<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: September 20, 1995
MORRISON KNUDSEN CORPORATION
Commission File Number 1-8889
A Delaware corporation
IRS Employer Identification No. 82-0393735
MORRISON KNUDSEN PLAZA, PLAZA, IDAHO 83729
208/386-5000
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MORRISON KNUDSEN CORPORATION
COMMISSION FILE NUMBER 1-8889
ITEM 5. OTHER MATERIAL IMPORTANT EVENTS.
On September 20, 1995, the registrant announced that it has settled all
outstanding securities class actions and all but one associated derivative
action, the terms of which are subject to court approval. See the press release
which is filed as Exhibit 99.1, and the Memoranda of Understanding and the
Separation Agreement which are filed as Exhibit 10.1 through 10.7, inclusive,
all of which are incorporated herein by this reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORRISON KNUDSEN CORPORATION
/s/ Stephen G. Hanks
September 29, 1995 By: ____________________________________
Stephen G. Hanks
Executive Vice President and
Chief Legal Officer
# # #
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EXHIBIT INDEX
THE FOLLOWING EXHIBITS ARE FILED HEREWITH:
EXHIBIT
NUMBER EXHIBIT
- ------ -------
10.1 The registrant's Securities Litigation Memorandum of
Understanding between Plaintiffs and the registrant.
10.2 The registrant's Securities Litigation Memorandum of
Understanding benween Plaintiffs and the Individual
Defendants.
10.3 The registrant's Derivative Litigation Memorandum of
Understanding.
10.4 The MK Rail Corporation Securities Litigation Memorandum of
Understanding among Plaintiffs, the Underwriter Defendants,
MK Rail Corporation and the registrant.
10.5 The MK Rail Corporation Securities Litigation Memorandum of
Understanding benween Plaintiffs and the Individual
Defendants.
10.6 The MK Rail Corporation Derivative Litigation Memorandum of
Understanding.
10.7 Separation Agreement dated September 20, 1995 between the
registrant and William J. Agee.
99.1 The registrant's news release dated September 20, 1995.
<PAGE>
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. 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 11 below.
B. "MK" means defendant Morrison Knudsen Corporation.
C. "Individual Defendants" means defendants William Agee, Stephen
Hanks, and James Cleary.
D. "D&T" means defendant Deloitte & Touche, L.L.P.
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2
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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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 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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4
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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5
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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6
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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7
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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8
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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9
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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10
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.
<PAGE>
11
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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12
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/ Steve W. Berman, Esq. /s/ John W. Edwards II
_____________________________ _____________________________
Steve W. Berman, Esq. John W. Edwards II
Hagens & Berman P.S. Jones, Day, Reavis & Pogue
1301 Fifth Avenue - Suite 2929 901 Lakeside Avenue
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13
Seattle, Washington 98101 Cleveland, Ohio 44114
(206) 623-7292 (216) 586-7147
Dated: 9/4/95 Dated: 9/5/95
Attorney for Defendant
Morrison Knudsen Corporation
/s/ Michael J. Freed, Esq. /s/ James A. Skarzynski, Esq.
_____________________________ _____________________________
Michael J. Freed, Esq. James A. Skarzynski, Esq.
Much, Shelist, Freed, Denenberg Peterson & Ross
& Ament P.C. 200 East Randolph Drive
200 North LaSalle Street - Chicago, Illinois 60601-6969
Suite 2100 (312) 861-1400
Chicago, Illinois 60601-1095
(312) 346-3100 Dated: 9/5/95
Dated: SEPTEMBER 5, 1995 Attorney for Great American
Insurance Company
/s/ Jeffrey H. Squire, Esq. /s/ Michael L. Gassmann, Esq.
_____________________________ _____________________________
Jeffrey H. Squire, Esq. Michael L. Gassmann, Esq.
Kaufman, Malchman, Kirby & Drinker, Biddle & Reath
Squire L.L.P. 901 Fifteenth St., N.W. -
919 Third Avenue, 11th Floor Suite 900
New York, New York 10022 Washington, D.C. 20005
Dated: 9/ /95 Dated: SEPTEMBER 5, 1995
Local Counsel for Plaintiffs Attorney for Reliance Insurance Company
/s/ Cathy A. Simon, Esq.
_____________________________
Cathy A. Simon, Esq.
Ross, Dixon & Masback
601 Pennsylvania Avenue, S.W.
Washington, D.C. 20004-2688
Dated: SEPT 5, 1995
Attorney for Continental
Casualty Company
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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.
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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.
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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
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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:
<TABLE>
<S> <C>
Great American -- $ 5,150,000
Reliance -- $10,000,000
CNA -- $10,000,000
</TABLE>
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
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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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT 10.3
MORRISON KNUDSEN CORPORATION
----------------------------
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 cases in Idaho and Delaware, entitled:
Antonicello v. Agee, et al. Civ. Action 14182 Delaware Chancery Court
Caffrey v. Agee, et al. Civ. Action 14033 Delaware Chancery Court
Citron v. Agee, et al. Civ. Action 14136 Delaware Chancery Court
DeKlotz, et al. v. Agee, CV 9500605 D Idaho District Court
et al.
Flinn v. Agee, et al. CV 9500765D Idaho District Court
Hager v. Agee, et al. Civ. Action. 14034 Delaware Chancery Court
Hammerslough v. Agee, et al. Civ. Action 14042 Delaware Chancery Court
Rosenn v. Agee, et al. Civ. Action 14106 Delaware Chancery Court
Steiner v. Agee, et al. CV 9500745D Idaho District Court
Stern v. Agee, et al. Civ. Action 14032 Delaware Chancery Court
Troy v. Agee Civ. Action 14167 Delaware District Court
Wohlgelernter v. Agee, CV 9500656 Idaho District Court
et al.
(collectively termed "the Derivative Actions").
DEFINITIONS
A. "MK" means Morrison Knudsen Corporation.
B. "MK Rail" means MK Rail Corporation
C. "Individual Defendants" means Stephen G. Hanks, William J. Agee, John
Arrillaga, Christopher B. Hemmeter, Lindsay E. Fox, Peter S. Lynch,
Robert A. McCabe, Irene C. Peden, Gerard R. Roche, John W. Rogers,
Jr., Peter V. Ueberroth, Robert Tinstman, Gunnar E. Sarsten, Stephen
R. Grant, Michael J. Farrell, John P. Herbots, Joseph G. Fearon,
Thomas J. Smith, James F. Cleary.
D. "Director Defendants" means John Arrillaga, Christopher B. Hemmeter,
Lindsay E. Fox, Peter S. Lynch, Robert A. McCabe, Irene C. Peden,
Gerard R. Roche, John W. Rogers, Jr., and Peter V. Ueberroth.
E. "Parties" means the MK Derivative Plaintiffs, MK and the Individual
Defendants.
<PAGE>
F. "Idaho Court" means the District Court, Ada County, Idaho.
G. "Delaware Court" means Court of Chancery, New Castle County, Delaware.
H. "Great American" means Great American Insurance Company.
I. "Reliance" means Reliance Insurance Company.
J. "CNA" means Continental Casualty Company.
K. "Fidelity" means The Fidelity and Casualty Company of New York.
L. "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.
M. "Securities Actions" means the cases consolidated before the United
States District Court for the District of Idaho in IN RE: MORRISON
KNUDSEN SECURITIES LITIGATION, Case No. 94-334 (the "MK Securities
Actions"); NEWMAN 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").
N. "Settlement Account" means the fund created after Final Court Approval
of the Securities Actions and the MK Derivative Actions.
O. "MK Derivative Plaintiffs" means the named plaintiffs individually and
derivatively on behalf of MK.
P. "MK Derivative Counsel" means those individuals and firms set forth on
Exhibit A. "MK Rail Derivative Counsel" means the individual and firm
set forth on Exhibit B. (Collectively "Derivative Counsel")
Q. "Defendants" means MK and the Individual Defendants.
R. "Bank Syndicate" means the group of financial institutions that
provide financing to MK.
