Exhibit (g)(5)
MEMORANDUM OF UNDERSTANDING
This MEMORANDUM OF UNDERSTANDING is entered into as of March
2, 1998 among the plaintiffs in the Actions (as defined herein), Illinois
Central Corporation ("IC"), the members of IC's Board of Directors (the "IC
Board"), Canadian National Railway Company ("CN") and Blackhawk Merger Sub, Inc.
("Blackhawk"), by their undersigned attorneys. Except as otherwise stated in
this Memorandum of Understanding, capitalized terms herein have the meaning
given them in the Agreement and Plan of Merger dated as of February 10, 1998
among CN, Blackhawk and IC (the "Merger Agreement").
WHEREAS, there are now pending three actions in the Court of
Chancery of the State of Delaware, styled Spinner x. Xxxxx, Del. Ch., C.A. No.
16184; Harris v. Illinois Xxxxxxx Xxxxxxxxxxx, Xxx. Xx., X.X. Xx. 00000; Xxxxx
x. Xxxxx, Del. Ch., C.A. No. 16191 (the "Delaware Actions"), and one action
pending in the Circuit Court of Xxxx County, Illinois, styled Xxxxx x. Xxxxx,
Civ. Action No. 98-01972 (the "Illinois Action" and, together with the Delaware
Actions, "the Actions"); and
WHEREAS, the Actions were filed as putative class actions on
behalf of holders of IC common stock, relating to the proposed acquisition (the
"Transaction") by CN through Blackhawk, an indirect subsidiary of CN, of IC, as
set forth in the Merger Agreement; and
WHEREAS, the Actions name as defendants IC, the members of the
IC Board, CN and Blackhawk; and
WHEREAS, the Actions seek declaratory and injunctive relief,
monetary damages and/or rescission with respect to the Transaction based upon
the allegation, inter alia, that the conduct of the members of the IC Board in
connection with the Transaction constitutes a breach of their fiduciary duties,
aided and abetted by CN and Blackhawk; and
WHEREAS, the defendants deny that they have committed or have
attempted to commit any violation of law or breach of duty, including breach of
any duty to IC stockholders, or have otherwise acted in any improper manner; and
WHEREAS, following negotiations between the parties, counsel
for the parties have reached an agreement in principle providing for the
proposed settlement of the Actions on the terms and conditions set forth below
(the "Settlement"); and
WHEREAS, counsel for the parties believe that the proposed
Settlement is in the best interests of the stockholders of IC;
NOW THEREFORE, IT IS HEREBY AGREED IN PRINCIPLE AS FOLLOWS:
1. Modification of Transaction. Upon Final Court Approval (as
such term is defined in paragraph 5 below) and the satisfaction of the other
conditions of the Settlement described herein, the terms of the Transaction will
be modified as follows:
a. The final proviso in the definition of "CN Average
Closing Price" in Section 2.02(c) of the Merger Agreement shall be
amended to read as follows:
"provided that if such average closing price is less than
$41.50 then the CN Average Closing Price shall be $41.50 and
if such average closing price is greater than $64.50 then the
CN Average Closing Price shall be $64.50."
Except as expressly provided above, the rights of CN and Blackhawk
under the Merger Agreement, including the right to convert the terms of
the Offer to an all-cash offer pursuant to the Merger Agreement, shall
not be affected.
b. CN shall agree to distribute, or cause to be
distributed, to all IC stockholders who received payment for their
shares acquired in response to the Offer or who are record holders of
IC common stock at the Effective Time of the Merger their pro rata
share of an aggregate amount equal to one-third of any "Net Profits"
realized upon any disposition of IC shares by or out of the Voting
Trust in the event that the Surface Transportation Board of the United
States issues written notice disapproving the acquisition of control of
IC by CN, or advises CN of such a determination or imposes unacceptable
conditions upon such acquisition of control. The definition of the term
"Net Profits" is subject to definitive documentation, but such
definition shall provide, at a minimum, that "Net Profits" shall mean
the proceeds of a qualifying disposition of the IC shares after
deducting (i) the costs of such disposition (including fees of
attorneys, financial advisors, accountants and consultants, and
expenses for printing, mailing, etc.), (ii) the costs of carry between
the acquisition and disposition of such shares, (iii) the costs of
acquisition of such IC shares (including fees of attorneys, financial
advisors, accountants and consultants, and expenses for printing,
mailing, etc.) and (iv) taxes incurred by CN, Blackhawk, IC, any of
their respective affiliates or the Voting Trust in connection with the
ownership, acquisition and disposition of such shares.
