans from the Tharaldsons and, Plaintiffs’ allege, designed
to allow the Tharaldsons to nominally place the ownership of TMI in the hands of the TMI
ESOP while retaining management control and draining the company’s cash flow. Plaintiffs
alleged that these transactions were undertaken not in the interest of the TMI ESOP and its
participants, but for the benefit of the Tharaldson family, allowing the Tharaldson family to
siphon off all the profits of TMI and use them to develop new hotel and motel properties for
entities owned by the Tharaldson Family, all to the detriment of the TMI and the ESOP. Id.,
2007 WL 2873504 *2.
The Plaintiffs also alleged that the Non-Fiduciary Selling Shareholders were liable under
Section 502(a)(3) of ERISA as parties in interest and knowing participants in the fiduciary
breaches of Gary Tharaldson.
B. The Procedural History of the Case
Gary Tharaldson and the other seller Defendants filed Answers to the Complaint denying
that the ESOP paid greater than fair market value in the transactions and contesting most of the
allegations.
Subsequently, Defendants filed Motions to Dismiss some of the claims and some of the
Plaintiffs in the lawsuit. On September 26, 2007, the Court entered an Order granting the
Tharaldsons’ Motion to Dismiss Plaintiffs Hans, LeBlanc, and Richman from the lawsuit on the
basis that the dismissed Plaintiffs were former TMI employees who had cashed out of the ESOP,
were no longer plan participants within the meaning of ERISA and therefore lacked standing. Id.,
2007 WL 2873504 *4.
After the United States Supreme Court entered its decision in LaRue v. DeWolff, Boberg
& Assoc., 128 S.Ct. 1020 (2008), Plaintiffs filed their Motion for Reconsideration of the prior
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ruling dismissing Hans, LeBlanc and Richman. After considering the recent case law
developments and the Fourth Amended Complaint filed by Plaintiffs, the Court granted the
Motion for Reconsideration, determined that Plaintiffs Hans, LeBlanc and Richman were
“participants” in the ESOP with standing to assert ERISA claims and reinstated them as
Plaintiffs. See Hans v. Tharaldson, 601 F.Supp.2d 1139 (D.N.D. 2009).
After filing the Complaint, Plaintiffs immediately commenced merits discovery in the
case which continued from 2005 through 2010. During that time, thousands of documents were
requested for production and reviewed by Plaintiffs’ counsel. Multiple sets of Interrogatories
were propounded and answered by the parties. Until merits discovery was stayed beginning in
December 2008 to facilitate the settlement efforts, which are discussed below, over 50 separate
witnesses were deposed by the parties in this litigation. During the discovery Plaintiffs filed
Motions to Compel in two separate ancillary proceedings in the District Court of Minnesota and
the Southern District of New York.
On December 21, 2007, Plaintiffs filed their Motion for Class Certification in which they
sought certification as a single class to represent all current and former TMI employees who
were participants in the ESOP at any time from December 30, 1998, to the present who received
an allocation of Plan assets to their ESOP accounts which was not forfeited under the Plan. (D.E.
# 176) After briefing was completed in 2008 (D.E. # 225 and 239) the Court held a three-day
hearing from December 8-10, 2008 on class certification issues, after which the matter remained
pending until after the discovery stay was lifted in March 2010.
On May 7, 2010, the Court determined that the case should be certified as a class action
but concluded that the current employees and former employees needed to be represented by
separate class representatives and separate counsel to protect their separate and potentially
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conflicting interests. As a result, the Court certified a sub-class of former employees (the FEC)
and a sub-class of current employees (the CEC) that required separate representatives and
separate counsel. The Court approved the original Plaintiffs as representatives of the FEC and
the Cohen Milstein law firm as their counsel.
After further proceedings, on August 27, 2010, the Court ordered North Star to serve in a
representative capacity to advocate for the interests of the CEC and to participate in the selection
process for finding suitable class representatives and counsel for the CEC. On October 22, 2010,
the Court approved Charles Berryhill, Carlos Gonzales, Donald Klain, Jolene Matheson-
Godschalk, and Sidney Lien as Class Representatives for the CEC and the law firm of Keller
Rohrback, P.L.C., as their counsel. Mr. Klain and Mr. Berryhill subsequently terminated their
employment with TMI and are no longer members of the CEC or its Class Representative.
The sub-classes were thereafter defined as follows:
I. PARTICIPANTS IN THE THARALDSON MOTELS, INC. (“TMI”) EMPLOYEE STOCK OWNERSHIP PLAN (“TMI ESOP”) AT ANY TIME FROM DECEMBER 30, 1998 TO THE PRESENT WHO RECEIVED AN ALLOCATION OF PLAN ASSETS TO THEIR TMI ESOP ACCOUNTS WHICH THEY DID NOT SUBSEQUENTLY FORFEIT UNDER THE TERMS OF THE TMI ESOP AND WHO ARE NO LONGER EMPLOYEES OF TMI (OR AN AFFILIATE OF TMI), AND THE BENEFICIARIES OF SUCH PARTICIPANTS (“FORMER EMPLOYEE CLASS”);
II. PARTICIPANTS IN THE TMI ESOP AT ANY TIME FROM
DECEMBER 30, 1998 TO THE PRESENT WHO ARE PRESENT EMPLOYEES OF TMI (OR AN AFFILIATE OF TMI) AND THE BENFICIARIES OF SUCH PARTICIPANTS (“CURRENT EMPLOYEE CLASS”).
The stay of discovery, which had been previously entered in December 2008 to facilitate
settlement discussions, was lifted in March 2010, and expert witness discovery was conducted
throughout 2010 and concluded in March 2011, after the CEC and their counsel had designated
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their own expert witness and the parties completed expert witness depositions.
Thereafter, in April 2011, the parties filed their respective Motions for Summary
Judgment (“MSJ”). Separate MSJs were filed by the FEC, CEC, North Star, Gary Tharaldson,
and the Non-Fiduciary Seller Defendants. The Plaintiffs and North Star sought summary
judgment on issues of liability relating to the ERISA §§ 404 and 406 claims asserting, among
other things, that, because the acquisition of shares of TMI stock by the ESOP had been
completed in non-simultaneous transactions entered into in December 1998, December 1999,
and July 2000, as a matter of law, the ESOP had paid more than fair market value for the shares
it acquired because the debt from the initial acquisitions of shares in December 1998 had not
been taken into account in valuing the shares of TMI that were purchased in the subsequent
acquisitions. Accordingly, Plaintiffs asserted that sale of shares by the Defendants to the ESOP
were prohibited transactions in violation of Section 406 of ERISA for which there was no
exemption under Section 408 of ERISA.
Gary Tharaldson sought summary judgment asserting, among other things, that because
the December 1998 transaction never closed for failure to satisfy the terms of the initial
agreement, the 1998 and 1999 Stock Purchase Agreements closed simultaneously in a single
integrated transaction (“SIT”) in December 1999. Accordingly, Tharaldson asserted that the
ESOP debt from the 1998 Stock Purchase Agreements did not destroy the equity value of the
remaining shares purchased from the Defendants and therefore the ESOP did not pay more than
adequate consideration for the shares it acquired from the Defendants in violation of either
Section 404 or 406 of ERISA as alleged by the Plaintiffs.
The Non-Fiduciary Seller Defendants sought summary judgment asserting that they were
not liable as a matter of law as parties in interest to an ERISA § 406 prohibited transaction, based
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upon the absence of evidence supporting their “knowing participation” in the ERISA violations.
After extensive briefing, this Court issued its ruling on October 31, 2011:
A. Granting Tharaldson’s MSJ in part by holding that the 1998 Transaction was unenforceable under North Dakota law as a result of the failure of the sale to comply with all conditions precedent and therefore was not completed until a year later when it closed as part of a SIT in which the ESOP acquired 100% of the outstanding shares of TMI in December 1999. B. Denying Tharaldson’s MSJ to the extent it sought dismissal of the Plaintiffs’ ERISA §§ 404 and, 406 claims and denying the CEC, FEC, and North Star MSJs on the basis that there were genuine issues of material fact including the following issues:
1. Whether Tharaldson breached his fiduciary duties in failing to ensure that the 1998 transaction was executed as planned and, if so, whether this breach caused a loss to the ESOP?
2. Whether the 1999 transaction was fair to the ESOP under the circumstances? 3. Whether the ESOP paid in excess of fair market value and adequate consideration
in the 1999 transaction?
4. Whether, in determining the value of what the ESOP actually paid in the 1999 transaction, ESOP Notes issued to sellers should be valued at their face amount as cash equivalents, or discounted to their fair market value based on a sale between a hypothetical willing seller and buyer? and
5. Whether discounting of the ESOP Notes should be included in determining
whether the ESOP paid greater than fair market value or adequate consideration in the 1999 transaction and in determining whether the ESOP was damaged by any breach by the trustee in failing to ensure the 1998 transaction was executed as planned?
C. Granting the Non-Fiduciary Seller Defendants’ MSJ on the basis that they were not parties in interest and/or that there was a lack of evidence that they knowingly participated in a prohibited transaction. The FEC and CEC thereafter timely filed their appeal to the Eighth Circuit from the
Decision dismissing the Non-Fiduciary Seller Defendants, which appeal was pending at the time
settlement was reached in this case.
Pursuant to the Court’s Scheduling Order, Daubert Motions were filed by the parties on
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May 27, 2011. Defendants filed separate Motions to Exclude all or part of the testimony of the
Plaintiffs’ expert witnesses, including the stock appraisers Dana Messina, Scott Miller, and Bob
Gross, the hotel expert David Berins, the fiduciary expert Lucian Morrison, and the tax expert
Jeffrey Krenzel. Conversely, Plaintiffs and North Star filed their Motion to Strike Portions of the
Expert Testimony of Defendants’ appraisal experts Robert Reilly and Lee Bloom, the ESOP
expert Ronald Gilbert, and the hotel expert Scott Berman. After complete briefing, this Court
conducted a three-day Daubert evidentiary hearing from August 24-26, 2011, in which most of
the experts were examined and cross-examined by the parties. After the hearing, the Court
issued its Memorandum Opinion and Order granting the motion to exclude the testimony of
hotel experts Berins in total and Berman in part, appraisal expert Gross in total, and excluding
certain testimony of Ron Gilbert, but overruling all other Daubert Motions.
The case was scheduled for a bench trial beginning on November 29, 2011, but was
postponed at the request of all parties to renew settlement efforts and proceed with formal
mediation. The trial was rescheduled to begin on May 1, 2012.
On December 12-13, 2011, the parties met with a private mediator, Robert Meyer, in Los
Angeles, to attempt to resolve the claims. The matter was finally settled with the mediator just
days before the trial was to begin.
B. Settlement Negotiations.
During the long history of this litigation, the parties have engaged in multiple efforts to
settle the case, but settlement was never reached. In 2006, certain of the parties to the litigation
opened settlement discussions after TMI had entered into a letter of intent with Whitehall Global
Street Global and others for the sale of all of the outstanding TMI stock. The settlement
discussions focused initially on agreeing to a mechanism whereby TMI could be sold without
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exposing Whitehall to the risk of having to indemnify Tharaldson in the event he were found
liable in the class action. The parties were unable to come to a solution, and ultimately the
efforts stalled at the end of 2007..
In the latter part of 2008, without the knowledge or participation of counsel for the
Plaintiffs, North Star, reached a mediated settlement with TMI and the Defendants which
purported to resolve the present litigation. On November 11, 2008, North Star filed a Motion to
Intervene (D.E. # 264) in the present action for purposes of seeking the Court’s approval of the
Stipulated Settlement. Plaintiffs opposed the proposed settlement because they believed it was
not in the best interests of the ESOP or its participants and beneficiaries; however, the parties
agreed to stay discovery and to attempt to mediate revised terms for the Stipulated Settlement
before Magistrate Klein. After these mediation efforts before the Magistrate failed, the ESOP
fiduciaries withdrew their support for the Stipulated Settlement and the parties agreed in June
2009 to attempt to mediate a settlement before a private mediator.
The parties thereafter proceeded to mediation before Judge Weinstein in Napa, California
on August 10-11, 2009. After an impasse was reached with the mediator, the Defendant Gary
Tharaldson retained the Proskauer Rose law firm and the parties again agreed to make an effort
to try and reach a settlement of the claims. When these discussions also failed to bear fruit, the
Court lifted the discovery stay in March 2010, expert discovery resumed, and the case was
placed back on a trial schedule.
After this Court ruled on the Motions for Summary Judgment, all parties agreed to make
another effort at settlement through another mediation process. On December 12-13, 2011,
counsel for the parties met with mediator Robert Meyer in Los Angeles to mediate a settlement
of the case. Following the initial mediation, subsequent mediation sessions were held over the
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span of the next four months in Washington, D. C. and by telephone. As a result of these efforts,
the parties reached a settlement which was reduced to a confidential Memorandum of
Understanding that was lodged with this Court on April 23, 2012.
II. MATERIAL TERMS OF PROPOSED SETTLEMENT
A. Settlement Consideration.
Under the Settlement Agreement signed on or about October 10, 2012 (Exhibit A),
Defendants have agreed to provide monetary and non-monetary benefits to the TMI ESOP and
the members of the FEC and CEC with an estimated present value to the ESOP in excess of $15
million. These benefits include the following:
1. The payment of $4 million in cash, funded through TMI;
2. The reduction of the ESOP indebtedness related to the December 1999
Transaction in the total amount of $11 million;
3. The release of monetary claims by Gary Tharaldson in favor of TMI for
indemnification of various legal fees and expenses and by Linda Tharaldson in favor of TMI for
past and future contractual payments; and
4. The modification of an existing loan agreement between Gary Tharaldson and
TMI to increase the amount due and owing to TMI by $1 million. As sole shareholder of TMI,
the ESOP will benefit directly and/or indirectly from each element of this settlement.
First, the Settlement Agreement provides that, on Gary Tharaldson’s behalf, TMI shall
pay $4 million in cash in two payments of $2 million each. The first payment shall be made 30
days after final approval of the Settlement, while the second payment shall be paid no later than
one year after the first payment.
Second, the Settlement Agreement next provides that a total of $11 million of principal
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on the Designated ESOP Notes will be deemed paid by the holders of the ESOP Notes. Credit
will be given in four installments for these deemed payments as follows: $3 million on the date
the Final Order becomes Non-Appealable; $3 million on the next December 31, following the
date upon which the Final Order becomes Non-Appealable ; $4 million one year later; and, $1
million one year later. These principal reductions have the effect of reducing the ESOP’s
outstanding indebtedness under the ESOP Notes by $11 million.
Third, the ESOP as sole shareholder of TMI will also benefit, directly or indirectly, from
the release of certain claims against TMI that represent a potential liability which Defendants
estimate is in excess of $5 million. The Settlement Agreement provides that Gary Tharaldson
shall release all past, present and future rights of indemnification from TMI, including
indemnification for various legal fees and expenses associated with his defense of Hans v.
Tharaldson, and Linda Tharaldson shall release her compensation claim to past and future
contractual payments allegedly due to her from TMI. In exchange, TMI is executing a release of
claims against Gary Tharaldson and Linda.
Fourth, the ESOP as the sole shareholder of TMI will further benefit by the $1 million
increase in the amount due and owing to TMI resulting from the modification of a preexisting
loan between TMI and Gary Tharaldson.
Class Counsel has been provided with financial information regarding Gary Tharaldson
and determined that, in light of Tharaldson’s financial condition and all other prevailing
circumstances, including the risk that the Court may rule adversely and the Plaintiffs could
recover nothing, this Settlement provides an excellent return to the Classes and is in their mutual
best interest.
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B. Released Claims
In exchange for the foregoing consideration, the Plaintiffs generally agree to release the
Defendants from all claims that have been asserted or could have been asserted against the
Defendants under ERISA or any other law relating to or arising out of or based on the allegations
in the Complaint. In addition, Tharaldson and Linda Tharaldson have agreed to release all
Settled Tharaldson Indemnification Claims and Settled Tharaldson Contract Claims (as defined
in the Settlement Agreement) which have been asserted or could have been asserted against TMI,
the TMI affiliates and/or the TMI ESOP.
C. Plan of Allocation:
Plaintiffs’ Counsel have submitted to the Court a Plan of Allocation which describes in
detail the manner by which the Settlement proceeds paid into the TMI ESOP will be allocated.
As set forth in the Settlement Agreement, any sums approved by the Court for attorneys’
fees (the “Fee Award”), incentive awards for Class Representatives (“Incentive Awards”), and
reimbursement of litigation and settlement administration costs and expenses (the “Expense
Award”) shall be paid first out of the Settlement Fund Cash Component and any balance
remaining thereafter, if any, shall be paid to the TMI ESOP for distribution in accordance with
the Plan of Allocation. Pursuant to the Plan of Allocation, any balance remaining, if any, shall
be allocated to each Settlement Participants Other Investment Account in an amount equal to the
product of (i) the total amount of cash to be allocated on the Allocation Date, and (ii) the
Settlement Participant’s Settlement Multiplier.
The $11 million in principal reduction owing under the ESOP Notes under the Settlement
Fund Principal Reduction portion of the Settlement will occur in four annual installments. Each
year as the principal on the ESOP Notes is reduced as provided in the Settlement Agreement
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additional shares of TMI stock will be released from the ESOP’s unallocated share account. A
portion of these released shares will be converted to cash to pay a portion of any Deferred Fee
Award, as described in Section V.6-7 of the Settlement Agreement. After payment of any
Deferred Fee Award, the balance of the shares released as a result of each annual installment of
the Settlement Fund Principal Reduction shall be allocated to each Settlement Participant’s
Company Stock Account pursuant to the Plan of Allocation in an amount equal to the product of
(i) the total number of shares to be allocated on the Allocation Date resulting from the Settlement
Fund Principal Reduction and (ii) the Settlement Participant’s Settlement Multiplier.
The Settlement Multiplier represents a Settlement Participant’s current or former balance
in his or her TMI ESOP account divided by the sum of all outstanding current and former
balances of TMI company stock.
D. Class Notice.
The Settlement Agreement provides for notice to Class Members by mailing the notice
by first class mail to all affected Class Members at their last known residential address no less
than 60 days prior to the Fairness Hearing, by publication on a website established by Plaintiffs’
Counsel at the time of mailing, and by posting the notice in English and Spanish on TMI’s
webpage (http://www.tmihospitality.com/legal-notice/). The notices also clearly describe
straightforward procedures by which Class Members may object to Final approval of the
Settlement or attend the Fairness Hearing. If the Court grants Final approval of the proposed
Settlement after Class Members are notified and the time period for objections expires, all Class
Member claims against Defendants as set forth in the Settlement Agreement (SA ¶¶ XIII.1 and
5) will be deemed released.
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E. Award of Attorneys’ Fees and Expenses.
Class Counsel will also file a motion with the Court for the approval of an award of
attorneys’ fees and reimbursement of costs and expenses incurred from inception through
administration of the Settlement in connection with the prosecution and successful resolution of
this Action. SA ¶ V. Class Counsel will also file a motion with the Court for the approval of an
incentive award for the named Plaintiffs. SA ¶ V.1. Counsel’s award of attorneys’ fees and
expenses and any incentive award approved by the Court will be paid out of the Settlement Fund.
SA ¶ V.3. Defendants will take no position on the application for the fee and expense award.
SA ¶ V.2.
TMI shall be entitled to reimbursement of approved expenses related to the
administration of the Settlement Agreement of up to $150,000 to be paid (i) first from settlement
proceeds in the McKay Litigation available after the payment of any court-approved expense or
fee awards to class counsel in the McKay Litigation and (ii) as an offset to the second $2,000,000
payment. SA ¶ II.A.5.
III. PRELIMINARY APPROVAL OF THE PROPOSED SETTLEMENT
Class Plaintiffs present this Settlement for review under Fed. R. Civ. P. 23(e), which
requires court approval of a class action settlement. Grunin v. Int’l House of Pancakes, 513 F.2d
114, 123 (8th Cir. 1975) (“Under Rule 23(e), the district court acts as a fiduciary which must
serve as a guardian of the rights of absent class members.”); see also In re Wireless Tel. Fed.
Cost Recovery Fees Litig. (“Wireless I”), No. 03-md-015, 2004 WL 3671053, at *8 (W.D. Mo.
Apr. 20, 2004); In re Tex. Prison Litig., 191 F.R.D. 164, 172 (W.D. Mo. 1999). Rule 23(e)
further requires the court to issue notice in a reasonable manner to class members who would be
bound by the settlement and find, following a hearing, that the settlement is fair, reasonable, and
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adequate. Id.; see also Tex. Prison Litig., 191 F.R.D. at 172.
A court’s approval of a proposed class action settlement involves two steps: (1) a
preliminary approval in which the court makes a preliminary determination as to the fairness of
the settlement, approves notice to the class, and sets a final hearing date; and (2) a final hearing
at which the court determines whether the settlement is fair, reasonable, and adequate and should
receive final approval. ANNOTATED MANUAL FOR COMPLEX LITIGATION (FOURTH) § 21.632
author’s cmts. (2011) (“The two-step process for evaluation of proposed settlements has been
widely embraced by the trial and appellate [] courts.” (citations omitted)); see, e.g., Liles v. Del
Campo, 350 F.3d 742, 745 (8th Cir. 2003) (employing two-step process); Wireless I, 2004 WL
3671053, at *3 (same); W. Wash. Laborers-Emp’rs Pension Trust v. Panera Bread Co., No. 08-
00120, 2011 WL 720060, at *1-2 (E.D. Mo. Feb. 22, 2011) (same). For the reasons discussed
below, preliminary approval is appropriate at this time.
A. The Law Favors and Encourages Settlements in Class Actions.
The “law strongly favors settlements” and “[c]ourts should hospitably receive them.”
Little Rock Sch. Dist. v. Pulaski Cnty. Special Sch. Dist., 921 F.2d 1371, 1383 (8th Cir. 1990);
see also Petrovic v. Amoco Oil Co., 200 F.3d 1140, 1148 (8th Cir. 1999) (“A strong public
policy favors agreements, and courts should approach them with a presumption in their favor.”
(quoting Little Rock Sch. Dist., 921 F.2d at 1388)); Wireless I, 2004 WL 3671053, at *8 (“The
policy in favor of settlement is so strong that such agreements are ‘presumptively valid.’”
(quoting Little Rock Sch. Dist., 921 F.2d at 1391)). The Eighth Circuit has recognized that the
“‘judicial policy favoring settlement . . . rests on the opportunity to conserve judicial resources,
not expend them further.’” Stewart v. M.D.F., Inc., 83 F.3d 247, 252 (8th Cir. 1996) (citing
Justine Realty Co. v. Amer. Nat'l Can Co., 976 F.2d 385, 391 (8th Cir. 1992)). Accordingly, in
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evaluating a settlement in light of this policy, “judges should not substitute their own judgment
as to optimal settlement terms for the judgment of the litigants and their counsel.” Petrovic, 200
F.3d at 1148-49 (citation omitted).
The judicial policy favoring settlements is particularly strong “in class actions and other
complex cases where substantial judicial resources can be conserved by avoiding formal
litigation.” Cohn v. Nelson, 375 F. Supp. 2d 844, 852 (E.D. Mo. 2005) (internal citations and
quotations omitted); Wireless I, 2004 WL 3671053, at *11 (“It is the surety of settlement that
makes it a favored policy in dispute resolution as compared to unknown dangers and unforeseen
hazards of litigation.” (citation omitted)); In re Charter Commc’ns, Inc., Sec. Litig., No. 02-1186,
2005 WL 4045741, at *4 (E.D. Mo. June 30, 2005) (“In the class action context in particular,
there is an overriding public interest in favor of settlement” in that it “minimizes the litigation
expenses of both parties and also reduces the strain such litigation imposes upon already scarce
judicial resources.” (quoting Armstrong v. Bd. of Sch. Dirs., 616 F.2d 305, 313 (7th Cir. 1980))
(citation and internal quotation marks omitted)).
The Eighth Circuit “recognize[s] that a class action settlement is a private contract
negotiated between the parties,” and that “Rule 23(e) requires the court to intrude on that private
consensual agreement merely to ensure that the agreement is not the product of fraud or
collusion and that, taken as a whole, it is fair, adequate, and reasonable to all concerned.”
Wireless II, 396 F.3d at 934 (internal citation omitted). As set forth below, the Settlement here
meets these requirements.
B. Preliminary Approval is Appropriate Under the Applicable Legal Standard.
The standard for reviewing the proposed settlement of a class action is whether it is “fair,
reasonable, and adequate.” Wireless II, 396 F.3d at 932. The Eighth Circuit has identified four
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18
factors that courts should consider in deciding whether to approve a proposed class action
settlement: “(1) the merits of the plaintiff’s case, weighed against the terms of the settlement;
(2) the defendant’s financial condition; (3) the complexity and expense of further litigation; and
(4) the amount of opposition to the settlement.” Id. (citing Grunin, 513 F.2d at 124; Van Horn v.
Trickey, 840 F.2d 604, 607 (8th Cir. 1988)). “The views of the parties to the settlement must
also be considered.” DeBoer v. Mellon Mortg. Co., 64 F.3d 1171, 1178 (8th Cir. 1995).
Moreover, the standard for obtaining preliminary approval is much less exacting. As
stated in Schoenbaum v. E.I. Dupont De Nemours & Co., 2009 U.S. Dist. LEXIS 114080, 13-14
(E.D.Mo. Dec. 8, 2009):
At the preliminary approval stage, the “fair, reasonable, and adequate” standard is lowered, with emphasis only on whether the settlement is within the range of possible approval due to an absence of any glaring substantive or procedural deficiencies. See e.g., White v. Nat’l Football League, 836 F.Supp. 1458, 1466 (D.Minn. 1993); Schwartz v. Dallas Cowboys Football Club, Ltd., 157 F.Supp.2d 561, 570 (E.D.Pa. 2001). In making this preliminary determination, courts should consider issues such as whether the settlement carries the hallmarks of collusive negotiation or uninformed decision-making, is unduly favorable to class representatives or certain [*14] class members, or excessively compensates attorneys. See, In re Telectronics Pacing Sys., Inc., 137 F.Supp.2d 985, 1015-16 (S.D. Ohio 2001); Alberto v. GMRI, Inc., 252 F.R.D. 652, 666 (E.D.Cal. 2008). The settling parties’ views as to the propriety of the settlement are also entitled to some weight. DeBoer v. Mellon Mortgage Co., 64 F3d 1171, 1178 (8th Cir. 1995). These important considerations notwithstanding, a proposed settlement is presumptively reasonable at the preliminary approval stage, and there is an accordingly heavy burden of demonstrating otherwise. See Brotherton v. Cleveland, 141 F.Supp2d 894, 904 (S.D. Ohio 2001). Plaintiffs’ claims have been competently and diligently litigated by counsel
knowledgeable and experienced in ERISA breach of fiduciary cases and complex class action
litigation. Moreover, the Settlement is the product of hard-fought, arm’s-length negotiations
pursued over the course of a number of years by the parties and their counsel based on their
investigation of applicable claims and defenses after conducting extensive discovery. The
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19
Settlement was obtained with the well-informed consent and participation of Class Plaintiffs.
The parties have agreed that Class Counsel’s compensation will be funded from the Settlement
Fund, as approved by the Court, and thus will be fair. While Defendants explicitly deny any
wrongdoing or liability, the parties believe that the Settlement is “fair, reasonable, and adequate”
under the circumstances of this case, and the Eighth Circuit’s four-factor test is easily met.
Accordingly, weighing the relief the Settlement provides to the Settlement Class against these
considerations, Plaintiffs respectfully request that the Court preliminarily approve the Settlement,
as set forth below.