S. "Idaho Derivative Cases" means: DEKLOTZ, ET AL. V. MK, ET AL., Case
No. CV9500605; FLINN V. AGEE, ET AL., Case No. CV9500765; STEINER V.
AGEE, ET AL., Case No. CV9500745; WOHLGELERNTER V. AGEE, ET AL., Case
No. CV9500656.
T. "Delaware Derivative Cases" means: ANTONICELLO V. AGEE, ET AL., No.
14182; CAFFREY V. AGEE, ET AL., No 14033; CITRON V. AGEE, ET AL., No.
14136; HAGER V. AGEE, ET AL., No.. 14034, HAMMERSLOUGH V. AGEE, ET
AL., No. 14042; ROSENN V. AGEE, ET AL., No. 14106; STERN V. AGEE, ET
AL., No. 14032; TROY V. AGEE, ET AL., No. 14167
2
<PAGE>
U. "MK Derivative Actions" means the Idaho Derivative Cases and the
Delaware Derivative Cases brought derivatively on behalf of MK. "MK
Rail Derivative Action" means that part of the case, WOHLGELERNTER V.
AGEE, Case No. CV 95000656 brought derivatively on behalf of MK Rail.
(Collectively "Derivative Actions")
V. "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.
W. "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.
CLAIMS AND BENEFITS OF SETTLEMENT
The MK Derivative Plaintiffs and MK Derivative Counsel believe that the
claims asserted in the MK Derivative Actions have merit and that the evidence
developed to date supports the claims asserted. The Individual Defendants and
their counsel deny any liability whatsoever and believe that they have good
defenses to the claims made by MK Derivative Plaintiffs. The MK Derivative
Plaintiffs and MK Derivative Counsel recognize and acknowledge the expense and
length of continued proceedings necessary to prosecute the MK Derivative Actions
against the Defendants through trial and through appeals. The MK Derivative
Plaintiffs and MK Derivative Counsel also have taken into account the uncertain
outcome and the risk of any litigation, especially in complex actions such as
the MK Derivative Actions, as well as the difficulties and delays inherent in
such litigation and the likelihood of protracted appellate review. The MK
Derivative Plaintiffs and MK Derivative Counsel also are mindful of the inherent
problems of proof and the defenses Defendants have asserted and can assert to
the federal securities law violations as alleged in the complaints filed in the
MK Derivative Actions and other claims asserted in the MK Derivative Actions,
including the defenses alleged by the Defendants in the pleadings filed in the
MK Derivative Actions. As a consequence of the foregoing investigation and
analyses,
3
<PAGE>
MK 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. The MK
Derivative Plaintiffs and MK Derivative Counsel believe that the settlement of
the MK Derivative Actions set forth in this MOU confers substantial benefits
upon MK. Based on their evaluations, the MK Derivative Plaintiffs and MK
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 Derivative
Plaintiffs, the current holders of MK common stock and MK.
MK, after having appointed a committee of the disinterested directors
("Special Committee") to review and act relative to this settlement, and the
Special Committee having given extensive consideration to all of the foregoing,
has determined independently that the settlement reflected herein is fair,
reasonable and adequate to MK.
The Individual Defendants have requested the Insurers to fund the
settlement on their behalf as set forth herein.
TERMS
1. A settlement has been reached with respect to the claims asserted
against the Individual Defendants and nominal defendant MK in the MK Derivative
Actions in the amount of $9.85 million and such other consideration as set forth
in Paragraph 5 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, Final Court Approval of the settlement (collectively the "Stipulation")
to be negotiated in good faith among the MK Derivative Plaintiffs, the
Individual Defendants, the Insurers and MK. Nothing
4
<PAGE>
contained herein, however, obligates the Derivative Plaintiffs or the Insurers
to negotiate with one another.
2. The Parties and the Insurers will act in good faith to complete a
Stipulation. The Parties shall present the Stipulation to the Delaware Court
for hearing and approval as soon as practicable following such notice to MK
stockholders as may be required by the court, and will use their best efforts to
obtain Final Court Approval of the settlement. Upon dismissal of the Delaware
Derivative Cases by the Delaware Court, the Parties will move the Idaho Court to
dismiss the Idaho Derivative Cases with prejudice.
3. At the direction of the Individual Defendants and at the request of
MK, to which request Derivative Plaintiffs do not object, within twenty (20)
business days after the signing of this MOU and the MOUs in the Securities
Actions, Great American will pay $9,850,000 into a joint interest-bearing
account ("Derivative Cash Account") located in Boise, Idaho, and controlled
jointly by MK Derivative Counsel (Marian Rosner and Mack Redford), counsel for
the Director Defendants, counsel for William J. Agee, counsel for Stephen G.
Hanks, counsel for James F. Cleary, lead counsel in the Securities Actions and
counsel for Great American. MK acknowledges that it has no interest in the
Derivative Cash Account until all conditions for the payment or transfer of
funds from such account have been met. The Derivative Cash Account will be
structured so that withdrawals will require the concurrence of all counsel
exercising joint control subject to Court oversight.
5
<PAGE>
4. MK Derivative Counsel have agreed to request a total of no more than
$2,955,000.00 of the Derivative Cash Account in fees plus reasonable costs and
expenses in the MK Derivative Actions.
5. On or before the Effective Date, MK will adopt the following
procedures:
a. In setting the location for all meetings of the Board of
Directors, there shall be a presumption that the proper location
for such meetings is at MK's headquarters in Boise, Idaho, or a
location in the United States where there are significant MK
facilities. In the event of a material reason to use a facility
other than those described above, MK may schedule Board of
Director meetings in such other places as a majority of the Board
shall approve.
b. The annual meetings of the stockholders of MK shall be held in
Boise, Idaho, where the corporate headquarters may be, or, if
there is a requirement otherwise, in other U.S. cities with a
SMSA population in excess of 3 million, if so approved by a
majority of the Board.
c. Following Final Court Approval, MK will take reasonable steps to
recruit seven (7) new directors. MK further agrees to: (i)
recruit not less than three (3) new directors prior to the Annual
Meeting of Stockholders to be held in 1996; and (ii) recruit up
to four (4) additional new directors (not to exceed a total of
seven (7) new directors) prior to the Annual Meeting of
Stockholders to be held in 1997. This number may be reduced by
one for each Director Defendant who resigns or who designates
that he or she will not stand
6
<PAGE>
for re-election. In the event a new director is selected after
the next stockholder meeting, his/her name shall be placed on the
proxy statement and recommended for stockholder vote in
accordance with MK's Certificate of Incorporation. New directors
shall be selected in a manner provided by law and consistent with
the best interests of MK. In the selection of new directors, due
regard and consideration shall be given to the submission of
names supplied by Derivative Counsel. Those names and the names
of other director candidates shall be submitted for
recommendation by members of the board who are not parties to the
Derivative Actions.
d. The annual meeting of stockholders in 1996 will be held within
the time period provided under Delaware law.
e. The majority of the Board will be comprised of non-employee
directors. Disclosure must be made in any proxy statement
provided to MK 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.
f. Upon retirement as a director, to the extent the director is
entitled to participate in MK's group health and dental plan,
group life insurance plan and group travel or accident insurance
plan, he/she may continue
7
<PAGE>
to participate but must reimburse MK for the cost thereof. Such
provision does not apply to any director who has served more than
twenty (20) years as a non-employee director of MK.
g. Except as provided in Exhibit C attached hereto, no further
payment to William J. Agee shall be made by MK, its affiliates,
subsidiaries or related entities.
h. With respect to executive compensation, no such compensation
shall be based upon non-recurring items unless allowed by a two-
thirds (2/3) vote of the Board of Directors and full disclosure
to and ratification by the stockholders in compliance with the
procedures set forth in the then-applicable Internal Revenue
Service regulations regarding stockholder notification and
approval of such compensation regardless of whether MK determines
such amounts to be deductible or not. No compensation based upon
non-recurring revenue items shall be paid or pledged prior to
such vote of stockholders.
i. At each regularly-scheduled Board of Directors meeting, MK's
chief financial officer or his designee shall provide a report
as to MK'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 plans for ameliorating or reversing
such negative trends and the success or failure of any such plans
presented in the past.
j. MK shall not make expenditures of money or benefits that
materially and personally benefit any member of MK management or
its Board
8
<PAGE>
of Directors unless such expenditure is included as part of the
publicly disclosed terms of such person's compensation package
designated for that individual's position based upon merit,
except that the Board may approve such additional expenditures to
the extent the Board determines such expenditures to be in the
best interests of MK by an affirmative two-thirds (2/3) vote of
the Board.
k. In the event stockholder approval is required for implementation
of any provision of this MOU, MK 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.
l. In recognition of the current financial condition of MK and in
the event that a case is commenced by or against MK under Title
11 of the United States Code or similar law, the Director
Defendants will not pursue their rights to pension benefits based
upon past service as a director or employee of MK.
m. In recognition of the current financial condition of MK, the
Director Defendants shall each surrender to MK, sixty (60) months
of accrued service under the MK Retirement Plan for Non-Employee
Directors. In recognition of the scientific and engineering
experience and expertise Dr. Irene C. Peden has brought to the MK
Board of Directors, this provision shall not apply to Dr. Peden.
