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Sectors: Retail
Governing Law: Texas, View Texas State Laws
Effective Date: June 02, 1997
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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION


BRIAN G. POPP and RONALD D. MOORE, ) Clerk, U.S. District Court on behalf of Randalls Food Markets, ) Southern District of Texas Inc. Employee Stock Ownership Plan, ) ENTERED Randalls Food Markets, Inc. Hourly ) JUN 13 1997 Paid Employee Stock Ownership Plan ) and Randalls Food Markets, Inc. ) Michael N. Milby Salaried Employee Stock Ownership ) Clerk of Court Plan and on behalf of themselves and ) all others similarly situated, )
)
Plaintiffs, )
) V. ) CIVIL ACTION NO. H-95-5400
) RANDALLS FOOD MARKETS, INC., ) f/k/a RANDALLS' MANAGEMENT ) CORPORATION, ROBERT R. ONSTEAD, ) NANCY N. FRYE, RONNIE W. ) BARCLAY, JANICE R. SCHILMOELLER, ) BOBBY L. GOWENS, LEE STRAUS, ) FIRST INTERSTATE BANK OF TEXAS, ) N.A., BANK ONE, TEXAS, N.A., R. ) RANDALL ONSTEAD, JR., ARTHUR ) ANDERSEN AND CO., S.C. and ) ARTHUR ANDERSEN, L.L.P. a/k/a ) ANDERSEN WORLDWIDE and f/k/a ) ARTHUR ANDERSEN AND CO., TEXAS ) COMMERCE BANK f/k/a AMERITRUST ) TEXAS, N.A., TOWERS, PERRIN, ) FORSTER & CROSBY, INC. and ) MELTON & MELTON, L.L.P., )
) CLASS ACTION
Defendants. ) RICO


FINAL ORDER AND JUDGMENT:
FINAL APPROVAL OF SETTLEMENT
ESTABLISHMENT OF SETTLEMENT FUND,
APPOINTMENT OF SETTLEMENT ADMINISTRATOR,
AND APPROVAL OF PRELIMINARY PLAN OF DISTRIBUTION


The parties have filed a Joint Motion for Final Approval of the Settlement entered into by Plaintiffs Brian G. Popp and Ronald D. Moore, on behalf of Randalls Food Markets, Inc. Employee Stock Ownership Plan, Randalls Food Markets, Inc. Hourly Paid Employee Stock Ownership Plan and Randalls Food Markets, Inc. Salaried Employee Stock Ownership Plan (collectively "Randalls Employee ESOP" or the "ESOP" or the "Plan," which term includes, following the conversion of the ESOP into a 401(K) plan, such 401(K) plan) and on behalf of themselves and all others similarly situated (the "Plaintiff Class") (collectively the "Plaintiffs") and Defendants Randalls Food Markets, Inc. f/k/a Randalls' Management Corporation ("Randalls"), Robert R. Onstead, Nancy N. Frye, Ronnie W. Barclay, Janice R. Schilmoeller, Bobby L. Gowens, Lee Straus, and Randall Onstead, Jr. (collectively the "Individual Defendants" and, together with Randalls, the "Randalls Defendants"), Bank One, Texas, N.A. ("Bank One"), Arthur Andersen LLP and Andersen Worldwide, S.C., (incorrectly identified in this Action as Arthur Andersen and Co., S.C. and Arthur Andersen L.L.P. a/k/a Andersen Worldwide and f/k/a Arthur Andersen and Co., ("Arthur Andersen") and Texas Commerce Bank f/k/a Ameritrust Texas, N.A. ("Texas Commerce Bank"), Wells Fargo Bank (Texas), National Association f/k/a First Interstate Bank of Texas, N.A. ("First Interstate"), Melton & Melton, L.L.P. ("Melton & Melton") and Towers, Perrin, Forster & Crosby, Inc. ("Towers Perrin"). (Docket Entry Nos. 155 and 157).


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Plaintiffs and Clements, O'Neill, Pierce & Nickens, L.L.P., and Dennis H. Taylor, J.D. and P.C. ("Class Counsel") have applied for an award of attorneys' fees and expenses incurred in prosecuting this action. (Docket Entry No. 150) This court will address the application in a separate order.


Collectively, First Interstate, Melton & Melton and Towers Perrin constitute the "Original Settling Defendants" and their settlement with Plaintiffs constitutes the "Original Settlement." The remaining Defendants together constitute the "Second Settlement Group" and their settlement with Plaintiffs constitutes the "Second Settlement." Collectively the Original Settling Defendants and the Second Settlement Group constitute the "Defendants" and the Defendants and the Plaintiffs collectively constitute the "Parties." Collectively, the Original Settlement and the Second Settlement constitute the "Final Settlement."