1. The merits of the plaintiffs’ case, weighed against the terms of the settlement.
Class Counsel has always held a strong belief in the merits of Plaintiffs’ case. Plaintiffs
believe that the evidence would show that:
(a) Tharaldson was a highly-conflicted ESOP trustee who was on all sides of the
1998 and 1999 Transaction as a seller, as representative acting for all other sellers, as sole ESOP
Trustee, and as President and sole director of TMI;
(b) Tharaldson was influenced in his decisions on behalf of the Plan as a result of his
advisor’s failure to timely make a § 1042 election, thereby depriving the sellers of over $50
million in deferred recognition of capital gains under the IRS Code in connection with the 1998
Transaction alone;
(c) Tharaldson failed to engage in arms-length negotiations in connection with the
1998 and 1999 Transactions; and,
(d) Tharaldson’s conduct was imprudent, in violation of ERISA § 404, as shown by
his decision not to appoint an independent fiduciary to review, negotiate and approve if
appropriate the 1999 Transaction, and by his failure to engage an independent legal counsel and
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financial advisor to advise the ESOP fiduciary with respect to the 1999 Transaction.
Class Counsel also strongly believed that the 1998 Transaction was completed, thereby creating
ESOP debt, which the Trustee and the stock appraiser failed to take into account in valuing the
shares for the second stock purchase transaction in December 1999.
However, the Decision of this Court on Summary Judgment that the original 1998
agreement and the revised 1999 agreement were closed simultaneously as part of a SIT undercut
a number of Plaintiffs’ claims and created substantial uncertainty as to whether Plaintiffs could
prevail at trial on their single largest claim – that the ESOP was overcharged by more than $125
million by the failure to deduct the ESOP-related debt from the 1998 Transaction when valuing
the TMI shares for the subsequent 1999 Transaction. In addition, the Court’s finding that there
was a genuine issue of material fact as to whether the ESOP Notes had a fair market value less
than their face amount (Defendants’ argument) or whether the ESOP Notes must be treated as
“cash equivalents” and must be valued at their face amount (Plaintiffs’ argument) created
additional uncertainty as to whether Plaintiffs would be able to prevail as to any damages.
In addition, Plaintiffs were aware that Tharaldson would argue that TMI was a highly
profitable company that was worth at least what the ESOP paid for it, with or without factoring
in the fair market value of the ESOP notes, and that he had purposefully structured the deal to be
fair and profitable to the ESOP and its participants. Plaintiffs were also aware that there were
potential limitations on collecting any significant judgment, even if Plaintiffs were successful.
The combination of these risks weighed heavily in favor of reaching a practical settlement.
Since Class Counsel had received and closely reviewed Gary Tharaldson’s financial
statement and was well aware of his lack of cash to fund a settlement, that left reduction of debt
on the ESOP Notes as the most practical means of creating value to the ESOP. However,
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21
Tharaldson and the other sellers had assigned most of the ESOP Notes to third parties, who were
likely to be considered bona fide purchasers for value. Plaintiffs were advised and concluded
that such third parties were not likely to consent to the reduction of debt to the extent it impacted
their collateral. Furthermore, any substantial judgment could have raised the threat of
bankruptcy, and made the likelihood of obtaining any substantial debt reduction highly unlikely.
The complexity of these issues made settlement virtually impossible without the
assistance and cooperation of TMI and its management. When the settlement presented itself,
Plaintiffs carefully weighed the merits of their case, the uncertainties of continuing litigation, and
the risks of non-collectability, and thereafter concluded that the Settlement was in the best
interests of the ESOP and both Classes.
Therefore, the Settlement Amount represents a range of recovery that is appropriate given
the wide range of potential damage outcomes at trial, as well as the possibility of a verdict in
favor of Defendants that would result in zero recovery, and the uncertainty of the Plans’ actual
losses. See, e.g., In re BankAmerica Corp. Sec. Litig., 210 F.R.D. 694, 701-02 (E.D. Mo. 2002)
(approving settlement comprising one-tenth of plaintiffs’ potential recovery and collecting cases
approving settlements comprising 2-8% of desired or potential recovery (citations omitted)); see
also In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 459 (9th Cir. 2000) (approving settlement
with all defendants that comprised one-sixth of plaintiffs’ potential recovery); Officers for
Justice v. Civil Serv. Comm’n of City & Cnty. of S.F., 688 F.2d 615, 624 (9th Cir. 1982) (“[T]he
very essence of a settlement is compromise, a yielding of absolutes and an abandoning of highest
hopes.” (citations and internal quotations omitted)).
In short, considering (a) the present and time value of money, (b) the expenses of
complex and lengthy litigation, particularly in light of the significant fact and expert discovery,
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22
(c) the risk that the Plaintiffs would not succeed in proving liability against the Defendants, and
(d) the range of possible recovery at trial, Plaintiffs believe that the Settlement is reasonable.
As Judge Harmon aptly put it when approving one of the settlements in the Enron ERISA
Litigation: “The settlement at this point would save great expense” and provide to Plaintiffs “a
bird in the hand.” In re Enron Corp. Sec., Derivative & “ERISA” Litig., 228 F.R.D. 541, 566
(S.D. Tex. 2005); see also Little Rock Sch. Dist., 921 F.2d at 1383 (“As a practical matter, a
remedy that everyone agrees to is a lot more likely to succeed than one to which the defendants
must be dragged kicking and screaming.”). Accordingly, the Settlement is reasonable in light of
the circumstances of the case.
2. The defendant’s financial condition.
As stated in the prior subsection, Plaintiffs have been provided Gary Tharaldson’s
financial statement and have been told that Plaintiffs will obtain no meaningful collection even if
Plaintiffs were to recover a judgment at trial. It has been represented that Gary Tharaldson no
longer controls or has access to any meaningful assets, which assets are themselves substantially
depressed in value and illiquid. These assets are controlled by Heritage Management Inc. and
TMI II, of which Gary Tharaldson is one of a number of shareholders. A primary asset of these
entities is the TMI ESOP Notes, a portion of which have been pledged to banks. Based upon
review of Gary Tharaldson’s financial statements and subsequent investigation, Class Counsel
has concluded that the risks of uncollectability, even if Plaintiffs recovered a substantial
judgment, are extraordinarily high under the circumstances and weigh heavily in favor of the
Settlement.
3. The complexity and expense of further litigation.
ERISA breach of fiduciary duty cases are notorious for their complexity and expense.
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23
See, e.g., Enron, 228 F.R.D. at 565 (finding that the “complexity, expense and likely duration of
the litigation . . . are self-evident and exceptional”); In re IKON Office Solutions, Inc., 209
F.R.D. 94, 104-07 (E.D. Pa. 2002) (finding that the complexity and duration of litigation of
breach of fiduciary duty claims, as well as the expense of litigation and risks of establishing
liability and damages, weighed heavily in favor of settlement).
This case is no exception. Plaintiffs’ claims raise numerous complex legal and factual
issues under ERISA. The facts and circumstances underlying the claims in the Fifth Amended
Complaint are complicated and would be undeniably time-consuming to litigate further to trial.
The expense of this litigation is reflected by the parties’ extensive briefing before this Court on
motions for summary judgment and Daubert motions, the taking of over 50 depositions,
substantial document and interrogatory discovery, and multiple rounds of mediation and lengthy
settlement negotiations. The trial itself would last not less than two weeks and the costs
associated with post-trial filings and likely appeals by one or more sides would be considerable.
Thus, this Settlement conserves significant judicial resources, reduces the expense associated
with the remaining work required to prepare and present the case for trial, and provides
immediate resolution to all parties and the Settlement Classes.
4. The amount of opposition to the settlement.
The class representatives are well-informed of the settlement negotiations and terms of
the settlement with Defendants. Notice regarding the Settlement has not yet been distributed. In
the event any objections are received after notice is issued, they will be addressed by Class
Counsel in connection with the final approval process.
Thus, taken together, the Eighth Circuit’s factors for assessing the fairness of the
Settlement support preliminary approval of the Settlement.
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IV. DISTRIBUTION AND FORM OF NOTICE TO THE SETTLEMENT CLASS
Rule 23(e) requires the Court to “direct notice in a reasonable manner to all class
members who would be bound by the [settlement].” While “[t]here is no one ‘right way’ to
provide notice as contemplated under Rule 23(e),” Wireless I, 2004 WL 3671053, at *8, it must
be made “as directed by the district court” and be “reasonable enough to satisfy due process,”
DeBoer, 64 F.3d at 1176. Notice to class members that is “reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of the action and afford them an
opportunity to present their objections” satisfies due process. Petrovic, 200 F.3d at 1153
(quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950)).
Courts have recognized that the nature of an ERISA class action brought on behalf of a
plan pursuant to ERISA § 502(a)(2) precludes an “opt-out” option. See Aquila I, 257 F.R.D. at
208 (an action brought by a plan participant under ERISA § 502(a)(2) is brought in a
representative capacity on behalf of the plan and solely for relief to the plan as a whole (citing
Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140-42 (1985))). This means that Settlement
Class members are eligible to benefit from the Settlement regardless of their actual notice.
Nonetheless, courts typically require that as many absent class members in ERISA breach
of fiduciary duty actions as may be identified through reasonable means receive sufficient notice
to satisfy due process, as well as the opportunity to object to the proposed settlement. See, e.g.,
In re Aquila ERISA Litig. (“Aquila II”), No. 04-0865, 2007 WL 4244994, at *1 (W.D. Mo. Nov.
29, 2007) (in ERISA breach of fiduciary duty, requiring notice to the class to “fully inform[]
Class members of their rights with respect to the Settlement, including the right to object to the
Settlement” and satisfy due process and Rule 23); Wireless I, 2004 WL 3671053, at *8 (same).
Here, the proposed form and method of Notice satisfies all applicable criteria described
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above. It describes in plain English the terms and operations of the Settlement Agreement, the
considerations that caused Plaintiffs and their Counsel to conclude that the Settlement is fair and
adequate, the maximum attorneys’ fees and expenses that will be sought, the procedure for
objecting to the Settlement, and the date and place of the Fairness Hearing once the Court sets
the date. See Alba Conte & Herbert B. Newberg on Class Actions § 8.32 (4th Ed. 2002).
Furthermore, with the Court’s approval, the Notice will be mailed to Affected Class
Members at their last known residential address by first class mail no less than 60 days prior to
the Fairness Hearing, will also be published on a website established by Plaintiffs’ Counsel and
will also be posted by TMI in English and Spanish on its web page
(http://www.tmihospitality.com/legal-notice/).
As is evident from a review of the Notice, it will fairly apprise Affected Class Members
of the Settlement and their options related thereto. Under such circumstances, the Notice will
fully satisfy all due process considerations and meets the requirements of Fed. R. Civ. P.
23(e)(1). See Petrovic, 200 F.3d at 1153 (notice that “unquestionably alerted the recipients that
they were members of a pending class action, that a settlement had been proposed, and that they
had the right to state their objections at a fairness hearing” satisfied due process). Under such
circumstances, the Notice will fully satisfy due process requirements. See Silber v. Mabon, 18
F.3d 1449, 1452-54 (9th Cir. 1994) (approving notice by first class mail as the “best notice
practicable”); Mendoza v. Tucson Sch. Dist. No. 1, 623 F.2d 1338, 1352 (9th Cir. 1980), rev’d on
other grounds, 475 U.S. 717 (1986) (stating that notice is satisfactory if it “generally describes
the terms of the settlement in sufficient detail to alert those with adverse viewpoints to
investigate and to come forward and be heard”).
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V. ESTABLISHMENT OF A FINAL APPROVAL AND FAIRNESS HEARING
Plaintiffs respectfully request that this Court approve a schedule to, among other things,
notify Settlement Class members of the proposed Settlement, provide Settlement Class members
an opportunity to object to the proposed Settlement, and set a date for the Fairness Hearing to
consider (a) any Settlement Class member objections to the Settlement; (b) whether the
Settlement is fair, reasonable, and adequate; (c) Class Counsel’s application for an award of
attorneys’ fees, reimbursement of expenses, and incentive awards for the named Plaintiffs; and,
(d) whether the Court will enter an order granting Final approval to the Settlement and Final
judgment in this case and dismissal with prejudice. The parties propose that the Fairness
Hearing, upon which the events including those described above depend, occur at ____________
a.m. on _________________, ____________, 2012.
WHEREFORE, for the reasons stated herein, Class Plaintiff respectfully moves this
Court for an Order (1) preliminarily approving the proposed Settlement Agreement (Exhibit A
hereto) between the Class Plaintiffs and Defendants; (2) approving and directing distribution of
the Notice to the Settlement Classes (Exhibit B hereto); (3) establishing a date for a final
Fairness Hearing for approval of the Settlement; (4) setting a deadline by which all Objections to
the Settlement must be made; and (5) setting a deadline for filing briefs in support of Class
Counsel’s applications for a Fee Award, Incentive Award and Expense Award. The Proposed
Preliminary Approval Order agreed to by the Parties is attached hereto as Exhibit C and
incorporated herein by reference.
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Dated: October 16, 2012.
Respectfully submitted,
/s/ Gary D. Greenwald KELLER ROHRBACK P.L.C.
Gary A. Gotto Gary D. Greenwald Ron Kilgard 3101 North Central Avenue, Suite 1400 Phoenix, Arizona 85012 Telephone: (602) 248-0088 Facsimile: (602) 248-2822 [email protected] [email protected] [email protected] Lynn Lincoln Sarko Derek W. Loeser David J. Ko 1201 Third Avenue, Suite 3200 Seattle, Washington 98101 Telephone: (206) 623-1900 Facsimile: (206) 623-3384 [email protected] [email protected] [email protected] Class Counsel for the Current Employee Class Bruce F. Rinaldi R. Joseph Barton Whitney Case Cohen, Milstein, Sellers & Toll, P.L.L.C. 1100 New York Avenue, N.W. West Tower, Suite 500 Washington, D.C. 20005-3934 Telephone: (202) 202-408-4600 Facsimile: (202) 202-408-4699 [email protected] [email protected] [email protected] Class Counsel for the Former Employee Class
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Stacey E. Tjon Al Baker SOLBERG STEWART MILLLER & TJON 1129 Fifth Avenue South P.O. Box 1897 Fargo, North Dakota 58107-1897 (701) 237.3166 Telephone (701) 237.4627 Facsimile Local Counsel for Plaintiffs & the Class
Case 3:05-cv-00115-RRE-KKK Document 748 Filed 10/16/12 Page 28 of 29
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CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the foregoing pleading
was served this date, October 16, 2012, upon counsel of record via the CM/ECF system for
publicly-filed documents. There are no non-CM/ECF participants.
/s/ Gary D. Greenwald
Case 3:05-cv-00115-RRE-KKK Document 748 Filed 10/16/12 Page 29 of 29
Ex. A
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UNITED STATES DISTRICT COURTDISTRICT OF NORTH DAKOTA
RAYMOND HANS, GAYLE HERBERT, LARRYRICHMAN, DONNA WALKER MICHAEL WEBSTER,BERNARD MCKAY, and TAMMY BLAKE on behalf ofthemselves, individually and on behalf of all otherssimilarly situated in the Former Employee Class; andCARLOS GONZALES, DONALD KLAIN, JOLENEMATHESON-GODSCHALK, and SIDNEY LEIN, onbehalf of themselves individually and on behalf of allothers similarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON,ROGER THARALDSON, RAYMOND BRAUN andJAMES LOCHOW as the Trustees of the MICHELLETHARALDSON TRUST and as Trustees of theMATTHEW THARALDSON TRUST, SOUTHDAKOTA TRUST COMPANY, LLC as Trustee of theMICHELLE LYN THARALDSON LEMASTERDYNASTY TRUST, as Trustee of the MATTHEWTHARALDSON DYNASTY TRUST and as Trustee ofthe MICHAEL THARALDSON DYNASTY TRUST, andLINDA THARALDSON individually and in her capacityas Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCKOWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-00115-RRE-KKK
CLASS ACTIONSETTLEMENT AGREEMENT
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1CHAR2\1429878v1
This Class Action Settlement Agreement (“Settlement Agreement”) is made and
entered into by, between, and among GARY THARALDSON, his heirs, executors,
agents, attorneys, and assigns (collectively “Tharaldson”); CONNIE THARALDSON,
RAYMOND BRAUN and JAMES LOCHOW as Trustees of the Michelle Tharaldson
Trust and as Trustees of the Matthew Tharaldson Trust; SOUTH DAKOTA TRUST
COMPANY, LLC as Trustee of the Michelle Lyn Tharaldson LeMaster Dynasty Trust,
as Trustee of the Matthew Tharaldson Dynasty Trust, and as Trustee of the Michael
Tharaldson Dynasty Trust; LINDA THARALDSON individually and in her capacity as
Trustee for the Michael Tharaldson Trust; ROGER THARALDSON (all of the above
collectively “Defendants” and when Colleen Haugen, Delphine Nauer, Cleone Nitti,
Rodney Tharaldson, Fargo-Moorhead Area Foundation, and Tharaldson Motels II, Inc.
(“TMI II”) are included with Defendants, “Settling Defendants”); RAYMOND HANS,
GAYLE HERBERT, LARRY RICHMAN, DONNA WALKER, MICHAEL
WEBSTER, BERNARD MCKAY and TAMMY BLAKE (collectively “FEC
Representatives”), on behalf of themselves, individually, and on behalf of all others
similarly situated in the Former Employee Class in the matter of Hans v. Tharaldson,
3:05-CV-00115-RRE-KKK (D.N.D.) (“Action”); CARLOS GONZALES, DONALD
KLAIN, JOLENE MATHESON-GODSCHALK, and SIDNEY LIEN (collectively
“CEC Representatives”), on behalf of themselves, individually, and on behalf of all
others similarly situated in the Current Employee Class in the Action; TMI
HOSPITALITY, INC. (“TMI”)(formerly Tharaldson Motels, Inc.); TMI
HOSPITALITY, INC. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
(“TMI ESOP”)(formerly the Tharaldson Motels, Inc. Employee Stock Ownership Plan
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 3 of 97
2CHAR2\1429878v1
and Trust); and TMI II (all of the foregoing collectively “Parties”). All capitalized terms
not otherwise defined shall have the meaning ascribed thereto in Section I of this
Settlement Agreement.
RECITALS
WHEREAS, on December 30, 2004, Raymond Hans filed a Class Action
Complaint in the United States District Court for the District of Nevada asserting claims
on behalf of himself and a purported class of participants and beneficiaries of the TMI
ESOP and the TMI ESOP for alleged violations of ERISA in connection with the
acquisition of sponsor stock by the TMI ESOP;
WHEREAS, on April 14, 2005, Raymond Hans, Chuck LeBlanc, and Larry
Richman filed an Amended Class Action Complaint for alleged violations of ERISA
asserting claims on behalf of themselves and a purported class of participants and
beneficiaries of the TMI ESOP;
WHEREAS, on May 17, 2005, Raymond Hans, Chuck LeBlanc, and Larry
Richman filed a Second Amended Class Action Complaint for alleged violations of
ERISA asserting claims on behalf of themselves and a purported class of participants and
beneficiaries of the TMI ESOP;
WHEREAS, on June 20, 2005, Defendants filed a Motion to Dismiss and to
Transfer Venue;
WHEREAS, on December 20, 2005, the Action was transferred to the United
States District Court for the District of North Dakota, Southeastern Division;
WHEREAS, on May 2, 2006, Raymond Hans, Gayle Herbert, Jeremy Jackey,
Chuck LeBlanc, Larry Richman, Donna Walker and Michael Webster (collectively
“Original Plaintiffs”) filed a Third Amended Class Action Complaint for alleged
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3CHAR2\1429878v1
violations of ERISA asserting claims on behalf of themselves and a purported class of
participants and beneficiaries of the TMI ESOP;
WHEREAS, on May 23, 2006, Original Plaintiffs filed a Fourth Amended Class
Action Complaint for alleged violations of ERISA asserting claims on behalf of
themselves and a purported class of participants and beneficiaries of the TMI ESOP;
WHEREAS, on December 21, 2007, Original Plaintiffs filed a Motion for Class
Certification;
WHEREAS, on November 18, 2008, North Star Trust Company (“North Star”),
not in its corporate capacity, but solely in its capacity as a fiduciary and as trustee of the
TMI ESOP, filed a Motion to Intervene as plaintiff in the Action;
WHEREAS, between December 8, 2008 and December 10, 2008, the Court
conducted a hearing on Original Plaintiffs’ Motion for Class Certification;
WHEREAS, on June 22, 2009, the Court stayed the Action to allow the parties to
engage in mediation;
WHEREAS, on February 19, 2010, a Joint Motion was filed to lift the stay in the
Action;
WHEREAS, on May 7, 2010, the Court (a) granted Original Plaintiffs’ Motion for
Class Certification and created two sub-classes, i.e., the Former Employee Class and the
Current Employee Class, (b) appointed the Original Plaintiffs as representatives of the
Former Employee Class, (c) appointed North Star as Class Representative for the Current
Employee Class, (d) appointed the law firms of Moore & Van Allen PLLC and Skadden,
Arps, Slate, Meagher & Flom LLP as class counsel for the Current Employee Class, (e)
appointed the law firm of Cohen, Milstein, Hausfeld, & Toll as class counsel for the
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Former Employee Class, and (f) appointed the law firm of Solberg, Stewart, Miller &
Tjon as liaison counsel for the Former Employee Class;
WHEREAS, on May 21, 2010, North Star filed a Motion for Clarification and
Modification of the Order on Motion for Class Certification;
WHEREAS, on August 27, 2010, the Court (a) granted North Star’s Motion for
Clarification and Modification of the Order on Motion for Class Certification, (b)
directed North Star to identify appropriate class representatives and class counsel for the
Current Employee Class, (c) modified the definitions of the Former Employee Class and
the Current Employee Class, and (d) removed Jeremy Jackey and Chuck LeBlanc as FEC
Representatives and replaced them with Bernard McKay and Tammy Blake;
WHEREAS, on October 22, 2010, the Court appointed Charles Berryhill, Carlos
Gonzales, Don Klain, Jolene Matheson-Godschalk, and Sidney Lien as class
representatives for the Current Employee Class, and the Court appointed the law firm of
Keller Rohrback L.L.P as class counsel for the Current Employee Class (Former
Employee Class and Current Employee Class being hereafter collectively called
“Participant Classes”);
WHEREAS, on April 7, 2011, Charles Berryhill voluntarily withdrew as a CEC
Representative;
WHEREAS, on April 8, 2011, the Participant Classes, North Star, and Defendants
each filed motions for summary judgment as to the claims asserted in the Action;
WHEREAS, on October 29, 2011, the Court (a) granted in part and denied in part
the motion for summary judgment filed by Tharaldson, (b) denied the motion for partial
summary judgment filed by North Star, (c) granted the motion for summary judgment
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filed by the Non-Fiduciary Selling Shareholders (as defined in the motion for summary
judgment), and (d) denied the motions for partial summary judgment filed by the
Participant Classes.
WHEREAS, on April 4, 2012, the Court granted the CEC Representatives’
Motion for Leave to File a Fifth Amended Complaint;
WHEREAS, on May 8, 2012, the CEC Representatives filed a Fifth Amended
Complaint for alleged violations of ERISA;
WHEREAS, Former Employee Class Counsel and Current Employee Class
Counsel (collectively “Class Counsel”) conducted significant discovery regarding the
facts and claims asserted in the Complaint, served document requests on Defendants and
subpoenas on third parties, and reviewed thousands of pages of documents produced in
this Action;
WHEREAS, the Class Representatives, North Star, TMI, TMI II, and Tharaldson,
each through their respective counsel, conducted arm’s-length negotiations over a period
of months before Robert Meyer, an experienced attorney and mediator, which culminated
in the execution of a Settlement Agreement Memorandum of Understanding;
WHEREAS, the Class Representatives have agreed to fully, finally, and forever
release, resolve, discharge and settle all Settled ESOP Claims on behalf of themselves
and the Participant Classes against Settling Defendants;
WHEREAS, Tharaldson, Linda Tharaldson, TMI, the TMI ESOP, and TMI II
have agreed to fully, finally, and forever release, resolve, discharge and settle various
claims between and among them;
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WHEREAS, as a result of factual investigation and legal research conducted by
Class Counsel concerning the claims asserted in the Complaint, Class Counsel have
concluded that the terms of this Settlement are fair, reasonable, adequate and in the best
interests of the Participant Classes and the TMI ESOP, and have agreed to settle the
Action on the terms set forth herein after considering: (i) the benefits that the Participant
Classes will receive from the Settlement; (ii) the risks, difficulties, and delays involved
with complex litigation such as this, including prosecution through trials and appeals; (iii)
the specific risks inherent in complex actions under ERISA, including problems of proof
and the variety of defenses potentially available to Defendants; and (iv) the desirability of
permitting the Settlement to be consummated as provided herein;
WHEREAS, the Settling Defendants deny the material allegations of the
Complaint; deny any wrongdoing or liability whatsoever; believe that all Defendants
acted at all times reasonably and prudently with respect to the TMI ESOP and the
Participant Classes; would assert certain other defenses if this Settlement were not
consummated; and are entering into the Settlement solely to avoid the cost, disruption,
and uncertainty of litigation;
WHEREAS, the Parties desire to promptly and fully resolve and settle with
finality all of the claims on the terms set forth herein and subject to the approval of the
Court;
NOW, THEREFORE, the Parties, in consideration of the promises, covenants and
agreements herein described, and for other good and valuable consideration,
acknowledged by each of them to be satisfactory and adequate, and without any
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admission or concession as to any matter of fact or law, and intending to be legally
bound, do hereby agree as follows.
I. DEFINITIONS
As used in this Settlement Agreement, the following terms have the following
meanings, unless a section or subsection of this Settlement Agreement specifically
provides otherwise. Capitalized terms used in this Settlement Agreement, but not defined
in this Section I, shall have the meaning ascribed to them elsewhere in this Settlement
Agreement.
1. “Action” means the class action pending in this Court styled RAYMOND
HANS, GAYLE HERBERT, LARRY RICHMAN, DONNA WALKER, MICHAEL
WEBSTER, BERNARD MCKAY and TAMMY BLAKE on behalf of themselves,
individually and on behalf of all others similarly situated in the Former Employee Class;
and CARLOS GONZALES, DONALD KLAIN, JOLENE MATHESON-GODSCHALK,
and SIDNEY LEIN, on behalf of themselves individually and on behalf of all others
similarly situated in the Current Employee Class v. GARY D. THARALDSON, CONNIE
THARALDSON, ROGER THARALDSON, RAYMOND BRAUN and JAMES LOCHOW as
the Trustees of the MICHELLE THARALDSON TRUST and as Trustees of the
MATTHEW THARALDSON TRUST, SOUTH DAKOTA TRUST COMPANY, LLC as
Trustee of the MICHELLE LYN THARALDSON LEMASTER DYNASTY TRUST, as
Trustee of the MATTHEW THARALDSON DYNASTY TRUST and as Trustee of the
MICHAEL THARALDSON DYNASTY TRUST, and LINDA THARALDSON individually
and in her capacity as Trustee for the MICHAEL THARALDSON TRUST and
THARALDSON MOTELS, INC. EMPLOYEE STOCK OWNERSHIP PLAN, (Nominal
Defendant), Civil Action No. 3:05-cv-00115-RRE-KKK.
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2. “CEC Representatives” means Carlos Gonzales, Donald Klain, Jolene
Matheson-Godschalk, and Sidney Lien.
3. “Claim” or “Claims” means any and all actions, causes of action,
proceedings, adjustments, executions, offsets, contracts, judgments, obligations, errors of
commission or omission, suits, debts, dues, sums of money, accounts, reckonings, bonds,
bills, specialties, variances, covenants, trespasses, damages, demands (whether written or
oral), agreements, promises, liabilities, controversies, costs, expenses, attorney’s fees and
losses whatsoever, whether in law or in equity, and whether based on any federal law,
state law, foreign law, common law doctrine, rule, regulation or otherwise, whether
accrued or not, whether already acquired or acquired in the future, brought by way of
demand, complaint, cross-claim, counterclaim, third-party claim or otherwise.
4. “Class Counsel” means Former Employee Class Counsel and Current
Employee Class Counsel, collectively.
5. “Class Representatives” means FEC Representatives and CEC
Representatives collectively.
6. “Complaint” means all of the complaints filed in this action.