9
<PAGE>
6. Upon the satisfaction of the conditions set forth below, the funds in
the Derivative Cash Account provided for in Paragraph 3 above, together with all
interest earned thereon, will be paid and transferred as follows:
a. MK Derivative Counsel will be paid such fees as may be awarded by
the Delaware Court (which shall in no event exceed $2,955,000)
and such reasonable costs, expenses and interest from the
Derivative Cash Account as may be awarded by the Delaware Court,
in consideration of the benefits obtained for MK by such counsel
under this settlement; and
b. The remaining funds will be immediately transferred to the
Settlement Account established in the Securities Litigation in
such manner as MK shall have agreed.
The conditions to any payment or transfer of funds from the Derivative Cash
Account are:
i. the entry of an order by the Delaware Court that has become final
and nonappealable (a) approving the material provisions of the
settlement described in this MOU, (b) containing findings to the
effect that the consideration to be paid in respect of the MK
Derivative Actions is fair, reasonable and adequate and provides
reasonably equivalent value to MK for the releases each is
providing and that such consideration is fair, reasonable and
adequate and provides reasonably equivalent value to MK for the
released claims in the MK Derivative Actions and (c) setting the
fees and costs for MK Derivative Counsel; and
10
<PAGE>
ii. the entry of an order by the Idaho Court which has become final
and nonappealable dismissing the Idaho Derivative Cases with
prejudice; and
iii. Final Court Approval of the MK Rail Derivative Action; and
iv. an order has been entered which has become final and non-
appealable dismissing the case STATE BOARD OF ADMINISTRATION OF
FLORIDA, ETC. V. AGEE, ET AL., Case No. CVOC 9502463 filed in the
Fourth District Court of Ada County, Idaho, with prejudice; and
v. (a) Final Court Approval of the settlement of the Securities
Actions and the MK Rail Derivative Action; and (b) all other
conditions to such settlements have been satisfied or waived and
such settlements are being consummated contemporaneously with
this settlement and either:
vi. (a) 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 (b) MK and its Bank Syndicate have executed and
delivered a debt restructuring agreement under which (i) 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, (ii) 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 (iii) the Bank Syndicate has given all
11
<PAGE>
waivers and consents necessary to permit MK to effect this
settlement; or
vii. 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 (a)
approves the settlement, (b) authorizes MK's performance of all
of its obligations in respect of the settlement and (c)
authorizes the use of the insurance policies to make such
payments into the Settlement Account, and for attorneys' fees and
costs all in form and substance satisfactory to the Parties and
Great American. By agreeing to this condition neither the
Parties nor the Insurers concede that such court has any
jurisdiction over the debtor's estate, or has any interest in the
insurance proceeds or the proceeds of the settlement.
All funds in the Derivative Cash Account shall be (a) used to pay the fees and
costs described in subparagraph 6 a. above, (b) paid into the Settlement
Account pursuant to this Paragraph 6 b., or (c) repaid to Great American
pursuant to Paragraph 11.
7. Upon Final Court Approval of the settlement described herein, 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 Derivative Actions shall be dismissed with prejudice and
without cost to any Party. The MK Derivative Plaintiffs and MK shall provide
releases as appropriate to MK, the Individual Defendants, the Insurers and their
respective affiliates, (including MK's and the Insurers' 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
12
<PAGE>
rise to the claims that were or could have been asserted in the MK Derivative
Actions. MK Derivative Plaintiffs and MK Derivative Counsel will cooperate
with the Defendants in obtaining appropriate bar orders against claims asserted
against MK, the Individual Defendants and the Insurers and their respective
affiliates. The entry of a bar order satisfactory to 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 will cooperate to complete confirmatory discovery, including
depositions, 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.
11. This MOU shall be inadmissible in any proceeding before any court or
tribunal except to enforce its provisions. If the settlement is not
consummated on the terms set forth herein, 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 and defenses asserted in the MK Derivative Actions
and, 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. In such event, all funds then existing in the Derivative Cash
Account provided for in Paragraph 3 shall be returned to Great American,
together with all interest earned thereon.
13
<PAGE>
12. If an action has been commenced by or against MK under Title 11 of the
United States Code or any similar law or a trustee, receiver, conservator or
similar custodian has been appointed for MK or its property ("Bankruptcy Case")
and the court having jurisdiction over the Bankruptcy Case enters an order
which has become final and nonappealable determining the payment of any funds
into the Settlement Account or to Derivative Counsel pursuant to Paragraph 6
above to be recoverable by MK as a preference, voidable transfer, fraudulent
transfer or similar transaction, then the rights of the Parties and the Insurers
shall be governed by Paragraph 10 of the Memorandum of Understanding between MK
and the plaintiffs in the MK Securities Actions. The releases provided as part
of the settlement of the Derivative Actions shall remain in full force and
effect.
13. 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..
14. 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.
/s/ J. Dennis Faucher /s/ David D. Aufhauser
- ------------------------------------------------------------------------------
J. Dennis Faucher David D. Aufhauser
Miller, Faucher, Chertow, Cafferty Williams & Connolly
and Wexler Attorney for Defendant William J. Agee
Co-Lead Counsel for Idaho
Consolidated Derivative Plaintiffs
14
<PAGE>
/s/ Jill Abrams /s/ John Edwards
- ----------------------------- -------------------------------
Jill Abrams John Edwards
Abbey & Ellis Jones Day Reavis & Pogue
Co-Lead Counsel for Delaware Counsel for Morrison Knudsen
Consolidated Derivative Plaintiffs
/s/ Marian Rosner /s/ Thomas J Nolan
- ----------------------------- ------------------------------
Thomas J. Nolan
Wolf Popper Ross Wolf & Jones LLP Howrey & Simon
Co-Lead Counsel for Delaware Attorney for Stephen G. Hanks
Consolidated Derivative Plaintiffs
/s/ Mack A. Redford /s/ P. Craig Storti
- ------------------------------- ------------------------------
Mack A. Redford P. Craig Storti
Park Redford Thomas & Burkett Hawley Troxell Ennis & Hawley
Attorney for Idaho Consolidated Attorney for James F. Cleary
Derivative Plaintiffs
/s/ Jules Brody /s/ Cezar M. Froelich
- ------------------------------ ------------------------------
Jules Brody Cezar M. Froelich
Stull Stull & Brody Michael J. Howlett, Jr.
Attorney for Wohlgelernter Shefsky Froelich & Devine Ltd.
Attorney for: John Arrillaga,
Christopher
B. Hemmeter, Lindsay E. Fox, Peter S.
Lynch,
Robert A. McCabe, Irene C. Peden, Gerard
R. Roche, John W. Rogers, Jr. Peter V.
Ueberroth
/s/ Douglas M. Kraus
----------------------------------------
Douglas M. Kraus
Skadden Arps Slate Meagher & Flom
Attorney for: Joseph F. Fearon and
Michael J. Farrell
15
<PAGE>
/s/ James M. Doyle, Jr.