In its verified original complaint, first amended original complaint, and second amended original complaint, Plaintiffs asserted violations by Defendants of the Employee Retirement Security Act ("ERISA"); the Racketeer-Influenced and Corrupt Practices Act ("RICO"); the Securities Exchange Act of 1934; the Texas Securities Act; section 27.01 of the Texas Business and Commerce Code; and various common law duties and responsibilities. Plaintiffs alleged that Defendants fraudulently induced Randalls employees to join the Plan; manipulated the price of stock purchased from and sold to the Plan by Randalls insiders to the benefit of


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Randalls insiders and to the detriment of the Plan and its participants; failed to register Randalls stock and the ESOP under the securities laws; failed to disclose facts material to the Plan participants' decisions to invest; deprived the participants of voting rights; engaged in illegal transactions with the Plan; negligently performed professional services; failed to disclose their actions; and conspired to commit the unlawful actions. In addition to damages, fees and costs, Plaintiffs sought an accounting; a declaration of rights; removal of the ESOP trustee, auditors, and appraisers; termination of the ESOP; distribution of the ESOP assets; and replacement of the ESOP with an appropriate retirement vehicle with diversified investments.


On November 14, 1996, Plaintiffs and Defendant Melton & Melton executed a settlement agreement after the first court-ordered mediation in this case. On December 6, 1996, after another mediation, Plaintiffs and Defendants First Interstate and Towers Perrin executed settlement agreements. In 1997, Plaintiffs and the remaining Defendants, the Randalls Defendants, Bank One, Arthur Andersen, and Texas Commerce Bank, executed a settlement agreement. On April 1, 1997, this court certified a Class under Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure; approved the action as a derivative action on behalf of the ESOP; and preliminarily approved the Original Settlement, the Second Settlement, and the Final Settlement. (Docket Entry Nos. 136 and 137). Notice of the derivative and class action and the settlements was provided to the members of the Class, as approved by this court, and


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as provided in the notices, the form of which was filed on April 8, 1997. (Docket Entry Nos. 140, 147, 148). The Class members were notified of their right to appear and be heard at a final fairness hearing by filing and serving a notice of appearance, and of their right to opt out of the Class and to hire counsel of their own choosing to represent their interests at their own expense. No member of the Class objected or opted out. This court held a formal fairness hearing on June 2, 1997. (Docket Entry No. 161).


The parties' joint motion requests final approval of the Final Settlement or alternatively, final approval of the Original Settlement. The court has considered all papers filed and proceedings had herein. The court has held an evidentiary hearing and heard arguments of counsel. Based on the pleadings, the motions, the record, and the applicable law, this court enters the following order approving the Settlement, establishing a Settlement Fund, appointing a Settlement Administrator, and approving a Preliminary Plan of Distribution.


For purposes of this Order, this court adopts and incorporates the definitions in this Order and the terms of the Second Settlement. The court confirms and makes final certification of this Action as a class action under FED. R. CIV. P. 23 with the Class as defined in this court's Order Approving Derivative Action and Certifying Class, dated April 1, 1997. (Docket Entry No. 136).


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This court has jurisdiction over the subject matter of this litigation, over all actions within this litigation and over all parties to this litigation, including all Class members. Generally, all persons and entities who validly request exclusion from a class are not members of the class. In this case, no persons or entities has objected to or opted out of the Class.


Based on a review of the record, the settlement agreements, all other papers filed in the case and the proceedings therein, and the arguments heard at the Final Approval Hearing, and having specifically considered, in accordance with PARKER V. ANDERSON, 667 F.2d 1204, 1209 (5th Cir.), CERT. DENIED, 103 S. Ct. 63 (1982), whether the settlement was a product of fraud or collusion; the complexity; expense and likely duration of the litigation; the stage of the proceedings and the amount of discovery completed; the factual and legal obstacles to prevailing on the merits; the possible range of recovery and the certainty of damages; and the respective opinions of the participants, including all counsel, the Representative Plaintiffs, and the absent Class members, the court finds the Original Settlement, the Second Settlement, the Final Settlement, and each of the settlements constituting the foregoing settlements to be fair, adequate, and reasonable, and finds that they should be approved.


The court specifically finds that none of the foregoing settlements is the product of fraud or collusion. All of the settlements have been singularly


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characterized by vigorous representation by all counsel of their respective clients and hard-fought arm's length negotiations by all counsel.