2. Additional Disclosure by IC. As a result of discussions
among the parties, and although IC maintains that it is not legally required to
do so, IC agrees that it will promptly amend the Schedule 14D-9 dated February
13, 1998 to provide further disclosure regarding the analyses performed by its
financial advisors concerning the fairness of the Transaction to IC
stockholders, and will use its reasonable best efforts to mail such amendment to
IC stockholders as soon as practicable.
3. Dismissal of the Illinois Action. As soon as practicable
after the execution of this Memorandum of Understanding, counsel to plaintiff in
the Illinois Action shall obtain the dismissal of the Illinois Action. The
parties will cooperate in the preparation and filing of the appropriate
documentation required to obtain the dismissal of the Illinois Action.
Plaintiff's counsel in the Illinois Action agrees that the defendants' time to
answer or otherwise move in response to the complaint in that action is extended
without date and that counsel shall prepare, execute and submit such
documentation as shall be necessary to implement this agreement.
4. Stipulation in Delaware Actions. The parties to the
Delaware Actions will attempt in good faith to agree upon and execute an
appropriate Stipulation of Settlement (the "Stipulation") and such other
documentation as may be required in order to obtain Final Court Approval (as
defined in paragraph 5) of the Settlement and the dismissal of the Delaware
Actions upon the terms set forth in this Memorandum of Understanding
(collectively, the "Settlement Documents"). The Stipulation will expressly
provide, inter alia, for certification of a non-opt out settlement class
pursuant to Delaware Court of Chancery Rules 23(b)(1) and (b)(2) of IC
stockholders from February 5, 1998 through and including the later of (a) the
date of Final Court Approval or (b) the Effective Time (the "Class"); for entry
of a judgment dismissing the Delaware Actions "with prejudice"; for a complete
release and settlement of all claims, whether asserted directly, derivatively or
otherwise, against defendants and their predecessors, successors, parents,
subsidiaries, affiliates and agents (including, without limitation, any
investment bankers or attorneys and any past, present or future officers,
directors or employees of defendants and their predecessors, successors,
parents, subsidiaries, affiliates and agents) which have been, or could have
been, asserted relating to the Transaction, the actions of CN, Blackhawk, IC and
the IC Board of Directors (including each member of the IC Board of Directors)
relating to the Transaction, the related disclosure materials (including the
Offer to Purchase, the Schedule 14D-1, the Schedule 14D-9 and any proxy
statement, consent statement or prospectus), disclosures, facts and allegations
that are or could (insofar as such transactions, disclosures, facts and
allegations relate to, or occurred in connection with, the subject matter of the
Actions) be the subject of the Actions; that defendants have denied and continue
to deny that they have committed or attempted to commit any violations of law or
breaches of duty of any kind; that defendants are entering into the Stipulation
solely because the proposed Settlement as described above would eliminate the
burden, risk and expense of further litigation, and is in the best interests of
IC and all its stockholders; and that any of the defendants shall have the right
to withdraw from the proposed Settlement in the event that (x) the Illinois
Action shall not have been dismissed on terms satisfactory to such defendant or
(y) any claims related to the Transaction or the subject matter of the Actions
(whether direct, derivative or otherwise) are commenced against any person in
any court prior to Final Court Approval of the Settlement, and such claims are
not dismissed or stayed in contemplation of dismissal. The parties agree to use
their good faith efforts to obtain the dismissal or stay in contemplation of
dismissal of any action covered by the foregoing subparagraph 4(y) and further
agree that the defendants shall have the right to withdraw from this Memorandum
of Understanding if such efforts do not result in the dismissal or stay in
contemplation of dismissal of such an action.