--------------------------------
James M. Doyle, Jr.
Matthews & Branscomb
Attorney for John Herbots
/s/ Jim Jones
--------------------------------
Jim Jones
Jim Jones & Associates
Attorney for Thomas Smith
/s/ Lawrence T. Hoyle, Jr.
--------------------------------
Lawrence T. Hoyle, Jr.
Hoyle Morris & Kerr
Attorney for Gunnar E. Sarsten
/s/ Steven Hibbard
--------------------------------
Steven Hibbard
McCutchen Doyle Brown & Enersen
Attorney for Stephen R. Grant
/s/ Robert Tinstman
--------------------------------
Robert Tinstman
/s/ James Skarzynski
-------------------------------
James Skarzynski
Peterson & Ross
Attorney for Great American Insurance
Co.
16
<PAGE>
/s/ Michael Gassmann
------------------------------------
Michael Gassmann
Drinker, Biddle & Reath
Attorney for Reliance Insurance Co.
/s/ Cathy A. Simon
-------------------------------------
Cathy A. Simon
Ross Dixon & Masback
Attorney for Continental Casualty
17
<PAGE>
EXHIBIT A
LIST OF PLAINTIFFS' COUNSEL IN THE MK DERIVATIVE ACTIONS
Steven Price Wolf, Popper, Ross, Wolf & Jones, LLP
Stanley W. Walsh Mager, Liebenberg & White
John Day Bernstein, Liebhard & Lifshitz
Abbey & Ellis Bruce Bistline
Miller, Faucher, Chartow, Donald L. Harris
Cofferty & Wexler Theodore Nelson
Evans, Keane Stull, Stull & Brody
Park Redford, Thomas & Burkett Holden, Kidwell, Hahn & Crapo
Cosho, Humphrey, Greemer & Welsh, Rosenthal, Manhait, Gross & Goddess,
P.A. P.A.
Farugi & Farugi Berman, DeValerio & Pease
Law Offices of Curtis V. Trinko Stamell, Tabacco & Schayer
Bernstein Liebhard & Lifschitz Wechsler, Skirnick, Harwood,
Halebian & Feffer, LLP
Goodkind, Labaton, Rudoff
& Sucharow, LLP
Schiffrin & Craig
Law Offices of A. Arnold Gershon, P.C.
<PAGE>
EXHIBIT B
PLAINTIFFS' COUNSEL IN MK RAIL DERIVATIVE CASE
Stull, Stull & Brody
Bruce S. Bustline
<PAGE>
MK DERIVATIVE MOU
EXHIBIT C
1 SUPPLEMENTAL EMPLOYEE RETIREMENT PENSION PLAN
a. Agee will receive, as full payment under a supplemental employee
retirement pension plan ("SERP"), the sum of $99,750, per year for the
term of his life, with a right of survivorship for the term of his
wife's life.
b. Payments under the SERP will be made on a monthly basis, on or about
the 10th of each month, at a rate of $8,312.50 per month, less
applicable taxes.
c. SERP payments will be made retroactive to Agee's separation from the
company (as of February 10, 1995) and will commence upon the signing
of the Memorandum of Understanding ("MOU") in the MK Derivative
Litigation.
2. DEFERRED SAVINGS PLAN
MK will remit to Agee all of his deferred savings plan at the value of such
plan on the date of his Severance Agreement.
3. MEDICAL AND DENTAL INSURANCE
a. Agee, his spouse and his unmarried dependent children under the age of
24, will be provided, at MK's expense, with comprehensive medical,
health and dental insurance benefits. The current such plan in which
the Agees will participate at least through the end of 1995 is the
Aetna Comprehensive Medical and Dental Plan.
b. Agee and his family will be provided with the same level and choice of
benefits offered to MK's retired employees or to retired non-employee
directors, whichever plan Agee or his survivor elects to participate
in on a yearly basis.
c. MK will pay to Agee the additional sum of $4,344.75 as reimbursement
for COBRA payments made by Agee for the period of March 1, 1995
through and including December 31, 1995.
d. Commencing and effective on December 31, 1995, MK will pay all costs
associated with the above-described medical, health and dental
insurance benefits for Agee, his spouse and his unmarried dependent
children under the age of 24.
e. The medical and dental coverage provided to Agee's spouse and children
herein shall survive his death.
<PAGE>
4. INDEMNIFICATION AND ADVANCE OF LEGAL EXPENSES
a. In accordance with Section 145(f) of the General Corporation Law of
Delaware, MK hereby agrees to advance legal fees and expenses, and to
indemnify Agee against all expenses (including attorney's fees),
losses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any claims, threatened
or filed, whether civil, criminal, administrative or investigative, by
reason of, or arising out of, or which refer or relate in any manner
to his tenure at MK, its subsidiaries and affiliates.
b. Notwithstanding the provisions of 5.A., above, MK further hereby
agrees to advance legal fees and expenses, and to indemnify Agee in
accordance with Sections 145(a), (d) and (e) of the General
Corporation Law of Delaware against all expenses (including attorney's
fees), losses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with the following
specific matters:
(i) The SEC investigation of MK and MK Rail and any claims based on
said investigation;
(ii) Final approval of the MK and MK Rail Securities Litigation, MK
Derivative Actions, and MK Rail Derivative Actions;
(iii) Any post-approval challenges to (ii) above;
(iv) JACOBS, FRI and NELSON V. AGEE, CA #95-1168 (W.D. Tenn.) and
any claims based on the sale of Touchstone, Inc. to MK;
(v) STATE BOARD OF ADMINISTRATION OF FLORIDA V. MORRISON KNUDSEN,
CV OC 95024630 (Idaho);
(vi) Opt-outs in the MK Rail and MK Securities Litigation;
(vii) DANIEL PETE EVEN V. AGEE, ET AL., Cause No. 98320 (Idaho).
<PAGE>
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: NEWMAN, ET AL. V. MK RAIL CORPORATION, ET AL.,
Case No 94-478; and SUSSER 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 Morrison Knudsen Corporation.
C. "MK Rail" means defendant MK Rail Corporation.
D. "Individual Defendants" means defendants William Agee, Stephen
Hanks, James Cleary, Michael Farrell, and Gilbert Carmichael.
E. "Underwriter Defendants" means defendants Morgan Stanley, 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.
<PAGE>
2
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.
H. "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.
<PAGE>
3
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
V. AGEE, 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 V. AGEE, ET
AL.; DEKLOTZ, ET AL. V. MK, ET AL.; FLINN V. AGEE, ET AL.; and STEINER V. AGEE,
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 V. AGEE, ET AL.; CAFFREY V. AGEE,
ET AL.; CITRON V. AGEE, ET AL.; HAGER V. AGEE, ET AL.; HAMMERSLOUGH V. AGEE, ET
AL.; ROSENN V. AGEE, ET AL.; STERN V. AGEE, ET AL.; TROY V. AGEE, 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.
<PAGE>
4
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
<PAGE>
5
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
<PAGE>
6
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.
<PAGE>
7
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.
<PAGE>
8
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
<PAGE>
9
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
<PAGE>
10
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/ Steve W. Berman
______________________________ ______________________________
Steve W. Berman Jennifer Wilson Hewitt
Hagens & Berman P.S. Doepken, Keevican & Weiss
1301 Fifth Avenue-Suite 2929 USX Tower-37th Floor
Seattle, WA 98101 600 Grant Street
Pittsburgh, PA 15219
Attorney for MK Rail Corporation
______________________________ ______________________________
John E. Grasberger Adrian Wager-Zito
Milberg, Weiss, Bershad, Hynes Jones, Day, Reavis & Pogue
& Lerach 1450 G Street, N.W.