7. “Court” means the United States District Court for the District of North
Dakota, Southeastern Division.
8. “Current Employee Class” is as defined by the Court in its August 27,
2010 Order: all persons, other than Defendants in this Action, members of Defendants’
immediate families, and Defendants’ legal representatives, heirs, successors, or assigns of
any excluded party, who were participants in the TMI ESOP at any time from December
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30, 1998 to the present and who is a present employee of TMI and the TMI ESOP
beneficiaries of such persons.
9. “Current Employee Class Counsel” means Keller Rohrback L.L.P.
10. “Defendants” means Gary D. Tharaldson; Connie Tharaldson; Roger
Tharaldson; Raymond Braun and James Lochow solely as the Trustees of the Michelle
Tharaldson Trust and as Trustees of the Matthew Tharaldson Trust; South Dakota Trust
Company, LLC solely as Trustee of the Michelle Lyn Tharaldson Lemaster Dynasty
Trust, as Trustee of the Matthew Tharaldson Dynasty Trust and as Trustee of the Michael
Tharaldson Dynasty Trust; and Linda Tharaldson individually and in her capacity as
Trustee for the Michael Tharaldson Trust.
11. “Designated ESOP Notes” means the following promissory notes issued
by the TMI ESOP:
Original Payee Original LoanAmount
Payment Due OutstandingPrincipal
Michael Tharaldson Trust $6,622,188.00 12/31/30 $5,849,624.00Matthew Tharaldson Dynasty
Trust$8,347,560.00 12/31/30 $7,373,709.01
12. “ERISA” means the Employee Retirement Income Security Act of 1974,
as amended from time to time, 29 U.S.C. § 1001, et seq..
13. “Expense Award” shall have the meaning set forth in Section V.1 of this
Settlement Agreement
14. “FEC Representatives” means Raymond Hans, Gayle Herbert, Larry
Richman, Donna Walker, Michael Webster, Bernard McKay, and Tammy Blake.
15. “Fee Award” shall have the meaning set forth in Section V.1 of this
Settlement Agreement.
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16. “Final Order” means the Order and Final Judgment, substantially in the
form of Exhibit C hereto.
17. “Former Employee Class” is as defined by the Court in its August 27,
2010 Order: all persons, other than Defendants in this Action, members of Defendants’
immediate families, and Defendants’ legal representatives, heirs, successors, or assigns of
any excluded party, who were participants in the TMI ESOP at any time from December
30, 1998 to the present and who received an allocation of TMI ESOP assets to their
accounts which they did not subsequently forfeit under the terms of the TMI ESOP and
who are no longer employees of TMI, and the beneficiaries of such persons.
18. “Former Employee Class Counsel” means Cohen, Milstein, Sellers & Toll,
P.L.L.C.
19. “Incentive Awards” shall have the meaning set forth in Section V.1 of this
Settlement Agreement
20. “McKay Litigation” means the class action pending in the Court styled
BERNARD MCKAY, on behalf of himself, individually, and on behalf of all others
similarly situated, Plaintiff, v. GARY D. THARALDSON, Defendant, and THARALDSON
MOTELS, INC. EMPLOYEE STOCK OWNERSHIP PLAN, Nominal Defendant, Civil
Action No. 3:08-CV-113-RRE-KKK.
21. “Non-Appealable” means an order entered by the Court is no longer
subject to appeal, which shall occur when:
a. if no appeal is taken therefrom, on the date on which the time to
appeal therefrom (including any extension of time) has expired; or
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b. if any appeal is taken therefrom, on the date on which all appeals
therefrom, including any petitions for rehearing or re-argument,
petitions for rehearing en banc, and petitions for writ of certiorari
or any other writ, or any other form or review, have been finally
disposed of, such that the time to appeal therefrom (including any
extension of time) has expired, in a manner resulting in an
affirmance of the Final Order.
22. “Notice” means the form of notice appended hereto as Exhibit A.
23. “Participant Classes” means the Former Employee Class and the Current
Employee Class.
24. “Preliminary Approval Order” means the “Order Preliminarily Approving
Settlement, Approving Form of Notice, and Setting Fairness Hearing” in this Action,
substantially in the form of Exhibit B hereto.
25. “Settled Claims” means Settled ESOP Claims, Settled Tharaldson
Indemnification Claims, Settled Tharaldson Contract Claims, and Settled TMI
Indemnification Claims, collectively.
26. “Settled ESOP Claims” means each and every Claim or Unknown Claim
relating to or arising out of the acquisition of TMI stock by the TMI ESOP as alleged in
the Complaint that: (i) has been asserted or could have been asserted in this Action,
including any claims for attorney’s fees, costs or expenses; or (ii) arises under ERISA or
any federal law, state law, foreign law, common law doctrine, rule, regulation or
otherwise and could have been asserted in any forum by the Participant Classes or the
TMI ESOP against any of the Settling Defendants or TMI Affiliates insofar as the Claim
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or Unknown Claim arises out of or is based upon the allegations, transactions, facts,
matters or occurrences, representation or omissions involved, set forth or referred to in
the Complaint, and relates to the TMI ESOP, and/or any applicable instruments under
which the TMI ESOP operated at the time of the acquisition of TMI stock by the TMI
ESOP as alleged in the Complaint; or (iii) relates to the decision to enter into this
Settlement Agreement, except for Claims to enforce the Settlement Agreement,.
27. “Settled Tharaldson Indemnification Claims” means each and every Claim
or Unknown Claim relating to or arising out of all past, present, and future rights of
indemnification (whether existing pursuant to contract, statute, by-law, article of
incorporation, ERISA plan, resolution, oral agreement, common law, or any other source
or form) from any TMI Affiliates or the TMI ESOP in favor of Tharaldson, including,
without limitation, indemnification for various legal fees and expenses associated with
Tharaldson’s defense of this Action.
28. “Settled Tharaldson Contract Claims” means each and every Claim or
Unknown Claim relating to or arising out of all past and future payments, contractual or
otherwise, purportedly due to Linda Tharaldson from any TMI Affiliates or the TMI
ESOP, including, without limitation, claims to payments purportedly due to Linda
Tharaldson pursuant to that certain agreement titled “Settlement Agreement” and dated
March 28, 1998, settling claims between Tharaldson and Linda Tharaldson and any
amendments or modifications thereto.
29. “Settled TMI Indemnification Claims” means each and every Claim or
Unknown Claim relating to or arising out of the conduct of Tharaldson or Linda
Tharaldson that occurred before the execution of the Settlement Agreement
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Memorandum of Understanding, but only to the extent such conduct of Tharaldson or
Linda Tharaldson would have been covered by their respective right to indemnification
from a TMI Affiliate, if any.
30. “Settlement” means the settlement and compromise of this Action as
provided for in this Settlement Agreement.
31. “Settlement Agreement” means this Class Action Settlement Agreement
and any accompanying Exhibits, including any subsequent amendments thereto and any
Exhibits to such amendments.
32. “Settlement Agreement Memorandum of Understanding” means the
agreement dated April 20, 2012 and filed with the Court under seal, signed by
Tharaldson, Linda Tharaldson, Kyle Newman, in his capacity as President of TMI II,
Lauris Molbert, in his capacity as CEO of TMI, Paul D. Trost, Vice-President of North
Star in its capacity as Trustee and on behalf of the TMI ESOP, Bruce F. Rinaldi as
Former Employee Class Counsel, and Gary D. Greenwald as Current Employee Class
Counsel.
33. “Settlement Fund” means the Settlement Fund Cash Component and the
Settlement Fund Principal Reduction.
34. “Settlement Fund Cash Component” means Four Million dollars
($4,000,000) paid in the manner described in Section II.A below and any interest or
income earned thereon.
35. “Settlement Fund Principal Reduction” means the Eleven Million dollars
($11,000,000) of principal owing on the Designated ESOP Notes that will be deemed
paid in the manner described in Section II.B below.
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36. “Settling Defendants” means the Defendants and Colleen Haugen,
Delphine Nauer, Cleone Nitti, Rodney Tharaldson, Fargo-Moorhead Area Foundation,
and TMI II and with respect to natural persons who are Settling Defendants, their present
or past heirs, executors, administrators, and assigns, and with respect to legal entities
other than natural persons, who are Settling Defendants, their predecessors, successors
and assigns.
37. “Settling Parties” means the Class Representatives, on behalf of
themselves and the Participant Classes, TMI, the TMI ESOP, TMI II, and the Settling
Defendants.
38. “Tax” or “Taxes” means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by any
governmental authority, including income tax and other taxes and charges on or
regarding franchises, windfall or other profits, gross receipts, property, sales, use, capital
stock, payroll, employment, social security, workers’ compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise, withholding,
ad valorem, stamp, transfer, value added, or gains taxes; license, registration and
documentation fees; and customs’ duties, tariffs, and similar charges.
39. “Termination Notice” shall have the meaning set forth in Section XIV.1 of
this Settlement Agreement.
40. “Tharaldson” means Gary D. Tharaldson, his heirs, executors, agents,
attorneys, and assigns.
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41. “TMI” means TMI Hospitality, Inc., formerly known as Tharaldson
Motels, Inc.
42. “TMI Affiliates” means collectively TMI and its officers, directors, former
directors except for Tharaldson, employees, and all subsidiaries and affiliates, including,
but not limited to, TMI Development Company, Inc., TMI Property Management, Inc.,
TMI Communications, Inc., and TMI Employee Management, Inc., as well as all officers,
directors, and employees of such subsidiaries and affiliates.
43. “TMI ESOP” means the TMI Hospitality, Inc. Employee Stock Ownership
Plan and Trust, formerly known as the Tharaldson Motels, Inc. Employee Stock
Ownership Plan and Trust.
44. “TMI ESOP Counsel” means the law firm of Moore & Van Allen PLLC.
45. “TMI II” means Tharaldson Motels II, Inc.
46. “Unknown Claim” means any Claim that any Settling Party does not know
or suspect to exist in his, her or its favor but that accrued at any time on or before the
Final Order becomes Non-Appealable, including, without limitation, Claims that if
known might have affected the decision to enter into this Settlement Agreement or not to
object to the Settlement. With respect to all Settled Claims, the Settling Parties stipulate
and agree that upon the Final Order becoming Non-Appealable, each Settling Party shall
expressly waive, and shall be deemed to, and by operation of the Final Order shall, waive
and relinquish, to the fullest extent permitted by law, the provisions, rights and benefits
of Chapter 9-13-02 of the North Dakota Century Code and all similar, comparable, and/or
equivalent provisions of the statutory or common laws of any other State, Territory, or
other jurisdiction. Chapter 9-13-02 reads:
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A general release does not extend to claims whichthe creditor does not know or suspect to exist in thecreditor’s favor at the time of executing the release,which if known by creditor, must have materiallyaffected the creditor’s settlement with the debtor.
The Settling Parties may hereafter discover facts in addition to or different from those
which they now know or believe to be true with respect to the subject matter of the
Settled Claims but hereby stipulate and agree that they do, upon the Final Order
becoming Non-Appealable, fully, finally and forever settle and release any and all Settled
Claims, known or unknown, suspected or unsuspected, contingent or non-contingent,
which now exist, or heretofore have existed upon any theory of law or equity, including,
but not limited to, conduct which is negligent, intentional, with or without malice, or a
breach of any duty, law or rule, without regard to the subsequent discovery or existence
of such different or additional facts. The Settling Parties acknowledge and by operation
of law the heirs, executors, administrators, successors, assigns, predecessors, successors
and assigns of the Settling Parties shall be deemed to have acknowledged, that the
inclusion of Unknown Claims in the definition of each of the claims comprising the
Settled Claims was separately bargained for and was a key element of the Settlement
Agreement of which the releases are a part. The Settling Parties (including the Settling
Defendants and Class Representatives, for themselves and on behalf of the Participant
Classes) assume the risk of subsequent discovery or understanding of any matter, fact, or
law that if now known or understood, would in any respect have affected his, her, or its
entering into this Settlement Agreement.
II. SETTLEMENT FUND
A. SETTLEMENT FUND CASH COMPONENT
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1. TMI shall create the Settlement Fund Cash Component in two payments
of Two Million Dollars ($2,000,000) each. The first payment shall be made thirty (30)
days after the entry of the Final Order by the Court (the “Initial Funding Date”) and shall
be paid into an interest bearing account established by Class Counsel in the name of the
TMI Hospitality Inc. ESOP Litigation Settlement Fund. (“Bank Account”). The second
payment shall be made into the Bank Account no later than the date (“Final Funding
Date”) which is one (1) year after the Initial Funding Date. The payment made on the
Final Funding Date shall be subject to offset for TMI’s unreimbursed administrative
expenses as described in paragraph II.A.5 below.
2. Under no circumstances shall TMI have any obligations to fund any
amounts incurred in connection with the Settlement, whether administrative costs or
otherwise, in excess of the $4,000,000 set forth in Section II.A.1 above except for
administrative costs of the settlement incurred by TMI or the TMI ESOP in excess of
$150,000. Under no circumstances shall Settling Defendants have any obligations to
fund any amounts incurred in connection with the Settlement, whether administrative
costs or otherwise, unless expressly stated herein.
3. The Settlement Fund Cash Component held in the Bank Account
described in Section II.A.1 above shall be deemed to be in the custody of the Court and
shall remain subject to the jurisdiction of the Court and shall be administered by Class
Counsel in accordance with the terms of this Settlement Agreement and the Orders of the
Court. The Settlement Fund Cash Component shall not be released from the Bank
Account until the Final Order becomes Non-Appealable or the Settlement is terminated in
accordance with Section XIV below.
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4. Upon the Final Order becoming Non-Appealable, the Settlement Fund
Cash Component shall be used to pay (i) any Taxes on the income thereof or any
distribution of the proceeds thereof in accordance with this Settlement Agreement, (ii)
Notice and class administration expenses; and (iii) the Expense Award, the Incentive
Awards and the Fee Award. The remainder, if any, of the Settlement Fund Cash
Component after the payment of the above amounts shall be sent to the TMI ESOP to be
allocated in accordance with the Plan of Allocation as described in Section III below.
5. TMI shall be entitled to reimbursement up to $150,000 for approved
expenses related to the administration of this Settlement Agreement to be paid (i) first
from settlement proceeds in the McKay Litigation available after the payment of any
court-approved expense or fee awards to class counsel in the McKay Litigation and (ii) as
an offset to the $2,000,000 payment due on the Final Funding Date. TMI agrees that it
will not seek reimbursement for expenses exceeding $150,000 that it, or any person or
entity hired by it or by the TMI ESOP, incurs for the administration of the Settlement
Agreement. On the Final Funding date, TMI will be allowed to offset from the
$2,000,000 payment any previously unreimbursed expenses that TMI has actually
incurred or expenses that TMI reasonably anticipates it will incur in the administration of
the Settlement Agreement. On the final Principal Reduction date described in paragraph
II.B.1 below, any amounts offset by TMI in anticipation of administrative expenses that
are not actually incurred will be sent to the TMI ESOP to be allocated in accordance with
the Plan of Allocation described in Section III below.
6. All parties understand that it is extremely likely that the Settlement Fund
Cash Component will be exhausted after payment of the amounts in subsections (i) – (iv)
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of Section II.A.4 above and that there will likely be no allocation of any of the
Settlement Fund Cash Component to the Participant Classes in accordance with the Plan
of Allocation.
7. In the event that the Settlement is terminated in accordance with Section
XIV below, Class Counsel shall return to TMI the entire balance of the Settlement Fund
Cash Component (including all interest or income accrued or earned thereon), net of any
Taxes due on such interest income, within ten (10) business days of receiving a
Termination Notice and without the necessity of any Court order.
8. The Settling Parties shall not have any liability or responsibility for the
payment of any Taxes incurred by or with respect to the Settlement Fund Cash
Component, and any such Taxes shall be paid out of the Settlement Fund Cash
Component.
B. SETTLEMENT FUND PRINCIPAL REDUCTION
1. Contemporaneous with the Final Order becoming Non-Appealable and
contemporaneous with the TMI ESOP’s payments of interest due on the Designated
ESOP Notes on each subsequent December 31 for 3 years (“Principal Reduction
Period”), a total of Eleven Million dollars ($11,000,000) of principal on the Designated
ESOP Notes will be deemed paid by TMI II or its successor(s) in the following amounts
(each a “Principal Reduction”):
Principal Reduction on Final Order Becoming Non-Appealable: $3 MillionPrincipal Reduction Subsequent December 31: $3 MillionPrincipal Reduction Subsequent December 31: $4 MillionPrincipal Reduction Subsequent December 31: $1 Million
The Principal Reduction shall be first applied to the principal owed on the
Designated ESOP Note that was issued to the Matthew Tharaldson Dynasty Trust, and
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only when there is no further principal owed on the Designated ESOP Note that was
issued to the Matthew Tharaldson Dynasty Trust shall the Principal Reduction be applied
to the Designated ESOP Note that was issued to the Michael Tharaldson Trust. Cleone
Nitti and Delphine Nauer, who have a security interest in the Designated ESOP Note that
was issued to the Michael Tharaldson Trust, have consented to the application of the
Principal Reduction to the promissory note issued by the TMI ESOP to the Michael
Tharaldson Trust as described above, and contemporaneous with the Final Order
becoming Non-Appealable will execute the document attached as Exhibit F to this
Settlement Agreement, entitled Consent To Section II.B.1 of the Class Action Settlement
Agreement in Hans v. Tharaldson, CV-00115-RRE-KKK (D.N.D.)
2. Each Principal Reduction will be treated as principal actually paid by the
TMI ESOP for purposes of determining the amount of TMI stock to be released from the
TMI ESOP’s suspense account for each Designated ESOP Note and for adjusting the
future interest payments on such note accordingly.
3. In the event of a sale of TMI (or any other transaction pursuant to which
the Designated ESOP Notes will be repaid or the shares pledged as collateral for the
Designated ESOP Notes will be exchanged for cash or other property) during the
Principal Reduction Period, any remaining Principal Reduction not deemed paid prior to
the date of the sale closing, will be deemed paid immediately prior to closing. Subject to
the provisions of Section V, the TMI stock released from the TMI ESOP’s suspense
accounts for the Designated ESOP Notes as a result of each Principal Reduction will be
allocated to the Participant Classes in accordance with the Plan of Allocation.
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4. TMI II agrees that it will not sell, transfer, assign, pledge, or in any
manner encumber (collectively a “Transfer”) the Designated ESOP Notes or any portion
thereof during the Principal Reduction Period without providing at least 7 days prior
written notice of such Transfer to TMI and the TMI ESOP, which notice shall include,
without limitation, a description of the Designated ESOP Note to be Transferred and the
name and address of the person or entity to whom such Transfer shall be made. TMI II
understands and agrees that TMI and the TMI ESOP may provide notice of the Principal
Reductions to any Transferee of the Designated ESOP Notes during the Principal
Reduction Period.
5. TMI II agrees that it will return the Designated ESOP Notes to the TMI
ESOP within 30 days of the Final Order becoming Non-Appealable so that each of the
Designated ESOP Notes may be endorsed as follows: “The Outstanding Principal
Amount of This Note Is Subject To Reduction Pursuant to a Court Approved Settlement
Agreement.” The TMI ESOP will return the endorsed Designated ESOP Notes to TMI II
within 7 days of receipt from TMI II.
III. PLAN OF ALLOCATION
1. The Plan of Allocation is attached hereto as Exhibit D. After proceeds of
the Settlement Agreement are allocated in accordance with the Plan of Allocation as
approved by the Court, the proceeds will become subject to the terms of the TMI ESOP,
as amended from time to time by TMI. TMI retains all rights as sponsor of the TMI
ESOP to make necessary amendments to the TMI ESOP Plan to effectuate the Plan of
Allocation or for any other purpose, except TMI will not amend the TMI ESOP, without
the written consent of Class Counsel, in any way that has the effect of reducing,
modifying, or altering: (i) any benefit to which a Settlement Participant (as defined in the
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Plan of Allocation) may become entitled under the Plan of Allocation; (ii) the Valuation
Date (as defined in the Plan of Allocation) as of which the TMI stock released from the
TMI ESOP’s suspense accounts for the Designated ESOP Notes as a result of each
Principal Reduction will be allocated; or (iii) the manner or method of allocation of
shares to Settlement Participant Accounts under the Plan of Allocation.
2. The Settling Defendants shall have no responsibility for preparing or
providing input into the Plan of Allocation or the distribution of the Settlement Fund
pursuant to the Plan of Allocation.
3. The Participant Classes shall not have any claim against Class
Representatives, North Star, TMI Affiliates, TMI ESOP, or the Settling Defendants, or
counsel to any of the foregoing, including any of the individuals involved in the
distribution under the Plan of Allocation, based on any distributions of the Settlement
Fund made substantially in accordance with this Settlement Agreement or as authorized
by the Court.
IV. SETTLEMENT ADMINISTRATION
Class Counsel shall be responsible for publication and mailing of the required
Notice to the Participant Classes. Fees and expenses for the Notice will be paid by Class
Counsel and will be reimbursable as a cost from the Settlement Fund Cash Component.
The Notice to the Participant Classes in this Action will be coordinated with the approval
and notice required in the McKay Litigation so as to minimize the costs incurred in the
McKay Litigation.
V. PAYMENT OF FEES, INCENTIVE AWARDS, AND REIMBURSEMENT OF COSTS AND
EXPENSES
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1. Class Counsel will apply to the Court for an award from the Settlement
Fund of (i) attorney’s fees (the “Fee Award”), (ii) incentive awards for Class
Representatives (“Incentive Awards”) and (iii) reimbursement of litigation costs and
expenses (the “Expense Award”).
2. The Settling Defendants and their counsel will take no position regarding
the application for or award of the Fee Award, the Incentive Awards, or the Expense
Award, provided that the application for the Fee Award does not exceed one-third of the
Settlement value. The Settling Defendants, TMI, and the TMI ESOP agree to take no
position regarding the Class Counsel’s application for a Fee Award, Incentive Awards, or
Expense Award provided that the application for Fee Award, Incentive Awards, and
Expense Awards, combined, does not exceed $4,675,000. This Settlement Agreement is
not contingent on and will not be affected in any way by the Court’s or any appellate
court’s ruling with respect to any application for Fee Award, Incentive Awards, or
Expense Award by Class Counsel.
3. Any Fee Award, Incentive Awards, Expense Award, and the expenses for
the Notice and administration expenses associated with the implementation of the
Settlement Agreement, shall be paid solely from the Settlement Fund, subject to the
Court’s approval at the Final Approval Hearing. Under no circumstances shall TMI have
any obligations to fund any amounts incurred in connection with the Settlement, whether
administrative costs or otherwise, in excess of the $4,000,000 set forth in Section II.A.1
above except for administrative costs of the settlement incurred by TMI or the TMI
ESOP in excess of $150,000, as discussed in Section II.A.4 below. Under no
circumstances shall Settling Defendants have any obligations to fund any amounts
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incurred in connection with the Settlement, whether administrative costs or otherwise,
unless expressly stated herein.
4. The Incentive Awards, Expense Award, and Fee Award shall be paid first
out of the Settlement Fund Cash Component. Within 5 business days of the Final Order
becoming Non-Appealable, Court-approved Incentive Awards shall be paid from the
Bank Account. After payment of approved Incentive Awards, if any, any balance
remaining in the Bank Account shall next be used to pay for any Court-approved Expense
Award. After payment of approved Incentive Awards and Expense Award, any balance
remaining in the Bank Account shall next be used to pay Class Counsel for any Court-
approved Fee Award. After payment of all of the above, the balance remaining in the
Bank Account, if any, shall be paid to the TMI ESOP for allocation in accordance with
the Plan of Allocation.
5. If the Final Order becomes Non-Appealable before the Final Funding
Date, Class Counsel will defer payment of the unpaid portion of an approved Fee Award
until after the Final Funding Date.
6. In the event that the approved amount of the Fee Award, the Expense
Award, and Incentive Awards, collectively, exceeds the remaining amount in the
Settlement Fund Cash Component, Class Counsel will defer that portion of the court-
approved Fee Award that cannot be satisfied out of the Settlement Fund Cash Component
and those deferred fees (the “Deferred Fee Award”) will be satisfied from the benefits
conferred upon the TMI ESOP by the Settlement Fund Principal Reduction in Section
II.B above and otherwise in accordance with Section V.7 below.
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7. To effectuate the payment of the Deferred Fee Award, a portion of the
unallocated shares in the TMI ESOP loan suspense account no longer encumbered by an
acquisition loan as a result of the Settlement Fund Principal Reduction will be converted
to cash. At the discretion of TMI, the conversion to cash will be effected through
redemption of shares by TMI or by an exchange of shares for allocated or unallocated
cash held by the TMI ESOP. The shares will be converted to cash based on the shares’
fair market value as determined by the TMI ESOP’s trustee in accordance with Section
4.11 of the ESOP. The number of shares converted to cash each year will be sufficient to
pay the Deferred Fee Award owing for that year, which will be equal to the product
obtained by multiplying the total Deferred Fee Award by a fraction, the numerator of
which is the annual Principal Reduction for that year and the denominator of which is
$11,000,000. The TMI ESOP Trustee will pay the Deferred Fee Award on or before
October 15 following the date of each Principal Reduction. Proceeds from the
conversion to cash that exceed the Deferred Fee Award owing for that year will be
allocated in accordance with the Plan of Allocation.
VI. NO ADMISSION OF WRONGDOING
The Parties acknowledge that this Settlement Agreement embodies a compromise
of disputed claims and that nothing in the Settlement Agreement shall be interpreted or
deemed to constitute any finding of wrongdoing by the Settling Defendants, TMI
Affiliates or the TMI ESOP or give rise to any inference of liability in this or any other
proceeding. This Settlement Agreement shall not be offered or received against the
Settling Defendants, TMI Affiliates or the TMI ESOP as any admission by any such
party with respect to the truth of any fact alleged by Class Representatives or the validity
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of any claim that had been or could have been asserted in the Action or in any litigation
or of any liability, negligence, fault, or wrongdoing of any such party.
VII. PRELIMINARY APPROVAL ORDER
Within 5 days after execution of this Settlement Agreement, on behalf of the
Participant Classes, Class Counsel shall move the Court to enter the Preliminary
Approval Order (“Preliminary Approval Motion”). The Preliminary Approval Order will
be substantially in the form of Exhibit B hereto, providing for, among other things:
1. Preliminary approval of the Settlement Agreement;
2. A hearing date for the Court to consider final approval of the Settlement
(which may be continued with court approval upon motion of any party)(“Final Approval
Hearing”);
3. A deadline by which all objections to the Settlement must be made;
4. A deadline for the filing of briefs in support of the Settlement and for
Class Counsel’s application for Fee Award, Incentive Awards, and Expense Award; and
5. Approval of the Notice to Participant Classes.
VIII. ORDER AND FINAL JUDGMENT OF DISMISSAL TO BE ENTERED BY THE COURT
FOLLOWING APPROVAL OF THE SETTLEMENT
Following the Final Approval Hearing, upon approval by the Court of the
Settlement contemplated by this Settlement Agreement, the Final Order, substantially in
the form of Exhibit C attached hereto, shall be entered by the Court.
IX. CONDITIONS OF SETTLEMENT – COURT APPROVAL
1. Each of the following is an express condition of Settlement:
a. The Court maintains this Action as a mandatory, non-opt out class
pursuant to Fed. R. Civ. P. 23(b)(1) or (b)(2);
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b. The Court enters a Preliminary Approval Order substantially in the
form annexed hereto as Exhibit B;
c. The Court enters the Final Order, substantially in the form annexed
hereto as Exhibit C;
d. The Court approves the settlement of the McKay Litigation as
stated in Section XI below.
2. The Court approval of the Fee Award, Incentive Awards, and/or Expense
Award, the Plan of Allocation, or reimbursement of administrative costs of the Settlement
to TMI are not conditions of Settlement. No action by the Court or any courts of appeal
related to the Fee Award, the Incentive Awards, the Expense Award, the Plan of
Allocation, or reimbursement of administrative costs of the Settlement to TMI shall
prevent the Final Order allowing the approval of the Settlement from becoming Non-
Appealable.
