EXHIBIT 10.4
MK Rail Securities Litigation
Memorandum Of Understanding Among Plaintiffs,
the Underwriter Defendants, MK Rail, And MK
The Plaintiffs (as defined below), the Underwriter Defendants, MK Rail
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, MK Rail, and the Underwriter
Defendants in the class actions pending in the United States District Court for
the District of Idaho entitled: XXXXXX, ET AL. V. MK RAIL CORPORATION, ET AL.,
Case No 94-478; and XXXXXX ET AL. V. MK RAIL CORPORATION, ET AL., Case No. 94-
477, which actions have been consolidated and are herein 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 8 below.
B. "MK" means defendant Xxxxxxxx Xxxxxxx Corporation.
C. "MK Rail" means defendant MK Rail Corporation.
D. "Individual Defendants" means defendants Xxxxxxx Xxxx, Xxxxxxx
Xxxxx, Xxxxx Xxxxxx, Xxxxxxx Xxxxxxx, and Xxxxxxx Xxxxxxxxxx.
E. "Underwriter Defendants" means defendants Xxxxxx Xxxxxxx, Inc.
and C.S. First Boston Corp., as well as the several U.S. and international
underwriters identified in schedules I and II to the Underwriting Agreement
dated April 26, 1994.
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F. "Parties" means the Plaintiffs, the Class, MK Rail, the Individual
Defendants, the Underwriter Defendants, and MK.
G. "Court" means the United States District Court for the District of
Idaho.
X. "Lead Counsel" means the lead counsel for Plaintiffs appointed by
order of the Court.
I. "Fidelity" means The Fidelity and Casualty Company of New York,
which has issued a Director's and Officer's Liability Insurance Policy, under
which coverage has been requested by the Individual Defendants.
J. "Great American" means Great American Insurance Company, which has
issued a Director's and Officer's Liability Insurance Policy, under which
coverage has been requested by the Individual Defendants.
K. "Reliance" means Reliance Insurance Company, which has issued a
Director's and Officer's Liability Insurance Policy, under which coverage has
been requested by the Individual Defendants.
L. "CNA" means Continental Casualty Company, which has issued a
Director's and Officer's Liability Insurance Policy, under which coverage has
been requested by the Individual Defendants.
M. "Insurers" means Great American, Reliance, Fidelity and CNA.
N. "MK Actions" mean the consolidated class actions against MK and
certain of the Individual Defendants pending before the United States District
Court for the District of Idaho.
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O. "MK Rail Derivative Action" means the double derivative action
brought against MK Rail as a nominal defendant and the Individual Defendants
and/or others and pending before the court of Idaho and captioned WOHLGELERNTER
X. XXXX, ET AL., CV 0500656.
P. "MK Derivative Actions" means the derivative actions brought
against MK as a nominal defendant and the Individual Defendants and/or others
and pending before the courts of Idaho and captioned: WOHLGELERNTER X. XXXX, ET
AL.; XXXXXXX, ET AL. V. MK, ET AL.; XXXXX X. XXXX, ET AL.; and XXXXXXX X. XXXX,
ET AL.; as well as the derivative actions brought against MK as a nominal
defendant and the Individual Defendants and/or others and pending before the
courts of Delaware and captioned: ANTONICELLO X. XXXX, ET AL.; XXXXXXX X. XXXX,
ET AL.; CITRON X. XXXX, ET AL.; XXXXX X. XXXX, ET AL.; XXXXXXXXXXXX X. XXXX, ET
AL.; XXXXXX X. XXXX, ET AL.; XXXXX X. XXXX, ET AL.; XXXX X. XXXX, ET AL.
Q. "Plaintiffs" means the named Plaintiffs, individually and as
representatives of the Class, in the Litigation.
R. "Defendants" means MK, MK Rail, the Underwriter Defendants, and
the Individual Defendants, collectively.