The court finds that this Action is complex and expensive to pursue and defend and was likely to have endured for a substantial period of time but for the settlements. This Action involved derivative and class allegations under ERISA and class allegations under federal and state securities statutes, including Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 and Article 581-33 of the Texas Securities Act, section 27.01 of the Texas Business and Commerce Code, and state common law allegations against a variety of corporate and individual Defendants bearing different relationships to the Plaintiffs under the different theories of law asserted on behalf of both the ESOP and the Class. The court further finds that settlement was achieved at a time of maximum uncertainty for all parties in that motions to dismiss some or all of the claims against them were pending on behalf of all Defendants. The court also finds that, before settlement, extensive written discovery requests had been propounded by Plaintiffs and responded to by Defendants, including extensive document production, and oral depositions had been begun. This court finds that a much greater expense of funds and attorney time would have been required by the parties to prepare the case for trial, but for the settlements. The court finds that, at the time of settlement, there were substantial factual and legal obstacles to either Plaintiffs or Defendants prevailing on the merits on the different


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claims made against the different Defendants. The court has reviewed the settlement terms for all settlements and finds that the all settlements individually and together are well within the possible range of ultimate recovery as it can be ascertained at this stage of the proceedings. By executing the settlement documents, including the settlement agreements attached as Exhibits "A," "B," "C," and "D" hereto, and other documents filed with the court in connection with the settlement, all parties' counsel have affirmed their belief that the settlements are in the best interests of their clients.


In accordance with the Conditional Settlement Agreement, Bank One resigned from its position as trustee of the Randalls' ESOP effective May 17, 1997. At that time, Randalls appointed the U.S. Trust Company of California to serve as trustee, and it accepted the appointment. The court finds that the resignation and replacement of Bank One as trustee of the Randalls ESOP has been performed in a manner satisfying the relevant provisions of ERISA and with the documents and instruments governing the ESOP.


This court, therefore, approves the Final Settlement, Second Settlement, and Original Settlement, and each settlement constituting part of each of the foregoing settlements and finds that they are in all respects fair, reasonable, and adequate in accordance with Rule 23 of the Federal Rules of Civil Procedure, and directs implementation of the terms and provisions of the Final Settlement and each of the constituent settlements.


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This court decrees that neither the Final Settlement, nor this Order, nor the fact of settlement, is an admission or concession by Defendants of any liability or wrongdoing whatsoever. This Order is not a finding of the validity or invalidity of any claims in the action or of any wrongdoing by Defendants. Neither the Final Settlement, nor this Order, nor the fact of settlement, nor the settlement proceedings, nor the settlement negotiations, nor any related documents, shall be used or construed as an admission of any fault, liability or wrongdoing by any person or entity or be offered or received in evidence as an admission, concession, presumption or inference against any party in any proceeding. Nothing in this paragraph shall be interpreted to preclude any proceeding to enforce the Final Settlement, should such be necessary.


Each Releasor, as defined below, is hereby deemed conclusively to have fully, finally, and forever compromised, settled, discharged, dismissed and released the Released Claims, as defined below, known or unknown, against the Released Persons, as defined below.


"Releasors" and "Released Persons" shall each mean and include each plaintiff, including the representative Plaintiffs and the Class members, and each Defendant and the Releasors' and Released Persons' respective agents, employees, predecessors, affiliates, successors, assigns, directors and attorneys. "Released Claims" means and includes any and all claims which have been or could have been asserted by, on behalf of, and/or for the benefit of, any Releasor against any Released


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Person, including, without limitation, any and all claims, actions, allegations, causes of action, demands, debts, rights or liabilities, known or unknown, asserted or unasserted, liquidated or unliquidated, fixed or contingent, accrued or unaccrued, of any nature whatsoever, and in any capacity whatsoever, as of the date of this Order, arising from or related to the facts, transactions, events, occurrences, disclosures, statements, acts, or omissions or failures to act that are the subject matter of the action or arising out of or related to the subject matter of the action that were or could have been asserted in the action or that occurred before the entry of this order, including all claims for contribution, indemnity and set-off that could have been asserted between or among the Released Persons. Notwithstanding the generality of the foregoing, Released Claims specifically include without limitation any and all claims and causes of action, at law or in equity, in any capacity, arising from or related to acts, omissions, or consequences relating to: (i) the creation, operation, administration, treatment or disposition of the ESOP occurring prior to entry of this Order, including, without limitation, all transactions involving Randalls' common stock and all valuations of such stock; (ii) any loans, loan applications, extensions of credit, and/or other bank services provided to the ESOP; (iii) any appraisals or other valuation of any stock or other asset of the ESOP; (iv) all transactions involving Randalls' common stock, including any purchase, sale or trade of stock and/or the acquisition or disposition of any other asset of the ESOP; (v) any and all investment decisions


