EXHIBIT 10.1
MK SECURITIES LITIGATION
MEMORANDUM OF UNDERSTANDING
BETWEEN PLAINTIFFS AND MK
The Plaintiffs (as defined below) and MK (as defined below), as
parties to this Memorandum of Understanding ("MOU"), have reached an agreement
in principle as of June 5, 1995 providing for the settlement of the claims
asserted against MK in the class actions pending in the United States District
Court for the District of Idaho entitled: GARBULINSKI, ET AL. X. XXXXXXXX
XXXXXXX CORP. ET AL., Case No. 94-334; MEDELLO, ET AL. X. XXXXXXXX XXXXXXX
CORP., ET AL., Case No. 94-364, XXXXXXX, ET AL. X. XXXXXXXX XXXXXXX CORP., ET
AL., Case No. 94-373; DRASNIN, ET AL. X. XXXXXXXX XXXXXXX CORP., ET AL., Case
No. 95-066; GRUESEN, ET AL. X. XXXXXXXX XXXXXXX CORP., ET AL., Case No. 95-070;
XXXXX, ET AL. X. XXXXXXXX XXXXXXX CORP., ET AL., Case No. 95-071; and XXXXX, ET
AL. X. XXXXXXXX XXXXXXX CORP., ET AL., Case No. 95-108; all of the foregoing
having been consolidated as IN RE XXXXXXXX XXXXXXX SECURITIES LITIGATION, Case
No. 94-334 (collectively termed the "Litigation").
DEFINITIONS
A. "Class" means the proposed plaintiff settlement class in the
Litigation, as more particularly defined for purposes of the settlement in
PARA 11 below.
B. "MK" means defendant Xxxxxxxx Xxxxxxx Corporation.
C. "Individual Defendants" means defendants Xxxxxxx Xxxx, Xxxxxxx
Xxxxx, and Xxxxx Xxxxxx.
D. "D&T" means defendant Deloitte & Touche, L.L.P.
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E. "Parties" means the Plaintiffs, the Class, the Individual
Defendants and MK.
F. "Court" means the United States District Court for the District of
Idaho.
G. "Lead Counsel" means the lead counsel for Plaintiffs appointed by
order of the Court.
H. "Great American" means Great American Insurance Company.
I. "Reliance" means Reliance Insurance Company.
J. "CNA" means Continental Casualty Company.
K. "Insurers" means Great American, Reliance, and CNA, each of which
has issued a Directors and Officers Liability Insurance Policy under which
coverage has been requested by the Individual Defendants.
L. "Derivative Actions" means the various derivative actions brought
against MK and/or MK Rail as nominal defendants and the Individual Defendants
and/or others and pending before the courts of Idaho and Delaware (separately,
the "MK Derivative Actions" and the "MK Rail Derivative Actions").
M. "Plaintiffs" means the named plaintiffs, individually and as
representatives of the Class, in the Litigation.
N. "Defendants" means MK and the Individual Defendants, collectively.
O. "Final Court Approval" means that an order entered by a court of
competent jurisdiction approving the relevant settlement on terms mutually
satisfactory to the Parties and the Insurers has become final and nonappealable.
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P. "MK Rail Action" means the consolidated class actions pending
against MK, MK Rail Corp., the Individual Defendants, and others in the United
States District Court for the District of Idaho.
Q. "Bank Syndicate" means the group of financial institutions that
provides financing to MK.
R. "MK Rail" means MK Rail Corporation.
TERMS OF THE MOU
1. A settlement has been reached with respect to the claims asserted
against MK in the Litigation in the amount of $9,850,000 in cash (less the
amounts of attorneys' fees, which will not exceed $2,955,000, and costs,
including notice costs, awarded to plaintiffs' counsel in the Derivative
Actions) and 2,976,923 fully paid, non-assessable and freely tradeable shares of
MK common stock, subject to the terms and conditions of a Stipulation of
Settlement and such other documentation as may be required to evidence the
settlement and obtain prompt Court approval of the settlement (collectively, the
"Stipulation") to be negotiated in good faith among Plaintiffs, the Insurers,
and MK. Settlement of the claims asserted against MK in the Litigation is
expressly conditioned upon Final Court Approval of the settlement of the
Litigation as a whole, the settlement of the Derivative Actions, and settlement
of the MK Rail Action. Claims against D&T are not being settled or released by
this MOU.