X. ADDITIONAL CONDITIONS OF SETTLEMENT – REISSUANCE OF PROMISSORY
NOTES
1. TMI II and Tharaldson currently owe TMI $7,154,222.01 plus accrued
interest based on two promissory notes that become due and owing on December 31,
2012 (“TMI II Notes”). As partial consideration for the payment by TMI of the
Settlement Fund Cash Component, the amount due and owing under the TMI II Notes
will be increased by $1,000,000 automatically upon the Final Order Becoming Non-
Appealable. To secure its obligations to pay TMI the amounts due under the TMI II
Notes, TMI II has heretofore pledged to TMI three promissory notes (collectively, the
“Currently Pledged Notes”) made by the TMI ESOP and assigned to TMI II by the
promissory notes’ original holders, as further described as follows:
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Original Payee Original LoanAmount
Payment Due OutstandingPrincipal
Linda Tharaldson $6,825,000 12/31/30 $6,028,775.36Michelle Tharaldson Trust $8,500,000 6/30/20 $5,432,334.28Matthew Tharaldson Trust $8,500,000 6/30/20 $5,432,334.28
2. The TMI ESOP agrees to reissue two (2) promissory notes to TMI II, in
substantially the form as in Exhibit E (collectively, the “Reissued Notes”) in exchange for
the Michelle Tharaldson Trust Note above. The Reissued Notes will be in the principal
amounts of (a) $2,125,446.65; and (b) $3,306,887.63.
3. Effective at 12:01 AM in the Central Time Zone on the day after the Final
Order becomes Non-Appealable, the following deliveries shall take place simultaneously
through an escrow arrangement reasonably satisfactory to TMI, TMI II, and the TMI
ESOP: (a) the TMI ESOP shall deliver the Reissued Notes to TMI II; (b) TMI shall
return the Currently Pledged Notes to TMI II, and TMI II shall then return the Michelle
Tharaldson Trust Note to the TMI ESOP for cancellation; (c) TMI II will assign
(absolutely and not as collateral) and deliver the Linda Tharaldson Note and the Reissued
Note for $2,125,446.65 (outstanding principal on the 2 notes totaling $8,154,222.01) to
TMI in satisfaction of the TMI II Notes (such assignment to be free and clear of all liens,
claims, and encumbrances); and (d) the accompanying loan documents will be modified,
as necessary, to reflect the exchange of notes described herein (the events set forth in
paragraph 3 being collectively referred to herein as the “Closing”).
4. The obligations of TMI II and Tharaldson under the terms of the TMI II
Notes will continue, and TMI will retain all rights, until the TMI II Notes are satisfied as
provided above. Provided that the TMI II Notes are not then in default and upon
payment of all accrued and unpaid interest, TMI will accept the absolute assignment, free
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and clear of all liens, claims and encumbrances, of the Linda Tharaldson Note and the
Reissued Note with a principal amount of $2,125,446.65 referenced above in full
satisfaction of the TMI II Notes. Should the TMI II Notes be in default prior to the Final
Order becoming Non-Appealable, the TMI II Notes will become immediately dues and
payable and TMI will retain all rights and remedies available to it. A default of the TMI
II Notes shall not prevent the execution or otherwise excuse performance of the other
provisions of this Settlement.
5. If the Court has not conducted the hearing for final approval of the
Settlement and entered the Final Order by December 31, 2012 or, even if the Final Order
has been entered, should the Final Order remain appealable on December 31, 2012, TMI
agrees to extend the maturity date of the TMI II Notes to the earliest of the following
dates: (a) seven days after the Final Order becomes Non-Appealable, or (b) thirty days
after the receipt of a Termination Notice (the period between December 31, 2012 and the
extended maturity date being hereinafter referred to as the “Forbearance Period”).
During the Forbearance Period, TMI II and Tharaldson shall continue to pay interest
under the TMI II Notes monthly at the applicable rate, and all other terms of the TMI II
Notes will remain unchanged.
6. If the Forbearance Period ends pursuant to paragraph 5(a) above, then
TMI II, TMI, and Tharaldson will effect the Closing as contemplated in paragraph 3
above. If the Forbearance Period ends pursuant to paragraph 5(b) above, then the TMI II
Notes will become immediately due and payable, and TMI will retain all rights and
remedies available to it.
XI. ADDITIONAL CONDITIONS OF SETTLEMENT – APPROVAL OF SETTLEMENT OF
MCKAY LITIGATION
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Any Party may withdraw from the Settlement if the proposed settlement of the
McKay Litigation is not approved by an order and judgment of the Court within twenty
days of the entry of the Final Order. In the event that any Party timely exercises their
respective right to withdraw acceptance, then this Settlement shall be terminated and the
provisions of Section XIV.2 shall apply.
XII. ISSUANCE OF NOTICE UNDER THE CLASS ACTION FAIRNESS ACT
1. Subject to the requirements of the Preliminary Approval Order, Class
Counsel shall cause the Notice to be disseminated to Participant Classes. The Parties will
seek to set the Final Approval Hearing at least sixty (60) days from the date the Notice is
mailed to the Participant Classes, and the order giving final approval may not be issued
earlier than ninety (90) days after the officials required to receive notice under the Class
Action Fairness Act of 2005, PL 109-2 (2005) and 28 U.S.C. § 1715(b), (d) (“CAFA”),
have been served. To the extent available, TMI (with the assistance of the record keeper
for the TMI ESOP) shall provide names and last known addresses of the Participant
Classes in electronic format at least twenty-one (21) days prior to the deadline for
providing Notice to the Participant Classes.
2. Pursuant to CAFA, Tharaldson, at his own expense, shall prepare and
provide the notices required by CAFA, including the notices to the United States
Department of Justice, the United States Department of Labor, and to the Attorneys
General of all states in which the members of the Participant Classes reside, as specified
by 28 U.S.C. § 1715, within ten (10) days of the filing of the Preliminary Approval
Motion. Tharaldson shall give Class Counsel and TMI ESOP Counsel the opportunity to
review the notices at least seven (7) days before service.
XIII. RELEASES
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Upon the Final Order becoming Non-Appealable, and provided that each Party
has performed all of the respective obligations under this Settlement Agreement to be
performed on or prior to such date by such Party:
1. The TMI ESOP and the Participant Classes, and with respect to natural
persons therein, their present or past heirs, executors, administrators, successors, and
assigns, and with respect to legal entities other than natural persons therein, their
predecessors, successors and assigns (i) shall be conclusively deemed to have fully,
finally and forever released, relinquished, and discharged all Settled ESOP Claims
against the Settling Defendants and TMI Affiliates; (ii) shall be conclusively deemed to
have and by operation of the Final Order shall have fully, finally, and forever released,
relinquished, and discharged the Settling Defendants and TMI Affiliates from all Settled
ESOP Claims; (iii) shall be conclusively deemed to have covenanted not to sue any of the
Settling Defendants or TMI Affiliates in any action alleging any claim that is a Settled
ESOP Claim; and (iv) shall forever be enjoined and barred from asserting any Settled
ESOP Claims against any of the Settling Defendants or TMI Affiliates in any action or
proceeding of any nature.
2. The Participant Classes, and with respect to natural persons therein, their
present or past heirs, executors, administrators, successors, and assigns, and with respect
to legal entities other than natural persons therein, their predecessors, successors and
assigns (i) shall be conclusively deemed to have fully, finally and forever released,
relinquished, and discharged all Settled Tharaldson Contract Claims, whether direct or
derivative, against TMI Affiliates; (ii) shall be conclusively deemed to have and by
operation of the Final Order shall have fully, finally, and forever released, relinquished,
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and discharged TMI Affiliates from all Settled Tharaldson Contract Claims; (iii) shall be
conclusively deemed to have covenanted not to sue TMI Affiliates in any action alleging
any claims that are a Settled Tharaldson Contract Claim; and (iv) shall forever be
enjoined and barred from asserting any Settled Tharaldson Contract Claims against TMI
Affiliates in any action or proceeding of any nature.
3. Tharaldson, on behalf of himself and all affiliated entities, (i) shall be
conclusively deemed to have fully, finally, and forever released, relinquished, and
discharged all Settled Tharaldson Indemnification Claims; (ii) shall be conclusively
deemed to have and by operation of the Final Order shall have fully, finally, and forever
released, relinquished, and discharged the Settled Tharaldson Indemnification Claims;
(iii) shall be conclusively deemed to have covenanted not to sue in any action alleging
any claim that is a Settled Tharaldson Indemnification Claim; and (iv) shall forever be
enjoined and barred from asserting any Settled Tharaldson Indemnification Claims in any
action or proceeding of any nature. TMI represents and warrants that other than the
Settled ESOP Claims and claims that have been previously disclosed neither TMI nor its
agents have any current knowledge of any Claims or facts that may give rise to any Claim
against Tharaldson that could trigger a claim by Tharaldson for indemnification from
TMI. TMI will indemnify Tharaldson against any Claim that arises in contravention of
the representations and warranties contained in the preceding sentence, but only to the
extent that absent the release set forth in the first sentence of this Section XIII.2,
Tharaldson would otherwise have been entitled to indemnification with respect to such
Claim and a final determination has been made that TMI breached such representation
and warranty.
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4. Linda Tharaldson, on behalf of herself, her heirs, executors, agents,
attorneys, and assigns, (i) shall be conclusively deemed to have fully, finally and forever
released, relinquished, and discharged all Settled Tharaldson Contract Claims; (ii) shall
be conclusively deemed to have and by operation of the Final Order shall have fully,
finally, and forever released, relinquished, and discharged the Settled Tharaldson
Contract Claims; (iii) shall be conclusively deemed to have covenanted not to sue in any
action alleging any claim that is a Settled Tharaldson Contract Claim; and (iv) shall
forever be enjoined and barred from asserting any Settled Tharaldson Contract Claims in
any action or proceeding of any nature
5. TMI shall be conclusively deemed to have fully, finally and forever
released, relinquished, and discharged (i) all Settled TMI Indemnification Claims, and (ii)
the Participant Classes and Class Counsel for any Claim or Unknown Claim relating to or
arising out of the initiation, prosecution, and settlement of the Settled ESOP Claims and
Settled Tharaldson Contract Claims.
6. The Settling Defendants shall be deemed to have fully, finally, and forever
released, relinquished and discharged any and all Claims and Unknown Claims against
the Participant Classes and Class Counsel.
XIV. EFFECT OF DISAPPROVAL, CANCELLATION OR TERMINATION
1. If at any time prior to the Final Order becoming Non-Appealable (i) the
Court refuses or declines to allow any of the conditions specified in Section IX.1 (a)-(d)
or (ii) if the Final Order is reversed or materially altered, then any one of the Settling
Parties, through their respective counsel, shall have the right to terminate the Settlement
by providing written notice (“Termination Notice”) to the remaining Settling Parties
within ten (10) days after receiving notice of the event prompting the right to terminate.
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2. Except as may otherwise be provided herein, in the event the Settlement is
terminated, then the Settling Parties shall be deemed to have reverted to their respective
status in this Action as of April 19, 2012, and, except as may otherwise be expressly
provided herein, the Settling Parties shall proceed in all respects as if this Settlement
Agreement and any related orders had not been entered, and any portion of the Settlement
Fund Cash Component previously paid by or on behalf of TMI, or the Settling
Defendants, together with any interest earned thereon, less any Taxes due with respect to
such income shall be returned within ten (10) days to TMI.
XV. MISCELLANEOUS PROVISIONS
1. Within 30 days of the Final Order becoming Non-Appealable any Party or
counsel who has received any confidential materials (excluding attorney work product
and any materials filed with the Court but not excluding materials filed under seal with
the Court), shall either return such materials to counsel for the party who produced the
confidential materials or destroy them as provided in the Protective Order entered in this
Action on October 21, 2005.
2. No opinion or advice concerning the Tax consequences of the Settlement
Agreement has been given or will be given by counsel involved in the Action to
Participant Classes, nor is any representation or warranty in this regard made by virtue of
this Settlement Agreement. The Tax obligations of the Participant Classes and the
determination thereof are the sole responsibility of each member of the Participant
Classes, and it is understood that the Tax consequences may vary depending on the
particular circumstances of each member of the Participant Classes.
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3. Class Representatives intend that all rights and obligations that are binding
on them under this Settlement Agreement, including each and every covenant, agreement
and warranty, also shall bind the Participant Classes.
4. The Settling Parties: (a) acknowledge that it is their intent to consummate
this Settlement; and (b) agree to exercise their best efforts and to act in good faith to
cooperate to the extent necessary to effectuate and implement all terms and conditions of
this Settlement Agreement. Class Representatives, TMI, North Star, Tharaldson, TMI II,
and counsel for the forgoing agree to cooperate fully with one another in seeking entry of
the Preliminary Approval Order and final approval of this Settlement. The Settling
Parties also agree to promptly execute and/or provide such documentation as may be
reasonably required to obtain preliminary and final approval of this Settlement.
5. All of the exhibits attached hereto and identified herein are hereby
incorporated by reference as though fully set forth herein.
6. This Settlement Agreement may be amended or modified only by written
instrument signed by, or on behalf of, all Settling Parties or their successors in interest.
7. This Settlement Agreement constitutes the entire agreement among the
Settling Parties, and no representations, warranties or inducements have been made to
any party concerning this Settlement Agreement or the Settlement Agreement
Memorandum of Understanding, other than the representations, warranties, and
covenants contained and memorialized in such documents. In the event of any conflicts
between this Settlement Agreement, the Settlement Agreement Memorandum of
Understanding, or any other document, the Settling Parties agree that this Settlement
Agreement shall control.
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8. Except as otherwise provided herein, each party shall bear its own costs.
The Fee Award, Incentive Awards, and Expense Award, subject to Court approval, shall
be paid solely out of the Settlement Fund.
9. Each signatory to this Settlement Agreement represents that he or she is
authorized to enter into this Settlement Agreement on behalf of the respective parties he
or she represents.
10. This Settlement Agreement may be executed in one or more original,
photocopied, or facsimile counterparts. All executed counterparts and each of them shall
be deemed to be one and the same instrument.
11. This Settlement Agreement shall be binding upon, and inure to the benefit
of, the successors, assigns, executors, administrators, heirs and legal representatives of
the Settling Parties, provided, however, that no assignment by any Settling Party shall
operate to relieve such party of its obligations hereunder.
12. All terms of this Settlement Agreement shall be governed by and
interpreted according to the laws of the State of North Dakota without regard to its rules
of conflicts of law and in accordance with the laws of the United States.
13. The headings in this Settlement Agreement are used for purposes of
convenience and ease of reference only and are not meant to have any legal effect, nor
are they intended to influence the construction of this Settlement Agreement in any way.
14. The waiver by one party of any breach of this Settlement Agreement by
any other party shall not be deemed a waiver of any other breach of this Settlement
Agreement. The provisions of this Settlement Agreement may not be waived except by a
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writing signed by the affected party, or counsel for that party, or orally on the record in
court proceedings.
15. The Settling Parties agree to submit to the jurisdiction of the Court and
shall be bound by the terms of this Settlement Agreement, including, without limitation,
disputes related to implementing and enforcing the Settlement embodied in this
Settlement Agreement. Any and all disputes related to claims that are not satisfactorily
resolved by the Settling Parties shall be submitted to the Court for final resolution.
16. This Settlement Agreement is deemed to have been drafted by all Settling
Parties hereto, as a result of arm’s-length negotiations among the Settling Parties.
Whereas all Settling Parties have contributed substantially and materially to this
Settlement Agreement, it shall not be construed more strictly against one party than
another.
17. The Settling Parties reserve the right, subject to the Court’s approval, to
request any reasonable extensions of time that might be necessary to carry out any of the
provisions of this Settlement Agreement.
18. Neither this Settlement Agreement nor the Settlement, nor any
negotiation, nor act performed, nor document executed, nor proceedings held pursuant to
or in forbearance of this Settlement Agreement or the Settlement, even if this Settlement
Agreement is canceled or terminated: (i) is, or may be deemed to be, or may be used as
an admission of, or evidence of the validity of any Settled Claims, or of any wrongdoing,
negligence, misrepresentation, violation or liability of any Settling Party; (ii) is, or may
be deemed to be, or may be used as an admission of, or evidence of any infirmity in the
Complaints or Claims asserted by the Participant Classes or the TMI ESOP; or (iii) is,
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Linda Tharaldson, Individually and in her capacity asTrustee of the Michael Tharaldson Trust
Connie Tharaldson
Roger Tharaldson
Raymond Braun, in his capacity as Trustee ofthe Michelle Tharaldson Trust and as Trustee ofthe Matthew Tharaldson Trust
James Lochow, in his capacity as Trustee ofthe Michelle Tharaldson Trust and as Trustee ofthe Matthew Tharaldson Trust
South Dakota Trust Company, LLC, as Trustee ofthe Michelle Lyn Tharaldson LeMaster Dynasty Trust,as Trustee of the Matthew Tharaldson Dynasty Trust, andas Trustee of the Michael Tharaldson Dynasty Trust
Tharaldson Motels II, Inc.by its
T Hospitality, Inc.by its C~ D
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Fargo-Moorhead Area Foundation
by its-----------
The TMI Hospitality Inc. ESOP by North Star Trust Company solely in its capacity as Trustee of the TMI ESOP
Former Employee Class Representatives by their counsel
by their counsel
CHAR2\ 1429878v 1 40
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RAYMOND HANS, GAYLE HERBERT, LARRYRICHMAN, DONNA WALKER MICHAEL WEBSTER,BERNARD MCKAY, and TAMMY BLAKE on behalf ofthemselves, individually and on behalf of all otherssimilarly situated in the Former Employee Class; andCARLOS GONZALES, DONALD KLAIN, JOLENEMATHESON-GODSCHALK, and SIDNEY LEIN, onbehalf of themselves individually and on behalf of allothers similarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON,ROGER THARALDSON, RAYMOND BRAUN andJAMES LOCHOW as the Trustees of the MICHELLETHARALDSON TRUST and as Trustees of theMATTHEW THARALDSON TRUST, SOUTHDAKOTA TRUST COMPANY, LLC as Trustee of theMICHELLE LYN THARALDSON LEMASTERDYNASTY TRUST, as Trustee of the MATTHEWTHARALDSON DYNASTY TRUST and as Trustee ofthe MICHAEL THARALDSON DYNASTY TRUST, andLINDA THARALDSON individually and in her capacityas Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCKOWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-00115-RRE-KKK
CLASS ACTIONSETTLEMENT AGREEMENT
Exhibit ANotice of Proposed Settlement of Class Action
Litigation, Settlement Fairness Hearing, and ProposedOrder
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UNITED STATES DISTRICT COURTDISTRICT OF NORTH DAKOTA
SOUTHEAST DIVISION
RAYMOND HANS, et al.,
Plaintiffs,
v.
GARY D. THARALDSON, et al.,
Defendants,
and
THARALDSON MOTELS, INC.EMPLOYEE STOCK OWNERSHIP PLAN,
Nominal Defendant.
)))))))))))))))))
Civil Action No.3:05-CV-00115-RRE-KKK
BERNARD MCKAY, et al
Plaintiff,
v.
GARY D. THARALDSON,
Defendant,
and
THARALDSON MOTELS, INC.EMPLOYEE STOCK OWNERSHIP PLAN,
Nominal Defendant.
))))))))))))))))
Civil Action No.3:08-CV-00113-RRE-KKK
NOTICE OF PROPOSED SETTLEMENTS OF CLASS ACTION LITIGATION,SETTLEMENT FAIRNESS HEARING, AND PROPOSED ORDER
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Your legal rights might be affected if you are a member of one of the following groups: 1
I. PARTICIPANTS IN THE TMI HOSPITALITY, INC. (“TMI”) EMPLOYEE STOCKOWNERSHIP PLAN AND TRUST (“TMI ESOP”)(FORMERLY KNOWN AS THETHARALDSON MOTELS, INC. ESOP) AT ANY TIME FROM DECEMBER 30, 1998TO THE PRESENT WHO RECEIVED AN ALLOCATION OF PLAN ASSETS TOTHEIR TMI ESOP ACCOUNTS WHICH THEY DID NOT SUBSEQUENTLY FORFEITUNDER THE TERMS OF THE TMI ESOP AND WHO ARE NO LONGEREMPLOYEES OF TMI (OR AN AFFILIATE OF TMI), AND THE BENEFICIARIES OFSUCH PARTICIPANTS (“FORMER EMPLOYEE CLASS”);
II. PARTICIPANTS IN THE TMI ESOP AT ANY TIME FROM DECEMBER 30, 1998TO THE PRESENT WHO ARE PRESENT EMPLOYEES OF TMI (OR AN AFFILIATEOF TMI), AND THE BENEFICIARIES OF SUCH PARTICIPANTS (“CURRENTEMPLOYEE CLASS”).
PLEASE READ THIS NOTICE CAREFULLY. A FEDERAL COURT HASAUTHORIZED THIS NOTICE. THIS IS NOT A SOLICITATION.
YOU HAVE NOT BEEN SUED.
This notice (“Notice”) advises you of two proposed settlements (the “Settlements”) in the abovereferenced litigation in Han v. Tharaldson (the “Hans Action”) and McKay v. Tharaldson (the“McKay Action”) (collectively the “Actions”). In the Actions, Plaintiffs seek to recover losseswhich they allege were suffered by the TMI ESOP as the result of breaches of fiduciary duty byDefendants. The parties reached proposed settlements of these Actions on _____, 2012.
The United States District Court for North Dakota (the “Court”) has preliminarily approved theSettlements and has scheduled a final hearing (the “Fairness Hearing”) to evaluate the fairness andadequacy of each of the Settlements. At the Fairness Hearing, the Court will consider (i) whetherto approve the Settlements as fair and adequate; (ii) whether to approve the Plan of Allocation inthe Hans Action (see Question 5 below) which sets forth the manner in which the Settlementproceeds will be distributed to Settlement Participants; and (iii) whether to award attorneys’ feesand/or expenses to Plaintiffs’ Counsel (see Question 8 below). The Fairness Hearing, before theHonorable Ralph R. Erickson, has been scheduled for ____, at ____ at the United States DistrictCourt for North Dakota, 655 First Avenue North, Fargo, ND 58102.
The terms of the Settlements are contained in two separate Settlement Agreements (the“Settlement Agreements”). A copy of the Settlement in the Hans Action (the “HansSettlement”)is available at [insert CM website here] or www.kellersettlements.com, or bycontacting Plaintiffs’ Counsel in the Hans Action identified below. A copy of the SettlementAgreement in the McKay Action (the “McKay Settlement”) is available at [insert CM websitehere] or by contacting Cohen Milstein at the address below identified below. Capitalized and
1 Defendants (see below for a list of Defendants), members of their immediate families, their legalrepresentatives, heirs, successors or assigns or any excluded party, are excluded from both classes in theHans Action and the Class in McKay.
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italicized terms used in this Notice and not defined herein have the meanings assigned to them inthe Settlement Agreement.
Any questions regarding the Hans Settlement should be directed to counsel listed below. If youare a member of the Former Employee Class, please contact counsel for the Former EmployeeClass. If you are a member of the Current Employee Class, please contact counsel for the CurrentEmployee Class:
Counsel for the Former Employee Class: Counsel for the Current Employee Class:COHEN MILSTEINSELLERS & TOLL P.L.L.C.R. Joseph BartonBruce F. Rinaldi1100 New York Avenue, N.W.West Tower, Suite 500Washington, D.C. 20005-3934Telephone: (202) 408-4600Or Toll Free: 1-888-240-0775Email:[email protected]
KELLER ROHRBACK P.L.C.Gary GottoGary GreenwaldDavid Ko3101 North Central AvenueSuite 1400Phoenix, AZ 85012Telephone: (602) 248-0088Or Toll Free: 1-800-776-6044Email:[email protected]
Counsel for North Star Trust Company:
MOORE & VAN ALLEN PLLCAlton L. Gwaltney, IIIMark A. Nebrig100 North Tryon StreetSuite 4700Charlotte, NC 28202-4003Telephone: 704-331-1000Email:[email protected]
Any questions regarding the McKay Settlement should be directed to:
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Counsel for the McKay ClassCOHEN MILSTEINSELLERS & TOLL P.L.L.C.R. Joseph BartonBruce F. Rinaldi1100 New York Avenue, N.W.West Tower, Suite 500Washington, D.C. 20005-3934Telephone: (202) 408-4600Or Toll Free: 1-888-240-0775Email:[email protected]
Please do not contact the Court, as Court personnel will not be able to answer your questions.
PLEASE READ THIS NOTICE CAREFULLY AND COMPLETELY. IF YOU ARE APARTICIPANT IN THE TMI ESOP, THE SETTLEMENT MAY AFFECT YOURRIGHTS. YOU ARE NOT BEING SUED IN THIS MATTER. YOU DO NOT HAVE TOAPPEAR IN COURT, AND YOU DO NOT HAVE TO HIRE AN ATTORNEY IN THISCASE. IF YOU ARE IN FAVOR OF THE SETTLEMENTS, YOU NEED NOT DOANYTHING. IF YOU DISAPPROVE, YOU MAY OBJECT TO EITHER OR BOTH OFTHE SETTLEMENTS PURSUANT TO THE PROCEDURES DESCRIBED BELOW.
ACTIONS YOU MAY TAKE IN THE SETTLEMENTS
NO ACTION IS NECESSARYTO RECEIVE BENEFITS.
Unless the Court approves both the Hans Settlementand McKay Settlements any party may withdraw fromthe Settlements. If both Settlements are approved bythe Court and you are either a member of the FormerEmployee Class or the Current Employee Class (asdefined above), you do not need to do anything inorder to receive an allocation of the Hans Settlement.The portion, if any, of the Settlement Fund to beallocated for your benefit will be calculated as part ofthe implementation of the Hans Settlement. Noadditional allocations will be made to Plaintiffs as aresult of the McKay Settlement.
YOU CAN OBJECT (NOLATER THAN ____________)
If you wish to object to any part of the Hans Settlementand/or the McKay Settlement, you can write to theCourt and counsel and explain why you do not like theSettlement.
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YOU CAN GO TO THEHEARING ON ____________
Whether you support or object to the Hans Settlementand/or the McKay Settlement, you may attend the FinalFairness Hearing and speak in Court, but only if youhave submitted a written objection or support to theCourt and counsel, as explained below.
WHAT THIS NOTICE CONTAINS
SUMMARY OF SETTLEMENT ..................................................................................................4BASIC INFORMATION ................................................................................................................5
1. Why did I get this Notice? ........................................................................................52. What is this lawsuit about? What has happened so far? ...........................................53. Why is there a Settlement? .......................................................................................64. What does the Settlement provide? ...........................................................................75. What will be my share of the Settlement Fund? .......................................................76. How can I get my portion of the recovery? ..............................................................77. When would I receive my portion of the recovery? .................................................78. How will the lawyers be paid? ..................................................................................8
OBJECTIONS .................................................................................................................................99. If I don’t like the Settlement, how do I tell the Court? .............................................9
THE COURT’S FAIRNESS HEARING ......................................................................................1110. Do I have to come to the hearing? ............................................................................1111. May I speak at the hearing? ......................................................................................11
IF YOU DO NOTHING .................................................................................................................1112. What happens if I do nothing at all? .........................................................................11
GETTING MORE INFORMATION ............................................................................................1113. How do I get more information? ...............................................................................11
SUMMARY OF SETTLEMENTS
The Hans Settlement provides a $4 million cash payment by TMI (the “Settlement Fund CashComponent”) and $11 million which shall be credited against principal owing under the ESOPNotes (the “Settlement Fund Principal Reduction”). Collectively, the Settlement Fund CashComponent and the Settlement Fund Principal Reduction comprise the entire “Hans SettlementFund.”
Disbursements or allocations will be made as promptly as practicable after the Court’s approval ofthe Settlement becomes final and after the Settlement Fund Cash Component and each SettlementFund Principal Reduction installment is disbursed to the ESOP.