222 Kearny Street-10th Floor Washington, DC 20005
San Francisco, CA 94108
Attorney for Morrison Knudsen
Corporation
<PAGE>
11
Dated: 9/5/95
______________________________ ______________________________
Steve W. Berman Jennifer Wilson Hewitt
Hagens & Berman P.S. Doepken, Keevican & Weiss
1301 Fifth Avenue-Suite 2929 USX Tower-37th Floor
Seattle, WA 98101 600 Grant Street
Pittsburgh, PA 15219
Attorney for MK Rail Corporation
/s/ John E. Grasberger
______________________________ ______________________________
John E. Grasberger Adrian Wager-Zito
Milberg, Weiss, Bershad, Hynes Jones, Day, Reavis & Pogue
& Lerach 1450 G Street, N.W.
222 Kearny Street-10th Floor Washington, DC 20005
San Francisco, CA 94108
Attorney for Morrison Knudsen
Corporation
<PAGE>
12
Dated: 9/5/95
/s/ Jennifer Wilson Hewitt
______________________________ ______________________________
Steve W. Berman Jennifer Wilson Hewitt
Hagens & Berman P.S. Doepken, Keevican & Weiss
1301 Fifth Avenue-Suite 2929 USX Tower-37th Floor
Seattle, WA 98101 600 Grant Street
Pittsburgh, PA 15219
Attorney for MK Rail Corporation
______________________________ ______________________________
John E. Grasberger Adrian Wager-Zito
Milberg, Weiss, Bershad, Hynes Jones, Day, Reavis & Pogue
& Lerach 1450 G Street, N.W.
222 Kearny Street-10th Floor Washington, DC 20005
San Francisco, CA 94108
Attorney for Morrison Knudsen
Corporation
<PAGE>
13
Dated: Sept. 5, 1995
______________________________ ______________________________
Steve W. Berman Jennifer Wilson Hewitt
Hagens & Berman P.S. Doepken, Keevican & Weiss
1301 Fifth Avenue-Suite 2929 USX Tower-37th Floor
Seattle, WA 98101 600 Grant Street
Pittsburgh, PA 15219
Attorney for MK Rail Corporation
/s/ Adrian Wager-Zito
______________________________ ______________________________
John E. Grasberger Adrian Wager-Zito
Milberg, Weiss, Bershad, Hynes Jones, Day, Reavis & Pogue
& Lerach 1450 G Street, N.W.
222 Kearny Street-10th Floor Washington, DC 20005
San Francisco, CA 94108
Attorney for Morrison Knudsen
Corporation
<PAGE>
14
/s/ Kevin Yourman /s/ Steven A. Brick
______________________________ ______________________________
Kevin Yourman Steven A. Brick
Weiss & Yourman Orrick, Herrington & Sutcliffe
10940 Wilshire Boulevard Old Federal Reserve Bank Building
Los Angeles, CA 90024 400 Sansome Street
San Francisco, CA 94111
Co-Lead Counsel for Plaintiffs Attorney for Underwriter
Defendants
/s/ Kim W. West
_______________________________
Kim W. West
Arter & Hadden
700 South Flower Street
Suite 3000
Los Angeles, CA 70017
Attorney for The Fidelity &
Casualty Company of New York
/s/ James A. Skarzynski
______________________________
James A. Skarzynski, Esq.
Peterson & Ross
200 East Randolph Drive
Suite 7300
Chicago, Illinois 60601-6969
Attorney for Great American
Insurance Company
/s/ Michael L. Gassmann
______________________________
Michael L. Gassmann, Esq.
Kevin M. Gross, Esq.
Drinker, Biddle & Reath
901 Fifteenth Street, N.W.
Suite 900
Washington, D.C. 20005
Attorneys for Reliance Insurance
Company
/s/ Cathy A. Simon
______________________________
Cathy A. Simon, Esq.
Ross, Dixon & Masback
601 Pennsylvania Ave., S.W.
Washington, D.C. 20004-2688
Attorney for Continental
Casualty Company
<PAGE>
EXHIBIT 10.5
MK RAIL 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: NEWMAN, ET AL. V. MK RAIL CORPORATION, ET AL., Case No. 94-478; and
SUSSER, 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 11 below.
B. "MK" means defendant Morrison Knudsen Corporation.
C. "MK Rail" means defendant MK Rail Corporation.
D. "Individual Defendants" means defendants William Agee, Stephen
Hanks, James Cleary, Michael Farrell, and Gilbert Carmichael.
E. "Underwriter Defendants" means defendants Morgan Stanley, 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.
F. "Parties" means the Plaintiffs, the Class, MK, MK Rail, the
Individual Defendants, and the Underwriter Defendants.
<PAGE>
2
G. "Court" means the United States District Court for the District of
Idaho.
H. "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, CNA, and Fidelity.
N. "MK Action" means the consolidated class actions pending against
MK and certain of the Individual Defendants pending before the United States
District Court for the District of Idaho.
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
<PAGE>
3
the court of Idaho and captioned WOHLGELERNTER V. AGEE, 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 court of Idaho and captioned: WOHLGELERNTER V. AGEE, ET
AL.; DE KLOTZ, ET AL. V. MK, ET AL.; FLINN V. AGEE, ET AL.; and STEINER V. AGEE,
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 V. AGEE, ET AL.; CAFFREY V. AGEE,
ET AL.; CITRON V. AGEE, ET AL.; HAGER V. AGEE, ET AL.; HAMMERSLOUGH V. AGEE, ET
AL.; ROSENN V. AGEE, ET AL.; STERN V. AGEE, ET AL.; and TROY V. AGEE, 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.
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 $6.0
million in cash, including $1.0 million for the purchase of MK Rail preferred
stock as described below, subject to the terms and conditions of a Stipulation
of
<PAGE>
4
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, MK Rail, MK, and the Insurers. 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. Fidelity has agreed, subject to the terms and conditions of this
MOU, that, within twenty (20) business days after the signing of this MOU, the
MOU in the Litigation among Plaintiffs, the Underwriter Defendants, MK Rail and
MK, and the MOUs relating to the MK Action, the MK Derivative Actions and the MK
Rail Derivative Action, it will pay into a joint, interest-bearing account
located in Boise, Idaho and controlled jointly by Lead Counsel, designated
counsel for the Individual Defendants, counsel for Fidelity and counsel for MK
Rail (if MK Rail has contributed $1 million in cash to the joint account
pursuant to PARA 3) (subject to Court oversight) the sum of $5,000,000.
3. MK Rail agrees, subject to the terms and conditions of this MOU,
that, within twenty (20) business days after the signing of this MOU and the MOU
in the Litigation among Plaintiffs, the Underwriter Defendants, MK Rail, and MK
and the MOUs relating to the MK Actions, the MK Derivative Actions, and the MK
Rail Derivative Action, MK Rail shall either (i) deposit in the joint account
for the benefit of the class the sum of $1 million or (ii) will cause to be
created and transferred for the benefit of the Class to the joint account
appropriately legended certificate(s) evidencing shares of non-voting preferred
stock
<PAGE>
5
with a stated and redemption value of $1 million on the terms set forth in
Attachment A hereto, (which terms have been accepted and agreed to by Fidelity)
(the "Preferred Stock"). Notwithstanding that MK Rail has elected to deposit
Preferred Stock in the joint account, it may later elect to replace the same
with $1 million in cash by giving written notice of its intention to do so to
Plaintiffs at any time on or prior to the first business day following Final
Court Approval. In the event that MK Rail makes such an election, then, within
five (5) business days after the date of Final Court Approval, MK Rail shall
cause to be deposited in the Settlement Account (as hereafter defined) the sum
of $1 million, but without obligation to make any payment on account of
dividends accruing on the Preferred Stock (which dividends shall not be payable
unless declared by MK Rail's Board). Simultaneously with such deposit, the
certificate or certificates evidencing the Preferred Stock shall be released
from the joint account or the Settlement Account and shall be cancelled and not
reissued. In the event that MK Rail does not elect to deposit $1 million in the
joint account, Plaintiffs agree to sell, and Fidelity agrees to purchase, the
Preferred Stock for $1,000,000 in accordance with this MOU within five (5)
business days from Final Court Approval. In the event that the Settlement
Account becomes liable for any Federal income tax incurred solely by reason of
the sale of the Preferred Stock by the Plaintiffs or the Settlement Account, as
the case may be, to Fidelity, MK Rail shall pay to the Settlement Account an
amount equal to such tax liability.