S. "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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TERMS OF THE MOU
1. A settlement has been reached with respect to the claims asserted
against MK Rail, the Underwriter Defendants, and MK in the Litigation in the
amount of 413,793 shares of fully paid, non-assessable, and freely tradeable
shares of MK Rail common stock and 869,231 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, MK Rail, the Underwriter Defendants, the Insurers and MK.
Settlement of the Litigation is expressly conditioned upon Final Court Approval
of the settlement of the Litigation as a whole and the settlement of the MK Rail
Derivative Action.
2. Within twenty (20) business days after the signing of this MOU,
the MOU between the Plaintiffs and the Individual Defendants in the Litigation,
and the MOUs relating to the MK Action and the MK Derivative Actions, and the MK
Rail Derivative Action, MK Rail will cause to be created and transferred to a
joint account located in Boise, Idaho and controlled jointly by Lead Counsel and
counsel for MK Rail, appropriately legended certificates evidencing 413,793
shares of MK Rail common stock, and MK will cause to be created and transferred
to a separate joint account located in Boise, Idaho and controlled jointly by
Lead Counsel and counsel for MK appropriately legended certificates evidencing
869,231 shares of MK common stock. The joint accounts will be structured so
that withdrawals or
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transfers 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 (a "Bankruptcy Case"), MK will
take all steps necessary to cause the shares to be evidenced by the certificates
provided for above 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). Upon Final Court Approval of the settlement and if no Bankruptcy
Case has been filed by or against MK Rail, MK Rail will take all steps necessary
to cause the shares to be evidenced by the certificates provided for above to be
issued and outstanding, to be fully paid, non-assessable, and freely tradeable
shares of MK Rail 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). If, prior to the time
that MK Rail causes fully paid, non-assessable, and freely tradeable shares of
MK Rail common stock to be issued and transferred to the Settlement Account, the
shares of MK Rail common stock cease to be publicly traded because of a merger
or acquisition of MK Rail, MK Rail agrees that it will pay into the Settlement
Account, in place of the 413,793 shares of MK Rail common stock evidenced by the
MK Rail certificates referred to above, 413,793 times the per-share
consideration paid to the former public stockholders of
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MK Rail in the merger or acquisition. If, prior to the time that MK causes the
fully paid, non-assessable, and freely tradeable shares of MK common stock to be
issued and transferred to the Settlement Account, the shares of MK common stock
cease to be publicly traded because of a merger or acquisition of MK, MK agrees
that it will pay into the Settlement Account, in place of the 869,231 shares of
MK common stock evidenced by the certificates referred to above, 869,231 times
the per-share consideration paid to the former public stockholders of MK in the
merger or acquisition.
3. The settlement will be no-recapture, I.E., it is not a claims-made
settlement. None of MK Rail, the Underwriter Defendants, or MK will have any
interest in, or ability to obtain, the shares in the Settlement Account
following Final Court Approval, and none will have any involvement in, or
liability for, the allocation of the 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.
4. Plaintiffs, MK, MK Rail, Fidelity and CNA will enter into a
separate agreement entitling MK and/or MK Rail and/or Fidelity and/or CNA to
void the settlement if the holders of a specified number of MK Rail shares opt
out of the Class, which number will be agreed to by the Plaintiffs, MK, MK Rail,
Fidelity and CNA, 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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5. In the event that this settlement or the settlement between
Plaintiffs and the Individual Defendants in the Litigation is terminated due to
the occurrence or nonoccurrence of conditions set forth in the respective MOUs
relating to the Litigation, or if the right provided for in PARA 4 is exercised,
or the settlement does not receive Final Court Approval:
(a) the certificates issued by MK Rail will be returned to MK
Rail and cancelled and the certificates issued by MK will be returned
to MK and cancelled; and
(b) the Plaintiffs, the Class, the Underwriter Defendants, MK,
and MK Rail shall return to their respective litigation positions as
of June 5, 1995, with all of their respective claims and defenses
preserved.
6. In the event that the shares of MK Rail common stock herein
provided for are not issued and transferred to the Settlement Account because of
termination of this settlement or a failure of the conditions to issuance and
transfer, the settlement is void, and Plaintiffs, MK, MK Rail, and the
Underwriter Defendants shall return to their litigation positions as of June 5,
1995, with all of their respective claims and defenses preserved, but the
settlement between Plaintiffs and the Individual Defendants shall not be
affected.