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relating to or affecting the ESOP; (vi) participation by any Released Person in any credit facility, loan or other extension of credit (including, without limitation, syndicated loans, personal loans, guaranties, letters of credit, debt restructuring, and other financing of any type or description) to the sponsor or other parties related to or affiliated with the ESOP; (vii) all events and occurrences in connection with the proposed transactions between Randalls, certain shareholders of Randalls and RFM Acquisition LLC, an affiliate of Kohlberg Kravis Roberts & Co., contemplated by the subscription agreement and the voting, repurchase and shareholders agreement, each dated as of April 1, 1997, and each among Randalls, RFM Acquisition LLC and the other parties thereto, including the exhibits thereto, including, without limitation, the signing of such agreements and all terms and transactions contemplated thereby relating to the ESOP (the "KKR Transaction"); (viii) the resignation and replacement of Bank One as trustee; or (ix) the resignation and replacement of Arthur Andersen as appraiser, but in each case described in this sentence only those claims that were or could have been asserted in the Action or the factual basis for which occurred prior to entry of this order.


Nothing in this definition of "Released Claims" shall be construed to include the release, forgiveness or compromise of any indebtedness, security, guaranty, or other obligation owing by any of the Class members or Randalls Defendants to First Interstate, Bank One and/or Texas Commerce, such obligations


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being expressly excepted and preserved from any such release and not intended to be released, waived or otherwise compromised in any way, except for contribution, indemnification, and set-off, which are separately dealt with in this Order.


"Unknown claims" means any Released Claims that any Releasor does not know or suspect to exist in his, her or its favor at the time of the release of the Released Persons which, if known by him, her, or it, might have affected his, her, or its settlement with and release of the Released Persons, or might have affected his, her, or its decision not to object to this settlement. Solely with respect to any and all Released Claims, the parties stipulate and agree that, upon the date of entry of this order, each party shall expressly waive and relinquish and the other Releasors shall be deemed to and by operation of this order shall waive and relinquish, to the fullest extent permitted by law, any and all provisions, rights, and benefits conferred by any law of the United States or any state or territory of the United States, or principle of common law, which provides that a general release does not extend to claims which the Releasor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the Released Person.


Each of the parties and other Releasors may hereafter discover facts in addition to or different from those which he or she now knows or believes to be true with respect to the subject matter of the Released Claims, but each stipulates and


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agrees that each party does and each other Releasor shall be deemed to, upon the date of entry of this order, fully, finally, and forever compromise, settle and release any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, whether or not concealed or hidden, 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. Releasors acknowledge that the foregoing Release was separately bargained for and a key element of the Final Settlement of which this Release is a part.


All Released Persons and all other persons who are, have been or could have been named as Defendants in this Action, are enjoined from instituting, prosecuting or continuing to prosecute, either directly, representatively, or in any other capacity, against any Released Person, any action, claim, demand, right, or cause of action, including, without limitation, claims for contribution, reimbursement or indemnification, or any theory, whether by way of third or subsequent-party complaint, cross-claim, separate action, or otherwise, and whether under state or federal law, for recovery in whole or in party of any liability or damages such persons may incur in connection with the Released Claims. If the Second Settlement does not become final and effective in accordance with its terms and conditions and this order is vacated, in whole or in part, with respect to the Second Settlement Group, the


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Second Settlement Group shall nevertheless continue to be enjoined from instituting, prosecuting or continuing to prosecute any action, claim, demand, right or cause of action, including, without limitation, claims for contribution, reimbursement or indemnification (or any other theory) and from filing or pursuing any claim, complaint, cross-claim, separate action or other proceeding against the Original Settling Defendants in connection with the Released Claims, and the Original Settling Defendants shall continue to be enjoined from instituting, prosecuting or continuing to prosecute any action, claim, demand, right or cause of action, including, without limitation, claims for contribution, reimbursement or indemnification (or any other theory) and from filing or pursuing any claim, complaint, cross-claim, separate action or other proceeding against the Second Settlement Group in connection with the Released Claims. Furthermore, notwithstanding whether the Second Settlement becomes final and effective, all claims and causes of action asserted by any or all members of the Second Settlement Group against any or all of the Original Settling Defendants and all claims and causes of action asserted by any or all members of the Original Settlement group against any or all of the Second Settlement Group for contribution, indemnity and/or set-off shall be deemed released in their entirety. All claims for contribution, reimbursement or indemnification (or any other theory) are released as between or among members of the Second Settlement Group, unless the


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Second Settlement does not become final and effective in accordance with its terms and conditions and this order is vacated with respect to the Second Settlement Group.