4. All funds in the joint account provided for in PARA 2, including
all interest earned thereon but excluding costs of
<PAGE>
6
providing notice to the Class (which costs will not exceed $30,000) (the "Notice
Costs"), will be transferred to a Settlement Account controlled by Lead Counsel
(subject to Court oversight), and the shares of Preferred Stock, if such shares
were transferred to, and remain in, the joint account, will be issued and sold
to Fidelity, or, alternatively, in the event that MK Rail elected to deposit $1
million in cash in the joint account, the $1 million in cash will be transferred
to the Settlement Account, upon the occurrence of the following conditions:
(a) (i) There has been Final Court Approval of the settlements of
the Litigation and the MK Rail Derivative 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) No case has been commenced by or against MK Rail 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 Rail or its
property (any such case or appointment, a "Bankruptcy Case"); OR
(c) If a Bankruptcy Case has been commenced in respect of MK Rail, 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 Rail'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
<PAGE>
7
substance satisfactory to the Parties and Fidelity. By agreeing to this
condition, none of the Plaintiffs, the Individual Defendants, or the
Insurers 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 cash 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 $30,000 in
the aggregate), (b) paid into the Settlement Account pursuant to this
PARA 4 or (c) repaid to Fidelity or MK Rail pursuant to PARA 7. All stock
transferred to the joint account shall be (a) sold to Fidelity pursuant to
this PARA 4 or (b) returned to MK Rail pursuant to PARA 7. Under no
circumstances whatsoever shall any cash funds in the joint account be
payable to, or recoverable by, MK or MK Rail, except that, if MK Rail has
elected to deposit $1 million in cash in the joint account pursuant to
PARA 3, MK Rail shall be entitled to recover that $1 million in cash from
the joint account pursuant to PARA 7 hereto. MK Rail, Plaintiffs,
Fidelity, and the Individual Defendants agree to execute such documentation
as may be necessary to effectuate the transactions in MK Rail preferred
stock provided for herein.
5. If the condition specified in PARA 4(a)(i) has been satisfied but
the conditions 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
<PAGE>
8
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. If any of the conditions
specified in PARA 4(a)(i) has 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, the Individual Defendants, MK Rail, Fidelity and
CNA will enter into a separate agreement entitling the Individual Defendants
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, the Individual Defendants, 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.
7. In the event that this settlement is terminated due to the
occurrence or non-occurrence of conditions set forth in the MOUs in the
Litigation or the MK Rail Derivative Action MOU,
<PAGE>
9
or if the right provided for in PARA 6 is exercised, or if this settlement does
not receive Final Court Approval:
(a) all cash funds then existing in the joint account shall be
returned to Fidelity and/or MK Rail (MK Rail is entitled to have cash
funds from the joint account returned if it has elected to contribute
$1 million in cash to the joint account in lieu of Preferred Stock,
pursuant to PARA 3. In this event, MK Rail shall only be entitled to
recover $1 million in cash from the joint account plus interest
thereon), together with all interest earned thereon but less any
Notice Costs, not to exceed $30,000, paid or incurred to date, which
Notice Costs shall be deducted from the amount returned to Fidelity
and reduce the limit of the Fidelity policy by a like amount;
(b) the Plaintiffs, the Class, MK, MK Rail, the Underwriter
Defendants, and the Individual Defendants shall return to their respective
litigation positions as of June 5, 1995, with all of their respective
claims and defenses preserved; and
(c) the shares of MK Rail Preferred Stock, if any, and all dividends
paid thereon to date will be returned to MK Rail.
8. The settlement will be no-recapture, I.E., it is not a claims-made
settlement. None of the Individual Defendants, MK, MK Rail, the Underwriter
Defendants, or Fidelity will have any interest in, or ability to obtain, the
cash funds after payment into the Settlement Account, nor will the Individual
Defendants, Fidelity, the Underwriter Defendants, MK, or MK Rail
<PAGE>
10
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. The Individual Defendants and MK Rail 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 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 and MK Rail will not
object to the payment of an incentive award to Plaintiffs of a total of $15,000
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 or MK Rail 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 to be recoverable by MK and/or MK Rail 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 and/or MK
Rail pursuant to the settlement be null and void, and the Plaintiffs, the Class,
MK, and/or MK Rail 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
<PAGE>
11
the claims of the Plaintiffs and the Class against MK and/or MK Rail shall be
limited to the product of multiplying $47,000,000 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 and/or MK Rail 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 $6,000,000 and (ii) 1.2,
provided that the resulting product shall be limited to, and never exceed
$47,000,000. The Releases given to the Individual Defendants and the Insurers
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.
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 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.
12. Upon Final Court Approval of the settlement, all claims alleged
in the Litigation against the Individual
<PAGE>
12
Defendants and MK Rail 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 Rail, the
Individual Defendants, the Insurers, and their affiliates (including MK Rail's
and the Insurers' 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, the Individual Defendants, the Insurers and/or
their respective affiliates. The entry of a bar order satisfactory to MK Rail,
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.
13. 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.
<PAGE>
13
14. Plaintiffs' counsel will take no adverse position if the
Individual Defendants make a motion for approval of indemnification by MK or MK
Rail of any Individual Defendant, but Plaintiffs do not concede that MK or MK
Rail are entitled to a claim against the insurance policies or any insurance
proceeds for any indemnification.
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 litigation
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 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.
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.
<PAGE>
14
Dated 9/5/96
______________________________ ________________________________
Steve W. Berman Jennifer W. Hewitt
Hagens & Berman P.S. Doepken, Keevican & Weiss
1301 Fifth Avenue-Suite 2929 USX Tower-37th Floor
Seattle, WA 98101 600 Grant Street
Pittsburgh, PA 15219
Attorney for MK Rail Corporation
/s/ John E. Grasberger
_______________________________ ________________________________
John E. Grasberger David A. Aufhauser
Milberg, Weiss, Bershad, Hynes Williams & Connolly
& Lerach 725 Twelfth St., N.W.
222 Kearny Street-10th Floor Washington, D.C. 20005
San Francisco, CA 94108
Attorney for William J. Agee
_______________________________ _______________________________
Kevin Yourman P. Craig Storti
Weiss & Yourman Hawley, Troxell, Ennis & Hawley
10940 Wilshire Blvd. First Interstate Center
24th Floor 877 West Main Street
Los Angeles, CA 90024 Suite 1000
Boise, ID 83701
Lead Counsel for Plaintiffs
Attorney for James F. Cleary, Jr.
_______________________________ ________________________________
Kim W. West Thomas J. Nolan
Arter & Hadden Howrey & Simon
700 South Flower Street- 550 East Hope Street - Suite 1400
Suite 3000 Los Angeles, CA 90071
Los Angeles, CA 70017
Attorney for Stephen G. Hanks
Attorney for The Fidelity &
Casualty Company of New York
_______________________________ _______________________________
James A. Skarzynski, Esq. Douglas M. Kraus
Peterson & Ross Skadden, Arps, Slate, Meagher &
200 East Randolph Drive Flom
Suite 7300 914 Third Avenue
Chicago, Illinois 60601-6969 New York, NY 10022
Attorney for Great American Attorney for Michael Farrell and
Insurance Company Gilbert Carmichael
<PAGE>
15
Dated 9/6/95
/s/ Steve W. Berman /s/ Jennifer W. Hewitt
______________________________ ________________________________
Steve W. Berman Jennifer W. Hewitt
Hagens & Berman P.S. Doepken, Keevican & Weiss
1301 Fifth Avenue-Suite 2929 USX Tower-37th Floor
Seattle, WA 98101 600 Grant Street
Pittsburgh, PA 15219
Attorney for MK Rail Corporation
/s/ David A. Aufhauser
_______________________________ ________________________________
John E. Grasberger David A. Aufhauser
Milberg, Weiss, Bershad, Hynes Williams & Connolly
& Lerach 725 Twelfth St., N.W.
