EXHIBIT 10.6
Revised Final Execution Copy
MK RAIL DERIVATIVE LITIGATION
MEMORANDUM OF UNDERSTANDING
The Parties (as defined below) to this Memorandum of Understanding ("MOU")
have reached an agreement in principle providing for the settlement of the
pending derivative case in Idaho, entitled WOHLGELERNTER ▇. ▇▇▇▇, ET AL., C.V.
9500656, Idaho District Court as to MK Rail and the Individual Defendants.
WOHLGELERNTER is a shareholder action brought derivatively in the name of and
for the benefit of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Corporation ("MK") and double derivatively
in the name of and for the benefit of MK Rail Corporation ("MK Rail"). This MOU
only addresses the double derivative action on behalf of MK Rail. The
settlement of the WOHLGELERNTER derivative action on behalf of MK is addressed
in the MOU concerning the Idaho derivative cases and the Delaware derivative
cases.
DEFINITIONS
A. "MK" means ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Corporation.
B. "MK Rail" means MK Rail Corporation.
C. "Individual Defendants" means ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇., ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
D. "Parties" means the MK Rail Derivative Plaintiff, MK Rail and the
Individual Defendants.
E. "Idaho Court" means the District Court, Ada County, Idaho.
F. "Great American" means Great American Insurance Company.
G. "Reliance" means Reliance Insurance Company.
H. "CNA" means Continental Casualty Company.
I. "Fidelity" means The Fidelity and Casualty Company of New York.
J. "Insurers" means Great American, Reliance, Fidelity, and CNA, each of
which has issued a directors and officers liability insurance policy
under which coverage has been requested by the Individual Defendants.
K. "Securities Actions" means the cases consolidated before the United
States District Court for the District of Idaho in IN RE: ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ SECURITIES LITIGATION, Case No. 94-334 (the "MK Securities
Actions") together with ▇▇▇▇▇▇ V. MK RAIL CORP., ET AL., Case No. 94-
478; and SUSSER V. MK RAIL, ET AL., Case No. 94-477 (the "MK Rail
Securities Actions").
L. "MK Rail Derivative Plaintiff" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇.
M. "MK Rail Derivative Counsel" means the individual and firm set forth
on Exhibit A.
N. "Defendants" means MK Rail and the Individual Defendants.
O. "Idaho Derivative Cases" means: ▇▇▇▇▇▇▇, ET AL. V. MK, ET AL., Case
No. C9500605; ▇▇▇▇▇ ▇. ▇▇▇▇, ET AL., Case No. C9500765; ▇▇▇▇▇▇▇ ▇.
▇▇▇▇, ET AL., Case No. C9500745; WOHLGELERNTER ▇. ▇▇▇▇, ET AL., Case
No. 9500656.
P. "Delaware Derivative Cases" means: ANTONICELLO ▇. ▇▇▇▇, ET AL., No.
14182; ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ET AL., No. 14033; CITRON ▇. ▇▇▇▇, ET AL.,
No. 14136; ▇▇▇▇▇ ▇. ▇▇▇▇, ET AL., No. 14034, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ET
AL., No. 14042; ▇▇▇▇▇▇ ▇. ▇▇▇▇, ET AL., No. 14106; ▇▇▇▇▇ ▇. ▇▇▇▇, ET
AL., No. 14032; ▇▇▇▇ ▇. ▇▇▇▇, ET AL., No. 14167.
Q. "MK Derivative Actions" means the Idaho Derivative Cases and the
Delaware Derivative Cases brought derivatively on behalf of MK.
R. "MK Rail Derivative Action" means WOHLGELERNTER ▇. ▇▇▇▇, Case No. CV
95000656, brought double derivatively on behalf of MK Rail.
(Collectively, the MK Rail Derivative Action and the MK Derivative
Actions are referred to as the "Derivative Actions").
S. "Final Court Approval" means that an order entered by a court of
competent jurisdiction approving the settlement on terms mutually
satisfactory to the Parties and the Insurers has become final and non-
appealable.
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T. "Effective Date" means the date when the following has occurred: (1)
Final Court Approval and (2) satisfaction of all conditions set forth
in this MOU.
U. "Derivative Cash Account" means the account set up in Boise, Idaho,
pursuant to paragraph 3 of the Memorandum of Understanding in the MK
Derivative Actions.
CLAIMS AND BENEFITS OF SETTLEMENT
MK Rail Derivative Counsel and the MK Rail Derivative Plaintiff believe
that the claims asserted in the MK Rail Derivative Action have merit and that
the evidence developed to date supports the claims asserted. The Individual
Defendants and their counsel believe that the claims are without merit,
strenuously deny any liability whatsoever and believe that they have serious
meritorious defenses to the claims made by the MK Rail Derivative Plaintiff.