2. Within twenty (20) business days after the signing of this MOU and
the MOUs relating to the MK Rail Action and the Derivative Actions, MK will
cause to be created and transferred to
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a joint account located in Boise, Idaho and controlled jointly by Lead Counsel
and counsel for MK appropriately legended certificates evidencing 2,976,923
shares of MK common stock. The account will be structured so that withdrawals
will require the concurrence of all counsel exercising joint control, subject to
Court oversight. Upon Final Court Approval of the settlement of the Litigation
and if no case has then been commenced by or against MK under Title 11 of the
United States Code or any similar law and no trustee, receiver, conservator or
similar custodian has been appointed for MK or its property (a "Bankruptcy
Case"), MK will take all steps necessary to cause the shares to be evidenced by
such certificates to be issued and outstanding, to be fully paid, non-
assessable, and freely tradeable shares of MK common stock, thereupon
immediately to have full rights to be voted and to receive dividends, and to be
transferred to a Settlement Account controlled by Lead Counsel (subject to Court
oversight).
3. Great American has agreed that it will pay within twenty (20)
business days after the signing of this MOU and the MOUs relating to the MK Rail
Action and the Derivative Actions, notwithstanding any commencement of a
Bankruptcy Case by or against MK, but subject to the terms and conditions of
this MOU, $9,850,000 into a joint, interest-bearing account located in Boise,
Idaho and controlled jointly by Lead Counsel, counsel for Great American, and
counsel for the plaintiffs in the MK Derivative Actions (subject to Court
oversight) (the "Joint Cash Account"). The Joint Cash Account will be
structured so that withdrawals will require the concurrence of all counsel
exercising joint control subject to Court oversight.
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4. Upon the satisfaction of the conditions set forth in subparagraphs
(a)-(c) below, (i) all funds in the Joint Cash Account provided for in PARA 3,
including all interest earned thereon but excluding all attorneys' fees (which
will not exceed $2,955,000) and costs (including notice costs) awarded to
plaintiffs' counsel in the Derivative Actions, will be transferred to a
Settlement Account controlled by Lead Counsel (subject to Court oversight); and
(ii) the remaining funds will be available to pay the attorneys' fees (which
will not exceed $2,955,000) and costs (including notice costs) awarded to
plaintiffs' counsel in the Derivative Actions. The foregoing transfer and
payments are subject to the following conditions:
(a) (i) There has been Final Court Approval of the settlements of the
Litigation, the Derivative Actions, and the MK Rail Action and (ii) all
other conditions to such settlements have been satisfied or waived, and
such settlements are being consummated contemporaneously with this
settlement; AND EITHER
(b) (i) No Bankruptcy Case has been commenced by or against MK and
(ii) MK and its Bank Syndicate have executed and delivered a debt
restructuring agreement under which (x) the final maturity date of a
material portion of the indebtedness to remain outstanding is more than one
year after the date of such execution and delivery, (y) all currently
existing defaults of MK to the Bank Syndicate are waived permanently or for
a period of more than one year from such date of execution and delivery and
(z) the Bank
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Syndicate has given all waivers and consents necessary to permit MK to
effect this settlement; OR
(c) If a Bankruptcy Case has been commenced in respect of MK, an
order has been entered by the court having jurisdiction over the Bankruptcy
Case and has become final and nonappealable that (i) approves the
settlement, (ii) authorizes MK's performance of all of its obligations in
respect of the settlement and (iii) authorizes the use of the insurance
policies to make such payments into the Settlement Account, all in form and
substance satisfactory to the Parties and the Insurers. By agreeing to
this condition none of the Plaintiffs, the Insurers, or any other Party
(except MK) concedes that the court exercising jurisdiction over the
Bankruptcy Case has any jurisdiction over, or the debtor's estate has any
interest in, the insurance policies, the insurance proceeds or the proceeds
of the settlement.