222 Kearny Street-10th Floor Washington, D.C. 20005
San Francisco, CA 94108
Attorney for William J. Agee
/s/ Kevin Yourman /s/ P. Craig Storti
_______________________________ _______________________________
Kevin Yourman P. Craig Storti
Weiss & Yourman Hawley, Troxell, Ennis & Hawley
10940 Wilshire Blvd. First Interstate Center
24th Floor 877 West Main Street
Los Angeles, CA 90024 Suite 1000
Boise, ID 83701
Lead Counsel for Plaintiffs
Attorney for James F. Cleary, Jr.
/s/ Kim W. West /s/ Thomas J. Nolan
_______________________________ ________________________________
Kim W. West Thomas J. Nolan
Arter & Hadden Howrey & Simon
700 South Flower Street- 550 East Hope Street - Suite 1400
Suite 3000 Los Angeles, CA 90071
Los Angeles, CA 70017
Attorney for Stephen G. Hanks
Attorney for The Fidelity &
Casualty Company of New York
/s/ James A. Skarzynski /s/ Douglas M. Kraus
_______________________________ _______________________________
James A. Skarzynski, Esq. Douglas M. Kraus
Peterson & Ross Skadden, Arps, Slate, Meagher &
200 East Randolph Drive Flom
Suite 7300 914 Third Avenue
Chicago, Illinois 60601-6969 New York, NY 10022
Attorney for Great American Attorney for Michael Farrell and
Insurance Company Gilbert Carmichael
<PAGE>
16
/s/ Michael L. Gassmann
_______________________________
Michael L. Gassmann, Esq.
Kevin M. Gross, Esq.
Drinker, Biddle & Reath
901 Fifteenth St., N.W.
Suite 900
Washington, D.C. 20005
Attorneys for Reliance Insurance
Company
/s/ Cathy A. Simon
______________________________
Cathy A. Simon, Esq.
Ross, Dixon & Masback
601 Pennsylvania Ave., S.W.
Washington, D.C. 20004-2688
Attorney for Continental Casualty
Company
<PAGE>
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 V. AGEE, 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 Morrison Knudsen 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 Morrison Knudsen Corporation.
B. "MK Rail" means MK Rail Corporation.
C. "Individual Defendants" means Stephen G. Hanks, William J. Agee, John
Arrillaga, Christopher B. Hemmeter, Lindsay E. Fox, Peter S. Lynch,
Robert A. McCabe, Irene C. Peden, Gerard R. Roche, John W. Rogers,
Jr., Peter V. Ueberroth, Robert Tinstman, Gunnar E. Sarsten, Stephen
R. Grant, Michael J. Farrell, John P. Herbots, Joseph G. Fearon,
Thomas J. Smith, James F. Cleary.
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.
<PAGE>
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: MORRISON
KNUDSEN SECURITIES LITIGATION, Case No. 94-334 (the "MK Securities
Actions") together with NEWMAN 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 Daniel Wohlgelernter.
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: DEKLOTZ, ET AL. V. MK, ET AL., Case
No. C9500605; FLINN V. AGEE, ET AL., Case No. C9500765; STEINER V.
AGEE, ET AL., Case No. C9500745; WOHLGELERNTER V. AGEE, ET AL., Case
No. 9500656.
P. "Delaware Derivative Cases" means: ANTONICELLO V. AGEE, ET AL., No.
14182; CAFFREY V. AGEE, ET AL., No. 14033; CITRON V. AGEE, ET AL.,
No. 14136; HAGER V. AGEE, ET AL., No. 14034, HAMMERSLOUGH V. AGEE, ET
AL., No. 14042; ROSENN V. AGEE, ET AL., No. 14106; STERN V. AGEE, ET
AL., No. 14032; TROY V. AGEE, 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 V. AGEE, 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.
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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 William J. Agee 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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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/ Jules Brody /s/ Michael A. Weiss
______________________________ _________________________________
Jules Brody Michael A. Weiss
Stull Stull & Brody Jennifer W. Hewitt
Attorney for Plaintiff Daniel Wohlgelernter Doepken Keevican & Weiss
Attorney for Nominal Defendant
MK Rail Corporation
/s/ David D. Aufhauser
_________________________________
David D. Aufhauser
Williams & Connolly
Attorney for Defendant William
J. Agee
/s/ Thomas J. Nolan
_________________________________
Thomas J. Nolan
Howrey & Simon
Attorney for Defendant Stephen
G. Hanks
9
<PAGE>
/s/ P. Craig Storti
_________________________________
P. Craig Storti
Hawley, Troxell, Ennis & Hawley
Attorney for Defendant James
F.Cleary
/s/ Cezar M. Froelich
_________________________________
Cezar M. Froelich
Michael J. Howlett, Jr.
Shefsky Froelich & Devine Ltd.
Attorney for Defendants John
Arrillaga, Christopher B. Hemmeter,
Lindsey E. Fox, Peter S. Lynch,
Robert A. McCabe, Irene C.Peden,
Gerard R. Roche, John W. Rogers,
Jr., Peter V. Ueberroth
/s/ Douglas M. Kraus
_________________________________
Douglas M. Kraus
Skadden, Arps, Slate,
Meagher & Flom
Attorney for Defendants Joseph F.
Fearon Michael J. Farrell
/s/ James M. Doyle, Jr.
_________________________________
James M. Doyle, Jr.
Matthews & Branscomb
Attorney for Defendant, John J.
Herbots
/s/ Kim West, Esquire
_________________________________
Kim West, Esquire
Arter & Hadden
Attorney for Fidelity and Casualty
Company
10
<PAGE>
/s/ Cathy Simon, Esquire
_________________________________
Cathy Simon, Esquire
Ross, Dixon & Masback, L.L.P.
Attorney for Continental Casualty
Company
/s/ James Skarzynski, Esquire
_________________________________
James Skarzynski, Esquire
Peterson & Ross
Attorney for Great American
Insurance Company
/s/ Michael Gassmann, Esquire
_________________________________
Michael Gassmann, Esquire
Drinker, Biddle & Reath
Attorney for Reliance Insurance
Company
11
<PAGE>
EXHIBIT A
PLAINTIFF'S COUNSEL IN MK RAIL DERIVATIVE CASE
Stull, Stull & Brody
Bruce S. Bistline
12
<PAGE>
EXHIBIT 10.7
MORRISON KNUDSEN CORPORATION
MORRISON KNUDSEN PLAZA
P. O. BOX 73/BOISE, IDAHO U.S.A. 83729
PHONE: (208)386-5199/TELEX:368439
FAX: (208)386-6421
RICHARD D. PARRY
VICE PRESIDENT - LAW
September 20, 1995
VIA FACSIMILE AND FEDERAL EXPRESS
Mr. William Agee
3398 17 Mile Drive
Pebble Beach, CA 95953
RE: SEPARATION AGREEMENT
Dear Mr. Agee:
This letter is to memorialize the agreement that has been reached regarding
the settlement of all contract issues relating to the separation of William J.
Agee ("Agee") from Morrison Knudsen Corporation ("MK"). In the course of the
past several months, extensive negotiations have occurred and the following
agreement has been reached:
1. WAIVER OF CLAIMS.
Agee waives his right to all compensation, including salary, bonuses,
unvested stock options, unvested restricted stock, and pensions, including
but not limited to MK's qualified employee pension plan and MK's
non-employee director pension plan, except as expressly set forth below.
2. SUPPLEMENTAL EMPLOYEE RETIREMENT PENSION PLAN.
a. Agee will receive, as full payment under a supplemental employee
retirement pension plan ("SERP"), the sum of $99,750.00 per year for
the term of his life, with a right of survivorship for the term of his
wife's life.
b. Payments under the SERP will be made on a monthly basis, on or about
the 10th of each month, at a rate of $8,312.50 per month, less
applicable taxes.