The MK Rail Derivative Plaintiff and MK Rail Derivative Counsel recognize and
acknowledge the expense and length of continued proceedings necessary to
prosecute the MK Rail Derivative Action against the Defendants through trial and
through appeals. The MK Rail Derivative Plaintiff and MK Rail Derivative
Counsel also have taken into account the uncertain outcome and the risk of any
litigation, especially in complex actions such as the MK Rail Derivative Action,
as well as the difficulties and delays inherent in such litigation and the
likelihood of protracted appellate review. The MK Rail Derivative Plaintiff and
MK Rail Derivative Counsel also are mindful of the inherent problems of proof
and the defenses Defendants have asserted and can assert to the claims asserted
in the MK Rail Derivative Action. As a consequence of the foregoing
investigation and analyses, MK Rail Derivative Counsel have engaged in intensive
arms-length negotiations with counsel for the Defendants with a view toward
achieving the substantial benefits provided by the settlement on the terms as
set forth in this MOU. MK Rail Derivative Counsel and the MK
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Rail Derivative Plaintiff believe that the settlement set forth in this MOU
confers substantial benefits upon MK Rail. Based on their respective
evaluations, the MK Rail Derivative Plaintiff and MK Rail Derivative Counsel
have determined that the settlement set forth in this MOU is fair, reasonable
and adequate, and in the best interests of the MK Rail Derivative Plaintiff, the
current holders of MK Rail common stock and MK Rail.
MK Rail, after having given extensive consideration to all of the
foregoing, has determined independently that the settlement of the WOHLGELERNTER
litigation as to MK Rail on the terms and conditions reflected herein is fair,
reasonable and adequate to MK Rail.
TERMS
1. A settlement has been reached with respect to the claims asserted
against the Individual Defendants and nominal defendant MK Rail in the MK Rail
Derivative Action for the consideration set forth in Paragraphs 5 and 6 of this
MOU, subject to the terms and conditions of a Stipulation of Settlement and
other documentation as may be required to evidence and obtain prompt court
approval of the settlement (collectively the "Stipulation") to be negotiated in
good faith among the Parties and the Insurers.
2. The Parties and the Insurers will act in good faith to complete a
Stipulation. The Parties shall present the Stipulation to the Idaho Court for
hearing and approval as soon as practicable and will use their best efforts to
obtain Final Court Approval of the settlement.
3. MK Rail Derivative Counsel have agreed to request a total of no more
than $250,000 in fees and expenses (excluding costs of notice to the MK Rail
shareholders) in the MK Rail Derivative Action. Fidelity shall not be required
to pay any monies other than
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those which it is obligated to pay under the terms of the MOUs in the MK Rail
Securities Actions. MK Rail Derivative Counsel will not seek payment of fees or
expenses from the Defendants, except that if the MK Rail Securities Actions do
not receive Final Court Approval, MK Rail will pay to the MK Rail Derivative
Counsel such portion of the $250,000 in fees and expenses referred to above as
are awarded to MK Rail Derivative Counsel by the Idaho Court. MK Rail
Derivative Counsel will not seek payment of fees or costs from any other
Insurers. MK Rail will bear the costs of notice to the MK Rail shareholders
regarding the settlement of this double derivative action on behalf of MK Rail,
if any, required under Idaho law. MK Rail Derivative Counsel and MK Rail agree
that they will work together regarding notice issues in order to minimize notice
costs.
4. The completion of this settlement is conditioned upon Final Court
Approval of the settlement of the MK Rail Securities Actions.
5. MK Rail has agreed that on or before the Effective Date, MK Rail will
adopt the following procedures:
a. For three years following Final Court Approval of this MOU, all
meetings of the Board of Directors of MK Rail shall be held at MK
Rail's headquarters in Pittsburgh, Pennsylvania, or at a location
where there are significant MK Rail facilities. Thereafter, in
setting the location for all meetings of the MK Rail Board of
Directors, there shall be a presumption that the proper location
for such meetings is at MK Rail's headquarters in Pittsburgh,
Pennsylvania or at a location where there are significant MK Rail
facilities. In the event of a material reason to use a facility
other than those described above, MK Rail may
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schedule Board of Director meetings in such other places as a
majority of the MK Rail Board of Directors shall approve.
b. In setting the location for each annual meeting of the
stockholders of MK Rail in the years 1995, 1996 and 1997, there
shall be a presumption that the proper location for such meeting
is Pittsburgh, Pennsylvania.
c. The annual meeting of stockholders in 1996 will be held within
the time period provided under Delaware law.
d. Unless the stockholders determine otherwise, the majority of the
MK Rail Board of Directors will be comprised of persons who are
not employees of MK or MK Rail. Disclosure must be made in any
proxy statement provided to MK Rail stockholders, the annual
report to stockholders and Form 10-K, of any common membership of
any board member or members of their immediate families as
officers or members of any governing board of any for-profit or
not-for-profit organization, excluding churches or religious
affiliations, but including common membership on the board or
governing body of an organization or entity with a religious
affiliation.