7. In the event that the shares of MK common stock herein provided
for are not issued and transferred to the Settlement Account, because a
Bankruptcy Case has been commenced by, or against, MK, the settlement herein
provided for shall nonetheless be fully effective.
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8. 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 Rail stock (excluding MK Rail, MK, the
Underwriter Defendants, and the Individual Defendants) who suffered harm thereby
during the period of April 26, 1994 through April 25, 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.
9. Upon Final Court Approval of the settlement, all claims alleged in
the Litigation against MK Rail, MK, and the Underwriter Defendants shall be
dismissed with prejudice and without costs to any Party. The releases given and
obtained by 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 Derivative Action MOU. The Plaintiffs and Class shall
provide appropriate releases to MK, MK Rail, the Insurers, the Underwriter
Defendants, and their respective 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. Plaintiffs' counsel will cooperate in obtaining
appropriate bar orders against claims asserted against MK Rail, MK, the
Underwriter Defendants, the Insurers and/or their respective affiliates. The
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entry of a bar order satisfactory to MK Rail, MK, the Underwriter 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 and indemnification of the settling parties and their affiliates
against claims and claims-over shall be a condition to the settlement. The
Defendants shall exchange appropriate mutual releases.
10. 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 their right to
deny liability, MK, the Underwriter Defendants, and MK Rail, 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 by the
Defendants after consultation with competent legal counsel. MK, the Underwriter
Defendants, and MK Rail may issue press releases announcing the settlement but
may not contradict the foregoing language.
11. 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 5 shall survive). In such event, neither
this MOU nor the fact of its execution shall be deemed to prejudice in
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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 litigation
positions as of June 5, 1995, with all of their respective claims and defenses
preserved.
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 hereto.
13. 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.
14. The effectiveness of this MOU is conditioned upon the execution
and delivery to the Insurers by MK, MK Rail, and the Individual Defendants of
agreements, in form and substance satisfactory to the Insurers, regarding
releases and related matters.
Dated: 9/6/95
/s/ Xxxxx X. Xxxxxx
______________________________ ______________________________
Xxxxx X. Xxxxxx Xxxxxxxx Xxxxxx Xxxxxx
Xxxxxx & Xxxxxx X.X. Doepken, Keevican & Xxxxx
0000 Xxxxx Xxxxxx-Xxxxx 0000 XXX Xxxxx-00xx Xxxxx
Xxxxxxx, XX 00000 000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attorney for MK Rail Corporation
______________________________ ______________________________
Xxxx X. Xxxxxxxxxx Xxxxxx Xxxxx-Xxxx
Xxxxxxx, Xxxxx, Xxxxxxx, Xxxxx Xxxxx, Day, Xxxxxx & Xxxxx
& Xxxxxx 0000 X Xxxxxx, X.X.
000 Xxxxxx Xxxxxx-00xx Xxxxx Xxxxxxxxxx, XX 00000
Xxx Xxxxxxxxx, XX 94108
Attorney for Xxxxxxxx Xxxxxxx
Corporation
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Dated: 9/5/95
______________________________ ______________________________
Xxxxx X. Xxxxxx Xxxxxxxx Xxxxxx Xxxxxx
Xxxxxx & Xxxxxx X.X. Doepken, Keevican & Xxxxx
0000 Xxxxx Xxxxxx-Xxxxx 0000 XXX Xxxxx-00xx Xxxxx
Xxxxxxx, XX 00000 000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attorney for MK Rail Corporation
/s/ Xxxx X. Xxxxxxxxxx
______________________________ ______________________________
Xxxx X. Xxxxxxxxxx Xxxxxx Xxxxx-Xxxx
Xxxxxxx, Xxxxx, Xxxxxxx, Xxxxx Xxxxx, Day, Xxxxxx & Xxxxx
& Xxxxxx 0000 X Xxxxxx, X.X.