All funds in the Joint Cash Account shall be (a) used to pay
attorneys' fees (not to exceed $2,955,000) and costs (including notice costs)
awarded in the Derivative Actions, (b) paid into the Settlement Account pursuant
to this PARA 4 or (c) repaid to Great American pursuant to PARA 7. Under no
circumstances whatsoever shall any amounts in the Joint Cash Account be payable
to, or recoverable by, MK.
5. If the condition specified in PARA 4(a)(i) has been satisfied but
the condition specified in PARA 4(b) or PARA 4(c) (whichever then applies) has
not been satisfied, Plaintiffs may elect to terminate the settlement at any time
thereafter by giving written notice to the other Parties and the Insurers, in
which
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event: (a) the releases given, if any, and judgment entered in favor of
Defendants pursuant to the settlement, if any, shall be null and void and the
Parties shall return to their respective litigation positions as of June 5,
1995, with all of their respective claims and defenses preserved; and (b) the
provisions of PARA 12 shall have no force and effect. Within two (2) weeks
prior to the hearing relating to Final Court Approval of the Settlement, MK will
provide the Parties and the Insurers notice and written documentation relating
to the status of all items listed in PARA 4(b) above. If any of the conditions
specified in PARA 4(a)(i) have not occurred by a date to be specified in a
separate writing to be kept confidential and disclosed only to the Parties, the
Insurers, their counsel and the Court, Plaintiffs may elect to terminate the
settlement at any time thereafter by giving written notice to the other Parties
and the Insurers, in which event: (a) the releases given, if any, and judgment
entered in favor of defendants pursuant to the settlement, if any, shall be null
and void and the Parties shall return to their respective litigation positions
as of June 5, 1995, with all of their respective claims and defenses preserved;
and (b) the provisions of PARA 12 shall have no force and effect.
6. The Plaintiffs, CNA, and MK will enter into a separate agreement
entitling CNA and/or MK to void the settlement if the holders of a specified
number of MK shares opt out of the Class, which number will be agreed to by the
Plaintiffs, CNA, and MK and memorialized in a separate writing which shall be
kept confidential and disclosed only to the Parties, their counsel, and the
Court.
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7. In the event that this settlement or the settlement between
Plaintiffs and the Individual Defendants in this Litigation is terminated due to
the occurrence or nonoccurrence of conditions set forth in the respective MOUs,
or this settlement does not receive Final Court Approval:
(a) the certificates issued by MK provided for in PARA 2 above
will be returned to MK and cancelled;
(b) all funds then existing in the Joint Cash Account provided
for in PARA 3 shall be returned to Great American, together with all
interest earned thereon; and
(c) the Plaintiffs, the Class, the Individual Defendants and MK
shall return to their litigation positions as of June 5, 1995, with
all of their respective claims and defenses preserved.
8. The settlement will be no-recapture, I.E., it is not a claims-made
settlement. Neither MK nor Great American will have any interest in, or ability
to obtain, the funds after payment into the Settlement Account, and neither will
have any involvement in, or liability for, the allocation of settlement proceeds
or reviewing or challenging claims of members of the Class. The settlement
claims process will be administered by a Claims Administrator of Lead Counsel's
selection and will be subject to Court oversight.
9. MK will not object to a motion seeking an order of the Court that
any attorneys' fees and costs awarded to Plaintiffs' counsel by the Court shall
be paid to Plaintiffs' counsel immediately upon transfer of the funds into the
Settlement Account as provided in PARA 4. Plaintiffs' counsel who receive such
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fees agree that they, their partners and/or shareholders will be subject to the
jurisdiction of the Court for recall of any fees received. MK will not object
to the payment of an incentive award to plaintiffs of a total of $75,000 upon
application to, and approval by, the Court.