5. Notice and Court Approval. Subject to prior Court approval
of the Stipulation and the form of the Settlement Documents, the parties to the
respective Delaware Actions will present the Settlement Documents to the
Delaware Court of Chancery for approval as soon as practicable following
appropriate notice of the proposed Settlement to the IC stockholders as to all
claims asserted in the Actions as against the named plaintiffs and the
stockholders of IC on whose behalf the Actions were brought, with no right to
opt-out of the Settlement and without costs to any party except as provided
herein. IC shall pay the costs and expenses related to providing notice of the
Settlement to the IC stockholders. As used herein, "Final Court Approval" of the
Settlement means that the Delaware Court of Chancery has entered an order
approving the Settlement and that such order is finally affirmed on appeal or is
no longer subject to appeal and the time for any petition for reargument, appeal
or review, by certiorari or otherwise, has expired. Plaintiffs' counsel intend
to apply to the Delaware Court of Chancery for an award of attorneys' fees and
reasonable out-of-pocket disbursements. Subject to the terms and conditions of
this Memorandum of Understanding and the contemplated Stipulation of Settlement,
plaintiffs' counsel will apply for an award of fees in an amount not exceeding
$925,000 and expenses in an amount not exceeding $25,000, which the defendants
and other releasees will not oppose, to be paid by IC.
6. Other Conditions. The consummation of the Settlement is
subject to: (a) 50.1% of the outstanding shares of the IC common stock on a
fully diluted basis having been acquired by CN and placed into the Voting Trust;
(b) the drafting and execution of the Settlement Documents and the other
agreements necessary to effectuate the terms of the proposed Settlement; (c) the
completion by plaintiffs of appropriate discovery in the Actions reasonably
satisfactory to plaintiffs' counsel; and (d) Final Court Approval (as defined in
paragraph 5 above) of the Settlement and dismissal of the Actions with prejudice
and without awarding costs to any party, except as provided herein. This
Memorandum of Understanding shall be null and void and of no force and effect if
(i) any of these conditions are not met or (ii) plaintiffs' counsel in the
Actions determine that the Settlement is not fair and reasonable. In such event,
this Memorandum of Understanding shall not be deemed to prejudice in any way the
positions of the parties with respect to the Actions, shall be subject to Rule
408 of the Delaware Rules of Evidence, and shall not entitle any party to
recover any costs or expenses incurred in connection with the implementation of
this Memorandum of Understanding.
7. Interim Stay of the Delaware Actions. The parties to the
Delaware Actions agree that except as expressly provided herein, each of the
Delaware Actions shall be stayed pending submission of the proposed Settlement
to the Court for its consideration. Plaintiffs' counsel in each of the Delaware
Actions agrees that the defendants' time to answer or otherwise move with
respect to the complaints in each of those actions is extended without date.
Counsel shall enter into such documentation as shall be required to effectuate
the foregoing agreements.
8. Miscellaneous. (a) This Memorandum of Understanding may be
executed in counterparts by any of the signatories hereto and as so executed
shall constitute one agreement; (b) this Memorandum of Understanding and the
Settlement contemplated by it shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to that State's rules
concerning conflict of laws; (c) this Memorandum of Understanding shall be
binding upon and inure to the benefit of the parties and their respective
agents, executors, heirs, successors and assigns, subject to the conditions set
forth herein; and (d) plaintiffs and their counsel represent and warrant that
none of the claims or causes of action asserted in the Actions have been
assigned, encumbered or in any manner transferred, in whole or in part.
XXXXXXXXX XXXXXXXX & LIFSHITZ
By: /s/ Xxxxxxx Xxxxxxxxx
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000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
CHIMICLES, XXXXXXXX & TIKELLIS
By: /s/ Xxxxx X. Xxxxx
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Xxx Xxxxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxxxxx, XX 00000
(000) 000-0000
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /s/ Xxxxxx Xxxxxxxxx
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Suite 1401, Mellon Bank Center
X.X. Xxx 0000
Xxxxxxxxxx, XX 00000-0000
(000) 000-0000
LAW OFFICES OF XXXX XXXXXXX
By: /s/ Xxxx Xxxxxxx
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000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
LAW OFFICES OF XXXXXXXX XXXXXXX
By: /s/ Xxxxxxxx Xxxxxxx
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000 X. XxXxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
(000) 000-0000
XXXXXXX XXXXXXX & XXXXXXXX
By: /s/ Xxxxx X. Xxxx
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000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
XXXXX XXXX & XXXXXXXX
By: /s/ Xxxxxx X. Xxxxxx
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000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