The McKay Settlement provides a $125,000 cash payment (the “McKay Settlement Amount”)with each party to bear its own costs. After litigation expenses have been paid, Plaintiffs have
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proposed that the remainder of the McKay Settlement Amount be paid to TMI as provided in thePlan of Distribution in the McKay Settlement. No additional allocations will be made to Plaintiffsas a result of the McKay Settlement.Any party to the Hans Settlement or the McKay Settlement may withdraw from the Settlementsunless both the Hans Settlements and the McKay Settlement are approved by the Court.
BASIC INFORMATION
1. Why did I get this Notice?
This Notice relates to two separate class action lawsuits titled Hans, et al. v. Tharaldson, et al.,Civil No. 3:05-CV-00115, and McKay, et al. v. Tharaldson, Case No. 3:08-CV-00113, both ofwhich are pending before the Honorable Ralph R. Erickson, United States District Judge of theUnited States District Court for the District of North Dakota. Judge Erickson has ordered thatthis Notice be sent to persons who are included in the two above groups to advise them that theCourt has preliminary approved the Settlements of both these Actions.You received this Notice because you were identified as a potential Class Member. In a classaction, one or more people file suit on behalf of others with similar claims, called ClassMembers. If you are a Class Member, your rights will be affected by the Settlements of theseActions. Both classes are a mandatory class and you cannot opt-out of either Class.
The Former Employee Class in the Hans Action, which is more specifically defined above,consists of any former employees of TMI (or its affiliates) who were participants in the TMIESOP during their employment and vested in their account prior to termination (and theirbeneficiaries). The representatives of the Former Employee Class are Tammy Blake, RaymondHans, Gayle Herbert, Bernard McKay, Larry Richman, Donna Walker and Michael Webster.They are all former employees of TMI.
The Current Employee Class in the Hans Action, which is more specifically defined above,consists of any current employees of TMI (or its affiliates) who are participants in the TMIESOP (and their beneficiaries). The representatives of the Current Employee Class are CarlosGonzalez, Jolene Matheson-Godschalk, and Sidney Lien. Additionally, North Star TrustCompany, which is and has been trustee of the TMI ESOP since Gary Tharaldson resigned asTrustee after the Hans Action was filed, also pursued claims in the Hans Action in its capacity asa fiduciary of the TMI ESOP.The Former Employee Class and the Current Employee Class in the Hans Action are alsomembers of the Class in the McKay Action.
This Notice only advises you of the existence of the proposed Settlements of these Actions andof your rights if you are a Class Member. The Court has not made any determination as toultimate merits of the claims or the defenses in Hans Action. However, the Court on January 5,2012 granted summary judgment in favor of the Defendant in the McKay Action and dismissedthe Complaint with prejudice. If you received this Notice but are not a Class Member, yourrights will not be affected, and you do not need to take any action.
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2. What are these lawsuits about? What has happened so far?
The Hans Action
Plaintiffs have brought the Hans Action on behalf of themselves and other participants andbeneficiaries of the TMI ESOP. This lawsuit alleges that Defendants2 violated the federalpension law (ERISA) in connection with two transactions in which Gary Tharaldson and hisfamily sold virtually all of the shares of TMI to the TMI ESOP for approximately $500 million.Plaintiffs allege that Gary Tharaldson, as the Trustee of the TMI ESOP, caused the TMI ESOP topurchase the stock in TMI from the Tharaldson family at more than the fair market value ofthose shares. As a result, Plaintiffs allege that the TMI ESOP incurred an excessive amount ofdebt, which was financed in large part by loans from the Tharaldsons, which were designed toallow the Tharaldsons to nominally place the ownership of TMI in the hands of the TMI ESOPwhile retaining management control and draining the company’s cash flow. Plaintiffs allege thatthese transactions were undertaken not in the interest of the TMI ESOP and its participants, butfor the benefit of the Tharaldson family, allowing the Tharaldson family to unload older, lesseconomically viable hotel properties on the TMI ESOP while taking the profits of TMI andpurchasing new profitable hotel and motel properties for entities owned by the Tharaldsonfamily.
This lawsuit only claims that Gary Tharaldson and certain members of his family violatedthe law. TMI is NOT a defendant or a party to this lawsuit. The TMI ESOP is named onlyfor the purpose of awarding relief to the TMI ESOP participants. Neither TMI nor theTMI ESOP is alleged to have done anything wrong.
Defendants have denied that they have any liability whatsoever or that they breached anyfiduciary duties. If the litigation were to continue to trial, the sole remaining Defendant, GaryTharaldson, would raise numerous defenses to liability, including that he did not breach anyalleged duties, and that the price paid for the TMI shares by the TMI ESOP was for fair marketvalue.
The parties exchanged information through a legal process known as discovery. Duringdiscovery, Plaintiffs’ counsel requested and reviewed thousands of pages of documents and tookdeposition testimony of over 50 witnesses. The parties have also engaged in substantial motionspractice, including motions to dismiss, class certification motions, summary judgment motions,and expert motions, where the parties sought to clarify the scope of this Action. At the time the
2 Defendants were originally Gary D. Tharaldson, Connie Tharaldson, Roger Tharaldson, Raymond Braunand James Lochow (as Trustees of the Michelle Tharaldson Trust and the Matthew Tharaldson Trust),South Dakota Trust Company, LLC (as Trustee of the Michelle Lyn Tharaldson Lemaster Dynasty Trust,the Matthew Tharaldson Dynasty Trust, and the Michael Tharaldson Dynasty Trust), and LindaTharaldson (individually and in her capacity as Trustee for the Michael Tharaldson Trust). These personsare referred to collectively as “Defendants,” the Tharaldsons or the Tharaldson family. However, theDistrict Court granted summary judgment on October 29, 2011, dismissing all Defendants except GaryTharaldson. Plaintiffs have appealed from that Decision to the Eighth Circuit Court of Appeals, whichappeal is currently pending.
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Settlement was reached, Plaintiffs had filed a Fifth Amended Complaint with the Court thatserved as the operative complaint in this Action. The Court had also established a trial date ofMay 1, 2012.
The Hans Settlement and the McKay Settlement are the product of intense, arm’s-lengthnegotiations between Plaintiffs’ Counsel and Defendants and their counsel, including amediation facilitated by an experienced third-party mediator, pursuant to which the terms of theSettlement were established.
The McKay Action
Plaintiffs have brought the McKay Action on behalf of themselves and other participants andbeneficiaries of the TMI ESOP. This lawsuit alleges that Defendant Gary Tharaldson violatedERISA by failing to take steps to recover fees which he caused an affiliate of TMI to pay to hisex-wife, Linda Tharaldson as part of a divorce related settlement agreement entered into in 1998(the “1998 Agreement”). The fees were purportedly in exchange for unnecessary marketing andsales consulting services which allegedly were of no value to TMI or its affiliate and which werenever performed. Plaintiffs contend that among other things, Tharaldson in his capacity asTrustee of the ESOP, the sole shareholder of TMI, should have brought a derivative actionagainst himself as President of TMI for improperly permitting the dissipation of the assets of theCorporation to satisfy his personal obligations to his ex-wife.
Tharaldson has denied that he has any liability whatsoever or that he breached any fiduciaryduties.
The case was certified as a class action by the Court and after discovery was completed inDefendant moved for summary judgment. On January 5, 2012, the Court granted theDefendant’s motion and dismissed the Complaint ruling that because the ESOP did not ownshares of TMI at the time Tharaldson entered into the 1998 Settlement Agreement with his ex-wife -- a condition precedent for bringing a derivative action under North Dakota law --Tharaldson could not have successfully brought a derivative action against himself and thusPlaintiffs could not prove that Tharaldson breached his fiduciary obligations under ERISA byfailing to initiate such an action. Judgment was thereafter entered by the Clerk dismissing theaction “with prejudice.” Plaintiffs have moved to vacate the Judgment and the Defendants havefiled a Motion for Bill of Costs seeking costs of the litigation from the Plaintiff. While thesemotions remained pending before the Court, the Parties reached the McKay Settlement. Inaddition to providing for the recovery by the ESOP of $125,000 in the Action, if the McKaySettlement is approved by the Court, the Motion for Bill of Cost will be dismissed.
Any party to the McKay Settlement has the option to withdraw from the McKay Settlementunless the Court also approves the Settlement reached by the parties in the Hans Action.
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3. Why is there a Settlement?
Trial of the Hans Action was scheduled for May 1, 2012. At the time of Hans Settlement, theparties and their counsel recognized material risks to all sides in proceeding to trial, including therisk that a judgment at trial could be in favor of the Defendants, or in an amount less than theamount provided for in the Hans Settlement. Accordingly, the parties and their counselconcluded that the Hans Settlement constituted a reasonable compromise and was the prudentand advisable course, because it avoided the risks inherent in this (or any) litigation, as well asthe potential delays associated with trial and potential appeals.
At the time of the McKay Settlement although the case had been dismissed, the parties and theircounsel recognized that there were still material risks to all sides. If the Plaintiffs motion tovacate the judgment were successful or if the decision of the Court were reversed on appeal theDefendant could have been subject to liability in excess of the amount provided for in theMcKay Settlement. Alternatively, if the Judgment remained in place, the Plaintiff and the Classwould recover nothing. Accordingly, the parties and their counsel concluded that the McKaySettlement constituted a reasonable compromise of the case.
4. What do the Settlements provide?
The material economic terms of the Hans Settlement are set forth in the Summary of Settlementon Pages 5-6 above. The Hans Settlement also provides for: (i) releases of Defendants byPlaintiff classes; (ii) releases of Defendants by the TMI ESOP, (iii) releases of Plaintiffs byDefendants and TMI, (iv) a release of TMI by Gary Tharaldson for all past and future claims forindemnification, and (v) a release of TMI by Plaintiff classes for matters related to the Hanscomplaint and the circumstances underlying the McKay complaint . The specific terms of thereleases are set forth in Section XIII of the Settlement Agreement.
The material terms of the McKay Settlement are set forth in the Summary of Settlement on Page6. The McKay Settlement provides for mutual releases between all the settling parties.
5. What will be my share of the Settlement Fund?
Plaintiffs’ Counsel have submitted to the Court a Plan of Allocation in the Hans Action forapproval at or after the Fairness Hearing. The Plan of Allocation describes in detail the mannerby which the Hans Settlement proceeds paid into the TMI ESOP will be allocated.
As set forth in the Settlement Agreement, any sums approved by the Court for attorneys’ fees(the “Fee Award”), incentive awards for Class Representatives (“Incentive Awards”) andreimbursement of litigation and settlement administration costs and expenses (the “ExpenseAward”) shall be paid first out of the Settlement Fund Cash Component and any balanceremaining thereafter, if any, shall be paid to the TMI ESOP for distribution in accordance withthe Plan of Allocation. Pursuant to the Plan of Allocation, any balance remaining, if any, shall
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be allocated to each Settlement Participants Other Investment Account in an amount equal to theproduct of (i) the total amount of cash to be allocated on the Allocation Date, and (ii) theSettlement Participant’s Settlement Multiplier.
The $11 million in principal payments that will be credited against principal owing under theESOP Notes under the Settlement Fund Principal Reduction portion of the Hans Settlement willoccur in four annual installments. Each year as the principal on the ESOP Notes is reduced asprovided in the Settlement Agreement additional shares of TMI stock will be released from theESOP’s unallocated share account. A portion of these released shares will be converted to cashto pay a portion of any Deferred Fee Award, as described in Section V.6-7 of the SettlementAgreement. After payment of any Deferred Fee Award, the balance of the shares released as aresult of each annual installment of the Settlement Fund Principal Reduction shall be allocated toeach Settlement Participant’s Company Stock Account pursuant to the Plan of Allocation in anamount equal to the product of (i) the total number of shares to be allocated on the AllocationDate resulting from the Settlement Fund Principal Reduction and (ii) the Settlement Participant’sSettlement Multiplier.
The Settlement Multiplier represents a Settlement Participant’s current or former balance in hisor her TMI ESOP account divided by the sum of all outstanding current and former balances ofTMI company stock.
It is anticipated that the entire McKay Settlement Amount, less litigation expenses allowed bythe Court, will be paid to TMI as the consulting payments to Linda Tharaldson which were atissue in this Action were paid by a TMI subsidiary.
6. How can I get my portion of the recovery?
You do not need to file a claim for recovery. If you are entitled to share in the net Settlementproceeds as a Settlement Participant, your share of the Settlement proceeds will be deposited inyour TMI ESOP account in accordance with the Court-approved Plan of Allocation.
If you are entitled to share in the net Settlement proceeds as a Settlement Participant, but nolonger have an account in the TMI ESOP, accounts will be created for you and your share of theSettlement proceeds will be deposited in those accounts in accordance with the Court-approvedPlan of Allocation.
No allocation will be made to a Settlement Participant if the value of the recovery to suchSettlement Participant under the Plan of Allocation is less than fifty dollars ($50) and suchSettlement Participant does not have an existing account in the ESOP.
7. When would I receive my portion of the recovery?
Payment is conditioned on several matters, including the Court’s approval of the both the HansSettlement and the McKay Settlement and such approvals becoming Final and no longer subjectto any appeals. These matters may take up to a year or more to be finally resolved.
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If you are a member of the Current Employee Class and entitled to share in the net Settlementproceeds as a Settlement Participant any cash and/or shares allocated to your Accounts pursuantto the Plan of Allocation as described in Part 5, above, will be subject to distribution to you asprovided in the TMI ESOP Plan and Trust that is in effect at the time of the distribution.
If you are a member of the Former Employee Class and entitled to share in the net Settlementproceeds as a Settlement Participant, you may request and receive distribution of any cash and/orshares allocated to your Accounts pursuant to the Plan of Allocation as described in Part 5,during the four year period when allocations are being made pursuant to the Plan of Allocation.After the Allocation period is complete, your Accounts will be subject to distribution as provided inthe TMI ESOP Plan and Trust that is in effect at the time of the distribution, and, if less than$5,000 in value, will be distributed to you immediately.
8. How will the lawyers be paid?
The Hans Action
Counsel for the Former Employee Class and Counsel for the Current Employee Class haveagreed to pursue the Hans Action on a contingent fee basis. This means that all attorneys’ feesand expenses are payable only out of the Settlement Fund recovered for the Former EmployeeClass, the Current Employee Class or the Plan, if any. Plaintiffs’ counsel will submit to theCourt a summary of the time collectively expended by them in this Hans Action indicating thatthe time spent by them in the prosecution of this matter has a value of over $11 million,exclusive of the costs and expenses Plaintiffs’ Counsel have also incurred. Any award ofattorneys’ fees and expenses must be approved by the District Court.
Counsel for the Trustee of the TMI ESOP (i.e., North Star Trust Company), which is alsopursuing claims in this case, is paid according to the terms of an engagement between North StarTrust Company and TMI. In that agreement, Counsel for North Star is paid by TMI withoutregard to whether there is a recovery for the Class or the Plan; however, this means that amountsrecovered in the Settlement will not be reduced to pay or reimburse Counsel for the trustee of theTMI ESOP.
Plaintiffs’ Counsel will apply for an award of attorneys’ fees and expenses on behalf of allPlaintiffs’ counsel in the Hans Action. Counsel will also seek an incentive award for certainPlaintiffs in the Hans Action who brought and pursued this action to conclusion. Plaintiffs’Counsel will also seek from the Settlement Fund reimbursement of administration costs of theSettlement. The application for attorneys’ fees will not exceed one-third (1/3) of the SettlementFund and the combined application for attorneys’ fees, reimbursement of expenses and incentiveawards in the aggregate will not exceed $4,675,000. The incentive awards for certain Plaintiffswill not exceed the sum of $35,000. TMI shall be entitled to reimbursement of approvedexpenses related to the administration of the Settlement Agreement of up to $150,000. Anyaward of fees and expenses in the Hans Action to Plaintiffs’ Counsel will be paid from theSettlement Fund as and when cash is deposited therein in accordance with the terms of the Hans
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Settlement Agreement. The written application for fees and expenses will be filed with the Courtno later than _____ days prior to the Fairness Hearing, and the Court will consider thisapplication at the Fairness Hearing. A copy of the application when filed will be available at[insert CM website here] or www.kellersettlements.com or by a requesting a copy fromPlaintiffs’ Counsel. To date, Plaintiffs’ Counsel have received no payment for their services inprosecuting the Hans Action, nor have Plaintiffs’ Counsel been reimbursed for their out-of-pocket expenses.
The McKay Action
Counsel for the Class in the McKay Action have also agreed to pursue the McKay Action on acontingent fee basis.
Plaintiffs’ Counsel will apply for an award of expenses in the McKay Action but will not seek anaward of attorney’s fees or an incentive award for the Plaintiff. Any award of expenses in theMcKay Action, which must be approved by the Court, will be paid from the McKay SettlementAmount. Any monies in the McKay Settlement Amount remaining after the payment ofexpenses will be distributed to TMI pursuant to the Plan of Distribution attached to the McKaySettlement Agreement and used to reimburse TMI for out-of pocket expenses incurred by TMI inthe implementation of the Settlements. To date, Plaintiffs’ Counsel have received no paymentfor their services in prosecuting the McKay Action, nor have Plaintiffs’ Counsel been reimbursedfor their out-of-pocket expenses.
OBJECTIONS
9. How do I tell the Court if I don’t like the Settlements?
Any Class Member may object to any aspect of either the Hans Settlement or the McKaySettlement or both by filing a written objection with the Court. To object, you must send a letteror other written statement saying that you object to the Settlement and/or the attorneys’ feeaward in Hans, et al., v. Tharaldson, et al., Case No. 3:05-CV-00115-RRE-KKK or theSettlement in McKay, et al. v. Tharaldson, Case No. 3:08-CV-00113-RRE-KKK. Include yourname, address, telephone number, signature, and a full explanation of all reasons you object tothe Settlement(s). Please be advised that failure to include these details may result in the Courtrefusing to consider your objection. Your written objection must be filed with the Court, andserved upon the counsel listed below by no later than _________ prior to the FairnessHearing:
File with the Clerk of the Court:Clerk of the CourtUnited States District Court for North Dakota655 First Avenue North, Fargo, ND 58102Re: Hans, et al., v. Tharaldson, et al., Case No. 3:05-CV-00115-RRE-KKK and McKay, et al. v.Tharaldson, Case No. 3:08-CV-00113-RRE-KKK
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And, by the same date, serve copies of all such papers by mail and fax to each of thefollowing:
Counsel for the Former Employee Class: Counsel for the Current Employee Class andthe McKay Class:
COHEN MILSTEINSELLERS & TOLL PLLCR. Joseph BartonBruce F. Rinaldi1100 New York Avenue, N.W.West Tower, Suite 500Washington, D.C. 20005-3934Telephone: (202) 408-4600Facsimile: (202) 408-4699
KELLER ROHRBACK PLCGary GottoGary GreenwaldDavid Ko3101 North Central Avenue, Suite 1400Phoenix, AZ 85012Telephone: (602) 248-0088Facsimile: (602) 248-2822
Counsel for North Star: Counsel for Defendants:MOORE & VAN ALLEN PLLCAlton L. Gwaltney, IIIMark A. Nebrig100 N. Tryon Street, Suite 4700Charlotte, NC 28202-4003Telephone: (704) 331-1000Facsimile: (704) 331-1159
PROSKAUER ROSE LLPHoward ShapiroRobert RachalMichael D. SpencerCharles F. Seemann III650 Poydras Street, Suite 1800New Orleans, LA 70130Telephone: (504) 310-4088Facsimile: (504) 310-2022
The objection must state all supporting bases and reasons for the objection, set forth proof ofyour participation in the Plan, clearly identify any and all witnesses, documents and otherevidence of any kind that are to be presented at the Fairness Hearing in connection with suchobjections, and further describe the substance of any testimony to be given by you as well as byany supporting witnesses.
UNLESS OTHERWISE ORDERED BY THE COURT, ANYONE WHO DOES NOTOBJECT IN THE MANNER DESCRIBED HEREIN WILL BE DEEMED TO HAVE
WAIVED ANY OBJECTION, WILL NOT BE PERMITTED TO SPEAK AT THEFAIRNESS HEARING, AND SHALL BE FOREVER FORECLOSED FROM MAKINGANY OBJECTION TO THE PROPOSED SETTLEMENT AND THE APPLICATIONFOR ATTORNEYS’ FEES AND EXPENSES THE COURT’S FAIRNESS HEARING.
10. Do I have to come to the hearing?
Plaintiffs’ Counsel will answer questions the Court may have at the Fairness Hearing. You arewelcome to come at your own expense. If you send an objection, you do not have to come toCourt to talk about it. As long as you mailed your written objection on time and followed theinstructions set forth in response to Question 9 above, it will be before the Court when the Courtconsiders whether to approve the Settlement as fair, reasonable and adequate. You may also
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1613994.1 1 14
have your own lawyer attend the Fairness Hearing at your expense, but such attendance is notmandatory.
11. May I speak at the hearing?
If you have filed a timely objection and are a Class Member, and if you wish to speak, presentevidence, or present testimony at the Fairness Hearing, you must state in your objection yourintention to do so, and must identify any witnesses you intend to call or evidence you intend topresent.
The Fairness Hearing may be rescheduled by the Court without further notice to Class Notice. Ifyou wish to attend the Fairness Hearing, you should confirm the date and time with Plaintiffs’Counsel.
IF YOU DO NOTHING
12. What happens if I do nothing at all?
If you do nothing and you are entitled to participate in the Hans Settlement proceeds, you willparticipate in those proceeds as described above in this Notice if the Settlement is approved.
GETTING MORE INFORMATION
13. How do I get more information?
This Notice contains only a summary of the proposed Settlements of these Actions and yourrights as a potential Class Member. Full details of the Settlements are set forth in the SettlementAgreements. You may obtain copies of the Settlement Agreements by making a written requestto a member of Plaintiffs’ Counsel identified on page 3 of this Notice. For more detailedinformation regarding the matters involved in these Actions, please refer to the papers on file inthis litigation, which may be inspected at the Office of the Clerk of Court, United StatesCourthouse, 220 East Rosser Avenue, Bismarck, North Dakota, during business hours (or areavailable online for a fee by obtaining a password at www.uscourts.gov). In addition to ClassCounsel, inquiries regarding this litigation may be addressed to counsel for the ESOP Trustee,North Star Trust Company, at Moore & Van Allen PLLC, Alton L. Gwaltney, Mark A. Nebrig,100 North Tryon Street, Suite 4700, Charlotte, NC 28202-4003, Telephone: (704) 331-1000, E-Mail: [email protected].
PLEASE DO NOT CALL THE COURT REGARDING THIS NOTICE.
Dated: October 8, 2012
BY ORDER OF THE COURT
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1613994.1 1 15
UNITED STATES DISTRICT COURTDISTRICT OF NORTH DAKOTA
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 68 of 97
RAYMOND HANS, GAYLE HERBERT, LARRYRICHMAN, DONNA WALKER MICHAEL WEBSTER,BERNARD MCKAY, and TAMMY BLAKE on behalf ofthemselves, individually and on behalf of all otherssimilarly situated in the Former Employee Class; andCARLOS GONZALES, DONALD KLAIN, JOLENEMATHESON-GODSCHALK, and SIDNEY LEIN, onbehalf of themselves individually and on behalf of allothers similarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON,ROGER THARALDSON, RAYMOND BRAUN andJAMES LOCHOW as the Trustees of the MICHELLETHARALDSON TRUST and as Trustees of theMATTHEW THARALDSON TRUST, SOUTHDAKOTA TRUST COMPANY, LLC as Trustee of theMICHELLE LYN THARALDSON LEMASTERDYNASTY TRUST, as Trustee of the MATTHEWTHARALDSON DYNASTY TRUST and as Trustee ofthe MICHAEL THARALDSON DYNASTY TRUST, andLINDA THARALDSON individually and in her capacityas Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCKOWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-00115-RRE-KKK
CLASS ACTIONSETTLEMENT AGREEMENT
Exhibit BOrder Preliminarily Approving Settlement, Form of
Notice, and Settling Fairness Hearing
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UNITED STATES DISTRICT COURTDISTRICT OF NORTH DAKOTA
SOUTHEASTERN DIVISION
CARLOS GONZALES, DONALD KLAIN, JOLENEMATHESON-GODSCHALK, and SIDNEY LEIN, onbehalf of themselves individually and on behalf of allothers similarly situated in the Current EmployeeClass; and RAYMOND HANS, GAYLE HERBERT,JEREMY JACKEY, CHUCK LEBLANC, LARRYRICHMAN, DONNA WALKER and MICHAELWEBSTER on behalf of themselves, individually andon behalf of all others similarly situated in the FormerEmployee Class,
Plaintiffs,
v.
GARY D. THARALDSON, CONNIETHARALDSON, ROGER THARALDSON,RAYMOND BRAUN and JAMES LOCHOW as theTrustees of the MICHELLE THARALDSON TRUSTand as Trustees of the MATTHEW THARALDSONTRUST, SOUTH DAKOTA TRUST COMPANY,LLC as Trustee of the MICHELLE LYNTHARALDSON LEMASTER DYNASTY TRUST, asTrustee of the MATTHEW THARALDSONDYNASTY TRUST, and as Trustee of the MICHAELTHARALDSON DYNASTY TRUST, and LINDATHARALDSON individually and in her capacity asTrustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEESTOCK OWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-0115-RRE-KKK
ORDER PRELIMINARILYAPPROVING SETTLEMENT,
APPROVING FORM OF NOTICE,AND SETTING FAIRNESS
HEARING
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2
This action, which was certified as a Class Action by Order of this Court dated May 7,
2010, involves claims for alleged violations of the Employee Retirement Income Security Act of
1974, as amended, 29 U.S.C. §§ 1001, et seq. (“ERISA”), with respect to the TMI Hospitality,
Inc. Employee Stock Ownership Plan (the “ESOP”)(formerly known as the Tharaldson Motels,
Inc. ESOP).
Presented to the Court for preliminary approval is a settlement of this action with respect
to all Defendants (the “Settlement”). The terms of the Settlement are set forth in a Settlement
Agreement (the “Settlement Agreement”), executed by all parties as of _______________, 2012,
and filed with the Court on _________________, 2012.1
The Court has considered the Settlement to determine, among other things, whether it is
sufficient to warrant the issuance of notice to present and former participants in the ESOP whose
rights would be affected by the Settlement. Upon reviewing the Settlement Agreement, it is
hereby ORDERED, ADJUDGED, AND DECREED as follows:
1. Preliminary Findings Regarding Proposed Settlement. The Court preliminarily
finds that (a) the proposed Settlement resulted from informed, extensive arm’s-length
negotiations and third-party mediation; (b) Plaintiffs’ Counsel has concluded that the proposed
Settlement is fair, reasonable, and adequate; (c) the proposed Settlement is sufficiently fair,
reasonable, and adequate to warrant sending notice (the “Notice”) of the Settlement to the
Participant Classes.
2. Fairness Hearing. A hearing is scheduled for __________, 201__ (the “Fairness
Hearing”) to determine, among other things:
a) Whether the Settlement should be approved as fair, reasonable, and adequate tothe Parties as well as to the Participant Classes;
1 Capitalized terms not otherwise defined in this order shall have the same meaning as ascribed to them in theSettlement Agreement. References to a Paragraph in the Settlement Agreement include its relevant subparts.
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3
b) Whether the litigation should be dismissed with prejudice pursuant to the terms ofthe Settlement;
c) Whether the Notice provided for by the Settlement Agreement and this Order wasprovided and: (i) appropriate and reasonable and constituted due, adequate, andsufficient notice to all persons entitled to notice; and (ii) met all applicablerequirements of the Federal Rules of Civil Procedure, and any other applicablelaw;
d) Whether the Plan of Allocation provided for by the Settlement Agreement shouldbe approved; and,
e) Whether the application for Fee Award, Expense Award, and Incentive Awardsfiled by Plaintiffs’ Counsel and the application for reimbursement of out-of-pocket expenses incurred in connection with the implementation of the Settlementup to a maximum of $150,000 filed by TMI should be approved.