10. If, after Final Court Approval of this settlement, a Bankruptcy
Case is commenced in respect of MK and the court having jurisdiction over the
Bankruptcy Case enters an order that has become final and nonappealable
determining the payment of any funds into the Settlement Account established by
this MOU or the Settlement Account established by the separate MOU between
Plaintiffs and the Individual Defendants in the Litigation to be recoverable by
MK as a preference, voidable transfer, fraudulent transfer or similar
transaction, then Lead Counsel may elect to have the releases given and judgment
entered in favor of MK pursuant to the settlement be null and void, and
Plaintiffs, the Class and MK shall thereupon be restored to their respective
positions in the Litigation as of June 5, 1995, with all of their respective
claims and defenses preserved; provided, however, that the claims of the
Plaintiffs and the Class against MK shall be limited (without duplication of the
limits established by the separate MOU between Plaintiffs and the Individual
Defendants in the Litigation) to the product of multiplying $300,000,000 by:
(i) a fraction, the numerator of which shall be the amounts (if any) of the
proceeds of this settlement that were recovered by MK from Plaintiffs and/or the
Class, pursuant to the entry of the foregoing final order and proceedings
ancillary thereto and the denominator of which shall be $35,000,000 and
(ii) 1.2, provided
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that the resulting product shall be limited to, and never exceed, $300,000,000.
The releases given to the Insurers and the Individual Defendants shall not be
null and void or otherwise be affected by this paragraph. In the event that the
proceedings in the Bankruptcy Case result in any recovery of the proceeds of
this settlement by any of the Insurers and/or the Individual Defendants, each
Insurer and/or Individual Defendant receiving such funds agrees to repay all
amounts it recovers to a court-supervised escrow account, and the releases given
to the Insurers and the Individual Defendants shall remain in full force and
effect.
11. For settlement purposes only, the Parties will stipulate to the
certification of the Litigation as a class action on behalf of a plaintiff class
consisting of all purchasers of MK stock (excluding MK and the Individual
Defendants) who suffered harm thereby during the period of October 15, 1993
through March 31, 1995, inclusive. If the settlement is not approved or is
terminated, all rights existing prior to this MOU to urge or oppose
certification of a plaintiff class shall be preserved.
12. Upon Final Court Approval of the settlement, all claims alleged
in the Litigation against MK shall be dismissed with prejudice and without costs
to any Party. The Plaintiffs and Class shall provide appropriate releases to
the Insurers, MK, and their affiliates (including their current and former
officers, directors, employees, attorneys and agents) from any and all claims
arising out of, or in any respect having their origin in, or relating to, any
claims or facts giving rise to the claims that were or could have been asserted
by the Class in the Litigation.
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Plaintiffs' counsel will cooperate in obtaining appropriate bar orders against
claims asserted against MK, the Insurers, and/or their respective affiliates.
The entry of a bar order satisfactory to MK and the Insurers and containing
provisions for a proportionate fault finding as to any party subject to the bar
order, and, alternatively, provisions for reduction of judgment and
indemnification of the settling parties and their affiliates against claims and
claims-over shall be a condition to the settlement.
13. MK agrees to provide reasonable cooperation with respect to the
continuing prosecution of the case against D&T, including the production of
documents and making witnesses available for interview (except any employee who
is an Individual Defendant), deposition and travel; provided that this agreement
shall in no event be deemed to be a waiver of any applicable privilege or other
legal protection. Plaintiffs agree that they will make requests for cooperation
in a manner that does not unduly interfere with the business of MK (including
any pending litigation or proceedings) or the Individual Defendants.