<PAGE>
Mr. William Agee
September 20, 1995
Page 2
c. SERP payments will be made retroactive to Agee's separation from the
Company (as of February 10, 1995) and will commence upon the next
business day after signing of this letter (hereinafter "Payment
Date").
d. On the Payment Date, MK will pay Agee the sum of $66,500.00, less
applicable taxes, for the period February 10, 1995 through and
including October 9, 1995.
e. Commencing on or about October 10, 1995, and for each month
thereafter, the monthly SERP payment will be wire transferred to an
account as directed by Agee.
3. DEFERRED SAVINGS PLAN.
On the Payment Date, MK will remit to Agee all of his deferred savings plan
at the value of such plan at the close of business on September 20, 1995.
4. MEDICAL AND DENTAL INSURANCE.
a. Agee, his spouse and his unmarried dependent children under the age of
24 will be provided, at MK's expense, with comprehensive medical,
health and dental insurance benefits. The current such plan in which
the Agees will participate at least through the end of 1995 is the
Aetna Comprehensive Medical and Dental Plan.
b. Agee and his family will be provided with the same level and choice of
benefits offered to MK's retired employees or to retired non-employee
directors, whichever plan Agee or his survivor elects to participate
in on a yearly basis.
c. On the Payment Date, MK will pay to Agee the additional sum of
$4,344.75 as reimbursement for COBRA payments made by Agee for the
period of March 1, 1995 through and including December 31, 1995.
d. Commencing and effective on December 31, 1995, MK will pay all costs
associated with the above described medical, health and dental
insurance benefits for Agee, his spouse and his unmarried dependent
children under the age of 24. It is understood that MK will report
the cost of said coverage as ordinary income in the year of its
payment.
<PAGE>
Mr. William Agee
September 20, 1995
Page 3
e. The medical and dental coverage provided to Agee's spouse and children
herein shall survive his death.
5. INDEMNIFICATION AND ADVANCE OF LEGAL EXPENSES.
a. In accordance with Section 145(f) of the General Corporation Law of
Delaware, MK hereby agrees to advance legal fees and expenses, and to
indemnify Agee against all expenses (including attorney's fees),
losses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any claims, threatened
or filed, whether civil, criminal, administrative or investigative, by
reason of, or arising out of, or which refer or relate in any manner
to his tenure at MK, its subsidiaries and affiliates.
b. Notwithstanding the provisions of 5.a. above, MK further hereby agrees
to advance legal fees and expenses, and to indemnify Agee in
accordance with Sections 145(a), (d) and (e) of the General
Corporation Law of Delaware against all expenses (including attorney's
fees), losses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with the following
specific matters:
(i) The SEC investigation of MK and MK Rail and any claims based on
said investigation;
(ii) Final approval of the MK and MK Rail Securities Litigation, MK
Derivative Actions and MK Rail Derivative Actions;
(iii) Any post-approval challenges to (ii) above;
(iv) JACOBS, FRI AND NELSON V. AGEE, CA # 95-1168 (W.D. Tenn.) and any
claims based on the sale of Touchstone, Inc. to MK;
(v) STATE BOARD OF ADMINISTRATION OF FLORIDA V. MORRISON KNUDSEN,
CV OC 95024630 (Idaho);
(vi) Opt-outs in the MK Rail and MK Securities Litigation;
(vii) DANIEL PETE EVEN V. AGEE, ET AL., Cause No. 98320 (Idaho).
<PAGE>
Mr. William Agee
September 20, 1995
Page 4
6. MUTUAL RELEASES.
a. In consideration of the terms and mutual promises set forth above, MK
and Agee hereby agree to mutual, full and complete releases as
follows:
Agee, on behalf of himself, his successors, heirs and
assigns, and MK, on behalf of itself, its subsidiaries,
agents, successors and assigns, do hereby mutually,
completely, voluntarily, knowingly, unconditionally and
forever release, remise, acquit and discharge one another
from any and all claims, actions, rights, causes of action,
demands, liabilities, losses and damages of every kind and
nature, whether known or unknown, direct or indirect, fixed
or contingent, anticipated or unanticipated under federal,
state or common law or any other law or regulation, or at
equity arising out of, based on, or which refers or relates
in any manner to Agee's tenure at MK.
b. In the event that the release provided herein is adjudged by a court
of competent jurisdiction not to be a complete defense to claims made
against Agee by MK, directly or derivatively, then the mutual releases
provided in 6.a. above will be null and void and of no legal force and
effect and all monthly SERP payments, as well as health and dental
insurance, provided to Agee and his family under this agreement, shall
immediately cease. If, at any time after the releases provided in
this agreement are declared to be null and void, Agee seeks
compensation from MK, any payments made to Agee and his family
pursuant to this agreement shall be an offset to any amounts which MK
may be adjudged to owe to Agee.
7. AUTHORITY.
The undersigned Assistant Secretary of Morrison Knudsen Corporation
represents and warrants (i) that he has full and complete authority to
enter into this letter agreement on behalf of MK; and (ii) that all
requisite Corporate action has been taken by MK to make this a binding and
enforceable agreement by and against MK.
<PAGE>
Mr. William Agee
September 20, 1995
Page 5
8. PREVIOUS AGREEMENT.
This Agreement supersedes and replaces the previous letter agreement by and
between the parties, dated September 5, 1995, and that earlier Agreement is
of no further force and effect.
Sincerely,
MORRISON KNUDSEN CORPORATION
/s/ Richard D. Parry
Richard D. Parry
Assistant Secretary
ACCEPTED AND AGREED TO:
/s/ William J. Agee
______________________________
William J. Agee
Dated: September 20 , 1995
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RDP:ac
<PAGE>
EXHIBIT 99.1
MORRISON KNUDSEN CORPORATION NEWS RELEASE
Morrison Knudsen Plaza/P. O. Box 73
Boise, Idaho 83729 For Further Information Contact:
Telex: 368439/Phone: (208) 386-5387 Corporate Communications
Fax: (208) 386-5065
- -------------------------------------------------------------------------------
FOR RELEASE: SEPTEMBER 20, 1995
MORRISON KNUDSEN SETTLES SECURITIES, DERIVATIVE LITIGATION
BOISE -- Morrison Knudsen Corporation announced today that it has settled
all outstanding securities class actions and all but one associated derivative
action. The terms of the settlement are subject to court approval.
The securities class action consisted of seven separate cases consolidated
into one lawsuit alleging various securities violations by Morrison Knudsen
Corporation and certain of its former and current directors and officers pending
in U.S. District Court in Boise, Idaho. The Corporation was named a nominal
defendant in 13 derivative actions which were filed in state courts in Idaho and
Delaware. The settlement covers all but one derivative case and an agreement in
principle has been reached on that action.
The Corporation indicated that the settlement did not include any findings
of wrongdoing by Morrison Knudsen or any of the individual defendants, but
acknowledged the expense and length of continued proceedings.
"We're focused on serving clients and recapitalizing this company," said
Robert A. Tinstman, MK's President and Chief Executive Officer. "We're glad to
put this litigation behind us and get back to world class engineering and
construction."
The settlement of the suits provides for MK's insurance carriers to pay $35
million, from which attorney's fees and expenses will be paid, with the
remainder going to the plaintiff class, which consists of purchasers of MK
common stock during the period October 15, 1993 through March 20, 1995. The
securities class action settlement also provides for MK to issue 2,976,923
shares of common stock to the plaintiff class. The settlement of the derivative
litigation further provides for the implementation of certain corporate
governance procedures, including reasonable efforts to appoint up to seven
additional non-employee directors to MK's Board, and for MK's former Chairman,
William J. Agee, to relinquish contractual benefits, including severance pay
other than his Supplemental Savings Plan account and a reduced lifetime annual
retirement benefit.
Both settlements are subject to court approval. Judge Edward Lodge of the
U.S. District Court in Boise, Idaho, has set December 1, 1995 as a hearing date
for consideration of the securities class action settlement. Morrison Knudsen
established a reserve of $29 million at December 31, 1994 as a provision for
settlement of this litigation.
Morrison Knudsen Corporation (MRN-NYSE), founded in 1912, serves the
world's environmental, industrial, mining, process, operations & maintenance,
power, transportation and heavy construction markets as an engineer and
contractor.
# # #