3. Notice. A proposed form of Notice to Affected Participants is attached to the
Settlement Agreement as Exhibit A. With respect to such form of Notice, the Court finds that
such form fairly and adequately: (a) describes the terms and effect of the Settlement Agreement
and of the Settlement; (b) notifies the participants concerning the proposed Plan of Allocation;
(c) notifies the Participant Classes that Plaintiffs’ Counsel will seek from the Settlement Fund an
award of attorneys’ fees, reimbursement of expenses and incentive awards to certain Plaintiff
Class Representatives and that TMI will seek reimbursement of out-of-pocket expenses incurred
in connection with the implementation of the Settlement up to a maximum of $150,000; (d)
notifies the Participant Classes that certain Administrative Expenses of the Settlement will be
paid from the Settlement Fund; (e) notifies the Participant Classes of the purpose, time, and place
of the Fairness Hearing; and (f) describes how the recipients of the Notice may object to any of
the relief requested. The Court directs that Plaintiffs’ Counsel shall:
a) By no later than forty (40) days before the Fairness Hearing, cause the Notice,with such non-substantive modifications thereto as may be agreed upon by theParties, to be sent to each member of the Participant Classes. Such notice shall
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4
be sent either by e-mail or first-class mail, postage prepaid, to the person’s lastknown address as set forth in the records of the ESOP or TMI Hospitality, Inc.
b) By no later than forty (40) days before the Fairness Hearing, cause the Notice tobe published on the websites identified therein.
3. At or before the Fairness Hearing, Plaintiffs’ Counsel shall file with the Court a
statement of timely compliance with the foregoing mailing and publication requirements.
4. Objections to Settlement. Any member of the Participant Classes who wishes to
object to the fairness, reasonableness, or adequacy of the Settlement, to the Plan of Allocation, to
any term of the Settlement Agreement, or to the proposed award of attorneys’ fees, expenses, and
incentives, may file and serve an Objection in accordance with the procedures set forth in the
Notice no later than ten (10) days prior to the Fairness Hearing.
5. Appearance at Fairness Hearing. Any objector who files and serves a timely,
written objection in accordance with paragraph 4 above, may also appear at the Fairness Hearing
either in person or through counsel retained at the objector’s expense. Objectors or their
attorneys intending to appear at the Fairness Hearing must follow the procedures set forth in the
Notice. Any objector who does not timely file and serve a notice of intention to appear in
accordance with this paragraph and the procedures set forth in the Notice shall not be permitted
to appear at the Fairness Hearing, except for good cause shown.
6. Service of Papers. Defendants’ Counsel and Plaintiffs’ Counsel shall promptly
furnish each other with copies of any and all objections that come into their possession.
7. Additional Filings. Consistent with the Federal Rules of Civil Procedure and the
Local Rules of this Court, Plaintiffs’ Counsel shall file no later than twenty-eight (28) days prior
to the Fairness Hearing motions for final approval of the Settlement, approval of the proposed
Plan of Allocation, and an application for award of attorneys’ fees, legal expenses and incentive
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5
awards to certain Plaintiff Class Representatives. Any objections to the Settlement and/or
opposition to the Fee Award, Expense Award and Incentive Awards shall be filed no later than
fourteen (14) days prior to the Fairness Hearing, and any reply if necessary shall be filed no later
than seven (7) days prior to the Fairness Hearing. These submissions shall be heard at the
Fairness Hearing.
8. Termination of Settlement. This Order shall become null and void, and shall be
without prejudice to the rights of the parties, all of whom shall be restored to their respective
positions existing immediately before the Execution Date of the Settlement Agreement, if the
Settlement Agreement is terminated in accordance with Paragraph XIV.1 thereof. In such event,
Paragraph XIV.2 of the Settlement Agreement shall govern the rights of the parties.
9. Use of Order. In the event this Order becomes of no force or effect, it shall not be
construed or used as an admission, concession, or declaration by or against the Defendants or the
Plaintiffs.
10. Continuance of Hearing. The Court may continue the Fairness Hearing without
further written notice.
SO ORDERED this ________day of __________________, 2012.
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RAYMOND HANS, GAYLE HERBERT, LARRYRICHMAN, DONNA WALKER MICHAEL WEBSTER,BERNARD MCKAY, and TAMMY BLAKE on behalf ofthemselves, individually and on behalf of all otherssimilarly situated in the Former Employee Class; andCARLOS GONZALES, DONALD KLAIN, JOLENEMATHESON-GODSCHALK, and SIDNEY LEIN, onbehalf of themselves individually and on behalf of allothers similarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON,ROGER THARALDSON, RAYMOND BRAUN andJAMES LOCHOW as the Trustees of the MICHELLETHARALDSON TRUST and as Trustees of theMATTHEW THARALDSON TRUST, SOUTHDAKOTA TRUST COMPANY, LLC as Trustee of theMICHELLE LYN THARALDSON LEMASTERDYNASTY TRUST, as Trustee of the MATTHEWTHARALDSON DYNASTY TRUST and as Trustee ofthe MICHAEL THARALDSON DYNASTY TRUST, andLINDA THARALDSON individually and in her capacityas Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCKOWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-00115-RRE-KKK
CLASS ACTIONSETTLEMENT AGREEMENT
Exhibit CDraft Order and Final Judgment
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1614633.1 1
UNITED STATES DISTRICT COURTDISTRICT OF NORTH DAKOTA
SOUTHEASTERN DIVISION
RAYMOND HANS, GAYLE HERBERT, LARRYRICHMAN, DONNA WALKER MICHAELWEBSTER, BERNARD MCKAY, and TAMMYBLAKE on behalf of themselves, individually and onbehalf of all others similarly situated in the FormerEmployee Class; and CARLOS GONZALES,DONALD KLAIN, JOLENE MATHESON-GODSCHALK, and SIDNEY LEIN, on behalf ofthemselves individually and on behalf of all otherssimilarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIETHARALDSON, ROGER THARALDSON,RAYMOND BRAUN and JAMES LOCHOW as theTrustees of the MICHELLE THARALDSON TRUSTand as Trustees of the MATTHEW THARALDSONTRUST, SOUTH DAKOTA TRUST COMPANY,LLC as Trustee of the MICHELLE LYNTHARALDSON LEMASTER DYNASTY TRUST, asTrustee of the MATTHEW THARALDSONDYNASTY TRUST and as Trustee of the MICHAELTHARALDSON DYNASTY TRUST, and LINDATHARALDSON individually and in her capacity asTrustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEESTOCK OWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-0115-RRE-KKK
ORDER AND FINAL JUDGMENT
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1614633.1 12
This Order concerns the settlement (“Settlement”) of this litigation (the “Action”)
involving claims for alleged violations of the Employee Retirement Income Security Act of
1974, as amended, 29 U.S.C. §§ 1001, et seq. (“ERISA”), with respect to the TMI Hospitality
Inc. (“TMI”) Employee Stock Ownership Plan and Trust (the “ESOP”). A Settlement
Agreement, dated ____________, 2012 (“Settlement Agreement”), was filed with the Court on
___________, 2012 (Dkt. ____).1 Before the Court are: (1) Plaintiffs’ Motion for Final
Approval of Settlement (“Final Approval Motion”); (2) Plaintiffs’ Motion and Memorandum for
Approval of Plan of Allocation (“Plan of Allocation Motion”); (3) The Report to the Court and
Memorandum in Support of Final Approval of the Settlement of North Star Trust Company as
Trustee of the TMI ESOP; and (4) Plaintiffs’ Counsel’s Motion for Award of Attorneys’ Fees
and Expenses and Plaintiff Incentive Awards (collectively, the “Fees and Expenses Motion”).
On ____________, 2012 (Dkt. ___), the Court entered its Order Preliminarily Approving
Settlement and Setting Fairness Hearing (“Preliminary Approval Order”). The Court has
received declarations attesting to the mailing of the Notice and publication of the Notice in
accordance with the Preliminary Approval Order. A hearing was held on ______________ (the
“Final Approval Hearing”) to: (1) determine whether to grant the Final Approval Motion; (2)
determine whether to grant the Plan of Allocation Motion; (3) determine whether to grant the
Fees and Expenses Motion; and (4) rule upon such other matters as the Court might deem
appropriate.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED AS FOLLOWS:
1. The Court has jurisdiction over the subject matter of this action and all parties
thereto pursuant to 29 U.S.C. § 1132(e).
1 All capitalized terms used in this Order and Final Judgment and not defined herein shall have the meaningsassigned to them in the Settlement Agreement and Preliminary Approval Order.
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1614633.1 13
2. On May 7, 2010, this Court certified this litigation as a Class action and on
August 27, 2011 defined two subclasses, as follows:
The Former Employee Class, defined as “All persons, other than Defendants in this
action, members of their immediate families, their legal representatives, heirs, successors,
or assigns of any excluded party, who were participants in the Tharaldson Motels, Inc.
("TMI") Employee Stock Ownership Plan ("ESOP") at any time from December 30,
1998 to the present and who received an allocation of Plan assets to their accounts which
they did not subsequently forfeit under the terms of the Plan and who are no longer
employees of TMI (or an affiliate) and the beneficiaries of such persons;” and
The Current Employee Class, defined as “All persons, other than Defendants in this
action, members of their immediate families, their legal representatives, heirs, successors,
or assigns of any excluded party, who were participants in the Tharaldson Motels, Inc.
("TMI") Employee Stock Ownership Plan ("ESOP") at any time from December 30, 1998
to the present and who is a present employee of TMI (or an affiliate) and the TMI ESOP
beneficiaries of such persons.” Hans v. Tharaldson, 2010 U.S. Dist. LEXIS 127426, 11-
12 (D.N.D. Aug. 27, 2010).
3. In accordance with the Court’s Preliminary Approval Order Class Notice was sent
to each member of the Participant Classes either by e-mail or first-class mail, postage prepaid, to
the Person’s last known address as set forth in the records of the ESOP or TMI Hospitality, Inc.
4. In accordance with the Court's Preliminary Approval Order, the Class Notice and
Settlement Agreement were posted on the websites of COHEN MILSTEIN SELLERS & TOLL
P.L.L.C. at www.cohenmilstein.com and KELLER ROHRBACK at
www.kellersettlements.com.
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1614633.1 14
5. The Class Notice fully informed Participant Class members of their rights with
respect to the Settlement, including their right to object to the Settlement and the applications for
an award of attorneys' fees, reimbursement of expenses, and an award of incentive awards.
6. The Class Notice and Summary Notice collectively met the statutory requirements
of notice under the circumstances, including the individual notice to all members of the
Participant Classes who could be identified through reasonable effort due to the nature of this
lawsuit and the definition of the class, and fully satisfied the requirements of Federal Rule of
Civil Procedure 23 and the requirement of due process.
7. The form and method of Notice is hereby APPROVED.
8. The Settlement was negotiated at arm’s-length by experienced counsel who were
fully informed of the facts and circumstances of the action and of the strengths and weaknesses
of their respective positions. The Settlement was reached after the Parties had engaged in
extensive discovery, motion practice, and mediation. Plaintiffs’ Counsel and Defendants’
Counsel are therefore well-positioned to evaluate the benefits of the Settlement, taking into
account the expense, risk, and uncertainty of protracted litigation over numerous questions of
fact and law.
9. The proposed Settlement warrants final approval because it is fair, adequate, and
reasonable to the Parties, the ESOP, the Participant Classes, and to others whom it affects based
upon (1) the merits of the Plaintiffs’ case weighed against the terms of the settlement, (2)
Defendant Gary Tharaldson’s financial condition, (3) the complexity and expense of further
litigation, (4) the limited amount of opposition to the settlement, and (5) the rulings of this Court
to date on motions for summary judgment. Grunin v. International House of Pancakes, 513 F.2d
114, 124 (8th Cir. 1975); Van Horn v. Trickey, 840 F.2d 604, 607 (8th Cir. 1988).
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1614633.1 15
10. The Final Approval Motion is GRANTED, and the Settlement is hereby
APPROVED as fair, adequate and reasonable to the Parties, the ESOP, and the Participant
Classes and others whom it affects, and in the public interest. The settling parties are directed to
consummate the Settlement in accordance with the respective terms of the Settlement
Agreement.
11. The Plan of Allocation is fair, reasonable and adequate and is hereby
APPROVED. The administrator of the Settlement Fund shall, in accordance with the provisions
of the Settlement Agreement, disburse the Settlement Fund Cash Component in the manner
described in Section IIA.1-4 of the Settlement Agreement and any sums remaining thereafter
shall be distributed to the members of each of the Participant Classes in accordance with the Plan
of Allocation. In addition, the ESOP Trustee shall, in accordance with the provisions of the
Settlement Agreement, cause such portion of each Settlement Fund Principal Reduction to be
converted into cash to the extent there is any Deferred Fee Award due to Class Counsel after
depletion of the Settlement Fund Cash Component in the manner described in Section V.6-7 of
the Settlement Agreement. After payment of the Deferred Fee Award, if any, the ESOP Trustee
shall cause the balance of each Settlement Fund Principal Reduction to be distributed to the
members of each of the Participant Classes in accordance with the Plan of Allocation.
12. The Court further orders that any distributions of the Settlement Fund to the
ESOP for distribution or allocation by the ESOP trustee in accordance with the Plan of
Allocation shall be subject to any amounts withheld for the payment of taxes, statutory penalties,
expenses and other sums as authorized in the Settlement Agreement, and attorneys’ fees,
expenses and incentive awards to Plaintiffs as authorized by this Order.
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13. The Court finds payments made in accordance with such Plan of Allocation to be
“restorative payments” as defined in IRS Revenue Ruling 2002-45. The Settlement Fund
defined in the Settlement Agreement does not exceed the claimed losses resulting from the
alleged fiduciary breaches; and the Settlement Fund is primarily for the benefit of the TMI
ESOP, its participants and beneficiaries. Any modification or change in the Plan of Allocation
that may hereafter be approved shall in no way disturb or affect this Judgment and shall be
considered separate from this Judgment.
14. Incentive awards payable from the Settlement Fund in accordance with the
Settlement Agreement are awarded hereby as follows: ________________________.
15. Plaintiffs’ Counsel are hereby awarded attorneys’ fees of ____ % of the
approximate value of the settlement or $__________, and expenses of
$____________________. Such award shall be payable from the Settlement Fund in accordance
with the terms of Section V. of the Settlement Agreement.
16. TMI is hereby awarded reimbursement of out-of-pocket expenses incurred in
connection with the implementation of the Settlement up to $150,000.
17. In making this award of attorneys' fees and reimbursement of expenses and the
incentive awards to the FEC Representatives to be paid from the Settlement Fund, the Court has
considered and found that:
(a) The Settlement achieved as a result of the efforts of ClassCounsel represents a total of $15,000,000 in cash and principalreduction of the Designated ESOP Notes and will benefit thousands ofFormer Employee Class and Current Employee Class members;
(b) Notice was disseminated to the Class members indicating thatClass Counsel were moving for awards of attorneys' fees which wouldnot exceed one-third of the value of the Settlement Fund andreimbursement of expenses for themselves and incentive award for the
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1614633.1 17
Class Representatives, which when combined with award of attorney’sfees would not exceed $4,675,000. No objections were filed against theterms of the proposed Settlement, to the fees and expenses requested byClass Counsel, or against the incentive awards requested for the FECRepresentatives.
(c) Counsel for the FEC have worked on this matter for eight years,and Class Counsel have recorded hours worked on this matterequivalent to four times the amount they have requested as attorney’sfees;
(d) Counsel for the FEC and the CEC are both prominent nationallaw firms specializing in ERISA fiduciary breach litigation in generaland ESOP litigation in particular;
(e) Because of the extraordinary amount of time which ClassCounsel devoted to this Action, Class Counsel have been precludedfrom undertaking other new cases;
(f) Class Counsel undertook this Action on a contingency basis feebasis and assumed the risk the case would produce no fee at all;
(g) The Action involves complex factual and legal issues prosecutedover several years and, in the absence of a settlement, would involvefurther lengthy proceedings with uncertain resolution of the complexfactual and legal issues;
(h) Had Class Counsel not achieved the Settlement, there wouldremain a significant risk that the Named Plaintiffs and the ParticipantClasses may have recovered less or nothing from the Defendants;
(i) The amount of attorneys' fees awarded and expenses reimbursedfrom the Settlement Fund are reasonable and consistent with awards insimilar cases; and
(j) The Named Plaintiffs rendered valuable service to the ESOP andto all members of the Participant Classes. Without this participation,there would have been no case and no settlement.
18. The Court finds that payments for the administration of the Settlement to Class
Counsel and TMI are reasonable and necessary for the administration of the Settlement and
operation of the TMI ESOP.
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1614633.1 18
19. The Court retains jurisdiction over the Action, the Parties, the ESOP and the
Participant Classes for all matters relating to the Action, including (without limitation) the
administration, interpretation, effectuation or enforcement of the Settlement Agreement, this
Order and Final Judgment, and any application for fees and expenses incurred in connection with
future actions necessary to fully consummate the Settlement and distribute the proceeds thereof.
20. Without further order of the Court, the Parties may agree in writing to reasonable
extensions of time to carry out any of the provisions of the Settlement Agreement.
21. The following claims are or shall be released, as set forth in Section XIII,
Paragraphs 1 to5 of the Settlement Agreement:
A. By operation of this Judgment and upon this Judgment becoming
Non-Appealable, the TMI ESOP, the Participant Classes and with respect to
natural persons therein, their present or past heirs, executors, administrators,
successors and assigns are conclusively deemed to have absolutely and
unconditionally released and forever discharged all Settled ESOP Claims against
TMI and the Settling Defendants as those terms are defined in the Settlement
Agreement. By operation of this Judgment, all of the above shall be bound by the
Settlement Agreement and shall be precluded from pursuing any other claims,
actions, demands, rights, liabilities, suits, or causes of action, in any judicial or
administrative forum of any kind, against the TMI or the Settling Defendants with
respect to the Settled ESOP Claims;
B. By operation of this Judgment and upon this Judgment becoming
Non-Appealable, the Participant Classes and with respect to natural persons
therein, their present or past heirs, executors, administrators, successors and
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1614633.1 19
assigns are conclusively deemed to have absolutely and unconditionally released
and forever discharged all Settled Tharaldson Contract Claims, whether direct or
derivate, against TMI as those terms are defined in the Settlement Agreement. By
operation of this Judgment, all of the above shall be bound by the Settlement
Agreement and shall be precluded from pursuing any other claims, actions,
demands, rights, liabilities, suits, or causes of action, in any judicial or
administrative forum of any kind, against the TMI with respect to the Settled
Tharaldson Contract Claims;
C. By operation of this Judgment and upon this Judgment becoming
Non-Appealable, Gary Tharaldson, on behalf of himself and all affiliated entities,
is conclusively deemed to have released and forever discharged all Settled
Tharaldson Indemnification Claims defined in the Settlement Agreement and
shall be bound by the Settlement Agreement and shall be precluded from asserting
any Settled Tharaldson Indemnification Claim in any action or proceeding of any
nature; and,
D. By operation of this Judgment and upon the Judgment becoming
Non-Appealable, Linda Tharaldson, on behalf of herself, her heirs, executors,
agents, attorneys and assigns, is conclusively deemed to have released and forever
discharged all Settled Tharaldson Contract Claims as defined in the Settlement
Agreement and shall be bound by the Settlement Agreement and shall be
precluded from asserting any Settled Tharaldson Indemnification Claim in any
action or proceeding of any nature.
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 84 of 97
1614633.1 110
E. By operation of this Judgment and upon the Judgment becoming
Non-Appealable, TMI shall be conclusively deemed to have released and forever
discharged Linda Tharaldson and Gary Tharaldson on all Settled TMI
Indemnification Claims as defined in the Settlement Agreement, and the
Participant Classes and Class Counsel for the initiation, prosecution, and
settlement of the Settled ESOP Claims and Settled Tharaldson Contract Claims as
defined in the Settlement Agreement, and shall be precluded from asserting any
Settled TMI Indemnification Claims against Linda Tharaldson and Gary
Tharaldson, or any Settled ESOP Claims or Settled Tharaldson Contract Claims
as defined in the Settlement Agreement against the Participant Classes and Class
Counsel in any action or proceeding of any nature;
F. By operation of this Judgment and upon the Judgment becoming
Non-Appealable, the Settling Defendants defined in the Settlement Agreement are
conclusively deemed to have released and forever discharged all Claims and
Unknown Claims against the Participant Classes and Class Counsel as defined in
the Settlement Agreement and shall be bound by the Settlement Agreement and
shall be precluded from asserting any Claims or Unknown Claims in any action or
proceeding of any nature
22. All counts asserted in the Action are DISMISSED WITH PREJUDICE, without
further order of the Court, pursuant to the terms of the Settlement Agreement.
23. In the event that the Settlement is terminated in accordance with the terms of the
Settlement Agreement, this Judgment shall be null and void and shall be vacated nunc pro tunc,
and Section XIV of the Settlement Agreement shall govern the rights of the Parties thereto.
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 85 of 97
1614633.1 111
SO ORDERED this _______day of _______________, 2012.
Ralph R. Erickson, Chief JudgeUnited States District Court
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 86 of 97
RAYMOND HANS, GAYLE HERBERT, LARRYRICHMAN, DONNA WALKER MICHAEL WEBSTER,BERNARD MCKAY, and TAMMY BLAKE on behalf ofthemselves, individually and on behalf of all otherssimilarly situated in the Former Employee Class; andCARLOS GONZALES, DONALD KLAIN, JOLENEMATHESON-GODSCHALK, and SIDNEY LEIN, onbehalf of themselves individually and on behalf of allothers similarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON,ROGER THARALDSON, RAYMOND BRAUN andJAMES LOCHOW as the Trustees of the MICHELLETHARALDSON TRUST and as Trustees of theMATTHEW THARALDSON TRUST, SOUTHDAKOTA TRUST COMPANY, LLC as Trustee of theMICHELLE LYN THARALDSON LEMASTERDYNASTY TRUST, as Trustee of the MATTHEWTHARALDSON DYNASTY TRUST and as Trustee ofthe MICHAEL THARALDSON DYNASTY TRUST, andLINDA THARALDSON individually and in her capacityas Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCKOWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-00115-RRE-KKK
CLASS ACTIONSETTLEMENT AGREEMENT
Exhibit DPlan of Allocation
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 87 of 97
CHAR2\1431532v4 1
PLAN OF ALLOCATION
1. For purposes of this Plan of Allocation:
(A) The terms “Account(s),” “Company Stock,” “Company Stock Account,”“Employee,” “Fair Market Value,” “Forfeiture,” “Other Investments Account,” “Plan Year,”“Participant,” “Qualified Participant,” “Required Distributions,” “Valuation Date,” and“Vested” shall have the meanings ascribed to them in the TMI Hospitality, Inc. EmployeeStock Ownership Plan and Trust (hereinafter referred to as the “TMI ESOP”).
(B) The term “Settlement Participant” shall mean:
(i) each Participant who has a balance to the credit of his or herCompany Stock Account as of the Valuation Date coinciding with the earliestAllocation Date; and
(ii) each former Employee Participant who does not have any balance tothe credit of his or her Company Stock Account as of the Valuation Date coincidingwith the earliest Allocation Date but who has either:
(a) received a distribution of his or her Accounts; or
(b) has a balance to the credit of his or her Other InvestmentsAccount as of such Valuation Date.
A Settlement Participant described in paragraph 1(B)(i) may be a rehired Employee whoreceived a distribution of his or her Vested Accounts prior to re-hire, and in such case, suchSettlement Participant will be considered a Settlement Participant under paragraphs 1(B)(i)and (1)(B)(ii) and will have both a Current Account Balance and a Former AccountBalance.
(C) The term “Current Balance” shall mean the number of shares of CompanyStock credited to a Settlement Participant’s Company Stock Account as of the ValuationDate coinciding with the earliest Allocation Date for a Settlement Participant described inparagraph 1(B)(i) above. If a Settlement Participant described in paragraph 1(B)(i) above isa Qualified Participant who has exercised diversification rights pursuant to Section 3.7 ofthe TMI ESOP prior to such Valuation Date, “Current Balance” shall also include thenumber of shares of Company Stock diversified by such Settlement Participant. If aSettlement Participant described in paragraph 1(B)(i) above has received RequiredDistributions pursuant to Section 5.10 of the TMI ESOP prior to such Valuation Date,“Current Balance” shall also include the number of shares of Company Stock included insuch Required Distributions.
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CHAR2\1431532v4 2
(D) The term “Former Balance” shall mean the number of shares of CompanyStock credited to a Settlement Participant’s Company Stock Account as of the ValuationDate preceding the Plan Year in which a Settlement Participant described in paragraph1(B)(ii) above received a distribution of his or her Accounts or experienced a conversion ofhis or her Company Stock Account to a credit in his or her Other Investments Account. If aSettlement Participant described in paragraph 1(B)(ii) above was a Qualified Participantwho exercised diversification rights pursuant to Section 3.7 of the TMI ESOP, “FormerBalance” shall also include the number of shares of Company Stock diversified by suchSettlement Participant. If a Settlement Participant described in paragraph 1(B)(ii) receivedRequired Distributions pursuant to Section 5.10 of the TMI ESOP, “Former Balance” shallalso include the number of shares of Company Stock included in such RequiredDistributions.
(E) The term “All Current Balances” shall mean the number of shares ofCompany Stock representing the sum of all Current Balances.
(F) The term “All Former Balances” shall mean the number of shares ofCompany Stock representing the sum of all Former Balances.
(G) The term “Settlement Multiplier” shall mean:
(i) with respect to a Settlement Participant described in paragraph1(B)(i) above, the Settlement Participant’s Current Balance divided by the sum ofAll Current Balances plus All Former Balances;
(ii) with respect to a Settlement Participant described in paragraph1(B)(ii) above, the Settlement Participant’s Former Balance divided by the sum ofAll Current Balances plus All Former Balances.
(H) The term “Allocation Date” shall mean any Valuation Date as of which cashor shares of Company Stock are allocated pursuant to the terms of the Settlement Agreementand this Plan of Allocation. Cash or shares of Company Stock will be allocated only afterall other allocations under the TMI ESOP as of such Valuation Date have been completed.
2. Any cash to be allocated to Settlement Participant Accounts under the SettlementAgreement, including any amounts from the Settlement Fund Cash Component set forth inSection II.A of the Settlement Agreement, shall be allocated to Settlement Participants as of theValuation Date coinciding with or, if the cash to be allocated is not received on a Valuation Date,the Valuation Date immediately succeeding the TMI ESOP’s receipt of the cash, as follows:
Each Settlement Participant’s Other Investments Account shall be credited with anamount equal to the product of (i) the total amount of cash to be allocated on theAllocation Date and (ii) the Settlement Participant’s Settlement Multiplier.
3. Shares of Company Stock to be allocated to Settlement Participant Accounts as aresult of the Settlement Fund Principal Reduction set forth in Section II.B of the Settlement
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 89 of 97
CHAR2\1431532v4 3
Agreement shall be allocated to Settlement Participants as of the Valuation Date coinciding with or,if the shares of Company Stock to be allocated are not released on a Valuation Date, theValuation Date immediately succeeding each Principal Reduction (as defined in Section II.B of theSettlement Agreement) as follows:
Each Settlement Participant’s Company Stock Account shall be credited with CompanyStock in an amount equal to the product of (i) the total number of shares to be allocated onthe Allocation Date resulting from the Settlement Fund Principal Reduction and (ii) theSettlement Participant’s Settlement Multiplier.
