EXHIBIT 10.2
MK SECURITIES LITIGATION
------------------------
MEMORANDUM OF UNDERSTANDING
BETWEEN PLAINTIFFS AND
THE INDIVIDUAL DEFENDANTS
The Plaintiffs (as defined below) and the Individual Defendants (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 the Individual Defendants in the class
actions pending in the United States District Court for the District of Idaho
entitled: GARBULINSKI, ET AL. V. MORRISON KNUDSEN CORP. ET AL., Case No. 94-
334; MEDELLO, ET AL. V. MORRISON KNUDSEN CORP., ET AL., Case No. 94-364,
STRAUSS, ET AL. V. MORRISON KNUDSEN CORP., ET AL., Case No. 94-373; DRASNIN, ET
AL. V. MORRISON KNUDSEN CORP., ET AL., Case No. 95-066; GRUESEN, ET AL. V.
MORRISON KNUDSEN CORP., ET AL., Case No. 95-070; AKERS, ET AL. V. MORRISON
KNUDSEN CORP., ET AL., Case No. 95-071; and WEISS, ET AL. V. MORRISON KNUDSEN
CORP., ET AL., Case No. 95-108; all of the foregoing having been consolidated as
IN RE MORRISON KNUDSEN 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 10 below.
B. "MK" means defendant Morrison Knudsen Corporation.
C. "Individual Defendants" means defendants William Agee, Stephen
Hanks, and James Cleary.
2
D. "D&T" means defendant Deloitte & Touche, L.L.P.
E. "Parties" means the Plaintiffs, the Class, MK, and the Individual
Defendants.
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.
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.
3
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 the Individual Defendants in the Litigation in the amount of $25.15
million in cash, 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 Individual
Defendants, and the Insurers. Settlement of the claims asserted against the
Individual Defendants 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. The Insurers have agreed that they 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 (as defined below) by or against MK, but subject to the terms
and conditions of this MOU, into a joint, interest-bearing account located in
Boise, Idaho and controlled jointly by Lead Counsel, designated
4
counsel for the Individual Defendants, and designated counsel for the Insurers
(or the principals of any such counsel) (subject to Court oversight) the
following amounts:
Great American -- $ 5,150,000
Reliance -- $10,000,000
CNA -- $10,000,000
The account will be structured so that withdrawals will require the concurrence
of all counsel exercising joint control, subject to Court oversight.
3. All funds in the joint account provided for in PARA 2, including
all interest earned thereon but excluding costs of providing notice to the Class
(which costs will not exceed $100,000) (the "Notice Costs"), will be transferred
to a Settlement Account controlled by Lead Counsel (subject to Court oversight),
upon the satisfaction of 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 case has 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
(any such case or appointment, a "Bankruptcy Case") 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
5
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 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 the Individual
Defendants 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 account provided for in PARA 2 shall be (a)
used to pay for Notice Costs (but in no event in excess of $100,000 in the
aggregate), (b) paid into the Settlement Account pursuant to this PARA 3 or
(c) repaid to the Insurers pursuant to PARA 6. Under no circumstances
whatsoever shall any amounts in the joint account be payable to, or
recoverable by, MK.
6
4. If the condition specified in PARA 3(a)(i) has been satisfied but
the condition specified in PARA 3(b) or PARA 3(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 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 11 shall have no force
and effect. If any of the conditions specified in PARA 3(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 11 shall have no force
and effect.
5. The Plaintiffs, CNA, and the Individual Defendants will enter into
a separate agreement entitling CNA and/or the Individual Defendants 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 Individual
Defendants and memorialized in a separate writing which shall be
7
kept confidential and disclosed only to the Parties, their counsel, and the
Court.
6. In the event that this settlement or the settlement between
Plaintiffs and MK 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) all funds then existing in the joint account provided for in
PARA 2 shall be returned to the Insurers, together with all interest
earned thereon but less any Notice Costs, not to exceed $100,000, paid
or incurred to date, which Notice Costs shall be deducted from the
amount returned to Great American and reduce the limit of the Great
American policy by said amount;
(b) the Plaintiffs, the Class, MK, and the Individual Defendants shall
return to their litigation positions as of June 5, 1995, with all of their
respective claims and defenses preserved.