Clements, O'Neill, Pierce & Nickens, L.L.P. and Dennis H. Taylor, J.D. P.C. ("Class Counsel") and Randalls shall mutually select a bank and Class counsel shall set up the necessary bank account and attend to other matters necessary to establish a qualified Settlement Fund under Treasury Regulation Section 1.468B-1 (the "Settlement Fund") to hold the proceeds of the settlement. The settlement payment by the Original Settling Defendants shall be made upon entry of this order and establishment of the bank account. Although the Second Settlement shall become final upon entry of this Order, it is contemplated, but not required, that the settlement payment by the Second Settlement Group will be made upon Randalls obtaining financing in an amount sufficient to establish the Settlement Fund as a result of the proposed equity investment contemplated by a transaction between Randalls and an affiliate of Kohlberg Kravis Roberts & Co. The bank account for the Settlement Fund shall be interest-bearing, with all interest paid to the Settlement Fund, subject to the terms of the last sentence of this paragraph, for the benefit of the Plaintiffs. The Settlement Fund shall be held intact until the expiration of the time for all appeals from this order. If the Second Settlement is not ultimately approved or the conditions precedent thereto are not met, the funds paid into the Settlement Fund by or on behalf


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of the Second Settlement Group, plus all interest earned thereon, shall be returned to the payor of such amount.


The court finds this to be a complicated case requiring expert knowledge and professional capabilities in matters of administration of pension funds subject to regulation by the Internal Revenue Service ("IRS") and the Department of Labor ("DOL") under ERISA, as well as requiring actuarial and accounting skill and skill in matters of account and of difficult computation of damages. Therefore, in accordance with Federal Rule of Civil Procedure 53 and the agreement of the parties, the court finds this case to be appropriate for the appointment of a master (hereinafter the "Settlement Administrator") to administer the Settlement Fund, including INTER ALIA, to make disbursements therefrom, to prepare and file tax returns, and to pay administrative expenses of the Settlement, including reasonable and necessary attorneys' fees and expenses incurred in connection with administration of the Settlement; to prepare and propose for court approval, in cooperation with Class Counsel, a Final Plan of Distribution of the cash balance of the Settlement Fund after payment of court-approved costs and expenses and a portion of the attorneys' fees (the "Net Settlement Fund"); to seek approval of the allocation methodology of the Final Plan of Distribution by the IRS, subject to ERISA and Internal Revenue Code restrictions; to distribute the cash balance of the Net Settlement Fund to present and former Plan participants in accordance with the court-approved Final Plan of


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Distribution; and to perform such other services and pay such other amounts as are reasonable and necessary in connection with the administration of the Settlement Fund.


The Settlement Administrator shall be reasonably compensated for its services in accordance with community standards for professional actuaries and fund administrators.


Class Counsel is authorized and empowered to enter into a representation agreement with the Settlement Administrator on such reasonable and customary terms as are consistent with the other provisions hereof, including specifically, but not by way of limitation, indemnification of the Settlement Administrator for any and all claims, demands and causes of action other than for gross negligence or fraud.


The Settlement Administrator shall perform the functions described above and shall make its reports to the court on a quarterly basis in connection with the administration of the Settlement Fund, including accountings of all costs and expenses of the Settlement Fund and its administration, all tax returns, the allocation and distribution of funds, and the Settlement Administrator's requests for compensation. The Settlement Administrator shall file its reports with the clerk of the court and serve them upon Class counsel and counsel for Randalls Food Markets, Inc. Additional reports shall be filed and served as necessary.


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Randalls shall pay all costs of notice to the Class, costs of court, and administrative costs of distribution of the settlement, including the costs of the court-appointed Settlement Administrator and the costs of allocating and distributing cash settlement proceeds. Except for the costs of mailing notice (which shall be paid by Randalls), Randalls' obligation in this paragraph shall not exceed $200,000. Any costs in excess of $200,000 shall be paid from the Settlement Fund and approved by the court on a quarterly basis. To the extent possible, notice to the Class shall be made in conjunction with the mailing of periodic reports of
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