4. Notwithstanding the foregoing, in no event shall a Settlement Participant who has nobalance to the credit of his or her Accounts and who has terminated employment with TMI beallocated any amount under this Plan of Allocation if, as of the earliest Allocation Date, the sum ofa) the cash and the Fair Market Value of shares of Company Stock otherwise allocable to suchSettlement Participant on such earliest Allocation Date and b) the cash and Fair Market Value ofthe shares of Company Stock reasonably projected to be allocated to the Settlement Participant onsubsequent Allocation Dates, based on the Fair Market Value of the shares of Company Stock onthe earliest Allocation Date, does not exceed fifty dollars ($50.00). Any amount that is not allocatedpursuant to this paragraph shall be totaled and reallocated as of the same Allocation Date asdescribed in paragraphs 2 and 3 above excluding, however, all Settlement Participants who did notreceive any portion of the initial allocation for the Allocation Date due to the application of thisparagraph.
5. Section 5.1 of the TMI ESOP related to the Distribution of Small Account Balancesshall be suspended during the period of time during which allocations are being made pursuant tothis Plan of Allocation. At the close of the Plan Year during which the final Allocation Date occurs,Section 5.1 will automatically become effective. During the period of time when Section 5.1 ofthe TMI ESOP is suspended, Settlement Participants may request and receive distribution of theamounts allocated to their Accounts pursuant to this Plan of Allocation.
6. A Forfeiture of any allocation to a Settlement Participant’s Account pursuant to thisPlan of Allocation shall be reallocated in accordance with the terms of the TMI ESOP.
7. TMI shall have the discretion and authority to make reasonable assumptions and tomake reasonable adjustments to the allocation set forth in this Plan of Allocation in each casewithout further approval by the Court provided that (a) the allocation is substantially pro rata basedon Settlement Participant Settlement Multipliers and (b) the allocation does not violate ERISA oradversely affect the status of the ESOP as a qualified plan under Section 401(a) of the InternalRevenue Code of 1986.
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 90 of 97
RAYMOND HANS, GAYLE HERBERT, LARRYRICHMAN, DONNA WALKER MICHAEL WEBSTER,BERNARD MCKAY, and TAMMY BLAKE on behalf ofthemselves, individually and on behalf of all otherssimilarly situated in the Former Employee Class; andCARLOS GONZALES, DONALD KLAIN, JOLENEMATHESON-GODSCHALK, and SIDNEY LEIN, onbehalf of themselves individually and on behalf of allothers similarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON,ROGER THARALDSON, RAYMOND BRAUN andJAMES LOCHOW as the Trustees of the MICHELLETHARALDSON TRUST and as Trustees of theMATTHEW THARALDSON TRUST, SOUTHDAKOTA TRUST COMPANY, LLC as Trustee of theMICHELLE LYN THARALDSON LEMASTERDYNASTY TRUST, as Trustee of the MATTHEWTHARALDSON DYNASTY TRUST and as Trustee ofthe MICHAEL THARALDSON DYNASTY TRUST, andLINDA THARALDSON individually and in her capacityas Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCKOWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-00115-RRE-KKK
CLASS ACTIONSETTLEMENT AGREEMENT
Exhibit EReissued Promissory Notes
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 91 of 97
CHAR2\1428285v1
____ __, 201_
REISSUED PROMISSORY NOTE 1
This Reissued Promissory Note (this "Note") is made and issued pursuant to thesettlement of litigation (Hans v. Tharaldson, 05-cv-115 (D.N.D.)). To implement provisions of thesettlement, the then-current holder of the Amended Promissory Note issued to the MichelleTharaldson Trust on May 28, 2004, in the original principal amount of $8,500,000 and with amaturity date of June 30, 2020 (the “Original Note”), returned the Original Note to the TMIHospitality, Inc. Employee Stock Ownership Plan and Trust (f/k/a Tharaldson Motels, Inc.Employee Stock Ownership Plan and Trust) (“TMI ESOP”) for cancellation and in exchange fortwo promissory notes: this Note, with an original principal amount of $2,125,446.65, and anothernote, with an original principal amount of $3,306,887.63 (“Reissued Promissory Note 2”), thecombined total of the principal of this Note and Reissued Promissory Note 2 equaling the totaloutstanding principal due and owing on the Original Note at the time the Original Note wasreturned to the TMI ESOP. Upon the issuance of this Note and Reissued Promissory Note 2, theOriginal Note was cancelled and terminated in all respects, and neither the TMI ESOP nor TMIHospitality, Inc. (as guarantor) shall have any further obligations under the Original Note.
FOR VALUE RECEIVED, the undersigned promises to pay to the order of THARALDSONMOTELS II, INC. (the "Lender"), at [ADDRESS], Fargo, North Dakota, the sum of Two Million OneHundred Twenty Five Thousand Four Hundred Forty Six and 65/100 Dollars ($2,125,446.65)disbursed pursuant to that certain Loan Agreement dated the 17th of December, 1998 (the "LoanAgreement"), between the undersigned and the Michelle Tharaldson Trust (as original holder of theNote), with interest on the unpaid principal balance from the date hereof at a definite and certain butvariable per annum interest rate equal to one-half percent (.5%) greater than the rate of interest fromtime to time publicly announced by US Bancorp, N.A. ("US Bancorp") as its Base Rate. The term"Base Rate" shall mean the rate established by and publicly announced by US Bancorp as its Base Ratewith the understanding that US Bancorp may lend to its customers at rates that are above or below saidrate. Changes in the Base Rate shall be deemed to occur as of the date of public announcement thereof,and the interest rate provided for herein shall be adjusted as of said date. In the event publicannouncement of the said Base Rate is discontinued for any reason, holder shall designate a reasonablycomparable substitute index for the determination of interest during any remaining term hereof. Perdiem interest shall be computed on the basis of a 360-day year and be payable on the basis of actualnumber of days elapsed during the term hereof. Payment hereunder shall be in lawful money of theUnited States as follows:
Interest only on the last day of each June and December commencing_____ __ , 201_ and on the last day of each June and Decemberthereafter until June 30, 2020, on which date the entire unpaidprincipal balance together with accrued interest, if not sooner paid,shall become due and payable in full.
This Note is issued pursuant to the Loan Agreement, and this Note and the holders hereof areentitled to all the benefits provided for in the Loan Agreement or referred to therein, to which LoanAgreement reference is made for a statement of the terms and conditions under which this indebtednesswas incurred and is to be repaid and under which the due date of this Note may be accelerated orextended. The provisions of the Loan Agreement are incorporated herein by reference with the sameforce and effect as though fully set forth herein.
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 92 of 97
CHAR2\1428285v1
So long as there is no uncured default under the Loan Agreement or hereunder, all paymentsshall be applied first to interest and then to principal, except that if any advance made by the Lenderhereunder, under the terms of the Loan Agreement, or under any instrument securing this Note is notrepaid, any monies received, at the option of the Lender, may first be applied to repay such advancesplus interest thereon, and the balance, if any, shall be applied as above.
So long as there is no uncured default hereunder or under the Loan Agreement, this Note maybe prepaid in whole or in part at any time and from time to time without penalty or premium. Anypartial prepayment shall first be applied to accrued interest and thereafter to the principal duehereunder in inverse order of maturity.
The failure to make any payment of principal or interest when due in accordance with the termsof this Note, the failure to perform any other terms and conditions hereof, or a default or Event ofDefault under the Loan Agreement, any guaranty hereof, the Stock Pledge Agreement, or any otherinstrument securing this Note shall constitute a default hereunder. Subject to the limitations imposed bythe Employees Retirement Income Security Act of 1974 (ERISA) and Treasury Regulation Section54.4975-7, upon the happening of a default hereunder, the Lender may exercise any of the rights andremedies available to it under the Loan Agreement, the Stock Pledge Agreement, the guaranties, or anysecurity agreement or mortgage securing the same. Failure to exercise said option shall not constitute awaiver on the part of the Lender to exercise the same at any other time.
This Note is made pursuant to the laws of the State of North Dakota and is the Note referred toin that certain Loan Agreement and secured by a Stock Pledge Agreement of the undersigned and theGuaranty by TMI Hospitality, Inc. (formerly known as Tharaldson Motels, Inc.)
Time is of the essence. No delay or omission on the part the Lender in exercising any righthereunder shall operate as a waiver of such right or of any other remedy hereunder. A waiver on anyone occasion shall not be construed as bar to or waiver of any such right or remedy on a futureoccasion.
Presentment and demand for payment, notice of dishonor, protest, and notice of protest arehereby waived.
Notwithstanding the foregoing, this Note shall be without recourse against the undersigned, asTrustee, and the ESOP (as defined in the Loan Agreement). Nothing herein contained shall constitutea waiver of any indebtedness evidenced by this Note or shall be taken to prevent recourse to or theenforcement against the security for this Note or against any endorser, guarantor, or surety of this Noteof all obligations contained in this Note.
TMI HOSPITALITY, INC.EMPLOYEE STOCK OWNERSHIP PLANAND TRUST
BY:____________________________North Star Trust Company,not in its corporate capacity but solelyin its capacity as Trustee of the TMI ESOP
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 93 of 97
CHAR2\1428285v1
____ __, 201_
REISSUED PROMISSORY NOTE 2
This Reissued Promissory Note (this "Note") is made and issued pursuant to thesettlement of litigation (Hans v. Tharaldson, 05-cv-115 (D.N.D.)). To implement provisions of thesettlement, the then-current holder of the Amended Promissory Note issued to the MichelleTharaldson Trust on May 28, 2004, in the original principal amount of $8,500,000 and with amaturity date of June 30, 2020 (the “Original Note”), returned the Original Note to the TMIHospitality, Inc. Employee Stock Ownership Plan and Trust (f/k/a Tharaldson Motels, Inc.Employee Stock Ownership Plan and Trust) (“TMI ESOP”) for cancellation and in exchange fortwo promissory notes: this Note, with an original principal amount of $3,306,887.63, and anothernote, with an original principal amount of $2,125,446.65 (“Reissued Promissory Note 1”), thecombined total of the principal of this Note and Reissued Promissory Note 1 equaling the totaloutstanding principal due and owing on the Original Note at the time the Original Note wasreturned to the TMI ESOP. Upon the issuance of this Note and Reissued Promissory Note 1, theOriginal Note was cancelled and terminated in all respects, and neither the TMI ESOP nor TMIHospitality, Inc. (as guarantor) shall have any further obligations under the Original Note.
FOR VALUE RECEIVED, the undersigned promises to pay to the order of THARALDSONMOTELS II, INC. (The "Lender"), at [ADDRESS], Fargo, North Dakota, the sum of Three MillionThree Hundred Six Thousand Eight Hundred Eighty Seven and 63/100 Dollars ($3,306,887.63)disbursed pursuant to that certain Loan Agreement dated the 17th of December, 1998 (the "LoanAgreement"), between the undersigned and the Michelle Tharaldson Trust (as original holder of theNote), with interest on the unpaid principal balance from the date hereof at a definite and certain butvariable per annum interest rate equal to one-half percent (.5%) greater than the rate of interest fromtime to time publicly announced by US Bancorp, N.A. ("US Bancorp") as its Base Rate. The term"Base Rate" shall mean the rate established by and publicly announced by US Bancorp as its Base Ratewith the understanding that US Bancorp may lend to its customers at rates that are above or below saidrate. Changes in the Base Rate shall be deemed to occur as of the date of public announcement thereof,and the interest rate provided for herein shall be adjusted as of said date. In the event publicannouncement of the said Base Rate is discontinued for any reason, holder shall designate a reasonablycomparable substitute index for the determination of interest during any remaining term hereof. Perdiem interest shall be computed on the basis of a 360-day year and be payable on the basis of actualnumber of days elapsed during the term hereof. Payment hereunder shall be in lawful money of theUnited States as follows:
Interest only on the last day of each June and December commencing_____ __ , 201_ and on the last day of each June and Decemberthereafter until June 30, 2020, on which date the entire unpaidprincipal balance together with accrued interest, if not sooner paid,shall become due and payable in full.
This Note is issued pursuant to the Loan Agreement, and this Note and the holders hereof areentitled to all the benefits provided for in the Loan Agreement or referred to therein, to which LoanAgreement reference is made for a statement of the terms and conditions under which this indebtednesswas incurred and is to be repaid and under which the due date of this Note may be accelerated orextended. The provisions of the Loan Agreement are incorporated herein by reference with the sameforce and effect as though fully set forth herein.
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 94 of 97
CHAR2\1428285v1
So long as there is no uncured default under the Loan Agreement or hereunder, all paymentsshall be applied first to interest and then to principal, except that if any advance made by the Lenderhereunder, under the terms of the Loan Agreement, or under any instrument securing this Note is notrepaid, any monies received, at the option of the Lender, may first be applied to repay such advancesplus interest thereon, and the balance, if any, shall be applied as above.
So long as there is no uncured default hereunder or under the Loan Agreement, this Note maybe prepaid in whole or in part at any time and from time to time without penalty or premium. Anypartial prepayment shall first be applied to accrued interest and thereafter to the principal duehereunder in inverse order of maturity.
The failure to make any payment of principal or interest when due in accordance with the termsof this Note, the failure to perform any other terms and conditions hereof, or a default or Event ofDefault under the Loan Agreement, any guaranty hereof, the Stock Pledge Agreement, or any otherinstrument securing this Note shall constitute a default hereunder. Subject to the limitations imposed bythe Employees Retirement Income Security Act of 1974 (ERISA) and Treasury Regulation Section54.4975-7, upon the happening of a default hereunder, the Lender may exercise any of the rights andremedies available to it under the Loan Agreement, the Stock Pledge Agreement, the guaranties, or anysecurity agreement or mortgage securing the same. Failure to exercise said option shall not constitute awaiver on the part of the Lender to exercise the same at any other time.
This Note is made pursuant to the laws of the State of North Dakota and is the Note referred toin that certain Loan Agreement and secured by a Stock Pledge Agreement of the undersigned and theGuaranty by TMI Hospitality, Inc.
Time is of the essence. No delay or omission on the part the Lender in exercising any righthereunder shall operate as a waiver of such right or of any other remedy hereunder. A waiver on anyone occasion shall not be construed as bar to or waiver of any such right or remedy on a futureoccasion.
Presentment and demand for payment, notice of dishonor, protest, and notice of protest arehereby waived.
Notwithstanding the foregoing, this Note shall be without recourse against the undersigned, asTrustee, and the ESOP (as defined in the Loan Agreement). Nothing herein contained shall constitutea waiver of any indebtedness evidenced by this Note or shall be taken to prevent recourse to or theenforcement against the security for this Note or against any endorser, guarantor, or surety of this Noteof all obligations contained in this Note.
TMI HOSPITALITY, INC.EMPLOYEE STOCK OWNERSHIP PLANAND TRUST
BY:____________________________North Star Trust Company,not in its corporate capacity but solelyin its capacity as Trustee of the TMI ESOP
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 95 of 97
RAYMOND HANS, GAYLE HERBERT, LARRYRICHMAN, DONNA WALKER MICHAEL WEBSTER,BERNARD MCKAY, and TAMMY BLAKE on behalf ofthemselves, individually and on behalf of all otherssimilarly situated in the Former Employee Class; andCARLOS GONZALES, DONALD KLAIN, JOLENEMATHESON-GODSCHALK, and SIDNEY LEIN, onbehalf of themselves individually and on behalf of allothers similarly situated in the Current Employee Class;
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON,ROGER THARALDSON, RAYMOND BRAUN andJAMES LOCHOW as the Trustees of the MICHELLETHARALDSON TRUST and as Trustees of theMATTHEW THARALDSON TRUST, SOUTHDAKOTA TRUST COMPANY, LLC as Trustee of theMICHELLE LYN THARALDSON LEMASTERDYNASTY TRUST, as Trustee of the MATTHEWTHARALDSON DYNASTY TRUST and as Trustee ofthe MICHAEL THARALDSON DYNASTY TRUST, andLINDA THARALDSON individually and in her capacityas Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCKOWNERSHIP PLAN,
Nominal Defendant.
Civil Action No.3:05-CV-00115-RRE-KKK
CLASS ACTIONSETTLEMENT AGREEMENT
Exhibit FConsent to Principal Reduction
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 96 of 97
Case 3:05-cv-00115-RRE-KKK Document 748-1 Filed 10/16/12 Page 97 of 97
Ex. B
Case 3:05-cv-00115-RRE-KKK Document 748-2 Filed 10/16/12 Page 1 of 16
1613994.1 1
UNITED STATES DISTRICT COURT DISTRICT OF NORTH DAKOTA
SOUTHEAST DIVISION
RAYMOND HANS, et al., Plaintiffs, v. GARY D. THARALDSON, et al., Defendants, and THARALDSON MOTELS, INC. EMPLOYEE STOCK OWNERSHIP PLAN, Nominal Defendant.
)) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )
Civil Action No. 3:05-CV-00115-RRE-KKK
BERNARD MCKAY, et al
Plaintiff,
v.
GARY D. THARALDSON,
Defendant,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCK OWNERSHIP PLAN,
Nominal Defendant.
) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )
Civil Action No. 3:08-CV-00113-RRE-KKK
NOTICE OF PROPOSED SETTLEMENTS OF CLASS ACTION LITIGATION,
SETTLEMENT FAIRNESS HEARING, AND PROPOSED ORDER
Case 3:05-cv-00115-RRE-KKK Document 748-2 Filed 10/16/12 Page 2 of 16
1613994.1 1 2
Your legal rights might be affected if you are a member of one of the following groups: 1 I. PARTICIPANTS IN THE TMI HOSPITALITY, INC. (“TMI”) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (“TMI ESOP”)(FORMERLY KNOWN AS THE THARALDSON MOTELS, INC. ESOP) AT ANY TIME FROM DECEMBER 30, 1998 TO THE PRESENT WHO RECEIVED AN ALLOCATION OF PLAN ASSETS TO THEIR TMI ESOP ACCOUNTS WHICH THEY DID NOT SUBSEQUENTLY FORFEIT UNDER THE TERMS OF THE TMI ESOP AND WHO ARE NO LONGER EMPLOYEES OF TMI (OR AN AFFILIATE OF TMI), AND THE BENEFICIARIES OF SUCH PARTICIPANTS (“FORMER EMPLOYEE CLASS”); II. PARTICIPANTS IN THE TMI ESOP AT ANY TIME FROM DECEMBER 30, 1998 TO THE PRESENT WHO ARE PRESENT EMPLOYEES OF TMI (OR AN AFFILIATE OF TMI), AND THE BENEFICIARIES OF SUCH PARTICIPANTS (“CURRENT EMPLOYEE CLASS”).
PLEASE READ THIS NOTICE CAREFULLY. A FEDERAL COURT HAS AUTHORIZED THIS NOTICE. THIS IS NOT A SOLICITATION.
YOU HAVE NOT BEEN SUED. This notice (“Notice”) advises you of two proposed settlements (the “Settlements”) in the above referenced litigation in Han v. Tharaldson (the “Hans Action”) and McKay v. Tharaldson (the “McKay Action”) (collectively the “Actions”). In the Actions, Plaintiffs seek to recover losses which they allege were suffered by the TMI ESOP as the result of breaches of fiduciary duty by Defendants. The parties entered into a final Settlement Agreement resolving these Actions on or about October 10, 2012.
The United States District Court for North Dakota (the “Court”) has preliminarily approved the Settlements and has scheduled a final hearing (the “Fairness Hearing”) to evaluate the fairness and adequacy of each of the Settlements. At the Fairness Hearing, the Court will consider (i) whether to approve the Settlements as fair and adequate; (ii) whether to approve the Plan of Allocation in the Hans Action (see Question 5 below) which sets forth the manner in which the Settlement proceeds will be distributed to Settlement Participants; and (iii) whether to award attorneys’ fees and/or expenses to Plaintiffs’ Counsel (see Question 8 below). The Fairness Hearing, before the Honorable Ralph R. Erickson, has been scheduled for ____, at ____ at the United States District Court for North Dakota, 655 First Avenue North, Fargo, ND 58102.
The terms of the Settlements are contained in two separate Settlement Agreements (the “Settlement Agreements”). A copy of the Settlement in the Hans Action (the “Hans Settlement”)is available at [insert CM website here] or www.kellersettlements.com, or by contacting Plaintiffs’ Counsel in the Hans Action identified below. A copy of the Settlement Agreement in the McKay Action (the “McKay Settlement”) is available at [insert CM website
1 Defendants (see below for a list of Defendants), members of their immediate families, their legal representatives, heirs, successors or assigns or any excluded party, are excluded from both classes in the Hans Action and the Class in McKay.
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here] or by contacting Cohen Milstein at the address below identified below. Capitalized and italicized terms used in this Notice and not defined herein have the meanings assigned to them in the Settlement Agreement.
Any questions regarding the Hans Settlement should be directed to counsel listed below. If you are a member of the Former Employee Class, please contact counsel for the Former Employee Class. If you are a member of the Current Employee Class, please contact counsel for the Current Employee Class:
Counsel for the Former Employee Class: Counsel for the Current Employee Class: COHEN MILSTEIN SELLERS & TOLL P.L.L.C. R. Joseph Barton Bruce F. Rinaldi 1100 New York Avenue, N.W. West Tower, Suite 500 Washington, D.C. 20005-3934 Telephone: (202) 408-4600 Or Toll Free: 1-888-240-0775 Email: [email protected]
KELLER ROHRBACK P.L.C. Gary Gotto Gary Greenwald David Ko 3101 North Central Avenue Suite 1400 Phoenix, AZ 85012 Telephone: (602) 248-0088 Or Toll Free: 1-800-776-6044 Email: [email protected]
Counsel for North Star Trust Company: MOORE & VAN ALLEN PLLC Alton L. Gwaltney, III Mark A. Nebrig 100 North Tryon Street Suite 4700 Charlotte, NC 28202-4003 Telephone: 704-331-1000 Email: [email protected]
Any questions regarding the McKay Settlement should be directed to:
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Counsel for the McKay Class COHEN MILSTEIN SELLERS & TOLL P.L.L.C. R. Joseph Barton Bruce F. Rinaldi 1100 New York Avenue, N.W. West Tower, Suite 500 Washington, D.C. 20005-3934 Telephone: (202) 408-4600 Or Toll Free: 1-888-240-0775 Email: [email protected]
Please do not contact the Court, as Court personnel will not be able to answer your questions. PLEASE READ THIS NOTICE CAREFULLY AND COMPLETELY. IF YOU ARE A PARTICIPANT IN THE TMI ESOP, THE SETTLEMENT MAY AFFECT YOUR RIGHTS. YOU ARE NOT BEING SUED IN THIS MATTER. YOU DO NOT HAVE TO APPEAR IN COURT, AND YOU DO NOT HAVE TO HIRE AN ATTORNEY IN THIS CASE. IF YOU ARE IN FAVOR OF THE SETTLEMENTS, YOU NEED NOT DO ANYTHING. IF YOU DISAPPROVE, YOU MAY OBJECT TO EITHER OR BOTH OF THE SETTLEMENTS PURSUANT TO THE PROCEDURES DESCRIBED BELOW.
ACTIONS YOU MAY TAKE IN THE SETTLEMENTS
NO ACTION IS NECESSARY TO RECEIVE BENEFITS.
Unless the Court approves both the Hans Settlement and McKay Settlements any party may withdraw from the Settlements. If both Settlements are approved by the Court and you are either a member of the Former Employee Class or the Current Employee Class (as defined above), you do not need to do anything in order to receive an allocation of the Hans Settlement. The portion, if any, of the Settlement Fund to be allocated for your benefit will be calculated as part of the implementation of the Hans Settlement. No additional allocations will be made to Plaintiffs as a result of the McKay Settlement.
YOU CAN OBJECT (NO LATER THAN ____________)
If you wish to object to any part of the Hans Settlement and/or the McKay Settlement, you can write to the Court and counsel and explain why you do not like the Settlement.
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YOU CAN GO TO THE HEARING ON ____________
Whether you support or object to the Hans Settlement and/or the McKay Settlement, you may attend the Final Fairness Hearing and speak in Court, but only if you have submitted a written objection or support to the Court and counsel, as explained below.
WHAT THIS NOTICE CONTAINS
SUMMARY OF SETTLEMENT ..................................................................................................4 BASIC INFORMATION ................................................................................................................5
1. Why did I get this Notice? ........................................................................................5 2. What is this lawsuit about? What has happened so far? ...........................................5 3. Why is there a Settlement? .......................................................................................6 4. What does the Settlement provide? ...........................................................................7 5. What will be my share of the Settlement Fund? .......................................................7 6. How can I get my portion of the recovery? ..............................................................7 7. When would I receive my portion of the recovery? .................................................7 8. How will the lawyers be paid? ..................................................................................8
OBJECTIONS .................................................................................................................................9 9. If I don’t like the Settlement, how do I tell the Court? .............................................9
THE COURT’S FAIRNESS HEARING ......................................................................................11 10. Do I have to come to the hearing? ............................................................................11 11. May I speak at the hearing? ......................................................................................11
IF YOU DO NOTHING .................................................................................................................11 12. What happens if I do nothing at all? .........................................................................11
GETTING MORE INFORMATION ............................................................................................11 13. How do I get more information? ...............................................................................11
SUMMARY OF SETTLEMENTS The Hans Settlement provides a $4 million cash payment by TMI (the “Settlement Fund Cash Component”) and $11 million which shall be credited against principal owing under the ESOP Notes (the “Settlement Fund Principal Reduction”). Collectively, the Settlement Fund Cash Component and the Settlement Fund Principal Reduction comprise the entire “Hans Settlement Fund.” Disbursements or allocations will be made as promptly as practicable after the Court’s approval of the Settlement becomes final and after the Settlement Fund Cash Component and each Settlement Fund Principal Reduction installment is disbursed to the ESOP. The McKay Settlement provides a $125,000 cash payment (the “McKay Settlement Amount”) with each party to bear its own costs. After litigation expenses have been paid, Plaintiffs have
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proposed that the remainder of the McKay Settlement Amount be paid to TMI as provided in the Plan of Distribution in the McKay Settlement. No additional allocations will be made to Plaintiffs as a result of the McKay Settlement. Any party to the Hans Settlement or the McKay Settlement may withdraw from the Settlements unless both the Hans Settlements and the McKay Settlement are approved by the Court.
BASIC INFORMATION
1. Why did I get this Notice? This Notice relates to two separate class action lawsuits titled Hans, et al. v. Tharaldson, et al., Civil No. 3:05-CV-00115, and McKay, et al. v. Tharaldson, Case No. 3:08-CV-00113, both of which are pending before the Honorable Ralph R. Erickson, United States District Judge of the United States District Court for the District of North Dakota. Judge Erickson has ordered that this Notice be sent to persons who are included in the two above groups to advise them that the Court has preliminary approved the Settlements of both these Actions. You received this Notice because you were identified as a potential Class Member. In a class action, one or more people file suit on behalf of others with similar claims, called Class Members. If you are a Class Member, your rights will be affected by the Settlements of these Actions. Both classes are a mandatory class and you cannot opt-out of either Class. The Former Employee Class in the Hans Action, which is more specifically defined above, consists of any former employees of TMI (or its affiliates) who were participants in the TMI ESOP during their employment and vested in their account prior to termination (and their beneficiaries). The representatives of the Former Employee Class are Tammy Blake, Raymond Hans, Gayle Herbert, Bernard McKay, Larry Richman, Donna Walker and Michael Webster. They are all former employees of TMI. The Current Employee Class in the Hans Action, which is more specifically defined above, consists of any current employees of TMI (or its affiliates) who are participants in the TMI ESOP (and their beneficiaries). The representatives of the Current Employee Class are Carlos Gonzalez, Jolene Matheson-Godschalk, and Sidney Lien. Additionally, North Star Trust Company, which is and has been trustee of the TMI ESOP since Gary Tharaldson resigned as Trustee after the Hans Action was filed, also pursued claims in the Hans Action in its capacity as a fiduciary of the TMI ESOP. The Former Employee Class and the Current Employee Class in the Hans Action are also members of the Class in the McKay Action.
This Notice only advises you of the existence of the proposed Settlements of these Actions and of your rights if you are a Class Member. The Court has not made any determination as to ultimate merits of the claims or the defenses in Hans Action. However, the Court on January 5, 2012 granted summary judgment in favor of the Defendant in the McKay Action and dismissed the Complaint with prejudice. If you received this Notice but are not a Class Member, your rights will not be affected, and you do not need to take any action.