7. The settlement will be no-recapture, I.E., it is not a claims-made
settlement. Neither the Individual Defendants nor the Insurers will have any
interest in, or ability to obtain, the funds after payment into the Settlement
Account, nor will the Individual Defendants or the Insurers 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.
8. The Individual Defendants will not object to a motion seeking an
order of the Court that any attorneys' fees and
8
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 3. Plaintiffs' counsel who receive such fees agree that they,
their partners and/or shareholders will be subject to the jurisdiction of the
Court for recall of any fees received. The Individual Defendants 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.
9. 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 MK 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 the 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 MK 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
9
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 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 become 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.
10. 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.
11. Upon Final Court Approval of the settlement, all claims alleged
in the Litigation against the Individual Defendants shall be dismissed with
prejudice and without costs to any Party. The Plaintiffs and Class shall
provide appropriate releases to the Individual Defendants, the Insurers, and
their affiliates (including the Insurers' and MK's current and former officers,
directors, employees, attorneys and agents) from any
10
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
the Individual Defendants, the Insurers and/or their respective affiliates. The
entry of a bar order satisfactory to the Insurers and the Individual Defendants
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.
12. None of the Plaintiffs, the Insurers, the Individual Defendants,
or their attorneys will issue a press release. They are, however, free to
respond to any press inquiry.
13. Plaintiffs' counsel will take no adverse position if the
Individual Defendants make a motion for approval of indemnification by MK of the
Individual Defendants, but Plaintiffs do not concede that MK is entitled to a
claim against the insurance policies or any insurance proceeds for any
indemnification.
14. 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 6 shall survive). In such event, neither
this
11
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.
15. 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.
16. 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.
17. 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/ Steve W. Berman, Esq. /s/ David D. Aufhauser, Esq.
____________________________ ___________________________
Steve W. Berman, Esq. David D. Aufhauser, Esq.
Hagens & Berman P.S. Williams & Connolly
1301 Fifth Avenue - Suite 2929 725 Twelfth St., N.W.
Seattle, Washington 98101 Washington, D.C. 20005
Dated: 9/4/95 Dated: 9/1/95
--------------------- ----------------------
Attorney for Defendant
William J. Agee
/s/ Michael J. Freed, Esq. /s/ Thomas G. Nolan, Esq.
_____________________________ _____________________________
Michael J. Freed, Esq. Thomas G. Nolan, Esq.
Much, Shelist, Freed, Denenberg Howery & Simon
& Ament P.C. 550 South Hope Street - Suite 1400
200 North LaSalle Street - Los Angeles, California 90071-2604
Suite 2100
Chicago, Illinois 60601-1095 Dated: _____________________
Dated: SEPT 5, 1995 Attorney for Defendant
------------------------ Stephen G. Hanks
12
/s/ Jeffrey H. Squire, Esq. /s/ P. Craig Storti
_____________________________ _____________________________
Jeffrey H. Squire, Esq. P. Craig Storti
Kaufman, Malchman, Kirby & Hawley, Troxell, Ennis & Hawley
Squire L.L.P. First Interstate Center
919 Third Avenue, 11th Floor 877 West Main Street - Suite 1000
New York, New York 10022 Boise, Idaho 83701
Dated: / /95 Dated: 8/31/95
-------------------- -----------------------
Lead Counsel for Plaintiffs Attorney for Defendant
James F. Cleary, Jr.
/s/ James A. Skarzynski, Esq.
_____________________________
James A. Skarzynski, Esq.
Peterson & Ross
200 East Randolph Drive - Suite 7300
Chicago, Illinois 60601-6969
Dated: 9/5/95
----------------------
Attorney for Great American
Insurance Company
/s/ Michael L. Gassmann, Esq.
_____________________________
Michael L. Gassmann, Esq.
Drinker, Biddle & Reath
901 Fifteenth St., N.W. - Suite 900
Washington, D.C. 20005
Dated: SEPTEMBER 5, 1995
------------------------
Attorney for Reliance Insurance
Company
/s/ Cathy A. Simon, Esq.
_____________________________
Cathy A. Simon, Esq.
Ross, Dixon & Masback
601 Pennsylvania Ave., S.W.
Washington, D.C. 20004-2688
Dated: SEPT 5, 1995
-------------------------
Attorney for Continental
Casualty Company