e. No payments to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ shall be made by MK Rail or its
subsidiaries.
f. No senior level executive compensation shall be paid by MK Rail
unless approved or authorized by a compensation committee of the
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MK Rail Board of Directors constituted solely of outside
directors of MK Rail.
g. At each regularly-scheduled MK Rail Board of Directors meeting,
MK Rail's chief financial officer or his designee shall provide a
report as to MK Rail's financial condition and prospects,
including but not limited to a discussion of all reasons for
material increases in expenses and liabilities, if any, and
decreases in revenues and earnings, if any; management's plans
for ameliorating or reversing such negative trends and the
success or failure of any such plans presented in the past.
h. In the event stockholder approval is required for implementation
of any provision of this MOU, MK Rail agrees that it will prepare
resolutions proposing such provisions for inclusion in the proxy
statement preceding the next annual meeting following Final Court
Approval and shall recommend stockholder approval of such
resolutions.
6. The parties further acknowledge that four and one half million dollars
in the reduction of the intercompany debt owed by MK Rail to MK is attributable
to the settlement of the Derivative Actions and the Securities Actions on the
terms as reflected in the collective memoranda of understanding.
7. Upon Final Court Approval of the settlement, all claims arising out
of, or in any respect having their origin in, or relating to, any claim or facts
giving rise to claims that were or could have been alleged or asserted in the MK
Rail Derivative Action shall be dismissed with prejudice and without cost to any
Party. The releases given and obtained by
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the Parties and Insurers pursuant to the implementation of this MOU are given
and obtained in consideration of the promises, covenants and benefits reflected
herein and in consideration of the promises, covenants and benefits reflected in
the MK Rail Securities Actions' MOUs. The MK Rail Derivative Plaintiff, MK
Rail, the Individual Defendants and the Insurers shall provide mutual releases
as appropriate (none of the Individual Defendants waive their rights, if any, to
indemnification from MK Rail) to MK Rail, the Individual Defendants, the
Insurers and their respective affiliates, (including MK Rail's and the Insurer's
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,
and/or relating to, any claims or facts giving rise to the claims that were or
could have been asserted in the MK Rail Derivative Action. The MK Rail
Derivative Plaintiff and MK Rail Derivative Counsel will cooperate in obtaining
appropriate bar orders against claims asserted against MK Rail, the Individual
Defendants and the Insurers and their respective affiliates. The entry of a bar
order satisfactory to MK Rail, the Individual Defendants 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 or
indemnification of settling parties and their affiliates against claims over
shall be a condition of the settlement.
8. MK Rail will cooperate to complete confirmatory discovery as
necessary.
9. Counsel for all Parties shall cooperate in good faith in presenting
motions seeking Final Court Approval of the settlement.
10. This document may be executed in counterparts, each of which when so
executed, shall constitute an original, but all of which together shall
constitute the same instrument.
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11. This MOU shall be inadmissible in any proceeding before any court or
tribunal except to enforce its provision. If the settlement contemplated by
this MOU is not approved or is terminated, the Parties shall be returned to
their respective positions as of June 5, 1995, and neither this MOU nor the fact
of its execution shall be admissible in any proceeding or action or deemed to
prejudice in any way the positions of the Parties with respect to the claims and
defenses asserted in the MK Rail Derivative Action.
12. 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.
13. This MOU is subject to the execution and delivery by MK Rail, the
Individual Defendants and the Insurers of agreements, in form and substance
satisfactory to the Insurers, MK Rail and the Individual Defendants, regarding
releases and related matters.
/s/ ▇▇▇▇▇ ▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
______________________________ _________________________________
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Attorney for Plaintiff ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Keevican & ▇▇▇▇▇
Attorney for Nominal Defendant
MK Rail Corporation
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
_________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Attorney for Defendant ▇▇▇▇▇▇▇
▇. ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇
Attorney for Defendant ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
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/s/ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
_________________________________
▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇
Attorney for Defendant ▇▇▇▇▇
▇.▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
_________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ Ltd.
Attorney for Defendants ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇.▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇., ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇, Slate,
▇▇▇▇▇▇▇ & ▇▇▇▇
Attorney for Defendants ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
_________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
Attorney for Defendant, ▇▇▇▇ ▇.
▇▇▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇, Esquire
_________________________________
▇▇▇ ▇▇▇▇, Esquire
▇▇▇▇▇ & ▇▇▇▇▇▇
Attorney for Fidelity and Casualty
Company
10
/s/ ▇▇▇▇▇ ▇▇▇▇▇, Esquire
_________________________________
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.P.
Attorney for Continental Casualty
Company
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Esquire
_________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇
Attorney for Great American
Insurance Company
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esquire
_________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇
Attorney for Reliance Insurance
Company
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EXHIBIT A
PLAINTIFF'S COUNSEL IN MK RAIL DERIVATIVE CASE
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
12