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2. What are these lawsuits about? What has happened so far? The Hans Action Plaintiffs have brought the Hans Action on behalf of themselves and other participants and beneficiaries of the TMI ESOP. This lawsuit alleges that Defendants2 violated the federal pension law (ERISA) in connection with two transactions in which Gary Tharaldson and his family sold virtually all of the shares of TMI to the TMI ESOP for approximately $500 million. Plaintiffs allege that Gary Tharaldson, as the Trustee of the TMI ESOP, caused the TMI ESOP to purchase the stock in TMI from the Tharaldson family at more than the fair market value of those shares. As a result, Plaintiffs allege that the TMI ESOP incurred an excessive amount of debt, which was financed in large part by loans from the Tharaldsons, which were designed to allow the Tharaldsons to nominally place the ownership of TMI in the hands of the TMI ESOP while retaining management control and draining the company’s cash flow. Plaintiffs allege that these transactions were undertaken not in the interest of the TMI ESOP and its participants, but for the benefit of the Tharaldson family, allowing the Tharaldson family to unload older, less economically viable hotel properties on the TMI ESOP while taking the profits of TMI and purchasing new profitable hotel and motel properties for entities owned by the Tharaldson family. This lawsuit only claims that Gary Tharaldson and certain members of his family violated the law. TMI is NOT a defendant or a party to this lawsuit. The TMI ESOP is named only for the purpose of awarding relief to the TMI ESOP participants. Neither TMI nor the TMI ESOP is alleged to have done anything wrong. Defendants have denied that they have any liability whatsoever or that they breached any fiduciary duties. If the litigation were to continue to trial, the sole remaining Defendant, Gary Tharaldson, would raise numerous defenses to liability, including that he did not breach any alleged duties, and that the price paid for the TMI shares by the TMI ESOP was for fair market value. The parties exchanged information through a legal process known as discovery. During discovery, Plaintiffs’ counsel requested and reviewed thousands of pages of documents and took deposition testimony of over 50 witnesses. The parties have also engaged in substantial motions practice, including motions to dismiss, class certification motions, summary judgment motions, and expert motions, where the parties sought to clarify the scope of this Action. At the time the
2 Defendants were originally Gary D. Tharaldson, Connie Tharaldson, Roger Tharaldson, Raymond Braun and James Lochow (as Trustees of the Michelle Tharaldson Trust and the Matthew Tharaldson Trust), South Dakota Trust Company, LLC (as Trustee of the Michelle Lyn Tharaldson Lemaster Dynasty Trust, the Matthew Tharaldson Dynasty Trust, and the Michael Tharaldson Dynasty Trust), and Linda Tharaldson (individually and in her capacity as Trustee for the Michael Tharaldson Trust). These persons are referred to collectively as “Defendants,” the Tharaldsons or the Tharaldson family. However, the District Court granted summary judgment on October 29, 2011, dismissing all Defendants except Gary Tharaldson. Plaintiffs have appealed from that Decision to the Eighth Circuit Court of Appeals, which appeal is currently pending.
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Settlement was reached, Plaintiffs had filed a Fifth Amended Complaint with the Court that served as the operative complaint in this Action. The Court had also established a trial date of May 1, 2012. The Hans Settlement and the McKay Settlement are the product of intense, arm’s-length negotiations between Plaintiffs’ Counsel and Defendants and their counsel, including a mediation facilitated by an experienced third-party mediator, pursuant to which the terms of the Settlement were established. The McKay Action Plaintiffs have brought the McKay Action on behalf of themselves and other participants and beneficiaries of the TMI ESOP. This lawsuit alleges that Defendant Gary Tharaldson violated ERISA by failing to take steps to recover fees which he caused an affiliate of TMI to pay to his ex-wife, Linda Tharaldson as part of a divorce related settlement agreement entered into in 1998 (the “1998 Agreement”). The fees were purportedly in exchange for unnecessary marketing and sales consulting services which allegedly were of no value to TMI or its affiliate and which were never performed. Plaintiffs contend that among other things, Tharaldson in his capacity as Trustee of the ESOP, the sole shareholder of TMI, should have brought a derivative action against himself as President of TMI for improperly permitting the dissipation of the assets of the Corporation to satisfy his personal obligations to his ex-wife.
Tharaldson has denied that he has any liability whatsoever or that he breached any fiduciary duties. The case was certified as a class action by the Court and after discovery was completed in Defendant moved for summary judgment. On January 5, 2012, the Court granted the Defendant’s motion and dismissed the Complaint ruling that because the ESOP did not own shares of TMI at the time Tharaldson entered into the 1998 Settlement Agreement with his ex-wife -- a condition precedent for bringing a derivative action under North Dakota law -- Tharaldson could not have successfully brought a derivative action against himself and thus Plaintiffs could not prove that Tharaldson breached his fiduciary obligations under ERISA by failing to initiate such an action. Judgment was thereafter entered by the Clerk dismissing the action “with prejudice.” Plaintiffs have moved to vacate the Judgment and the Defendants have filed a Motion for Bill of Costs seeking costs of the litigation from the Plaintiff. While these motions remained pending before the Court, the Parties reached the McKay Settlement. In addition to providing for the recovery by the ESOP of $125,000 in the Action, if the McKay Settlement is approved by the Court, the Motion for Bill of Cost will be dismissed. Any party to the McKay Settlement has the option to withdraw from the McKay Settlement unless the Court also approves the Settlement reached by the parties in the Hans Action.
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3. Why is there a Settlement? Trial of the Hans Action was scheduled for May 1, 2012. At the time of Hans Settlement, the parties and their counsel recognized material risks to all sides in proceeding to trial, including the risk that a judgment at trial could be in favor of the Defendants, or in an amount less than the amount provided for in the Hans Settlement. Accordingly, the parties and their counsel concluded that the Hans Settlement constituted a reasonable compromise and was the prudent and advisable course, because it avoided the risks inherent in this (or any) litigation, as well as the potential delays associated with trial and potential appeals.
At the time of the McKay Settlement although the case had been dismissed, the parties and their counsel recognized that there were still material risks to all sides. If the Plaintiffs motion to vacate the judgment were successful or if the decision of the Court were reversed on appeal the Defendant could have been subject to liability in excess of the amount provided for in the McKay Settlement. Alternatively, if the Judgment remained in place, the Plaintiff and the Class would recover nothing. Accordingly, the parties and their counsel concluded that the McKay Settlement constituted a reasonable compromise of the case.
4. What do the Settlements provide? The material economic terms of the Hans Settlement are set forth in the Summary of Settlement on Pages 5-6 above. The Hans Settlement also provides for: (i) releases of Defendants by Plaintiff classes; (ii) releases of Defendants by the TMI ESOP, (iii) releases of Plaintiffs by Defendants and TMI, (iv) a release of TMI by Gary Tharaldson for all past and future claims for indemnification, and (v) a release of TMI by Plaintiff classes for matters related to the Hans complaint and the circumstances underlying the McKay complaint . The specific terms of the releases are set forth in Section XIII of the Settlement Agreement.
The material terms of the McKay Settlement are set forth in the Summary of Settlement on Page 6. The McKay Settlement provides for mutual releases between all the settling parties.
5. What will be my share of the Settlement Fund? Plaintiffs’ Counsel have submitted to the Court a Plan of Allocation in the Hans Action (attached to the Settlement Agreement as Exhibit D) for approval at or after the Fairness Hearing. The Plan of Allocation describes in detail the manner by which the Hans Settlement proceeds paid into the TMI ESOP will be allocated. As set forth in the Settlement Agreement, any sums approved by the Court for attorneys’ fees (the “Fee Award”), incentive awards for Class Representatives (“Incentive Awards”) and reimbursement of litigation and settlement administration costs and expenses (the “Expense Award”) shall be paid first out of the Settlement Fund Cash Component and any balance remaining thereafter, if any, shall be paid to the TMI ESOP for distribution in accordance with
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the Plan of Allocation. Pursuant to the Plan of Allocation, any balance remaining, if any, shall be allocated to each Settlement Participants Other Investment Account in an amount equal to the product of (i) the total amount of cash to be allocated on the Allocation Date, and (ii) the Settlement Participant’s Settlement Multiplier. The $11 million in principal payments that will be credited against principal owing under the ESOP Notes under the Settlement Fund Principal Reduction portion of the Hans Settlement will occur in four annual installments. Each year as the principal on the ESOP Notes is reduced as provided in the Settlement Agreement additional shares of TMI stock will be released from the ESOP’s unallocated share account. A portion of these released shares will be converted to cash to pay a portion of any Deferred Fee Award, as described in Section V.6-7 of the Settlement Agreement. After payment of any Deferred Fee Award, the balance of the shares released as a result of each annual installment of the Settlement Fund Principal Reduction shall be allocated to each Settlement Participant’s Company Stock Account pursuant to the Plan of Allocation in an amount equal to the product of (i) the total number of shares to be allocated on the Allocation Date resulting from the Settlement Fund Principal Reduction and (ii) the Settlement Participant’s Settlement Multiplier. The Settlement Multiplier represents a Settlement Participant’s current or former balance in his or her TMI ESOP account divided by the sum of all outstanding current and former balances of TMI company stock. It is anticipated that the entire McKay Settlement Amount, less litigation expenses allowed by the Court, will be paid to TMI as the consulting payments to Linda Tharaldson which were at issue in this Action were paid by a TMI subsidiary. 6. How can I get my portion of the recovery? You do not need to file a claim for recovery. If you are entitled to share in the net Settlement proceeds as a Settlement Participant, your share of the Settlement proceeds will be deposited in your TMI ESOP account in accordance with the Court-approved Plan of Allocation. If you are entitled to share in the net Settlement proceeds as a Settlement Participant, but no longer have an account in the TMI ESOP, accounts will be created for you and your share of the Settlement proceeds will be deposited in those accounts in accordance with the Court-approved Plan of Allocation. No allocation will be made to a Settlement Participant if the value of the recovery to such Settlement Participant under the Plan of Allocation is less than fifty dollars ($50) and such Settlement Participant does not have an existing account in the ESOP. 7. When would I receive my portion of the recovery?
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Payment is conditioned on several matters, including the Court’s approval of the both the Hans Settlement and the McKay Settlement and such approvals becoming Final and no longer subject to any appeals. These matters may take up to a year or more to be finally resolved. If you are a member of the Current Employee Class and entitled to share in the net Settlement proceeds as a Settlement Participant any cash and/or shares allocated to your Accounts pursuant to the Plan of Allocation as described in Part 5, above, will be subject to distribution to you as provided in the TMI ESOP Plan and Trust that is in effect at the time of the distribution. If you are a member of the Former Employee Class and entitled to share in the net Settlement proceeds as a Settlement Participant, you may request and receive distribution of any cash and/or shares allocated to your Accounts pursuant to the Plan of Allocation as described in Part 5, during the four year period when allocations are being made pursuant to the Plan of Allocation. After the Allocation period is complete, your Accounts will be subject to distribution as provided in the TMI ESOP Plan and Trust that is in effect at the time of the distribution, and, if less than $5,000 in value, will be distributed to you immediately. 8. How will the lawyers be paid? The Hans Action Counsel for the Former Employee Class and Counsel for the Current Employee Class have agreed to pursue the Hans Action on a contingent fee basis. This means that all attorneys’ fees and expenses are payable only out of the Settlement Fund recovered for the Former Employee Class, the Current Employee Class or the Plan, if any. Plaintiffs’ counsel will submit to the Court a summary of the time collectively expended by them in this Hans Action indicating that the time spent by them in the prosecution of this matter has a value of over $11 million, exclusive of the costs and expenses Plaintiffs’ Counsel have also incurred. Any award of attorneys’ fees and expenses must be approved by the District Court. Counsel for the Trustee of the TMI ESOP (i.e., North Star Trust Company), which is also pursuing claims in this case, is paid according to the terms of an engagement between North Star Trust Company and TMI. In that agreement, Counsel for North Star is paid by TMI without regard to whether there is a recovery for the Class or the Plan; however, this means that amounts recovered in the Settlement will not be reduced to pay or reimburse Counsel for the trustee of the TMI ESOP. Plaintiffs’ Counsel will apply for an award of attorneys’ fees and expenses on behalf of all Plaintiffs’ counsel in the Hans Action. Counsel will also seek an incentive award for certain Plaintiffs in the Hans Action who brought and pursued this action to conclusion. Plaintiffs’ Counsel will also seek from the Settlement Fund reimbursement of administration costs of the Settlement. The application for attorneys’ fees will not exceed one-third (1/3) of the Settlement Fund and the combined application for attorneys’ fees, reimbursement of expenses and incentive awards in the aggregate will not exceed $4,675,000. The incentive awards for certain Plaintiffs will not exceed the sum of $35,000. TMI shall be entitled to reimbursement of approved
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expenses related to the administration of the Settlement Agreement of up to $150,000. Any award of fees and expenses in the Hans Action to Plaintiffs’ Counsel will be paid from the Settlement Fund as and when cash is deposited therein in accordance with the terms of the Hans Settlement Agreement. The written application for fees and expenses will be filed with the Court no later than _____ days prior to the Fairness Hearing, and the Court will consider this application at the Fairness Hearing. A copy of the application when filed will be available at [insert CM website here] or www.kellersettlements.com or by a requesting a copy from Plaintiffs’ Counsel. To date, Plaintiffs’ Counsel have received no payment for their services in prosecuting the Hans Action, nor have Plaintiffs’ Counsel been reimbursed for their out-of-pocket expenses. The McKay Action Counsel for the Class in the McKay Action have also agreed to pursue the McKay Action on a contingent fee basis. Plaintiffs’ Counsel will apply for an award of expenses in the McKay Action but will not seek an award of attorney’s fees or an incentive award for the Plaintiff. Any award of expenses in the McKay Action, which must be approved by the Court, will be paid from the McKay Settlement Amount. Any monies in the McKay Settlement Amount remaining after the payment of expenses will be distributed to TMI pursuant to the Plan of Distribution attached to the McKay Settlement Agreement and used to reimburse TMI for out-of pocket expenses incurred by TMI in the implementation of the Settlements. To date, Plaintiffs’ Counsel have received no payment for their services in prosecuting the McKay Action, nor have Plaintiffs’ Counsel been reimbursed for their out-of-pocket expenses.
OBJECTIONS 9. How do I tell the Court if I don’t like the Settlements? Any Class Member may object to any aspect of either the Hans Settlement or the McKay Settlement or both by filing a written objection with the Court. To object, you must send a letter or other written statement saying that you object to the Settlement and/or the attorneys’ fee award in Hans, et al., v. Tharaldson, et al., Case No. 3:05-CV-00115-RRE-KKK or the Settlement in McKay, et al. v. Tharaldson, Case No. 3:08-CV-00113-RRE-KKK. Include your name, address, telephone number, signature, and a full explanation of all reasons you object to the Settlement(s). Please be advised that failure to include these details may result in the Court refusing to consider your objection. Your written objection must be filed with the Court, and served upon the counsel listed below by no later than _________ prior to the Fairness Hearing: File with the Clerk of the Court: Clerk of the Court United States District Court for North Dakota 655 First Avenue North, Fargo, ND 58102
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Re: Hans, et al., v. Tharaldson, et al., Case No. 3:05-CV-00115-RRE-KKK and McKay, et al. v. Tharaldson, Case No. 3:08-CV-00113-RRE-KKK And, by the same date, serve copies of all such papers by mail and fax to each of the following: Counsel for the Former Employee Class: Counsel for the Current Employee Class and
the McKay Class: COHEN MILSTEIN SELLERS & TOLL PLLC R. Joseph Barton Bruce F. Rinaldi 1100 New York Avenue, N.W. West Tower, Suite 500 Washington, D.C. 20005-3934 Telephone: (202) 408-4600 Facsimile: (202) 408-4699
KELLER ROHRBACK PLC Gary Gotto Gary Greenwald David Ko 3101 North Central Avenue, Suite 1400 Phoenix, AZ 85012 Telephone: (602) 248-0088 Facsimile: (602) 248-2822
Counsel for North Star: Counsel for Defendants: MOORE & VAN ALLEN PLLC Alton L. Gwaltney, III Mark A. Nebrig 100 N. Tryon Street, Suite 4700 Charlotte, NC 28202-4003 Telephone: (704) 331-1000 Facsimile: (704) 331-1159
PROSKAUER ROSE LLP Howard Shapiro Robert Rachal Michael D. Spencer Charles F. Seemann III 650 Poydras Street, Suite 1800 New Orleans, LA 70130 Telephone: (504) 310-4088 Facsimile: (504) 310-2022
The objection must state all supporting bases and reasons for the objection, set forth proof of your participation in the Plan, clearly identify any and all witnesses, documents and other evidence of any kind that are to be presented at the Fairness Hearing in connection with such objections, and further describe the substance of any testimony to be given by you as well as by any supporting witnesses.
UNLESS OTHERWISE ORDERED BY THE COURT, ANYONE WHO DOES NOT OBJECT IN THE MANNER DESCRIBED HEREIN WILL BE DEEMED TO HAVE
WAIVED ANY OBJECTION, WILL NOT BE PERMITTED TO SPEAK AT THE FAIRNESS HEARING, AND SHALL BE FOREVER FORECLOSED FROM MAKING ANY OBJECTION TO THE PROPOSED SETTLEMENT AND THE APPLICATION FOR ATTORNEYS’ FEES AND EXPENSES THE COURT’S FAIRNESS HEARING.
10. Do I have to come to the hearing? Plaintiffs’ Counsel will answer questions the Court may have at the Fairness Hearing. You are welcome to come at your own expense. If you send an objection, you do not have to come to
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Court to talk about it. As long as you mailed your written objection on time and followed the instructions set forth in response to Question 9 above, it will be before the Court when the Court considers whether to approve the Settlement as fair, reasonable and adequate. You may also have your own lawyer attend the Fairness Hearing at your expense, but such attendance is not mandatory. 11. May I speak at the hearing? If you have filed a timely objection and are a Class Member, and if you wish to speak, present evidence, or present testimony at the Fairness Hearing, you must state in your objection your intention to do so, and must identify any witnesses you intend to call or evidence you intend to present.
The Fairness Hearing may be rescheduled by the Court without further notice to Class Notice. If you wish to attend the Fairness Hearing, you should confirm the date and time with Plaintiffs’ Counsel.
IF YOU DO NOTHING
12. What happens if I do nothing at all? If you do nothing and you are entitled to participate in the Hans Settlement proceeds, you will participate in those proceeds as described above in this Notice if the Settlement is approved.
GETTING MORE INFORMATION
13. How do I get more information? This Notice contains only a summary of the proposed Settlements of these Actions and your rights as a potential Class Member. Full details of the Settlements are set forth in the Settlement Agreements. You may obtain copies of the Settlement Agreements by making a written request to a member of Plaintiffs’ Counsel identified on page 3 of this Notice. For more detailed information regarding the matters involved in these Actions, please refer to the papers on file in this litigation, which may be inspected at the Office of the Clerk of Court, United States Courthouse, 220 East Rosser Avenue, Bismarck, North Dakota, during business hours (or are available online for a fee by obtaining a password at www.uscourts.gov). In addition to Class Counsel, inquiries regarding this litigation may be addressed to counsel for the ESOP Trustee, North Star Trust Company, at Moore & Van Allen PLLC, Alton L. Gwaltney, Mark A. Nebrig, 100 North Tryon Street, Suite 4700, Charlotte, NC 28202-4003, Telephone: (704) 331-1000, E-Mail: [email protected]. PLEASE DO NOT CALL THE COURT REGARDING THIS NOTICE.
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Dated: October 16, 2012 BY ORDER OF THE COURT UNITED STATES DISTRICT COURT DISTRICT OF NORTH DAKOTA
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Ex. C
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UNITED STATES DISTRICT COURT DISTRICT OF NORTH DAKOTA
SOUTHEASTERN DIVISION
CARLOS GONZALES, DONALD KLAIN, JOLENE MATHESON-GODSCHALK, and SIDNEY LEIN, on behalf of themselves individually and on behalf of all others similarly situated in the Current Employee Class; and RAYMOND HANS, GAYLE HERBERT, JEREMY JACKEY, CHUCK LEBLANC, LARRY RICHMAN, DONNA WALKER and MICHAEL WEBSTER on behalf of themselves, individually and on behalf of all others similarly situated in the Former Employee Class,
Plaintiffs,
v.
GARY D. THARALDSON, CONNIE THARALDSON, ROGER THARALDSON, RAYMOND BRAUN and JAMES LOCHOW as the Trustees of the MICHELLE THARALDSON TRUST and as Trustees of the MATTHEW THARALDSON TRUST, SOUTH DAKOTA TRUST COMPANY, LLC as Trustee of the MICHELLE LYN THARALDSON LEMASTER DYNASTY TRUST, as Trustee of the MATTHEW THARALDSON DYNASTY TRUST, and as Trustee of the MICHAEL THARALDSON DYNASTY TRUST, and LINDA THARALDSON individually and in her capacity as Trustee for the MICHAEL THARALDSON TRUST,
Defendants,
and
THARALDSON MOTELS, INC. EMPLOYEE STOCK OWNERSHIP PLAN,
Nominal Defendant.
Civil Action No. 3:05-CV-0115-RRE-KKK
ORDER PRELIMINARILY APPROVING SETTLEMENT,
APPROVING FORM OF NOTICE, AND SETTING FAIRNESS
HEARING
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This action, which was certified as a Class Action by Order of this Court dated May 7,
2010, involves claims for alleged violations of the Employee Retirement Income Security Act of
1974, as amended, 29 U.S.C. §§ 1001, et seq. (“ERISA”), with respect to the TMI Hospitality,
Inc. Employee Stock Ownership Plan (the “ESOP”) (formerly known as the Tharaldson Motels,
Inc. ESOP).
Presented to the Court for preliminary approval is a settlement of this action with respect
to all Defendants (the “Settlement”). The terms of the Settlement are set forth in a Settlement
Agreement (the “Settlement Agreement”), executed by all parties on or about October 10, 2012,
and filed with the Court on October 16, 2012 as an exhibit to Plaintiffs’ Motion In Support Of
Preliminary Approval of the Proposed Settlement (“Preliminary Approval Motion”).1
The Court has considered the Settlement to determine, among other things, whether it is
sufficient to warrant the issuance of notice to present and former participants in the ESOP whose
rights would be affected by the Settlement. Upon reviewing the Settlement Agreement, it is
hereby ORDERED, ADJUDGED, AND DECREED as follows:
1. Preliminary Findings Regarding Proposed Settlement. The Court preliminarily
finds that (a) the proposed Settlement resulted from informed, extensive arm’s-length
negotiations and third-party mediation; (b) Plaintiffs’ Counsel has concluded that the proposed
Settlement is fair, reasonable, and adequate; (c) the proposed Settlement is sufficiently fair,
reasonable, and adequate to warrant sending notice (the “Notice”) of the Settlement to the
Participant Classes.
2. Fairness Hearing. A hearing is scheduled for __________, 201__ (the “Fairness
Hearing”) to determine, among other things:
1 Capitalized terms not otherwise defined in this order shall have the same meaning as ascribed to them in the Settlement Agreement. References to a Paragraph in the Settlement Agreement include its relevant subparts.
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a) Whether the Settlement should be approved as fair, reasonable, and adequate to the Parties as well as to the Participant Classes;
b) Whether the litigation should be dismissed with prejudice pursuant to the terms of the Settlement;
c) Whether the Notice provided for by the Settlement Agreement and this Order was provided and: (i) appropriate and reasonable and constituted due, adequate, and sufficient notice to all persons entitled to notice; and (ii) met all applicable requirements of the Federal Rules of Civil Procedure, and any other applicable law;
d) Whether the Plan of Allocation provided for by the Settlement Agreement should be approved; and,
e) Whether the application for Fee Award, Expense Award, and Incentive Awards filed by Plaintiffs’ Counsel and the application for reimbursement of out-of-pocket expenses incurred in connection with the implementation of the Settlement up to a maximum of $150,000 filed by TMI should be approved. 3. Notice. A proposed form of Notice to Affected Participants is attached to the
Settlement Agreement as Exhibit A and to the Preliminary Approval Motion as Exhibit B. With
respect to such form of Notice, the Court finds that such form fairly and adequately: (a) describes
the terms and effect of the Settlement Agreement and of the Settlement; (b) notifies the
participants concerning the proposed Plan of Allocation; (c) notifies the Participant Classes that
Plaintiffs’ Counsel will seek from the Settlement Fund an award of attorneys’ fees,
reimbursement of expenses and incentive awards to certain Plaintiff Class Representatives and
that TMI will seek reimbursement of out-of-pocket expenses incurred in connection with the
implementation of the Settlement up to a maximum of $150,000; (d) notifies the Participant
Classes that certain Administrative Expenses of the Settlement will be paid from the Settlement
Fund; (e) notifies the Participant Classes of the purpose, time, and place of the Fairness Hearing;
and (f) describes how the recipients of the Notice may object to any of the relief requested. The
Court directs that Plaintiffs’ Counsel shall:
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a) By no later than forty (40) days before the Fairness Hearing, cause the Notice, with such non-substantive modifications thereto as may be agreed upon by the Parties, to be sent to each member of the Participant Classes. Such notice shall be sent either by e-mail or first-class mail, postage prepaid, to the person’s last known address as set forth in the records of the ESOP or TMI Hospitality, Inc.
b) By no later than forty (40) days before the Fairness Hearing, cause the Notice to be published on the websites identified therein.
3. At or before the Fairness Hearing, Plaintiffs’ Counsel shall file with the Court a
statement of timely compliance with the foregoing mailing and publication requirements.
4. Objections to Settlement. Any member of the Participant Classes who wishes to
object to the fairness, reasonableness, or adequacy of the Settlement, to the Plan of Allocation, to
any term of the Settlement Agreement, or to the proposed award of attorneys’ fees, expenses, and
incentives, may file and serve an Objection in accordance with the procedures set forth in the
Notice no later than ten (10) days prior to the Fairness Hearing.
5. Appearance at Fairness Hearing. Any objector who files and serves a timely,
written objection in accordance with paragraph 4 above, may also appear at the Fairness Hearing
either in person or through counsel retained at the objector’s expense. Objectors or their
attorneys intending to appear at the Fairness Hearing must follow the procedures set forth in the
Notice. Any objector who does not timely file and serve a notice of intention to appear in
accordance with this paragraph and the procedures set forth in the Notice shall not be permitted
to appear at the Fairness Hearing, except for good cause shown.
6. Service of Papers. Defendants’ Counsel and Plaintiffs’ Counsel shall promptly
furnish each other with copies of any and all objections that come into their possession.
7. Additional Filings. Consistent with the Federal Rules of Civil Procedure and the
Local Rules of this Court, Plaintiffs’ Counsel shall file no later than twenty-eight (28) days prior
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to the Fairness Hearing motions for final approval of the Settlement, approval of the proposed
Plan of Allocation, and an application for award of attorneys’ fees, legal expenses and incentive
awards to certain Plaintiff Class Representatives. Any objections to the Settlement and/or
opposition to the Fee Award, Expense Award and Incentive Awards shall be filed no later than
fourteen (14) days prior to the Fairness Hearing, and any reply if necessary shall be filed no later
than seven (7) days prior to the Fairness Hearing. These submissions shall be heard at the
Fairness Hearing.
8. Termination of Settlement. This Order shall become null and void, and shall be
without prejudice to the rights of the parties, all of whom shall be restored to their respective
positions existing immediately before the Execution Date of the Settlement Agreement, if the
Settlement Agreement is terminated in accordance with Paragraph XIV.1 thereof. In such event,
Paragraph XIV.2 of the Settlement Agreement shall govern the rights of the parties.
9. Use of Order. In the event this Order becomes of no force or effect, it shall not be
construed or used as an admission, concession, or declaration by or against the Defendants or the
Plaintiffs.
10. Continuance of Hearing. The Court may continue the Fairness Hearing without
further written notice.
SO ORDERED this ________day of __________________, 2012.
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