000 Xxxxxx Xxxxxx-00xx Xxxxx Xxxxxxxxxx, XX 00000
Xxx Xxxxxxxxx, XX 00000
Attorney for Xxxxxxxx Xxxxxxx
Corporation
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Dated: 9/5/95
/s/ Xxxxxxxx Xxxxxx Xxxxxx
______________________________ ______________________________
Xxxxx X. Xxxxxx Xxxxxxxx Xxxxxx Xxxxxx
Xxxxxx & Xxxxxx X.X. Doepken, Keevican & Xxxxx
0000 Xxxxx Xxxxxx-Xxxxx 0000 XXX Xxxxx-00xx Xxxxx
Xxxxxxx, XX 00000 000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attorney for MK Rail Corporation
______________________________ ______________________________
Xxxx X. Xxxxxxxxxx Xxxxxx Xxxxx-Xxxx
Xxxxxxx, Xxxxx, Xxxxxxx, Xxxxx Xxxxx, Day, Xxxxxx & Xxxxx
& Xxxxxx 0000 X Xxxxxx, X.X.
000 Xxxxxx Xxxxxx-00xx Xxxxx Xxxxxxxxxx, XX 00000
Xxx Xxxxxxxxx, XX 94108
Attorney for Xxxxxxxx Xxxxxxx
Corporation
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Dated: Sept. 5, 1995
______________________________ ______________________________
Xxxxx X. Xxxxxx Xxxxxxxx Xxxxxx Xxxxxx
Xxxxxx & Xxxxxx X.X. Doepken, Keevican & Xxxxx
0000 Xxxxx Xxxxxx-Xxxxx 0000 XXX Xxxxx-00xx Xxxxx
Xxxxxxx, XX 00000 000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attorney for MK Rail Corporation
/s/ Xxxxxx Xxxxx-Xxxx
______________________________ ______________________________
Xxxx X. Xxxxxxxxxx Xxxxxx Xxxxx-Xxxx
Xxxxxxx, Xxxxx, Xxxxxxx, Xxxxx Xxxxx, Day, Xxxxxx & Xxxxx
& Xxxxxx 0000 X Xxxxxx, X.X.
000 Xxxxxx Xxxxxx-00xx Xxxxx Xxxxxxxxxx, XX 00000
Xxx Xxxxxxxxx, XX 00000
Attorney for Xxxxxxxx Xxxxxxx
Corporation
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/s/ Xxxxx Xxxxxxx /s/ Xxxxxx X. Xxxxx
______________________________ ______________________________
Xxxxx Xxxxxxx Xxxxxx X. Brick
Xxxxx & Xxxxxxx Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx
00000 Xxxxxxxx Xxxxxxxxx Old Federal Reserve Bank Building
Los Angeles, CA 90024 000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Co-Lead Counsel for Plaintiffs Attorney for Underwriter
Defendants
/s/ Xxx X. Xxxx
_______________________________
Xxx X. Xxxx
Xxxxx & Xxxxxx
000 Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attorney for The Fidelity &
Casualty Company of New York
/s/ Xxxxx X. Xxxxxxxxxx
______________________________
Xxxxx X. Xxxxxxxxxx, Esq.
Xxxxxxxx & Xxxx
000 Xxxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attorney for Great American
Insurance Company
/s/ Xxxxxxx X. Xxxxxxxx
______________________________
Xxxxxxx X. Xxxxxxxx, Esq.
Xxxxx X. Xxxxx, Esq.
Drinker, Xxxxxx & Xxxxx
000 Xxxxxxxxx Xxxxxx, X.X.
Suite 900
Washington, D.C. 20005
Attorneys for Reliance Insurance
Company
/s/ Xxxxx X. Xxxxx
______________________________
Xxxxx X. Xxxxx, Esq.
Xxxx, Xxxxx & Xxxxxxx
000 Xxxxxxxxxxxx Xxx., X.X.
Washington, D.C. 20004-2688
Attorney for Continental
Casualty Company