14. None of the Plaintiffs, their attorneys, the Insurers, the
Individual Defendants, or their attorneys will issue a press release. They are,
however, free to respond to any press inquiry. While retaining its right to
deny liability, MK in any statement made to any media representative (whether or
not for attribution) will not deny that, based upon the publicly available
information at the time, the Litigation was filed in good faith and with an
adequate basis in fact to comply with Rule 11, Federal Rules of Civil Procedure,
and is being settled voluntarily after
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consultation with competent legal counsel. MK may issue a press release
announcing the settlement but may not contradict the foregoing language.
15. If Final Court Approval of the settlement is not obtained or the
settlement is terminated, this MOU shall be null, void, inadmissible in any
proceeding before any court or tribunal, and of no further force or effect
(except that the provisions of PARA 7 shall survive). In such event, neither
this MOU nor the fact of its execution shall be deemed to prejudice in any way
the positions of the Parties with respect to the claims asserted in the
Litigation, and the Parties shall be returned to their respective positions as
of June 5, 1995, with all of their respective claims and defenses preserved.
16. The effectiveness of this MOU is conditioned upon the execution
and delivery by MK, MK Rail, and the Individual Defendants to the Insurers of
agreements, in form and substance satisfactory to the Insurers, regarding
releases and related matters.
17. This MOU shall be governed by the law of the State of Delaware.
It may not be modified, except by a writing signed by all of the Parties and the
Insurers.
18. This Memorandum may be executed in separate counterparts, each of
which when so executed shall constitute an original, but all of which together
shall constitute the same instrument.
/s/ Xxxxx X. Xxxxxx, Esq. /s/ Xxxx X. Xxxxxxx XX
_____________________________ _____________________________
Xxxxx X. Xxxxxx, Esq. Xxxx X. Xxxxxxx XX
Xxxxxx & Xxxxxx X.X. Xxxxx, Day, Xxxxxx & Xxxxx
0000 Xxxxx Xxxxxx - Xxxxx 0000 000 Xxxxxxxx Xxxxxx
00
Xxxxxxx, Xxxxxxxxxx 00000 Xxxxxxxxx, Xxxx 00000
(000) 000-0000 (000) 000-0000
Dated: 9/4/95 Dated: 9/5/95
Attorney for Defendant
Xxxxxxxx Xxxxxxx Corporation
/s/ Xxxxxxx X. Xxxxx, Esq. /s/ Xxxxx X. Xxxxxxxxxx, Esq.
_____________________________ _____________________________
Xxxxxxx X. Xxxxx, Esq. Xxxxx X. Xxxxxxxxxx, Esq.
Much, Shelist, Freed, Xxxxxxxxx Xxxxxxxx & Xxxx
& Xxxxx P.C. 000 Xxxx Xxxxxxxx Xxxxx
000 Xxxxx XxXxxxx Xxxxxx - Xxxxxxx, Xxxxxxxx 00000-0000
Suite 2100 (000) 000-0000
Xxxxxxx, Xxxxxxxx 00000-0000
(000) 000-0000 Dated: 9/5/95
Dated: SEPTEMBER 5, 1995 Attorney for Great American
Insurance Company
/s/ Xxxxxxx X. Xxxxxx, Esq. /s/ Xxxxxxx X. Xxxxxxxx, Esq.
_____________________________ _____________________________
Xxxxxxx X. Xxxxxx, Esq. Xxxxxxx X. Xxxxxxxx, Esq.
Kaufman, Malchman, Xxxxx & Drinker, Xxxxxx & Xxxxx
Xxxxxx L.L.P. 000 Xxxxxxxxx Xx., X.X. -
000 Xxxxx Xxxxxx, 00xx Xxxxx Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000 Xxxxxxxxxx, X.X. 00000
Dated: 9/ /95 Dated: SEPTEMBER 5, 1995
Local Counsel for Plaintiffs Attorney for Reliance Insurance Company
/s/ Xxxxx X. Xxxxx, Esq.
_____________________________
Xxxxx X. Xxxxx, Esq.
Xxxx, Xxxxx & Masback
000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Dated: SEPT 5, 1995
Attorney for Continental
Casualty Company
